TIDMSTAN
RNS Number : 5481U
Standard Chartered PLC
30 July 2020
Standard Chartered PLC - Table of contents
Performance highlights 2
Statement of results 4
Group Chairman's statement 5
Group Chief Executive's review 7
Group Chief Financial Officer's review 9
Supplementary financial information 17
Underlying versus statutory results reconciliations 33
Alternative performance measures 37
Group Chief Risk Officer's review 38
Risk review 46
Capital review 101
Financial statements 110
Other supplementary information 160
Glossary 183
Forward-looking statements
This document may contain 'forward-looking statements' that are
based on current expectations or beliefs, as well as assumptions
about future events. These forward-looking statements can be
identified by the fact that they do not relate only to historical
or current facts. Forward-looking statements often use words such
as 'may', 'could', 'will', 'expect', 'intend', 'estimate',
'anticipate', 'believe', 'plan', 'seek', 'continue' or other words
of similar meaning.
By their very nature, forward-looking statements are subject to
known and unknown risks and uncertainties and can be affected by
other factors that could cause actual results, and the Group's
plans and objectives, to differ materially from those expressed or
implied in the forward-looking statements. Recipients should not
place reliance on, and are cautioned about relying on, any
forward-looking statements. There are several factors which could
cause actual results to differ materially from those expressed or
implied in forward looking statements. The factors that could cause
actual results to differ materially from those described in the
forward-looking statements include (but are not limited to) changes
in global, political, economic, business, competitive, market and
regulatory forces or conditions, future exchange and interest
rates, changes in tax rates, future business combinations or
dispositions and other factors specific to the Group. Any
forward-looking statement contained in this document is based on
past or current trends and/or activities of the Group and should
not be taken as a representation that such trends or activities
will continue in the future.
No statement in this document is intended to be a profit
forecast or to imply that the earnings of the Group for the current
year or future years will necessarily match or exceed the
historical or published earnings of the Group. Each forward-looking
statement speaks only as of the date of the particular statement.
Except as required by any applicable laws or regulations, the Group
expressly disclaims any obligation to revise or update any
forward-looking statement contained within this document,
regardless of whether those statements are affected as a result of
new information, future events or otherwise.
Please refer to the Group's 2019 Annual Report and this
Half-Year Report for a discussion of certain risks and factors that
could cause actual results, and the Group's plans and objectives,
to differ materially from those expressed or implied in the
forward-looking statements.
Nothing in this document shall constitute, in any jurisdiction,
an offer or solicitation to sell or purchase any securities or
other financial instruments, nor shall it constitute a
recommendation or advice in respect of any securities or other
financial instruments or any other matter.
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.
The information within this report is unaudited.
Unless the context requires, within this document, 'China'
refers to the People's Republic of China and, for the purposes of
this document only, excludes Hong Kong Special Administrative
Region (Hong Kong), Macau Special Administrative Region (Macau) and
Taiwan. 'Korea' or 'South Korea' refers to the Republic of Korea.
Greater China & North Asia (GCNA) includes China, Hong Kong,
Japan, Korea, Macau and Taiwan; ASEAN & South Asia (ASA)
includes Australia, Bangladesh, Brunei, Cambodia, India, Indonesia,
Laos, Malaysia, Myanmar, Nepal, Philippines, Singapore, Sri Lanka,
Thailand and Vietnam; and Africa & Middle East (AME) includes
Bahrain, Egypt, Iraq, Jordan, Lebanon, Oman, Pakistan, Qatar, Saudi
Arabia and the United Arab Emirates (UAE).
Within the tables in this report, blank spaces indicate that the
number is not disclosed, dashes indicate that the number is zero
and nm stands for not meaningful.
Standard Chartered PLC is incorporated in England and Wales with
limited liability. Standard Chartered PLC is headquartered in
London. The Group's head office provides guidance on governance and
regulatory standards. Standard Chartered PLC stock codes are: HKSE
02888 and LSE STAN.LN.
Standard Chartered PLC - Results for the first half and second
quarter ending 30 June 2020
All figures are presented on an underlying basis and comparisons
are made to 2019 on a reported currency basis, unless otherwise
stated. A reconciliation of restructuring and other items excluded
from underlying results is set out on page 33.
"I am pleased we have come through the extremely challenging
early stage of the COVID-19 crisis with a clean bill of operational
health, higher income and lower costs. Despite having taken
significantly higher impairment charges we remained profitable and
enter the next phase of the crisis with our CET1 capital ratio at
one of the highest levels for many years. Low interest rates and
depressed oil prices continue to be headwinds and we expect new
waves of COVID-19 related challenge in the coming quarters but I am
confident that our resilience and client franchise will see us
through. I am encouraged by how well my colleagues are coping and
that many clients in some of our larger markets are recovering
strongly and already operating at close to their pre-pandemic
capacity."
Bill Winters, Group Chief Executive
Update on strategic priorities
-- Deliver our network and grow affluent: our differentiated
strengths enable us to support our clients through the crisis
-- Improve productivity: cost-to-income ratio improved 5%pts to
59% excluding Debit Valuation Adjustment (DVA)
-- Optimise low-returning markets: operating profit improved 7%
in aggregate from four of our largest markets
-- Transform and disrupt with digital: client digital engagement
up 12%pts to 36%; HK virtual bank launching very soon
-- Drive sustainability: stimulus measures targeting sustainable
recovery play to our leading strengths in sustainable finance
Selected information concerning financial performance (1H'20
unless otherwise stated)
-- Income up 5% to $8.0bn; up 7% constant currency (ccy)
- Excluding $146m positive movement in DVA, income was up 5%
ccy
- 2Q'20: income down 4%; down 2% ccy and up 4% excluding $212m
negative movement in DVA
-- Expenses 5% lower to $4.7bn; 2% lower ccy
- Positive jaws of 7% ccy ex-DVA
-- Net interest margin down 26bps from 1H'19 to 1.40%. Down
24bps in 2Q'20 to 1.28%
-- Credit impairment lower QoQ but up significantly YoY, driven
primarily by the impact of COVID-19
- Stage 1 and 2 impairment up $586m in the first half to
$668m
- Approximately one-half due to management overlay
- Stage 3 impairment up $727m in the first half to $899m, with
no significant new exposures in 2Q'20
- Net stage 3 plus credit grade 12 exposures up 22% in 2Q'20 to
$5.1bn; early alerts increased $2.9bn to $14.4bn
-- Return on tangible equity down 240bps to 6.0%
- Pre-provision operating profit up 22% to $3.3bn; up 17% ccy
and ex-DVA
- Underlying profit before tax down 25% to $2.0bn driven by
higher credit impairment; down 30% ccy and ex-DVA
- Statutory profit before tax down 33% to $1.6bn, includes $249m
goodwill impairment in India in 1Q'20
-- Risk-weighted assets of $263bn down $2bn since 31 December
2019
- Down $10bn QoQ in 2Q'20 including $9bn reduction from
completion of Permata sale
-- The Group remains strongly capitalised and highly liquid
- Common equity tier 1 ratio up 90bps in 2Q'20 to 14.3%, above
the top of the 13-14% medium-term target range
- 50bps uplift from Permata sale with remainder from profits and
other comprehensive income gains
- Aiming to remain highly liquid to support clients through the
crisis
- Asset-to-deposit ratio 62.7% (1Q'20: 61.9%); liquidity
coverage ratio 149% (1Q'20: 142%)
- Continue to target higher quality deposits: Retail CASA up 9%
and TB OPAC up 20% since 31 December 2019
- $14bn or 4% of loans and advances subject to some form of
relief measure
-- Earnings per share down 13.2c or 27% to 35.9c; 40m shares
bought back and cancelled in 1Q'20
Outlook
We continue to believe that some of our larger markets will
start to drive the global economy out of recession over the coming
quarters but expect economic activity across our footprint in that
period to be volatile and uneven.
Income is likely to be lower both half-on-half and year-on-year
in the second half of 2020. The benefits of the early stage
recovery in some of our markets and our geographic and product
diversity are unlikely to be enough to offset the impact of low
interest rates and the probability of less buoyant conditions for
our Financial Markets business.
Expenses excluding the UK bank levy are usually higher in the
second half, but we continue to target being below $10bn in 2020.
Given the more challenging external environment we have started to
implement new sustainable efficiency initiatives with the intent to
stay below $10bn in 2021 as well.
Given the extreme economic pressures relating to the persistence
of COVID-19, partially addressed through the efficacy of government
support measures, it is not possible to reliably predict the
quantum or timing of future impairments. However, if economic
conditions in our markets do not materially deteriorate in the
coming months then, given the substantial provisions we have taken
already, we anticipate that impairments in the second half will be
lower than those recorded in the first half.
Standard Chartered PLC - Statement of results
For the six months ended 30 June 2020
6 months 6 months
ended 30.06.20 ended 30.06.19 Change1
$million $million %
------------------------------------------------------- --------------- --------------- --------
Underlying performance
Operating income 8,047 7,696 5
Operating expenses (4,713) (4,969) 5
Credit impairment (1,567) (254) nm
Other impairment 112 (21) nm
Profit from associates and joint ventures 76 157 (52)
Profit before taxation 1,955 2,609 (25)
Profit attributable to ordinary shareholders2 1,138 1,623 (30)
Return on ordinary shareholders' tangible equity
(%) 6.0 8.4 (240)bps
Cost-to-income ratio (%) 58.6 64.6 600bps
------------------------------------------------------- --------------- --------------- --------
Statutory performance
Operating income 8,099 7,830 3
Operating expenses (4,748) (5,298) 10
Credit impairment (1,576) (254) (520)
Goodwill impairment (258) - nm
Other impairment 35 (44) 180
Profit from associates and joint ventures 75 180 (58)
Profit before taxation 1,627 2,414 (33)
Taxation (561) (918) 39
Profit for the period 1,066 1,496 (29)
Profit attributable to parent company shareholders 1,048 1,477 (29)
Profit attributable to ordinary shareholders2 816 1,256 (35)
Return on ordinary shareholders' tangible equity
(%) 4.3 6.5 (220)bps
Cost-to-income ratio (%) 58.6 67.7 904bps
------------------------------------------------------- --------------- --------------- --------
Balance sheet and capital
Total assets 741,585 712,504 4
Total equity 49,897 50,439 (1)
Tangible equity attributable to ordinary shareholders2 38,048 38,871 (2)
Loans and advances to customers 276,313 263,595 5
Customer accounts 421,153 401,597 5
Risk weighted assets 262,552 270,739 (3)
Total capital 56,468 54,957 3
Net interest margin (%) (adjusted) 1.40 1.66 (26)bps
Advances-to-deposits ratio (%)3 62.7 63.7 (1.0)
Liquidity coverage ratio (%) 149 139 10
Common Equity Tier 1 ratio (%) 14.3 13.5 80bps
Total capital (%) 21.5 20.3 120bps
UK leverage ratio (%) 5.2 5.3 (10)bps
------------------------------------------------------- --------------- --------------- --------
Information per ordinary share Cents Cents Cents
Earnings per share - underlying4 35.9 49.1 (13.2)
- statutory4 25.8 38.0 (12.2)
Net asset value per share5 1,384 1,339 45
Tangible net asset value per share5 1,224 1,182 42
Number of ordinary shares at period end (m) 3,148 3,255 (3)
1 Variance is better/(worse) other than assets, liabilities and
risk weighted assets
2 Profit attributable to ordinary shareholders is after the
deduction of dividends payable to the holders of non-cumulative
redeemable preference shares and Additional Tier 1 securities
classified as equity
3 When calculating this ratio, total loans and advances to
customers excludes reverse repurchase agreements and other similar
secured lending, excludes approved balances held with central
banks, confirmed as repayable at the point of stress and includes
loans and advances to customers held at fair value through profit
and loss. Total customer accounts includes customer accounts held
at fair value through profit or loss
4 Represents the underlying or statutory earnings divided by the
basic weighted average number of shares
5 Calculated on period end net asset value, tangible net asset
value and number of shares
Standard Chartered PLC - Group Chairman's statement
"Staying the course with resilience, agility and humanity"
In the most recent Annual Report, I said that instability and
rapid change are becoming the new normal. That observation was made
in February when the COVID-19 outbreak was impacting only a few of
our markets. Since then, the pandemic has spread to affect all our
markets and cause massive disruption to the global economy leading
to a deep recession.
I could not be prouder of the tremendous efforts of my
colleagues who have shown extraordinary agility and resilience
during this crisis. What has really stood out for me is how their
actions have been tempered with humanity - truly embodying our
brand promise of being Here for good.
At one stage in April we had three-quarters of our people
working from home. Despite this unprecedented level of extended
disruption, our transaction processing capabilities and risk
controls held up remarkably well, a testament to the agility of our
people in adapting to the crisis and a tribute to the operational
and technological resilience of the franchise.
Financial resilience
We made solid progress on our strategic priorities in the first
half, which together with the benefits of our product and
geographic diversity and firm cost control meant pre-provision
operating profit improved significantly. Impairments increased in
the period as the pandemic took hold and we have taken substantial
provisions against possible future loan losses resulting from the
crisis, which meant underlying profit was lower in the first half.
Our capital position remains strong, bolstered by completion of the
sale of our equity interest in Permata in Indonesia, and we have
ensured that our balance sheet is very liquid. Overall, our
franchise remains fundamentally healthy, which underpins my belief
that we can endure the crisis caused by COVID-19 and come out on
the other side stronger, with our financial resilience to external
shocks tested like it has never been before.
We can't reliably predict how long the effects of the pandemic
will last, nor quantify the resulting impact on our future
financial performance. We are therefore focusing intently on the
things we can control. The management team is taking action to
manage expenses very carefully to preserve our key long-term
investment projects and continue the transformation to take
advantage of future opportunities.
Our response to the COVID-19 crisis
We have prioritised the wellbeing, safety and security of our
colleagues, supporting our clients and showing solidarity with our
communities. We believe this approach protects and advances the
interests of our shareholders.
For personal customers, our response has included the following
actions:
-- Our retail banking branches had to be retrofitted at speed to
adhere to social distancing guidelines. In some cases, they were
closed entirely as part of lockdown measures meaning customers
migrated to online platforms, many for the first time, while staff
had to be set up to work from home in large numbers
-- We have put in place a comprehensive support scheme for
individuals and smaller businesses including loan repayment
holidays, fee waivers or cancellations and loan extension
facilities. We have approved nearly 300,000 applications already,
over half of which arose from mandatory schemes in some of our
markets. The approval percentage of applications received under
voluntary schemes is close to 98 per cent, demonstrating our
determination to support customers within this particularly
vulnerable segment of our communities that are seeking help
On the corporate and institutional side:
-- We helped our clients navigate an extremely volatile period,
with strong demand for our currency, commodities and interest rate
risk management capabilities. While some larger 'new economy'
clients have flourished in recent months, most businesses -
particularly the smaller ones - are being negatively impacted by
the economic situation and will need our support for some time to
come
-- We launched a $1 billion financing programme that is being
offered on favourable terms for companies providing critical goods
and services in the fight against COVID-19, and those planning to
switch to making products that are in high demand. We have approved
applications for nearly half the commitment so far, and have
already started disbursing funds to several corporate clients. Most
of those clients are in the Commercial Banking segment and they are
evenly split across our three largest regions in Asia, Africa
and
the Middle East
To support the communities that we operate in, we launched a $50
million global charitable fund to provide immediate relief to those
affected by COVID-19 and to contribute to localised long-term
economic rebuilding efforts. I'm delighted to say that around half
of this has already been distributed in 52 markets across our
network, with the rest expected to be allocated within a matter of
months.
Looking ahead
Before the crisis it had become clear that greater international
cooperation is needed to reap the full benefits of globalisation
and make markets more inclusive both within and across nations. The
hard road ahead may prove a temptation to governments and
regulators to retreat within their borders. But we believe that
would be taking exactly the wrong lesson from the astonishing
accomplishments of recent months, which to my mind provide concrete
evidence of how much we stand to gain by staying agile, resilient
and humane - together.
Relations between the US and China remain highly charged, driven
by both economic and political considerations. We have seen some
markets including the US introduce laws or policies relating to
Hong Kong and China, the full implications of which are not yet
known. We are convinced that more collaboration - not less - is the
best way to find a sustainable equilibrium in these complex
situations, but we do not expect an easy or quick resolution. We do
believe, however, that Hong Kong will continue to play a key role
as an international financial hub and we are fully committed to
contributing to its continued success.
Governance matters and the dividend
I am delighted to welcome Phil Rivett to the Board. His more
than 40 years of professional accountancy and audit experience in
the financial services sector across many of our markets will, I am
sure, prove valuable in the years ahead. Louis Cheung stepped down
as a director in March after seven years on the Board. I would like
to thank Louis for his important contributions to the Group.
We announced on 31 March that in response to a request from the
Prudential Regulation Authority, the Board had decided after
careful consideration that no interim dividend on ordinary shares
will be accrued, recommended or paid in 2020. This difficult
decision is allowing us to provide the support for individuals,
businesses and the communities in which we operate that I described
above, while at the same time strengthening further our capital
ratios and enabling us to invest to transform the business for the
long term.
The Board fully recognises the importance of dividends to its
owners and we hope to reinstate them as soon as prudently
possible.
Conclusion
In my first Annual Report as Chairman of the Group in 2017, I
said that the requirements for success in previous crises impacting
the financial services sector were to have a clear strategy, a
sensible business plan and exceptionally talented people who are
determined to execute that plan with discipline and pace. I believe
we have shown in recent years and most recently during this crisis
that we have all those ingredients.
We are monitoring the situation very carefully and are committed
to deploying our strong capital and liquidity to support our
clients and the communities we operate in through this
exceptionally challenging period.
I would like to again thank all my colleagues across our
footprint for their tremendous efforts to maintain our operational
resilience, and ensure that we continue to deliver on our promise
to be Here for good.
José Viñals
Group Chairman
30 July 2020
Standard Chartered PLC - Group Chief Executive's review
"Strong operating performance in severe conditions"
We are feeling the acute impact of the COVID-19 pandemic across
our markets and in our business. This and the related fall in both
interest rates and oil prices created extremely challenging
operating conditions in the first half of the year. We, like nearly
all businesses, have had to cope with those conditions with most of
our people working remotely to ensure their safety and that of our
customers.
I am pleased we came through that period with a clean bill of
operational health and with higher income, lower costs and
therefore significantly better pre-provision operating profit
compared with last year. We remained profitable despite higher
impairments, which together with our strengthened capital position
enabled us to build substantial reserves in the face of the
heightened uncertainty and tougher conditions. I am encouraged by
how well my colleagues are coping in the crisis and that many
clients in some of our larger markets are recovering strongly and
already operating at close to their pre-pandemic capacity.
Strategic progress
The COVID-19 crisis has reinforced the relevance of our
strategic priorities:
-- The sharp global economic contraction has had an inevitable
impact on income that we generate from our international network.
But our unique geographic diversity means that we are ideally
placed to help our clients manage their risks across borders in
volatile conditions
-- Heightened geopolitical tensions add to the pressure on our
network business. We are focused on staying close to our clients as
any re-configuration of their trade and investment flows often
plays to our strengths: we are the only global bank present in
every ASEAN market and across South Asia, the Middle East and
Africa
-- Social isolation meant that we could not interact
face-to-face with most of our affluent customers, leading to lower
commissions from that segment. Our substantially improved digital
channels, though, have helped us stay close and will enable us to
address their needs through every stage of the crisis
-- The crisis has put our existing focus on productivity into a
whole new light. We are accelerating some elements of existing
projects targeted at creating a leaner and more agile organisation.
We are also developing new expense reduction initiatives to ensure
that whatever cost savings we realise in 2020 as a direct result of
the crisis are reinforced by more enduring efficiencies into 2021
and beyond
-- Our significantly higher investment into our core digital
capabilities in recent years has borne fruit during this initial
phase of the pandemic, with up to three-quarters of my colleagues
operating remotely across 60 markets and many more corporate,
institutional and personal clients now engaging with us through
digital channels. All of this was achieved with no interruption to
data or transaction processing. Meanwhile, we continue to develop
exciting new initiatives such as Mox, our majority-owned virtual
bank in Hong Kong, which is in advanced testing and is due to
launch shortly
-- We continue to make good progress, despite the crisis, in our
businesses in India, Korea, the UAE and Indonesia, where we are
focused on optimising returns. Our team in the UAE is also having
to cope with the impact of suppressed oil prices, but solid profit
growth in the three other markets fuelled by strong demand for our
Financial Markets risk management capabilities led to a 7 per cent
improvement in operating profit overall
Capital and liquidity allocation
We remain financially strong and very liquid. Our immediate
priority is to use the resulting funding capacity to support our
clients through the crisis. We have approved over 90 per cent of
relief applications that we have received so far under a
combination of mandatory and voluntary schemes. Only around 4 per
cent of our total loans and advances has been subjected to relief.
Most of this is secured and some has been repaid already, likely
reflecting our strategic focus on multinational businesses and
affluent personal customers.
Our long-term priorities for deployment of surplus capital,
however, have not changed: first support growth, then fund
dividends and finally return what's left to shareholders. We were
the only large UK bank to have an active stock buy-back programme
at the time of the PRA's request to suspend distributions, but our
equity story is grounded in the ability to offer long-term and
sustainable growth. I believe that we will find many such
opportunities as markets in our footprint drive the global economic
recovery.
We will invest where we can make acceptable levels of return
above our cost of capital. We are currently carrying capital in
excess of the amount we will require in more normal times,
reflecting the uncertainty in our earnings outlook as the global
economy adjusts to the crisis, and starts to recover. As we develop
confidence in the macro environment, we expect to return to our
stated target CET1 capital range of 13-14 per cent and will return
capital to shareholders to the extent we have exhausted attractive
investment opportunities. While the current external conditions
mean it will take longer to achieve a return on tangible equity
above 10 per cent, we believe our franchise can deliver these
returns and remain committed to delivering them.
Sustainability
Although the priority of most governments currently is quite
rightly on minimising the damage to health and the economies in
their markets caused by COVID-19, I am delighted to see how many
are thinking ahead to consider pathways to delivering a more
sustainable and resilient future. Stimulus measures will be vital;
we hope priority will be given to those that more tangibly promote
the many facets of the UN's Sustainable Development Goals, which we
support wholeheartedly. That is why we will continue to deliver on
the $75 billion commitment we announced earlier this year to
finance sustainable infrastructure, renewables and clean technology
to support the transition to a low-carbon economy, and why we are
aiming to achieve net zero emissions from our own operations by
2030.
This focus on sustainability is particularly relevant in the
markets across Asia, Africa and the Middle East that have been our
home for 160 years, where the opportunity to drive positive
fundamental change is arguably greatest. They are among the most
dynamic economies in the world and the rate of progress on climate
action, human rights, diversity and inclusion varies
considerably.
We are faced every day with difficult decisions operating in
those markets, but I am convinced that sticking resolutely to our
purpose and showing through our actions that we are Here for good
will help bring about positive change. We aim to contribute to
their growth and prosperity when they thrive, but we also stay to
assist when they are challenged - for example, through providing $1
billion of financing to support businesses who are tackling the
pandemic and our $50 million COVID-19 Charitable Fund.
Concluding remarks
Governments and policymakers around the world are facing an
extremely complex set of economic and societal challenges.
Navigating the resulting geopolitical tensions and assessing the
possible impact on our business will be challenging at times. It is
vital that we remain calm in this environment and continue to focus
on what we can control, on supporting our colleagues as they return
to the workplace and on developing differentiated capabilities to
serve the needs of our clients and the communities in which we
operate.
Bill Winters
Group Chief Executive
30 July 2020
Standard Chartered PLC - Group Chief Financial Officer's
review
The Group delivered a resilient performance overall in the first
half in conditions that became extremely challenging
Summary of financial performance
Constant Constant
currency currency
1H'20 1H'19 Change change1 2Q'20 2Q'19 Change change1
$million $million % % $million $million % %
-------------------------- ---------- ---------- ------ ---------- ---------- ------ ---------
Net interest income 3,502 3,862 (9) (7) 1,660 1,942 (15) (12)
Other income 4,545 3,834 19 20 2,060 1,941 6 8
-------------------------- ---------- ---------- ------ --------- ---------- ---------- ------ ---------
Underlying operating
income 8,047 7,696 5 7 3,720 3,883 (4) (2)
Underlying operating
expenses (4,713) (4,969) 5 2 (2,355) (2,554) 8 4
-------------------------- ---------- ---------- ------ --------- ---------- ---------- ------ ---------
Underlying operating
profit before impairment
and taxation 3,334 2,727 22 23 1,365 1,329 3 3
Credit impairment (1,567) (254) nm2 nm2 (611) (176) nm2 nm2
Other impairment 112 (21) nm2 nm2 (42) (19) (121) (133)
Profit from associates
and joint ventures 76 157 (52) (52) 21 91 (77) (78)
-------------------------- ---------- ---------- ------ --------- ---------- ---------- ------ ---------
Underlying profit before
taxation 1,955 2,609 (25) (25) 733 1,225 (40) (41)
Restructuring (90) (14) nm2 nm2 2 (46) 104 107
Other items (238) (181) (31) (31) 6 (7) 186 186
-------------------------- ---------- ---------- ------ --------- ---------- ---------- ------ ---------
Statutory profit before
taxation 1,627 2,414 (33) (33) 741 1,172 (37) (37)
Taxation (561) (918) 39 37 (192) (494) 61 59
-------------------------- ---------- ---------- ------ --------- ---------- ---------- ------ ---------
Profit for the period 1,066 1,496 (29) (30) 549 678 (19) (22)
-------------------------- ---------- ---------- ------ --------- ---------- ---------- ------ ---------
Net interest margin
(%) 1.40 1.66 1.28 1.67
Underlying return on
tangible equity (%) 6.0 8.4 3.5 7.3
Underlying earnings
per share (cents) 35.9 49.1 10.4 21.4
Statutory return on
tangible equity (%) 4.3 6.5 3.6 5.0
Statutory earnings per
share (cents) 25.8 38.0 10.8 14.6
-------------------------- ---------- ---------- ------ --------- ---------- ---------- ------ ---------
1 Comparisons presented on the basis of the current period's
transactional currency rate, ensuring like-for-like currency rates
between the two periods
2 Not meaningful
The Group delivered a resilient performance in the first half in
conditions that became extremely challenging. Strong and
broad-based growth in the initial months of the year was followed
by lower income in the second quarter driven by negative movements
in the debit valuation adjustment (DVA) and the effects of COVID-19
which led to severe global economic contraction and substantially
reduced interest rates. Pre-provision operating profit improved
significantly with income growing at a faster rate than expenses.
Underlying profit fell due to substantially higher credit
impairments booked particularly in the first quarter driven by the
deterioration in the macroeconomic outlook.
The Group is committed to deploying its strong capital and
surplus liquidity to support its clients and the communities it
operates in through the crisis. The Group's CET1 ratio has risen to
14.3 per cent - above the top end of its medium-term target range -
while its assets-to-deposits ratio has reduced to 62.7 per cent and
its liquidity coverage ratio has increased to 149 per cent.
All commentary that follows is on an underlying basis and
comparisons are made to the equivalent period in 2019 on a reported
currency basis, unless otherwise stated.
-- Operating income grew 5 per cent in the first half including
a $146 million positive movement in the debit valuation adjustment
(DVA). Income was also up 5 per cent on a constant currency basis
and excluding DVA as the impact of lower interest rates was more
than offset by a double-digit increase in Financial Markets
income
-- Net interest income decreased 9 per cent with increased
volumes more than offset by the compressive impact of a
significantly lower interest rate environment on net interest
margin
-- Other income increased 19 per cent, or 15 per cent excluding
the positive impact of movements in DVA, with a particularly strong
underlying performance in Financial Markets and realisation gains
in Treasury
-- Operating expenses were 5 per cent lower and 2 per cent lower
on a constant currency basis, with tight control of costs
generating positive income-to-cost jaws of 10 per cent on a
reported basis, or 7 per cent on a constant currency basis
excluding DVA. The cost-to-income ratio improved 5 percentage
points to 59 per cent excluding DVA
-- Credit impairment increased by $1.3 billion to $1.6 billion.
Stage 1 and 2 impairments increased by $586 million, of which
around one-half was attributable to a management overlay to reflect
deterioration in the macroeconomic outlook not captured in the
modelled outcome and the estimated impact of payment relief
measures on delinquencies and flow rates. Impairments of Stage 3
assets increased $727 million, the majority of which were recorded
in the first quarter
-- Other impairment was a $112 million credit, primarily driven
by a reversal of previously impaired assets partially offset by
impairment charges relating to aircraft
-- Profit from associates and joint ventures was down 52 per
cent to $76 million. The Group could only recognise its share of
the profits of its associate China Bohai Bank for four rather than
six months due to the timing of its recently completed initial
public offering in July 2020, which has resulted in the requisite
financial information not yet being publicly available
-- Underlying profit before tax decreased 25 per cent. Charges
relating to restructuring, provisions for regulatory matters and
other items increased $133 million to $328 million, primarily
relating to $249 million of goodwill impairment in India due to a
lower GDP growth outlook
-- Taxation was $561 million on a statutory basis with an
underlying effective tax rate of 29.0 per cent broadly in-line with
the prior year rate of 28.6 per cent
-- Underlying return on tangible equity declined by 240 basis
points to 6.0 per cent, with the impact of reduced profits partly
offset by lower tangible equity reflecting the dividends paid and
share buy-back programmes completed since 1H'19
Operating income by product
Constant Constant
currency currency
1H'20 1H'19 Change change1 2Q'20 2Q'19 Change change1
$million $million % % $million $million % %
----------------------------- ---------- ---------- ------ --------- ---------- ---------- ------ ---------
Transaction Banking2 1,521 1,778 (14) (13) 721 901 (20) (18)
---------- ---------- ------ --------- ---------- ---------- ------ ---------
Trade 490 559 (12) (11) 230 282 (18) (17)
Cash Management 1,031 1,219 (15) (14) 491 619 (21) (19)
---------- ---------- ------ --------- ---------- ---------- ------ ---------
Financial Markets2 2,248 1,665 35 38 970 834 16 20
---------- ---------- ------ --------- ---------- ---------- ------ ---------
Foreign Exchange 758 602 26 29 343 304 13 18
Rates 717 357 101 106 339 136 149 155
Commodities 126 89 42 42 82 44 86 86
Credit and Capital Markets 276 285 (3) (2) 250 145 72 76
Capital Structuring
Distribution Group 113 156 (28) (25) 52 74 (30) (28)
DVA 104 (42) nm3 nm3 (201) 11 nm3 nm3
Security Services2 163 170 (4) (1) 79 87 (9) (7)
Other Financial Markets (9) 48 (119) (119) 26 33 (21) (18)
---------- ---------- ------ --------- ---------- ---------- ------ ---------
Corporate Finance 547 534 2 5 269 272 (1) 2
Lending and Portfolio
Management 427 384 11 14 232 197 18 22
Wealth Management 964 976 (1) - 434 511 (15) (14)
Retail Products 1,859 1,927 (4) (1) 913 976 (6) (4)
---------- ---------- ------ --------- ---------- ---------- ------ ---------
CCPL and other unsecured
lending 599 625 (4) (1) 295 320 (8) (5)
Deposits 885 995 (11) (9) 413 501 (18) (15)
Mortgage and Auto 305 258 18 22 169 129 31 36
Other Retail Products 70 49 43 41 36 26 38 35
---------- ---------- ------ --------- ---------- ---------- ------ ---------
Treasury 503 559 (10) (8) 178 251 (29) (27)
Other (22) (127) 83 82 3 (59) 105 109
----------------------------- ---------- ---------- ------ --------- ---------- ---------- ------ ---------
Total underlying operating
income 8,047 7,696 5 7 3,720 3,883 (4) (2)
----------------------------- ---------- ---------- ------ --------- ---------- ---------- ------ ---------
1 Comparisons presented on the basis of the current period's
transactional currency rate, ensuring like-for-like currency rates
between the two periods
2 Following a reorganisation, there has been a reclassification
of balances relating to Securities services from Transaction
Banking to Financial Markets including prior period numbers. There
is no change in the total income
3 Not meaningful
Transaction Banking income was down 14 per cent. Cash Management
declined 15 per cent with strong liability growth being more than
offset by declining margins given the lower interest rate
environment. Trade declined 12 per cent from lower balances.
Financial Markets income grew 35 per cent or 26 per cent
excluding DVA. The business benefited from heightened market
volatility, wider spreads and increased hedging and investment
activity by clients. Income from Rates doubled and there was strong
double-digit growth in Foreign Exchange and Commodities. Credit and
Capital Markets recovered momentum in the second quarter but was
down 3 per cent in the first half. Income from Securities Services,
which is now managed within Financial Markets having previously
been reported as part of Transaction Banking, declined 4 per
cent.
Corporate Finance income was up 2 per cent due to increased
balances from drawdowns on revolving credit facilities.
Lending and Portfolio Management income increased 11 per cent
with improved margins and increased volumes in Corporate
Lending.
Wealth Management income was down 1 per cent, despite
significantly more challenging market conditions, with lower
bancassurance sales resulting from reduced branch walk-ins due to
COVID-19, partially offset by clients increasingly using digital
channels. There was a particularly strong sales performance in FX,
fixed income and equities.
Retail Products income reduced 4 per cent on a reported basis
and was down 1 per cent on a constant currency basis. A lower
interest rate environment has compressed Deposit margins but
boosted margins across asset products by reducing funding costs.
Deposits income declined 11 per cent as margin compression more
than offset increased volumes. Increases in volumes and margins led
to double-digit income growth across Mortgages & Auto and
Business Banking within Other Retail Products. Credit Cards &
Personal Loans income was down 4 per cent as COVID-19 impacted new
sales.
Treasury income declined 10 per cent with reduced interest
income on deployed assets within Treasury Markets and a $25 million
unfavourable movement in hedge ineffectiveness partly offset by a
$280 million increase in realisation gains from the sale of
longer-dated securities as bond yields declined.
Profit before tax by client segment and geographic region
Constant Constant
currency currency
1H'20 1H'19 Change change1 2Q'20 2Q'19 Change change1
$million $million % % $million $million % %
-------------------------- ---------- ---------- ------ ---------- ---------- ------ ---------
Corporate & Institutional
Banking 1,132 1,297 (13) (12) 476 617 (23) (21)
Retail Banking 326 624 (48) (47) 93 334 (72) (73)
Commercial Banking 182 337 (46) (46) 80 150 (47) (49)
Private Banking 56 100 (44) (46) 19 28 (32) (32)
Central & other items
(segment) 259 251 3 (4) 65 96 (32) (45)
-------------------------- ---------- ---------- ------ --------- ---------- ---------- ------ ---------
Underlying profit before
taxation 1,955 2,609 (25) (25) 733 1,225 (40) (41)
-------------------------- ---------- ---------- ------ --------- ---------- ---------- ------ ---------
Greater China & North
Asia 1,134 1,329 (15) (14) 484 672 (28) (28)
ASEAN & South Asia 456 760 (40) (40) 89 371 (76) (74)
Africa & Middle East 90 441 (80) (78) 43 162 (73) (72)
Europe & Americas 356 13 nm2 nm2 255 45 nm2 nm2
Central & other items
(region) (81) 66 nm2 (198) (138) (25) nm2 nm2
-------------------------- ---------- ---------- ------ --------- ---------- ---------- ------ ---------
Underlying profit before
taxation 1,955 2,609 (25) (25) 733 1,225 (40) (41)
-------------------------- ---------- ---------- ------ --------- ---------- ---------- ------ ---------
1 Comparisons presented on the basis of the current period's
transactional currency rate, ensuring like-for-like currency rates
between the two periods
2 Not meaningful
Corporate & Institutional Banking income grew 13 per cent
with a 41 per cent increase in Financial Markets including a $146
million positive movement in DVA. This was more than offset by
increased impairments resulting in profits down 13 per cent or 23
per cent excluding DVA. It remains the largest contributor to the
overall Group's profit before tax from a client segment
perspective. Retail Banking income declined 3 per cent but was flat
on a constant currency basis. Higher impairments were the primary
driver of a 48 per cent reduction in profit. Commercial Banking
experienced a 9 per cent reduction in income, higher impairments
and profit declining 46 per cent. A non-repeat of a prior-year
impairment release meant Private Banking profit was down 44 per
cent. Central & other items income increased 9 per cent with
one-off gains in income offsetting lower Treasury income. Profit
increased 3 per cent as the higher income was partly offset by a
reduction in the Group's share of Bohai profits due to a change in
timing of profit recognition.
Greater China & North Asia income grew 2 per cent despite
the disruption caused by the early imposition of lockdowns. An
increase in impairments meant profits were down 15 per cent but it
remains the largest regional contributor to the overall Group's
profit before tax. ASEAN & South Asia achieved double-digit
income growth and lower expenses, but this was offset by increased
impairments resulting in a 40 per cent reduction in profits. Africa
& Middle East experienced difficult conditions that included
the effect of sharply lower oil prices in the period, which led to
a 6 per cent reduction in income, higher impairments and profit
declining 80 per cent. Europe & Americas income increased 38
per cent with strong Financial Markets performance including a $80
million positive movement in DVA. Lower costs offset increased
impairments and profits increased to $356 million, up from a $13
million profit in the same period last year. Central & other
items income halved mainly due to lower returns paid to Treasury on
the equity provided to the regions from a falling interest rate
environment partly offset by lower expenses resulting in a $81
million operating loss in the first half.
Adjusted net interest income and margin
1H'20 1H'191 Change2 2Q'20 2Q'191 Change2 1Q'20 Change2
$million $million % $million $million % $million %
------------------------- ---------- ---------- ---------- ---------- ------- ---------- -------
Adjusted net interest
income3 3,619 4,004 (10) 1,688 2,011 (16) 1,931 (13)
Average interest-earning
assets 520,902 485,737 7 531,131 484,066 10 510,672 4
Average interest-bearing
liabilities 471,801 434,530 9 479,053 432,223 11 464,549 3
------------------------- ---------- ---------- ------- ---------- ---------- ------- ---------- -------
Gross yield (%)4 2.65 3.45 (80) 2.37 3.46 (109) 2.95 (58)
Rate paid (%)4 1.39 2.00 (61) 1.21 2.01 (80) 1.57 (36)
Net yield (%)4 1.26 1.45 (19) 1.16 1.45 (29) 1.38 (22)
Net interest margin
(%)4,5 1.40 1.66 (26) 1.28 1.67 (39) 1.52 (24)
------------------------- ---------- ---------- ------- ---------- ---------- ------- ---------- -------
1 The Group in 2019 changed its accounting policy for net
interest income and the basis of preparation of its net interest
margin to better reflect the underlying performance of its banking
book. See notes to the financial statements in the 2019 Annual
Report for further details.
2 Variance is better/(worse) other than assets and liabilities
which is increase/(decrease)
3 Adjusted net interest income is statutory net interest income
less funding costs for the trading book
4 Change is the basis points (bps) difference between the two
periods rather than the percentage change
5 Adjusted net interest income divided by average
interest-earning assets, annualised
Adjusted net interest income was down 10 per cent with a 26
basis points reduction in net interest margin which averaged 140
basis points for the half. The net interest margin in the second
quarter of 2020 averaged 128 basis points and was down 24 basis
points versus the prior quarter:
-- Average interest-earning assets increased 4 per cent in the
quarter, driven by an increase in Treasury Market assets. Gross
yields declined 58 basis points compared with the average in the
prior quarter and predominantly reflected the flow-through of
declining interest rates in the second half of 2019 and those that
occurred in the first quarter of 2020
-- Average interest-bearing liabilities increased 3 per cent in
the quarter, driven by growth in customer accounts. The rate paid
on liabilities decreased 36 basis points compared with the average
in the prior quarter reflecting interest rate movements
Credit Risk summary
Income statement
1H'20 1H'19 Change1 2Q'20 2Q'19 Change1 1Q'20 Change1
$million $million % $million $million % $million %
------------------------ ---------- ---------- ---------- ---------- ------- ---------- -------
Total credit impairment 1,567 254 517 611 176 247 956 (36)
---------- ---------- ------- ---------- ---------- ------- ---------- -------
Of which stage 1 and
2 668 82 715 217 19 1,044 451 (52)
Of which stage 3 899 172 423 394 157 151 505 (22)
------------------------ ---------- ---------- ------- ---------- ---------- ------- ---------- -------
1 Variance is increase/(decrease) comparing current reporting
period to prior reporting periods
Balance sheet
30.06.201 31.03.20 Change2 31.12.19 Change2 30.06.193 Change2
$million $million % $million % $million %
--------------------------------------- ---------- ---------- ------- ---------- ------- ---------- -------
Gross loans and advances to customers4 282,826 277,444 2 274,306 3 269,633 5
---------- ---------- ------- ---------- ------- ---------- -------
Of which stage 1 250,278 247,696 1 246,149 2 245,747 2
Of which stage 2 23,739 21,979 8 20,759 14 16,090 48
Of which stage 3 8,809 7,769 13 7,398 19 7,796 13
---------- ---------- ------- ---------- ------- ---------- -------
Expected credit loss provisions (6,513) (6,210) 5 (5,783) 13 (6,038) 8
---------- ---------- ------- ---------- ------- ---------- -------
Of which stage 1 (476) (416) 14 (402) 18 (407) 17
Of which stage 2 (780) (713) 9 (377) 107 (350) 123
Of which stage 3 (5,257) (5,081) 3 (5,004) 5 (5,281) -
---------- ---------- ------- ---------- ------- ---------- -------
Net loans and advances to customers 276,313 271,234 2 268,523 3 263,595 5
---------- ---------- ------- ---------- ------- ---------- -------
Of which stage 1 249,802 247,280 1 245,747 2 245,340 2
Of which stage 2 22,959 21,266 8 20,382 13 15,740 46
Of which stage 3 3,552 2,688 32 2,394 48 2,515 41
---------- ---------- ------- ---------- ------- ---------- -------
Cover ratio of stage 3 before/after 60 / 65 / (5) / 68 / (8) / 68 / (8) /
collateral (%)5 80 85 (5) 85 (5) 85 (5)
Credit grade 12 accounts ($million) 1,519 1,453 5 1,605 (5) 1,416 7
Early alerts ($million) 14,406 11,461 26 5,271 173 4,068 254
Investment grade corporate exposures
(%)5 57 62 (5) 61 (4) 57 -
--------------------------------------- ---------- ---------- ------- ---------- ------- ---------- -------
1 Stage 3 Gross Loans and Advances to Banks of $13 million is
not included in the table above
2 Variance is increase/(decrease) comparing current reporting
period to prior reporting periods
3 2Q 2019 Stage 3 balances, provisions and cover ratios have
been restated to include interest due but unpaid together with
equivalent credit impairment charge
4 Includes reverse repurchase agreements and other similar
secured lending held at amortised cost of $4,383 million at 30 June
2020, $2,903 million at 31 March 2020, $1,469 million at 31
December 2019 and $2,704 million at 30 June 2019
5 Change is the percentage points difference between the two
points rather than the percentage change
There was a significant impact from the economic environment on
the Group's loan portfolio in the first half of 2020, primarily
reflecting the impact of COVID-19. There is a weaker outlook in
many of the markets in which the Group operates, with negative
global growth expected for 2020 and what is likely to be a volatile
and uneven economic recovery. In the second quarter of 2020 the
credit quality of the portfolio remained under stress with a
further deterioration in short-term macroeconomic forecasts, albeit
the pace of deterioration slowed compared to the first quarter.
The Group has taken a number of steps to mitigate the effect on
its portfolios and risk profile, informed by stress-testing of
various COVID-19 related scenarios, voice of the customer surveys
and deep-dives on specific portfolios, and it remains vigilant in
the light of the developing situation.
Credit impairment increased by $1,313 million to $1,567 million
compared to 1H'19 but was $345 million lower in 2Q'20 than in
1Q'20.
Stage 1 and 2 impairments increased by $586 million, of which
around one-half was attributable to modelled outcomes split broadly
equally between the impact of deteriorating macroeconomic variables
and the net change in exposures and portfolio movements. The
remaining half is due to a management overlay, to reflect the
deterioration in the macroeconomic outlook not captured in the
modelled outcome and the impact of lockdowns and payment relief
measures on delinquencies and flow rates within Retail Banking.
Stage 3 impairments increased $727 million across all client
segments with over half of the increase due to impairments relating
to three unconnected Corporate & Institutional Banking client
exposures that were highlighted in 1Q'20.
Gross Stage 3 loans and advances to customers of $8.8 billion
were up 19 per cent compared with 31 December 2019 primarily due to
increased inflows in Corporate & Institutional Banking. These
credit-impaired loans represented 3.1 per cent of gross loans and
advances, an increase of 40 basis points compared with 31 December
2019.
The Stage 3 cover ratio reduced to 60 per cent from 68 per cent
as at 31 December 2019 due to write-offs of fully-provided balances
as well as new downgrades which incurred lower levels of provisions
but were partially covered by tangible collateral. The cover ratio
after collateral declined to 80 per cent from 85 per cent as some
of the new inflows are also covered by non-tangible collateral such
as guarantees and insurance, which are not captured in the cover
ratio after collateral metric.
Credit grade 12 balances have decreased 5 per cent since 31
December 2019 with new inflows from Early Alert accounts including
the impact of sovereign downgrades more than offset by outflows to
stage 3 and repayments.
Early Alert accounts more than doubled to $14.4 billion with
just under half of the increase driven by the Aviation sector.
Early alerts increased $2.9 billion in the second quarter of 2020,
as detailed reviews continued on a wide range of sectors and
clients but declined in June. The Group is monitoring its exposures
in the Aviation, Metals & Mining and Oil & Gas sectors
particularly carefully, given the unusual stresses caused by the
effects of COVID-19 including low oil prices.
The proportion of investment grade corporate exposures has
reduced since 31 December 2019 by 4 percentage points to 57 per
cent reflecting a reduction in repo balances and downgrades in the
Aviation and Oil & Gas sectors.
Restructuring and others
1H'20 1H'19
----------------------- ------------------------------------------- -------------------------------------------
Provision Provision
for regulatory for regulatory
matters Restructuring Other items matters Restructuring Other items
$million $million $million $million $million $million
----------------------- --------------- ------------- ----------- --------------- ------------- -----------
Operating income - 46 6 - 134 -
Operating expenses 14 (49) - (204) (125) -
Credit impairment - (9) - - - -
Goodwill impairment - - (258) - - -
Other impairment - (77) - - (23) -
Profit from associates
and joint ventures - (1) - - - 23
----------------------- --------------- ------------- ----------- --------------- ------------- -----------
Profit/(loss) before
taxation 14 (90) (252) (204) (14) 23
----------------------- --------------- ------------- ----------- --------------- ------------- -----------
The Group's statutory performance is adjusted for profits or
losses of a capital nature, amounts consequent to investment
transactions driven by strategic intent, other infrequent and/or
exceptional transactions that are significant or material in the
context of the Group's normal business earnings for the period and
items which management and investors would ordinarily identify
separately when assessing underlying performance
period-by-period.
Restructuring charges of $90 million primarily reflect
impairments from the Group's discontinued ship leasing and
principal finance businesses. Other items of $252 million relates
mainly to a goodwill impairment on the Group's branch in India that
was taken in 1Q'20 due to a lower economic growth forecast and
increases to the discount rate.
Balance sheet and liquidity
30.06.20 31.03.20 Change1 31.12.19 Change1 30.06.19 Change1
$million $million % $million % $million %
-------------------------------- ---------- ---------- ------- ---------- ------- ---------- -------
Assets
Loans and advances to banks 50,499 61,323 (18) 53,549 (6) 59,210 (15)
Loans and advances to customers 276,313 271,234 2 268,523 3 263,595 5
Other assets 414,773 432,359 (4) 398,326 4 389,699 6
-------------------------------- ---------- ---------- ------- ---------- ------- ---------- -------
Total assets 741,585 764,916 (3) 720,398 3 712,504 4
-------------------------------- ---------- ---------- ------- ---------- ------- ---------- -------
Liabilities
Deposits by banks 28,986 25,519 14 28,562 1 30,783 (6)
Customer accounts 421,153 422,192 - 405,357 4 401,597 5
Other liabilities 241,549 267,201 (10) 235,818 2 229,685 5
-------------------------------- ---------- ---------- ------- ---------- ------- ---------- -------
Total liabilities 691,688 714,912 (3) 669,737 3 662,065 4
-------------------------------- ---------- ---------- ------- ---------- ------- ---------- -------
Equity 49,897 50,004 - 50,661 (2) 50,439 (1)
-------------------------------- ---------- ---------- ------- ---------- ------- ---------- -------
Total equity and liabilities 741,585 764,916 (3) 720,398 3 712,504 4
-------------------------------- ---------- ---------- ------- ---------- ------- ---------- -------
Advances-to-deposits ratio (%)2 62.7% 61.9% 64.2% 63.7%
-------------------------------- ---------- ---------- ------- ---------- ------- ---------- -------
Liquidity coverage ratio (%) 149% 142% 144% 139%
-------------------------------- ---------- ---------- ------- ---------- ------- ---------- -------
1 Variance is increase/(decrease)comparing current reporting
period to prior reporting periods
2 The Group now excludes $13,595 million held with central banks
(31.03.20: $9,947 million, 31.12.19: $9,109 million, 30.06.19:
$6,835 million) that has been confirmed as repayable at the point
of stress
The Group's balance sheet remains strong, liquid and well
diversified:
-- Loans and advances to customers increased 3 per cent since 31
December 2019 to $276 billion driven mainly by growth in Financial
Markets, Corporate Lending and Corporate Finance. The increase in
Corporate Lending and Corporate Finance reflects increased
draw-downs on revolving credit facilities that coincided with the
global spread of COVID-19 in March and April
-- Customer accounts of $421 billion increased 4 per cent since
31 December 2019 with an increase in operating account balances
within Cash Management and Retail Banking current accounts partly
offset by a reduction in Corporate and Retail Banking time
deposits
-- Other assets increased 4 per cent since 31 December 2019
driven by increased derivative assets and reverse repurchase
agreements to support the strong growth in Financial Markets. Other
liabilities increased 2 per cent from increased trading book
liabilities and derivative liabilities
The advances-to-deposits ratio reduced slightly to 62.7 per cent
from 64.2 per cent at 31 December 2019. The liquidity coverage
ratio strengthened, increasing from 144 per cent to 149 per cent
due to improved funding mix and supported by the Group's term debt
issuance activity notwithstanding challenging market conditions and
remains well above the minimum regulatory requirement of 100 per
cent.
Risk-weighted assets
30.06.20 31.03.20 Change1 31.12.19 Change1 30.06.19 Change1
$million $million % $million % $million %
----------------- ---------- ---------- ------- ---------- ------- ---------- -------
By risk type
Credit Risk 213,136 223,003 (4) 215,664 (1) 220,010 (3)
Operational Risk 26,800 27,803 (4) 27,620 (3) 27,620 (3)
Market Risk 22,616 21,847 4 20,806 9 23,109 (2)
----------------- ---------- ---------- ------- ---------- ------- ---------- -------
Total RWAs 262,552 272,653 (4) 264,090 (1) 270,739 (3)
----------------- ---------- ---------- ------- ---------- ------- ---------- -------
1 Variance is increase/(decrease) comparing current reporting
period to prior reporting periods
Total risk-weighted assets (RWA) decreased 1 per cent or $2
billion since 31 December 2019 to $263 billion and have reduced by
$10 billion since 31 March 2020, reflecting the completion of the
sale of the Group's interest in PT Bank Permata Tbk (Permata) in
Indonesia which reduced RWAs by $9 billion in total:
-- Credit Risk RWA reduced by $3 billion in the first half to
$213 billion with a $8 billion reduction from Permata partly offset
by the impact of economic disruption related to COVID-19 on asset
growth and credit migration. Negative credit migration totalled $7
billion in the first half and was partly mitigated by $4 billion of
favourable FX movements. Asset growth increased RWAs by $1 billion
with increased balance sheet volumes broadly offset by improvements
in RWA density
-- Operational Risk RWA declined 3 per cent reflecting a $1
billion reduction relating to Permata
-- Market Risk RWA increased by $2 billion to $23 billion due to
higher levels of Financial Markets activity with increased
value-at-risk from elevated market volatility partly offset by
regulatory mitigation for back-testing exceptions
Capital base and ratios
30.06.20 31.03.20 Change1 31.12.19 Change1 30.06.19 Change1
$million $million `% $million % $million %
---------------------------------- ---------- ---------- ------- ---------- ------- ---------- -------
CET1 capital 37,625 36,467 3 36,513 3 36,511 3
Additional Tier 1 capital (AT1) 5,612 4,620 21 7,164 (22) 6,612 (15)
---------------------------------- ---------- ---------- ------- ---------- ------- ---------- -------
Tier 1 capital 43,237 41,087 5 43,677 (1) 43,123 -
Tier 2 capital 13,231 12,371 7 12,288 8 11,834 12
---------------------------------- ---------- ---------- ------- ---------- ------- ---------- -------
Total capital 56,468 53,458 6 55,965 1 54,957 3
---------------------------------- ---------- ---------- ------- ---------- ------- ---------- -------
CET1 capital ratio end point (%)2 14.3 13.4 0.9 13.8 0.5 13.5 0.8
Total capital ratio transitional
(%)2 21.5 19.6 1.9 21.2 0.3 20.3 1.2
UK leverage ratio (%)2 5.2 4.9 0.3 5.2 - 5.3 (0.1)
---------------------------------- ---------- ---------- ------- ---------- ------- ---------- -------
1 Variance is increase/(decrease) comparing current reporting
period to prior reporting periods
2 Change is percentage points difference between two points
rather than percentage change
The Group is well capitalised with low leverage and high levels
of loss-absorbing capacity. Its capital and liquidity metrics
remain well above regulatory thresholds.
The Group announced on 31 March 2020 that in response to a
request from the Prudential Regulation Authority and as a
consequence of the unprecedented challenges facing the world due to
the COVID-19 pandemic, its board had decided after careful
consideration to withdraw the recommendation to pay a final
dividend for 2019 of 20 cents per ordinary share and to suspend the
buy-back programme announced on 28 February 2020. Furthermore, no
interim dividend on ordinary shares will be accrued, recommended or
paid in 2020.
The board fully recognises the importance of dividends to the
Group's owners. However, suspending ordinary shareholder
distributions is allowing the Group to maximise its support for
individuals, businesses and the communities in which it operates
whilst at the same time preserving strong capital ratios and
investing to transform the business for the long term.
The Group had purchased 40 million ordinary shares for $242
million through the buy-back programme announced on 28 February
2020. These shares were subsequently cancelled reducing total
issued share capital by 1.3 per cent.
The Group's minimum Common Equity Tier 1 (CET1) requirement has
reduced from 10.2 per cent to 10.0 per cent reflecting the
reductions in counter-cyclical buffer rates in the UK and Hong
Kong.
The Group's CET1 ratio of 14.3 per cent was 50 basis points
higher than as at 31 December 2019, over four percentage points
above the Group's latest regulatory minimum of 10.0 per cent and
above the top of the 13-14 per cent medium-term target range.
The Group on 20 May 2020 announced the completion of the sale of
its stake in PT Bank Permata Tbk, which generated an increase in
the Group's CET1 ratio of approximately 50 basis points.
The impact on credit RWAs from asset growth and negative credit
migration was a 50 basis point reduction in the CET1 ratio. The
$242 million share buy-back also reduced the CET1 ratio by 10 basis
points. This was partly offset by an aggregate 60 basis point
impact from profit accretion and the cancellation of the 2019 final
dividend.
The Group's UK leverage ratio of 5.2 per cent was in line with
the ratio at 31 December 2019. The Group's leverage ratio remains
significantly above its minimum requirement of 3.6 per cent.
The Group continues to target a CET1 ratio of 13-14 per cent in
the medium-term.
Outlook
We continue to believe that some of our larger markets will
start to drive the global economy out of recession over the coming
quarters but expect economic activity across our footprint in that
period to be volatile and uneven.
Income is likely to be lower both half-on-half and year-on-year
in the second half of 2020. The benefits of the early stage
recovery in some of our markets and our geographic and product
diversity are unlikely to be enough to offset the impact of low
interest rates and the probability of less buoyant conditions for
our Financial Markets business.
Expenses excluding the UK bank levy are usually higher in the
second half, but we continue to target being below $10 billion in
2020. Given the more challenging external environment we have
started to implement new sustainable efficiency initiatives with
the intent to stay below $10 billion in 2021 as well.
Given the extreme economic pressures relating to the persistence
of COVID-19, partially addressed through the efficacy of government
support measures, it is not possible to reliably predict the
quantum or timing of future impairments. However, if economic
conditions in our markets do not materially deteriorate in the
coming months then, given the substantial provisions we have taken
already, we anticipate that impairments in the second half will be
lower than those recorded in the first half.
Andy Halford
Group Chief Financial Officer
30 July 2020
Standard Chartered PLC - Supplementary financial information
Underlying performance by client segment
1H'20
------------------------------ ---------------------------------------------------------------------------
Corporate
& Institutional Retail Commercial Private Central &
Banking Banking Banking Banking other items Total
$million $million $million $million $million $million
------------------------------ ---------------- --------- ---------- --------- ------------ ---------
Operating income 3,987 2,537 740 300 483 8,047
---------------- --------- ---------- --------- ------------ ---------
External 4,012 2,103 700 202 1,030 8,047
Inter-segment (25) 434 40 98 (547) -
---------------- --------- ---------- --------- ------------ ---------
Operating expenses (1,985) (1,780) (421) (239) (288) (4,713)
------------------------------ ---------------- --------- ---------- --------- ------------ ---------
Operating profit before
impairment losses and
taxation 2,002 757 319 61 195 3,334
Credit impairment (985) (430) (137) (5) (10) (1,567)
Other impairment 115 (1) - - (2) 112
Profit from associates
and joint ventures - - - - 76 76
------------------------------ ---------------- --------- ---------- --------- ------------ ---------
Underlying profit before
taxation 1,132 326 182 56 259 1,955
Provision for regulatory
matters - - - - 14 14
Restructuring (56) (3) (18) (3) (10) (90)
Net gain on businesses
disposed/held for sale - - - - 6 6
Goodwill impairment - - - - (258) (258)
------------------------------ ---------------- --------- ---------- --------- ------------ ---------
Statutory profit before
taxation 1,076 323 164 53 11 1,627
------------------------------ ---------------- --------- ---------- --------- ------------ ---------
Total assets 336,623 107,327 33,158 13,202 251,275 741,585
Of which: loans and
advances to customers
including FVTPL 164,392 105,085 28,151 13,097 17,440 328,165
Total liabilities 402,920 149,422 43,578 18,842 76,926 691,688
Of which: customer accounts
including FVTPL and
repurchase agreements 257,512 146,088 40,507 18,725 6,632 469,464
------------------------------ ---------------- --------- ---------- --------- ------------ ---------
1H'19
------------------------------ ---------------------------------------------------------------------------
Corporate
& Institutional Retail Commercial Private Central &
Banking Banking Banking Banking other items Total
$million $million $million $million $million $million
------------------------------ ---------------- --------- ---------- --------- ------------ ---------
Operating income 3,534 2,603 811 306 442 7,696
---------------- --------- ---------- --------- ------------ ---------
External 3,633 2,140 863 171 889 7,696
Inter-segment (99) 463 (52) 135 (447) -
---------------- --------- ---------- --------- ------------ ---------
Operating expenses (2,102) (1,825) (445) (253) (344) (4,969)
------------------------------ ---------------- --------- ---------- --------- ------------ ---------
Operating profit before
impairment losses and
taxation 1,432 778 366 53 98 2,727
Credit impairment (116) (154) (29) 47 (2) (254)
Other impairment (19) - - - (2) (21)
Profit from associates
and joint ventures - - - - 157 157
------------------------------ ---------------- --------- ---------- --------- ------------ ---------
Underlying profit before
taxation 1,297 624 337 100 251 2,609
Provision for regulatory
matters - - - - (204) (204)
Restructuring 23 (1) - (1) (35) (14)
Share of profits of
PT Bank Permata Tbk
joint venture - - - - 23 23
------------------------------ ---------------- --------- ---------- --------- ------------ ---------
Statutory profit before
taxation 1,320 623 337 99 35 2,414
------------------------------ ---------------- --------- ---------- --------- ------------ ---------
Total assets 329,113 103,909 35,718 15,654 228,110 712,504
Of which: loans and
advances to customers
including FVTPL1 149,752 101,784 30,465 15,521 9,120 306,642
Total liabilities 380,549 143,297 39,805 18,616 79,798 662,065
Of which: customer accounts
including FVTPL and
repurchase agreements 234,142 139,898 36,908 18,473 15,490 444,911
------------------------------ ---------------- --------- ---------- --------- ------------ ---------
1 Following a reorganisation of certain clients, there has been
a reclassification of balances across client segments. Prior
periods have been restated
Corporate & Institutional Banking
Constant Constant
currency currency
1H'20 1H'19 Change4 change1 2Q'20 2Q'19 Change4 change1
$million $million % % $million $million % %
---------------------------- ---------- ---------- -------- ---------- ---------- -------- ---------
Operating income 3,987 3,534 13 15 1,833 1,776 3 6
Transaction Banking3 1,120 1,323 (15) (14) 531 672 (21) (20)
---------- ---------- -------- --------- ---------- ---------- -------- ---------
Trade 310 352 (12) (11) 146 179 (18) (18)
Cash Management 810 971 (17) (15) 385 493 (22) (20)
---------- ---------- -------- --------- ---------- ---------- -------- ---------
Financial Markets3 2,081 1,479 41 44 897 740 21 25
---------- ---------- -------- --------- ---------- ---------- -------- ---------
Foreign Exchange 664 503 32 35 302 256 18 23
Rates 695 338 106 111 328 128 156 163
Commodities 111 73 52 52 76 37 105 105
Credit and Capital
Markets 260 263 (1) - 245 130 88 92
Capital Structuring
Distribution Group 104 141 (26) (24) 47 66 (29) (25)
DVA 104 (42) nm7 nm7 (201) 11 nm7 nm7
Security Services3 163 170 (4) (1) 79 87 (9) (7)
Other Financial Markets (20) 33 (161) (154) 21 25 (16) (22)
---------- ---------- -------- --------- ---------- ---------- -------- ---------
Corporate Finance 496 478 4 6 245 240 2 5
Lending and Portfolio
Management 304 265 15 18 168 138 22 26
Other (14) (11) (27) (56) (8) (14) 43 43
Operating expenses (1,985) (2,102) 6 3 (1,004) (1,070) 6 3
---------------------------- ---------- ---------- -------- --------- ---------- ---------- -------- ---------
Operating profit before
impairment losses and
taxation 2,002 1,432 40 41 829 706 17 20
Credit impairment (985) (116) nm7 nm7 (315) (73) nm7 nm7
Other impairment 115 (19) nm7 nm7 (38) (16) (138) (138)
---------------------------- ---------- ---------- -------- --------- ---------- ---------- -------- ---------
Underlying profit before
taxation 1,132 1,297 (13) (12) 476 617 (23) (21)
Restructuring (56) 23 nm7 nm7 6 (21) 129 137
---------------------------- ---------- ---------- -------- --------- ---------- ---------- -------- ---------
Statutory profit before
taxation 1,076 1,320 (18) (18) 482 596 (19) (17)
---------------------------- ---------- ---------- -------- --------- ---------- ---------- -------- ---------
Total assets 336,623 329,113 2 3 336,623 329,113 2 3
Of which: loans and
advances to customers
including FVTPL2 164,392 149,752 10 11 164,392 149,752 10 11
Total liabilities 402,920 380,549 6 7 402,920 380,549 6 7
Of which: customer
accounts
including FVTPL and
repurchase agreements 257,512 234,142 10 11 257,512 234,142 10 11
Risk-weighted assets 137,150 134,938 2 137,150 134,938 2
Underlying return on
risk-weighted assets
(%)5 1.7 2.0 (30)bps 1.4 1.8 (40)bps
Underlying return on
tangible equity (%)5 8.3 9.8 (150)bps 6.8 9.2 (240)bps
Cost-to-income ratio
(%)6 49.8 59.5 9.7 9.3 54.8 60.2 5.4 5.3
---------------------------- ---------- ---------- -------- --------- ---------- ---------- -------- ---------
1 Comparisons presented on the basis of the current period's
transactional currency rate, ensuring like-for-like currency rates
between the two periods
2 Following a reorganisation of certain clients, there has been
a reclassification of balances across client segments. Prior
periods have been restated
3 Following a reorganisation, there has been a reclassification
of balances relating to Securities Services from Transaction
Banking to Financial Markets including prior-period numbers. There
is no change in the total income
4 Variance is better/(worse) other than risk-weighted assets,
assets and liabilities which is increase/(decrease)
5 Change is the basis points (bps) difference between the two
periods rather than the percentage change
6 Change is the percentage points difference between the two
periods rather than the percentage change
7 Not meaningful
Performance highlights
-- Underlying operating profit before taxation of $1,132 million
was down 13 per cent (12 per cent on a constant currency basis)
driven by increased credit impairments relating to three
unconnected Corporate & Institutional Banking client exposures
that were highlighted in 1Q'20, despite higher income and lower
costs
-- Underlying operating income of $3,987 million was up 13 per
cent (9 per cent excluding a positive movement in the debit
valuation adjustment) primarily driven by Financial Markets income
off the back of heightened volatility and increased client demand,
partially offset by Cash Management income due to the margin impact
of rate cuts
-- Good balance sheet momentum with loans and advances to
customers up 7 per cent since 31 December 2019
-- Risk-weighted assets up $8 billion year-to-date mainly as a
result of increased Credit RWA
-- RoTE reduced from 9.8 per cent to 8.3 per cent
Retail Banking
Constant Constant
currency currency
1H'20 1H'19 Change3 change1 2Q'20 2Q'19 Change3 change1
$million $million % % $million $million % %
-------------------------- ---------- ---------- -------- ---------- ---------- ---------- ---------
Operating income 2,537 2,603 (3) - 1,216 1,334 (9) (7)
Transaction Banking 9 9 - - 4 5 (20) -
---------- ---------- -------- --------- ---------- ---------- ---------- ---------
Trade 9 9 - - 4 5 (20) -
---------- ---------- -------- --------- ---------- ---------- ---------- ---------
Wealth Management 760 780 (3) (2) 346 410 (16) (15)
Retail Products 1,760 1,815 (3) (1) 862 920 (6) (3)
---------- ---------- -------- --------- ---------- ---------- ---------- ---------
CCPL and other
unsecured
lending 599 625 (4) (1) 295 320 (8) (5)
Deposits 803 900 (11) (8) 372 454 (18) (15)
Mortgage and Auto 288 241 20 23 159 120 33 38
Other Retail Products 70 49 43 41 36 26 38 30
---------- ---------- -------- --------- ---------- ---------- ---------- ---------
Other 8 (1) nm6 nm6 4 (1) nm6 nm6
Operating expenses (1,780) (1,825) 2 - (889) (928) 4 1
-------------------------- ---------- ---------- -------- --------- ---------- ---------- ---------- ---------
Operating profit before
impairment losses and
taxation 757 778 (3) (2) 327 406 (19) (19)
Credit impairment (430) (154) (179) (187) (233) (72) nm6 nm6
Other impairment (1) - nm6 nm6 (1) - nm6 nm6
-------------------------- ---------- ---------- -------- --------- ---------- ---------- ---------- ---------
Underlying profit before
taxation 326 624 (48) (47) 93 334 (72) (73)
Restructuring (3) (1) (200) (200) - (1) 100 100
-------------------------- ---------- ---------- -------- --------- ---------- ---------- ---------- ---------
Statutory profit before
taxation 323 623 (48) (48) 93 333 (72) (72)
-------------------------- ---------- ---------- -------- --------- ---------- ---------- ---------- ---------
Total assets 107,327 103,909 3 5 107,327 103,909 3 5
Of which: loans and
advances to customers
including FVTPL2 105,085 101,784 3 5 105,085 101,784 3 5
Total liabilities 149,422 143,297 4 6 149,422 143,297 4 6
Of which: customer
accounts
including FVTPL and
repurchase agreements 146,088 139,898 4 6 146,088 139,898 4 6
Risk-weighted assets 44,186 42,839 3 44,186 42,839 3
Underlying return on
risk-weighted assets
(%)4 1.5 3.0 (150)bps 0.8 3.2 (240)bps
Underlying return on
tangible equity (%)4 7.3 14.8 (750)bps 4.2 15.8 (1,160)bps
Cost-to-income ratio
(%)5 70.2 70.1 (0.1) (0.4) 73.1 69.6 (3.5) (4.1)
-------------------------- ---------- ---------- -------- --------- ---------- ---------- ---------- ---------
1 Comparisons presented on the basis of the current period's
transactional currency rate, ensuring like-for-like currency rates
between the two periods
2 Following a reorganisation of certain clients, there has been
a reclassification of balances across client segments. Prior
periods have been restated
3 Variance is better/(worse) other than risk-weighted assets,
assets and liabilities which is increase/(decrease)
4 Change is the basis points (bps) difference between the two
periods rather than the percentage change
5 Change is the percentage points difference between the two
periods rather than the percentage change
6 Not meaningful
Performance highlights
-- Underlying operating profit before taxation of $326 million
was down year-on-year due to lower income and increased credit
impairment due to a worsening credit environment with the impact of
COVID-19
-- Underlying operating income of $2,537 million was down 3 per
cent (flat on a constant currency basis), predominantly driven by a
8 per cent decline (down 2 per cent on a constant currency basis)
in Africa & Middle East, a 4 per cent decline (down 1 per cent
on a constant currency basis) in ASEAN & South Asia and a 1 per
cent decline (flat on a constant currency basis) in Greater China
& North Asia
-- All regions have been impacted by the more challenging
current environment with lower income and higher loan impairment,
but Greater China & North Asia is showing early signs of
recovery
-- RoTE decreased from 14.8 per cent to 7.3 per cent
Commercial Banking
Constant Constant
currency currency
1H'20 1H'19 Change3 change1 2Q'20 2Q'19 Change3 change1
$million $million % % $million $million % %
---------------------------- ---------- ---------- -------- ---------- ---------- -------- ---------
Operating income 740 811 (9) (7) 350 412 (15) (13)
Transaction Banking 392 446 (12) (11) 186 224 (17) (15)
---------- ---------- -------- --------- ---------- ---------- -------- ---------
Trade 171 198 (14) (13) 80 98 (18) (17)
---------- ---------- -------- --------- ---------- ---------- -------- ---------
Cash Management 221 248 (11) (9) 106 126 (16) (14)
Financial Markets 167 186 (10) (8) 73 94 (22) (20)
---------- ---------- -------- --------- ---------- ---------- -------- ---------
Foreign Exchange 94 99 (5) (2) 41 48 (15) (11)
Rates 22 19 16 16 11 8 38 25
Commodities 15 16 (6) (6) 6 7 (14) (14)
Credit and Capital
Markets 16 22 (27) (27) 5 15 (67) (67)
Capital Structuring
Distribution Group 9 15 (40) (40) 5 8 (38) (50)
Other Financial Markets 11 15 (27) (23) 5 8 (38) -
---------- ---------- -------- --------- ---------- ---------- -------- ---------
Corporate Finance 51 54 (6) - 24 30 (20) (17)
Lending and Portfolio
Management 123 119 3 5 64 59 8 12
Wealth Management - 1 (100) (100) - - nm6 (100)
Retail Products 3 3 - - 1 2 (50) -
---------- ---------- -------- --------- ---------- ---------- -------- ---------
Deposits 3 3 - - 1 2 (50) (50)
---------- ---------- -------- --------- ---------- ---------- -------- ---------
Other 4 2 100 nm6 2 3 (33) (33)
Operating expenses (421) (445) 5 3 (212) (227) 7 2
---------------------------- ---------- ---------- -------- --------- ---------- ---------- -------- ---------
Operating profit before
impairment losses and
taxation 319 366 (13) (11) 138 185 (25) (26)
Credit impairment (137) (29) nm6 nm6 (58) (35) (66) (79)
---------------------------- ---------- ---------- -------- --------- ---------- ---------- -------- ---------
Underlying profit before
taxation 182 337 (46) (46) 80 150 (47) (49)
Restructuring (18) - nm6 nm6 (4) (1) nm6 nm6
---------------------------- ---------- ---------- -------- --------- ---------- ---------- -------- ---------
Statutory profit before
taxation 164 337 (51) (51) 76 149 (49) (52)
---------------------------- ---------- ---------- -------- --------- ---------- ---------- -------- ---------
Total assets 33,158 35,718 (7) (5) 33,158 35,718 (7) (5)
Of which: loans and
advances to customers
including FVTPL2 28,151 30,465 (8) (5) 28,151 30,465 (8) (5)
Total liabilities 43,578 39,805 9 10 43,578 39,805 9 10
Of which: customer
accounts
including FVTPL and
repurchase agreements 40,507 36,908 10 11 40,507 36,908 10 11
Risk-weighted assets 30,856 34,555 (11) 30,856 34,555 (11)
Underlying return on
risk-weighted assets
(%)4 1.2 2.0 (80)bps 1.0 1.7 (70)bps
Underlying return on
tangible equity (%)4 5.8 9.7 (390)bps 5.1 8.7 (360)bps
Cost-to-income ratio
(%)5 56.9 54.9 (2.0) (2.2) 60.6 55.1 (5.5) (6.7)
---------------------------- ---------- ---------- -------- --------- ---------- ---------- -------- ---------
1 Comparisons presented on the basis of the current period's
transactional currency rate, ensuring like-for-like currency rates
between the two periods
2 Following a reorganisation of certain clients, there has been
a reclassification of balances across client segments. Prior
periods have been restated
3 Variance is better/(worse) other than risk-weighted assets,
assets and liabilities which is increase/(decrease)
4 Change is the basis points (bps) difference between the two
periods rather than the percentage change
5 Change is the percentage points difference between the two
periods rather than the percentage change
6 Not meaningful
Performance highlights
-- Underlying operating profit before taxation of $182 million
was down 46 per cent mainly due to higher impairments and lower
income, partially offset by lower costs
-- Underlying operating income of $740 million was down 9 per
cent predominantly driven by Transaction Banking which was
negatively impacted by interest rate cuts and a slowdown in Trade.
