TIDMSTAN
RNS Number : 1887U
Standard Chartered PLC
29 July 2022
Standard Chartered PLC - Half Year Results 2022 - Part 2
Table of contents
Risk review 2
-------------------------------- ---
Capital review 58
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Financial statements 65
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Other supplementary information 122
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Glossary 133
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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.
Asia includes Australia, Bangladesh, Brunei, Cambodia, Mainland
China, Hong Kong, India, Indonesia, Japan, Korea, Laos, Macau,
Malaysia, Myanmar, Nepal, Philippines, Singapore, Sri Lanka,
Taiwan, Thailand and Vietnam; Africa & Middle East (AME)
includes Angola, Bahrain, Botswana, Cameroon, Cote d'Ivoire, Egypt,
The Gambia, Ghana, Iraq, Jordan, Kenya, Lebanon, Mauritius,
Nigeria, Oman, Pakistan, Qatar, Saudi Arabia, Sierra Leone, South
Africa, Tanzania, the United Arab Emirates (UAE), Uganda, Zambia
and Zimbabwe; and Europe & Americas (EA) includes Argentina,
Brazil, Colombia, Falkland Islands, France, Germany, Ireland,
Jersey, Poland, Sweden, Turkey, the UK and the US.
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.
Page 1
Risk review and Capital review
Risk Index
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Credit Risk
------------ ------------------------------------------------------------
Basis of preparation
------------------------------------------------------------
Credit Risk overview
------------------------------------------------------------
Impairment model
------------------------------------------------------------
Staging of financial instruments
------------------------------------------------------------
IFRS 9 principles and approaches
Maximum exposure to Credit Risk
Analysis of financial instrument by stage
------------------------------------------------------------
Credit quality analysis
* Credit quality by client segment
* Credit quality by geographic region
------------------------------------------------------------
Movement in gross exposures and credit impairment for
loans and advances, debt securities, undrawn commitments
and financial guarantees
Movement of debt securities, alternative Tier 1 and other
eligible bills
------------------------------------------------------------
Analysis of stage 2 balances
Credit impairment charge
COVID-19 relief measures
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
------------------------------------------------------------
Credit risk mitigation
* Collateral
* Collateral held on loans and advances
* Collateral - Corporate, Commercial & Institutional
Banking
* Collateral - Consumer, Private & Business Banking
* Mortgage loan-to-value ratios by geography
* Collateral and other credit enhancements possessed or
called upon
* Other Credit Risk mitigation
------------------------------------------------------------
Other portfolio analysis
* Credit quality by industry
* Industry and Retail Products analysis of loans and
advances by geographic region
* Vulnerable and cyclical sector tables
IFRS 9 expected credit loss methodology
------------------------------------------------------------
Traded Risk
Market Risk movements
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 and Technology Risk
Operational and Technology Risk profile
Risk profile Other principal risks
------------ ------------------------------------------------------------
Page 2
Risk Index
---------- --------------------------------
Capital Capital summary
* Capital ratios
* CRD Capital base
* Movement in total capital
--------------------------------
Risk-weighted asset
--------------------------------
Group leverage ratio
---------- --------------------------------
The following parts of the Risk review and Capital review form
part of these condensed interim financial statements and are
reviewed by the external auditors:
a) Risk review: Disclosures marked as 'reviewed' from the start
of Credit risk section to the end of other principal risks in the
same section; and
b) Capital review: Tables marked as 'reviewed' from the start of
'CRD capital base' to the end of 'Movement in total capital',
excluding 'Total risk-weighted assets'.
Page 3
Credit Risk (reviewed)
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 14 Reverse repurchase and
repurchase agreements including other similar secured lending and
borrowing.
Credit Risk overview
Credit Risk is the potential for loss due to the failure of a
counterparty to meet its obligations to pay the Group. Credit
exposures arise from both the banking and trading books
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 ECL
-- Performing but has exhibited Significant Increase in Credit
Risk (SICR)
Stage 3
-- Credit-impaired
-- Non-performing
Page 4
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 For material loan portfolios, the IFRS 9 expected credit
determining Group has adopted a statistical modelling loss methodology
expected credit approach for determining expected Post model adjustments
losses credit losses that makes extensive
use of credit modelling. These models
leveraged existing advanced internal
ratings based (IRB) models, where
these were available. Where model
performance breaches model monitoring
thresholds or validation standards,
a post model adjustment may be required
to correct for identified model issues,
which will be removed once those issues
have been remedied.
------------------- ---------------------------------------------- ---------------------------------
Incorporation The determination of expected credit Incorporation of forward-looking
of forward-looking loss includes various assumptions information and impact
information and judgements in respect of forward-looking of non-linearity
macroeconomic information. Refer to Forecast of key macroeconomic
for incorporation of forward-looking variables underlying the
information, forecast of key macroeconomic expected credit loss calculation
variables underlying the expected Management overlay and
credit loss calculation and the impact sensitivity to macroeconomic
on non-linearity and sensitivity of variables
expected credit loss calculation to
macroeconomic variables. Management
overlays may also be used to capture
risks not identified in the models.
------------------- ---------------------------------------------- ---------------------------------
Significant Expected credit loss for financial IFRS 9 expected credit
increase in assets will transfer from a 12-month loss methodology
Credit Risk basis (stage 1) to a lifetime basis
(SICR) (stage 2) when there is a significant
increase in Credit Risk 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 Credit-impaired (stage 3) financial Consumer, Private and
of credit-impaired assets comprise those assets that Business Banking clients
financial assets have experienced an observed credit Corporate, Commercial
event and are in default. Default and Institutional Banking
represents those assets that are at clients
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 cash flows due to significant
financial difficulty (forbearance)
where the Group has granted concessions
that it would not ordinarily consider.
Interest income for stage 3 assets
is recognised by applying the original
effective interest rate to the net
asset amount (that is, net of credit
impairment provisions).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.
------------------- ---------------------------------------------- ---------------------------------
Transfers between Assets will transfer from stage 3 Movement in loan exposures
stages to stage 2 when they are no longer and expected credit losses
considered to be credit-impaired.
Assets will not be considered credit-impaired
only if the customer makes payments
such that they are paid to current
in line with the original contractual
terms.
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 probability of default
(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).
------------------- ---------------------------------------------- ---------------------------------
Page 5
Modified financial Where the contractual terms of a financial COVID-19 relief measures
assets instrument have been modified, and Forbearance and other
this does not result in the instrument modified loans
being derecognised, a modification
gain or loss is recognised in the
income statement representing the
difference between the original cashflows
and the modified cash flows, discounted
at the effective interest rate. The
modification gain/loss is directly
applied to the gross carrying amount
of the instrument.
If the modification is credit related,
such as forbearance or where the Group
has granted concessions that it would
not ordinarily consider, then it will
be considered credit-impaired. Modifications
that are not credit related will be
subject to an assessment of whether
the asset's Credit Risk has increased
significantly since origination by
comparing the remaining lifetime PD
based on the modified terms to the
remaining lifetime PD based on the
original contractual terms.
------------------ --------------------------------------------- ------------------------
Governance The models used in determining ECL
and application are reviewed and approved by the Group
of expert credit Credit Model Assessment Committee
judgement in and have been validated by Group model
respect of validation, which is independent of
expected credit the business.
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 (reviewed)
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 2022, 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 $10.7 billion to $806 billion (2021: $796
billion).
Derivative exposures increased by $24.2 billion and other assets
increased by $11.1 billion from additional cash collateral and
settlement trades. This is offset by a decrease in $5.7 billion of
cash and balances at central banks, $8.2 billion in loans and
advances to banks, $5.0 billion in loans and advances to customers
and $7.4 billion in Fair Value through profit or loss mainly from a
reduction in reverse repo positions.
Of the $5.0 billion decrease in loans and advances to customers,
Corporate, Commercial and Institutional Banking decreased by $5.7
billion from reductions in Stage 2 exposures and in Stage 3 assets
due to loan sales, repayments and upgrades and Consumer, Private
and Business Banking decreased by $4.3 billion from reductions in
Mortgages and Secured wealth products. This is offset by an
increase in Government sector of $4.9 billion in Central and other
items segment.
Off-balance sheet instruments increased by $4.2 billion to $221
billion, driven by higher undrawn commitments.
Page 6
30.06.22 31.12.21
-------------- -------------------------------------------------- --------------------------------------------------
Credit risk Credit risk
management management
---------- ------------------------ ------------ ---------- ------------------------ ------------
Master Master
Maximum netting Maximum netting
exposure Collateral8 agreements Net Exposure exposure Collateral8 agreements Net exposure
$million $million $million $million $million $million $million $million
-------------- ---------- ----------- ----------- ------------ ---------- ----------- ----------- ------------
On-balance
sheet
Cash and
balances at
central banks 67,005 67,005 72,663 72,663
Loans and
advances to
banks1 36,201 795 35,406 44,383 1,079 43,304
---------- ----------- ----------- ------------ ---------- ----------- ----------- ------------
of which -
reverse
repurchase
agreements
and other
similar
secured
lending7 795 795 - 1,079 1,079 -
---------- ----------- ----------- ------------ ---------- ----------- ----------- ------------
Loans and
advances to
customers1 293,508 125,385 168,123 298,468 131,397 167,071
---------- ----------- ----------- ------------ ---------- ----------- ----------- ------------
of which -
reverse
repurchase
agreements
and other
similar
secured
lending7 7,894 7,894 - 7,331 7,331 -
---------- ----------- ----------- ------------ ---------- ----------- ----------- ------------
Investment
securities
- Debt
securities
and other
eligible
bills2 164,137 164,137 162,700 162,700
Fair value
through
profit
or loss3, 7 115,791 74,398 - 41,393 123,234 80,009 - 43,225
---------- ----------- ----------- ------------ ---------- ----------- ----------- ------------
Loans and
advances to
banks 4,562 4,562 3,847 3,847
Loans and
advances to
customers 8,445 8,445 9,953 9,953
Reverse
repurchase
agreements
and
other
similar
lending7 74,398 74,398 - 80,009 80,009 -
Investment
securities
- Debt
securities
and other
eligible
bills2 28,386 28,386 29,425 29,425
---------- ----------- ----------- ------------ ---------- ----------- ----------- ------------
Derivative
financial
instruments4,
7 76,676 14,559 47,911 14,206 52,445 8,092 39,502 4,851
Accrued income 1,853 1,853 1,674 1,674
Assets held
for sale 60 60 52 52
Other assets5 51,135 51,135 40,068 40,068
-------------- ---------- ----------- ----------- ------------ ---------- ----------- ----------- ------------
Total balance
sheet 806,366 215,137 47,911 543,318 795,687 220,577 39,502 535,608
-------------- ---------- ----------- ----------- ------------ ---------- ----------- ----------- ------------
Off-balance
sheet6
Undrawn
Commitments 162,841 4,201 158,640 158,523 3,848 154,675
Financial
Guarantees
and other
equivalents 58,415 2,529 55,886 58,535 2,240 56,295
-------------- ---------- ----------- ----------- ------------ ---------- ----------- ----------- ------------
Total
off-balance
sheet 221,256 6,730 - 214,526 217,058 6,088 - 210,970
-------------- ---------- ----------- ----------- ------------ ---------- ----------- ----------- ------------
Total 1,027,622 221,867 47,911 757,844 1,012,745 226,665 39,502 746,578
-------------- ---------- ----------- ----------- ------------ ---------- ----------- ----------- ------------
1 Net of credit impairment. 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 $755 million (31
December 2021: $737 million). Further details are set out in Note
13 Financial instruments
3 Excludes equity and other investments of $2,325 million (31
December 2021: $5,861 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 transaction
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 (reviewed)
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
improved by 1 per cent to 96 per cent (2021: 95 per cent). Total
stage 1 balances increased by $6.8 billion, of which around $8.1
billion was in undrawn commitments, $11 billion in other assets
from additional cash collateral and settlement trades and $1.9
billion in debt securities. This is offset by decrease of $6.5
billion in cash and balances at central bank, $8 billion in loans
and advances to banks. Loans and advances to customers remained
stable as Consumer, Private and Business Banking decrease of $4
billion was offset by increase in Central and other items of $4
billion.
Stage 2 financial instruments reduced by 94 basis points to 3.2
per cent (2021: 4.1 per cent) due to exposure reductions in Energy,
Transport, telecom and utilities sectors in Corporate, Commercial
and Institutional Banking. As a result, the proportion of loans and
advances to customers classified in stage 2 also reduced to 4 per
cent (2021: 6 per cent).
Stage 3 financial instruments were stable at 1 per cent of the
Group total.
Off-balance sheet instruments increased by a net $4 billion,
driven by higher undrawn commitments.
Page 7
30.06.22
------------- ----------------------------------------------------------------------------------------------------------------------------------------------
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 66,145 - 66,145 864 (4) 860 - - - 67,009 (4) 67,005
Loans and
advances
to banks
(amortised
cost) 35,779 (7) 35,772 371 (5) 366 78 (15) 63 36,228 (27) 36,201
Loans and
advances
to customers
(amortised
cost) 279,136 (502) 278,634 12,539 (385) 12,154 7,053 (4,333) 2,720 298,728 (5,220) 293,508
Debt
securities
and other
eligible
bills5 159,265 (61) 4,853 (34) 106 (70) 164,224 (165)
------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Amortised
cost 51,527 (16) 51,511 320 (1) 319 106 (70) 36 51,953 (87) 51,866
FVOCI2 107,738 (45) 4,533 (33) - - 112,271 (78) -
------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Accrued
income
(amortised
cost)4 1,853 - 1,853 - - - - - - 1,853 - 1,853
Assets held
for sale4 60 - 60 - - - - - - 60 - 60
Other assets 51,134 - 51,134 - - - 4 (3) 1 51,138 (3) 51,135
Undrawn
commitments3 157,596 (37) 5,245 (42) - - 162,841 (79)
Financial
guarantees,
trade
credits
and
irrevocable
letter of
credits3 54,991 (16) 2,781 (16) 643 (190) 58,415 (222)
------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total 805,959 (623) 26,653 (486) 7,884 (4,611) 840,496 (5,720)
------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
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
5 Stage 3 includes gross of $28 million and ECL $6 million
originated credit-impaired debt securities.
Page 8
31.12.21
------------- ----------------------------------------------------------------------------------------------------------------------------------------------
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 72,601 - 72,601 66 (4) 62 - - - 72,667 (4) 72,663
Loans and
advances
to banks
(amortised
cost) 43,776 (12) 43,764 580 (4) 576 54 (11) 43 44,410 (27) 44,383
Loans and
advances
to customers
(amortised
cost) 279,178 (473) 278,705 16,849 (524) 16,325 8,095 (4,657) 3,438 304,122 (5,654) 298,468
Debt
securities
and other
eligible
bills5 157,352 (67) 5,315 (42) 113 (66) 162,780 (175)
------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Amortised
cost 41,092 (13) 41,079 200 (1) 199 113 (66) 47 41,405 (80) 41,325
FVOCI2 116,260 (54) 5,115 (41) - - 121,375 (95)
------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Accrued
income
(amortised
cost)4 1,674 - 1,674 - - - - - - 1,674 - 1,674
Assets held
for sale4 52 - 52 - - - - - - 52 - 52
Other assets 40,067 - 40,067 - - - 4 (3) 1 40,071 (3) 40,068
Undrawn
commitments3 149,530 (42) 8,993 (60) - - 158,523 (102)
Financial
guarantees,
trade
credits
and
irrevocable
letter of
credits3 54,923 (15) 2,813 (22) 799 (207) 58,535 (244)
------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total 799,153 (609) 34,616 (656) 9,065 (4,944) 842,834 (6,209)
------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
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
5 Stage 3 gross includes $33 million originated credit-impaired
debt securities
Credit quality analysis (reviewed)
Credit quality by client segment
For the Corporate, Commercial and Institutional Banking
portfolio, 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, Commercial & Institutional Consumer & Business
Banking Private Banking1 Banking3
----------------------------------------------- ---------------- ----------------------
Credit Regulatory
quality Internal S&P external PD range Number of days past
description grade mapping ratings equivalent (%) Internal ratings due
------------- -------------- ------------------- ---------- ---------------- ----------------------
AAA/AA+ to Class I and Current loans (no past
Strong 1A to 5B BBB-/BB+ 0 to 0.425 Class IV dues nor impaired)
------------- -------------- ------------------- ---------- ---------------- ----------------------
Satisfactory 6A to 11C BB+/BB to B-/CCC+ 0.426 to Class II and Loans past due till
2 15.75 Class III 29 days
------------- -------------- ------------------- ---------- ---------------- ----------------------
Higher Grade CCC to C 15.751 to Stressed Assets Past due loans 30 days
risk 12 99.999 Risk 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
2 Banks' rating: BB to CCC/C
3 Medium enterprise clients within Business Banking are managed
using the same internal credit grades as Corporate, Commercial and
Institutional Banking
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.
Page 9
Stage 1
Stage 1 gross loans and advances to customers remained flat
compared with 31 December 2021 and represent an increase of 1.6 per
cent at 93 per cent of loans and advances to customers (2021: 92
per cent). The stage 1 coverage ratio remained at 0.2 per cent
compared with 31 December 2021.
In Corporate, Commercial and Institutional Banking, the
proportion of stage 1 loans has increased to 88 per cent (2021: 85
per cent), and the percentage of stage 1 loans rated as strong is
higher at 65 per cent (2021: 64 per cent) as the Group continues to
focus on the origination of investment grade lending. Stage 1 loans
remained stable at $122 billion which was primarily driven by
decreases in Commercial real estate, Financing and Insurance
sectors, and offset by increases in the Government, Transport,
Telecom and Energy sectors.
Consumer, Private and Business Banking stage 1 loans decreased
by $4 billion mainly due to currency depreciation in Korea and
private banking portfolio decrease in Hong Kong driven by client
de-leveraging and market fluctuation. The proportion rated as
strong remained stable at 96 per cent.
Ventures had an increase of $258 million during the period from
new lending in Mox.
Central and other items segment increased by $4 billion.
Stage 2
Stage 2 loans and advances to customers decreased by $4.3
billion to $12.5 billion (2021: $16.8 billion), primarily in
Corporate, Commercial and Institutional Banking due to exposure
reductions in Energy, Transport, telecom and utilities sectors, and
the proportion of stage 2 loans also reduced to 4 per cent (2021:
5.5 per cent).
Consumer, Private and Business Banking stage 2 loans remained
stable at $1.9 billion.
Stage 2 loans to customers classified as 'Higher risk' decreased
by $0.6 billion, which was driven by lower exposures, upgrades out
of 'higher risk' as well as downgrades to stage 3 primarily as a
result of the downgrade of foreign currency sovereign grading of
Sri Lanka in the first half of 2022.
The overall stage 2 cover ratio remained stable at 3.1 per cent.
Consumer, Private and Business Banking stage 2 cover ratio
decreased to 6.9 per cent (2021: 9.5 per cent), primarily driven by
the release of $37 million of COVID-19 management overlays arising
from the reassessment of residual risk after manifestation of such
risk through individual impairments.
Stage 3
Gross stage 3 loans decreased by $1 billion to $7.1 billion
(2021: $8.1 billion) as a result of loan sales, upgrades and
repayments in Corporate, Commercial and Institutional Banking
offset by the downgrade of foreign currency sovereign grading of
Sri Lanka. Stage 3 cover ratio (excluding collateral) increased by
3 percentage points to 61 per cent.
Consumer, Private and Business Banking stage 3 loans remain
stable.
