Interim Results 2015 - Part 1

RNS Number : 1423V

Standard Chartered PLC

05 August 2015

Standard Chartered PLC - Highlights

For the six months ended 30 June 2015

Reported results

· Operating income¹ of $8,495 million is down 8 per cent from H1 2014, primarily driven by currency translation, business divestments and mark to market valuations

· Profit before tax² of $1,824 million is down 44 per cent from H1 2014 as adverse loan impairment trends continued to impact performance

· Disciplined capital and balance sheet management has resulted in customer advances down 2 per cent to $282 billion, customer deposits down 6 per cent to $389 billion and risk weighted assets (RWA) down 5 per cent to $326 billion

Performance metrics⁴

· Normalised earnings per share declined 50 per cent to 48.7 cents from 96.5 cents in H1 2014

· Normalised return on ordinary shareholders' equity of 5.4 per cent (H1 2014: 10.4 per cent)

· Dividend per share⁵ reduced by 50 per cent to 14.4 cents per share (H1 2014: 28.8 cents)

Capital and liquidity metrics

· Common Equity Tier 1 (CET1) of 11.5 per cent on a CRD IV end point basis (2014: 10.7 per cent)

· Advances to deposits ratio of 72.6 per cent (2014: 69.7 per cent)

· Liquid asset ratio of 31.4 per cent (2014: 32.2 per cent)

Key messages

· Management actions focused on increasing end point CET1, up 80 basis points (bps), adversely impacting return on equity

· Continued adverse loan impairment trends in India and commodities more than offset improvement in Retail Clients' loan impairment

· Corporate and Institutional Clients - growth in high returning clients and products has been offset by increased impairment and tight RWA management

· Retail Clients operating profit up 14 per cent with improved performance in Korea

· Strong balance sheet with healthy liquidity, leverage and capital ratios

Programme of actions

· Now within the CET1 11 - 12 per cent range, six months ahead of the year end

· Well on track to deliver cost saves in excess of $400 million in 2015 and also $25-30 billion saves in low returning RWA by 2016

· Actively de-risking the business - Retail unsecured down 9 per cent, Commodities exposure down 11 per cent and Top 20 corporate exposures down 11 per cent since year end 2014

· Progress on simplifying the Group - announced new management team and simpler organisational structure

· Completed business exits including Consumer Finance businesses in Hong Kong, China and Korea, generating net disposal gains of $219 million and releasing capital

Commenting on these results, the Chairman, Sir John Peace, said:

"We have delivered good progress on our target of strengthening the Group's capital ratio and will continue to do so. However, these actions have also impacted our return on equity, and combined with a disappointing earnings performance and the current near term outlook for the Group, the Board has decided to reduce the dividend by 50 per cent. The Board and newly announced Management Team are committed to build a business that will deliver significantly better returns for our shareholders."

Commenting on these results, the Group Chief Executive, Bill Winters, said:

"Today's results show the Group has some very real challenges, but they are fixable and it is important to remember that there is a strong business at the heart of the Group. The newly announced Management Team, together with all of our staff, are determined to get the Group back on track."

Footnotes - see page 3

Standard Chartered PLC - Stock Code: 02888

Standard Chartered PLC - Table of contents
	Page
Summary of results	3
Chairman's statement	4
Group Chief Executive's review	5
Group Chief Financial Officer's review	9
Segmental analysis	14
Geographic analysis	22
Group Balance sheet	29
Risk and Capital review	30
Financial statements
Condensed consolidated interim income statement	68
Condensed consolidated interim statement of comprehensive income	69
Condensed consolidated interim balance sheet	70
Condensed consolidated interim statement of changes in equity	71
Condensed consolidated interim cash flow statement	72
Notes to the financial statements	73
Statement of directors' responsibilities	109
Independent review report	110
Additional information	111
Glossary	129
Financial calendar	135
Forward looking statements and basis of preparation	136
Index	137

Unless another currency is specified, the word 'dollar' or symbol '$' in this document means US dollar and the word 'cent' or symbol 'c' means one-hundredth of one US dollar. H1 refers to the six months ended 30 June and H2 refers to the six months ended 31 December.

Within this document, the Hong Kong Special Administrative Region of the People's Republic of China is referred to as 'Hong Kong'; The Republic of Korea is referred to as Korea or South Korea; Greater China includes Hong Kong, Taiwan, China and Macau; North East (NE) Asia includes Korea, Japan and Mongolia; Middle East, North Africa and Pakistan (MENAP) includes United Arab Emirates (UAE), Bahrain, Qatar, Lebanon, Jordan, Saudi Arabia, Egypt, Oman, Iraq and Pakistan; South Asia includes India, Bangladesh, Nepal and Sri Lanka; and ASEAN includes Singapore, Malaysia, Indonesia, Brunei, Cambodia, Laos, Philippines, Thailand, Vietnam, Myanmar and Australia.

Standard Chartered PLC - Summary of results For the six months ended 30 June 2015
		6 months ended	6 months ended	6 months ended
		30.06.15	30.06.14	31.12.14
		$million	$million	$million

Results
Operating income ¹		8,495	9,274	8,962
Impairment losses on loans and advances and other credit risk provisions		(1,652)	(846)	(1,295)
Other impairment		(86)	(185)	(218)
Goodwill impairment		-	-	(758)
Adjusted profit before taxation ²		1,824	3,273	1,922
Profit before taxation		2,098	3,253	982
Profit attributable to parent company shareholders		1,512	2,360	253
Profit attributable to ordinary shareholders ³		1,462	2,310	202


Balance sheet
Total assets		694,956	690,138	725,914
Total equity		49,344	48,562	46,738
Loans and advances to customers		282,339	305,061	288,599
Customer deposits		388,795	390,523	414,189
Total capital base (CRD IV)		59,493	60,691	57,099


Information per ordinary share		Cents	Cents	Cents
Earnings per share - normalised ⁴		48.7	96.5	49.7
- basic		58.6	94.6	8.2
Dividend per share ⁵		14.4	28.8	57.2

Net asset value per share		1,802.6	1,909.9	1,833.6
Tangible net asset value per share		1,586.4	1,646.8	1,610.9


Ratios
Return on ordinary shareholders' equity - normalised basis ⁴		5.4%	10.4%	5.4%
Advances to deposits ratio		72.6%	78.1%	69.7%
Liquid asset ratio		31.4%	30.5%	32.2%
Cost to income ratio - normalised basis ⁴		59.2%	54.7%	63.2%
Capital ratios
Common Equity Tier 1 (CRD IV) end point		11.5%	10.7%	10.7%
Common Equity Tier 1 (CRD IV) transitional		N/A	10.5%	10.5%
Total capital (CRD IV)		18.2%	17.3%	16.7%
Leverage ratio		5.0%	N/A	4.5%


¹	Excludes own credit adjustment of $55 million (June 2014: $(15) million, December 2014: $115 million) and net gain on business disposals of $219 million (June 2014: $(5) million, December 2014: $3 million)
²	Excludes goodwill impairment, own credit adjustment, civil monetary penalty and any net gains on disposal of businesses
³	Profit attributable to ordinary shareholders is after the deduction of dividends payable to the holders of those non-cumulative redeemable preference shares and other instruments classified as equity (see notes 10 and 19)
⁴	Results on a normalised basis reflect the results of Standard Chartered PLC and its subsidiaries (the 'Group') excluding items presented in note 11
⁵	Represents the interim dividend per share declared for the six months ended 30 June 2015 and 30 June 2014 and the recommended final dividend per share for the six months ended 31 December 2014 (subsequently declared at the Annual General Meeting on 6 May 2015 and recognised in these financial statements)

Standard Chartered PLC - Chairman's statement

In the first half of 2015, we made good progress on strengthening the Group's capital ratio, delivering a Common Equity Tier 1 ratio of 11.5 per cent, up 80 basis points in six months. We have also taken action to de-risk the business, to take out costs, dispose of non-core businesses and raise the bar on important regulatory priorities, such as financial crime risk and conduct. However, these actions have adversely impacted our return on equity and, on this basis combined with a disappointing earnings performance and the current near-term outlook for the Group, the Board has decided to rebase the dividend.

The decision to rebase the dividend has not been taken lightly. The Board is acutely aware of the importance of the dividend to our shareholders, but it is equally critical that the dividend is set at a level which is sustainable and reflects the current lower earnings expectations of the Group. The interim dividend for the six months to 30 June 2015 will be 14.4 cents per share, a reduction of 50 per cent on last year. The Board expects to make a similar percentage adjustment to the final dividend.

The management actions we are undertaking were always going to adversely impact near-term returns, but the Board continues to believe they are the right things to do for the long-term health of the business. The Group's newly announced Management Team is committed to building a business that will deliver significantly better returns for our shareholders.

The Board is also determined that Standard Chartered remains vigilant in confronting and addressing past regulatory and compliance issues. Reducing financial crime risk and safeguarding good conduct is, and will remain, a priority. However, this requires us to continue to accelerate our significant levels of investment over the short term. In addition to our ongoing remediation work, we continue to invest in new transaction monitoring and surveillance systems and processes to build a world-class and sustainable compliance infrastructure for the future. We are also continuing to work with the relevant authorities and regulators to fulfil the terms of our settlement agreements.

We have already taken action across the Group to reduce the levels of inherent risk in the business, and commit to our regulators, our investors and our staff that every effort is being made to get the Bank's financial crime controls to where they need to be. Group Chief Executive Bill Winters understands and shares that sense of urgency, and will keep these regulatory and compliance standards at the forefront of the management agenda.

While the first half has been a challenging period of significant leadership and operational change, we remain committed to positioning the Group to take advantage of the medium- to long-term opportunities, which remain compelling. To do this we must have a strong balance sheet. We must have a business model and risk tolerance which provides attractive returns for our shareholders. We must have systems and processes capable of satisfying the regulatory paradigm in which we operate today. And, above all, we must have a leadership team capable of delivering on these objectives.

Finally, The Group's future domicile remains an area for external speculation. With an estimated bank levy charge of around $500 million for 2015, we welcome the Chancellor's recent budget announcement on the reduction of the bank levy over the next six years. Whilst we are not yet in a position to forecast precisely the combined impact of the reduction in our bank levy costs with the new corporation tax surcharge, our current view is that it will have a material and positive impact.

Sir John Peace

Chairman

5 August 2015

Standard Chartered PLC - Group Chief Executive's review

Our results in the first half of 2015 clearly show the Group still has real challenges: we are working through a legacy of a focus on growth over risk discipline and returns together with an ongoing emerging markets slowdown. We have also been too slow to take hard decisions, whether on costs, people or strategy.

I was appointed to the role as Group Chief Executive, and joined Standard Chartered, to be a pair of fresh eyes and take the actions necessary to restore the Group's ability to grow safely, sustainably and profitably over the long term. I also joined because I believed this was a real bank with real customers who use our services to improve their lives and strengthen their communities. This is exactly what I have found. As I have travelled across our network and met our people and clients, I have realised that our brand promise, Here for good, is genuine and captures the spirit of our bank.

The Group's underlying franchise - its network and presence in Asia, Africa and the Middle East - is strong. The markets in which we operate offer excellent long-term growth prospects. Our core global businesses - cash, trade and associated services - are solid, and our Retail business has a renewed focus. I have been struck by the power of the brand, and it has become clear to me that we have the deep and longstanding relationships that are rare in banking.

However, what we are doing now is asking ourselves fundamental questions that will help shape the future direction of the Group, so that we can deliver stronger returns through the cycle and from a strong capital position. While we have very real challenges, they can be addressed, and we are doing a number of things right. My task is to protect and invest in what the Group does well, and to address the areas that need work.

Focus on returns

Our primary focus is on improving returns, and returns will take primacy over growth. Growing with returns below our cost of capital is destroying shareholder value. Clearly, 5 per cent is not an adequate return, and even 10 per cent will be marginal to many investors. The Board and I consider this to be the minimum acceptable level which we should deliver as soon as possible. In the medium term we must ensure we deliver more than this, even before the promise of strong underlying growth in our markets is a reality. This focus on returns will drive a lot of the actions that we will be taking over the next few months and years.

Until the recent past, I believe that the Group saw most of the challenges it faced as cyclical, and maintained a focus on income and asset growth at the expense of returns. It is clear to me that we are seeing structural changes, and we need to reposition for this reality. Bigger doesn't necessarily mean better, especially if this is impacting returns.

I have identified five core issues for the coming months as we develop our plans:

First, we need to institutionalise the improvements in the Group's risk and return frameworks that we are continuing to evolve.

Second, we need to focus more on the products and services where we have an edge, and take tougher decisions on those where we are either not good enough, not big enough, or not making adequate returns. We are reviewing each business, activity and location to be sure it either does or will be able to contribute to group returns after fully considering risks, both financial and conduct-related. We have made a start on this with the disposal of the Savings Bank and Consumer Finance business in Korea, as well as the closure of the Institutional Cash Equities Business, but we will do more.

Third, our loan book has too many low-returning corporate lending relationships. We are looking carefully at these, and will speed up the process of upgrading or exiting low-returning client relationships, re-deploying the capital elsewhere.

Fourth, over the last decade, we have built a good product set in Financial Markets, Corporate Finance and other areas, but do not leverage our lending relationships as effectively as we can to offer our clients differentiated solutions for which they are prepared to pay us. We need to become more commercial in our mindset, but also analyse which areas fit well with our expertise, our clients and the regulatory environment.

Finally, the Group's structure and organisation underpins many of the problems it faces in delivering returns. As announced recently, I have started to take action in this area.

Organisation structure

The results in the first half of 2015 underline the fact that we need to kick-start performance, reduce costs, slash bureaucracy, improve accountability and speed up our decision making. The organisational changes will be a critical first step in delivering the $1.8 billion of cost savings to which we have committed over the next three years. Stripping out management layers and eliminating duplication of roles will simplify decision making, freeing up capacity to do business, increasing accountability and reducing our structural cost base.

We have the right people forming the Management Team with whom I will be working on our strategic plans. Together we will take the Group forward.

Reorganisations can be distracting but, from what I have heard as I have travelled across the Group, this is what we need, and it has been welcomed. There is a strong desire to follow through and make lasting improvements in how we serve our clients and manage our processes.

Following the organisation changes we have announced, we have a new leadership; more streamlined regional groupings; a structure that reinforces the highest standards of risk management, compliance and conduct; more accountability for issues that matter for our clients and other stakeholders in our markets; and business leaders, including me, who can be held accountable for performance through to the bottom line. This is only the first step we will be taking in reshaping the Group.

Asset quality

One clear area of focus for investors and the Board as I joined the Group was for me to review the quality of the Group's lending decisions and credit portfolio, the quantum of certain exposures and the trends in impairment, particularly in our corporate client base. I have not completed my review of the entire book. However, I have spent time getting to understand our people and processes, and have looked more closely at some of our larger exposures, both to large corporates and in areas such as our Retail unsecured portfolio. The loan impairment outcome for the first half and the increase in non-performing loans is a continuation of adverse trends, and there are no signs of these reversing. The sources of impairment have been the same that the Group identified previously: commodities, China and India. My initial observations on the loan book are:

First, the small number of concentrated exposures we have already flagged are not representative of our wider loan book. We have reduced exposures to the top 20 corporate groups, both in absolute terms and as a proportion of the Group's Capital resources, consecutively since 2013. We will focus on further reducing these exposures over time.

Second, the on-the-ground credit culture of the organisation is generally sound. We have the right people in place now, and I am particularly pleased to have announced that Mark Smith will be joining as the new Chief Risk Officer at the start of next year.

Third, some elements of our risk management framework were not what they should have been. Mistakes have clearly been made where decisions were taken which would now be outside of our risk framework. We grew aggressively in certain markets, we accepted high concentrations by industry, by geography and by individual borrower, and we have found some weak operational controls which exposed the Group to losses and fraud.

Finally, pricing discipline has been lacking. In my experience, a strong focus on return discipline is the first and most important contributor to a sound risk management framework. As we focus on achieving our return targets, we will shift the balance of our business decidedly towards assets which generate an acceptable return through the credit cycle.

We will fix the issues relating to our prior risk mistakes, and indeed we have already started: we are reducing the unsecured portfolio in Korea; originating personal loans through full-time staff members rather than sales agents; reducing exposures to commodity clients, given the adverse trends in commodity markets; and continuing to manage down the Group's small number of concentrated exposures.

We are also adjusting our approach, recognising the lessons learned from these mistakes, and formalising revised risk appetite policies and limits along industry, geography and borrower dimensions; upgrading management information systems to clearly present return expectations and tracking; and streamlining approval processes to speed up decision making and, most importantly, improve accountability.

Overall, I am sure we can fix the systems and processes, in large part because we have good people throughout the Risk team who understand our markets and are ready to go.

Capital and dividends

The Board has decided to rebase the dividend to better reflect our current earnings expectation and outlook and to set a payout ratio consistent with our desire to continue to strengthen our capital position. The decision to rebase the dividend reflects our current profile and not the outcome of the ongoing strategic and structural changes that we are considering.

The Group outlined its plans to achieve a Core Equity Tier 1 ratio of between 11 and 12 per cent. We have reached this level six months before the end of the year. The uplift of 80 basis points in the period is testament to the Group's ability to accrete capital and generate momentum. As part of our strategic review, we will look at both our capital targets and our ability to continue to generate capital, which will also be informed by the upcoming Bank of England stress test.

No decisions have yet been taken on whether or not we will seek additional capital, but we are taking a long-term view, ensuring that we can remain absolutely and relatively strong through economic cycles and the inevitable macro shocks, either from our markets or arising globally, and absorb the impacts from increases in conduct costs. If we decide we need capital for the long-term benefit of the Group, we will raise capital. If we decide we don't need it, we won't.

Conduct

The Management Team is focused on meeting our obligations to our communities and regulators in all matters related to compliance and prevention of financial crime.

We have previously disclosed that we are in ongoing discussions with the relevant authorities regarding our sanctions and anti-money laundering (AML) controls. We continue to co-operate fully with US authorities on this work, and it remains that we cannot predict the nature or timing of its outcome. We exited the small and medium-sized enterprise client segment in the UAE at the end of last year, and are taking other measures across the globe to de-risk our client portfolios and enhance our transaction screening and monitoring in order to avoid any repeat of earlier shortcomings.

We continue to work closely with our home regulators on financial crime compliance. This has likewise prompted changes to the way we do things in a number of our markets and client segments. As a result, we have tightened client on-boarding procedures to reduce inherent risk while we focus on improving our controls.

As noted in our disclosures, the outcome of these enquiries is impossible to predict accurately, but we will provide updates as appropriate.

It is imperative that we always learn from any past shortcomings, and apply these lessons as we continue to reinforce our controls and processes.

We have hired some of the best and brightest people in the industry over the past year, and have increased our financial crime compliance headcount nearly five-fold in the past three years. We have ensured local compliance managers are guided to take direct action as appropriate. Our new structure gives local and regional management authority and accountability for their control environments but also access to resources needed to discharge this responsibility, including the strategic oversight from our Board Financial Crime Risk Committee. In May we were also invited to join the Wolfsberg Group, an association of global banks that set the industry standards for know-your-customer, AML and anti terrorist financing.

The goal of all this activity and investment is not merely to ensure robust compliance, but to make a meaningful and leading contribution to the global fight against financial crime.

Conclusion

I intend to announce a clear plan of action by the year end. Many of the areas we are considering are complex; the Board and I want to get to the right answers and are taking the time to complete our work. In my conversations with shareholders, they have made it clear they want a thorough review of the areas I have outlined, and prefer a thoughtful response to a rushed one. I am listening to, and acting upon, those views.

In the meantime, we are not standing still: our focus on returns is clear in our client and investment decisions; our new Management Team is in place and focused on driving the organisation; and our regional CEOs are forming plans to run integrated local banks, leveraging our global strengths. Finally, we continue to innovate and transform our underlying businesses along the lines we have previously set out, building on the strengths of our underlying franchise: our network, our brand and our solid core businesses.

Beyond the current execution areas of focus, we will continue to ask ourselves questions, including:

· How do we benchmark against our evolving competitors, and where are we advantaged?

· How should we reshape our portfolios, business mix and geographic presence, given the linkages between them?

· How can we make more of our investment in technology to extend our pockets of outstanding innovation across the Group?

· How can we continue to evolve and simplify our structure to improve processes and controls and ensure that our corporate structure is fit for purpose and an enabler of strategy?

· How can we think more strategically about our cost base, taking out costs where we can and investing in the areas of the business that will drive future performance?

As we work through these questions, we are assessing ourselves and the outcomes through the dual financial priorities of strengthening our capital position and re-building returns on equity. We are making good progress, and have a clear view of what the Group should look like at the end of the process.

In my day one letter as Group Chief Executive I wrote that I had reached the clear conclusion that this is a great bank. That is still my view.

As we address performance challenges and think about the shape of the Group over the next few months, the Management Team and I are focused on ensuring this institution is: well capitalised and able to manage and navigate any future shocks; delivering returns above its cost of capital; more efficiently structured, with a lower cost base; at the leading edge of risk management, regulatory compliance and the fight against financial crime; and more clearly focused on what we can do well, making better use of our key competitive advantages: our global network and deep client relationships.

We are determined that this great bank regains its sense of self belief and self confidence so that we can again lead in our chosen businesses and deliver strong performance.

Bill Winters

Group Chief Executive

5 August 2015

Standard Chartered PLC - Group Chief Financial Officer's review

Performance summary
	6 months ended 30.06.15	6 months ended 30.06.14	Better / (worse)
	$million	$million	%
Client income	7,907	8,378	(6)
Other income	588	896	(34)
Operating income¹	8,495	9,274	(8)
Other operating expenses	(4,554)	(4,756)	4
Regulatory costs	(453)	(283)	(60)
Restructuring costs	(35)	(44)	20
Total operating expenses	(5,042)	(5,083)	1
Operating profit before impairment losses and taxation¹	3,453	4,191	(18)
Impairment losses on loans and advances and other credit risk provisions	(1,652)	(846)	(95)
Other impairment	(86)	(185)	54
Profit from associates and joint ventures	109	113	(4)
Adjusted profit before taxation¹	1,824	3,273	(44)
Own credit adjustment	55	(15)	nm²
Gains/(losses) on businesses sold/held for sale	219	(5)	nm²
Profit before taxation	2,098	3,253	(36)

Net interest margin (%)	1.7	2.1	(33)bps
Normalised earnings per share (cents)	48.7	96.5	(50)
Dividend per share (cents)³	14.4	28.8	(50)
Return on ordinary shareholders' equity - normalised basis⁴	5.4%	10.4%
Common Equity Tier 1 (CRD IV) end point basis	11.5%	10.7%
¹Excludes $55 million (H1 2014: $(15) million) relating to an own credit adjustment and $219 million (H1 2014: $(5) million) relating to net gains/(losses) on businesses sold/held for sale. Under current accounting requirements, the UK bank levy is only recognised in the financial statements on 31 December each year and is therefore not recognised in H1 2015 or H1 2014
²Not meaningful
³Represents the interim dividend per share declared for the six months ended 30 June 2015 and 30 June 2014
⁴Results on normalised basis excludes the items presented in note 11

Performance in the first half of 2015 was disappointing with adjusted profit before taxation down 44 per cent to $1,824 million compared to the first half of 2014. Reported profit before taxation was $2,098 million, down 36 per cent.

The performance reflects a combination of macroeconomic factors linked to weaker commodity markets and falling asset prices and deliberate management actions taken to strengthen our balance sheet and de-risk the business. We have also seen the impact of emerging markets currency weakness against the US dollar.

In line with our earlier commitment we are prioritising actions that strengthen our capital position and generate sustainably higher returns over time. These actions include:

· Proactively managing risk weighted assets (RWAs), de-risking portfolios, and being more selective in the new business we originate

· Closely managing costs. We are on track to deliver over $400 million in sustainable cost saves in 2015 as part of our commitment to deliver $1.8 billion over 3 years

· Exiting businesses that are not core to our strategy. Page 21 sets out the impact of the businesses disposed of in H1 2015

· Reshaping Korea, where although there is still a long way to go, we have seen significant year on year improvement

These actions have supported an 80 basis points (bps) increase in our end point CET 1 ratio to 11.5 per cent and we are within our 11-12 per cent target range, six months ahead of time.