Income was down 13 per cent in Greater China & North Asia, down
5 per cent in ASEAN & South Asia and down 9 per cent in Africa
& Middle East
-- RoTE decreased from 9.7 per cent to 5.8 per cent
Private Banking
Constant Constant
currency currency
1H'20 1H'19 Change2 change1 2Q'20 2Q'19 Change2 change1
$million $million % % $million $million % %
---------------------------- ---------- ---------- -------- ---------- ---------- -------- ---------
Operating income 300 306 (2) (2) 138 157 (12) (11)
Corporate Finance - 2 (100) (100) - 2 (100) (100)
Wealth Management 204 195 5 5 88 101 (13) (12)
Retail Products 96 109 (12) (11) 50 54 (7) (7)
---------- ---------- -------- --------- ---------- ---------- -------- ---------
Deposits 79 92 (14) (13) 40 45 (11) (11)
Mortgage and Auto 17 17 - - 10 9 11 11
---------- ---------- -------- --------- ---------- ---------- -------- ---------
Operating expenses (239) (253) 6 4 (115) (129) 11 9
---------------------------- ---------- ---------- -------- --------- ---------- ---------- -------- ---------
Operating profit before
impairment losses and
taxation 61 53 15 9 23 28 (18) (18)
Credit impairment (5) 47 (111) (111) (4) - nm5 nm5
---------------------------- ---------- ---------- -------- --------- ---------- ---------- -------- ---------
Underlying profit before
taxation 56 100 (44) (46) 19 28 (32) (32)
Restructuring (3) (1) (200) nm5 (1) 1 (200) (200)
---------------------------- ---------- ---------- -------- --------- ---------- ---------- -------- ---------
Statutory profit before
taxation 53 99 (46) (50) 18 29 (38) (43)
---------------------------- ---------- ---------- -------- --------- ---------- ---------- -------- ---------
Total assets 13,202 15,654 (16) (15) 13,202 15,654 (16) (15)
Of which: loans and
advances to customers
including FVTPL 13,097 15,521 (16) (15) 13,097 15,521 (16) (15)
Total liabilities 18,842 18,616 1 2 18,842 18,616 1 2
Of which: customer
accounts
including FVTPL and
repurchase agreements 18,725 18,473 1 2 18,725 18,473 1 2
Risk-weighted assets 6,128 6,615 (7) 6,128 6,615 (7)
Underlying return on
risk-weighted assets
(%)3 1.7 3.1 (140)bps 1.2 1.7 (50)bps
Underlying return on
tangible equity (%)3 8.5 15.7 (720)bps 5.9 8.4 (250)bps
Cost-to-income ratio
(%)4 79.7 82.7 3.0 2.0 83.3 82.2 (1.1) (1.4)
---------------------------- ---------- ---------- -------- --------- ---------- ---------- -------- ---------
1 Comparisons presented on the basis of the current period's
transactional currency rate, ensuring like-for-like currency rates
between the two periods
2 Variance is better/(worse) other than risk-weighted assets,
assets and liabilities which is increase/(decrease)
3 Change is the basis points (bps) difference between the two
periods rather than the percentage change
4 Change is the percentage points difference between the two
periods rather than the percentage change
5 Not meaningful
Performance highlights
-- Underlying operating profit of $56 million was down 44 per
cent, as lower expenses were more than offset by a non-repeat of an
impairment release in the prior year
-- Underlying operating income of $300 million was down 2 per
cent, primarily due to a decline in Retail Products (mainly
Deposits), mitigated by continued resilient performance from Wealth
Management
-- Assets under management at $63 billion was down 4 per cent
mainly from negative market valuation of $1.4 billion
-- RoTE decreased from 15.7 per cent to 8.5 per cent mainly due
to a one-off credit impairment release included in the
previous year
Central & other items (segment)
Constant Constant
currency currency
1H'20 1H'19 Change2 change1 2Q'20 2Q'19 Change2 change1
$million $million % % $million $million % %
----------------------------- ---------- ---------- ------- ---------- ---------- -------- ---------
Operating income 483 442 9 12 183 204 (10) (7)
Treasury 503 559 (10) (8) 178 251 (29) (27)
Other (20) (117) 83 83 5 (47) 111 115
Operating expenses (288) (344) 16 9 (135) (200) 33 22
----------------------------- ---------- ---------- ------- --------- ---------- ---------- -------- ---------
Operating profit before
impairment losses and
taxation 195 98 99 71 48 4 nm5 187
Credit impairment (10) (2) nm5 nm5 (1) 4 (125) (125)
Other impairment (2) (2) - - (3) (3) - -
Profit from associates
and joint ventures 76 157 (52) (52) 21 91 (77) (78)
----------------------------- ---------- ---------- ------- --------- ---------- ---------- -------- ---------
Underlying profit before
taxation 259 251 3 (4) 65 96 (32) (45)
Provision for regulatory
matters 14 (204) 107 107 - (18) 100 100
Restructuring (10) (35) 71 71 1 (24) 104 108
Net gain on businesses
disposed/held for sale 6 - nm5 nm5 6 - nm5 nm5
Goodwill impairment (258) - nm5 nm5 - - nm5 nm5
Share of profits of
PT Bank Permata Tbk
joint venture - 23 (100) (100) - 11 (100) (100)
----------------------------- ---------- ---------- ------- --------- ---------- ---------- -------- ---------
Statutory profit before
taxation 11 35 (69) (86) 72 65 11 (12)
----------------------------- ---------- ---------- ------- --------- ---------- ---------- -------- ---------
Total assets 251,275 228,110 10 11 251,275 228,110 10 11
Of which: loans and
advances to customers
including FVTPL 17,440 9,120 91 97 17,440 9,120 91 97
Total liabilities 76,926 79,798 (4) (3) 76,926 79,798 (4) (3)
Of which: customer accounts
including FVTPL and
repurchase agreements 6,632 15,490 (57) (57) 6,632 15,490 (57) (57)
Risk-weighted assets 44,232 51,792 (15) 44,232 51,792 (15)
Underlying return on
risk-weighted assets
(%)3 1.0 1.0 0bps 0.6 0.7 (10)bps
Underlying return on
tangible equity (%)3 (2.7) (2.0) (70)bps (9.9) (5.9) (400)bps
Cost-to-income ratio
(%) (excluding UK bank
levy)4 59.6 77.8 18.2 13.6 73.8 98.0 24.2 15.5
----------------------------- ---------- ---------- ------- --------- ---------- ---------- -------- ---------
1 Comparisons presented on the basis of the current period's
transactional currency rate, ensuring like-for-like currency rates
between the two periods
2 Variance is better/(worse) other than risk-weighted assets,
assets and liabilities which is increase/(decrease)
3 Change is the basis points (bps) difference between the two
periods rather than the percentage change
4 Change is the percentage points difference between the two
periods rather than the percentage change
5 Not meaningful
Performance highlights
-- Underlying operating profit negatively impacted from a change
in timing of revenue recognition (from a 1-month to 3-month lag) of
profit from associates (Bohai)
-- Lower Treasury net interest income as rates declined offset
by realisation gains on sale of securities
Underlying performance by region
1H'20
------------------------------ ---------------------------------------------------------------------------
Greater
China & ASEAN & Africa & Europe & Central &
North Asia South Asia Middle East Americas other items Total
$million $million $million $million $million $million
------------------------------ ----------- ----------- ------------- --------- ------------ ---------
Operating income 3,144 2,376 1,255 1,095 177 8,047
Operating expenses (1,780) (1,247) (793) (661) (232) (4,713)
------------------------------ ----------- ----------- ------------- --------- ------------ ---------
Operating profit/(loss)
before impairment losses
and taxation 1,364 1,129 462 434 (55) 3,334
Credit impairment (289) (838) (370) (80) 10 (1,567)
Other impairment (15) 165 (2) 2 (38) 112
Profit from associates
and joint ventures 74 - - - 2 76
------------------------------ ----------- ----------- ------------- --------- ------------ ---------
Underlying profit/(loss)
before taxation 1,134 456 90 356 (81) 1,955
Provision for regulatory
matters - - - - 14 14
Restructuring (43) (7) (9) (10) (21) (90)
Net gain on businesses
disposed/held for sale - - - - 6 6
Goodwill impairment - - - - (258) (258)
------------------------------ ----------- ----------- ------------- --------- ------------ ---------
Statutory profit/(loss)
before taxation 1,091 449 81 346 (340) 1,627
------------------------------ ----------- ----------- ------------- --------- ------------ ---------
Total assets 289,352 154,508 63,927 223,226 10,572 741,585
Of which: loans and
advances to customers
including FVTPL 144,794 84,949 33,083 65,339 - 328,165
Total liabilities 258,322 131,993 40,740 217,300 43,333 691,688
Of which: customer accounts
including FVTPL and
repurchase agreements 214,586 100,324 32,530 122,024 - 469,464
------------------------------ ----------- ----------- ------------- --------- ------------ ---------
1H'19
------------------------------ ---------------------------------------------------------------------------
Greater
China & ASEAN & Africa & Europe & Central &
North Asia South Asia Middle East Americas other items Total
$million $million $million $million $million $million
------------------------------ ----------- ----------- ------------- --------- ------------ ---------
Operating income 3,080 2,136 1,340 794 346 7,696
Operating expenses (1,826) (1,292) (850) (715) (286) (4,969)
------------------------------ ----------- ----------- ------------- --------- ------------ ---------
Operating profit before
impairment losses and
taxation 1,254 844 490 79 60 2,727
Credit impairment (70) (84) (49) (66) 15 (254)
Other impairment (8) - - - (13) (21)
Profit from associates
and joint ventures 153 - - - 4 157
------------------------------ ----------- ----------- ------------- --------- ------------ ---------
Underlying profit before
taxation 1,329 760 441 13 66 2,609
Provision for regulatory
matters - - - - (204) (204)
Restructuring (3) (16) (2) (15) 22 (14)
Share of profits of
PT Bank Permata Tbk
joint venture - 23 - - - 23
------------------------------ ----------- ----------- ------------- --------- ------------ ---------
Statutory profit/(loss)
before taxation 1,326 767 439 (2) (116) 2,414
------------------------------ ----------- ----------- ------------- --------- ------------ ---------
Total assets 275,414 151,714 59,189 214,126 12,061 712,504
Of which: loans and
advances to customers
including FVTPL 134,440 82,826 30,161 59,215 - 306,642
Total liabilities 240,802 132,763 37,000 215,504 35,996 662,065
Of which: customer accounts
including FVTPL and
repurchase agreements 196,994 101,594 29,621 116,702 - 444,911
------------------------------ ----------- ----------- ------------- --------- ------------ ---------
Greater China & North Asia
Constant Constant
currency currency
1H'20 1H'19 Change2 change1 2Q'20 2Q'19 Change2 change1
$million $million % % $million $million % %
------------------------------ ---------- ---------- ------- ---------- ---------- ------- ---------
Operating income 3,144 3,080 2 3 1,448 1,553 (7) (6)
Operating expenses (1,780) (1,826) 3 2 (880) (921) 4 4
------------------------------ ---------- ---------- ------- --------- ---------- ---------- ------- ---------
Operating profit before
impairment losses and
taxation 1,364 1,254 9 10 568 632 (10) (9)
Credit impairment (289) (70) nm4 nm4 (91) (40) (128) (136)
Other impairment (15) (8) (88) (88) (14) (8) (75) (75)
Profit from associates
and joint ventures 74 153 (52) (52) 21 88 (76) (78)
------------------------------ ---------- ---------- ------- --------- ---------- ---------- ------- ---------
Underlying profit before
taxation 1,134 1,329 (15) (14) 484 672 (28) (28)
Restructuring (43) (3) nm4 nm4 7 9 (22) (40)
------------------------------ ---------- ---------- ------- --------- ---------- ---------- ------- ---------
Statutory profit before
taxation 1,091 1,326 (18) (17) 491 681 (28) (28)
------------------------------ ---------- ---------- ------- --------- ---------- ---------- ------- ---------
Total assets 289,352 275,414 5 5 289,352 275,414 5 5
Of which: loans and
advances to customers
including FVTPL 144,794 134,440 8 8 144,794 134,440 8 8
Total liabilities 258,322 240,802 7 8 258,322 240,802 7 8
Of which: customer accounts
including FVTPL and
repurchase agreements 214,586 196,994 9 10 214,586 196,994 9 10
Risk-weighted assets 89,139 84,881 5 89,139 84,881 5
Cost-to-income ratio
(%)3 56.6 59.3 2.7 2.8 60.8 59.3 (1.5) (1.3)
------------------------------ ---------- ---------- ------- --------- ---------- ---------- ------- ---------
1 Comparisons presented on the basis of the current period's
transactional currency rate, ensuring like-for-like currency rates
between the two periods
2 Variance is better/(worse) other than risk-weighted assets,
assets and liabilities which is increase/(decrease)
3 Change is the percentage points difference between the two
periods rather than the percentage change
4 Not meaningful
Performance highlights
-- Underlying operating profit before taxation of $1,134 million
was down 15 per cent, driven by increased impairment levels and a
decline in profits from associates (Bohai) income due to
recognition timing changes (change from a 1-month to 3-month
lag)
-- Underlying operating income of $3,144 million was up 2 per
cent (up 3 per cent on a constant currency basis), with strong
Financial Markets growth offsetting a weaker performance in Cash
Management and Retail Deposits, which were negatively impacted by
interest rate cuts
-- Loans and advances to customers were up 3 per cent
year-to-date and customer accounts grew 5 per cent, which was
predominantly driven by Cash Management and Retail current and
savings accounts, partly offset by a decline in Retail Time
Deposits
-- Risk-weighted assets were up $3 billion year-to-date, driven
by Credit RWA (predominantly CIB) and Market RWA
ASEAN & South Asia
Constant Constant
currency currency
1H'20 1H'19 Change2 change1 2Q'20 2Q'19 Change2 change1
$million $million % % $million $million % %
------------------------------ ---------- ---------- ------- ---------- ---------- ------- ---------
Operating income 2,376 2,136 11 14 1,099 1,090 1 5
Operating expenses (1,247) (1,292) 3 - (622) (651) 4 -
------------------------------ ---------- ---------- ------- --------- ---------- ---------- ------- ---------
Operating profit before
impairment losses and
taxation 1,129 844 34 35 477 439 9 12
Credit impairment (838) (84) nm4 nm4 (387) (68) nm4 nm4
Other impairment 165 - nm4 nm4 (1) - nm4 nm4
------------------------------ ---------- ---------- ------- --------- ---------- ---------- ------- ---------
Underlying profit before
taxation 456 760 (40) (40) 89 371 (76) (74)
Restructuring (7) (16) 56 56 (7) (10) 30 30
Share of profits of
PT Bank Permata Tbk
joint venture - 23 (100) (100) - 11 (100) (100)
------------------------------ ---------- ---------- ------- --------- ---------- ---------- ------- ---------
Statutory profit before
taxation 449 767 (41) (41) 82 372 (78) (76)
------------------------------ ---------- ---------- ------- --------- ---------- ---------- ------- ---------
Total assets 154,508 151,714 2 5 154,508 151,714 2 5
Of which: loans and
advances to customers
including FVTPL 84,949 82,826 3 6 84,949 82,826 3 6
Total liabilities 131,993 132,763 (1) 2 131,993 132,763 (1) 2
Of which: customer accounts
including FVTPL and
repurchase agreements 100,324 101,594 (1) 1 100,324 101,594 (1) 1
Risk-weighted assets 80,040 93,737 (15) 80,040 93,737 (15)
Cost-to-income ratio
(%)3 52.5 60.5 8.0 7.5 56.6 59.7 3.1 2.8
------------------------------ ---------- ---------- ------- --------- ---------- ---------- ------- ---------
1 Comparisons presented on the basis of the current period's
transactional currency rate, ensuring like-for-like currency rates
between the two periods
2 Variance is better/(worse) other than risk-weighted assets,
assets and liabilities which is increase/(decrease)
3 Change is the percentage points difference between the two
periods rather than the percentage change
4 Not meaningful
Performance highlights
-- Underlying operating profit before taxation decreased 40 per
cent to $456 million driven by higher credit impairment which more
than offset the 11 per cent income growth
-- Underlying operating income of $2,376 million is 11 per cent
higher (12 per cent on a constant currency basis excluding a
positive movement in the debit valuation adjustment), driven by
income growth in Corporate & Institutional Banking,
predominantly due to strong performance in Financial Markets and
Corporate Finance. Commercial Banking, Retail Banking and Private
Banking declined impacted by margin compression (down 5, 4 and 4
per cent respectively)
-- Customer accounts were up 3 per cent year-to-date, with
double-digit growth in Retail and Corporate current and savings
accounts offset by reduction of high-priced Corporate and Retail
Time Deposits. Loans and advances to customers were up 5 per cent
year-to-date but risk-weighted assets declined by 10 per cent
driven by the sale of Permata
Africa & Middle East
Constant Constant
currency currency
1H'20 1H'19 Change2 change1 2Q'20 2Q'19 Change2 change1
$million $million % % $million $million % %
------------------------------ ---------- ---------- ------- ---------- ---------- ------- ---------
Operating income 1,255 1,340 (6) (2) 594 632 (6) 1
Operating expenses (793) (850) 7 1 (390) (427) 9 1
------------------------------ ---------- ---------- ------- --------- ---------- ---------- ------- ---------
Operating profit before
impairment losses and
taxation 462 490 (6) (2) 204 205 - 4
Credit impairment (370) (49) nm4 nm4 (159) (43) nm4 nm4
Other impairment (2) - nm4 nm4 (2) - nm4 nm4
------------------------------ ---------- ---------- ------- --------- ---------- ---------- ------- ---------
Underlying profit before
taxation 90 441 (80) (78) 43 162 (73) (72)
Restructuring (9) (2) nm4 nm4 (2) (1) (100) -
------------------------------ ---------- ---------- ------- --------- ---------- ---------- ------- ---------
Statutory profit before
taxation 81 439 (82) (80) 41 161 (75) (72)
------------------------------ ---------- ---------- ------- --------- ---------- ---------- ------- ---------
Total assets 63,927 59,189 8 13 63,927 59,189 8 13
Of which: loans and
advances to customers
including FVTPL 33,083 30,161 10 16 33,083 30,161 10 16
Total liabilities 40,740 37,000 10 14 40,740 37,000 10 14
Of which: customer accounts
including FVTPL and
repurchase agreements 32,530 29,621 10 14 32,530 29,621 10 14
Risk-weighted assets 52,009 51,705 1 52,009 51,705 1
Cost-to-income ratio
(%)3 63.2 63.4 0.2 (0.2) 65.7 67.6 1.9 1.1
------------------------------ ---------- ---------- ------- --------- ---------- ---------- ------- ---------
1 Comparisons presented on the basis of the current period's
transactional currency rate, ensuring like-for-like currency rates
between the two periods
2 Variance is better/(worse) other than risk-weighted assets,
assets and liabilities which is increase/(decrease)
3 Change is the percentage points difference between the two
periods rather than the percentage change
4 Not meaningful
Performance highlights
-- Underlying operating profit before taxation of $90 million
was down 80 per cent primarily due to higher credit impairment
-- Underlying operating income of $1,255 million was down 6 per
cent (or down 2 per cent on a constant currency basis) despite
strong performance in Financial Markets. Cash Management was
impacted by a drop in interest rates and Retail Banking was
negatively impacted by a debt relief program in Bahrain
-- Loans and advances to customers were up 5 per cent
year-to-date and customer accounts grew 11 per cent
Europe & Americas
Constant Constant
currency currency
1H'20 1H'19 Change2 change1 2Q'20 2Q'19 Change2 change1
$million $million % % $million $million % %
------------------------------ ---------- ---------- ------- ---------- ---------- ------- ---------
Operating income 1,095 794 38 39 549 435 26 27
Operating expenses (661) (715) 8 6 (318) (352) 10 8
------------------------------ ---------- ---------- ------- --------- ---------- ---------- ------- ---------
Operating profit before
impairment losses and
taxation 434 79 nm4 nm4 231 83 178 168
Credit impairment (80) (66) (21) (23) 22 (38) 158 161
Other impairment 2 - nm4 nm4 2 - nm4 nm4
------------------------------ ---------- ---------- ------- --------- ---------- ---------- ------- ---------
Underlying profit before
taxation 356 13 nm4 nm4 255 45 nm4 nm4
Restructuring (10) (15) 33 36 4 (11) 136 156
------------------------------ ---------- ---------- ------- --------- ---------- ---------- ------- ---------
Statutory profit/(loss)
before taxation 346 (2) nm4 nm4 259 34 nm4 nm4
------------------------------ ---------- ---------- ------- --------- ---------- ---------- ------- ---------
Total assets 223,226 214,126 4 5 223,226 214,126 4 5
Of which: loans and
advances to customers
including FVTPL 65,339 59,215 10 11 65,339 59,215 10 11
Total liabilities 217,300 215,504 1 1 217,300 215,504 1 1
Of which: customer accounts
including FVTPL and
repurchase agreements 122,024 116,702 5 5 122,024 116,702 5 5
Risk-weighted assets 44,326 42,809 4 44,326 42,809 4
Cost-to-income ratio
(%)3 60.4 90.1 29.7 28.9 57.9 80.9 23.0 21.9
------------------------------ ---------- ---------- ------- --------- ---------- ---------- ------- ---------
1 Comparisons presented on the basis of the current period's
transactional currency rate, ensuring like-for-like currency rates
between the two periods
2 Variance is better/(worse) other than risk-weighted assets,
assets and liabilities which is increase/(decrease)
3 Change is the percentage points difference between the two
periods rather than the percentage change
4 Not meaningful
Performance highlights
-- Underlying operating profit before taxation of $356 million
was up $343 million predominantly driven by income growth and lower
costs
-- Underlying operating income of $1,095 million was up 38 per
cent (27 per cent excluding DVA) driven by strong Financial Markets
sales and trading performance, and Treasury Markets realisation
gains from bond sales as yields fell significantly
-- There was no significant impact to credit impairment despite
the recent economic deterioration, demonstrating the strong credit
quality of the portfolio
Central & other items (region)
Constant Constant
currency currency
1H'20 1H'19 Change2 change1 2Q'20 2Q'19 Change2 change1
$million $million % % $million $million % %
-------------------------- ---------- ---------- ------- ---------- ---------- ------- ---------
Operating income 177 346 (49) (49) 30 173 (83) (83)
Operating expenses (232) (286) 19 10 (145) (203) 29 19
-------------------------- ---------- ---------- ------- --------- ---------- ---------- ------- ---------
Operating profit/(loss)
before impairment losses
and taxation (55) 60 (192) (172) (115) (30) nm4 nm4
Credit impairment 10 15 (33) (33) 4 13 (69) (69)
Other impairment (38) (13) (192) (192) (27) (11) (145) (170)
Profit from associates
and joint ventures 2 4 (50) (33) - 3 (100) (100)
-------------------------- ---------- ---------- ------- --------- ---------- ---------- ------- ---------
Underlying profit/(loss)
before taxation (81) 66 nm4 (198) (138) (25) nm4 nm4
Provision for regulatory
matters 14 (204) 107 107 - (18) 100 100
Restructuring (21) 22 (195) (191) - (33) 100 100
Net gain on businesses
disposed/held for sale 6 - nm4 nm4 6 - nm4 nm4
Goodwill impairment (258) - nm4 nm4 - - nm4 nm4
-------------------------- ---------- ---------- ------- --------- ---------- ---------- ------- ---------
Statutory profit/(loss)
before taxation (340) (116) (193) nm4 (132) (76) (74) (122)
-------------------------- ---------- ---------- ------- --------- ---------- ---------- ------- ---------
Total assets 10,572 12,061 (12) (12) 10,572 12,061 (12) (12)
Total liabilities 43,333 35,996 20 20 43,333 35,996 20 20
Risk-weighted assets (2,962) (2,393) (24) (2,962) (2,393) (24)
Cost-to-income ratio
(%) (excluding UK bank
levy)3 131.1 82.7 (48.4) (57.8) 483.3 117.3 (366.0) (400.8)
-------------------------- ---------- ---------- ------- --------- ---------- ---------- ------- ---------
1 Comparisons presented on the basis of the current period's
transactional currency rate, ensuring like-for-like currency rates
between the two periods
2 Variance is better/(worse) other than risk-weighted assets,
assets and liabilities which is increase/(decrease)
3 Change is the percentage points difference between the two
periods rather than the percentage change
4 Not meaningful
Performance highlights
-- Lower income and profit mainly due to lower net interest
income in Treasury Capital as rates declined
Retail Banking
1H'20
----------------------------------- --------------------------------------------------------------
Greater China ASEAN & Africa & Europe &
& North Asia South Asia Middle East Americas Total
$million $million $million $million $million
----------------------------------- ------------- ----------- ------------ --------- ---------
Operating income 1,517 680 323 17 2,537
Operating expenses (968) (514) (287) (11) (1,780)
----------------------------------- ------------- ----------- ------------ --------- ---------
Operating profit before impairment
losses and taxation 549 166 36 6 757
Credit impairment (128) (236) (66) - (430)
Other impairment - - (1) - (1)
----------------------------------- ------------- ----------- ------------ --------- ---------
Underlying profit/(loss) before
taxation 421 (70) (31) 6 326
Restructuring (1) (2) - - (3)
----------------------------------- ------------- ----------- ------------ --------- ---------
Statutory profit/(loss) before
taxation 420 (72) (31) 6 323
----------------------------------- ------------- ----------- ------------ --------- ---------
Loans and advances to customers
including FVTPL 73,751 26,071 4,759 504 105,085
Customer accounts including
FVTPL and repurchase agreements 99,696 36,326 9,074 992 146,088
----------------------------------- ------------- ----------- ------------ --------- ---------
1H'19
----------------------------------- --------------------------------------------------------------
Greater China ASEAN & Africa & Europe &
& North Asia South Asia Middle East Americas Total
$million $million $million $million $million
----------------------------------- ------------- ----------- ------------ --------- ---------
Operating income 1,527 707 350 19 2,603
Operating expenses (982) (530) (302) (11) (1,825)
----------------------------------- ------------- ----------- ------------ --------- ---------
Operating profit before impairment
losses and taxation 545 177 48 8 778
Credit impairment (65) (63) (26) - (154)
----------------------------------- ------------- ----------- ------------ --------- ---------
Underlying profit before taxation 480 114 22 8 624
Restructuring - (1) - - (1)
----------------------------------- ------------- ----------- ------------ --------- ---------
Statutory profit before taxation 480 113 22 8 623
----------------------------------- ------------- ----------- ------------ --------- ---------
Loans and advances to customers
including FVTPL 67,781 28,103 5,371 529 101,784
Customer accounts including
FVTPL and repurchase agreements 96,240 34,152 8,440 1,066 139,898
----------------------------------- ------------- ----------- ------------ --------- ---------
Commercial Banking
1H'20
------------------------------------------ ---------------------------------------------------
Greater China ASEAN & Africa &
& North Asia South Asia Middle East Total
$million $million $million $million
------------------------------------------ ------------- ----------- ------------ ---------
Operating income 246 333 161 740
Operating expenses (158) (165) (98) (421)
------------------------------------------ ------------- ----------- ------------ ---------
Operating profit before impairment
losses and taxation 88 168 63 319
Credit impairment (38) (91) (8) (137)
------------------------------------------ ------------- ----------- ------------ ---------
Underlying profit before taxation 50 77 55 182
Restructuring (8) (2) (8) (18)
------------------------------------------ ------------- ----------- ------------ ---------
Statutory profit before taxation 42 75 47 164
------------------------------------------ ------------- ----------- ------------ ---------
Loans and advances to customers including
FVTPL 13,168 10,348 4,635 28,151
Customer accounts including FVTPL and
repurchase agreements 24,092 12,514 3,901 40,507
------------------------------------------ ------------- ----------- ------------ ---------
1H'19
------------------------------------------ ---------------------------------------------------
Greater China ASEAN & Africa &
& North Asia South Asia Middle East Total
$million $million $million $million
------------------------------------------ ------------- ----------- ------------ ---------
Operating income 284 350 177 811
Operating expenses (175) (162) (108) (445)
------------------------------------------ ------------- ----------- ------------ ---------
Operating profit before impairment
losses and taxation 109 188 69 366
Credit impairment (8) (9) (12) (29)
------------------------------------------ ------------- ----------- ------------ ---------
Underlying profit before taxation 101 179 57 337
Restructuring - - - -
------------------------------------------ ------------- ----------- ------------ ---------
Statutory profit before taxation 101 179 57 337
------------------------------------------ ------------- ----------- ------------ ---------
Loans and advances to customers including
FVTPL1 13,974 11,289 5,202 30,465
Customer accounts including FVTPL and
repurchase agreements 21,165 12,511 3,232 36,908
------------------------------------------ ------------- ----------- ------------ ---------
1 Following a reorganisation of certain clients, there has been
a reclassification of balances across client segments. Prior
periods have been restated
Underlying performance by key market
1H'20
------------------- -------------------------------------------------------------------------------------------------
Hong
Kong Korea China Singapore India Indonesia UAE UK US
$million $million $million $million $million $million $million $million $million
------------------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Operating income 1,830 549 474 790 724 196 318 567 431
Operating expenses (948) (343) (309) (475) (318) (85) (198) (324) (260)
------------------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Operating profit
before
impairment losses
and taxation 882 206 165 315 406 111 120 243 171
Credit impairment (162) (15) (102) (438) (167) (64) (192) (65) (13)
Other impairment (15) - - - - - - 2 -
Profit from
associates
and joint ventures - - 74 - - - - - -
------------------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Underlying
profit/(loss)
before taxation 705 191 137 (123) 239 47 (72) 180 158
------------------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Total assets
employed 161,959 59,516 35,142 86,599 28,907 5,154 23,331 149,632 62,010
Of which: loans
and
advances to
customers
including FVTPL 77,549 37,347 16,240 49,959 15,057 2,398 11,737 41,611 19,270
Total liabilities
employed 150,645 52,033 29,938 82,231 19,631 3,537 15,835 142,100 65,853
Of which:
customer
accounts
including
FVTPL and
repurchase
agreements 126,463 42,937 23,125 62,667 13,906 2,324 12,223 81,179 36,043
Cost-to-income
ratio
(%) 51.8 62.5 65.2 60.1 43.9 43.4 62.3 57.1 60.3
------------------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
1H'19
------------------- -------------------------------------------------------------------------------------------------
Hong
Kong Korea China Singapore India Indonesia UAE UK US
$million $million $million $million $million $million $million $million $million
------------------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Operating income 1,854 505 445 871 502 143 327 330 365
Operating expenses (938) (390) (323) (484) (328) (86) (210) (342) (296)
------------------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Operating
profit/(loss)
before impairment
losses and
taxation 916 115 122 387 174 57 117 (12) 69
Credit impairment (36) 7 (43) (7) (41) (23) (26) (15) (50)
Other impairment (8) - - - - - - - -
Profit from
associates
and joint ventures - - 153 - - - - - -
------------------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Underlying
profit/(loss)
before taxation 872 122 232 380 133 34 91 (27) 19
------------------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Total assets
employed 158,434 50,832 31,702 84,532 31,036 5,047 20,934 150,284 53,320
Of which: loans
and
advances to
customers
including FVTPL 73,924 32,059 15,725 46,953 16,154 2,522 10,673 41,903 15,008
Total liabilities
employed 142,036 44,965 27,523 83,526 21,188 3,136 14,467 154,052 53,447
Of which:
customer
accounts
including
FVTPL and
repurchase
agreements 118,556 36,132 20,513 63,702 15,808 2,116 10,702 86,514 26,335
Cost-to-income
ratio
(%) 50.6 77.2 72.6 55.6 65.3 60.1 64.2 103.6 81.1
------------------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Quarterly underlying operating income by product
2Q'20 1Q'20 4Q'191 3Q'191 2Q'191 1Q'191 4Q'18 3Q'18
$million $million $million $million $million $million $million $million
---------------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Transaction Banking2 721 800 834 887 901 877 861 854
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Trade 230 260 259 282 282 277 257 277
Cash Management 491 540 575 605 619 600 604 577
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Financial Markets2 970 1,278 716 877 834 831 661 713
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Foreign Exchange 343 415 264 261 304 298 232 239
Rates 339 378 163 176 136 221 63 194
Commodities 82 44 37 39 44 45 50 38
Credit and Capital
Markets 250 26 125 167 145 140 83 48
Capital Structuring
Distribution Group 52 61 86 87 74 82 91 71
DVA (201) 305 (72) 14 11 (53) 46 3
Security Services2 79 84 85 88 87 83 81 82
Other Financial
Markets 26 (35) 28 45 33 15 15 38
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Corporate Finance3 269 278 328 281 272 262 370 268
Lending and Portfolio
Management 232 195 201 201 197 187 181 179
Wealth Management 434 530 415 488 511 465 343 465
Retail Products 913 946 960 975 976 951 925 929
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
CCPL and other
unsecured
lending 295 304 311 315 320 305 294 320
Deposits 413 472 484 510 501 494 481 476
Mortgage and Auto 169 136 130 123 129 129 127 114
Other Retail
Products 36 34 35 27 26 23 23 19
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Treasury 178 325 196 335 251 308 253 342
Other 3 (25) (53) (66) (59) (68) 1 (26)
---------------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total underlying
operating
income 3,720 4,327 3,597 3,978 3,883 3,813 3,595 3,724
---------------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
1 Following a reorganisation of certain clients, there has been
a reclassification of balances across products. Prior periods have
been restated from 1Q'19
2 Following a reorganisation, there has been a reclassification
of balances relating to Securities Services from Transaction
Banking to Financial Markets including prior-period numbers. There
is no change in the total income
3 In Dec 2018, it was decided to discontinue the ship operating
lease business. Any future profits and losses will be reported as
restructuring. Prior periods have not been restated
Earnings per ordinary share
1H'20 1H'19 Change 2Q'20 2Q'19 Change 1Q'20 Change
$m $m % $m $m % $m %
----------------------------- ----- ----- ----- ----- ------ ----- ------
Profit for the period
attributable to equity
holders 1,066 1,496 (29) 549 678 (19) 517 6
----------------------------- ----- ----- ------ ----- ----- ------ ----- ------
Non-controlling interests (18) (19) 5 (11) (9) (22) (7) (57)
Dividend payable on
preference shares and
AT1 classified as equity (232) (221) (5) (199) (187) (6) (33) nm1
----------------------------- ----- ----- ------ ----- ----- ------ ----- ------
Profit for the period
attributable to
ordinary shareholders 816 1,256 (35) 339 482 (30) 477 (29)
----------------------------- ----- ----- ------ ----- ----- ------ ----- ------
Items normalised:
Provision for regulatory
matters (14) 204 nm1 - 18 nm1 (14) nm1
Restructuring 90 14 nm1 (2) 46 nm1 92 nm1
Profit from associates
and joint ventures - (23) nm1 - (11) nm1 - nm1
Net gain on sale of
businesses (6) - nm1 (6) - nm1 - nm1
Goodwill impairment 258 - nm1 - - nm1 258 nm1
Tax on normalised items (6) 172 nm1 (3) 171 nm1 (3) -
----------------------------- ----- ----- ------ ----- ----- ------ ----- ------
Underlying profit 1,138 1,623 (30) 328 706 (54) 810 (60)
----------------------------- ----- ----- ------ ----- ----- ------ ----- ------
Basic - Weighted average
number of shares (millions) 3,168 3,304 nm1 3,150 3,296 nm1 3,186 nm1
Diluted - Weighted average
number of shares (millions) 3,204 3,348 nm1 3,190 3,351 nm1 3,218 nm1
Basic earnings per ordinary
share (cents) 25.8 38.0 (12.2) 10.8 14.6 (3.8) 15.0 (4.2)
----------------------------- ----- ----- ------ ----- ----- ------ ----- ------
Diluted earnings per
ordinary share (cents) 25.5 37.5 (12.0) 10.6 14.4 (3.8) 14.8 (4.2)
----------------------------- ----- ----- ------ ----- ----- ------ ----- ------
Underlying basic earnings
per ordinary share (cents) 35.9 49.1 (13.2) 10.4 21.4 (11.0) 25.4 (15.0)
----------------------------- ----- ----- ------ ----- ----- ------ ----- ------
Underlying diluted earnings
per ordinary share (cents) 35.5 48.5 (12.9) 10.3 21.1 (10.8) 25.2 (14.9)
----------------------------- ----- ----- ------ ----- ----- ------ ----- ------
1 Not meaningful
Return on tangible equity
1H'20 1H'19 Change 2Q'20 2Q'19 Change 1Q'20 Change
$m $m % $m $m % $m %
------------------------------- ------- ------- ------- ------- ------ ------- ------
Average parent company
shareholders' equity 44,567 45,462 (2) 44,623 45,450 (2) 44,511 -
Less Preference share
premium (1,494) (1,494) - (1,494) (1,494) - (1,494) -
Less Average intangible
assets (5,025) (5,097) 1 (4,960) (5,111) 3 (5,090) 3
------------------------------- ------- ------- ------ ------- ------- ------ ------- ------
Average ordinary shareholders'
tangible equity 38,048 38,871 (2) 38,169 38,845 (2) 37,927 1
------------------------------- ------- ------- ------ ------- ------- ------ ------- ------
Profit for the period
attributable to equity
holders 1,066 1,496 (29) 549 678 (19) 517 6
------------------------------- ------- ------- ------ ------- ------- ------ ------- ------
Non-controlling interests (18) (19) 5 (11) (9) (22) (7) (57)
------------------------------- ------- ------- ------ ------- ------- ------ ------- ------
Dividend payable on
preference shares and
AT1 classified as equity (232) (221) (5) (199) (187) (6) (33) nm1
------------------------------- ------- ------- ------ ------- ------- ------ ------- ------
Profit for the period
attributable to
ordinary shareholders 816 1,256 (35) 339 482 (30) 477 (29)
------------------------------- ------- ------- ------ ------- ------- ------ ------- ------
Items normalised:
Provision for regulatory
matters (14) 204 nm1 - 18 nm1 (14) nm1
Restructuring 90 14 nm1 (2) 46 nm1 92 nm1
Profit from associates
and joint ventures - (23) nm1 - (11) nm1 - nm1
Goodwill impairment 258 - nm1 - - nm1 258 nm1
Net gain on sale of
businesses (6) - nm1 (6) - nm1 - nm1
Tax on normalised items (6) 172 nm1 (3) 171 nm1 (3) -
------------------------------- ------- ------- ------ ------- ------- ------ ------- ------
Underlying profit for
the period attributable
to ordinary shareholders 1,138 1,623 (30) 328 706 (54) 810 (60)
------------------------------- ------- ------- ------ ------- ------- ------ ------- ------
Underlying return on (240) (380) (510)
tangible equity 6.0% 8.4% bps 3.5% 7.3% bps 8.6% bps
------------------------------- ------- ------- ------ ------- ------- ------ ------- ------
Statutory return on (220) (140) (150)
tangible equity 4.3% 6.5% bps 3.6% 5.0% bps 5.1% bps
------------------------------- ------- ------- ------ ------- ------- ------ ------- ------
1 Not meaningful
Net tangible asset value per share
30.06.2020 30.06.2019 Change 31.12.2019 Change 31.03.2020 Change
$m $m % $m % $m %
------------------------------------ ---------- ---------- ------ ---------- ------ ---------- ------
Parent company shareholders' equity 45,058 45,067 - 44,835 - 44,185 2
Less Preference share premium (1,494) (1,494) - (1,494) - (1,494) -
Less Intangible assets (5,029) (5,111) 2 (5,290) 5 (4,890) (3)
------------------------------------ ---------- ---------- ------ ---------- ------ ---------- ------
Net shareholders tangible equity 38,535 38,462 - 38,051 1 37,801 2
------------------------------------ ---------- ---------- ------ ---------- ------ ---------- ------
Ordinary shares in issue, excluding
own shares ('m) 3,148 3,255 (3) 3,191 (1) 3,147 -
------------------------------------ ---------- ---------- ------ ---------- ------ ---------- ------
Net tangible asset value per share
(c) 1,224 1,182 42.0 1,192 32.0 1,201 2
------------------------------------ ---------- ---------- ------ ---------- ------ ---------- ------
Standard Chartered PLC - Underlying versus statutory results
reconciliations
Reconciliations between underlying and statutory results are set
out in the tables below:
Operating income by client segment
1H'20
------------------------ ---------------------------------------------------------------------------
Corporate
& Institutional Retail Commercial Private Central &
Banking Banking Banking Banking other items Total
$million $million $million $million $million $million
------------------------ ---------------- --------- ---------- --------- ------------ ---------
Underlying operating
income 3,987 2,537 740 300 483 8,047
Restructuring1 31 - 16 - (1) 46
Net gain on businesses
disposed/held for sale - - - - 6 6
------------------------ ---------------- --------- ---------- --------- ------------ ---------
Statutory operating
income 4,018 2,537 756 300 488 8,099
------------------------ ---------------- --------- ---------- --------- ------------ ---------
1 Refer Note 2 for further details
1H'19
--------------------- ---------------------------------------------------------------------------
Corporate
& Institutional Retail Commercial Private Central &
Banking Banking Banking Banking other items Total
$million $million $million $million $million $million
--------------------- ---------------- --------- ---------- --------- ------------ ---------
Underlying operating
income 3,534 2,603 811 306 442 7,696
Restructuring1 131 - 2 1 - 134
--------------------- ---------------- --------- ---------- --------- ------------ ---------
Statutory operating
income 3,665 2,603 813 307 442 7,830
--------------------- ---------------- --------- ---------- --------- ------------ ---------
1 Refer Note 2 for further details
Operating income by region
1H'20
------------------------ ---------------------------------------------------------------------------
Greater
China & ASEAN & Africa & Europe & Central &
North Asia South Asia Middle East Americas other items Total
$million $million $million $million $million $million
------------------------ ----------- ----------- ------------- --------- ------------ ---------
Underlying operating
income 3,144 2,376 1,255 1,095 177 8,047
Restructuring1 52 - 6 - (12) 46
Net gain on businesses
disposed/held for sale - - - - 6 6
------------------------ ----------- ----------- ------------- --------- ------------ ---------
Statutory operating
income 3,196 2,376 1,261 1,095 171 8,099
------------------------ ----------- ----------- ------------- --------- ------------ ---------
1 Refer Note 2 for further details
1H'19
--------------------- ---------------------------------------------------------------------------
Greater
China & ASEAN & Africa & Europe & Central &
North Asia South Asia Middle East Americas other items Total
$million $million $million $million $million $million
--------------------- ----------- ----------- ------------- --------- ------------ ---------
Underlying operating
income 3,080 2,136 1,340 794 346 7,696
Restructuring1 47 (1) - - 88 134
--------------------- ----------- ----------- ------------- --------- ------------ ---------
Statutory operating
income 3,127 2,135 1,340 794 434 7,830
--------------------- ----------- ----------- ------------- --------- ------------ ---------
1 Refer Note 2 for further details
Profit before taxation (PBT)
1H'20
--------------------- -----------------------------------------------------------------------------------------------
Share
of profits
Net gain of
on businesses PT Bank
Provision disposed/ Permata
for regulatory held Goodwill Tbk joint
Underlying matters Restructuring for sale impairment venture Statutory
$million $million $million $million $million $million $million
--------------------- ---------- --------------- ------------- -------------- ----------- ----------- ---------
Operating income 8,047 - 46 6 - - 8,099
Operating expenses (4,713) 14 (49) - - - (4,748)
--------------------- ---------- --------------- ------------- -------------- ----------- ----------- ---------
Operating
profit/(loss) before
impairment losses
and taxation 3,334 14 (3) 6 - - 3,351
Credit impairment (1,567) - (9) - - - (1,576)
Other impairment 112 - (77) - (258) - (223)
Profit from
associates and
joint ventures 76 - (1) - - - 75
--------------------- ---------- --------------- ------------- -------------- ----------- ----------- ---------
Profit/(loss) before
taxation 1,955 14 (90) 6 (258) - 1,627
--------------------- ---------- --------------- ------------- -------------- ----------- ----------- ---------
1H'19
------------------------- -------------------------------------------------------------------------------------------
Share
of profits
of
Provision Net gain PT Bank
for on businesses Permata
regulatory disposed/held Goodwill Tbk joint
Underlying matters Restructuring for sale impairment venture Statutory
$million $million $million $million $million $million $million
------------------------- ---------- ----------- ------------- -------------- ----------- ----------- ---------
Operating income 7,696 - 134 - - - 7,830
Operating expenses (4,969) (204) (125) - - - (5,298)
------------------------- ---------- ----------- ------------- -------------- ----------- ----------- ---------
Operating profit/(loss)
before
impairment losses and
taxation 2,727 (204) 9 - - - 2,532
Credit impairment (254) - - - - - (254)
Other impairment (21) - (23) - - - (44)
Profit from associates
and
joint ventures 157 - - - - 23 180
------------------------- ---------- ----------- ------------- -------------- ----------- ----------- ---------
Profit/(loss) before
taxation 2,609 (204) (14) - - 23 2,414
------------------------- ---------- ----------- ------------- -------------- ----------- ----------- ---------
Profit before taxation (PBT) by client segment
1H'20
------------------------- ---------------------------------------------------------------------------
Corporate
& Institutional Retail Commercial Private Central &
Banking Banking Banking Banking other items Total
$million $million $million $million $million $million
------------------------- ---------------- --------- ---------- --------- ------------ ---------
Operating income 3,987 2,537 740 300 483 8,047
---------------- --------- ---------- --------- ------------ ---------
External 4,012 2,103 700 202 1,030 8,047
Inter-segment (25) 434 40 98 (547) -
---------------- --------- ---------- --------- ------------ ---------
Operating expenses (1,985) (1,780) (421) (239) (288) (4,713)
------------------------- ---------------- --------- ---------- --------- ------------ ---------
Operating profit before
impairment losses and
taxation 2,002 757 319 61 195 3,334
Credit impairment (985) (430) (137) (5) (10) (1,567)
Other impairment 115 (1) - - (2) 112
Profit from associates
and joint ventures - - - - 76 76
------------------------- ---------------- --------- ---------- --------- ------------ ---------
Underlying profit before
taxation 1,132 326 182 56 259 1,955
Provision for regulatory
matters - - - - 14 14
Restructuring (56) (3) (18) (3) (10) (90)
Net gain on businesses
disposed/held for sale - - - - 6 6
Goodwill impairment - - - - (258) (258)
------------------------- ---------------- --------- ---------- --------- ------------ ---------
Statutory profit before
taxation 1,076 323 164 53 11 1,627
------------------------- ---------------- --------- ---------- --------- ------------ ---------
1H'19
------------------------- ---------------------------------------------------------------------------
Corporate
& Institutional Retail Commercial Private Central &
Banking Banking Banking Banking other items Total
$million $million $million $million $million $million
------------------------- ---------------- --------- ---------- --------- ------------ ---------
Operating income 3,534 2,603 811 306 442 7,696
---------------- --------- ---------- --------- ------------ ---------
External 3,633 2,140 863 171 889 7,696
Inter-segment (99) 463 (52) 135 (447) -
---------------- --------- ---------- --------- ------------ ---------
Operating expenses (2,102) (1,825) (445) (253) (344) (4,969)
------------------------- ---------------- --------- ---------- --------- ------------ ---------
Operating profit before
impairment losses and
taxation 1,432 778 366 53 98 2,727
Credit impairment (116) (154) (29) 47 (2) (254)
Other impairment (19) - - - (2) (21)
Profit from associates
and joint ventures - - - - 157 157
------------------------- ---------------- --------- ---------- --------- ------------ ---------
Underlying profit before
taxation 1,297 624 337 100 251 2,609
Provision for regulatory
matters - - - - (204) (204)
Restructuring 23 (1) - (1) (35) (14)
Share of profits of
PT Bank Permata Tbk
joint venture - - - - 23 23
------------------------- ---------------- --------- ---------- --------- ------------ ---------
Statutory profit before
taxation 1,320 623 337 99 35 2,414
------------------------- ---------------- --------- ---------- --------- ------------ ---------
Profit before taxation (PBT) by region
1H'20
-------------------------- ---------------------------------------------------------------------------
Greater
China & ASEAN & Africa & Europe & Central &
North Asia South Asia Middle East Americas other items Total
$million $million $million $million $million $million
-------------------------- ----------- ----------- ------------- --------- ------------ ---------
Operating income 3,144 2,376 1,255 1,095 177 8,047
Operating expenses (1,780) (1,247) (793) (661) (232) (4,713)
-------------------------- ----------- ----------- ------------- --------- ------------ ---------
Operating profit/(loss)
before impairment losses
and taxation 1,364 1,129 462 434 (55) 3,334
Credit impairment (289) (838) (370) (80) 10 (1,567)
Other impairment (15) 165 (2) 2 (38) 112
Profit from associates
and joint ventures 74 - - - 2 76
-------------------------- ----------- ----------- ------------- --------- ------------ ---------
Underlying profit/(loss)
before taxation 1,134 456 90 356 (81) 1,955
Provision for regulatory
matters - - - - 14 14
Restructuring (43) (7) (9) (10) (21) (90)
Net gain on businesses
disposed/held for sale - - - - 6 6
Goodwill impairment - - - - (258) (258)
-------------------------- ----------- ----------- ------------- --------- ------------ ---------
Statutory profit/(loss)
before taxation 1,091 449 81 346 (340) 1,627
-------------------------- ----------- ----------- ------------- --------- ------------ ---------
1H'19
------------------------- ---------------------------------------------------------------------------
Greater
China & ASEAN & Africa & Europe & Central &
North Asia South Asia Middle East Americas other items Total
$million $million $million $million $million $million
------------------------- ----------- ----------- ------------- --------- ------------ ---------
Operating income 3,080 2,136 1,340 794 346 7,696
Operating expenses (1,826) (1,292) (850) (715) (286) (4,969)
------------------------- ----------- ----------- ------------- --------- ------------ ---------
Operating profit before
impairment losses and
taxation 1,254 844 490 79 60 2,727
Credit impairment (70) (84) (49) (66) 15 (254)
Other impairment (8) - - - (13) (21)
Profit from associates
and joint ventures 153 - - - 4 157
------------------------- ----------- ----------- ------------- --------- ------------ ---------
Underlying profit before
taxation 1,329 760 441 13 66 2,609
Provision for regulatory
matters - - - - (204) (204)
Restructuring (3) (16) (2) (15) 22 (14)
Share of profits of
PT Bank Permata Tbk
joint venture - 23 - - - 23
------------------------- ----------- ----------- ------------- --------- ------------ ---------
Statutory profit/(loss)
before taxation 1,326 767 439 (2) (116) 2,414
------------------------- ----------- ----------- ------------- --------- ------------ ---------
Return on tangible equity (RoTE)
1H'20
--------------------------------- ---------------------------------------------------------------------
Corporate
& Institutional Retail Commercial Private Central &
Banking Banking Banking Banking other items Total
% % % % % %
--------------------------------- ---------------- -------- ---------- -------- ------------ -----
Underlying RoTE 8.3 7.3 5.8 8.5 (2.7) 6.0
Provision for regulatory
matters - - - - 0.5 0.1
Restructuring
Of which: Income 0.3 - 0.7 - - 0.2
Of which: Expenses (0.2) (0.1) (0.7) (0.6) (0.3) (0.3)
Of which: Credit impairment - - (0.5) - - -
Of which: Other impairment (0.7) - (0.3) - - (0.4)
Net gain on businesses
disposed /held for sale - - - - 0.2 -
Goodwill impairment - - - - (8.3) (1.4)
Tax on normalised items 0.1 0.1 0.2 0.2 (0.6) 0.1
--------------------------------- ---------------- -------- ---------- -------- ------------ -----
Statutory RoTE 7.8 7.3 5.2 8.1 (11.2) 4.3
--------------------------------- ---------------- -------- ---------- -------- ------------ -----
1H'191
-------------------------------- ---------------------------------------------------------------------
Corporate
& Institutional Retail Commercial Private Central &
Banking Banking Banking Banking other items Total
% % % % % %
-------------------------------- ---------------- -------- ---------- -------- ------------ -----
Underlying RoTE 9.8 14.8 9.7 15.7 (2.0) 8.4
Provision for regulatory
matters - - - - (5.4) (1.1)
Restructuring
Of which: Income 1.4 - 0.1 - - 0.7
Of which: Expenses (0.9) - (0.1) (0.2) (0.9) (0.6)
Of which: Other impairment (0.2) - - - - (0.1)
Goodwill impairment - - - - - -
Share of profits of
PT Bank Permata Tbk
joint venture - - - - 0.6 0.1
Tax on normalised items (0.1) (0.1) - 0.1 (4.4) (0.9)
-------------------------------- ---------------- -------- ---------- -------- ------------ -----
Statutory RoTE 10.0 14.7 9.7 15.6 (12.1) 6.5
-------------------------------- ---------------- -------- ---------- -------- ------------ -----
1 Following a reorganisation of certain clients, there has been
a reclassification of balances across client segments
Earnings per ordinary share (EPS)
1H'20
------------- -------------------------------------------------------------------------------------------------------
Provision Profit
for from Net gain Tax on
regulatory joint on sale Goodwill normalised
Underlying matters Restructuring venture of businesses impairment items Statutory
$million $million $million $million $million $million $million $million
------------- ---------- ------------- ------------- --------- ------------- ----------- ----------- ---------
Profit for
the year
attributable
to ordinary
shareholders 1,138 14 (90) - 6 (258) 6 816
Basic -
Weighted
average
number of
shares
(millions) 3,168 3,168
Basic
earnings per
ordinary
share
(cents) 35.9 25.8
------------- ---------- ------------- ------------- --------- ------------- ----------- ----------- ---------
1H'19
------------- -------------------------------------------------------------------------------------------------------
Provision Profit
for from Net gain Tax on
regulatory joint on sale Goodwill normalised
Underlying matters Restructuring venture of businesses impairment items Statutory
$million $million $million $million $million $million $million $million
------------- ---------- ------------- ------------- --------- ------------- ----------- ----------- ---------
Profit for
the year
attributable
to ordinary
shareholders 1,623 (204) (14) 23 - - (172) 1,256
Basic -
Weighted
average
number of
shares
(millions) 3,304 3,304
Basic
earnings per
ordinary
share
(cents) 49.1 38.0
------------- ---------- ------------- ------------- --------- ------------- ----------- ----------- ---------
Standard Chartered PLC - Alternative performance measures
An alternative performance measure is a financial measure of
historical or future financial performance, financial position, or
cash flows, other than a financial measure defined or specified in
the applicable financial reporting framework. The following are key
alternative performance measures used by the Group to assess
financial performance and financial position.
Measure Definition
----------------------------- ----------------------------------------------------------------
Constant currency A performance measure on a constant currency basis
basis is presented such that comparative periods are
adjusted for the current year's functional currency
rate. The following balances are presented on a
constant currency basis when described as such:
* Operating income
* Operating expenses
* Profit before tax
* RWAs or Risk-weighted assets
----------------------------- ----------------------------------------------------------------
Underlying A performance measure is described as underlying
if the statutory result has been adjusted for restructuring
and other items representing profits or losses
of a capital nature; amounts consequent to investment
transactions driven by strategic intent; and other
infrequent and/or exceptional transactions that
are
significant or material in the context of the
Group's normal business earnings for the period,
and items which management and investors would
ordinarily identify separately when assessing performance
period-by-period. A reconciliation between underlying
and statutory performance is contained in Note
2 to the financial statements. The following balances
and measures are presented on an underlying basis
when described as such:
* Operating income
* Operating expense
* Profit before tax
* Earnings per share (basic and diluted)
* Cost-to-income ratio
* Jaws
* RoTE or Return on tangible equity
----------------------------- ----------------------------------------------------------------
Advances-to-deposits/customer The ratio of total loans and advances to customers
advances-to-deposits relative to total customer accounts, excluding
(ADR) ratio approved balances held with central banks, confirmed
as repayable at the point of stress. A low advances-to-deposits
ratio demonstrates that customer accounts exceed
customer loans resulting from emphasis placed on
generating a high level of stable funding from
customers.
----------------------------- ----------------------------------------------------------------
Cost-to-income ratio The proportion of total operating expenses to total
operating income.
----------------------------- ----------------------------------------------------------------
Cover ratio The ratio of impairment provisions for each stage
to the gross loan exposure for each stage.
----------------------------- ----------------------------------------------------------------
Cover ratio after The ratio of impairment provisions for stage 3
collateral / loans and realisable value of collateral held against
cover ratio including these non-performing loan exposures to the gross
collateral loan exposure of stage 3 loans.
----------------------------- ----------------------------------------------------------------
Gross yield Statutory interest income divided by average interest
earning assets.
----------------------------- ----------------------------------------------------------------
Jaws The difference between the rates of change in revenue
and operating expenses. Positive jaws occurs
when the percentage change in revenue is higher
than, or less negative than, the corresponding
rate for operating expenses.
----------------------------- ----------------------------------------------------------------
Loan loss rate Total credit impairment for loans and advances
to customers over average loans and advances to
customers.
----------------------------- ----------------------------------------------------------------
Net tangible asset Ratio of net tangible assets (total tangible assets
value per share less total liabilities) to the number of ordinary
shares outstanding at the end of a reporting period.
----------------------------- ----------------------------------------------------------------
Net yield Gross yield less rate paid.
----------------------------- ----------------------------------------------------------------
NIM or Net interest Net interest income adjusted for interest expense
margin incurred on amortised cost liabilities used to
fund the Financial Markets business, divided by
average interest-earning assets excluding financial
assets measured
at fair value through profit or loss.
----------------------------- ----------------------------------------------------------------
RAR per FTE or Risk Risk adjusted revenue (RAR) is defined as underlying
adjusted revenue per operating income less underlying impairment over
full-time equivalent the past 12 months. RAR is then divided by the
12 month rolling average full-time equivalent (FTE)
to determine RAR per FTE.
----------------------------- ----------------------------------------------------------------
Rate paid Statutory interest expense adjusted for interest
expense incurred on amortised cost liabilities
used to fund financial instruments held at fair
value through profit or loss, divided by average
interest bearing liabilities.
----------------------------- ----------------------------------------------------------------
RoE or Return on equity The ratio of the current year's profit available
for distribution to ordinary shareholders to the
weighted average ordinary shareholders' equity
for the reporting period.
----------------------------- ----------------------------------------------------------------
RoTE or Return on The ratio of the current year's profit available
ordinary shareholders' for distribution to ordinary shareholders to the
tangible equity weighted average tangible equity, being ordinary
shareholders' equity less the average goodwill
and intangible assets
for the reporting period. Where a target RoTE
is stated, this is based on profit and equity expectations
for future periods.
----------------------------- ----------------------------------------------------------------
TSR or Total shareholder The total return of the Group's equity (share price
return growth and dividends) to investors.
----------------------------- ----------------------------------------------------------------
Standard Chartered PLC - Group Chief Risk Officer's review
Demonstrating resilience in extraordinary times
We operate across a uniquely diverse footprint, and global
disruption driven by the COVID-19 pandemic has created an
unprecedented set of challenges for the Group, including the
possibility of the deepest global recession in decades despite
extraordinary levels of fiscal and monetary policy support by
governments. Pandemic-related movement, travel and business
restrictions have impacted multiple sectors of the global economy
and highlighted the vulnerability of global supply chains, although
the longer-term impact to the real economy remains to be seen. With
negative global growth expected for 2020 and what is likely to be a
difficult and uneven economic recovery, there is a heightened level
of risk in the environment. We have also seen increased
geopolitical turbulence, particularly the escalation of tensions
between the US and other countries with China including the
reaction to the recently passed National Security Law in Hong Kong,
the full implications of which are not yet known.
Much work has been done over the last five years to better
manage our risks, including introducing a more granular Risk
Appetite, reducing exposure to single names and high-risk sectors
and increasing the proportion of investment grade assets. Asset
quality has nevertheless come under pressure in the first half of
2020, with elevated levels of credit impairment reflecting the
weakening macroeconomic environment. The strong capital and
liquidity positions we have built up over recent years mean that we
are well positioned to continue to support our clients through this
difficult period, including committing $1 billion of financing on
preferential terms to companies that are providing goods and
services to help in the fight against COVID-19. We continue to
actively monitor and assess the evolution of events, drawing on our
stress testing capabilities and portfolio and sector reviews.
In the first half of the year we refreshed our Operational Risk
and Information and Cyber Security Risk Type Frameworks, and have
actively engaged with partnerships and initiatives to build our
understanding of new and evolving risks. The crisis has required us
to re-examine our systems and processes as we adapt to new ways of
working, and we have taken steps to maintain stable operations by
investing significantly in expanding our remote working
capabilities and operational resilience. We recognise that the
risks of the new ways of working extend beyond technology, and we
remain committed to supporting and educating our people in
maintaining the highest standards of conduct as we progress through
2020 and beyond. Our continued investment and focus on our risk
management capabilities will help the Group to navigate these
headwinds and ensure that we remain a sustainable, innovative,
resilient and client-centric bank.
Our key risk priorities
We face these challenges from a fundamentally strong position.
However, the banking industry is rapidly changing and we must
continue to evolve to stay relevant in the markets in which we
operate. As well as managing the impact of the COVID-19 pandemic,
we remain focused on the following key priorities for 2020.
Continuing to strengthen the Group's risk culture: Embedding a
healthy risk culture is a core objective across all areas of the
Group. It underpins an enterprise-level ability to identify and
assess, openly discuss, and take prompt action to address all
existing and emerging risks. Our Enterprise Risk Management
Framework (ERMF) has been embedded and rolled out to all countries.
It sets out the guiding principles for our people, enabling us to
have integrated and holistic risk conversations across the Group
and the three lines of defence. Senior management promote a healthy
risk culture by demonstrably valuing and rewarding risk-based
thinking across each line of defence, encouraging risk awareness,
challenging the status quo and creating a transparent, safe and
open environment for employees to communicate risk concerns.
Enhancing Information and Cyber Security (ICS) capabilities: We
continue to implement enhanced ICS capabilities across all
businesses and functions. Our recently refreshed ICS Risk Type
Framework includes a threat-led methodology that allows us to
assess proactively the risk from cyber threats and attack methods,
and to deploy prioritised controls to remain cyber resilient. We
evaluate the evolving cyber threat landscape and ensure that
protecting our clients and their assets remains at the centre of
our thinking. We recognise the elevated ICS risk resulting from the
COVID-19 pandemic, particularly from large-scale remote working
across the organisation. To reduce this impact, we have taken
mitigating actions including reprioritising key controls deployment
to focus on our most critical assets, re-allocating resources to
focus on the highest risk reduction projects and maintaining high
priority status in the change management process for new ICS
requirements.
Managing Climate Risk: Managing financial and non-financial
risks arising from climate change remains one of our core
priorities. We have continued to forge partnerships to enhance our
understanding of physical and transition risks and develop our
approach to measure and manage climate risk. Following on from the
2019 Taskforce for Climate-related Financial Disclosures report, we
have established a partnership with Munich Re to conduct physical
risk assessments for our own operations and clients across segments
and markets. In addition, we are supporting Imperial College London
to undertake research and solution development, which will advance
understanding of climate risks both internally and across the
industry, including their integration in macroeconomic and climate
scenarios. We are preparing for the Bank of England's 2021 Biennial
Exploratory Scenario, and actively engaging to provide thought
leadership, including contributing to open source solutions such as
the 2 Degrees Investing Initiative through feedback from early
pilots, as well as investing in capabilities to quantify the
financial risks to clients from a low-carbon transition. Over the
course of 2020 and 2021, we will engage with our clients to improve
awareness of climate risk across our footprint and understand their
adaptation and mitigation plans so we can help them in their
transition to a low carbon future. Our sustainable finance business
will ensure that we can play our part in supporting a sustainable
recovery from COVID-19.
+ More details on the Group's approach to Climate Risk can be
found on sc.com/sustainability
Manage financial crime risks: We continue to deliver against our
mission of 'partnering to lead in the fight against financial
crime' through our ongoing deployment of upgraded systems for
anti-money laundering, sanctions, fraud and customer due diligence
and by continuing to de-risk through education via our
Correspondent Banking Academies. We are also delivering on our plan
to be data-driven and improve effectiveness through optimisation
using tools such as Quantexa for automated transactional analysis.
Our Financial Crime and Compliance team contributes to industry
thinking on reform and information-sharing partnerships in several
markets, as well as working with international fora such as the
Wolfsberg Group. The COVID-19 pandemic has presented new risks as
well as heightening existing threats, as criminals look to exploit
the uncertainty and instability created by the virus. Collaboration
is a key focus and we are participating in intelligence-sharing
partnerships with law enforcement agencies, as well as peer banking
institutions, to build collective understanding of COVID-19 related
financial crime threats. We are also actively engaging with groups
such as the Cyber Defence Alliance and the National Cyber-Forensics
and Training Alliance, as well as collaborating internally across
our global teams to investigate our potential exposure, share
operational and strategic intelligence and raise staff awareness to
help protect clients and customers. An increase in the number of
vulnerable individuals and companies will expand the potential for
fraud, money laundering and corruption. Our teams continue to
identify and address new risks, implement new control measures and
share lessons learned across our footprint.
+ More information about the Group's commitment to fighting
financial crime can be found at sc.com/fightingfinancialcrime
Strengthen our conduct environment: We continue in 2020 to
enhance Conduct Risk management and build out approaches to risk
identification. A set of assessment questions has been developed to
guide and standardise the analysis and enhance the quality of
Conduct Risk management through Conduct Plans, with a focus on key
conduct areas such as product governance, strategy and governance.
Conduct Plans are a key part of our framework as they document the
identified Conduct Risks along with the action plans in place to
mitigate them. Ownership of Conduct Plans is with the first line of
defence, with review and challenge from the Conduct, Financial
Crime and Compliance (CFCC) function. We have had a particular
focus on identifying and mitigating potential Conduct Risk arising
from the impact of COVID-19. Where appropriate, Conduct Plans have
been updated to include such action plans. Given the expected
difficult and uneven nature of the COVID-19 recovery, the Group
will remain vigilant to risks as we progress through the economic
cycle.
Enhance our Risk and CFCC infrastructure: Improved risk
aggregation, centralised data and advanced analytical capabilities
are allowing an agile response to the changing external
environment. The integration of our risk aggregation tools with
front office data has enabled near real-time bespoke exposure
reporting and we have enhanced our regular stress testing scenarios
to include the impact of COVID-19. With the use of agile delivery
methods and collaboration tools, these changes have been
implemented quickly and by remote teams. Our control capability has
continued to strengthen, partnering with fintechs to implement
next-generation tools for trade communications surveillance and
financial crime monitoring. By using natural language processing
and machine learning, we generate higher-quality alerts, reduce
false positives and conduct more targeted human investigations,
creating a safer environment for our clients. We have also
developed capabilities in areas such as Anti Money Laundering,
identity verification, credit modelling and digital signatures
through partnerships developed by our internal innovation centre,
SC Ventures. In Retail Banking, the use of more sophisticated data
mining and predictive analytics tools with automated machine
learning capabilities has accelerated development and deployment of
risk and forecasting models. New offshore hubs have been
established to centralise specialist knowledge in data engineering
and visualisation, model development, validation, stress testing
and governance.
Enhance our Model Risk management: Along with the elevation of
Model Risk to a Principal Risk Type, we have simplified and
strengthened our Model Risk Policy and published a framework which
introduces Model Risk Appetite metrics, establishes the Group Model
Inventory and sets out clear roles and responsibilities across the
first and second lines of defence. There are plans in place to
further strengthen several areas including Model Risk standards,
risk reporting and training. The Model Risk Management Strategic
Enhancement Programme was launched in 2019 and represents a
substantial investment in the target operating model, data and
infrastructure, model delivery, and policy and governance. The
focus is on delivering a sustainable risk management framework with
clear success criteria, and the subsequent transition to day-to-day
business operations.
Our risk profile and performance
The first half of 2020 has seen a significant impact from the
economic environment on our loan portfolio, primarily reflecting
the impact of COVID-19 on the global economy. There is a weaker
outlook in many of the markets in which we operate; however, we
have taken a number of steps to mitigate the effect on our
portfolios and risk profile, informed by stress testing of various
COVID-19 related scenarios, and deep-dives on specific
portfolios.
Actions taken over the past few years mean that the quality of
our asset portfolios has improved significantly since 2015. As a
result, key measures such as early alerts, non-performing loans and
credit impairment were significantly better as of 31 December 2019,
prior to the impact of COVID-19. The proportion of investment grade
corporate exposures has also seen a marked improvement in that
period, although it has reduced from 61 per cent to 57 per cent in
the first half of the year due to a reduction in repos and
downgrades in the Aviation and Oil & Gas sectors. While some of
these metrics have seen reversals over the last six months, the
work done in previous years has ensured that we are well positioned
to absorb some deterioration in our portfolios.
Our stress testing results have shown that the Group has
adequate capital and liquidity to withstand a deep macro-financial
stress. The peak to trough fall in the Group's Common Equity Tier 1
(CET1) capital ratio for the Bank of England's Annual Cyclical
Scenario stress test (ACS) has improved in recent years: from
600bps in 2017 to 520bps in 2019. This is despite an increase in
the severity of the scenario and reflects our consistent and
concerted actions to improve the quality of the balance sheet and
our risk profile to ensure sustainable growth. In the first half of
2020 the resilience to stress has been underlined by internal
stress testing that explores downside risks related to the COVID-19
outlook. These have demonstrated that the Group has ample capital
and liquidity.
The Group has taken a number of management actions since the
start of the year, including enhancing our monitoring of facility
drawdowns, improving the Group's position through reducing
exposures where required or strengthening our collateral positions
in the Commercial Banking and Corporate & Institutional Banking
portfolios. The Group has continued to support clients we believe
are experiencing temporary issues due to COVID-19. We have placed
selected clients on our watchlist categories for close monitoring,
and have conducted extensive portfolio and sector reviews,
particularly for areas with higher vulnerability to COVID-19 and
volatile crude oil markets, such as our Aviation and Oil & Gas
exposures. This has led to a $9.1 billion increase in early alerts
in the first half of the year.
In Retail Banking, various short-term relief measures have been
implemented and we have increased engagement with our customers to
find alternative financing options where available. As of 30 June
2020, approximately 8 per cent of total Retail exposure has had
relief measures approved, of which 71 per cent is compulsory
(regulatory approved) and 79 per cent is fully secured. Through the
use of customer surveys and analysis of the COVID-19 impact and
delinquency trends, we have identified a higher risk cohort of
Business Banking customers which are being actively managed. 80 per
cent of the Business Banking portfolio is fully secured by property
or government guarantees. We have also made longer-term
improvements in Retail Banking through tightening our underwriting
standards and rolling out enhanced digital capabilities across our
footprint.
There has been an increase in exposure to our Top 20 corporate
clients as a percentage of Tier 1 Capital to 61 per cent (2019: 56
per cent). This is primarily driven by an increase in exposure to a
few investment grade clients. The Group's portfolios remain
predominantly short-tenor and continue to be diversified across
industry sectors, products, and geographies.
Credit grade 12 balances have decreased slightly to $1.5 billion
(2019: $1.6 billion) due to outflows to non-performing loans which
were partially offset by inflows from early alerts, half of which
were due to the impact of COVID-19. Gross stage 3 loans and
advances to customers were up 19 per cent to $8.8 billion (2019:
$7.4 billion), primarily in Corporate & Institutional Banking.
This was driven by three new downgrades in the ASEAN & South
Asia and Africa & Middle East regions. These credit-impaired
loans represent 3.1 per cent of gross loans and advances, an
increase of 40 basis points compared with 31 December 2019.
The stage 3 cover ratio decreased to 60 per cent (2019: 68 per
cent) due to write-offs of fully provided balances, as well as new
downgrades which incurred lower levels of provisions but were
partially covered by tangible collateral. The cover ratio after
collateral decreased to 80 per cent (2019: 85 per cent) as some of
the new inflows were also covered by non-tangible collateral such
as guarantees and insurance, which are not captured in this
metric.
Our Retail Banking portfolio remains stable and resilient, with
96 per cent of loans in stage 1, the same proportion as the
previous year. The majority of Retail products continue to be fully
secured loans which are stable at 85 per cent. The overall average
loan-to-value of the mortgage portfolio remains low at 45 per cent.
The unsecured portfolio continues to make up a small proportion of
total Retail exposure.
Credit impairment
6 months 6 months 6 months
ended ended ended
30.06.20 31.12.19 30.06.19
$million1 $million $million
---------------------------------- ----------- ---------- ----------
Corporate & Institutional Banking 991 358 117
Commercial Banking 137 94 28
Retail Banking 431 182 154
Private Banking 5 16 (47)
Central & Others 3 2 2
---------------------------------- ----------- ---------- ----------
Credit impairment charge 1,567 652 254
Restructuring charge/(credit) 9 2 0
Total credit impairment charge 1,576 654 254
---------------------------------- ----------- ---------- ----------
1 Credit impairment of $7 million in Central and other items is
included in Corporate & Institutional Banking
The Group took a total underlying credit impairment charge of
$1,567 million in the first half of 2020, a significant increase
compared with the same period in the previous year (H1 2019: $254
million). This included $668 million of stage 1 and 2 impairments,
of which approximately half was attributable to the modelled
outcomes, and the remainder due to a management overlay to reflect
deterioration in the macroeconomic outlook not captured in the
model, and the impact of country lock-downs and relief measures in
Retail Banking. Stage 3 impairments were $727 million higher, with
increases observed across all segments. Corporate &
Institutional Banking accounted for three-quarters of stage 3
impairment, which was driven by three clients.
The macro-economic environment remains challenging for the
majority of the markets in our footprint and we are cognisant of
the potential longer-term impact, especially once relief measures
are eased. We continue to assess these situations on an ongoing
basis, utilising our stress testing framework and portfolio reviews
to analyse the potential impact and appropriate risk management
actions.
Average Group value at risk (VaR) in the first half of 2020 was
157 per cent higher than the previous six months at $82 million (H2
2019: $32 million), driven by the extreme COVID-19 market
volatility which particularly impacted the Treasury Markets
portfolio. Trading activities remain primarily client driven. There
were three regulatory VaR backtesting exceptions in the first half
of 2020, all of which occurred in March as a result of COVID-19
volatility. This takes the rolling 12-month total to five Group
level IMA exceptions which is in the 'amber zone'. However the PRA
has granted approval to entirely offset the increase in IMA capital
requirement due to COVID-19 backtesting exceptions against IMA RNIV
capital requirements through to the third quarter of 2020.
Despite challenges brought by COVID-19, the Group has remained
resilient and kept a strong liquidity position. The Group liquidity
coverage ratio increased to 149 per cent (2019: 144 per cent)
driven by a reduction in net outflows due to a change in our
funding mix. Total deposits increased driven by growth in stable
current and savings account balances which was offset by a decrease
in term deposits, as we sought to manage liquidity more
efficiently. While asset growth has slowed, the Group continues to
focus on improving the quality of its funding mix and remains
committed to supporting its clients during these uncertain times.
The increase in overall deposits also drove a decrease in the
Group's advances-to-deposits ratio which reduced to 62.7 per cent
(2019: 64.2 per cent).
The Group's Common Equity Tier 1 ratio increased by 50 basis
points to 14.3 per cent as profits, distribution restrictions and
the sale of its equity interest in Permata more than offset
COVID-19 related RWA impacts from increased credit migration,
higher derivative activity and the drawdown of revolving credit
facilities.
> Further details of the risk performance for the first six
months of 2020 are set out in the Risk profile section
Key indicators
30.06.20 31.12.19 30.06.192
$million $million $million
-------------------------------------------------- ---------- ---------- ----------
Group total business1
Stage 1 loans ($ billion) 250.3 246.1 245.7
Stage 2 loans ($ billion) 23.7 20.8 16.1
Stage 3 loans, credit-impaired ($ billion) 8.8 7.4 7.8
Stage 3 cover ratio 60% 68% 68%
Stage 3 cover ratio (after collateral) 80% 85% 85%
-------------------------------------------------- ---------- ---------- ----------
Corporate & Institutional Banking and Commercial
Banking
Investment grade corporate net exposures as
a percentage of total corporate net exposures 57% 61% 57%
Loans and advances maturing in one year or
less as a percentage of total loans and advances
to customers 63% 62% 61%
Early alert portfolio net exposures ($ billion) 14.4 5.3 4.1
Credit grade 12 net exposures ($ billion) 1.5 1.6 1.4
Aggregate top 20 corporate net exposures as
a percentage of Tier 1 capital 61% 56% 62%
Collateralisation of sub-investment grade net
exposures maturing in more than 1 year 46% 45% 47%
-------------------------------------------------- ---------- ---------- ----------
Retail Banking
Loan-to-value ratio of retail mortgages 45% 45% 44%
-------------------------------------------------- ---------- ---------- ----------
1 These numbers represent total loans and advances to
customers
2 Stage 3 balance, provision and cover ratios have been restated
to reflect interest due but unpaid together with equivalent credit
impairment charge
Our risk management approach
We continue to focus on embedding the ERMF across the
organisation and we have made progress on the overall
effectiveness. This allows us to identify and manage risks
holistically, as well as strengthening our ability to understand,
articulate and control the nature and level of the risks we take
while still effectively serving our clients.
Principal and cross-cutting risks
Principal risks are those risks that are inherent in our
strategy and business model. These are formally defined in our ERMF
which provides a structure for monitoring and control of these
risks through the Board-approved Risk Appetite. We will not
compromise adherence to our Risk Appetite in order to pursue
revenue growth or higher returns. The table below provides an
overview of the Group's principal risks and cross-cutting risks and
how these are managed. The principal risks have not changed since
the time of publication of our 2019 Annual Report and further
details can be found on pages 212 to 227 of our 2019 Annual
Report.
Principal Risk Types1, How these are managed
2
---------------------- -------------------------------------------------------------
Credit Risk The Group manages its credit exposures following
the principle of diversification across products,
geographies, client segments and industry sectors
---------------------- -------------------------------------------------------------
Country Risk The Group manages its Country Risk exposures following
the principle of diversification across geographies
and controls the business activities in line with
the level of Jurisdiction Risk
---------------------- -------------------------------------------------------------
Traded Risk The Group should control its trading portfolio and
activities to ensure that Traded Risk losses (financial
or reputational) do not cause material damage to
the Group's franchise
---------------------- -------------------------------------------------------------
Capital and Liquidity The Group should maintain a strong capital position
Risk including the maintenance of management buffers sufficient
to support its strategic aims and hold an adequate
buffer of high-quality liquid assets to survive extreme
but plausible liquidity stress scenarios for at least
60 days without recourse to extraordinary central
bank support
---------------------- -------------------------------------------------------------
Operational Risk The Group aims to control operational risks to ensure
that operational losses (financial or reputational),
including any related to conduct of business matters,
do not cause material damage to the Group's franchise
---------------------- -------------------------------------------------------------
Reputational Risk The Group aims to protect the franchise from material
damage to its reputation by ensuring that any
business activity is satisfactorily assessed and
managed by the appropriate level of management and
governance oversight
---------------------- -------------------------------------------------------------
Compliance Risk The Group has no appetite for breaches in laws and
regulations, while recognising that regulatory noncompliance
cannot be entirely avoided the Group strives to reduce
this to an absolute minimum
---------------------- -------------------------------------------------------------
Conduct Risk The Group has no appetite for negative Conduct Risk
outcomes arising from negligent or wilful actions
by
the Group or individuals recognising that while
incidents are unwanted, they cannot be entirely avoided
---------------------- -------------------------------------------------------------
Information and Cyber The Group seeks to avoid risk and uncertainty for
Security Risk our critical information assets and systems and has
a
low appetite for material incidents affecting these
or the wider operations and reputation of the bank
---------------------- -------------------------------------------------------------
Financial Crime Risk The Group has no appetite for breaches in laws and
regulations related to Financial Crime, recognising
that whilst incidents are unwanted, they cannot be
entirely avoided
---------------------- -------------------------------------------------------------
Model Risk2 The Group has no appetite for material adverse implications
arising from misuse of models or errors in the development
or implementation of models, whilst accepting model
uncertainty.
---------------------- -------------------------------------------------------------
Climate Risk2,3 The Group aims to measure and manage financial and
non-financial risks from climate change, and reduce
emissions related to our own activities and those
related to the financing of clients in alignment
with the
Paris Agreement
---------------------- -------------------------------------------------------------
1 Risks arising from execution capability, governance,
reporting, operational resilience (including third party vendor
services, and system availability) are managed by the Operational
Risk Type Framework. For further details please refer to page 221
of the 2019 Annual Report
2 Details about our approach to Model Risk and Climate Risk are
not found on pages 212 to 227 of our 2019 Annual Report. Summaries
of Model Risk and Climate Risk can instead
be found primarily on pages 94 and 231 of our 2019 Annual Report
respectively. Further details about our risk management approach to
these risks will be included in our 2020 Annual Report
3 In addition to principal risks, the Group also recognises
Climate Risk as a cross-cutting risk that manifests through other
principal risks
Our emerging risks
Emerging risks refer to unpredictable and uncontrollable
outcomes from certain events and circumstances which may have the
potential to have a material impact on our business. As part of our
continuous risk identification process, we have updated the Group's
emerging risks from those disclosed in the 2019 Annual Report.
The following items have been removed as emerging risks:
-- 'Regulatory changes' and 'Regulatory reviews and
investigations, legal proceedings' - These are intrinsic risks for
operating in the banking industry and have been removed
-- 'Japan-Korea diplomatic dispute' - The risk has been removed
due to the manageable immediate impact to the Group's portfolio
The following items have been amended or added as new emerging
risks:
-- 'Rise of populism and nationalism' - The recent rise in
populism and nationalism is being exacerbated by the COVID-19
pandemic and related supply chain challenges. There is a risk that
shared global problems will become more difficult to resolve
-- 'Rising sovereign default risk' - The combination of economic
downturns, capital flight, commodity price collapses, political
instability resulting from the social consequences of COVID-19 and
a pervasive 'risk off' sentiment in the markets may make it
difficult for some countries to refinance their debts
The table below summarises our current list of emerging risks,
outlining the risk trend changes since the end of 2019, the reasons
for the changes and the mitigating actions we are taking based on
our current knowledge and assumptions. This reflects the latest
internal assessment of material risks that the Group faces as
identified by senior management. This list is not designed to be
exhaustive and there may be additional risks which materialise or
have an adverse effect on the Group. Our mitigation approach for
these risks may not be successful in eliminating them, but rather
shows the Group's attempt to reduce or manage the risk. As certain
risks develop and materialise over time, management will take
appropriate incremental steps based on the materiality of the
impact of the risk to the operations of the Group.
Risk trend
since
December Key risk trend
Emerging risks 20191 drivers How these are mitigated
---------------------- ---------- --------------------- -----------------------------------------------------------
Novel coronavirus ñ COVID-19 has spread
and the emergence globally. Measures * Exposures that could result in material credit
of new diseases to contain the virus, impairment charges and risk-weighted assets inflation
such as travel bans under stress tests are regularly reviewed and
and restrictions, actively managed
curfews, quarantines
and shut-downs, have
led to increased * To support our clients the Group has enacted
volatility in comprehensive support schemes for retail and
financial corporate customers, including loan and interest
markets and commodity repayment holidays, covenant relief, fee waivers or
prices and severe cancellations, loan extensions and new facilities
economic downturns
in many countries
* The Group's priority remains the health and safety of
our clients and employees and the continuation of
normal operations by leveraging our robust Business
Continuity Plans which include enabling the vast
majority of our staff to work remotely where possible
---------------------- ---------- --------------------- -----------------------------------------------------------
Extended tensions ñ There is increasing
between the US risk due to the * A sharp slowdown in US-China and, more broadly, world
and China driven escalation trade and global growth is a feature of the Group
by geopolitical of tensions between stress scenarios including the Internal Capital
and trade concerns the US and China Adequacy Assessment Process (ICAAP) and the annual
and differences in part due to the Bank of England (BoE) stress testing exercise
over Hong Kong growing trade,
security,
social and political * Detailed portfolio reviews are conducted on an
tensions in Hong ongoing basis and action is taken where necessary
Kong and the passing
of the Hong Kong
National Security
Law
---------------------- ---------- --------------------- -----------------------------------------------------------
Geopolitical ñ There are increasing
events, in particular: concerns on global * We monitor and assess geopolitical events and act as
the rise of populism geopolitical appropriate to ensure that we minimise the impact to
and nationalism, implications the Group and our clients
Middle East following the rise
geopolitical of populism and
tensions and nationalism. * There is continuous monitoring at a country, regional
negotiations The risk relating and Group level to identify emerging risks and
on future EU-UK to negotiations on evaluate their management
relations the future
relationship
between the EU and * We conduct stress tests and portfolio reviews at a
the UK has also Group, country and business level to assess the
increased. impact of extreme but plausible geopolitical events
The risk in the
Middle
East has reduced * These stress tests provide visibility to key
as Saudi Arabia vulnerabilities so that management can implement
attempts timely interventions
to exit the conflict
in Yemen and the
region manages
reduced
oil prices and the
COVID-19 outbreak
---------------------- ---------- --------------------- -----------------------------------------------------------
Risk trend
since
December
Emerging risks 20191 Key risk trend drivers How these are mitigated
--------------------- ---------- ---------------------- -----------------------------------------------------------
Rising sovereign ñ COVID-19 has
default risk exacerbated * Exposures that may result in material credit
already deteriorating impairment and increased risk-weighted assets are
market conditions closely monitored and actively managed
causing liquidity
and potentially
solvency * We conduct stress tests and portfolio reviews at a
issues for a number country and business level to assess the impact of
of the world's poorest extreme but plausible events and manage the portfolio
countries accordingly
* We actively utilise Credit Risk mitigation techniques
including credit insurance and collateral
* We actively track the participation of our footprint
countries in the Debt Service Suspension Initiative
and the associated exposure
--------------------- ---------- ---------------------- -----------------------------------------------------------
Climate related ó The risk remains
transition and at similar levels * We have developed a Climate Risk framework to deliver
physical risks2 as at the end of a consistent Group-wide approach to Climate Risk
2019 management. We are also a member of the Risk
Management Working Group under the Bank of England's
Climate Financial Risk Forum
* The Group announced that it will only support clients
who actively transition their business to generate
less than 10 per cent of earnings from thermal coal
by 2030
* The Group has a public target to provide $75 billion
by 2024 to finance sustainable infrastructure,
renewables and clean technology to support the
transition to a low carbon transition, and becoming
net zero emission from our own operations by 2030
--------------------- ---------- ---------------------- -----------------------------------------------------------
Interbank Offered ó The risk remains
Rate (IBOR) at similar levels * The Group has set up a global IBOR Transition
discontinuation as at the end of Programme to consider all aspects of the transition
and transition 2019 and how risks from the transition can be mitigated. A
Management Team member is the Senior Manager
responsible for the IBOR Transition Programme
* From an industry and regulatory perspective, the
Group is actively participating in and contributing
to different risk-free rates (RFR) working groups,
industry associations and business forums focusing on
different aspects of the IBOR to RFR transition
--------------------- ---------- ---------------------- -----------------------------------------------------------
New technologies ó The risk remains
and digitisation at similar levels * We monitor emerging trends, opportunities and risk
(including business as at the end of developments in the technology space which may have
disruption risk, 2019. Client implications on the banking sector
responsible use expectations
of Artificial and the way they
Intelligence interact with the * We have rolled out enhanced digital capabilities in
and Obsolescence Group may change Retail Banking, particularly around onboarding, sales
Risk) as a result of and marketing
COVID-19,
potentially
accelerating * We are engaged in building our capabilities to ensure
the adoption of that we remain relevant and are able to capitalise
digital rapidly on technology trends
solutions
* We continue to make headway in harnessing new
technologies, and we are investing in
machine-learning solutions that rapidly analyse large
datasets and fine-tune the accuracy of our financial
crime tools
* We are actively targeting the reduction of
obsolescent/end-of-support technology following a
technology and innovation-led approach
* Our SC Ventures business continues to invest in new
technology channels, creating new ways of engaging
with clients
--------------------- ---------- ---------------------- -----------------------------------------------------------
Increased data ñ Regulatory
privacy and security requirements * We actively monitor regulatory developments in
risks from strategic and client relation to data management, data protection and
and wider use expectations privacy
of data relating to data
management and privacy
are increasing across * We have established a dedicated Data and Privacy team
our markets, including to build data management and privacy expertise across
the ethical use of the Group
data.
There is a risk of
increased cyber * A Data and Privacy programme has been implemented to
threats enhance the data management and privacy controls
associated with a including the ethical use of data
largely remote
workforce
in response to the * We actively monitor cyber threats and risks, and have
COVID-19 outbreak implemented heightened technical and organisational
measures designed to prevent, detect and respond to
threats while ensuring compliance with data ownership
and consent requirements
--------------------- ---------- ---------------------- -----------------------------------------------------------
1 The risk trend refers to the overall risk score trend which is
a combination of potential impact, likelihood and velocity of
change
2 Physical risks refer to the risk of increasingly extreme
weather events while transition risks refer to the risk of changes
to market dynamics due to governments' response to climate
change
Summary
2020 has seen unprecedented global upheaval, with the vast
majority of the world's markets experiencing historic shocks to
their economic, health and social landscapes. This has created
distinct challenges in terms of risk management as we support our
clients, colleagues and communities while ensuring our portfolios
remain robust and resilient in the face of widespread volatility.
While idiosyncratic risk is unavoidable, particularly in the
current economic climate, enabling sustainable and responsible
business remains at the top of our agenda.
Mark Smith
Group Chief Risk Officer
30 July 2020
Standard Chartered PLC - Risk review
Risk
Index
------- --------------------------------------------------------------------------
Risk Credit Risk
------- --------------------------------------------------------------------------
Basis of preparation
------- --------------------------------------------------------------------------
Credit Risk overview
--------------------------------------------------------------------------
IFRS 9 methodology
Maximum exposure to Credit Risk
Analysis of financial instrument by stage
--------------------------------------------------------------------------
Credit quality analysis
* Credit quality by client segment
* Credit quality by geographic region
* Credit quality analysis by industry
--------------------------------------------------------------------------
Movement in gross exposures and credit impairment for loans and advances,
debt securities, undrawn commitments and financial guarantees
Movement of debt securities, alternative tier one and other eligible bills
Analysis of stage 2 balances
--------------------------------------------------------------------------
Credit impairment charge
Problem credit management and provisioning
* Forborne and other modified loans by client segment
* Forborne and other modified loans by region
* Credit-impaired (stage 3) loans and advances by
client segment
* Credit-impaired (stage 3) loans and advances by
geographic region
* Movement of credit-impaired (stage 3) loans and
advances provisions by client segment
--------------------------------------------------------------------------
Credit Risk mitigation
* Collateral
* Collateral - Corporate & Institutional Banking and
Commercial Banking
* Collateral - Retail Banking and Private Banking
* Mortgage loan-to-value ratios by geography
--------------------------------------------------------------------------
* Industry and Retail products analysis of loans and
advances by geographic region
--------------------------------------------------------------------------
Vulnerable sectors
--------------------------------------------------------------------------
IFRS 9 methodology
--------------------------------------------------------------------------
Country Risk
--------------------------------------------------------------------------
Traded Risk
Market Risk changes
Counterparty Credit Risk
Derivative financial instruments Credit Risk mitigation
--------------------------------------------------------------------------
Liquidity and funding risk
Liquidity & Funding risk metrics
Encumbrance
Liquidity analysis of the Group's balance sheet
Interest Rate Risk in the Banking Book
--------------------------------------------------------------------------
Operational Risk
Operational Risk profile
--------------------------------------------------------------------------
Other Principal risks
------- --------------------------------------------------------------------------
Capital Capital summary
* Capital ratio
* CRD IV Capital base
* Movement in total capital
--------------------------------------------------------------------------
Risk-weighted asset
--------------------------------------------------------------------------
UK Leverage ratio
--------------------------------------------------------------------------
The Group also discloses additional regulatory disclosures
prepared in accordance with EBA guidelines under Part Eight of the
CRR (see Standard Chartered PLC Pillar3 Half Year 2020 Report, due
to be published on 6 August 2020 and which will be available at
https://www.sc.com/en/investors/financial-results/).
The following parts of the Risk review and Capital review form
part of the financial statements and are reviewed by the external
auditors:
-- From the start of the 'Credit Risk review' section to the end
of 'Other Principal risk' in the same section, excluding:
Risk section
-----------------------------------------------------------------
Loans and advances by client segment credit quality analysis
Credit Quality by geographic region
Analysis of stage 2 balances
Forborne and other modified loans by region
Credit-impaired (stage 3) loans and advances by geographic region
Credit Quality by industry
Industry and Retail Products analysis by geographic region
Vulnerable sectors
Country Risk
Risks not in VaR
Backtesting
Liquidity coverage ratio (LCR)
Stressed coverage
Net stable funding ratio (NSFR)
Liquidity pool
Encumbrance
Interest Rate Risk in the Banking Book
Operational risk
Other Principal risks
-----------------------------------------------------------------
-- From the start of 'CRD IV capital base' to the end of
'Movement in total capital' excluding capital ratios and
risk-weighted assets (RWA)
Credit Risk
Basis of preparation
Unless otherwise stated, the balance sheet and income statement
information presented within this section is based on the Group's
management view. This is principally the location from which a
client relationship is managed, which may differ from where it is
financially booked, and may be shared between businesses and/or
regions. This view reflects how the client segments and regions are
managed internally.
Loans and advances to customers and banks held at amortised cost
in this 'Risk profile' section include reverse repurchase agreement
balances held at amortised cost, per Note 15 Reverse repurchase and
repurchase agreements including other similar secured lending and
borrowing.
Credit Risk overview
Credit Risk is the potential for loss due to the failure of a
counterparty to meet its obligations to pay the Group. Credit
exposures arise from both the banking and trading books.
Impairment model
IFRS 9 requires an impairment model that requires the
recognition of expected credit losses (ECL) on all financial debt
instruments held at amortised cost, fair value through other
comprehensive income (FVOCI), undrawn loan commitments and
financial guarantees.
Staging of financial instruments
Financial instruments that are not already credit-impaired are
originated into stage 1 and a 12-month expected credit loss
provision is recognised.
Instruments will remain in stage 1 until they are repaid, unless
they experience significant credit deterioration (stage 2) or they
become credit-impaired (stage 3).
Instruments will transfer to stage 2 and a lifetime expected
credit loss provision recognised when there has been a significant
change in the Credit Risk compared to what was expected at
origination.
The framework used to determine a significant increase in Credit
risk is set out below.
Stage 1
-- 12-month ECL
-- Performing
Stage 2
-- Lifetime expected credit loss
-- Performing but has exhibited significant increase in Credit
Risk (SICR)
Stage 3
-- Credit-impaired
-- Non-performing
IFRS 9 principles and approaches
The main methodology principles and approach adopted by the
Group are set out in the following table.
Title Description Supplementary Information
----------------------- --------------------------------------------------- --------------------------------
Approach to determining For material loan portfolios, the Group
expected credit has adopted a statistical modelling approach
losses for determining expected credit losses
that makes extensive use of credit modelling.
While these models leveraged existing advanced
Internal Ratings Based (IRB) models, for
determining regulatory expected losses
where these were available, there are significant
differences between the two approaches.
Details of significant post model adjustments
are set out.
----------------------- --------------------------------------------------- --------------------------------
Incorporation The determination of expected credit loss Incorporation of forward-looking
of forward-looking includes various assumptions and judgements information and impact
information in respect of forward-looking macroeconomic of non-linearity
information. Refer to incorporation of Forecast of key macroeconomic
forward-looking information, forecast of variables underlying
key macroeconomic variables underlying the expected
the expected credit loss calculation and credit loss calculation
the impact on non-linearity and sensitivity Management overlay
of expected credit loss calculation to and sensitivity to
macroeconomic variables. macroeconomic variables
----------------------- --------------------------------------------------- --------------------------------
Significant increase Expected credit loss for financial assets
in Credit risk will transfer from a 12-month basis (stage
(SICR) 1) to a lifetime basis (stage 2) when there
is a SICR relative to that which was expected
at the time of origination, or when the
asset becomes credit-impaired. On transfer
to a lifetime basis, the expected credit
loss for those assets will reflect the
impact of a default event expected to occur
over the remaining lifetime of the instrument
rather than just over the 12 months from
the reporting date.
SICR is assessed by comparing the risk
of default of an exposure at the reporting
date with the risk of default at origination
(after considering the passage of time).
'Significant' does not mean statistically
significant nor is it reflective of the
extent of the impact on the Group's financial
statements. Whether a change in the risk
of default is significant or not is assessed
using quantitative and qualitative criteria,
the weight of which will depend on the
type of product and counterparty.