Page 10
Loans and advances by client segment (reviewed)
30.06.22
---------------- ----------------------------------------------------------------------------------------------------
Customers
--------- -------------------------------------------------------------- ------------ -----------
Corporate, Consumer,
Commercial Private Central
& Institutional & Business & other Customer Undrawn Financial
Banks Banking Banking Ventures items Total commitments Guarantees
Amortised cost $million $million $million $million $million $million $million $million
---------------- --------- ---------------- ----------- --------- --------- --------- ------------ -----------
Stage 1 35,779 121,965 130,104 340 26,727 279,136 157,596 54,991
--------- ---------------- ----------- --------- --------- --------- ------------ -----------
- Strong 24,145 79,442 125,633 339 26,628 232,042 140,232 40,220
- Satisfactory 11,634 42,523 4,471 1 99 47,094 17,364 14,771
--------- ---------------- ----------- --------- --------- --------- ------------ -----------
Stage 2 371 10,488 1,894 5 152 12,539 5,245 2,781
--------- ---------------- ----------- --------- --------- --------- ------------ -----------
- Strong 34 1,614 1,299 3 - 2,916 1,475 347
- Satisfactory 337 8,191 278 1 - 8,470 3,213 2,146
- Higher risk - 683 317 1 152 1,153 557 288
--------- ---------------- ----------- --------- --------- --------- ------------ -----------
Of which (stage
2):
- Less than 30
days past
due - 54 278 1 - 333 - -
- More than 30
days past
due - 8 317 1 - 326 - -
Stage 3,
credit-impaired
financial
assets 78 5,552 1,500 1 - 7,053 - 643
---------------- --------- ---------------- ----------- --------- --------- --------- ------------ -----------
Gross balance(1) 36,228 138,005 133,498 346 26,879 298,728 162,841 58,415
---------------- --------- ---------------- ----------- --------- --------- --------- ------------ -----------
Stage 1 (7) (141) (359) (2) - (502) (37) (16)
--------- ---------------- ----------- --------- --------- --------- ------------ -----------
- Strong (4) (49) (272) (2) - (323) (22) (8)
- Satisfactory (3) (92) (87) - - (179) (15) (8)
--------- ---------------- ----------- --------- --------- --------- ------------ -----------
Stage 2 (5) (253) (130) - (2) (385) (42) (16)
--------- ---------------- ----------- --------- --------- --------- ------------ -----------
- Strong - (13) (53) - - (66) (6) (1)
- Satisfactory (5) (201) (37) - - (238) (32) (9)
- Higher risk - (39) (40) - (2) (81) (4) (6)
--------- ---------------- ----------- --------- --------- --------- ------------ -----------
Of which (stage
2):
- Less than 30
days past
due - - (37) - - (37) - -
- More than 30
days past
due - - (40) - - (40) - -
Stage 3,
credit-impaired
financial
assets (15) (3,575) (758) - - (4,333) - (190)
---------------- --------- ---------------- ----------- --------- --------- --------- ------------ -----------
Total credit
impairment (27) (3,969) (1,247) (2) (2) (5,220) (79) (222)
---------------- --------- ---------------- ----------- --------- --------- --------- ------------ -----------
Net carrying
value 36,201 134,036 132,251 344 26,877 293,508
---------------- --------- ---------------- ----------- --------- --------- --------- ------------ -----------
Stage 1 0.0% 0.1% 0.3% 0.6% 0.0% 0.2% 0.0% 0.0%
--------- ---------------- ----------- --------- --------- --------- ------------ -----------
- Strong 0.0% 0.1% 0.2% 0.6% 0.0% 0.1% 0.0% 0.0%
- Satisfactory 0.0% 0.2% 1.9% 0.0% 0.0% 0.4% 0.1% 0.1%
--------- ---------------- ----------- --------- --------- --------- ------------ -----------
Stage 2 1.3% 2.4% 6.9% 0.0% 1.3% 3.1% 0.8% 0.6%
--------- ---------------- ----------- --------- --------- --------- ------------ -----------
- Strong 0.0% 0.8% 4.1% 0.0% 0.0% 2.3% 0.4% 0.3%
- Satisfactory 1.5% 2.5% 13.3% 0.0% 0.0% 2.8% 1.0% 0.4%
- Higher risk 0.0% 5.7% 12.6% 0.0% 1.3% 7.0% 0.7% 2.1%
--------- ---------------- ----------- --------- --------- --------- ------------ -----------
Of which (stage
2):
- Less than 30
days past
due 0.0% 0.0% 13.3% 0.0% 0.0% 11.1% 0.0% 0.0%
- More than 30
days past
due 0.0% 0.0% 12.6% 0.0% 0.0% 12.3% 0.0% 0.0%
Stage 3,
credit-impaired
financial
assets (S3) 19.2% 64.4% 50.5% 0.0% 0.0% 61.4% 0.0% 29.5%
---------------- --------- ---------------- ----------- --------- --------- --------- ------------ -----------
Cover ratio 0.1% 2.9% 0.9% 0.6% 0.0% 1.7% 0.0% 0.4%
---------------- --------- ---------------- ----------- --------- --------- --------- ------------ -----------
Fair value
through profit
or loss
Performing 26,439 58,280 42 - 2,639 60,961 - -
--------- ---------------- ----------- --------- --------- --------- ------------ -----------
- Strong 22,848 51,561 42 - 2,638 54,241 - -
- Satisfactory 3,591 6,655 - - 1 6,656 - -
- Higher risk - 64 - - - 64 - -
--------- ---------------- ----------- --------- --------- --------- ------------ -----------
Defaulted
(CG13-14) - 5 - - - 5 - -
---------------- --------- ---------------- ----------- --------- --------- --------- ------------ -----------
Gross balance
(FVTPL)2 26,439 58,285 42 - 2,639 60,966 - -
---------------- --------- ---------------- ----------- --------- --------- --------- ------------ -----------
Net carrying
value (incl
FVTPL) 62,640 192,321 132,293 344 29,516 354,474 - -
---------------- --------- ---------------- ----------- --------- --------- --------- ------------ -----------
1 Loans and advances includes reverse repurchase agreements and
other similar secured lending of $7,894 million under Customers and
of $795 million under Banks,
held at amortised cost
2 Loans and advances includes reverse repurchase agreements and
other similar secured lending of $52,521 million under Customers
and of $21,877 million under Banks, held at fair value through
profit or loss
Page 11
31.12.21 (Restated)1
---------------- -----------------------------------------------------------------------------------------------------
Customers
---------- --------------------------------------------------------------- ----------- -----------
Corporate, Consumer,
Commercial Private Central
& Institutional & Business & other Customer Undrawn Financial
Banks Banking Banking1 Ventures1 items Total commitments Guarantees
Amortised cost $million $million $million $million $million $million $million $million
---------------- ---------- --------------- ---------- ---------- ---------- ---------- ----------- -----------
Stage 1 43,776 122,368 134,289 82 22,439 279,178 149,530 54,923
---------- --------------- ---------- ---------- ---------- ---------- ----------- -----------
- Strong 30,813 77,826 129,486 82 22,333 229,727 132,274 37,418
- Satisfactory 12,963 44,542 4,803 - 106 49,451 17,256 17,505
---------- --------------- ---------- ---------- ---------- ---------- ----------- -----------
Stage 2 580 14,818 1,912 9 110 16,849 8,993 2,813
---------- --------------- ---------- ---------- ---------- ---------- ----------- -----------
- Strong 126 2,366 1,253 - - 3,619 2,786 714
- Satisfactory 105 11,180 308 - - 11,488 5,235 1,546
- Higher risk 349 1,272 351 9 110 1,742 972 553
---------- --------------- ---------- ---------- ---------- ---------- ----------- -----------
Of which (stage
2):
- Less than 30
days past
due - 77 308 - - 385 - -
- More than 30
days past
due - 49 351 9 - 409 - -
Stage 3,
credit-impaired
financial
assets 54 6,520 1,575 - - 8,095 - 799
---------------- ---------- --------------- ---------- ---------- ---------- ---------- ----------- -----------
Gross balance2 44,410 143,706 137,776 91 22,549 304,122 158,523 58,535
---------------- ---------- --------------- ---------- ---------- ---------- ---------- ----------- -----------
Stage 1 (12) (103) (369) (1) - (473) (42) (15)
---------- --------------- ---------- ---------- ---------- ---------- ----------- -----------
- Strong (4) (58) (282) (1) - (341) (23) (5)
- Satisfactory (8) (45) (87) - - (132) (19) (10)
---------- --------------- ---------- ---------- ---------- ---------- ----------- -----------
Stage 2 (4) (341) (181) (2) - (524) (60) (22)
---------- --------------- ---------- ---------- ---------- ---------- ----------- -----------
- Strong (2) (62) (104) - - (166) (6) (1)
- Satisfactory (2) (179) (32) - - (211) (46) (9)
- Higher risk - (100) (45) (2) - (147) (8) (12)
---------- --------------- ---------- ---------- ---------- ---------- ----------- -----------
Of which (stage
2):
- Less than 30
days past
due - (2) (32) - - (34) - -
- More than 30
days past
due - (3) (45) (2) - (50) - -
Stage 3,
credit-impaired
financial
assets (11) (3,861) (796) - - (4,657) - (207)
---------------- ---------- --------------- ---------- ---------- ---------- ---------- ----------- -----------
Total credit
impairment (27) (4,305) (1,346) (3) - (5,654) (102) (244)
---------------- ---------- --------------- ---------- ---------- ---------- ---------- ----------- -----------
Net carrying
value 44,383 139,401 136,430 88 22,549 298,468
---------------- ---------- --------------- ---------- ---------- ---------- ---------- ----------- -----------
Stage 1 0.0% 0.1% 0.3% 1.2% 0.0% 0.2% 0.0% 0.0%
---------- --------------- ---------- ---------- ---------- ---------- ----------- -----------
- Strong 0.0% 0.1% 0.2% 1.2% 0.0% 0.1% 0.0% 0.0%
- Satisfactory 0.1% 0.1% 1.8% 0.0% 0.0% 0.3% 0.1% 0.1%
---------- --------------- ---------- ---------- ---------- ---------- ----------- -----------
Stage 2 0.7% 2.3% 9.5% 22.2% 0.0% 3.1% 0.7% 0.8%
---------- --------------- ---------- ---------- ---------- ---------- ----------- -----------
- Strong 1.6% 2.6% 8.3% 0.0% 0.0% 4.6% 0.2% 0.1%
- Satisfactory 1.9% 1.6% 10.4% 0.0% 0.0% 1.8% 0.9% 0.6%
- Higher risk 0.0% 7.9% 12.8% 22.2% 0.0% 8.4% 0.8% 2.2%
---------- --------------- ---------- ---------- ---------- ---------- ----------- -----------
Of which (stage
2):
- Less than 30
days past
due 0.0% 2.6% 10.4% 0.0% 0.0% 8.8% 0.0% 0.0%
- More than 30
days past
due 0.0% 6.1% 13.1% 0.0% 0.0% 12.2% 0.0% 0.0%
Stage 3,
credit-impaired
financial
assets (S3) 20.4% 59.2% 50.5% 0.0% 0.0% 57.5% 0.0% 25.9%
---------------- ---------- --------------- ---------- ---------- ---------- ---------- ----------- -----------
Cover ratio 0.1% 3.0% 1.0% 3.3% 0.0% 1.9% 0.1% 0.4%
---------------- ---------- --------------- ---------- ---------- ---------- ---------- ----------- -----------
Fair value
through profit
or loss
Performing 22,574 69,356 67 - 1,774 71,197 - -
---------- --------------- ---------- ---------- ---------- ---------- ----------- -----------
- Strong 20,132 53,756 67 - 1,772 55,595 - -
- Satisfactory 2,442 15,600 - - 2 15,602 - -
- Higher risk - - - - - - - -
---------- --------------- ---------- ---------- ---------- ---------- ----------- -----------
Defaulted
(CG13-14) - 38 - - - 38 - -
---------------- ---------- --------------- ---------- ---------- ---------- ---------- ----------- -----------
Gross balance
(FVTPL)3 22,574 69,394 67 - 1,774 71,235 - -
---------------- ---------- --------------- ---------- ---------- ---------- ---------- ----------- -----------
Net carrying
value (incl
FVTPL) 66,957 208,795 136,497 88 24,323 369,703 - -
---------------- ---------- --------------- ---------- ---------- ---------- ---------- ----------- -----------
1 Following the increased strategic importance and reporting of
Ventures to management, this has been established as a separate
operating segment from 1 January 2022. Prior period has been
restated
2 Loans and advances includes reverse repurchase agreements and
other similar secured lending of $7,331 million under Customers and
of $1,079 million under Banks, held at amortised cost
3 Loans and advances includes reverse repurchase agreements and
other similar secured lending of $61,282 million under Customers
and of $18,727 million under Banks, held at fair value through
profit or loss
Page 12
Loans and advances by client segment credit quality analysis
Corporate, Commercial & Institutional Banking
------------ ------------- ---------------- -----------------------------------------------------------------------
30.06.22
-----------------------------------------------------------------------
Gross Credit impairment
----------------------------------- ----------------------------------
Regulatory
1 year S&P external
Credit PD range ratings Stage Stage Stage Stage Stage Stage
grade (%) equivalent 1 2 3 Total 1 2 3 Total
------------ ------------- ---------------- -------- ------- ------ -------- ------ ------ -------- --------
Strong 74,992 1,614 - 81,056 (49) (13) - 62
1A-2B 0 - 0.045 AA- and above 10,107 166 - 10,273 (1) - - (1)
3A-4A 0.046 - 0.110 A+ to A- 27,589 383 - 27,972 (5) (1) - (6)
4B-5B 0.111 - 0.425 BBB+ to BBB-/BB+ 41,746 1,065 - 42,811 (43) (12) - (55)
Satisfactory 42,523 8,191 - 50,714 (92) (201) - (293)
6A-7B 0.426 - 1.350 BB+/BB to BB- 24,525 2,077 - 26,602 (71) (64) - (135)
8A-9B 1.351 - 4.000 BB-/B+ to B+/B 12,998 3,425 - 16,423 (13) (75) - (88)
10A-11C 4.001 - 15.75 B to B-/CCC 5,000 2,689 - 7,689 (8) (62) - (70)
Higher
risk - 683 - 683 - (39) - (39)
15.751 -
12 99.999 CCC/C - 683 - 683 - (39) - (39)
Defaulted - - 5,552 5,552 - - (3,575) (3,575)
13-14 100 Defaulted - - 5,552 5,552 - - (3,575) (3,575)
------------ ------------- ---------------- -------- ------- ------ -------- ------ ------ -------- --------
Total 121,965 10,488 5,552 138,005 (141) (253) (3,575) (3,969)
------------ ------------- ---------------- -------- ------- ------ -------- ------ ------ -------- --------
31.12.21
------------ ------------- ------------------- ---------------------------------------------------------------
Gross Credit impairment
------------------------------- ------------------------------
Regulatory
1 year
Credit PD range S&P external Stage Stage Stage Stage Stage Stage
grade (%) ratings equivalent 1 2 3 Total 1 2 3 Total
------------ ------------- ------------------- ------- ------ ----- ------- ----- ----- ------- -------
Strong 77,826 2,366 - 80,192 (58) (62) - (120)
1A-2B 0 - 0.045 AA- and above 14,013 216 - 14,229 (1) - - (1)
3A-4A 0.046 - 0.110 A+ to A- 23,173 515 - 23,688 (3) - - (3)
4B-5B 0.111 - 0.425 BBB+ to BBB-/BB+ 40,640 1,635 - 42,275 (54) (62) - (116)
Satisfactory 44,542 11,180 - 55,722 (45) (179) - (224)
6A-7B 0.426 - 1.350 BB+/BB to BB- 27,009 2,894 - 29,903 (21) (40) - (61)
8A-9B 1.351 - 4.000 BB-/B+ to B+/B 11,910 5,592 - 17,502 (13) (90) - (103)
10A-11C 4.001 - 15.75 B to B-/CCC 5,623 2,694 - 8,317 (11) (49) - (60)
Higher
risk - 1,272 - 1,272 - (100) - (100)
15.751 -
12 99.999 CCC/C - 1,272 - 1,272 - (100) - (100)
Defaulted - - 6,520 6,520 - - (3,861) (3,861)
13-14 100 Defaulted - - 6,520 6,520 - - (3,861) (3,861)
------------ ------------- ------------------- ------- ------ ----- ------- ----- ----- ------- -------
Total 122,368 14,818 6,520 143,706 (103) (341) (3,861) (4,305)
------------ ------------- ------------------- ------- ------ ----- ------- ----- ----- ------- -------
Page 13
Consumer, Private & Business Banking
------------- ------------------------------------------------------------
30.06.22
------------------------------------------------------------
Gross Credit impairment
------------------------------ ----------------------------
Stage Stage Stage Stage Stage Stage
Credit grade 1 2 3 Total 1 2 3 Total
------------- ------- ----- ----- ------- ----- ----- ----- -------
Strong 125,633 1,299 - 126,932 (272) (53) - (325)
Secured 108,782 966 - 109,748 (54) (8) - (62)
Unsecured 16,851 333 - 17,184 (218) (45) - (263)
Satisfactory 4,471 278 - 4,749 (87) (37) - (124)
Secured 4,152 160 - 4,312 (26) (1) - (27)
Unsecured 319 118 - 437 (61) (36) - (97)
Higher risk - 317 - 317 - (40) - (40)
Secured - 210 - 210 - (4) - (4)
Unsecured - 107 - 107 - (36) - (36)
Defaulted - - 1,500 1,500 - - (758) (758)
Secured 1,040 1,040 (539) (539)
Unsecured - - 460 460 - - (219) (219)
------------- ------- ----- ----- ------- ----- ----- ----- -------
Total 130,104 1,894 1,500 133,498 (359) (130) (758) (1,247)
------------- ------- ----- ----- ------- ----- ----- ----- -------
31.12.21 (Restated1)
------------- ------------------------------------------------------------
Gross Credit impairment
------------------------------ ----------------------------
Stage Stage Stage Stage Stage Stage
Credit grade 1 2 3 Total 1 2 3 Total
------------- ------- ----- ----- ------- ----- ----- ----- -------
Strong 129,486 1,253 - 130,739 (282) (104) - (386)
Secured 112,167 884 - 113,051 (48) (19) - (67)
Unsecured 17,319 369 - 17,688 (234) (85) - (319)
Satisfactory 4,803 308 - 5,111 (87) (32) - (119)
Secured 4,524 164 - 4,688 (44) (1) - (45)
Unsecured 279 144 - 423 (43) (31) - (74)
Higher risk - 351 - 351 - (45) - (45)
Secured - 250 - 250 - (11) - (11)
Unsecured - 101 - 101 - (34) - (34)
Defaulted - - 1,575 1,575 - - (796) (796)
Secured 1,107 1,107 (516) (516)
Unsecured - - 468 468 - - (280) (280)
------------- ------- ----- ----- ------- ----- ----- ----- -------
Total 134,289 1,912 1,575 137,776 (369) (181) (796) (1,346)
------------- ------- ----- ----- ------- ----- ----- ----- -------
1 Following the increased strategic importance and reporting of
Ventures to management, this has been established as a separate
operating segment from 1 January 2022. Prior period has been
restated
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
30.06.22 31.12.21
-------------------- -------------------------------------------- --------------------------------------------
Africa Africa
& Middle Europe & Middle Europe
Asia East & Americas Total Asia East & Americas Total
Amortised cost $million $million $million $million $million $million $million $million
-------------------- --------- --------- ----------- --------- --------- --------- ----------- ---------
Gross (stage 1) 234,063 20,969 24,104 279,136 235,123 19,990 24,065 279,178
Provision (stage 1) (400) (74) (28) (502) (371) (86) (16) (473)
Gross (stage 2) 8,108 2,733 1,698 12,539 8,779 4,077 3,993 16,849
Provision (stage 2) (261) (73) (51) (385) (318) (137) (69) (524)
Gross (stage 3)2 3,961 2,758 334 7,053 4,448 2,918 729 8,095
Provision (stage 3) (2,236) (1,844) (253) (4,333) (2,400) (1,970) (287) (4,657)
-------------------- --------- --------- ----------- --------- --------- --------- ----------- ---------
Net loans1 243,235 24,469 25,804 293,508 245,261 24,792 28,415 298,468
-------------------- --------- --------- ----------- --------- --------- --------- ----------- ---------
1 Includes reverse repurchase agreements and other similar
secured lending
2 Amounts do not include those purchased or originated
credit-impaired financial assets
Page 14
Loans and advances to banks
30.06.22 31.12.21
-------------------- -------------------------------------------- --------------------------------------------
Africa Africa
& Middle Europe & Middle Europe
Asia East & Americas Total Asia East & Americas Total
Amortised cost $million $million $million $million $million $million $million $million
-------------------- --------- --------- ----------- --------- --------- --------- ----------- ---------
Gross (stage 1) 22,556 4,905 8,318 35,779 29,916 5,828 8,032 43,776
Provision (stage 1) (3) (2) (2) (7) (3) (5) (4) (12)
Gross (stage 2) 85 139 147 371 346 144 90 580
Provision (stage 2) (2) - (3) (5) (1) (1) (2) (4)
Gross (stage 3) 67 1 10 78 54 - - 54
Provision (stage 3) (15) - - (15) (11) - - (11)
-------------------- --------- --------- ----------- --------- --------- --------- ----------- ---------
Gross loans1 22,688 5,043 8,470 36,201 30,301 5,966 8,116 44,383
-------------------- --------- --------- ----------- --------- --------- --------- ----------- ---------
1 Includes reverse repurchase agreements and other similar
secured lending
Movement in gross exposures and credit impairment for loans and
advances, debt securities, undrawn commitments and financial
guarantees (reviewed)
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 commitments, financial guarantees and
debt securities classified at amortised cost and FVOCI. The tables
are presented for the Group, debt securities and other eligible
bills.
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 , Commercial
and Institutional 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 and movements
in judgemental overlays. 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.
Page 15
Movements during the period
Stage 1 gross exposures increased by $2 billion to $687 billion
when compared with 31 December 2021. This was largely due to an
increase in debt securities of $1.9 billion which was offset by
reductions in Corporate, Commercial and Institutional Banking and
Consumer, Private and Business Banking. In Corporate, Commercial
and Institutional Banking, loans and advances to customers remained
stable but loans and advances to banks reduced by $8 billion offset
by an increase of $3.4 billion in undrawn commitments. In Consumer,
Private and Business Banking, loans and advances reduced by $4.3
billion due to reductions in secured portfolio from Mortgages and
Secured Wealth products offset by an increase in undrawn
commitments.
Total stage 1 provisions increased by $14 million, of which $31
million increase was in Corporate, Commercial and Institutional
Banking from additional China Commercial real estate overlay of $33
million offset by releases. Consumer, Private and Business Banking
was a net release of $10 million due to $31 million release in
management overlay for the impact of COVID-19 in unsecured
portfolio as the risk has manifested, offset by $14 million charge
due to post model adjustment for multiple economic scenarios and
delinquencies across a few markets.
Stage 2 gross exposures decreased by $8.8 billion, of which $6.7
billion is from Corporate, Commercial and Institutional Banking as
clients as loans and advances reduced by $4 billion in Energy,
Transport, telecom and utilities sectors and undrawn commitments
reduced by $2 billion. In Consumer, Private and Business Banking,
gross balances reduced by $1.7 billion largely in secured portfolio
due to reduction in undrawn commitments.
Stage 2 provisions reduced by $170 million compared to 31
December 2021, $111 million of which was in Corporate, Commercial
and Institutional Banking as a result of $42 million release in
management overlay as non-purely precautionary early alert
portfolio has reduced due to exits and exposure downgrades, with
the remainder mainly from upgrades in stage 2. Consumer, Private
and Business Banking stage 2 provisions also reduced by $56 million
from releases in management overlay after reassessment of residual
risk in certain markets, offset by delinquencies in some Asia
markets due to fresh COVID-19 related lockdowns and $8 million
charge from post model adjustment for multiple economic
scenarios.
Across both stage 1 and 2 for all segments, the significant
deterioration in macroeconomic forecasts across all markets
increased provisions by $19 million.
There was a net nil impact from model changes in the first half
of 2022.
Stage 3 exposures decreased by $1.2 billion to $7.9 billion
(2021: $9.1 billion) primarily driven by Corporate, Commercial and
Institutional Banking clients from loan sales, repayments and
upgrades. Stage 3 provisions decreased by $333 million to $4.6
billion (2021: $4.9 billion)mainly in Corporate, Commercial and
Institutional Banking due to exposure reductions offset by an
increase in provisions on China Commercial real estate
portfolio.