As in previous periods we have excluded the Own Credit Adjustment (OCA) of $55 million from all of the following commentary in addition to the gains of $219 million arising from business disposals.

Group performance

There are a number of points to highlight:

· Income of $8,495 million was down 8 per cent ($779 million) with client income down 6 per cent. Income was impacted by adverse currency translation effects of $277 million, business disposals and closures of $173 million and incremental mark-to-market valuations on loan positions of $263 million, which impacted other income

· Excluding these three factors, income was broadly flat compared with the first half of 2014. Within this, growth in Wealth Management, Foreign Exchange and Rates income growth was offset by lower income from our financing businesses and from Asset and Liability Management (ALM)

· The Group net interest margin declined 33 bps to 1.7 per cent impacted by de-risking and exits from our higher margin Credit cards, Personal loans and Other unsecured lending (CCPL) book, increased balances of low yielding assets held for regulatory purposes and from margin compression in our financing businesses

· Operating expenses, excluding regulatory spend, were 4 per cent lower year on year and broadly flat on a constant currency basis after excluding the impact of divestments. Regulatory costs continue to rise and were up 60 per cent year on year to $453 million as we continue to invest in our financial crime and compliance capabilities for the future

· Total Impairment of $1,738 million remained elevated and was up 15 per cent compared with the second half of last year reflecting recent deterioration in India and continued commodity market weakness, as well as an isolated incident in our Private Banking clients business

As a result of these factors, adjusted profit before tax for the year was $1,824 million, down 44 per cent, normalised earnings per share was 48.7 cents and normalised return on equity was 5.4 per cent.


Client segments income

	6 months ended 30.06.15	6 months ended 30.06.14	Better / (worse)	Better / (worse)
	$million	$million	$million	%
Corporate and Institutional Clients	4,806	5,334	(528)	(10)
Commercial Clients	497	616	(119)	(19)
Private Banking Clients	304	314	(10)	(3)
Retail Clients	2,888	3,010	(122)	(4)
Total Operating Income¹	8,495	9,274	(779)	(8)
¹Excludes $55 million (2014: $(15) million) relating to an own credit adjustment and $219 million (2014: $(5) million) relating to net gains/(losses) on businesses sold/held for sale

Income from Corporate and Institutional Clients of $4,806 million was down 10 per cent year on year. Financial Markets income was significantly impacted by mark-to-market valuations on a small number of Capital Markets loan positions originated prior to 2013. Income from corporate clients fell 12 per cent, due to lower commodity-client linked income, more selective asset origination and a slowdown in client activity in our footprint.

Commercial Clients income fell 19 per cent to $497 million mainly due to transfers to other client segments as well as client exits completed over the past 12 months. Performance was also impacted by weaker Transaction Banking and Financial Markets income, and adverse foreign currency translation impacts. We are making good progress on our extensive client due diligence remediation programme which is now largely complete.

Income from Private Banking declined 3 per cent compared to the same period last year impacted by the exit of our Geneva business and client transfers to the Retail Client segment in Jersey. Excluding these items, income grew 4 per cent and assets under management rose 9 per cent driven by strong business momentum in Greater China.

Retail Clients operating income declined 4 per cent to $2,888 million due to an 18 per cent fall in CCPL income. This was driven by adverse foreign currency translation impacts, the sale of the Consumer Finance business and the impact of the de-risking of the personal lending portfolio, mainly in Korea. This decline offset strong growth in Wealth Management income which rose 25 per cent with broad-based growth across investment products, treasury products and bancassurance.

Expenses
	6 month ended 30.06.15	6 month ended 30.06.14	(Better) / worse	(Better) / worse
	$million	$million	$million	%
Staff costs (includes variable compensation)	3,072	3,259	(187)	(6)
Premises costs	386	429	(43)	(10)
General administrative expenses	764	760	4	1
Depreciation and amortisation	332	308	24	8
Other operating expenses	4,554	4,756	(202)	(4)
Regulatory costs	453	283	170	60
Restructuring costs	35	44	(9)	(20)
Total operating expenses	5,042	5,083	(41)	(1)
Staff numbers (Average)	88,543	87,391
Normalised Cost to income ratio¹	59.2%	54.7%
¹Results on normalised basis excludes items presented in note 11

Other operating expenses of $4,554 million were 4 per cent lower year on year, excluding regulatory costs. On a constant currency basis and excluding the impact of divestments costs were broadly flat with half year efficiency savings offset by inflation.

Our planned actions have reduced headcount by 5 per cent, or by over 4,000 people since the end of 2014. The announcement of our new and simplified organisation structure is a key enabler to help us deliver future cost reductions.

Regulatory costs of $453 million were up 60 per cent year on year as we continue to invest in our compliance teams and in our capabilities to fight financial crime. Our investment has largely focused on people, with headcount in these areas up approximately five fold in the past three years, and it also includes the costs associated with having monitors in place appointed by the US Authorities.


Impairment
	6 months ended 30.06.15	6 months ended 30.06.14	(Better) / worse	(Better) / worse
	$million	$million	$million	%
Corporate and Institutional Clients	1,040	266	774	291
Commercial Clients	154	100	54	54
Private Clients	94	-	94	nm¹
Retail Clients	364	480	(116)	(24)
Impairment on loans and advances and other credit risk provisions	1,652	846	806	95
Other impairment	86	185	(99)	(54)
Total	1,738	1,031	707	69
Gross non-performing loans as a % of closing advances	2.4%	1.8%
Loan impairment / loan book (bps)	114	57
Collateral held against impaired assets	1,973	1,573
Cover ratio	54%	52%
Mortgage portfolio Loan-to-value (LTV)	49%	50%
Retail secured ratio	84%	80%
CIC and CC maturity - within 1 year	65%	66%
¹Not meaningful

Total impairment of $1,738 million in the first half remains elevated and is up 15 per cent or $225 million on the second half of last year. This increase was driven by India and an impairment in Private Banking. These two factors were partially offset by the reduction in Retail loan impairment and the non-repeat of the commodities related fraud in China.

In India, we saw a number of changes in regulation early in the year and also in the attitude of local banks to refinancing that has reduced the likelihood for success of certain of our corporate debt recoveries.

Retail Clients total impairment improved 24 per cent year on year and 28 per cent on the second half to $364 million, and now represents under a quarter of the Group total. This improvement benefitted from significant de-risking in Korea.

Although Group non-performing loans are up 17 per cent since year end, they relate largely to accounts that we have been actively managing for some time and the cover ratio has increased to 54 per cent, up from 52 per cent at the year end.

Responding to the increase in impairment and a challenging external environment, we have continued to de-risk our portfolios:

· We have continued to reduce Retail unsecured exposures, down 9 per cent since the year end to $19 billion. This now represents only 16 per cent of the Retail loans and advances to customers

· We have also further reduced our commodities exposure which, at $49 billion, is down 11 per cent since the year end and 21 per cent from the end of 2013

The increase in total impairment reflects a continuation of an adverse trend and, while there is no suggestion it will improve soon, the sources of new stress are from relationships we had already identified as vulnerable.


Group Balance sheet
	30.06.15	31.12.14	Increase / (decrease)	Increase / (decrease)
	$million	$million	$million	%
Total assets	694,956	725,914	(30,958)	(4)
Total equity	49,344	46,738	2,606	6
Loans and advances to customers	282,339	288,599	(6,260)	(2)
Customer deposits	388,795	414,189	(25,394)	(6)
Advances to deposits ratio	72.6%	69.7%
Liquid asset ratio	31.4%	32.2%
Leverage ratio end point	5.0%	4.5%

Our balance sheet remains strong. The Group is highly liquid, with a leverage ratio of 5.0 per cent and a liquid asset ratio of 31.4 per cent.

Loans and advances to customers have declined $6 billion, or 2 per cent since the year end impacted by more selective asset origination with a continued focus on returns, lower commodity prices, lower corporate activity and Retail unsecured de-risking. The majority of the reduction is in Corporate and Institutional Clients where loans and advances to customers are $4 billion lower, while Commercial Clients and Retail Clients are both $1 billion lower.

Customer deposits are $25 billion, or 6 per cent, lower since the year end as we continue to actively manage down more costly deposits. As a result, the advances to deposit ratio for the Group is 72.6 per cent.


Capital
Capital ratios and risk weighted assets	30.06.15	31.12.14
Common Equity Tier 1 (CET 1) end point	11.5%	10.7%
Common Equity Tier 1 (CET 1) transitional	N/A	10.5%
Total Capital	18.2%	16.7%
Total risk weighted assets	326,171	341,648

In line with our earlier commitment we are prioritising actions that strengthen our capital position and generate sustainably higher returns over time.

As a result of these actions the Group's end point CET 1 ratio has improved 80 basis points to 11.5 per cent. Although there remain some uncertainties over the medium term, such as the outcome of the recent Basel Committee on Banking Supervision (BCBS) proposals on standardised risk models and floors, we are already within our 11-12 per cent range, 6 months before the year end.

The impact of one-off items on our CET 1 ratio during the period was broadly neutral. These items included methodology and model changes, most notably the inclusion of a regulatory Prudential Valuation Adjustment (PVA), as well as the strong final dividend scrip take-up and gains on business disposals.

For regulatory purposes as at 30 June 2015, a prudential estimate of market based credit valuation adjustments (CVA) has been deducted from capital as part of the PVA. The increase in the PVA reduced the CET 1 ratio by 20 bps.

The Group's methodology for estimating accounting CVA will be revised as at and for the year ending 31 December 2015 to incorporate more market based data available across the Group's footprint. This will replace the Group's internal credit ratings for counterparties and the related expected loss that currently estimates CVA. It is not possible to reliably estimate the accounting impact as at 30 June 2015.

RWAs fell $15 billion driven by loan provisioning asset reductions, loan sales and almost $4 billion in RWA efficiencies, the first part of the $25 to $30 billion of savings which we outlined in March.

Summary

The Group continues to face challenges - some are cyclical but many are structural. We are taking action in the areas we outlined earlier and seeing early signs of progress, for example in Retail. While many of the actions are helping to grow capital, they are also impacting near term returns but remain the right course of action for us at this time.

Andy Halford

Group Chief Financial Officer

5 August 2015

Standard Chartered PLC - Segmental Analysis

Corporate and Institutional Clients

Corporate and Institutional Clients comprises Global Corporates, Local Corporates and Financial Institutions.

Operating profit fell 54 per cent due to mark-to-market valuations on loan positions, lower income from Corporates and increased impairments:

· Financial Markets income was significantly impacted by mark-to-market valuations on a small number of Capital Markets loan positions originated prior to 2013

· Income from corporate clients fell 12 per cent as a result of lower commodity-client linked income, more selective asset origination and a slowdown in client activity in our footprint

· Impairments increased primarily driven by India where Corporates were impacted by continued stress on their balance sheets coupled with a more challenging refinancing environment

Progress against strategic objectives

Early progress on reshaping the business to address the challenges we face and deliver the Group's commitments on capital accretion and return on equity.

· On track to deliver target RWA efficiencies and cost efficiencies in 2015. $5 billion of RWA efficiencies delivered in H1 2015, of which $1 billion relates to Principal Finance disposals

· Multi-year investment plan to build infrastructure and frontline capacity for Investor clients on track. Income from these clients rose 27 per cent in the first half of 2015

· Deeper and broader client penetration, with the average number of products per client up 4 per cent to 6.0 and the average number of markets per client up 7 per cent to 2.8. The percentage of clients generating 80 per cent of our income increased to 20.0 per cent, up from 18.6 per cent in H1 2014

· Non-financing revenues up 3 per cent and non-financing revenue ratio at 46.5 per cent from 43.5 per cent in H1 2014. Activity levels in key non-financing products such as foreign exchange (FX) and Cash Management grew strongly compared with H1 2014

Financial performance
The following tables provide an analysis of financial performance for Corporate and Institutional Clients:
	6 months ended 30.06.15	6 months ended 30.06.14	Better/ (worse)
	$million	$million	%
Lending and Portfolio Management	374	393	(5)
Transaction Banking	1,538	1,603	(4)
Financial Markets¹	1,442	1,662	(13)
Corporate Finance	1,100	1,227	(10)
Asset and Liability Management	173	278	(38)
Principal Finance	179	171	5
Operating income¹	4,806	5,334	(10)
Operating expenses	(2,653)	(2,546)	(4)
Loan impairment	(1,040)	(266)	(291)
Other impairment	(81)	(169)	52
Profit from associates and joint ventures	86	90	(4)
Operating profit¹	1,118	2,443	(54)

Client income	4,391	4,615	(5)
Customer loans and advances	153,938	168,348	(9)
Customer deposits	223,814	211,357	6
Risk weighted assets	235,315	250,771	(6)
Return on risk weighted assets	0.9%	2.1%
¹Excludes $55 million (2014: $(15) million) in respect of own credit adjustment

Corporate and Institutional Clients had a challenging first half. Operating income fell 10 per cent ($528 million) compared with H1 2014 with over half the decline due to mark-to-market valuations on a small number of Capital Markets loan positions.

Client income, constituting 91 per cent of operating income, fell 5 per cent, or $224 million, to $4,391 million.

This decline was primarily led by a slowdown in corporate performance. Income from corporate clients fell 12 per cent impacted by lower commodity-client linked income, more selective asset origination and a slowdown in client activity in our footprint. Income from Financial Institution clients rose 7 per cent, driven by a strong performance from our Investors client segment.

Income from Transaction Banking was down by 4 per cent ($65 million) reflecting the impact of commodity price declines and lower market volumes in trade finance. Income from Cash Management & Custody rose 4 per cent with strong growth in our Securities Services business. Customer deposits increased 6 per cent with growth in quality operating balances while margins compressed due to falling interest rates in key markets.

Financial Markets income fell 13 per cent ($220 million) driven by mark-to-market valuations on a small number of loans originated prior to 2013. This was partially offset by strong growth in FX and Rates.

Corporate Finance income fell 10 per cent ($127 million) due to selective asset origination, the general slowdown in client activity in our footprint and higher competition due to excess liquidity in our markets.

Principal Finance income increased 5 per cent ($8 million) due to higher fair value gains on listed investments in Corporate and Institutional Clients. ALM income declined 38 per cent, as a result of lower accrual income.

Operating expenses were $107 million higher, or 4 per cent, to $2,653 million due to increased regulatory and compliance costs. Excluding regulatory costs, operating expenses were flat year on year benefiting from the structural cost saving actions.

Total impairment rose by $686 million, or 158 per cent, to $1,121 million primarily driven by India where corporates were impacted by continued stress on their balance sheets coupled with a more challenging refinancing environment.

Operating profit fell by $1,325 million, or 54 per cent, to $1,118 million.

Balance sheet

Customer loans and advances fell 9 per cent reflecting more selective asset origination, internal de-risking actions in the commodities portfolio and the impact of commodities price declines.

RWAs decreased by 6 per cent with the benefit from structural actions in part being offset by the impact of Basel III and policy, methodology and model changes. Operating profit return on RWA declined from 2.1 per cent to 0.9 per cent impacted by the decline in Operating profit.

Customer deposits increased 6 per cent, largely reflecting increased Time Deposits and higher Cash Management balances.

Commercial Clients

The Commercial Clients segment was established in 2014 and serves medium-sized businesses that are managed by dedicated relationship managers. The segment brought together existing clients from the previous Wholesale Banking and Consumer Banking businesses.

H1 2015 was a continuation of the strategy initiated last year, which is a multi-year change programme designed to capitalise on the potential and growth opportunities of this segment. Operating profit fell 86 per cent impacted by client exits completed over the past 12 months, weaker Financial Markets income, foreign currency translation impacts and increased impairment:

· Our client due diligence (CDD) remediation programme continued in H1 2015, and we either exited or moved clients to other client segments if their risk profile did not fit into the Commercial Clients model or if they would be better served in another client segment

· The decline in Financial Markets income was due to by lower client activity, while the foreign currency headwinds arose due to the strengthening of the US dollars against local currencies

· Total impairment rose 60 per cent primarily driven by a small number of specific clients in India for whom additional provisions were taken in H1 2015

Progress against strategic objectives

· The work on reviewing and addressing potential operational and credit risk continued in H1 2015, with particular focus on the extensive CDD remediation programme

· As part of our ongoing commitment to raising the bar on CDD quality, we successfully migrated 98 per cent of our client base onto an electronic platform

· Work is also well advanced on building a globally consistent and enhanced operating platform across our markets. Commercial Clients teams were strengthened and upgraded and all key positions have been filled


Financial performance
The following tables provide an analysis of financial performance for Commercial Clients:
	6 months ended 30.06.15	6 months ended 30.06.14	Better / (worse)
	$million	$million	%
Lending and Portfolio Management	101	136	(26)
Transaction Banking	233	302	(23)
Financial Markets	86	118	(27)
Corporate Finance	8	14	(43)
Wealth Management	53	64	(17)
Retail Products	8	2	300
Asset and Liability Management	16	22	(27)
Principal Finance	(8)	(42)	(81)
Operating income	497	616	(19)
Operating expenses	(324)	(362)	10
Loan impairment	(154)	(100)	(54)
Other impairment	(6)	-	nm¹
Profit from associates and joint ventures	10	11	(9)
Operating profit	23	165	(86)

Client income	484	617	(22)
Customer loans and advances	14,005	17,632	(21)
Customer deposits	20,940	31,431	(33)
Risk weighted assets	20,320	24,820	(18)
Return on risk weighted assets	0.2%	1.3%
¹Not meaningful

Operating income fell 19 per cent ($119 million) compared to H1 2014 with client income down 22 per cent ($133 million).

Financial Markets income fell 27 per cent ($32 million), impacted by the slowdown of the FX Options activity in Greater China as the Renminbi (RMB) depreciation and volatile market reduced client demand for hedging in that region.

Income from Transaction Banking and Lending declined 23 percent and 26 percent respectively, impacted by CDD remediation and client exits, as well as by other factors including currency depreciation, margin compression and weaker market wide trade activity.

Principal Finance income benefitted from a decrease in negative mark-to-market valuations on investments compared with H1 2014.

Expenses were 10 per cent lower due to reduced business volumes.

Loan impairment increased by $54 million to $154 million, driven by a small number of specific loan impairments, notably in India, which relate to certain clients for whom additional provisions were taken in H1 2015.

Operating profit fell by $142 million, or 86 per cent, to $23 million.

Balance sheet

Customer loans and advances decreased by 21 per cent as a result of client exits and transfers, and lower Trade balances.

RWAs fell 18 per cent as the impact of client exits and transfers more than offset policy, methodology and model changes. Despite this fall, Operating profit return on RWAs declined from 1.3 per cent to 0.2 per cent due to the decline in income and increased impairment.

Customer deposits fell 33 per cent reflecting client exits, increased levels of competition in Hong Kong and Singapore and optimisation of our funding mix. Commercial Clients, however, remain a net liquidity generator for the Group.

Private Banking Clients

Private Banking Clients is dedicated to providing high net worth clients with a highly personalised service and a comprehensive suite of products and services tailored to meet their financial needs.

Operating profit fell 96 per cent for the first half of 2015, impacted by increased impairment provisioning.

Progress against strategic objectives

We are making good progress against the refreshed strategy outlined in 2014, and continue to focus on growing this client segment:

· Frontline hiring is proceeding according to plan with over 40 Relationship Managers hired during the first half of 2015

· Our pilot inter-segment referral program is progressing well with over 50 successful referrals since its launch at the end of 2014. One bank collaboration is gaining traction with a number of successful co-investment and leveraged finance client deals

· Deepening existing client relationships continues to be a focus, evidenced by the strong growth in recurring investment product revenues. Investment penetration has increased from 51 per cent at the end of 2014 to 56 per cent of AuM

· Good progress in executing our three-year technology and operations programme. Productivity initiatives are underway focussing on initiatives to automate, streamline and standardise processes

Financial performance
The following tables provide an analysis of financial performance for Private Banking Clients:
	6 months ended 30.06.15	6 months ended 30.06.14	Better / (worse)
	$million	$million	%
Transaction Banking	-	1	nm¹
Wealth Management	214	205	4
Retail Products	83	94	(12)
Asset and Liability Management	7	14	(50)
Operating income	304	314	(3)
Operating expenses	(208)	(227)	8
Loan impairment	(94)	-	nm¹
Other impairment	1	(16)	nm¹
Operating profit	3	71	(96)

Client income	290	295	(2)
Customer loans and advances	17,311	18,134	(5)
Customer deposits	26,571	30,606	(13)
Risk weighted assets	8,508	7,032	21
Return on risk weighted assets	0.1%	2.3%
¹Not meaningful

Growth was driven by strong business momentum in Greater China, supported by Europe and MENAP regions. Wealth products led the growth, particularly Funds, Fiduciary & Treasury products. Assets under management (AuM) rose 9 per cent to $61 billion excluding exits and transfers.

Expenses were 8 per cent lower, primarily due to Geneva exit costs incurred in the first half of 2014. Excluding exits and transfers, expenses rose 6 per cent driven by investment in frontline relationship managers, control functions and technology.

Loan impairment increased to $94 million following an impairment provision relating to a single client case.

Operating profit fell by $68 million or 96 per cent.

Balance sheet

Customer loans and advances decreased by 5 per cent. Excluding the impact of exits and transfers, lending balances declined 3 per cent.

Risk weighted assets rose 21 per cent over the first half of 2014 primarily from the impact of collateral eligibility policy changes, methodology and portfolio composition.

Operating profit return on RWAs fell from 2.3 per cent to 0.1 per cent due to the loan impairment provision.

Customer deposits fell 13 per cent. Excluding the impact of exits and transfers, deposits declined 7 per cent as a result of clients capitalising on tactical market investment opportunities coupled with our strategic business focus on growing investment based AuM.

Retail Clients

Retail Clients serves Priority, Personal and Business Clients.

Operating profit grew by 14 per cent driven by continued growth in Wealth Management income, lower expenses and a significant reduction in impairment:

· Income from Wealth Management grew 25 per cent driven by broad-based growth across investment products, treasury products and bancassurance

· Retail Products income fell 10 per cent as a result of the sale of the Consumer Finance business and the continued impact of the de-risking of the unsecured lending portfolio

· Expenses were down 5 per cent due to the ongoing cost efficiency actions, favourable foreign currency translation impact and the sale of the Consumer Finance business

· Impairment decreased 24 per cent benefitting from the de-risking actions on the unsecured lending portfolio and the sale of the Consumer Finance business

Progress against strategic objectives

· The shift in the sales and service model towards affluent clients was completed in the first half of 2015. Share of revenue from the affluent client segments continued to increase, rising to 46 per cent in H1 2015 from 40 per cent in 2014 and 37 per cent in 2013

· The sale of the Consumer Finance business was completed in the first half of the year

· Cost efficiency initiatives are on track with the reduction in headcount of over 5,000 and the closure or optimisation of 94 additional branches during the first half of the year

· Continued build-out of online capabilities and standardisation of product platforms

· Strengthening of conduct continues to be a key focus, with enhancements to CDD processes

Financial performance
The following tables provide an analysis of financial performance for Retail Clients:
	6 months ended 30.06.15	6 months ended 30.06.14	Better / (worse)
	$million	$million	%
Transaction Banking	6	12	(50)
Wealth Management	685	548	25
Retail Products¹	2,115	2,344	(10)
Asset and Liability Management	82	106	(23)
Operating income¹	2,888	3,010	(4)
Operating expenses	(1,857)	(1,948)	5
Loan impairment	(364)	(480)	24
Profit from associates and joint ventures	13	12	8
Operating profit¹	680	594	14

Client income	2,742	2,851	(4)
Customer loans and advances	97,085	100,947	(4)
Customer deposits	117,470	117,129	-
Risk weighted assets	62,028	68,962	(10)
Return on risk weighted assets	2.2%	1.7%
¹Excludes $219 million (2014: $(5) million) relating to gains/(losses) on sale of business

Operating income fell 4 per cent to $2,888 million, impacted by foreign currency translation and the sale of the Consumer Finance business. Adjusting for these factors, underlying income growth was 2 per cent reflecting a strong performance by Wealth Management.

Wealth Management income grew 25 per cent driven by AuM growth of 10 per cent, and broad-based growth across all products. Bancassurance income benefitted from the renewal of a strategic multi-year partnership with Prudential in 2014.

CCPL income declined 18 per cent, or $239 million, due to foreign currency translation, the sale of the Consumer Finance business and the impact of the de-risking of the personal lending portfolio mainly in Korea.