----------------------- --------------------------------------------------- --------------------------------
Assessment of Credit-impaired (stage 3) financial assets
credit-impaired comprise those assets that have experienced
financial assets an observed credit event and are in default.
Default represents those assets that are
at least 90 days past due in respect of
principal and interest payments and/or
where the assets are otherwise considered
unlikely to pay. This definition is consistent
with internal Credit Risk management and
the regulatory definition of default.
Unlikely to pay factors include objective
conditions such as bankruptcy, debt restructuring,
fraud or death. It also includes credit-related
modifications of contractual cashflows
due to significant financial difficulty
(forbearance) where the Group has granted
concessions that it would not ordinarily
consider.
Following a clarification issued by IFRIC
in March 2019, when financial assets are
transferred from stage 3 to stage 2, any
contractual interest earned while the asset
was in stage 3 is recognised within the
credit impairment line. Although this differs
from the Group's previous approach of recognising
a residual amount of this within interest
income, there is no material impact on
the classification of amounts reported
in the income statement in the current
or prior period. Further, the gross asset
balances for stage 3 financial instruments
have been increased to reflect contractual
interest due but not paid with a corresponding
increase in credit impairment provisions.
These changes have been disclosed within
the Credit Risk section. There has been
no net impact on the balance sheet or on
shareholders' equity.
----------------------- --------------------------------------------------- --------------------------------
Transfers between Assets will transfer from stage 3 to stage Movement in loan exposures
stages 2 when they are no longer considered to and expected credit
be credit-impaired. Assets will not be losses
considered credit-impaired only if the
customer makes payments such that they
are paid to current in line with the original
contractual terms.
Assets may transfer to stage 1 if they
are no longer considered to have experienced
a significant increase in Credit Risk.
This will be immediate when the original
PD based transfer criteria are no longer
met (and as long as none of the other transfer
criteria apply). Where assets were transferred
using other measures, the assets will only
transfer back to stage 1 when the condition
that caused the significant increase in
Credit Risk no longer applies (and as long
as none of the other transfer criteria
apply).
----------------------- --------------------------------------------------- --------------------------------
Title Description Supplementary Information
-------------------- --------------------------------------------------- -------------------------
Modified financial Where the contractual terms of a financial Forbearance and other
assets instrument have been modified, and this modified loans
does not result in the instrument being
derecognised, a modification gain or loss
is recognised in the income statement representing
the difference between the original cashflows
and the modified cashflows, discounted
at the effective interest rate. The modification
gain/loss is directly applied to the gross
carrying amount of the instrument.
If the modification is credit related,
such as forbearance or where the Group
has granted concessions that it would not
ordinarily consider, then it will be considered
credit-impaired. Modifications that are
not credit related will be subject to an
assessment of whether the asset's credit
risk has increased significantly since
origination by comparing the remaining
lifetime PD based on the modified terms
to the remaining lifetime PD, based on
the original contractual terms.
-------------------- --------------------------------------------------- -------------------------
Governance and The models used in determining ECL are
application of reviewed and approved by the Group Credit
expert credit Model Assessment Committee and have been
judgement in validated by Group Model Validation, which
respect of expected is independent of the business.
credit losses A quarterly model monitoring process is
in place that uses recent data to compare
the differences between model predictions
and actual outcomes against approved thresholds.
Where a model's performance breaches the
monitoring thresholds, then an assessment
of whether an ECL adjustment is required
to correct for the identified model issue
is completed.
The determination of expected credit losses
requires a significant degree of management
judgement which had an impact on governance
processes, with the output of the expected
credit models assessed by the IFRS 9 Impairment
Committee.
-------------------- --------------------------------------------------- -------------------------
Maximum exposure to credit risk (within EY review scope)
The table below presents the Group's maximum exposure to credit
risk for its on-balance sheet and off-balance sheet financial
instruments as at 30 June 2020, before and after taking into
account any collateral held or other credit risk mitigation.
The Group's on-balance sheet maximum exposure to credit risk
increased by $23 billion to $717 billion (31 December 2019: $694
billion). The Group's off balance sheet maximum exposure had
reduced slightly to $186 billion (31 December 2019: $188
billion).
This was spread across several products, with other assets up $6
billion driven by unsettled trades due to normal settlement timing
differences. Fair value instruments increased $5.5 billion and
derivatives were up $5 billion. Loans and advances to banks and
customers increased $4.7 billion, $3.5 billion of which related to
reverse repurchase agreements.
30.06.20 31.12.19
-------------------- ------------------------------------------------- ---------------------------------------------
Credit risk
Credit risk management management
--------- ------------------------ ------------ --------- ----------------------- ---------
Master Master
Maximum netting Maximum netting Net
exposure Collateral agreements Net exposure exposure Collateral agreements exposure
$million $million $million $million $million $million $million $million
-------------------- --------- ----------- ----------- ------------ --------- ---------- ----------- ---------
On-balance sheet
Cash and balances at
central banks 52,925 52,925 52,728 52,728
Loans and advances
to
banks1, 8 50,499 1,893 48,606 53,549 1,341 52,208
--------- ----------- ----------- ------------ --------- ---------- ----------- ---------
of which - reverse
repurchase
agreements
and other similar
secured
lending7 1,893 1,893 - 1,341 1,341 -
--------- ----------- ----------- ------------ --------- ---------- ----------- ---------
Loans and advances
to
customers1, 8 276,313 126,671 149,642 268,523 122,115 146,408
--------- ----------- ----------- ------------ --------- ---------- ----------- ---------
of which - reverse
repurchase
agreements
and other similar
secured
lending7 4,383 4,383 - 1,469 1,469 -
--------- ----------- ----------- ------------ --------- ---------- ----------- ---------
Investment
securities
- Debt securities,
alternative Tier 1
and other eligible
bills2 145,327 145,327 143,440 143,440
Fair value through
profit
or loss3, 7 95,807 59,002 - 36,805 90,349 57,604 32,745
--------- ----------- ----------- ------------ --------- ---------- ----------- ---------
Loans and advances
to
banks 2,336 2,336 3,528 3,528
Loans and advances
to
customers 10,453 10,453 6,896 6,896
Reverse repurchase
agreements
and
other similar
lending7 59,002 59,002 - 57,604 57,604 -
Investment
securities
- Debt
securities,
alternative
Tier 1 and other
eligible
bills2 24,016 24,016 22,321 22,321
--------- ----------- ----------- ------------ --------- ---------- ----------- ---------
Derivative financial
instruments4, 7 52,227 9,565 37,441 5,221 47,212 7,824 28,659 10,729
Accrued income 1,949 1,949 2,358 2,358
Assets held for sale 157 157 90 90
Other assets5 42,183 42,183 36,161 36,161
-------------------- --------- ----------- ----------- ------------ --------- ---------- ----------- ---------
Total balance sheet 717,387 197,131 37,441 482,815 694,410 188,884 28,659 476,867
-------------------- --------- ----------- ----------- ------------ --------- ---------- ----------- ---------
Off-balance sheet6
Contingent
liabilities 42,234 - - 42,234 42,432 - - 42,432
Undrawn irrevocable
standby facilities,
credit
lines and other
commitments
to lend 140,120 - - 140,120 141,194 - - 141,194
Documentary credits
and short-term
trade-
related
transactions 3,793 - - 3,793 4,282 - - 4,282
-------------------- --------- ----------- ----------- ------------ --------- ---------- ----------- ---------
Total off-balance
sheet 186,147 - - 186,147 187,908 - - 187,908
-------------------- --------- ----------- ----------- ------------ --------- ---------- ----------- ---------
Total 903,534 197,131 37,441 668,962 882,318 188,884 28,659 664,775
-------------------- --------- ----------- ----------- ------------ --------- ---------- ----------- ---------
1 An analysis of credit quality is set out in the credit quality
analysis section. Further details of collateral held by client
segment and stage are set out in the collateral analysis
section
2 Excludes equity and other investments of $407 million (31
December 2019: $291 million). Further details are set out in Note
13 Financial Instruments
3 Excludes equity and other investments of $2,552 million (31
December 2019: $2,469 million). Further details are set out in Note
13 Financial Instruments
4 The Group enters into master netting agreements, which in the
event of default result in a single amount owed by or to the
counterparty through netting the sum of the positive and negative
mark-to-market values of applicable derivative transactions
5 Other assets include Hong Kong certificates of indebtedness,
cash collateral, and acceptances, in addition to unsettled trades
and other financial assets
6 Excludes ECL allowances which are reported under Provisions
for liabilities and charges
7 Collateral capped at maximum exposure
(over-collateralised)
8 Adjusted for over-collateralisation, which has been determined
with reference to the drawn and undrawn component as this best
reflects the effect on the amount arising from expected credit
losses
Analysis of financial instrument by stage (within EY review
scope)
This table shows financial instruments and off-balance sheet
commitments by stage, along with the total credit impairment loss
provision against each class of financial instrument.
The proportion of financial instruments held within stage 1 fell
to 93 per cent (31 December 2019: 94 per cent). Stage 2 financial
instruments overall were stable at 5 per cent (2019: 5 per cent)
but stage 2 loans and advances to customers increased to 8.4 per
cent (2019: 7.6 per cent) reflecting the increase in loans
classified as non-purely precautionary early alert and the impact
of the deteriorating macroeconomic environment. This was partly
offset by a decline in stage 2 debt securities, which fell to 2 per
cent compared with 3 per cent as at 31 December 2019.
Stage 3 financial instruments were stable at 1 per cent of the
Group total. Stage 3 loans and advances to customers increased by
$1.4 billion primarily relating to three clients in ASEAN &
South Asia and Africa & Middle East regions. The stage 3 cover
ratio (excluding collateral) fell to 60 per cent (31 December 2019:
68 per cent).
30.06.20
------------- ----------------------------------------------------------------------------------------------------------------------------------------------
Stage 1 Stage 2 Stage 3 Total
---------------------------------- ---------------------------------- ---------------------------------- ----------------------------------
Total Net Total Net Total Net Total Net
Gross credit carrying Gross credit carrying Gross credit carrying Gross credit carrying
balance1 impairment value balance1 impairment value balance1 impairment value balance1 impairment value
$million $million $million $million $million $million $million $million $million $million $million $million
------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Cash and
balances
at central
banks 52,925 - 52,925 - - - - - - 52,925 - 52,925
Loans and
advances
to banks
(amortised
cost) 50,146 (3) 50,143 349 (2) 347 13 (4) 9 50,508 (9) 50,499
Loans and
advances
to customers
(amortised
cost) 250,278 (476) 249,802 23,739 (780) 22,959 8,809 (5,257) 3,552 282,826 (6,513) 276,313
Debt
securities,
alternative
Tier 1 and
other
eligible
bills 142,617 (49) 2,707 (37) 53 (30) 145,377 (116)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Amortised
cost 15,888 (16) 15,872 248 (4) 244 53 (30) 23 16,189 (50) 16,139
FVOCI2 126,729 (33) 2,459 (33) - - 129,188 (66)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Accrued
income
(amortised
cost)4 1,949 - 1,949 - - - - - - 1,949 - 1,949
Assets held
for sale4 157 - 157 - - - - - - 157 - 157
Other assets 42,184 (1) 42,183 - - - 7 (7) - 42,191 (8) 42,183
Undrawn
commitments3 134,605 (44) 9,280 (72) 28 (1) 143,913 (117)
Financial
guarantees3 37,408 (16) 4,205 (39) 621 (182) 42,234 (237)
------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total 712,269 (589) 40,280 (930) 9,531 (5,481) 762,080 (7,000)
------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
1 Gross carrying amount for off-balance sheet refers to notional
values
2 These instruments are held at fair value on the balance sheet.
The ECL provision in respect of debt securities measured at FVOCI
is held within the OCI reserve
3 These are off-balance sheet instruments. Only the ECL is
recorded on-balance sheet as a financial liability and therefore
there is no "net carrying amount". ECL allowances on off-balance
sheet instruments are held as liability provisions to the extent
that the drawn and undrawn components of loan exposures can be
separately identified. Otherwise they will be reported against the
drawn component
4 Stage 1 ECL is not material
31.12.19
------------- ----------------------------------------------------------------------------------------------------------------------------------------------
Stage 1 Stage 2 Stage 3 Total
---------------------------------- ---------------------------------- ---------------------------------- ----------------------------------
Total Net Total Net Total Net Total Net
Gross credit carrying Gross credit carrying Gross credit carrying Gross credit carrying
balance1 impairment value balance1 impairment value balance1 impairment value balance1 impairment value
$million $million $million $million $million $million $million $million $million $million $million $million
------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Cash and
balances
at central
banks 52,728 - 52,728 - - - - - - 52,728 - 52,728
Loans and
advances to
banks
(amortised
cost) 52,634 (5) 52,629 924 (4) 920 - - - 53,558 (9) 53,549
Loans and
advances
to customers
(amortised
cost) 246,149 (402) 245,747 20,759 (377) 20,382 7,398 (5,004) 2,394 274,306 (5,783) 268,523
Debt
securities,
alternative
Tier 1 and
other
eligible
bills 138,782 (50) 4,644 (23) 75 (45) 143,501 (118)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Amortised
cost 13,678 (10) 13,668 277 (6) 271 75 (45) 30 14,030 (61) 13,969
FVOCI2 125,104 (40) 4,367 (17) - - 129,471 (57)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Accrued
income
(amortised
cost)4 2,358 - 2,358 - - - - - - 2,358 - 2,358
Assets held
for sale4 90 - 90 - - - - - - 90 - 90
Other assets4 36,161 (3) 36,158 - - - 164 (161) 3 36,325 (164) 36,161
Undrawn
commitments3 136,179 (43) 9,277 (38) 20 - 145,476 (81)
Financial
guarantees3 38,660 (14) 3,183 (16) 589 (206) 42,432 (236)
------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total 703,741 (517) 38,787 (458) 8,246 (5,416) 750,774 (6,391)
------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
1 Gross carrying amount for off-balance sheet refers to notional
values
2 These instruments are held at fair value on the balance sheet.
The ECL provision in respect of debt securities measured at FVOCI
is held within the OCI reserve
3 These are off-balance sheet instruments. Only the ECL is
recorded on-balance sheet as a financial liability and therefore
there is no "net carrying amount". ECL allowances on off-balance
sheet instruments are held as liability provisions to the extent
that the drawn and undrawn components of loan exposures can be
separately identified. Otherwise they will be reported against the
drawn component
4 Stage 1 ECL is not material
Credit quality analysis
Credit quality by client segment (within EY review scope)
For the Corporate & Institutional Banking and Commercial
Banking portfolios, exposures are analysed by credit grade (CG),
which plays a central role in the quality assessment and monitoring
of risk. All loans are assigned a CG, which is reviewed
periodically and amended in light of changes in the borrower's
circumstances or behaviour. CGs 1 to 12 are assigned to stage 1 and
stage 2 (performing) clients or accounts, while CGs 13 and 14 are
assigned to stage 3 (defaulted) clients. The mapping of credit
quality is as follows.
Mapping of credit quality
The Group uses the following internal risk mapping to determine
the credit quality for loans.
Corporate & Institutional Banking
and Commercial Banking Private Banking1 Retail Banking
--------------- ------------------------------------------ ---------------- ----------------------
Internal Regulatory
Credit quality grade S&P external PD range Internal Number of days past
description mapping ratings equivalent (%) ratings due
--------------- --------- ------------------- ---------- ---------------- ----------------------
Class I and Current loans (no past
Strong 1A to 5B AAA to BB+ 0 to 0.425 Class IV dues nor impaired)
--------------- --------- ------------------- ---------- ---------------- ----------------------
Class II
0.425 to and Class Loans past due till
Satisfactory 6A to 11C BB to B-/CCC 15.75 III 29 days
--------------- --------- ------------------- ---------- ---------------- ----------------------
15.751 to Past due loans 30 days
Higher risk Grade 12 CCC/C 100.00 GSAM managed and over till 90 days
--------------- --------- ------------------- ---------- ---------------- ----------------------
1 For Private Banking, classes of risk represent the type of
collateral held. Class I represents facilities with liquid
collateral, such as cash and marketable securities. Class II
represents unsecured/partially secured facilities and those with
illiquid collateral, such as equity in private enterprises. Class
III represents facilities with residential or commercial real
estate collateral. Class IV covers margin trading facilities
The table overleaf sets out the gross loans and advances held at
amortised cost, expected credit loss provisions and expected credit
loss coverage by business segment and stage. Expected credit loss
coverage represents the expected credit loss reported for each
segment and stage as a proportion of the gross loan balance for
each segment and stage.
Stage 1 (within EY review scope)
Stage 1 gross loans and advances to customers increased by $4.1
billion, or 2 per cent compared with 31 December 2019 and
represents 88 per cent of loans and advances to customers (31
December 2019: 90 per cent). Most of the growth was concentrated in
the ASEAN & South Asia region. The stage 1 coverage ratio
remained at 0.2 per cent compared with 31 December 2019.
81 per cent (31 December 2019: 83 per cent) of loans in
Corporate & Institutional Banking and Commercial Banking were
held in stage 1, with those rated as strong increasing marginally
to 57 per cent (31 December 2019: 56 per cent) as the Group
continues to focus on the origination of investment-grade lending.
Within Corporate & Institutional Banking and Commercial
Banking, overall stage 1 loans grew by $0.8 billion, with an $8
billion increase in lending to governments offset by reductions
across several sectors as clients were placed on non-purely
precautionary early alert and transferred to stage 2.
Retail Banking stage 1 loans remains stable at 96 per cent
(2019: 96 per cent).
Stage 2 (within EY review scope)
Stage 2 loans and advances to customers gross balances increased
by $3.0 billion, compared with 31 December 2019, with the
proportion of stage 2 loans remaining at 8 per cent. Coverage
increased to 3.3 per cent compared with 1.8 per cent as at 31
December 2019, as provisions increased as a result of the
deteriorating macroeconomic environment and continuing
uncertainties as to the timing and pace of economic recovery.
Corporate & Institutional Banking and Commercial Banking
loans increased by $2.6 billion, compared with 31 December 2019,
due to increased levels of non-purely precautionary early alerts,
primarily in industries that have been adversely impacted by the
COVID-19 pandemic and falls in the oil price. Coverage increased to
2.7 per cent from 1.3 per cent.
Retail Banking stage 2 loans remains stable at 3 per cent of
total Retail portfolio.
Retail Banking stage 2 cover ratio increased to 6.9 per cent
compared to 5.7 per cent in 2019 due to increased provisions in
unsecured portfolios and heightened risks for portfolios covered by
moratoria schemes.
Stage 2 loans to banks classified as 'Higher risk' decreased by
$0.2 billion due to repayments.
Stage 2 undrawn commitments were stable at $9.3 billion,
although the proportion rated as 'Strong' reduced from 43 per cent
to 40 per cent.
Stage 3 (within EY review scope)
Stage 3 loans and advances to customers increased by $1.4
billion, or 19 per cent, to $8.8 billion compared to 31 December
2019, with overall stage 3 provisions increasing by $0.3 billion.
The stage 3 cover ratio has decreased to 60 per cent (2019: 68 per
cent) due to write offs in Corporate & Institutional Banking,
as well as downgrades which incurred lower levels of provisions but
were partially covered by tangible collateral, guarantees and
credit insurance.
In Corporate & Institutional Banking and Commercial Banking,
gross stage 3 loans increased by $1.2 billion compared with 31
December 2019. Provisions increased by $0.1 billion from $4.5
billion to $4.6 billion.
Inflows into stage 3 for Corporate & Institutional Banking
and Commercial Banking in the first half of 2020 were significantly
higher compared with the second half of 2019, primarily due to
three clients in ASEAN & South Asia and Africa & Middle
East.
Retail stage 3 loans increased by $0.2 billion to $1.1 billion
as COVID-19 related lockdowns impacted collections and recoveries
activities, particularly in ASEAN & South Asia.
Loans and advances by client segment (within EY review
scope)
30.06.20
---------------- ------------------------------------------------------------------------------------------------------
Customers
-------- ------------------------------------------------------------------ ------------ ----------
Corporate
& Central
Institutional Retail Commercial Private & other Customer Undrawn Financial
Banks Banking Banking Banking Banking items Total commit-ments Guarantees
Amortised cost $million $million $million $million $million $million $million $million $million
---------------- -------- ------------- -------- ---------- -------- -------- --------- ------------ ----------
Stage 1 50,146 97,794 101,523 20,916 12,599 17,446 250,278 134,605 37,408
-------- ------------- -------- ---------- -------- -------- --------- ------------ ----------
- Strong 41,317 61,090 100,456 6,097 9,232 17,213 194,088 115,218 25,727
- Satisfactory 8,829 36,704 1,067 14,819 3,367 233 56,190 19,387 11,681
-------- ------------- -------- ---------- -------- -------- --------- ------------ ----------
Stage 2 349 15,765 3,515 4,256 199 4 23,739 9,280 4,205
-------- ------------- -------- ---------- -------- -------- --------- ------------ ----------
- Strong 31 4,347 2,630 307 195 - 7,479 3,682 1,065
- Satisfactory 301 10,469 406 3,400 4 - 14,279 5,255 2,845
- Higher risk 17 949 479 549 - 4 1,981 343 295
-------- ------------- -------- ---------- -------- -------- --------- ------------ ----------
Of which (stage
2):
- Less than 30
days
past due - 272 406 119 - - 797
- More than 30
days
past due 35 58 479 34 4 - 575
Stage 3,
credit-impaired
financial
assets 13 5,364 1,067 2,004 372 2 8,809 28 621
---------------- -------- ------------- -------- ---------- -------- -------- --------- ------------ ----------
Gross balance1 50,508 118,923 106,105 27,176 13,170 17,452 282,826 143,913 42,234
---------------- -------- ------------- -------- ---------- -------- -------- --------- ------------ ----------
Stage 1 (3) (62) (371) (31) (11) (1) (476) (44) (16)
-------- ------------- -------- ---------- -------- -------- --------- ------------ ----------
- Strong - (37) (228) (4) (8) - (277) (22) (9)
- Satisfactory (3) (25) (143) (27) (3) (1) (199) (22) (7)
-------- ------------- -------- ---------- -------- -------- --------- ------------ ----------
Stage 2 (2) (424) (242) (114) - - (780) (72) (39)
- Strong - (74) (99) (8) - - (181) (24) (7)
- Satisfactory (2) (312) (74) (83) - - (469) (41) (27)
- Higher risk - (38) (69) (23) - - (130) (7) (5)
Of which (stage
2):
- Less than 30
days
past due - (13) (74) (8) - - (95)
- More than 30
days
past due - (22) (69) (16) - - (107)
Stage 3,
credit-impaired
financial
assets (4) (3,129) (492) (1,476) (158) (2) (5,257) (1) (182)
---------------- -------- ------------- -------- ---------- -------- -------- --------- ------------ ----------
Total credit
impairment (9) (3,615) (1,105) (1,621) (169) (3) (6,513) (117) (237)
---------------- -------- ------------- -------- ---------- -------- -------- --------- ------------ ----------
Net carrying
value 50,499 115,308 105,000 25,555 13,001 17,449 276,313
---------------- -------- ------------- -------- ---------- -------- -------- --------- ------------ ----------
Stage 1 0.0% 0.1% 0.4% 0.1% 0.1% 0.0% 0.2% 0.0% 0.0%
-------- ------------- -------- ---------- -------- -------- --------- ------------ ----------
- Strong 0.0% 0.1% 0.2% 0.1% 0.1% 0.0% 0.1% 0.0% 0.0%
- Satisfactory 0.0% 0.1% 13.4% 0.2% 0.1% 0.4% 0.4% 0.1% 0.1%
-------- ------------- -------- ---------- -------- -------- --------- ------------ ----------
Stage 2 0.6% 2.7% 6.9% 2.7% 0.0% 0.0% 3.3% 0.8% 0.9%
-------- ------------- -------- ---------- -------- -------- --------- ------------ ----------
- Strong 0.0% 1.7% 3.8% 2.6% 0.0% 0.0% 2.4% 0.6% 0.7%
- Satisfactory 0.7% 3.0% 18.2% 2.4% 0.0% 0.0% 3.3% 0.8% 0.9%
- Higher risk 0.0% 4.0% 14.4% 4.2% 0.0% 0.0% 6.6% 2.0% 1.7%
-------- ------------- -------- ---------- -------- -------- --------- ------------ ----------
Of which (stage
2):
- Less than 30
days
past due 0.0% 4.8% 18.2% 6.7% 0.0% 0.0% 11.9%
- More than 30
days
past due 0.0% 37.9% 14.4% 47.1% 0.0% 0.0% 18.6%
Stage 3,
credit-impaired
financial
assets 30.8% 58.3% 46.1% 73.7% 42.5% 100.0% 59.7% 3.6% 29.3%
---------------- -------- ------------- -------- ---------- -------- -------- --------- ------------ ----------
Cover ratio 0.0% 3.0% 1.0% 6.0% 1.3% 0.0% 2.3% 0.1% 0.6%
---------------- -------- ------------- -------- ---------- -------- -------- --------- ------------ ----------
Fair value
through
profit or loss
---------------- -------- ------------- -------- ---------- -------- -------- --------- ------------ ----------
Performing 19,939 48,951 182 2,650 - 15 51,798 - -
-------- ------------- -------- ---------- -------- -------- --------- ------------ ----------
- Strong 16,807 26,961 179 2,008 - 9 29,157 - -
- Satisfactory 3,132 21,988 2 615 - 6 22,611 - -
- Higher risk - 2 1 27 - - 30 - -
-------- ------------- -------- ---------- -------- -------- --------- ------------ ----------
Defaulted
(CG13-14) - 45 - 9 - - 54 - -
---------------- -------- ------------- -------- ---------- -------- -------- --------- ------------ ----------
Gross balance
(FVTPL)2 19,939 48,996 182 2,659 - 15 51,852 - -
---------------- -------- ------------- -------- ---------- -------- -------- --------- ------------ ----------
Net carrying
value
(incl FVTPL) 70,438 164,304 105,182 28,214 13,001 17,464 328,165
---------------- -------- ------------- -------- ---------- -------- -------- --------- ------------ ----------
1 Loans and advances includes reverse repurchase agreements and
other similar secured lending of $4,383 million under Customers and
of $1,893 million under Banks, held at amortised cost
2 Loans and advances includes reverse repurchase agreements and
other similar secured lending of $41,399 million under Customers
and of $17,603 million under Banks, held at
fair value through profit or loss
31.12.19
---------------- ------------------------------------------------------------------------------------------------------
Customers3
-------- ------------------------------------------------------------------ ------------ ----------
Corporate
& Central
Institutional Retail Commercial Private & other Customer Undrawn Financial
Banks Banking Banking Banking Banking items Total commit-ments Guarantees
Amortised cost $million $million $million $million $million $million $million $million $million
---------------- -------- ------------- -------- ---------- -------- -------- --------- ------------ ----------
Stage 1 52,634 94,226 103,899 23,683 14,249 10,092 246,149 136,179 38,660
-------- ------------- -------- ---------- -------- -------- --------- ------------ ----------
- Strong 41,053 58,623 101,246 6,941 10,145 9,961 186,916 114,981 25,631
- Satisfactory 11,581 35,603 2,653 16,742 4,104 131 59,233 21,198 13,029
-------- ------------- -------- ---------- -------- -------- --------- ------------ ----------
Stage 2 924 13,454 3,029 3,985 284 7 20,759 9,277 3,183
-------- ------------- -------- ---------- -------- -------- --------- ------------ ----------
- Strong 225 2,711 2,231 208 280 - 5,430 4,012 1,025
- Satisfactory 476 9,652 462 3,493 4 - 13,611 4,898 1,951
- Higher risk 223 1,091 336 284 - 7 1,718 367 207
-------- ------------- -------- ---------- -------- -------- --------- ------------ ----------
Of which (stage
2):
- Less than 30
days
past due 2 145 462 58 - - 665
- More than 30
days
past due 23 175 336 86 4 - 601
Stage 3,
credit-impaired
financial
assets - 4,173 846 2,013 366 - 7,398 20 589
---------------- -------- ------------- -------- ---------- -------- -------- --------- ------------ ----------
Gross balance1 53,558 111,853 107,774 29,681 14,899 10,099 274,306 145,476 42,432
---------------- -------- ------------- -------- ---------- -------- -------- --------- ------------ ----------
Stage 1 (5) (78) (289) (24) (10) (1) (402) (43) (14)
-------- ------------- -------- ---------- -------- -------- --------- ------------ ----------
- Strong - (29) (182) (1) (8) - (220) (22) (8)
- Satisfactory (5) (49) (107) (23) (2) (1) (182) (21) (6)
-------- ------------- -------- ---------- -------- -------- --------- ------------ ----------
Stage 2 (4) (143) (173) (60) (1) - (377) (38) (16)
-------- ------------- -------- ---------- -------- -------- --------- ------------ ----------
- Strong (2) (33) (88) (5) (1) - (127) (7) (3)
- Satisfactory (2) (51) (45) (40) - - (136) (14) (8)
- Higher risk - (59) (40) (15) - - (114) (17) (5)
-------- ------------- -------- ---------- -------- -------- --------- ------------ ----------
Of which (stage
2):
- Less than 30
days
past due - (3) (45) (2) - - (50)
- More than 30
days
past due - (4) (40) (5) - - (49)
Stage 3,
credit-impaired
financial
assets - (2,980) (374) (1,503) (147) - (5,004) - (206)
---------------- -------- ------------- -------- ---------- -------- -------- --------- ------------ ----------
Total credit
impairment (9) (3,201) (836) (1,587) (158) (1) (5,783) (81) (236)
---------------- -------- ------------- -------- ---------- -------- -------- --------- ------------ ----------
Net carrying
value 53,549 108,652 106,938 28,094 14,741 10,098 268,523
---------------- -------- ------------- -------- ---------- -------- -------- --------- ------------ ----------
Stage 1 0.0% 0.1% 0.3% 0.1% 0.1% 0.0% 0.2% 0.0% 0.0%
-------- ------------- -------- ---------- -------- -------- --------- ------------ ----------
- Strong 0.0% 0.0% 0.2% 0.0% 0.1% 0.0% 0.1% 0.0% 0.0%
- Satisfactory 0.0% 0.1% 4.0% 0.1% 0.0% 0.8% 0.3% 0.1% 0.0%
-------- ------------- -------- ---------- -------- -------- --------- ------------ ----------
Stage 2 0.4% 1.1% 5.7% 1.5% 0.4% 0.0% 1.8% 0.4% 0.5%
-------- ------------- -------- ---------- -------- -------- --------- ------------ ----------
- Strong 0.9% 1.2% 3.9% 2.4% 0.4% 0.0% 2.3% 0.2% 0.3%
- Satisfactory 0.4% 0.5% 9.7% 1.1% 0.0% 0.0% 1.0% 0.3% 0.4%
- Higher risk 0.0% 5.4% 11.9% 5.3% 0.0% 0.0% 6.6% 4.7% 2.4%
-------- ------------- -------- ---------- -------- -------- --------- ------------ ----------
Of which (stage
2):
- Less than 30
days
past due 0.0% 2.1% 9.7% 3.4% 0.0% 0.0% 7.5%
- More than 30
days
past due 0.0% 2.3% 11.9% 5.8% 0.0% 0.0% 8.2%
Stage 3,
credit-impaired
financial
assets 0.0% 71.4% 44.2% 74.7% 40.2% 0.0% 67.6% 0.0% 35.0%
---------------- -------- ------------- -------- ---------- -------- -------- --------- ------------ ----------
Cover ratio 0.0% 2.9% 0.8% 5.3% 1.1% 0.0% 2.1% 0.1% 0.6%
---------------- -------- ------------- -------- ---------- -------- -------- --------- ------------ ----------
Fair value
through
profit or loss
---------------- -------- ------------- -------- ---------- -------- -------- --------- ------------ ----------
Performing 21,797 45,104 238 845 - 2 46,189 - -
-------- ------------- -------- ---------- -------- -------- --------- ------------ ----------
- Strong 19,217 26,511 236 253 - 1 27,001 - -
- Satisfactory 2,580 18,584 1 592 - 1 19,178 - -
- Higher risk - 9 1 - - - 10 - -
-------- ------------- -------- ---------- -------- -------- --------- ------------ ----------
Defaulted
(CG13-14) - 34 - 8 - - 42 - -
---------------- -------- ------------- -------- ---------- -------- -------- --------- ------------ ----------
Gross balance
(FVTPL)2 21,797 45,138 238 853 - 2 46,231 - -
---------------- -------- ------------- -------- ---------- -------- -------- --------- ------------ ----------
Net carrying
value
(incl FVTPL) 75,346 153,790 107,176 28,947 14,741 10,100 314,754
---------------- -------- ------------- -------- ---------- -------- -------- --------- ------------ ----------
1 Loans and advances includes reverse repurchase agreements and
other similar secured lending of $1,469 million under Customers and
of $1,341 million under Banks, held at amortised cost
2 Loans and advances includes reverse repurchase agreements and
other similar secured lending of $39,335 million under Customers
and of $18,269 million under Banks, held at fair value through
profit or loss
3 Corporate & Institutional Banking, Commercial Banking and
Retail Banking Gross and ECL numbers have been restated to reflect
client transfers between the segments. The changes are in stage 1
and stage 2 only. In the Fair value through profit or loss section,
the swap is between Corporate & Institutional Banking and
Commercial Banking
Loans and advances by client segment credit quality analysis
Corporate & Institutional Banking
------------ ------------- ------------------- --------------------------------------------------------------
30.06.20
--------------------------------------------------------------
Gross Credit impairment
------------------------------ ------------------------------
Regulatory
1 year PD S&P external Stage Stage Stage Stage Stage Stage
Credit grade range (%) ratings equivalent 1 2 3 Total 1 2 3 Total
------------ ------------- ------------------- ------ ------ ----- ------- ----- ----- ------- -------
Strong 61,090 4,347 - 65,437 (37) (74) - (111)
1A-2B 0 - 0.045 AA- and above 8,596 257 - 8,853 - (11) - (11)
3A-4A 0.046 - 0.110 A+ to A- 14,802 1,209 - 16,011 (4) (20) - (24)
4B-5B 0.111 - 0.425 BBB+ to BBB-/BB+ 37,692 2,881 - 40,573 (33) (43) - (76)
Satisfactory 36,704 10,469 - 47,173 (25) (312) - (337)
BB+/BB to
6A-7B 0.426 - 1.350 BB- 26,769 4,597 - 31,366 (16) (118) - (134)
BB-/B+ to
8A-9B 1.351 - 4.000 B+/B 6,936 3,771 - 10,707 (9) (96) - (105)
10A-11C 4.001 - 15.75 B to B-/CCC 2,999 2,101 - 5,100 - (98) - (98)
Higher risk - 949 - 949 - (38) - (38)
15.751 -
12 99.999 CCC/C - 949 - 949 - (38) - (38)
Defaulted - - 5,364 5,364 - - (3,129) (3,129)
13-14 100 Defaulted - - 5,364 5,364 - - (3,129) (3,129)
------------ ------------- ------------------- ------ ------ ----- ------- ----- ----- ------- -------
Total 97,794 15,765 5,364 118,923 (62) (424) (3,129) (3,615)
------------ ------------- ------------------- ------ ------ ----- ------- ----- ----- ------- -------
31.12.191
------------ ------------- ------------------- --------------------------------------------------------------
Gross Credit impairment
------------------------------ ------------------------------
Regulatory
1 year PD S&P external Stage Stage Stage Stage Stage Stage
Credit grade range (%) ratings equivalent 1 2 3 Total 1 2 3 Total
------------ ------------- ------------------- ------ ------ ----- ------- ----- ----- ------- -------
Strong 58,623 2,711 - 61,334 (29) (33) - (62)
1A-2B 0 - 0.045 AA- and above 6,638 80 - 6,718 (2) - - (2)
3A-4A 0.046 - 0.110 A+ to A- 18,659 912 - 19,571 (4) (7) - (11)
4B-5B 0.111 - 0.425 BBB+ to BBB-/BB+ 33,326 1,719 - 35,045 (23) (26) - (49)
Satisfactory 35,603 9,652 - 45,255 (49) (51) - (100)
BB+/BB to
6A-7B 0.426 - 1.350 BB- 24,000 5,955 - 29,955 (26) (18) - (44)
BB-/B+ to
8A-9B 1.351 - 4.000 B+/B 8,000 2,633 - 10,633 (15) (21) - (36)
10A-11C 4.001 - 15.75 B to B-/CCC 3,603 1,064 - 4,667 (8) (12) - (20)
Higher risk - 1,091 - 1,091 - (59) - (59)
15.751 -
12 99.999 CCC/C - 1,091 - 1,091 - (59) - (59)
Defaulted - - 4,173 4,173 - - (2,980) (2,980)
13-14 100 Defaulted - - 4,173 4,173 - - (2,980) (2,980)
------------ ------------- ------------------- ------ ------ ----- ------- ----- ----- ------- -------
Total 94,226 13,454 4,173 111,853 (78) (143) (2,980) (3,201)
------------ ------------- ------------------- ------ ------ ----- ------- ----- ----- ------- -------
1 Stage 1 and Stage 2 Gross and ECL numbers have been restated
to reflect client transfers to and from Commercial Banking
Commercial Banking
------------ ------------- ------------------- ------------------------------------------------------------
30.06.20
------------------------------------------------------------
Gross Credit impairment
---------------------------- ------------------------------
Regulatory
1 year PD S&P external Stage Stage Stage Stage Stage Stage
Credit grade range (%) ratings equivalent 1 2 3 Total 1 2 3 Total
------------ ------------- ------------------- ------ ----- ----- ------ ----- ----- ------- -------
Strong 6,097 307 - 6,404 (4) (8) - (12)
1A-2B 0 - 0.045 AA- and above 20 2 - 22 - - - -
3A-4A 0.046 - 0.110 A+ to A- 1,755 105 - 1,860 - (3) - (3)
4B-5B 0.111 - 0.425 BBB+ to BBB-/BB+ 4,322 200 - 4,522 (4) (5) - (9)
Satisfactory 14,819 3,400 - 18,219 (27) (83) - (110)
BB+/BB to
6A-7B 0.426 - 1.350 BB- 6,681 503 - 7,184 (10) (8) - (18)
BB-/B+ to
8A-9B 1.351 - 4.000 B+/B 5,863 1,250 - 7,113 (11) (34) - (45)
10A-11C 4.001 - 15.75 B to B-/CCC 2,275 1,647 - 3,922 (6) (41) - (47)
Higher risk - 549 - 549 - (23) - (23)
15.751 -
12 99.999 CCC/C - 549 - 549 - (23) - (23)
Defaulted - - 2,004 2,004 - - (1,476) (1,476)
13-14 100 Defaulted - - 2,004 2,004 - - (1,476) (1,476)
------------ ------------- ------------------- ------ ----- ----- ------ ----- ----- ------- -------
Total 20,916 4,256 2,004 27,176 (31) (114) (1,476) (1,621)
------------ ------------- ------------------- ------ ----- ----- ------ ----- ----- ------- -------
31.12.191
------------ ------------- ------------------- ------------------------------------------------------------
Gross Credit impairment
---------------------------- ------------------------------
Regulatory
1 year PD S&P external Stage Stage Stage Stage Stage Stage
Credit grade range (%) ratings equivalent 1 2 3 Total 1 2 3 Total
------------ ------------- ------------------- ------ ----- ----- ------ ----- ----- ------- -------
Strong 6,941 208 - 7,149 (1) (5) - (6)
1A-2B 0 - 0.045 AA- and above 285 - - 285 - - - -
3A-4A 0.046 - 0.110 A+ to A- 2,500 10 - 2,510 - - - -
4B-5B 0.111 - 0.425 BBB+ to BBB-/BB+ 4,156 198 - 4,354 (1) (5) - (6)
Satisfactory 16,742 3,493 - 20,235 (23) (40) - (63)
BB+/BB to
6A-7B 0.426 - 1.350 BB- 7,030 840 - 7,870 (5) (1) - (6)
BB-/B+ to
8A-9B 1.351 - 4.000 B+/B 7,032 1,355 - 8,387 (11) (13) - (24)
10A-11C 4.001 - 15.75 B to B-/CCC 2,680 1,298 - 3,978 (7) (26) - (33)
Higher risk - 284 - 284 - (15) - (15)
15.751 -
12 99.999 CCC/C - 284 - 284 - (15) - (15)
Defaulted - - 2,013 2,013 - - (1,503) (1,503)
13-14 100 Defaulted - - 2,013 2,013 - - (1,503) (1,503)
------------ ------------- ------------------- ------ ----- ----- ------ ----- ----- ------- -------
Total 23,683 3,985 2,013 29,681 (24) (60) (1,503) (1,587)
------------ ------------- ------------------- ------ ----- ----- ------ ----- ----- ------- -------
1 Stage 1 and stage 2 Gross and ECL numbers have been restated
to reflect client transfers to and from Corporate &
Institutional Banking and to Retail Banking
Retail Banking
------------- ------------------------------------------------------------
30.06.20
------------------------------------------------------------
Gross Credit impairment
------------------------------ ----------------------------
Stage Stage Stage Stage Stage Stage
Credit grade 1 2 3 Total 1 2 3 Total
------------- ------- ----- ----- ------- ----- ----- ----- -------
Strong 100,456 2,630 - 103,086 (228) (99) - (327)
Secured 85,027 2,226 - 87,253 (34) (24) - (58)
Unsecured 15,429 404 - 15,833 (194) (75) - (269)
Satisfactory 1,067 406 - 1,473 (143) (74) - (217)
Secured 711 314 - 1,025 - - - -
Unsecured 356 92 - 448 (143) (74) - (217)
Higher risk - 479 - 479 - (69) - (69)
Secured - 314 - 314 - (7) - (7)
Unsecured - 165 - 165 - (62) - (62)
Defaulted - - 1,067 1,067 - - (492) (492)
Secured - - 590 590 - - (235) (235)
Unsecured - - 477 477 - - (257) (257)
------------- ------- ----- ----- ------- ----- ----- ----- -------
Total 101,523 3,515 1,067 106,105 (371) (242) (492) (1,105)
------------- ------- ----- ----- ------- ----- ----- ----- -------
31.12.19
------------- ----------------------------------------------------------
Gross Credit impairment
------------------------------ --------------------------
Stage Stage Stage Stage Stage Stage
Credit grade 1 2 3 Total 1 2 3 Total
------------- ------- ----- ----- ------- ----- ----- ----- -----
Strong 101,246 2,231 - 103,477 (182) (88) - (270)
Secured 85,301 1,923 - 87,224 (11) (12) - (23)
Unsecured 15,945 308 - 16,253 (171) (76) - (247)
Satisfactory 2,653 462 - 3,115 (107) (45) - (152)
Secured 1,691 358 - 2,049 (1) (3) - (4)
Unsecured 962 104 - 1,066 (106) (42) - (148)
Higher risk - 336 - 336 - (40) - (40)
Secured - 193 - 193 - (3) - (3)
Unsecured - 143 - 143 - (37) - (37)
Defaulted - - 846 846 - - (374) (374)
Secured - - 413 413 - - (143) (143)
Unsecured - - 433 433 - - (231) (231)
------------- ------- ----- ----- ------- ----- ----- ----- -----
Total 103,899 3,029 846 107,774 (289) (173) (374) (836)
------------- ------- ----- ----- ------- ----- ----- ----- -----
Credit quality by geographic region
The following table sets out the credit quality for gross loans
and advances to customers and banks, held at amortised cost, by
geographic region and stage.
Loans and advances to customers
30.06.20
-------------------- --------------------------------------------------------------
Greater China ASEAN & Africa & Europe &
& North Asia South Asia Middle East Americas Total
Amortised cost $million $million $million $million $million
-------------------- ------------- ----------- ------------ --------- ---------
Gross (stage 1) 127,194 74,189 23,677 25,218 250,278
Provision (stage 1) (189) (187) (89) (11) (476)
Gross (stage 2) 8,164 7,013 5,799 2,763 23,739
Provision (stage 2) (184) (302) (233) (61) (780)
Gross (stage 3)2 864 3,767 3,192 986 8,809
Provision (stage 3) (346) (2,195) (2,093) (623) (5,257)
-------------------- ------------- ----------- ------------ --------- ---------
Net loans1 135,503 82,285 30,253 28,272 276,313
-------------------- ------------- ----------- ------------ --------- ---------
31.12.19
--------------------- --------------------------------------------------------------
Greater China ASEAN & Africa & Europe &
& North Asia South Asia Middle East Americas Total
Amortised cost $million $million $million $million $million
--------------------- ------------- ----------- ------------ --------- ---------
Gross (stage 1) 126,438 71,045 23,906 24,760 246,149
Provision (stage 1) (165) (146) (79) (12) (402)
Gross (stage 2) 7,547 6,461 5,541 1,210 20,759
Provision (stage 2) (115) (127) (117) (18) (377)
Gross (stage 3) 716 3,084 2,585 1,013 7,398
Provision (stage 3)2 (360) (2,087) (1,899) (658) (5,004)
--------------------- ------------- ----------- ------------ --------- ---------
Net loans1 134,061 78,230 29,937 26,295 268,523
--------------------- ------------- ----------- ------------ --------- ---------
1 Amounts net of expected credit losses. Includes reverse
repurchase agreements and other similar secured lending
2 Amounts do not include those purchased or originated
credit-impaired financial assets
Loans and advances to banks
30.06.20
-------------------- --------------------------------------------------------------
Greater China ASEAN & Africa & Europe &
& North Asia South Asia Middle East Americas Total
Amortised cost $million $million $million $million $million
-------------------- ------------- ----------- ------------ --------- ---------
Gross (stage 1) 21,220 14,640 5,907 8,379 50,146
Provision (stage 1) - (2) - (1) (3)
Gross (stage 2) 28 34 34 253 349
Provision (stage 2) - (1) - (1) (2)
Gross (stage 3)2 - - 6 7 13
Provision (stage 3) - - (2) (2) (4)
-------------------- ------------- ----------- ------------ --------- ---------
Net loans1 21,248 14,671 5,945 8,635 50,499
-------------------- ------------- ----------- ------------ --------- ---------
31.12.19
-------------------- --------------------------------------------------------------
Greater China ASEAN & Africa & Europe &
& North Asia South Asia Middle East Americas Total
Amortised cost $million $million $million $million $million
-------------------- ------------- ----------- ------------ --------- ---------
Gross (stage 1) 19,181 15,458 5,039 12,956 52,634
Provision (stage 1) (1) (2) (1) (1) (5)
Gross (stage 2) 136 300 312 176 924
Provision (stage 2) (2) (1) (1) - (4)
Gross (stage 3)2 - - - - -
Provision (stage 3) - - - - -
-------------------- ------------- ----------- ------------ --------- ---------
Net loans1 19,314 15,755 5,349 13,131 53,549
-------------------- ------------- ----------- ------------ --------- ---------
1 Amounts net of expected credit losses. Includes reverse
repurchase agreements and other similar secured lending
2 Amounts do not include those purchased or originated
credit-impaired financial assets
Movement in gross exposures and credit impairment for loans and
advances, debt securities, undrawn commitments and financial
guarantees (within EY review scope)
The tables overleaf set out the movement in gross exposures and
credit impairment by stage in respect of amortised cost loans to
banks and customers, undrawn committed facilities, undrawn
cancellable facilities, debt securities classified at amortised
cost and FVOCI and financial guarantees. The tables are presented
for the Group, and the Corporate & Institutional Banking,
Commercial Banking and Retail Banking segments.
Methodology
The movement lines within the tables are an aggregation of
monthly movements over the year and will therefore reflect the
accumulation of multiple trades during the year. The credit
impairment charge in the income statement comprises the amounts
within the boxes in the table below less recoveries of amounts
previously written off. Discount unwind is reported in net interest
income and related to stage 3 financial instruments only.
The approach for determining the key line items in the tables is
set out below.
-- Transfers - transfers between stages are deemed to occur at
the beginning of a month based on prior month closing balances
-- Net remeasurement from stage changes - the remeasurement of
credit impairment provisions arising from a change in stage is
reported within the stage that the assets are transferred to. For
example, assets transferred into stage 2 are remeasured from a 12-
month to a lifetime expected credit loss, with the effect of
remeasurement reported in stage 2. For stage 3, this represents the
initial remeasurement from specific provisions recognised on
individual assets transferred into stage 3 in the year
-- Net changes in exposures - new business written less
repayments in the year. Within stage 1, new business written will
attract up to 12 months of expected credit loss charges. Repayments
of non-amortising loans (primarily within Corporate &
Institutional Banking and Commercial Banking) will have low amounts
of expected credit loss provisions attributed to them, due to the
release of provisions over the term to maturity. In stages 2 and 3,
the amounts principally reflect repayments although stage 2 may
include new business written where clients are on non-purely
precautionary early alert, are credit grade 12, or when
non-investment grade debt securities are acquired
-- Changes in risk parameters - for stages 1 and 2, this
reflects changes in the probability of default (PD), loss given
default (LGD) and exposure at default (EAD) of assets during the
year, which includes the impact of releasing provisions over the
term to maturity. It also includes the effect of changes in
forecasts of macroeconomic variables during the year. In stage 3,
this line represents additional specific provisions recognised on
exposures held within stage 3
-- Interest due but not paid - change in contractual amount of
interest due in stage 3 financial instruments but not paid, being
the net of accruals, repayments and write-offs, together with the
corresponding change in credit impairment
Changes to ECL models, which incorporates changes to model
approaches and methodologies, is not reported as a separate line
item as it has an impact over a number of lines and stages.
Movements during the period
Stage 1 gross exposures increased by $2.7 billion to $615
billion when compared with 31 December 2019. This was largely due
to higher holdings of debt securities which increased by $3.8
billion, which was partly offset by a reduction in Corporate &
Institutional Banking and Commercial Banking balances, down $8.0
billion, as result of a net outflow to stage 2 reflecting the
deteriorating economic conditions and an increase in customers
placed on non-purely precautionary early alert. Retail Banking
stage 1 gross exposures increased by $1 billion as a net outflow to
stage 2 was offset by new business and foreign exchange and other
movements.
Total stage 1 provisions increased by $74 million, primarily in
Retail Banking, in part due to a management overlay for the impact
of COVID-19 payment reliefs and lockdowns in the ASEAN & South
Asia and Africa & Middle East regions.
Stage 2 gross exposures rose by $1.5 billion, or 4 per cent,
primarily driven by net inflows into stage 2 in Corporate &
Institutional Banking as clients were placed on non-purely
precautionary early alert where they were impacted by COVID-19. In
Corporate & Institutional Banking, stage 2 exposures increased
by $3.4 billion. Commercial Banking was flat as net inflows were
offset by repayments. Retail Banking loans were marginally higher.
These increases were partly offset by lower levels of stage 2 debt
securities, which fell $1.9 billion as securities transferred back
to stage 1 or were repaid.
Stage 2 provisions rose $472 million compared to 31 December
2019, $393 million of which was in Corporate & Institutional
Banking and Commercial Banking as a result of net transfers into
stage 2 as the macroeconomic environment deteriorated, non-purely
precautionary balances increased and a $198 million management
overlay that was recognised in 'Changes in risk parameters' in
respect of COVID-19 related uncertainties. Retail Banking increased
by $70 million as a result of net transfers into stage 2 due to
deteriorating macroeconomic conditions and a management overlay for
the impact of COVID-19 payment related reliefs in the ASEAN &
South Asia and Africa & Middle East regions.
Across both stage 1 and 2 for all segments, the significant
deterioration in macroeconomic forecasts across all markets
increased provisions by $174 million in the six months to 30 June
2020, $96 million of which related to the impact of exposures
transferring from stage 1 to stage 2.
There was an immaterial impact from model changes in the six
months to 30 June 2020.
Stage 3 exposures increased by $1.4 billion from $8.1 billion as
at 31 December 2019 to $9.5 billion as at 30 June 2020, driven by
an increase of $1.2 billion in Corporate & Institutional
Banking mainly pertaining to three clients in ASEAN & South
Asia and Africa & Middle East regions.
All segments (within EY review scope)
Stage 1 Stage 2 Stage 3 Total
------------------ ------------------------------- ------------------------------- ------------------------------- -------------------------------
Total Total Total Total
Gross credit Gross credit Gross credit Gross credit
Amortised cost balance impair-ment Net balance impair-ment Net balance impair-ment Net balance impair-ment Net
and FVOCI $million $million $million $million $million $million $million $million $million $million $million $million
------------------ -------- ----------- -------- -------- ----------- -------- -------- ----------- -------- -------- ----------- --------
As at 1 January
2019 592,481 (531) 591,950 42,324 (500) 41,824 9,382 (6,214) 3,168 644,187 (7,245) 636,942
Transfers to
stage 1 28,552 (582) 27,970 (28,552) 582 (27,970) - - - - - -
Transfers to
stage 2 (67,790) 157 (67,633) 67,983 (171) 67,812 (193) 14 (179) - - -
Transfers to
stage 3 (121) - (121) (2,179) 314 (1,865) 2,300 (314) 1,986 - - -
----------- ----------- ----------- -----------
Net change
in exposures 60,374 (256) 60,118 (40,499) 24 (40,475) (1,434) 307 (1,127) 18,441 75 18,516
Net remeasurement
from stage
changes - 196 196 - (171) (171) - (406) (406) - (381) (381)
Changes in
risk parameters - 434 434 - (489) (489) - (787) (787) - (842) (842)
----------- ----------- ----------- -----------
Write-offs - - - - - - (1,795) 1,795 - (1,795) 1,795 -
Interest due
but unpaid - - - - - - (365) 365 - (365) 365 -
Discount unwind - - - - - - - 82 82 - 82 82
Exchange
translation
differences
and other
movements1 (1,092) 68 (1,024) (290) (47) (337) 187 (97) 90 (1,195) (76) (1,271)
------------------ -------- ----------- -------- -------- ----------- -------- -------- ----------- -------- -------- ----------- --------
As at 31 December
20192 612,404 (514) 611,890 38,787 (458) 38,329 8,082 (5,255) 2,827 659,273 (6,227) 653,046
------------------ -------- ----------- -------- -------- ----------- -------- -------- ----------- -------- -------- ----------- --------
Income statement
ECL
(charge)/release3 374 (636) (886) (1,148)
Recoveries
of amounts
previously
written off 248 248
------------------ -------- ----------- -------- -------- ----------- -------- -------- ----------- -------- -------- ----------- --------
Total credit
impairment
(charge)/release 374 (636) (638) (900)
------------------ -------- ----------- -------- -------- ----------- -------- -------- ----------- -------- -------- ----------- --------
As at 1 January
2020 612,404 (514) 611,890 38,787 (458) 38,329 8,082 (5,255) 2,827 659,273 (6,227) 653,046
Transfers to
stage 1 21,141 (336) 20,805 (21,141) 336 (20,805) - - - - - -
Transfers to
stage 2 (43,764) 148 (43,616) 43,799 (148) 43,651 (35) - (35) - - -
Transfers to
stage 3 (419) - (419) (2,625) 134 (2,491) 3,044 (134) 2,910 - - -
----------- ----------- ----------- -----------
Net change
in exposures 31,029 (35) 30,994 (17,914) 87 (17,827) (712) 95 (617) 12,403 147 12,550
Net remeasurement
from stage
changes - 112 112 - (305) (305) - (539) (539) - (732) (732)
Changes in
risk parameters - (53) (53) - (475) (475) - (575) (575) - (1,103) (1,103)
----------- ----------- ----------- -----------
Write-offs - - - - - - (950) 950 - (950) 950 -
Interest due
but unpaid - - - - - - 154 (154) - 154 (154) -
Discount unwind - - - - - - - 37 37 - 37 37
Exchange
translation
differences
and other
movements1 (5,337) 90 (5,247) (626) (101) (727) (59) 101 42 (6,022) 90 (5,932)
------------------ -------- ----------- -------- -------- ----------- -------- -------- ----------- -------- -------- ----------- --------
As at 30 June
20202 615,054 (588) 614,466 40,280 (930) 39,350 9,524 (5,474) 4,050 664,858 (6,992) 657,866
------------------ -------- ----------- -------- -------- ----------- -------- -------- ----------- -------- -------- ----------- --------
Income statement
ECL
(charge)/release3 24 (693) (1,019) (1,688)
Recoveries
of amounts
previously
written off 110 110
------------------ -------- ----------- -------- -------- ----------- -------- -------- ----------- -------- -------- ----------- --------
Total credit
impairment
(charge)/release4 24 (693) (909) (1,578)
------------------ -------- ----------- -------- -------- ----------- -------- -------- ----------- -------- -------- ----------- --------
1 Includes fair value adjustments and amortisation on debt
securities
2 Excludes Cash and balances at central banks, Accrued income,
Assets held for sale and Other assets
3 Does not include $2 million release (31 December 2019: $8
million provision) relating to Other assets
4 Statutory basis
Of which - movement of debt securities, alternative tier one and
other eligible bills (within EY review scope)
Stage 1 Stage 2 Stage 3 Total
----------------- ------------------------------- ------------------------------- ------------------------------- -------------------------------
Total Total Total Total
Gross credit Gross credit Gross credit Gross credit
Amortised cost balance impair-ment Net balance impair-ment Net balance impair-ment Net balance impair-ment Net
and FVOCI $million $million $million $million $million $million $million $million $million $million $million $million
----------------- -------- ----------- -------- -------- ----------- -------- -------- ----------- -------- -------- ----------- --------
As at 1 January
2019 118,713 (27) 118,686 6,909 (31) 6,878 498 (472) 26 126,120 (530) 125,590
Transfers to
stage 1 2,747 (38) 2,709 (2,747) 38 (2,709) - - - - - -
Transfers to
stage 2 (2,359) 16 (2,343) 2,359 (16) 2,343 - - - - - -
Transfers to
stage 3 - - - (1) - (1) 1 - 1 - - -
----------- ----------- ----------- -----------
Net change
in exposures 19,314 (52) 19,262 (1,237) (9) (1,246) - - - 18,077 (61) 18,016
Net remeasurement
from stage
changes - 27 27 - (4) (4) - - - - 23 23
Changes in
risk parameters - 27 27 - (5) (5) - 7 7 - 29 29
----------- ----------- ----------- -----------
Write-offs - - - - - - (170) 170 - (170) 170 -
Interest due
but unpaid - - - - - - (247) 247 - (247) 247 -
Exchange
translation
differences
and other
movements1 367 (3) 364 (639) 4 (635) (7) 3 (4) (279) 4 (275)
----------------- -------- ----------- -------- -------- ----------- -------- -------- ----------- -------- -------- ----------- --------
As at 31 December
2019 138,782 (50) 138,732 4,644 (23) 4,621 75 (45) 30 143,501 (118) 143,383
----------------- -------- ----------- -------- -------- ----------- -------- -------- ----------- -------- -------- ----------- --------
Income statement
ECL
(charge)/release 2 (18) 7 (9)
Recoveries
of amounts
previously
written off - -
----------------- -------- ----------- -------- -------- ----------- -------- -------- ----------- -------- -------- ----------- --------
Total credit
impairment
(charge)/release 2 (18) 7 (9)
----------------- -------- ----------- -------- -------- ----------- -------- -------- ----------- -------- -------- ----------- --------
As at 1 January
2020 138,782 (50) 138,732 4,644 (23) 4,621 75 (45) 30 143,501 (118) 143,383
Transfers to
stage 1 1,600 (14) 1,586 (1,600) 14 (1,586) - - - - - -
Transfers to
stage 2 (420) 11 (409) 420 (11) 409 - - - - - -
Transfers to
stage 3 - - - - - - - - - - - -
----------- ----------- ----------- -----------
Net change
in exposures 2,422 (26) 2,396 (662) (9) (671) - - - 1,760 (35) 1,725
Net remeasurement
from stage
changes - 30 30 - (10) (10) - - - - 20 20
Changes in
risk parameters - 7 7 - (5) (5) - (6) (6) - (4) (4)
----------- ----------- ----------- -----------
Write-offs - - - - - - - - - - - -
Interest due
but unpaid - - - - - - - - - - - -
Exchange
translation
differences
and other
movements1 233 (7) 226 (95) 7 (88) (22) 21 (1) 116 21 137
----------------- -------- ----------- -------- -------- ----------- -------- -------- ----------- -------- -------- ----------- --------
As at 30June
2020 142,617 (49) 142,568 2,707 (37) 2,670 53 (30) 23 145,377 (116) 145,261
----------------- -------- ----------- -------- -------- ----------- -------- -------- ----------- -------- -------- ----------- --------
Income statement
ECL
(charge)/release 11 (24) (6) (19)
Recoveries
of amounts
previously
written off
----------------- -------- ----------- -------- -------- ----------- -------- -------- ----------- -------- -------- ----------- --------
Total credit
impairment
(charge)/release 11 (24) (6) (19)
----------------- -------- ----------- -------- -------- ----------- -------- -------- ----------- -------- -------- ----------- --------
1 Includes fair value adjustments and amortisation on debt
securities
Corporate & Institutional Banking (within EY review
scope)
Stage 1 Stage 2 Stage 3 Total
------------------ ------------------------------- ------------------------------- ------------------------------- -------------------------------
Total Total Total Total
Gross credit Gross credit Gross credit Gross credit
Amortised cost balance impair-ment Net balance impair-ment Net balance impair-ment Net balance impair-ment Net
and FVOCI $million $million $million $million $million $million $million $million $million $million $million $million
------------------ -------- ----------- -------- -------- ----------- -------- -------- ----------- -------- -------- ----------- --------
As at 1 January
20192 269,648 (141) 269,507 18,431 (226) 18,205 5,385 (3,378) 2,007 293,464 (3,745) 289,719
Transfers to
stage 1 16,555 (145) 16,410 (16,555) 145 (16,410) - - - - - -
Transfers to
stage 2 (43,141) 39 (43,102) 43,326 (51) 43,275 (185) 12 (173) - - -
Transfers to
stage 3 - - - (1,095) 122 (973) 1,095 (122) 973 - - -
----------- ----------- ----------- -----------
Net change
in exposures 18,368 (124) 18,244 (22,387) 25 (22,362) (840) 205 (635) (4,859) 106 (4,753)
Net remeasurement
from stage
changes - 41 41 - (70) (70) - (219) (219) - (248) (248)
Changes in
risk parameters - 187 187 - (145) (145) - (368) (368) - (326) (326)
----------- ----------- ----------- -----------
Write-offs - - - - - - (658) 658 - (658) 658 -
Interest due
but unpaid - - - - - - (48) 48 - (48) 48 -
Discount unwind - - - - - - - 38 38 - 38 38
Exchange
translation
differences
and other
movements2 115 23 138 764 14 778 (16) (45) (61) 863 (8) 855
------------------ -------- ----------- -------- -------- ----------- -------- -------- ----------- -------- -------- ----------- --------
As at 31 December
2019 261,545 (120) 261,425 22,484 (186) 22,298 4,733 (3,171) 1,562 288,762 (3,477) 285,285
------------------ -------- ----------- -------- -------- ----------- -------- -------- ----------- -------- -------- ----------- --------
Income statement
ECL
(charge)/release1 104 (190) (382) (468)
Recoveries
of amounts
previously
written off - -
------------------ -------- ----------- -------- -------- ----------- -------- -------- ----------- -------- -------- ----------- --------
Total credit
impairment
(charge)/release 104 (190) (382) (468)
------------------ -------- ----------- -------- -------- ----------- -------- -------- ----------- -------- -------- ----------- --------
As at 1 January
2020 261,545 (120) 261,425 22,484 (186) 22,298 4,733 (3,171) 1,562 288,762 (3,477) 285,285
Transfers to
stage 1 12,021 (69) 11,952 (12,021) 69 (11,952) - - - - - -
Transfers to
stage 2 (29,094) 61 (29,033) 29,126 (61) 29,065 (32) - (32) - - -
Transfers to
stage 3 (330) - (330) (1,876) 42 (1,834) 2,206 (42) 2,164 - - -
----------- ----------- ----------- -----------
Net change
in exposures 14,498 (7) 14,491 (11,350) 57 (11,293) (363) 61 (302) 2,785 111 2,896
Net remeasurement
from stage
changes - 18 18 - (128) (128) - (447) (447) - (557) (557)
Changes in
risk parameters - 1 1 - (261) (261) - (283) (283) - (543) (543)
----------- ----------- ----------- -----------
Write-offs - - - - - - (472) 472 - (472) 472 -
Interest due
but unpaid - - - - - - (18) 18 - (18) 18 -
Discount unwind - - - - - - - 18 18 - 18 18
Exchange
translation
differences
and other
movements (2,122) 18 (2,104) (475) (33) (508) (81) 66 (15) (2,678) 51 (2,627)
------------------ -------- ----------- -------- -------- ----------- -------- -------- ----------- -------- -------- ----------- --------
As at 30 June
2020 256,518 (98) 256,420 25,888 (501) 25,387 5,973 (3,308) 2,665 288,379 (3,907) 284,472
------------------ -------- ----------- -------- -------- ----------- -------- -------- ----------- -------- -------- ----------- --------
Income statement
ECL
(charge)/release1 12 (332) (669) (989)
Recoveries
of amounts
previously
written off 5 5
------------------ -------- ----------- -------- -------- ----------- -------- -------- ----------- -------- -------- ----------- --------
Total credit
impairment
(charge)/release 12 (332) (664) (984)
------------------ -------- ----------- -------- -------- ----------- -------- -------- ----------- -------- -------- ----------- --------
1 Does not include $2 million release (31 December 2019: $6
million provision) relating to Other assets
2 Stage 1 and stage 2 Gross and ECL numbers have been restated
to reflect client transfers to and from Commercial Banking
Retail Banking (within EY review scope)
Stage 1 Stage 2 Stage 3 Total
----------------- ------------------------------- ------------------------------- ------------------------------- -------------------------------
Total Total Total Total
Gross credit Gross credit Gross credit Gross credit
Amortised cost balance impair-ment Net balance impair-ment Net balance impair-ment Net balance impair-ment Net
and FVOCI $million $million $million $million $million $million $million $million $million $million $million $million
----------------- -------- ----------- -------- -------- ----------- -------- -------- ----------- -------- -------- ----------- --------
As at 1 January
20191 134,154 (313) 133,841 8,963 (132) 8,831 832 (394) 438 143,949 (839) 143,110
Transfers to
stage 1 5,301 (355) 4,946 (5,301) 355 (4,946) - - - - - -
Transfers to
stage 2 (8,279) 82 (8,197) 8,279 (82) 8,197 - - - - - -
Transfers to
stage 3 (117) 1 (116) (517) 165 (352) 634 (166) 468 - - -
----------- ----------- ----------- -----------
Net change
in exposures 9,303 (15) 9,288 (6,020) 49 (5,971) (290) - (290) 2,993 34 3,027
Net remeasurement
from stage
changes - 122 122 - (86) (86) - (81) (81) - (45) (45)
Changes in
risk parameters - 153 153 - (398) (398) - (327) (327) - (572) (572)
----------- ----------- ----------- -----------
Write-offs - - - - - - (586) 586 - (586) 586 -
Interest due
but unpaid - - - - - - - - - - - -
Discount unwind - - - - - - - 28 28 - 28 28
Exchange
translation
differences
and other
movements1 (566) 26 (540) (79) (50) (129) 256 (20) 236 (389) (44) (433)
----------------- -------- ----------- -------- -------- ----------- -------- -------- ----------- -------- -------- ----------- --------
As at 31 December
2019 139,796 (299) 139,497 5,325 (179) 5,146 846 (374) 472 145,967 (852) 145,115
----------------- -------- ----------- -------- -------- ----------- -------- -------- ----------- -------- -------- ----------- --------
Income statement
ECL
(charge)/release 260 (435) (408) (583)
Recoveries
of amounts
previously
written off 247 247
----------------- -------- ----------- -------- -------- ----------- -------- -------- ----------- -------- -------- ----------- --------
Total credit
impairment
(charge)/release 260 (435) (161) (336)
----------------- -------- ----------- -------- -------- ----------- -------- -------- ----------- -------- -------- ----------- --------
As at 1 January
2020 139,796 (299) 139,497 5,325 (179) 5,146 846 (374) 472 145,967 (852) 145,115
Transfers to
stage 1 4,063 (204) 3,859 (4,063) 204 (3,859) - - - - - -
Transfers to
stage 2 (5,675) 60 (5,615) 5,675 (60) 5,615 - - - - - -
Transfers to
stage 3 (88) - (88) (435) 86 (349) 523 (86) 437 - - -
----------- ----------- ----------- -----------
Net change
in exposures 5,085 (3) 5,082 (887) 25 (862) (172) - (172) 4,026 22 4,048
Net remeasurement
from stage
changes - 54 54 - (127) (127) - (52) (52) - (125) (125)
Changes in
risk parameters - (59) (59) - (163) (163) - (209) (209) - (431) (431)
----------- ----------- ----------- -----------
Write-offs - - - - - - (330) 330 - (330) 330 -
Interest due
but unpaid - - - - - - 94 (94) - 94 (94) -
Discount unwind - - - - - - - 10 10 - 10 10
Exchange
translation
differences
and other
movements (2,388) 66 (2,322) (160) (35) (195) 106 (18) 88 (2,442) 13 (2,429)
----------------- -------- ----------- -------- -------- ----------- -------- -------- ----------- -------- -------- ----------- --------
As at 30 June
2020 140,793 (385) 140,408 5,455 (249) 5,206 1,067 (493) 574 147,315 (1,127) 146,188
----------------- -------- ----------- -------- -------- ----------- -------- -------- ----------- -------- -------- ----------- --------
Income statement
ECL
(charge)/release (8) (265) (261) (534)
Recoveries
of amounts
previously
written off 103 103
----------------- -------- ----------- -------- -------- ----------- -------- -------- ----------- -------- -------- ----------- --------
Total credit
impairment
(charge)/release (8) (265) (158) (431)
----------------- -------- ----------- -------- -------- ----------- -------- -------- ----------- -------- -------- ----------- --------
1 Stage 1 and stage 2 Gross and ECL numbers have been restated
to reflect client transfers from Commercial Banking
Commercial Banking (within EY review scope)
Stage 1 Stage 2 Stage 3 Total
----------------- ------------------------------- ------------------------------- ------------------------------- -------------------------------
Total Total Total Total
Gross credit Gross credit Gross credit Gross credit
Amortised cost balance impair-ment Net balance impair-ment Net balance impair-ment Net balance impair-ment Net
and FVOCI $million $million $million $million $million $million $million $million $million $million $million $million
----------------- -------- ----------- -------- -------- ----------- -------- -------- ----------- -------- -------- ----------- --------
As at 1 January
20191 34,338 (39) 34,299 7,255 (109) 7,146 2,368 (1,803) 565 43,961 (1,951) 42,010
Transfers to
stage 1 3,082 (42) 3,040 (3,082) 42 (3,040) - - - - - -
Transfers to
stage 2 (11,878) 20 (11,858) 11,886 (22) 11,864 (8) 2 (6) - - -
Transfers to
stage 3 (4) - (4) (465) 26 (439) 469 (26) 443 - - -
----------- ----------- ----------- -----------
Net change
in exposures 9,186 (70) 9,116 (8,864) (38) (8,902) (263) 96 (167) 59 (12) 47
Net remeasurement
from stage
changes - 5 5 - (11) (11) - (107) (107) - (113) (113)
Changes in
risk parameters - 69 69 - 58 58 - (124) (124) - 3 3
----------- ----------- ----------- -----------
Write-offs - - - - - - (380) 380 - (380) 380 -
Interest due
but unpaid - - - - - - (87) 87 - (87) 87 -
Discount unwind - - - - - - - 13 13 - 13 13
Exchange
translation
differences
and other
movements1 (886) 19 (867) (689) (13) (702) (37) (35) (72) (1,612) (29) (1,641)
----------------- -------- ----------- -------- -------- ----------- -------- -------- ----------- -------- -------- ----------- --------
As at 31 December
2019 33,838 (38) 33,800 6,041 (67) 5,974 2,062 (1,517) 545 41,941 (1,622) 40,319
----------------- -------- ----------- -------- -------- ----------- -------- -------- ----------- -------- -------- ----------- --------
Income statement
ECL
(charge)/release 4 9 (135) (122)
Recoveries
of amounts
previously
written off 1 1
----------------- -------- ----------- -------- -------- ----------- -------- -------- ----------- -------- -------- ----------- --------
Total credit
impairment
(charge)/release 4 9 (134) (121)
----------------- -------- ----------- -------- -------- ----------- -------- -------- ----------- -------- -------- ----------- --------
As at 1 January
2020 33,838 (38) 33,800 6,041 (67) 5,974 2,062 (1,517) 545 41,941 (1,622) 40,319
Transfers to
stage 1 3,400 (49) 3,351 (3,400) 49 (3,351) - - - - - -
Transfers to
stage 2 (7,959) 15 (7,944) 7,962 (15) 7,947 (3) - (3) - - -
Transfers to
stage 3 (1) - (1) (232) 5 (227) 233 (5) 228 - - -
----------- ----------- ----------- -----------
Net change
in exposures 1,932 (2) 1,930 (4,227) 14 (4,213) (105) 33 (72) (2,400) 45 (2,355)
Net remeasurement
from stage
changes - 10 10 - (40) (40) - (40) (40) - (70) (70)
Changes in
risk parameters - (5) (5) - (46) (46) - (72) (72) - (123) (123)
----------- ----------- ----------- -----------
Write-offs - - - - - - (149) 149 - (149) 149 -
Interest due
but unpaid - - - - - - 70 (70) - 70 (70) -
Discount unwind - - - - - - - 7 7 - 7 7
Exchange
translation
differences
and other
movements (376) 23 (353) (113) (45) (158) (50) 30 (20) (539) 8 (531)
----------------- -------- ----------- -------- -------- ----------- -------- -------- ----------- -------- -------- ----------- --------
As at 30 June
2020 30,834 (46) 30,788 6,031 (145) 5,886 2,058 (1,485) 573 38,923 (1,676) 37,247
----------------- -------- ----------- -------- -------- ----------- -------- -------- ----------- -------- -------- ----------- --------
Income statement
ECL
(charge)/release 3 (72) (79) (148)
Recoveries
of amounts
previously
written off 2 2
----------------- -------- ----------- -------- -------- ----------- -------- -------- ----------- -------- -------- ----------- --------
Total credit
impairment
(charge)/release 3 (72) (77) (146)
----------------- -------- ----------- -------- -------- ----------- -------- -------- ----------- -------- -------- ----------- --------
1 Stage 1 and stage 2 Gross and ECL numbers have been restated
to reflect client transfers to and from Corporate &
Institutional Banking and to Retail Banking
Analysis of stage 2 balances
The table below analyses stage 2 gross exposures and associated
expected credit provisions by the key driver that caused the
exposures to be classified as stage 2 as at 30 June 2020. This may
not be the same driver that caused the initial transfer into stage
2. Where multiple drivers apply, the exposure is allocated based on
the table order. For example, a loan may have breached the PD
thresholds and could also be on non-purely precautionary early
alert; in this instance, the exposure is reported under 'Increase
in PD'.
30.06.20
--------------- -----------------------------------------------------------------------------------------------
Corporate
& Institutional Commercial Central &
Banking Retail Banking Banking Private Banking Other Total
------------------ ---------------- ------------ ----------------- ----------- -----------
Gross ECL Gross ECL Gross ECL Gross ECL Gross ECL Gross ECL
% % % % % % % % % % % %
--------------- --------- ------- -------- ------ ------ ---- --------- ------ ----- ---- ----- ----
Increase in
PD 47% 60% 90% 73% 59% 61% - - 85% 50% 55% 63%
Non-purely
precautionary
early alert 32% 23% - - 25% 20% - - - - 25% 14%
Higher risk
(CG12) 3% 13% - - 6% 17% - - 10% 50% 3% 11%
Sub-investment
grade 2% 1% - - 1% 0% - - 0% 0% 2% 1%
30 days past
due - - 8% 26% - - - - - - 1% 9%
Others 16% 3% 2% 1% 9% 2% 100% 100% 5% 0% 14% 2%
--------------- --------- ------- -------- ------ ------ ---- --------- ------ ----- ---- ----- ----
Total stage
2 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
--------------- --------- ------- -------- ------ ------ ---- --------- ------ ----- ---- ----- ----
31.12.19
--------------- ---------------------------------------------------------------------------------------------
Corporate
&
Institutional Commercial Central &
Banking Retail Banking Banking Private Banking Other Total
---------------- ---------------- ------------ ----------------- ----------- -----------
Gross ECL Gross ECL Gross ECL Gross ECL Gross ECL Gross ECL
% % % % % % % % % % % %
--------------- -------- ------ -------- ------ ------ ---- --------- ------ ----- ---- ----- ----
Increase in
PD 49% 52% 94% 76% 67% 57% - - 43% 31% 60% 62%
Non-purely
precautionary
early alert 22% 12% - - 9% 8% - - - - 14% 6%
Higher risk
(CG12) 6% 28% - - 5% 26% - - - - 3% 15%
Sub-investment
grade 1% 3% - - 4% 2% - - 53% 63% 5% 4%
30 days past
due - - 4% 22% - - - - - - 1% 9%
Others 22% 5% 2% 2% 15% 7% 100% 100% 4% 6% 17% 4%
--------------- -------- ------ -------- ------ ------ ---- --------- ------ ----- ---- ----- ----
Total stage
2 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
--------------- -------- ------ -------- ------ ------ ---- --------- ------ ----- ---- ----- ----
The majority of exposures and the associated expected credit
loss provisions are in stage 2 due to increases in the probability
of default, although this is lower in Corporate & Institutional
Banking and Commercial Banking than as at 31 December 2019 as more
clients were placed on non-purely precautionary early alert in
2020. 26 per cent of the provisions held against stage 2 Retail
Banking exposures arise from the application of the 30 days past
due backstop, although this represents only 8 per cent of
exposures.
For debt securities originated prior to 1 January 2018, those
with a sub-investment grade rating were allocated into stage 2. For
debt securities originated after 1 January 2018, significant
increase in credit risk is assessed based on the relative and
absolute increases in PD.
'Others' incorporates exposures where origination data is
incomplete and the exposures are allocated into stage 2.
Significant increase in credit risk for Private Banking clients is
assessed by referencing the nature and level of collateral against
which credit is extended.
Credit impairment charge (within EY review scope)
The total underlying credit impairment charge increased by
$1,313 million to $1,567 million (H1 2019: $254 million). Stage 1
and 2 impairments increased by $586 million. Around half of the
increase was attributable to modelled outcomes, which included $174
million relating to the deterioration in macroeconomic forecasts.
The remainder of the increase was due to a management overlay to
reflect deterioration in the macroeconomic outlook not captured in
the modelled outcome and the impact of moratoria schemes in Retail
Banking. Impairments of stage 3 assets increased by $727 million,
three-quarters of which was in Corporate & Institutional
Banking and primarily from three clients. Stage 3 impairments in
Retail Banking increased by $89 million as COVID-19 related
lockdowns impacted collection and recovery activities, particularly
in the unsecured portfolios in ASEAN & South Asia.
Corporate & Institutional Banking credit impairment was $874
million higher at $991 million (H1 2019: $117 million) due to
increased stage 1 and 2 impairments as a result of the
deterioration in macroeconomic forecasts and increased transfers
into stage 2 from a significant increase in non-purely
precautionary early alerts. Accounts graded as 'Higher risk' were
$0.3 billion lower as compared to 31 December 2019 due to outflows
to stage 3. Stage 3 provisions were also significantly higher due
to charges on three clients in ASEAN & South Asia and Africa
& Middle East.
Commercial Banking credit impairment increased to $137 million
(H1 2019: $28 million). This is mainly due to higher stage 3
impairments during the period from ASEAN & South Asia and
higher stage 1 and 2 impairments as a result of the deterioration
of macroeconomic forecasts.
Retail Banking impairment was $277 million higher at $431
million, with increased stage 1 and 2 ECL provisions due to the
deteriorating macroeconomic environment and a management overlay to
take account of the increased credit risks which may arise after
the moratoria schemes expire, particularly in ASEAN & South
Asia.
Private Banking impairment is at $5 million, with an increase of
$52 million as compared to H1 2019. This is due to a significant
provision release on a stage 3 client in ASEAN & South Asia in
H1 2019.
Central & Other segment impairments was a charge of $3
million (H1 2019: charge of $2 million) mainly driven by debt
security instruments managed by Treasury.
Restructuring (within EY review scope)
There was a net $9 million impairment from the Group's
discontinued businesses.
6 months ended 30.06.20 6 months ended 30.06.19
--------------------------- ---------------------------------- ----------------------------------
Stage 1 Stage 1 &
& 2 Stage 3 Total 2 Stage 3 Total1
$million $million $million $million $million $million
--------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Ongoing business portfolio
Corporate & Institutional
Banking1 319 672 991 1 116 117
Retail Banking 273 158 431 85 69 154
Commercial Banking 72 65 137 (7) 35 28
Private Banking - 5 5 1 (48) (47)
Central & Others 4 (1) 3 2 - 2
--------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Credit impairment charge 668 899 1,567 82 172 254
Restructuring business
portfolio
Liquidation portfolio - - - - - -
Others (1) 10 9 - - -
--------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Credit impairment charge (1) 10 9 - - -
--------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Total credit impairment
charge 667 909 1,576 82 172 254
--------------------------- ---------- ---------- ---------- ---------- ---------- ----------
1 P&L for period ending 30.06.20 Credit impairment of $7
million in Central and other items is included in Corporate &
Institutional Banking
COVID-19 relief measures
COVID-19 payment-related relief measures are in place across
most of our markets, particularly focused on Retail and Business
Banking customers. These schemes are generally initiated by country
regulators and governments. These measures include principal and/or
interest moratoria and term extensions and are generally available
to eligible borrowers (those that are current or less than 30 days
past due, unless local regulators have specified different
criteria). Certain schemes may be restricted to those in industries
significantly impacted by COVID-19, such as aviation or consumer
services, but are not borrower-specific in nature.
Relief measures are generally mandated or supported by
regulators and governments and are available to all eligible
customers who request it. However in a number of countries,
particularly in ASEAN & South Asia and Africa & Middle
East, compulsory (regulatory approved) moratoria reliefs are
applied to all eligible loans unless a customer has specifically
asked to opt out.
In most major Retail Banking markets, the period of relief
provided is between 6 and 12 months. In some smaller markets,
reliefs are in place for 3 months.
COVID-19 related tenor extensions have also been made available
to Corporate & Institutional Banking and Commercial Banking
clients, primarily for periods between 3 to 9 months, if they are
expected to return to normal payments within 12 months.
Assessment for expected credit losses
COVID-19 payment reliefs that are generally available to a
market or industry as a whole and are not borrower-specific in
nature have not, on their own, resulted in an automatic change in
stage (that is, individual customers are not considered to have
experienced a significant increase in credit risk or an improvement
in credit risk) nor have they been considered to be forborne.
A customer's stage and past due status reflects their status
immediately prior to the granting of the relief, with past due
amounts assessed based on the new terms as set out in the temporary
payment reliefs.
If a customer requires additional support after the expiry of
the initial payment relief period, these will be considered at a
borrower level, after taking into account their individual
circumstances. Depending on the type of subsequent support
provided, these customers may be classified within stage 2 or stage
3.
Where client level government guarantees are in place, these do
not affect staging but are taken into account when determining the
level of credit impairment.
Impact from temporary changes to loan contractual terms
Approximately $14 billion of outstanding loan balances have been
subject to payment relief measures. This represents 4 per cent of
the Group's gross loans and advances to banks and customers.
The granting of COVID-19 payment-related relief measures may
cause a time value of money loss for the Group where interest is
not permitted to be compounded (that is, interest charged on
interest) or where interest is not permitted to be charged or
accrued during the relief period. As set out above, such reliefs do
not impact a customer's stage and are not considered to be forborne
even though a time value of money loss arises. As the relief
periods are relatively short-term in nature, and a small percentage
of the total loans outstanding, this has not resulted in a material
impact for the Group.
The table below sets out the extent to which payment reliefs are
in place across the Group's loan portfolio based on the gross
carrying amount of loan applications received and approved up to 30
June 2020.
For Retail Banking, around 71 per cent of approved loans are in
markets where compulsory (regulatory approved) relief measures are
granted, the majority of which are in ASEAN & South Asia where
the reliefs are due to expire in Q3 2020. One third of customers
chose to opt-out from the payment holidays (which primarily
accounts for the difference between applications received and
applications approved) or decided to pay despite being on
moratoria. 79 per cent of relief measures are fully secured, of
which greater than two thirds are from Mortgages which is highly
collateralised with average LTV of 37 per cent. 32 per cent of the
total amounts approved are to Business Banking customers,
concentrated in industries that have been materially disrupted, of
which 71 per cent is collateralised by commercial immovable
property. 87 per cent of the total amounts approved are in stage 1
and 11 per cent in stage 2, the latter mainly in Malaysia where
compulsory (regulatory mandated) relief measures are in place. 69
per cent of stage 2 accounts under relief measures are
collateralised by immovable property.
In Corporate & Institutional Banking and Commercial Banking,
around 60 per cent of the amounts approved are for tenor extensions
of 90 days or less. Around 20 per cent of the reliefs granted are
to clients in vulnerable sectors. $1.2 billion of the approved
amounts have been repaid at 30 June 2020.