Page 16
All segments (reviewed)
Stage 1 Stage 2 Stage 35 Total
------------------ ----------------------------------- ----------------------------------- ----------------------------------- -----------------------------------
Total Total Total Total
Gross credit Gross credit Gross credit Gross credit
balance3 impair-ment Net balance3 impair-ment Net balance3 impair-ment Net balance3 impair-ment Net
Amortised cost
and FVOCI $million $million $million $million $million $million $million $million $million $million $million $million
------------------ ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------- ----------
As at 1 January
2021 642,960 (663) 642,297 39,787 (881) 38,906 10,100 (5,593) 4,507 692,847 (7,137) 685,710
Transfers to
stage 1 25,975 (620) 25,355 (25,924) 620 (25,304) (51) - (51) - - -
Transfers to
stage 2 (53,994) 211 (53,783) 54,335 (220) 54,115 (341) 9 (332) - - -
Transfers to
stage 3 (212) 3 (209) (2,822) 335 (2,487) 3,034 (338) 2,696 - - -
----------- ----------- ----------- -----------
Net change in
exposures 84,288 (132) 84,156 (30,551) 169 (30,382) (2,429) 661 (1,768) 51,308 698 52,006
Net remeasurement
from stage
changes - 54 54 - (157) (157) - (212) (212) - (315) (315)
Changes in risk
parameters - 79 79 - (89) (89) - (915) (915) - (925) (925)
----------- ----------- ----------- -----------
Write-offs - - - - - - (1,215) 1,215 - (1,215) 1,215 -
Interest due
but unpaid - - - - - - (189) 189 - (189) 189 -
Discount unwind - - - - - - - 227 227 - 227 227
Exchange
translation
differences and
other
movements(1) (14,258) 459 (13,799) (275) (429) (704) 152 (184) (32) (14,381) (154) (14,535)
------------------ ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------- ----------
As at 31 December
2021(2) 684,759 (609) 684,150 34,550 (652) 33,898 9,061 (4,941) 4,120 728,370 (6,202) 722,168
------------------ ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------- ----------
Income statement
ECL
(charge)/release 1 (77) (466) (542)
Recoveries of
amounts
previously
written off - - 288 288
------------------ ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------- ----------
Total credit
impairment
(charge)/release 1 (77) (178) (254)
------------------ ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------- ----------
As at 1 January
2022 684,759 (609) 684,150 34,550 (652) 33,898 9,061 (4,941) 4,120 728,370 (6,202) 722,168
Transfers to
stage 1 15,825 (285) 15,540 (15,797) 285 (15,512) (28) - (28) - - -
Transfers to
stage 2 (23,623) 109 (23,514) 24,047 (120) 23,927 (424) 11 (413) - - -
Transfers to
stage 3 (88) - (88) (1,232) 101 (1,131) 1,320 (101) 1,219 - - -
----------- ----------- ----------- -----------
Net change in
exposures 33,424 (47) 33,377 (14,431) 31 (14,400) (868) 214 (654) 18,125 198 18,323
Net remeasurement
from stage
changes - 31 31 - (93) (93) - (148) (148) - (210) (210)
Changes in risk
parameters - 33 33 - 59 59 - (474) (474) - (382) (382)
----------- ----------- ----------- -----------
Write-offs - - - - - - (581) 581 - (581) 581 -
Interest due
but unpaid - - - - - - (189) 189 - (189) 189 -
Discount unwind - - - - - - - 65 65 - 65 65
Exchange
translation
differences and
other
movements(1) (23,530) 145 (23,385) (1,348) (93) (1,441) (411) (4) (415) (25,289) 48 (25,241)
------------------ ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------- ----------
As at 30 June
2022(2) 686,767 (623) 686,144 25,789 (482) 25,307 7,880 (4,608) 3,272 720,436 (5,713) 714,723
------------------ ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------- ----------
Income statement
ECL
(charge)/release 17 (3) (408) (394)
Recoveries of
amounts
previously
written off - - 131 131
------------------ ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------- ----------
Total credit
impairment
(charge)/release4 17 (3) (277) (263)
------------------ ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------- ----------
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 gross balances of $120,060
million (2021: $114,464 million) and
Total credit impairment of $7 million (2021: $7 million)
3 The gross balance includes the notional amount of off -balance
sheet instruments
4 Statutory basis
5 Stage 3 includes gross of $28 million (2021: $33 million) and
ECL $6 million (2021: Nil) originated credit-impaired debt
securities
Page 17
Of which - movement of debt securities, alternative tier one and
other eligible bills (reviewed)
Stage 1 Stage 2 Stage 3 Total
------------------ ----------------------------------- ----------------------------------- ----------------------------------- -----------------------------------
Total Total Total Total
Gross credit Gross credit Gross credit Gross credit
balance impair-ment Net balance impair-ment Net balance impair-ment Net balance impair-ment Net3
Amortised cost
and FVOCI $million $million $million $million $million $million $million $million $million $million $million $million
------------------ ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------- ----------
As at 1 January
2021 149,316 (56) 149,260 3,506 (26) 3,480 114 (58) 56 152,936 (140) 152,796
Transfers to
stage 1 403 (11) 392 (403) 11 (392) - - - - - -
Transfers to
stage 2 (2,358) 16 (2,342) 2,358 (16) 2,342 - - - - - -
Transfers to
stage 3 - - - - - - - - - - - -
----------- ----------- ----------- -----------
Net change in
exposures2 14,670 (39) 14,631 (155) (11) (166) - 1 1 14,515 (49) 14,466
Net remeasurement
from stage
changes - 13 13 - (17) (17) - - - - (4) (4)
Changes in risk
parameters - 21 21 - 8 8 - (3) (3) - 26 26
----------- ----------- ----------- -----------
Write-offs - - - - - - - - - - - -
Interest due
but unpaid - - - - - - - - - - - -
Exchange
translation
differences and
other movements1 (4,679) (11) (4,690) 9 9 18 (1) (6) (7) (4,671) (8) (4,679)
------------------ ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------- ----------
As at 31 December
2021 157,352 (67) 157,285 5,315 (42) 5,273 113 (66) 47 162,780 (175) 162,605
------------------ ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------- ----------
Income statement
ECL
(charge)/release1 (5) (20) (2) (27)
Recoveries of
amounts previously
written off - - - -
------------------ ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------- ----------
Total credit
impairment
(charge)/release (5) (20) (2) (27)
------------------ ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------- ----------
As at 1 January
2022 157,352 (67) 157,285 5,315 (42) 5,273 113 (66) 47 162,780 (175) 162,605
Transfers to
stage 1 1,410 (17) 1,393 (1,410) 17 (1,393) - - - - - -
Transfers to
stage 2 (1,470) 6 (1,464) 1,470 (6) 1,464 - - - - - -
Transfers to
stage 3 - - - - - - - - - - - -
----------- ----------- ----------- -----------
Net change in
exposures2 10,054 (19) 10,035 (135) (7) (142) - 1 1 9,919 (25) 9,894
Net remeasurement
from stage
changes - 9 9 - (2) (2) - - - - 7 7
Changes in risk
parameters - 15 15 - 4 4 - - - - 19 19
----------- ----------- ----------- -----------
Write-offs - - - - - - - - - - - -
Interest due
but unpaid - - - - - - - - - - - -
Exchange
translation
differences and
other movements1 (8,081) 12 (8,069) (387) 2 (385) (7) (5) (12) (8,475) 9 (8,466)
------------------ ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------- ----------
As at 30 June
2022 159,265 (61) 159,204 4,853 (34) 4,819 106 (70) 36 164,224 (165) 164,059
------------------ ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------- ----------
Income statement
ECL
(charge)/release 5 (5) 1 1
Recoveries of
amounts previously
written off - - - -
------------------ ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------- ----------
Total credit
impairment
(charge)/release 5 (5) 1 1
------------------ ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------- ----------
1 Includes fair value adjustments and amortisation on debt
securities
2 Stage 3 includes gross of $28 million (2021: $33 million) and
ECL $6 million (2021: Nil) originated credit-impaired debt
securities
3 FVOCI instruments are not presented net of ECL . While the
presentation is on a net basis for the table , the total net
on-balance sheet amount to $164,137 million (31 December 2021:
$162,700 million. Refer to the Analysis of financial instrument by
stage table
Page 18
Corporate, Commercial & Institutional Banking (reviewed)
Stage 1 Stage 2 Stage 3 Total
----------------- ----------------------------------- ----------------------------------- ----------------------------------- -----------------------------------
Total Total Total Total
Gross credit Gross credit Gross credit Gross credit
balance1 impair-ment Net balance1 impair-ment Net balance1 impair-ment Net balance1 impair-ment Net
Amortised cost
and FVOCI $million $million $million $million $million $million $million $million $million $million $million $million
----------------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------- ----------
As at 1 January
2021 292,453 (154) 292,299 31,742 (599) 31,143 8,422 (4,803) 3,619 332,617 (5,556) 327,061
Transfers to
stage 1 21,123 (243) 20,880 (21,123) 243 (20,880) - - - - - -
Transfers to
stage 2 (45,354) 103 (45,251) 45,556 (112) 45,444 (202) 9 (193) - - -
Transfers to
stage 3 (69) - (69) (1,989) 164 (1,825) 2,058 (164) 1,894 - - -
----------- ----------- ----------- -----------
Net change in
exposures 50,762 (62) 50,700 (28,447) 133 (28,314) (2,082) 636 (1,446) 20,233 707 20,940
Net remeasurement
from stage
changes - 1 1 - (27) (27) - (145) (145) - (171) (171)
Changes in risk
parameters - 41 41 - (105) (105) - (434) (434) - (498) (498)
----------- ----------- ----------- -----------
Write-offs - - - - - - (510) 510 - (510) 510 -
Interest due
but unpaid - - - - - - (224) 224 - (224) 224 -
Discount unwind - - - - - - - 191 191 - 191 191
Exchange
translation
differences and
other movements (5,783) 151 (5,632) (302) (122) (424) (90) (103) (193) (6,175) (74) (6,249)
----------------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------- ----------
As at 31 December
2021 313,132 (163) 312,969 25,437 (425) 25,012 7,372 (4,079) 3,293 345,941 (4,667) 341,274
----------------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------- ----------
Income statement
ECL
(charge)/release (20) 1 57 38
Recoveries of
amounts
previously
written off - - 19 19
----------------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------- ----------
Total credit
impairment
(charge)/release (20) 1 76 57
----------------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------- ----------
As at 1 January
2022 313,132 (163) 312,969 25,437 (425) 25,012 7,372 (4,079) 3,293 345,941 (4,667) 341,274
Transfers to
stage 1 11,236 (102) 11,134 (11,236) 102 (11,134) - - - - - -
Transfers to
stage 2 (19,360) 59 (19,301) 19,745 (71) 19,674 (385) 12 (373) - - -
Transfers to
stage 3 - - - (936) 28 (908) 936 (28) 908 - - -
----------- ----------- ----------- -----------
Net change in
exposures 10,908 (22) 10,886 (13,454) 31 (13,423) (748) 213 (535) (3,294) 222 (3,072)
Net remeasurement
from stage
changes - 2 2 - (45) (45) - (135) (135) - (178) (178)
Changes in risk
parameters - (8) (8) - 102 102 - (324) (324) - (230) (230)
----------- ----------- ----------- -----------
Write-offs - - - - - - (318) 318 - (318) 318 -
Interest due
but unpaid - - - - - - (195) 195 - (195) 195 -
Discount unwind - - - - - - - 52 52 - 52 52
Exchange
translation
differences and
other movements (7,498) 40 (7,458) (806) (36) (842) (390) (4) (394) (8,694) - (8,694)
----------------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------- ----------
As at 30 June
2022 308,418 (194) 308,224 18,750 (314) 18,436 6,272 (3,780) 2,492 333,440 (4,288) 329,152
----------------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------- ----------
Income statement
ECL
(charge)/release (28) 88 (246) (186)
Recoveries of
amounts
previously
written off - - 5 5
----------------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------- ----------
Total credit
impairment
(charge)/release (28) 88 (241) (181)
----------------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------- ----------
1 The gross balance includes the notional amount of off-balance
sheet instruments
Page 19
Consumer, Private and Business Banking (restated1)
(reviewed)
Stage 1 Stage 2 Stage 3 Total
----------------- ----------------------------------- ----------------------------------- ----------------------------------- -----------------------------------
Total Total Total Total
Gross credit Gross credit Gross credit Gross credit
balance2 impair-ment Net balance2 impair-ment Net balance2 impair-ment Net balance2 impair-ment Net
Amortised cost
and FVOCI $million $million $million $million $million $million $million $million $million $million $million $million
----------------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------- ----------
As at 1 January
2021 182,044 (445) 181,599 4,534 (259) 4,275 1,561 (730) 831 188,139 (1,434) 186,705
Transfers to
stage 1 4,450 (365) 4,085 (4,399) 365 (4,034) (51) - (51) - - -
Transfers to
stage 2 (6,270) 89 (6,181) 6,409 (89) 6,320 (139) - (139) - - -
Transfers to
stage 3 (144) 2 (142) (833) 172 (661) 977 (174) 803 - - -
----------- ----------- ----------- -----------
Net change in
exposures 14,055 (28) 14,027 (2,060) 47 (2,013) (347) 24 (323) 11,648 43 11,691
Net remeasurement
from stage
changes - 40 40 - (113) (113) - (66) (66) - (139) (139)
Changes in risk
parameters - 17 17 - 8 8 - (480) (480) - (455) (455)
----------- ----------- ----------- -----------
Write-offs - - - - - - (705) 705 - (705) 705 -
Interest due
but unpaid - - - - - - 35 (35) - 35 (35) -
Discount unwind - - - - - - - 36 36 - 36 36
Exchange
translation
differences and
other movements (3,275) 313 (2,962) 24 (316) (292) 247 (77) 170 (3,004) (80) (3,084)
----------------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------- ----------
As at 31 December
2021 190,860 (377) 190,483 3,675 (185) 3,490 1,578 (797) 781 196,113 (1,359) 194,754
----------------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------- ----------
Income statement
ECL
(charge)/release 29 (58) (522) (551)
Recoveries of
amounts
previously
written off - - 269 269
----------------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------- ----------
Total credit
impairment
(charge)/release 29 (58) (253) (282)
----------------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------- ----------
As at 1 January
2022 190,860 (377) 190,483 3,675 (185) 3,490 1,578 (797) 781 196,113 (1,359) 194,754
Transfers to
stage 1 3,175 (165) 3,010 (3,147) 165 (2,982) (28) - (28) - - -
Transfers to
stage 2 (2,792) 43 (2,749) 2,831 (43) 2,788 (39) - (39) - - -
Transfers to
stage 3 (88) - (88) (296) 73 (223) 384 (73) 311 - - -
----------- ----------- ----------- -----------
Net change in
exposures 5,638 (6) 5,632 (944) 7 (937) (121) - (121) 4,573 1 4,574
Net remeasurement
from stage
changes - 20 20 - (46) (46) - (12) (12) - (38) (38)
Changes in risk
parameters - 29 29 - (47) (47) - (150) (150) - (168) (168)
----------- ----------- ----------- -----------
Write-offs - - - - - - (262) 262 - (262) 262 -
Interest due
but unpaid - - - - - - 3 (3) - 3 (3) -
Discount unwind - - - - - - - 13 13 - 13 13
Exchange
translation
differences and
other movements (7,396) 89 (7,307) (101) (53) (154) (12) 4 (8) (7,509) 40 (7,469)
----------------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------- ----------
As at 30 June
2022 189,397 (367) 189,030 2,018 (129) 1,889 1,503 (756) 747 192,918 (1,252) 191,666
----------------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------- ----------
Income statement
ECL
(charge)/release 43 (86) (162) (205)
Recoveries of
amounts
previously
written off - - 126 126
----------------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------- ----------
Total credit
impairment
(charge)/release 43 (86) (36) (79)
----------------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------- ----------
1 Following the increased strategic importance and reporting of
Ventures to management, this has been established as a separate
operating segment from 2022. Prior period has been restated
2 The gross balance includes the notional amount of off-balance
sheet instruments
Page 20
Consumer, Private and Business Banking - Secured (restated1)
(reviewed)
Stage 1 Stage 2 Stage 3 Total
----------------- ----------------------------------- ----------------------------------- ----------------------------------- -----------------------------------
Total Total Total Total
Gross credit Gross credit Gross credit Gross credit
balance2 impair-ment Net balance2 impair-ment Net balance2 impair-ment Net balance2 impair-ment Net
Amortised cost
and FVOCI $million $million $million $million $million $million $million $million $million $million $million $million
----------------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------- ----------
As at 1 January
2021 127,448 (72) 127,376 3,363 (52) 3,311 1,058 (418) 640 131,869 (542) 131,327
Transfers to
stage 1 2,884 (37) 2,847 (2,843) 37 (2,806) (41) - (41) - - -
Transfers to
stage 2 (3,888) 9 (3,879) 4,007 (9) 3,998 (119) - (119) - - -
Transfers to
stage 3 (107) 1 (106) (400) 8 (392) 507 (9) 498 - - -
----------- ----------- ----------- -----------
Net change in
exposures 13,009 (9) 13,000 (1,452) 3 (1,449) (224) 24 (200) 11,333 18 11,351
Net remeasurement
from stage
changes - (1) (1) - (2) (2) - (1) (1) - (4) (4)
Changes in risk
parameters - 4 4 - 14 14 - (144) (144) - (126) (126)
----------- ----------- ----------- -----------
Write-offs - - - - - - (125) 125 - (125) 125 -
Interest due
but unpaid - - - - - - (3) 3 - (3) 3 -
Discount unwind - - - - - - - 34 34 - 34 34
Exchange
translation
differences and
other movements (2,746) 9 (2,737) 10 (31) (21) 50 (131) (81) (2,686) (153) (2,839)
----------------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------- ----------
As at 31 December
2021 136,600 (96) 136,504 2,685 (32) 2,653 1,103 (517) 586 140,388 (645) 139,743
----------------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------- ----------
Income statement
ECL
(charge)/release (6) 15 (121) (112)
Recoveries of
amounts
previously
written off - - 68 68
----------------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------- ----------
Total credit
impairment
(charge)/release (6) 15 (53) (44)
----------------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------- ----------
As at 1 January
2022 136,600 (96) 136,504 2,685 (32) 2,653 1,103 (517) 586 140,388 (645) 139,743
Transfers to
stage 1 2,212 (21) 2,191 (2,192) 21 (2,171) (20) - (20) - - -
Transfers to
stage 2 (1,622) 13 (1,609) 1,655 (13) 1,642 (33) - (33) - - -
Transfers to
stage 3 (70) - (70) (147) - (147) 217 - 217 - - -
----------- ----------- ----------- -----------
Net change in
exposures 2,392 (4) 2,388 (530) - (530) (84) - (84) 1,778 (4) 1,774
Net remeasurement
from stage
changes - - - - (1) (1) - (2) (2) - (3) (3)
Changes in risk
parameters - (2) (2) - 42 42 - (44) (44) - (4) (4)
----------- ----------- ----------- -----------
Write-offs - - - - - - (52) 52 - (52) 52 -
Interest due
but unpaid - - - - - - 5 (5) - 5 (5) -
Discount unwind - - - - - - - 6 6 - 6 6
Exchange
translation
differences and
other movements (5,457) 25 (5,432) (67) (30) (97) (100) (26) (126) (5,624) (31) (5,655)
----------------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------- ----------
As at 30 June
2022 134,055 (85) 133,970 1,404 (13) 1,391 1,036 (536) 500 136,495 (634) 135,861
----------------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------- ----------
Income statement
ECL
(charge)/release (6) 41 (46) (11)
Recoveries of
amounts
previously
written off - - 35 35
----------------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------- ----------
Total credit
impairment
(charge)/release (6) 41 (11) 24
----------------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------- ----------
1 Following the increased strategic importance and reporting of
Ventures to management, this has been established as a separate
operating segment from 2022. Prior period has been restated
2 The gross balance includes the notional amount of off-balance
sheet instruments
Page 21
Consumer, Private and Business Banking - Unsecured (restated1)
(reviewed)
Stage 1 Stage 2 Stage 3 Total
----------------- ----------------------------------- ----------------------------------- ----------------------------------- -----------------------------------
Total Total Total Total
Gross credit Gross credit Gross credit Gross credit
balance2 impair-ment Net balance2 impair-ment Net balance2 impair-ment Net balance2 impair-ment Net
Amortised cost
and FVOCI $million $million $million $million $million $million $million $million $million $million $million $million
----------------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------- ----------
As at 1 January
2021 54,596 (373) 54,223 1,171 (207) 964 503 (312) 191 56,270 (892) 55,378
Transfers to
stage 1 1,566 (328) 1,238 (1,556) 328 (1,228) (10) - (10) - - -
Transfers to
stage 2 (2,382) 80 (2,302) 2,402 (80) 2,322 (20) - (20) - - -
Transfers to
stage 3 (37) 1 (36) (433) 164 (269) 470 (165) 305 - - -
----------- ----------- ----------- -----------
Net change in
exposures 1,046 (19) 1,027 (608) 44 (564) (123) - (123) 315 25 340
Net remeasurement
from stage
changes - 41 41 - (111) (111) - (65) (65) - (135) (135)
Changes in risk
parameters - 13 13 - (6) (6) - (336) (336) - (329) (329)
----------- ----------- ----------- -----------
Write-offs - - - - - - (580) 580 - (580) 580 -
Interest due
but unpaid - - - - - - 38 (38) - 38 (38) -
Discount unwind - - - - - - - 2 2 - 2 2
Exchange
translation
differences and
other movements (529) 304 (225) 14 (285) (271) 197 54 251 (318) 73 (245)
----------------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------- ----------
As at 31 December
2021 54,260 (281) 53,979 990 (153) 837 475 (280) 195 55,725 (714) 55,011
----------------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------- ----------
Income statement
ECL
(charge)/release 35 (73) (401) (439)
Recoveries of
amounts
previously
written off - - 201 201
----------------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------- ----------
Total credit
impairment
(charge)/release 35 (73) (200) (238)
----------------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------- ----------
As at 1 January
2022 54,260 (281) 53,979 990 (153) 837 475 (280) 195 55,725 (714) 55,011
Transfers to
stage 1 963 (144) 819 (955) 144 (811) (8) - (8) - - -
Transfers to
stage 2 (1,170) 30 (1,140) 1,176 (30) 1,146 (6) - (6) - - -
Transfers to
stage 3 (18) - (18) (149) 73 (76) 167 (73) 94 - - -
----------- ----------- ----------- -----------
Net change in
exposures 3,246 (2) 3,244 (414) 7 (407) (37) - (37) 2,795 5 2,800
Net remeasurement
from stage
changes - 20 20 - (45) (45) - (10) (10) - (35) (35)
Changes in risk
parameters - 31 31 - (89) (89) - (106) (106) - (164) (164)
----------- ----------- ----------- -----------
Write-offs - - - - - - (210) 210 - (210) 210 -
Interest due
but unpaid - - - - - - (2) 2 - (2) 2 -
Discount unwind - - - - - - - 7 7 - 7 7
Exchange
translation
differences and
other movements (1,939) 64 (1,875) (34) (23) (57) 88 30 118 (1,885) 71 (1,814)
----------------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------- ----------
As at 30 June
2022 55,342 (282) 55,060 614 (116) 498 467 (220) 247 56,423 (618) 55,805
----------------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------- ----------
Income statement
ECL
(charge)/release 49 (127) (116) (194)
Recoveries of
amounts
previously
written off - - 91 91
----------------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------- ----------
Total credit
impairment
(charge)/release 49 (127) (25) (103)
----------------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------- ----------
1 Following the increased strategic importance and reporting of
Ventures to management, this has been established as a separate
operating segment from 2022. Prior period has been restated
2 The gross balance includes the notional amount of off-balance
sheet instruments
Page 22
Analysis of stage 2 balances
The table below analyses the proportion of stage 2 gross
exposures and associated expected credit provisions by the key
significant increase in credit risk (SICR) driver that caused the
exposures to be classified as stage 2 as at 30 June 2022 for each
segment. 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'.