Income from Mortgages and Auto declined 10 per cent due to foreign currency translation and margin compression.

Income from Deposits increased 3 per cent with continued growth in Customer Accounts and Savings Accounts (CASA) volumes and the roll-off of higher cost Time Deposits offsetting the impact of foreign currency translation and the sale of the Consumer Finance business.

Expenses were 5 per cent lower at $1,857 million as a result of foreign currency translation, cost efficiency initiatives and the sale of the Consumer Finance business.

Loan impairment fell 24 per cent to $364 million due to lower levels of unsecured lending impairments in Korea following the de-risking actions we have taken and the sale of the Consumer Finance business.

Operating profit increased by $86 million, or 14 per cent, to $680 million.

Balance sheet

Loans and advances to customers fell by 4 per cent due to foreign currency translation, the sale of the Consumer Finance business and the impact of the de-risking actions. This decline was partly offset by the growth of mortgages in Hong Kong and Korea. The underlying growth in assets was 3 per cent adjusting for foreign currency translation and Consumer Finance sale.

RWAs fell by 10 per cent reflecting the sale of the Consumer Finance business and de-risking actions. Operating profit return on RWAs improved to 2.2 per cent from 1.7 per cent in H1 2014 driven by the 14 per cent increase in operating profit and a 10 per cent reduction in RWAs.

Operating income by product and segment
Income by product and client segment is set out below:
	6 months ended 30.06.15
	Total	Corporate & Institutional	Commercial	Private Banking	Retail
	$million	$million	$million	$million	$million
Lending and Portfolio Management	475	374	101	-	-
Transaction Banking	1,777	1,538	233	-	6
Trade	864	729	129	-	6
Cash Management and Custody	913	809	104	-	-
Financial Markets	1,528	1,442	86	-	-
Foreign Exchange	720	647	73	-	-
Rates	491	483	8	-	-
Commodities and Equities	243	229	14	-	-
Capital Markets	(83)	(65)	(18)	-	-
Credit and Other¹	157	148	9	-	-
Corporate Finance	1,108	1,100	8	-	-
Wealth Management	952	-	53	214	685
Retail Products¹	2,206	-	8	83	2,115
CCPL	1,077	-	-	1	1,076
Deposits	612	-	7	58	547
Mortgage and Auto	423	-	-	24	399
Other Retail Products	94	-	1	-	93
Asset and Liability Management	278	173	16	7	82
Principal Finance	171	179	(8)	-	-

Total Operating income¹	8,495	4,806	497	304	2,888
¹Excludes $55 million relating to an own credit adjustment and $219 million relating to net gains on businesses sold

	6 months ended 30.06.14
	Total	Corporate & Institutional	Commercial	Private Banking	Retail
	$million	$million	$million	$million	$million
Lending and Portfolio Management	529	393	136	-	-
Transaction Banking	1,918	1,603	302	1	12
Trade	999	824	162	1	12
Cash Management and Custody	919	779	140	-	-
Financial Markets	1,780	1,662	118	-	-
Foreign Exchange	636	537	99	-	-
Rates	371	363	8	-	-
Commodities and Equities	262	252	10	-	-
Capital Markets	284	280	4	-	-
Credit and Other¹	227	230	(3)	-	-
Corporate Finance	1,241	1,227	14	-	-
Wealth Management	817	-	64	205	548
Retail Products¹	2,440	-	2	94	2,344
CCPL	1,315	-	-	-	1,315
Deposits	598	-	2	65	531
Mortgage and Auto	474	-	-	29	445
Other Retail Products¹	53	-	-	-	53
Asset and Liability Management	420	278	22	14	106
Principal Finance	129	171	(42)	-	-

Total Operating income¹	9,274	5,334	616	314	3,010
¹Excludes $(15) million relating to an own credit adjustment and $5 million relating to fair value loss on businesses held for sale

Transaction Banking: Income fell 7 per cent with Trade income down 13 per cent and Cash Management and Custody income down 1 per cent, impacted by continuing market headwinds, including adverse foreign currency translation and de-risking actions. Trade income fell as a result of subdued global trade finance demand, and abundant liquidity in key markets, further impacted by a slowdown in Asian emerging markets. Trade balances have reduced, particularly with commodity-linked clients. Cash Management income declined with margins impacted by lower interest rates in a number of our markets. This was partially offset by growth in quality operating balances and clearing volumes. Custody income rose due to higher transaction volumes, especially in Asia, linked partly to market liberalisation initiatives benefitting both investors and intermediary clients.

Financial Markets: Income was down 14 per cent impacted by incremental mark-to-market valuations of $263 million on loan positions, subdued syndication loan volumes and weaker Commodities income. This was partially offset by strong growth in Rates and FX. Excluding mark-to-market valuations on loan positions, Financial Markets income rose 1 per cent.

Capital Markets income decline impacted by mark-to-market valuations on loan positions originated before 2013 and lower Syndication volumes due to market contraction in our footprint. Income from Debt Capital Markets was largely flat. Commodities income fell due to lower precious metals revenue offsetting higher income from our energy business.

Rates income was up 32 per cent primarily driven by increased Structured Callable Note issuances. Increased market volatility as a result of by central bank action across our footprint markets helped increase client flows and hedging activities, resulting in a strong performance. FX income rose 13 per cent. Increased volatility drove substantially higher volumes in G10 currency pairs with lower spreads. This growth in Rates and FX income was primarily amongst Financial Institution clients.

Corporate Finance: Income fell 11 per cent due to high liquidity and strong competition across our footprint markets. This resulted in pricing pressures and lower origination levels in our financing businesses.

Lending and Portfolio Management: Income fell 10 per cent due to margin compression and lower balances. The decline in balances was driven by more selective asset origination and continued prioritisation of returns optimisation.

Wealth Management: Income rose 17 per cent driven by active client advisory and rebalancing activities supported by favourable market conditions. Growth was broad-based across all products, with bancassurance income driven by the focus on capturing value from our strategic multi-year bancassurance partnership with Prudential. AuM grew strongly as a result of supportive market conditions and net new money into Managed Investments and Equities due to a stronger value proposition.

Retail Products: Income fell 10 per cent due to the sale of the Consumer Finance business, foreign currency translation and the impact of de-risking actions completed in 2014. Mortgage balances increased, driven by higher transactions in Hong Kong and Korea. Deposits income increased 2 per cent reflecting the continued growth of current and savings accounts.

Asset and Liability Management: Income decreased 34 per cent due to lower accruals income partially offset by an increase in gains from liquidation of available for sale holdings.

Principal Finance: Income up 33 per cent, benefitting from higher mark-to-market valuations on investments, partially offset by lower net interest income due to loan asset sales and repayments. Investment realisations generated gains similar to the first half of 2014.


Operating profit/(loss) relating to business exits
	6 months ended 30.06.15	6 months ended 30.06.14
	$million	$million
Operating income	102	275
Other operating expenses	(48)	(123)
Restructuring costs	(35)	(12)
Operating expenses	(83)	(135)
Loan impairment	(31)	(75)
Operating (loss)/profit	(12)	65

During 2014 and in the first half of 2015, the Group exited a number of businesses:

H1 2015:

· Sale of the Consumer Finance businesses in Korea, Hong Kong and China

· Exit of the Institutional Cash Equities business

· Closure of the Private Bank in Geneva

· Closure of the Russia and Vienna offices

· Sale of the Retail branch in Lebanon

2014:

· Sale of its Retail business in Germany

· Sale of its Retail securities division in Taiwan

· Run-down of its SME business in UAE

The businesses exited contributed $102 million of income to 2015 (H1 2014 $275 million) and operating loss of $12 million in 2015 (H1 2014 operating profit $65 million) which will not recur in future periods. The amounts in the table above reflect the operating income and costs of the businesses exited and excludes any gains or losses on sale and any disposal costs incurred.

Standard Chartered PLC - Geographic Analysis
Performance by geographic region
The following tables provide an analysis of operating income and profit by geographic region:
	6 months ended 30.06.15
	Greater China	North East Asia	South Asia	ASEAN	MENAP	Africa	Americas	Europe	Total
	$million	$million	$million	$million	$million	$million	$million	$million	$million
Operating income¹	2,854	730	718	1,617	835	759	440	542	8,495
Operating profit/(loss)¹	1,166	62	(170)	347	226	141	29	23	1,824
¹Excludes $55 million in respect of own credit adjustment (Greater China $15 million, North East Asia $1 million, ASEAN $16 million, MENAP $2million and Europe $21 million) and $219 million relating to gains/(losses) on businesses sold/held for sale (Greater China $250 million, NEA $(33) million and MENAP $2 million)

	6 months ended 30.06.14
	Greater China	North East Asia	South Asia	ASEAN	MENAP	Africa	Americas	Europe	Total
	$million	$million	$million	$million	$million	$million	$million	$million	$million
Operating income¹	2,785	714	959	1,920	951	878	414	653	9,274
Operating profit/(loss)¹	1,152	(111)	519	701	442	317	114	139	3,273
¹Excludes $(15) million in respect of own credit adjustment (Greater China $33 million, ASEAN $(27) million and Europe $(21) million) and $(5) million in North East Asia in respect of fair value losses on Korean businesses held for sale

Greater China
The following table provides an analysis of performance in the Greater China region:
	6 months ended 30.06.15	6 months ended 30.06.14	Better / (worse)
	$million	$million	%
Client income	2,511	2,532	(1)
Other Income	343	253	36
Operating income¹	2,854	2,785	2
Operating expenses	(1,474)	(1,410)	(5)
Loan impairment	(290)	(212)	(37)
Other impairment	(1)	(95)	99
Profit from associates and joint ventures	77	84	(8)
Operating profit	1,166	1,152	1
Net Interest margin (%)	1.6	1.8
Customer loans and advances²	86,429	95,848	(10)
Customer deposits²	141,700	140,491	1
Risk weighted assets³	63,350	65,299	(3)
¹Excludes $15 million (2014: $33 million) in respect of own credit adjustment and $250 million relating to profit on businesses sold
²Based on the location of the clients rather than booking location
³Based on the booking location

Income in Greater China was up $69 million, or 2 per cent, to $2,854 million, despite a slowing macro environment.

Income growth remained resilient across most client segments. In Retail Clients, income rose 4 per cent; in Private Banking Clients, income was up 19 per cent; in Corporate and Institutional Clients, income grew 3 per cent; while in Commercial Clients income was down 13 per cent. Performance was impacted by challenging market conditions, selective asset origination and actions to de-risk our commodities exposure.

Financial Markets income was lower, due to a reduction in derivatives sales income. The decline was primarily in FX Options as increased RMB volatility reduced client activities in the first half of the year. This was partly offset by strong growth in Rates and Credit income.

In Corporate Finance, income declined marginally year on year as lower transaction flows and reduced client activities in Strategic Finance offset growth in the leasing business.

Transaction Banking income fell, with Trade income down as a result of subdued global trade finance demand and abundant liquidity. Cash Management and Custody income rose, with lower margins offset by higher transaction volumes and increased customer investment appetite.

Wealth Management income was up strongly with broad-based growth across all major product categories, and an increase in AuM.

Income from Retail banking products grew moderately excluding the impact of the exit of the Consumer Finance business. Retail Deposits grew strongly, benefiting from the continuing growth of CASA. Income from CCPL declined with lower average balances in the unsecured lending portfolio in Hong Kong and Taiwan.

Other income increased 36 per cent due to higher Principal Finance income.

Income from mortgages grew moderately, driven by higher transactions volumes in Hong Kong.

Operating expenses were 5 per cent higher, reflecting higher depreciation from our leasing business, closure costs of the Cash Equities business and higher regulatory and compliance costs. Underlying costs continued to be tightly managed and efficiency initiatives have reduced headcount since the beginning of the year.

Loan impairment was $78 million higher at $290 million, while Other impairment declined by $94 million. Impairment in China remained elevated, primarily in Corporate and Institutional Clients, but lower than in H2 2014.

Operating profit for Greater China increased 1 per cent to $1,166 million.

Balance sheet

Customer loans and advances fell by 10 per cent primarily due to further de-risking and RWAs fell 3 per cent.

Customer deposits increased 1 per cent as we grew CASA balances.

North East Asia
The following table provides an analysis of performance in the North East Asia region:
	6 months ended 30.06.15	6 months ended 30.06.14	Better / (worse)
	$million	$million	%
Client income¹	642	677	(5)
Other income	88	37	138
Operating income¹	730	714	2
Operating expenses	(525)	(616)	15
Loan impairment	(136)	(209)	35
Other impairment	(7)	-	nm²
Operating profit/(loss)	62	(111)	156
Net interest margin (%)	1.7	2.0
Customer loans and advances³	30,135	29,626	2
Customer deposits³	31,295	33,972	(8)
Risk weighted assets⁴	21,672	25,453	(15)
¹Excludes $1 million (2014: $nil million) relating to own credit adjustment and $(33) million (2014: $(5) million) relating to loss on businesses sold / held for sale
²Not meaningful
³Based on the location of the clients rather than booking location
⁴Based on the booking location

Income was up 2 per cent at $730 million, and up 8 per cent on a constant currency basis. Korea represents 95 per cent of income within this region.

Client income fell 5 per cent reflecting both difficult market conditions and the impact of management actions to return the Korea franchise to profitability. Retail Clients income fell 9 per cent, primarily resulting from the de-risking of the Korea personal lending portfolio. Corporate and Institutional Clients income rose 6 per cent, reflecting an improvement in Financial Markets performance and higher Corporate Finance income.

Other income rose $51 million, reflecting a $42 million gain on sale of a landmark building in H1 2015 and the impact of closure charges in respect of consumer finance entities in H1 2014.

Income earned from Korean businesses elsewhere in the Group's network showed a strong growth up by 8 per cent compared to H1 2014.

Expenses were15 per cent lower at $525 million, reflecting the impact of management actions to reduce headcount and continued rationalisation of the branch network, with 45 branches closed since June 2014.

Loan impairment fell by $73 million, or 35 per cent. In Retail Clients loan impairment related to the Personal Debt Rehabilitation Scheme (PDRS) filings fell by 54 percent reflecting the impact of the maintenance of tightened credit underwriting criteria.

As a result North East Asia returned to an Operating profit of $62 million from the loss of $111 million in the first half of 2014.

Balance sheet

Customer loans and advances grew by 2 per cent driven by further growth in mortgage assets where we continued to take advantage of a relaxation in regulatory restrictions on mortgage lending in Korea. This more than offset the continued decline in unsecured lending balances.

RWAs fell 15 per cent primarily due to the continuing de-risking actions on the unsecured portfolio and RWA optimization actions in Transaction Banking.

Customer deposits fell 8 per cent with increased CASA balances offset by a reduction in Time Deposits.

Standard Chartered PLC - Geographic Analysis continued South Asia
The following table provides an analysis of performance in the South Asia region:
	6 months ended 30.06.15	6 months ended 30.06.14	Better / (worse)
	$million	$million	%
Client income	798	889	(10)
Other income	(80)	70	(214)
Operating income	718	959	(25)
Operating expenses	(385)	(379)	(2)
Loan impairment	(485)	(61)	nm¹
Other impairment	(18)	-	nm¹
Operating (loss)/profit	(170)	519	(133)
Net interest margin (%)	4.0	4.0
Customer loans and advances²	23,414	24,324	(4)
Customer deposits²	16,557	15,835	5
Risk weighted assets³	25,788	28,678	(10)
¹Not meaningful
²Based on the location of the clients rather than booking location
³Based on the booking location

Income fell $241 million, or 25 per cent, to $718 million, mainly due to a challenging business environment and management actions to reduce RWAs and de-risk the portfolio, coupled with mark-to-market valuations on a small number of Capital Market positions.

Client income fell 10 per cent primarily due to reduced income from Lending, Corporate Finance and Financial Markets products. Lending and Corporate Finance income fell due to lower deal origination as corporate activity and credit growth in India remained muted, coupled with conscious actions to reduce RWAs. Financial Markets income was impacted by reduced hedging opportunities in Rates from lower deal flow. This was partly offset by higher Cash FX income as we increased our focus on growing flow business volumes.

Transaction Banking income fell marginally. Balances in Cash Management and Securities Services increased, driven by higher investment and equity flows respectively. This was offset by a decline in Trade income due to lower commodity prices and reduced margins on account of increased competition for short dated assets.

Wealth Management income rose strongly, benefitting from the renewal of the bancassurance partnership with Prudential and higher investment sales due to buoyancy in equity markets. This was offset by lower income from Retail products as we de-risked the unsecured portfolio.

Operating expenses were 2 per cent higher to $385 million as we continue to manage costs tightly through rationalisation of headcount and premises, despite inflationary pressures.

Loan impairment increased by $424 million to $485 million. Corporates were impacted by continued stress on their balance sheets coupled with a more challenging refinancing environment.

Operating profit fell $689 million to a loss of $170 million.

Balance sheet

Customer lending fell 4 per cent mainly due to maturities and lower deal origination in the offshore book. Onshore customer lending grew 5 per cent over H1 2014, as credit growth across the banking industry in India remained muted. This was matched by a 5 per cent growth in customer deposits. RWAs fell 10 per cent.

ASEAN
The following table provides an analysis of performance in the ASEAN region:
	6 months ended 30.06.15	6 months ended 30.06.14	Better / (worse)
	$million	$million	%
Client income	1,543	1,746	(12)
Other income	74	174	(57)
Operating income¹	1,617	1,920	(16)
Operating expenses	(973)	(1,030)	6
Loan impairment	(328)	(215)	(53)
Other impairment	(1)	(3)	67
Profit from associates and joint ventures	32	29	10
Operating profit	347	701	(50)
Net interest margin (%)	1.7	1.9
Customer loans and advances²	74,006	86,561	(15)
Customer deposits²	90,548	98,275	(8)
Risk weighted assets³	77,099	81,173	(5)
¹Excludes $16 million (2014: $(27) million) in respect of own credit adjustment
²Based on the location of the clients rather than booking location
³Based on the booking location

Operating income was down $303 million, or 16 per cent, to $1,617 million due to a 12 per cent decline in client income and mark-to-market valuations on loan positions.

Client income decreased by 12 percent due to difficult market conditions, foreign currency translation impact, regulatory headwinds and deliberate management actions.

Transaction Banking income fell primarily due to weaker market conditions and de-risking. Financial Markets income was also down due to continued margin compression and lower commodities pricing, which more than offset increased volumes. Corporate Finance income fell reflecting excess market liquidity. Income from Retail products was lower due to ongoing de-risking in unsecured lending, exit of non-strategic sales models and regulatory measures which impacted key markets such as Singapore. Wealth Management income increased, benefitting from the renewal of the multi-year bancassurance partnership with Prudential and increased product penetration.

Operating expenses were $57 million lower, or 6 per cent, to $973 million as a result of cost efficiency initiatives, including headcount rationalisation and property optimisation.

Loan impairment rose $113 million, or 53 per cent, to $328 million, although down 32 per cent from the second half of 2014, driven by continued economic slowdown and sustained low commodity prices resulting in provisions being taken on a small number of corporate clients. Retail provisions also increased as we exited non-strategic unsecured segments.

As a result, ASEAN operating profit was $347 million, down 50 per cent compared to H1 2014.

Balance sheet

Customer loans and advances fell 15 per cent largely as we reduced exposures to low returning relationships and reflecting lower Trade balances.

RWAs dropped 5 per cent due to a combination of a reduction in volumes as well as the benefit from RWA management initiatives more than offsetting the increases due to changes in policy and model methodology.

Customer deposits fell 8 per cent, with the proportion of CASA balances increasing as more expensive Time Deposits matured.

Middle East, North Africa and Pakistan (MENAP)
The following table provides an analysis of performance in the MENAP region:
	6 months ended 30.06.15	6 months ended 30.06.14	Better / (worse)
	$million	$million	%
Client income	749	839	(11)
Other income	86	112	(23)
Operating income¹	835	951	(12)
Operating expenses	(475)	(482)	1
Loan impairment	(134)	(27)	(396)
Operating profit¹	226	442	(49)
Net interest margin (%)	2.8	3.0
Customer loans and advances²	21,658	23,941	(10)
Customer deposits²	22,943	23,768	(3)
Risk weighted assets³	28,842	31,022	(7)
¹Excludes $2 million (2014: $nil million) relating to own credit adjustment and $2 million (2014: $nil million) relating to profit on businesses sold
²Based on the location of the clients rather than booking location
³Based on the booking location

Operating income fell $116 million, or 12 per cent, to $835 million. Client income fell 11 per cent primarily due to de-risking and subdued corporate activity.

Transaction Banking income was lower due to de-risking and margin compression. FX volumes increased, particularly in Financial Institutions. Income from Lending was impacted by lower interest rates and surplus liquidity in the market.

Income from CCPL was down, impacted by margin compression and competitor pricing which more than offset a strong performance in Retail Deposits.

Operating expenses were marginally lower as a result of actions to reduce headcount and drive organisational efficiency.

Loan impairment increased by $107 million to $134 million due to increased specific provisions on a small number of corporate clients.

Operating profit was down $216 million, or 49 per cent, to $226 million.

Balance sheet

Customer loans and advances were down 10 per cent due to de-risking and material repayments, while origination activities were impacted by excess market liquidity. RWAs decreased 7 per cent. Customer deposits were down 3 per cent with CASA outflows partly offset by increased Time Deposits.

Africa
The following table provides an analysis of performance in the Africa region:
	6 months ended 30.06.15	6 months ended 30.06.14	Better / (worse)
	$million	$million	%
Client income	739	737	-
Other income	20	141	(86)
Operating income	759	878	(14)
Operating expenses	(467)	(467)	-
Loan impairment	(148)	(94)	(57)
Other impairment	(3)	-	nm¹
Operating profit	141	317	(56)
Net interest margin (%)	4.9	4.7
Customer loans and advances²	12,758	13,766	(7)
Customer deposits	10,928	13,948	(22)
Risk weighted assets³	18,851	19,866	(5)
¹Not meaningful
²Based on the location of the clients rather than booking location
³Based on the booking location

Operating income in Africa fell 14 per cent to $759 million, with client income flat. Income performance was impacted significantly by foreign currency translation as well as by slowing GDP across the region and low oil and other commodity prices.

Transaction Banking income fell due to foreign currency translation and the impact of falling commodity prices which reduced Trade balances. Financial Markets income rose with strong volume growth partly offset by margin compression as competition intensified across the region. Corporate Finance income was up with an increase in the number of deals closed.

Other income fell 86 per cent largely due lower Principal Finance income.

Operating expenses were flat reflecting the impact of foreign currency translation and the benefit of efficiency initiatives
undertaken in the first half, offset by inflationary pressures across the region.

Loan impairment rose $54 million, or 57 per cent, mainly attributable to increased specific provisions in the Corporate and Institutional Client segment.

Operating profit fell 56 per cent compared to H1 2014 to $141 million.

Balance sheet

Customer loans were down 7 per cent while RWAs fell 5 per cent.

Customer deposits fell 22 per cent as we repositioned away from Time Deposits and increased the proportion of funding derived from CASA.


Americas
The following table provides an analysis of performance in the Americas region:
	6 months ended 30.06.15	6 months ended 30.06.14	Better / (worse)
	$million	$million	%
Client income	417	400	4
Other income	23	14	64
Operating income	440	414	6
Operating expenses	(392)	(300)	(31)
Loan impairment	(19)	-	nm¹
Operating profit	29	114	(75)
Net interest margin (%)	0.5	0.6
Customer loans and advances²	12,498	11,277	11
Customer deposits²	25,538	17,940	42
Risk weighted assets³	13,675	12,572	9
¹Not meaningful
²Based on the location of the clients rather than booking location
³Based on the booking location

Operating income rose 6 per cent to $440 million compared to H1 2014, with increased client activity and higher sales across FX and Rates products. Client income was up 4 per cent.

Transaction Banking income fell, with Cash income impacted by de-risking, and Trade income lower due to margin compression, lower yielding inbound assets from Asia, and softer demand as a result of abundant liquidity in the market. Lending income rose as a result of increased financing fees. Corporate Finance income declined due to delays in executing pipeline deals and lower assets.

Operating expenses were $92 million, or 31 per cent higher at $392 million, largely due to increased regulatory compliance costs.

Loan impairment rose to $19 million.

Operating profit fell $85 million, or 75 per cent, to $29 million.