Greater China ASEAN & South Africa & Middle
Applications & North Asia Asia East
-------------- --------------------------------- --------------------- --------------------- ---------------------
Received Approved % of Approved % of Approved % of Approved % of
Segment $million $million portfolio2 $million portfolio2 $million portfolio2 $million portfolio2
-------------- --------- --------- ----------- --------- ---------- --------- ---------- --------- ----------
Credit card 114 106 2% 1 0% 76 4% 29 12%
Personal loans 961 905 10% 16 0% 499 45% 390 22%
Mortgages &
auto 6,719 5,056 6% 462 1% 4,143 25% 451 19%
Business
Banking 3,369 2,807 36% 105 3% 2,663 67% 39 27%
Wealth
management 5 5 0% - - 5 0% - -
-------------- --------- --------- ----------- --------- ---------- --------- ---------- --------- ----------
Total Retail
Banking 11,168 8,879 8% 584 1% 7,386 28% 909 17%
-------------- --------- --------- ----------- --------- ---------- --------- ---------- --------- ----------
Corporate &
Institutional
Banking1 1,802 1% 389 991 155
Commercial
Banking1 3,804 14% 1,573 1,601 542
-------------- --------- --------- ----------- --------- ---------- --------- ---------- --------- ----------
Total 14,485 4% 2,546 9,978 1,606
-------------- --------- --------- ----------- --------- ---------- --------- ---------- --------- ----------
1 In Corporate & Institutional Banking $268 million of
approved reliefs relate to Europe & Americas and $88 million in
Commercial Banking
2 Percentage of portfolio represents the approved amounts as a
percentage of the gross loans and advances to banks and customers
by product and segment and total loans and advances to banks and
customers at 30 June 2020
Problem credit management and provisioning
Forborne and other modified loans by client segment (within EY
review scope)
A forborne loan arises when a concession has been made to the
contractual terms of a loan in response to a customer's financial
difficulties.
The table below presents loans with forbearance measures by
segment.
30.06.20
-------------------------------------- --------------------------------------------------
Corporate
& Institutional Retail Commercial
Banking Banking Banking Total
Amortised cost $million $million $million $million
-------------------------------------- ---------------- --------- ---------- ---------
All loans with forbearance measures 1,335 332 759 2,426
Credit impairment (stage 1 and 2) (2) - (1) (3)
Credit impairment (stage 3) (693) (160) (525) (1,378)
-------------------------------------- ---------------- --------- ---------- ---------
Net carrying value 640 172 233 1,045
-------------------------------------- ---------------- --------- ---------- ---------
Included within the above table
Gross performing forborne loans 102 24 84 210
---------------- --------- ---------- ---------
Modification of terms and conditions1 29 24 84 137
Refinancing2 73 - - 73
---------------- --------- ---------- ---------
Impairment provisions (2) - (1) (3)
---------------- --------- ---------- ---------
Modification of terms and conditions1 (1) - (1) (2)
Refinancing2 (1) - - (1)
---------------- --------- ---------- ---------
Net performing forborne loans 100 24 83 207
Collateral 19 16 13 48
-------------------------------------- ---------------- --------- ---------- ---------
Gross non-performing forborne loans 1,233 308 675 2,216
---------------- --------- ---------- ---------
Modification of terms and conditions1 1,126 308 619 2,053
Refinancing2 107 - 56 163
---------------- --------- ---------- ---------
Impairment provisions (693) (160) (525) (1,378)
---------------- --------- ---------- ---------
Modification of terms and conditions1 (635) (160) (474) (1,269)
Refinancing2 (58) - (51) (109)
---------------- --------- ---------- ---------
Net non-performing forborne loans 540 148 150 838
Collateral 187 25 81 293
-------------------------------------- ---------------- --------- ---------- ---------
31.12.19
--------------------------------------
Corporate
& Institutional Retail Commercial
Banking Banking Banking Total
Amortised cost $million $million $million $million
-------------------------------------- ---------------- --------- ---------- ---------
All loans with forbearance measures 1,533 344 767 2,644
Credit impairment (stage 1 and 2) (13) - (4) (17)
Credit impairment (stage 3) (748) (169) (558) (1,475)
-------------------------------------- ---------------- --------- ---------- ---------
Net carrying value 772 175 205 1,152
-------------------------------------- ---------------- --------- ---------- ---------
Included within the above table
Gross performing forborne loans 421 19 49 489
---------------- --------- ---------- ---------
Modification of terms and conditions1 421 19 44 484
Refinancing2 - - 5 5
---------------- --------- ---------- ---------
Impairment provisions (13) - (4) (17)
---------------- --------- ---------- ---------
Modification of terms and conditions1 (13) - (4) (17)
Refinancing2 - - - -
---------------- --------- ---------- ---------
Net performing forborne loans 408 19 45 472
Collateral 62 19 22 103
-------------------------------------- ---------------- --------- ---------- ---------
Gross non-performing forborne loans 1,112 325 718 2,155
---------------- --------- ---------- ---------
Modification of terms and conditions1 1,071 325 696 2,092
Refinancing2 41 - 22 63
---------------- --------- ---------- ---------
Impairment provisions (748) (169) (558) (1,475)
---------------- --------- ---------- ---------
Modification of terms and conditions1 (717) (169) (544) (1,430)
Refinancing2 (31) - (14) (45)
---------------- --------- ---------- ---------
Net non-performing forborne loans 364 156 160 680
Collateral 190 156 99 445
-------------------------------------- ---------------- --------- ---------- ---------
1 Modification of terms is any contractual change apart from
refinancing, as a result of credit stress of the counterparty, i.e.
interest reductions, loan covenant waivers
2 Refinancing is a new contract to a lender in credit stress,
such that they are refinanced and can pay other debt contracts that
they were unable to honour
Forborne and other modified loans by region
30.06.20
-------------------------- --------------------------------------------------------------
Greater China ASEAN & Africa & Europe &
& North Asia South Asia Middle East Americas Total
Amortised cost $million $million $million $million $million
-------------------------- ------------- ----------- ------------ --------- ---------
Performing forborne loans 67 100 40 - 207
Stage 3 forborne loans 247 264 147 180 838
-------------------------- ------------- ----------- ------------ --------- ---------
Net forborne loans 314 364 187 180 1,045
-------------------------- ------------- ----------- ------------ --------- ---------
31.12.19
-------------------------- --------------------------------------------------------------
Greater China ASEAN & Africa & Europe &
& North Asia South Asia Middle East Americas Total
Amortised cost $million $million $million $million $million
-------------------------- ------------- ----------- ------------ --------- ---------
Performing forborne loans 100 251 110 11 472
Stage 3 forborne loans 177 173 148 182 680
-------------------------- ------------- ----------- ------------ --------- ---------
Net forborne loans 277 424 258 193 1,152
-------------------------- ------------- ----------- ------------ --------- ---------
Credit-impaired (stage 3) loans and advances by client segment
(within EY review scope)
Gross stage 3 loans for the Group are up 19 per cent in the
period to $8.8 billion (31 December 2019: $7.4 billion), driven by
an increase of $1.2 billion Corporate & Institutional Banking
mainly pertaining to three clients in the ASEAN & South Asia
and Africa & Middle East regions.
Stage 3 inflows in Commercial Banking reduced by 32 per cent to
$0.2 billion compared to the second half of 2019 in the Africa
& Middle East and Greater China & North Asia regions.
Gross stage 3 loans in Retail Banking increased by $0.2 billion
to $1.1 billion (31 December 2019: $0.8 billion) as COVID-19
related lockdowns impacted collections and recoveries activities,
particularly in ASEAN & South Asia.
Gross stage 3 loans in Private Banking remained stable at $0.4
billion.
Stage 3 cover ratio (within EY review scope)
The stage 3 cover ratio measures the proportion of stage 3
impairment provisions to gross stage 3 loans, and is a metric
commonly used in considering impairment trends. This metric does
not allow for variations in the composition of stage 3 loans and
should be used in conjunction with other credit risk information
provided, including the level of collateral cover.
The balance of stage 3 loans not covered by stage 3 impairment
provisions represents the adjusted value of collateral held and the
net outcome of any workout or recovery strategies.
Collateral provides risk mitigation to some degree in all client
segments and supports the credit quality and cover ratio
assessments post impairment provisions. Further information on
collateral is provided in the 'Credit risk mitigation' section.
Corporate & Institutional Banking cover ratio decreased to
58 per cent (31 December 2019: 71 per cent). This was due to three
downgrades in ASEAN & South Asia and Africa & Middle East
regions that had low levels of coverage, but they are partially
covered by tangible collateral. Collateral increased by $0.4
billion during the period. Although the cover ratio after
collateral decreased by 9 per cent to 74 per cent, some of the new
inflows are covered by non-tangible collateral such as guarantees
and insurance, which are not captured in this metric.
The Commercial Banking cover ratio reduced to 74 per cent from
75 per cent. The cover ratio after collateral remained stable at 88
per cent.
The Private Banking cover ratio increased to 42 per cent from 40
per cent, mainly due to incremental provisions on existing clients.
Private Banking clients remain highly collateralised and cover
ratio after collateral increased marginally from 98 per cent to 99
per cent.
The Retail Banking cover ratio remains broadly stable at 46 per
cent. The cover ratio after collateral increased to 88 per cent
from 78 per cent due to the increase in mortgages.
30.06.20
------------------------------- -------------------------------------------------------------
Corporate
& Institutional Retail Commercial Private
Banking Banking Banking Banking Total
Amortised cost $million $million $million $million $million
------------------------------- ---------------- --------- ---------- --------- ---------
Gross credit-impaired 5,379 1,067 2,004 372 8,822
Credit impairment provisions (3,135) (492) (1,476) (158) (5,261)
------------------------------- ---------------- --------- ---------- --------- ---------
Net credit-impaired 2,244 575 528 214 3,561
------------------------------- ---------------- --------- ---------- --------- ---------
Cover ratio 58% 46% 74% 42% 60%
Collateral ($ million) 862 450 282 209 1,803
Cover ratio (after collateral) 74% 88% 88% 99% 80%
------------------------------- ---------------- --------- ---------- --------- ---------
31.12.19
------------------------------- -------------------------------------------------------------
Corporate
& Institutional Retail Commercial Private
Banking Banking Banking Banking Total
Amortised cost $million $million $million $million $million
------------------------------- ---------------- --------- ---------- --------- ---------
Gross credit-impaired 4,173 846 2,013 366 7,398
Credit impairment provisions (2,980) (374) (1,503) (147) (5,004)
------------------------------- ---------------- --------- ---------- --------- ---------
Net credit-impaired 1,193 472 510 219 2,394
------------------------------- ---------------- --------- ---------- --------- ---------
Cover ratio 71% 44% 75% 40% 68%
Collateral ($ million) 497 286 263 211 1,257
Cover ratio (after collateral) 83% 78% 88% 98% 85%
------------------------------- ---------------- --------- ---------- --------- ---------
Credit-impaired (stage 3) loans and advances by geographic
region
Stage 3 loans increased by $1.4 billion or 19 per cent compared
with 31 December 2019. The increase was primarily driven by three
clients in ASEAN & South Asia and Africa & Middle East.
30.06.20
----------------------------- --------------------------------------------------------------
Greater China ASEAN & Africa & Europe &
& North Asia South Asia Middle East Americas Total
Amortised cost $million $million $million $million $million
----------------------------- ------------- ----------- ------------ --------- ---------
Gross credit-impaired 864 3,767 3,198 993 8,822
Credit impairment provisions (346) (2,195) (2,095) (625) (5,261)
----------------------------- ------------- ----------- ------------ --------- ---------
Net credit-impaired 518 1,572 1,103 368 3,561
----------------------------- ------------- ----------- ------------ --------- ---------
Cover ratio 40% 58% 66% 63% 60%
----------------------------- ------------- ----------- ------------ --------- ---------
31.12.19
----------------------------- --------------------------------------------------------------
Greater China ASEAN & Africa & Europe &
& North Asia South Asia Middle East Americas Total
Amortised cost $million $million $million $million $million
----------------------------- ------------- ----------- ------------ --------- ---------
Gross credit-impaired 716 3,084 2,585 1,013 7,398
Credit impairment provisions (360) (2,087) (1,899) (658) (5,004)
----------------------------- ------------- ----------- ------------ --------- ---------
Net credit-impaired 356 997 686 355 2,394
----------------------------- ------------- ----------- ------------ --------- ---------
Cover ratio 50% 68% 73% 65% 68%
----------------------------- ------------- ----------- ------------ --------- ---------
Movement of credit-impaired (stage 3) loans and advances
provisions by client segment (within EY review scope)
Credit impairment provisions as at 30 June was $5.3 billion,
compared with $5.0 billion as at 31 December 2019, with more than
half of the increase from Corporate & Institutional Banking due
to new inflows and the rest from Retail Banking mainly in
mortgages.
The following table shows the movement of credit-impaired (stage
3) provisions for each client segment.
30.06.20
----------------------------------- ----------------------------------------------------------------
Retail Private
Corporate
& Institutional Commercial
Banking Banking Banking Banking Total2
Amortised cost $million $million $million $million $million
----------------------------------- ---------------- ---------- ---------- ---------- ----------
Gross credit-impaired loans
at 30 June 5,379 1,067 2,004 372 8,822
----------------------------------- ---------------- ---------- ---------- ---------- ----------
Credit impairment allowances
at 1 January 2,980 374 1,503 146 5,003
Net transfers into and out of
stage 3 42 86 5 - 133
---------------- ---------- ---------- ---------- ----------
New provisions charge/(release)1 447 52 39 1 539
Changes due to risk parameters1 249 209 72 5 535
Net change in exposures1 (28) - (30) (1) (59)
---------------- ---------- ---------- ---------- ----------
Amounts written off (449) (330) (149) - (928)
Interest due but unpaid (18) 94 70 8 154
Discount unwind (18) (10) (7) (2) (37)
Exchange translation difference (70) 17 (27) 1 (79)
----------------------------------- ---------------- ---------- ---------- ---------- ----------
Credit impairment allowances
at 30 June 3,135 492 1,476 158 5,261
----------------------------------- ---------------- ---------- ---------- ---------- ----------
Net carrying value 2,244 575 528 214 3,561
----------------------------------- ---------------- ---------- ---------- ---------- ----------
Income statement charge/(release)1 667 261 82 5 1,015
Recoveries of amounts previously
written off (5) (103) (2) - (110)
Total income statement charge 662 158 80 5 905
----------------------------------- ---------------- ---------- ---------- ---------- ----------
31.12.19
----------------------------------- ----------------------------------------------------------------
Corporate
& Institutional Retail Private
Commercial
Banking Banking Banking Banking Total2
Amortised cost $million $million $million $million $million
----------------------------------- ---------------- ---------- ---------- ---------- ----------
Gross credit-impaired loans
at 31 December 4,173 846 2,013 366 7,398
----------------------------------- ---------------- ---------- ---------- ---------- ----------
Credit impairment allowances
at 1 January 3,238 396 1,789 163 5,586
Net transfers into and out of
stage 3 111 166 24 - 301
---------------- ---------- ---------- ---------- ----------
New provisions charge/(release)1 177 81 107 - 365
Changes due to risk parameters1 335 327 122 (26) 758
Net change in exposures1 (170) - (96) (6) (272)
---------------- ---------- ---------- ---------- ----------
Amounts written off (658) (585) (380) (2) (1,625)
Interest due but unpaid (48) - (87) 17 (118)
Discount unwind (38) (28) (13) (4) (83)
Exchange translation difference 33 17 37 5 92
----------------------------------- ---------------- ---------- ---------- ---------- ----------
Credit impairment allowances
at 31 December 2,980 374 1,503 147 5,004
----------------------------------- ---------------- ---------- ---------- ---------- ----------
Net carrying value 1,193 472 510 219 2,394
----------------------------------- ---------------- ---------- ---------- ---------- ----------
Income statement charge/(release)1 342 408 133 (32) 851
Recoveries of amounts previously
written off - (247) (1) - (248)
Total income statement charge 342 161 132 (32) 603
----------------------------------- ---------------- ---------- ---------- ---------- ----------
1 Components of the income statement charge/(release)
2 Excludes credit impairment relating to loan commitments and
financial guarantees
Credit risk mitigation
Potential credit losses from any given account, customer or
portfolio are mitigated using a range of tools such as collateral,
netting arrangements, credit insurance and credit derivatives,
taking into account expected volatility and guarantees.
The reliance that can be placed on these mitigants is carefully
assessed in light of issues such as legal certainty and
enforceability, market valuation correlation and counterparty risk
of the guarantor.
Collateral (within EY review scope)
The requirement for collateral is not a substitute for the
ability to repay, which is the primary consideration for any
lending decisions.
The unadjusted market value of collateral across all asset
types, in respect of Corporate & Institutional Banking and
Commercial Banking, without adjusting for over-collateralisation,
was $289 billion (2019: $280 billion).
The collateral values in the table below (which covers loans and
advances to banks and customers, excluding those held at fair value
through profit or loss) are adjusted where appropriate in
accordance with our risk mitigation policy and for the effect of
over-collateralisation. The extent of over-collateralisation has
been determined with reference to both the drawn and undrawn
components of exposure as this best reflects the effect of
collateral and other credit enhancements on the amounts arising
from expected credit losses.
The value of collateral reflects management's best estimate and
is back tested against our prior experience. On average, across all
types of non-cash collateral, the value ascribed is approximately
half of its current market value.
In the Retail Banking and Private Banking segments, a secured
loan is one where the borrower pledges an asset as collateral of
which the Group is able to take possession in the event that the
borrower defaults.
Private Banking collateral is $8.5 billion, down 18 per cent
compared with 2019, in line with the overall movement of the
secured portfolio.
Collateral held on loans and advances (within EY review
scope)
The table below details collateral held against exposures,
separately disclosing stage 2 and stage 3 exposure and
corresponding collateral.
30.06.20
--------------- ----------------------------------------------------------------------------------------------------------------------------
Net amount outstanding Collateral Net exposure
---------------------------------------- ---------------------------------------- ----------------------------------------
Credit-impaired Credit-impaired Credit-impaired
Stage financial Stage financial Stage financial
2 financial assets 2 financial assets 2 financial assets
Total assets (S3) Total2 assets (S3) Total assets (S3)
Amortised cost $million $million $million $million $million $million $million $million $million
--------------- ---------- ----------- --------------- ---------- ----------- --------------- ---------- ----------- ---------------
Corporate &
Institutional
Banking1 165,807 15,688 2,244 24,983 3,089 862 140,824 12,599 1,382
Retail Banking 105,000 3,273 575 84,585 2,706 450 20,415 567 125
Commercial
Banking 25,555 4,142 528 7,273 1,608 282 18,282 2,534 246
Private Banking 13,001 199 214 8,481 150 209 4,520 49 5
Central & other
items 17,449 4 - 3,242 - - 14,207 4 -
--------------- ---------- ----------- --------------- ---------- ----------- --------------- ---------- ----------- ---------------
Total 326,812 23,306 3,561 128,564 7,553 1,803 198,248 15,753 1,758
--------------- ---------- ----------- --------------- ---------- ----------- --------------- ---------- ----------- ---------------
31.12.193
--------------- ---------------------------------------------------------------------------------------------------------------------------
Net amount outstanding Collateral Net exposure
---------------------------------------- --------------------------------------- ----------------------------------------
Credit-impaired Credit-impaired Credit-impaired
Stage financial Stage financial Stage financial
2 financial assets 2 financial assets 2 financial assets
Total assets (S3) Total2 assets (S3) Total assets (S3)
Amortised cost $million $million $million $million $million $million $million $million $million
--------------- ---------- ----------- --------------- --------- ----------- --------------- ---------- ----------- ---------------
Corporate &
Institutional
Banking1 162,201 14,231 1,193 23,652 2,724 497 138,549 11,507 696
Retail Banking 106,938 2,856 472 81,700 2,355 286 25,238 501 186
Commercial
Banking 28,094 3,925 510 6,996 1,801 263 21,098 2,124 247
Private Banking 14,741 283 219 10,306 188 211 4,435 95 8
Central & other
items 10,098 7 - 802 - - 9,296 7 -
--------------- ---------- ----------- --------------- --------- ----------- --------------- ---------- ----------- ---------------
Total 322,072 21,302 2,394 123,456 7,068 1,257 198,616 14,234 1,137
--------------- ---------- ----------- --------------- --------- ----------- --------------- ---------- ----------- ---------------
1 Includes loans and advances to banks
2 Adjusted for over-collateralisation based on the drawn and
undrawn components of exposures
3 Corporate & Institutional Banking, Retail Banking and
Commercial Banking net amount outstanding, collateral and net
exposure numbers have been restated to reflect client transfers
between the three segments
Collateral - Corporate & Institutional Banking and
Commercial Banking (within EY review scope)
Collateral held against Corporate & Institutional Banking
and Commercial Banking exposures amounted to $32 billion.
Collateral taken for longer-term and sub-investment grade
corporate loans remains high at 46 per cent. Our underwriting
standards encourage taking specific charges on assets and we
consistently seek high-quality, investment-grade collateral.
74 per cent of tangible collateral held comprises physical
assets or is property based, with the remainder largely in cash and
investment securities.
Non-tangible collateral, such as guarantees and standby letters
of credit, is also held against corporate exposures, although the
financial effect of this type of collateral is less significant in
terms of recoveries. However, this is considered when determining
the probability of default and other credit-related factors.
Collateral is also held against off-balance sheet exposures,
including undrawn commitments and trade-related instruments.
The following table provides an analysis of the types of
collateral held against Corporate & Institutional Banking and
Commercial Banking loan exposures.
Corporate & Institutional Banking (within EY review
scope)
30.06.20 31.12.192
Amortised cost $million $million
----------------------------------- ---------- ----------
Maximum exposure 165,807 162,201
----------------------------------- ---------- ----------
Property 8,328 7,218
Plant, machinery and other stock 843 947
Cash 2,994 2,931
Reverse repos 3,040 2,000
---------- ----------
A- to AA+ 1,072 756
BBB- to BBB+ 569 439
Unrated 1,399 805
---------- ----------
Financial guarantees and insurance 5,358 7,374
Commodities 235 141
Ships and aircraft 4,185 3,041
----------------------------------- ---------- ----------
Total value of collateral 24,983 23,652
----------------------------------- ---------- ----------
Net exposure1 140,824 138,549
----------------------------------- ---------- ----------
Commercial Banking (within EY review scope)
30.06.20 31.12.192
Amortised cost $million $million
----------------------------------- ---------- ----------
Maximum exposure 25,555 28,094
----------------------------------- ---------- ----------
Property 4,514 4,225
Plant, machinery and other stock 1,158 1,281
Cash 761 654
Reverse repos 12 8
---------- ----------
A- to AA+ - -
BBB- to BBB+ 4 1
Unrated 8 7
---------- ----------
Financial guarantees and insurance 598 573
Commodities 49 21
Ships and aircraft 181 234
----------------------------------- ---------- ----------
Total value of collateral 7,273 6,996
----------------------------------- ---------- ----------
Net exposure1 18,282 21,098
----------------------------------- ---------- ----------
1 Adjusted for over-collateralisation based on the drawn and
undrawn components of exposures
2 Maximum exposure, collateral and net exposure balances have
been restated to reflect client transfers between Corporate &
Institutional Banking and Commercial Banking
Collateral - Retail Banking and Private Banking (within EY
review scope)
In Retail Banking and Private Banking, 85 per cent of the
portfolio is fully secured. The proportion of unsecured loans
remains stable at 14 per cent and the remaining 1 per cent is
partially secured.
The following table presents an analysis of loans to individuals
by product; split between fully secured, partially secured and
unsecured.
30.06.20 31.12.193
------------------------ ------------------------------------------ ------------------------------------------
Fully Partially Fully Partially
secured secured Unsecured Total secured secured Unsecured Total
Amortised cost $million $million $million $million $million $million $million $million
------------------------ --------- --------- --------- --------- --------- --------- --------- ---------
Maximum exposure 101,149 738 16,114 118,001 103,182 1,257 17,240 121,679
Loans to individuals
Mortgages 77,824 - - 77,824 78,560 109 5 78,674
CCPL 139 - 15,974 16,113 123 8 17,092 17,223
Auto 500 - - 500 562 - 10 572
Secured wealth products 18,646 - - 18,646 20,275 127 - 20,402
Other 4,040 738 140 4,918 3,662 1,013 133 4,808
------------------------ --------- --------- --------- --------- --------- --------- --------- ---------
Total collateral1 93,066 92,006
------------------------ --------- --------- --------- --------- --------- --------- --------- ---------
Net exposure2 24,935 29,673
------------------------ --------- --------- --------- --------- --------- --------- --------- ---------
Percentage of total
loans 85% 1% 14% 85% 1% 14%
------------------------ --------- --------- --------- --------- --------- --------- --------- ---------
1 Collateral values are adjusted where appropriate in accordance
with our risk mitigation policy and for the effect of
over-collateralisation
2 Amounts net of ECL
3 Maximum exposure, collateral and net exposure balances have
been restated to reflect client transfers from Commercial Banking
to Retail Banking
Mortgage loan-to-value ratios by geography (within EY review
scope)
Loan-to-value (LTV) ratios measure the ratio of the current
mortgage outstanding to the current fair value of the properties on
which they are secured.
In mortgages, the value of property held as security
significantly exceeds the value of mortgage loans. The average LTV
of the overall mortgage portfolio is low at 45 per cent. Hong Kong,
which represents 39 per cent of the Retail Banking mortgage
portfolio has an average LTV of 41.1 per cent. All of our other key
markets continue to have low portfolio LTVs, (Korea, Singapore and
Taiwan at 42.6 per cent, 53.8 per cent and 52.3 per cent
respectively).
An analysis of LTV ratios by geography for the mortgage
portfolio is presented in the table below.
30.06.20
--------------------------------- -----------------------------------------------------------
Greater China ASEAN & Africa & Europe &
& North Asia South Asia Middle East Americas Total
% % % % %
Amortised cost Gross Gross Gross Gross Gross
--------------------------------- ------------- ----------- ------------ --------- ------
Less than 50 per cent 67.2 42.7 15.8 19.4 59.3
50 per cent to 59 per cent 14.6 18.5 22.7 20.6 15.8
60 per cent to 69 per cent 8.8 22.1 20.4 40.5 12.9
70 per cent to 79 per cent 6.8 14.1 20.3 16.2 9.0
80 per cent to 89 per cent 2.0 1.9 10.1 1.3 2.1
90 per cent to 99 per cent 0.5 0.5 5.1 0.4 0.7
100 per cent and greater 0.1 0.2 5.6 1.6 0.3
--------------------------------- ------------- ----------- ------------ --------- ------
Average portfolio loan-to-value 42.5 51.3 66.4 58.7 45.2
--------------------------------- ------------- ----------- ------------ --------- ------
Loans to individuals - mortgages
($million) 56,603 17,268 1,999 1,954 77,824
--------------------------------- ------------- ----------- ------------ --------- ------
31.12.19
--------------------------------- -----------------------------------------------------------
Greater China ASEAN & Africa & Europe &
& North Asia South Asia Middle East Americas Total
% % % % %
Amortised cost Gross Gross Gross Gross Gross
--------------------------------- ------------- ----------- ------------ --------- ------
Less than 50 per cent 67.8 43.4 21.6 10.8 59.3
50 per cent to 59 per cent 14.4 19.4 14.2 26.3 15.9
60 per cent to 69 per cent 9.2 22.5 21.0 29.4 13.2
70 per cent to 79 per cent 6.7 12.5 19.1 28.0 9.0
80 per cent to 89 per cent 1.6 1.7 11.5 4.5 2.0
90 per cent to 99 per cent 0.2 0.3 6.5 0.4 0.4
100 per cent and greater 0.1 0.2 6.2 0.6 0.3
--------------------------------- ------------- ----------- ------------ --------- ------
Average portfolio loan-to-value 42.1 50.7 66.6 62.2 44.9
--------------------------------- ------------- ----------- ------------ --------- ------
Loans to individuals - mortgages
($million)1 56,067 18,301 2,047 2,259 78,674
--------------------------------- ------------- ----------- ------------ --------- ------
1 Greater China & North Asia number has been restated to
reflect client transfers from Commercial Banking to Retail
Banking
Credit quality by industry
Loans and advances
This section provides an analysis of the Group's amortised cost
portfolio by industry on a gross, total credit impairment and net
basis.
From an industry perspective, loans and advances increased by
$11.9 billion compared to 31 December 2019, largely driven by an $8
billion increase in lending to Governments, with $1.9 billion
increase in Commercial real estate and $1.5 billion increase in
Financing, insurance and non-banking. Retail Products fell by $3.4
billion primarily within CCPL and unsecured lending as COVID-19
related lockdowns suppressed card spending and in Secured wealth
products. Total stage 1 loans increased by $4.1 billion compared
with 31 December 2019, and total stage 2 loans increased by $3.0
billion in total loans advances due to a significant increase in
loans placed on non-purely precautionary early alert and transfers
from stage 1.
30.06.20
-------------- ----------------------------------------------------------------------------------------------------------------------------------
Stage 1 Stage 2 Stage 3 Total
------------------------------- ------------------------------- ------------------------------- -------------------------------
Total Net Total Net Total Net Total Net
Gross credit carrying Gross credit carrying Gross credit carrying Gross credit carrying
balance impair-ment amount balance impair-ment amount balance impair-ment amount balance impair-ment amount
Amortised cost $million $million $million $million $million $million $million $million $million $million $million $million
-------------- -------- ----------- -------- -------- ----------- -------- -------- ----------- -------- -------- ----------- --------
Industry:
Energy 12,525 (6) 12,519 2,377 (119) 2,258 1,256 (846) 410 16,158 (971) 15,187
Manufacturing 19,363 (15) 19,348 3,447 (92) 3,355 1,316 (918) 398 24,126 (1,025) 23,101
Financing,
insurance
and
non-banking 22,516 (8) 22,508 1,106 (4) 1,102 311 (205) 106 23,933 (217) 23,716
Transport,
telecom
and utilities 12,286 (9) 12,277 4,682 (98) 4,584 1,096 (467) 629 18,064 (574) 17,490
Food and
household
products 9,183 (11) 9,172 655 (14) 641 588 (397) 191 10,426 (422) 10,004
Commercial
real estate 16,154 (22) 16,132 1,932 (40) 1,892 397 (156) 241 18,483 (218) 18,265
Mining and
quarrying 5,775 (8) 5,767 1,333 (36) 1,297 254 (186) 68 7,362 (230) 7,132
Consumer
durables 6,064 (4) 6,060 1,226 (27) 1,199 581 (452) 129 7,871 (483) 7,388
Construction 3,246 (7) 3,239 720 (19) 701 680 (510) 170 4,646 (536) 4,110
Trading
companies
&
distributors 1,174 (1) 1,173 847 (3) 844 311 (235) 76 2,332 (239) 2,093
Government 22,773 (1) 22,772 361 (2) 359 235 (4) 231 23,369 (7) 23,362
Other 5,095 (3) 5,092 1,341 (83) 1,258 344 (230) 114 6,780 (316) 6,464
Retail
Products:
Mortgage 74,910 (21) 74,889 2,618 (21) 2,597 515 (177) 338 78,043 (219) 77,824
CCPL and other
unsecured
lending 15,734 (334) 15,400 739 (215) 524 441 (252) 189 16,914 (801) 16,113
Auto 496 - 496 4 - 4 - - - 500 - 500
Secured wealth
products 18,138 (22) 18,116 296 (6) 290 441 (201) 240 18,875 (229) 18,646
Other 4,846 (4) 4,842 55 (1) 54 43 (21) 22 4,944 (26) 4,918
-------------- -------- ----------- -------- -------- ----------- -------- -------- ----------- -------- -------- ----------- --------
Total value
(customers)1 250,278 (476) 249,802 23,739 (780) 22,959 8,809 (5,257) 3,552 282,826 (6,513) 276,313
-------------- -------- ----------- -------- -------- ----------- -------- -------- ----------- -------- -------- ----------- --------
1 Includes reverse repurchase agreements and other similar
secured lending held at amortised cost of $4,383 million
31.12.192
-------------- -----------------------------------------------------------------------------------------------------------------------------------
Stage 1 Stage 2 Stage 3 Total
------------------------------- ------------------------------- ------------------------------- --------------------------------
Total Net Total Net Total Net Total Net
Gross credit carrying Gross credit carrying Gross credit carrying Gross credit carrying
balance impair-ment amount balance impair-ment amount balance impair-ment amount balance impair-ment amount
Amortised cost $million $million $million $million $million $million $million $million $million $million $million $million
-------------- -------- ----------- -------- -------- ----------- -------- -------- ----------- -------- -------- ----------- ---------
Industry:
Energy 13,223 (17) 13,206 1,562 (22) 1,540 894 (758) 136 15,679 (797) 14,882
Manufacturing 20,070 (15) 20,055 3,498 (29) 3,469 970 (695) 275 24,538 (739) 23,799
Financing,
insurance
and
non-banking 20,972 (8) 20,964 1,193 (17) 1,176 292 (183) 109 22,457 (208) 22,249
Transport,
telecom
and utilities 14,874 (10) 14,864 1,873 (35) 1,838 841 (599) 242 17,588 (644) 16,944
Food and
household
products 8,321 (8) 8,313 1,551 (18) 1,533 585 (429) 156 10,457 (455) 10,002
Commercial
real estate 14,244 (18) 14,226 2,092 (33) 2,059 293 (102) 191 16,629 (153) 16,476
Mining and
quarrying 6,134 (8) 6,126 1,067 (12) 1,055 320 (232) 88 7,521 (252) 7,269
Consumer
durables 6,366 (5) 6,361 1,094 (15) 1,079 651 (443) 208 8,111 (463) 7,648
Construction 3,082 (5) 3,077 332 (8) 324 774 (607) 167 4,188 (620) 3,568
Trading
companies
&
distributors 1,202 (1) 1,201 1,928 (1) 1,927 307 (218) 89 3,437 (220) 3,217
Government 14,698 (1) 14,697 702 (3) 699 - - - 15,400 (4) 15,396
Other 4,815 (8) 4,807 554 (10) 544 261 (218) 43 5,630 (236) 5,394
Retail
Products:
Mortgage 76,123 (10) 76,113 2,290 (12) 2,278 406 (123) 283 78,819 (145) 78,674
CCPL and other
unsecured
lending 16,834 (268) 16,566 620 (158) 462 404 (209) 195 17,858 (635) 17,223
Auto 570 (1) 569 2 - 2 1 - 1 573 (1) 572
Secured wealth
products 19,895 (19) 19,876 336 (3) 333 354 (161) 193 20,585 (183) 20,402
Other 4,726 - 4,726 65 (1) 64 45 (27) 18 4,836 (28) 4,808
-------------- -------- ----------- -------- -------- ----------- -------- -------- ----------- -------- -------- ----------- ---------
Total value
(customers)1 246,149 (402) 245,747 20,759 (377) 20,382 7,398 (5,004) 2,394 274,306 (5,783) 268,523
-------------- -------- ----------- -------- -------- ----------- -------- -------- ----------- -------- -------- ----------- ---------
1 Includes reverse repurchase agreements and other similar
secured lending held at amortised cost of $1,469 million
2 Stage 1 and stage 2 Gross and ECL balances have been restated
to reflect client transfers from Commercial Banking to Retail
Banking
Industry and Retail Products analysis of loans and advances by
geographic region
This section provides an analysis of the Group's amortised cost
loan portfolio, net of provisions, by industry and region.
In the Corporate & Institutional Banking and Commercial
Banking segments our largest industry exposures are to Financing,
insurance and non-banking, Government and Manufacturing, with each
constituting 15 per cent of Corporate & Institutional Banking
and Commercial Banking loans and advances to customers.
Financing, insurance and non-banking industry clients are mostly
investment-grade institutions and this lending forms part of the
liquidity management of the Group. The manufacturing sector group
is spread across a diverse range of industries, including
automobiles and components, capital goods, pharmaceuticals, biotech
and life sciences, technology hardware and equipment, chemicals,
paper products and packaging, with lending spread over 4,300
clients.
Loans and advances to the energy sector remained at 10 per cent
of total loans and advances to Corporate & Institutional
Banking and Commercial Banking. The Energy sector lending is spread
across five sub-sectors and over 350 clients.
The Group provides loans to commercial real estate
counterparties of $18.3 billion, which represents 7 per cent of
total customer loans and advances. In total, $8.5 billion of this
lending is to counterparties where the source of repayment is
substantially derived from rental or sale of real estate and is
secured by real estate collateral. The remaining commercial real
estate loans comprise working capital loans to real estate
corporates, loans with non-property collateral, unsecured loans and
loans to real estate entities of diversified conglomerates. The
average LTV ratio of the commercial real estate portfolio has
increased to 47 per cent, compared with 46 per cent in 2019. The
proportion of loans with an LTV greater than 80 per cent has
remained at less than 1 per cent during the same period.
The Mortgage portfolio continues to be the largest portion of
the Retail Products portfolio, at 66 per cent (31 December 2019: 65
per cent). CCPL and other unsecured lending is stable at 14 per
cent of total Retail Products loans and advances.
30.06.20
------------------------------------- --------------------------------------------------------------
Greater China ASEAN & Africa & Europe &
& North Asia South Asia Middle East Americas Total
Amortisecd cost $million $million $million $million $million
------------------------------------- ------------- ----------- ------------ --------- ---------
Industry:
Energy 1,382 3,913 4,183 5,709 15,187
Manufacturing 10,751 5,775 2,732 3,843 23,101
Financing, insurance and non-banking 11,615 3,994 935 7,172 23,716
Transport, telecom and utilities 6,069 4,752 5,069 1,600 17,490
Food and household products 2,438 3,996 2,463 1,107 10,004
Commercial real estate 10,262 4,862 1,886 1,255 18,265
Mining and quarrying 2,432 2,249 814 1,637 7,132
Consumer durables 3,865 2,283 638 602 7,388
Construction 1,407 1,447 973 283 4,110
Trading companies and distributors 1,300 500 215 78 2,093
Government 2,959 15,720 4,637 46 23,362
Other 2,243 1,738 838 1,645 6,464
Retail Products:
Mortgages 56,603 17,268 1,999 1,954 77,824
CCPL and other unsecured lending 10,449 3,609 1,968 87 16,113
Auto - 434 66 - 500
Secured wealth products 7,435 9,641 321 1,249 18,646
Other 4,295 105 518 - 4,918
------------------------------------- ------------- ----------- ------------ --------- ---------
Net loans and advances to customers 135,505 82,286 30,255 28,267 276,313
------------------------------------- ------------- ----------- ------------ --------- ---------
Net loans and advances to banks 21,249 14,671 5,943 8,636 50,499
------------------------------------- ------------- ----------- ------------ --------- ---------
31.12.19
------------------------------------- -------------------------------------------------------------------
ASEAN & Africa & Europe &
Greater China
& North Asia1 South Asia Middle East Americas Total
Amortisecd cost $million $million $million $million $million
------------------------------------- -------------- ------------ ------------- ---------- ----------
Industry:
Energy 2,578 3,769 2,946 5,589 14,882
Manufacturing 11,320 6,127 3,211 3,141 23,799
Financing, insurance and non-banking 9,365 4,314 988 7,582 22,249
Transport, telecom and utilities 6,268 4,014 5,349 1,313 16,944
Food and household products 2,777 3,651 2,478 1,096 10,002
Commercial real estate 9,377 4,954 1,783 362 16,476
Mining and quarrying 2,142 2,469 965 1,693 7,269
Consumer durables 4,497 2,019 699 433 7,648
Construction 1,088 1,220 1,126 134 3,568
Trading companies and distributors 2,602 296 198 121 3,217
Government 1,490 9,907 3,926 73 15,396
Other 1,722 1,870 836 966 5,394
Retail Products:
Mortgages 56,067 18,301 2,047 2,259 78,674
CCPL and other unsecured lending 10,633 4,239 2,258 93 17,223
Auto - 485 87 - 572
Secured wealth products 8,159 10,473 338 1,432 20,402
Other 3,981 121 705 1 4,808
------------------------------------- -------------- ------------ ------------- ---------- ----------
Net loans and advances to customers 134,066 78,229 29,940 26,288 268,523
------------------------------------- -------------- ------------ ------------- ---------- ----------
Net loans and advances to banks 19,313 15,756 5,350 13,130 53,549
------------------------------------- -------------- ------------ ------------- ---------- ----------
1 Greater China & North Asia numbers have been restated to
reflect client transfers from Commercial Banking to Retail
Banking
Vulnerable sectors
Total net exposure to vulnerable sectors reduced by $5.1 billion
compared to 31 December 2019 and represents 29 per cent (31
December 2019: 30 per cent) of the total net exposure in Corporate
& Institutional Banking and Commercial Banking. The reductions
were largely due to increased levels of collateral and reduced
undrawn commitments, particularly in the Aviation, Commercial Real
Estate and Oil & Gas sectors. Stage 2 loans increased by 32 per
cent compared to 31 December 2019, with 16 per cent (31 December
2019: 13 per cent) of loans to vulnerable sectors in stage 2. This
was primarily driven by the increase in client placed on non-purely
precautionary early alert and 46 per cent of the Aviation sector is
now in stage 2. Stage 3 loans increased by $0.9 billion compared to
31 December 2019 primarily due to exposures in the Commodity
Traders sector and Aviation.
Maximum Exposure
30.06.20
------------------------- -------------------------------------------------------------------------------------------
Maximum
On Balance
Sheet Undrawn Financial Net Total
Exposure Net Commitments Guarantees Off On &
(net On Balance (net of (net Balance Off Balance
of credit Sheet credit of credit Sheet Sheet
impairment) Collateral Exposure impairment) impairment) Exposure Net Exposure
Amortised cost $million $million $million $million $million $million $million
------------------------- ------------ ---------- ----------- ------------ ------------ --------- -------------
Industry:
Aviation 4,509 2,213 2,296 602 509 1,111 3,407
Commodity Traders 9,610 631 8,979 2,963 3,132 6,095 15,074
Metals & Mining 5,260 831 4,429 2,529 632 3,161 7,590
Commercial Real Estate 18,265 7,413 10,852 5,911 384 6,295 17,147
Hotels & Tourism 2,873 1,738 1,738 1,550 146 1,696 3,434
Oil & Gas 8,782 2,794 5,988 8,044 5,642 13,686 19,674
------------------------- ------------ ---------- ----------- ------------ ------------ --------- -------------
Total 49,299 15,017 34,282 21,599 10,445 32,044 66,326
------------------------- ------------ ---------- ----------- ------------ ------------ --------- -------------
Total Corporate &
Institutional
Banking and
Commercial Banking 140,863 29,789 111,074 85,112 35,679 120,791 231,865
------------------------- ------------ ---------- ----------- ------------ ------------ --------- -------------
Total Retail, Private
Banking
and other segments 185,949 98,775 87,174 58,684 6,318 65,002 152,176
------------------------- ------------ ---------- ----------- ------------ ------------ --------- -------------
Total Group 326,812 128,564 198,248 143,796 41,997 185,793 384,041
------------------------- ------------ ---------- ----------- ------------ ------------ --------- -------------
31.12.19
------------------------- -------------------------------------------------------------------------------------------
Maximum
On Balance
Sheet Undrawn Financial Net Total
Exposure Net Commitments Guarantees Off On &
(net On Balance (net of (net Balance Off Balance
of credit Sheet credit of credit Sheet Sheet
impairment) Collateral Exposure impairment) impairment) Exposure Net Exposure
Amortised cost $million $million $million $million $million $million $million
------------------------- ------------ ---------- ----------- ------------ ------------ --------- -------------
Industry:
Aviation 3,659 1,186 2,473 1,131 556 1,687 4,160
Commodity Traders 10,386 326 10,060 3,942 2,869 6,811 16,871
Metals & Mining 5,436 381 5,055 3,002 374 3,376 8,431
Commercial Real Estate 16,476 5,892 10,584 6,773 388 7,161 17,745
Hotels & Tourism 2,397 800 1,597 1,634 146 1,780 3,377
Oil & Gas 8,041 1,241 6,800 8,301 5,760 14,061 20,861
------------------------- ------------ ---------- ----------- ------------ ------------ --------- -------------
Total 46,395 9,826 36,569 24,783 10,093 34,876 71,445
------------------------- ------------ ---------- ----------- ------------ ------------ --------- -------------
Total Corporate &
Institutional
Banking and
Commercial Banking 136,746 26,352 110,394 90,340 36,591 126,931 237,325
------------------------- ------------ ---------- ----------- ------------ ------------ --------- -------------
Total Retail, Private
Banking
and other segments 185,326 97,104 88,222 55,055 5,605 60,660 148,882
------------------------- ------------ ---------- ----------- ------------ ------------ --------- -------------
Total Group 322,072 123,456 198,616 145,395 42,196 187,591 386,207
------------------------- ------------ ---------- ----------- ------------ ------------ --------- -------------
Loans and advances by stage
30.06.20
-------------- ----------------------------------------------------------------------------------------------------------------------------------
Stage 1 Stage 2 Stage 3 Total
------------------------------- ------------------------------- ------------------------------- -------------------------------
Total Net Total Net Total Net Total Net
Gross credit carrying Gross credit carrying Gross credit carrying Gross credit carrying
Balance impair-ment amount Balance impair-ment amount Balance impair-ment amount Balance impair-ment amount
Amortised Cost $million $million $million $million $million $million $million $million $million $million $million $million
-------------- -------- ----------- -------- -------- ----------- -------- -------- ----------- -------- -------- ----------- --------
Industry:
Aviation 2,216 2,216 2,100 (25) 2,075 256 (38) 218 4,572 (63) 4,509
Commodity
Traders 8,890 (14) 8,876 525 (11) 514 760 (540) 220 10,175 (565) 9,610
Metals &
Mining 4,193 (4) 4,189 1,003 (31) 972 240 (141) 99 5,436 (176) 5,260
Commercial
Real Estate 16,154 (22) 16,132 1,932 (40) 1,892 397 (156) 241 18,483 (218) 18,265
Hotels &
Tourism 1,926 (2) 1,924 927 (45) 882 92 (25) 67 2,945 (72) 2,873
Oil & Gas 6,750 (5) 6,745 1,773 (80) 1,693 574 (230) 344 9,097 (315) 8,782
-------------- -------- ----------- -------- -------- ----------- -------- -------- ----------- -------- -------- ----------- --------
Total 40,129 (47) 40,082 8,260 (232) 8,028 2,319 (1,130) 1,189 50,708 (1,409) 49,299
-------------- -------- ----------- -------- -------- ----------- -------- -------- ----------- -------- -------- ----------- --------
Total
Corporate
&
Institutional
Banking and
Commercial
Banking 118,710 (93) 118,617 20,021 (538) 19,483 7,368 (4,605) 2,763 146,099 (5,236) 140,863
-------------- -------- ----------- -------- -------- ----------- -------- -------- ----------- -------- -------- ----------- --------
Total Retail,
Private
Banking
and other
segments 181,714 (386) 181,328 4,067 (244) 3,823 1,454 (656) 798 187,235 (1,286) 185,949
-------------- -------- ----------- -------- -------- ----------- -------- -------- ----------- -------- -------- ----------- --------
Total Group 300,424 (479) 299,945 24,088 (782) 23,306 8,822 (5,261) 3,561 333,334 (6,522) 326,812
-------------- -------- ----------- -------- -------- ----------- -------- -------- ----------- -------- -------- ----------- --------
31.12.19
-------------- ----------------------------------------------------------------------------------------------------------------------------------
Stage 1 Stage 2 Stage 3 Total
------------------------------- ------------------------------- ------------------------------- -------------------------------
Total Net Total Net Total Net Total Net
Gross credit carrying Gross credit carrying Gross credit carrying Gross credit carrying
Balance impair-ment amount Balance impair-ment amount Balance impair-ment amount Balance impair-ment amount
Amortised Cost $million $million $million $million $million $million $million $million $million $million $million $million
-------------- -------- ----------- -------- -------- ----------- -------- -------- ----------- -------- -------- ----------- --------
Industry:
Aviation 3,426 (1) 3,425 236 (8) 228 6 6 3,668 (9) 3,659
Commodity
Traders 8,693 (10) 8,683 1,663 (6) 1,657 401 (355) 46 10,757 (371) 10,386
Metals &
Mining 4,422 (5) 4,417 875 (10) 865 292 (138) 154 5,589 (153) 5,436
Commercial
Real Estate 14,244 (18) 14,226 2,092 (33) 2,059 293 (102) 191 16,629 (153) 16,476
Hotels &
Tourism 2,012 (4) 2,008 384 (2) 382 35 (28) 7 2,431 (34) 2,397
Oil & Gas 6,854 (10) 6,844 1,031 (15) 1,016 441 (260) 181 8,326 (285) 8,041
-------------- -------- ----------- -------- -------- ----------- -------- -------- ----------- -------- -------- ----------- --------
Total 39,651 (48) 39,603 6,281 (74) 6,207 1,468 (883) 585 47,400 (1,005) 48,395
-------------- -------- ----------- -------- -------- ----------- -------- -------- ----------- -------- -------- ----------- --------
Total
Corporate
&
Institutional
Banking and
Commercial
Banking 117,909 (102) 117,807 17,439 (203) 17,236 6,186 (4,483) 1,703 141,534 (4,788) 136,746
-------------- -------- ----------- -------- -------- ----------- -------- -------- ----------- -------- -------- ----------- --------
Total Retail,
Private
Banking
and other
segments 180,874 (305) 180,569 4,244 (178) 4,066 1,212 (521) 691 186,330 (1,004) 185,326
-------------- -------- ----------- -------- -------- ----------- -------- -------- ----------- -------- -------- ----------- --------
Total Group 298,783 (407) 298,376 21,683 (381) 21,302 7,398 (5,004) 2,394 327,864 (5,792) 322,072
-------------- -------- ----------- -------- -------- ----------- -------- -------- ----------- -------- -------- ----------- --------
Credit quality - loans and advances
30.06.20
------------------------ -----------------------------------------------------------------------------
Commercial
Commodity Metals Real Hotel Oil &
Aviation Traders & Mining Estate & Tourism Gas Total
Gross Gross Gross Gross Gross Gross Gross
Credit Grade $million $million $million $million $million $million $million
------------------------ --------- --------- --------- ---------- ---------- --------- ---------
Strong 1,512 5,128 1,559 8,554 996 4,816 22,565
Satisfactory 2,670 4,167 3,488 9,528 1,854 3,531 25,238
Higher risk 134 120 149 11 3 176 593
Defaulted 256 760 240 390 92 574 2,312
------------------------ --------- --------- --------- ---------- ---------- --------- ---------
Total Gross Balance 4,572 10,175 5,436 18,483 2,945 9,097 50,708
------------------------ --------- --------- --------- ---------- ---------- --------- ---------
Strong (7) (12) - (25) (3) (5) (52)
Satisfactory (11) (12) (21) (33) (44) (68) (189)
Higher risk (7) (1) (14) - - (4) (26)
Defaulted (38) (540) (141) (160) (25) (238) (1,142)
------------------------ --------- --------- --------- ---------- ---------- --------- ---------
Total Credit Impairment (63) (565) (176) (218) (72) (315) (1,409)
------------------------ --------- --------- --------- ---------- ---------- --------- ---------
Strong 0.5% 0.2% 0.0% 0.3% 0.3% 0.1% 0.2%
Satisfactory 0.4% 0.3% 0.6% 0.3% 2.4% 1.9% 0.7%
Higher risk 5.2% 0.8% 9.4% 0.0% 0.0% 2.3% 4.4%
Defaulted 14.8% 71.1% 58.8% 41.0% 27.2% 41.5% 49.4%
------------------------ --------- --------- --------- ---------- ---------- --------- ---------
Cover Ratio 1.4% 5.6% 3.2% 1.2% 2.4% 3.5% 2.8%
------------------------ --------- --------- --------- ---------- ---------- --------- ---------
31.12.19
------------------------ -----------------------------------------------------------------------------
Commercial
Commodity Metals Real Hotel Oil &
Aviation Traders & Mining Estate & Tourism Gas Total
Gross Gross Gross Gross Gross Gross Gross
Credit Grade $million $million $million $million $million $million $million
------------------------ --------- --------- --------- ---------- ---------- --------- ---------
Strong 2,635 5,104 1,270 8,338 983 3,706 22,036
Satisfactory 967 5,217 3,853 7,929 1,411 4,040 23,417
Higher risk 60 35 174 121 2 139 531
Defaulted 6 401 292 241 35 441 1,416
------------------------ --------- --------- --------- ---------- ---------- --------- ---------
Total Gross Balance 3,668 10,757 5,589 16,629 2,431 8,326 47,400
------------------------ --------- --------- --------- ---------- ---------- --------- ---------
Strong - (6) - (47) (1) (2) (56)
Satisfactory (3) (10) (8) (23) (5) (22) (71)
Higher risk (6) - (7) (16) - (1) (30)
Defaulted - (355) (138) (67) (28) (260) (848)
------------------------ --------- --------- --------- ---------- ---------- --------- ---------
Total Credit Impairment (9) (371) (153) (153) (34) (285) (1,005)
------------------------ --------- --------- --------- ---------- ---------- --------- ---------
Strong 0.0% 0.1% 0.0% 0.6% 0.1% 0.1% 0.3%
Satisfactory 0.3% 0.2% 0.2% 0.3% 0.4% 0.5% 0.3%
Higher risk 10.0% 0.0% 4.0% 13.2% 0.0% 0.7% 5.6%
Defaulted 0.0% 88.5% 47.3% 27.8% 80.0% 59.0% 59.9%
------------------------ --------- --------- --------- ---------- ---------- --------- ---------
Cover Ratio 0.2% 3.4% 2.7% 0.9% 1.4% 3.4% 2.1%
------------------------ --------- --------- --------- ---------- ---------- --------- ---------
Loans and Advances by Region (net of credit impairment)
30.06.20
----------------------- --------------------------------------------------------------
Greater China ASEAN & Africa & Europe &
& North Asia South Asia Middle East Americas Total
Amortised cost $million $million $million $million $million
----------------------- ------------- ----------- ------------ --------- ---------
Industry:
Aviation 1,449 497 1,559 1,004 4,509
Commodity Traders 1,855 3,222 973 3,560 9,610
Metals & Mining 1,318 2,026 913 1,003 5,260
Commercial Real Estate 10,262 4,862 1,886 1,255 18,265
Hotels & Tourism 790 1,082 561 440 2,873
Oil & Gas 1,020 2,576 2,370 2,816 8,782
----------------------- ------------- ----------- ------------ --------- ---------
Total 16,694 14,265 8,262 10,078 49,299
----------------------- ------------- ----------- ------------ --------- ---------
31.12.19
----------------------- --------------------------------------------------------------
Greater China ASEAN & Africa & Europe &
& North Asia South Asia Middle East Americas Total
Amortised cost $million $million $million $million $million
----------------------- ------------- ----------- ------------ --------- ---------
Industry:
Aviation 1,392 224 1,373 670 3,659
Commodity Traders 2,082 3,513 1,276 3,515 10,386
Metals & Mining 1,366 1,950 837 1,283 5,436
Commercial Real Estate 9,377 4,954 1,783 362 16,476
Hotels & Tourism 543 1,092 547 215 2,397
Oil & Gas 1,123 2,130 2,022 2,766 8,041
----------------------- ------------- ----------- ------------ --------- ---------
Total 15,883 13,863 7,838 8,811 46,395
----------------------- ------------- ----------- ------------ --------- ---------
IFRS 9 methodology
Refer to pages 182 and 183 in the 2019 Annual Report for the
'Approach for determining expected credit losses', 'Application of
lifetime' and pages 187 - 189 for 'Significant increase in credit
risk (SICR)', 'Assessment of credit impaired assets' and
'Governance and application of export credit judgement in respect
of expected credit losses'. There have been no changes to the
Group's approach in determining SICR compared to 31 December
2019.
Post model adjustments
Where a model's performance breaches the monitoring thresholds
or validation standards, then an assessment is completed to
determine whether an ECL Post Model Adjustment (PMA) is required to
correct for the identified model issue. As at 30 June 2020, PMAs
for these model performance issues have been applied for 14 models
out of the 181 in total. In aggregate, the PMAs decrease the
Group's impairment provisions by $87 million (5 per cent of
modelled provisions).
The unprecedented volatility in the macroeconomic forecasts seen
in the first half of 2020 has meant that a number of the Group's
IFRS9 ECL models are now operating outside the boundaries to which
they were calibrated. As a result, the Group has made a number of
adjustments to the modelled output to ensure the resulting modelled
ECL remains unbiased and appropriately reflects the Group's credit
risks in the current environment. The adjustments are based on a
combination of portfolio level credit risk analysis (retail) and an
evaluation of ECL coverage at an exposure level (wholesale).
Key assumptions and judgements in determining expected credit
loss (within EY review scope)
Incorporation of forward-looking information
The evolving economic environment is a key determinant of the
ability of a bank's clients to meet their obligations as they fall
due. It is a fundamental principle of IFRS 9 that the provisions
banks hold against potential future credit risk losses should
depend not just on the health of the economy today but should also
take into account potential changes to the economic environment.
For example, if a bank were to anticipate a sharp slowdown in the
world economy over the coming year, it should hold more provisions
today to absorb the credit losses likely to occur in the near
future.
To capture the effect of changes to the economic environment,
the PDs and LGDs used to calculate ECL incorporate forward-looking
information in the form of forecasts of the values of economic
variables and asset prices that are likely to have an effect on the
repayment ability of the Group's clients.
The 'Base Forecast' of the economic variables and asset prices
is based on management's view on the five-year outlook, supported
by projections from the Group's in-house research team and outputs
from a third-party model that project specific economic variables
and asset prices. The research team takes consensus views into
consideration and senior management review projections for some
core country variables against consensus when forming their view of
the outlook. For the period beyond five years, management utilises
the in-house research view and third-party model outputs, which
allow for a reversion to long-term growth rates or norms. All
projections are updated on a quarterly basis.
Forecast of key macroeconomic variables underlying the expected
credit loss calculation and the impact on non-linearity
The Base Forecast - management's view of the most likely outcome
- is that in 2020 the global economy will experience its worst
performance since the Great Depression of 1929-31. The COVID-19
pandemic has triggered severe economic downturns with all regions
of the world affected. Global economic activity is expected to
trough in the second quarter of 2020, recovering thereafter.
Against this backdrop, governments and central banks have put in
place wide-ranging policies to limit the impact to people and
businesses from the material decline in activity. These include
large fiscal stimulus measures and exceptional monetary support,
including lower interest rates and also expansion of Central Bank
balance sheets through quantitative easing measures.
Once the recovery is underway, economies are expected to be
close to their forward-looking long-term - or future potential -
growth levels within the next two to five years, as the effects of
current economic shocks dissipate. However, material downside risks
remain to the base forecasts including the extent and duration of
lockdowns and the efficacy of the policy response.
While the quarterly base forecasts inform the Group's strategic
plan, one key requirement of IFRS 9 is that the assessment of
provisions should consider multiple future economic environments.
For example, the global economy may grow more quickly or more
slowly than the Base Forecast, and these variations would have
different implications for the provisions that the Group should
hold today. As the negative impact of an economic downturn on
credit losses tends to be greater than the positive impact of an
economic upturn, if the Group sets provisions only on the ECL under
the Base Forecast it might maintain a level of provisions that does
not appropriately capture the range of potential outcomes. To
address this property of skewness (or non-linearity), IFRS 9
requires reported ECL to be a probability-weighted ECL calculated
over a range of possible outcomes.
To assess the range of possible outcomes, the Group simulates a
set of 50 scenarios around the Base Forecast, calculates the ECL
under each of them and assigns an equal weight of 2 per cent to
each scenario outcome. These scenarios are generated by a Monte
Carlo simulation, which addresses the challenges of crafting many
realistic alternative scenarios in the many countries in which the
group operates by means of a model that produces these alternative
scenarios while considering the degree of uncertainty (or
volatility) historically observed around economic outcomes and how
these outcomes have tended to move in relation to one another (or
correlation). This naturally means that the 50 scenarios do not
each have a specific narrative, although collectively they explore
a range of hypothetical alternative outcomes for the global
economy, including scenarios that turn out better than expected and
scenarios that amplify anticipated stresses.
The table on the next page provides a summary of the Group's
Base Forecast for key footprint markets, alongside the
corresponding range seen across the multiple scenarios. The
peak/trough amounts in the table show the highest and lowest points
within the Base Forecast, and the GDP graphs illustrate the shape
of the Base Forecast in relation to prior periods actuals and the
long-term growth rates.
Despite the synchronised global downturn there are significant
variances across countries, reflecting the differences in the
evolution of the pandemic and strategies to contain it. In China,
supported by policy stimulus, the recovery from the sharp
contraction from earlier in the year is underway and growth is
projected at 2.5 per cent in 2020 (this includes the 6.8 per cent
contraction in the first quarter). India's economy is projected to
contract by more than 4 per cent following a longer period of
lockdown than initially expected and slow recovery. More open
economies have been additionally impacted by the decline in world
trade and demand. For example, Singapore GDP is expected to decline
by 6 per cent and Hong Kong by 7.2 per cent. Korea was one of the
first countries to be affected by the COVID-19 pandemic and
effective strategies by the government there to contain the spread
of the virus have limited the economic decline compared to other
advanced economies.
Weak global economic activity will continue to limit commodity
price gains. Oil prices are expected to average $34 in 2020, with
only a gradual recovery to $44 in 2021.
Long-term growth = forward-looking future GDP growth
potential
China Hong Kong Korea Singapore India1
----------------- ---------- ------------ ------------ ----------- ------------
2020 2021 2020 2021 2020 2021 2020 2021 2020 2021
----------------- ---- ---- ------ ---- ------ ---- ----- ---- ----- -----
GDP growth
(YoY%) 2.5 7.5 (7.2) 6.0 (0.6) 2.2 (6.0) 8.2 (4.1) 13.1
Unemployment
(%) 4.2 3.7 5.3 5.3 4.2 4.0 4.7 3.9 N/A N/A
3 month interest
rates (%) 1.5 1.9 1.4 0.8 1.1 1.1 0.9 0.8 3.5 3.3
Housing prices
(YoY%) 5.3 5.7 (2.9) 4.8 0.7 1.9 (5.6) 5.7 (0.7) 7.5
----------------- ---- ---- ------ ---- ------ ---- ----- ---- ----- -----
1 India GDP follows the Fiscal Year beginning in Q2. All other
variables are on a calendar year basis
20205
China Hong Kong Korea Singapore India
------------- -------------------------------- -------------------------------- -------------------------------- ------------------------------- --------------------------------
5 yr Base 5 yr Base 5 yr Base 5 yr Base 5 yr Base
average forecast average forecast average forecast average forecast average forecast
base peak/ Low High base peak/ Low High base peak/ Low High base peak/ Low High base peak/ Low High
forecast trough 2 3 forecast trough 2 3 forecast trough 2 3 forecast trough 2 3 forecast trough 2 3
------------- -------- -------- ------ ---- -------- --------- ----- ---- -------- --------- ----- ---- -------- -------- ----- ---- -------- --------- ----- ----
GDP growth 7.7/ 18.1/ 30.0/
(YoY%) 5.9 17.3/3.5 3.8 7.5 1.9 (10.4) (1.8) 6.8 2.0 3.4/(1.9) (0.4) 4.9 2.1 (14.5) (2.7) 8.9 6.0 (35.0) 3.8 11.2
Unemployment
(%) 3.8 4.3/3.7 3.6 3.8 4.1 6.1/3.2 2.7 5.9 3.9 4.8/3.6 3.3 4.5 3.5 5.5/3.0 2.4 4.8 N/A N/A N/A N/A
3 month
interest
rates
(%) 2.4 2.8/1.4 1.4 3.4 2.1 3.5/0.8 0.5 4.3 1.6 2.5/1.1 0.8 2.8 1.7 2.9/0.7 0.6 5.7 4.4 5.7/3.2 3.0 6.2
House
prices 14.8/
(YoY%) 6.4 7.6/4.8 (32.6) 32.5 3.9 8.5/(4.9) (5.5) 14.3 2.3 2.8/0.3 (0.0) 4.8 3.8 (13.0) (8.6) 13.6 6.0 9.4/(2.6) (0.1) 12.7
------------- -------- -------- ------ ---- -------- --------- ----- ---- -------- --------- ----- ---- -------- -------- ----- ---- -------- --------- ----- ----
2019
China Hong Kong Korea Singapore India
------------- ----------------------------- -------------------------------- ----------------------------- ------------------------------- -----------------------------
5 yr Base 5 yr Base 5 yr Base 5 yr Base 5 yr Base
average forecast average forecast average forecast average forecast average forecast
base peak/ Low High base peak/ Low High base peak/ Low High base peak/ Low High base peak/ Low High
forecast trough 2 3 forecast trough 2 3 forecast trough 2 3 forecast trough 2 3 forecast trough 2 3
------------- -------- -------- --- ---- -------- --------- ----- ---- -------- -------- --- ---- -------- -------- ----- ---- -------- -------- --- ----
GDP growth (2.7)
(YoY%) 5.8 6.3/5.5 4.4 7.4 1.6 2.5/(4.8) 4 4.4 2.6 2.9/2.1 0.6 4.8 2.1 2.5/0.9 (1.4) 5.9 6.9 7.2/6.1 5.0 9.0
Unemployment
(%) 3.6 3.6/3.6 3.6 3.7 3.5 3.6/3.1 2.7 4.3 3.6 4.0/3.2 3.0 4.2 3.0 3.2/3.0 2.3 3.8 N/A N/A N/A N/A
3 month
interest
rates
(%) 2.6 2.8/2.3 1.8 3.6 2.4 3.5/1.2 0.9 4.3 1.7 2.5/1.2 0.8 2.9 2.0 2.9/1.3 1.1 3.1 5.2 5.6/4.8 4.3 6.1
House
prices
(YoY%) 6.3 7.6/4.2 4.2 8.3 3.6 5.7/(5.1) (6.5) 14.6 2.6 2.8/0.7 0.5 4.8 3.4 4.4/0.4 (2.7) 9.7 7.8 8.1/6.9 2.4 13.2
------------- -------- -------- --- ---- -------- --------- ----- ---- -------- -------- --- ---- -------- -------- ----- ---- -------- -------- --- ----
20205 2019
--------------------- --------------------------------- ---------------------------------
5 yr Base 5 yr Base
average forecast average forecast
base peak/ base peak/
forecast trough Low2 High3 forecast trough Low2 High3
--------------------- --------- --------- ---- ----- --------- --------- ---- -----
Crude price Brent, $
pb 49.9 61.5/23.0 27.9 80.7 71 76/66 42 102
--------------------- --------- --------- ---- ----- --------- --------- ---- -----
1 N/A - Not available
2 Represents the 10th percentile in the range of economic
scenarios used to determine non-linearity
3 Represents the 90th percentile in the range of economic
scenarios used to determine non-linearity
4 This value is higher than the trough in the base case forecast
because it is measured over the five-year range; if the 10(th)
percentile had been read off the first half of 2020, it would have
been -5.7.
5 Base forecasts are evaluated from Q2 2020 to Q2 2025. The
forward-looking simulation starts from Q3 2020. Accordingly, if the
base forecast registers an extreme value in Q2 2020 from which it
recovers by Q3 2020, it is possible for the base forecasts to
exhibit a more extreme value than the simulated range
The final probability-weighted ECL reported by the Group is a
simple average of the ECL for each of the 50 scenarios, together
with the ECL from the base forecast. The impact of these scenarios
and the management overlay (together referred to as non-linearity)
is set out in the table below.
Including
non-linearity Base forecast Difference
$million $million %
------------------------------------------------ -------------- ------------- ----------
Total expected credit loss at 30 June 20201 1,686 1,349 25.0
------------------------------------------------ -------------- ------------- ----------
Total expected credit loss at 31 December 20191 1,108 1,079 2.7
------------------------------------------------ -------------- ------------- ----------
1 Total modelled ECL comprises stage 1 and stage 2 balances of
$1,519 million (31 December 2019: $975 million) and $167 million
(31 December 2019: $133 million) of modelled ECL on stage 3
loans
The average expected credit loss under multiple scenarios (which
incorporates the management overlay below) is 25.0 per cent higher
than the expected credit loss calculated using only the most likely
scenario (the Base Forecast). Portfolios that are more sensitive to
non-linearity include those with greater leverage and/or a longer
tenor, such as Project and Shipping Finance and credit card
portfolios. Other portfolios display minimal non-linearity owing to
limited responsiveness to macroeconomic impacts for structural
reasons such as significant collateralisation as with the Retail
Banking mortgage portfolios.
Management overlay - COVID-19
As at 30 June 2020, the Group held a $316 million management
overlay relating to uncertainties as a result of the COVID-19
pandemic, $198 million of which relates to Corporate &
Institutional Banking and Commercial Banking and $118 million to
Retail Banking.
Corporate & Institutional Banking and Commercial Banking
The amount of loans placed on non-purely precautionary early
alert increased significantly over the first half of 2020 as the
impact of COVID-19 was evaluated on the Group's portfolio. However,
the impact of the rapid deterioration in the economic environment
in the first six months of 2020 has not yet been fully observed in
customers' financial performance and there has not been a
significant increase in the level of stage 3 loans relating to
COVID-19 as at 30 June 2020. To take account of the heightened
credit risk and the continuing uncertainties in the pace and timing
of economic recovery, a judgemental overlay has been taken by
estimating the impact of further deterioration to the non-purely
precautionary early alert portfolio.
Retail Banking
A number of components contribute to the judgemental overlay for
Retail Banking. Within Business Banking, the Group has evaluated
those sectors that have been adversely impacted by COVID-19, both
through internal credit processes as well as through a 'Voice of
Customer' survey to understand how customers have been affected.
The Group has also considered the extent to which lockdowns have
impacted collections and recoveries, and the extent to which
payment reliefs may mask underlying credit risks, particularly in
those markets in ASEAN & South Asia where blanket moratoria are
in place. For those markets, the Group has estimated the impact of
increased delinquencies and flows to defaults when the moratoria
are lifted as well, as the extent to which customers in stage 1 may
have experienced a significant increase in credit risk if not for
the moratoria. The Group assessment also considered employee
banking relationships with high-impact sectors, such as airlines,
and the impact on Mortgages in Africa & the Middle East which
generally have high LTVs.
Stage 3
Credit-impaired assets managed by Group Special Assets
Management incorporate forward-looking economic assumptions in
respect of the recovery outcomes identified and are assigned
individual probability weightings. These assumptions are not based
on a Monte Carlo simulation but are informed by the Base
Forecast.
Sensitivity of expected credit loss calculation to macroeconomic
variables (within EY review scope)
The ECL calculation relies on multiple variables and is
inherently non-linear and portfolio-dependent, which implies that
no single analysis can fully demonstrate the sensitivity of the ECL
to changes in the macroeconomic variables. The Group has conducted
a series of analyses with the aim of identifying the macroeconomic
variables which might have the greatest impact on overall ECL.
These encompassed single variable and multi-variable exercises,
using simple up/down variation and extracts from actual calculation
data, as well as bespoke scenario design and assessments.
The primary conclusion of these exercises is that no individual
macroeconomic variable is materially influential - that is, likely
to result in an impact of at least 1 per cent of the Group's ECL.
The Group believes this is plausible as the number of variables
used in the ECL calculation is large. This does not mean that
macroeconomic variables are uninfluential; rather, that the Group
believes that consideration of macroeconomics should involve whole
scenarios, as this aligns with the multi-variable nature of the
calculation.
The Group faces downside risks in the operating environment
related to the uncertainties surrounding the effect of COVID-19 on
the macroeconomic outlook. To explore this, a sensitivity analysis
of ECL was undertaken to explore the effect of slower economic
recoveries across the Group's footprint markets. Two variants were
considered - one with moderately slower recovery than the baseline
and a second more severe scenario. In these scenarios the
assumption is that the measures taken in the first half of the year
to stem the spread of the coronavirus are insufficient as economies
exhibit increasing numbers of cases. As a result, lockdown measures
are implemented or re-introduced in all footprint countries.
Economic activity is restricted to covering basic needs and smaller
businesses continue to suffer, with unemployment figures rising.
Cross-border trade is significantly reduced or halted. Government
debt jumps in an effort to stimulate the economy and keep cash
flowing to the private sector. Taken together, it takes longer for
fiscal and monetary stimulus to bring activity and employment back
to the levels prevailing prior to the onset of COVID-19.
Baseline Moderate scenario Severe scenario
-------------------------- ---------------------- ---------------------- ----------------------
Five year Five year Five year
average Peak/Trough average Peak/Trough average Peak/Trough
-------------------------- --------- ----------- --------- ----------- --------- -----------
China GDP 5.9 17.3/3.5 4.6 10.2/(2.3) 3.3 6.6/(9.0)
China unemployment 3.8 4.3/3.7 4.4 5.9/3.7 5.1 8.0/3.7
China property prices 6.4 7.6/4.8 4.5 7.9/(11.2) 2.6 10.0/(27.4)
-------------------------- --------- ----------- --------- ----------- --------- -----------
Hong Kong GDP 1.9 7.7/(10.4) 1.3 5.1/(10.7) 0.8 3.2/(11.0)
Hong Kong unemployment 4.1 6.1/3.2 4.4 6.4/3.2 4.6 7.1/3.2
Hong Kong property prices 3.9 8.5/(4.9) 2.8 11.7/(17.5) 2.2 16.1/(30.8)
-------------------------- --------- ----------- --------- ----------- --------- -----------
US GDP 1.2 17.8/(15.8) 0.1 12.1/(18.6) (0.8) 11.2/(21.9)
-------------------------- --------- ----------- --------- ----------- --------- -----------
Singapore GDP 2.1 18.1/(14.5) 1.8 14.6/(14.5) 1.6 11.1/(14.5)
-------------------------- --------- ----------- --------- ----------- --------- -----------
India GDP 6.0 30.0/(35.0) 4.8 33.1/(35.0) 3.6 36.1/(35.0)
-------------------------- --------- ----------- --------- ----------- --------- -----------
World GDP 3.1 9.6/(8.1) 1.9 8.2/(10.5) 1.2 6.9/(15.2)
-------------------------- --------- ----------- --------- ----------- --------- -----------
Crude Oil 49.9 61.5/23.0 47.4 61.5/20.2 44.9 61.5/17.4
-------------------------- --------- ----------- --------- ----------- --------- -----------
The modelled ECL provisions would be approximately $740 million
higher under the moderate scenario and $2.4 billion higher under
the severe scenario than the baseline ECL provisions (which
excluded the impact of multiple economic scenarios and management
overlays which may already capture some of the risks in these
scenarios). The proportion of stage 2 assets would increase from 6
per cent to 12 per cent under the severe downside scenario. This
includes the impact of exposures transferring to stage 2 from stage
1 but does not consider an increase in stage 3 defaults. There was
no material change in modelled stage 3 provisions as these
primarily relate to unsecured Retail Banking exposures for which
the LGD is not sensitive to changes in the macroeconomic forecasts.
Under the severe scenario the majority of the increase was in
Corporate & Institutional Banking and Commercial Banking with
the main corporate portfolios in China, Hong Kong and Singapore
impacted. Around 20 per cent of the increase was in Retail Banking,
with the main portfolios impacted being the Group's credit card
portfolios in Hong Kong and Singapore. Note that these scenarios
are not incorporated into the Group's determination of ECL
provisions and the actual outcome of any scenario may be materially
different due to, amongst other factors, the effect of management
actions to mitigate potential increases in risk and changes in the
underlying portfolio.
Modelled provisions (within EY review scope)
Moderate Severe
downside downside
increase increase
$m $m
---------------------------------- --------- ---------
Corporate & Institutional Banking 300 1,366
Retail Banking 220 493
Commercial Banking 196 520
Private Banking 1 34
Central & other items 23 34
---------------------------------- --------- ---------
Total 740 2,447
---------------------------------- --------- ---------
Proportion of assets in stage 21 (within EY review scope)
Base Moderate Severe
Forecast downside downside
scenario scenario scenario
% % %
---------------------------------- --------- --------- ---------
Corporate & Institutional Banking 9.0% 15.1% 19.7%
Retail Banking 3.7% 4.0% 5.6%
Commercial Banking 15.5% 35.1% 42.9%
Private Banking 1.5% 6.0% 6.0%
Central & other items 1.7% 1.8% 5.6%
---------------------------------- --------- --------- ---------
Total 6.2% 9.4% 12.2%
---------------------------------- --------- --------- ---------
1 Excludes cash and balances at central banks, accrued income,
assets held for sale and other assets
Country Risk
The Group monitors Gross Country Risk (GCR), which is an
aggregate of two distinct risk types:
-- Transfer and Convertibility Risk (TCR), which is the
potential for losses on cross-border or foreign currency
obligations arising from the possibility that a government is
unable or unwilling to make foreign currency available for
remittance out of the country
-- Local Currency Risk (LCR), which is the potential for losses
on local currency obligations arising from operating in a volatile
domestic economic and political environment
The profile of the Group's largest Gross Country Risk exposures
as at 30 June 2020 is consistent with its strategic focus on core
franchise countries. Changes in the pace of economic activity and
portfolio management activity had an impact on the growth of
Country Risk exposure for certain markets.
There has been a significant increase in exposure to the United
States, due to increased purchases of US government bonds, and
higher lending, particularly to non-financial corporates.
There has been a reduction in exposure to Hong Kong, primarily
due to lower holdings of domestic government securities. This was
partially offset by increases in nostros balances with the central
bank and growth in the lending portfolio.
The significant increase in exposure to South Korea is on
account of higher nostros balances with the central bank and
increased holding of domestic government bonds.
The significant increase in exposure to Singapore is due to
higher nostros balances kept with the Monetary Authority of
Singapore and increased cross-border lending. This was partially
offset by reductions in retail exposure and trade finance.
Exposure to China increased slightly due to the increase in
nostros balances offsetting the reduction in trade finance and
retail exposure.
There was a significant decrease in exposure to the United
Kingdom during the first half of the year due to reductions in
cross-border trade finance, particularly with financial
institutions, and lower nostros balances.
Exposure to India increased slightly, with increases in lending
to non-financial corporates offsetting the reductions across trade
finance and the retail portfolio.
Exposure to the United Arab Emirates increased due to higher
cross-border lending and increased trade finance volumes. This was
partially offset by a reduction in domestic government
securities.
There has been a slight increase in exposure to Japan due to
higher purchases of domestic government securities, particularly in
offshore booking centres. This was partially offset by a lower
nostros balance kept with the central bank.
Overall exposure to Taiwan increased during the first half of
the year due to an increase in money market deposits kept with
domestic banks, offsetting the reduction in trade finance.
The table below, which is based on the Group's internal Country
Risk reporting requirements, shows the 10 largest country/market
exposures across the Group.
30.06.20 31.12.19
--------------------- ------------------------------- -------------------------------
TCR LCR GCR TCR LCR GCR
$million $million $million $million $million $million
--------------------- --------- --------- --------- --------- --------- ---------
United States 33,310 58,241 91,551 25,966 58,930 84,896
Hong Kong 21,141 62,581 83,722 21,361 63,214 84,575
South Korea 15,797 57,350 73,147 17,809 49,351 67,160
Singapore 21,470 37,737 59,207 18,304 34,046 52,350
China 37,767 20,550 58,317 36,469 20,977 57,446
United Kingdom 22,906 16,802 39,708 27,563 16,782 44,345
India 15,146 20,628 35,774 14,008 20,305 34,313
United Arab Emirates 18,577 5,700 24,277 16,461 6,145 22,606
Japan 14,126 6,847 20,973 9,341 10,393 19,734
Taiwan 5,553 15,198 20,751 2,733 14,827 17,560
--------------------- --------- --------- --------- --------- --------- ---------
Traded Risk
Traded Risk is the potential for loss resulting from activities
undertaken by the Group in financial markets. Under the Enterprise
Risk Management Framework, the Traded Risk Framework brings
together Market Risk, Counterparty Credit Risk, Issuer Risk, XVA,
Algorithmic Trading and Pension Risk. Traded Risk Management is the
core risk management function supporting market-facing businesses,
predominantly Financial Markets and Treasury Markets.
Market Risk (within EY review scope)
Market Risk is the potential for loss of economic value due to
adverse changes in financial market rates or prices. The Group's
exposure to Market Risk arises predominantly from the following
sources:
-- Trading book:
- The Group provides clients access to financial markets,
facilitation of which entails taking moderate Market Risk
positions. All trading teams support client activity. There are no
proprietary trading teams. Hence, income earned from Market
Risk-related activities is primarily driven by the volume of client
activity rather than risk-taking
-- Non-trading book:
- The Treasury Markets desk is required to hold a liquid assets
buffer, much of which is held in high-quality marketable debt
securities
- The Group has capital invested and related income streams
denominated in currencies other than US dollars. To the extent that
these are not hedged, the Group is subject to Structural Foreign
Exchange Risk which is reflected in reserves
A summary of our current policies and practices regarding Market
Risk management is provided in the Principal Risks section of our
2019 Annual Report (page 215).
The primary categories of Market Risk for the Group are:
-- Interest Rate Risk: arising from changes in yield curves,
credit spreads and implied volatilities on interest rate
options
-- Foreign Exchange Rate Risk: arising from changes in currency
exchange rates and implied volatilities on foreign exchange
options
-- Commodity Risk: arising from changes in commodity prices and
implied volatilities on commodity options; covering energy,
precious metals, base metals and agriculture as well as commodity
baskets
-- Equity Risk: arising from changes in the prices of equities,
equity indices, equity baskets and implied volatilities on related
options
Market Risk changes (within EY review scope)
The average level of total trading and non-trading value at risk
(VaR) in the first half of 2020 was $82.4 million, 157 per cent
higher than the second half of 2019 ($32.1 million) and 192 per
cent higher than the first half of 2019 ($28.2 million). The actual
level of total trading and non-trading VaR as at the end of the
first half of 2020 was $124.6 million, 262 per cent higher than in
the second half of 2019 ($34.4 million) and 302 per cent higher
than the first half of 2019 ($31.0 million). The increase in total
average VaR was driven by the extreme market volatility following
the outbreak of COVID-19 and the collapse in oil prices. The main
contributor to the increase in VaR was the widening of credit
spreads observed in March 2020 which impacted the non-trading book.
The historical scenarios driving VaR are all from March 2020, hence
VaR is expected to remain elevated until at least March 2021.
For the trading book, the average level of VaR in the first half
of 2020 was $13.0 million, 19 per cent higher than in the second
half of 2019 ($10.9 million), and 17 per cent higher than in the
first half of 2019 ($11.1 million). Trading activities have
remained relatively unchanged and client-driven.
Daily value at risk (VaR at 97.5%, one day) (within EY review
scope)
6 months ended 30.06.20 6 months ended 31.12.19 6 months ended 30.06.19
------------ ---------------------------------------------- ---------------------------------------------- ----------------------------------------------
Average High1 Low1 Actual2 Average High1 Low1 Actual2 Average High1 Low1 Actual2
Trading and
non-trading $million $million $million $million $million $million $million $million $million $million $million $million
------------ ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Interest
Rate
Risk3 75.7 117.9 29.0 115.0 30.9 35.2 24.8 34.2 26.8 29.5 24.1 26.7
Foreign
Exchange
Risk 4.5 7.2 3.0 6.6 3.9 7.5 2.3 5.1 4.6 8.5 2.7 3.7
Commodity
Risk 1.5 2.6 0.7 1.6 1.4 2.1 1.0 1.4 1.2 2.2 0.8 1.2
Equity Risk 2.4 2.7 1.9 2.0 3.7 4.6 2.5 2.5 3.3 4.6 2.5 4.5
------------ ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total4 82.4 132.7 28.8 124.6 32.1 37.1 27.9 34.4 28.2 31.4 24.1 31.0
------------ ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
6 months ended 30.06.20 6 months ended 31.12.19 6 months ended 30.06.19
---------- ---------------------------------------------- ---------------------------------------------- ----------------------------------------------
Average High1 Low1 Actual2 Average High1 Low1 Actual2 Average High1 Low1 Actual2
Trading5 $million $million $million $million $million $million $million $million $million $million $million $million
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Interest
Rate
Risk3 9.4 13.9 6.5 11.6 7.5 9.1 6.3 7.0 8.6 11.8 6.3 7.3
Foreign
Exchange
Risk 4.5 7.2 3.0 6.6 3.9 7.5 2.3 5.1 4.6 8.5 2.7 3.7
Commodity
Risk 1.5 2.6 0.7 1.6 1.4 2.1 1.0 1.4 1.2 2.2 0.8 1.2
Equity
Risk - - - - - - - - - 0.1 - -
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total4 13.0 21.3 8.3 17.4 10.9 13.0 8.8 10.0 11.1 14.0 9.2 11.0
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
6 months ended 30.06.20 6 months ended 31.12.19 6 months ended 30.06.19
------------ ---------------------------------------------- ---------------------------------------------- ----------------------------------------------
Average High1 Low1 Actual2 Average High1 Low1 Actual2 Average High1 Low1 Actual2
Non-trading $million $million $million $million $million $million $million $million $million $million $million $million
------------ ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Interest
Rate
Risk3 68.0 109.6 27.3 87.3 28.7 33.3 23.1 33.3 23.6 25.0 21.2 23.3
Equity Risk6 2.4 2.7 1.9 2.1 3.7 4.6 2.5 2.5 3.3 4.6 2.5 4.5
------------ ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total4 68.8 109.7 27.7 89.1 29.6 33.4 25.6 32.0 23.7 27.4 20.6 26.5
------------ ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
1 Highest and lowest VaR for each risk factor are independent
and usually occur on different days
2 Actual one-day VaR at period-end date
3 Interest Rate Risk VaR includes Credit Spread Risk arising
from securities accounted for as fair value through profit or loss
(FVTPL) or fair value through other comprehensive income
(FVOCI)
4 The total VaR shown in the tables above is not equal to the
sum of the component risks due to offsets between them
5 Trading book for Market Risk is defined in accordance with the
EU Capital Requirements Regulation (CRD IV/CRR) Part 3 Title I
Chapter 3, which restricts the positions permitted in the trading
book
6 Non-trading Equity Risk VaR includes only listed equities
Risks not in VaR
In the first half of 2020, the main Market Risk not reflected in
VaR was the potential depeg risk from currencies currently pegged
or managed. The historical one-year VaR observation period does not
reflect the future possibility of a change in the currency regime
such as sudden depegging. The other material Market Risk not
reflected in VaR was associated with basis risks where historical
market price data for VaR is sometimes more limited and therefore
proxied. Additional capital is set aside to cover such 'risks not
in VaR'. For further details on Market Risk capital, see the
section on Market Risk in Standard Chartered PLC Pillar 3
Disclosures for 30 June 2020.