30.06.22
------------------ ---------------------------------------------------------------------------------------------------------------------------------------------------------
Corporate,
Commercial Consumer, Private
& Institutional & Central & other
banking Business Banking Ventures items Total
----------------------------- ----------------------------- ----------------------------- ----------------------------- -----------------------------
Gross ECL Cove-rage Gross ECL Cove-rage Gross ECL Cove-rage Gross ECL Cove-rage Gross ECL Cove-rage
$million $million % $million $million % $million $million % $million $million % $million $million %
------------------ -------- -------- --------- -------- -------- --------- -------- -------- --------- -------- -------- --------- -------- -------- ---------
Increase in PD 11,363 174 1.5% 1,137 105 9.2% 3,415 20 0.6% 15,915 299 1.9%
Non-purely
precautionary
early alert 3,496 11 0.3% 72 - 0.5% 1,621 1 0.1% 5,189 12 0.2%
Higher risk (CG12) 474 27 5.8% 16 1 4.5% 679 19 2.8% 1,169 47 4.1%
Sub-investment
grade 205 - 0.1% - - 0.0% - - 0.0% 205 - 0.1%
Top up/Sell down
(Private Banking) 0.0% 422 - 0.1% - 0.0% 422 - 0.1%
Others 3,212 11 0.4% 210 1 0.6% 4 0.0% 166 3 1.6% 3,592 15 0.4%
30 days past
due - 0.0% 160 17 10.5% 1 0.0% - - 0.0% 161 17 10.5%
Management overlay 91 0.0% 5 0.0% - 96
------------------ -------- -------- --------- -------- -------- --------- -------- -------- --------- -------- -------- --------- -------- -------- ---------
Total stage 2 18,750 314 1.7% 2,017 129 6.4% 5 - 0.0% 5,881 43 0.7% 26,653 486 1.8%
------------------ -------- -------- --------- -------- -------- --------- -------- -------- --------- -------- -------- --------- -------- -------- ---------
31.12.21 (Restated)1
------------------ ---------------------------------------------------------------------------------------------------------------------------------------------------------
Corporate,
Commercial Consumer, Private
& Institutional & Central & other
banking Business Banking Ventures items Total
----------------------------- ----------------------------- ----------------------------- ----------------------------- -----------------------------
Gross ECL Cove-rage Gross ECL Cove-rage Gross ECL Cove-rage Gross ECL Cove-rage Gross ECL Cove-rage
$million $million % $million $million % $million $million % $million $million % $million $million %
------------------ -------- -------- --------- -------- -------- --------- -------- -------- --------- -------- -------- --------- -------- -------- ---------
Increase in PD 14,737 187 1.3% 2,704 123 4.5% 4,691 22 0.5% 22,132 332 1.5%
Non-purely
precautionary
early alert 5,000 26 0.5% 83 - 0.0% - - 0.0% 5,083 26 0.5%
Higher risk (CG12) 1,075 37 3.4% 27 1 3.2% 631 20 3.1% 1,733 58 3.3%
Sub-investment
grade 235 1 0.3% - - 0.0% - - 0.0% 235 1 0.3%
Top up/Sell down
(Private Banking) - - 0.0% 493 1 0.2% - - 0.0% 493 1 0.2%
Others 4,390 8 0.2% 178 2 1.2% 173 2 1.3% 4,741 12 0.3%
30 days past
due - - 0.0% 190 16 8.7% 9 2 22.2% - - 0.0% 199 18 9.3%
Management overlay 166 42 - 208
------------------ -------- -------- --------- -------- -------- --------- -------- -------- --------- -------- -------- --------- -------- -------- ---------
Total stage 2 25,437 425 1.7% 3,675 185 5.0% 9 2 22.2% 5,495 44 0.8% 34,616 656 1.9%
------------------ -------- -------- --------- -------- -------- --------- -------- -------- --------- -------- -------- --------- -------- -------- ---------
1 Following the increased strategic importance and reporting of
Ventures to management, this has been established as a separate
operating segment from 1 January 2022. Prior period has been
restated
The majority of exposures and the associated expected credit
loss provisions continue to be in stage 2 due to increases in the
probability of default. Overall stage 2 balances have reduced by
$8.0 billion to $26.7 billion (2021: $34.6 billion) through
repayments and transfers into stage 1 in Corporate, Commercial and
Institutional Banking and lower undrawn commitments in Consumer,
Private and Business Banking. Overall expected credit loss coverage
has reduced to 1.8 per cent.
Although the amount of exposures in Corporate, Commercial and
Institutional Banking placed on non-purely precautionary early
alert increased compared to 31 December 2021, the proportion of
stage 2 exposures driven by this category reduced as more clients
were captured through the "Increase in PD" driver.
13 per cent (2021: 9 per cent) of the provisions held against
stage 2 Consumer, Private and Business Banking exposures arise from
the application of the 30 days past due backstop, although this
represents only 8 per cent (2021: 5 per cent) of exposures.
'Others' primarily incorporates exposures where origination data
is incomplete and the exposures are allocated into stage 2.
Page 23
Credit impairment charge (restated1) (reviewed)
Ongoing credit impairment was a net charge of $267 million.
Stage 3 was a charge of $277 million (H1 2021: charge of $58
million).
There was a charge of $240 million in Corporate, Commercial and
Institutional Banking, compared to $59 million release in the same
period last year due to significant repayments from a few clients.
The $240 million charge included additional impairment on China
Commercial real estate exposures of $237 million, offset by
releases across a number of clients. There was also a net charge of
$69 million from the downgrade of foreign currency sovereign
grading of Sri Lanka in the first half of 2022, including an
overlay of $42 million for recent political and economic
events.
Consumer, Private and Business Banking stage 3 charge of $36
million decreased from $118 million in H1 2021, as charge-offs
normalised from elevated levels following the end of moratoria
relief programmes in a number of markets. The first half of 2022
also benefitted from a $14 million release of the COVID-19
management overlay.
Central and other items was a net charge of $1 million (H1 2021:
release of $1 million) from the downgrade of foreign currency
sovereign grading of Sri Lanka.
Stage 1 and 2 impairments was a net release of $10 million (H1
2021: release of $105 million).
Corporate, Commercial and Institutional Banking was a net
release of $44 million due to upgrades and a release of $73 million
from the COVID-19 element of the management overlay as clients
moved out of non-purely precautionary early alert or have repaid.
This was offset by an increase of $32 million in the overlay
relating to China Commercial real estate exposures and $13 million
increase in the post model adjustment charge for multiple economic
scenarios. The same period last year was a net release of $77
million due to a number of repayments and additional collateral on
a few high-risk accounts, and release of $27 million in the
COVID-19 overlay.
Consumer, Private and Business Banking was a net charge of $43
million, compared to $25 million release in the same period last
year due to relative improvements in macroeconomic variables. The
$43 million charge was driven by revised macroeconomic outlook,
relatively higher delinquencies in Hong Kong and China following
COVID-19 lockdowns and a $21 million increase in the post model
adjustment for multiple economic scenarios. This was offset by a
release of $68 million from COVID-19 management overlay.
Ventures was a net charge of $3 million from new deals in
Mox.
Central and other items was a net release of $12 million (H1
2021: release of $3 million), primarily due to upgrades.
30.06.22 30.06.21 (Restated)1
----------------------------- ---------------------------------- ----------------------------------
Stage 1 Stage 1
& 2 Stage 3 Total & 2 Stage 3 Total
$million $million $million $million $million $million
----------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Ongoing business portfolio
Corporate, Commercial
& Institutional Banking (44) 240 196 (77) (59) (136)
Consumer, Private & Business
Banking1 43 36 79 (25) 118 93
Ventures1 3 - 3 - - -
Central & other items (12) 1 (11) (3) (1) (4)
----------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Credit impairment charge (10) 277 267 (105) 58 (47)
Restructuring business
portfolio
Others (4) - (4) (4) - (4)
----------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Credit impairment charge (4) - (4) (4) - (4)
----------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Total credit impairment
charge (14) 277 263 (109) 58 (51)
----------------------------- ---------- ---------- ---------- ---------- ---------- ----------
1 Following the increased strategic importance and reporting of
Ventures to management, this has been established as a separate
operating segment from 1 January 2022. Prior period has been
restated
Page 24
COVID-19 relief measures
The table below sets out the extent to which payment reliefs are
in place across the Group's Consumer, Private and Business Banking
loan portfolio based on the amount outstanding at 30 June 2022. The
accounting for temporary changes to loan contractual term is
unchanged from that presented on page 220 of the 2021 Annual
Report. COVID-19 payment-related relief measures in most markets
have now expired. The Consumer, Private and Business Banking loans
under payment relief schemes reduced to $280 million compared to
$1.2 billion at the end of 2021 and a peak of $8.9 billion in the
first half of 2020, with the remaining balance concentrated in
Asia. This represents 0.2 per cent of Consumer, Private and
Business Banking's gross loans and advances to customers, mainly in
Hong Kong, China and India.
Africa & Middle
Total Asia East
------------------------ ------------------------ ------------------------ ------------------------
Outstanding % of Outstanding % of Outstanding % of
Segment(1) $million portfolio2 $million portfolio2 $million portfolio2
------------------------ ----------- ----------- ----------- ----------- ----------- -----------
Credit card & Personal
loans 18 0.1% 18 0.1% - -
Mortgages & Auto 90 0.1% 90 0.1% - -
Business Banking 172 1.7% 172 1.7% - -
------------------------ ----------- ----------- ----------- ----------- ----------- -----------
Total Consumer, Private
& Business Banking
at 30 June 2022 280 0.2% 280 0.2% - -
------------------------ ----------- ----------- ----------- ----------- ----------- -----------
Total Consumer, Private
& Business Banking
at 31 December 2021 1,182 0.9% 1,029 0.9% 153 3.1%
------------------------ ----------- ----------- ----------- ----------- ----------- -----------
1 Outstanding relief balance for Corporate, Commercial and
Institutional Banking are less than $100 million (31 December 2021:
$1,195 million) at 30 June 2022 and $nil (31 December 2021: $nil)
for Ventures(3)
2 Percentage of portfolio represents the outstanding amount as a
percentage of the gross loans and advances to customers by product
and segment
3 Following the increased strategic importance and reporting of
Ventures to management, this has been established as a separate
segment from 1 January 2022
Problem credit management and provisioning (reviewed)
Forborne and other modified loans by client segment
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.
Net forborne loans decreased by $226 million to $1.3 billion
(2021: $1.5 billion) primarily driven by stage 3 loans in
Corporate, Commercial and Institutional Banking in Europe and the
Americas region. The table below presents loans with forbearance
measures by segment.
30.06.22 31.12.21 (Restated)(1)
--------------- --------------------------------------------------- ---------------------------------------------------
Corporate, Consumer, Corporate, Consumer,
Commercial Private Commercial Private
& Institutional & Business & Institutional & Business
Banking Banking Ventures Total Banking Banking Ventures1 Total
Amortised cost $million $million $million $million $million $million $million $million
--------------- --------------- ---------- ---------- ---------- --------------- ---------- ---------- ----------
All loans with
forbearance
measures 2,440 395 - 2,835 2,526 406 - 2,932
Credit
impairment
(stage
1 and 2) - - - - (4) - - (4)
Credit
impairment
(stage
3) (1,392) (140) - (1,532) (1,237) (162) - (1,399)
--------------- --------------- ---------- ---------- ---------- --------------- ---------- ---------- ----------
Net carrying
value 1,048 255 - 1,303 1,285 244 - 1,529
--------------- --------------- ---------- ---------- ---------- --------------- ---------- ---------- ----------
Included within
the above
table
Gross
performing
forborne
loans 304 72 - 376 272 59 - 331
--------------- ---------- ---------- ---------- --------------- ---------- ---------- ----------
Modification of
terms
and
conditions2 246 72 - 318 257 59 - 316
Refinancing3 58 - - 58 15 - - 15
--------------- ---------- ---------- ---------- --------------- ---------- ---------- ----------
Impairment
provisions - - - - (4) - - (4)
--------------- ---------- ---------- ---------- --------------- ---------- ---------- ----------
Modification of
terms
and
conditions2 - - - - (4) - - (4)
Refinancing3 - - - - - - - -
--------------- ---------- ---------- ---------- --------------- ---------- ---------- ----------
Net performing
forborne
loans 304 72 - 376 268 59 - 327
Collateral 134 70 - 204 65 56 - 121
--------------- --------------- ---------- ---------- ---------- --------------- ---------- ---------- ----------
Gross
non-performing
forborne
loans 2,136 323 - 2,459 2,253 348 - 2,601
--------------- ---------- ---------- ---------- --------------- ---------- ---------- ----------
Modification of
terms
and
conditions2 2,028 323 - 2,351 2,095 348 - 2,443
Refinancing3 108 - - 108 158 - - 158
--------------- ---------- ---------- ---------- --------------- ---------- ---------- ----------
Impairment
provisions (1,392) (140) - (1,532) (1,237) (162) - (1,399)
--------------- ---------- ---------- ---------- --------------- ---------- ---------- ----------
Modification of
terms
and
conditions2 (1,290) (140) - (1,430) (1,106) (162) - (1,268)
Refinancing3 (102) - - (102) (131) - - (131)
--------------- ---------- ---------- ---------- --------------- ---------- ---------- ----------
Net
non-performing
forborne
loans 744 183 - 927 1,016 186 - 1,202
Collateral 269 64 - 333 236 62 - 298
--------------- --------------- ---------- ---------- ---------- --------------- ---------- ---------- ----------
1 Following the increased strategic importance and reporting of
Ventures to management, this has been established as a separate
operating segment from
1 January 2022
2 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
3 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
Page 25
Forborne and other modified loans by region
30.06.22 31.12.21
-------------------------- -------------------------------------------- --------------------------------------------
Africa Africa
& Middle Europe & Middle Europe
Asia East & Americas Total Asia East & Americas Total
Amortised cost $million $million $million $million $million $million $million $million
-------------------------- --------- --------- ----------- --------- --------- --------- ----------- ---------
Performing forborne loans 190 127 59 376 205 76 46 327
Non-performing forborne
loans 575 240 112 927 572 137 493 1,202
-------------------------- --------- --------- ----------- --------- --------- --------- ----------- ---------
Net forborne loans 765 367 171 1,303 777 213 539 1,529
-------------------------- --------- --------- ----------- --------- --------- --------- ----------- ---------
Credit-impaired (stage 3) loans and advances by client segment
(reviewed)
Gross stage 3 loans for the Group have reduced by $1 billion to
$7.1 billion (2021: $8.1 billion). This is mainly driven by $1
billion from loan sales, upgrades and repayments in Corporate,
Commercial and institutional Banking, offset by the downgrade of
foreign currency sovereign grading of Sri Lanka.
Gross stage 3 loans in Consumer, Private and Business Banking
decreased by $75 million primarily in Secured wealth products,
Mortgages and Personal Loans portfolio.
Stage 3 cover ratio (reviewed)
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.
The Corporate, Commercial and Institutional Banking cover ratio
increased by 5 per cent before collateral and 6 per cent post
collateral. The increase was due to a few material accounts that
were upgraded or sold during the year and additional impairment on
the Commercial real estate portfolio.
Consumer, Private and Business Banking stage 3 cover ratio
before and after collateral remain stable at 51 per cent and 91 per
cent, respectively.
30.06.22 31.12.21 (Restated)1
------------------- --------------------------------------------------- ---------------------------------------------------
Corporate, Consumer, Corporate, Consumer,
Commercial Private Commercial Private
& Institutional & Business & Institutional & Business
Banking Banking Ventures Total Banking Banking1 Ventures Total
$million $million $million $million $million $million $million $million
------------------- --------------- ---------- ---------- ---------- --------------- ---------- ---------- ----------
Gross
credit-impaired 5,552 1,500 1 7,053 6,520 1,575 - 8,095
Credit impairment
provisions (3,575) (758) - (4,333) (3,861) (796) - (4,657)
------------------- --------------- ---------- ---------- ---------- --------------- ---------- ---------- ----------
Net credit-impaired 1,977 742 1 2,720 2,659 779 - 3,438
------------------- --------------- ---------- ---------- ---------- --------------- ---------- ---------- ----------
Cover ratio 64% 51% 0% 61% 59% 51% 0% 58%
Collateral ($
million) 738 601 - 1,339 805 641 - 1,446
Cover ratio (after
collateral) 78% 91% 0% 80% 72% 91% 0% 75%
------------------- --------------- ---------- ---------- ---------- --------------- ---------- ---------- ----------
1 Following the increased strategic importance and reporting of
Ventures to management, this has been established as a separate
operating segment from 1 January 2022. Prior period has been
restated
Credit-impaired (stage 3) loans and advances by geographic
region
Stage 3 gross loans decreased by $1 billion compared with 31
December 2021. The decrease was primarily driven by loan sales,
repayments and upgrades in Asia and Africa and the Middle East of
$647 million and a decrease in Europe and the Americas of $395
million.
30.06.22 31.12.21
-------------------------- -------------------------------------------- --------------------------------------------
Africa Africa
& Middle Europe & Middle Europe
Asia East & Americas Total Asia East & Americas Total
Amortised cost $million $million $million $million $million $million $million $million
-------------------------- --------- --------- ----------- --------- --------- --------- ----------- ---------
Gross credit-impaired 3,961 2,758 334 7,053 4,448 2,918 729 8,095
Credit impairment
provisions (2,236) (1,844) (253) (4,333) (2,401) (1,970) (286) (4,657)
-------------------------- --------- --------- ----------- --------- --------- --------- ----------- ---------
Net credit-impaired 1,725 914 81 2,720 2,047 948 443 3,438
-------------------------- --------- --------- ----------- --------- --------- --------- ----------- ---------
Cover ratio 56% 67% 76% 61% 54% 68% 39% 58%
-------------------------- --------- --------- ----------- --------- --------- --------- ----------- ---------
Page 26
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 (reviewed)
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, Commercial and
Institutional Banking, without adjusting for
over-collateralisation, was $315 billion (2021: $346 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 backtested against our prior
experience. On average, across all types of non-cash collateral,
the value ascribed is approximately half of its current market
value. In the Consumer, Private and Business Banking segment, 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.
Total collateral has reduced by $5.7 billion to $133 billion
(2021: $139 billion), of which $3.3 billion is in Consumer, Private
and Business Banking due to decrease in Mortgages and Secured
wealth products exposures. Corporate, Commercial and Institutional
Banking decreased by $2.8 billion to $26.6 billion, driven by
reduction in collateral against stage 2 clients as stage 2 exposure
balances decreased.
Collateral held on loans and advances
The table below details collateral held against exposures,
separately disclosing stage 2 and stage 3 exposure and
corresponding collateral.
30.06.22
--------------- ----------------------------------------------------------------------------------------------------------------------------
Net amount outstanding Collateral Net exposure
---------------------------------------- ---------------------------------------- ----------------------------------------
Stage Credit-impaired Stage Credit-impaired Stage Credit-impaired
2 financial financial 2 financial financial 2 financial financial
assets assets assets
Total assets (S3) Total2 assets (S3) Total assets (S3)
Amortised cost $million $million $million $million $million $million $million $million $million
--------------- ---------- ----------- --------------- ---------- ----------- --------------- ---------- ----------- ---------------
Corporate,
Commercial
&
Institutional
Banking1 170,237 10,601 2,040 26,596 3,363 738 143,641 7,238 1,302
Consumer,
Private
&
Business
Banking 132,251 1,764 742 99,428 1,091 601 32,823 673 141
Ventures 344 5 - - - - 344 5 -
Central & other
items 26,877 150 - 6,886 - - 19,991 150 -
--------------- ---------- ----------- --------------- ---------- ----------- --------------- ---------- ----------- ---------------
Total 329,709 12,520 2,782 132,910 4,454 1,339 196,799 8,066 1,443
--------------- ---------- ----------- --------------- ---------- ----------- --------------- ---------- ----------- ---------------
31.12.21 (Restated)3
--------------- ----------------------------------------------------------------------------------------------------------------------------
Net amount outstanding Collateral Net exposure
---------------------------------------- ---------------------------------------- ----------------------------------------
Stage Credit-impaired Stage Credit-impaired Stage Credit-impaired
2 financial financial 2 financial financial 2 financial financial
assets assets assets
Total assets (S3) Total2 assets (S3) Total assets (S3)
Amortised cost $million $million $million $million $million $million $million $million $million
--------------- ---------- ----------- --------------- ---------- ----------- --------------- ---------- ----------- ---------------
Corporate,
Commercial
&
Institutional
Banking1 183,784 15,053 2,702 29,414 5,077 805 154,370 9976 1,897
Consumer,
Private
&
Business
Banking3 136,430 1,731 779 102,769 1,045 641 33,661 686 138
Ventures3 88 7 - - - - 88 7 -
Central & other
items 22,549 110 - 6,381 - - 16,168 110 -
--------------- ---------- ----------- --------------- ---------- ----------- --------------- ---------- ----------- ---------------
Total 342,851 16,901 3,481 138,564 6,122 1,446 204,287 10,779 2,035
--------------- ---------- ----------- --------------- ---------- ----------- --------------- ---------- ----------- ---------------
1 Includes loans and advances to banks
2 Adjusted for over-collateralisation based on the drawn and
undrawn components of exposures
3 Following the increased strategic importance and reporting of
Ventures to management, this has been established as a separate
operating segment in 2022.
Prior period has been restated
Page 27
Collateral - Corporate, Commercial & Institutional Banking
(reviewed)
Collateral held against Corporate, Commercial and Institutional
Banking exposures amounted to $27 billion.
Collateral taken for longer-term and sub-investment grade
corporate loans remains high at 47 per cent (2021: 49 per cent).
Our underwriting standards encourage taking specific charges on
assets and we consistently seek high-quality, investment-grade
collateral.
78 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.
Corporate, Commercial & Institutional Banking
30.06.22 31.12.21
Amortised cost $million $million
----------------------------------- ---------- ----------
Maximum exposure 170,237 183,784
----------------------------------- ---------- ----------
Property 10,202 10,589
Plant, machinery and other stock 1,423 1,411
Cash 3,323 3,549
Reverse repos 1,378 2,042
---------- ----------
A- to AA+ 163 122
BBB- to BBB+ 121 483
Unrated 1,094 1,437
---------- ----------
Financial guarantees and insurance 5,664 6,616
Commodities 89 198
Ships and aircraft 4,517 5,009
----------------------------------- ---------- ----------
Total value of collateral1 26,596 29,414
----------------------------------- ---------- ----------
Net exposure 143,641 154,370
----------------------------------- ---------- ----------
1 Adjusted for over-collateralisation based on the drawn and
undrawn components of exposures
Collateral - Consumer, Private & Business Banking
(reviewed)
In Consumer, Private and Business Banking, 86 per cent of the
portfolio is fully secured (2021: 86 per cent). The secured
portfolio decreased by $3.8 billion from Mortgages and Secured
wealth portfolio in Asia. Collateral also reduced by $3.3 billion
in line with secured portfolio exposure reduction.
The following table presents an analysis of loans to individuals
by product; split between fully secured, partially secured and
unsecured.