Balance sheet

Customer loans and advances rose 11 per cent, with RWAs increasing by 9 per cent as RWA optimisation and de-risking initiatives partly offset asset growth.

Customer deposits increased by 42 per cent due to ALM maintaining a high level of short tenor Time Deposits as a measure to support liquidity ratios.

Europe
The following table provides an analysis of performance in the Europe region:
	6 months ended 30.06.15	6 months ended 30.06.14	Better / (worse)
	$million	$million	%
Client income	508	558	(9)
Other Income	34	95	(64)
Operating income¹	542	653	(17)
Operating expenses	(351)	(399)	12
Loan impairment	(112)	(28)	(300)
Other impairment	(56)	(87)	36
Operating profit	23	139	(83)
Net interest margin (%)	0.5	1.0
Customer loans and advances²	21,441	19,718	9
Customer deposits²	49,286	46,294	6
Risk weighted assets³	87,062	98,505	(12)
¹Excludes $21million (2014: $(21) million) in respect of own credit adjustment and $(1) million (2014: $nil million) relating to loss on businesses sold
²Based on the location of the clients rather than booking location
³Based on the booking location

Income was down $111 million, or 17 per cent to $542 million. Client income declined 9 per cent, largely as a result of management actions to reshape the business which included exiting the Retail business in Germany and the Private Banking business in Geneva as well as the closure of the Cash Equities business.

Trade Finance income declined impacted by de-risking actions and as a result of subdued global trade finance demand.

Financial Markets income declined as higher FX income was more than offset by lower income from Capital Markets and Money Markets.

Corporate Finance income was flat, with higher income from Strategic Finance offset by lower Structured Finance income following aircraft sales.

Lending income increased reflecting lower Portfolio Management losses partly offset by lower lending income, as increased competition led to margin compression.

Wealth Management income fell following the divestment of the Private Bank in Geneva. Retail Products income declined following the sale of the Retail business in Germany.

Income from ALM declined as holdings of liquid assets for regulatory purposes and capital raising requirements significantly increased, whilst net interest accruals and investment yields fell.

Operating expenses were $48 million lower, or 12 per cent, to $351 million driven by business re-shaping actions and favourable foreign currency translation.

Loan impairment increased by $84 million to $112 million, with higher provisions against a small number of commodity clients.

Other impairment fell $31 million to $56 million as the prior year was impacted by provisions against certain strategic and associate investments and a share of a commodity fraud loss.

Operating profit fell by $116 million to $23 million.

Balance sheet

Customer loans and advances rose 9 per cent as increased Financial Market Credit balances offset lower Trade Financing balances and repayments in Corporate Finance. Customer deposits increased 6 per cent driven by higher Financial Market Credit and commodity balances, offsetting lower deposits from banks. RWAs fell 12 per cent.

Standard Chartered PLC - Group Balance Sheet Group summary consolidated balance sheet
	30.06.15	31.12.14	Increase / (decrease)	Increase / (decrease)
	$million	$million	$million	%
Assets
Cash and balances at central banks	77,274	97,282	(20,008)	(21)
Loans and advances to banks¹	83,182	87,500	(4,318)	(5)
Loans and advances to customers¹	282,339	288,599	(6,260)	(2)
Investment securities¹	135,132	129,347	5,785	4
Derivative financial instruments	60,858	65,834	(4,976)	(8)
Other assets	56,171	57,352	(1,181)	(2)
Total assets	694,956	725,914	(30,958)	(4)
Liabilities
Deposits by banks¹	50,574	55,323	(4,749)	(9)
Customer accounts¹	388,795	414,189	(25,394)	(6)
Debt securities in issue¹	80,381	80,788	(407)	(1)
Derivative financial instruments	58,651	63,313	(4,662)	(7)
Subordinated liabilities and other borrowed funds	22,197	22,947	(750)	(3)
Other liabilities¹	45,014	42,616	2,398	6
Total liabilities	645,612	679,176	(33,564)	(5)
Equity	49,344	46,738	2,606	6
Total liabilities and shareholders' funds	694,956	725,914	(30,958)	(4)
¹Includes balances held at fair value through profit or loss

Balance sheet

The Group's balance sheet remains resilient and well diversified. We continue to be highly liquid and primarily deposit funded, with an advances to deposits ratio of 72.6 per cent, up from 69.7 per cent at the end of 2014. The Group continue to be a net lender into the interbank market, particularly in the Greater China, ASEAN and Europe regions. The Group's funding structure remains conservative, with limited levels of refinancing over the next few years.

The Group remains well capitalised and our end point Common Equity Tier 1 ratio increased to 11.5 per cent from 10.7 per cent at the year end reflecting management actions undertaken in the first half of 2015 to manage returns and de-risk the balance sheet. This contributed to a 5 per cent reduction in RWAs and a 4 per cent fall in total assets.

The profile of the Group's balance sheet, however remains stable, with over 70 per cent of our financial assets held at amortised cost, and 58 per cent of total assets have a residual maturity of less than one year.

Cash and balances at central banks

Cash balances fell $20 billion as we exited bank and customer deposits and reduced surplus liquidity balances.

Loans and advances to banks and customers

Loans to banks and customers fell by $10.5 billion.

Loans to Corporate and Institutional clients and Commercial clients remain well diversified by geography and client segment. During the first half of 2015 we continued to reshape the portfolio, de-risking and exiting low returning clients which contributed to the reduction in loan balances compared to 2014. Lending fell $4.7 billion, primarily concentrated in Greater China (down $4.8 billion) across "Mining and Quarrying" and Consumer Durables sectors.

Retail and Private Banking clients lending fell $1.6 billion, or 1 per cent, with unsecured lending falling $1.6 billion as we de-risked the portfolio, across a number of our major markets. This was partly offset by an increase in secured Wealth products across the ASEAN region. Mortgages rose 1 per cent with growth in NEA following a relaxation of restrictions in Korea partly offset by lower balances in ASEAN.

Loans to banks fell by 5 per cent, or $4.3 billion with lower balances in Europe as we placed surplus liquidity across our footprint markets.

Investment securities

Investment securities rose by $6 billion as we re-positioned liquid assets, increasing holdings of Treasury Bills and highly rated corporate debt securities in line with the eligibility criteria for liquid asset buffers. The maturity profile of these assets is largely consistent with prior years, with around 40 per cent of the book having a residual maturity of less than 12 months.

Derivatives

Customer appetite for derivative transactions has increased currency volatility in G10 currencies in H1 2015 and higher demand for interest rate derivatives due to increasing expectations of a rate rise in the US. This led to increase in notional values, but the unrealised positive mark to market positions were $5 billion lower at $61 billion reflecting a higher volume of short dated transactions. The Group's risk positions continue to be largely balanced, resulting in a corresponding increase in negative mark to market positions. Of the $59 billion mark to market positions, $40 billion was available for offset due to master netting agreements.

Deposits

Customer accounts fell $25 billion, or 6 per cent, and deposits by banks fell $5 billion, as we de-risked assets and exited higher cost Time Deposits across a number of markets. CASA continues to be core of the customer deposit base, constituting 54 per cent of customer deposits.

Debt securities in issue, subordinated liabilities and other borrowed funds

Debt securities in issue and subordinated debt remain broadly stable compared to December 2014 with balances down $1 billion, largely due to foreign currency movements.

Equity

Total shareholders' equity was $2.6 billion higher at $49.3 billion reflecting the issuance of $2 billion of Additional Tier 1 instruments during the period, profit accretion for the year of 1.5 billion which was offset by dividend payments (net of scrip) of $0.5 billion and the negative impact of foreign currency translation of $0.6 billion.

Standard Chartered PLC - Risk and Capital review

The Risk and Capital Review is divided into the following four sections:

· Risk overview provides an update on the key risk themes of the Group

· Principal Uncertainties sets out the key external factors that could impact the Group

· Risk Profile provides an analysis of the Group's risk exposures across all major risk types

· Capital provides an analysis of the Group's capital ratios and movements in capital requirements

There have been no material changes to the Group's policies and practices regarding risk and capital management and governance as described in the 2014 Annual Report and Accounts.

Risk overview

The Group manages enterprise wide risk, through its risk management framework with the objective of maximising risk adjusted returns while remaining within the Group's risk appetite. The Group is exposed to a range of risks such as credit, country cross-border, market, liquidity, operational, pension, reputational and other risks that are inherent to our strategy, product range and geographic coverage.

The liquidity position of the Group remained strong in the first half of 2015 and market risk levels remained lower than in the corresponding period last year.

There have been no material operational risk events in the first half of 2015.

One of the main risks to the Group arises from extending credit to customers through our trading and lending operations. A more detailed review of credit risk is given in the following paragraphs.

The Group continued to face significant economic headwinds in the first half of 2015. Pressures on the corporate sector in India intensified and falls in the prices of a number of commodities persisted. The Group's total impairment (excluding impairment of goodwill) increased to $1,738 million (H2 2014: $1,513 million; H1 2014: $1,031 million). Other impairment fell by $132 million as H2 2014 was impacted by commodities related impairment and write down of investments in associates. Loan Impairment increased to $1,652 million (H2 2014: $1,295 million; H1 2014: $846 million). The Retail Clients segment benefited from improvements seen mainly in Korea, with loan impairment reducing by $94 million compared with H2 2014. Loan impairment in Private Banking included $93 million relating to an isolated incident. In the Corporate and Institutional Clients (CIC) and Commercial Clients (CC) segments loan impairment at $1,194 million was $357 million higher than in the H2 2014, mainly in India where loan impairment was up $369 million. The cover ratio for the CIC and CC segments has increased to 52 per cent (H2 2014: 47 per cent; H1 2014: 48 per cent).

22 per cent of the Group's loan impairment in H1 2015 was in the Retail Clients segment, which has shown signs of improvement in the first half of 2015 compared to H2 2014. Reduction in Retail loan impairment was mainly attributable to the disposal of the Group's Consumer Finance businesses (Korea, Hong Kong and China) and lower losses in Korea. Loan impairment in Korea fell $36 million, or 30 per cent, compared to H2 2014. Korea represents 23 per cent of total Retail loan impairment compared to 26 per cent in H2 2014. Impairment reduction in Korea was due to disposal of Consumer Finance and lower losses on the unsecured portfolio reflecting risk-mitigating actions to tighten underwriting standards in 2013 and 2014 together with improved portfolio indicators on bankruptcy filings under the Korean Personal Debt Rehabilitation Scheme (PDRS).

The Retail Clients segment is focused on secured lending and wealth management. The Residential Mortgages Loan to Value (LTV) ratio continues to be low at 49 per cent. New customer acquisition for unsecured business is limited to priority, high value customers and employee banking segments, and customers with low indebtedness. This is in line with the Group's strategic priorities and is expected to continue reducing loan impairment volatility, as evident in the first half of 2015.

The loan impairment charge in the CIC and CC segments increased to $1,194 million (H2 2014: $837 million; H1 2014: $366 million). This represents 138 basis points (bps) (H2 2014: 94 bps; H1 2014: 41 bps) of average customer loans and advances. Loan impairment is at an elevated level since the second half of 2014 in the context of a prolonged slowdown in India and in commodities.

In the first half of 2015, the impairment from loans and advances to the commodity sector remained at elevated levels due to further softening in the prices of certain commodities (notably coal, iron ore and oil). Although this has not highlighted any additional material vulnerability over and above what was identified in 2013 and 2014, the stress intensified on accounts previously identified as vulnerable which were either on the Group's watch list or part of the existing non-performing loans (NPL).

Loan impairment for the CIC and CC segments in India increased to $474 million (H2 2014: $105 million; H1 2014: $45 million). India has faced a slowdown in economic growth since 2012, relative to the higher rates of previous years, combined with high indebtedness in some corporate sectors and lower appetite for refinancing, reducing the success of corporate debt restructurings and distribution efforts. India corporate metrics continue to be stressed owing to depressed demand, regulatory changes, lack of deleveraging and increase in refinancing risk. Corporate performance, as indicated by quarterly earnings, for the first quarter of 2015 was the worst in the last 10 quarters. Credit growth for the corporate sector has been at its lowest in the last two decades. This, coupled with difficult conditions, especially for companies involved in infrastructure projects, has resulted in a disproportionate impact on some clients which were already under stress and either on the Group's watch list or part of the NPL. Approximately 80 per cent of the loan impairment in India relates to the existing NPLs. A significant part of this impairment is due to the restructuring of a small number of the most vulnerable accounts in the telecom, infrastructure related and commodity sectors. These clients have underperformed due to macroeconomic or structural issues resulting in delays in refinancing through the sale of assets or through access to capital markets.

India, China and commodities are, in effect, a continuation of themes from 2012 and 2013. The Group continues to be disciplined in its approach and has been taking risk mitigation actions throughout this period. In the first half of 2015 the Group has continued to take risk mitigation actions with respect to vulnerabilities in its portfolio in India, China and commodities.

Net NPLs are higher by $399 million at $4.0 billion compared to the second half of 2014 (H2 2014: $3.6 billion; H1 2014: $3.4 billion). This increase is primarily in the CIC and CC segments and is driven by a small number of exposures in ASEAN, and the Commodities sector.

An overview of the CIC and CC segments is presented together as these segments have similar risk characteristics.

The CIC and CC section covers the following:

· Portfolio indicators

· Loan Impairments

· India

· Commodities

· Oil and gas and related exposures

· China

· Europe

The Retail Clients section covers the following:

· Mortgage portfolio and rising interest rates

· Unsecured portfolio

· Korea PDRS

Corporate and Institutional Clients and Commercial Clients

Exposures to the CIC and CC segments are presented in this Risk Overview section on a net exposure basis (unless stated otherwise), which comprises loans and advances to banks and customers, investment securities, derivative exposures after master netting agreements, cash and balances at central banks, other assets, contingent liabilities and documentary credits.

As at 30 June 2015, the net exposure for CIC and CC segments was $534 billion (H2 2014: $572 billion; H1 2014: $547 billion), of which loans and advances to customers and banks was $252 billion (H2 2014: $260 billion; H1 2014: $277 billion). The net exposure decreased by $38 billion in the first half of 2015 principally due to a $20 billion reduction in central bank balances and an $8 billion reduction in loans and advances.

	30.06.15	31.12.14	30.06.14	31.12.13
	$billion	$billion	$billion	$billion
Net exposure	534	572	547	525
Loans and advances to customers and banks	252	260	277	265

The geographic analysis presented in this section is based on country of credit responsibility. This differs from the financial booking location, which is used in the geographic analysis in the Risk Profile section (see page 38), in that all global exposures to a client group are reported in the primary country of the parent entity. This represents a more complete view of credit risk exposure to client groups from a particular country and is aligned to the Group's credit risk management approach.

Portfolio indicators

Throughout the first half of 2015, the CIC and CC portfolio remained diversified across industry sectors and geographies. The proportion of CIC and CC loans and advances to customers which are short term remained stable at 65 per cent (H2 2014: 65 per cent; H1 2014: 66 per cent). The Group's 20 largest exposures to corporate client groups have reduced by 11 per cent compared to H2 2014 and 17 per cent compared to H1 2014. The collateralisation level for Corporate and Non-Bank Financial Institutions has increased by 1 per cent, and the collateral for long term (greater than one year) sub-investment grade exposure has increased by 4 per cent to 59 per cent (H2 2014: 55 per cent; H1 2014: 60 per cent).

The Group has a structured approach to portfolio analysis and stress testing to ensure it regularly takes a view of likely economic downside risks which could manifest themselves in the next 12 to 18 months, and takes proactive actions to limit potential vulnerabilities within the portfolio. The Early Alert exposure has increased due to the transfer of a small number of accounts.

The CIC and CC impairments continue to be at an elevated level, which is mainly related to accounts that have been on the Group's watch list for the past 12 to 24 months or were part of the existing NPL.

The increase in net exposure on Early Alert process is due to a few accounts that need closer management. The "past due but not impaired accounts" are higher than they were at the end of 2014 but not at levels that were seen in earlier periods.

The increase in Gross NPL balances is due to the transfer of accounts from our watch list to NPL reflecting of continued weakness in India and Commodities

CIC and CC portfolio	30.06.15	31.12.14	30.06.14	31.12.13
CIC and CC portfolio	$billion	$billion	$billion	$billion
Per cent of net exposure to customers that is Investment grade	43%	42%	40%	40%
Per cent of L&A to Customers that is Investment grade	39%	38%	38%	35%
Early Alert (net exposure)	10.0	9.2	9.0	11.3
Credit Grade 12	4.4	4.7	5.3	2.0
Past due but not impaired	2.8	2.3	3.4	3.8
Performing other renegotiated/forborne loans	4.6	4.9	5.6	5.3
Gross NPLs	7.7	6.6	6.2	5.5

Loan impairment

The loan impairment charge in the CIC and CC segments increased to $1,194 million (H2 2014: $837 million; H1 2014: $366 million). The increase in loan impairment relates primarily to India and is driven by increased stress in corporate balance sheets. This has been further exacerbated by more challenging restructuring conditions for corporates in the local market.

The outlook for commodities continues to be bearish resulting in further pressure on the existing NPLs. The continuing deterioration in commodity prices has not highlighted any additional material vulnerability over and above that identified through the group stress testing program in 2013 and 2014.

India

India has faced a slowdown in economic growth since 2012, relative to the higher rates of previous years. This combined with high indebtedness in some corporate sectors and lower appetite for refinancing, is reducing the success of corporate debt restructurings and distribution efforts. The impact of macro-economic reforms has been slower than the Group's earlier expectation. This is evidenced in corporate earnings data for the first quarter of 2015, which was the worst in the last 10 quarters, and credit growth that has been the lowest in the past two decades.

The Group has been actively managing the India CIC and CC portfolio and exposures have reduced from $42 billion in 2012 to $35 billion in June 2015. The exposures have been reduced for vulnerable accounts while increases in exposure have been limited to select strong client groups.

34 per cent of the exposures are attributable to Investment grade clients (H2 2014:34 per cent; H1 2014:32 per cent). A further 35 per cent of the exposure is short term in nature. Energy, Infrastructure/Telecom constitutes 31 per cent of the total exposure (H2 2014: 28 per cent; H1 2014: 26 per cent).

Commodities

Commodities credit exposure arise from the pursuit of the Group's strategy in its core markets, where commodities form a very significant proportion of the trade flows within and to the Group's footprint countries. The commodities portfolio of $49 billion represented 9 per cent of the total CIC and CC net exposure. Of the $49 billion net exposure, $37 billion was loans and advances. The Group has been actively managing this portfolio in light of a sustained fall in the prices of a number of commodities, reducing the net exposure to the sector by $11.9 billion (20 per cent) over the last 12 months, primarily in the commodity producers' credit portfolio. The tenor profile of the portfolio remains short, with 72 per cent having a remaining maturity of less than one year, which provides further flexibility to rebalance or reduce the exposure to clients or sub-sectors that are particularly vulnerable.

Derivative trades in commodities are undertaken in support of client hedging, and commodities related market risk continues to be very low.

Commodities credit portfolio	30.06.15	31.12.14	30.06.14	31.12.13
Commodities credit portfolio	$billion	$billion	$billion	$billion
Commodity Producers	21.4	24.3	28.1	30.1
Commodity Traders	27.4	30.6	32.6	31.7
Net exposure	48.8	54.9	60.7	61.8
Tenor <1 year (%)	72%	74%	76%	75%

Overall the quality of the commodities portfolio remains good with 58 per cent of the exposures attributable either to investment grade clients or to global majors or large state owned enterprises (SOEs). A further 33 per cent is short term in nature and hence gives us the flexibility to respond promptly to events and rebalance or reduce the exposure to clients or vulnerable sub-sectors if necessary. A further 5 per cent is tightly structured secured project and corporate finance exposures.

The commodity producers and commodity traders credit portfolios are further analysed below:

Commodity Producers credit portfolio: 63 per cent of the net exposure of $21.4 billion is attributable to clients that are either rated investment grade or are global majors or large SOEs. Of the remaining portfolio, 21 per cent is short term and the majority of the exposures are trade related, and 10 per cent is tightly structured secured project and corporate finance exposures. The Group holds $3.2 billion of collateral and third party guarantees against the exposures that are not to global majors and large SOE clients.

Energy, primarily oil and gas, constitutes 54 per cent of the commodity producers credit portfolio (see Oil and Gas Producers section below). The exposure to metals that have had significant price falls is very small - copper producers make up 0.2 per cent and iron ore 0.1 per cent respectively of CIC and CC net exposure. 71 per cent of these exposures are to clients that are either investment grade or are low cost producers which are part of diversified groups.

Commodity producers credit portfolio	30.06.15	31.12.14	30.06.14	31.12.13
Net exposure ($ billion)	21.4	24.3	28.1	30.1
Investment Grade / Global Majors / Large SOEs	63%	63%	66%	61%
Rest of the portfolio with tenor < 1 year (%)
Rest of the portfolio with tenor < 1 year (%)	21%	21%	20%	24%

Commodity Traders credit portfolio: 55 per cent of the net exposure of $27.4 billion is attributable to clients that are either rated investment grade or are global majors or large SOEs. Of the remaining portfolio, 43 per cent is short term trade exposures liquidated by underlying transaction flows.

Commodity traders credit portfolio	30.06.15	31.12.14	30.06.14	31.12.13
Net exposures ($ billion)	27.4	30.6	32.6	31.7
Investment Grade / Global Majors / Large SOEs	55%	58%	58%	57%
Rest of the portfolio with Tenor < 1 year (%)
Rest of the portfolio with Tenor < 1 year (%)	43%	40%	39%	40%

Owned Inventory: Under the Structured Inventory Program (SIP) product, the Group provides financing to clients by purchasing commodities from them while agreeing to sell them back at a fixed price in future. The Group owns the commodities inventory and the price risk is hedged. In this portfolio of $2.9 billion (H2 2014: $3.1 billion; H1 2014: $3.9 billion), the Group takes neither credit risk on the client nor market risk on the price of commodities.

81 per cent of the value of the SIP inventory is either in exchange controlled locations, such as London Metals Exchange warehouses, or in low risk jurisdictions such as the US, Western Europe, Singapore and Hong Kong.

Oil and Gas and Related Exposures

As at 30 June 2015, the Group's net exposure to oil and gas and related sectors was $25.6 billion (H2 2014: $28.6 billion). This comprises oil and gas producers (40 per cent), refineries (26 per cent), supporting activities (30 per cent) and other corporate clients with oil and gas related hedges (4 per cent).

Oil and Gas Producers: As at 30 June 2015, the exposure to oil and gas producers was $10.2 billion (H2 2014: $12.9 billion). 96 per cent of this ($9.8 billion) was to clients with either a breakeven oil price below $50 per barrel or to large SOEs. The breakeven prices have been calculated on a debt service coverage ratio of one. Debt service coverage ratio has been computed based on the amount of cash flow available to meet the annual interest and principal payments on debt, if oil prices remain at the breakeven level for a period of up to 12 months. This analysis is conservative as it does not take into consideration refinancing options available to clients, or their ability to defer capital expenditure to conserve cash.

Petroleum Refineries: As at 30 June 2015, the net exposure to petroleum refineries was $6.8 billion (H2 2014: $6.4 billion). The profitability of refiners is driven by gross refining margins and is not directly related to crude oil prices. The gross refining margins have held steady despite the fall in crude oil prices.

Support Activities: As at 30 June 2015, the support activities portfolio consisted of $3.9 billion (H2 2014: $4.2 billion) in shipping finance (including operating leases) and $3.7 billion (H2 2014: $3.7 billion) related to oilfield equipment manufacturers and other service providers.

The shipping finance portfolio consisted of tankers ($1.2 billion), offshore support vessels ($0.7 billion), rigs and drill ships ($1.2 billion) and floating production storage and offloading ($0.8 billion). The net exposures to these sub-sectors are either to investment grade clients or backed by strong balance sheet or corporate guarantees. The exposures have high levels of collateralisation in the form of new/young vessels. 65 per cent of the exposures to oil field equipment manufacturers and service providers are investment grade.

Corporate Clients with Oil Related Hedges: The Group's counterparty credit risk exposure to corporate clients with oil related hedges has decreased to $1.0 billion (H2 2014: $1.5 billion). All clients have continued to meet their trade settlement and collateral obligations as per the Credit Support Annexe (CSAs) to the International Swaps and Derivatives Association (ISDA).