Backtesting
In the first half of 2020, there were three regulatory
backtesting exceptions at Group level (in the second half of 2019,
there were two regulatory backtesting exceptions at Group level).
All three exceptions occurred in the period of extreme market
volatility triggered by the COVID-19 pandemic.
-- 10 March: When markets rallied following the announcement of
measures to stimulate the US economy
-- 13 March: When markets rallied as the Federal Reserve
provided details of US Treasury purchases, and cut interest
rates
-- 24 March: When markets rallied as US Congress finalised a $2
trillion package to stimulate the economy, also impacting gold
prices
In total, there have been five Group exceptions in the previous
250 business days which is within the 'amber zone' applied
internationally to internal models by bank supervisors (Basel
Committee on Banking Supervision, Supervisory framework for the use
of backtesting in conjunction with the internal models approach to
market risk capital requirements, January 1996).
Average daily income earned from Market Risk-related activities1
(within EY review scope)
The average level of total trading daily income in the first
half of 2020 was $14.0 million, 65 per cent higher than the second
half of 2019 ($8.5 million) and 54 per cent higher than the first
half of 2019 ($9.1 million), driven by extreme market volatility
following the outbreak of COVID-19 and the resulting increase in
trading activity and wider spreads.
6 months 6 months 6 months
ended ended ended
30.06.20 31.12.19 30.06.19
Trading $million $million $million
---------------------- ---------- ---------- ----------
Interest Rate Risk 7.0 3.7 3.5
Foreign Exchange Risk 6.0 4.0 4.9
Commodity Risk 1.0 0.8 0.7
Equity Risk - - -
---------------------- ---------- ---------- ----------
Total 14.0 8.5 9.1
---------------------- ---------- ---------- ----------
Non-trading
Interest Rate Risk 1.8 1.9 1.6
Equity Risk (0.1) 1.0 (0.2)
---------------------- ---------- ---------- ----------
Total 1.7 2.9 1.4
---------------------- ---------- ---------- ----------
1 Reflects total product income, which is the sum of client
income and own account income. Includes elements of trading income,
interest income and other income which are generated from Market
Risk-related activities. XVA income is included under Interest Rate
Risk
Counterparty Credit Risk
Counterparty Credit Risk is the potential for loss in the event
of the default of a derivative counterparty, after taking into
account the value of eligible collaterals and risk mitigation
techniques. The Group's counterparty credit exposures are included
in the Credit Risk section.
Derivative financial instruments Credit Risk mitigation
The Group enters into master netting agreements, which in the
event of default result in a single amount owed by or to the
counterparty through netting the sum of the positive and negative
mark-to-market values of applicable derivative transactions.
In addition, the Group enters into credit support annexes (CSAs)
with counterparties where collateral is deemed a necessary or
desirable mitigant to the exposure. Cash collateral includes
collateral called under a variation margin process from
counterparties if total uncollateralised mark-to-market exposure
exceeds the threshold and minimum transfer amount specified in the
CSA. With certain counterparties, the CSA is reciprocal and
requires us to post collateral if the overall mark-to-market values
of positions are in the counterparty's favour and exceed an agreed
threshold.
Liquidity and Funding Risk
Liquidity and Funding Risk is the risk that we may not have
sufficient stable or diverse sources of funding to meet our
obligations as they fall due.
The Group's Liquidity and Funding Risk framework requires each
country to ensure that it operates within predefined liquidity
limits and remains in compliance with Group liquidity policies and
practices, as well as local regulatory requirements.
The Group achieves this through a combination of setting risk
appetite and associated limits, policy formation, risk measurement
and monitoring, prudential and internal stress testing, governance
and review.
Since the beginning of the year, there were no significant
changes in Treasury policies as disclosed in the 2019 Annual
Report.
Despite the challenges brought by COVID-19, the Group has been
resilient and kept a strong liquidity position. Overall the Group
has increased its level of deposits, in particular good-quality
current and savings account balances. The Group continues to focus
on improving the quality of its funding mix and remains committed
to supporting its clients during these uncertain times.
The Group has relatively low levels of sterling and euro funding
and exposures within the context of the overall Group balance
sheet. The result of the UK referendum to leave the EU has
therefore not had a material first order liquidity impact to date.
A new subsidiary has been established in Germany (Standard
Chartered Bank AG) to grow our continental Europe franchise.
Liquidity and Funding Risk metrics
We monitor key liquidity metrics regularly, both on a country
basis and in aggregate across the Group.
The following liquidity and funding Board Risk Appetite metrics
define the maximum amount and type of risk that the Group is
willing to assume in pursuit of its strategy: liquidity coverage
ratio (LCR), liquidity stress survival horizons, external wholesale
borrowing, and advances-to-deposits ratio.
Liquidity coverage ratio (LCR)
The LCR is a regulatory requirement set to ensure that the Group
has sufficient unencumbered high-quality liquid assets to meet its
liquidity needs in a 30-calendar-day liquidity stress scenario.
The Group monitors and reports its liquidity position under
European Commission Delegated Regulation 2015/61 (and subsequent
amendments) and has maintained its liquidity position above the
prudential requirement.
At the reporting date, the Group LCR was 149 per cent (2019: 144
per cent) with a prudent surplus to both Board-approved risk
appetite and regulatory requirements. The ratio increased 5 per
cent year-to-date due to a reduction in net outflows, caused mainly
by a change in the funding mix, with an increase in stable current
and saving accounts balances and a decrease in term deposits, as we
sought to manage liquidity more efficiently. We also held adequate
liquidity across our footprint to meet all local prudential LCR
requirements where applicable.
30.06.20 31.12.19
$million $million
------------------------- ---------- ----------
Liquidity buffer 156,842 158,415
Total net cash outflows 105,165 110,269
Liquidity coverage ratio 149% 144%
------------------------- ---------- ----------
Stressed coverage
The Group intends to maintain a prudent and sustainable funding
and liquidity position, in all countries and currencies, such that
it can withstand a severe but plausible liquidity stress.
Our approach to managing liquidity and funding is reflected in
the following Board-level Risk Appetite Statement:
"The Group should hold an adequate buffer of high-quality liquid
assets to survive extreme but plausible liquidity stress scenarios
for at least 60 days without recourse to extraordinary central bank
support."
The Group's internal liquidity stress testing framework covers
the following stress scenarios:
Standard Chartered-specific - This scenario captures the
liquidity impact from an idiosyncratic event affecting Standard
Chartered only i.e. the rest of the market is assumed to operate
normally.
Market-wide - This scenario captures the liquidity impact from a
market-wide crisis affecting all participants in a country, region
or globally.
Combined - This scenario assumes both Standard
Chartered-specific and market-wide events affecting the Group
simultaneously and hence is the most severe scenario.
All scenarios include, but are not limited to, modelled outflows
for retail and wholesale funding, Off-balance Sheet Funding Risk,
Cross-currency Funding Risk, Intraday Risk, Franchise Risk and
risks associated with a deterioration of a firm's credit
rating.
Stress testing results show that a positive surplus was
maintained under all scenarios as at 30 June 2020, i.e. respective
countries are able to survive for a period of time as defined under
each scenario. The combined scenario as at 30 June 2020 showed that
the Group maintained liquidity resources to survive greater than 60
days, as per our Board Risk Appetite. The results take into account
currency convertibility and portability constraints across all
major presence countries.
Standard Chartered Bank's credit ratings as at 30 June 2020 were
A+ with negative outlook (Fitch), A with stable outlook (S&P)
and A1 with stable outlook (Moody's). A downgrade in the Group's
long-term credit ratings would increase derivative collateral
requirements and outflows due to rating-linked liabilities. As at
30 June 2020, the estimated contractual outflow of a two-notch
long-term ratings downgrade is $1.3 billion.
External wholesale borrowing
The Board sets a risk limit to prevent excessive reliance on
wholesale borrowing. Limits are applied to all branches and
operating subsidiaries in the Group and, as at the reporting date,
the Group remained within Board Risk Appetite.
Advances-to-deposits ratio (within EY review scope)
This is defined as the ratio of total loans and advances to
customers relative to total customer accounts. An
advances-to-deposits ratio of below 100 per cent demonstrates that
customer deposits exceed customer loans as a result of the emphasis
placed on generating a high level of funding from customers.
The advances-to-deposits ratio decreased slightly to 62.7 per
cent over the first half of 2020 (2019: 64.2 per cent).
Loans and advances to customers increased to $269 billion driven
mainly by growth in Financial Markets, Corporate Lending and
Corporate Finance. The increase in Corporate Lending and Corporate
Finance reflects increased draw-downs on revolving credit
facilities that coincided with the global spread of COVID-19 in
March and April.
Customer deposits increased to $429 billion, with an increase in
operating account balances within Cash Management and Retail
Banking current accounts, partly offset by a reduction in Retail
Banking time deposits. The strong growth in current and saving
account balances allowed us to run down some term deposits to
manage liquidity more efficiently.
30.06.20 31.12.19
$million $million
----------------------------------------- ---------- ----------
Total loans and advances to customers1,2 268,788 264,841
Total customer accounts3 428,849 412,303
Advances-to-deposits ratio 62.7% 64.2%
----------------------------------------- ---------- ----------
1 Excludes reverse repurchase agreement and other similar
secured lending of $4,383 million and includes loans and advances
to customers held at fair value through profit and loss of $10,453
million
2 Loans and advances to customers for the purpose of the
advances-to-deposits ratio excludes $13,595 million of approved
balances held with central banks, confirmed as repayable at the
point of stress (31 December 2019: $9,109 million)
3 Includes customer accounts held at fair value through profit
or loss of $7,696 million (31 December 2019: $6,947 million)
Net stable funding ratio (NSFR)
On 23 November 2016, the European Commission, as part of a
package of risk-reducing measures, proposed a binding requirement
for stable funding (the NSFR) at European Union level. The proposal
aims to implement the European Banking Authority's interpretation
of the Basel standard on NSFR (BCBS295). The NSFR is due to become
a binding regulatory requirement in June 2021 with a minimum of 100
per cent. Pending implementation of the final rules, the Group
continues to monitor NSFR in line with the Basel Committee on
Banking Supervision's final recommendation (BCBS295).
The NSFR is a balance sheet metric which requires institutions
to maintain a stable funding profile in relation to the
characteristics of their assets and off-balance sheet activities
over a one-year horizon. It is the ratio between the amount of
available stable funding (ASF) and the amount of required stable
funding (RSF). ASF factors are applied to balance sheet liabilities
and capital, based on their perceived stability and the amount of
stable funding they provide. Likewise, RSF factors are applied to
assets and off-balance sheet exposures according to the amount of
stable funding they require. At the last reporting date, the Group
NSFR remained above 100 per cent.
Liquidity pool
The liquidity value of the Group's LCR eligible liquidity pool
at the reporting date was $157 billion. The figures in the table
below account for haircuts, currency convertibility and portability
constraints, and therefore are not directly comparable with the
consolidated balance sheet. The pool is held to offset stress
outflows as defined in European Commission Delegated Regulation
2015/61. The liquidity pool in Greater China and North Asia
decreased by $2 billion (3 per cent) during the first half of the
year. The amount that can be ported from the region to the group
reduced compared to December 2019 due to changes to lending limits
by the Chinese regulator (Large Exposures Regime).
30.06.20
---------------------------------- --------------------------------------------------------------
Greater China
& North East ASEAN & Africa & Europe &
Asia South Asia Middle East Americas Total
$million $million $million $million $million
---------------------------------- ------------- ----------- ------------ --------- ---------
Level 1 securities
Cash and balances at central
banks 10,795 15,700 1,024 29,112 56,631
Central banks, governments/public
sector entities 27,752 8,686 1,977 39,760 78,175
Multilateral development banks
and international organisations 4,903 723 498 6,697 12,821
Other - - 14 1,652 1,666
---------------------------------- ------------- ----------- ------------ --------- ---------
Total Level 1 securities 43,450 25,109 3,513 77,221 149,293
---------------------------------- ------------- ----------- ------------ --------- ---------
Level 2A securities 2,144 2,167 52 2,637 7,000
Level 2B securities - 243 - 306 549
---------------------------------- ------------- ----------- ------------ --------- ---------
Total LCR eligible assets 45,594 27,519 3,565 80,164 156,842
---------------------------------- ------------- ----------- ------------ --------- ---------
31.12.19
---------------------------------- --------------------------------------------------------------
Greater China
& North East ASEAN & Africa & Europe &
Asia South Asia Middle East Americas Total
$million $million $million $million $million
---------------------------------- ------------- ----------- ------------ --------- ---------
Level 1 securities
Cash and balances at central
banks 15,109 11,535 1,265 24,326 52,235
Central banks, governments/public
sector entities 31,735 7,952 2,201 39,136 81,024
Multilateral Development Banks
and international organisations 2,761 1,183 160 7,448 11,552
Other - - 14 1,104 1,118
---------------------------------- ------------- ----------- ------------ --------- ---------
Total Level 1 securities 49,605 20,670 3,640 72,014 145,929
---------------------------------- ------------- ----------- ------------ --------- ---------
Level 2 A securities 4,824 1,928 63 3,217 10,032
Level 2 B securities - 343 - 2,111 2,454
---------------------------------- ------------- ----------- ------------ --------- ---------
Total LCR eligible assets 54,429 22,941 3,703 77,342 158,415
---------------------------------- ------------- ----------- ------------ --------- ---------
Encumbrance
Encumbered assets
Encumbered assets represent on-balance sheet assets pledged or
subject to any form of arrangement to secure, collateralise or
credit enhance a transaction from which it cannot be freely
withdrawn. Cash collateral pledged against derivatives and Hong
Kong Government certificates of indebtedness, which secure the
equivalent amount of Hong Kong currency notes in circulation, are
included within Other assets.
Unencumbered - readily available for encumbrance
Unencumbered assets that are considered by the Group to be
readily available in the normal course of business to secure
funding, meet collateral needs, or be sold to reduce potential
future funding requirements and are not subject to any restrictions
on their use for these purposes.
Unencumbered - other assets capable of being encumbered
Unencumbered assets that, in their current form, are not
considered by the Group to be readily realisable in the normal
course of business to secure funding, meet collateral needs, or be
sold to reduce potential future funding requirements and are not
subject to any restrictions on their use for these purposes.
Included within this category are loans and advances which would be
suitable for use in secured funding structures such as
securitisations.
Unencumbered - cannot be encumbered
Unencumbered assets that have not been pledged and cannot be
used to secure funding, meet collateral needs, or be sold to reduce
potential future funding requirements, as assessed by the
Group.
Derivatives, reverse repurchase assets and stock lending
These assets are shown separately as these on-balance sheet
amounts cannot be pledged. However, these assets can give rise to
off-balance sheet collateral which can be used to raise secured
funding or meet additional funding requirements.
The following table provides a reconciliation of the Group's
encumbered assets to total assets.
30.06.20
------------ -------- --------------------------------------------------------------------------------------------------------------
Assets encumbered
as a result of
transactions with
counterparties Other assets (comprising assets encumbered
other than central at the central bank and unencumbered
banks assets)
------------------------------------- -----------------------------------------------------------------------
Assets not positioned at
the central bank
---------------- -------- --------- ----------- ------------------------------------------------ --------
Assets
positioned
at the
central Other
bank (i.e. assets
As a pre- Readily that are Derivatives
result positioned available capable and reverse Cannot
of plus for of being repo/stock be
Assets securiti-sations Other Total encumbered) encumbrance encumbered lending encumbered Total
$million $million $million $million $million $million $million $million $million $million
------------ -------- ---------------- -------- --------- ----------- ----------- ---------- ----------- ---------- --------
Cash and
balances
at central
banks 52,925 - - - 8,652 44,273 - - - 52,925
Derivative
financial
instruments 52,227 - - - - - - 52,227 - 52,227
Loans and
advances
to banks 70,438 - - - - 40,387 9,716 19,496 839 70,438
Loans and
advances
to
customers 328,165 - 1,227 1,227 - - 267,792 45,782 13,364 326,938
Investment
securities 172,302 - 11,470 11,470 1,601 109,526 45,752 - 3,953 160,832
Other assets 46,925 - 16,789 16,789 - - 18,990 - 11,146 30,136
Current tax
assets 737 - - - - - - - 737 737
Prepayments
and accrued
income 2,354 - - - - - 1,160 - 1,194 2,354
Interests in
associates
and joint
ventures 2,000 - - - - - - - 2,000 2,000
Goodwill and
intangible
assets 5,029 - - - - - - - 5,029 5,029
Property,
plant
and
equipment 6,747 - - - - - 436 - 6,311 6,747
Deferred tax
assets 822 - - - - - - - 822 822
Assets
classified
as held for
sale 914 - - - - - - - 914 914
------------ -------- ---------------- -------- --------- ----------- ----------- ---------- ----------- ---------- --------
Total 741,585 - 29,486 29,486 10,253 194,186 343,846 117,505 46,309 712,099
------------ -------- ---------------- -------- --------- ----------- ----------- ---------- ----------- ---------- --------
31.12.19
------------ -------- --------------------------------------------------------------------------------------------------------------
Assets encumbered
as a result of
transactions
with counterparties Other assets (comprising assets encumbered
other than central at the central bank and
banks unencumbered assets)
------------------------------------- -----------------------------------------------------------------------
Assets not positioned at
the central bank
---------------- -------- --------- ----------- ------------------------------------------------ --------
Assets
positioned
at the
central
bank Other
(i.e. assets
As a pre- Readily that are Derivatives
result positioned available capable and reverse Cannot
of plus for of being repo/stock be
Assets securiti-sations Other Total encumbered) encumbrance encumbered lending encumbered Total
$million $million $million $million $million $million $million $million $million $million
------------ -------- ---------------- -------- --------- ----------- ----------- ---------- ----------- ---------- --------
Cash and
balances
at central
banks 52,728 - - - 9,843 42,885 - - - 52,728
Derivative
financial
instruments 47,212 - - - - - - 47,212 - 47,212
Loans and
advances
to banks 75,346 326 73 399 - 40,600 13,341 19,610 1,396 74,947
Loans and
advances
to
customers 314,754 298 1,082 1,380 - - 259,061 40,804 13,509 313,374
Investment
securities 168,521 - 7,919 7,919 1,284 108,209 47,399 - 3,710 160,602
Other assets 42,022 - 16,080 16,080 - - 14,516 - 11,426 25,942
Current tax
assets 539 - - - - - - - 539 539
Prepayments
and accrued
income 2,700 - - - - - 1,530 - 1,170 2,700
Interests in
associates
and joint
ventures 1,908 - - - - - - - 1,908 1,908
Goodwill and
intangible
assets 5,290 - - - - - - - 5,290 5,290
Property,
plant
and
equipment 6,220 - - - - - 444 - 5,776 6,220
Deferred tax
assets 1,105 - - - - - - - 1,105 1,105
Assets
classified
as held for
sale 2,053 - - - - - - - 2,053 2,053
------------ -------- ---------------- -------- --------- ----------- ----------- ---------- ----------- ---------- --------
Total 720,398 624 25,154 25,778 11,127 191,694 336,291 107,626 47,882 694,620
------------ -------- ---------------- -------- --------- ----------- ----------- ---------- ----------- ---------- --------
The Group received $85,713 million (31 December 2019: $85,415
million) as collateral under reverse repurchase agreements that was
eligible for repledging; of this, the Group sold or repledged
$43,193 million (31 December 2019: $44,530 million) under
repurchase agreements.
Liquidity analysis of the Group's balance sheet
Contractual maturity of assets and liabilities (within EY review
scope)
The following table presents assets and liabilities by maturity
groupings based on the remaining period to the contractual maturity
date as at the balance sheet date on a discounted basis.
Contractual maturities do not necessarily reflect actual repayments
or cashflows.
Within the tables below, cash and balances with central banks,
interbank placements and investment securities that are fair value
through other comprehensive income are used by the Group
principally for liquidity management purposes.
As at the reporting date, assets remain predominantly
short-dated, with 58 per cent maturing in under one year. Our less
than three-month cumulative net funding gap increased from the
previous year, largely due to an increase in customer accounts as
the Group focused on improving the quality of its deposit base. In
practice, these deposits are recognised as stable and have
behavioural profiles that extend beyond their contractual
maturities.
30.06.20
-------------- ------------------------------------------------------------------------------------------------------
Between
Between Between Between nine Between Between More
one three six months one year two years than
month months months and and and five
One month and three and six and nine one two five years
or less months months months year years years and undated Total
$million $million $million $million $million $million $million $million $million
-------------- --------- ---------- --------- --------- --------- --------- ---------- ------------ ---------
Assets
Cash and
balances
at central
banks 44,273 - - - - - - 8,652 52,925
Derivative
financial
instruments 8,211 4,334 5,993 5,911 2,619 5,348 10,501 9,310 52,227
Loans and
advances
to banks1,2 33,570 16,111 10,855 3,998 3,344 1,488 953 119 70,438
Loans and
advances
to
customers1,2 87,673 40,216 24,537 16,321 13,559 18,526 39,391 87,942 328,165
Investment
securities 11,713 13,915 12,611 15,224 10,433 32,352 47,337 28,717 172,302
Other assets 24,974 16,262 1,295 168 665 142 61 21,961 65,528
-------------- --------- ---------- --------- --------- --------- --------- ---------- ------------ ---------
Total assets 210,414 90,838 55,291 41,622 30,620 57,856 98,243 156,701 741,585
-------------- --------- ---------- --------- --------- --------- --------- ---------- ------------ ---------
Liabilities
Deposits by
banks1,3 32,054 1,628 2,624 379 443 162 423 1 37,714
Customer
accounts1,4 374,720 46,102 25,703 9,645 7,539 2,027 1,625 2,103 469,464
Derivative
financial
instruments 7,675 4,253 5,673 5,597 3,072 5,966 11,750 6,840 50,826
Senior debt 671 110 610 2,177 1,900 707 14,510 12,226 32,911
Other debt
securities
in issue1 1,695 11,160 7,689 1,538 934 361 29 497 23,903
Other
liabilities 23,170 19,560 2,376 701 720 939 636 11,942 60,044
Subordinated
liabilities
and other
borrowed
funds - 17 - - - 1,002 4,664 11,143 16,826
-------------- --------- ---------- --------- --------- --------- --------- ---------- ------------ ---------
Total
liabilities 439,985 82,830 44,675 20,037 14,608 11,164 33,637 44,752 691,688
-------------- --------- ---------- --------- --------- --------- --------- ---------- ------------ ---------
Net liquidity
gap (229,571) 8,008 10,616 21,585 16,012 46,692 64,606 111,949 49,897
-------------- --------- ---------- --------- --------- --------- --------- ---------- ------------ ---------
1 Loans and advances, investment securities, deposits by banks,
customer accounts and debt securities in issue include financial
instruments held at fair value through profit or loss, see Note 13
Financial instruments
2 Loans and advances include reverse repurchase agreements and
other similar secured lending of $65.3 billion
3 Deposits by banks include repurchase agreements and other
similar secured borrowing of $7.5 billion
4 Customer accounts include repurchase agreements and other
similar secured borrowing of $40.6 billion
31.12.19
------------------ --------------------------------------------------------------------------------------------------
Between Between More
Between Between Between nine Between two than
one three six months one year years five
month months months and and and years
One month and three and six and nine one two five and
or less months months months year years years undated Total
$million $million $million $million $million $million $million $million $million
------------------ --------- ---------- --------- --------- --------- --------- --------- --------- ---------
Assets
Cash and balances
at central banks 42,885 - - - - - - 9,843 52,728
Derivative
financial
instruments 6,643 5,751 3,835 2,714 1,860 3,955 9,439 13,015 47,212
Loans and advances
to banks1,2 33,133 19,030 11,069 5,150 3,464 1,701 1,366 433 75,346
Loans and advances
to customers1,2 86,927 37,322 20,849 10,088 12,640 21,517 38,624 86,787 314,754
Investment
securities 11,968 11,837 17,180 11,789 7,070 34,859 44,488 29,330 168,521
Other assets 20,689 18,223 1,433 105 75 264 133 20,915 61,837
------------------ --------- ---------- --------- --------- --------- --------- --------- --------- ---------
Total assets 202,245 92,163 54,366 29,846 25,109 62,296 94,050 160,323 720,398
------------------ --------- ---------- --------- --------- --------- --------- --------- --------- ---------
Liabilities
Deposits by
banks1,3 31,873 2,931 1,079 361 528 174 486 - 37,432
Customer
accounts1,4 349,992 50,546 25,552 10,270 9,545 2,622 1,553 2,653 452,733
Derivative
financial
instruments 7,086 5,922 4,249 2,990 2,031 5,007 10,069 11,130 48,484
Senior debt 325 1,373 2,870 607 495 3,083 11,248 11,318 31,319
Other debt
securities
in issue1 5,612 12,234 8,766 895 1,449 280 56 924 30,216
Other liabilities 17,701 17,206 3,039 600 908 1,866 835 11,191 53,346
Subordinated
liabilities
and other
borrowed
funds - 17 754 - - - 5,523 9,913 16,207
------------------ --------- ---------- --------- --------- --------- --------- --------- --------- ---------
Total liabilities 412,589 90,229 46,309 15,723 14,956 13,032 29,770 47,129 669,737
------------------ --------- ---------- --------- --------- --------- --------- --------- --------- ---------
Net liquidity gap (210,344) 1,934 8,057 14,123 10,153 49,264 64,280 113,194 50,661
------------------ --------- ---------- --------- --------- --------- --------- --------- --------- ---------
1 Loans and advances, investment securities, deposits by banks,
customer accounts and debt securities in issue include financial
instruments held at fair value through profit or loss, see Note 13
Financial instruments
2 Loans and advances include reverse repurchase agreements and
other similar secured lending of $60.4 billion
3 Deposits by banks include repurchase agreements and other
similar secured borrowing of $7.8 billion
4 Customer accounts include repurchase agreements and other
similar secured borrowing of $40.4 billion
Behavioural maturity of financial assets and liabilities
The cashflows presented in the previous section reflect the
cashflows that will be contractually payable over the residual
maturity of the instruments. However, contractual maturities do not
necessarily reflect the timing of actual repayments or cashflow. In
practice, certain assets and liabilities behave differently from
their contractual terms, especially for short-term customer
accounts, credit card balances and overdrafts, which extend to a
longer period than their contractual maturity. On the other hand,
mortgage balances tend to have a shorter repayment period than
their contractual maturity date. Expected customer behaviour is
assessed and managed on a country basis using qualitative and
quantitative techniques, including analysis of observed customer
behaviour over time.
Maturity of financial liabilities on an undiscounted basis
(within EY review scope)
The following table analyses the contractual cashflows payable
for the Group's financial liabilities by remaining contractual
maturities on an undiscounted basis. The financial liability
balances in the table below will not agree with the balances
reported in the consolidated balance sheet as the table
incorporates all contractual cashflows, on an undiscounted basis,
relating to both principal and interest payments. Derivatives not
treated as hedging derivatives are included in the 'On demand' time
bucket and not by contractual maturity.
Within the 'More than five years and undated' maturity band are
undated financial liabilities, the majority of which relate to
subordinated debt, on which interest payments are not included as
this information would not be meaningful, given that the
instruments are undated. Interest payments on these instruments are
included within the relevant maturities up to five years.
30.06.20
--------------- -----------------------------------------------------------------------------------------------------
Between Between Between
Between Between nine one two More
Between three six months year years than
one month months months and and and five
One month and three and six and nine one two five years
or less months months months year years years and undated Total
$million $million $million $million $million $million $million $million $million
--------------- --------- ---------- --------- --------- --------- --------- --------- ------------ ---------
Deposits by
banks 31,996 1,644 2,635 386 480 170 427 1 37,739
Customer
accounts 374,994 46,315 26,093 9,750 7,703 2,114 1,672 2,408 471,049
Derivative
financial
instruments1 48,850 9 279 71 253 265 901 198 50,826
Debt securities
in issue 2,376 11,256 8,389 3,740 3,136 1,677 15,965 14,717 61,256
Subordinated
liabilities
and other
borrowed
funds - - 233 26 371 1,668 6,234 16,232 24,764
Other
liabilities 21,331 19,438 2,244 703 809 940 641 11,993 58,099
--------------- --------- ---------- --------- --------- --------- --------- --------- ------------ ---------
Total
liabilities 479,547 78,662 39,873 14,676 12,752 6,834 25,840 45,549 703,733
--------------- --------- ---------- --------- --------- --------- --------- --------- ------------ ---------
31.12.19
----------------- ---------------------------------------------------------------------------------------------------
Between More
Between Between nine Between Between than
Between three six months one year two years five
one month months months and and and years
One month and three and six and nine one two five and
or less months months months year years years undated Total
$million $million $million $million $million $million $million $million $million
----------------- --------- ---------- --------- --------- --------- --------- ---------- --------- ---------
Deposits by banks 33,034 2,977 1,112 381 588 189 502 - 38,783
Customer accounts 350,679 50,908 26,552 10,415 9,839 2,694 1,625 3,127 455,839
Derivative
financial
instruments1 47,000 5 18 170 314 355 512 110 48,484
Debt securities
in
issue 5,951 13,615 11,886 1,559 2,210 3,882 12,431 13,557 65,091
Subordinated
liabilities
and other
borrowed
funds - - 1,009 26 395 641 7,140 15,124 24,335
Other liabilities 15,341 16,870 3,046 601 865 1,876 885 12,376 51,860
----------------- --------- ---------- --------- --------- --------- --------- ---------- --------- ---------
Total liabilities 452,005 84,375 43,623 13,152 14,211 9,637 23,095 44,294 684,392
----------------- --------- ---------- --------- --------- --------- --------- ---------- --------- ---------
1 Derivatives are on a discounted basis
Interest Rate Risk in the banking book
The following table provides the estimated impact on the Group's
earnings of a 50 basis point parallel interest rate shock scenario
(up and down) to the current market-implied path of rates, across
all yield curves. These interest rate shock scenarios assume that
all other economic variables remain constant. The sensitivities
shown represent the estimated change to a hypothetical base case
projected net interest income (NII), plus the change in interest
rate implied income and expense from FX swaps used to manage
banking book currency positions, under the two interest rate shock
scenarios.
The interest rate sensitivities are indicative and based on
simplified scenarios, estimating the aggregate impact of an
instantaneous 50 basis point parallel shock across all yield curves
over a one-year horizon, including the time taken to implement
changes to pricing before becoming effective. The assessment
assumes that non-interest rate sensitive aspects of the size and
mix of the balance sheet remain constant and that there are no
specific management actions in response to the change in rates.
Furthermore, revenue associated with trading book positions is
recognised in trading book income, and is therefore excluded from
the reported sensitivities. No assumptions are made in relation to
the impact on credit spreads in a changing rate environment.
Significant modelling and behavioural assumptions are made
regarding scenario simplification, market competition, pass-through
rates, asset and liability re-pricing tenors, and price flooring.
In particular, the assumption that interest rates of all currencies
and maturities shift by the same amount concurrently, and that no
actions are taken to mitigate the impacts arising from this are
considered unlikely. Reported sensitivities will vary over time due
to a number of factors, including changes in balance sheet
composition, market conditions, customer behaviour and risk
management strategy, and should therefore not be considered an
income or profit forecast.
30.06.20
--------------------------------------- -----------------------------------------------
HKD, SGD
Estimated one-year impact to earnings & Other currency
from a parallel shift in yield curves USD bloc KRW bloc bloc Total
at the beginning of the period of: $million $million $million $million
--------------------------------------- --------- --------- -------------- ---------
+ 50 basis points 35 95 50 180
- 50 basis points (90) (180) (65) (335)
--------------------------------------- --------- --------- -------------- ---------
31.12.19
--------------------------------------- -----------------------------------------------
HKD, SGD
Estimated one-year impact to earnings & Other currency
from a parallel shift in yield curves USD bloc KRW bloc bloc Total
at the beginning of the period of: $million $million $million $million
--------------------------------------- --------- --------- -------------- ---------
+ 50 basis points (10) 60 90 140
- 50 basis points 10 (40) (90) (120)
--------------------------------------- --------- --------- -------------- ---------
As at 30 June 2020, the Group estimates the one-year impact of
an instantaneous, parallel increase across all yield curves of 50
basis points to increase projected NII by $180 million. The
equivalent impact from a parallel decrease of 50 basis points would
result in a reduction in projected NII of $335 million.
The benefit from rising interest rates is primarily from
reinvesting at higher yields and from assets re-pricing faster and
to a greater extent than deposits. Overall NII sensitivity under
both the up and down shock has increased versus 31 December 2019,
driven by Treasury Markets risk management activity as rates fell
during March 2020, and changes in modelling assumptions.
The asymmetry between the up and down shock has widened
primarily due to the low level of interest rates, which may
constrain the Group's ability to reprice liabilities should rates
fall by a further 50 basis points, as well as differing behavioural
assumptions, which are scenario-specific. The decision to pass on
changes in interest rates is highly speculative and depends on a
range of factors, including market environment and competitor
behaviour.
The US dollar sensitivity is dampened further by the exclusion
of trading book revenue. The reported sensitivities include the
cost of banking book liabilities used to fund the trading book,
however, the income associated with the corresponding trading book
assets is excluded and recognised in trading book income. Further
information on the impact of changes in interest rates on trading
book is set out in the Market Risk section.
Operational Risk
Operational Risks arise from the processes executed within the
Group. Risks associated with these processes are mapped into a
Group Process Universe where the Risk and Control Self-Assessment
methodology is applied. The standards are benchmarked against
regulatory requirements.
Operational Risk profile
The Operational Risk profile is the Group's overall exposure to
non-financial risk, at a given point in time, covering all
principal risk types. The Operational Risk profile comprises both
Operational Risk events (including losses) and the current
exposures to non-financial risks.
Other principal risks
Losses arising from operational failures for other principal
risks (for example: Compliance, Conduct, Reputational, Information
and Cyber Security and Financial Crime Risk) are reported as
operational losses. Operational losses do not include Operational
Risk-related credit impairments.
Standard Chartered PLC - Capital review
The Capital review provides an analysis of the Group's capital
and leverage position and requirements.
Capital summary
The Group's capital and leverage position is managed within the
Board-approved risk appetite. The Group is well capitalised with
low leverage and high levels of loss-absorbing capacity.
Capital, leverage and RWA 30.06.20 31.12.19
------------------------------ --------- --------
CET1 capital 14.3% 13.8 %
Tier 1 capital 16.5% 16.5 %
Total capital 21.5% 21.2 %
UK leverage 5.2% 5.2 %
MREL ratio 30.7% 28.6%
Risk-weighted assets $million 262,552 264,090
------------------------------ --------- --------
The Group's CET1 capital and Tier 1 leverage position were well
above current requirements. Further detail will be published in due
course in the Capital section of the Standard Chartered PLC Pillar
3 Disclosures for the first half of 2020.
The Group's CET1 ratio increased 50 basis points to 14.3 per
cent as profits, distribution restrictions and the sale of its
equity interest in Permata more than offset COVID-19 related RWA
impacts from increased credit migration, higher derivative activity
and the draw-down of revolving credit facilities.
In the period, the PRA set the Group's current Pillar 2A
requirement as a nominal value instead of a percentage of RWA. At
the first half of 2020, this nominal value equated to 3.3 per cent
of RWA, of which at least 1.9 per cent must be held in CET1. This
requirement will vary over time with movements in RWA and as Pillar
2A remains subject to regular PRA review. The Group's
countercyclical buffer reduced by 21 basis points to 14 basis
points mainly due to reductions in countercyclical buffer rates in
Hong Kong and the UK in response to the COVID-19 pandemic. As a
result of these changes the Group's minimum CET1 requirement
reduced by 23bps to 10.0% at 30 June 2020.
On 30 June, the PRA published a statement on various amendments
to the Capital Requirements Regulation (CRR) including revisions to
IFRS 9 transitional arrangements. In the period, certain changes
were made to the calculation of PVA and Market RWA add-ons for IMA
back-testing exceptions with the intention of offsetting some of
the impacts of COVID related volatility. In total, the Group
estimates these regulatory changes provided a CET1 benefit of
around 15 basis points in the period. The PRA has also published
Policy Statement 15/20 relating to Pillar 2A reductions to offset
future changes to the UK countercyclical buffer rates which the
Group currently expects to be implemented later this year. The
Group's current view is that these changes will only have a
negligible impact on the Group as the UK countercyclical buffer
rate is not a material driver of the Group's CET1 requirement.
The Group's fully phased minimum requirement for own funds and
eligible liabilities (MREL) will be 22.7 per cent of RWA from 1
January 2022 based on RWA and leverage exposure at the first half
of 20201. The Group's combined buffer (comprising the capital
conservation buffer, the GSII buffer and the countercyclical
buffer) is additive to the minimum MREL, resulting in a total MREL
of 26.3 per cent of 1H'20 RWA from 1 January 2022. The Group's MREL
position was 30.7 per cent of RWA and 10.0 per cent of leverage
exposure at 30 June 2020.
The Group made good progress in the period in delivering on its
2020 issuance plans despite challenging market conditions;
successfully raising around $7.4 billion of MREL eligible debt from
its holding company. Issuance was across the capital structure
including $1 billion of Additional Tier 1, EUR1 billion of Tier 2
and around $5.3 billion of callable senior debt.
In response to a request from the PRA and as a consequence of
the unprecedented challenges from the COVID-19 pandemic, the Board
decided to cancel the 2019 final dividend of 20 cents per ordinary
share and to suspend the $0.5 billion share buy-back programme
announced in February 2020. Additionally, no interim dividend on
ordinary shares will be accrued, recommended or paid in 2020.
The Group is a G-SII, with a 1.0 per cent G-SII CET1 buffer. The
Standard Chartered PLC 2019 G-SII disclosure is published at:
sc.com/fullyearresults.
1 Potential future offset to Pillar 2A requirements from changes
to the countercyclical buffer in PS 15/20 are not considered
here
Capital ratios
30.06.20 31.12.19
--------------- -------- --------
CET1 14.3% 13.8%
Tier 1 capital 16.5% 16.5%
Total capital 21.5% 21.2%
--------------- -------- --------
CRD IV Capital base1 (within EY review scope)
30.06.20 31.12.19
$million $million
------------------------------------------------------------ ---------- ----------
CET1 instruments and reserves
Capital instruments and the related share premium accounts 5,564 5,584
---------- ----------
Of which: share premium accounts 3,989 3,989
---------- ----------
Retained earnings2 25,798 24,044
Accumulated other comprehensive income (and other reserves) 11,431 11,685
Non-controlling interests (amount allowed in consolidated
CET1) 170 723
Independently reviewed interim and year-end profits 1,050 2,301
Foreseeable dividends (163) (871)
------------------------------------------------------------ ---------- ----------
CET1 capital before regulatory adjustments 43,850 43,466
------------------------------------------------------------ ---------- ----------
CET1 regulatory adjustments
Additional value adjustments (prudential valuation
adjustments) (527) (615)
Intangible assets (net of related tax liability) (4,938) (5,318)
Deferred tax assets that rely on future profitability
(excludes those arising from temporary differences) (129) (129)
Fair value reserves related to net losses on cashflow
hedges 121 59
Deduction of amounts resulting from the calculation
of excess expected loss (572) (822)
Net gains on liabilities at fair value resulting from
changes in own Credit Risk (15) (2)
Defined-benefit pension fund assets (7) (26)
Fair value gains arising from the institution's own
Credit Risk related to derivative liabilities (128) (38)
Exposure amounts which could qualify for risk weighting
of 1,250% (30) (62)
------------------------------------------------------------ ---------- ----------
Total regulatory adjustments to CET1 (6,225) (6,953)
------------------------------------------------------------ ---------- ----------
CET1 capital 37,625 36,513
------------------------------------------------------------ ---------- ----------
AT1 capital instruments 5,632 7,184
------------------------------------------------------------ ---------- ----------
AT1 regulatory adjustments (20) (20)
------------------------------------------------------------ ---------- ----------
Tier 1 capital 43,237 43,677
------------------------------------------------------------ ---------- ----------
Tier 2 capital instruments 13,261 12,318
Tier 2 regulatory adjustments (30) (30)
---------- ----------
Tier 2 capital 13,231 12,288
------------------------------------------------------------ ---------- ----------
Total capital 56,468 55,965
------------------------------------------------------------ ---------- ----------
Total risk-weighted assets (not within EY review scope) 262,552 264,090
------------------------------------------------------------ ---------- ----------
1 CRD IV capital is prepared on the regulatory scope of
consolidation
2 Retained earnings includes IFRS9 dynamic capital relief
(Transitional) of $69 million
Movement in total capital
6 months 6 months
ended ended
30.06.20 31.12.19
$million $million
------------------------------------------------------------ ---------- ----------
CET1 at 1 January/1 July 36,513 36,511
Ordinary shares issued in the period and share premium - -
Share buy-back (242) (6)
Profit for the period 1,050 820
Foreseeable dividends deducted from CET1 (163) (871)
Difference between dividends paid and foreseeable dividends 639 (2)
Movement in goodwill and other intangible assets 380 (117)
Foreign currency translation differences (456) (98)
Non-controlling interests (553) 30
Movement in eligible other comprehensive income 157 62
Deferred tax assets that rely on future profitability - (37)
Decrease/(increase) in excess expected loss 250 108
Additional value adjustments (prudential valuation
adjustment) 88 62
IFRS9 transitional impact on regulatory reserves including
day one 6 -
Exposure amounts which could qualify for risk weighting 32 10
Fair value gains arising from the institution's own
Credit Risk related to derivative liabilities (90) 52
Other 14 (11)
------------------------------------------------------------ ---------- ----------
CET1 at 30 June/31 December 37,625 36,513
------------------------------------------------------------ ---------- ----------
AT1 at 1 January/1 July 7,164 6,612
Issuances net of redemptions (995) 552
Foreign currency translation difference (16) 10
Excess on AT1 grandfathered limit (ineligible) (541) (10)
------------------------------------------------------------ ---------- ----------
AT1 at 30 June/31 December 5,612 7,164
------------------------------------------------------------ ---------- ----------
Tier 2 capital at 1 January/1 July 12,288 11,834
Regulatory amortisation 137 (539)
Issuances net of redemptions 375 1,000
Foreign currency translation difference (76) 3
Tier 2 ineligible minority interest (34) (20)
Recognition of ineligible AT1 541 10
Other - -
------------------------------------------------------------ ---------- ----------
Tier 2 capital at 30 June/31 December 13,231 12,288
------------------------------------------------------------ ---------- ----------
Total capital at 30 June/31 December 56,468 55,965
------------------------------------------------------------ ---------- ----------
The main movements in capital in the period were:
-- The CET1 ratio increased from 13.8 per cent to 14.3 per cent
as profits, distribution restrictions and the sale of Permata
offset the COVID-19 related increase in RWA
-- CET1 capital increased by $1.1 billion, as retained profits
of $1.1 billion and the reduction in dividends paid and foreseen of
$0.5 billion, was offset by foreign exchange of $0.5 billion and
the partly completed share buy-back
$0.2 billion
-- AT1 decreased to $5.6 billion as the call of $2 billion of
existing 6.5 per cent AT1 securities and the ongoing derecognition
of legacy Tier 1 capital was partly offset by the issuance of $1
billion of new 6.0 per cent AT1 securities, increasing the
efficiency of the Group's AT1 stock
-- Tier 2 capital was $0.9 billion higher at $13.2 billion as
EUR 1 billion of new issuance and the recognition of ineligible AT1
was partly offset by redemptions.
Risk-weighted assets by business
30.06.20
---------------------------------- --------------------------------------------
Credit Operational Market Total
Risk Risk Risk risk
$million $million $million $million
---------------------------------- --------- ----------- --------- ---------
Corporate & Institutional Banking 101,651 13,153 22,346 137,150
Retail Banking 36,611 7,575 - 44,186
Commercial Banking 28,046 2,810 - 30,856
Private Banking 5,365 763 - 6,128
Central & other items 41,463 2,499 270 44,232
---------------------------------- --------- ----------- --------- ---------
Total risk-weighted assets 213,136 26,800 22,616 262,552
---------------------------------- --------- ----------- --------- ---------
31.12.19
---------------------------------- -----------------------------------------------
Credit Operational Market Total
Risk1 Risk Risk risk
$million $million $million $million
---------------------------------- ---------- ----------- ---------- ----------
Corporate & Institutional Banking 95,261 13,261 20,562 129,084
Retail Banking 37,194 7,314 - 44,508
Commercial Banking 28,350 2,626 - 30,976
Private Banking 5,681 728 - 6,409
Central & other items 49,178 3,691 244 53,113
---------------------------------- ---------- ----------- ---------- ----------
Total risk-weighted assets 215,664 27,620 20,806 264,090
---------------------------------- ---------- ----------- ---------- ----------
1 Following a reorganisation of certain clients, there has been
a reclassification of balances across client segments, prior
periods have been restated.
Risk-weighted assets by geographic region
30.06.20 31.12.19
$million $million
--------------------------- ---------- ----------
Greater China & North Asia 89,139 85,695
ASEAN & South Asia 80,040 88,942
Africa & Middle East 52,009 49,244
Europe & Americas 44,326 43,945
Central & other items (2,962) (3,736)
--------------------------- ---------- ----------
Total risk-weighted assets 262,552 264,090
--------------------------- ---------- ----------
Movement in risk-weighted assets
Credit Risk
----------------- ----------------------------------------------------------------- ----------- -------- ---------
Corporate
& Central
Institutional Retail Commercial Private & other Operational Market Total
Banking Banking Banking Banking items Total Risk Risk risk
$million $million $million $million $million $million $million $million $million
----------------- ------------- -------- ---------- -------- -------- -------- ----------- -------- ---------
At 1 January 2019 96,954 35,545 27,711 5,103 45,825 211,138 28,050 19,109 258,297
Assets
(decline)/growth 5,808 1,650 1,405 771 3,021 12,655 - - 12,655
Asset quality (320) (831) (51) 10 45 (1,147) - - (1,147)
Risk-weighted
assets
efficiencies (672) - - - (2,056) (2,728) - - (2,728)
Model,
methodology
and policy
changes - (698) - - 1,400 702 - 500 1,202
Disposals - - - - - - - - -
Foreign currency
translation (26) (208) (117) 3 (262) (610) - - (610)
Other non-Credit
Risk
movements - - - - - - (430) 3,500 3,070
----------------- ------------- -------- ---------- -------- -------- -------- ----------- -------- ---------
At 30 June 2019 101,744 35,458 28,948 5,887 47,973 220,010 27,620 23,109 270,739
Assets
(decline)/growth (4,505) (630) (1,962) (243) 1,072 (6,268) - - (6,268)
Asset quality 2,885 1,663 (591) (2) 562 4,517 - - 4,517
Risk-weighted
assets
efficiencies (440) (33) (403) - (348) (1,224) - - (1,224)
Model,
methodology
and policy
changes (904) 691 - - - (213) - - (213)
Disposals (397) - (441) - - (838) - - (838)
Foreign currency
translation (156) (11) (111) 39 (81) (320) - - (320)
Other non-Credit
Risk
movements - - - - - - - (2,303) (2,303)
----------------- ------------- -------- ---------- -------- -------- -------- ----------- -------- ---------
At 31 December
2019 98,227 37,138 25,440 5,681 49,178 215,664 27,620 20,806 264,090
At 1 January
20201 95,261 37,194 28,350 5,681 49,178 215,664 27,620 20,806 264,090
Assets
(decline)/growth 758 (89) (505) (235) 813 742 - - 742
Asset quality 5,970 34 563 (1) 399 6,965 - - 6,965
Risk-weighted
assets
efficiencies 158 - 69 - - 227 - - 227
Model,
methodology
and policy
changes 667 298 - - - 965 - (1,400) (435)
Disposals - - - - (7,859) (7,859) (1,003) (159) (9,021)
Foreign currency
translation (1,163) (826) (431) (80) (1,068) (3,568) - - (3,568)
Other non-Credit
Risk
movements - - - - - - 183 3,369 3,552
----------------- ------------- -------- ---------- -------- -------- -------- ----------- -------- ---------
At 30 June 2020 101,651 36,611 28,046 5,365 41,463 213,136 26,800 22,616 262,552
----------------- ------------- -------- ---------- -------- -------- -------- ----------- -------- ---------
1 Following a reorganisation of certain clients, there has been
a reclassification of balances across client segments. 1 January
2020 balances have been restated.
Movements in risk-weighted assets
RWA decreased by $1.5 billion, or 0.6 per cent, from 31 December
2019 to $262.6 billion. This was mainly due to decreases in Credit
Risk RWA of $2.5 billion, and $0.8 billion in Operational Risk RWA
partly offset by an increase of $1.8 billion in Market Risk
RWA.
Corporate & Institutional Banking
Credit Risk RWA increased by $6.4 billion to $101.7 billion
mainly due to:
-- $6.0 billion increase due to deterioration in asset quality
due to counterparty downgrades across all regions and several
industry sectors
-- $1.2 billion decrease from foreign currency translation
mainly due to depreciation of currencies in India and the UK
against the US dollar
-- $0.8 billion increase due to asset balance growth in
Financial Markets and Lending, reflecting increased counterparty
Credit Risk on derivatives and drawdowns on revolving facilities
primarily in Europe & Americas
-- $0.7 billion increase due to methodology and policy changes
relating to the Revised Securitisation Framework
-- $0.2 billion increase due to booking changes relating to
certain Transaction Banking facilities.
Retail Banking
Credit Risk RWA decreased by $0.6 billion to $36.6 billion
mainly due to:
-- $0.8 billion decrease from foreign currency translation
mainly due to depreciation of currencies in Korea, India and
Singapore against the US dollar
-- $0.3 billion increase due to several model updates across
several countries and portfolios
-- $0.1 billion asset balance decline in Africa & Middle
East offset by asset balance growth in Greater China & North
Asia
Commercial Banking
Credit risk RWA decreased by $0.3 billion to $28 billion mainly
due to:
-- $0.6 billion increase due to deterioration in asset quality
principally due to credit migration in ASEAN & South Asia and
Africa & Middle East
-- $0.5 billion decline due to lower asset balances in Greater
China & North Asia
-- $0.4 billion decrease from foreign currency translation
mainly due to depreciation of currencies in India and Pakistan
against the US dollar
-- $0.1 billion increase due to booking changes relating to
certain Transaction Banking facilities
Private Banking
Credit Risk RWA decreased by $0.3 billion to $5.4 billion
principally due to asset balance decline in Wealth Management and
Retail products, primarily in ASEAN & South Asia and Europe
& Americas, partly offset by Greater China & North
Asia.
Central & other items
Central & other items RWA mainly relates to the Treasury
Markets liquidity portfolio, equity investments and
deferred/current tax assets.
Credit Risk RWA decreased by $7.7 billion to $41.5 billion
mainly due to:
-- $7.9 billion decrease principally due to the sale of the
Group's principal joint venture investment, PT Bank Permata Tbk
-- $1.1 billion decrease from foreign currency translation
mainly due to depreciation of currencies in India, Pakistan and
South Africa against the US dollar
-- $0.8 billion increase from asset balance growth, primarily in
Greater China & North Asia and Africa & Middle East
-- $0.4 billion increase due to deterioration in asset quality,
primarily in Africa & Middle East
Market Risk
Total Market Risk RWA (MRWA) increased by $1.8 billion, or 9 per
cent from 31 December 2019 to $22.6 billion. This change was due
mainly to IMA RWA changes in positions and increased volatility,
partly offset by the new IMA RNiV temporary mitigant for
backtesting exceptions.
Operational Risk
Operational Risk RWA reduced by $0.8 billion, or 3 per cent from
31 December 2019 to $26.8 billion. This was mainly due to the sale
of our shareholding in the Group's principal joint venture
investment, PT Bank Permata Tbk.
UK leverage ratio
The Group's UK leverage ratio, which excludes qualifying claims
on central banks in accordance with a PRA waiver, was 5.2 per cent,
which is above the current minimum requirement of 3.6 per cent. The
UK leverage ratio was flat in the period following a small increase
in end point Tier 1 (as profits and $1 billion of new AT1 offset a
$2 billion AT1 call) and a small increase in the exposure measure
(as increased benefit from regulatory consolidation adjustments
mainly due to the Permata sale partly offset growth in on-balance
sheet assets).
UK leverage ratio
30.06.20 31.12.19
$million $million
----------------------------------------------------- ---------- ----------
Tier 1 capital (transitional) 43,237 43,677
Additional Tier 1 capital subject to phase out (1,114) (1,671)
----------------------------------------------------- ---------- ----------
Tier 1 capital (end point) 42,123 42,006
----------------------------------------------------- ---------- ----------
Derivative financial instruments 52,227 47,212
Derivative cash collateral 9,716 9,169
Securities financing transactions (SFTs) 65,278 60,414
Loans and advances and other assets 614,364 603,603
----------------------------------------------------- ---------- ----------
Total on-balance sheet assets 741,585 720,398
Regulatory consolidation adjustments1 (47,271) (31,485)
Derivatives adjustments
---------- ----------
Derivatives netting (29,949) (32,852)
Adjustments to cash collateral (18,212) (11,853)
Net written credit protection 1,711 1,650
Potential future exposure on derivatives 37,606 32,961
---------- ----------
Total derivatives adjustments (8,844) (10,094)
Counterparty risk leverage exposure measure for SFTs 6,414 7,005
Off-balance sheet items 120,725 122,341
Regulatory deductions from Tier 1 capital (6,013) (6,913)
----------------------------------------------------- ---------- ----------
UK leverage exposure (end point) 806,596 801,252
UK leverage ratio (end point) 5.2% 5.2%
----------------------------------------------------- ---------- ----------
UK leverage exposure quarterly average 810,591 816,244
UK leverage ratio quarterly average 5.0% 5.1%
----------------------------------------------------- ---------- ----------
Countercyclical leverage ratio buffer 0.0% 0.1%
G-SII additional leverage ratio buffer 0.4% 0.4%
----------------------------------------------------- ---------- ----------
1 Includes adjustment for qualifying central bank claims
Standard Chartered PLC - Statement of directors'
responsibilities
We confirm that to the best of our knowledge:
-- The condensed consolidated interim financial statements have
been prepared in accordance with IAS 34 Interim Financial Reporting
as adopted by the EU
-- The interim management report includes a fair review of the
information required by:
(a) DTR 4.2.7R of the Disclosure and Transparency Rules, being
an indication of important events that have occurred during the
six months ended 30 June 2020 and their impact on the condensed
consolidated interim financial statements; and a description of the
principal risks and uncertainties for the remaining six months of
the year
(b) DTR 4.2.8R of the Disclosure and Transparency Rules, being
related party transactions that have taken place during the six
months ended 30 June 2020 that have materially affected the
financial position or performance of the entity during that period;
and any changes in the related party transactions described in the
last annual report that could have materially affected the
financial position or performance of the entity during that
period
By order of the Board
Andy Halford
Group Chief Financial Officer
30 July 2020
Independent review report to Standard Chartered PLC
Introduction
We have been engaged by Standard Chartered PLC (the 'Company' or
the 'Group') to review the condensed set of financial statements in
the half-yearly financial report for the six months ended 30 June
2020 which comprises the condensed consolidated interim income
statement, the condensed consolidated interim statement of
comprehensive income, the condensed consolidated interim balance
sheet, the condensed consolidated interim statement of changes in
equity, the condensed consolidated interim cash flow statement,
related notes 1 to 29, and the risk and capital disclosures, except
those being stated as excluded in note 1 (together the 'condensed
consolidated interim financial statements'). We have read the other
information contained in the half-yearly financial report and
considered whether it contains any apparent misstatements or
material inconsistencies with the information in the condensed
consolidated interim financial statements.
This report is made solely to the Company in accordance with
guidance contained in International Standard on Review Engagements
2410 (UK and Ireland) "Review of Interim Financial Information
Performed by the Independent Auditor of the Entity" issued by the
Auditing Practices Board. To the fullest extent permitted by law,
we do not accept or assume responsibility to anyone other than the
Company, for our work, for this report, or for the conclusions we
have formed.
Directors' Responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the directors. The directors are responsible
for preparing the half-yearly financial report in accordance with
the Disclosure Guidance and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
As disclosed in note 1, the annual financial statements of the
Group are prepared in accordance with International Financial
Reporting Standards as adopted by the European Union. The condensed
set of financial statements included in this half-yearly financial
report has been prepared in accordance with International
Accounting Standard 34 "Interim Financial Reporting" ('IAS 34'), as
adopted by the European Union.
Our Responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
Scope of Review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK) and consequently does not enable us to obtain
assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not
express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
June 2020 is not prepared, in all material respects, in accordance
with IAS 34 as adopted by the European Union and the Disclosure
Guidance and Transparency Rules of the United Kingdom's Financial
Conduct Authority.
Ernst & Young LLP
London
30 July 2020
Notes:
-- The maintenance and integrity of the Standard Chartered PLC
web site is the responsibility of the directors; the work carried
out by the auditors does not involve consideration of these matters
and, accordingly, the auditors accept no responsibility for any
changes that may have occurred to the financial information since
it was initially presented on the website.
-- Legislation in the United Kingdom governing the preparation
and dissemination of financial statements may differ from
legislation in other jurisdictions.
Condensed consolidated interim income statement
For the six months ended 30 June 2020
restated1
6 months 6 months
ended ended
30.06.20 30.06.19
Notes $million $million
---------------------------------------------- ----- ---------- ----------
Interest income 6,875 8,313
Interest expense (3,377) (4,475)
---------------------------------------------- ----- ---------- ----------
Net interest income 3 3,498 3,838
---------- ----------
Fees and commission income 1,870 2,120
Fees and commission expense (312) (282)
---------- ----------
Net fee and commission income 4 1,558 1,838
Net trading income 5 2,154 1,774
Other operating income 6 889 380
---------------------------------------------- ----- ---------- ----------
Operating income 8,099 7,830
---------- ----------
Staff costs (3,330) (3,577)
Premises costs (178) (191)
General administrative expenses (642) (953)
Depreciation and amortisation (598) (577)
---------- ----------
Operating expenses 7 (4,748) (5,298)
---------------------------------------------- ----- ---------- ----------
Operating profit before impairment losses and
taxation 3,351 2,532
Credit impairment 8 (1,576) (254)
Goodwill impairment 9 (258) -
Other impairment 9 35 (44)
Profit from associates and joint ventures 75 180
---------------------------------------------- ----- ---------- ----------
Profit before taxation 1,627 2,414
Taxation 10 (561) (918)
---------------------------------------------- ----- ---------- ----------
Profit for the period 1,066 1,496
---------------------------------------------- ----- ---------- ----------
Profit attributable to:
Non-controlling interests 18 19
Parent company shareholders 1,048 1,477
---------------------------------------------- ----- ---------- ----------
Profit for the period 1,066 1,496
---------------------------------------------- ----- ---------- ----------
Earnings per share: cents cents
------------------------------------ ----- -----
Basic earnings per ordinary share 12 25.8 38.0
Diluted earnings per ordinary share 12 25.5 37.5
------------------------------------ ----- -----
1 Comparatives have been restated due to the Group changing its
accounting policies for net interest income and net trading income
for the year ended 31 December 2019.
Refer to Note 1 in the Group's 2019 Annual Report
The notes form an integral part of these financial
statements.
Condensed consolidated interim statement of comprehensive
income
For the six months ended 30 June 2020
6 months 6 months
ended ended
30.06.20 30.06.19
Notes $million $million
--------------------------------------------------------- ----- ---------- ----------
Profit for the period 1,066 1,496
Other comprehensive (loss)/income
Items that will not be reclassified to income
statement: (24) (384)
---------- ----------
Own credit gains/(losses) on financial liabilities
designated at fair value through profit or
loss 22 (392)
Equity instruments at fair value through other
comprehensive income 38 13
Actuarial losses on retirement benefit obligations 25 (65) (49)
Taxation relating to components of other comprehensive
income (19) 44
---------- ----------
Items that may be reclassified subsequently
to income statement: (314) 65
Exchange differences on translation of foreign
operations:
---------- ----------
Net losses taken to equity (841) (159)
Net gains on net investment hedges 125 73
Reclassified to income statement on sale of
joint venture 246 -
Share of other comprehensive income from associates
and joint ventures 4 3
Debt instruments at fair value through other
comprehensive income:
Net valuation gains taken to equity 756 291
Reclassified to income statement (513) (58)
Net impact of expected credit losses 16 3
Cashflow hedges:
Net losses taken to equity (99) (79)
Reclassified to income statement 9 7
Taxation relating to components of other comprehensive
income (17) (16)
---------- ----------
Other comprehensive loss for the period, net
of taxation (338) (319)
--------------------------------------------------------- ----- ---------- ----------
Total comprehensive income for the period 728 1,177
--------------------------------------------------------- ----- ---------- ----------
Total comprehensive income attributable to:
Non-controlling interests 10 11
Parent company shareholders 718 1,166
--------------------------------------------------------- ----- ---------- ----------
Total comprehensive income for the period 728 1,177
--------------------------------------------------------- ----- ---------- ----------
Condensed consolidated interim balance sheet
As at 30 June 2020
30.06.20 31.12.19
Notes $million $million
------------------------------------------------- ----- ---------- ----------
Assets
Cash and balances at central banks 52,925 52,728
Financial assets held at fair value through
profit or loss 13 98,359 92,818
Derivative financial instruments 13,14 52,227 47,212
Loans and advances to banks1 13 50,499 53,549
Loans and advances to customers2 13 276,313 268,523
Investment securities 13 145,734 143,731
Other assets 18 46,925 42,022
Current tax assets 737 539
Prepayments and accrued income 2,354 2,700
Interests in associates and joint ventures 2,000 1,908
Goodwill and intangible assets 16 5,029 5,290
Property, plant and equipment 17 6,747 6,220
Deferred tax assets 822 1,105
Assets classified as held for sale 19 914 2,053
------------------------------------------------- ----- ---------- ----------
Total assets 741,585 720,398
------------------------------------------------- ----- ---------- ----------
Liabilities
Deposits by banks 13 28,986 28,562
Customer accounts 13 421,153 405,357
Repurchase agreements and other similar secured
borrowing 13,15 2,811 1,935
Financial liabilities held at fair value through
profit or loss 13 64,383 66,974
Derivative financial instruments 13,14 50,826 48,484
Debt securities in issue 13 51,086 53,025
Other liabilities 20 49,243 41,583
Current tax liabilities 607 703
Accruals and deferred income 4,129 5,369
Subordinated liabilities and other borrowed
funds 13,23 16,826 16,207
Deferred tax liabilities 655 611
Provisions for liabilities and charges 432 449
Retirement benefit obligations 25 543 469
Liabilities included in disposal groups held
for sale 19 8 9
------------------------------------------------- ----- ---------- ----------
Total liabilities 691,688 669,737
------------------------------------------------- ----- ---------- ----------
Equity
Share capital and share premium account 24 7,058 7,078
Other reserves 11,431 11,685
Retained earnings 26,569 26,072
------------------------------------------------- ----- ---------- ----------
Total parent company shareholders' equity 45,058 44,835
Other equity instruments 24 4,518 5,513
------------------------------------------------- ----- ---------- ----------
Total equity excluding non-controlling interests 49,576 50,348
Non-controlling interests 321 313
------------------------------------------------- ----- ---------- ----------
Total equity 49,897 50,661
------------------------------------------------- ----- ---------- ----------
Total equity and liabilities 741,585 720,398
------------------------------------------------- ----- ---------- ----------
1 Reverse repurchase agreements and other similar secured
lending balances held at amortised cost of $1,893 million (31
December 2019: $1,341 million) have been included with loans and
advances to banks
2 Reverse repurchase agreements and other similar secured
lending balances held at amortised cost of $4,383 million (31
December 2019: $1,469 million) have been included with loans and
advances to customers
The notes form an integral part of these financial
statements.
These financial statements were approved by the Board of
directors and authorised for issue on 30 July 2020 and signed on
its behalf by:
Andy Halford
Group Chief Financial Officer
30 July 2020
Condensed consolidated interim statement of changes in
equity
For the six months ended 30 June 2020
Fair Fair
Ordinary Preference value value
share share through through
capital capital other other
and and Capital Own compre-hensive compre-hensive Cash Parent
share share and credit income income flow company Other
premium premium merger adjust-ment reserve reserve hedge Translation Retained share-holders' equity Non-controlling
account account reserves reserve - debt - equity reserve reserve earnings equity instruments interests Total
$million $million $million $million $million $million $million $million $million $million $million $million $million
-------------- -------- ---------- -------- ----------- -------------- -------------- -------- ----------- -------- -------------- ----------- --------------- --------
As at 1
January
2019 5,617 1,494 17,1291 412 (161) 120 (10) (5,612) 26,129 45,118 4,961 273 50,352
Profit for
the period - - - - - - - - 1,477 1,477 - 19 1,496
Other
comprehensive
(loss)/income - - - (344) 212 3 (58) (78) (46)2 (311) - (8) (319)
Distributions - - - - - - - - - - - (26) (26)
Shares issued,
net of
expenses 253 - - - - - - - - 25 - - 25
Treasury
shares
net movement - - - - - - - - (132) (132) - - (132)
Share option
expense,
net of
taxation - - - - - - - - 97 97 - - 97
Dividends
on ordinary
shares - - - - - - - - (495) (495) - - (495)
Dividends
on preference
shares and
AT1
securities - - - - - - - - (221) (221) - - (221)
Share
buy-back4 (27) - 27 - - - - - (486) (486) - - (486)
Other
movements - - - - - - - - (5)5 (5) - 1536 148
-------------- -------- ---------- -------- ----------- -------------- -------------- -------- ----------- -------- -------------- ----------- --------------- --------
As at 30 June
2019 5,615 1,494 17,156 68 51 123 (68) (5,690) 26,318 45,067 4,961 411 50,439
Profit for
the period - - - - - - - - 826 826 - 18 844
Other
comprehensive
(loss)/income - - - (66) 146 27 9 (102) (86)2 (72) - (7) (79)
Distributions - - - - - - - - - - - (9) (9)
Other equity
instruments
issued, net
of expenses - - - - - - - - - - 552 - 552
Treasury
shares
net movement - - - - - - - - (67) (67) - - (67)
Share option
expense,
net of
taxation - - - - - - - - 42 42 - - 42
Dividends
on ordinary
shares - - - - - - - - (225) (225) - - (225)
Dividends
on preference
shares and
AT1
securities - - - - - - - - (227) (227) - - (227)
Share
buy-back4 (31) - 31 - - - - - (520) (520) - - (520)
Other
movements - - - - - - - - 117 11 - (100)8 (89)
-------------- -------- ---------- -------- ----------- -------------- -------------- -------- ----------- -------- -------------- ----------- --------------- --------
As at 31
December
2019 5,584 1,494 17,187 2 197 150 (59) (5,792) 26,072 44,835 5,513 313 50,661
Profit for
the period - - - - - - - - 1,048 1,048 - 18 1,066
Other
comprehensive
income/(loss) - - - 13 209 22 (62) (456) (56)2 (330) - (8) (338)
Distributions - - - - - - - - - - - (2) (2)
Other equity
instruments
issued, net
of expenses - - - - - - - - - - 992 - 992
Redemption
of other
equity
instruments - - - - - - - - (13) (13) (1,987) - (2,000)
Treasury
shares
net movement - - - - - - - - (91) (91) - - (91)
Share option
expense,
net of
taxation - - - - - - - - 74 74 - - 74
Dividends
on preference
shares and
AT1
securities - - - - - - - - (232) (232) - - (232)
Share
buy-back9 (20) - 20 - - - - - (242) (242) - - (242)
Other
movements - - - - - - - - 910 9 - - 9
-------------- -------- ---------- -------- ----------- -------------- -------------- -------- ----------- -------- -------------- ----------- --------------- --------
As at 30 June
2020 5,564 1,494 17,207 15 406 172 (121) (6,248) 26,569 45,058 4,518 321 49,897
-------------- -------- ---------- -------- ----------- -------------- -------------- -------- ----------- -------- -------------- ----------- --------------- --------
1 Includes capital reserve of $5 million, capital redemption
reserve of $13 million and merger reserve of $17,111 million
2 Comprises actuarial (loss)/gain, net of taxation and share
from associates and joint ventures $(56) million ($(86) million for
the six months ended 31 December 2019 and $(46) million
for the six months ended 30 June 2019)
3 Comprises share capital of shares issued to fulfil
discretionary awards $1 million, share capital of shares issued to
fulfil employee Sharesave options $1 million and share premium of
shares issued to fulfil employee Sharesave options exercised $23
million (nil for six months ended 30 June 2020)
4 On 1 May 2019, the Group commenced a share buy-back of its
ordinary shares of $0.50 each up to a maximum consideration of $1
billion. At 30 June 2019, the total number of shares purchased was
54,885,156, representing 1.66 per cent of the ordinary shares in
issue. The nominal value of ordinary shares purchased at 30 June
2019 was $27 million and the aggregate consideration paid by the
Group was $486 million. During the second half of 2019 the total
number of shares purchased was 61,218, 327 representing 1.85 per
cent
of the ordinary shares in issue. The nominal value of ordinary
shares purchased during the second half of 2019 was $31 million and
the aggregate consideration paid by the Group was $520 million. The
nominal value of the shares was transferred from the share capital
to the capital redemption reserve account
5 Comprises withholding tax on capitalisation of revenue
reserves $4 million
6 Due to consolidation of a subsidiary with non-controlling
interest $81 million and non-controlling interest in SC Digital
Solutions $72 million
7 Disposal of Phoon Huat Pte Ltd $10 million
8 Due to deconsolidation of a subsidiary with non-controlling
interest $83 million and disposal of non-controlling interest in
Phoon Huat Pte Ltd, Sirat Holdings Limited and Ori Private Limited
$17 million
9 On 28 February 2020, the Group announced the buy-back
programme for a share buy-back of its ordinary shares of $0.50
each. Nominal value of share purchases was $20 million, and the
total consideration paid was $242 million. The total number of
shares purchased was 40,029,585 representing 1.25 per cent of the
ordinary shares in issue. The nominal value of the shares was
transferred from the share capital to the capital redemption
reserve account. On the 1 April 2020, the Group announced that in
response to a request from the Prudential Regulation Authority and
as a consequence of the unprecedented challenges facing the world
due to the COVID-19 pandemic, its board had decided after careful
consideration to withdraw the recommendation to pay a final
dividend for 2019 of 20 cents per ordinary share and to suspend the
buy-back programme
10 Comprises revenue reserves of PT Bank Permata Tbk $9 million
Note 24 includes a description of each reserve.
The notes form an integral part of these financial
statements.
Condensed consolidated interim cash flow statement
For the six months ended 30 June 2020
6 months 6 months
ended ended
30.06.20 30.06.19
$million $million
------------------------------------------------------------- ---------- -----------
Cash flows from operating activities:
Profit before taxation 1,627 2,414
Adjustments for non-cash items and other adjustments
included within income statement 2,473 1,092
Change in operating assets (20,525) (22,324)(1)
Change in operating liabilities 23,177 23,369
Contributions to defined benefit schemes (19) (27)
UK and overseas taxes paid (596) (929)
------------------------------------------------------------- ---------- -----------
Net cash from operating activities 6,137 3,595(1)
------------------------------------------------------------- ---------- -----------
Cash flows from investing activities:
Purchase of property, plant and equipment (1,095) (404)(1)
Disposal of property, plant and equipment 109 68(1)
Acquisition of investment in subsidiaries, associates
and joint ventures, net of cash acquired (20) -
Dividends received from subsidiaries, associates and
joint ventures - 1
Disposal of joint ventures, net of cash acquired 1,067 -
Disposal of subsidiaries - 3
Purchase of investment securities (164,633) (135,488)
Disposal and maturity of investment securities 163,399 132,444
------------------------------------------------------------- ---------- -----------
Net cash used in investing activities (1,173) (3,376)(1)
------------------------------------------------------------- ---------- -----------
Cash flows from financing activities:
Issue of ordinary and preference share capital, net
of expenses - 25
Issue of AT1 securities, net of expenses 992 -
Treasury shares net movement (91) (132)
Cancellation of shares including share buy-back (242) (486)
Redemption of AT1 securities (2,000) -
Premises and equipment lease liability principal payment (301) (182)
Gross proceeds from issue of subordinated liabilities 1,125 -
Interest paid on subordinated liabilities (288) (265)
Repayment of subordinated liabilities (752) (23)
Proceeds from issue of senior debts 6,679 3,589
Repayment of senior debts (3,156) (2,289)
Interest paid on senior debts (272) (271)
Investment from non-controlling interests - 153
Dividends paid to non-controlling interests and preference
shareholders (234) (247)
Dividends paid to ordinary shareholders - (495)
------------------------------------------------------------- ---------- -----------
Net cash from/(used in) financing activities 1,460 (623)
------------------------------------------------------------- ---------- -----------
Net increase/(decrease) in cash and cash equivalents 6,424 (404)
Cash and cash equivalents at beginning of the period 77,454 97,500
Effect of exchange rate movements on cash and cash
equivalents (445) (140)
------------------------------------------------------------- ---------- -----------
Cash and cash equivalents at end of the period(2) 83,433 96,956
------------------------------------------------------------- ---------- -----------
1 Aircraft and shipping purchases and disposals re-presented as
cash flows from investing activities
2 Comprises cash and balances at central banks $52,925 million
(30 June 2019: $58,822 million), treasury bills and other eligible
bills $7,483 million (30 June 2019: $12,042 million), loans and
advances to banks $29,102 million (30 June 2019: $31,256 million),
trading securities $2,575 million (30 June 2019: $4,142 million)
less restricted balances $8,652 million
(30 June 2019: $9,306 million)
Contents - Notes to the financial statements
Section Note
------------------------------ ---- -----------------------------------------------
Basis of preparation 1 Accounting policies
Performance/return 2 Segmental information
3 Net interest income
4 Net fees and commission
5 Net trading income
6 Other operating income
7 Operating expenses
8 Credit impairment
9 Other impairment
10 Taxation
11 Dividends
12 Earnings per ordinary share
------------------------------ ---- -----------------------------------------------
Assets and liabilities held 13
at fair value Financial instruments
14 Derivative financial instruments
------------------------------ ---- -----------------------------------------------
Financial instruments held 15 Reverse repurchase and repurchase agreements
at amortised cost including other similar secured lending
and borrowing
------------------------------ ---- -----------------------------------------------
Other assets and investments 16 Goodwill and intangible assets
17 Property, plant and equipment
18 Other assets
19 Assets held for sale and associated liabilities
------------------------------ ---- -----------------------------------------------
Funding, accruals, provisions, 20
contingent liabilities and
legal proceedings Other liabilities
------------------------------
21 Contingent liabilities and commitments
------------------------------
22 Legal and regulatory matters
------------------------------ ---- -----------------------------------------------
Capital instruments, equity 23 Subordinated liabilities and other borrowed
and reserves funds
24 Share capital, other equity instruments
and reserves
------------------------------ ---- -----------------------------------------------
Employee benefits 25 Retirement benefit obligations
------------------------------ ---- -----------------------------------------------
Other disclosure matters 26 Related party transactions
27 Post balance sheet events
28 Corporate governance
29 Statutory accounts
------------------------------ ---- -----------------------------------------------
Notes to the financial statements
1. Accounting policies
Statement of compliance
The Group's condensed consolidated interim financial statements
consolidate those of Standard Chartered PLC (the Company) and its
subsidiaries (together referred to as the Group) and equity account
the Group's interest in associates and jointly controlled entities.
These interim financial statements have been prepared in accordance
with the Disclosure Guidance and Transparency Rules of the United
Kingdom's Financial Conduct Authority (FCA) and with IAS 34 Interim
Financial Reporting as issued by the International Accounting
Standards Board (IASB) and adopted by the European Union (EU). They
should be read in conjunction with the annual consolidated
financial statements of the Group for the year ended 31 December
2019 (the 2019 Annual Report), which were prepared in accordance
with International Financial Reporting Standards (IFRS) and IFRS
Interpretations Committee (IFRIC) interpretations as issued by the
IASB and endorsed by the EU. At 30 June 2020, there was no
difference between IFRS endorsed by the EU and the IFRS issued by
the IASB in terms of their application to the Group.
The following form part of these interim financial
statements:
a) From the start of Risk profile section to the end of other
principal risks in the same section excluding:
-- Loans and advances by client segment credit quality
analysis
-- Credit quality by geographic region
-- Analysis of stage 2 balances
-- Forborne and other modified loans by region
-- Credit-impaired (stage 3) loans and advances by geographic
region
-- Credit quality by industry
-- Industry and retail products analysis of loans and advances
by geographic region
-- Country Risk
-- Risks not in VaR
-- Backtesting
-- Liquidity coverage ratio (LCR)
-- Stressed coverage
-- Net stable funding ratio (NSFR)
-- Liquidity pool
-- Encumbrance
-- Interest Rate Risk in the banking book
-- Operational Risk
-- Other principal risks
b) Capital review: from the start of 'Capital Requirements
Directive (CRD) IV capital base' to the end of 'Movement in total
capital' excluding capital ratios and risk-weighted assets
(RWA)
The information in this release does not constitute the
unaudited interim consolidated financial statements which are
contained in the Interim Report 2020. The Interim Report 2020 was
approved by the Committee of the Board on 30 July 2020. The
unaudited interim consolidated financial statements have been
reviewed by the Groups auditor, EY, in accordance with the guidance
contained in the International Standard on review Engagements (UK
and Ireland) 2410: Review of Interim Financial Information
Performed by the Independent Auditor of the Entity.
Accounting policies
The accounting policies applied by the Group in the interim
financial statements are the same as those applied by the Group in
the 2019 Annual Report. The interim financial statements have been
prepared in accordance with the requirements of IAS 34.
Basis of preparation
The consolidated financial statements have been prepared on a
going concern basis and under the historical cost convention, as
modified by the revaluation of cash-settled share-based payments,
assets held for sale, fair value through other comprehensive
income, and financial assets and liabilities (including
derivatives) at fair value through profit or loss.
Significant accounting estimates and judgements
The preparation of interim financial statements requires
management to make judgements, estimates and assumptions that
affect the application of accounting policies and the reported
amounts of assets and liabilities, income and expense. In the
interim financial statements, estimates which are often based on
future economic conditions, and sensitive to changes in those
conditions, have been impacted by COVID-19. This estimation impact
has primarily been in the measurement of ECL, assessing the
recoverability of deferred tax balances and testing goodwill
balances for impairment. Actual results may differ materially from
these estimates. The significant judgements made by management in
applying the Group's accounting policies and key sources of
uncertainty were the same as those applied to the consolidated
financial statements as at, and for, the year ended 31 December
2019.Summaries of the Group's significant accounting policies are
included throughout the 2019 Annual Report.
IFRS and Hong Kong accounting requirements
As required by the Hong Kong Listing Rules, an explanation of
the differences in accounting practices between EU-endorsed IFRS
and Hong Kong Financial Reporting Standards is required to be
disclosed. There would be no significant differences had these
accounts been prepared in accordance with Hong Kong Financial
Reporting Standards.
Apart from the transactions as disclosed in note 24 - Share
capital, other equity instruments and reserves, the Group did not
purchase, sell or redeem any listed securities during the half year
2020 or 2019.
Comparatives
Certain comparatives have been represented in line with current
period disclosures. Details of these changes are set out in the
relevant sections and notes below:
-- Note 2 Segmental information
-- Note 3 Net interest income
-- Note 5 Net trading income
-- Note 13 Financial instruments
-- Note 21 Contingent liabilities and commitments
New accounting standards adopted by the Group
Amendments to IFRS 3: Definition of a Business
In October 2018, the IASB issued amendments to the definition of
a business in IFRS 3 Business Combinations, which were endorsed by
the EU in April 2020. The amendments are effective for annual
reporting periods beginning on or after 1 January 2020 and apply
prospectively. The amendments:
-- clarify the minimum requirements for a business;
-- remove the assessment of whether market participants are
capable of replacing any missing elements;
-- add guidance to help entities assess whether an acquired
process is substantive;
-- narrow the definitions of a business and of outputs; and
-- introduce an optional fair value concentration test
These amendments do not have a material affect on these interim
financial statements as no transactions in scope of IFRS 3 have
occurred during the interim period, and there is no adjustment to
opening retained earnings as the amendments apply
prospectively.
Conceptual Framework for Financial Reporting
In March 2018 the IASB published a revised Conceptual Framework
for Financial Reporting, often referred to as the "Conceptual
Framework", applicable to IFRS preparers for annual periods
beginning on or after 1 January 2020. The Conceptual Framework
provides guidance to preparers on determining accounting policies
where no specific IFRS or IAS Standard applies to a particular
transaction or where a Standard allows for an accounting policy
choice. It includes limited revisions of definitions of an asset
and a liability, as well as new guidance on measurement and
recognition, presentation and disclosure. The concept of prudence
has been reintroduced with the statement that prudence supports
neutrality. The Conceptual Framework is not an IFRS Standard and
does not replace any specific Standards. The changes in the
Conceptual Framework are not considered material to the Group,
since all of the Group's significant accounting policies are
derived from specific IFRS or IAS standards.
Amendments to IAS 1 and IAS 8: Definition of Material
In October 2018 the IASB issued amendments to IAS 1 Presentation
of Financial Statements and IAS 8 Accounting Policies, Changes in
Accounting Estimates and Errors ('the amendments'), applicable to
IFRS preparers for annual periods beginning on or after 1 January
2020. The purpose is to align the definition of 'material' across
the Standards and to clarify certain aspects of the definition.
Information is 'material' if omitting, misstating or obscuring it
could reasonably be expected to influence decisions that the
primary users of general-purpose financial statements make on the
basis of those financial statements, which provide financial
information about a specific reporting entity. The revised
definition is already aligned to how the Group assesses whether the
effect of a change in accounting policy, change in accounting
estimate or error would be considered 'material' to the primary
users of the Group's financial statements, hence these amendments
have no specific effect on the preparation of these interim
financial statements and are not expected to affect the preparation
of future financial statements.
New accounting standards in issue but not yet effective
Interest Rate Benchmark Reform - Phase 2 amendments to IFRS 9,
IAS 39, IFRS 7, IFRS 4 and IFRS 16
In April 2020 the IASB published an Exposure Draft for the
second phase of its proposed amendments to IFRS concerning the
global initiative to replace or reform interbank offered rates
(IBORs) that are used to determine interest cash flows on financial
instruments such as loans to customers, debt securities and
derivatives. The first phase of amendments have already been early
adopted for the year ended 31 December 2019 (refer to pages 263 to
264 in the 2019 Annual Report). Phase 2 focuses on issues expected
to affect financial reporting when an existing IBOR is replaced
with an alternative risk-free rate (RFR). The Exposure Draft
proposes that amendments will be effective for annual reporting
periods beginning on or after 1 January 2021, with earlier adoption
permitted, and are to be applied retrospectively.
The Exposure Draft recommends a practical expedient to account
for the change in benchmark interest rate in a financial instrument
to be treated as a change in floating interest rate, provided the
re-papered instrument denominated in the alternative RFR is on an
economically equivalent basis to the original IBOR-linked
instrument. This includes the addition of a fixed spread to
compensate for a basis difference between the existing IBOR
benchmark and alternative RFR, changes to reset period, reset dates
or number of days between coupon payment dates that are necessary
to effect reform of an IBOR benchmark and the addition of any
fall-back provision to the contractual terms of a financial
instrument that allow any of the above changes to be made. Any
other change to contractual terms would be assessed under the
Group's accounting policies for loan modifications.
The Exposure Draft also proposes relief from discontinuing hedge
relationships and would allow entities to determine that the risk
component associated with an alternative RFR is separately
identifiable - and therefore be able to apply fair value hedge
accounting - if the entity reasonably expects the alternative RFR
risk component will become separately identifiable within the next
24 months. Additional disclosures are proposed for annual
reports.
The IASB plans to issue final amendments by 30 September 2020.
The Group will wait for this publication before commencing a
detailed assessment on how Phase 2 amendments will affect the
Group's financial statements.
Amendments to IFRS 16: Covid-19-Related Rent Concessions
In May 2020 the IASB issued amendments to IFRS 16 Leases. These
were recommended for endorsement by the European Financial
Reporting Advisory Group on 3 June 2020, and the European
Commission's Accounting Regulatory Committee voted unanimously in
favour of the amendments on 2 July 2020, but final endorsement by
the European Union is not expected until later in 2020. The
amendments will be effective for annual reporting periods beginning
on or after 1 June 2020, with earlier adoption permitted. It is the
Group's intention to early adopt these amendments for the financial
year ending 31 December 2020 provided the EU endorses them in 2020
as expected.
