TIDMSTAN
RNS Number : 2064C
Standard Chartered PLC
06 February 2020
Accounting policy changes & UK bank levy guidance
Changes to selected accounting policies
Standard Chartered PLC (the Group) has reviewed its accounting
policies and is making the changes set out below. These will be
reflected in the full-year 2019 disclosures, to be published on 27
February 2020, along with prior period comparatives changed to
align with the new disclosures.
1. Net interest income and the calculation of net interest margin
The Group has changed its accounting policy for net interest
income and net trading income (a component of 'other income' in the
table below) to better reflect the underlying performance of its
banking book. There is no change in total income, only a
reclassification between net interest income and net trading income
on the face of the income statement.
The revised accounting policy will result in the Group
recognising all gains and losses from the trading book within
trading income. As before, interest income and expense from the
banking book positions will still be presented in net interest
income. The instruments moving out of average interest earning
assets include reverse repurchase agreements, bonds and loans.
These instruments are held to service client demand and
risk-managed on a mark-to-market basis.
With the reclassification of the components of gross income, it
is necessary to adjust the interest expense included in the net
interest margin calculation to remove funding costs for the trading
book. As with the change in classification of net interest income,
the new basis of preparation for the presentation of the Group's
net interest margin will better reflect the underlying performance
of the banking book.
The tables below show the Group's previously reported net
interest margin and the net interest margin under the revised
accounting policy and new basis of preparation:
As reported
On a statutory basis
$ millions FY 2018 1Q'19 2Q'19 3Q'19
Net interest income 8,793 2,256 2,362 2,369
Other income(1) 5,996 1,662 1,550 1,589
--------- -------- -------- --------
Statutory operating
income 14,789 3,918 3,912 3,958
Average interest earning
assets 558,135 585,408 584,135 602,798
Net interest margin
(%)(2) 1.58 1.56 1.62 1.56
Memorandum: on an underlying basis
$ millions FY 2018 1Q'19 2Q'19 3Q'19
Net interest income 8,840 2,272 2,371 2,385
Other income(1) 6,128 1,541 1,512 1,593
--------- ------ ------ ------
Underlying operating
income 14,968 3,813 3,883 3,978
As restated
On a statutory basis
$ millions FY2018 1Q'19 2Q'19 3Q'19
Net interest income 7,796 1,905 1,933 1,922
Other income(1) 6,993 2,013 1,979 2,036
--------- -------- --------- ---------------
Statutory operating
income 14,789 3,918 3,912 3,958
Net interest income
excluding funding costs
for FVTPL portfolio 8,033 1,993 2,011 2,025
Average interest earning
assets 476,114 487,424 484,066 499,260
Net interest margin
(%)(2) 1.69 1.66 1.67 1.61
Memorandum: on an underlying basis
$ millions FY 2018 1Q'19 2Q'19 3Q'19
Net interest income 7,840 1,920 1,942 1,937
Other income(1) 7,128 1,893 1,941 2,041
--------- -------- --------- ---------------
Underlying operating
income 14,968 3,813 3,883 3,978
1 Other income is made up of net trading income, net fees and
commissions, and other operating income. In 2018, net trading
income was c.40% of other income
2 Net interest margin is annualised net interest income (or net
interest income, excluding funding costs for the FVTPL portfolio)
divided by average interest earning assets
2. Change in recognition of interest in suspense with regard to Stage 3 assets
Historically, the Group recorded Stage 3 loans at their book
value at the time of reclassification to Stage 3. No further
interest was accrued after reclassification.
Following a clarification issued by the International Financial
Reporting Interpretations Committee in March 2019, the Group is
changing its accounting policy to report interest in suspense for
stage 3 exposures.
Under the revised policy, interest will continue to accrue on
Stage 3 loans together with an equivalent increase in impairment
provisions. This change will have no effect on total profit. The
interest income and impairment are netted together for income
statement reporting purposes. This has been the case historically
and will remain the case going forward.
However, the increase in historical impairment provisions will
result in gross stage 3 assets increasing by approximately a fifth
under the new accounting policy. Net stage 3 assets remain
unchanged as the increase in gross stage 3 assets is offset by an
increase in provisions.
If there are ultimately any recoveries on Stage 3 loans, any
recoveries will now be recognised within the credit impairment line
whereas previously the Group's approach was to recognise residual
amounts in excess of credit provisions within interest income.
There will be no material net impact on the balance sheet or
income statement.
Stage 3 cover ratios have increased as the interest in suspense
is fully provided.
The tables below show the Group's previously reported credit
risk disclosures and the effect of their restatement:
As reported
$ millions 31.12.18
------------- -----------
Gross stage 3 assets 6,924
Stage 3 provisions (4,056)
-----------
Net stage 3 assets 2,868
-----------
Cover ratio of stage 3
before collateral(3) 59%
Cover ratio of stage 3
after collateral(4) 81%
As restated
$ millions 31.12.18
---------
Gross stage 3 assets 8,454
Stage 3 provisions (5,586)
---------
Net stage 3 assets 2,868
---------
Cover ratio of stage 3
before collateral(3) 66%
Cover ratio of stage 3
after collateral(4) 85%
3 The ratio of stage 3 provisions compared to stage 3 gross assets
4 The ratio of stage 3 provisions and realisable value of
collateral held against these assets compared to stage 3 gross
assets
3. Income re-allocation due to internal reorganisation of the
Corporate Finance and Lending & Portfolio Management business
lines
The Group is also reclassifying income by product following an
internal reorganisation of the Corporate Finance and Lending &
Portfolio Management business lines. There is no change to total
income, income by region or income by segment.
All simple lending-related businesses are now managed by
coverage bankers within the Lending & Portfolio Management team
while more complex event-driven transactions and transactions
requiring specialist structuring knowledge remain managed within
the Corporate Finance team.
The tables below show what the Group's previously reported
income in these related product lines would have been on the new
organisational basis:
As reported
$ millions FY 2018 1Q'19 2Q'19 3Q'19
Corporate Finance 1,423 321 330 340
Lending 518 129 140 145
--------- -------- -------- ---------
Sub-total 1,941 450 470 485
As restated
$ millions FY 2018 1Q'19 2Q'19 3Q'19
Corporate Finance 1,186 262 272 281
Lending 755 188 198 204
--------- ------ ------ ------
Sub-total 1,941 450 470 485
4. Updated guidance on UK bank levy
The Group's current expectation is that the UK bank levy for
2019 will be around $347 million (2018: $324 million). The levy
applies to certain UK banks and the UK operations of foreign banks,
and is payable each year based on a percentage of the chargeable
equities and liabilities on the Group's consolidated balance sheet
date.
For further information, please contact:
Mark Stride
Global Head, Investor Relations
+44 (0)20 7885 8596
mark.stride@sc.com
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
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