30.06.22 31.12.21 (Restated)3
---------------------- ---------------------------------------------- ----------------------------------------------
Fully Partially Fully Partially
secured secured Unsecured Total(1) secured secured Unsecured Total(2)
Amortised cost $million $million $million $million $million $million $million $million
---------------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Maximum exposure 113,458 1,213 17,580 132,251 117,129 1,329 17,972 136,430
Loans to individuals
Mortgages 86,967 - - 86,967 89,222 - - 89,222
CCPL 200 - 16,232 16,432 150 - 16,943 17,093
Auto 530 - - 530 542 - - 542
Secured wealth
products 20,195 - - 20,195 21,495 - - 21,495
Other 5,566 1,213 1,348 8,127 5,720 1,329 1,029 8,078
---------------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total collateral1 99,428 102,769
---------------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net exposure2 32,823 33,661
---------------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Percentage of total
loans 86% 1% 13% 86% 1% 13%
---------------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
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 Following the increased strategic importance and reporting of
Ventures to management, this has been established as a separate
operating segment in 2022. Prior period has been restated
Page 28
Mortgage loan-to-value ratios by geography (reviewed)
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 41.6 per cent and
remains consistent compared to 31 December 2021. Hong Kong, which
represents 39 per cent of the mortgage portfolio, has an average
LTV of 45.4 per cent. All of our other key markets continue to have
low portfolio LTVs (Korea, Singapore and Taiwan at 35.2 per cent,
43.4 per cent and 46.1 per cent respectively).
An analysis of LTV ratios by geography for the mortgage
portfolio is presented in the table below.
30.06.22
-------------------------------------------- ----------------------------------
Africa
& Europe
Middle &
Asia East Americas Total
% % % %
Amortised cost Gross Gross Gross Gross
-------------------------------------------- ------ ------- --------- ------
Less than 50 per cent 67.5 38.9 20.9 66.1
50 per cent to 59 per cent 12.0 20.3 23.6 12.4
60 per cent to 69 per cent 8.2 17.1 33.3 8.8
70 per cent to 79 per cent 8.5 12.9 20.2 8.8
80 per cent to 89 per cent 2.9 6.2 1.8 3.0
90 per cent to 99 per cent 0.8 2.6 0.2 0.8
100 per cent and greater 0.1 2.0 - 0.1
-------------------------------------------- ------ ------- --------- ------
Average portfolio loan-to-value 41.1 56.0 58.6 41.6
-------------------------------------------- ------ ------- --------- ------
Loans to individuals - mortgages ($million) 83,753 1,542 1,671 86,966
-------------------------------------------- ------ ------- --------- ------
31.12.21
-------------------------------------------- ----------------------------------
Africa
& Europe
Middle &
Asia East Americas Total
% % % %
Amortised cost Gross Gross Gross Gross
-------------------------------------------- ------ ------- --------- ------
Less than 50 per cent 68.2 27.6 16.8 66.4
50 per cent to 59 per cent 11.6 18.6 19.9 11.9
60 per cent to 69 per cent 8.1 19.6 37.5 8.9
70 per cent to 79 per cent 9.1 16.5 17.1 9.4
80 per cent to 89 per cent 2.4 9.1 8.7 2.7
90 per cent to 99 per cent 0.5 4.8 - 0.5
100 per cent and greater 0.1 3.8 - 0.2
-------------------------------------------- ------ ------- --------- ------
Average portfolio loan-to-value 40.5 61.9 60.8 41.1
-------------------------------------------- ------ ------- --------- ------
Loans to individuals - mortgages ($million) 85,765 1,651 1,806 89,222
-------------------------------------------- ------ ------- --------- ------
Collateral and other credit enhancements possessed or called
upon (reviewed)
The Group obtains assets by taking possession of collateral or
calling upon other credit enhancements (such as guarantees).
Repossessed properties are sold in an orderly fashion. Where the
proceeds are in excess of the outstanding loan balance, the excess
is returned to the borrower.
Certain equity securities acquired may be held by the Group for
investment purposes and are classified as fair value through profit
or loss, and the related loan written off. The carrying value of
collateral possessed and held by the Group as at 30 June 2022 is
$7.0 million (2021: $11.8 million).
30.06.22 31.12.21
$million $million
------------------------------ ---------- ----------
Property, plant and equipment 5.4 5.8
Guarantees 1.6 6.0
Other - -
------------------------------ ---------- ----------
Total 7.0 11.8
------------------------------ ---------- ----------
Page 29
Other Credit Risk mitigation (reviewed)
Other forms of credit risk mitigation are set out below.
Credit default swaps
The Group has entered into credit default swaps for portfolio
management purposes, referencing loan assets with a notional value
of $5.1 billion (2021: $12.1 billion). These credit default swaps
are accounted for as financial guarantees as per IFRS 9, as they
will only reimburse the holder for an incurred loss on an
underlying debt instrument. The Group continues to hold the
underlying assets referenced in the credit default swaps and it
continues to be exposed to related Credit and Foreign Exchange Risk
on these assets.
Credit linked notes
The Group has issued credit linked notes for portfolio
management purposes, referencing loan assets with a notional value
of $12.5 billion (2021: $10.0 billion). The Group continues to hold
the underlying assets for which the credit linked notes provide
mitigation.
Derivative financial instruments
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. These
are set out in more detail under Derivative financial instruments
Credit Risk mitigation.
Off-balance sheet exposures
For certain types of exposures, such as letters of credit and
guarantees, the Group obtains collateral such as cash depending on
internal Credit Risk assessments, as well as in the case of letters
of credit holding legal title to the underlying assets should a
default take place.
Other portfolio analysis
This section provides maturity analysis by credit quality by
industry and industry and retail products analysis by region.
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 decreased by $5
billion to $298.7 billion (2021: $304.1 billion), of which $1
billion is in Corporate, Commercial and Institutional Banking and
Central and other items segments ("Wholesale"), and $4 billion in
Consumer, Private and Business Banking.
Stage 1 loans remained stable at $279 billion. Corporate,
Commercial, and Institutional Banking and Central and other items
stage 1 loans increased by $3.9 billion to $148.7 billion.
Increases were in the Transport, telecom and utilities sector ($1.7
billion) and Energy sector ($1.4 billion) due to new deals, which
were offset by reduction in exposures in Commercial real estate and
Financing and Insurance sectors. Exposure to Government sector
increased by $5 billion. Consumer, Private and Business Banking
stage 1 loans decreased by $4 billion from lower mortgage and
secured wealth portfolio largely in Asia.
Stage 2 loans decreased by $4 billion to $12.5 billion (2021:
$16.8 billion) driven by Corporate, Commercial and Institutional
Banking, due to exposure reductions in Energy, Transport, telecom
and utilities sectors.
Stage 3 loans decreased by $1 billion to $7.1 billion (2021:
$8.1 billion) mainly from loan sales, repayments and upgrades in
Corporate, Commercial and Institutional Banking.
Page 30
30.06.22
--------------- ----------------------------------------------------------------------------------------------------------------------------------
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 11,809 (29) 11,780 828 (40) 788 952 (661) 291 13,589 (730) 12,859
Manufacturing 22,991 (10) 22,981 1,021 (14) 1,007 756 (524) 232 24,768 (548) 24,220
Financing,
insurance
and
non-banking 22,445 (7) 22,438 997 (13) 984 255 (208) 47 23,697 (228) 23,469
Transport,
telecom
and utilities 14,512 (8) 14,504 2,597 (47) 2,550 565 (278) 287 17,674 (333) 17,341
Food and
household
products 8,873 (6) 8,867 472 (14) 458 374 (225) 149 9,719 (245) 9,474
Commercial real
estate 14,195 (63) 14,132 2,212 (82) 2,130 841 (503) 338 17,248 (648) 16,600
Mining and
quarrying 4,955 (2) 4,953 452 (15) 437 227 (140) 87 5,634 (157) 5,477
Consumer
durables 8,176 (3) 8,173 292 (15) 277 421 (342) 79 8,889 (360) 8,529
Construction 2,541 (2) 2,539 425 (6) 419 537 (394) 143 3,503 (402) 3,101
Trading
companies
& distributors 957 (1) 956 112 (2) 110 145 (132) 13 1,214 (135) 1,079
Government 31,564 (2) 31,562 650 (5) 645 141 (8) 133 32,355 (15) 32,340
Other 5,672 (7) 5,665 583 (7) 576 343 (160) 183 6,598 (174) 6,424
Retail
Products:
Mortgage 85,630 (16) 85,614 975 (6) 969 569 (186) 383 87,174 (208) 86,966
Credit Cards 5,988 (82) 5,906 335 (60) 275 69 (43) 26 6,392 (185) 6,207
Personal loans
and other
unsecured
lending 10,470 (205) 10,265 194 (52) 142 308 (145) 163 10,972 (402) 10,570
Auto 529 (1) 528 1 - 1 - - - 530 (1) 529
Secured wealth
products 19,867 (53) 19,814 239 (6) 233 443 (295) 148 20,549 (354) 20,195
Other 7,962 (5) 7,957 154 (1) 153 107 (89) 18 8,223 (95) 8,128
--------------- -------- ----------- -------- -------- ----------- -------- -------- ----------- -------- -------- ----------- --------
Net carrying
value
(customers)(1) 279,136 (502) 278,634 12,539 (385) 12,154 7,053 (4,333) 2,720 298,728 (5,220) 293,508
--------------- -------- ----------- -------- -------- ----------- -------- -------- ----------- -------- -------- ----------- --------
1 Includes reverse repurchase agreements and other similar
secured lending held at amortised cost of $7,894 million
Page 31
31.12.21
--------------- ----------------------------------------------------------------------------------------------------------------------------------
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 10,454 (19) 10,435 2,067 (76) 1,991 998 (719) 279 13,519 (814) 12,705
Manufacturing 23,792 (9) 23,783 1,181 (30) 1,151 852 (562) 290 25,825 (601) 25,224
Financing,
insurance
and
non-banking 24,380 (9) 24,371 1,257 (12) 1,245 268 (207) 61 25,905 (228) 25,677
Transport,
telecom
and utilities 12,778 (5) 12,773 4,926 (51) 4,875 966 (289) 677 18,670 (345) 18,325
Food and
household
products 8,093 (2) 8,091 721 (26) 695 380 (276) 104 9,194 (304) 8,890
Commercial real
estate 17,680 (43) 17,637 1,787 (75) 1,712 833 (335) 498 20,300 (453) 19,847
Mining and
quarrying 4,793 (3) 4,790 480 (20) 460 272 (167) 105 5,545 (190) 5,355
Consumer
durables 7,069 (3) 7,066 407 (9) 398 425 (346) 79 7,901 (358) 7,543
Construction 2,279 (3) 2,276 506 (19) 487 914 (624) 290 3,699 (646) 3,053
Trading
companies
& distributors 1,144 (1) 1,143 117 (8) 109 143 (135) 8 1,404 (144) 1,260
Government 26,588 (2) 26,586 678 (1) 677 154 (8) 146 27,420 (11) 27,409
Other 5,757 (4) 5,753 801 (14) 787 316 (194) 122 6,874 (212) 6,662
Retail
Products:
Mortgage 87,987 (22) 87,965 862 (20) 842 599 (184) 415 89,448 (226) 89,222
Credit Cards2 5,899 (90) 5,809 388 (74) 314 61 (44) 17 6,348 (208) 6,140
Personal loans
and other
unsecured
lending2 10,981 (188) 10,793 182 (58) 124 334 (210) 124 11,497 (456) 11,041
Equipment
Leased
Auto 541 (1) 540 2 - 2 - - - 543 (1) 542
Secured wealth
products 21,067 (61) 21,006 307 (10) 297 483 (291) 192 21,857 (362) 21,495
Other 7,896 (8) 7,888 180 (21) 159 97 (66) 31 8,173 (95) 8,078
--------------- -------- ----------- -------- -------- ----------- -------- -------- ----------- -------- -------- ----------- --------
Net carrying
value
(customers)(1) 279,178 (473) 278,705 16,849 (524) 16,325 8,095 (4,657) 3,438 304,122 (5,654) 298,468
--------------- -------- ----------- -------- -------- ----------- -------- -------- ----------- -------- -------- ----------- --------
1 Includes reverse repurchase agreements and other similar
secured lending held at amortised cost of $7,331 million
2 Prior year has been re-presented to provide product
granularity
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, Commercial and Institutional Banking segment,
our largest industry exposures are to Government, Manufacturing,
Financing, insurance and non-banking sectors for wholesale
exposures.
Net loans and advances to customers decreased by $5.0 billion to
$293.5 billion (2021: $298.5 billion) of which Asia decreased by $2
billion and Europe and the Americas reduced by $2.6 billion.
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 3,416
clients.
Loans and advances to the Energy sector in Corporate, Commercial
and Institutional Banking was $13.6 billion and broadly stable from
2021. The Energy sector lending is spread across five sub-sectors
and over 181 clients.
The Group provides loans to Commercial real estate
counterparties of $17 billion. 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
decreased to 48 per cent, compared with 50 per cent in 2021 (51 per
cent in 2020). The proportion of loans with an LTV greater than 80
per cent has decreased to 1 per cent, compared with 2 per cent in
2021 (4 per cent in 2020).
Consumer, Private and Business Banking net loans decreased by
$3.9 billion to $132.6 billion (2021: $136.5 billion) driven by a
decrease in secured products in Asia.
Page 32
30.06.22 31.12.21
-------------------------- -------------------------------------------- --------------------------------------------
Africa Africa
& Middle Europe & Middle Europe
ASIA East & Americas Total ASIA East & Americas Total
Amortised cost $million $million $million $million $million $million $million $million
-------------------------- --------- --------- ----------- --------- --------- --------- ----------- ---------
Industry:
Energy 9,709 1,332 1,818 12,859 6,265 2,721 3,719 12,705
Manufacturing 19,447 1,578 3,195 24,220 20,771 1,751 2,702 25,224
Financing, insurance and
non-banking 12,920 796 9,753 23,469 14,184 905 10,588 25,677
Transport, telecom and
utilities 11,396 4,112 1,833 17,341 11,661 4,218 2,446 18,325
Food and household
products 5,836 2,482 1,156 9,474 5,497 2,360 1,033 8,890
Commercial real estate 13,971 833 1,796 16,600 17,150 1,048 1,649 19,847
Mining and quarrying 3,894 489 1,094 5,477 3,833 572 950 5,355
Consumer durables 7,498 474 557 8,529 6,742 398 403 7,543
Construction 1,873 731 497 3,101 1,839 814 400 3,053
Trading companies and
distributors 869 173 37 1,079 1,047 176 37 1,260
Government 26,545 5,664 131 32,340 22,987 4,117 305 27,409
Other 4,093 920 1,411 6,424 4,681 670 1,311 6,662
Retail Products:
Mortgages 83,753 1,542 1,671 86,966 85,765 1,651 1,806 89,222
Credit Cards(1) 5,904 303 - 6,207 5,849 291 - 6,140
Personal loans and other
unsecured lending1 8,817 1,652 101 10,570 9,241 1,700 100 11,041
Auto 490 39 - 529 500 42 - 542
Secured wealth products 18,842 599 754 20,195 19,984 545 966 21,495
Other 7,378 750 - 8,128 7,265 813 - 8,078
-------------------------- --------- --------- ----------- --------- --------- --------- ----------- ---------
Net loans and advances
to customers 243,235 24,469 25,804 293,508 245,261 24,792 28,415 298,468
-------------------------- --------- --------- ----------- --------- --------- --------- ----------- ---------
Net loans and advances
to banks 22,688 5,043 8,470 36,201 30,301 5,966 8,116 44,383
-------------------------- --------- --------- ----------- --------- --------- --------- ----------- ---------
1 Prior year has been re-presented to provide product
granularity
Vulnerable and Cyclical Sector tables
Vulnerable and cyclical sectors are those that the Group
considers to be most at risk from current economic stresses,
including volatile energy and commodity prices, and we continue to
monitor exposures to these sectors particularly carefully.
Total net on-balance sheet exposure to vulnerable sectors
decreased by $2.4 billion to $31 billion compared to 31 December
2021, although the total net on and off-balance sheet exposure was
unchanged at 28 per cent (2021: 28 per cent) of the total net
exposure in Corporate, Commercial and Institutional Banking. The
decrease is largely due to lower levels of drawn balances
particularly in the Commercial real estate sector.
Stage 2 vulnerable sector loans decreased by $2.2 billion
compared to 31 December 2021. This was primarily driven by a
decrease in the Aviation and Oil & Gas sectors as exposure
migrated to stage 1 partly offset by an increase in Commercial Real
Estate.
Stage 3 vulnerable sector loans increased by $0.2 billion
compared to 31 December 2021, mainly in the Commodity Traders
sector from new downgrades.
The Group has net exposure of $3.7 billion (2021: $4.0 billion)
to China Commercial real estate counterparties which are primarily
booked in Hong Kong and China. Of this exposure, $1.6 billion
(2021: $1.8 billion) is to property developers (whose cashflows
have been particularly impacted by policy changes to deleverage the
sector) that have been placed on purely precautionary and
non-purely precautionary early alert. As a result of ongoing
uncertainties affecting this sector, the Group has taken a $126
million (2021: $95 million) management overlay on credit impairment
for the exposures on early alert at 30 June 2022. The Group is
further indirectly exposed to China Commercial real estate through
its associate investment in China Bohai Bank. Refer to Note 19
Investments in subsidiary undertakings, joint ventures and
associates.