The amendments will provide lessees of premises and equipment a
practical expedient that permits them not to assess whether a rent
concession granted as a direct consequence of the Covid-19 pandemic
is accounted for as a lease modification. Entities applying the
practical expedient will therefore account for these rent
concessions by recalculating the lease liability based on the
revised cash flows using the existing discount rate applied to that
lease, with a corresponding gain or loss recorded in other income.
A rent concession will only be deemed to be a direct consequence of
Covid-19 if all the following criteria are met:
-- A change in lease payments results in revised consideration
for the lease that is substantially the same as, or less than, the
consideration for the lease immediately preceding the change;
-- Any reduction in lease payments affects only payments
originally due in 2020 (this includes the case where the change
results in reduced lease payments in 2020 and increased lease
payments beyond 2020); and
-- There is no substantive change to other terms and conditions
of the lease
The amendments are not expected to have a material effect on the
Group's financial statements, and will not result in any adjustment
to opening retained earnings as of 1 January 2020 since the
amendments only apply to rent concessions granted in 2020.
Going concern
These interim financial statements were approved by the Board of
directors on 30 July 2020. The directors have made an assessment of
the Group's ability to continue as a going concern. This assessment
has been made having considered the impact of COVID-19,
macroeconomic and geopolitical headwinds, and has included:
-- A review of the Group Strategy and Corporate plan, including
a review of the actual performance to date, loan book quality,
legal and regulatory matters and the updated revised budget;
-- Consideration of stress testing performed, including a
COVID-19 stress scenario; and
-- Analysis of the capital, funding and liquidity position of
the Group, including a review of the Group's emerging risks, to
which COVID-19 has been added
Based on the analysis performed, the directors confirm they are
satisfied that the Group has adequate resources to continue in
business for a period of at least 12 months from the date of
approval of these interim financial statements. For this reason,
the Group continues to adopt the going concern basis of accounting
for preparing the financial statements.
2. Segmental information
Basis of preparation
The analysis reflects how the client segments and geographic
regions are managed internally. This is described as the Management
View and is principally the location from which a client
relationship is managed, which may differ from where it is
financially booked and may be shared between businesses and/or
regions. In certain instances this approach is not appropriate and
a Financial View is disclosed, that is, the location in which the
transaction or balance was booked. Typically the Financial View is
used in areas such as the Market and Liquidity risk reviews where
actual booking location is more important for an assessment.
Segmental information is therefore on a Management View unless
otherwise stated.
Restructuring and other items excluded from underlying
results
The Group's statutory performance is adjusted for profits or
losses of a capital nature, amounts consequent to investment
transactions driven by strategic intent, other infrequent and/or
exceptional transactions that are significant or material in the
context of the Group's normal business earnings for the period and
items which management and investors would ordinarily identify
separately when assessing performance period-by period. These
adjustments are set out below.
Restructuring charges of $90 million primarily reflect
impairments from the Group's discontinued ship leasing and
principal finance businesses. Other items of $252 million relates
mainly to a goodwill impairment on the Group's subsidiary in India
that was taken in 1Q'20 due to a lower economic growth forecast and
increases to the discount rate.
A reconciliation between underlying and statutory results is set
out in the table below:
6 months ended 30.06.20
--------------------- -----------------------------------------------------------------------------------------------
Share
of profits
Net gain of
on businesses PT Bank
Provision disposed/ Permata
for regulatory held Goodwill Tbk joint
Underlying matters Restructuring for sale impairment venture Statutory
$million $million $million $million $million $million $million
--------------------- ---------- --------------- ------------- -------------- ----------- ----------- ---------
Operating income 8,047 - 46 6 - - 8,099
Operating expenses (4,713) 14 (49) - - - (4,748)
--------------------- ---------- --------------- ------------- -------------- ----------- ----------- ---------
Operating
profit/(loss) before
impairment losses
and taxation 3,334 14 (3) 6 - - 3,351
Credit impairment (1,567) - (9) - - - (1,576)
Other impairment 112 - (77) - (258) - (223)
Profit from
associates and
joint ventures 76 - (1) - - - 75
--------------------- ---------- --------------- ------------- -------------- ----------- ----------- ---------
Profit/(loss) before
taxation 1,955 14 (90) 6 (258) - 1,627
--------------------- ---------- --------------- ------------- -------------- ----------- ----------- ---------
6 months ended 30.06.19
------------------------- -------------------------------------------------------------------------------------------
Share
of profits
of
Provision Net gain PT Bank
for on businesses Permata
regulatory disposed/held Goodwill Tbk joint
Underlying matters Restructuring for sale impairment venture Statutory
$million $million $million $million $million $million $million
------------------------- ---------- ----------- ------------- -------------- ----------- ----------- ---------
Operating income 7,696 - 134 - - - 7,830
Operating expenses (4,969) (204) (125) - - - (5,298)
------------------------- ---------- ----------- ------------- -------------- ----------- ----------- ---------
Operating profit/(loss)
before
impairment losses and
taxation 2,727 (204) 9 - - - 2,532
Credit impairment (254) - - - - - (254)
Other impairment (21) - (23) - - - (44)
Profit from associates
and
joint ventures 157 - - - - 23 180
------------------------- ---------- ----------- ------------- -------------- ----------- ----------- ---------
Profit/(loss) before
taxation 2,609 (204) (14) - - 23 2,414
------------------------- ---------- ----------- ------------- -------------- ----------- ----------- ---------
Underlying performance by client segment
6 months ended 30.06.20
------------------------------ ---------------------------------------------------------------------------
Corporate
& Institutional Retail Commercial Private Central &
Banking Banking Banking Banking other items Total
$million $million $million $million $million $million
------------------------------ ---------------- --------- ---------- --------- ------------ ---------
Operating income 3,987 2,537 740 300 483 8,047
---------------- --------- ---------- --------- ------------ ---------
External 4,012 2,103 700 202 1,030 8,047
Inter-segment (25) 434 40 98 (547) -
---------------- --------- ---------- --------- ------------ ---------
Operating expenses (1,985) (1,780) (421) (239) (288) (4,713)
------------------------------ ---------------- --------- ---------- --------- ------------ ---------
Operating profit before
impairment losses and
taxation 2,002 757 319 61 195 3,334
Credit impairment (985) (430) (137) (5) (10) (1,567)
Other impairment 115 (1) - - (2) 112
Profit from associates
and joint ventures - - - - 76 76
------------------------------ ---------------- --------- ---------- --------- ------------ ---------
Underlying profit before
taxation 1,132 326 182 56 259 1,955
Provision for regulatory
matters - - - - 14 14
Restructuring (56) (3) (18) (3) (10) (90)
Net gain on businesses
disposed/held for sale - - - - 6 6
Goodwill impairment - - - - (258) (258)
------------------------------ ---------------- --------- ---------- --------- ------------ ---------
Statutory profit before
taxation 1,076 323 164 53 11 1,627
------------------------------ ---------------- --------- ---------- --------- ------------ ---------
Total assets 336,623 107,327 33,158 13,202 251,275 741,585
Of which: loans and
advances to customers
including FVTPL 164,392 105,085 28,151 13,097 17,440 328,165
Total liabilities 402,920 149,422 43,578 18,842 76,926 691,688
Of which: customer accounts
including FVTPL and
repurchase agreements 257,512 146,088 40,507 18,725 6,632 469,464
------------------------------ ---------------- --------- ---------- --------- ------------ ---------
6 months ended 30.06.19
------------------------------ ---------------------------------------------------------------------------
Corporate
& Institutional Retail Commercial Private Central &
Banking Banking Banking Banking other items Total
$million $million $million $million $million $million
------------------------------ ---------------- --------- ---------- --------- ------------ ---------
Operating income 3,534 2,603 811 306 442 7,696
---------------- --------- ---------- --------- ------------ ---------
External 3,633 2,140 863 171 889 7,696
Inter-segment (99) 463 (52) 135 (447) -
---------------- --------- ---------- --------- ------------ ---------
Operating expenses (2,102) (1,825) (445) (253) (344) (4,969)
------------------------------ ---------------- --------- ---------- --------- ------------ ---------
Operating profit before
impairment losses and
taxation 1,432 778 366 53 98 2,727
Credit impairment (116) (154) (29) 47 (2) (254)
Other impairment (19) - - - (2) (21)
Profit from associates
and joint ventures - - - - 157 157
------------------------------ ---------------- --------- ---------- --------- ------------ ---------
Underlying profit before
taxation 1,297 624 337 100 251 2,609
Provision for regulatory
matters - - - - (204) (204)
Restructuring 23 (1) - (1) (35) (14)
Share of profits of
PT Bank Permata Tbk
joint venture - - - - 23 23
------------------------------ ---------------- --------- ---------- --------- ------------ ---------
Statutory profit before
taxation 1,320 623 337 99 35 2,414
------------------------------ ---------------- --------- ---------- --------- ------------ ---------
Total assets 329,113 103,909 35,718 15,654 228,110 712,504
Of which: loans and
advances to customers
including FVTPL1 149,752 101,784 30,465 15,521 9,120 306,642
Total liabilities 380,549 143,297 39,805 18,616 79,798 662,065
Of which: customer accounts
including FVTPL and
repurchase agreements 234,142 139,898 36,908 18,473 15,490 444,911
------------------------------ ---------------- --------- ---------- --------- ------------ ---------
1 Following a reorganisation of certain clients, there has been
a reclassification of balances across client segments. Prior
periods have been restated
Underlying performance by region
6 months ended 30.06.20
------------------------------ ---------------------------------------------------------------------------
Greater
China & ASEAN & Africa & Europe & Central &
North Asia South Asia Middle East Americas other items Total
$million $million $million $million $million $million
------------------------------ ----------- ----------- ------------- --------- ------------ ---------
Operating income 3,144 2,376 1,255 1,095 177 8,047
Operating expenses (1,780) (1,247) (793) (661) (232) (4,713)
------------------------------ ----------- ----------- ------------- --------- ------------ ---------
Operating profit/(loss)
before impairment losses
and taxation 1,364 1,129 462 434 (55) 3,334
Credit impairment (289) (838) (370) (80) 10 (1,567)
Other impairment (15) 165 (2) 2 (38) 112
Profit from associates
and joint ventures 74 - - - 2 76
------------------------------ ----------- ----------- ------------- --------- ------------ ---------
Underlying profit/(loss)
before taxation 1,134 456 90 356 (81) 1,955
Provision for regulatory
matters - - - - 14 14
Restructuring (43) (7) (9) (10) (21) (90)
Net gain on businesses
disposed/held for sale - - - - 6 6
Goodwill impairment - - - - (258) (258)
------------------------------ ----------- ----------- ------------- --------- ------------ ---------
Statutory profit/(loss)
before taxation 1,091 449 81 346 (340) 1,627
------------------------------ ----------- ----------- ------------- --------- ------------ ---------
Total assets 289,352 154,508 63,927 223,226 10,572 741,585
Of which: loans and
advances to customers
including FVTPL 144,794 84,949 33,083 65,339 - 328,165
Total liabilities 258,322 131,993 40,740 217,300 43,333 691,688
Of which: customer accounts
including FVTPL and
repurchase agreements 214,586 100,324 32,530 122,024 - 469,464
------------------------------ ----------- ----------- ------------- --------- ------------ ---------
6 months ended 30.06.19
------------------------------ ---------------------------------------------------------------------------
Greater
China & ASEAN & Africa & Europe & Central &
North Asia South Asia Middle East Americas other items Total
$million $million $million $million $million $million
------------------------------ ----------- ----------- ------------- --------- ------------ ---------
Operating income 3,080 2,136 1,340 794 346 7,696
Operating expenses (1,826) (1,292) (850) (715) (286) (4,969)
------------------------------ ----------- ----------- ------------- --------- ------------ ---------
Operating profit before
impairment losses and
taxation 1,254 844 490 79 60 2,727
Credit impairment (70) (84) (49) (66) 15 (254)
Other impairment (8) - - - (13) (21)
Profit from associates
and joint ventures 153 - - - 4 157
------------------------------ ----------- ----------- ------------- --------- ------------ ---------
Underlying profit before
taxation 1,329 760 441 13 66 2,609
Provision for regulatory
matters - - - - (204) (204)
Restructuring (3) (16) (2) (15) 22 (14)
Share of profits of
PT Bank Permata Tbk
joint venture - 23 - - - 23
------------------------------ ----------- ----------- ------------- --------- ------------ ---------
Statutory profit/(loss)
before taxation 1,326 767 439 (2) (116) 2,414
------------------------------ ----------- ----------- ------------- --------- ------------ ---------
Total assets 275,414 151,714 59,189 214,126 12,061 712,504
Of which: loans and
advances to customers
including FVTPL 134,440 82,826 30,161 59,215 - 306,642
Total liabilities 240,802 132,763 37,000 215,504 35,996 662,065
Of which: customer accounts
including FVTPL and
repurchase agreements 196,994 101,594 29,621 116,702 - 444,911
------------------------------ ----------- ----------- ------------- --------- ------------ ---------
Additional segmental information (statutory)
6 months ended 30.06.20
------------------------ ---------------------------------------------------------------------------
Corporate
& Institutional Retail Commercial Private Central &
Banking Banking Banking Banking other items Total
$million $million $million $million $million $million
------------------------ ---------------- --------- ---------- --------- ------------ ---------
Net interest income 1,272 1,619 471 146 (10) 3,498
Net fees and commission
income 615 703 134 132 (26) 1,558
Net trading and other
income 2,131 215 151 22 524 3,043
------------------------ ---------------- --------- ---------- --------- ------------ ---------
Operating income 4,018 2,537 756 300 488 8,099
------------------------ ---------------- --------- ---------- --------- ------------ ---------
restated 6 months ended 30.06.191
------------------------ ---------------------------------------------------------------------------
Corporate
& Institutional Retail Commercial Private Central &
Banking Banking Banking Banking other items Total
$million $million $million $million $million $million
------------------------ ---------------- --------- ---------- --------- ------------ ---------
Net interest income 1,287 1,636 492 159 264 3,838
Net fees and commission
income 810 777 146 123 (18) 1,838
Net trading and other
income 1,568 190 175 25 196 2,154
------------------------ ---------------- --------- ---------- --------- ------------ ---------
Operating income 3,665 2,603 813 307 442 7,830
------------------------ ---------------- --------- ---------- --------- ------------ ---------
6 months ended 30.06.20
------------------------ --------------------------------------------------------------------------
Greater
China & ASEAN & Africa & Europe & Central &
North Asia South Asia Middle East Americas other items Total
$million $million $million $million $million $million
------------------------ ----------- ----------- ------------ --------- ------------ ---------
Net interest income 1,510 1,054 641 95 198 3,498
Net fees and commission
income 635 498 267 237 (79) 1,558
Net trading and other
income 1,051 824 353 763 52 3,043
------------------------ ----------- ----------- ------------ --------- ------------ ---------
Operating income 3,196 2,376 1,261 1,095 171 8,099
------------------------ ----------- ----------- ------------ --------- ------------ ---------
restated 6 months ended 30.06.191
------------------------ --------------------------------------------------------------------------
Greater
China & ASEAN & Africa & Europe & Central &
North Asia South Asia Middle East Americas other items Total
$million $million $million $million $million $million
------------------------ ----------- ----------- ------------ --------- ------------ ---------
Net interest income 1,653 1,003 766 6 410 3,838
Net fees and commission
income 732 572 330 238 (34) 1,838
Net trading and other
income 742 560 244 550 58 2,154
------------------------ ----------- ----------- ------------ --------- ------------ ---------
Operating income 3,127 2,135 1,340 794 434 7,830
------------------------ ----------- ----------- ------------ --------- ------------ ---------
6 months ended 30.06.20
------------------------ --------------------------------------------------------------------------------------
Hong
Kong Korea China Singapore India UAE UK US
$million $million $million $million $million $million $million $million
------------------------ --------- --------- --------- --------- --------- --------- --------- ---------
Net interest income 843 312 265 329 345 150 (41) 92
Net fees and commission
income 372 83 68 249 115 57 6 191
Net trading and other
income 659 162 141 212 265 110 601 149
------------------------ --------- --------- --------- --------- --------- --------- --------- ---------
Operating income 1,874 557 474 790 725 317 566 432
------------------------ --------- --------- --------- --------- --------- --------- --------- ---------
restated 6 months ended 30.06.191
------------------------ --------------------------------------------------------------------------------------
Hong
Kong Korea China Singapore India UAE UK US
$million $million $million $million $million $million $million $million
------------------------ --------- --------- --------- --------- --------- --------- --------- ---------
Net interest income 958 336 288 374 243 197 (176) 122
Net fees and commission
income 454 89 75 280 134 78 30 168
Net trading and other
income 488 80 82 216 125 52 476 75
------------------------ --------- --------- --------- --------- --------- --------- --------- ---------
Operating income 1,900 505 445 870 502 327 330 365
------------------------ --------- --------- --------- --------- --------- --------- --------- ---------
1 Comparatives have been restated due to the Group changing its
accounting policies for net interest income and net trading income
for the year ended 31 December 2019.
Refer to Note 1 in the Group's 2019 Annual Report
3. Net interest income
6 months
ended restated
6 months
30.06.20 ended 30.06.191
$million $million
----------------------------------------------------- ---------- -----------------
Balances at central banks 77 189
Loans and advances to banks 479 1,016
Loans and advances to customers 4,738 5,331
Listed debt securities 817 1,024
Unlisted debt securities 443 337
Other eligible bills 304 379
Accrued on impaired assets (discount unwind) 17 37
----------------------------------------------------- ---------- -----------------
Interest income 6,875 8,313
----------------------------------------------------- ---------- -----------------
Of which: financial instruments held at fair value
through other comprehensive income 1,332 1,597
Deposits by banks 235 401
Customer accounts 2,276 3,083
Debt securities in issue 485 567
Subordinated liabilities and other borrowed funds 350 390
Interest expense on IFRS 16 Lease liabilities 31 34
----------------------------------------------------- ---------- -----------------
Interest expense 3,377 4,475
----------------------------------------------------- ---------- -----------------
Net interest income 3,498 3,838
----------------------------------------------------- ---------- -----------------
1 For the six months ended 30 June 2019 the Group reported net
interest income of $4,618 million, consisting of interest income of
$9,843 million and interest expense of $5,225 million. The
difference between this and restated six months ended 30 June 2019
net interest income of $3,838 million is $780 million of net
contractual interest receivable on financial instruments measured
at fair value through profit or loss being reclassified to net
trading income
4. Net fees and commission
6 months 6 months
ended ended
30.06.20 30.06.19
$million $million
--------------------------------------------------------- ---------- ----------
Fees and commissions income 1,870 2,120
Of which:
---------- ----------
Financial instruments that are not fair valued through
profit or loss 512 777
Trust and other fiduciary activities 51 79
---------- ----------
Fees and commissions expense (312) (282)
Of which:
---------- ----------
Financial instruments that are not fair valued through
profit or loss (56) (69)
Trust and other fiduciary activities (3) (14)
--------------------------------------------------------- ---------- ----------
Net fees and commission 1,558 1,838
--------------------------------------------------------- ---------- ----------
6 months ended 30.06.20
------------------------ ---------------------------------------------------------------------------
Corporate
& Institutional Retail Commercial Private Central &
Banking Banking Banking Banking other items Total
$million $million $million $million $million $million
------------------------ ---------------- --------- ---------- --------- ------------ ---------
Transaction Banking1 381 5 102 - - 488
---------------- --------- ---------- --------- ------------ ---------
Trade 194 5 74 - - 273
Cash Management 187 - 28 - - 215
---------------- --------- ---------- --------- ------------ ---------
Financial Markets1 130 - 14 - - 144
Corporate Finance 71 - 13 - - 84
Lending and Portfolio
Management 33 - 4 - - 37
Wealth Management - 540 1 129 - 670
Retail Products - 159 - 3 - 162
Treasury - - - - (14) (14)
Others - (1) - - (12) (13)
------------------------ ---------------- --------- ---------- --------- ------------ ---------
Net fees and commission 615 703 134 132 (26) 1,558
------------------------ ---------------- --------- ---------- --------- ------------ ---------
6 months ended 30.06.19
------------------------ ---------------------------------------------------------------------------
Corporate
& Institutional Retail Commercial Private Central &
Banking Banking Banking Banking other items Total
$million $million $million $million $million $million
------------------------ ---------------- --------- ---------- --------- ------------ ---------
Transaction Banking1 438 5 111 - - 554
---------------- --------- ---------- --------- ------------ ---------
Trade 222 5 82 - - 309
Cash Management 216 - 29 - - 245
---------------- --------- ---------- --------- ------------ ---------
Financial Markets1 225 - 12 - - 237
Corporate Finance 104 - 13 2 - 119
Lending and Portfolio
Management 39 - 9 - - 48
Principal Finance 4 - - - - 4
Wealth Management - 591 1 119 - 711
Retail Products - 181 - 2 - 183
Treasury - - - - (11) (11)
Others - - - - (7) (7)
------------------------ ---------------- --------- ---------- --------- ------------ ---------
Net fees and commission 810 777 146 123 (18) 1,838
------------------------ ---------------- --------- ---------- --------- ------------ ---------
1 Following a reorganisation, there has been a reclassification
of balances relating to Securities Services from Transaction
Banking to Financial Markets included in prior period numbers.
There is no change in the total income
Upfront bancassurance consideration amounts are amortised on a
straight-line basis over the contractual period to which the
consideration relates. Deferred income on the balance sheet in
respect of these activities is $760 million (30 June 2019: $844
million). The income will be earned evenly over the next 9 years
(30 June 2019: 10 years). For the six months ended 30 June 2020,
$42 million of fee income was released from deferred income (30
June 2019: $42 million).
5. Net trading income
restated
6 months 6 months
ended ended
30.06.20 30.06.191
$million $million
------------------------------------------------------ ---------- -----------
Net trading income 2,154 1,774
------------------------------------------------------ ---------- -----------
Significant items within net trading income include:
Gains on instruments held for trading 1,966 1,783
Gains on financial assets mandatorily at fair value
through profit or loss 384 825
(Losses)/Gains on financial assets designated at fair
value through profit or loss (6) 12
Losses on financial liabilities designated at fair
value through profit or loss (166) (958)
------------------------------------------------------ ---------- -----------
1 For the six months ended 30 June 2019, the Group reported net
trading income of $994 million. The difference between this and
restated six months ended 30 June 2019 net
trading income of $1,774 million is $780 million of net
contractual interest receivable on financial instruments measured
at fair value through profit or loss being reclassified to net
trading income
6. Other operating income
6 months 6 months
ended ended
30.06.20 30.06.19
$million $million
---------------------------------------------------- ---------- ----------
Other operating income includes:
Rental income from operating lease assets 242 265
Gains less losses on disposal of fair value through
other comprehensive income debt investments 511 58
Gains less loss on amortised cost financial assets 13 (17)
Net gain on sale of businesses 6 -
Dividend income 30 6
Gain on sale of aircraft 5 14
Other 82 54
---------------------------------------------------- ---------- ----------
889 380
---------------------------------------------------- ---------- ----------
7. Operating expenses
6 months 6 months
ended ended
30.06.20 30.06.19
$million $million
-------------------------------- ---------- ----------
Staff costs:
Wages and salaries 2,564 2,729
Social security costs 80 98
Other pension costs (Note 25) 172 199
Share-based payment costs 65 107
Other staff costs 449 444
-------------------------------- ---------- ----------
3,330 3,577
-------------------------------- ---------- ----------
The following table summarises the number of employees
(headcount) within the Group:
Business Support services Total
--------------------- -------- ---------------- ------
At 30 June 2020 36,903 48,486 85,389
At 31 December 20191 37,117 47,281 84,398
--------------------- -------- ---------------- ------
1 Prior year headcount has been re-presented due to a change in
management view of segments
6 months 6 months
ended ended
30.06.20 30.06.19
$million $million
---------------------------------------- ---------- ----------
Premises and equipment expenses:
Rental of premises (2) 19
Other premises and equipment costs 174 164
Rental of computers and equipment 6 8
---------------------------------------- ---------- ----------
178 191
---------------------------------------- ---------- ----------
General administrative expenses:
Provision for regulatory matters 14 204
Other general administrative expenses 628 749
---------------------------------------- ---------- ----------
642 953
---------------------------------------- ---------- ----------
Depreciation and amortisation:
Property, plant and equipment:
---------- ----------
Premises 188 179
Equipment 60 52
Operating lease assets 107 129
---------- ----------
355 360
Intangibles:
Software 241 213
Acquired on business combinations 2 4
---------------------------------------- ---------- ----------
598 577
---------------------------------------- ---------- ----------
Total operating expenses 4,748 5,298
---------------------------------------- ---------- ----------
8. Credit impairment1
6 months 6 months
ended ended
30.06.20 30.06.19
$million $million
----------------------------------------------------------- ---------- ----------
Net credit impairment against profit on loans and advances
to banks and customers 1,496 259
Net credit impairment against profit or loss during
the period relating to debt securities 19 9
Net credit impairment relating to financial guarantees
and loan commitments 63 (14)
Net credit impairment relating to other financial assets (2) -
----------------------------------------------------------- ---------- ----------
Credit impairment2 1,576 254
----------------------------------------------------------- ---------- ----------
1 Refer credit risk section for more detail
2 No material purchased or originated credit-impaired (POCI)
assets
9. Other impairment
6 months 6 months
ended ended
30.06.20 30.06.19
$million $million
------------------------------------------------ ---------- ----------
Impairment of goodwill (Note 16) 258 -
------------------------------------------------ ---------- ----------
Impairment of fixed assets (Note 17) 51 36
Impairment of other intangible assets (Note 16) 2 6
Other (88)1 2
------------------------------------------------ ---------- ----------
Other impairment (35) 44
------------------------------------------------ ---------- ----------
223 44
------------------------------------------------ ---------- ----------
1 Includes a reversal of $165 million as a result of a recovery
on a disputed derivative receivable, following a favourable court
ruling
10. Taxation
The following table provides analysis of taxation charge in the
period:
6 months 6 months
ended ended
30.06.20 30.06.19
$million $million
----------------------------------------------------------- ---------- ----------
The charge for taxation based upon the profit for the
period comprises:
Current tax:
United Kingdom corporation tax at 19 per cent (31 December
2019 and 30 June 2019:19 per cent):
---------- ----------
Current tax charge on income for the period - 10
Adjustments in respect of prior periods (including
double tax relief) - (1)
Foreign tax:
Current tax charge on income for the period 613 829
Adjustments in respect of prior periods (334) (54)
---------- ----------
279 784
Deferred tax:
---------- ----------
Origination/reversal of temporary differences (54) 139
Adjustments in respect of prior periods 336 (5)
---------- ----------
282 134
----------------------------------------------------------- ---------- ----------
Tax on profits on ordinary activities 561 918
----------------------------------------------------------- ---------- ----------
Effective tax rate 34.5% 38.0%
----------------------------------------------------------- ---------- ----------
The tax charge for the period of $561 million (31 December 2019:
$455 million and 30 June 2019: $918 million) on a profit before tax
of $1,627 million (31 December 2019: $1,299 million and 30 June
2019: $2,414 million) reflects the impact of countries with tax
rates higher or lower than the UK, the most significant of which is
India, non-deductible expenses, non-creditable withholding taxes
and non-deductible goodwill impairment. The prior period adjustment
includes $277 million adjustment between current and deferred tax,
relating to the treatment of loan impairments in India as
deductible in the period they are impaired.
Foreign tax includes current tax of $118 million (31 December
2019: $89 million and 30 June 2019: $117 million) on the profits
assessable in Hong Kong.
Deferred tax includes origination or reversal of temporary
differences of $(39) million (31 December 2019: $1 million and 30
June 2019: $(4) million) provided at a rate of 16.5 per cent (31
December 2018: 16.5 per cent) on the profits assessable in Hong
Kong.
11. Dividends
On the 1 April 2020, the Group announced that in response to a
request from the Prudential Regulation Authority and as a
consequence of the unprecedented challenges facing the world due to
the COVID-19 pandemic, its board had decided after careful
consideration to withdraw the recommendation to pay a final
dividend for 2019 of 20 cents per ordinary share.
Ordinary equity shares
6 months ended 6 months ended 6 months ended
30.06.20 31.12.19 30.06.19
-------------------------- ------------------- ------------------- -------------------
Cents per Cents per Cents per
share $million share $million share $million
-------------------------- --------- -------- --------- -------- --------- --------
2019/2018 final dividend
declared and paid during
the period - - - - 15 495
2019 interim dividend
declared and paid during
the period - - 7 225 - -
-------------------------- --------- -------- --------- -------- --------- --------
Interim dividends on ordinary equity shares are recorded in the
period in which they are declared and, in respect of the final
dividend, have been approved by the shareholders.
Accordingly, the final and interim ordinary equity share
dividends as stated above relate to the 2018 final dividend of 15
cents per ordinary share ($495 million) paid to eligible
shareholders on 16 May 2019 and the 2019 interim dividend of 7
cents per ordinary share ($225 million) paid to eligible
shareholders on 21 October 2019.
Preference shares and Additional Tier 1 securities
Dividends on these preference shares and securities classified
as equity are recorded in the period in which they are
declared.
6 months 6 months
ended ended
6 months
ended 30.06.20 31.12.19 30.06.19
$million $million $million
------------------------------------- -------------------------- --------------- ---------- ----------
Non-cumulative redeemable preference 7.014 per cent preference
shares: shares of $5 each 26 27 26
6.409 per cent preference
shares of $5 each 13 14 16
---------------------------------------------------------------- --------------- ---------- ----------
39 41 42
Additional Tier 1 securities: $5.5 billion
fixed rate resetting perpetual subordinated
contingent convertible securities 193 186 179
----------------------------------------------------------------- --------------- ---------- ----------
232 227 221
---------------------------------------------------------------- --------------- ---------- ----------
12. Earnings per ordinary share
6 months 6 months
ended ended
30.06.20 30.06.19
$million $million
------------------------------------------------------------ ---------- ----------
Profit for the period attributable to equity holders 1,066 1,496
------------------------------------------------------------ ---------- ----------
Non-controlling interest (18) (19)
Dividend payable on preference shares and AT1 classified
as equity (232) (221)
------------------------------------------------------------ ---------- ----------
Profit for the period attributable to ordinary shareholders 816 1,256
------------------------------------------------------------ ---------- ----------
Items normalised:
Provision for regulatory matters (14) 204
Restructuring 90 14
Profit from associates and joint ventures - (23)
Goodwill impairment (Note 9) 258 -
Net gain on businesses (Note 6) (6) -
Tax on normalised items (6) 172
------------------------------------------------------------ ---------- ----------
Underlying profit 1,138 1,623
------------------------------------------------------------ ---------- ----------
Basic - Weighted average number of shares (millions) 3,168 3,304
Diluted - Weighted average number of shares (millions) 3,204 3,348
Basic earnings per ordinary share (cents) 25.8 38.0
------------------------------------------------------------ ---------- ----------
Diluted earnings per ordinary share (cents) 25.5 37.5
------------------------------------------------------------ ---------- ----------
Underlying basic earnings per ordinary share (cents) 35.9 49.1
------------------------------------------------------------ ---------- ----------
Underlying diluted earnings per ordinary share (cents) 35.5 48.5
------------------------------------------------------------ ---------- ----------
13. Financial instruments
The Group's classification of its financial assets and
liabilities is summarised in the following tables.
Assets at fair value
-------------- ----- ------------------------------------------------------------------------- --------- ---------
Non-trading
mandatorily Designated Total
at fair at fair Fair value financial Assets
value value through assets held
Derivatives through through other at at
held profit profit comprehensive fair amortised
Trading for hedging or loss or loss income value cost Total
Assets Notes $million $million $million $million $million $million $million $million
-------------- ----- --------- ----------- ----------- ---------- ------------- --------- --------- ---------
Cash and
balances
at central
banks - - - - - - 52,925 52,925
Financial
assets
held at fair
value through
profit or loss
--------- ----------- ----------- ---------- ------------- --------- --------- ---------
Loans and
advances
to banks1 1,313 - 1,023 - - 2,336 - 2,336
Loans and
advances
to
customers1 4,711 - 5,701 41 - 10,453 - 10,453
Reverse
repurchase
agreements
and
other
similar
secured
lending 15 - - 59,002 - - 59,002 - 59,002
Debt
securities,
alternative
tier
one and
other
eligible
bills 23,556 - 190 270 - 24,016 - 24,016
Equity
shares 2,260 - 292 - - 2,552 - 2,552
--------- ----------- ----------- ---------- ------------- --------- --------- ---------
31,840 - 66,208 311 - 98,359 - 98,359
Derivative
financial
instruments 14 50,186 2,041 - - - 52,227 - 52,227
Loans and
advances
to banks1 - - - - - - 50,499 50,499
--------- ----------- ----------- ---------- ------------- --------- --------- ---------
of which:
reverse
repurchase
agreements
and other
similar
secured
lending 15 - - - - - - 1,893 1,893
--------- ----------- ----------- ---------- ------------- --------- --------- ---------
Loans and
advances
to customers1 - - - - - - 276,313 276,313
--------- ----------- ----------- ---------- ------------- --------- --------- ---------
of which:
reverse
repurchase
agreements
and other
similar
secured
lending 15 - - - - - - 4,383 4,383
--------- ----------- ----------- ---------- ------------- --------- --------- ---------
Investment
securities
--------- ----------- ----------- ---------- ------------- --------- --------- ---------
Debt
securities,
alternative
tier
one and
other
eligible
bills - - - - 129,188 129,188 16,139 145,327
Equity
shares - - - - 407 407 - 407
--------- ----------- ----------- ---------- ------------- --------- --------- ---------
- - - - 129,595 129,595 16,139 145,734
Other assets 18 - - - - - - 42,183 42,183
Assets held
for
sale 19 - - 39 136 - 175 157 332
-------------- ----- --------- ----------- ----------- ---------- ------------- --------- --------- ---------
Total at 30
June
2020 82,026 2,041 66,247 447 129,595 280,356 438,216 718,572
-------------- ----- --------- ----------- ----------- ---------- ------------- --------- --------- ---------
1 Further analysed in Risk review and Capital review
Assets at fair value
-------------- ----- ------------------------------------------------------------------------- --------- ---------
Non-trading
mandatorily Designated Total
at fair at fair Fair value financial Assets
value value through assets held
Derivatives through through other at at
held profit profit comprehensive fair amortised
Trading for hedging or loss or loss income value cost Total
Assets Notes $million $million $million $million $million $million $million $million
-------------- ----- --------- ----------- ----------- ---------- ------------- --------- --------- ---------
Cash and
balances
at central
banks - - - - - - 52,728 52,728
Financial
assets
held at fair
value through
profit or loss
--------- ----------- ----------- ---------- ------------- --------- --------- ---------
Loans and
advances
to banks1 198 - 3,330 - - 3,528 - 3,528
Loans and
advances
to
customers1 2,886 - 4,010 - - 6,896 - 6,896
Reverse
repurchase
agreements
and
other
similar
secured
lending 15 - - 57,604 - - 57,604 - 57,604
Debt
securities,
alternative
tier
one and
other
eligible
bills 21,877 - 166 278 - 22,321 - 22,321
Equity
shares2 2,208 - 261 - - 2,469 - 2,469
--------- ----------- ----------- ---------- ------------- --------- --------- ---------
27,169 - 65,371 278 - 92,818 - 92,818
Derivative
financial
instruments 14 46,424 788 - - - 47,212 - 47,212
Loans and
advances
to banks1 - - - - - - 53,549 53,549
--------- ----------- ----------- ---------- ------------- --------- --------- ---------
of which:
reverse
repurchase
agreements
and other
similar
secured
lending 15 - - - - - - 1,341 1,341
--------- ----------- ----------- ---------- ------------- --------- --------- ---------
Loans and
advances
to customers1 - - - - - - 268,523 268,523
--------- ----------- ----------- ---------- ------------- --------- --------- ---------
of which:
reverse
repurchase
agreements
and other
similar
secured
lending 15 - - - - - - 1,469 1,469
--------- ----------- ----------- ---------- ------------- --------- --------- ---------
Investment
securities
--------- ----------- ----------- ---------- ------------- --------- --------- ---------
Debt
securities,
alternative
tier
one and
other
eligible
bills - - - - 129,471 129,471 13,969 143,440
Equity
shares - - - - 291 291 - 291
--------- ----------- ----------- ---------- ------------- --------- --------- ---------
- - - - 129,762 129,762 13,969 143,731
Other assets 18 - - - - - - 36,161 36,161
Assets held
for
sale 19 - - 87 243 - 330 90 420
-------------- ----- --------- ----------- ----------- ---------- ------------- --------- --------- ---------
Total at 31
December
2019 73,593 788 65,458 521 129,762 270,122 425,020 695,142
-------------- ----- --------- ----------- ----------- ---------- ------------- --------- --------- ---------
1 Further analysed in Risk review and Capital review
2 Prior year figures have been restated as the investments in
Private Equity has been reclassified from designated at fair value
to Non Trading FVTPL category to reflect correct classification of
portfolio
Liabilities at fair value
----------------------------------- ----- ------------------------------------------------- --------- ---------
Designated
at fair Total
value financial
Derivatives through liabilities
held profit at fair Amortised
Trading for hedging or loss value cost Total
Liabilities Notes $million $million $million $million $million $million
----------------------------------- ----- --------- ------------ ---------- ------------ --------- ---------
Financial liabilities held at fair
value through profit or loss
--------- ------------ ---------- ------------ --------- ---------
Deposits by banks - - 1,258 1,258 - 1,258
Customer accounts - - 7,696 7,696 - 7,696
Repurchase agreements and other
similar secured borrowing 15 - - 45,274 45,274 - 45,274
Debt securities in issue - - 5,728 5,728 - 5,728
Short positions 4,427 - - 4,427 - 4,427
--------- ------------ ---------- ------------ --------- ---------
4,427 - 59,956 64,383 - 64,383
Derivative financial instruments 14 48,723 2,103 - 50,826 - 50,826
Deposits by banks - - - - 28,986 28,986
Customer accounts - - - - 421,153 421,153
Repurchase agreements and other
similar secured borrowing 15 - - - - 2,811 2,811
Debt securities in issue - - - - 51,086 51,086
Other liabilities 20 - - - - 48,663 48,663
Subordinated liabilities and other
borrowed funds 23 - - - - 16,826 16,826
----------------------------------- ----- --------- ------------ ---------- ------------ --------- ---------
Total at 30 June 2020 53,150 2,103 59,956 115,209 569,525 684,734
----------------------------------- ----- --------- ------------ ---------- ------------ --------- ---------
Liabilities at fair value
----------------------------------- ----- ------------------------------------------------- --------- ---------
Designated Total
at fair financial
value liabilities
Derivatives through at
held profit fair Amortised
Trading for hedging or loss value cost Total
Liabilities Notes $million $million $million $million $million $million
----------------------------------- ----- --------- ------------ ---------- ------------ --------- ---------
Financial liabilities held at fair
value through profit or loss
--------- ------------ ---------- ------------ --------- ---------
Deposits by banks - - 1,081 1,081 - 1,081
Customer accounts - - 6,947 6,947 - 6,947
Repurchase agreements and other
similar secured borrowing 15 - - 46,283 46,283 - 46,283
Debt securities in issue - - 8,510 8,510 - 8,510
Short positions 4,153 - - 4,153 - 4,153
--------- ------------ ---------- ------------ --------- ---------
4,153 - 62,821 66,974 - 66,974
Derivative financial instruments 14 46,906 1,578 - 48,484 - 48,484
Deposits by banks - - - - 28,562 28,562
Customer accounts - - - - 405,357 405,357
Repurchase agreements and other
similar secured borrowing 15 - - - - 1,935 1,935
Debt securities in issue - - - - 53,025 53,025
Other liabilities 20 - - - - 41,149 41,149
Subordinated liabilities and other
borrowed funds 23 - - - - 16,207 16,207
----------------------------------- ----- --------- ------------ ---------- ------------ --------- ---------
Total at 31 December 2019 51,059 1,578 62,821 115,458 546,235 661,693
----------------------------------- ----- --------- ------------ ---------- ------------ --------- ---------
Financial liabilities designated at fair value through profit or
loss
30.06.20 31.12.19
$million $million
---------------------------------------------------------- ---------- ----------
Carrying balance aggregate fair value 59,956 62,821
Amount contractually obliged to repay at maturity 59,701 62,505
Difference between aggregate fair value and contractually
obliged to repay at maturity 255 316
Cumulative change in fair value accredited to credit
risk difference 35 17
---------------------------------------------------------- ---------- ----------
The net fair value loss on financial liabilities designated at
fair value through profit or loss was $166 million for the period
(31 December 2019: net loss of $1,602 million). Further details of
the Group's own credit adjustment (OCA) valuation technique is
described later in this note.
Valuation of financial instruments
Fair value is the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between
market participants at the measurement date in the principal market
or, in the absence of this, the most advantageous market to which
the Group has access at that date. The fair value of a liability
reflects the Group's non-performance risk. The fair value of
financial instruments is generally measured on the basis of the
individual financial instrument. However, when a group of financial
assets and financial liabilities is managed on the basis of its net
exposure to either market risks or credit risk, the fair value of
the group of financial instruments is measured on a net basis.
The fair values of quoted financial assets and liabilities in
active markets are based on current prices. A market is regarded as
active if transactions for the asset or liability take place with
sufficient frequency and volume to provide pricing information on
an ongoing basis. Wherever possible, fair values have been
calculated using unadjusted quoted market prices in active markets
for identical instruments held by the Group. Where quoted market
prices are not available, or are unreliable because of poor
liquidity, fair values have been determined using valuation
techniques which, to the extent possible, use market observable
inputs, but in some cases use non market observable inputs.
Valuation techniques used include discounted cash flow analysis and
pricing models and, where appropriate, comparison with instruments
that have characteristics similar to those of the instruments held
by the Group.
The Valuation Control function is responsible for independent
price verification, oversight of fair value and appropriate value
adjustments and escalation of valuation issues. Independent price
verification is the process of determining that the valuations
incorporated into the financial statements are validated
independent of the business area responsible for the product. The
Valuation Control function has oversight of the fair value
adjustments to ensure the financial instruments are priced to exit.
These are key controls in ensuring the material accuracy of the
valuations incorporated in the financial statements. The market
data used for price verification may include data sourced from
recent trade data involving external counterparties or third
parties such as Bloomberg, Reuters, brokers and consensus pricing
providers. Valuation Control performs a semi-annual review of the
suitability of the market data used for price testing. Price
verification uses independently sourced data that is deemed most
representative of the market the instruments trade in. To determine
the quality of the market data inputs, factors such as
independence, relevance, reliability, availability of multiple data
sources and methodology employed by the pricing provider are taken
into consideration.
The Valuation and Benchmarks Committee (VBC) is the valuation
governance forum consisting of representatives from Group Market
Risk, Product Control, Valuation Control and the business, which
meets monthly to discuss and approve the independent valuations of
the inventory. For Principal Finance, the Investment Committee
meeting is held on a quarterly basis to review investments and
valuations.
Significant accounting estimates and judgements
The Group evaluates the significance of financial instruments
and material accuracy of the valuations incorporated in the
financial statements as they involve a high degree of judgement and
estimation uncertainty in determining the carrying values of
financial assets and liabilities at the balance sheet date.
-- Fair value of financial instruments is determined using
valuation techniques and estimates (see below) which, to the extent
possible, use market observable inputs, but in some cases use
non-market observable inputs. Changes in the observability of
significant valuation inputs can materially affect the fair values
of financial instruments
-- When establishing the exit price of a financial instrument
using a valuation technique, the Group estimates valuation
adjustments in determining the fair value
-- In determining the valuation of financial instruments, the
Group makes judgements on the amounts reserved to cater for model
and valuation risks, which cover both Level 2 and Level 3 assets,
and the significant valuation judgements in respect of Level 3
instruments
-- Where the estimated measurement of fair value is more
judgemental in respect of Level 3 assets, these are valued based on
models that use a significant degree of non-market-based
unobservable inputs
Valuation techniques
Refer to the fair value hierarchy explanation - Level 1, 2 and
3
-- Financial instruments held at fair value
- Debt securities - asset backed securities: Asset backed
securities are valued based on external prices obtained from
consensus pricing providers, broker quotes, recent trades,
arrangers' quotes, etc. Where an observable price is available for
a given security, it is classified as Level 2. In instances where
third-party prices are not available or reliable, the security is
classified as Level 3. The fair value of Level 3 securities is
estimated using market standard cash flow models with input
parameter assumptions which include prepayment speeds, default
rates, discount margins derived from comparable securities with
similar vintage, collateral type, and credit ratings.
- Debt securities in issue: These debt securities relate to
structured notes issued by the Group. Where independent market data
is available through pricing vendors and broker sources these
positions are classified as Level 2. Where such liquid external
prices are not available, valuations of these debt securities are
implied using input parameters such as bond spreads and credit
spreads, and are classified as Level 3. These input parameters are
determined with reference to the same issuer (if available) or
proxies from comparable issuers or assets
- Derivatives: Derivative products are classified as Level 2 if
the valuation of the product is based upon input parameters which
are observable from independent and reliable market data sources.
Derivative products are classified as Level 3 if there are
significant valuation input parameters which are unobservable in
the market, such as products where the performance is linked to
more than one underlying variable. Examples are foreign exchange
basket options, equity options based on the performance of two or
more underlying indices and interest rate products with quanto
payouts. In most cases these unobservable correlation parameters
cannot be implied from the market, and methods such as historical
analysis and comparison with historical levels or other benchmark
data must be employed
- Equity shares - private equity: The majority of private equity
unlisted investments are valued based on earning multiples
-Price-to-Earnings (P/E) or enterprise value to earnings before
income tax, depreciation and amortisation (EV/EBITDA) ratios - of
comparable listed companies. The two primary inputs for the
valuation of these investments are the actual or forecast earnings
of the investee companies and earning multiples for the comparable
listed companies. To ensure comparability between these unquoted
investments and the comparable listed companies, appropriate
adjustments are also applied (for example, liquidity and size) in
the valuation. In circumstances where an investment does not have
direct comparables or where the multiples for the comparable
companies cannot be sourced from reliable external sources,
alternative valuation techniques (for example, discounted cash flow
models), which use predominantly unobservable inputs or Level 3
inputs, may be applied. Even though earning multiples for the
comparable listed companies can be sourced from third-party sources
(for example, Bloomberg), and those inputs can be deemed Level 2
inputs, all unlisted investments (excluding those where observable
inputs are available, for example, Over-the-counter (OTC) prices)
are classified as Level 3 on the basis that the valuation methods
involve judgements ranging from determining comparable companies to
discount rates where the discounted cash flow method is applied
- Loans and advances: These primarily include loans in the
global syndications business which were not syndicated as of the
balance sheet date and other financing transactions within
Financial Markets and loans and advances including reverse
repurchase agreements that do not have SPPI cash flows or are
managed on a fair value basis. These loans are generally bilateral
in nature and, where available, their valuation is based on
observable clean sales transactions prices or market observable
spreads. If observable credit spreads are not available, proxy
spreads based on comparable loans with similar credit grade, sector
and region, are used. Where observable credit spreads and market
standard proxy methods are available, these loans are classified as
Level 2. Where there are no recent transactions or comparable
loans, these loans are classified as Level 3
- Other debt securities: These debt securities include
convertible bonds, corporate bonds, credit and structured notes.
Where quoted prices are available through pricing vendors, brokers
or observable trading activities from liquid markets, these are
classified as Level 2 and valued using such quotes. Where there are
significant valuation inputs which are unobservable in the market,
due to illiquid trading or the complexity of the product, these are
classified as Level 3. The valuations of these debt securities are
implied using input parameters such as bond spreads and credit
spreads. These input parameters are determined with reference to
the same issuer (if available) or proxied from comparable issuers
or assets
-- Financial instruments held at amortised cost
The following sets out the Group's basis for establishing fair
values of amortised cost financial instruments and their
classification between Levels 1, 2 and 3. As certain categories of
financial instruments are not actively traded, there is a
significant level of management judgement involved in calculating
the fair values:
- Cash and balances at central banks: The fair value of cash and
balances at central banks is their carrying amounts
- Debt securities in issue, subordinated liabilities and other
borrowed funds: The aggregate fair values are calculated based on
quoted market prices. For those notes where quoted market prices
are not available, a discounted cash flow model is used based on a
current market related yield curve appropriate for the remaining
term to maturity
- Deposits and borrowings: The estimated fair value of deposits
with no stated maturity is the amount repayable on demand. The
estimated fair value of fixed interest bearing deposits and other
borrowings without quoted market prices is based on discounted cash
flows using the prevailing market rates for debts with a similar
Credit Risk and remaining maturity
- Investment securities: For investment securities that do not
have directly observable market values, the Group utilises a number
of valuation techniques to determine fair value. Where available,
securities are valued using input proxies from the same or closely
related underlying (for example, bond spreads from the same or
closely related issuer) or input proxies from a different
underlying (for example, a similar bond but using spreads for a
particular sector and rating). Certain instruments cannot be
proxies as set out above, and in such cases the positions are
valued using non-market observable inputs. This includes those
instruments held at amortised cost and predominantly relates to
asset backed securities. The fair value for such instruments is
usually proxies from internal assessments of the underlying cash
flows
- Loans and advances to banks and customers: For loans and
advances to banks, the fair value of floating rate placements and
overnight deposits is their carrying amounts. The estimated fair
value of fixed interest bearing deposits is based on discounted
cash flows using the prevailing money market rates for debts with a
similar Credit Risk and remaining maturity. The Group's loans and
advances to customers' portfolio is well diversified by geography
and industry. Approximately a quarter of the portfolio re-prices
within one month, and approximately half re-prices within 12
months. Loans and advances are presented net of provisions for
impairment. The fair value of loans and advances to customers with
a residual maturity of less than one year generally approximates
the carrying value. The estimated fair value of loans and advances
with a residual maturity of more than one year represents the
discounted amount of future cash flows expected to be received,
including assumptions relating to prepayment rates and Credit Risk.
Expected cash flows are discounted at current market rates to
determine fair value. The Group has a wide range of individual
instruments within its loans and advances portfolio and as a result
providing quantification of the key assumptions used to value such
instruments is impractical
- Other assets: Other assets comprise primarily of cash
collateral and trades pending settlement. The carrying amount of
these financial instruments is considered to be a reasonable
approximation of fair value as they are either short-term in nature
or re-price to current market rates frequently
Fair value adjustments
When establishing the exit price of a financial instrument using
a valuation technique, the Group considers adjustments to the
modelled price which market participants would make when pricing
that instrument. The main valuation adjustments (described further
below) in determining fair value for financial assets and financial
liabilities are as follows:
Movement Movement
during during
01.01.20 the period 30.06.20 01.01.19 the year 31.12.19
$million $million $million $million $million $million
----------------------------- ---------- ------------ ---------- ---------- ---------- ----------
Bid-offer valuation
adjustment 79 34 113 67 12 79
CVA 136 202 338 196 (60) 136
DVA (43) (103) (146) (143) 100 (43)
Model valuation adjustment 7 (2) 5 6 1 7
FVA 26 8 34 60 (34) 26
Other fair value adjustments 45 (8) 37 59 (14) 45
----------------------------- ---------- ------------ ---------- ---------- ---------- ----------
Total 250 131 381 245 5 250
----------------------------- ---------- ------------ ---------- ---------- ---------- ----------
Income deferrals
Day 1 and other deferrals 103 38 141 100 3 103
----------------------------- ---------- ------------ ---------- ---------- ---------- ----------
Total 103 38 141 100 3 103
----------------------------- ---------- ------------ ---------- ---------- ---------- ----------
Note: Bracket represents an asset and credit to the income
statement
-- Bid-offer valuation adjustment: Where market parameters are
marked on a mid-market basis in the revaluation systems, a
bid-offer valuation adjustment is required to quantify the expected
cost of neutralising the business' positions through dealing away
in the market, thereby bringing long positions to bid and short
positions to offer. The methodology to calculate the bid-offer
adjustment for a derivative portfolio involves netting between long
and short positions and the grouping of risk by strike and tenor
based on the hedging strategy where long positions are marked to
bid and short positions marked to offer in the systems
-- Credit valuation adjustment (CVA): The Group makes CVA
adjustment against the fair value of derivative products. CVA is an
adjustment to the fair value of the transactions to reflect the
possibility that our counterparties may default and we may not
receive the full market value of the outstanding transactions. It
represents an estimate of the adjustment a market participant would
include when deriving a purchase price to acquire our exposures.
CVA is calculated for each subsidiary, and within each entity for
each counterparty to which the entity has exposure and takes
account of any collateral we may hold. The Group calculates the CVA
by using estimates of future positive exposure, market-implied
probability of default (PD) and recovery rates. Where
market-implied data is not readily available, we use market-based
proxies to estimate the PD. Wrong-way risk occurs when the exposure
to a counterparty is adversely correlated with the credit quality
of that counterparty, and the Group has implemented a model to
capture this impact for certain key wrong-way exposures. The Group
also captures the uncertainties associated with wrong-way risk in
its Prudential Valuation Adjustments
-- Debit valuation adjustment (DVA): The Group calculates DVA
adjustments on its derivative liabilities to reflect changes in its
own credit standing. The Group's DVA adjustments will increase if
its credit standing worsens and conversely, decrease if its credit
standing improves. For derivative liabilities, a DVA adjustment is
determined by applying the Group's probability of default to the
Group's negative expected exposure against the counterparty. The
Group's probability of default and loss expected in the event of
default is derived based on bond and CDS spreads associated with
the Group's issuances and market standard recovery levels. The
expected exposure is modelled based on the simulation of the
underlying risk factors over the life of the deal booked against
the particular counterparty. This simulation methodology
incorporates the collateral posted by the Group and the effects of
master netting agreements
-- Model valuation adjustment: Valuation models may have pricing
deficiencies or limitations that require a valuation adjustment.
These pricing deficiencies or limitations arise due to the choice,
implementation and calibration of the pricing model
-- Funding valuation adjustment (FVA): The Group makes FVA
adjustments against derivative products. FVA reflects an estimate
of the adjustment to its fair value that a market participant would
make to incorporate funding costs that could arise in relation to
the exposure. FVA is calculated by determining the net expected
exposure at a counterparty level and then applying a funding rate
to those exposures that reflect the market cost of funding. The FVA
for collateralised derivatives is based on discounting the expected
future cash flows at the relevant overnight indexed swap (OIS) rate
after taking into consideration the terms of the underlying
collateral agreement with the counterparty. The FVA for
uncollateralised (including partially collateralised) derivatives
incorporates the estimated present value of the market funding cost
or benefit associated with funding these transactions
-- Other fair value adjustments: The Group calculates the fair
value on the interest rate callable products by calibrating to a
set of market prices with differing maturity, expiry and strike of
the trades
-- Day one and other deferrals: In certain circumstances the
initial fair value may be based on a valuation technique which may
lead to the recognition of profits or losses at the time of initial
recognition. However, these profits or losses can only be
recognised when the valuation technique used is based primarily on
observable market data. In those cases where the initially
recognised fair value is based on a valuation model that uses
inputs which are not observable in the market, the difference
between the transaction price and the valuation model is not
recognised immediately in the income statement. The difference is
amortised to the income statement until the inputs become
observable, or the transaction matures or is terminated. Other
deferrals primarily represent adjustments taken to reflect the
specific terms and conditions of certain derivative contracts which
affect the termination value at the measurement date
In addition, the Group calculates own credit adjustment (OCA) on
its issued debt designated at fair value, including structured
notes, in order to reflect changes in its own credit standing. The
Group's OCA adjustments will increase if its credit standing
worsens and conversely, decrease if its credit standing improves.
The Group's OCA adjustments will reverse over time as its
liabilities mature. For issued debt and structured notes designated
at fair value, an OCA adjustment is determined by discounting the
contractual cash flows using a yield curve adjusted for market
observed secondary senior unsecured credit spreads. The OCA at 30
June 2020 is $35 million, other comprehensive income loss $22
million (31 December 2019: $17 million, other comprehensive income
gain $462 million).
Fair value hierarchy - financial instruments held at fair
value
Assets and liabilities carried at fair value or for which fair
values are disclosed have been classified into three levels
according to the observability of the significant inputs used to
determine the fair values. Changes in the observability of
significant valuation inputs during the reporting period may result
in a transfer of assets and liabilities within the fair value
hierarchy. The Group recognises transfers between levels of the
fair value hierarchy when there is a significant change in either
its principal market or the level of observability of the inputs to
the valuation techniques as at the end of the reporting period.
-- Level 1: Fair value measurements are those derived from
unadjusted quoted prices in active markets for identical assets or
liabilities
-- Level 2: Fair value measurements are those with quoted prices
for similar instruments in active markets or quoted prices for
identical or similar instruments in inactive markets and financial
instruments valued using models where all significant inputs are
observable
-- Level 3: Fair value measurements are those where at least one
input which could have a significant effect on the instrument's
valuation is not based on observable market data
The following tables show the classification of financial
instruments held at fair value into the valuation hierarchy:
Level 1 Level 2 Level 3 Total
Assets $million $million $million $million
----------------------------------------------- ---------- ---------- ---------- ----------
Financial instruments held at fair
value through profit or loss
Loans and advances to banks - 2,136 200 2,336
Loans and advances to customers - 9,915 538 10,453
Reverse repurchase agreements and other
similar secured lending 83 58,165 754 59,002
Debt securities, alternative tier one
and other eligible bills 7,657 16,139 220 24,016
Of which:
---------- ---------- ---------- ----------
Government bonds and treasury bills 7,211 8,948 - 16,159
Issued by corporates other than financial
institutions1 8 4,189 201 4,398
Issued by financial institutions1 438 3,002 19 3,459
---------- ---------- ---------- ----------
Equity shares 2,290 - 262 2,552
Derivative financial instruments 610 51,571 46 52,227
Of which:
---------- ---------- ---------- ----------
Foreign exchange 21 34,747 33 34,801
Interest rate 55 14,003 4 14,062
Credit - 1,259 3 1,262
Equity and stock index options - 105 6 111
Commodity 534 1,457 - 1,991
---------- ---------- ---------- ----------
Investment securities
Debt securities, alternative tier one
and other eligible bills 71,945 57,174 69 129,188
Of which:
---------- ---------- ---------- ----------
Government bonds and treasury bills 53,671 21,813 33 75,517
Issued by corporates other than financial
institutions1 6,416 10,521 36 16,973
Issued by financial institutions1 11,858 24,840 - 36,698
---------- ---------- ---------- ----------
Equity shares 34 8 365 407
----------------------------------------------- ---------- ---------- ---------- ----------
Total financial instruments at 30 June
20202 82,619 195,108 2,454 280,181
----------------------------------------------- ---------- ---------- ---------- ----------
Liabilities
Financial instruments held at fair
value through profit or loss
---------- ---------- ---------- ----------
Deposits by banks - 1,189 69 1,258
Customer accounts - 7,667 29 7,696
Repurchase agreements and other similar
secured borrowing - 45,274 - 45,274
Debt securities in issue - 5,272 456 5,728
Short positions 3,057 1,370 - 4,427
---------- ---------- ---------- ----------
Derivative financial instruments 625 50,092 109 50,826
Of which:
---------- ---------- ---------- ----------
Foreign exchange 82 34,723 31 34,836
Interest rate 41 12,441 30 12,512
Credit - 2,093 22 2,115
Equity and stock index options - 84 26 110
Commodity 502 751 - 1,253
---------- ---------- ---------- ----------
Total financial instruments at 30 June
20202 3,682 110,864 663 115,209
----------------------------------------------- ---------- ---------- ---------- ----------
1 Includes covered bonds of $6,680 million, securities issued by
Multilateral Development Banks/International Organisations of
$11,699 million and State-owned agencies and development banks of
$16,269 million
2 The above table does not include held for sale assets of $175
million and liabilities of $nil. These are reported in Note 19
together with their fair value hierarchy
There were no significant changes to valuation or levelling
approaches in 2020.
There were no significant transfers of financial assets and
liabilities measured at fair value between Level 1 and Level 2
during the period.
Level 1 Level 2 Level 3 Total
Assets $million $million $million $million
----------------------------------------------- ---------- ---------- ---------- ----------
Financial instruments held at fair
value through profit or loss
Loans and advances to banks - 3,163 365 3,528
Loans and advances to customers - 6,453 443 6,896
Reverse repurchase agreements and other
similar secured lending - 57,604 - 57,604
Debt securities, alternative tier one
and other eligible bills 5,963 16,158 200 22,321
Of which:
---------- ---------- ---------- ----------
Government bonds and treasury bills1 5,656 7,898 - 13,554
Issued by corporates other than financial
institutions1 7 5,090 200 5,297
Issued by financial institutions 300 3,170 - 3,470
---------- ---------- ---------- ----------
Equity shares 2,241 - 228 2,469
Derivative financial instruments 466 46,729 17 47,212
Of which:
---------- ---------- ---------- ----------
Foreign exchange 69 25,929 8 26,006
Interest rate 28 19,342 4 19,374
Credit - 1,231 1 1,232
Equity and stock index options - 23 4 27
Commodity 369 204 - 573
---------- ---------- ---------- ----------
Investment securities
Debt securities, alternative tier one
and other eligible bills 73,699 55,734 38 129,471
Of which:
---------- ---------- ---------- ----------
Government bonds and treasury bills 54,637 19,664 33 74,334
Issued by corporates other than financial
institutions1 11,667 14,505 5 26,177
Issued by financial institutions1 7,395 21,565 - 28,960
---------- ---------- ---------- ----------
Equity shares 30 4 257 291
----------------------------------------------- ---------- ---------- ---------- ----------
Total financial instruments at 31 December
20192 82,399 185,845 1,548 269,792
----------------------------------------------- ---------- ---------- ---------- ----------
Liabilities
Financial instruments held at fair
value through profit or loss
---------- ---------- ---------- ----------
Deposits by banks - 1,025 56 1,081
Customer accounts - 6,907 40 6,947
Repurchase agreements and other similar
secured borrowing - 46,283 - 46,283
Debt securities in issue - 8,100 410 8,510
Short positions 2,499 1,654 - 4,153
---------- ---------- ---------- ----------
Derivative financial instruments 515 47,912 57 48,484
Of which:
---------- ---------- ---------- ----------
Foreign exchange 97 26,824 5 26,926
Interest rate 31 18,891 9 18,931
Credit - 1,892 23 1,915
Equity and stock index options - 76 20 96
Commodity 387 229 - 616
---------- ---------- ---------- ----------
Total financial instruments at 31 December
20192 3,014 111,881 563 115,458
----------------------------------------------- ---------- ---------- ---------- ----------
1 Includes covered bonds of $6,137 million (represented from
$3,499 million), securities issued by Multilateral Development
Banks/International Organisations of $11,894 million and
State-owned agencies and development banks of $17,936 million
2 The above table does not include held for sale assets of $330
million and liabilities of $nil. These are reported in Note 19
together with their fair value hierarchy
There were no significant changes to valuation or levelling
approaches in 2019.
There were no significant transfers of financial assets and
liabilities measured at fair value between Level 1 and Level 2
during the year.
Fair value hierarchy - financial instruments measured at
amortised cost
The following table shows the carrying amounts and incorporates
the Group's estimate of fair values of those financial assets and
liabilities not presented on the Group's balance sheet at fair
value. These fair values may be different from the actual amount
that will be received or paid on the settlement or maturity of the
financial instrument. For certain instruments, the fair value may
be determined using assumptions for which no observable prices are
available.
Fair value
-------------------------------- ---------- ----------------------------------------------
Carrying
value Level 1 Level 2 Level 3 Total
$million $million $million $million $million
-------------------------------- ---------- ---------- ---------- ---------- ----------
Assets
Cash and balances at central
banks1 52,925 - 52,925 - 52,925
Loans and advances to banks 50,499 - 50,518 - 50,518
---------- ---------- ---------- ---------- ----------
of which - reverse repurchase
agreements and other similar
secured lending 1,893 - 1,909 - 1,909
---------- ---------- ---------- ---------- ----------
Loans and advances to customers 276,313 - 31,354 246,005 277,359
---------- ---------- ---------- ---------- ----------
of which - reverse repurchase
agreements and other similar
secured lending 4,383 - 2,624 1,762 4,386
---------- ---------- ---------- ---------- ----------
Investment securities2 16,139 - 17,082 38 17,120
Other assets1 42,183 - 42,183 - 42,183
Assets held for sale 157 - 133 24 157
-------------------------------- ---------- ---------- ---------- ---------- ----------
At 30 June 2020 438,216 - 194,195 246,067 440,262
-------------------------------- ---------- ---------- ---------- ---------- ----------
Liabilities
Deposits by banks 28,986 - 28,860 - 28,860
Customer accounts 421,153 - 421,043 - 421,043
Repurchase agreements and other
similar secured borrowing 2,811 - 2,811 - 2,811
Debt securities in issue 51,086 22,945 27,790 - 50,735
Subordinated liabilities and
other borrowed funds 16,826 16,120 885 - 17,005
Other liabilities1 48,663 - 48,663 - 48,663
-------------------------------- ---------- ---------- ---------- ---------- ----------
At 30 June 2020 569,525 39,065 530,052 - 569,117
-------------------------------- ---------- ---------- ---------- ---------- ----------
Fair value
-------------------------------- ---------- ----------------------------------------------
Carrying
value Level 1 Level 2 Level 3 Total
$million $million $million $million $million
-------------------------------- ---------- ---------- ---------- ---------- ----------
Assets
Cash and balances at central
banks1 52,728 - 52,728 - 52,728
Loans and advances to banks 53,549 - 53,431 - 53,431
---------- ---------- ---------- ---------- ----------
of which - reverse repurchase
agreements and other similar
secured lending 1,341 - 1,356 - 1,356
---------- ---------- ---------- ---------- ----------
Loans and advances to customers 268,523 - 22,829 246,632 269,461
---------- ---------- ---------- ---------- ----------
of which - reverse repurchase
agreements and other similar
secured lending 1,469 - 1,341 130 1,471
---------- ---------- ---------- ---------- ----------
Investment securities2 13,969 - 14,238(3) 20 14,261
Other assets1 36,161 - 36,161 - 36,161
Assets held for sale 90 - 90 - 90
-------------------------------- ---------- ---------- ---------- ---------- ----------
At 31 December 2019 425,020 - 179,477 246,652 426,132
-------------------------------- ---------- ---------- ---------- ---------- ----------
Liabilities
Deposits by banks 28,562 - 28,577 - 28,577
Customer accounts 405,357 - 405,361 - 405,361
Repurchase agreements and other
similar secured borrowing 1,935 - 1,935 - 1,935
Debt securities in issue 53,025 20,031 33,269 - 53,300
Subordinated liabilities and
other borrowed funds 16,207 15,986 803 - 16,789
Other liabilities1 41,149 - 41,149 - 41,149
-------------------------------- ---------- ---------- ---------- ---------- ----------
At 31 December 2019 546,235 36,017 511,094 - 547,111
-------------------------------- ---------- ---------- ---------- ---------- ----------
1 The carrying amount of these financial instruments is
considered to be a reasonable approximation of fair value as they
are short-term in nature or reprice to current market rates
frequently
2 Includes Government bonds and Treasury bills of $6,339 million
as at 30 June 2020 (31 December 2019: $5,973 million)
3 Fair value of investment securities restated from $13,107
million to $14,238 million
Level 3 Summary and significant unobservable inputs
The following table presents the Group's primary Level 3
financial instruments which are held at fair value. The table also
presents the valuation techniques used to measure the fair value of
those financial instruments, the significant unobservable inputs,
the range of values for those inputs and the weighted average of
those inputs:
Value as at 30
June 2020
---------------------- ---------------------- -------------------- -------------------- ------------- ---------
Significant
Assets Liabilities Principal valuation unobservable Weighted
Instrument $million $million technique inputs Range1 average2
---------------------- --------- ----------- -------------------- -------------------- ------------- ---------
Loans and advances Discounted cash
to banks 200 - flows Price/yield 4.6%-13.9% 10.6%
---------------------- --------- ----------- -------------------- -------------------- ------------- ---------
Loans and advances Discounted cash
to customers 538 - flows Price/yield 3.6%-15.4% 10.3%
----------------------
Discounted cash
flows Recovery rates 41.5%-100% 88.6%
---------------------- --------- ----------- -------------------- -------------------- ------------- ---------
Reverse repurchase
agreements and
other similar Discounted cash
secured lending 754 - flows Repo rate 2.9% 2.9%
---------------------- --------- ----------- -------------------- -------------------- ------------- ---------
Debt securities,
alternative
tier one and
other eligible Discounted cash
securities 140 - flows Price/yield 4.0%-27.8% 22.8%
---------------------- --------- ----------- -------------------- -------------------- ------------- ---------
Government bonds
and treasury Discounted cash
bills 33 - flows Price/yield 2.9%-5.5% 3.8%
---------------------- --------- ----------- -------------------- -------------------- ------------- ---------
Asset-backed Discounted cash
securities 116 - flows Price/yield 1.0%-32.8% 12.3%
Equity shares
(includes private Comparable
equity investments)3 627 - pricing/yield EV/EBITDA multiples 3.3x-12.6x 9.2x
---------------------- --------- -----------
P/E multiples 17.5x 17.5x
---------------------- --------- -----------
P/B multiples 0.3x-0.8x 0.7x
P/S multiples NA NA
Liquidity discount 10.0%-20.0% 18.0%
Discounted cash
flows Discount rates 6.0%-14.9% 7.9%
Equity value based
Option pricing on EV/ Revenue
model multiples 9.0x-13.9x 9.9x
---------------------- --------- ----------- -------------------- -------------------- ------------- ---------
Derivative financial
instruments
of which:
Foreign Exchange
Option pricing Option Implied
Foreign exchange 33 31 model Volatility (0.5)%-1.9% 1.4%
Discounted cash Foreign Exchange
flows Curves 0.8%-18.0% 12.1%
Discounted cash Interest Rate
Interest rate 4 30 flows Curves 1.4%-13.6% 6.0%
Option pricing Bond Option Implied
model Volatility 20.0%-28.0% 23.8%
Discounted cash
Credit 3 22 flows Credit Spreads 1.0%-15.4% 11.3%
Equity and stock Internal pricing Equity-Equity
index 6 26 model Correlation 2.0%-90.0% 65.0%
----------------------
Equity-FX
Correlation (85.0)%-70.0% 39.0%
---------------------- --------- ----------- -------------------- -------------------- ------------- ---------
Deposits by Discounted cash
banks - 69 flows Credit Spreads 1.0% 1.0%
---------------------- --------- ----------- -------------------- -------------------- ------------- ---------
Discounted cash
Customer accounts - 29 flows Credit Spreads 1.0%-32.8% 29.4%
---------------------- --------- ----------- -------------------- -------------------- ------------- ---------
Debt securities Discounted cash
in issue - 456 flows Credit Spreads 0.1%-27.8% 13.6%
----------------------
Internal pricing Equity-Equity
model Correlation 2.0%-90.0% 65.0%
---------------------- --------------------
Equity-FX
Correlation (85.0)%-70.0% 39.0%
---------------------- --------- ----------- -------------------- -------------------- ------------- ---------
Total 2,454 663
---------------------- --------- ----------- -------------------- -------------------- ------------- ---------
1 The ranges of values shown in the above table represent the
highest and lowest levels used in the valuation of the Group's
Level 3 financial instruments as at 30 June 2020. The ranges of
values used are reflective of the underlying characteristics of
these Level 3 financial instruments based on the market conditions
at the balance sheet date. However, these ranges of values may not
represent the uncertainty in fair value measurements of the Group's
Level 3 financial instruments
2 Weighted average for non-derivative financial instruments has
been calculated by weighting inputs by the relative fair value.
Weighted average for derivatives has been provided by weighting
inputs by the risk relevant to that variable. N/A has been entered
for the cases where weighted average is not a meaningful
indicator
3 The Group has an equity investment in the Series B preferred
shares of Ripple Labs, Inc., which owns a digital currency (XRP)
and is being carried at a fair value
Value as at
31 December
2019
----------------------
Significant
Assets Liabilities Principal valuation unobservable Weighted
Instrument $million $million technique inputs Range1 average2
Loans and advances Discounted cash
to banks 365 - flows Price/yield 1.0%-15.6% 10.8%
---------------------- --------- ----------- -------------------- --------------------- ------------ ---------
Loans and advances Discounted cash
to customers 443 - flows Price/yield 0.5% - 6.9% 4.2%
---------------------- --------------------
18.9% -
Recovery rates 100% 92.1%
---------------------- --------- ----------- -------------------- --------------------- ------------ ---------
Debt securities,
alternative
tier one and
other eligible Discounted cash
securities 184 - flows Price/yield 3.8% - 18.7% 11.6%
---------------------- --------- ----------- -------------------- --------------------- ------------ ---------
Government bonds
and treasury Discounted cash
bills 33 - flows Price/Yield 2.9% - 5.5% 3.7%
---------------------- --------- ----------- -------------------- --------------------- ------------ ---------
Asset backed Discounted cash
securities 21 - flows Price/Yield 1.4% - 3.2% 2.7%
---------------------- --------- ----------- -------------------- --------------------- ------------ ---------
Equity shares
(includes private Comparable
equity investments)3 485 - pricing/yield EV/EBITDA multiples 3.5x - 7.3x 4.6x
----------------------
P/E multiples 17.4x 17.4x
----------------------
P/B multiples 0.6x - 1.0x 0.9x
P/S multiples N/A N/A
10.0% -
Liquidity discount 20.0% 15.9%
Discounted cash
flows Discount rates 8.4% - 16.2% 9.5%
---------------------- --------- ----------- -------------------- --------------------- ------------ ---------
Derivative financial
instruments
of which:
Foreign Exchange
Option Pricing Option Implied
Foreign exchange 8 5 Model Volatility 4.4% - 18.9% 16.7%
Discounted cash Foreign Exchange
flows Curves 7.8% - 8.0% 7.9%
Discounted cash Interest rate
Interest rate 4 9 flows curves 5.3% - 19.6% 8.6%
Option Pricing Bond Option Implied 17.0% -
Model Volatility 28.0% 24.0%
Discounted cash
Credit 1 23 flows Credit spreads 1.0% - 7.9% 1.1%
Equity and stock Internal pricing
index 4 20 model Equity Correlation 1.0% - 90.0% 58.0%
---------------------- --------------------
(80.0)%
Equity-FX Correlation - 70.0% (29.0)%
---------------------- --------- ----------- -------------------- --------------------- ------------ ---------
Deposits by Discounted cash
banks - 56 flows Credit Spreads 1.0% - 1.8% 1.4%
---------------------- --------- ----------- -------------------- --------------------- ------------ ---------
Discounted cash
Customer accounts - 40 flows Credit Spreads 1.0% - 5.8% 2.7%
---------------------- --------- ----------- -------------------- --------------------- ------------ ---------
Debt securities Discounted cash
in issue 410 flows Credit Spreads 0.1% - 1.4% 0.9%
----------------------
Internal pricing
model Equity Correlation 1.0% - 90.0% 58.0%
---------------------- --------------------
(80.0)%
Equity-FX Correlation - 70.0% (29.0)%
---------------------- --------- ----------- -------------------- --------------------- ------------ ---------
Total 1,548 563
---------------------- --------- ----------- -------------------- --------------------- ------------ ---------
1 The ranges of values shown in the above table represent the
highest and lowest levels used in the valuation of the Group's
Level 3 financial instruments as at 31 December 2019. The ranges of
values used are reflective of the underlying characteristics of
these Level 3 financial instruments based on the market conditions
at the balance sheet date. However, these ranges of values may not
represent the uncertainty in fair value measurements of the Group's
Level 3 financial instruments
2 Weighted average for non-derivative financial instruments has
been calculated by weighting inputs by the relative fair value.
Weighted average for derivatives has been provided by weighting
inputs by the risk relevant to that variable. N/A has been entered
for the cases where weighted average is not a meaningful
indicator
3 The Group has an equity investment in the Series B preferred
shares of Ripple Labs, Inc., which owns a digital currency (XRP)
and is being carried at a fair value based on the shares' initial
offering price
The following section describes the significant unobservable
inputs identified in the valuation technique table:
-- Comparable price/yield is a valuation methodology in which
the price of a comparable instrument is used to estimate the fair
value where there are no direct observable prices. Yield is the
interest rate that is used to discount the future cash flows in a
discounted cash flow model. Valuation using comparable instruments
can be done by calculating an implied yield (or spread over a
liquid benchmark) from the price of a comparable instrument, then
adjusting that yield (or spread) to derive a value for the
instrument. The adjustment should account for relevant differences
in the financial instruments such as maturity and/or credit
quality. Alternatively, a price-to-price basis can be assumed
between the comparable instrument and the instrument being valued
in order to establish the value of the instrument (for example,
deriving a fair value for a junior unsecured bond from the price of
a senior secured bond). An increase in price, in isolation, would
result in a favourable movement in the fair value of the asset. An
increase in yield, in isolation, would result in an unfavourable
movement in the fair value of the asset
-- Recovery rates are the expectation of the rate of return
resulting from the liquidation of a particular loan. As the
probability of default increases for a given instrument, the
valuation of that instrument will increasingly reflect its expected
recovery level assuming default. An increase in the recovery rate,
in isolation, would result in a favourable movement in the fair
value of the loan
-- EV/EBITDA ratio multiples is the ratio of Enterprise Value
(EV) to Earnings Before Interest, Taxes, Depreciation and
Amortisation (EBITDA). EV is the aggregate market capitalisation
and debt minus the cash and cash equivalents. An increase in
EV/EBITDA multiples in isolation, will result in a favourable
movement in the fair value of the unlisted firm
-- Price-Earnings (P/E) multiples is the ratio of the Market
Capitalisation to the net income after tax. The multiples are
determined from multiples of listed comparables, which are
observable. An increase in P/E multiple will result in a favourable
movement in the fair value of the unlisted firm
-- Price-Book (P/B) multiple is the ratio of the market value of
equity to the book value of equity. An increase in P/B multiple
will result in a favourable movement in the fair value of the
unlisted firm
-- Price-Sales (P/S) multiple is the ratio of the market value
of equity to sales. An increase in P/S multiple will result in a
favourable movement in the fair value of the unlisted firm
-- Liquidity discounts in the valuation of unlisted investments
primarily applied to the valuation of unlisted firms' investments
to reflect the fact that these stocks are not actively traded. An
increase in liquidity discount will result in unfavourable movement
in the fair value of the unlisted firm
-- Discount rate refers to the rate of return used to convert
expected cash flows into present value
-- Volatility represents an estimate of how much a particular
instrument, parameter or index will change in value over time.
Generally, the higher the volatility, the more expensive the option
will be
-- Foreign exchange curves is the term structure for forward
rates and swap rates between currency pairs over a specified
period
-- Interest rate curves is the term structure of interest rates
and measure of future interest rates at a particular point in
time
-- Credit spread represents the additional yield that a market
participant would demand for taking exposure to the Credit Risk of
an instrument
-- Correlation is the measure of how movement in one variable
influences the movement in another variable. An equity correlation
is the correlation between two equity instruments while an interest
rate correlation refers to the correlation between two swap
rates
-- Commodities correlation: This refers to the correlation
between two commodity underlyings over a specified time
Level 3 movement tables - financial assets
The table below analyses movements in Level 3 financial assets
carried at fair value.
30.06.2020
--------------- ------------------------------------------------------------------------------------------------------
Held at fair value through profit Investment
or loss securities
------------------------------------------------------ ----------- ---------
Debt Debt
securities, securities,
Reverse alternative alternative
repurchase tier tier
Loans agreements one one
Loans and and other and and
and advances similar other Derivative other
advances to secured eligible Equity financial eligible Equity
to banks customers lending bills shares instruments bills shares Total
Assets $million $million $million $million $million $million $million $million $million
--------------- -------- --------- ---------- ----------- -------- ----------- ----------- --------- ---------
As at 1 January
2020 365 443 - 200 228 17 38 257 1,548
Total
gains/(losses)
recognised in
income
statement 15 (15) 4 (20) (24) 12 - - (28)
-------- --------- ---------- ----------- -------- ----------- ----------- --------- ---------
Net trading
income 15 (15) 4 (20) (24) 15 - - (25)
Other
operating
income - - - - - (3) - - (3)
-------- --------- ---------- ----------- -------- ----------- ----------- --------- ---------
Total
(losses)/gains
recognised in
other
comprehensive
income
(OCI) - - - - - - (1) 27 26
-------- --------- ---------- ----------- -------- ----------- ----------- --------- ---------
Fair value
through
OCI reserve - - - - - - - 27 27
Exchange
difference - - - - - - (1) - (1)
-------- --------- ---------- ----------- -------- ----------- ----------- --------- ---------
Purchases 272 46 750 114 - 84 37 82 1,385
Sales (164) (30) - (76) (4) (65) - (1) (340)
Settlements (288) (71) - (45) - (5) - - (409)
Transfers out1 - (73) - (16) - (5) (5) - (99)
Transfers in2 - 238 - 63 62 8 - - 371
--------------- -------- --------- ---------- ----------- -------- ----------- ----------- --------- ---------
As at 30 June
2020 200 538 754 220 262 46 69 365 2,454
--------------- -------- --------- ---------- ----------- -------- ----------- ----------- --------- ---------
Total
unrealised
gains
recognised in
the
income
statement,
within net
trading
income,
relating to
change in fair
value
of assets held
at
30 June 2020 - - 1 10 - - - 11
--------------- -------- --------- ---------- ----------- -------- ----------- ----------- --------- ---------
1 Transfers out includes loans and advances, debt securities,
alternative tier one and other eligible bills and derivative
financial instruments where the valuation parameters became
observable during the period and were transferred to Level 1 and
Level 2
2 Transfers in primarily relate to loans and advances, debt
securities, alternative tier one and other eligible bills, equity
shares and derivative financial instruments where the valuation
parameters become unobservable during the period
The table below analyses movements in Level 3 financial assets
carried at fair value.