China

The Group's total net exposure to China is $66 billion (H2 2014: $71 billion), of which $23 billion (H2 2014: $24 billion) is financially booked in China and $43 billion (H2 2014: $47 billion) in other locations. Of the total net exposure of $66 billion, $45 billion is loans and advances to customers and banks. 59 per cent of the total net exposure is attributable to financial institutions and 10 per cent is to the China central government.

China's economic growth continued to slow during the first half of 2015 in response to the structural rebalancing of the economy towards consumption driven growth. The Group's growth in China over the last five years has been focused on financial institutions as a result of the internationalisation of the Renminbi. This has driven the growth in interbank placements and trade exposures (approximately 68 per cent of the China net exposures). The portfolio is short dated with 84 per cent having tenor of less than one year.

98 per cent of the financial institutions exposure is investment grade while 71 per cent is to the top five Chinese banks. The Group has internal caps on its exposure to Chinese banks and keeps the portfolio tenor short dated and highly rated.

The corporate portfolio in China represented 31 per cent of the total net exposure as at 30 June 2015. The Chinese stock market has been volatile over the last few months but the Group has negligible exposure to it (less than 0.5 per cent of the CIC and CC portfolios). There are a small number of exposures with Chinese securities as collateral in the Private Banking Client segment. The LTV ratio for this portfolio is approximately 28 per cent. There have been no instances of failed margin calls or failed trades.

The following section presents details of the China commodity portfolio. The Group has been proactively managing exposures in this portfolio, and has further reduced exposures to clients that are sub investment grade, not global majors or large SOEs.

China commodities credit portfolio

Commodity exposures in China continue to be actively managed in response to the economic slowdown in China and sustained fall in commodity prices. The Group's portfolio management actions are focused on the metals and mining sector where 30 client relationships have been exited and the net exposure reduced by $1.0 billion since the end of 2014 ($1.7 billion in 2014).

China commodities credit portfolio	30.06.15	31.12.14	30.06.14	31.12.13
China commodities credit portfolio	$billion	$billion	$billion	$billion
Commodity Producers	2.0	4.1	5.1	4.9
Commodity Traders	4.2	5.3	6.6	6.1
Net exposure	6.2	9.4	11.7	11.0
tenor <1 year (%)	92%	94%	96%	89%

China Commodity Producers credit portfolio: 83 per cent of the net exposure of $2.0 billion was attributable to clients that were either rated investment grade or were global majors or large SOEs. Of the remaining 17 per cent, 88 per cent had a tenor less than one year, with the balance being accounted for by tightly structured secured project and corporate finance exposures.

China commodity producers portfolio	30.06.15	31.12.14	30.06.14	31.12.13
Net exposure ($billion)	2.0	4.1	5.1	4.9
Investment Grade / Global Majors / Large SOEs (%)	83%	79%	70%	66%
Rest of the portfolio with tenor < 1 year (%)
Rest of the portfolio with tenor < 1 year (%)	15%	20%	28%	28%

China Commodity Traders credit portfolio: 38 per cent of the net exposure of $4.2 billion was to clients that are either investment grade or, global majors or large SOEs. Of the remaining 62 per cent, 99 per cent had a tenor of less than one year. This sub investment portfolio is collateralised with cash of $0.9 billion and third party guarantees of $0.4 billion.

China commodity traders credit portfolio	30.06.15	31.12.14	30.06.14	31.12.13
Net exposure ($ billion)	4.2	5.3	6.6	6.1
Investment Grade / Global Majors / Large SOEs	38%	43%	51%	49%
Rest of the portfolio with tenor < 1 year (%)
Rest of the portfolio with tenor < 1 year (%)	62%	53%	48%	48%

Europe

The Group has no direct sovereign exposure (as defined by the European Banking Authority (EBA)) to Greece, Ireland, Italy, Portugal or Spain. As at 30 June 2015, the Group's net exposure in these countries was less than $1 billion and was primarily to banks and related to trade finance and financial markets transactions. The total net exposure to Greece was $6 million and the Group continues to monitor and respond to recent developments around the potential Greek exit from the eurozone. Additionally the Group estimates minimal direct impact of the quantitative easing in the eurozone.

Direct exposures to Russian corporate clients are small, and are fully covered by export credit agency guarantees. Trading exposures denominated in Russian roubles are with major banks and are collateralised with US dollars cash.

Retail Clients

The Retail Clients loans and advances portfolio remains well diversified in terms of geography and product with Mortgages accounting for 65 per cent (H2 2014: 64 per cent; H1 2014: 62 per cent) of the Retail Client portfolio. The overall LTV ratio on the Group's mortgage portfolio is 49 per cent (H2 2014: 49 per cent; H1 2014: 50 per cent).

83 per cent (2014: 80 per cent; H1 2014: 79 per cent) of Retail loans are fully secured and 65 per cent of the portfolio has tenor greater than 5 years (H2 2014: 64 per cent; H1 2014: 62 per cent) mainly due to Mortgages.

Retail Clients loan impairment was lower at 75 bps of average loans and advances (H2 2014: 92 bps; H1 2014: 95 bps). This was mainly due to improvement in losses related to the impact of the Personal Debt Rehabilitation Scheme (PDRS) on the Group's unsecured portfolio in Korea, lower losses in the consumer finance business and improvement in other markets, notably in Malaysia, Hong Kong and Taiwan. Portfolio indicators, such as 30 days past due and 90 days past due flow rates, have improved.

Mortgage portfolio and rising interest rates in key markets

The Retail Clients mortgage portfolio is well positioned in case of a fall in house prices or an increase in interest rates. In assessing prospective borrowers' ability to service debts, the Group assumes stress interest rates well above prevailing rates. The average LTV ratio of the mortgage portfolio was less than 49 per cent with only 4 per cent (H2 2014: 5 per cent; H1 2014: 6 per cent) of the portfolio having an LTV greater than 80 per cent. The value of exposures with an LTV greater than 100 per cent is minimal, and relates mainly to old vintages in the UAE. The majority of the residential mortgage portfolio is for owner occupation. The Group has stress tested the portfolio for a drop in property prices ranging from 15 per cent (such as in Korea where prices have come off their peak) to 30 per cent (in Singapore and Hong Kong), and for a significant increase in interest rates in key markets. The portfolio continues to show resilience under these stress scenarios.

Unsecured portfolio

The Group is managing the Retail Clients unsecured portfolio against the backdrop of changes in the regulatory environment in key markets, and in order to manage overall customer indebtedness. Overall portfolio growth slowed in 2015 as a result of de-risking actions taken in many markets including Korea. The portfolio performance indicators are continuously monitored with losses remaining stable.

The unsecured strategy is underpinned by a new decision framework that supports the explicit shaping of the portfolio towards preferred segments such as priority and employee banking, and lower risk customers.

The factors that underpin the Group's confidence about the Retail unsecured portfolio are:

· The credit card and personal loan portfolios are profitable on a standalone basis and are diversified across markets

· The new strategic focus on high value client segments and deepening client relationships

· The implementation of the unsecured risk decision framework which:

o shapes the business to deliver optimum risk-adjusted returns with a controlled level of volatility

o enhances the resilience and sustainability of the portfolio in slowdown scenarios

o leverages bureau data for enhanced credit decisioning and management with 94 per cent bureau coverage across the Group's unsecured markets

Korea Personal Debt Rehabilitation Scheme

Korea has been the biggest source of the Group's elevated Retail Client impairment in the last two years. Although the level of PDRS applications remains high, the actions taken to tighten underwriting standards since the beginning of 2014 have resulted in considerably lower match rates of the portfolio with PDRS filings. During the last six months, after adjusting for seasonally expected reductions, there has been an improvement in the losses relating to impact of the government PDRS on the Group's unsecured portfolio in Korea. The portfolio indicators are improving.

Principal uncertainties

We are in the business of taking selected risks to generate shareholder value, and we seek to contain and mitigate these risks to ensure they remain within our risk appetite and are adequately compensated.

The key uncertainties we face in the coming year are set out below. This should not be regarded as a complete and comprehensive statement of all potential risks and uncertainties that we may experience, nor is it an assurance that the mitigants described below can be successful in containing all the risks described.

Risk	Description	Mitigants
Deteriorating macroeconomic conditions in footprint countries	Deteriorating macroeconomic conditions can have an impact on our performance via their influence on personal expenditure and consumption patterns; demand for business products and services; the debt service burden of consumers and businesses; the general availability of credit for retail and corporate borrowers; and the availability of capital and liquidity funding for our business	We balance risk and return, taking account of changing conditions through the economic cycle We monitor economic trends in our markets very closely and continuously review the suitability of our risk policies and controls
Regulatory changes	The nature and impact of future changes in economic policies, laws and regulations are not predictable and may run counter to our strategic interests. These changes could also affect the volatility and liquidity of financial markets, and more generally the way we conduct business and manage capital and liquidity	We review key regulatory developments in order to anticipate changes and their potential impact on our performance Both unilaterally and through our participation in industry groups, we respond to consultation papers and discussions initiated by regulators and governments. The focus of these activities is to develop the framework for a stable and sustainable financial sector and global economy
Regulatory compliance	Although we seek to comply with all applicable laws and regulations, we are and may be subject to regulatory reviews and investigations by governmental and regulatory bodies, including in relation to US sanctions compliance and anti-money laundering controls. We cannot currently predict the nature or timing of the outcome of these matters. For sanctions compliance violations, there is a range of potential penalties which could ultimately include substantial monetary penalties, additional compliance and remediation requirements and/or additional business restrictions Regulators and other agencies in certain markets are conducting investigations 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. Further details of material settlements and ongoing investigations are set out in Note 21 on page 106	We have established a Board-level Financial Crime Risk Committee and, since 2013 we have a Financial Crime Risk Mitigation Programme, which is a comprehensive, multi-year programme designed to review and enhance many aspects of our existing approach to money laundering prevention and to combating terrorism finance and the approach to sanctions compliance and the prevention of bribery and corruption We are contributing to industry proposals to strengthen financial benchmarks processes in certain markets and continue to review our practices and processes in the light of the investigations, reviews and industry proposals We are co-operating with all relevant ongoing reviews, requests for information and investigations In meeting regulatory expectations and demonstrating active risk management, the Group also takes steps to restrict or restructure or otherwise to mitigate higher risk business activities which could include divesting or closing businesses that exist beyond risk tolerances

Risk	Description	Mitigants
Financial markets dislocation	A sudden financial markets dislocation could affect our performance, directly through its impact on the valuations of assets in our available-for-sale and trading portfolios or the availability of capital or liquidity Financial markets instability also may increase the likelihood of default by our counterparties; and may increase the likelihood of client disputes	We stress test our market risk exposures to highlight the potential impact of extreme market events on those exposures and to confirm that they are within authorised stress loss triggers. Stress scenarios are regularly updated to reflect changes in risk profile and economic events. Where necessary, overall reductions in market risk exposure are enforced We carefully assess the performance of all of our counterparties in stress scenarios and adjust our limits accordingly We maintain robust processes to assess the suitability and appropriateness of the products and services we provide to our clients
Geo-political events	We face a risk that geo-political tensions or conflict in our footprint could impact trade flows, our customers' ability to pay and our ability to manage capital across borders	We actively monitor the political situation in all of our principal markets and conduct regular stress tests of the impact of such events on our portfolios, which inform assessments of risk appetite and any need to take mitigating action
Risk of fraud and other criminal acts	The banking industry has long been a target for third parties seeking to defraud, to disrupt legitimate economic activity, or to facilitate other illegal activities. The risk posed by such criminal activity is growing as criminals become more sophisticated and as they take advantage of the increasing use of technology and the internet. The incidence of cyber crime is rising, becoming more globally co-ordinated, and is a challenge for all organisations	We seek to be vigilant to the risk of internal and external crime in our management of people, processes, systems and in our dealings with customers and other stakeholders We have a broad range of measures in place to monitor and mitigate this risk. Controls are embedded in our policies and procedures across a wide range of the Group's activities, such as origination, recruitment, physical and information security We have a broad set of techniques, tools and activities to detect and respond to cyber crime, in its many forms. We actively collaborate with our peers, regulators and other expert bodies as part of our response to this risk
Exchange rate movements	Changes in exchange rates affect the value of our assets and liabilities denominated in foreign currencies, as well as the earnings reported by our non-US dollar denominated branches and subsidiaries Sharp currency movements can also impact trade flows and the wealth of clients, both of which could have an impact on our performance	We actively monitor exchange rate movements and adjust our exposure accordingly Under certain circumstances, we may take the decision to hedge our foreign exchange exposures in order to protect our capital ratios from the effects of changes in exchange rates

Risk Profile

The balance sheet and income statement information presented within the Risk Profile is based on the booking location of the instrument and not the location of its client. Accordingly, where income statement information is presented by geographic region, the accounts will differ to the Financial Review which is based on its client location. The Client segment by geographic region table on page 38 provides a split of loans and advances to customers and banks by booking location.

The following pages provide detail of credit exposure split as follows:

• Loan portfolio overview, which provides analysis of the loan portfolio by client segment, by geographic region, by industry and retail product (pages 38 to 40)

• Credit risk mitigation, which provides analysis of collateral held by the client segment and collateral type, and details of loan to value ratios and other forms of credit risk mitigation (pages 41 to 43)

• Credit quality, which provides an analysis of the loan portfolio by credit grade, non-performing loans, impaired loans, renegotiated and forborne loans (pages 43 to 46)

• Problem credit management and provisioning, which provides analysis of non-performing loans and impaired loans (pages 47 to 51)

Credit portfolio

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

Our Credit portfolio remains well diversified and predominantly short term, with high levels of collateralisation for longer term and non-investment grade loans. We have consistently maintained our focus on chosen clients in our core markets and our disciplined approach to risk management.

Loan portfolio

This section provides qualitative and quantitative information on the Group's exposure to credit risk for loans and advances to banks and customers, including the impact of credit risk mitigation and problem credit management. Our credit portfolio remains well diversified and predominantly short term.

The loan portfolio summarised by segment and by credit quality (neither past due nor impaired; past due; and impaired) on pages 45 to 46. The Group manages its loan portfolio

between those assets that are performing in line with their contractual terms (whether original or renegotiated) and those that are non-performing. Corporate and Institutional (CIC) and Commercial Clients (CC) exposures are typically managed on an individual basis and consequently credit grade migration is a key component of credit risk management. In Retail, where loans are typically managed on a portfolio basis, delinquency trends are monitored consistently as part of risk management. In both businesses, credit risk is mitigated to some degree through collateral, further details of which are set out on pages 41 to 42.

This section covers a summary of the Group's loan portfolio broadly analysed by business and geography, credit quality and provisioning of the loan book.

Geographic and Client segmental analysis

Loans and advances to customers (net of individual impairment and portfolio impairment provisions) decreased by $6.3 billion since December 2014. This reduction was primarily within the CC segment ($1.2 billion) and the CIC segment ($3.4 billion) as a result of low demand of credit due to a slow-down in some of our key markets. The growth in this period was largely in financing, insurance and business services. There have been decreases in the Group's exposures to the Energy, Mining and Quarrying and Manufacturing industries as part of the risk mitigating actions mentioned earlier.

The decrease in loans to banks of $4.3 billion since December 2014 is primarily across Europe ($3.7 billion) and Americas ($0.7 billion). This is mostly driven by the liquidity management activity of the Group. Given the nature of the book it is predominantly short term and the maturity profile remains consistent period on period.

For the Private Banking and Retail Client segments, lending is analysed by product.

The Private Banking Client segment decreased by $0.8 billion from December 2014 primarily through its operations in Singapore and Hong Kong.

The reduction in unsecured lending, which includes CCPL, was mainly in the North East Asia and ASEAN regions and this was partly offset by growth in Mortgages, mainly in Hong Kong and Korea although regulatory cooling measures in several markets tempered the related growth opportunities.

Overall the regional split of our loans and advances to customers is very similar to 2014 and the loan portfolio remains well diversified across the Group's footprint countries, with the largest single country representing 22 per cent of loans and advances to customers and banks.

Loan Portfolio continued
Client segment by geographic region
	30.06.15
	Greater China	North East Asia	South Asia	ASEAN	MENAP	Africa	Americas	Europe	Total
	$million	$million	$million	$million	$million	$million	$million	$million	$million
Corporate and Institutional	33,429	8,537	8,878	36,007	11,558	5,566	11,035	39,851	154,861
Commercial	4,438	3,128	2,037	2,101	1,057	663	-	50	13,474
Private Banking	3,719	-	212	9,087	260	-	-	3,935	17,213
Retail	42,293	18,569	4,202	25,515	4,911	1,687	-	249	97,426
	83,879	30,234	15,329	72,710	17,786	7,916	11,035	44,085	282,974
Portfolio impairment provision	(93)	(66)	(60)	(164)	(71)	(45)	(12)	(124)	(635)
Total loans and advances to customers^1,2	83,786	30,168	15,269	72,546	17,715	7,871	11,023	43,961	282,339
Intra-regional balance³	2,643	(33)	8,145	1,460	3,943	4,887	1,475	(22,520)	-
Total loans and advances to customers^1,4	86,429	30,135	23,414	74,006	21,658	12,758	12,498	21,441	282,339
Total loans and advances to banks¹	29,096	5,585	513	11,982	1,973	1,116	11,995	20,922	83,182



	31.12.14
	Greater China	North East Asia	South Asia	ASEAN	MENAP	Africa	Americas	Europe	Total
	$million	$million	$million	$million	$million	$million	$million	$million	$million
Corporate and Institutional	37,253	7,882	8,093	37,419	12,136	5,894	10,964	38,657	158,298
Commercial	5,395	3,176	2,036	2,234	1,106	669	-	74	14,690
Private Banking	3,494	-	167	9,732	274	-	-	4,391	18,058
Retail	41,408	18,633	4,272	27,220	4,869	1,845	-	2	98,249
	87,550	29,691	14,568	76,605	18,385	8,408	10,964	43,124	289,295
Portfolio impairment provision	(98)	(75)	(56)	(201)	(78)	(47)	(9)	(132)	(696)
Total loans and advances to customers^1,2	87,452	29,616	14,512	76,404	18,307	8,361	10,955	42,992	288,599
Intra-regional balance³	2,194	(34)	8,347	2,137	4,468	4,742	(3)	(21,851)	-
Total loans and advances to customers^1,4	89,646	29,582	22,859	78,541	22,775	13,103	10,952	21,141	288,599
Total loans and advances to banks¹	28,758	5,997	488	12,388	1,603	940	12,661	24,665	87,500

¹ Amounts net of individual impairment provision and include financial instruments held at fair value through profit or loss (see note 12)

²The disclosures in the risk profile section are presented on the basis of booking location and not customer location

³The intra-regional balance represents the attribution of lending from the booking location to the location of the clients

⁴ The balances are based on the location of the customer

Industry and Retail products analysis by geographic region

In our CIC and CC portfolios, Energy industry exposure remains significant at 14 per cent of corporate loans and advances (16 per cent in 2014). The Energy industry exposure is spread across six sub-sectors and over 398 client groups, and 51 per cent mature within one year.

The manufacturing sector makes up 8 per cent of the customer loans and advances (2014: 9 per cent). The Manufacturing industry group is spread across a diverse range of industries, including Automobiles & Components, Capital goods, Pharmaceuticals Biotech & life sciences, Technology hardware & equipments, Chemicals, paper products and packaging. The exposures are spread over 5,050 clients.

The exposures to Financing Banking and Insurance is mostly to investment grade institutions and is part of the liquidity management of the Group.

The Group provide loans to commercial real estate (CRE) counterparties of $15.1 billion (2014: $16.1 billion), which represents less than 6 per cent of total customer loans and advances and less than 3 per cent of assets. The exposure greater than 5 years is less than 10 per cent of the CRE portfolio. Of this exposure, $6.7 billion 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 CRE exposure comprises working capital loans to real estate corporates, exposures with non-property collateral, unsecured exposure and exposure to real estate entities of diversified conglomerates.

The unsecured portion of the Retail products portfolio is down from 19 percent to 16 percent of the Retail products loans and advances and is spread across multiple products in over 30 markets. There has otherwise been no significant change in the shape of our retail products portfolio. Refer to pages 39 to 40 for an analysis of loans to Retail Clients split by product. The decrease in North East Asia and ASEAN exposure was a result of de-risking portfolio management actions.

Industry and Retail products analysis by geographic region

	30.06.15
	Greater China	North East Asia	South Asia	ASEAN	MENAP	Africa	Americas	Europe	Total
	$million	$million	$million	$million	$million	$million	$million	$million	$million
Industry:
Energy	1,081	277	73	6,864	1,096	465	2,821	11,367	24,044
Manufacturing	8,349	2,286	2,550	3,472	1,963	1,033	1,024	3,082	23,759
Financing, insurance and non-banking	6,503	1,092	1,032	4,936	997	519	4,173	8,903	28,155
Transport, telecom and utilities	3,304	2,073	1,576	3,558	1,234	580	639	6,337	19,301
Food and household products	2,201	301	830	5,651	1,721	1,607	1,444	1,122	14,877
Commercial real estate	6,091	2,183	1,525	3,465	1,221	39	-	542	15,066
Mining and Quarrying	2,136	592	666	3,054	534	836	251	3,759	11,828
Consumer durables	4,668	711	1,347	1,035	1,248	340	363	2,525	12,237
Construction	1,035	445	777	1,325	1,313	234	29	796	5,954
Trading Companies & Distributors	959	287	174	977	615	236	19	85	3,352
Government	323	721	7	2,234	140	13	88	284	3,810
Other	1,217	697	358	1,537	533	327	184	1,099	5,952
Retail Products:
Mortgages	35,515	13,252	2,383	19,941	1,861	359	-	1,386	74,697
CCPL and other unsecured lending	6,221	3,922	998	4,157	2,118	1,265	-	58	18,739
Auto	-	-	39	527	341	6	-	1	914
Secured Wealth Products	3,968	61	36	9,128	93	-	-	1,424	14,710
Other	308	1,334	958	849	758	57	-	1,315	5,579
	83,879	30,234	15,329	72,710	17,786	7,916	11,035	44,085	282,974
Portfolio impairment provision	(93)	(66)	(60)	(164)	(71)	(45)	(12)	(124)	(635)
Total loans and advances to customers¹	83,786	30,168	15,269	72,546	17,715	7,871	11,023	43,961	282,339

Total loans and advances to banks	29,096	5,585	513	11,982	1,973	1,116	11,995	20,922	83,182

¹ The disclosures in the risk profile section are presented on the basis of booking location and not customer location

Industry and Retail products analysis by geographic region continued
	31.12.14
	Greater China	North East Asia	South Asia	ASEAN	MENAP	Africa	Americas	Europe	Total
	$million	$million	$million	$million	$million	$million	$million	$million	$million
Industry:
Energy	1,470	310	123	9,006	1,228	533	3,206	11,347	27,223
Manufacturing	9,456	2,419	2,452	4,337	2,239	1,031	1,031	3,838	26,803
Financing, insurance and non-banking	5,856	995	431	5,497	1,136	628	3,507	7,336	25,386
Transport, telecom and utilities	3,715	1,602	922	3,706	1,210	662	612	6,176	18,605
Food and household products	2,589	313	929	5,034	1,381	1,346	1,438	1,302	14,332
Commercial real estate	6,876	2,190	1,503	3,798	1,133	79	-	485	16,064
Mining and Quarrying	3,383	649	922	2,186	512	764	273	4,123	12,812
Consumer durables	5,076	659	1,291	1,170	1,385	439	404	1,752	12,176
Construction	1,169	486	897	1,178	1,352	252	20	1,095	6,449
Trading Companies & Distributors	1,419	400	232	932	719	418	56	114	4,290
Government	536	368	5	1,206	230	19	220	165	2,749
Other	1,103	667	422	1,603	717	392	197	998	6,099
Retail Products:
Mortgages	34,381	12,918	2,366	20,724	1,853	345	-	1,320	73,907
CCPL and other unsecured lending	6,673	4,407	987	4,850	2,096	1,425	-	51	20,489
Auto	-	-	40	631	339	6	-	-	1,016
Secured Wealth Products	3,466	74	70	9,385	805	-	-	1,455	15,255
Other	382	1,234	976	1,362	50	69	-	1,567	5,640
	87,550	29,691	14,568	76,605	18,385	8,408	10,964	43,124	289,295
Portfolio impairment provision	(98)	(75)	(56)	(201)	(78)	(47)	(9)	(132)	(696)
Total loans and advances to customers¹	87,452	29,616	14,512	76,404	18,307	8,361	10,955	42,992	288,599

Total loans and advances to banks	28,758	5,997	488	12,388	1,603	940	12,661	24,665	87,500

¹ The disclosures in the risk profile section are presented on the basis of booking location and not customer location

Credit risk mitigation

In all client segments, credit risk is mitigated to some degree through collateral, further details of which are set out in this section.