Page 33
Maximum exposure
30.06.22
--------------------------- -----------------------------------------------------------------------------------------
Maximum
on Balance
Sheet Undrawn Financial Total
Exposure Net On Commitments Guarantees Net Off On &
(net Balance (net (net Balance Off Balance
of credit Sheet of credit of credit Sheet Sheet
impairment) Collateral Exposure impairment) impairment) Exposure Net Exposure
Amortised Cost $million $million $million $million $million $million $million
--------------------------- ------------ ---------- --------- ------------ ------------ --------- -------------
Industry:
Aviation1 3,114 1,648 1,466 1,445 735 2,180 3,646
Commodity Traders 8,575 332 8,243 3,094 8,745 11,839 20,082
Metals & Mining 4,061 385 3,676 3,271 729 4,000 7,676
Commercial Real Estate 16,601 7,118 9,483 6,618 249 6,867 16,350
Hotels & Tourism 2,087 812 1,275 1,564 137 1,701 2,976
Oil & Gas 7,379 902 6,477 8,214 7,321 15,535 22,012
--------------------------- ------------ ---------- --------- ------------ ------------ --------- -------------
Total 41,817 11,197 30,620 24,206 17,916 42,122 72,742
--------------------------- ------------ ---------- --------- ------------ ------------ --------- -------------
Total Corporate, Commercial
& Institutional Banking 134,036 24,522 109,514 97,559 51,066 148,625 258,139
--------------------------- ------------ ---------- --------- ------------ ------------ --------- -------------
Total Group 329,709 132,910 196,799 162,762 58,193 220,955 417,754
--------------------------- ------------ ---------- --------- ------------ ------------ --------- -------------
31.12.21
--------------------------- -----------------------------------------------------------------------------------------
Maximum
On Balance
Sheet Undrawn Financial Total
Exposure Net On Commitments Guarantees Net Off On &
(net Balance (net (net Balance Off Balance
of credit Sheet of credit of credit Sheet Sheet
impairment) Collateral Exposure impairment) impairment) Exposure Net Exposure
Amortised Cost $million $million $million $million $million $million $million
--------------------------- ------------ ---------- --------- ------------ ------------ --------- -------------
Industry:
Aviation(1) 3,458 2,033 1,425 1,914 431 2,345 3,770
Commodity Traders 8,732 262 8,470 2,434 6,832 9,266 17,736
Metals & Mining 3,616 450 3,166 3,387 637 4,024 7,190
Commercial Real Estate 19,847 7,290 12,557 7,192 291 7,483 20,040
Hotels & Tourism 2,390 789 1,601 1,363 121 1,484 3,085
Oil & Gas 6,826 1,029 5,797 8,842 6,013 14,855 20,652
--------------------------- ------------ ---------- --------- ------------ ------------ --------- -------------
Total 44,869 11,853 33,016 25,132 14,325 39,457 72,473
--------------------------- ------------ ---------- --------- ------------ ------------ --------- -------------
Total Corporate, Commercial
& Institutional Banking 139,401 26,294 113,107 96,406 49,666 146,072 259,179
--------------------------- ------------ ---------- --------- ------------ ------------ --------- -------------
Total Group 342,851 138,564 204,287 158,421 58,291 216,712 420,999
--------------------------- ------------ ---------- --------- ------------ ------------ --------- -------------
1 In addition to the aviation sector loan exposures, the Group
owns $3.4 billion (31 December 2021: $3.1 billion) of aircraft
under operating leases. Refer to Operating lease assets
Page 34
Loans and advances by stage
30.06.22
----------- ----------------------------------------------------------------------------------------------------------------------------------
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
Amortised balance impair-ment amount balance impair-ment amount balance impair-ment amount balance impair-ment amount
Cost $million $million $million $million $million $million $million $million $million $million $million $million
----------- -------- ----------- -------- -------- ----------- -------- -------- ----------- -------- -------- ----------- --------
Industry:
Aviation1 2,193 (2) 2,191 758 (1) 757 213 (47) 166 3,164 (50) 3,114
Commodity
Traders 8,012 (6) 8,006 254 (3) 251 866 (548) 318 9,132 (557) 8,575
Metals &
Mining 3,624 (2) 3,622 353 (11) 342 212 (115) 97 4,189 (128) 4,061
Commercial
Real
Estate 14,196 (63) 14,133 2,212 (82) 2,130 841 (503) 338 17,249 (648) 16,601
Hotels &
Tourism 1,463 (2) 1,461 430 (5) 425 262 (61) 201 2,155 (68) 2,087
Oil & Gas 6,413 (6) 6,407 718 (12) 706 506 (240) 266 7,637 (258) 7,379
----------- -------- ----------- -------- -------- ----------- -------- -------- ----------- -------- -------- ----------- --------
Total 35,901 (81) 35,820 4,725 (114) 4,611 2,900 (1,514) 1,386 43,526 (1,709) 41,817
----------- -------- ----------- -------- -------- ----------- -------- -------- ----------- -------- -------- ----------- --------
Total CCIB 121,965 (141) 121,824 10,488 (253) 10,235 5,552 (3,575) 1,977 138,005 (3,969) 134,036
----------- -------- ----------- -------- -------- ----------- -------- -------- ----------- -------- -------- ----------- --------
Total Group 314,916 (511) 314,405 12,910 (387) 12,523 7,131 (4,348) 2,783 334,957 (5,246) 329,711
----------- -------- ----------- -------- -------- ----------- -------- -------- ----------- -------- -------- ----------- --------
31.12.21
----------- ----------------------------------------------------------------------------------------------------------------------------------
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
Amortised balance impair-ment amount balance impair-ment amount balance impair-ment amount balance impair-ment amount
cost $million $million $million $million $million $million $million $million $million $million $million $million
----------- -------- ----------- -------- -------- ----------- -------- -------- ----------- -------- -------- ----------- --------
Industry:
Aviation1 1,120 - 1,120 2,174 (11) 2,163 239 (64) 175 3,533 (75) 3,458
Commodity
Traders 8,482 (4) 8,478 195 (5) 190 713 (649) 64 9,390 (658) 8,732
Metals &
Mining 3,083 (1) 3,082 450 (17) 433 219 (118) 101 3,752 (136) 3,616
Commercial
Real
Estate 17,680 (43) 17,637 1,787 (75) 1,712 833 (335) 498 20,300 (453) 19,847
Hotels &
Tourism 1,562 (1) 1,561 722 (9) 713 182 (66) 116 2,466 (76) 2,390
Oil & Gas 4,999 (5) 4,994 1,595 (34) 1,561 486 (215) 271 7,080 (254) 6,826
----------- -------- ----------- -------- -------- ----------- -------- -------- ----------- -------- -------- ----------- --------
Total 36,926 (54) 36,872 6,923 (151) 6,772 2,672 (1,447) 1,225 46,521 (1,652) 44,869
----------- -------- ----------- -------- -------- ----------- -------- -------- ----------- -------- -------- ----------- --------
Total CCIB 122,368 (103) 122,265 14,818 (341) 14,477 6,520 (3,861) 2,659 143,706 (4,305) 139,401
----------- -------- ----------- -------- -------- ----------- -------- -------- ----------- -------- -------- ----------- --------
Total Group 322,954 (485) 322,469 17,429 (528) 16,901 8,149 (4,668) 3,481 348,532 (5,681) 342,851
----------- -------- ----------- -------- -------- ----------- -------- -------- ----------- -------- -------- ----------- --------
Loans and advances by region (net of credit impairment)
30.06.22 31.12.21
----------------------- -------------------------------------------- --------------------------------------------
Africa Africa
& Middle Europe & Middle Europe
Asia East & Americas Total Asia East & Americas Total
$million $million $million $million $million $million $million $million
----------------------- --------- --------- ----------- --------- --------- --------- ----------- ---------
Industry:
Aviation1 1,298 1,050 766 3,114 1,356 1,214 888 3,458
Commodity traders 5,005 774 2,796 8,575 4,352 660 3,720 8,732
Metals & mining 2,904 440 717 4,061 2,736 492 388 3,616
Commercial real estate 13,972 833 1,796 16,601 17,150 1,048 1,649 19,847
Hotel & tourism 1,204 647 236 2,087 1,464 397 529 2,390
Oil & gas 3,839 2,051 1,489 7,379 2,770 2,248 1,808 6,826
----------------------- --------- --------- ----------- --------- --------- --------- ----------- ---------
Total 28,222 5,795 7,800 41,817 29,828 6,059 8,982 44,869
----------------------- --------- --------- ----------- --------- --------- --------- ----------- ---------
1 In addition to the aviation sector loan exposures, the Group
owns $3.4 billion (31 December 2021: $3.1 billion) of aircraft
under operating leases. Refer to Operating lease assets
Page 35
Credit quality - loans and advances
30.06.22
------------------------ -----------------------------------------------------------------------------
Commercial
Commodity Metals real Hotel Oil &
Amortised Cost Aviation traders & mining estate & tourism gas Total
Gross Gross Gross Gross Gross Gross Gross
Credit Grade $million $million $million $million $million $million $million
------------------------ --------- --------- --------- ---------- ---------- --------- ---------
Strong 1,043 5,170 2,582 7,470 756 4,517 21,538
Satisfactory 1,750 3,084 1,392 8,878 1,073 2,605 18,782
Higher risk 158 12 3 60 64 9 306
Defaulted 213 866 212 841 262 506 2,900
------------------------ --------- --------- --------- ---------- ---------- --------- ---------
Total Gross Balance 3,164 9,132 4,189 17,249 2,155 7,637 43,526
------------------------ --------- --------- --------- ---------- ---------- --------- ---------
Strong (1) (3) (3) (11) (1) (1) (20)
Satisfactory (2) (5) (10) (130) (4) (17) (168)
Higher risk - (1) - (4) (2) - (7)
Defaulted (47) (548) (115) (503) (61) (240) (1,514)
------------------------ --------- --------- --------- ---------- ---------- --------- ---------
Total Credit Impairment (50) (557) (128) (648) (68) (258) (1,709)
------------------------ --------- --------- --------- ---------- ---------- --------- ---------
Strong 0.1% 0.1% 0.1% 0.1% 0.1% 0.0% 0.1%
Satisfactory 0.1% 0.2% 0.7% 1.5% 0.4% 0.7% 0.9%
Higher risk 0.0% 8.3% 0.0% 6.7% 3.1% 0.0% 2.3%
Defaulted 22.1% 63.3% 54.2% 59.8% 23.3% 47.4% 52.2%
------------------------ --------- --------- --------- ---------- ---------- --------- ---------
Cover Ratio 1.6% 6.1% 3.1% 3.8% 3.2% 3.4% 3.9%
------------------------ --------- --------- --------- ---------- ---------- --------- ---------
31.12.21
------------------------ ------------------------------------------------------------------------------
Commercial Hotel
Commodity Metals real & Oil &
Aviation(1) traders & mining estate tourism gas Total
Gross Gross Gross Gross Gross Gross Gross
Credit Grade $million $million $million $million $million $million $million
------------------------ ----------- --------- --------- ---------- --------- --------- ---------
Strong 896 5,878 1,730 9,581 731 3,594 22,410
Satisfactory 2,257 2,788 1,781 9,735 1,353 2,892 20,806
Higher risk 141 11 22 151 200 108 633
Defaulted 239 713 219 833 182 486 2,672
------------------------ ----------- --------- --------- ---------- --------- --------- ---------
Total Gross Balance 3,533 9,390 3,752 20,300 2,466 7,080 46,521
------------------------ ----------- --------- --------- ---------- --------- --------- ---------
Strong - (1) - (92) - - (93)
Satisfactory (8) (5) (14) (21) (4) (24) (76)
Higher risk (3) (3) (4) (5) (6) (15) (36)
Defaulted (64) (649) (118) (335) (66) (215) (1,447)
------------------------ ----------- --------- --------- ---------- --------- --------- ---------
Total Credit Impairment (75) (658) (136) (453) (76) (254) (1,652)
------------------------ ----------- --------- --------- ---------- --------- --------- ---------
Strong 0.0% 0.0% 0.0% 1.0% 0.0% 0.0% 0.4%
Satisfactory 0.4% 0.2% 0.8% 0.2% 0.3% 0.8% 0.4%
Higher risk 2.1% 27.3% 18.2% 3.3% 3.0% 13.9% 5.7%
Defaulted 26.8% 91.0% 53.9% 40.2% 36.3% 44.2% 54.2%
------------------------ ----------- --------- --------- ---------- --------- --------- ---------
Cover Ratio 2.1% 7.0% 3.6% 2.2% 3.1% 3.6% 3.6%
------------------------ ----------- --------- --------- ---------- --------- --------- ---------
Page 36
IFRS 9 expected credit loss methodology (reviewed)
Refer to pages 233 to 234 in the 2021 Annual Report for the
'Approach for determining expected credit losses', 'Application of
lifetime', and pages 242 to 244 for 'Significant increase in credit
risk (SICR)', 'Assessment of credit-impaired financial assets' and
'Governance and application of expert 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
2021.
Composition of credit impairment provisions (reviewed)
The table below summarises the key components of the Group's
credit impairment provision balances at 30 June 2022 and 31
December 2021.
Modelled ECL provisions, which includes post model adjustments,
management overlays and the impact of multiple economic scenarios,
reduced to 22 per cent (31 December 2021: 23 per cent) of total
credit impairment provisions at
30 June 2022. 18 per cent of the modelled ECL provisions at 30
June 2022 related to judgemental adjustments compared with 25 per
cent at 31 December 2021 primarily due to releases of the COVID-19
overlay.
Central
&
Corporate, Consumer,
Commercial Private
& Institutional & Business other
Banking Banking Ventures items (3) Total
30 June 2022 $ million $ million $ million $ million $ million
--------------------------------------- ---------------- ----------- ----------- ----------- -----------
Modelled ECL provisions (base
forecast) 371 494 2 82 949
Impact of multiple economic scenarios1 39 36 - 21 96
--------------------------------------- ---------------- ----------- ----------- ----------- -----------
Total ECL provisions before management
judgements 410 530 2 103 1,045
Judgemental post model adjustments - 17 - - 17
Management overlays2
- COVID-19 29 61 - - 90
- China Commercial Real Estate 126 - - - 126
--------------------------------------- ---------------- ----------- ----------- ----------- -----------
Total modelled provisions 565 608 2 103 1,278
---------------- ----------- ----------- ----------- -----------
Of which: Stage 1 194 367 2 61 624
Stage 2 314 129 - 42 485
Stage 3 57 112 - - 169
--------------------------------------- ---------------- ----------- ----------- ----------- -----------
Stage 3 non-modelled provisions3 3,723 645 - 74 4,442
--------------------------------------- ---------------- ----------- ----------- ----------- -----------
Total credit impairment provisions 4,288 1,253 2 177 5,720
--------------------------------------- ---------------- ----------- ----------- ----------- -----------
Central
&
Corporate, Consumer,
Commercial Private
& Institutional & Business other
Banking Banking3 Ventures4 items3 Total
31 December 2021 $ million $ million $ million $ million $ million
--------------------------------------- ---------------- ----------- ----------- ----------- -----------
Modelled ECL provisions (base
forecast) 365 529 3 103 1,000
Impact of multiple economic scenarios1 32 14 - 9 55
--------------------------------------- ---------------- ----------- ----------- ----------- -----------
Total ECL provisions before management
judgements 397 543 3 112 1,055
Judgemental post model adjustments - 7 - - 7
Management overlays2
- COVID-19 102 147 - - 249
- China Commercial Real Estate 95 - - - 95
--------------------------------------- ---------------- ----------- ----------- ----------- -----------
Total modelled provisions 594 697 3 112 1,406
---------------- ----------- ----------- ----------- -----------
Of which: Stage 1 163 377 1 68 609
Stage 2 425 185 2 44 656
Stage 3 6 135 - - 141
--------------------------------------- ---------------- ----------- ----------- ----------- -----------
Stage 3 non-modelled provisions 4,073 662 - 68 4,803
--------------------------------------- ---------------- ----------- ----------- ----------- -----------
Total credit impairment provisions 4,667 1,359 3 180 6,209
--------------------------------------- ---------------- ----------- ----------- ----------- -----------
1 Includes a post model adjustment (PMA) of $89 million (2021:
$51 million)
2 $117 million (2021: $115 million) is in stage 1, $96 million
(2021: $208 million) in stage 2 and $3million (2021: $21 million)
in stage 3
3 Includes $42 million (2021: nil) overlay
4 Following the increased strategic importance and reporting of
Ventures to management, this has been established as a separate
operating segment from 1 January 2022. Prior period has been
restated
Page 37
Post model adjustments
Where a model's performance breaches the monitoring thresholds
or validation standards, an assessment is completed to determine
whether an ECL PMA is required to correct for the identified model
issue. PMAs will be removed when the models are updated to correct
for the identified model issue or the estimates return to being
within the monitoring thresholds.
As at 30 June 2022, PMAs have been applied for 9 models out of
the total of 172 models. In aggregate, the PMAs increase the
Group's impairment provisions by $54 million (0.5 per cent of
modelled provisions) compared with a $17 million increase at 31
December 2021, and primarily relate to a post model adjustment for
multiple economic scenarios (see below for the basis of determining
this PMA under 'impact of multiple economic scenarios') and
unsecured Consumer lending models. The PMAs range between a $89
million increase (the post model adjustment for multiple economic
scenarios) to a $24 million decrease in ECL (for Malaysia Business
Clients).
As set out below, a separate judgemental management adjustments
that covers risk not captured by the models has been applied after
taking into account these PMAs.
30.06.22 31.12.21
$ million $ million
---------------------------------------------- ----------- -----------
Model performance PMAs
Corporate, Commercial & Institutional Banking 45 24
Consumer, Private & Business Banking (1) (15)
Central & other items 10 8
---------------------------------------------- ----------- -----------
Total model performance PMAs 54 17
---------------------------------------------- ----------- -----------
Key assumptions and judgements in determining expected credit
loss
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 of 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.
Page 38
Forecast of key macroeconomic variables underlying the expected
credit loss calculation and the impact on non-linearity
In the Base Forecast - management's view of the most likely
outcome - the world economy is expected to grow by around 3 per
cent in 2022, easing from an almost 6 per cent expansion in 2021
and compares to a 30-year average of 3.5 per cent. The impact of
the Russia/Ukraine war through elevated commodity prices and cost
pressures, higher inflation and lower sentiment along with
tightening monetary conditions are creating headwinds for many
economies. Some key markets for the Group such as China and Hong
Kong are also easing out of lockdown measures that were introduced
to contain new waves of COVID-19 infections.
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, which produces these
alternative scenarios while considering the degree of historical
uncertainty (or volatility) observed from Q1 1990 to Q3 2020 around
economic outcomes and how these outcomes have tended to move in
relation to one another (or correlation). This naturally means that
each of the 50 scenarios do not 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 below 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. The
GDP graphs illustrate the shape of the Base Forecast in relation to
prior periods' actuals and the long-term growth rates which is
based on the pace of economic expansion expected for 2030.
China's growth is expected to ease from over 8 per cent in 2021
to 4.1 per cent in 2022. Economic activity in the first half of the
year was severely limited by reimposed lockdown measures in several
major cities to stem the surge in new COVID-19 cases. However, the
economy is likely to regain momentum in the second half of the year
as business normalises and front-loaded government stimulus takes
effect. Similarly for Hong Kong, measures to contain the cities'
fifth COVID-19 wave led to a sharp contraction in activity in early
2022. In the near term the recovery will continue to be supported
by the unwinding of social distancing measures and travel bans.
Growth is expected to slow to 0.2 per cent in 2022 from over 6 per
cent in 2021. Headwinds to Singapore's growth have been rising
recently including the impact from China's slowdown and the
Russia/Ukraine war, persistent global supply disruptions, and
tighter monetary conditions. The economy is expected to expand by
3.8 per cent this year from 7.6 percent in 2021. External factors
are also likely to play a key part in limiting Korea's prospects in
the near term with GDP growth expected to ease to 2.7 per cent in
2022 from 4 per cent last year. Without the government's fiscal
expansion, growth would be even lower. India's uncomfortably high
inflation is adversely impacting activity, but growth is expected
to be relatively firm at nearly 8 per cent in 2022.
Commodity prices have remained elevated mainly from the impact
of the Russia/Ukraine war. Brent crude oil is expected to average
around $105 in 2022. Prices are expected to fall over the next 18
months as production rises and demand eases; that said, the ongoing
need to rebuild stocks is likely to keep prices relatively
high.
Page 39
30.06.22
---------------- ------------------------------------------------------------------------------------
China Hong Kong
----------------------------------------- -----------------------------------------
3-month House GDP 3-month House
GDP interest prices growth interest prices
growth Unemployment rates (YoY (YoY Unemployment rates (YoY
(YoY%) % % %) %) % % %)
---------------- ------- ------------ --------- ------- ------- ------------ --------- -------
Base forecast1
2022 4.1 4.0 1.8 0.8 0.2 4.6 1.3 2.5
2023 5.8 4.0 1.9 2.1 4.5 3.9 2.1 6.8
2024 5.4 4.0 2.3 4.3 2.5 3.9 2.5 3.1
2025 5.1 4.0 2.6 4.4 2.2 3.9 2.4 2.8
2026 4.7 3.9 2.8 4.4 2.6 3.9 2.4 2.7
---------------- ------- ------------ --------- ------- ------- ------------ --------- -------
5-year average2 5.1 4.0 2.4 3.5 2.8 3.9 2.3 3.8
---------------- ------- ------------ --------- ------- ------- ------------ --------- -------
Peak 6.2 4.0 2.9 4.4 6.9 4.2 2.5 8.9
---------------- ------- ------------ --------- ------- ------- ------------ --------- -------
Trough 3.6 3.9 1.8 (0.3) 1.4 3.9 1.6 2.7
---------------- ------- ------------ --------- ------- ------- ------------ --------- -------
Monte Carlo
Low3 2.69 3.85 1.23 (1.69) (1.03) 2.93 0.52 (7.55)
High4 8.01 4.09 3.82 9.55 8.75 5.11 4.54 18.93
---------------- ------- ------------ --------- ------- ------- ------------ --------- -------
30.06.22
---------------- ------------------------------------------------------------------------------------
Singapore Korea
----------------------------------------- -----------------------------------------
3-month 3-month House
GDP interest House GDP interest prices
growth Unemployment rates prices growth Unemployment rates (YoY
(YoY%) % % (YoY%) (YoY%) % % %)
---------------- ------- ------------ --------- ------- ------- ------------ --------- -------
Base forecast1
2022 3.8 3.2 1.5 5.6 2.7 3.2 1.7 7.1
2023 2.8 3.1 2.1 1.8 2.5 3.4 2.2 0.0
2024 2.5 3.0 2.1 3.0 2.5 3.2 2.4 2.2
2025 2.1 3.0 2.3 3.5 2.2 3.1 2.5 2.8
2026 1.9 3.0 2.3 3.8 1.9 3.1 2.5 2.8
---------------- ------- ------------ --------- ------- ------- ------------ --------- -------
5-year average2 2.4 3.0 2.1 3.2 2.2 3.2 2.3 2.2
---------------- ------- ------------ --------- ------- ------- ------------ --------- -------
Peak 4.3 3.1 2.3 6.1 3.1 3.4 2.5 5.1
---------------- ------- ------------ --------- ------- ------- ------------ --------- -------
Trough 1.8 3.0 1.7 1.2 1.7 3.0 1.9 (0.3)
---------------- ------- ------------ --------- ------- ------- ------------ --------- -------
Monte Carlo
Low3 (2.31) 2.15 1.31 (4.37) (0.56) 2.63 1.22 (2.80)
High4 7.01 4.15 3.25 10.70 5.89 3.85 3.76 9.31
---------------- ------- ------------ --------- ------- ------- ------------ --------- -------
30.06.22
---------------- --------------------------------------------------------------
India
------------------------------------------------- -----------
3month
interest
GDP growth Unemployment rates House prices Brent Crude
(YoY%) % % (YoY%) $ pb
---------------- ---------- ------------ --------- ------------ -----------
Base forecast1
2022 7.7 N/A 4.6 7.1 104.6
2023 5.5 N/A 5.1 7.2 90.7
2024 6.0 N/A 5.6 7.2 83.3
2025 5.8 N/A 6.0 7.2 89.3
2026 5.6 N/A 6.1 7.1 108.0
---------------- ---------- ------------ --------- ------------ -----------
5-year average2 5.6 N/A 5.6 7.2 94.3
---------------- ---------- ------------ --------- ------------ -----------
Peak 7.3 N/A 6.1 7.2 110.3
---------------- ---------- ------------ --------- ------------ -----------
Trough 3.3 N/A 4.5 6.9 79.0
---------------- ---------- ------------ --------- ------------ -----------
Monte Carlo
Low3 1.80 N/A 3.49 0.14 30.25
High4 16.80 N/A 7.40 16.80 206.49
---------------- ---------- ------------ --------- ------------ -----------
Page 40
31.12.21
---------------- ------------------------------------------------------------------------------------
China Hong Kong
----------------------------------------- -----------------------------------------
3-month 3-month
GDP interest House GDP interest House
growth Unemployment rates prices growth Unemployment rates prices
(YoY%) % % (YoY%) (YoY%) % % (YoY%)
---------------- ------- ------------ --------- ------- ------- ------------ --------- -------
5-year average2 5.4 3.4 2.8 4.0 2.6 3.8 1.5 3.1
---------------- ------- ------------ --------- ------- ------- ------------ --------- -------
Peak 6.1 3.4 3.1 4.5 3.5 4.4 2.3 5.3
---------------- ------- ------------ --------- ------- ------- ------------ --------- -------
Trough 4.7 3.4 2.1 1.8 1.8 3.7 0.3 2.7
---------------- ------- ------------ --------- ------- ------- ------------ --------- -------
Monte Carlo
Low3 2.6 3.3 1.3 (2.8) (1.7) 2.4 (0.3) (12.4)
High4 8.3 3.5 4.6 11.1 6.9 5.8 5.0 22.8
---------------- ------- ------------ --------- ------- ------- ------------ --------- -------
31.12.21
---------------- ------------------------------------------------------------------------------------
Singapore Korea
----------------------------------------- -----------------------------------------
3-month 3-month
GDP interest House GDP interest House
growth Unemployment rates prices growth Unemployment rates prices
(YoY%) % % (YoY%) (YoY%) % % (YoY%)
---------------- ------- ------------ --------- ------- ------- ------------ --------- -------
5-year average2 2.5 3.1 1.4 3.6 2.5 3.3 1.6 2.7
---------------- ------- ------------ --------- ------- ------- ------------ --------- -------
Peak 4.8 3.4 2.2 4.2 2.8 3.7 2.2 10.9
---------------- ------- ------------ --------- ------- ------- ------------ --------- -------
Trough 1.8 3.0 0.5 3.3 2.4 3.1 1.2 (0.3)
---------------- ------- ------------ --------- ------- ------- ------------ --------- -------
Monte Carlo
Low3 (4.0) 2.1 0.1 (4.1) (3.1) 2.7 0.5 (5.2)
High4 9.4 4.5 4.2 15.4 7.1 4.5 4.3 9.5
---------------- ------- ------------ --------- ------- ------- ------------ --------- -------
31.12.21
---------------- -----------------------------------------------------------
India
---------------------------------------------- -----------
3-month
GDP interest
growth Unemployment rates House prices Brent crude
(YoY%) % % (YoY%) $ pb
---------------- ------- ------------ --------- ------------ -----------
5-year average2 6.4 N/A 5.4 7.1 63.7
---------------- ------- ------------ --------- ------------ -----------
Peak 16.6 N/A 6.2 7.2 73.5
---------------- ------- ------------ --------- ------------ -----------
Trough 4.2 N/A 4.0 5.8 60.0
---------------- ------- ------------ --------- ------------ -----------
Monte Carlo
Low3 2.0 N/A 3.2 (1.9) 8.9
High4 10.5 N/A 8.8 24.9 211.4
---------------- ------- ------------ --------- ------------ -----------
1 Annual numbers are for calendar year except for India where it
covers fiscal year ending Q1 of each year. For example 2022 is Q2
2022 to Q1 2023
2 5 year averages reported for 30.06.22 cover Q3 2022 to Q2
2027. % year averages reported for 31.12.21 cover Q1 2022 to Q4
2026
3 Represents the 10th percentile in the range of economic
scenarios used to determine non-linearity
4 Represents the 90th percentile in the range of economic
scenarios used to determine non-linearity
Impact of multiple economic scenarios
The final probability-weighted ECL reported by the Group is a
simple average of the ECL for each of the 50 scenarios simulated
using a Monte Carlo model. The Monte Carlo approach has the
advantage that it generates many plausible alternative scenarios
that cover our global footprint; however, a recognised challenge
with the Monte Carlo approach is that the range of scenarios it
forecasts can be narrow.