30.06.19
--------------- -------------------------------------------------------------------------------------------------------
Held at fair value through Investment
profit or loss securities
----------- ----------------------- ----------
Debt Debt
securities, securities,
alternative alternative
Loans Loans tier tier
and advances and advances one Equity one Equity
and and
other Derivative other
eligible financial eligible
to banks3 to customers bills shares instruments bills shares Total
Assets $million $million $million $million $million $million $million $million
--------------- ------------ -------------- ----------- ---------- ----------- ----------- ---------- ----------
As at 1 January
2019 632 492 317 327 12 412 230 2,422
Total
gains/(losses)
recognised in
income
statement 42 (3) (23) (16) 1 3 - 4
------------ -------------- ----------- ---------- ----------- ----------- ---------- ----------
Net trading
income 42 (3) (23) (16) 1 - - 1
Other
operating
income - - - - - 3 - 3
------------ -------------- ----------- ---------- ----------- ----------- ---------- ----------
Total
(losses)/gains
recognised in
other
comprehensive
income
(OCI) - - - - - (327) 4 (323)
------------ -------------- ----------- ---------- ----------- ----------- ---------- ----------
Fair value
through OCI
reserve - - - - - - 12 12
Exchange
difference - - - - - (327) (8) (335)
------------ -------------- ----------- ---------- ----------- ----------- ---------- ----------
Purchases 226 29 46 69 58 202 16 646
Sales - (8) (155) (12) (20) - - (195)
Settlements (319) (121) (3) - (2) (58) - (503)
Transfers out1 - - (86) (74) (3) (73) - (236)
Transfers in2 - 81 53 75 2 - 3 214
--------------- ------------ -------------- ----------- ---------- ----------- ----------- ---------- ----------
As at 30 June
2019 581 470 149 369 48 159 253 2,029
--------------- ------------ -------------- ----------- ---------- ----------- ----------- ---------- ----------
Total
unrealised
gains
recognised in
the income
statement,
within net
trading
income,
relating
to change in
fair value
of assets held
at 30
June 2019 - 1 - - 3 - - 4
--------------- ------------ -------------- ----------- ---------- ----------- ----------- ---------- ----------
31.12.19
--------------- -----------------------------------------------------------------------------------------------------
Held at fair value through Investment
profit or loss securities
--------------------------------------------------- ------------ ----------------------- ---------
Debt Debt
securities, securities,
alternative alternative
tier tier
one one
and and
Loans Loans other Derivative other
and advances and advances eligible Equity financial eligible Equity
to banks to customers bills shares instruments bills shares Total
Assets $million $million $million $million $million $million $million $million
--------------- ------------ ------------ ------------ --------- ------------ ------------ --------- ---------
As at 1 July
2019 581 470 149 369 48 159 253 2,029
Total
(losses)/gains
recognised in
income
statement (67) (28) 9 (10) (16) (1) - (113)
------------ ------------ ------------ --------- ------------ ------------ --------- ---------
Net trading
income (67) (28) 9 (10) (16) - - (112)
Other
operating
income - - - - - (1) - (1)
------------ ------------ ------------ --------- ------------ ------------ --------- ---------
Total
(losses)/gains
recognised in
other
comprehensive
income - - - - - (14) 1 (13)
------------ ------------ ------------ --------- ------------ ------------ --------- ---------
Fair value
through OCI
reserve - - - - - (4) - (4)
Exchange
difference - - - - - (10) 1 (9)
------------ ------------ ------------ --------- ------------ ------------ --------- ---------
Purchases 600 104 60 70 51 (46) 10 849
Sales - - (93) (141) (6) (1) (7) (248)
Settlements (749) (132) - - (3) 24 - (860)
Transfers out1 - (6) - (60) (72) (88) - (226)
Transfers in2 - 35 75 - 15 5 - 130
--------------- ------------ ------------ ------------ --------- ------------ ------------ --------- ---------
As at 31
December 2019 365 443 200 228 17 38 257 1,548
--------------- ------------ ------------ ------------ --------- ------------ ------------ --------- ---------
Total
unrealised
losses
recognised in
the income
statement,
within net
trading
income,
relating
to change in
fair value
of assets held
at
31 December
2019 - (1) (1) - (4) - - (6)
--------------- ------------ ------------ ------------ --------- ------------ ------------ --------- ---------
1 Transfers out include loans and advances, equity shares, debt
securities, alternative tier one and other eligible bills, and
derivative financial instruments where the valuation parameters
became observable during the year, and were transferred to Level 1
and Level 2
2 Transfers in primarily relate to loans and advances, debt
securities, alternative tier one and other eligible bills, equity
shares and derivative financial instruments where the valuation
parameters become unobservable during the period
3 During 2019, $632 million reported in 2018 in loans and
advances to banks was reclassified from Level 2 to Level 3. Hence,
prior period balances have been restated to show the impact of the
same
Level 3 movement tables - financial liabilities
30.06.20
---------------------------------------- --------------------------------------------------------------
Derivative
Deposits Customer Debt securities financial
by banks accounts in issue instruments Total
Liabilities $million $million $million $million $million
---------------------------------------- --------- --------- --------------- ------------ ---------
As at 1 January 2020 56 40 410 57 563
Total (gains)/losses recognised
in income statement -net trading
income (4) (1) (17) 2 (20)
Issues 70 45 329 94 538
Settlements (53) (64) (247) (50) (414)
Transfers out1 - - (20) (5) (25)
Transfers in2 - 9 1 11 21
---------------------------------------- --------- --------- --------------- ------------ ---------
As at 30 June 2020 69 29 456 109 663
---------------------------------------- --------- --------- --------------- ------------ ---------
Total unrealised losses recognised
in the income statement, within
net trading income, relating
to change in fair value of liabilities
held at 30 June 2020 - 2 - - 2
---------------------------------------- --------- --------- --------------- ------------ ---------
30.06.19
-------------------------------------------- -------------------------------------------------------
Deposits Debt securities Derivative
financial
by banks in issue instruments3 Total
Liabilities $million $million $million $million
-------------------------------------------- ---------- --------------- -------------- ----------
As at 1 January 2019 4 439 65 508
Total losses recognised in income statement
- net trading income - 23 47 70
Issues 32 240 56 328
Settlements - (240) (35) (275)
Transfers out1 - - (9) (9)
Transfers in2 - - 156 156
-------------------------------------------- ---------- --------------- -------------- ----------
As at 30 June 2019 36 462 280 778
-------------------------------------------- ---------- --------------- -------------- ----------
Total unrealised losses/(gains) recognised
in the income statement, within net
trading income, relating to change
in fair value of liabilities held at
30 June 2019 - 14 (6) 8
-------------------------------------------- ---------- --------------- -------------- ----------
31.12.19
------------------------------------- -------------------------------------------------------------------
Derivative
Deposits Customer Debt securities financial
by banks accounts in issue instruments3 Total
Liabilities $million $million $million $million $million
------------------------------------- ---------- ---------- --------------- -------------- ----------
As at 1 July 2019 36 - 462 280 778
Total (gains)/losses recognised
in income statement -
net trading income (1) (2) (1) 7 3
Issues 21 41 352 380 794
Settlements - - (282) (607) (889)
Transfers out1 - - (121) (4) (125)
Transfers in2 - 1 - 1 2
------------------------------------- ---------- ---------- --------------- -------------- ----------
As at 31 December 2019 56 40 410 57 563
------------------------------------- ---------- ---------- --------------- -------------- ----------
Total unrealised (gains)/losses
recognised in the income statement,
within net trading income,
relating to change in
fair value of liabilities
held at 31 December 2019 - (2) 2 8 8
------------------------------------- ---------- ---------- --------------- -------------- ----------
1 Transfers out during the period primarily relate to debt
securities in issue and derivative financial instruments where the
valuation parameters became observable during the period and were
transferred to Level 2 financial liabilities
2 Transfers in during the period primarily relate to customer
accounts, debt securities in issue and derivative financial
instruments where the valuation parameters become unobservable
during the period
3 Prior period movements have been restated on account of
restatement done during 2019 due to change in observability
parameters
Sensitivities in respect of the fair values of Level 3 assets
and liabilities
Sensitivity analysis is performed on products with significant
unobservable inputs. The Group applies a 10 per cent increase or
decrease on the values of these unobservable inputs, to generate a
range of reasonably possible alternative valuations. The percentage
shift is determined by statistical analyses performed on a set of
reference prices based on the composition of our Level 3 assets.
Favourable and unfavourable changes are determined on the basis of
changes in the value of the instrument as a result of varying the
levels of the unobservable parameters. This Level 3 sensitivity
analysis assumes a one-way market move and does not consider
offsets for hedges.
Held at fair value through Fair value through other comprehensive
profit or loss income
----------------------------- -------------------------------------- ------------------------------------------
Favourable Unfavourable Favourable Unfavourable
Net exposure changes changes Net exposure changes changes
$million $million $million $million $million $million
----------------------------- ------------ ---------- ------------ -------------- ----------- -------------
Financial instruments
held at fair value
Loans and advances 738 752 700 - - -
Repos and reverse repos 754 755 753 - - -
Asset backed securities 80 85 75 36 36 36
Debt securities, alternative
tier one and other eligible
bills 140 148 132 33 33 33
Equity shares 262 288 236 365 401 329
Derivative financial
instruments (63) (50) (76) - - -
Customer accounts (29) (28) (30) - - -
Deposits by banks (69) (69) (69) - - -
Debt securities in issue (456) (434) (479) - - -
----------------------------- ------------ ---------- ------------ -------------- ----------- -------------
At 30 June 2020 1,357 1,447 1,242 434 470 398
----------------------------- ------------ ---------- ------------ -------------- ----------- -------------
Financial instruments
held at fair value
Loans and advances 808 820 787 - - -
Repos and reverse repos - - - - - -
Asset backed securities 21 21 21 - - -
Debt securities, alternative
tier one and other eligible
bills 179 189 170 38 38 38
Equity shares 228 255 201 257 283 231
Derivative financial
instruments (40) (34) (46) - - -
Customer accounts (40) (40) (40) - - -
Deposits by banks (56) (56) (56) - - -
Debt securities in issue (410) (379) (441) - - -
----------------------------- ------------ ---------- ------------ -------------- ----------- -------------
At 31 December 2019 690 776 596 295 321 269
----------------------------- ------------ ---------- ------------ -------------- ----------- -------------
The reasonably possible alternatives could have increased or
decreased the fair values of financial instruments held at fair
value through profit or loss and those classified as fair value
through other comprehensive income by the amounts disclosed
below.
30.06.20 31.12.19
Financial instruments Fair value changes $million $million
--------------------------------------- ------------------- ---------- ----------
Held at fair value through profit
or loss Possible increase 90 86
Possible decrease (115) (94)
----------------------------------------------------------- ---------- ----------
Fair value through other comprehensive
income Possible increase 36 26
Possible decrease (36) (26)
----------------------------------------------------------- ---------- ----------
14. Derivative financial instruments
The tables below analyse the notional principal amounts and the
positive and negative fair values of derivative financial
instruments. Notional principal amounts are the amounts of
principal underlying the contract at the reporting date.
30.06.20 31.12.19
---------------------------- ---------------------------------- ----------------------------------
Notional Notional
principal principal
amounts Assets Liabilities amounts Assets Liabilities
Derivatives $million $million $million $million $million $million
---------------------------- ---------- --------- ----------- ---------- --------- -----------
Foreign exchange derivative
contracts:
Forward foreign exchange
contracts 2,766,121 20,235 19,175 2,290,781 16,281 16,396
Currency swaps and options 1,108,001 14,566 15,661 806,226 9,725 10,530
---------------------------- ---------- --------- ----------- ---------- --------- -----------
3,874,122 34,801 34,836 3,097,007 26,006 26,926
---------------------------- ---------- --------- ----------- ---------- --------- -----------
Interest rate derivative
contracts:
Swaps 3,411,114 70,234 68,631 4,046,209 34,011 33,351
Forward rate agreements
and options 696,863 620 710 284,973 1,826 2,061
Exchange traded futures
and options 410,142 400 363 359,031 179 161
---------------------------- ---------- --------- ----------- ---------- --------- -----------
4,518,119 71,254 69,704 4,690,213 36,016 35,573
---------------------------- ---------- --------- ----------- ---------- --------- -----------
Credit derivative contracts 123,339 1,262 2,115 80,972 1,232 1,915
---------------------------- ---------- --------- ----------- ---------- --------- -----------
Equity and stock index
options 3,996 111 110 3,412 27 96
---------------------------- ---------- --------- ----------- ---------- --------- -----------
Commodity derivative
contracts 73,533 1,991 1,253 79,458 573 616
---------------------------- ---------- --------- ----------- ---------- --------- -----------
Gross total derivatives 8,593,109 109,419 108,018 7,951,062 63,854 65,126
---------------------------- ---------- --------- ----------- ---------- --------- -----------
Offset - (57,192) (57,192) - (16,642) (16,642)
---------------------------- ---------- --------- ----------- ---------- --------- -----------
Net total derivatives 8,593,109 52,227 50,826 7,951,062 47,212 48,484
---------------------------- ---------- --------- ----------- ---------- --------- -----------
The notional amounts of the contract are not offset and do not
represent the Group's actual exposure to Credit Risk. This Credit
Risk is limited to the current cost of replacing contracts with a
positive mark to market to the Group should the counterparty
default.
The Group limits exposure to credit losses in the event of
default by entering into master netting agreements with certain
market counterparties. As required by IAS 32, exposures are only
presented net in these accounts where they are subject to legal
right of offset and intended to be settled net in the ordinary
course of business.
The Group applies balance sheet offsetting only in the instance
where we are able to demonstrate legal enforceability of the right
to offset (e.g. via legal opinion) and the ability and intention to
settle on a net basis (e.g. via operational practice).
The Group has met the criteria to offset the derivative asset
and liability balances and related variation margin for trades
cleared on behalf of clients with LCH SwapClear. This applies to
both trades between the Group and the clients and between the Group
and LCH SwapClear. The impact of this as at 30 June 2020 is a
decrease in the derivative assets and derivative liabilities of
$20.8bn. Prior periods have not been restated as the effect would
not be material. The impact at 31 December 2019 would have been a
decrease in the derivative assets and derivative liabilities of
$8.7bn.
The Group has also met the criteria to derecognise initial
margin for trades cleared on behalf of clients with LCH SwapClear.
The impact of this as at 30 June 2020 is a decrease in other assets
and other liabilities of $2.1bn. Prior periods have not been
restated as the effect would not be material. The impact at 31
December 2019 would have been a decrease in other assets and other
liabilities of $3.2bn.
Derivatives held for hedging
Included in the table above are derivatives held for hedging
purposes as follows:
30.06.20 31.12.19
--------------------------- ---------------------------------- ----------------------------------
Notional Notional
principal principal
amounts Assets Liabilities amounts Assets Liabilities
$million $million $million $million $million $million
--------------------------- ---------- --------- ----------- ---------- --------- -----------
Derivatives designated
as fair value hedges:
Interest rate swaps 68,631 1,688 1,127 69,121 617 589
Currency swaps 6,768 29 764 8,405 47 774
--------------------------- ---------- --------- ----------- ---------- --------- -----------
75,399 1,717 1,891 77,526 664 1,363
--------------------------- ---------- --------- ----------- ---------- --------- -----------
Derivatives designated
as cash flow hedges:
Interest rate swaps 10,232 90 202 9,277 53 74
Forward foreign exchange
contracts 373 5 3 289 6 20
Currency swaps 7,743 103 5 5,254 34 51
--------------------------- ---------- --------- ----------- ---------- --------- -----------
18,348 198 210 14,820 93 145
--------------------------- ---------- --------- ----------- ---------- --------- -----------
Derivatives designated
as net investment hedges:
Forward foreign exchange
contracts 4,972 126 2 5,103 31 70
--------------------------- ---------- --------- ----------- ---------- --------- -----------
Total derivatives held
for hedging 98,719 2,041 2,103 97,449 788 1,578
--------------------------- ---------- --------- ----------- ---------- --------- -----------
Interest rate benchmark reform
The Group has established an IBOR Transition Programme that is
overseen by the Group's Chief Operating Officer and updates a
number of committees including the Board Risk Committee and Group
Risk Committee regularly updated. The programme comprises a series
of business and function workstreams, with oversight and
coordination of the specific areas and risks provided by a central
project team. The key objectives of these workstreams include
identifying all contracts in scope of benchmark reform, upgrading
internal systems to support business in the alternative RFR product
suite, identifying and communicating to customers with whom
repricing and/or re-papering IBOR-referenced contracts is required
and executing the necessary change in contracts. Workstreams
actively participate in industry-wide working groups to ensure they
are kept informed of the latest developments and are consistent
with the approaches of other market participants.
As at 30 June 2020, the following populations of derivative
instruments designated in fair value or cash flow hedge accounting
relationships were linked to IBOR reference rates:
Fair value hedges Cash flow hedges
-------------------------- -------------------------- -------------------------- --------- ---------
Notional Notional Notional Notional
designated designated designated designated
up to beyond up to beyond Weighted
31 December 31 December 31 December 31 December average
2021 2021 2021 2021 Total exposure
$million $million $million $million $million Years
-------------------------- ------------ ------------ ------------ ------------ --------- ---------
Interest rate swaps
USD LIBOR 11,939 33,893 895 3,309 50,036 3.3
GBP LIBOR 550 3,324 328 - 4,202 7.1
JPY LIBOR 1,181 680 - - 1,861 2.5
SGD SOR 341 126 - - 467 1.7
-------------------------- ------------ ------------ ------------ ------------ --------- ---------
14,011 38,023 1,223 3,309 56,566 3.5
-------------------------- ------------ ------------ ------------ ------------ --------- ---------
Cross currency swaps
USD LIBOR vs Fixed rate
foreign currency 4,996 1,772 - - 6,768 1.1
-------------------------- ------------ ------------ ------------ ------------ --------- ---------
Total notional of hedging
instruments in scope
of IFRS amendments 19,007 39,795 1,223 3,309 63,334 3.2
-------------------------- ------------ ------------ ------------ ------------ --------- ---------
The Group's primary exposure is to USD LIBOR due to the extent
of fixed rate debt security assets and issued notes denominated in
USD that are designated in fair value hedge relationships. Where
fixed rate instruments are in other currencies, cross-currency
swaps are used to achieve an equivalent floating USD exposure.
15. Reverse repurchase and repurchase agreements including other
similar secured lending and borrowing
Reverse repurchase agreements and other similar secured
lending
30.06.20 31.12.19
$million $million
---------------------------------- ---------- ----------
Banks 19,496 19,610
Customers 45,782 40,804
---------------------------------- ---------- ----------
65,278 60,414
---------------------------------- ---------- ----------
Of which:
Fair value through profit or loss 59,002 57,604
---------- ----------
Banks 17,603 18,269
Customers 41,399 39,335
---------- ----------
Held at amortised cost 6,276 2,810
---------- ----------
Banks 1,893 1,341
Customers 4,383 1,469
---------- ----------
Under reverse repurchase and securities borrowing arrangements,
the Group obtains securities on terms which permit it to repledge
or resell the securities to others. Amounts on such terms are:
30.06.20 31.12.19
$million $million
-------------------------------------------------------------- ---------- ----------
Securities and collateral received (at fair value) 88,358 86,308
-------------------------------------------------------------- ---------- ----------
Securities and collateral which can be repledged or
sold (at fair value) 85,713 85,415
-------------------------------------------------------------- ---------- ----------
Amounts repledged/transferred to others for financing
activities, to satisfy liabilities under sale and repurchase
agreements (at fair value) 43,193 44,530
-------------------------------------------------------------- ---------- ----------
Repurchase agreements and other similar secured borrowing
30.06.20 31.12.19
$million $million
---------------------------------- ---------- ----------
Banks 7,470 7,789
Customers 40,615 40,429
---------------------------------- ---------- ----------
48,085 48,218
---------------------------------- ---------- ----------
Of which:
Fair value through profit or loss 45,274 46,283
---------- ----------
Banks 6,748 7,401
Customers 38,526 38,882
---------- ----------
Held at amortised cost 2,811 1,935
---------- ----------
Banks 722 388
Customers 2,089 1,547
---------- ----------
The tables below set out the financial assets provided as
collateral for repurchase and other secured borrowing
transactions:
30.06.20
-------------------------------------- -------------------------------------------------------------------
Fair value Fair value
through through
profit or other comprehensive Amortised Off-balance
Collateral pledged against repurchase loss income cost sheet Total
agreements $million $million $million $million $million
-------------------------------------- ---------- -------------------- --------- ----------- ---------
On-balance sheet
Debt securities, alternative
tier one and other eligible
bills 1,411 3,171 899 - 5,481
Off-balance sheet
Repledged collateral received - - - 43,193 43,193
-------------------------------------- ---------- -------------------- --------- ----------- ---------
At 30 June 2020 1,411 3,171 899 43,193 48,674
-------------------------------------- ---------- -------------------- --------- ----------- ---------
31.12.19
-------------------------------------- -------------------------------------------------------------------
Fair value Fair value
through through
profit or other comprehensive Amortised Off-balance
Collateral pledged against repurchase loss income cost sheet Total
agreements $million $million $million $million $million
-------------------------------------- ---------- -------------------- --------- ----------- ---------
On-balance sheet
Debt securities, alternative
tier one and other eligible
bills 1,036 2,137 1,023 - 4,196
Off-balance sheet
Repledged collateral received - - - 44,530 44,530
-------------------------------------- ---------- -------------------- --------- ----------- ---------
At 31 December 2019 1,036 2,137 1,023 44,530 48,726
-------------------------------------- ---------- -------------------- --------- ----------- ---------
16. Goodwill and intangible assets
30.06.20 31.12.19
------------------------ --------------------------------------------- ---------------------------------------------
Acquired Computer Acquired Computer
Goodwill intangibles software Total Goodwill intangibles software Total
$million $million $million $million $million $million $million $million
------------------------ --------- ------------ --------- --------- --------- ------------ --------- ---------
Cost
At 1 January 3,079 461 3,239 6,779 3,116 510 2,835 6,461
Exchange translation
differences (32) (15) (96) (143) (10) (5) 26 11
Additions - - 340 340 - 1 753 754
Disposals - - (4) (4) - (1) (3) (4)
Impairment (258) - - (258) (27) - - (27)
Amounts written off - 1 (82) (81) - (44) (372) (416)
------------------------ --------- ------------ --------- --------- --------- ------------ --------- ---------
At 30 June/31 December 2,789 447 3,397 6,633 3,079 461 3,239 6,779
------------------------ --------- ------------ --------- --------- --------- ------------ --------- ---------
Provision for
amortisation
At 1 January - 431 1,058 1,489 - 458 947 1,405
Exchange translation
differences - (14) (34) (48) - (5) 6 1
Amortisation - 2 241 243 - 9 436 445
Impairment charge - - 2 2 - - 12 12
Disposals - - (4) (4) - (1) - (1)
Amounts written off - 1 (79) (78) - (30) (343) (373)
------------------------ --------- ------------ --------- --------- --------- ------------ --------- ---------
At 30 June/31 December - 420 1,184 1,604 - 431 1,058 1,489
------------------------ --------- ------------ --------- --------- --------- ------------ --------- ---------
Net book value 2,789 27 2,213 5,029 3,079 30 2,181 5,290
------------------------ --------- ------------ --------- --------- --------- ------------ --------- ---------
At 30 June 2020, accumulated goodwill impairment losses incurred
from 1 January 2005 amounted to $3,086 million (31 December 2019:
$2,828 million), of which $258 million was recognised in 2020 (31
December 2019: $27 million).
Outcome of impairment assessment
At 30 June 2020, the Group performed a review of the goodwill
that has been assigned to the Group's cash-generating units for
indicators of impairment, considering whether there were any
reduced expectations for future cashflows and/or fluctuations in
the discount rate or the assumptions. The results of this review
indicated that at 30 June 2020 there are no further goodwill
impairments to be recognised over and above the $258m impaired in
Q1, 2020.
The goodwill allocated to each CGU and key assumptions used in
determining the recoverable amounts are set out below and are
solely estimates for the purposes of assessing impairment of
acquired goodwill.
30.06.20 31.12.19
----------------------------------- --------------------------------- ---------------------------------
Long-term Long-term
forecast forecast
Discount GDP growth Discount GDP growth
Goodwill rates rates Goodwill rates rates
Cash generating unit $million per cent per cent $million per cent per cent
----------------------------------- --------- --------- ----------- --------- --------- -----------
Country CGUs
Greater China & North
Asia 907 900
--------- ---------
Hong Kong 359 9.7 2.9 358 9.2 2.4
Taiwan 548 8.6 2.2 542 10.6 2.0
--------- ---------
Africa & Middle East 500 512
--------- ---------
Pakistan 176 15.0 5.3 188 21.0 4.0
UAE 204 10.5 3.2 204 7.1 2.5
Others (4)1 120 9.7-16.2 2.8-5.7 120 8.3-16.6 2.5-4.9
--------- ---------
ASEAN & South Asia 430 706
--------- ---------
India - - - 259 16.4 7.3
Singapore 334 10.7 3.0 342 10.4 1.9
Others (4)2 96 13.3-14.0 5.5-7.1 105 11.7-15.4 3.3-7.3
--------- ---------
Global CGUs 952 961
--------- ---------
Global Private Banking 84 9.1 3.8 84 9.1 3.5
Global Corporate & Institutional
Banking3 868 9.1 3.8 877 9.1 3.5
--------- ---------
2,789 3,079
----------------------------------- --------- --------- ----------- --------- --------- -----------
1 Bahrain, Ghana, Jordan and Qatar
2 Bangladesh, Brunei, Indonesia and Vietnam
3 Global Corporate Finance and Global Transaction Banking CGUs
are now combined into a single Global Corporate & Institutional
Banking CGU
Two country CGUs; India and Brunei have had all the goodwill
allocated to them written off, totalling $258 million. This was
primarily due to lower economic growth forecasts, and higher
discount rates than year-end. As a result the carrying amount of
each CGU, which included goodwill, was greater than the recoverable
amount.
In view of the increased economic uncertainty caused by the
COVID-19 pandemic, the Group has performed sensitivity analysis on
the key assumptions for each CGU's recoverable amount. The
following CGUs are considered sensitive to the key variables and
any individual movements on the estimates (cashflow, discount rate
and GDP growth rate) up to the levels disclosed below would
eliminate the current headroom.
30.06.20
----------------------------------------------------------------------------------------------------------------------------------------------------------
Sensitivities
--------- -------- -------- ------------------------------------------------------------------------------------------------------------
Extreme
Discount Downside downside
Base case GDP rates Cashflow Cashflow Cashflow scenario scenario
----------------------- ------------------ ------------------ ------------------ ------------------ -------- -------- --------
GDP GDP
- 1% - 1%
DR + DR +
1% CF 1% CF
+ 1% -1% + 1% -1% + 10% - 10% +20% - 20% - 30% - 10% - 20%
-------- -------- --- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Headroom Discount Headroom Headroom Headroom Headroom Headroom Headroom Headroom Headroom Headroom Headroom Headroom
CGU Goodwill $million rate GDP $million $million $million $million $million $million $million $million $million $million $million
--------- -------- -------- -------- --- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Pakistan 176 180 15.0% 5.3 223 146 136 236 232 129 284 77 25 64 20
Taiwan 548 186 8.6% 2.2 492 (37) (81) 552 458 (85) 729 (357) (629) (456) (666)
UAE 204 49 10.5% 3.2 174 (46) (66) 201 170 (73) 292 (194) (316) (235) (331)
--------- -------- -------- -------- --- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
The table above represents reasonably possible scenarios that
could occur if either; economic factors (which drive GDP rates and
discount rates); country specific cash flows; or a combination of
both are different from the assumptions used in the goodwill
impairment assessment at 30 June 2020.
For there to be no headroom, the discount rate will need to
increase by 0.5%, 0.7%, 5.9% for the UAE, Taiwan and Pakistan
respectively. Similarly, the GDP rates will need to decrease by
0.4%, 0.8%, 9.3%, and cash flows would need to decrease by 4%,
6.9%, 34.9% for the UAE, Taiwan and Pakistan respectively.
17. Property, plant and equipment
30.06.20
---------------------------- ---------------------------------------------------------------------
Leased Leased
Operating premises equipment
Premises Equipment lease assets assets assets Total
$million $million $million $million $million $million
---------------------------- --------- --------- ------------- --------- ---------- ---------
Cost or valuation
At 1 January 2,058 800 4,461 1,493 23 8,835
Exchange translation
differences (56) (26) (2) (36) 2 (118)
Additions 141 441 949 86 2 1,095
Disposals and fully
depreciated assets written
off (62)2 (25)2 (139) (21) - (247)
Transfers to assets
held for sale (3) - - - - (3)
---------------------------- --------- --------- ------------- --------- ---------- ---------
As at 30 June 1,951 793 5,269 1,522 27 9,562
---------------------------- --------- --------- ------------- --------- ---------- ---------
Depreciation
Accumulated at 1 January 737 518 1,067 286 7 2,615
Exchange translation
differences (21) (18) - (8) - (47)
Charge for the year 36 56 107 152 4 355
Impairment (release)/charge - - 51 - - 51
Attributable to assets
sold, transferred or
written off (34)2 (25)2 (85) (14) - (158)
Transfers to assets
held for sale (1) - - - - (1)
---------------------------- --------- --------- ------------- --------- ---------- ---------
Accumulated at 30 June 717 531 1,140 416 11 2,815
---------------------------- --------- --------- ------------- --------- ---------- ---------
Net book amount at 30
June 1,234 262 4,129 1,106 16 6,747
---------------------------- --------- --------- ------------- --------- ---------- ---------
1 Refer to the cash flow statement under cash flows from
investing activities section for the purchase of property, plant
and equipment during the period $146 million
2 Disposals for property, plant and equipment during the period
$56 million in the cash flow statement would include the gains and
losses incurred as part of other operating income (Note 6) on
disposal of assets during the period and the net book value
disposed
30.06.19
---------------------------- ---------------------------------------------------------------------
Leased Leased
Operating premises equipment
Premises Equipment lease assets assets assets Total
$million $million $million $million $million $million
---------------------------- --------- --------- ------------- --------- ---------- ---------
Cost or valuation
At 1 January 2,070 766 6,323 1,408 13 10,580
Exchange translation
differences (27) (13) (4) (19) - (63)
Additions 291 521 269 44 10 404
Disposals and fully
depreciated assets written
off (25)2 (55)2 (70) (1) - (151)
Transfers to assets
held for sale - - (83) - - (83)
---------------------------- --------- --------- ------------- --------- ---------- ---------
As at 30 June 2,047 750 6,435 1,432 23 10,687
---------------------------- --------- --------- ------------- --------- ---------- ---------
Depreciation
Accumulated at 1 January 706 494 1,469 - 1 2,670
Exchange translation
differences (7) (10) (2) 5 - (14)
Charge for the year 38 49 129 141 3 360
Impairment (release)/charge - - 36 - - 36
Attributable to assets
sold, transferred or
written off (21)2 (55)2 (23) (1) - (100)
Transfers to assets
held for sale - - (17) - - (17)
---------------------------- --------- --------- ------------- --------- ---------- ---------
Accumulated at 30 June 716 478 1,592 145 4 2,935
---------------------------- --------- --------- ------------- --------- ---------- ---------
Net book amount at 30
June 1,331 272 4,843 1,287 19 7,752
---------------------------- --------- --------- ------------- --------- ---------- ---------
1 Refer to the cash flow statement under cash flows from
investing activities section for the purchase of property, plant
and equipment during the period $135 million
2 Disposals for property, plant and equipment during the period
$21 million in the cash flow statement would include the gains and
losses incurred as part of other operating income (Note 6) on
disposal of assets during the period and the net book value
disposed
31.12.19
---------------------------- ---------------------------------------------------------------------
Leased Leased
Operating premises equipment
Premises Equipment lease assets assets assets Total
$million $million $million $million $million $million
---------------------------- --------- --------- ------------- --------- ---------- ---------
Cost or valuation
At 1 July 2,047 748 6,435 1,432 23 10,685
Exchange translation
differences (4) (3) (1) (16) - (24)
Additions 67 72 30 84 - 253
Disposals and fully
depreciated assets written
off (37) (17) (624) (7) - (685)
Transfers to assets
held for sale (15) - (1,379) - - (1,394)
---------------------------- --------- --------- ------------- --------- ---------- ---------
As at 31 December 2,058 800 4,461 1,493 23 8,835
---------------------------- --------- --------- ------------- --------- ---------- ---------
Depreciation
Accumulated at 1 July 716 478 1,592 145 4 2,935
Exchange translation
differences - - (3) 2 - (1)
Charge for the year 39 59 132 142 3 375
Impairment (release)/charge 1 - 85 - - 86
Attributable to assets
sold, transferred or
written off (14) (17) (132) (3) - (166)
Transfers to assets
held for sale (5) - (609) - - (614)
---------------------------- --------- --------- ------------- --------- ---------- ---------
Accumulated at 31 December 737 520 1,065 286 7 2,615
---------------------------- --------- --------- ------------- --------- ---------- ---------
Net book amount at 31
December 1,321 280 3,396 1,207 16 6,220
---------------------------- --------- --------- ------------- --------- ---------- ---------
Operating lease assets
Assets leased to customers under operating leases consist of
commercial aircraft which is included within property, plant and
equipment. The leases are classified as operating leases as they do
not transfer substantially all the risks and rewards incidental to
the ownership of the assets, and rental income from operating lease
assets is disclosed in Note 6.
During the period the Group purchased further aircraft to the
value of $949 million. These aircraft have been leased to
counterparties for a period of between 6 and 11 years.
Fixed asset impairments are write-downs of the Group's aircraft
portfolio (six months to 30 June 2020: $51 million ; six months to
30 June 2019: $13 million ; six months to 31 December 2019: $14
million) and, up to 31 December 2019 when it was reclassified as
held for sale, shipping portfolio (six months to 30 June 2019: $23
million; six months to 31 December 2019: $71 million). These
impairments are predominantly due to reductions in current market
values, as provided by third-party appraisers and brokers.
Payment holidays/moratoriums offered to aircraft lessees have
not resulted in any material changes to our lessor revenue
streams.
18. Other assets
30.06.20 31.12.19
$million $million
-------------------------------------------------------- ---------- ----------
Financial assets held at amortised cost (Note 13):
Hong Kong SAR Government certificates of indebtedness
(Note 20)1 7,073 6,911
Cash collateral 9,716 9,169
Acceptances and endorsements2 4,621 5,518
Unsettled trades and other financial assets 20,773 14,563
-------------------------------------------------------- ---------- ----------
42,183 36,161
Non-financial assets:
Commodities3 4,367 5,465
Other assets 375 396
-------------------------------------------------------- ---------- ----------
46,925 42,022
-------------------------------------------------------- ---------- ----------
1 The Hong Kong SAR Government certificates of indebtedness are
subordinated to the claims of other parties in respect of bank
notes issued
2 Trade finance whereby the Group offers a guarantee of payment
between trade counterparties for a fee
3 Commodities are carried at fair value and classified as Level
2
19. Assets held for sale and associated liabilities
Assets held for sale
30.06.20 31.12.19
$million $million
--------------------------------------------------- ---------- ----------
Financial assets held at fair value through profit
or loss 175 330
---------- ----------
Equity shares 175 330
---------- ----------
Financial assets held at amortised cost 157 90
---------- ----------
Loans and advances to banks 102 -
Loans and advances to customers 55 32
Debt securities held at amortised cost - 58
---------- ----------
Interests in joint venture - 800
Property, plant and equipment 582 833
---------- ----------
Aircraft - 49
Vessels 567 769
Others 15 15
--------------------------------------------------- ---------- ----------
914 2,053
--------------------------------------------------- ---------- ----------
Interests in joint venture
On the 20 May 2020 the Group completed the sale of its 44.56%
equity interest in PT Bank Permata Tbk to Bangkok Bank Public
Company Limited for cash consideration of IDR 17 trillion ($1,072
million).
The profit on sale is as follows:
30.06.20
$million
-------------------------------------------------------------- ----------
Cash received 1,072
Less: Investment in joint venture (800)
Gain on carrying value 272
Less: Translation and other reserve recycling and transaction
costs1 (266)
-------------------------------------------------------------- ----------
Net gain on disposal 6
-------------------------------------------------------------- ----------
1 Includes $246 million of exchange differences on translation
of foreign operations
Liabilities held for sale
30.06.20 31.12.19
$million $million
------------------ ---------- ----------
Other liabilities 8 9
------------------ ---------- ----------
8 9
------------------ ---------- ----------
20. Other liabilities
30.06.20 31.12.19
$million $million
--------------------------------------------------- ---------- ----------
Financial liabilities held at amortised cost (Note
13)
Notes in circulation1 7,073 6,911
Acceptances and endorsements2 4,621 5,518
Cash collateral 9,565 7,824
Property leases 1,185 1,275
Equipment leases 16 20
Unsettled trades and other financial liabilities 26,203 19,601
--------------------------------------------------- ---------- ----------
48,663 41,149
Non-financial liabilities
Cash-settled share-based payments 32 50
Other liabilities 548 384
--------------------------------------------------- ---------- ----------
49,243 41,583
--------------------------------------------------- ---------- ----------
1 Hong Kong currency notes in circulation of $7,073 million (31
December 2019: $6,911 million) that are secured by the Government
of Hong Kong SAR certificates of indebtedness of the same amount
included in other assets (Note 18)
2 Trade finance whereby the Group offers a guarantee of payment
between trade counterparties for a fee
21. Contingent liabilities and commitments
The table below shows the contract or underlying principal
amounts and risk-weighted amounts of unmatured off-balance sheet
transactions at the balance sheet date. The contract or underlying
principal amounts indicate the volume of business outstanding and
do not represent amounts at risk.
restated
30.06.20 31.12.19
$million $million
-------------------------------------------------------------- ---------- ----------
Contingent liabilities
Guarantees and irrevocable letters of credit 36,748 37,007
Other contingent liabilities 5,486 5,425
-------------------------------------------------------------- ---------- ----------
42,234 42,432
-------------------------------------------------------------- ---------- ----------
Commitments
Documentary credits and short-term trade-related transactions 3,793 4,282
Undrawn formal standby facilities, credit lines and
other commitments to lend
One year and over 58,580 64,450
Less than one year 23,102 19,520(2)
Unconditionally cancellable 58,438 57,224(2)
-------------------------------------------------------------- ---------- ----------
143,913 145,476
-------------------------------------------------------------- ---------- ----------
Capital commitments
Contracted capital expenditure approved by the directors
but not provided for in these accounts1 322 419
-------------------------------------------------------------- ---------- ----------
1 of which: the Group has commitments totalling $300 million to
purchase aircraft for delivery in 2020 (31 December 2019: $400
million)
2 Undrawn formal standby facilities, credit lines and other
commitments to lend: Less than one year - restated from $34,925
million to $19,520 million. Unconditionally cancellable - restated
from $41,819 million to $57,224 million. Certain non-revolving
facilities have now been classified as unconditionally
cancellable
The Group's share of contingent liabilities and commitments
relating to joint ventures is Nil (31 December 2019: $251 million).
On 20 May 2020 the Group completed the sale of its 44.56 per cent
equity interest in PT Bank Permata Tbk to Bangkok Bank Public
Company Limited. Please refer to Note 19 for further details.
As set out in Note 22, the Group has contingent liabilities in
respect of certain legal and regulatory matters for which it is not
practicable to estimate the financial impact as there are many
factors that may affect the range of possible outcomes.
22. Legal and regulatory matters
The Group receives legal claims against it in a number of
jurisdictions and is subject to regulatory and enforcement
investigations and proceedings from time to time.
Apart from the matters described below, the Group currently
considers none of the ongoing claims, investigations or proceedings
to be material. However, in light of the uncertainties involved in
such matters there can be no assurance that the outcome of a
particular matter or matters currently not considered to be
material may not ultimately be material to the Group's results in a
particular reporting period depending on, among other things, the
amount of the loss resulting from the matter(s) and the results
otherwise reported for such period.
Since November 2014, ten lawsuits have been filed in United
States federal courts against a number of banks (including Standard
Chartered Bank) on behalf of plaintiffs who are, or are relatives
of, victims of various terrorist attacks in Iraq. The plaintiffs
allege that the defendant banks aided and abetted the unlawful
conduct of US sanctioned parties in breach of the US Anti-Terrorism
Act. One lawsuit has been withdrawn by the plaintiffs and the
courts have ruled in favour of the banks' motions to dismiss in
five of the lawsuits. Following those rulings, in one lawsuit the
plaintiffs have filed an appeal against the dismissal and appeals
are also expected by the plaintiffs in three of the other dismissed
lawsuits. The remaining lawsuits are still at an early procedural
stage and have been stayed pending the outcomes of the appeals in
the dismissed cases.
In January 2020, a shareholder derivative complaint was filed by
the City of Philadelphia in the New York State Court against 45
current and former directors and senior officers of the Group. The
complaint purports to be brought on behalf of all shareholders of
Standard Chartered PLC (SC PLC). It alleges that the individuals
breached their duties to the Group and caused a waste of corporate
assets by permitting the conduct that gave rise to the costs and
losses to the Group related to legacy conduct and control issues.
SC PLC, Standard Chartered Holdings Limited and Standard Chartered
Bank are each named as "nominal defendants" in the complaint. The
case is at an early procedural stage. It is anticipated that a
motion to dismiss the complaint will be filed later in 2020.
Based on the facts currently known, it is not possible for the
Group to predict the outcome of these lawsuits.
23. Subordinated liabilities and other borrowed funds
30.06.20
-------------------------------- -----------------------------------------------------
USD GBP EUR Others Total
$million $million $million $million $million
-------------------------------- --------- --------- --------- --------- ---------
Fixed rate subordinated debt 10,676 1,429 4,038 507 16,650
Floating rate subordinated debt 161 15 - - 176
-------------------------------- --------- --------- --------- --------- ---------
Total 10,837 1,444 4,038 507 16,826
-------------------------------- --------- --------- --------- --------- ---------
31.12.19
-------------------------------- -----------------------------------------------------
USD GBP EUR Others Total
$million $million $million $million $million
-------------------------------- --------- --------- --------- --------- ---------
Fixed rate subordinated debt 11,137 1,478 2,890 525 16,030
Floating rate subordinated debt 161 16 - - 177
-------------------------------- --------- --------- --------- --------- ---------
Total 11,298 1,494 2,890 525 16,207
-------------------------------- --------- --------- --------- --------- ---------
Redemptions and repurchases during the period
On 24 June 2020, Standard Chartered Bank (Hong Kong) Limited
exercised its right to redeem USD 750 million 5.875 per cent
subordinated notes 2020.
Issuances during the period
On 9 June 2020, Standard Chartered PLC issued EUR 1 billion 2. 5
per cent subordinated debt 2030 (callable 2025).
24. Share capital, other equity instruments and reserves
Group and Company
Total share
Ordinary Ordinary Preference capital
Number
of share share share and share
ordinary Other equity
shares capital1 premium premium2 premium instruments
millions $million $million $million $million $million
-------------------------- ---------- ---------- ---------- ---------- ----------- ------------
At 1 January 2019 3,308 1,654 3,963 1,494 7,111 4,961
Shares issued 4 2 23 - 25 -
Cancellation of shares
including buy-back (54) (27) - - (27) -
-------------------------- ---------- ---------- ---------- ---------- ----------- ------------
At 30 June 2019 3,258 1,629 3,986 1,494 7,109 4,961
Shares issued - - - - - 552
Cancellation of shares
including buy-back (62) (31) - - (31) -
-------------------------- ---------- ---------- ---------- ---------- ----------- ------------
At 31 December 2019 3,196 1,598 3,986 1,494 7,078 5,513
Cancellation of shares
including share buy-back (40) (20) - - (20) -
Additional Tier 1 equity
issuance - - - - - 992
Additional Tier 1 equity
redemption - - - - - (1,987)
-------------------------- ---------- ---------- ---------- ---------- ----------- ------------
At 30 June 2020 3,156 1,578 3,986 1,494 7,058 4,518
-------------------------- ---------- ---------- ---------- ---------- ----------- ------------
1 Issued and fully paid ordinary shares of 50 cents each
2 Includes preference share capital of $75,000
Share buy-back
On 28 Feb 2020, the Group announced the buy-back programme for a
share buy-back of its ordinary shares of $0.50 each. Nominal value
of share purchases was $20 million, and the total consideration
paid was $242 million. The total number of shares purchased was
40,029,585 representing 1.25 per cent of the ordinary shares in
issue. The nominal value of the shares was transferred from the
share capital to the capital redemption reserve account. On 1 April
2020, the Group announced that in response to a request from the
Prudential Regulation Authority and as a consequence of the
unprecedented challenges facing the world due to the COVID-19
pandemic, its board had decided after careful consideration to
withdraw the recommendation to pay a final dividend for 2019 of 20
cents per ordinary share and to suspend the buy-back programme.
Average
Number of price paid Aggregate Aggregate
ordinary per share price paid price paid
shares GBP GBP $
----------- ---------- ----------- ----------- -----------
March 2020 40,029,585 4.89428 195,916,167 241,705,472
----------- ---------- ----------- ----------- -----------
Ordinary share capital
In accordance with the Companies Act 2006 the Company does not
have authorised share capital. The nominal value of each ordinary
share is 50 cents.
During the period nil shares were issued under employee share
plans.
Preference share capital
At 30 June 2020, the Company has 15,000 $5 non-cumulative
redeemable preference shares in issue, with a premium of $99,995
making a paid up amount per preference share of $100,000. The
preference shares are redeemable at the option of the Company and
are classified in equity.
The available profits of the Company are distributed to the
holders of the issued preference shares in priority to payments
made to holders of the ordinary shares and in priority to, or pari
passu with, any payments to the holders of any other class of
shares in issue. On a winding up, the assets of the Company are
applied to the holders of the preference shares in priority to any
payment to the ordinary shareholders and in priority to, or pari
passu with, the holders of any other shares in issue, for an amount
equal to any dividends payable (on approval of the board) and the
nominal value of the shares together with any premium as determined
by the Board. The redeemable preference shares are redeemable at
the paid up amount (which includes premium) at the option of the
Company in accordance with the terms of the shares. The holders of
the preference shares are not entitled to attend or vote at any
general meeting except where any relevant dividend due is not paid
in full or where a resolution is proposed varying the rights of the
preference shares.
Other equity instruments
On 2 April 2015, Standard Chartered PLC issued $2,000 million
Fixed Rate Resetting Perpetual Subordinated Contingent Convertible
Securities as Additional Tier 1 (AT1) securities, raising $1,987
million after issue costs. This security was redeemed on its first
optional redemption date of 2 April 2020. On 18 August 2016,
Standard Chartered PLC issued $2,000 million Fixed Rate Resetting
Perpetual Subordinated Contingent Convertible Securities as AT1
securities, raising $1,982 million after issue costs. On 18 January
2017, Standard Chartered PLC issued $1,000 million Fixed Rate
Resetting Perpetual Subordinated Contingent Convertible Securities
as AT1 securities, raising $992 million after issue costs. On 3
July 2019, Standard Chartered PLC issued SGD 750 million Fixed Rate
Resetting Perpetual Subordinated Contingent Convertible Securities
as AT1 securities, raising $ 552 million after issue costs. On 26
June 2020, Standard Chartered PLC issued $1,000 million Fixed Rate
Resetting Perpetual Subordinated Contingent Convertible Securities
as AT1 securities, raising $992 million after issue costs. All
issuances are made for general business purposes and to increase
the regulatory capital base of the Group.
The principal terms of the AT1 securities are described
below:
-- The securities are perpetual and redeemable, at the option of
Standard Chartered PLC in whole but not in part, on the first
interest reset date and each date falling five years after the
first reset date
-- The securities are also redeemable for certain regulatory or
tax reasons on any date at 100 per cent of their principal amount
together with any accrued but unpaid interest up to (but excluding)
the date fixed for redemption. Any redemption is subject to
Standard Chartered PLC giving notice to the relevant regulator and
the regulator granting permission to redeem
-- The interest rate in respect of the securities issued on 2
April 2015 for the period from (and including) the issue date to
(but excluding) 2 April 2020 is a fixed rate of 6.50 per cent per
annum. This security was redeemed on its first optional redemption
date of 2 April 2020.
-- The interest rate in respect of the securities issued on 18
August 2016 for the period from (and including) the issue date to
(but excluding) 2 April 2022 is a fixed rate of 7.50 per cent per
annum. The first reset date for the interest rate is 2 April 2022
and each date falling five years, or an integral multiple of five
years, after the first reset date
-- The interest rate in respect of the securities issued on 18
January 2017 for the period from (and including) the issue date to
(but excluding) 2 April 2023 is a fixed rate of 7.75 per cent per
annum. The first reset date for the interest rate is 2 April 2023
and each date falling five years, or an integral multiple of five
years, after the first reset date
-- The interest rate in respect of the securities issued on 3
July 2019 for the period from (and including) the issue date to
(but excluding) 3 October 2024 is a fixed rate of 5.375 per cent
per annum. The first reset date for the interest rate is 3 October
2024 and each date falling five years, or an integral multiple of
five years, after the first reset date
-- The interest rate in respect of the securities issued on 26
June 2020 for the period from (and including) the issue date to
(but excluding) 26 January 2026 is a fixed rate of 6 per cent per
annum. The first reset date for the interest rate is 26 January
2026 and each date falling five years, or an integral multiple of
five years, after the first reset date
-- The interest on the $2,000 million securities issued in 2016
and the $1,000 million securities issued in 2017 will be payable
semi-annually in arrears on 2 April and 2 October in each year. The
interest on the SGD 750 million security will be payable
semi-annually in arrears on 3 April and 3 October in each year. The
interest on the $1,000 million securities issued in 2020 will be
payable semi-annually in arrears on 26 January and 26 July in each
year. All the above payments will be accounted for as a
dividend.
-- Interest on the securities is due and payable only at the
sole and absolute discretion of Standard Chartered PLC, subject to
certain additional restrictions set out in the terms and
conditions. Accordingly, Standard Chartered PLC may at any time
elect to cancel any interest payment (or part thereof) which would
otherwise be payable on any interest payment date
-- The securities convert into ordinary shares of Standard
Chartered PLC, at a pre-determined price detailed in the table
below, should the fully loaded Common Equity Tier 1 ratio of the
Group fall below 7.0 per cent. Approximately 644 million ordinary
shares would be required to satisfy the conversion of all the
securities mentioned above
Conversion price per
Issuance date Nominal value ordinary share
--------------- ----------------- --------------------
18 August 2016 USD 2,000 million USD 7.732
18 January 2017 USD 1,000 million USD 7.732
3 July 2019 SGD 750 million SGD 10.909
26 Jun 2020 USD 1,000 million USD 5.331
--------------- ----------------- --------------------
The securities rank behind the claims against Standard Chartered
PLC of (a) unsubordinated creditors, (b) which are expressed to be
subordinated to the claims of unsubordinated creditors of Standard
Chartered PLC but not further or otherwise; or (c) which are, or
are expressed to be, junior to the claims of other creditors of
Standard Chartered PLC, whether subordinated or unsubordinated,
other than claims which rank, or are expressed to rank, pari passu
with, or junior to, the claims of holders of the AT1 securities in
a winding-up occurring prior to the conversion trigger.
Reserves
The constituents of the reserves are summarised as follows:
-- The capital reserve represents the exchange difference on
redenomination of share capital and share premium from sterling to
US dollars in 2001. The capital redemption reserve represents the
nominal value of preference shares redeemed
-- The amounts in the 'Capital and Merger Reserve' represents
the premium arising on shares issued using a cash box financing
structure, which required the Company to create a merger reserve
under section 612 of the Companies Act 2006. Shares were issued
using this structure in 2005 and 2006 to assist in the funding of
Korea ($1.9 billion) and Taiwan ($1.2 billion) acquisitions, in
2008, 2010 and 2015 for the shares issued by way of a rights issue,
primarily for capital maintenance requirements and for the shares
issued in 2009 by way of an accelerated book build, the proceeds of
which were used in the ordinary course of business of the Group.
The funding raised by the 2008, 2010 and 2015 rights issues and
2009 share issue was fully retained within the Company. Of the 2015
funding, $1.5 billion was used to subscribe to additional equity in
Standard Chartered Bank, a wholly owned subsidiary of the Company.
Apart from the Korea, Taiwan and Standard Chartered Bank funding,
the merger reserve is considered realised and distributable.
-- Own credit adjustment reserve represents the cumulative gains
and losses on financial liabilities designated at fair value
through profit or loss relating to own credit. Gains and losses on
financial liabilities designated at fair value through profit or
loss relating to own credit in the year have been taken through
other comprehensive income into this reserve. On derecognition of
applicable instruments the balance of any OCA will not be recycled
to the income statement, but will be transferred within equity to
retained earnings
-- Fair value through other comprehensive income (FVOCI) debt
reserve represents the unrealised fair value gains and losses in
respect of financial assets classified as FVOCI, net of expected
credit losses and taxation. Gains and losses are deferred in this
reserve and are reclassified to the income statement when the
underlying asset is sold, matures or becomes impaired. FVOCI equity
reserve represents unrealised fair value gains and losses in
respect of financial assets classified as FVOCI, net of taxation.
Gains and losses are recorded in this reserve and never recycled to
the income statement
-- Cash flow hedge reserve represents the effective portion of
the gains and losses on derivatives that meet the criteria for
these types of hedges. Gains and losses are deferred in this
reserve and are reclassified to the income statement when the
underlying hedged item affects profit and loss or when a forecast
transaction is no longer expected to occur
-- Translation reserve represents the cumulative foreign
exchange gains and losses on translation of the net investment of
the Group in foreign operations. Since 1 January 2004, gains and
losses are deferred to this reserve and are reclassified to the
income statement when the underlying foreign operation is disposed.
Gains and losses arising from derivatives used as hedges of net
investments are netted against the foreign exchange gains and
losses on translation of the net investment of the foreign
operations
-- Retained earnings represents profits and other comprehensive
income earned by the Group and Company in the current and prior
periods, together with the after tax increase relating to
equity-settled share options, less dividend distributions, own
shares held (treasury shares) and share buy-backs
A substantial part of the Group's reserves is held in overseas
subsidiary undertakings and branches, principally to support local
operations or to comply with local regulations. The maintenance of
local regulatory capital ratios could potentially restrict the
amount of reserves which can be remitted. In addition, if these
overseas reserves were to be remitted, further unprovided taxation
liabilities might arise.
As at 30 June 2020, the distributable reserves of Standard
Chartered PLC (the Company) were $13.6 billion (31 December 2019:
$14.3 billion). These comprised retained earnings and $12.5 billion
of the merger reserve account. Distribution of reserves is subject
to maintaining minimum capital requirements.
Own shares
Computershare Trustees (Jersey) Limited is the trustee of the
2004 Employee Benefit Trust ('2004 Trust') and Ocorian Trustees
(Jersey) Limited (formerly known as Bedell Trustees Limited) is the
trustee of the 1995 Employees' Share Ownership Plan Trust ('1995
Trust'). The 2004 Trust is used in conjunction with the Group's
employee share schemes and the 1995 Trust is used for the delivery
of other employee share-based payments (such as upfront shares and
fixed pay allowances). Group companies fund these trusts from time
to time to enable the trustees to acquire shares to satisfy these
arrangements.
Except as disclosed, neither the Company nor any of its
subsidiaries has bought, sold or redeemed any securities of the
Company listed on The Stock Exchange of Hong Kong Limited during
the period. Details of the shares purchased and held by the trusts
are set out below.
1995 Trust 2004 Trust1 Total
------------ ------------------------------------- ---------------------------------- ----------------------------------
Number of
shares 30.06.20 31.12.19 30.06.19 30.06.20 31.12.19 30.06.19 30.06.20 31.12.19 30.06.19
------------ ----------- ----------- ----------- ---------- ---------- ---------- ---------- ---------- ----------
Shares
purchased
during
the period 2,999,210 646,283 646,283 14,359,481 24,065,354 15,703,928 17,358,691 24,711,637 16,350,211
------------ ----------- ----------- ----------- ---------- ---------- ---------- ---------- ---------- ----------
Market price
of shares
purchased
($million) 22 5 5 86 201 131 108 206 136
------------ ----------- ----------- ----------- ---------- ---------- ---------- ---------- ---------- ----------
Shares
transferred
between
trusts (2,999,210) (3,001,103) (3,001,103) 2,999,210 3,001,103 3,001,103 - - -
------------ ----------- ----------- ----------- ---------- ---------- ---------- ---------- ---------- ----------
Shares held
at the
end of the
period - - - 8,345,814 5,113,455 2,370,743 8,345,814 5,113,455 2,370,743
------------ ----------- ----------- ----------- ---------- ---------- ---------- ---------- ---------- ----------
Maximum
number of
shares held
during
the period 11,262,818 15,070,923 14,424,640
------------ ----------- ----------- ----------- ---------- ---------- ---------- ---------- ---------- ----------
1 Note that 1,489,139 shares were purchased by the trustee of
the 2004 Trust using $10 million participant savings as part of
Sharesave exercises
25. Retirement benefit obligations
Retirement benefit obligations comprise:
30.06.20 31.12.19 30.06.19
$million $million $million
--------------------------------------- ---------- ---------- ----------
Total market value of assets 2,563 2,610 2,464
Present value of the plans liabilities (3,087) (3,068) (2,917)
--------------------------------------- ---------- ---------- ----------
Defined benefit plans obligation (524) (458) (453)
Defined contribution plans obligation (19) (11) (20)
--------------------------------------- ---------- ---------- ----------
Net obligation (543) (469) (473)
--------------------------------------- ---------- ---------- ----------
Retirement benefit charge comprises:
6 months 6 months 6 months
ended ended ended
30.06.20 31.12.19 30.06.19
$million $million $million
--------------------------------------------------- ---------- ---------- ----------
Defined benefit plans 32 33 40
Defined contribution plans 140 140 159
--------------------------------------------------- ---------- ---------- ----------
Charge against profit (Note 7) 172 173 199
--------------------------------------------------- ---------- ---------- ----------
The pension cost for defined benefit plans
was:
Current service cost 26 30 31
Past service cost and curtailments - (2) 3
Interest income on pension plan assets (27) (35) (34)
Interest on pension plan liabilities 33 40 40
--------------------------------------------------- ---------- ---------- ----------
Total charge to profit before deduction of
tax 32 33 40
--------------------------------------------------- ---------- ---------- ----------
(Returns)/losses on plan assets excluding interest
income (124) (42) (132)
Losses/(gains) on liabilities 189 117 181
--------------------------------------------------- ---------- ---------- ----------
Total losses/(gains) recognised directly in
statement of comprehensive income before tax 65 75 49
Deferred taxation (9) 9 (4)
--------------------------------------------------- ---------- ---------- ----------
Total losses/(gains) after tax 56 84 45
--------------------------------------------------- ---------- ---------- ----------
Defined benefit liability values have increased since 31
December 2019 due to falling bond yields, which lead to the
liabilities being discounted at a lower rate. Asset values have
fallen since 31 December, with falling equity values and
depreciation of the GBP vs USD (reducing the value of assets in the
largest plan, the UK SCPF) more than offsetting increases in the
value of bonds held in the funded plans. With liabilities having
increased and assets having decreased, there is an overall increase
in the net balance sheet liability compared to 31 December
2019.
The defined benefit income statement charge for the six months
to 30 June 2020 is lower than the corresponding income statement
charge for the six months to 30 June 2019, driven by a reduction in
the number of defined benefit plans that remain open to
accrual.
26. Related party transactions
Directors and officers
As at 30 June 2020, Standard Chartered Bank had in place a
charge over $81 million (31 December 2019: $86 million, 30 June
2019: $83 million) of cash assets in favour of the independent
trustee of its employer-financed retirement benefit scheme.
There were no changes in the related party transactions
described in the Annual Report 2019 that have had a material effect
on the financial position or performance of the Group in the period
ended 30 June 2020. All related party transactions that have taken
place in the period were similar in nature to those disclosed in
the Annual Report 2019.
Associate and Joint ventures
On 20 May 2020 the Group completed the sale of its 44.56% equity
interest in PT Bank Permata Tbk to Bangkok Bank Public Company
Limited. Please refer to Note 19 for further details.
The following transactions with related parties are on an arm's
length basis:
30.06.20 31.12.19
--------------------------------------- -------------------------- --------------------------
Associates Joint ventures Associates Joint ventures
$million $million $million $million
--------------------------------------- ---------- -------------- ---------- --------------
Assets
Loans and advances 1 - - 2
Debt securities - - 21 58
--------------------------------------- ---------- -------------- ---------- --------------
Total assets 1 - 21 60
--------------------------------------- ---------- -------------- ---------- --------------
Liabilities
Deposits 1,075 - 196 29
Derivative liabilities 5 - - -
--------------------------------------- ---------- -------------- ---------- --------------
Total liabilities 1,080 - 196 29
--------------------------------------- ---------- -------------- ---------- --------------
Loan commitments and other guarantees1 56 - 50 3
--------------------------------------- ---------- -------------- ---------- --------------
1 The maximum loan commitments and guarantees during the period
were $56 million (31 December 2019: $53 million).
27. Post balance sheet events
China Bohai Bank Co. Ltd. (Bohai), an associate of the Group,
completed its Initial Public Offering (IPO) on the Hong Kong Stock
Exchange on 16 July 2020. The IPO has resulted in the Group's
shareholding percentage decreasing from 19.99 per cent to between
16.26 per cent to 16.67 per cent, subject to the finalisation of
the over-allotment option. This is a non-adjusting post balance
sheet event, and an estimated loss on dilution ranging from
approximately $40 million to $50 million will be recognised in the
second half of 2020. The actual loss on dilution will depend on the
amount of over-allotment option exercised and the finalization of
Bohai's results up to the date of the IPO - both of which will only
be concluded in the second half of 2020. The Group has recognised
its share of profit or loss and other comprehensive income of Bohai
three months in arrears given the timing of the availability of
Bohai's publicly available financial information. The Group in
previous periods recognised its share of profit or loss and other
comprehensive income one month in arrears, so there are four
months' of its share of profit or loss and other comprehensive
income recognised in the first half of 2020.
The Group has terminated the Indian Depository Receipt (IDR)
programme and IDRs were formally delisted from the BSE Limited
(formerly the Bombay Stock Exchange) and National Stock Exchange of
India Limited with effect from 22 July 2020.
28. Corporate governance
The directors confirm that, throughout the period, the Company
has complied with the code provisions set out in the Corporate
Governance Code contained in Appendix 14 of the Hong Kong Listing
Rules. The directors also confirm that the announcement of these
results has been reviewed by the Company's Audit Committee. The
Company confirms that it has adopted a code of conduct regarding
securities transactions by directors on terms no less exacting than
the required standard set out in Appendix 10 of the Hong Kong
Listing Rules and that having made specific enquiry of all
directors, the directors of the Company have complied with the
required standards of the adopted code of conduct throughout the
period.
As previously announced, since 31 December 2019 the following
changes to the composition of the Board have taken place. Louis
Cheung retired from the Board as an Independent Non-Executive
Director and member of the Remuneration Committee on 25 March 2020.
Phil Rivett was appointed to the Board on 6 May 2020 as an
Independent Non-Executive Director and as a member of the Audit
Committee and the Board Risk Committee. Biographies for each of the
directors and a list of the committees' membership can be found at
sc.com.
In compliance with Rule 13.51B (1) of the Hong Kong Listing
Rules the Company confirms that on 14 May 2020 David Conner,
Independent Non-Executive Director stepped down from the Board of
Gaslog Ltd. On 1 January 2020 Christine Hodgson, Independent
Non-Executive Director was appointed to the Board of Severn Trent
plc as an Independent Non-Executive Director and on 1 April 2020
she was appointed its Chair. Christine Hodgson stepped down from
Capgemini UK plc on 31 March 2020. It was announced on 14 July 2020
that Carlson Tong has been designated by the Government of the Hong
Kong Special Administrative Region, as one of two observers of the
Cathay Pacific Airways Limited Board and will take up the
appointment from mid-August 2020. Carlson Tong stepped down as a
non-executive director from the Boards of the Airport Authority
Hong Kong and the Aviation Security Company Limited with effect
from 13 July 2020.
29. Statutory accounts
The information in this Half Year Report is unaudited and does
not constitute statutory accounts within the meaning of section 434
of the Companies Act 2006. This document was approved by the Board
on 30 July 2020. The statutory accounts for the year ended 31
December 2019 have been audited by the Company's predecessor
auditors, KPMG LLP, and delivered to the Registrar of Companies in
England and Wales. The report of the auditors was (i) unqualified,
(ii) did not include a reference to any matters to which the
auditors drew attention by way of emphasis without qualifying their
report, and (iii) did not contain a statement under sections 498(2)
and 498(3) of the Companies Act 2006.
Other supplementary information
Supplementary financial information
1. Average balance sheets and yields
The following tables set out the average balances and yields for
the Group's assets and liabilities for the periods ended 30 June
2020, 31 December 2019 and 30 June 2019. For the purpose of these
tables, average balances have been determined on the basis of daily
balances, except for certain categories, for which balances have
been determined less frequently. The Group does not believe that
the information presented in these tables would be significantly
different had such balances been determined on a daily basis.
Average assets
6 months ended 30.06.20
--------------------------------------------- ------------------------------------------------
Average Average
non-interest interest
earning earning Interest
balance balance income Gross yield
$million $million $million %
--------------------------------------------- ------------- --------- --------- -----------
Cash and balances at central banks 16,378 40,718 77 0.38
Gross loans and advances to banks 27,489 56,444 479 1.71
Gross loans and advances to customers 49,747 287,800 4,755 3.32
Impairment provisions against loans
and advances to banks and customers - (5,924) - -
Investment securities 27,897 141,864 1,564 2.22
Property, plant and equipment and intangible
assets 10,061 - - -
Prepayments, accrued income and other
assets 108,905 - - -
Investment associates and joint ventures 2,140 - - -
--------------------------------------------- ------------- --------- --------- -----------
Total average assets 242,617 520,902 6,875 2.65
--------------------------------------------- ------------- --------- --------- -----------
6 months ended 31.12.19
--------------------------------------------- ------------------------------------------------
Average Average
non-interest interest
earning earning Interest
balance balance income Gross yield
$million $million $million %
--------------------------------------------- ------------- --------- --------- -----------
Cash and balances at central banks 17,029 28,055 140 0.99
Gross loans and advances to banks 28,350 60,668 818 2.67
Gross loans and advances to customers 49,644 280,869 5,407 3.82
Impairment provisions against loans
and advances to banks and customers - (4,545) - -
Investment securities 28,828 138,582 1,871 2.68
Property, plant and equipment and intangible
assets 11,485 - - -
Prepayments, accrued income and other
assets 90,793 - - -
Investment associates and joint ventures 2,668 - - -
--------------------------------------------- ------------- --------- --------- -----------
Total average assets 228,797 503,629 8,236 3.24
--------------------------------------------- ------------- --------- --------- -----------
6 months ended 30.06.19
--------------------------------------------- ------------------------------------------------
Average Average
non-interest interest
earning earning Interest
balance balance income Gross yield
$million $million $million %
--------------------------------------------- ------------- --------- --------- -----------
Cash and balances at central banks 18,068 30,318 189 1.26
Gross loans and advances to banks 24,899 61,418 1,016 3.34
Gross loans and advances to customers 49,680 268,973 5,368 4.02
Impairment provisions against loans
and advances to banks and customers - (5,030) - -
Investment securities 29,554 130,058 1,740 2.70
Property, plant and equipment and intangible
assets 10,945 - - -
Prepayments, accrued income and other
assets 79,040 - - -
Investment associates and joint ventures 2,547 - - -
--------------------------------------------- ------------- --------- --------- -----------
Total average assets 214,733 485,737 8,313 3.45
--------------------------------------------- ------------- --------- --------- -----------
Average liabilities
6 months ended 30.06.20
-------------------------------------------- ----------------------------------------------
Average Average
non-interest interest
bearing bearing Interest
balance balance expense Rate paid
$million $million $million %
-------------------------------------------- ------------- --------- --------- ---------
Deposits by banks 17,764 26,055 235 1.81
Customer accounts: - - - -
Current accounts and savings deposits 41,519 211,961 767 0.73
Time and other deposits 58,439 163,409 1,509 1.86
Debt securities in issue 7,535 53,141 485 1.84
Accruals, deferred income and other
liabilities 114,116 1,204 31 5.18
Subordinated liabilities and other
borrowed funds - 16,031 350 4.39
Non-controlling interests - - - -
Shareholders' funds 49,963 - - -
-------------------------------------------- ------------- --------- --------- ---------
289,336 471,801 3,377 1.44
Adjustment for Financial Markets funding
costs (121) -
-------------------------------------------- ------------- --------- --------- ---------
Total average liabilities and shareholders'
funds 289,336 471,801 3,256 1.39
-------------------------------------------- ------------- --------- --------- ---------
6 months ended 31.12.19
-------------------------------------------- ----------------------------------------------
Average Average
non-interest interest
bearing bearing Interest
balance balance expense Rate paid
$million $million $million %
-------------------------------------------- ------------- --------- --------- ---------
Deposits by banks 18,674 26,397 338 2.54
Customer accounts: - - - -
Current accounts and savings deposits 39,114 191,659 1,125 1.16
Time and other deposits 58,450 169,763 1,960 2.29
Debt securities in issue 9,701 50,142 553 2.19
Accruals, deferred income and other
liabilities 99,691 1,291 65 9.99
Subordinated liabilities and other
borrowed funds - 15,244 366 4.76
Non-controlling interests 53 - - -
Shareholders' funds 50,372 - - -
-------------------------------------------- ------------- --------- --------- ---------
276,055 454,496 4,407 1.92
Adjustment for Financial Markets funding
costs (174)
-------------------------------------------- ------------- --------- --------- ---------
Total average liabilities and shareholders'
funds 276,055 454,496 4,233 1.85
-------------------------------------------- ------------- --------- --------- ---------
6 months ended 30.06.19
-------------------------------------------- ----------------------------------------------
Average Average
non-interest interest
bearing bearing Interest
balance balance expense Rate paid
$million $million $million %
-------------------------------------------- ------------- --------- --------- ---------
Deposits by banks 16,430 28,861 401 2.80
Customer accounts: - - - -
Current accounts and savings deposits 38,489 174,849 989 1.14
Time and other deposits 59,749 166,014 2,128 2.58
Debt securities in issue 8,963 48,547 567 2.36
Accruals, deferred income and other
liabilities 91,160 1,382 - -
Subordinated liabilities and other
borrowed funds - 14,877 390 5.29
Non-controlling interests 9 - - -
Shareholders' funds 50,054 - - -
-------------------------------------------- ------------- --------- --------- ---------
264,854 434,530 4,475 2.08
Adjustment for Financial Markets funding
costs (166)
-------------------------------------------- ------------- --------- --------- ---------
Total average liabilities and shareholders'
funds 264,854 434,530 4,309 2.00
-------------------------------------------- ------------- --------- --------- ---------
Convenience translation of selected financial statements into
Indian Rupees
In compliance with Regulation 71(3) read with Schedule IV part B
of the Securities and Exchange Board of India (Listing Obligations
and Disclosure Requirements) Regulations, 2015, as amended, the
Consolidated financial statements are presented in Indian rupees
(INR) using a US dollar/Indian rupee exchange rate of 75.5270 as at
30 June 2020 as published by the Reserve Bank of India. Amounts
have been translated using the said exchange rate including totals
and sub-totals and any discrepancies in any table between totals
and sums of the amounts listed are due to rounding.
The Indian Depository Receipts issued by the Company have been
delisted from the Indian stock exchanges with effect from July 22,
2020. Accordingly, going forward, the Company shall not be required
to comply with the aforesaid provisions of the Securities and
Exchange Board of India (Listing Obligations and Disclosure
Requirements) Regulations, 2015, as amended.
2. Condensed consolidated interim income statement (translated
to INR)
For the six months ended 30 June 2020
6 months 6 months
ended ended
30.06.20 30.06.19
Rs.million Rs.million
------------------------------------------------------- ----------- -----------
Interest income 519,248 627,856
Interest expense (255,055) (337,983)
------------------------------------------------------- ----------- -----------
Net interest income 264,193 289,873
----------- -----------
Fees and commission income 141,235 160,117
Fees and commission expense (23,564) (21,299)
----------- -----------
Net fee and commission income 117,671 138,819
Net trading income 162,685 133,985
Other operating income 67,144 28,700
------------------------------------------------------- ----------- -----------
Operating income 611,693 591,376
----------- -----------
Staff costs (251,505) (270,160)
Premises costs (13,444) (14,426)
General administrative expenses (48,488) (71,977)
Depreciation and amortisation (45,165) (43,579)
----------- -----------
Operating expenses (358,602) (400,142)
------------------------------------------------------- ----------- -----------
Operating profit before impairment losses and taxation 253,091 191,234
Credit impairment (119,031) (19,184)
Goodwill impairment (19,486) -
Other impairment 2,643 (3,323)
Profit from associates and joint ventures 5,665 13,595
------------------------------------------------------- ----------- -----------
Profit before taxation 122,882 182,322
Taxation (42,371) (69,334)
------------------------------------------------------- ----------- -----------
Profit for the period 80,512 112,988
------------------------------------------------------- ----------- -----------
Profit attributable to:
Non-controlling interests 1,359 1,435
Parent company shareholders 79,152 111,553
------------------------------------------------------- ----------- -----------
Profit for the period 80,512 112,988
------------------------------------------------------- ----------- -----------
Rupees Rupees
------------------------------------ ------ ------
Earnings per share:
Basic earnings per ordinary share 19.5 28.7
Diluted earnings per ordinary share 19.2 28.3
------------------------------------ ------ ------
3. Condensed consolidated interim statement of comprehensive
income (translated to INR)
For the six months ended 30 June 2020
6 months 6 months
ended ended
30.06.20 30.06.19
Rs.million Rs.million
--------------------------------------------------------------- ----------- -----------
Profit for the period 80,512 112,988
Other comprehensive (loss)/income
Items that will not be reclassified to income statement: (1,813) (29,002)
----------- -----------
Own credit losses on financial liabilities designated
at fair value through profit or loss 1,662 (29,607)
Equity instruments at fair value through other comprehensive
income 2,870 982
Actuarial losses on retirement benefit obligations (4,909) (3,701)
Taxation relating to components of other comprehensive
income (1,435) 3,323
----------- -----------
Items that may be reclassified subsequently to income
statement: (23,716) 4,909
Exchange differences on translation of foreign operations:
----------- -----------
Net losses taken to equity (63,518) (12,009)
Net gains on net investment hedges 9,441 5,514
Reclassified to income statement on sale of joint venture 18,580 -
Share of other comprehensive income from associates
and joint ventures 302 227
Debt instruments at fair value through other comprehensive
income:
Net valuation gains taken to equity 57,098 21,978
Reclassified to income statement (38,745) (4,381)
Net impact of expected credit losses 1,208 227
Cashflow hedges:
Net losses taken to equity (7,477) (5,967)
Reclassified to income statement 680 529
Taxation relating to components of other comprehensive
income (1,284) (1,208)
----------- -----------
Other comprehensive loss for the period, net of taxation (25,528) (24,093)
--------------------------------------------------------------- ----------- -----------
Total comprehensive income for the period 54,984 88,895
--------------------------------------------------------------- ----------- -----------
Total comprehensive income attributable to:
Non-controlling interests 755 831
Parent company shareholders 54,228 88,065
--------------------------------------------------------------- ----------- -----------
Total comprehensive income for the period 54,984 88,895
--------------------------------------------------------------- ----------- -----------
4. Condensed consolidated interim balance sheet (translated to
INR)
As at 30 June 2020
30.06.20 31.12.19
Rs.million Rs.million
---------------------------------------------------------- ----------- -----------
Assets
Cash and balances at central banks 3,997,266 3,982,388
Financial assets held at fair value through profit
or loss 7,428,760 7,010,265
Derivative financial instruments 3,944,549 3,565,781
Loans and advances to banks1 3,814,038 4,044,395
Loans and advances to customers2 20,869,092 20,280,737
Investment securities 11,006,852 10,855,571
Other assets 3,544,104 3,173,796
Current tax assets 55,663 40,709
Prepayments and accrued income 177,791 203,923
Interests in associates and joint ventures 151,054 144,106
Goodwill and intangible assets 379,825 399,538
Property, plant and equipment 509,581 469,778
Deferred tax assets 62,083 83,457
Assets classified as held for sale 69,032 155,057
---------------------------------------------------------- ----------- -----------
Total assets 56,009,690 54,409,500
---------------------------------------------------------- ----------- -----------
Liabilities
Deposits by banks 2,189,226 2,157,202
Customer accounts 31,808,423 30,615,398
Repurchase agreements and other similar secured borrowing 212,306 146,145
Financial liabilities held at fair value through profit
or loss 4,862,655 5,058,345
Derivative financial instruments 3,838,735 3,661,851
Debt securities in issue 3,858,372 4,004,819
Other liabilities 3,719,176 3,140,639
Current tax liabilities 45,845 53,095
Accruals and deferred income 311,851 405,504
Subordinated liabilities and other borrowed funds 1,270,817 1,224,066
Deferred tax liabilities 49,470 46,147
Provisions for liabilities and charges 32,628 33,912
Retirement benefit obligations 41,011 35,422
Liabilities included in disposal groups held for sale 604 680
---------------------------------------------------------- ----------- -----------
Total liabilities 52,241,120 50,583,226
---------------------------------------------------------- ----------- -----------
Equity
Share capital and share premium account 533,070 534,580
Other reserves 863,349 882,533
Retained earnings 2,006,677 1,969,140
---------------------------------------------------------- ----------- -----------
Total parent company shareholders' equity 3,403,096 3,386,253
Other equity instruments 341,231 416,380
---------------------------------------------------------- ----------- -----------
Total equity excluding non-controlling interests 3,744,327 3,802,633
Non-controlling interests 24,244 23,640
---------------------------------------------------------- ----------- -----------
Total equity 3,768,571 3,826,273
---------------------------------------------------------- ----------- -----------
Total equity and liabilities 56,009,690 54,409,500
---------------------------------------------------------- ----------- -----------
1 Reverse repurchase agreements and other similar secured
lending balances held at amortised cost of Rs.142,973 million (31
December 2019: Rs.101,282 million) has been included with loans and
advances to banks
2 Reverse repurchase agreements and other similar secured
lending balances held at amortised cost of Rs.331,035 million (31
December 2019: Rs.110,949 million) has been included with loans and
advances to customers
5. Condensed consolidated interim statement of changes in
equity
For the six months ended 30 June 2020
Ordinary Fair Fair
share Preference value value
capital share through through
and capital Capital other other Cash
share and and Own compre-hensive compre-hensive flow Parent
premium share merger credit income income hedge Retained company Other
account premium reserves adjust-ment reserve reserve reserve Translation earnings share-holders' equity Non-controlling Total
Rs.milli account Rs.millio reserve - debt - equity Rs.mill reserve Rs.millio equity instru-ments interests Rs.millio
on Rs.million n Rs.million Rs.million Rs.million ion Rs.million n Rs.million Rs.million Rs.million n
-------------- -------- ---------- --------- ----------- -------------- -------------- ------- ----------- --------- -------------- ------------ --------------- ---------
As at 1
January 1,293,702
2019 424,235 112,837 1 31,117 (12,160) 9,063 (755) (423,858) 1,973,445 3,407,627 374,689 20,619 3,802,936
Profit for
the period - - - - - - - - 111,553 111,553 - 1,435 112,988
Other
comprehensive (3,474)
(loss)/income - - - (25,981) 16,012 227 (4,381) (5,891) 2 (23,489) - (604) (24,093)
Distributions - - - - - - - - - - - (1,964) (1,964)
Shares issued,
net of 1,888
expenses 3 - - - - - - - - 1,888 - - 1,888
Treasury
shares net
movement - - - - - - - - (9,970) (9,970) - - (9,970)
Share option
expense,
net of
taxation - - - - - - - - 7,326 7,326 - - 7,326
Dividends
on ordinary
shares - - - - - - - - (37,386) (37,386) - - (37,386)
Dividends
on preference
shares and
AT1
securities - - - - - - - - (16,691) (16,691) - - (16,691)
Share buy-back
4 (2,039) - 2,039 - - - - - (36,706) (36,706) - - (36,706)
Other (378) 11,556
movements - - - - - - - - 5 (378) - 6 11,178
-------------- -------- ---------- --------- ----------- -------------- -------------- ------- ----------- --------- -------------- ------------ --------------- ---------
As at 30
June 2019 424,084 112,837 1,295,741 5,136 3,852 9,290 (5,136) (429,749) 1,987,720 3,403,775 374,689 31,042 3,809,506
Profit for
the period - - - - - - - - 62,385 62,385 - 1,359 63,745
Other
comprehensive (6,495)
income/(loss) - - - (4,985) 11,027 2,039 680 (7,704) 2 (5,438) - (529) (5,967)
Distributions - - - - - - - - - - - (680) (680)
Other equity
instruments
issued,
net of
expenses - - - - - - - - - - 41,691 - 41,691
Treasury
shares net
movement - - - - - - - - (5,060) (5,060) - - (5,060)
Share option
expense,
net of
taxation - - - - - - - - 3,172 3,172 - - 3,172
Dividends
on
ordinary
shares - - - - - - - - (16,994) (16,994) - - (16,994)
Dividends
on preference
shares and
AT1
securities - - - - - - - - (17,145) (17,145) - - (17,145)
Share buy-back
4 (2,341) - 2,341 - - - - - (39,274) (39,274) - - (39,274)
Other 831 (7,553)
movements - - - - - - - - 7 831 - 8 (6,722)
-------------- -------- ---------- --------- ----------- -------------- -------------- ------- ----------- --------- -------------- ------------ --------------- ---------
As at 31
December
2019 421,743 112,837 1,298,083 151 14,879 11,329 (4,456) (437,452) 1,969,140 3,386,253 416,380 23,640 3,826,273
Profit for
the period - - - - - - - - 79,152 79,152 - 1,359 80,512
Other
comprehensive (4,230)
(loss)/income - - - 982 15,785 1,662 (4,683) (34,440) 2 (24,924) - (604) (25,528)
Distributions - - - - - - - - - - - (151) (151)
Other equity
instruments
issued,
net of
expenses - - - - - - - - - - 74,923 - 74,923
Redemption
of other
equity
instruments - - - - - - - - (982) (982) (150,072) - (151,054)
Treasury
shares net
movement - - - - - - - - (6,873) (6,873) - - (6,873)
Share option
expense,
net of
taxation - - - - - - - - 5,589 5,589 - - 5,589
Dividends
on
preference
shares
and AT1
securities - - - - - - - - (17,522) (17,522) - - (17,522)
Share buy-back
9 (1,511) - 1,511 - - - - - (18,278) (18,278) - - (18,278)
Other 680
movements - - - - - - - - 10 680 - - 680
-------------- -------- ---------- --------- ----------- -------------- -------------- ------- ----------- --------- -------------- ------------ --------------- ---------
As at 30
June 2020 420,232 112,837 1,299,593 1,133 30,664 12,991 (9,139) (471,893) 2,006,677 3,403,096 341,231 24,244 3,768,571
-------------- -------- ---------- --------- ----------- -------------- -------------- ------- ----------- --------- -------------- ------------ --------------- ---------
1 Includes capital reserve of Rs.378 million, capital redemption
reserve of Rs.982 million and merger reserve of Rs.1,292,342
million
2 Comprises actuarial (loss)/gain, net of taxation and share
from associates and joint ventures (Rs.4,230) million ((Rs.6,495)
million for the six months ended 31 December 2019 and (Rs.3,474)
million for the six months ended 30 June 2019)
3 Comprises share capital of shares issued to fulfil
discretionary awards Rs.76 million, share capital of shares issued
to fulfil employee share save options Rs.76 million and share
premium of shares issued to fulfil employee share save options
exercised Rs.1,736 million (nil for six months ended 30 June
2020)
4 On 1 May 2019, the Group commenced a share buy-back of its
ordinary shares of Rs.38 each up to a maximum consideration of
Rs.75,527 million. At 30 June 2019, the total number of shares
purchased was 54,885,156, representing 1.66% of the ordinary shares
in issue. The nominal value of ordinary shares purchased at 30 June
2019 was Rs.2,039 million and the aggregate consideration paid by
the Group was Rs.36,706 million. During the second half of 2019 the
total number of shares purchased was 61,218, 327 representing 1.85%
of the ordinary shares in issue. The nominal value of ordinary
shares purchased during the second half of 2019 was Rs.2,341
million and the aggregate consideration paid by the Group was
Rs.39,274 million. The nominal value of the shares was transferred
from the share capital to the capital redemption reserve
account
5 Comprises withholding tax on capitalisation of revenue
reserves Rs.302 million
6 Due to consolidation of a subsidiary with non-controlling
interest Rs.6,118 million and non-controlling interest in SC
Digital Solutions Rs.5,438 million
7 Disposal of Phoon Huat Pte Ltd Rs.755 million
8 Due to deconsolidation of a subsidiary with non-controlling
interest Rs.6,269 million and disposal of non-controlling interest
in Phoon Huat Pte Ltd, Sirat Holdings Limited and
Ori Private Limited Rs.1,284 million
9 On 28 February 2020, the Group announced the buy-back
programme for a share buy-back of its ordinary shares of Rs.38
each. Nominal value of share purchases was
Rs.1,511 million, and the total consideration paid was Rs.18,278
million. The total number of shares purchased was 40,029,585
representing 1.25% of the ordinary shares in issue.
The nominal value of the shares was transferred from the share
capital to the capital redemption reserve account. On the 1 April
2020, the Group announced that in response to a request from the
Prudential Regulation Authority and as a consequence of the
unprecedented challenges facing the world due to the COVID-19
pandemic, its board had decided
after careful consideration to withdraw the recommendation to
pay a final dividend for 2019 of Rupees.15 per ordinary share and
to suspend the buy-back programme
10 Comprises revenue reserves of PT Bank Permata Tbk Rs.680 million
6. Condensed consolidated interim cash flow statement
(translated to INR)
For the six months ended 30 June 2020
6 months 6 months
ended ended
30.06.20 30.06.19
Rs.million Rs.million
------------------------------------------------------------- ------------ --------------
Cash flows from operating activities:
Profit before taxation 122,882 182,322
Adjustments for non-cash items and other adjustments
included within income statement 186,778 82,475
Change in operating assets (1,550,192) (1,686,065)(1)
Change in operating liabilities 1,750,489 1,764,990
Contributions to defined benefit schemes (1,435) (2,039)
UK and overseas taxes paid (45,014) (70,165)
------------------------------------------------------------- ------------ --------------
Net cash from operating activities 463,509 271,520(1)
------------------------------------------------------------- ------------ --------------
Cash flows from investing activities:
Purchase of property, plant and equipment (82,702) (30,513)(1)
Disposal of property, plant and equipment 8,232 5,136(1)
Acquisition of investment in subsidiaries, associates
and joint ventures, net of cash acquired (1,511) -
Dividends received from subsidiaries, associates and
joint ventures - 76
Disposal of joint ventures, net of cash acquired 80,587 -
Disposal of subsidiaries - 227
Purchase of investment securities (12,434,237) (10,233,002)
Disposal and maturity of investment securities 12,341,036 10,003,098
------------------------------------------------------------- ------------ --------------
Net cash used in investing activities (88,593) (254,979)(1)
------------------------------------------------------------- ------------ --------------
Cash flows from financing activities:
Issue of ordinary and preference share capital, net
of expenses - 1,888
Issue of AT1 securities, net of expenses 74,923 -
Treasury shares net movement (6,873) (9,970)
Cancellation of shares including share buy-back (18,278) (36,706)
Redemption of AT1 securities (151,054) -
Premises and equipment lease liability principal payment (22,734) (13,746)
Gross proceeds from issue of subordinated liabilities 84,968 -
Interest paid on subordinated liabilities (21,752) (20,015)
Repayment of subordinated liabilities (56,796) (1,737)
Proceeds from issue of senior debts 504,445 271,066
Repayment of senior debts (238,363) (172,881)
Interest paid on senior debts (20,543) (20,468)
Investment from non-controlling interests - 11,556
Dividends paid to non-controlling interests and preference
shareholders (17,673) (18,655)
Dividends paid to ordinary shareholders - (37,386)
------------------------------------------------------------- ------------ --------------
Net cash from/(used in) financing activities 110,269 (47,053)
------------------------------------------------------------- ------------ --------------
Net increase/(decrease) in cash and cash equivalents 485,185 (30,513)
Cash and cash equivalents at beginning of the period 5,849,868 7,363,883
Effect of exchange rate movements on cash and cash
equivalents (33,610) (10,574)
------------------------------------------------------------- ------------ --------------
Cash and cash equivalents at end of the period(2) 6,301,444 7,322,796
------------------------------------------------------------- ------------ --------------
1 Aircraft and shipping purchases and disposals re-presented as
cash flows from investing activities
2. Comprises cash and balances at central banks Rs.3,997,266
million (30 June 2019: Rs.4,442,649 million), treasury bills and
other eligible bills Rs.565,169 million (30 June 2019: Rs.909,496
million), loans and advances to banks Rs.2,197,987 million (30 June
2019: Rs.2,360,672 million), trading securities Rs.194,482 million
(30 June 2019: Rs.312,833 million) less restricted balances
Rs.653,460 million (30 June 2019: Rs.702,854 million)
Summary of significant differences between Indian GAAP and
IFRS
The condensed consolidated interim financial statements of the
Group for the six months ended 30 June 2020 with comparatives as at
31 December 2019 and 30 June 2019 are prepared in accordance with
International Financial Reporting Standards (IFRS) and IFRS
Interpretations Committee interpretations as adopted by the
European Union.