Collateral

The requirement for collateral is not a substitute for the ability to pay, which is the primary consideration for any lending decision across the Group.

As a result of reinforcing collateralisation requirements, the value of collateral held has increased by 1 per cent since 2014 and by 3 per cent as a percentage of CIC and CC loans and advances over the same period.

The collateral amount in the table below is adjusted where appropriate in accordance with the risk mitigation policy and for the effect of over collateralisation. Exposures for 53 per cent of the clients that have placed collateral with the Bank are over collateralised. The average amount of over collateralisation is 48 per cent.

The unadjusted market value of collateral in respect of CIC and CC, which does not take into consideration over-collateralisation or adjustments, was $213 billion (31 December 2014: $212 billion).

The Group has remained conservative in the way the value of collateral is computed, which is calibrated to a severe downturn and back-tested against our prior experience. At an average across all types of collateral, the value is approximately half of the current market value.

The decrease of commodities from 3 per cent to 2 per cent of collateral balances is a direct result of the overall reduction in commodity-related exposures. The increase of reverse repo and securities collateral from 36 per cent to 39 per cent represents an increase in the deployment of liquidity by ALM to the CIC and CC segments.

The average LTV ratio of the commercial real estate portfolio has remained relatively stable at 38.6 per cent, compared with

39.9 per cent in 2014. The proportion of loans with an LTV greater than 80 per cent has remained below 1 per cent during the same period.

In the Retail and Private Banking Client segments, a secured loan is one where the borrower pledges an asset as collateral which the Group is able to take possession in the event that the borrower defaults.

The collateral levels for Retail have decreased by $440 million compared to 2014.

For Retail, 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. 16 per cent of the Group's retail product exposures are unsecured, compared to 19 per cent in 2014.

See details on page 42, which presents a detailed analysis of loans to individuals by product, split between fully secured, partially secured and unsecured.

For Mortgage loans, the value of property held as security significantly exceeds the value of mortgage loans. LTV ratios measure the ratio of the current mortgage outstanding to the current fair value of the properties on which they are secured. The overall LTV ratio on the Group's mortgage portfolio is less than 50 per cent, relatively unchanged since the end of 2014. The Group's major mortgage markets of Hong Kong, Korea and Taiwan have an average LTV of less than 50 per cent. The value of exposures with an LTV greater than 100 per cent is minimal, and relates mainly to old vintages in the UAE. The majority of the residential mortgage portfolio is for owner occupation.

See details on page 43, which presents an analysis of loan to value ratios by geography for the mortgage portfolio.

Collateral

For loans and advances to banks and customers (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.

	Collateral			Amount Outstanding¹
		Of which			Of which
	Total	Past due but not individually impaired loans	Individually impaired loans	Total	Past due but not individually impaired loans	Individually impaired loans
	$million	$million	$million	$million	$million	$million
As at 30 June 2015
Corporate and Institutional Clients²	66,428	359	1,221	238,045	2,472	6,757
Commercial Clients	6,379	163	271	13,474	321	967
Private Banking Clients	12,514	45	181	17,213	26	229
Retail Clients	74,554	2,132	300	97,426	2,840	893
Total	159,875	2,699	1,973	366,158	5,659	8,846
As at 31 December 2014
Corporate and Institutional Clients²	64,343	228	809³	245,800	1,847	6,094
Commercial Clients	6,034	265³	253	14,690	454	1,068
Private Banking Clients	12,905	220	40	18,058	140	91
Retail Clients	74,994³	2,053	360	98,249	2,928	846
Total	158,276	2,766	1,462	376,797	5,369	8,099

¹ Includes loans held at fair value through profit or loss

²Includes loans and advances to banks

³2014 figures have been restated

Credit risk mitigation continued

Corporate and Institutional and Commercial Clients

Collateral held against CIC and CC exposures amounted to $73 billion (2014: $70 billion).

Our underwriting standards encourage taking specific charges on assets and we consistently seek high quality, investment grade secured collateral. 44 per cent of collateral held is comprised of physical assets or is property based, with the remainder held largely in cash and investment securities.

Non-tangible collateral - such as guarantees and 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.

The proportion of highly rated securities of 28 per cent on collateral increased from 24 per cent compared to December 2014 due to higher levels of reverse repurchase transactions.

The following table provides an analysis of the types of collateral held against Corporate and Institutional and Commercial Clients loan exposures:

		30.06.15	31.12.14
		$million	$million
	Property	18,093	16,438
	Plant, machinery and other stock	5,275	5,498
	Cash	12,055	12,594
	Reverse repo & Securities	28,536	25,641
	AAA	107	4
	AA- to AA+	20,094	17,188
	BBB- to BBB+	3,566	3,062
	Lower than BBB-	1,092	997
	Unrated	3,677	4,390
	Commodities	1,418	2,426
	Ships and aircraft	7,430	7,780
Total value of collateral		72,807	70,377

Commercial real estate (CRE)

The Group has lending to CRE counterparties of $15.1 billion (2014: $16.1 billion). Of this exposure, $6.7 billion 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 CRE exposure comprises working capital loans to real estate corporates, exposure with non-property collateral, unsecured exposure and exposure to real estate entities of diversified conglomerates.

Retail and Private Banking Clients loan portfolio

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


		30.06.15				31.12.14
		Fully secured	Partially secured	Unsecured	Total¹	Fully secured	Partially secured	Unsecured	Total¹
		$million	$million	$million	$million	$million	$million	$million	$million
Loans to individuals
Mortgages		74,697	-	-	74,697	73,907	-	-	73,907
CCPL		3	-	18,736	18,739	4	-	20,485	20,489
Auto		914	-	-	914	1,016	-	-	1,016
Secured wealth products		14,710	-	-	14,710	15,255	-	-	15,255
Other		4,141	1,438	-	5,579	2,783	1,494	1,363	5,640
		94,465	1,438	18,736	114,639	92,965	1,494	21,848	116,307
Percentage of total loans		83%	1%	16%		80%	1%	19%
¹	Amounts net of individual impairment provisions

Credit risk mitigation continued

Mortgage loan-to-value ratios by geography

The following table provides an analysis of loan to value (LTV) ratios by geographic region for the Retail and Private Banking Clients mortgages portfolio.


	30.06.15
	Greater China	North East Asia	South Asia	ASEAN	MENAP	Africa	Americas	Europe	Total
	%	%	%	%	%	%	%	%	%
Average Portfolio loan to value	42.7	50.0	38.1	56.7	63.1	58.9	-	48.9	48.6
Loans to individuals - Mortgages ($million)	35,515	13,252	2,383	19,941	1,861	359	-	1,386	74,697

	31.12.14
	Greater China	North East Asia	South Asia	ASEAN	MENAP	Africa	Americas	Europe	Total
	%	%	%	%	%	%	%	%	%
Average Portfolio loan to value	44.0	50.0	38.7	56.4	61.4	58.2	-	51.5	49.3
Loans to individuals - Mortgages ($million)	34,381	12,918	2,366	20,724	1,853	345	-	1,320	73,907

Credit quality analysis

An overall breakdown of the loan portfolio by client segment is set out on pages 45 to 46 differentiating between the performing and non-performing book.

Within the performing book, there is an analysis:

· Of loans and advances past due but not impaired: a loan is considered past due if payment of principal or interest has not been made on its contractual due date

· Of loans and advances where an impairment provision has been raised- these represent certain forborne accounts which have complied with their revised contractual terms for more than 180 days

Non-performing loans are analysed, net of individual impairment provisions between what is past due but not impaired and what is impaired.

This is followed by further analysis of impairment charges and provisions (page 50).

Credit grade migration

Performing loans that are neither past due nor impaired constitute 96 per cent of customer loans and this is consistent with past periods (2014: 97 per cent). Overall credit quality has also remained stable, with the average credit grade of the corporate loan portfolio remaining at 8B, unchanged since 2014.

All loans are assigned a credit grade, which is reviewed periodically and amended in light of changes in the borrower's circumstances or behaviour. Credit grades 1-12 are assigned to performing clients or accounts, while credit grades 13 and 14 are assigned to non-performing or defaulted clients.

Credit grade migration trends have also been stable across most countries, although there has been some deterioration in India, related to the slower economic growth. Retail credit grade 12 balances have declined following continuing de-risking of the portfolio. Excluding this, the credit grade composition across all client segments is consistent with the prior period. In respect of loans to banks, the credit quality composition is also consistent with prior periods.

Loans and advances past due but not impaired are similar to levels at the end of 2014. In the Retail client segment, these primarily relate to loans where there is a temporary timing difference in payments. In the CIC and CC segments, across all past due categories approximately 67 per cent of the amounts past due were regularised by 31 July 2015.

Non-performing loans

Non-performing loans (net of individual impairment provisions) are higher by $338 million. This increase is primarily in the CIC segment and is driven by a small number of large exposures financially booked in Europe and ASEAN. Details and further analysis of gross and net non-performing loans by client segment and by geography are provided on pages 47 to 48.

A non-performing loan is any loan that is more than 90 days past due or is otherwise individually impaired. This excludes 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. These loans may have a provision reflecting the time value of money and if so, are reported as part of forborne loans. Forborne loans included in these amounts are consistent with the level seen as at 31 December 2014.

Loan impairment

Loans are classified as individually impaired where analysis and review indicates that full payment of either interest or principal is questionable, or as soon as payment of interest or principal is significantly overdue. See further details on pages 49 to 51.

The Group's loan impairment charge for the six months ended 30 June 2015 was $1,652 million. This represents an increase of $806 million, or 95 per cent, compared to H1 2014 and an increase of $357 million or 28 per cent compared to H2 2014. This represents 114 basis points of total average customer net loans and advances. The increase was driven mainly by CIC.

In CIC, total loan impairment provisions on the balance sheet have increased by $844 million, or 36 per cent, compared to 31 December 2014. The provisions were concentrated from exposures financially booked in Europe and India (South Asia). Loan impairment for CIC represents 130 basis points of average customer net loans and advances. The credit quality of the portfolio remains high in spite of the volatility in commodity prices and currencies.

In Retail Clients, total individual impairment provisions were lower than 2014. Improvement in impairments was driven mainly by improvement PDRS related losses in Korea, disposal of the Group's Consumer Finance business and improvements in other markets mainly in Malaysia, Hong Kong and Taiwan. Portfolio impairment provisions also fell due to a reduction in personal loans exposure. We remain disciplined in our approach to risk management and proactive in our collection efforts to minimise account delinquencies.

Other impairment, excluding goodwill impairment, has decreased by $132 million to $86 million reflecting the 2014 write-down of commodity assets arising from a fraud in Greater China, and certain strategic and associate investments.

Cover ratio

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

The cover ratio before collateral for Retail Clients remains stable at 87 per cent (2014: 91 per cent). The cover ratio before collateral for CIC was higher at 52 per cent compared to 2014. The CC segment cover ratio before collateral also increased to 55 per cent. While the Private Banking cover ratio fell to 21 per cent compared to 67 per cent in 2014, the net non-performing loan is 99 per cent covered by collateral.

The balance of non-performing loans not covered by individual impairment provisions represents the adjusted value of collateral held and the Group's estimate of the net outcome of any workout or recovery strategy. The cover ratio after taking into account collateral but excluding portfolio impairment provisions for CIC is 65 per cent (2014: 55 per cent) and for CC is 78 per cent (2014: 71 per cent).

As highlighted on page 41, collateral provides risk mitigation to some degree in all client segments and better supports the credit quality and cover ratio assessments post impairment provisions. Details are provided on page 47.

Portfolio impairment provision

A Portfolio Impairment Provision (PIP) is held to cover the inherent risk of losses which, although not identified, are known through experience to be present in any loan portfolio. PIP balances have decreased by 9 per cent from 2014. The reduction of $26 million in Retail Clients is mainly due to risk mitigating actions in our unsecured portfolio mainly in Korea, Thailand, Hong Kong and Taiwan and foreign exchange impact. The decrease of $35 million in the CIC and CC segments is driven by the migration of a few large exposures into individually impaired status, thereby shrinking the portfolio size upon which PIP is based.

Credit quality analysis continued
By Client segment
	30.06.15
		Loans to Customers
	Loans to banks	Corporate and Institutional	Commercial	Private Banking	Retail Clients	Total
	$million	$million	$million	$million	$million	$million
Performing Loans
Neither past due nor impaired
- Grades 1-5	73,394	64,186	498	2,909	65,501	133,094
- Grades 6-8	8,323	62,161	5,142	13,879	14,542	95,724
- Grades 9-11	1,226	18,456	6,919	210	13,451	39,036
- Grade 12	9	4,240	138	6	617	5,001
	82,952	149,043	12,697	17,004	94,111	272,855
of the above, renegotiated loans	-	4,508	6	-	205	4,719
Past due but not impaired
- Up to 30 days past due	136	1,341	229	25	2,119	3,714
- 31 - 60 days past due	-	450	33	-	349	832
- 61 - 90 days past due	3	542	28	1	157	728
	139	2,333	290	26	2,625	5,274
of the above, renegotiated loans	-	19	5	-	29	53
Impaired forborne loans, net of provisions	-	36	-	-	283	319

Total performing loans	83,091	151,412	12,987	17,030	97,019	278,448

Non-performing Loans
Past due but not impaired
- 91 - 120 days past due	-	-	14	-	149	163
-121 - 150 days past due	-	-	17	-	66	83
	-	-	31	-	215	246

Individually impaired loans, net of provisions	93	3,449	456	183	192	4,280
of the above, forborne loans	-	1,102	53	-	139	1,294

Total non-performing loans, net of individual impairment	93	3,449	487	183	407	4,526

Total loans and advances	83,184	154,861	13,474	17,213	97,426	282,974
Portfolio impairment provision	(2)	(299)	(33)	(2)	(301)	(635)
Total net loans and advances	83,182	154,562	13,441	17,211	97,125	282,339

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

Neither past due nor impaired
- Grades 1-5	2,557	870	-	-	-	870
- Grades 6-8	200	1,549	-	-	-	1,549
- Grades 9-11	-	354	-	-	-	354
- Grade 12	-	123	-	-	-	123
	2,757	2,896	-	-	-	2,896
Past due but not impaired
- Up to 30 days past due	-	-	-	-	-	-

Individually impaired loans	-	254	-	-	1	255

Credit quality analysis continued
By Client segment
	31.12.14
		Loans to Customers
	Loans to banks	Corporate and Institutional	Commercial	Private Banking	Retail Clients	Total
	$million	$million	$million	$million	$million	$million
Performing Loans
Neither past due nor impaired
- Grades 1-5	79,001	65,551	775	3,115	65,467	134,908
- Grades 6-8	6,456	61,863	5,413	14,648	14,472	96,396
- Grades 9-11	1,871	20,879	7,377	120	14,050	42,426
- Grade 12	28	4,545	126	3	944	5,618
	87,356	152,838	13,691	17,886	94,933	279,348
of the above, renegotiated loans	-	4,277	17	-	262	4,556
Past due but not impaired
- Up to 30 days past due	40	1,467	344	139	2,187	4,137
- 31 - 60 days past due	-	183	60	1	400	644
- 61 - 90 days past due	3	154	23	-	179	356
	43	1,804	427	140	2,766	5,137
of the above, renegotiated loans	-	106	10	-	61	177
Impaired forborne loans, net of provisions	-	479	-	-	153	632

Total performing loans	87,399	155,121	14,118	18,026	97,852	285,117

Non-performing Loans
Past due but not impaired
- 91 - 120 days past due	-	-	2	-	96	98
-121 - 150 days past due	-	-	25	-	66	91
	-	-	27	-	162	189

Individually impaired loans, net of provisions	103	3,177	545	32	235	3,989
of the above, forborne loans	-	1,072	48	-	225	1,345

Total non-performing loans, net of individual impairment	103	3,177	572	32	397	4,178

Total loans and advances	87,502	158,298	14,690	18,058	98,249	289,295
Portfolio impairment provision	(2)	(328)	(39)	(2)	(327)	(696)
Total net loans and advances	87,500	157,970	14,651	18,056	97,922	288,599

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

Neither past due nor impaired
- Grades 1-5	3,293	1,651	-	-	-	1,651
- Grades 6-8	317	1,415	-	-	-	1,415
- Grades 9-11	-	320	-	-	-	320
- Grade 12	-	100	-	-	-	100
	3,610	3,486	-	-	-	3,486
Past due but not impaired
- Up to 30 days past due	-	-	-	-	-	-

Individually impaired loans	-	418	-	-	-	418

Problem credit management and provisioning

Non-performing loans by client segment

The table below presents a movement of the gross non-performing loans to banks and customers, together with the provisions held, for all segments and the respective cover ratios.

	30.06.15
	Corporate and Institutional	Commercial	Private Banking	Retail	Total
	$million	$million	$million	$million	$million

Gross non-performing loans	6,724	998	229	796	8,747
Individual impairment provisions¹	(3,182)	(511)	(46)	(389)	(4,128)
Net non-performing loans	3,542	487	183	407	4,619
Portfolio impairment provision (PIP)	(301)	(33)	(2)	(301)	(637)
Total	3,241	454	181	106	3,982
Cover ratio	52%	55%	21%	87%	54%
Collateral ($million)	1,221	271	181	300	1,973
Cover ratio (after collateral, excl. PIP)	65%	78%	99%	87%	70%

	31.12.14
	Corporate and Institutional	Commercial	Private Banking	Retail	Total
	$million	$million	$million	$million	$million

Gross non-performing loans	5,510	1,095	90	797	7,492
Individual impairment provisions¹	(2,230)	(523)	(58)	(400)	(3,211)
Net non-performing loans	3,280	572	32	397	4,281
Portfolio impairment provision (PIP)	(330)	(39)	(2)	(327)	(698)
Total	2,950	533	30	70	3,583
Cover ratio	46%	51%	67%	91%	52%
Collateral ($million)	809	253	40	360	1,462
Cover ratio (after collateral, excl. PIP)	55%	71%	nm²	95%	62%
¹ The difference to total individual impairment provision reflects provisions against performing forborne loans that are not included within non-performing loans as they have been performing for 180 days
²Not meaningful

Problem credit management and provisioning continued

Non-performing loans by geographic region

Gross non-performing increased by $1,255 million, or 17 per cent since 2014. These increases were primarily driven by a small number of large exposures in Europe and ASEAN. The increase in Europe non-performing loans primarily relates to loans to Indian clients and Commodities related loans booked in the region.

The following tables set out the total non-performing loans to banks and customers on the basis of the geographic region:


	30.06.15
	Greater China	North East Asia	South Asia	ASEAN	MENAP	Africa	Americas	Europe		Total
	$million	$million	$million	$million	$million	$million	$million	$million		$million
Loans and advances
Gross non-performing¹	681	429	1,340	1,746	1,971	492	60	2,028		8,747
Individual impairment provision²	(282)	(293)	(791)	(648)	(1,112)	(163)	(17)	(822)		(4,128)
Non-performing loans net of individual impairment provision	399	136	549	1,098	859	329	43	1,206		4,619
Portfolio impairment provision	(93)	(66)	(60)	(165)	(72)	(45)	(12)	(124)		(637)
Net non-performing loans and advances	306	70	489	933	787	284	31	1,082		3,982
Cover ratio	55%	84%	64%	47%	60%	42%	48%	47%		54%

	31.12.14
	Greater China	North East Asia	South Asia	ASEAN	MENAP	Africa	Americas		Europe		Total
	$million	$million	$million	$million	$million	$million	$million		$million		$million
Loans and advances
Gross non-performing¹	668	448	1,159	1,396	1,643	478	37		1,663		7,492
Individual impairment provision²	(321)	(288)	(450)	(519)	(936)	(115)	-		(582)		(3,211)
Non-performing loans net of individual impairment provision	347	160	709	877	707	363	37		1,081		4,281
Portfolio impairment provision	(98)	(75)	(56)	(202)	(79)	(47)	(9)		(132)		(698)
Net non-performing loans and advances	249	85	653	675	628	316	28		949		3,583
Cover ratio	63%	81%	44%	52%	62%	34%	24%		43%		52%

¹	The disclosures in the risk profile section are presented on the basis of booking location and not customer location
²	The difference to total individual impairment provision reflects provisions against restructured loans that are not included within non-performing loans as they have been performing for 180 days

Problem credit management and provisioning continued

Individual and portfolio impairment provisions

The movement in individual impairment provision is discussed below. Portfolio impairment provisions decreased by $61 million, compared to 31 December 2014 largely in relation to provision releases in respect of Corporate and Institutional Clients primarily in ASEAN.

The following tables set out the movements in total individual and portfolio impairment provisions.


	30.06.15			30.06.14
	Individual impairment provisions	Portfolio impairment provisions	Total	Individual impairment provisions	Portfolio impairment provisions	Total
	$million	$million	$million	$million	$million	$million
Provisions held at 1 January	3,375	698	4,073	2,849	698	3,547
Exchange translation differences	(62)	(12)	(74)	33	8	41
Amounts written off	(913)	-	(913)	(574)	-	(574)
Releases of acquisition fair values	-	-	-	(1)	-	(1)
Recoveries of amounts previously written off	94	-	94	105	-	105
Discount unwind	(48)	-	(48)	(52)	-	(52)
Transferred to assets held for sale	-	-	-	(54)	-	(54)
Disposal of business units	(14)	-	(14)	-	-	-
New provisions	1,857	38	1,895	1,014	81	1,095
Recoveries/provisions no longer required	(170)	(87)	(257)	(195)	(53)	(248)
Net impairment charge/(releases) against profit	1,687	(49)	1,638	819	28	847
Other movements¹	35	-	35	-	-	-
Provisions held at 30 June	4,154	637	4,791	3,125	734	3,859
¹Provision previously reported under other impairment

				31.12.14
				Individual impairment provisions	Portfolio impairment provisions	Total
				$million	$million	$million
Provisions held at 1 July				3,125	734	3,859
Exchange translation differences				(94)	(29)	(123)
Amounts written off				(943)	-	(943)
Releases of acquisition fair values				(4)	-	(4)
Recoveries of amounts previously written off				112	-	112
Discount unwind				(48)	-	(48)
Transferred to assets held for sale				(50)	(17)	(67)
New provisions				1,469	121	1,590
Recoveries/provisions no longer required				(192)	(111)	(303)
Net impairment charge against profit				1,277	10	1,287
Provisions held at 31 December				3,375	698	4,073

Problem credit management and provisioning continued

Individually impaired loans by client segment

Corporate and Institutional Clients gross individually impaired loans increased by $663 million, or 11 per cent since 2014 primarily in Europe, Greater China and ASEAN as a result of a small number of Corporate and Institutional Clients exposures. The amounts written off primarily relate to Retail Clients, which generate a higher level of write-offs as unsecured lending balances are written off once they are more than 150 days past due.