The Monte Carlo model is being redeveloped to widen the range of
the scenarios; however, prior to this new model being implemented a
$89 million post model adjustment for multiple economic scenarios
has been applied. The total amount of non-linearity has been
estimated by assigning probability weights of 57 per cent, 22 per
cent, 12 per cent and 9 per cent respectively to the ECL from the
Base Forecast, Central Bank Over Reaction, Stagflation and New
COVID-19 Variant scenarios which are presented and comparing this
to the unweighted base forecast ECL. The post model adjustment for
multiple economic scenarios represents the difference between the
probability weighted ECL calculated using the three scenarios and
the probability weighted ECL calculated by the Monte Carlo
model.
Page 41
The impact of multiple economic scenarios (which includes the
post model adjustment for multiple economic scenarios) on stage 1,
stage 2 and stage 3 modelled ECL is set out in the table below
together with the management overlay.
Multiple
economic Management
Base forecast1 scenarios overlays Total
$million $million $million $million
------------------------------------------ -------------- ---------- ---------- ----------
Total expected credit loss at 30 June
20222 966 96 216 1,278
------------------------------------------ -------------- ---------- ---------- ----------
Total expected credit loss at 31 December
20212 1,007 55 344 1,406
------------------------------------------ -------------- ---------- ---------- ----------
1 Includes judgemental post model adjustments
2 Total modelled ECL comprises stage 1 and stage 2 balances of
$1,109 million (31 December 2021: $1,265 million) and $169 million
(31 December 2021: $141 million) of modelled ECL on stage 3
loans
The average expected credit loss under multiple scenarios is 10
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 Consumer, Private and Business
Banking mortgage portfolios.
Judgemental adjustments
Post model adjustments
As at 30 June 2022, judgemental post model adjustments of $17
million (31 December 2021: $7 million) have been applied to certain
Consumer, Private and Business Banking models primarily to hold
back releases of ECL identified from model monitoring breaches
because moratoria and other support schemes have suppressed
observed defaults. These will be released when the observed
defaults normalise.
Management overlays
As at 30 June 2022, the Group held:
-- A $90 million (31 December 2021: $249 million) management
overlay relating to uncertainties as a result of the COVID-19
pandemic, $29 million (31 December 2021: $102 million) of which
relates to Corporate, Commercial and Institutional Banking and $61
million (31 December 2021: $147 million) to Consumer, Private and
Business Banking. $53 million (31 December 2021: $84 million) of
the overlay is held in stage 1, $34 million (31 December 2021: $144
million) in stage 2 and $3 million (31 December 2021: $21 million)
in stage 3.
-- A $126 million (31 December 2021: $95 million) management
overlay relating to uncertainties around exposures to China
Commercial Real Estate, all of which relates to Corporate,
Commercial and Institutional Banking. $64 million (31 December
2021: $31 million) is held in stage 1 and $62 million (31 December
2021: $64 million) in stage 2.
-- A $42 million management overlay relating to uncertainties
around stage 3 exposures in Sri Lanka all of which relates to
Corporate, Commercial and Institutional Banking. The $42 million is
held in stage 3.
The overlays have been determined after taking account of the
PMAs reported and they are reassessed quarterly. They are reviewed
and approved by the IFRS 9 Impairment Committee.
COVID-19 overlay
Corporate, Commercial and Institutional Banking
Although the amount of loans placed on non-purely precautionary
early alert has decreased compared with 31 December 2021, balances
remain higher than before the pandemic. The impact of the rapid
deterioration in the economic environment in 2020 has not yet been
fully observed in customers' financial performance, in part due to
ongoing government support measures across the Group's markets.
Accordingly, we have not yet seen a significant increase in the
level of stage 3 loans relating to COVID-19 up to 30 June 2022. 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. The overlay is held in stage 2. The basis of determining
the overlay remained unchanged compared to 2021, although the
assumed level of further deterioration was reduced in 2021 in line
with our experience. The overlay has steadily reduced from $102
million in 2021 to $29 million at 30 June 2022 as the level of
COVID-19 related non-purely precautionary early alerts has
reduced.
Page 42
Consumer, Private and Business Banking
COVID-19 continues to affect our markets in the first half of
2022, though many of our major markets have started opening their
borders and returning to a normal way of life. In Asia, markets
such as China, Hong Kong, Korea and Taiwan have experienced
relatively higher COVID-19 infection rates between March and June,
with some countries placed under lockdowns, causing continued
disruption in some sectors. While industry wide government relief
measure has ended for most markets, there has been a few markets
which has only ended recently while some are available for specific
segments. Accordingly, we continue to hold overlay against these
exposure for potential masking of underlying risk, although the
overall quantum has reduced.
China Commercial Real Estate overlay
Chinese property developers are experiencing liquidity issues,
triggered by government policy changes aimed at deleveraging the
property sector and ensuring property developers have the financial
ability to complete residential properties under construction. The
government's 'three red lines' matrix was introduced in August 2020
to tighten the funding conditions for property developers by
limiting the growth rate in external debt. With additional controls
on sales of properties to end buyers (e.g. mortgage lending
control, pricing control, eligibility control) and on restricting
developers' ability to access cash from 'escrow accounts' with cash
paid by retail residential buyers, the cashflow of developers has
been significantly squeezed. Also, with capital markets reacting
negatively to the tightening policies, we have seen greater
volatility in bond pricing and reduced access to capital markets
liquidity for developers. As such, some developers have faced/are
facing difficulties in servicing and repaying financing
obligations.
The Group's banking book net exposure to China Commercial real
estate was $3.7 billion at 30 June 2022. Client level analysis
continues to be done, with the high-risk clients being placed on
purely precautionary or non-purely precautionary early alert. Given
the evolving nature of the risks in the China Commercial Real
Estate sector, a management overlay of $126 million has been taken
by estimating the impact of further deterioration to those clients
placed on early alert.
Stage 3 assets
Credit-impaired assets managed by Stressed Asset Risk
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
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 the 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 assessments.
The primary conclusion of these exercises is that no individual
macroeconomic variable is materially influential. 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 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. Three downside scenarios were considered. In the
Central Bank Over Reaction scenario a faster monetary tightening by
central banks leads to financial market volatility and a modestly
weaker world growth relative to baseline. In the Stagflation
scenario the intensification of the conflict between Russia and the
West leads to further material spikes in commodity prices,
persistently higher inflation and interest rates, lower consumer
and business confidence and a material slowdown in the world
economy. In the new COVID-19 virus variant scenario a new infection
wave in emerging markets and developing economies, results in the
re-introduction of severe lockdown measures and deep contractions
in many economies. Travel restrictions significantly impact the
Aviation and Hotels and tourism sectors.
Page 43
Central Bank New COVID-19
Baseline over Reaction Stagflation Variant
---------------------- ---------------------- ---------------------- ---------------------- ----------------------
Five year Five year Five year Five year
average Peak/Trough average Peak/Trough average Peak/Trough average Peak/Trough
---------------------- --------- ----------- --------- ----------- --------- ----------- --------- -----------
China GDP 5.1 6.2/3.6 4.8 5.9/2.9 4.5 7.2/0.7 5.2 13.4/(5.4)
China unemployment 4.0 4.0/3.9 4.1 4.2/3.9 5.3 6.4/3.9 4.0 5.9/3.3
China property prices 3.5 4.4/(0.3) 2.5 4.4/(3.9) 3.3 15.9/(23.1) 4.1 6.6/(1.6)
---------------------- --------- ----------- --------- ----------- --------- ----------- --------- -----------
Hong Kong GDP 2.8 6.9/1.4 2.6 5.6/1.1 2.0 5.8/(0.6) 3.0 11.6/(8.3)
Hong Kong unemployment 3.9 4.2/3.9 4.0 4.2/3.9 6.0 7.9/3.9 4.5 6.8/3.8
Hong Kong property
prices 3.8 8.9/2.7 2.4 6.0/(3.2) 2.5 9.5/(1.0) 4.0 25.2/(21.2)
---------------------- --------- ----------- --------- ----------- --------- ----------- --------- -----------
US GDP 2.2 2.7/1.6 1.9 2.4/0.3 1.9 3.1/(0.2) 1.8 13.1/(11.6)
---------------------- --------- ----------- --------- ----------- --------- ----------- --------- -----------
Singapore GDP 2.4 4.3/1.8 2.2 3.7/1.6 2.2 4.1/(0.8) 1.9 11.1/(9.3)
---------------------- --------- ----------- --------- ----------- --------- ----------- --------- -----------
India GDP 5.6 7.3/3.3 5.2 6.7/2.0 4.3 6.0/(0.4) 5.9 19.3/(11.0)
---------------------- --------- ----------- --------- ----------- --------- ----------- --------- -----------
Crude oil 94.3 110.3/79.0 96.0 111.3/79.0 102.3 182.2/79 50.7 59.4/32.7
---------------------- --------- ----------- --------- ----------- --------- ----------- --------- -----------
Period covered from Q3 2022 to Q2 2027
Central Bank Over
Base (GDP, YoY%) Reaction (GDP, YoY%) Difference from Base
---------- ---------------------------- ----------------------------- ------------------------------
2022 2023 2024 2025 2026 2022 2023 2024 2025 2026 2022 2023 2024 2025 2026
---------- ---- ---- ---- ---- ---- ----- ---- ---- ---- ---- ----- ----- ---- ---- ----
China 4.7 5.8 5.2 5.0 4.5 3.9 5.5 5.2 5.0 4.5 (0.8) (0.3) 0.0 0.0 0.0
Hong Kong 4.0 3.3 1.8 2.6 2.5 3.0 3.1 1.8 2.6 2.5 (1.0) (0.2) 0.0 0.0 0.0
US 2.0 2.1 2.3 2.4 2.3 0.8 1.8 2.3 2.4 2.3 (1.2) (0.3) 0.0 0.0 0.0
Singapore 3.0 2.7 2.4 2.0 1.8 2.2 2.6 2.4 2.0 1.8 (0.8) (0.1) 0.0 0.0 0.0
India 5.0 5.8 6.0 5.8 5.5 3.8 4.8 6.1 5.8 5.5 (1.2) (0.9) 0.1 0.0 0.0
---------- ---- ---- ---- ---- ---- ----- ---- ---- ---- ---- ----- ----- ---- ---- ----
Each year is from Q3 to Q2. For example 2022 is from Q3 2022 to
Q2 2023.
Base (GDP, YoY%) Stagflation GDP, YoY%) Difference from Base
---------- ---------------------------- ------------------------------ --------------------------------
2022 2023 2024 2025 2026 2022 2023 2024 2025 2026 2022 2023 2024 2025 2026
---------- ---- ---- ---- ---- ---- ----- ----- ---- ---- ---- ----- ----- ----- ---- -----
China 4.7 5.8 5.2 5.0 4.5 1.5 2.9 5.7 6.8 5.5 (3.3) (2.9) 0.5 1.8 1.0
Hong Kong 4.0 3.3 1.8 2.6 2.5 0.3 (0.3) 1.9 5.2 2.8 (3.7) (3.6) 0.1 2.6 0.3
US 2.0 2.1 2.3 2.4 2.3 0.5 0.8 2.2 3.1 2.8 (1.5) (1.3) 0.0 0.7 0.5
Singapore 3.0 2.7 2.4 2.0 1.8 0.7 0.3 2.8 3.9 3.1 (2.3) (2.4) 0.4 1.9 1.3
India 5.0 5.8 6.0 5.8 5.5 1.7 4.1 5.2 5.9 4.6 (3.4) (1.6) (0.8) 0.1 (0.9)
---------- ---- ---- ---- ---- ---- ----- ----- ---- ---- ---- ----- ----- ----- ---- -----
Each year is from Q3 to Q2. For example 2022 is from Q3 2022 to
Q2 2023.
New COVID-19 variant
Base (GDP, YoY%) (GDP, YoY%) Difference from Base
---------- ---------------------------- ----------------------------- --------------------------------
2022 2023 2024 2025 2026 2022 2023 2024 2025 2026 2022 2023 2024 2025 2026
---------- ---- ---- ---- ---- ---- ----- ---- ---- ---- ---- ------ ---- ---- ----- -----
China 4.7 5.8 5.2 5.0 4.5 (3.3) 12.0 6.9 5.3 5.1 (8.1) 6.2 1.7 0.3 0.6
Hong Kong 4.0 3.3 1.8 2.6 2.5 (4.5) 9.9 4.2 2.6 2.5 (8.5) 6.6 2.4 (0.0) 0.0
US 2.0 2.1 2.3 2.4 2.3 (9.4) 11.0 3.8 1.8 1.8 (11.4) 8.9 1.5 (0.5) (0.5)
Singapore 3.0 2.7 2.4 2.0 1.8 (7.5) 9.4 3.5 1.9 2.3 (10.5) 6.6 1.1 (0.0) 0.4
India 5.0 5.8 6.0 5.8 5.5 (8.9) 16.9 8.5 6.2 6.6 (13.9) 11.1 2.5 0.4 1.0
---------- ---- ---- ---- ---- ---- ----- ---- ---- ---- ---- ------ ---- ---- ----- -----
Each year is from Q3 to Q2. For example 2022 is from Q3 2022 to
Q2 2023.
The total reported stage 1 and 2 ECL provisions (including both
on and off-balance sheet instruments) would be approximately $59
million higher under the Central Bank Over Reaction scenario, $325
million higher under the global stagflation scenario and $488
million higher under the new COVID-19 variant 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 3.1 per cent to 3.3 per cent,
4.1 per cent and 7.4 per cent respectively under the three
scenarios. This includes the impact of exposures transferring to
stage 2 from stage 1 but does not consider an increase in stage 3
defaults.
Most of the increase under the new COVID-19 variant scenario was
in Corporate, Commercial and Institutional Banking, whereas under
the stagflation scenario most of the increase was in Consumer,
Private and Business Banking. Under the Central Bank Over Reaction
scenario the impact was more evenly split across portfolios. For
Corporate, Commercial and Institutional Banking, most of the
increases under all three scenarios came from the main corporate
portfolios in the United Kingdom, Hong Kong and the United Arab
Emirates, whereas the large unsecured retail portfolios accounted
for most of the increases for Consumer, Private and Business
Banking (Taiwan and Korea Personal Loans portfolios were impacted
under both the Stagflation and Central Bank Over Reaction
scenarios, whereas the Malaysia and Singapore Credit Card
portfolios were impacted under the new COVID-19 variant
scenario).
Page 44
There was no material change in modelled stage 3 provisions as
these primarily relate to unsecured Consumer, Private and Business
Banking exposures for which the LGD is not sensitive to changes in
the macroeconomic forecasts. There is also no material change for
non-modelled stage 3 exposures as these are more sensitive to
client specific factors than to alternative macroeconomic
scenarios.
The actual outcome of any scenario may be materially different
due to, among other factors, the effect of management actions to
mitigate potential increases in risk and changes in the underlying
portfolio.
Modelled provisions
Central
Bank over New COVID-19
Base forecast reaction Stagflation variant
ECL ECL ECL ECL
$m $m $m $m
---------------------------------------- ------------- ---------- ----------- ------------
Corporate, Commercial & Institutional
Banking 314 344 420 684
Consumer, Private & Business Banking 402 430 614 505
Ventures2 2 2 2 2
Central & other items 82 83 89 97
---------------------------------------- ------------- ---------- ----------- ------------
Total stage 1 and 2 before overlays and
multiple scenarios 800 859 1,125 1,288
---------------------------------------- ------------- ---------- ----------- ------------
Stage 1 and 2 management overlays 213
Impact of multiple economic scenarios 96
---------------------------------------- ------------- ---------- ----------- ------------
Total reported stage 1 and 2 ECL 1,109
Stage 3 ECL1 4,611
---------------------------------------- ------------- ---------- ----------- ------------
Total reported ECL 5,720
---------------------------------------- ------------- ---------- ----------- ------------
1 Includes $45 million of management overlays
2 Following the increased strategic importance and reporting of
Ventures to management, this has been established as a separate
operating segment from 1 January 2022.
Proportion of assets in stage 21
Central
bank over New COVID-19
Base forecast reaction Stagflation variant
scenario scenario scenario scenario
% % % %
-------------------------------------------- ------------- ---------- ----------- ------------
Corporate, Consumer & Institutional Banking 5.5 5.9 7.4 15.5
Consumer, Private & Business Banking 1.8 1.9 2.9 2.7
Ventures2 1.4 1.4 1.4 1.4
Central & other items 1.3 1.3 1.4 1.5
-------------------------------------------- ------------- ---------- ----------- ------------
Total 3.1 3.3 4.1 7.4
-------------------------------------------- ------------- ---------- ----------- ------------
1 Excludes cash and balances at central banks, accrued income,
assets held for sale and other assets
2 Following the increased strategic importance and reporting of
Ventures to management, this has been established as a separate
operating segment from 1 January 2022.
Page 45
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 and Algorithmic
Trading. Traded Risk Management is the core risk management
function supporting market-facing businesses, predominantly
Financial Markets and Treasury Markets.
Market Risk (reviewed)
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 the Group taking moderate Market Risk
positions. All trading teams support client activity. There are no
proprietary trading teams. Hence, income earned from Market
Risk-related activities is primarily driven by the volume of client
activity rather than risk-taking
-- Non-trading book:
- The Treasury Markets desk is required to hold a liquid assets
buffer, much of which is held in high-quality marketable debt
securities
- The Group has capital invested and related income streams
denominated in currencies other than US dollars. To the extent that
these are not hedged, the Group is subject to Structural Foreign
Exchange Risk which is reflected in reserves
A summary of our current policies and practices regarding Market
Risk management is provided in the Principal Risks section of our
2021 Annual Report.
The primary categories of Market Risk for the Group are:
-- Interest Rate Risk: arising from changes in yield curves 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
-- Credit Spread Risk: arising from changes in the price of debt
instruments and credit-linked derivatives, driven by factors other
than the level of risk-free interest rates
-- Equity Risk: arising from changes in the prices of equities,
equity indices, equity baskets and implied volatilities on
related options
Market Risk movements (reviewed)
Value at Risk (VaR) allows the Group to manage Market Risk
across the trading book and most of the fair valued non-trading
books. The scope of instruments included in the VaR was changed in
2021 to exclude instruments held at amortised cost. The 2021 VaR
numbers presented reflect the revised scope.
The average level of total trading and non-trading VaR in the
first half of 2022 was $50.5 million, 33.6 per cent higher than the
second half of 2021 ($37.8 million) and 30.2 per cent lower than
the first half of 2021 ($72.4 million). The actual level of total
trading and non-trading VaR as at the end of the first half of 2022
was $59.2 million, 36.4 per cent higher than in the second half of
2021 ($43.4 million) and 76.7 per cent higher than the first half
of 2021 ($33.5 million). The increase in total average VaR was
driven by extreme market volatility following the Russia/Ukraine
war which impacted Commodity prices and in particular, energy
markets.
For the trading book, the average level of VaR in the first half
of 2022 was $17.2 million, 15.4 per cent higher than in the second
half of 2021 ($14.9 million) and 11.8 per cent lower than in the
first half of 2021 ($19.5 million). Trading activities have
remained relatively unchanged, and client driven.
Page 46
Daily value at risk (VaR at 97.5%, one day) (reviewed)
6 months ended 30.06.22 6 months ended 31.12.21 6 months ended 30.06.21
------------- ---------------------------------------------- ---------------------------------------------- ----------------------------------------------
Half Year Half
Average High3 Low3 Year Average High3 Low3 End Average High3 Low3 Year
Trading1 and
non-trading2 $million $million $million $million $million $million $million $million $million $million $million $million
------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Interest Rate
Risk6 30.8 42.1 23.3 24.0 24.2 29.7 16.4 26.0 38.6 68.3 20.8 20.8
Credit Spread
Risk6 32.5 45.1 20.3 44.9 19.1 29.3 14.8 21.5 49.4 97.6 17.2 21.3
Foreign
Exchange
Risk 6.5 8.0 5.4 5.7 6.4 8.3 4.2 7.0 8.2 19.0 4.8 5.7
Commodity
Risk 6.3 11.9 3.5 6.6 3.6 8.6 2.5 3.6 5.9 10.4 2.9 3.3
Equity Risk 0.1 0.2 - 0.2 1.2 1.5 1.1 1.4 1.4 1.7 1.0 1.3
------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total4 50.5 61.1 40.3 59.2 37.8 46.2 30.7 43.4 72.4 140.7 33.3 33.5
------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
6 months ended 30.06.22 6 months ended 31.12.21 6 months ended 30.06.21
---------- ---------------------------------------------- ---------------------------------------------- ----------------------------------------------
Half Year Half
Average High3 Low3 Year Average High3 Low3 End Average High3 Low3 Year
Trading1 $million $million $million $million $million $million $million $million $million $million $million $million
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Interest
Rate
Risk5 7.9 10.5 5.8 9.0 7.1 9.6 5.2 7.2 8.1 10.2 6.1 8.0
Credit
Spread
Risk5 9.3 14.9 5.0 13.1 6.0 9.3 4.1 6.2 11.1 19.2 5.7 6.2
Foreign
Exchange
Risk 6.5 8.0 5.4 5.7 6.4 8.3 4.2 7.0 8.2 19.0 4.8 5.7
Commodity
Risk 6.3 11.9 3.5 6.6 3.6 8.6 2.5 3.6 5.9 10.4 2.9 3.3
Equity
Risk - - - - - - - - - - - -
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total4 17.2 24.4 12.6 19.2 14.9 18.1 12.3 15.3 19.5 28.4 13.5 14.0
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
6 months ended 30.06.22 6 months ended 31.12.21 6 months ended 30.06.21
------------- ---------------------------------------------- ---------------------------------------------- ----------------------------------------------
Half Year Half
Average High3 Low3 Year Average High3 Low3 End Average High3 Low3 Year
Non-trading2 $million $million $million $million $million $million $million $million $million $million $million $million
------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Interest Rate
Risk 30.9 44.5 22.9 22.9 24.3 29.3 18.2 24.3 40.7 68.2 21.3 22.2
Credit Spread
Risk 27.5 36.8 18.7 36.4 17.3 26.1 14.4 20.2 41.5 80.0 16.8 19.2
Equity Risk6 0.1 0.2 - 0.2 1.2 1.5 1.1 1.4 1.4 1.7 1.0 1.3
------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total4 45.9 52.5 36.3 48.1 33.0 41.0 25.3 38.3 61.7 106.3 28.4 30.3
------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
1 Trading book for Market Risk is defined in accordance with the
UK onshored Capital Requirements Regulation Part 3 Title I Chapter
3, which restricts the positions permitted in the trading book
2 The non-trading book VaR does not include syndicated loans
3 Highest and lowest VaR for each risk factor are independent
and usually occur on different days
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 Comparative information for 2021 has been represented to
reflect the split between Interest Rate Risk and Credit Spread
Risk
6 Non-trading Equity Risk VaR includes only listed equities
Risks not in VaR
In the first half of 2022, the main market risks not reflected
in VaR were:
-- Basis risks for which the historical market price data is
limited and is therefore proxied, giving rise to potential proxy
basis risk that is not captured in VaR
-- Deal contingent risk where a client is granted the right to
cancel a hedging trade contingent on conditions not being met
within a time window
-- Potential depeg risk from currencies currently pegged or
managed, as the historical one-year VaR observation period does not
reflect the possibility of a change in the currency regime such as
sudden depegging
-- Volatility skew risk due to movements in options volatilities
at different strikes while VaR reflects only movements in
at-the-money volatilities
Additional capital is set aside to cover such 'risks not in
VaR'. For further details on Market Risk capital, see the Market
Risk section in the Standard Chartered PLC Pillar 3 Disclosures for
30 June 2022.
Backtesting
In the first half of 2022, there were three regulatory
backtesting negative exceptions at Group level (in the second half
of 2021, there were three regulatory backtesting negative
exceptions at Group level). Group exceptions occurred on:
-- 9 March: When risk assets rallied on hope of a truce
agreement between Russia and Ukraine
-- 29 March: When oil and base metal prices fell on the prospect
of further ceasefire talks between Russia and Ukraine, and
following a resurgence of COVID-19 cases in China
-- 25 April: When risk assets fell following an announcement by
Chinese authorities of expanded COVID-19 testing requirements
amidst rising cases
Page 47
In total, there have been six 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).