IFRS differs in certain significant respects from Indian
Generally Accepted Accounting Principles (GAAP). Such differences
involve methods for measuring the amounts shown in the financial
statements of the Group, as well as additional disclosures required
by Indian GAAP.
Set out below are descriptions of certain accounting differences
between IFRS and Indian GAAP that could have a significant effect
on profit or loss attributable to parent company shareholders for
the period ended 30 June 2020 and 31 December 2019 and 30 June 2019
and total parent company shareholders' equity as at the same dates.
This section does not provide a comprehensive analysis of such
differences. In particular, this description considers only those
Indian GAAP pronouncements for which adoption or application is
required in financial statements for years ended on or prior to 30
June 2020. The Group has not quantified the effect of differences
between IFRS and Indian GAAP, nor prepared consolidated financial
statements under Indian GAAP, nor undertaken a reconciliation of
IFRS and Indian GAAP financial statements. Had the Group undertaken
any such quantification or preparation or reconciliation, other
potentially significant accounting and disclosure differences may
have come to its attention which are not identified below.
Accordingly, the Group does not provide any assurance that the
differences identified below represent all the principal
differences between IFRS and Indian GAAP relating to the Group.
Furthermore, no attempt has been made to identify future
differences between IFRS and Indian GAAP. In addition, no attempt
has been made to identify all differences between IFRS and Indian
GAAP that may affect the financial statements as a result of
transaction or events that may occur in the future.
In making an investment decision, potential investors should
consult their own professional advisors for an understanding of the
differences between IFRS and Indian GAAP and how those differences
may have affected the financial results of the Group. The summary
does not purport to be complete and is subject to and qualified in
its entirety by reference to the pronouncements of the
International Accounting Standards Board (IASB), together with the
pronouncements of the Indian accounting profession.
Changes in accounting policy
IFRS (IAS 8 Accounting Policies, Changes in Accounting Estimates
and Errors)
Changes in accounting policy are applied retrospectively.
Comparatives are restated and the effect of period(s) not presented
is adjusted against opening retained earnings of the earliest year
presented. Policy changes made on the adoption of a new standard
are made in accordance with that standard's transitional
provisions.
Indian GAAP (AS 5 Net Profit or Loss for the Period, Prior
Period Items and Changes in Accounting Policies)
The cumulative amount of the change is included in the income
statement for the period in which the change is made except as
specified in certain standards (transitional provision) where the
change during the transition period resulting from adoption of the
standard has to be adjusted against opening retained earnings and
the impact disclosed.
Where a change in accounting policy has a material effect in the
current period, the amount by which any item in the financial
statements is affected by such change should also be disclosed to
the extent ascertainable. Where such an amount is not
ascertainable, this fact should be indicated.
Functional and presentation currency
IFRS (IAS 21 The Effects of Changes in Foreign Exchange
Rates)
An entity may present its financial statements in any currency
(or currencies). If the presentation currency differs from the
entity's functional currency, it translates its results and
financial position into the presentation currency.
Monetary assets and liabilities are translated at the closing
rate at the date of that statement of financial position. Income
statement items are translated at the exchange rate at the date of
transaction or at average rates. The functional currency is the
currency of the primary economic environment in which an entity
operates. The functional and presentation currency of the Group is
US dollars.
Indian GAAP (AS 11 The Effects of Changes in Foreign Exchange
Rates)
There is no concept of functional or presentation currency.
Entities in India have to prepare their financial statements in
Indian rupees.
A foreign currency transaction should be recorded, on initial
recognition in the reporting currency, by applying to the foreign
currency amount, the exchange rate between the reporting currency
and the foreign currency at the date of the transaction.
At each balance sheet date:
-- Foreign currency monetary items should be reported using the
closing rate
-- Non-monetary items which are carried in terms of historical
cost denominated in a foreign currency should be reported using the
exchange rate at the date of the transaction
-- Non-monetary items which are carried at fair value or other
similar valuation denominated in a foreign currency should be
reported using the exchange rates that existed when the values were
determined
Consolidation
IFRS (IFRS 10 Consolidated Financial Statements)
Entities are consolidated when the Group controls an entity. The
Group controls an entity when it is exposed to or has rights to
direct relevant activities, or has the right to variable returns
from its involvement with the entity and has the ability to affect
those returns through its power over the investee. This also
includes entities where control is not derived through voting
rights such as structured entities.
Indian GAAP (AS 21 Consolidated Financial Statements)
Entities are consolidated when group of enterprises are under
the control of parent. The control is defined as:
(a) The ownership, directly or indirectly through
subsidiary(ies), of more than one-half of the voting power of an
enterprise; or
(b) Control of the composition of the board of directors in the
case of a company or of the composition of the corresponding
governing body in case of any other enterprise so as to obtain
economic benefits from its activities.
Subsidiary is excluded form consolidation when:
(a) Control is intended to be temporary because the subsidiary
is acquired and held exclusively with a view to its subsequent
disposal in the near future; or
(b) It operates under severe long-term restrictions which
significantly impair its ability to transfer funds to the
parent.
Business combinations
IFRS (IFRS 3 Business Combinations)
All business combinations are treated as acquisitions. Assets,
liabilities and contingent liabilities acquired are measured at
their fair values with the excess over this fair value when
compared with the acquisition cost recognised as goodwill.
For acquisitions occurring on or after 1 January 2004, IFRS 3
requires that, when assessing the value of the assets of an
acquired entity, certain identifiable intangible assets must be
recognised and, if considered to have a finite life, amortised
through the income statement over an appropriate period.
Adjustments to provisional fair values are permitted provided
those adjustments are made within 12 months from the date of
acquisition, with a corresponding adjustment to goodwill. After
re-assessment of respective fair values of net assets acquired, any
excess of acquirer's interest in the net fair values of acquirer's
identifiable assets is recognised immediately in the income
statement.
The Group's policy for non-controlling interests is generally
not to recognise non-controlling interests at their fair value, but
to recognise them based on their proportionate share of the fair
value of the identifiable net assets acquired.
Indian GAAP (AS 14 Accounting for Amalgamations)
Treatment of a business combination depends on whether the
acquired entity is held as a subsidiary, whether it is an
amalgamation or whether it is an acquisition of a business. For an
entity acquired and held as a subsidiary, the business combination
is accounted for as an acquisition. The assets and liabilities
acquired are incorporated at their existing carrying amounts.
For an amalgamations of an entity, either pooling of interests
or acquisitions accounting is used, based on satisfaction of
specified conditions. The assets and liabilities amalgamated are
incorporated at their existing carrying amounts or, alternatively,
if acquisition accounting is adopted, the consideration can be
allocated to individual identifiable assets (which may include
intangible assets) and liabilities on the basis of their fair
values.
Adjustments to the value of acquired or amalgamated balances are
not permitted after initial recognition. Any excess of acquirer's
interest in the net fair values of acquirer's identifiable assets
is recognised as capital reserve, which is neither amortised nor
available for distribution to shareholders. However, in case of an
amalgamation accounted under the purchase method, the fair value of
intangible assets with no active market is reduced to the extent of
capital reserve, if any, arising on the amalgamation. Minority
interests arising on the acquisition of a subsidiary are recognised
at their share of the historical book value.
Goodwill
IFRS (IFRS 3 Business Combinations and IAS 38 Intangible
Assets)
IFRS 3 requires that goodwill arising on all acquisitions by the
Group and associated undertakings is capitalised but not amortised
and is subject to an annual review for impairment. Goodwill is
tested annually for impairment. Any impairment losses recognised
may not be reversed in subsequent accounting periods.
Indian GAAP (AS 14 Accounting for Amalgamations and AS 26
Intangible Assets)
Goodwill arising on amalgamations is capitalised and amortised
over useful life not exceeding five years, unless a longer period
can be justified. For goodwill arising on acquisition of a
subsidiary or a business, there is no specific guidance. In
practice, there is either no amortisation or amortisation not
exceeding 10 years. Goodwill is reviewed for impairment whenever an
indicator of impairment exists. Impairment losses recognised may be
reversed under exceptional circumstances only in subsequent
accounting periods through the income statement.
Acquired and internally generated intangible assets
IFRS (IAS 38 Intangible Assets)
Intangible assets are recognised if they are deemed separable
and arise from contractual or other legal rights. Assets with a
finite useful life are amortised on a systematic basis over their
useful life. An asset with an indefinite useful life should be
tested for impairment annually.
Indian GAAP (AS 26 Intangible Assets)
Intangible assets are capitalised if specific criteria are met
and are amortised over their useful life, generally not exceeding
10 years. The recoverable amount of an intangible asset that is not
available for use or is being amortised over a period exceeding 10
years should be reviewed at least at each financial year end even
if there is no indication that the asset is impaired.
Property, plant and equipment
IFRS (IAS 16 Property, Plant and Equipment, IAS 23 Borrowing
Costs)
The Group's policy is to hold all property, plant, aviation,
shipping and equipment fixed assets at cost less depreciation and
consequently tangible fixed assets are not subject to revaluation.
Fixed assets are, however, subject to impairment testing.
Foreign exchange gains or losses relating to the procurement of
property, plant and equipment can be capitalised as part of the
asset. Depreciation is recorded over the asset's estimated useful
life. Borrowing costs that are directly attributable to the
acquisition or construction of an asset must be capitalised as part
of that asset.
Indian GAAP (AS 10 Fixed Assets, AS 16 Borrowing Cost)
Fixed assets are recorded at historical costs or revalued
amounts. Relevant borrowing costs are capitalised if certain
criteria in AS 16 are met. Depreciation is recorded over the
asset's useful life. Schedule II (Part C) of the Companies Act 2013
and Banking Regulations prescribe minimum rates of depreciation and
these are typically used as the basis for determining useful
life.
Recognition and measurement of financial instruments
IFRS (IFRS 9 Financial Instruments)
Classification and measurement
Accounting policy
The Group classifies its financial assets into the following
measurement categories: amortised cost; fair value through other
comprehensive income; and fair value through profit or loss.
Financial liabilities are classified as either amortised cost, or
held at fair value through profit or loss. Management determines
the classification of its financial assets and liabilities at
initial recognition of the instrument or, where applicable, at the
time of reclassification.
Financial assets held at amortised cost and fair value through
other comprehensive income
Debt instruments held at amortised cost or held at fair value
through comprehensive income (FVOCI) have contractual terms that
give rise to cash flows that are solely payments of principal and
interest (SPPI characteristics). Principal is the fair value of the
financial asset at initial recognition but this may change over the
life of the instrument as amounts are repaid. Interest consists of
consideration for the time value of money, for the credit risk
associated with the principal amount outstanding during a
particular period and for other basic lending risks and costs, as
well as a profit margin.
Whether financial assets are held at amortised cost or at FVOCI
depends on the objectives of the business models under which the
assets are held. A business model refers to how the Group manages
financial assets to generate cash flows.
The Group makes an assessment of the objective of a business
model in which an asset is held at the individual product business
line, and where applicable within business lines depending on the
way the business is managed and information is provided to
management.
Financial assets that have SPPI characteristics and which are
held within a business model whose objective is to hold financial
assets to collect contractual cash flows ('hold to collect') are
recorded at amortised cost.
Conversely, financial assets that have SPPI characteristics but
are held within a business model whose objective is achieved by
both collecting contractual cash flows and selling financial assets
('hold to collect and sell') are classified as FVOCI.
Equity instruments designated as FVOCI
Non-trading equity instruments acquired for strategic purposes
rather than capital gain may be irrevocably designated at initial
recognition at FVOCI on an instrument-by-instrument basis. Gains
and losses arising from changes in the fair value of these
instruments, including foreign exchange gains and losses, are
recognised directly in equity and are never reclassified to profit
or loss, even on derecognition.
Financial assets and liabilities held at fair value through
profit or loss
Financial assets that are not held at amortised cost or which
are not held at fair value through other comprehensive income are
held at fair value through profit or loss. Financial assets and
liabilities held at fair value through profit or loss are either
mandatorily classified fair value through profit or loss or
irrevocably designated at fair value through profit or loss at
initial recognition.
Mandatorily classified at fair value through profit or loss
Financial assets and liabilities that are mandatorily held at
fair value through profit or loss include:
-- Financial assets and liabilities held for trading, which are
those acquired principally for the purpose of selling in the
short-term
-- Hybrid financial assets that contain one or more embedded
derivatives
-- Financial assets that would otherwise be measured at
amortised cost or FVOCI but which do not have SPPI
characteristics
-- Equity instruments that have not been designated as held at
FVOCI
-- Financial liabilities that constitute contingent
consideration in a business combination
Designated at fair value through profit or loss
Financial assets and liabilities may be designated at fair value
through profit or loss when the designation eliminates or
significantly reduces a measurement or recognition inconsistency
that would otherwise arise from measuring assets or liabilities on
a different basis ('accounting mismatch').
Financial liabilities may also be designated at fair value
through profit or loss where they are managed on a fair value basis
or have a bifurcately embedded derivative where the Group is not
able to separately value the embedded derivative component.
Financial liabilities held at amortised cost
Financial liabilities that are not financial guarantees or loan
commitments and that are not classified as financial liabilities
held at fair value through profit or loss are classified as
financial liabilities held at amortised cost.
Financial guarantee contracts and loan commitments
Financial guarantee contracts and loan commitments issued at
below market interest rates are initially recognised as liabilities
at fair value and subsequently at the higher of the expected credit
loss provision, and the amount initially recognised less the
cumulative amount of income recognised in accordance with the
principles of IFRS 15 Revenue from Contracts with Customers.
Fair value of financial assets and liabilities
Fair value is the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between
market participants at the measurement date in the principal market
for the asset or liability, or in the absence of a principal
market, the most advantageous market to which the Group has access
at that date. The fair value of a liability includes the risk that
the Group will not be able to honour its obligations.
Initial recognition
Purchases and sales of financial assets and liabilities held at
fair value through profit or loss, and debt securities classified
as financial assets held at FVOCI are initially recognised on the
trade-date (the date on which the Group commits to purchase or sell
the asset). Loans and advances and other financial assets held at
amortised cost are recognised on the settlement date (the date on
which cash is advanced to the borrowers).
All financial instruments are initially recognised at fair
value, which is normally the transaction price, plus directly
attributable transaction costs for financial assets that are not
subsequently measured at fair value through profit or loss.
Subsequent measurement
Financial assets and financial liabilities held at amortised
cost
Financial assets and financial liabilities held at amortised
cost are subsequently carried at amortised cost using the effective
interest method. Foreign exchange gains and losses are recognised
in the income statement.
Financial assets held at FVOCI
Debt instruments held at FVOCI are subsequently carried at fair
value, with all unrealised gains and losses arising from changes in
fair value (including any related foreign exchange gains or losses)
recognised in other comprehensive income and accumulated in a
separate component of equity. Foreign exchange gains and losses on
the amortised cost are recognised in income. Changes in expected
credit losses are recognised in the profit or loss and are
accumulated in a separate component of equity.
Equity investments designated at FVOCI are subsequently carried
at fair value with all unrealised gains and losses arising from
changes in fair value (including any related foreign exchange gains
or losses) recognised in other comprehensive income and accumulated
in a separate component of equity.
Financial assets held at FVTPL
Financial assets and liabilities mandatorily held at fair value
through profit or loss and financial assets designated at fair
value through profit or loss are subsequently carried at fair
value, with gains and losses arising from changes in fair value
recorded in the net trading income line in the income statement
unless the instrument is part of a cash flow hedging
relationship.
Financial liabilities designated at fair value through profit or
loss
Financial liabilities designated at fair value through profit or
loss are held at fair value, with changes in fair value recognised
in the net trading income line in the profit or loss, other than
that attributable to changes in credit risk. Fair value changes
attributable to credit risk are recognised in other comprehensive
income and recorded in a separate category of reserves unless this
is expected to create or enlarge an accounting mismatch, in which
case the entire change in fair value of the financial liability
designated fair value through profit or loss is recognised in
profit or loss.
Indian GAAP (AS 13 Investments)
For investments and loans & advances, the Reserve Bank of
India (RBI) outlines classification criteria and measurement
requirements which differ from those set out in IFRS.
Investments classified as available-for-sale or held-for-trading
are measured at lower of cost or market value, unrealised loss on
such investments is accounted through the profit and loss account
in accordance with RBI guidelines. Investments classified as
held-to-maturity are measured at weighted average acquisition cost
less the amortisation of premium amount, if any, over the remaining
period of maturity.
Derivatives
IFRS (IFRS 9/IAS 39 Financial Instruments: Recognition and
Measurement)
IFRS 9 requires that all derivatives be recognised on-balance
sheet at fair value. Changes in the fair value of derivatives that
are not hedges are reported in the income statement. Changes in the
fair value of derivatives that are designated as hedges are either
offset against the change in fair value of the hedged asset or
liability through earnings, or recognised directly in equity until
the hedged item is recognised in earnings, depending on the nature
of the hedge. The ineffective portion of the hedge's change in fair
value is immediately recognised in earnings. A derivative may only
be classified as a hedge if an entity meets stringent qualifying
criteria in respect of documentation and hedge effectiveness.
The Group continues to apply the hedge accounting requirements
of IAS 39 rather than the requirements of IFRS 9.
Indian GAAP
Foreign exchange contracts held for trading or speculative
purposes are carried at fair value, with gains and losses
recognised in the income statement.
There are guidelines prescribed by RBI on measurement and
accounting of interest rate swaps and forward rate agreements
entered into for hedging purposes.
Impairment of financial assets
Under IFRS 9 the impairment of financial assets is as
follows:
Measurement
Expected credit losses are computed as unbiased,
probability-weighted amounts which are determined by evaluating a
range of reasonably possible outcomes, the time value of money, and
considering all reasonable and supportable information including
that which is forward-looking.
For material portfolios, the estimate of expected cash
shortfalls is determined by multiplying the probability of default
(PD) with the loss given default (LGD) with the expected exposure
at the time of default (EAD). For less material Retail Banking loan
portfolios, the Group has adopted simplified approaches based on
historical roll rates or loss rates.
For credit-impaired financial instruments, the estimate of cash
shortfalls may require the use of expert credit judgement. As a
practical expedient, the Group may also measure credit impairment
on the basis of an instrument's fair value using an observable
market price.
Cash shortfalls are discounted using the effective interest rate
on the financial instrument as calculated at initial recognition,
or if the instrument has a variable interest rate, the current
effective interest rate determined under the contract.
Instruments Location of expected credit loss
provisions
Financial assets held at amortised Loss provisions: netted against
cost gross carrying value
Financial assets held at FVOCI - Other comprehensive income (FVOCI
Debt instruments expected credit loss reserve)
Loan commitments Provisions for liabilities and charges
Financial guarantees Provisions for liabilities and charges
Recognition
12 months expected credit losses (Stage 1)
Expected credit losses are recognised at the time of initial
recognition of a financial instrument and represent the lifetime
cash shortfalls arising from possible default events up to 12
months into the future from the balance sheet date. Expected credit
losses continue to be determined on this basis until there is
either a significant increase in the credit risk of an instrument
or the instrument becomes credit-impaired. If an instrument is no
longer considered to exhibit a significant increase in credit risk,
expected credit losses will revert to being determined on a
12-month basis.
Significant increase in credit risk (Stage 2)
If a financial asset experiences a significant increase in
credit risk (SICR) since initial recognition, an expected credit
loss provision is recognised for default events that may occur over
the lifetime of the asset.
Significant increase in credit risk is assessed by comparing the
risk of default of an exposure at the reporting date to the risk of
default at origination (after taking into account the passage of
time). Significant does not mean statistically significant nor is
it assessed in the context of changes in expected credit loss.
Whether a change in the risk of default is significant or not is
assessed using a number of quantitative and qualitative factors,
the weight of which depends on the type of product and
counterparty. Financial assets that are 30 or more days past due
and not credit-impaired will always be considered to have
experienced a significant increase in credit risk. For less
material portfolios where a loss rate or roll rate approach is
applied to compute expected credit loss, significant increase in
credit risk is primarily based on 30 days past due.
Credit-impaired (or defaulted) exposures (Stage 3)
Financial assets that are credit-impaired (or in default)
represent those that are at least 90 days past due in respect of
principal and/or interest. Financial assets are also considered to
be credit-impaired where the obligors are unlikely to pay on the
occurrence of one or more observable events that have a detrimental
impact on the estimated future cash flows of the financial asset.
It may not be possible to identify a single discrete event but
instead the combined effect of several events may cause financial
assets to become credit-impaired.
Irrevocable lending commitments to a credit-impaired obligor
that have not yet been drawn down are also included within the
stage 3 credit impairment provision to the extent that the
commitment cannot be withdrawn.
Loss provisions against credit-impaired financial assets are
determined based on an assessment of the recoverable cash flows
under a range of scenarios, including the realisation of any
collateral held where appropriate. The loss provisions held
represent the difference between the present value of the cash
flows expected to be recovered, discounted at the instrument's
original effective interest rate, and the gross carrying value of
the instrument prior to any credit impairment.
Indian GAAP
Investments under HFT and AFS are written down when there is a
decline in fair value and appreciation, if any, is ignored.
Impairments may be reversed through the income statement in
subsequent periods if the investment rises in value or the reasons
for the impairment no longer exist.
For loans and advances, the RBI regulations stipulate minimum
provision based on days past due along with other factors.
Additionally, RBI regulations require banks to hold provisions in
respect of standard assets and for specific country risk
exposures.
Derecognition of financial instruments - IFRS 9
Financial assets are derecognised when the rights to receive
cash flows from the financial assets have expired or where the
Group has transferred substantially all risks and rewards of
ownership. If substantially all the risks and rewards have been
neither retained nor transferred and the Group has retained
control, the assets continue to be recognised to the extent of the
Group's continuing involvement.
Where financial assets have been modified, the modified terms
are assessed on a qualitative and quantitative basis to determine
whether a fundamental change in the nature of the instrument has
occurred, such as whether the derecognition of the pre-existing
instrument and the recognition of a new instrument is
appropriate.
On derecognition of a financial asset, the difference between
the carrying amount of the asset (or the carrying amount allocated
to the portion of the asset derecognised) and the sum of the
consideration received (including any new asset obtained less any
new liability assumed) and any cumulative gain or loss that had
been recognised in other comprehensive income is recognised in
profit or loss except for equity instruments elected FVOCI (see
above) and cumulative fair value adjustments attributable to the
credit risk of a liability that are held in other comprehensive
income.
Financial liabilities are derecognised when they are
extinguished. A financial liability is extinguished when the
obligation is discharged, cancelled or expires and this is
evaluated both qualitatively and quantitatively. However, where a
financial liability has been modified, it is derecognised if the
difference between the modified cash flows and the original cash
flows is more than 10 per cent, or if less than 10 percent, the
Group will perform a qualitative assessment to determine whether
the terms of the two instruments are substantially different.
If the Group purchases its own debt, it is derecognised and the
difference between the carrying amount of the liability and the
consideration paid is included in 'Other income' except for the
cumulative fair value adjustments attributable to the credit risk
of a liability that are held in other comprehensive income which
are never recycled to the profit or loss.
IFRS-classification debt/equity
The substance of a financial instrument, rather than its legal
form, governs its classification. A financial instrument is
classified as a liability where there is a contractual obligation
to deliver either cash or another financial asset to the holder of
that instrument, regardless of the manner in which the contractual
obligation will be settled. Preference shares, which carry a
mandatory coupon or are redeemable on a specific date or at the
option of the shareholder are classified as financial liabilities
and are presented in other borrowed funds. The dividends on these
preference shares are recognised in the income statement as
interest expense on an amortised cost basis using the effective
interest method.
Indian GAAP
Classification is based on the legal form rather than
substance.
Provisions for liabilities and charges
IFRS (IAS 37 Provisions, Contingent Liabilities and Contingent
Assets)
The amount recognised as a provision is the best estimate at the
balance sheet date of the expenditure required to settle the
obligation, discounted using a pre-tax market discount rate if the
effect is material.
Indian GAAP (AS 29 Provisions, Contingents Liabilities and
Contingent Assets)
Provisions are recognised and measured on a similar basis to
IFRS, except that there is no requirement for discounting the
provision or liability.
Pension obligations
IFRS (IAS 19 Employee Benefits)
For defined contribution plans, contributions are charged to
operating expenses. For funded defined benefit plans, the liability
recognised in the balance sheet is the present value of the defined
benefit obligation at the balance sheet date less the fair value of
plan assets. For unfunded defined benefit plans the liability
recognised at the balance sheet date is the present value of the
defined benefit obligation. The defined benefit obligation is
calculated annually by independent actuaries using the projected
unit method. The present value of the defined benefit obligation is
determined by discounting the estimated future cash outflows using
an interest rate equal to the yield on high-quality corporate
bonds. Actuarial gains and losses that arise are recognised in
shareholders' equity and presented in the statement of other
comprehensive income in the period they arise. The net interest
expense on the net defined liability for the year is determined by
applying the discount rate used to measure the defined benefit
obligation at the beginning of the annual period to the then net
defined benefit liability, taking into account any changes in the
net defined benefit liability during the year as a result of
contributions and benefit payment. Net interest expense and other
expense related to defined benefit plans are recognised in the
income statement.
Indian GAAP (AS 15 Employee Benefits)
The discount rate to be used for determining defined benefit
obligations is established by reference to market yields at the
balance sheet date on government bonds. The expected return on plan
assets is based on market expectation for the returns over the
entire life of the related obligation. Actuarial gains or losses
are recognised immediately in the statement of income.
Share-based compensation
IFRS (IFRS 2 Share-based Payments)
IFRS 2 requires that all share-based payments are accounted for
using a fair value method. The fair value of the employee services
received in exchange for the grant of the options is recognised as
an expense. For equity-settled awards, the total amount to be
expensed over the vesting period must be determined by reference to
the fair value of the options granted (determined using an option
pricing model), excluding the impact of any non-market vesting
conditions (for example, profitability and growth targets).
Non-market vesting conditions must be included in assumptions about
the number of options that are expected to become exercisable. At
each balance sheet date, the Group revises its estimates of the
number of options that are expected to become exercisable. It
recognises the impact of the revision of original estimates, if
any, in the income statement, and a corresponding adjustment to
equity over the remaining vesting period. The proceeds received net
of any directly attributable transaction costs are credited to
share capital (nominal value) and share premium when the options
are exercised.
Cash-settled awards are revalued to fair value at each balance
sheet date and a liability recognised on the balance sheet for all
unpaid amounts, with any changes in fair value charged or credited
to staff costs in the income statement until the awards are
exercised.
Indian GAAP
Entities may either follow the intrinsic value method or the
fair value method for determining the costs of benefits arising
from share-based compensation plans. Although the fair value
approach is recommended, entities may use the intrinsic value
method and provide fair value disclosures.
Entities are also permitted the option of recognising the
related compensation cost over the service period for the entire
award (that is, over the service period of the last separately
vesting portion of the award), provided that the amount of
compensation cost recognised at any date at least equals the fair
value of the vested portion of the award at that date.
Deferred taxation
IFRS (IAS 12 Income Taxes)
Deferred tax is determined based on temporary differences, being
the difference between the carrying amount and tax base of assets
and liabilities, subject to certain exceptions.
Deferred tax assets are recognised if it is probable (more
likely than not) that sufficient future taxable profits will be
available to utilise to deferred tax assets.
Indian GAAP (AS 22 Accounting for Taxes on Income)
Deferred tax is determined based on timing differences, being
the difference between accounting income and taxable income for a
period that is capable of reversal in one or more subsequent
periods.
Deferred tax assets other than in specified situations, are
recognised where there is a reasonable certainty that sufficient
future taxable income will be available against which such deferred
tax assets can be realised.
Interest income and expense
IFRS (IFRS 9)
Interest income and expense is recognised in the income
statement using the effective interest method. The effective
interest rate is the rate that discounts estimated future cash
payments or receipts through the expected life of the financial
instrument. When calculating the effective interest rate, the Group
estimates cash flows considering all contractual terms of the
financial instrument but does not consider future credit losses.
The calculation includes all fees and points paid or received
between parties to the contract that are an integral part of the
effective interest rate, transaction costs and all other premiums
or discounts.
Indian GAAP (AS 9 Revenue Recognition)
As per AS 9, interest is recognised on a time proportion basis
taking into account the amount outstanding and the rate applicable.
There is no specific effective interest rate requirement for loans
and investments. However, the interest is recognised on a receipt
basis for NPAs as per RBI extant guidelines.
Dividends
IFRS (IAS 10 Events After the Reporting Date)
Dividends to holders of equity instruments, when proposed or
declared after the balance sheet date, should not be recognised as
a liability on the balance sheet date. A company, however, is
required to disclose the amount of dividends that were proposed or
declared after the balance sheet date but before the financial
statements were authorised for issue.
Indian GAAP
Accounting and disclosure of dividends is similar to IFRS with
effect from 1 April 2016.
Leases
IFRS (IFRS 16 Leases)
Lessees initially recognise the present value of lease payments
over the expected lease term as a lease liability and corresponding
right-of-use asset, discounting using the incremental borrowing
rate applicable in the economic environment of the lease, unless
the lease is short term or for an asset of low value. The lease
liability is measured using the effective interest method and the
right-of-use asset is depreciated on a straight-line basis over the
expected lease term. Lessors classify leases as either operating or
financing leases depending on whether the risks and rewards are
substantially transferred to the lessee. Lease payments under
operating leases are recognised as an expense on a straight-line
basis over the lease term.
Indian GAAP (AS 19 Leases)
As per AS 19, Leases are classified as Operating or Finance
leases. Leases are classified as finance leases where the
significant risk and rewards of ownership of the leased item are
transferred to the lessee. Lease payments under operating leases
are recognised as an expense on a straight-line basis over the
lease term.
Additional items
A. Our Fair Pay Charter
Our Fair Pay Charter, introduced in 2018, sets out the
principles we use to make remuneration decisions across the Group
that are fair, transparent and competitive in order to support us
in embedding a performance-oriented, inclusive and innovative
culture and in delivering a differentiated employee experience. Our
Fair Pay Charter principles are set out in the Group's 2019 Annual
Report together with a summary of our progress in implementing
these across the Group, and our first external Fair Pay Report,
published in February 2020, is available on our Group website.
B. Group share plans
2011 Standard Chartered Share Plan (the '2011 Plan')
The 2011 Plan was approved by shareholders in May 2011 and is
the Group's main share plan. Since approval, it has been used to
deliver various types of share awards:
-- Long-term incentive plan (LTIP) awards: granted with vesting
subject to performance measures. Performance measures attached to
awards granted previously include: total shareholder return (TSR);
return on equity (RoE) with a common equity tier 1 (CET1) underpin;
strategic measures; earnings per share (EPS) growth; and return on
risk-weighted assets (RoRWA). Each measure is assessed
independently over a three-year period. Awards granted from 2016
have an individual conduct gateway requirement that results in the
award lapsing if not met
-- Deferred awards are used to deliver the deferred portion of
variable remuneration, in line with both market practice and
regulatory requirements. These awards vest in instalments on
anniversaries of the award date specified at the time of grant.
Deferred awards are not subject to any plan limit. This enables the
Group to meet regulatory requirements relating to deferral levels,
and is in line with market practice
-- Restricted share awards, made outside of the annual
performance process as replacement buy-out awards to new joiners
who forfeit awards on leaving their previous employers, vest in
instalments on the anniversaries of the award date specified at the
time of grant. This enables the Group to meet regulatory
requirements relating to buy-outs, and is in line with market
practice. In line with similar plans operated by our competitors,
restricted share awards are not subject to an annual limit and do
not have any performance measures
Under the 2011 Plan, no grant price is payable to receive an
award. The remaining life of the 2011 Plan during which new awards
can be made is one year.
All Employee 2013 Sharesave Plan
The 2013 Sharesave Plan was approved by shareholders in May
2013. Under the 2013 Sharesave Plan, employees may open a savings
contract. Within a maturity period of six months after the third
anniversary, employees may purchase ordinary shares in the Company
at a discount of up to 20 per cent on the share price at the date
of invitation (this is known as the 'option exercise price'). There
are no performance measures attached to options granted under the
2013 Sharesave Plan and no grant price is payable to receive an
option. In some countries in which the Group operates, it is not
possible to deliver shares under the 2013 Sharesave Plan, typically
due to securities law and regulatory restrictions. In these
countries, where possible, the Group offers an equivalent
cash-based plan to its employees. The 2013 Sharesave Plan was
approved by shareholders in May 2013 and all future Sharesave
invitations are made under this plan. The remaining life of the
2013 Sharesave Plan is two years.
Valuation of share awards
Details of the valuation models used in determining the fair
values of share awards granted under the Group's share plans are
detailed in the Group's 2019 Annual Report.
Reconciliation of share award movements for the period to 30
June 2020
2011 Plan1
-------------------------------------------- ------------------------------- ----------- ------------------
Weighted
average Sharesave
Deferred/restricted exercise
LTIP shares Sharesave price (GBP)
-------------------------------------------- ---------- ------------------- ----------- ------------------
Outstanding as at 1 January 2020 20,912,679 28,235,461 12,602,842 5.28
Granted2 3,081,968 22,498,528 - -
Lapsed (759,314) (255,657) (1,806,442) 5.31
Exercised (227,330) (9,736,107) (156,560) 5.30
-------------------------------------------- ---------- ------------------- ----------- ------------------
Outstanding as at 30 June 2020 23,008,003 40,742,225 10,639,840 5.27
-------------------------------------------- ---------- ------------------- ----------- ------------------
Exercisable as at 30 June 2020 37,552 2,634,813 21,776 5.58
-------------------------------------------- ---------- ------------------- ----------- ------------------
Range of exercise prices (GBP) - - 4.98 - 6.20
-------------------------------------------- ---------- ------------------- ----------- ------------------
Intrinsic value of vested but not exercised
options ($million) 0.20 14.35 0.00
-------------------------------------------- ---------- ------------------- ----------- ------------------
Weighted average contractual remaining
life (years) 6.78 8.75 2.16
-------------------------------------------- ---------- ------------------- ----------- ------------------
Weighted average share price for options
exercised during the period (GBP) 4.34 4.66 6.76
-------------------------------------------- ---------- ------------------- ----------- ------------------
1 Employees do not contribute towards the cost of these
awards
2 22,007,464 deferred share awards/restricted share awards
(DRSA/RSA) granted on 9 March 2020, 189,991 DRSA/RSA granted as
notional dividend on 6 March 2020, 3,025,163 (LTIP) granted on 9
March 2020, 56,805 (LTIP) granted as notional dividend on 6 March
2020, 86,319 DRSA/RSA granted on 30 March 2020, 214,754 DRSA/RSA
granted on 22 June 2020
C. Group Chairman and independent non-executive directors'
interests in ordinary shares as at 30 June 20201,2
Shares Shares
beneficially beneficially
held as held as
at at
31 December 30 June
2019 2020
------------------------------------ ------------- -------------
Chairman
J Viñals 18,500 18,500
------------------------------------ ------------- -------------
Independent non-executive directors
L Cheung3 2,571 -
D P Conner 10,000 10,000
B E Grote 60,041 80,041
C M Hodgson, CBE 2,571 2,571
G Huey Evans, OBE 2,615 2,615
N Kheraj 40,751 40,751
N Okonjo-Iweala 2,034 2,034
P G Rivett4 - 2,128
D Tang 2,000 2,000
C Tong 2,000 2,000
J M Whitbread 3,615 3,615
------------------------------------ ------------- -------------
1 Independent non-executive directors are required to hold
shares with a nominal value of $1,000. All the directors have met
this requirement
2 The beneficial interests of directors and their related
parties in the ordinary shares of the Company are set out above.
The directors do not have any non-beneficial interests in the
Company's shares. None of the directors used ordinary shares as
collateral for any loans. No director had either i) an interest in
the Company's preference shares or loan stocks of
any subsidiary or associated undertaking of the Group or ii) any
corporate interests in the Company's ordinary shares. All figures
are as at 30 June 2020
3 Louis Cheung retired from the Board on 25 March 2020
4 Phil Rivett was appointed to the Board on 6 May 2020
D. Executive directors' interests in ordinary shares as at 30
June 2020
Scheme interests awarded, exercised and lapsed during the
period
The following table shows the changes in share interests.
Employees, including executive directors, are not permitted to
engage in any personal hedging strategies with regards to their
Standard Chartered PLC shares, including hedging against the share
price of Standard Chartered PLC shares.
Changes in interests during the period 1 January
to 30 June 2020
------------- ---------- -------- ---------------------------------------------------------------------
As at
As at Dividends(2) 30 June Performance
1 January Awarded1 awarded2 Exercised3 Lapsed 30 June period end Vesting date
------------- ---------- -------- ------------ ---------- ------ -------- ----------- ------------
W T Winters4
------------- ---------- -------- ------------ ---------- ------ -------- ----------- ------------
LTIP 2016-18 33,506 - 1,466 34,972 - - 11 Mar 2019 4 May 2020
------------- ---------- -------- ------------ ---------- ------ -------- ----------- ------------
33,506 - - - - 33,506 11 Mar 2019 4 May 2021
------------- ---------- -------- ------------ ---------- ------ -------- ----------- ------------
33,506 - - - - 33,506 11 Mar 2019 4 May 2022
---------- -------- ------------ ---------- ------ -------- ----------- ------------
33,507 - - - - 33,507 11 Mar 2019 4 May 2023
------------- ---------- -------- ------------ ---------- ------ -------- ----------- ------------
LTIP 2017-19 118,550 - 3,169 48,218 73,501 - 13 Mar 2020 13 Mar 2020
------------- ---------- -------- ------------ ---------- ------ -------- ----------- ------------
118,550 - - - 73,501 45,049 13 Mar 2020 13 Mar 2021
------------- ---------- -------- ------------ ---------- ------ -------- ----------- ------------
118,550 - - - 73,501 45,049 13 Mar 2020 13 Mar 2022
---------- -------- ------------ ---------- ------ -------- ----------- ------------
118,550 - - - 73,501 45,049 13 Mar 2020 13 Mar 2023
---------- -------- ------------ ---------- ------ -------- ----------- ------------
118,551 - - - 73,502 45,049 13 Mar 2020 13 Mar 2024
------------- ---------- -------- ------------ ---------- ------ -------- ----------- ------------
LTIP 2018-20 108,378 - - - - 108,378 9 Mar 2021 9 Mar 2021
------------- ---------- -------- ------------ ---------- ------ -------- ----------- ------------
108,378 - - - - 108,378 9 Mar 2021 9 Mar 2022
------------- ---------- -------- ------------ ---------- ------ -------- ----------- ------------
108,378 - - - - 108,378 9 Mar 2021 9 Mar 2023
---------- -------- ------------ ---------- ------ -------- ----------- ------------
108,378 - - - - 108,378 9 Mar 2021 9 Mar 2024
---------- -------- ------------ ---------- ------ -------- ----------- ------------
108,379 - - - - 108,379 9 Mar 2021 9 Mar 2025
------------- ---------- -------- ------------ ---------- ------ -------- ----------- ------------
LTIP 2019-21 133,065 - - - - 133,065 11 Mar 2022 11 Mar 2022
------------- ---------- -------- ------------ ---------- ------ -------- ----------- ------------
133,065 - - - - 133,065 11 Mar 2022 11 Mar 2023
------------- ---------- -------- ------------ ---------- ------ -------- ----------- ------------
133,065 - - - - 133,065 11 Mar 2022 11 Mar 2024
---------- -------- ------------ ---------- ------ -------- ----------- ------------
133,065 - - - - 133,065 11 Mar 2022 11 Mar 2025
---------- -------- ------------ ---------- ------ -------- ----------- ------------
133,067 - - - - 133,067 11 Mar 2022 11 Mar 2026
------------- ---------- -------- ------------ ---------- ------ -------- ----------- ------------
LTIP 2020-22 - 161,095 - - - 161,095 9 Mar 2023 9 Mar 2023
------------- ---------- -------- ------------ ---------- ------ -------- ----------- ------------
- 161,095 - - - 161,095 9 Mar 2023 9 Mar 2024
------------- ---------- -------- ------------ ---------- ------ -------- ----------- ------------
- 161,095 - - - 161,095 9 Mar 2023 9 Mar 2025
---------- -------- ------------ ---------- ------ -------- ----------- ------------
- 161,095 - - - 161,095 9 Mar 2023 9 Mar 2026
---------- -------- ------------ ---------- ------ -------- ----------- ------------
- 161,095 - - - 161,095 9 Mar 2023 9 Mar 2027
------------- ---------- -------- ------------ ---------- ------ -------- ----------- ------------
A Halford5
------------- ---------- -------- ------------ ---------- ------ -------- ----------- ------------
LTIP 2016-18 20,008 - 874 20,882 - - 11 Mar 2019 4 May 2020
------------- ---------- -------- ------------ ---------- ------ -------- ----------- ------------
20,008 - - - - 20,008 11 Mar 2019 4 May 2021
------------- ---------- -------- ------------ ---------- ------ -------- ----------- ------------
20,008 - - - - 20,008 11 Mar 2019 4 May 2022
---------- -------- ------------ ---------- ------ -------- ----------- ------------
20,009 - - - - 20,009 11 Mar 2019 4 May 2023
------------- ---------- -------- ------------ ---------- ------ -------- ----------- ------------
LTIP 2017-19 73,390 - 1,962 29,850 45,502 - 13 Mar 2020 13 Mar 2020
------------- ---------- -------- ------------ ---------- ------ -------- ----------- ------------
73,390 - - - 45,502 27,888 13 Mar 2020 13 Mar 2021
------------- ---------- -------- ------------ ---------- ------ -------- ----------- ------------
73,390 - - - 45,502 27,888 13 Mar 2020 13 Mar 2022
---------- -------- ------------ ---------- ------ -------- ----------- ------------
73,390 - - - 45,502 27,888 13 Mar 2020 13 Mar 2023
---------- -------- ------------ ---------- ------ -------- ----------- ------------
73,394 - - - 45,504 27,890 13 Mar 2020 13 Mar 2024
------------- ---------- -------- ------------ ---------- ------ -------- ----------- ------------
LTIP 2018-20 67,108 - - - - 67,108 9 Mar 2021 9 Mar 2021
------------- ---------- -------- ------------ ---------- ------ -------- ----------- ------------
67,108 - - - - 67,108 9 Mar 2021 9 Mar 2022
------------- ---------- -------- ------------ ---------- ------ -------- ----------- ------------
67,108 - - - - 67,108 9 Mar 2021 9 Mar 2023
---------- -------- ------------ ---------- ------ -------- ----------- ------------
67,108 - - - - 67,108 9 Mar 2021 9 Mar 2024
---------- -------- ------------ ---------- ------ -------- ----------- ------------
67,108 - - - - 67,108 9 Mar 2021 9 Mar 2025
------------- ---------- -------- ------------ ---------- ------ -------- ----------- ------------
LTIP 2019-21 85,094 - - - - 85,094 11 Mar 2022 11 Mar 2022
------------- ---------- -------- ------------ ---------- ------ -------- ----------- ------------
85,094 - - - - 85,094 11 Mar 2022 11 Mar 2023
------------- ---------- -------- ------------ ---------- ------ -------- ----------- ------------
85,094 - - - - 85,094 11 Mar 2022 11 Mar 2024
---------- -------- ------------ ---------- ------ -------- ----------- ------------
85,094 - - - - 85,094 11 Mar 2022 11 Mar 2025
---------- -------- ------------ ---------- ------ -------- ----------- ------------
85,096 - - - - 85,096 11 Mar 2022 11 Mar 2026
------------- ---------- -------- ------------ ---------- ------ -------- ----------- ------------
LTIP 2020-22 - 99,976 - - - 99,976 9 Mar 2023 9 Mar 2023
------------- ---------- -------- ------------ ---------- ------ -------- ----------- ------------
- 99,976 - - - 99,976 9 Mar 2023 9 Mar 2024
------------- ---------- -------- ------------ ---------- ------ -------- ----------- ------------
- 99,976 - - - 99,976 9 Mar 2023 9 Mar 2025
---------- -------- ------------ ---------- ------ -------- ----------- ------------
- 99,976 - - - 99,976 9 Mar 2023 9 Mar 2026
---------- -------- ------------ ---------- ------ -------- ----------- ------------
- 99,977 - - - 99,977 9 Mar 2023 9 Mar 2027
------------- ---------- -------- ------------ ---------- ------ -------- ----------- ------------
Sharesave 1,807 - - - - 1,807 - 1 Dec 2022
------------- ---------- -------- ------------ ---------- ------ -------- ----------- ------------
1. For the LTIP 2020-22 awards granted to Bill Winters and Andy
Halford on 9 March 2020, the values granted were: Bill Winters:
GBP3.4 million; Andy Halford: GBP2.1 million. The number of shares
awarded in respect of the LTIP took into account the lack of
dividend equivalents (calculated by reference to market consensus
dividend yield) such that the overall value of the award was
maintained. Performance measures apply to 2020-22 LTIP awards. The
share price at grant was the closing price on the day before the
grant date
2. Dividend equivalent shares may be awarded on vesting for
awards granted prior to 1 January 2018. On 1 April 2020 Standard
Chartered announced that in response to the request from the
Prudential Regulation Authority and as a consequence of the
unprecedented challenges facing the world due to the COVID-19
pandemic, the board decided to withdraw the recommendation to pay a
final dividend for 2019. 1,200 dividend equivalent shares allocated
to Bill's 2017-19 LTIP award tranche vesting in March 2020 and 742
allocated to Andy's 2017-19 LTIP award tranche vesting in March
2020 relating to the cancelled dividend will therefore be deducted
from the calculation of dividend equivalent shares to be allocated
to shares vesting in March 2021. Dividend equivalent shares
allocated to the 2016-18 LTIP award tranche vesting in May 2020 did
not include any shares relating to the cancelled dividend
3. On 20 March 2020, Bill Winters exercised the 2017-19 LTIP
award over a total of 48,218 shares. On 20 March 2020, Andy Halford
exercised the 2017-19 LTIP award over a total
of 29,850 shares. The closing share price on the day before
exercise was GBP4.512. On 4 May 2020, Bill Winters exercised the
2016-18 LTIP award over a total of 34,972 shares.
On 4 May 2020, Andy Halford exercised the 2016-18 LTIP award
over a total of 20,882 shares. The closing share price on the day
before exercise was GBP4.085
4. The unvested share awards held by Bill Winters are
conditional rights under the 2011 Plan. Bill does not have to pay
towards these awards
5. The unvested share awards held by Andy Halford are
conditional rights under the 2011 Plan. Andy does not have to pay
towards these awards. The unvested Sharesave option held by Andy
Halford is an option granted on 1 October 2019 under the 2013 Plan
- to exercise this option, Andy has to pay an exercise price of
GBP4.98 per share
Shareholdings and share interests
The following table summarises the executive directors'
shareholdings and share interests.
Value of
Unvested shares
share awards counting
not subject towards Unvested
to Total shares shareholding share awards
performance counting requirement subject
measures towards as a to
Shares held (net of shareholding Shareholding percentage performance
beneficially1,2,3 tax)4 requirement requirement Salary3 of salary1 measures
------------ ----------------- ------------- ------------- ------------ ------------ ------------ -------------
W T Winters 1,795,610 148,788 1,944,388 250% salary GBP2,370,000 361% 2,012,693
------------ ----------------- ------------- ------------- ------------ ------------ ------------ -------------
A N Halford 718,535 92,743 811,278 200% salary GBP1,515,000 236% 1,260,893
------------ ----------------- ------------- ------------- ------------ ------------ ------------ -------------
1. All figures are as at 30 June 2020 unless stated otherwise.
The closing share price on 30 June 2020 was GBP4.40. No director
had either: (i) an interest in Standard Chartered PLC's preference
shares or loan stocks of any subsidiary or associated undertaking
of the Group; or (ii) any corporate interests in Standard Chartered
PLC's ordinary shares
2. The beneficial interests of directors and connected persons
in the ordinary shares of the Company are set out above. The
executive directors do not have any non-beneficial interests in the
Company's shares. None of the executive directors used ordinary
shares as collateral for any loans
3. The salary and shares held beneficially include shares
awarded to deliver the executive directors' salary shares
4. 38 per cent of the 2017-19 LTIP award is no longer subject to
performance measures due to achievement against 2017-19 strategic
measures
E. Share price information
The middle market price of an ordinary share at the close of
business on 30 June 2020 was 440.1 pence. The share price range
during the first half of 2020 was 368.4 pence to 720.8 pence (based
on the closing middle market prices).
F. Substantial shareholders
The Company and its shareholders have been granted partial
exemption from the disclosure requirements under Part XV of the
Securities and Futures Ordinance (SFO).
As a result of this exemption, shareholders no longer have an
obligation under Part XV of the SFO (other than Divisions 5,11 and
12 thereof) to notify the Company of substantial shareholding
interests, and the Company is no longer required to maintain a
register of interests of substantial shareholders under section 336
of the SFO. The Company is, however, required to file with The
Stock Exchange of Hong Kong Limited any disclosure of interests
made in the UK.
G. Code for Financial Reporting Disclosures
The UK Finance Code for Financial Reporting Disclosure sets out
five disclosure principles together with supporting guidance. The
principles are that UK banks will: provide high-quality, meaningful
and decision useful disclosures; review and enhance their financial
instrument disclosures for key areas of interest; assess the
applicability and relevance of good practice recommendations to
their disclosures, acknowledging the importance of such guidance;
seek to enhance the comparability of financial statement
disclosures across the UK banking sector; and clearly differentiate
in their annual reports between information that is audited and
information that is unaudited.
The Group's interim financial statements for the six months
ended 30 June 2020 have been prepared in accordance with the Code's
principles.
Shareholder information
Dividend and interest payment dates
2020 interim dividend
On 31 March 2020 it was announced that no interim dividend on
Standard Chartered PLC ordinary shares would be accrued,
recommended or paid in 2020.
2020 final dividend (provisional only)
Results and dividend announcement date 25 February 2021
Preference shares Next half-yearly dividend
------------------------------------------------------- -------------------------
7 3 / 8 per cent Non-cumulative irredeemable preference
shares of GBP1 each 1 October 2020
8 1/4 per cent Non-cumulative irredeemable preference
shares of GBP1 each 1 October 2020
------------------------------------------------------- -------------------------
6.409 per cent Non-cumulative preference shares of $5 30 July 2020, 30 October
each 2020
------------------------------------------------------- -------------------------
7.014 per cent Non-cumulative preference shares of $5
each 30 July 2020
------------------------------------------------------- -------------------------
Previous dividend payments (unadjusted for the impact of the
2015/2010/2008 Rights Issues)
Dividend Cost of one new
and ordinary share
financial under share
year Payment date Dividend per ordinary share dividend scheme
------------ -------------------- ---------------------------------------------------- -------------------
Interim 2008 9 October 2008 25.67c/13.96133p/HK$1.995046 GBP14.00/$26.0148
Final 2008 15 May 2009 42.32c/28.4693p/HK$3.279597 GBP8.342/$11.7405
Interim 2009 8 October 2009 21.23c/13.25177p/HK$1.645304 GBP13.876/$22.799
Final 2009 13 May 2010 44.80c/29.54233p/HK$3.478306 GBP17.351/$26.252
Interim 2010 5 October 2010 23.35c/14.71618p/HK$1.811274/INR0.9841241 GBP17.394/$27.190
Final 2010 11 May 2011 46.65c/28.272513p/HK$3.623404/INR1.99751701 GBP15.994/$25.649
Interim 2011 7 October 2011 24.75c/15.81958125p/HK$1.928909813/INR1.137971251 GBP14.127/$23.140
Final 2011 15 May 2012 51.25c/31.63032125p/HK$3.9776083375/INR2.66670151 GBP15.723/$24.634
Interim 2012 11 October 2012 27.23c/16.799630190p/HK$2.111362463/INR1.3498039501 GBP13.417/$21.041
Final 2012 14 May 2013 56.77c/36.5649893p/HK$4.4048756997/INR2.9762835751 GBP17.40/$26.28792
Interim 2013 17 October 2013 28.80c/17.8880256p/HK$2.233204992/INR1.68131 GBP15.362/$24.07379
Final 2013 14 May 2014 57.20c/33.9211444p/HK$4.43464736/INR3.3546261 GBP11.949$19.815
Interim 2014 20 October 2014 28.80c/17.891107200p/HK$2.2340016000/INR1.6718425601 GBP12.151/$20.207
Final 2014 14 May 2015 57.20c/37.16485p/HK$4.43329/INR3.5140591 GBP9.797/$14.374
Interim 2015 19 October 2015 14.40c/9.3979152p/HK$1.115985456/INR0.861393721 GBP8.5226/$13.34383
Final 2015 No dividend declared N/A N/A
Interim 2016 No dividend declared N/A N/A
Final 2016 No dividend declared N/A N/A
Interim 2017 No dividend declared N/A N/A
Final 2017 17 May 2018 11.00c/7.88046p/HK$0.86293/INR0.6536433401 GBP7.7600/$10.83451
Interim 2018 22 October 2018 6.00c/4.59747p/HK$0.46978/INR0.36961751 GBP6.7104/$8.51952
Final 2018 16 May 2019 15.00c/11.569905p/HK$1.176260/INR0.9576916501 N/A
Interim 2019 21 October 2019 7.00c/5.676776p/HK$0.548723/INR0.4250286001 N/A
Final 2019 Dividend withdrawn N/A N/A
------------ -------------------- ---------------------------------------------------- -------------------
1 The INR dividend was per Indian Depository Receipt
Termination of Indian Depository Receipt (IDR) programme
In March 2020, the Group announced the termination of the IDR
programme. The termination notice period ended on 15 June 2020. As
at 19 June 2020, there were around 7.5 million IDRs outstanding
from the original 240 million IDRs that were issued in 2010. The
approximately 750,000 underlying Standard Chartered PLC ordinary
shares that these IDRs represented were sold on the London Stock
Exchange on 22 June 2020 and the net sale proceeds distributed to
the relevant IDR holders. The IDR programme was formally delisted
from the BSE Limited (formerly the Bombay Stock Exchange) and
National Stock Exchange of India Limited with effect from 22 July
2020.
ShareCare
ShareCare is available to shareholders on the Company's UK
register who have a UK address and bank account. It allows you to
hold your Standard Chartered PLC shares in a nominee account. Your
shares will be held in electronic form so you will no longer have
to worry about keeping your share certificates safe. If you join
ShareCare, you will still be invited to attend the Company's AGM
and you receive any dividend at the same time as everyone else.
ShareCare is free to join and there are no annual fees to pay. If
you would like to receive more information, please contact the
shareholder helpline on 0370 702 0138.
Donating shares to ShareGift
Shareholders who have a small number of shares often find it
uneconomical to sell them. An alternative is to consider donating
them to the charity ShareGift (registered charity 1052686), which
collects donations of unwanted shares until there are enough to
sell and uses the proceeds to support UK charities. There is no
implication for capital gains tax (no gain or loss) when you donate
shares to charity, and UK taxpayers may be able to claim income tax
relief on the value of their donation. Further information can be
obtained from the Company's registrars or from ShareGift on 020
7930 3737 or from sharegift.org.
Bankers' Automated Clearing System (BACS)
Dividends can be paid straight into your bank or building
society account. Please register online at investorcentre.co.uk or
contact our registrar for a mandate form.
Registrars and shareholder enquiries
If you have any enquiries relating to your shareholding and you
hold your shares on the UK register, please contact our registrar
Computershare Investor Services PLC, The Pavilions, Bridgwater
Road, Bristol, BS99 6ZZ or call the shareholder helpline number on
0370 702 0138.
If you hold your shares on the Hong Kong branch register and you
have enquiries, please contact Computershare Hong Kong Investor
Services Limited, 17M Floor, Hopewell Centre, 183 Queen's Road
East, Wan Chai, Hong Kong. You can check your shareholding at:
computershare.com/hk/investors.
Chinese translation
If you would like a Chinese version of this Half Year Report,
please contact: Computershare Hong Kong Investor Services Limited
at 17M Floor, Hopewell Centre, 183 Queen's Road East, Wan Chai,
Hong Kong. 183 17M Shareholders on the Hong Kong branch register
who have asked to receive corporate communications in either
Chinese or English can change this election by contacting
Computershare. If there is a dispute between any translation and
the English version of this Half Year Report, the English text
shall prevail.
Electronic communications
If you hold your shares on the UK register and in future you
would like to receive the Half Year Report electronically rather
than by post, please register online at: investorcentre.co.uk. Then
click on 'register' and follow the instructions. You will need to
have your Shareholder or ShareCare reference number when you log
on. You can find this on your share certificate or ShareCare
statement. Once registered, you can also submit your proxy vote and
dividend election electronically and change your bank mandate or
address information.
Glossary
AT1 or Additional Tier 1 capital
Additional Tier 1 capital consists of instruments other than
Common Equity Tier 1 that meet the Capital Requirements Regulation
(CRR) criteria for inclusion in Tier 1 capital.
Additional value adjustment
See 'Prudent valuation adjustment'.
Advanced Internal Rating Based (AIRB) approach
The AIRB approach under the Basel framework is used to calculate
credit risk capital based on the Group's own estimates of
prudential parameters.
Alternative performance measures
A financial measure of historical or future financial
performance, financial position, or cash flows, other than a
financial measure defined or specified in the applicable financial
reporting framework.
ASEAN
Association of South East Asian Nations (ASEAN) which includes
the Group's operations in Brunei, Indonesia, Malaysia, Philippines,
Singapore, Thailand and Vietnam.
AUM or Assets under management
Total market value of assets such as deposits, securities and
funds held by the Group on behalf of the clients.
Basel II
The capital adequacy framework issued by the Basel Committee on
Banking Supervision (BCBS) in June 2006 in the form of the
International Convergence of Capital Measurement and Capital
Standards.
Basel III
The global regulatory standards on bank capital adequacy and
liquidity, originally issued in December 2010 and updated in June
2011. In December 2017, the BCBS published a document setting out
the finalisation of the Basel III framework. The latest
requirements issued in December 2017 will be implemented from
2022.
BCBS or Basel Committee on Banking Supervision
A forum on banking supervisory matters which develops global
supervisory standards for the banking industry. Its members are
officials from 45 central banks or prudential supervisors from 28
countries and territories.
Basic earnings per share (EPS)
Represents earnings divided by the basic weighted average number
of shares.
Basis point (bps)
One hundredth of a per cent (0.01 per cent); 100 basis points is
1 per cent.
CRD IV or Capital Requirements Directive IV
A capital adequacy legislative package adopted by EU member
states. CRD IV comprises the recast Capital Requirements Directive
and the Capital Requirements Regulation (CRR). The package
implements the Basel III framework together with transitional
arrangements for some of its requirements. CRD IV came into force
on 1 January 2014. CRR II and CRD V amending the existing package
came into force in June 2019 with most changes starting to apply
from 28 June 2021.
Capital-lite income
Income derived from products with low RWA consumption or
products which are non-funding in nature.
Capital resources
Sum of Tier 1 and Tier 2 capital after regulatory
adjustments.
CGU or Cash-generating unit
The smallest identifiable group of assets that generates cash
inflows that are largely independent of the cash inflows from other
assets or groups of assets.
Cash shortfall
The difference between the cash flows that are due in accordance
with the contractual terms of the instrument and the cash flows
that the Group expects to receive over the contractual life of the
instrument.
Clawback
An amount an individual is required to pay back to the Group,
which has to be returned to the Group under certain
circumstances.
Commercial real estate
Includes office buildings, industrial property, medical centres,
hotels, malls, retail stores, shopping centres, farm land,
multi-family housing buildings, warehouses, garages and industrial
properties. Commercial real estate loans are those backed by a
package of commercial real estate assets.
CET1 or Common Equity Tier 1 capital
Common Equity Tier 1 capital consists of the common shares
issued by the Group and related share premium, retained earnings,
accumulated other comprehensive income and other disclosed
reserves, eligible non-controlling interests and regulatory
adjustments required in the calculation of Common Equity Tier 1
capital.
CET1 ratio
A measure of the Group's CET1 capital as a percentage of
risk-weighted assets.
Contractual maturity
Contractual maturity refers to the final payment date of a loan
or other financial instrument, at which point all the remaining
outstanding principal and interest is due to be paid.
Countercyclical capital buffer
The countercyclical capital buffer (CCyB) is part of a set of
macroprudential instruments, designed to help counter
procyclicality in the financial system. CCyB as defined in the
Basel III standard provides for an additional capital requirement
of up to 2.5 per cent of risk-weighted assets in a given
jurisdiction. The Bank of England's Financial Policy Committee has
the power to set the CCyB rate for the United Kingdom. Each bank
must calculate its 'institution-specific' CCyB rate, defined as the
weighted average of the CCyB rates in effect across the
jurisdictions in which it has credit exposures. The
institution-specific CCyB rate is then applied to a bank's total
risk-weighted assets.
Counterparty credit risk
The risk that a counterparty defaults before satisfying its
obligations under a derivative, a securities financing transaction
(SFT) or a similar contract.
CCF or Credit conversion factor
An estimate of the amount the Group expects a customer to have
drawn further on a facility limit at the point of default. This is
either prescribed by CRR or modelled by the bank.
CDS or Credit default swaps
A credit derivative is an arrangement whereby the credit risk of
an asset (the reference asset) is transferred from the buyer to the
seller of protection. A credit default swap is a contract where the
protection seller receives premium or interest-related payments in
return for contracting to make payments to the protection buyer
upon a defined credit event. Credit events normally include
bankruptcy, payment default on a reference asset or assets, or
downgrades by a rating agency.
Credit institutions
An institution whose business is to receive deposits or other
repayable funds from the public and to grant credits for its own
account.
Credit Risk mitigation
Credit Risk mitigation is a process to mitigate potential credit
losses from any given account, customer or portfolio by using a
range of tools such as collateral, netting agreements, credit
insurance, credit derivatives and guarantees.
CVA or Credit valuation adjustments
An adjustment to the fair value of derivative contracts that
reflects the possibility that the counterparty may default such
that the Group would not receive the full market value of the
contracts.
Customer accounts
Money deposited by all individuals and companies which are not
credit institutions including securities sold under repurchase
agreement (see repo/reverse repo). Such funds are recorded as
liabilities in the Group's balance sheet under customer
accounts.
Days past due
One or more days that interest and/or principal payments are
overdue based on the contractual terms.
DVA or Debit valuation adjustment
An adjustment to the fair value of derivative contracts that
reflects the possibility that the Group may default and not pay the
full market value of contracts.
Debt securities
Debt securities are assets on the Group's balance sheet and
represent certificates of indebtedness of credit institutions,
public bodies or other undertakings excluding those issued by
central banks.
Debt securities in issue
Debt securities in issue are transferrable certificates of
indebtedness of the Group to the bearer of the certificate. These
are liabilities of the Group and include certificates of
deposits.
Deferred tax asset
Income taxes recoverable in future periods in respect of
deductible temporary differences between the accounting and tax
base of an asset or liability that will result in tax deductible
amounts in future periods, the carry-forward of tax losses or the
carry-forward of unused tax credits.
Deferred tax liability
Income taxes payable in future periods in respect of taxable
temporary differences between the accounting and tax base of an
asset or liability that will result in taxable amounts in future
periods.
Default
Financial assets in default represent those that are at least 90
days past due in respect of principal or interest and/or where the
assets are otherwise considered to be unlikely to pay, including
those that are credit-impaired.
Defined benefit obligation
The present value of expected future payments required to settle
the obligations of a defined benefit scheme resulting from employee
service.
Defined benefit scheme
Pension or other post-retirement benefit scheme other than a
defined contribution scheme.
Defined contribution scheme
A pension or other post-retirement benefit scheme where the
employer's obligation is limited to its contributions to the
fund.
Delinquency
A debt or other financial obligation is considered to be in a
state of delinquency when payments are overdue. Loans and advances
are considered to be delinquent when consecutive payments are
missed. Also known as arrears.
Deposits by banks
Deposits by banks comprise amounts owed to other domestic or
foreign credit institutions by the Group including securities sold
under repo.
Diluted earnings per share (EPS)
Represents earnings divided by the weighted average number of
shares that would have been outstanding assuming the conversion of
all dilutive potential ordinary shares.
Dividend per share
Represents the entitlement of each shareholder in the share of
the profits of the Company. Calculated in the lowest unit of
currency in which the shares are quoted.
Early alert, purely and non-purely precautionary
A borrower's account which exhibits risks or potential
weaknesses of a material nature requiring closer monitoring,
supervision or attention by management. Weaknesses in such a
borrower's account, if left uncorrected, could result in
deterioration of repayment prospects and the likelihood of being
downgraded to credit grade 12 or worse. When an account is on early
alert, it is classified as either purely precautionary or
non-purely precautionary. A purely precautionary account is one
that exhibits early alert characteristics, but these do not present
any imminent credit concern. If the symptoms present an imminent
credit concern, an account will be considered for classification as
non-purely precautionary.
Effective tax rate
The tax on profit/(losses) on ordinary activities as a
percentage of profit/(loss) on ordinary activities before
taxation.
Encumbered assets
On-balance sheet assets pledged or used as collateral in respect
of certain of the Group's liabilities.
EU or European Union
The European Union (EU) is a political and economic union of 27
member states that are located primarily in Europe.
Eurozone
Represents the 19 EU countries that have adopted the euro as
their common currency.
ECL or Expected credit loss
Represents the present value of expected cash shortfalls over
the residual term of a financial asset, undrawn commitment or
financial guarantee.
Expected loss
The Group measure of anticipated loss for exposures captured
under an internal ratings-based credit risk approach for capital
adequacy calculations. It is measured as the Group-modelled view of
anticipated loss based on probability of default, loss given
default and exposure at default, with a one-year time horizon.
Exposures
Credit exposures represent the amount lent to a customer,
together with any undrawn commitments.
EAD or Exposure at default
The estimation of the extent to which the Group may be exposed
to a customer or counterparty in the event of, and at the time of,
that counterparty's default. At default, the customer may not have
drawn the loan fully or may already have repaid some of the
principal, so that exposure is typically less than the approved
loan limit.
ECAI or External Credit Assessment Institution
External credit ratings are used to assign risk-weights under
the standardised approach for sovereigns, corporates and
institutions. The external ratings are from credit rating agencies
that are registered or certified in accordance with the credit
rating agencies regulation or from a central bank issuing credit
ratings which is exempt from the application of this
regulation.
FCA or Financial Conduct Authority
The Financial Conduct Authority regulates the conduct of
financial firms and, for certain firms, prudential standards in the
UK. It has a strategic objective to ensure that the relevant
markets function well.
Forbearance
Forbearance takes place when a concession is made to the
contractual terms of a loan in response to an obligor's financial
difficulties. The Group classifies such modified loans as either
'Forborne - not impaired loans' or 'Loans subject to forbearance -
impaired'. Once a loan is categorised as either of these, it will
remain in one of these two categories until the loan matures or
satisfies the 'curing' conditions described in Note 8 to the
financial statements.
Forborne - not impaired loans
Loans where the contractual terms have been modified due to
financial difficulties of the borrower, but the loan is not
considered to be impaired. See 'Forbearance'.
Free deliveries
A transaction where a bank takes receipt of a debt or equity
security, a commodity or foreign exchange without making immediate
payment, or where a bank delivers a debt or equity security, a
commodity or foreign exchange without receiving immediate
payment.
Free funds
Free funds include equity capital, retained reserves, current
year unremitted profits and capital injections net of proposed
dividends. It does not include debt capital instruments, unrealised
profits or losses or any non-cash items.
Funded/unfunded exposures
Exposures where the notional amount of the transaction is funded
or unfunded. Represents exposures where a commitment to provide
future funding is made but funds have been released/ not
released.
FVA or Funding valuation adjustments
FVA reflects an adjustment to fair value in respect of
derivative contracts that reflects the funding costs that the
market participant would incorporate when determining an exit
price.
GCNA hub
See 'Hong Kong regional hub'.
G-SIBs or Global Systemically Important Banks
Global banking financial institutions whose size, complexity and
systemic interconnectedness mean that their distress or failure
would cause significant disruption to the wider financial system
and economic activity. The list of G-SIBs is assessed under a
framework established by the FSB and the BCBS. In the EU, the G-SIB
framework is implemented via CRD IV and G-SIBs are referred to as
Global Systemically Important Institutions (G-SIIs).
G-SIB buffer
A CET1 capital buffer which results from designation as a G-SIB.
The G-SIB buffer is between 1 per cent and 3.5 per cent, depending
on the allocation to one of five buckets based on the annual
scoring. In the EU, the G-SIB buffer is implemented via CRD IV as
Global Systemically Important Institutions (G-SII) buffer
requirement.
Hong Kong regional hub
Standard Chartered Bank (Hong Kong) Limited and its subsidiaries
including the primary operating entities in China, Korea and
Taiwan. Standard Chartered PLC is the ultimate parent company of
Standard Chartered Bank (Hong Kong) Limited.
Interest Rate Risk
The risk of an adverse impact on the Group's income statement
due to changes in interest rates.
IRB or internal ratings-based approach
Risk-weighting methodology in accordance with the Basel Capital
Accord where capital requirements are based on a firm's own
estimates of prudential parameters.
IMA approach or internal model approach
The approach used to calculate Market Risk capital and RWA with
an internal Market Risk model approved by the PRA under the terms
of CRD IV/CRR.
IAS or International Accounting Standard
A standard that forms part of the International Financial
Reporting Standards framework.
IASB or International Accounting Standards Board
An independent standard-setting body responsible for the
development and publication of IFRS, and approving interpretations
of IFRS standards that are recommended by the IFRS Interpretations
Committee (IFRIC).
IFRS or International Financial Reporting Standards
A set of international accounting standards developed and issued
by the International Accounting Standards Board, consisting of
principles-based guidance contained within IFRSs and IASs. All
companies that have issued publicly traded securities in the EU are
required to prepare annual and interim reports under IFRS and IAS
standards that have been endorsed by the EU.
IFRIC
The IFRS Interpretations Committee supports the IASB in
providing authoritative guidance on the accounting treatment of
issues not specifically dealt with by existing IFRSs and IASs.
Investment grade
A debt security, treasury bill or similar instrument with a
credit rating measured by external agencies of AAA to BBB.
Leverage ratio
A ratio introduced under CRD IV that compares Tier 1 capital to
total exposures, including certain exposures held off-balance sheet
as adjusted by stipulated credit conversion factors. Intended to be
a simple, non-risk-based backstop measure.
Liquid asset ratio
Ratio of total liquid assets to total assets. Liquid assets
comprise cash (less restricted balances), net interbank, treasury
bills and debt securities less illiquid securities.
Liquidation portfolio
A portfolio of assets which is beyond our current risk appetite
metrics and is held for liquidation.
LCR or Liquidity coverage ratio
The ratio of the stock of high-quality liquid assets to expected
net cash outflows over the following 30 days. High-quality liquid
assets should be unencumbered, liquid in markets during a time of
stress and, ideally, be central bank eligible.
Loan exposure
Loans and advances to customers reported on the balance sheet
held at amortised cost or FVOCI, non-cancellable credit commitments
and cancellable credit commitments for credit cards and overdraft
facilities.
Loans and advances to customers
This represents lending made under bilateral agreements with
customers entered into in the normal course of business and is
based on the legal form of the instrument.
Loans and advances to banks
Amounts loaned to credit institutions including securities
bought under Reverse repo.
LTV or Loan-to-value ratio
A calculation which expresses the amount of a first mortgage
lien as a percentage of the total appraised value of real property.
The loan-to-value ratio is used in determining the appropriate
level of risk for the loan and therefore the correct price of the
loan to the borrower.
Loans past due
Loans on which payments have been due for up to a maximum of 90
days including those on which partial payments are being made.
Loans subject to forbearance - impaired
Loans where the terms have been renegotiated on terms not
consistent with current market levels due to financial difficulties
of the borrower. Loans in this category are necessarily impaired.
See 'Forbearance'.
Loss rate
Uses an adjusted gross charge-off rate, developed using monthly
write-off and recoveries over the preceding 12 months and total
outstanding balances.
LGD or Loss given default
The percentage of an exposure that a lender expects to lose in
the event of obligor default.
Low returning clients
See 'Perennial sub-optimal clients'.
Malus
An arrangement that permits the Group to prevent vesting of all
or part of the amount of an unvested variable remuneration award,
due to a specific crystallised risk, behaviour, conduct or adverse
performance outcome.
Master netting agreement
An agreement between two counterparties that have multiple
derivative contracts with each other that provides for the net
settlement of all contracts through a single payment, in a single
currency, in the event of default on, or termination of, any one
contract.
Mezzanine capital
Financing that combines debt and equity characteristics. For
example, a loan that also confers some profit participation to the
lender.
MREL or Minimum requirement for own funds and eligible
liabilities
A requirement under the Bank Recovery and Resolution Directive
for EU resolution authorities to set a minimum requirement for own
funds and eligible liabilities for banks, implementing the FSB's
Total Loss Absorbing Capacity (TLAC) standard. MREL is intended to
ensure that there is sufficient equity and specific types of
liabilities to facilitate an orderly resolution that minimises any
impact on financial stability and ensures the continuity of
critical functions and avoids exposing taxpayers to loss.
Net asset value (NAV) per share
Ratio of net assets (total assets less total liabilities) to the
number of ordinary shares outstanding at the end of a reporting
period.
Net exposure
The aggregate of loans and advances to customers/loans and
advances to banks after impairment provisions, restricted balances
with central banks, derivatives (net of master netting agreements),
investment debt and equity securities, and letters of credit and
guarantees.
NII or Net interest income
The difference between interest received on assets and interest
paid on liabilities.
NSFR or Net stable funding ratio
The ratio of available stable funding to required stable funding
over a one-year time horizon, assuming a stressed scenario. It is a
longer-term liquidity measure designed to restrain the amount of
wholesale borrowing and encourage stable funding over a one-year
time horizon.
NPLs or Non-performing loans
An NPL is any loan that is more than 90 days past due or is
otherwise individually impaired. This excludes Retail loans
renegotiated at or after 90 days past due, but on which there has
been no default in interest or principal payments for more than 180
days since renegotiation, and against which no loss of principal is
expected.
Non-linearity
Non-linearity of expected credit loss occurs when the average of
expected credit loss for a portfolio is higher than the base case
(median) due to the fact that bad economic environment could have a
larger impact on ECL calculation than good economic
environment.
Normalised items
See 'Underlying'.
Operating expenses
Staff and premises costs, general and administrative expenses,
depreciation and amortisation. Underlying operating expenses
exclude expenses as described in 'Underlying earnings'. A
reconciliation between underlying and statutory earnings is
contained in Note 2 to the financial statements.
Operating income or operating profit
Net interest, net fee and net trading income, as well as other
operating income. Underlying operating income represents the income
line items above, on an underlying basis. See 'Underlying
earnings'.
OTC or Over-the-counter derivatives
A bilateral transaction (e.g. derivatives) that is not exchange
traded and that is valued using valuation models.
OCA or Own credit adjustment
An adjustment to the Group's issued debt designated at fair
value through profit or loss that reflects the possibility that the
Group may default and not pay the full market value of the
contracts.
Perennial sub-optimal clients
Clients that have returned below 3 per cent return on
risk-weighted assets for the last three years.
Physical risks
The risk of increased extreme weather events including flood,
drought and sea level rise.
Pillar 1
The first pillar of the three pillars of the Basel framework
which provides the approach to calculation of the minimum capital
requirements for Credit, Market and Operational Risk. Minimum
capital requirements are 8 per cent of the Group's risk-weighted
assets.
Pillar 2
The second pillar of the three pillars of the Basel framework
which requires banks to undertake a comprehensive assessment of
their risks and to determine the appropriate amounts of capital to
be held against these risks where other suitable mitigants are not
available.
Pillar 3
The third pillar of the three pillars of the Basel framework
which aims to provide a consistent and comprehensive disclosure
framework that enhances comparability between banks and further
promotes improvements in risk practices.
Priority Banking
Priority Banking customers are individuals who have met certain
criteria for deposits, AUM, mortgage loans or monthly payroll.
Criteria varies by country.
Private equity investments
Equity securities in operating companies generally not quoted on
a public exchange. Investment in private equity often involves the
investment of capital in private companies. Capital for private
equity investment is raised by retail or institutional investors
and used to fund investment strategies such as leveraged buyouts,
venture capital, growth capital, distressed investments and
mezzanine capital.
PD or Probability of default
PD is an internal estimate for each borrower grade of the
likelihood that an obligor will default on an obligation over a
given time horizon.
Probability weighted
Obtained by considering the values the metric can assume,
weighted by the probability of each value occurring.
Profit (loss) attributable to ordinary shareholders
Profit (loss) for the year after non-controlling interests and
dividends declared in respect of preference shares classified as
equity.
PVA or Prudent valuation adjustment
An adjustment to CET1 capital to reflect the difference between
fair value and prudent value positions, where the application of
prudence results in a lower absolute carrying value than recognised
in the financial statements.
PRA or Prudential Regulation Authority
The Prudential Regulation Authority is the statutory body
responsible for the prudential supervision of banks, building
societies, credit unions, insurers and a small number of
significant investment firms in the UK. The PRA is a part of the
Bank of England.
Regulatory consolidation
The regulatory consolidation of Standard Chartered PLC differs
from the statutory consolidation in that it excludes Standard
Chartered Assurance Limited and Standard Chartered Insurance
Limited and includes the full consolidation of PT Bank Permata
Tbk.
Repo/reverse repo
A repurchase agreement or repo is a short-term funding
agreement, which allows a borrower to sell a financial asset, such
as asset-backed securities or government bonds as collateral for
cash. As part of the agreement the borrower agrees to repurchase
the security at some later date, usually less than 30 days,
repaying the proceeds of the loan. For the party on the other end
of the transaction (buying the security and agreeing to sell in the
future), it is a reverse repurchase agreement or reverse repo.
Residential mortgage
A loan to purchase a residential property which is then used as
collateral to guarantee repayment of the loan. The borrower gives
the lender a lien against the property, and the lender can
foreclose on the property if the borrower does not repay the loan
per the agreed terms. Also known as a home loan.
RoRWA or Return on risk-weighted assets
Profit before tax for year as a percentage of RWA. Profit may be
statutory or underlying and is specified where used. See 'RWA' and
'Underlying earnings'.
RWA or Risk-weighted assets
A measure of a bank's assets adjusted for their associated
risks, expressed as a percentage of an exposure value in accordance
with the applicable standardised or IRB approach provisions.
Risks-not-in-VaR (RNIV)
A framework for identifying and quantifying marginal types of
Market Risk that are not captured in the value at risk (VaR)
measure for any reason, such as being a far-tail risk or the
necessary historical market data not being available.
Roll rate
Uses a matrix that gives average loan migration rate from
delinquency states from period to period. A matrix multiplication
is then performed to generate the final PDs by delinquency bucket
over different time horizons.
Secured (fully and partially)
A secured loan is a loan in which the borrower pledges an asset
as collateral for a loan which, in the event that the borrower
defaults, the Group is able to take possession of. All secured
loans are considered fully secured if the fair value of the
collateral is equal to or greater than the loan at the time of
origination. All other secured loans are considered to be partly
secured.
Securitisation
Securitisation is a process by which credit exposures are
aggregated into a pool, which is used to back new securities. Under
traditional securitisation transactions, assets are sold to a
structured entity which then issues new securities to investors at
different levels of seniority (credit tranching). This allows the
credit quality of the assets to be separated from the credit rating
of the originating institution and transfers risk to external
investors in a way that meets their risk appetite. Under synthetic
securitisation transactions, the transfer of risk is achieved by
the use of credit derivatives or guarantees, and the exposures
being securitised remain exposures of the originating
institution.
Senior debt
Debt that takes priority over other unsecured or otherwise more
'junior' debt owed by the issuer. Senior debt has greater seniority
in the issuer's capital structure than subordinated debt. In the
event the issuer goes bankrupt, senior debt theoretically must be
repaid before other creditors receive any payment.
SICR or Significant increase in credit risk
Assessed by comparing the risk of default of an exposure at the
reporting date to the risk of default at origination (after
considering the passage of time).
Solo
The solo regulatory group as defined in the Prudential
Regulation Authority waiver letter dated 24 August 2017 differs
from Standard Chartered Bank Company in that it includes the full
consolidation of eight subsidiaries, namely Standard Chartered
Holdings (International) B.V., Standard Chartered MB Holdings B.V.,
Standard Chartered UK Holdings Limited, Standard Chartered
Grindlays PTY Limited, SCMB Overseas Limited, Standard Chartered
Capital Management (Jersey) LLC, Standard Chartered Debt Trading
Limited and Cerulean Investments LP.
Sovereign exposures
Exposures to central governments and central government
departments, central banks and entities owned or guaranteed by the
aforementioned. Sovereign exposures, as defined by the European
Banking Authority, include only exposures to central
governments.
Stage 1
Assets have not experienced a significant increase in Credit
Risk since origination and impairment recognised on the basis of 12
months expected credit losses.
Stage 2
Assets have experienced a significant increase in Credit Risk
since origination and impairment is recognised on the basis of
lifetime expected credit losses.
Stage 3
Assets that are in default and considered credit-impaired
(non-performing loans).
Standardised approach
In relation to Credit Risk, a method for calculating Credit Risk
capital requirements using External Credit Assessment Institutions
(ECAI) ratings and supervisory risk weights. In relation to
Operational Risk, a method of calculating the operational capital
requirement by the application of a supervisory defined percentage
charge to the gross income of eight specified business lines.
Structured note
An investment tool which pays a return linked to the value or
level of a specified asset or index and sometimes offers capital
protection if the value declines. Structured notes can be linked to
equities, interest rates, funds, commodities and foreign
currency.
Subordinated liabilities
Liabilities which, in the event of insolvency or liquidation of
the issuer, are subordinated to the claims of depositors and other
creditors of the issuer.
Tier 1 capital
The sum of Common Equity Tier 1 capital and Additional Tier 1
capital.
Tier 1 capital ratio
Tier 1 capital as a percentage of risk-weighted assets.
Tier 2 capital
Tier 2 capital comprises qualifying subordinated liabilities and
related share premium accounts.
TLAC or Total loss absorbing capacity
An international standard for TLAC issued by the FSB, which
requires G-SIBs to have sufficient loss-absorbing and
recapitalisation capacity available in resolution, to minimise
impacts on financial stability, maintain the continuity of critical
functions and avoid exposing public funds to loss.
Transition risks
The risk of changes to market dynamics or sectoral economics due
to governments' response to climate change.
UK bank levy
A levy that applies to certain UK banks and the UK operations of
foreign banks. The levy is payable each year based on a percentage
of the chargeable equities and liabilities on the Group's
consolidated balance sheet date. Key exclusions from chargeable
equities and liabilities include Tier 1 capital, insured or
guaranteed retail deposits, repos secured on certain sovereign debt
and liabilities subject to netting.
Unbiased
Not overly optimistic or pessimistic, represents information
that is not slanted, weighted, emphasised, de-emphasised or
otherwise manipulated to increase the probability that the
financial information will be received favourably or unfavourably
by users.
Unlikely to pay
Indications of unlikeliness to pay shall include placing the
credit obligation on non-accrued status; the recognition of a
specific credit adjustment resulting from a significant perceived
decline in credit quality subsequent to the Group taking on the
exposure; selling the credit obligation at a material
credit-related economic loss; the Group consenting to a distressed
restructuring of the credit obligation where this is likely to
result in a diminished financial obligation caused by the material
forgiveness, or postponement, of principal, interest or, where
relevant fees; filing for the obligor's bankruptcy or a similar
order in respect of an obligor's credit obligation to the
Group;
the obligor has sought or has been placed in bankruptcy or
similar protection where this would avoid or delay repayment of a
credit obligation to the Group.
VaR or Value at risk
A quantitative measure of Market Risk estimating the potential
loss that will not be exceeded in a set time period at a set
statistical confidence level.
ViU or Value-in-use
The present value of the future expected cash flows expected to
be derived from an asset or CGU.
Write-downs
After an advance has been identified as impaired and is subject
to an impairment provision, the stage may be reached whereby it is
concluded that there is no realistic prospect of further recovery.
Write-downs will occur when, and to the extent that, the whole or
part of a debt is considered irrecoverable.
XVA
The term used to incorporate credit, debit and funding valuation
adjustments to the fair value of derivative financial instruments.
See 'CVA', 'DVA' and 'FVA'.
For further information, please contact:
Mark Stride, Head of Investor Relations
+44 (0) 20 7885 8596
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
IR GZGFNFGRGGZG
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July 30, 2020 02:00 ET (06:00 GMT)
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