The following tables show movement in individually impaired loans and provisions for each client segment:

	30.06.15
	Corporate and Institutional	Commercial	Private Banking	Retail	Total
	$million	$million	$million	$million	$million
Gross individually impaired loans at 30 June	6,757	967	229	893	8,846

Provisions held at 1 January	2,335	523	59	458	3,375
Exchange translation differences	18	(67)	(1)	(12)	(62)
Amounts written off	(233)	(96)	(105)	(479)	(913)
Recoveries of amounts previously written off	2	-	-	92	94
Discount unwind	(26)	(9)	-	(13)	(48)
Disposal of business units	-	-	-	(14)	(14)
New provisions	1,071	175	93	518	1,857
Recoveries/provisions no longer required	(23)	(15)	-	(132)	(170)
Net individual impairment charge against profit	1,048	160	93	386	1,687
Other movements¹	35	-	-	-	35
Individual impairment provisions held at 30 June	3,179	511	46	418	4,154
Net individually impaired loans	3,578	456	183	475	4,692
¹ Provision previously reported under other impairment

	30.06.14
	Corporate and Institutional	Commercial	Private Banking	Retail	Total
	$million	$million	$million	$million	$million
Gross individually impaired loans at 30 June	5,617	1,172	114	1,109	8,012

Provisions held at 1 January	1,927	422	52	448	2,849
Exchange translation differences	60	(32)	-	5	33
Amounts written off	(48)	(24)	-	(502)	(574)
Releases of acquisition fair values	(1)	-	-	-	(1)
Recoveries of amounts previously written off	(2)	1	-	106	105
Discount unwind	(31)	(9)	1	(13)	(52)
Transferred to assets held for sale	-	-	-	(54)	(54)
New provisions	246	114	-	654	1,014
Recoveries/provisions no longer required	(18)	(10)	(1)	(166)	(195)
Net individual impairment charge/(releases) against profit	228	104	(1)	488	819
Individual impairment provisions held at 30 June	2,133	462	52	478	3,125
Net individually impaired loans	3,484	710	62	631	4,887

Problem credit management and provisioning continued


	31.12.14
	Corporate and Institutional	Commercial	Private Banking	Retail	Total
	$million	$million	$million	$million	$million
Gross individually impaired loans as at 31 December	6,094	1,068	91	846	8,099

Provisions held at 1 July	2,133	462	52	478	3,125
Exchange translation differences	(104)	27	-	(17)	(94)
Amounts written off	(369)	(73)	7	(508)	(943)
Releases of acquisition fair values	(3)	(1)	-	-	(4)
Recoveries of amounts previously written off	2	1	-	109	112
Discount unwind	(27)	(7)	(1)	(13)	(48)
Transferred to assets held for sale	(1)	-	-	(49)	(50)
New provisions	709	137	-	623	1,469
Recoveries/provisions no longer required	(5)	(23)	1	(165)	(192)
Net individual impairment charge against profit	704	114	1	458	1,277
Individual impairment provisions held as at 31 December	2,335	523	59	458	3,375
Net individually impaired loans	3,759	545	32	388	4,724

Country cross-border risk (not reviewed by auditor)

Country cross-border risk is the risk that we will be unable to obtain payment from our customers or third parties on their contractual obligations as a result of certain actions taken by foreign governments, chiefly relating to convertibility and transferability of foreign currency.

The Group Risk Committee (GRC) is responsible for approving country cross-border risk limits and delegates the setting and management of country limits to the Group Country Risk function. The business and country chief executive officers manage exposures within these limits. Countries designated as higher risk are subject to increased central monitoring.

Cross-border assets comprise loans and advances, interest-bearing deposits with other banks, trade and other bills, acceptances, amounts receivable under finance leases, derivatives, certificates of deposit and other negotiable paper, investment securities and formal commitments where the counterparty is resident in a country other than where the assets are recorded, or where assets are funded by intra-group borrowings. Cross-border assets also include exposures to local residents denominated in currencies other than the local currency. Cross-border exposure also includes the value of commodity, aircraft and shipping assets owned by the Group that are held in a given country.

The profile of country cross-border exposures greater than one per cent of total assets as at 30 June 2015 remained consistent with our strategic focus on core franchise countries, and with the scale of the larger markets in which we operate. Changes in the pace of economic activity and the ongoing depression in commodity prices had an impact on the growth of cross-border exposure for certain territories, whilst the exposure in other developed markets was a result of liquidity management activity.

Cross-border exposure to China remains predominantly short term (72 per cent of such exposure had a tenor of less than 12-months), with exposure declining during 2015 in response to actions taken to ensure the most efficient use of the Group's approved risk appetite and the moderation in economic conditions in China. Efforts to diversify the deployment of excess liquidity within the region also contributed to the decrease in short term cross-border exposure to China.

The overall size of cross-border exposure to India reflects the size of our franchise in the country. Medium term (more than 12 months tenor) cross-border exposure to India declined during 2015, reflecting a slowing in the origination of new business due to underlying economic conditions, and a reduction in existing medium term exposures.

Consistent with the reported decrease in total assets, country cross-border risk exposure to Hong Kong, Singapore and South Korea declined during 2015. Factors contributing to the decrease in exposure to these countries included a slowing in trade finance flows across the Group's core markets, the impact of softer commodity prices on both the utilisation of limits and demand for facilities by customers with a dependence on commodities, and declines in exposure related to money market treasury activities.

Cross-border exposure to Indonesia decreased during the first half of 2015, reflecting soft commodity prices and weaker economic growth rates in Indonesia. The country cross-border exposure to Indonesia arising from Permata, a joint venture in which the Group holds 44.56 per cent, is counted at the value of the Group's equity in the joint venture.

The overall exposure to both UAE and Brazil was substantially unchanged during 2015.

The reported decrease in overall cross-border exposure to Nigeria reflects the prolonged weakness in commodity prices and volatility in the Nigerian naira. Exposure arising from short dated commitments declined during 2015, with the depreciation in the naira resulting in customers increasingly replacing facilities denominated in foreign currency with facilities denominated in naira.

Cross-border exposure to developed countries in which we do not have a major presence predominantly relates to short dated money market treasury activities, which can change significantly from period to period. Exposure also represents global corporate business for customers with interests in our footprint. This is a key factor to explaining the significant cross-border exposure to the US and Japan. With short term cross-border exposure to Japan increasing significantly during the first half of 2015 due to treasury activity to deploy surplus liquidity within the region.

The table below, which is based on our internal country cross-border risk reporting requirements, shows cross-border exposures that exceed one per cent of total assets:

	30.06.15			31.12.14
	Less than one year	More than one year	Total	Less than one year	More than one year	Total
	$million	$million	$million	$million	$million	$million
China	35,373	13,813	49,186	42,098	14,790	56,888
US	20,607	13,505	34,112	26,406	10,672	37,078
Singapore	20,174	5,129	25,303	21,422	5,930	27,352
Hong Kong	16,167	6,931	23,098	22,104	8,684	30,788
India	8,348	13,975	22,323	8,551	15,015	23,566
Korea	9,397	7,848	17,245	9,581	8,216	17,797
United Arab Emirates	6,844	8,805	15,649	6,955	8,752	15,707
Japan	3,359	4,177	7,536	2,602	3,566	6,168
Indonesia	3,609	4,026	7,635	4,172	4,058	8,230
Brazil	5,668	2,053	7,721	5,297	2,228	7,525
Nigeria	3,966	3,342	7,308	4,543	3,301	7,844

Market risk

Market risk is the potential for loss of earnings or economic value due to adverse changes in financial market rates or prices. The Group's exposure to market risk arises predominantly from providing clients access to financial markets, facilitation of which entails the Group's 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 broadly stable. Market risk also arises in the non-trading book from the requirement to hold a large liquid assets buffer of high quality liquid debt securities and from the translation of non-US dollar denominated assets, liabilities and earnings.

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

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

· commodity price risk: arising from changes in commodity prices and commodity option implied volatilities; covering energy, precious metals, base metals and agriculture

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

Market risk in 2015

Market risk value at risk (VaR) changes

The average levels of Group VaR in H1 2015 were considerably lower than in H1 2014, at which time VaR still reflected the elevated market volatility of the 'taper tantrums' in mid-2013. H1 2015 average Total VaR was 28 per cent lower than in H1 2014; Non-trading VaR was 25 per cent lower; Trading VaR was 12 per cent lower.

However, by H2 2014 the mid-2013 volatility dropped out of the one year VaR historical observation period and the average levels of Group VaR in H1 2015 were similar to H2 2014. H1 2015 average Total VaR was 1 per cent lower than in H2 2014, Non-trading VaR was 2 per cent higher; Trading VaR was 2 per cent higher.

Actual levels of VaR on 30 June 2015 reflected recent increases in market volatility observed in June 2015. H1 2015 total actual VaR was 37 per cent higher than at 31 December 2014, but 4 per cent lower than 30 June 2014.

Daily value at risk (VaR at 97.5%, one day)
		30.06.15				30.06.14
		Average	High⁴	Low⁴	Actual⁵	Average	High⁴	Low⁴	Actual⁵
Trading and Non-trading		$million	$million	$million	$million	$million	$million	$million	$million
Interest rate risk²		22.8	28.3	18.9	26.2	28.9	36.8	21.2	26.9
Foreign exchange risk		4.4	6.8	2.3	4.5	3.5	5.9	2.2	4.9
Commodity risk		1.4	2.1	0.7	1.4	1.6	2.9	1.2	1.3
Equity risk		15.4	16.8	13.3	15.7	19.1	20.0	17.8	18.0
Total³		28.7	37.7	24.4	36.4	39.7	47.4	31.5	37.8
		30.06.15				30.06.14
		Average	High⁴	Low⁴	Actual⁵	Average	High⁴	Low⁴	Actual⁵
Trading¹		$million	$million	$million	$million	$million	$million	$million	$million
Interest rate risk²		7.2	8.7	5.3	7.5	10.8	21.3	7.0	21.3
Foreign exchange risk		4.4	6.8	2.3	4.5	3.5	5.9	2.2	4.9
Commodity risk		1.4	2.1	0.7	1.4	1.6	2.9	1.2	1.3
Equity risk		1.9	2.8	1.4	1.5	1.6	2.4	1.3	1.4
Total³		10.0	13.1	6.8	10.1	11.4	20.8	7.9	20.2
		30.06.15				30.06.14
		Average	High⁴	Low⁴	Actual⁵	Average	High⁴	Low⁴	Actual⁵
Non-trading		$million	$million	$million	$million	$million	$million	$million	$million
Interest rate risk²		19.1	24.5	15.6	24.1	23.8	27.4	18.9	19.0
Equity risk		14.5	16.1	13.0	15.4	17.9	19.1	16.4	17.5
Total³		26.0	31.2	23.2	30.9	34.8	39.0	25.9	26.2
¹	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. This regulatory definition is narrower than the accounting definition of the trading book within iAS39 'Financial Instruments: Recognition and Measurement'
²	Interest rate risk VaR includes credit spread risk arising from securities held for trading or available-for-sale
³	The total VaR shown in the tables above is not a sum of the component risks due to offsets between them
⁴	Highest and lowest VaR for each risk factor are independent and usually occur on different days
⁵	Actual one day VaR at period end date

Risks not in VaR

The only material market risk which is not reflected in VaR is the currency risk where the exchange rate is currently pegged or managed. The VaR historical one year observation period therefore does not reflect the future possibility of a change in the currency regime such as sudden repegging. Additional capital is set aside to cover this 'risk not in VaR'.

Average daily income earned from market risk related activities¹
Trading		30.06.15	30.06.14
Trading		$million	$million
Interest rate risk		2.1	4.3
Foreign exchange risk		5.7	5.1
Commodity risk		1.2	1.5
Equity risk		0.7	0.6
Total		9.7	11.5

Non-Trading
Interest rate risk		2.6	3.9
Equity risk		0.6	0.3
Total		3.2	4.2
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

Backtesting (not reviewed by auditor)

Regulatory backtesting is applied at both Group and Standard Chartered Bank levels. In the six months to 30 June 2015, there were no exceptions. In H2 2014 there were two exceptions (both at Standard Chartered Bank level with one at Group level only). In H1 2014 there was one exception due to exceptional market volatility (at Standard Chartered Bank level only). The 2014 exceptions followed notable central bank action with impact in Group footprint markets. These levels of exceptions due to market events are within the 'green zone' applied internationally to internal models by bank supervisors.

Liquidity risk

Liquidity risk is the risk that we either do not have sufficient financial resources available to meet our obligations as they fall due, or can only access these financial resources at excessive cost.

Liquidity in 2015

Conditions in the bank wholesale debt markets were generally positive in 2015, supported by strong investor demand.

In H1 2015, the Group issued $6.8 billion of term debt securities and Additional Tier 1 (AT1) securities, $4.8 billion of senior debt and $2 billion of AT1 securities (H1 2014:$7.5 billion of which $3.4 billion was senior debt and $4.1 billion was Tier 2 subordinated debt).

Group initiatives to lengthen the tenor of funding coupled with the release of some shorter tenor funding have strengthened the Group's overall liquidity position.

Liquidity metrics

We monitor key liquidity metrics on a regular basis, both on a country basis and in aggregate across the Group. The key metrics are:

Liquid asset ratio

The liquid asset ratio (LAR) ensures that a proportion of the Group's total assets are held in liquid assets, on a consolidated currency basis.

Liquid assets are the total cash (less restricted balances), treasury bills, loans and advances to banks (less deposits by banks) and debt securities (less illiquid securities).

Illiquid securities are debt securities that cannot be sold or exchanged easily for cash without substantial loss in value.
LAR limits (minimum LAR level acceptable) are set and monitored at Group level in order to ensure that an adequate proportion of the balance sheet shall always remain highly liquid. In addition, the Group keeps sufficient liquid assets to survive a number of severe stress scenarios, both internal and regulatory.

The Group LAR remains strong at 31.4 per cent, broadly in line with the ratio at the end of 2014.

The following table sets out an analysis of the Group's liquid assets.

		30.06.2015	31.12.2014
		$ million	$million
Cash and balances at central banks		77,274	97,282
Restricted balances		(9,711)	(10,073)
Loans and advances to banks - net of non-performing loans		83,089	87,397
Deposits by banks		(50,574)	(55,323)
Treasury bills		29,797	25,901
Debt securities		97,218	95,677
of which :
	Issued by governments	39,234	38,035
	Issued by banks	32,236	33,605
	Issued by corporate and other entities	25,748	24,037
Illiquid securities and other assets		(8,759)	(6,816)
Liquid assets		218,334	234,045
Total assets		694,956	725,914
Liquid assets to total asset ratio (%)		31.4%	32.2%

Advances to deposits ratio

This is defined as the ratio of total loans and advances to customers relative to total customer deposits. A low advances to deposits ratio demonstrates that customer accounts exceed customer loans as a result of the emphasis placed on generating a high level of funding from customers. Customer accounts tend to be more stable than wholesale funding and a core portion of these deposits are likely to remain with the bank for the medium term.

The advances to deposits ratio increased slightly in 2015 as the Group actively managed away lower quality liabilities, and continues to reflect the Group's customer deposit funded nature.

	30.06.15 $million	31.12.14 $million
Loans and advances to customers¹	282,339	288,599
Customer accounts	388,795	414,189
Advances to deposits ratio	72.6%	69.7%
¹see note 12 to the financial statements

Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR) (not reviewed by auditor)

The Group monitors the LCR in line with the Capital Requirements Regulation (CRR), the Regulation that implements BCBS238 in Europe. The Group also monitors NSFR in line with BCBS271, pending implementation in Europe. Both the Group LCR and NSFR were above 100 per cent as at the latest calculation date.

Encumbered assets (not reviewed by auditor)

Encumbered assets represent those on balance sheet assets that are pledged or used as collateral in respect of certain Group liabilities. Hong Kong government certificates of indebtedness which secure the equivalent amount of Hong Kong currency notes in circulation, and cash collateral pledged against derivatives are included within other assets. Taken together

these encumbered assets represent 3.1 per cent (2014: 2.8 per cent) of total assets, continuing the Group's historical low level of encumbrance.

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


			30.06.15			31.12.14
		Unencumbered assets				Unencumbered assets
		Not readily available to secure funding	Readily available to secure funding	Encumbered assets	Total assets	Not readily available to secure funding	Readily available to secure funding	Encumbered assets	Total assets
		$million	$million	$million	$million	$million	$million	$million	$million
Cash and balances at central banks		9,711	67,563	-	77,274	10,073	87,209	-	97,282
Derivative financial instruments		60,858	-	-	60,858	65,834	-	-	65,834
Loans and advances to banks¹		48,133	35,049	-	83,182	49,389	38,111	-	87,500
Loans and advances to customers¹		282,207	-	132	282,339	288,568	-	31	288,599
Investment securities¹		38,435	89,035	7,662	135,132	41,762	82,120	5,465	129,347
Other assets		23,760	-	14,049	37,809	23,640	-	15,049	38,689
Current tax assets		387	-	-	387	362	-	-	362
Prepayments and accrued income		2,563	-	-	2,563	2,647	-	-	2,647
Interests in associates and joint ventures		1,991	-	-	1,991	1,962	-	-	1,962
Goodwill and intangible assets		5,223	-	-	5,223	5,190	-	-	5,190
Property, plant and equipment		7,740	-	-	7,740	7,984	-	-	7,984
Deferred tax assets		458	-	-	458	518	-	-	518
Total		481,466	191,647	21,843	694,956	497,929	207,440	20,545	725,914
¹	Includes assets held at fair value through profit or loss.

In addition to the above, the Group received $39,093 million (31 December 2014: $27,910 million) as collateral under reverse repurchase agreements that was eligible for repledging. Of this the Group sold or repledged $13,549 million (31 December 2014: $14,840 million) under repurchase agreements.

Readily available to secure funding (not reviewed by auditor)

Readily available to secure funding includes unencumbered assets that can be sold outright or under repo within a few days, in line with regulatory definitions. The Group's readily available assets comprise of cash and balances at central banks, loans and advances to banks and investment securities.

Assets classified as not readily available to secure funding include:

· Assets which have no restrictions for funding and collateral purposes, such as loans and advances to customers, which are not acquired or originated with the intent of generating liquidity value

· Assets that cannot be encumbered, such as derivatives, goodwill assets and intangible and deferred tax assets

Liquidity analysis of the Group's balance sheet

Contractual maturity of assets and liabilities

This table analyses assets and liabilities into relevant maturity groupings based on the remaining period to the contractual maturity date as at the balance sheet date. Contractual maturities do not necessarily reflect actual repayments or cash flow.

Within the tables below cash and balances with central banks, loans and advances to banks, treasury bills and investment securities that are available-for-sale are used by the Group principally for liquidity management purposes.

		Contractual maturity
				30.06.15
				One month or less	Between one month and three months	Between three months and six months	Between six months and nine months	Between nine months and one year	Between one year and two years	Between two years and five years	More than five years and undated	Total
				$million	$million	$million	$million	$million	$million	$million	$million	$million
Assets
Cash and balances at central banks				67,563	-	-	-	-	-	-	9,711	77,274
Derivative financial instruments				7,050	7,421	6,311	4,835	3,294	8,227	13,932	9,788	60,858
Loans and advances to banks¹				35,049	20,471	13,922	4,651	4,916	2,131	1,981	61	83,182
Loans and advances to customers¹				75,912	25,749	18,413	9,339	10,202	24,959	40,286	77,479	282,339
Investment securities				7,977	14,741	11,697	10,235	9,956	20,455	38,904	21,167	135,132
Other assets				20,288	8,608	2,620	74	303	70	270	23,938	56,171
Total assets				213,839	76,990	52,963	29,134	28,671	55,842	95,373	142,144	694,956

Liabilities
Deposits by banks¹				44,129	2,855	1,779	136	138	166	1,030	341	50,574
Customer accounts¹				283,568	47,751	26,332	11,618	10,868	5,206	1,258	2,194	388,795
Derivative financial instruments				7,011	7,252	5,940	4,345	3,351	7,459	13,951	9,342	58,651
Senior debt				681	90	2,579	54	3,644	3,243	10,400	4,100	24,791
Other debt securities in issue¹				11,555	13,555	16,719	2,037	2,273	1,013	1,230	7,208	55,590
Other liabilities				17,634	8,501	4,366	529	776	660	1,288	11,260	45,014
Subordinated liabilities and other borrowed funds				5	-	-	-	994	-	5,753	15,445	22,197
Total liabilities				364,583	80,004	57,715	18,719	22,044	17,747	34,910	49,890	645,612
Net liquidity gap				(150,744)	(3,014)	(4,752)	10,415	6,627	38,095	60,463	92,254	49,344
	¹		Amounts include financial instruments held at fair value through profit or loss (see note 12)

	Contractual maturity continued
			31.12.14
			One month or less	Between one month and three months	Between three months and six months	Between six months and nine months	Between nine months and one year	Between one year and two years	Between two years and five years	More than five years and undated	Total
			$million	$million	$million	$million	$million	$million	$million	$million	$million
Assets
Cash and balances at central banks			87,209	-	-	-	-	-	-	10,073	97,282
Derivative financial instruments			7,345	8,987	7,753	5,796	4,072	9,549	12,327	10,005	65,834
Loans and advances to banks¹			38,111	18,421	15,388	6,260	5,663	1,774	1,813	70	87,500
Loans and advances to customers¹			77,288	26,106	19,147	10,801	11,128	22,701	43,749	77,679	288,599
Investment securities¹			9,951	13,065	11,245	8,202	8,446	20,881	36,917	20,640	129,347
Other assets			20,163	7,488	3,007	366	456	331	705	24,836	57,352
Total assets			240,067	74,067	56,540	31,425	29,765	55,236	95,511	143,303	725,914

Liabilities
Deposits by banks¹			49,903	2,776	784	168	349	118	681	544	55,323
Customer accounts¹			308,310	49,482	24,117	10,342	10,847	6,194	1,899	2,998	414,189
Derivative financial instruments			7,832	8,844	7,605	5,478	3,737	8,714	12,449	8,654	63,313
Senior debt			215	191	2,607	904	2,663	5,303	8,938	3,323	24,144
Other debt securities in issue¹			12,078	16,217	14,818	3,767	1,169	695	1,133	6,767	56,644
Other liabilities			16,780	7,692	4,731	808	336	426	915	10,928	42,616
Subordinated liabilities and other borrowed funds			-	-	-	6	-	1,013	5,114	16,814	22,947
Total liabilities			395,118	85,202	54,662	21,473	19,101	22,463	31,129	50,028	679,176
Net liquidity gap			(155,051)	(11,135)	1,878	9,952	10,664	32,773	64,382	93,275	46,738
	¹	Amounts include financial instruments held at fair value through profit or loss (see note 12)

Behavioural maturity of financial assets and liabilities

Contractual maturities do not necessarily reflect the timing of actual repayments or cash flows. In practice, certain assets and liabilities behave differently from their contractual terms, especially for 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. Such behavioural adjustments are identified and managed in each country through analysis of the historic behaviour of balances. The expected behavioural tenor of the Group's loans and deposits is provided below.

Behavioural maturity
	30.06.15
	One month or less	Between one month and three months	Between three months and six months	Between six months and nine months	Between nine months and one year	Between one year and two years	Between two years and five years	More than five years and undated	Total
	$million	$million	$million	$million	$million	$million	$million	$million	$million
Assets
Loans and advances to banks¹	35,484	20,102	13,637	4,618	4,852	2,092	2,323	74	83,182
Loans and advances to customers¹	58,012	21,499	14,293	7,600	14,503	24,716	85,325	56,391	282,339
Total loans and advances	93,496	41,601	27,930	12,218	19,355	26,808	87,648	56,465	365,521

Liabilities
Deposits by banks¹	32,847	2,867	1,911	200	218	11,019	1,171	341	50,574
Customer accounts¹	110,209	32,919	15,868	10,998	18,962	69,669	127,427	2,743	388,795
Total deposits	143,056	35,786	17,779	11,198	19,180	80,688	128,598	3,084	439,369
Net gap	(49,560)	5,815	10,151	1,020	175	(53,880)	(40,950)	53,381	(73,848)

		31.12.14
		One month or less	Between one month and three months	Between three months and six months	Between six months and nine months	Between nine months and one year	Between one year and two years	Between two years and five years	More than five years and undated	Total
		$million	$million	$million	$million	$million	$million	$million	$million	$million
Assets
Loans and advances to banks¹		38,958	17,946	14,935	6,237	5,320	1,734	2,285	85	87,500
Loans and advances to customers¹		56,456	22,008	14,780	9,023	15,786	22,079	90,032	58,435	288,599
Total loans and advances		95,414	39,954	29,715	15,260	21,106	23,813	92,317	58,520	376,099

Liabilities
Deposits by banks¹		37,983	2,854	841	224	421	11,719	737	544	55,323
Customer accounts¹		144,144	29,151	15,898	11,151	22,720	79,491	107,446	4,188	414,189
Total deposits		182,127	32,005	16,739	11,375	23,141	91,210	108,183	4,732	469,512
Net gap		(86,713)	7,949	12,976	3,885	(2,035)	(67,397)	(15,866)	53,788	(93,413)
¹	Amounts include financial instruments held at fair value through profit or loss (see note 12)

Operational Risk

Operational losses in half year ended 30 June 2015 comprise a number of unrelated non-systemic events and were not individually significant. The Group remains alert to the increasing threat to the industry from cyber-related attacks. Cyber intelligence threats and issues are being

shared through cyber alliances with other banks and law enforcement agencies. The Group also regularly benchmarks against UK Government cyber frameworks and other international cyber security standards to improve its defences.

Standard Chartered PLC - Risk and Capital Review continued

Capital Review

The Prudential Regulation Authority (PRA) is continuing to implement the Capital Requirements Regulation (CRR) and the Capital Requirements Directive (CRD) which together comprise CRD IV. Some areas of CRD IV remain subject to further consultation or await promulgation of the relevant European Banking Authority Technical Standards and final UK implementing rules. Accordingly, the position presented here is based on the Group's current understanding of the rules which may be subject to change.

Capital Summary

Our approach to capital management is focused on maintaining the Group's capital and leverage position in support of our clients, the business strategy and to meet regulatory requirements. The Group balance sheet is strong, highly liquid and with low leverage.

Capital, leverage and RWA	30.06.15	31.12.14
CET1 transitional	N/A	10.5%
CET1 end point	11.5%	10.7%
Total capital	18.2%	16.9%
Leverage	5.0%	4.5 %
RWA ($ million)	326,171	341,648

On 1 January 2015 the transitional arrangements for excluding AFS gains from regulatory capital ended. Therefore, as at 1 January 2015, the CET1 ratio was 10.7 per cent and the total capital ratio increased from 16.7 to 16.9 per cent.

The Group's CET1 ratio is 11.5 per cent up from 10.7 per cent (on an end point basis) at the end of December 2014. The Group currently meets its CET1 ratio target of 11-12 per cent.

The Group's CET1 position is well ahead of the PRA's current requirement for large UK banks of 7 per cent CET1. The Group will continue to manage its capital position in the context of current and evolving CET1 requirements as they apply to the Group.

In April 2015, the Group issued $2 billion of Additional Tier 1 (AT1) capital which further improved the Group's leverage ratio and total capital position.

The Group continues to manage its balance sheet proactively, with a particular focus on the efficient management of risk weighted assets (RWA).

Capital movements

The main movements in capital between 1 January 2015 and 30 June 2015 were:

· The end point CET1 capital ratio increased by around 80 bps to 11.5 per cent due to an increase in CET1 capital as described below and a decrease in RWA from asset reductions, business disposals and RWA efficiencies

· CET1 capital increased as profits offset an increase in the prudent valuation adjustment, foreign currency translation, cash dividend payments (which benefited from a high scrip dividend take up) and the reduction in the foreseeable dividend deduction

· AT1 capital increased due to the issuance of $2 billion of AT1 securities in April 2015

· Tier 2 capital decreased mainly due to the regulatory amortisation of Tier 2 capital, foreign currency translation and the phasing of the de-recognition of Tier 2 minority interests

Reflecting the above movements, the Group's total capital ratio increased to 18.2 per cent at 30 June from 16.9 per cent at 1 January 2015.

Standard Chartered PLC - Risk and Capital Review continued
Capital ratios			30.06.15	31.12.14¹
CET1 transitional²			N/A	10.5%
CET1 end point ²			11.5%	10.7%
Total capital			18.2%	16.7%

CRD IV Capital base
			30.06.15	31.12.14
			$million	$million
CET1 instruments and reserves
Capital instruments and the related share premium accounts			5,231	5,225
Of which: Share premium accounts			3,958	3,989
Retained earnings³			29,664	27,394
Accumulated other comprehensive income (and other reserves)			9,153	9,690
Non-controlling interests (amount allowed in consolidated CET1)			640	583
Independently reviewed interim and year-end profits⁴			1,548	2,640
Foreseeable dividends net of scrip⁵			(376)	(1,160)
CET1 capital before regulatory adjustments			45,860	44,372
CET1 regulatory adjustments
Additional value adjustments (prudent valuation adjustments)			(807)	(196)
Intangible assets (net of related tax liability)			(5,455)	(5,449)
Deferred tax assets that rely on future profitability (excludes those arising from temporary differences)			(103)	(180)
Fair value reserves related to gains or losses on cash flow hedges			20	55
Deduction of amounts resulting from the calculation of excess expected loss			(1,542)	(1,719)
Gains or losses on liabilities at fair value resulting from changes in own credit risk			(209)	(167)
Fair value gains and losses arising from the institution's own credit risk related to derivative liabilities			(8)	(9)
Defined-benefit pension fund assets			(8)	(13)
Exposure amounts which could qualify for risk weighting of 1250%			(181)	(199)
Of which: securitisation positions			(170)	(177)
Of which: free deliveries			(11)	(22)
Regulatory adjustments relating to unrealised gains			-	(481)
Other			-	(1)
Total regulatory adjustments to CET1			(8,293)	(8,359)
CET 1 capital			37,567	36,013

Additional Tier 1 capital (AT1) instruments			4,770	2,786
AT1 regulatory adjustments			(20)	-
Tier 1 capital			42,317	38,799

Tier 2 capital instruments			17,206	18,304
Tier 2 regulatory adjustments			(30)	(4)
Tier 2 capital			17,176	18,300

Total capital			59,493	57,099
Total risk weighted assets⁶			326,171	341,648
	¹	2014 is on a transitional basis unless otherwise stated
	²	Regulatory adjustments related to unrealised gains are now fully recognised from 1 January 2015
	³	Retained earnings include the effect of regulatory consolidation adjustments
	⁴	Independently reviewed interim and year-end profits for CRD IV are in accordance with the regulatory consolidation
	⁵	Foreseeable dividends include the proposed interim dividend for 2015. The interim dividend is reported net of scrip using a 25 per cent scrip dividend assumption
	⁶	The risk weighted assets are not reviewed by the auditors

Movement in total capital
		6 months ended	6 months ended
		30.06.15	31.12.14
		$million	$million
CET1 at 1 January / 1 July		36,013	37,013
Ordinary shares issued in the year and share premium		6	-
Profit for the period		1,548	239
Foreseeable dividends net of scrip deducted from CET1		(376)	(1,160)
Dividend net of scrip¹		692	(135)
Goodwill and other intangible assets		(6)	965
Foreign currency translation		(557)	(1,357)
Unrealised gains on available for sale assets		481	(20)
Eligible other comprehensive income		148	121
Deferred tax assets that rely on future profitability (excludes those arising from temporary differences)		77	96
Excess expected loss		177	200
Additional value adjustments (Prudent Valuation Adjustment)		(611)	20
Other		(25)	31
CET1 at 30 June / 31 December		37,567	36,013

AT1 at 1 January /1 July		2,786	4,378
Issuances/redemptions		2,000	(1,480)
Other		(36)	(112)
AT1 at 30 June / 31 December		4,750	2,786

Tier 2 capital at 1 January / 1 July		18,300	19,300
Regulatory amortisation		(315)	(271)
Issuances net of redemptions		-	287
Foreign currency translation		(353)	(961)
Tier 2 ineligible minority interest		(430)	136
Other		(26)	(191)
Tier 2 capital at 30 June / 31 December		17,176	18,300
Total capital at 30 June / 31 December		59,493	57,099
¹	Due to high scrip take-up, actual dividend paid of $468 million was less than the 2014 foreseeable dividend deduction of $1,160 million, resulting in a net positive movement of $692 million

Movements in risk weighted assets

RWA decreased by $15.5 billion, or 4.5 per cent, from 31 December 2014. This was mainly due to a $17.7 billion decrease in credit risk RWA, which was partially offset by an increase in market risk RWA of $1.7 billion and operational risk RWA of $0.5 billion.

Corporate and Institutional and Commercial Clients

Credit risk decreased by $14.6 billion as a result of the following:

· $5.5 billion lower volumes in Transaction Banking, Lending and ALM assets

· $4.1 billion reduction due to additional provisions and fair value adjustments for GSAM clients primarily in the Europe and South Asia regions

· $3.9 billion of RWA efficiencies mainly due to $1.9 billion of Financial Market RWA saves achieved through trade compression actions and increased Credit Support Annex (CSA) coverage and $1.8 billion reduction due to loan sales and exiting of low return relationships

· $1.1 billion reduction as a result of Principal Finance disposals

· $2.8 billion reduction from foreign currency translation due to depreciation of currencies in Europe, Indonesia, Malaysia and India

This was partly offset by an increase of $2.9 billion from model, methodology and policy changes mainly driven by the inclusion of non-EU institutions in the calculation of risk weighted assets arising from Asset Value Correlation.

Retail Clients

Credit RWA decreased by $4.1 billion mainly as a result of the following:

· $1.6 billion reduction from the sale of the Consumer Finance business in Korea, Hong Kong, and China

· $1 billion decrease in credit risk weighted assets as a result of de-risking and reshaping the portfolio with a reduction in unsecured lending, offset by an increase in secured lending

· $0.9 billion reduction from foreign currency translation due to depreciation of currencies in key markets including Malaysia, Korea, Singapore and Indonesia

Private Banking Clients

Private Banking RWA increased by $1 billion, primarily due to the impact of collateral eligibility policy changes, methodology and portfolio composition.

Market risk

Market risk RWA increased by $1.7 billion, or 8.4 per cent, to $22 billion from 31 December 2014, due mainly to a change in the treatment of Standard Chartered (China) Limited, where market risk capital requirements are now calculated on a standalone basis adding $1.3 billion to Group RWA. The remaining $0.4 billion increase was due to an increase in positions capitalised under standard rules.

Operational risk

RWA increased by $0.5 billion to $35.6 billion, (due to the change in income over a rolling three year time horizon with 2014 income replacing 2011). The $1 billion decrease in commercial clients and corresponding increase in retail clients since December 2014 is due to a rebasing of the analysis of income across the segments.


Risk weighted assets by business
	30.06.15
	Credit Risk	Operational Risk	Market Risk	Total Risk
	$million	$million	$million	$million
Corporate and Institutional Clients	190,723	22,586	22,006	235,315
Commercial Clients	18,561	1,759	-	20,320
Private Banking Clients	7,493	1,015	-	8,508
Retail Clients	51,778	10,250	-	62,028
Total risk weighted assets	268,555	35,610	22,006	326,171

	31.12.14
	Credit Risk	Operational Risk	Market Risk	Total Risk
	$million	$million	$million	$million
Corporate and Institutional Clients	201,978	22,322	20,295	244,595
Commercial Clients	21,874	2,778	-	24,652
Private Banking Clients	6,507	902	-	7,409
Retail Clients	55,887	9,105	-	64,992
Total risk weighted assets	286,246	35,107	20,295	341,648


Risk weighted assets by geographic region
		30.06.15	31.12.14
		$million	$million
Greater China		63,350	66,585
North East Asia		21,672	23,990
South Asia		25,788	26,522
ASEAN		77,099	82,603
MENAP		28,842	29,775
Africa		18,851	20,289
Americas		13,675	13,692
Europe		87,062	89,592
		336,339	353,048
Netting balances¹		(10,168)	(11,400)
Total risk weighted assets		326,171	341,648
¹	Risk weighted assets by geographic region are reported gross of any netting benefits

Movement in risk weighted assets
	Credit risk
	Corporate and Institutional Clients	Commercial Clients	Private Banking Clients	Retail Clients	Total	Operational risk	Market risk	Total risk
	$million	$million	$million	$million	$million	$million	$million	$million
At 1 January 2014	193,968	22,162	4,829	60,297	281,256	33,289	16,751	331,296
Assets growth/(decline)	3,677	(1,001)	212	55	2,943	-	-	2,943
Credit migration	6,159	576	56	(473)	6,318	-	-	6,318
Risk weighted assets efficiencies	(7,893)	(257)	(107)	(573)	(8,830)	-	-	(8,830)
Model, methodology and policy changes	11,745	370	1,112	(283)	12,944	-	(1,223)	11,721
Acquisitions and disposals	-	-	-	-	-	-	-	-
Foreign currency translation differences	620	192	28	834	1,674	-	-	1,674
Non credit risk movements	-	-	-	-	-	1,818	4,645	6,463
At 30 June 2014	208,276	22,042	6,130	59,857	296,305	35,107	20,173	351,585
Assets (decline)/growth	(1,063)	405	167	(984)	(1,475)	-	-	(1,475)
Credit migration	621	915	(81)	(1,373)	82	-	-	82
Risk weighted assets efficiencies	(2,500)	(1,399)	586	(23)	(3,336)	-	-	(3,336)
Model, methodology and policy changes	829	493	(156)	785	1,951	-	-	1,951
Acquisitions and disposals	-	-	-	331	331	-	-	331
Foreign currency translation differences	(4,185)	(582)	(139)	(2,706)	(7,612)	-	-	(7,612)
Non credit risk movements	-	-	-	-	-	-	122	122
At December 2014	201,978	21,874	6,507	55,887	286,246	35,107	20,295	341,648
Assets (decline)/growth	(3,245)	(2,234)	636	(989)	(5,832)	-	-	(5,832)
Credit migration	(3,575)	(509)	-	(133)	(4,217)	-	-	(4,217)
Risk weighted assets efficiencies	(3,943)	-	222	-	(3,721)	-	-	(3,721)
Model, methodology and policy changes	3,003	(142)	173	(486)	2,548	-	1,300	3,848
Acquisitions and disposals	(1,108)	-	-	(1,615)	(2,723)	-	-	(2,723)
Foreign currency translation differences	(2,387)	(428)	(45)	(886)	(3,746)	-	-	(3,746)
Non credit risk movements	-	-	-	-	-	503	411	914
At 30 June 2015	190,723	18,561	7,493	51,778	268,555	35,610	22,006	326,171

Advanced Internal Ratings Based (IRB) models

Since 1 January 2008, the Group has been using the IRB approach for the calculation of credit risk capital requirements with the approval of our relevant regulators. For a market risk internal model approach (IMA), where IMA permission has been granted by our relevant regulators, we use VaR for the calculation of our market risk capital requirements. Where our market risk exposures are not included in a regulatory IMA permission we apply the standardised approach as specified by the relevant regulator. We apply the standardised approach for determining the capital requirements for operational risk.

The PRA have proposed changes to the treatment of certain exposures where the country-specific default experience is not deemed sufficient for modelling purposes, including the application of various loss given default (LGD) floors based on the Foundation IRB (FIRB) approach. Such changes are likely to result in an increase in the RWA for these exposures, with the ultimate impact dependent on PRA approval of the revisions to the relevant models.

In December 2014, the Basel Committee on Banking Supervision (BCBS) released two consultative documents (CD306 and CD307) on: (i) the design of a capital floor framework based on standardised approaches for credit, market and operational risk; (ii) revisions to the standardised approach for credit risk.

The proposed capital floor framework will be based on the finalised versions of the standardised approaches, and would replace the existing transitional capital floor based on the

Basel I framework. The calibration of the floor is outside the scope of the consultation, and will be consulted on alongside the BCBS's work on finalising the revised standardised approaches to credit risk, market risk and operational risk. Such changes could result in an increase in the RWA calculated by such models, but the eventual impact will depend on the final outcome of the consultation process. The Group has responded to the consultations. The BCBS intends to publish the final standards, including their calibration and implementation arrangements, at the end of 2015. The extent to which the EU and/or the PRA will adopt the BCBS proposals is unknown.

The BCBS consultation on changes to the operational risk regime under BCBS 291 concluded in January 2015. The Group currently follows the standardised approach for operational risk. The Group's current expectation is that the changes to the operational risk regime will be implemented in 2016 and would lead to an increase in operational risk RWA across the industry.

Leverage ratio

The BCBS introduced the leverage ratio to constrain the build-up of leverage in the banking sector, and supplement risk-based capital requirements with a "simple, non-risk based backstop measure" of leverage. The leverage ratio compares Tier 1 capital to total exposures, which includes certain exposures held off balance sheet as adjusted by regulatory credit conversion factors.

Final adjustments to the definition and calibration of the leverage ratio in the EU will be made during the first half of 2017, with a view to migrating the leverage ratio to a binding Pillar 1 requirement by 1 January 2018. In November 2014, the FPC recommended that HM Treasury exercise its statutory power to enable the Financial Policy Committee (FPC) to direct the PRA to set leverage ratio requirements and buffers for PRA-regulated banks, building societies and investment firms.

Based on the FPC's proposals, the Group's future minimum leverage ratio requirement will be 3.35 per cent, which comprises (i) the minimum 3 per cent and (ii) a 0.35 per cent G-SII leverage buffer (calculated as 35 per cent of the Group's 1 per cent risk weighted G-SII buffer). The FPC also propose an additional countercyclical leverage requirement of 0.35 per cent of any institution specific countercyclical capital buffer requirement.

On 1 July 2015, the FPC directed the PRA to implement a UK leverage ratio framework. On 10 July 2015, the PRA released a consultation on how it intends to achieve this. The consultation closes on 12 October 2015 and the PRA is expected to publish a policy statement, finalised rules and supervisory statements by the end of 2015. The leverage ratio framework will come into effect from 1 January 2016

The presentation below uses the end point CRR definition of Tier 1 for the numerator and the CRR definition of leverage exposure adopted by a European Union delegated act in October 2014. This is on the same basis as presented at December 2014.

The Group's current leverage ratio of 5.0 per cent is above the current PRA minimum requirement and the FPC's proposed requirement. The increase in the leverage ratio since 31 December 2014 of around 50 bps is mainly due to the increase in CET1 and the issuance of $2 billion of AT1 in April 2015 which is included in Tier 1 capital.

Leverage ratio
	30.06.15	31.12.14
	$million	$million
Tier 1 capital (transitional position)	42,317	38,799
Additional Tier 1 capital subject to phase out	(2,783)	(2,786)
Regulatory adjustments relating to unrealised gains	-	481
Tier 1 capital (end point)	39,534	36,494

Derivative financial instruments	60,858	65,834
Derivative cash collateral	9,264	10,311
Securities financing transactions (SFTs)	34,244	29,856
Loans and advances and other assets	590,590	619,913
Total on balance sheet assets	694,956	725,914
Regulatory consolidation adjustments	13,919	15,008
Derivatives adjustments
Derivatives netting	(37,181)	(43,735)
Adjustments to cash collateral	(16,820)	(17,316)
Net written credit protection	8,233	7,885
Potential future exposure on derivatives	56,079	46,254
Total derivatives adjustments	10,311	(6,912)
Counterparty risk leverage exposure measure for SFTs	13,037	9,963
Regulatory deductions and other adjustments	(8,076)	(7,701)
Off-balance sheet items	65,189	67,042
Total leverage exposure (end point)	789,336	803,314
Leverage ratio (end point)	5.0%	4.5%

CET1 Requirements

As the relevant rules are not yet fully implemented and the final outcome depends in part on the future shape of the Group, future management actions and the future view the Group's regulators take of the Group's business and risk profile, the Group's capital requirement is subject to change. Based on the Group's current understanding of the rules, its known future minimum CET1 capital requirement is 8.7 per cent, comprising:

· A minimum CET1 requirement of 4.5 per cent by 1 January 2015

· A capital conservation buffer of 2.5 per cent by 1 January 2019

· A G-SII buffer of 1 per cent by 1 January 2019

· A Pillar 2A CET1 addition of around 0.65 per cent (subject to ongoing PRA review)

To the extent a countercyclical capital buffer is applied to the Group, it would increase the Group's minimum CET1 requirement. Given the Group's diverse footprint, its future countercyclical capital buffer requirement is expected to be determined from applying various country specific countercyclical buffer rates to the Group's qualifying credit exposures in the relevant country (based on the jurisdiction of the obligor) on a weighted average basis.

The Hong Kong Monetary Authority (HKMA) announced an intention to set a countercyclical capital buffer of 2.5 per cent in Hong Kong to be phased in from 2016 to 2019. In the UK, the FPC has maintained a countercyclical rate of 0 per cent for UK exposures. The FPC noted that the PRA would reciprocate the HKMA's countercyclical buffer rate of 0.625 per cent on Hong Kong exposures from January 2016.

The Group would also expect to continue to operate with a prudent management buffer above the minimum capital requirement. The UK authorities have yet to finalise the rules relating to systemic risk buffers, the PRA Buffer assessment and additional sectoral capital requirements.

Pillar 2

In addition to Pillar 1 capital requirements, the Group, like other UK banks, is subject to additional requirements set by the PRA.

Pillar 2A addresses risks not addressed adequately by Pillar 1 capital requirements. These risks include (but are not limited to): pension obligation risk, interest rate risk in the non-trading book, credit concentration risk and operational risk. From 1 January 2015 the Group must hold at least 56 per cent of its Pillar 2A buffer in CET1 and at least 75 per cent in Tier 1.

Pillar 2B currently comprises the capital planning buffer (CPB) which ensures the Group remains well capitalised during periods of stress. From 1 January 2016, the CPB transitions to a PRA Buffer, the amount of which will be based mainly on the results of the Bank of England's (BoE) annual stress testing of the UK banking system. This would be in addition to existing CRD IV buffer requirements to the extent that the PRA does not consider they adequately address the Group's risk profile.

The PRA consulted and issued a policy statement during 2015 on the transition to a new Pillar 2 framework, which includes the revised PRA Buffer approach. The Group's current Pillar 2A guidance is around 115 bps of RWA, of which at least around 65 bps must be held in CET1. The Group's Pillar 2A guidance is expected to vary over time.

Global Systemically Important Institutions (G-SII)

The Group has been designated a G-SII by the Financial Stability Board (FSB) since November 2012. The Group has been categorised with a 1 per cent G-SII CET1 requirement which will be phased in over the period from 1 January 2016 to

1 January 2019. The Group's latest G-SII disclosure 'Standard Chartered's G-SII indicators' can be found at

www.sc.com/en/news-and-media/news/global/31-07-2014-gsib-indicators.html

Loss Absorbing Capacity

The FSB published draft Total Loss Absorbing Capacity (TLAC) proposals in November 2014, setting out principles on the loss absorbing and recapitalisation capacity of G-SIIs in resolution and a high level draft term sheet for an international standard on the characteristics and levels, of TLAC for G-SIIs. Under the FSB's proposals, G-SIIs would be subject to a Pillar 1 minimum TLAC requirement of between 16 per cent and 20 per cent of Group RWA in addition to the Combined Buffer. The Combined Buffer includes the capital conservation buffer, the countercyclical buffer, the G-SII buffer and the systemic risk buffer (to the extent applicable to a firm). Including the Combined Buffer, under the current proposals, the Group would have a potential Pillar 1 TLAC requirement of between 19.5 per cent and 23.5 per cent, to be met from 1 January 2019 at the earliest.

The FSB proposal also states that the Pillar 1 TLAC requirement would also be at least twice the quantum of capital that would be required to meet the Basel Tier 1 leverage ratio requirement. Assuming a minimum leverage ratio requirement of 3 per cent, as currently proposed by the BCBS, this means a TLAC requirement in the UK of at least 6 per cent of total leverage exposure.

Based on its current understanding of the TLAC proposals, the Group estimates that, as at 30 June 2015, it has TLAC of around 24 per cent of RWA and around 10 per cent of leverage exposure. The Group's TLAC estimate includes:

· Total regulatory capital

· Senior liabilities issued by Standard Chartered PLC with at least one year remaining to maturity

· That part of subordinated debt (issued by Standard Chartered PLC or Standard Chartered Bank) with at least one year remaining to maturity which is outside the scope of regulatory capital recognition due to: (i) amortisation over the last five years of the relevant instrument's duration or (ii) other regulatory de-recognition

A minimum requirement for own funds and eligible liabilities (MREL) must also be applied to the Group under the EU Bank Recovery and Resolution Directive. The final draft EBA technical standards on MREL were published on 3 July 2015. A consultation on the UK's implementation of TLAC and MREL is expected to occur in the second half of 2015.

Bank of England Stress Tests

In 2015 the PRA is conducting its second year of stress testing the UK banking system. The focus of the 2015 BoE stress tests are external risks to the UK and accordingly, the stress parameters are more focused on emerging markets than the UK based variant applied in 2014. Consequently, the stress parameters including: GDP levels, asset price and currency movements applicable to some of the Group's markets such as China and Korea are more severe than in the 2014 stress test. The BoE are expected to release the results of the 2015 stress tests on or around 1 December 2015. In future, the Group expects that the results of the BoE stress tests will be one of the inputs used by the PRA to inform the setting of the Group's PRA Buffer

This information is provided by RNS

The company news service from the London Stock Exchange

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