The graph below illustrates the performance of the VaR model
used in capital calculations. It compares the 99 percentile loss
confidence level given by the VaR model with the hypothetical
profit and loss of each day given the actual market movement
without taking into account any intra-day trading activity.
Average daily income earned from Market Risk-related
activities(1) (reviewed)
The average level of total trading daily income in the first
half of 2022 was $15.6 million, 45.8 per cent higher than in 2021
($10.7 million), due to higher trading income driven by an increase
in interest rates, commodity prices and higher levels of market
volatility.
6 months 6 months 6 months
ended 30.06.22 ended 31.12.21 ended 30.06.21
Trading2 $million $million $million
---------------------- --------------- --------------- ---------------
Interest Rate Risk 6.4 2.9 3.7
Credit Spread Risk 0.7 0.8 1.0
Foreign Exchange Risk 6.8 4.4 5.0
Commodity Risk 1.8 0.8 1.0
Equity Risk - - -
---------------------- --------------- --------------- ---------------
Total 15.7 8.9 10.7
---------------------- --------------- --------------- ---------------
6 months 6 months 6 months
ended 30.06.22 ended 31.12.21 ended 30.06.21
Non-trading2 $million $million $million
------------------- --------------- --------------- ---------------
Interest Rate Risk 0.4 0.1 0.8
Credit Spread Risk 1.1 0.1 0.3
Equity Risk - - -
------------------- --------------- --------------- ---------------
Total 1.5 0.2 1.1
------------------- --------------- --------------- ---------------
1 Reflects total product income which is the sum of client
income and own account income. Includes elements of trading income,
interest income and other income which are generated from Market
Risk-related activities. Rates, XVA and Treasury income are
included under Interest Rate Risk whilst Credit Trading income is
included under Credit Spread Risk
2 2021 figures have been restated to exclude income from non
fair value positions
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.
Page 48
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.
Despite the challenging environment, the Group has been
resilient and kept a strong liquidity position. The Group continues
to focus on improving the quality of its funding mix and remains
committed to supporting its clients.
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. The Net Stable Funding
Ratio was also included within Board Risk Appetite in January
2022.
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 positions under UK
onshored Commission Delegated Regulation 2015/61 and has maintained
its LCR above the prudential requirement. The Group maintained
strong liquidity ratios despite the continued impacts of the
COVID-19 stress. For further detail see the Liquidity section in
the Standard Chartered PLC Pillar 3 Disclosures for HY 2022.
At the reporting date, the Group LCR was 142 per cent (2021: 143
per cent), with a surplus to both Board-approved Risk Appetite and
regulatory requirements.
Adequate liquidity was held across our footprint to meet all
local prudential LCR requirements where applicable.
30.06.22 31.12.21
$million $million
------------------------- ---------- ----------
Liquidity buffer 180,348 172,178
Total net cash outflows 127,205 120,788
Liquidity coverage ratio 142% 143%
------------------------- ---------- ----------
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 Board-level Risk Appetite Statement which includes the
following:
"The Group should have sufficient stable or diverse sources of
funding to meet its contractual and contingent obligations as they
fall due."
Page 49
The Group's internal liquidity stress testing framework covers
the following stress scenarios:
Standard Chartered-specific - Captures the liquidity impact from
an idiosyncratic event affecting Standard Chartered only with the
rest of the market assumed to be operating normally.
Market wide - Captures the liquidity impact from a market-wide
crisis affecting all participants in a country, region or
globally.
Combined - Assumes both Standard Chartered-specific and
Market-wide events affecting the Group simultaneously and hence is
the most severe scenario.
All scenarios include, but are not limited to, modelled outflows
for retail and wholesale funding, Off-Balance Sheet
Funding Risk, Cross-currency Funding Risk, Intraday Risk,
Franchise Risk and risks associated with a deterioration of a
firm's credit rating.
Stress testing results show that a positive surplus was
maintained under all scenarios at 30 June 2022, and respective
countries were able to survive for a period of time as defined
under each scenario. The results take into account currency
convertibility and portability constraints while calculating the
liquidity surplus at Group level.
Standard Chartered Bank's credit ratings as at 30 June 2022 were
A+ with negative outlook (Fitch), A+ with stable outlook (S&P)
and A1 with stable outlook (Moody's). On 6 July 2022, Fitch revised
the negative outlook to stable. As of 30 June 2022, the estimated
contractual outflow of a three-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. Within the definition of 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
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 Group's advances-to-deposits ratio has increased by 0.5 per
cent to 59.6 per cent, mainly driven by a reduction of
4 per cent in customer deposits and 3 per cent in customer loans
and advances.
30.06.22 31.12.21
$million $million
----------------------------------------- ---------- ----------
Total loans and advances to customers1,2 277,141 285,922
Total customer accounts3 464,777 483,861
Advances-to-deposits ratio 59.6% 59.1%
----------------------------------------- ---------- ----------
1 Excludes reverse repurchase agreement and other similar
secured lending of $7,894 million and includes loans and advances
to customers held at fair value through profit and loss of
$8,445million
2 Loans and advances to customers for the purpose of the
advances-to-deposits ratio excludes $16,918 million of approved
balances held with central banks, confirmed as repayable at the
point of stress (31 December 2021: $15,168 million)
3 Includes customer accounts held at fair value through profit
or loss of $11,035 million (31 December 2021: $9,291 million)
Net stable funding ratio (NSFR)
The NSFR is a balance sheet metric which requires institutions
to maintain a stable funding profile in relation to an assumed
duration 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. The NSFR became a regulatory
requirement in January 2022 with a minimum of 100 per cent, though
the Group has maintained an average ratio of above 125%.
Page 50
Liquidity pool
The liquidity value of the Group's LCR eligible liquidity pool
at the reporting date was $180 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. Liquidity pool is held to offset stress
outflows as defined in UK onshored Commission Delegated Regulation
2015/61.
30.06.22
------------------------------------------------- ------------------------------------------
Africa
& Europe
Middle &
Asia East Americas Total
$million $million $million $million
------------------------------------------------- --------- --------- --------- ---------
Level 1 securities
Cash and balances at central banks 30,307 1,685 43,140 75,132
Central banks, governments /public sector
entities 43,756 1,952 26,038 71,746
Multilateral development banks and international
organisations 7,013 788 12,055 19,856
Other 18 21 1,511 1,550
------------------------------------------------- --------- --------- --------- ---------
Total Level 1 securities 81,094 4,446 82,744 168,284
------------------------------------------------- --------- --------- --------- ---------
Level 2A securities 5,556 173 5,481 11,210
Level 2B securities 89 21 744 854
------------------------------------------------- --------- --------- --------- ---------
Total LCR eligible assets 86,739 4,640 88,969 180,348
------------------------------------------------- --------- --------- --------- ---------
31.12.21
------------------------------------------------- ------------------------------------------
Africa
& Europe
Middle &
Asia East Americas Total
$million $million $million $million
------------------------------------------------- --------- --------- --------- ---------
Level 1 securities
Cash and balances at central banks 28,076 890 46,973 75,939
Central banks, governments /public sector
entities 40,328 2,096 27,389 69,813
Multilateral development banks and international
organisations 7,812 356 7,366 15,534
Other - - 478 478
------------------------------------------------- --------- --------- --------- ---------
Total Level 1 securities 76,216 3,342 82,206 161,764
------------------------------------------------- --------- --------- --------- ---------
Level 2A securities 3,447 186 5,047 8,680
Level 2B securities 114 - 1,620 1,734
------------------------------------------------- --------- --------- --------- ---------
Total LCR eligible assets 79,777 3,528 88,873 172,178
------------------------------------------------- --------- --------- --------- ---------
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 could 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.
Page 51
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.
30.06.22
------------ -------------------------------------------------------------------------------------------------------------------------------
Assets encumbered
as a
result of transactions
with counterparties Other assets (comprising assets encumbered
other than central at the central bank
banks and unencumbered assets)
-------- ------------------------------------- ------------------------------------------------------------------------------
Assets not positioned at
the central bank
---------------- -------- --------- ------------------ ------------------------------------------------ --------
Assets
positioned Other
at the assets
As a central Readily that are Derivatives
result bank available capable and reverse Cannot
of (ie pre-positioned for of being repo/stock be
Assets securiti-sations Other Total plus encumbered) encumbrance encumbered lending encumbered Total
$million $million $million $million $million $million $million $million $million $million
------------ -------- ---------------- -------- --------- ------------------ ----------- ---------- ----------- ---------- --------
Cash and
balances
at
central
banks 67,005 - - - 11,269 55,736 - - - 67,005
Derivative
financial
instruments 76,676 - - - - - - 76,676 - 76,676
Loans and
advances
to banks1 62,640 - 82 82 - 29,234 9,049 22,672 1,603 62,558
Loans and
advances
to
customers1 354,474 - 4,471 4,471 - - 276,556 60,415 13,032 350,003
Investment
securities2 195,603 - 16,368 16,368 113 142,340 32,180 - 4,602 179,235
Other assets 62,136 - 18,691 18,691 - - 12,994 - 30,451 43,445
Current tax
assets 586 - - - - - - - 586 586
Prepayments
and
accrued
income 2,354 - - - - - 1,111 - 1,243 2,354
Interests in
associates
and joint
ventures 2,105 - - - - - - - 2,105 2,105
Goodwill and
intangible
assets 5,537 - - - - - - - 5,537 5,537
Property,
plant
and
equipment 5,671 - - - - - 448 - 5,223 5,671
Deferred tax
assets 909 - - - - - - - 909 909
Assets
classified
as
held for
sale 221 - - - - - - - 221 221
------------ -------- ---------------- -------- --------- ------------------ ----------- ---------- ----------- ---------- --------
Total 835,917 - 39,612 39,612 11,382 227,310 332,338 159,763 65,512 796,305
------------ -------- ---------------- -------- --------- ------------------ ----------- ---------- ----------- ---------- --------
1 Includes held at fair value through profit or loss and
amortised cost balances
2 Includes held at fair value through profit or loss, fair value
through other comprehensive income and amortised cost balances
Page 52
31.12.21
------------ -------------------------------------------------------------------------------------------------------------------------------
Assets encumbered
as a
result of transactions
with counterpartiesother Other assets (comprising assets encumbered
than central at the central bank
banks and unencumbered assets)
-------- ------------------------------------- ------------------------------------------------------------------------------
Assets not positioned at
the central bank
---------------- -------- --------- ------------------ ------------------------------------------------ --------
Assets
positioned Other
at the assets
As a central Readily that are Derivatives
result bank available capable and reverse Cannot
of (ie pre-positioned for of being repo/stock be
Assets securiti-sations Other Total plus encumbered) encumbrance encumbered lending encumbered Total
$million $million $million $million $million $million $million $million $million $million
------------ -------- ---------------- -------- --------- ------------------ ----------- ---------- ----------- ---------- --------
Cash and
balances
at
central
banks 72,663 - - - 8,147 64,516 - - - 72,663
Derivative
financial
instruments 52,445 - - - - - - 52,445 - 52,445
Loans and
advances
to banks1 66,957 - 89 89 - 34,834 9,931 19,806 2,297 66,868
Loans and
advances
to
customers1 369,703 - 4,539 4,539 - - 282,761 68,612 13,791 365,164
Investment
securities2 198,723 - 13,940 13,940 96 142,965 35,637 - 6,085 184,783
Other assets 49,958 - 16,501 16,501 - - 13,140 - 20,317 33,457
Current tax
assets 766 - - - - - - - 766 766
Prepayments
and
accrued
income 2,176 - - - - - 937 - 1,239 2,176
Interests in
associates
and joint
ventures 2,147 - - - - - - - 2,147 2,147
Goodwill and
intangible
assets 5,471 - - - - - - - 5,471 5,471
Property,
plant
and
equipment 5,616 - - - - - 448 - 5,168 5,616
Deferred tax
assets 859 - - - - - - - 859 859
Assets
classified
as
held for
sale 334 - - - - - - - 334 334
------------ -------- ---------------- -------- --------- ------------------ ----------- ---------- ----------- ---------- --------
Total 827,818 - 35,069 35,069 8,243 242,315 342,854 140,863 58,474 792,749
------------ -------- ---------------- -------- --------- ------------------ ----------- ---------- ----------- ---------- --------
1 Includes held at fair value through profit or loss and
amortised cost balances
2 Includes held at fair value through profit or loss, fair value
through other comprehensive income and amortised cost balances
The Group received $108,816 million (31 December 2021: $117,408
million) as collateral under reverse repurchase agreements that was
eligible for repledging; of this, the Group sold or repledged
$48,520 million (31 December 2021: $57,879 million) under
repurchase agreements.
Liquidity analysis of the Group's balance sheet (reviewed)
Contractual maturity of assets and liabilities
The following table presents assets and liabilities by maturity
groupings based on the remaining period to the contractual maturity
date as at the balance sheet date on a discounted basis.
Contractual maturities do not necessarily reflect actual repayments
or 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 60 per cent maturing in under one year. Our less
than three-month cumulative net funding gap decreased slightly from
the previous year.
Page 53
30.06.22
-------------- ------------------------------------------------------------------------------------------------------
Between Between Between More
Between three six nine Between Between than
one month months months months one year two years five
One month and three and six and nine and and two and five years
or less months months months one year years years and undated Total
$million $million $million $million $million $million $million $million $million
-------------- --------- ---------- --------- --------- --------- --------- ---------- ------------ ---------
Assets
Cash and
balances
at
central banks 55,736 - - - - - - 11,269 67,005
Derivative
financial
instruments 14,989 15,018 12,715 8,649 4,120 6,114 9,990 5,081 76,676
Loans and
advances
to banks1,2 24,335 14,642 12,952 3,911 2,668 2,202 1,409 521 62,640
Loans and
advances
to
customers1,2 99,400 47,410 28,694 15,891 14,280 19,558 34,600 94,641 354,474
Investment
securities 12,700 19,859 15,505 12,393 11,433 23,769 46,196 53,748 195,603
Other assets 33,761 22,316 1,022 165 799 40 46 21,370 79,519
-------------- --------- ---------- --------- --------- --------- --------- ---------- ------------ ---------
Total assets 240,921 119,245 70,888 41,009 33,300 51,683 92,241 186,630 835,917
-------------- --------- ---------- --------- --------- --------- --------- ---------- ------------ ---------
Liabilities
Deposits by
banks1,3 39,619 3,497 2,060 803 922 642 26 3 47,572
Customer
accounts1,4 408,477 42,531 23,076 10,017 11,141 7,286 2,825 1,658 507,011
Derivative
financial
instruments 14,947 15,427 12,062 8,515 3,920 7,102 9,205 4,919 76,097
Senior debt5 262 655 180 545 785 5,673 17,278 12,116 37,494
Other debt
securities
in issue1 2,981 6,881 9,103 2,863 2,075 2,048 1,145 260 27,356
Other
liabilities 28,136 31,243 1,973 691 1,195 562 1,327 10,635 75,762
Subordinated
liabilities
and
other
borrowed
funds 7 72 802 2,172 40 1,359 2,382 8,099 14,933
-------------- --------- ---------- --------- --------- --------- --------- ---------- ------------ ---------
Total
liabilities 494,429 100,306 49,256 25,606 20,078 24,672 34,188 37,690 786,225
-------------- --------- ---------- --------- --------- --------- --------- ---------- ------------ ---------
Net liquidity
gap (253,508) 18,939 21,632 15,403 13,222 27,011 58,033 148,940 49,692
-------------- --------- ---------- --------- --------- --------- --------- ---------- ------------ ---------
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 $83.1 billion
3 Deposits by banks include repurchase agreements and other
similar secured borrowing of $14.8 billion
4 Customer accounts include repurchase agreements and other
similar secured borrowing of $42.2 billion
5 Senior debt maturity profiles are based upon contractual
maturity, which may be later than call options over the debt held
by the Group
Page 54
31.12.21
--------------- -----------------------------------------------------------------------------------------------------
Between
three Between Between Between Between More
Between months six nine one two than
one month and months months year years five
One month and three six and nine and and two and five years
or less months months months one year years years and undated Total
$million $million $million $million $million $million $million $million $million
--------------- --------- ---------- --------- --------- --------- --------- --------- ------------ ---------
Assets
Cash and
balances
at
central banks 64,516 - - - - - - 8,147 72,663
Derivative
financial
instruments 11,695 10,489 7,332 3,583 2,731 4,738 6,493 5,384 52,445
Loans and
advances
to banks1,2 25,486 17,987 11,347 4,415 4,506 1,455 1,466 295 66,957
Loans and
advances
to
customers1,2 92,181 68,361 26,276 13,255 14,992 21,391 36,299 96,948 369,703
Investment
securities 11,813 13,590 12,070 13,266 13,407 26,424 53,189 54,964 198,723
Other assets 24,283 19,776 989 67 491 35 32 21,654 67,327
--------------- --------- ---------- --------- --------- --------- --------- --------- ------------ ---------
Total assets 229,974 130,203 58,014 34,586 36,127 54,043 97,479 187,392 827,818
--------------- --------- ---------- --------- --------- --------- --------- --------- ------------ ---------
Liabilities
Deposits by
banks1,3 34,858 1,134 1,244 408 477 116 206 4 38,447
Customer
accounts1,4 430,071 52,051 27,436 11,738 12,023 4,857 2,152 2,127 542,455
Derivative
financial
instruments 11,715 11,573 7,254 4,061 2,788 5,042 7,117 3,849 53,399
Senior debt5 190 642 1,036 320 397 5,336 15,225 11,845 34,991
Other debt
securities
in issue1 2,233 12,968 7,786 3,118 3,281 782 1,411 320 31,899
Other
liabilities 14,545 22,582 2,044 1,148 1,180 797 990 14,059 57,345
Subordinated
liabilities
and
other borrowed
funds 1,007 64 24 240 894 2,430 2,493 9,494 16,646
--------------- --------- ---------- --------- --------- --------- --------- --------- ------------ ---------
Total
liabilities 494,619 101,014 46,824 21,033 21,040 19,360 29,594 41,698 775,182
--------------- --------- ---------- --------- --------- --------- --------- --------- ------------ ---------
Net liquidity
gap (264,645) 29,189 11,190 13,553 15,087 34,683 67,885 145,694 52,636
--------------- --------- ---------- --------- --------- --------- --------- --------- ------------ ---------
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 $88.4 billion
3 Deposits by banks include repurchase agreements and other
similar secured borrowing of $7.1 billion
4 Customer accounts include repurchase agreements and other
similar secured borrowing of $58.6 billion
5 Senior debt maturity profiles are based upon contractual
maturity, which may be later than call options over the debt held
by the Group
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
(reviewed)
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 the instruments are
undated. Interest payments on these instruments are included within
the relevant maturities up to five years.
Page 55
30.06.22
------------------ --------------------------------------------------------------------------------------------------
Between More
Between Between six Between Between Between than
one three months nine one two five
month months and months year years years
One month and three and six nine and and two and five and
or less months months months one year years years undated Total
$million $million $million $million $million $million $million $million $million
------------------ --------- ---------- --------- --------- --------- --------- --------- --------- ---------
Deposits by banks 39,390 3,446 2,063 804 931 643 23 7 47,307
Customer accounts 408,607 42,669 23,280 10,166 11,397 7,408 2,974 2,137 508,638
Derivative
financial
instruments1 73,199 8 169 164 4 513 938 1,102 76,097
Debt securities in
issue 3,334 7,606 9,520 3,614 3,070 8,525 20,070 23,796 79,535
Subordinated
liabilities
and
other borrowed
funds 99 173 848 2,222 49 1,506 3,159 15,025 23,081
Other liabilities 26,054 31,008 1,872 686 1,192 562 1,332 10,274 72,980
------------------ --------- ---------- --------- --------- --------- --------- --------- --------- ---------
Total liabilities 550,683 84,910 37,752 17,656 16,643 19,157 28,496 52,341 807,638
------------------ --------- ---------- --------- --------- --------- --------- --------- --------- ---------
31.12.21
------------------ --------------------------------------------------------------------------------------------------
Between More
Between Between six Between Between Between than
one three months nine one two five
month months and months year years years
One month and three and six nine and and two and five and
or less months months months one year years years undated Total
$million $million $million $million $million $million $million $million $million
------------------ --------- ---------- --------- --------- --------- --------- --------- --------- ---------
Deposits by banks 34,866 1,140 1,246 409 481 117 208 3 38,470
Customer accounts 430,190 52,112 27,510 11,813 12,120 4,930 2,212 2,495 543,382
Derivative
financial
instruments1 52,783 9 22 12 106 76 212 179 53,399
Debt securities in
issue 2,526 13,618 9,015 3,586 3,891 6,743 17,966 17,659 75,004
Subordinated
liabilities
and
other borrowed
funds 1,114 134 48 261 928 2,546 3,030 16,044 24,105
Other liabilities 17,759 22,460 1,952 1,133 1,170 797 990 9,955 56,216
------------------ --------- ---------- --------- --------- --------- --------- --------- --------- ---------
Total liabilities 539,238 89,473 39,793 17,214 18,696 15,209 24,618 46,335 790,576
------------------ --------- ---------- --------- --------- --------- --------- --------- --------- ---------
1 Derivatives are on a discounted basis
Interest Rate Risk in the Banking Book
The following table provides the estimated impact to a
hypothetical base case projection of the Group's earnings under the
following scenarios:
-- A 50 basis point parallel interest rate shock (up and down)
to the current market-implied path of rates, across all yield
curves
-- A 100 basis point parallel interest rate shock (up) to the
current market-implied path of rates, across all yield curves
These interest rate shock scenarios assume 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 different interest rate shock scenarios.
The base case projected NII is based on the current
market-implied path of rates and forward rate expectations. The NII
sensitivities below stress this base case by a further 50 or
100bps. Actual observed interest rate changes will lag behind
market expectation. Accordingly, the shocked NII sensitivity does
not represent a forecast of the Group's net interest income.
The interest rate sensitivities are indicative stress tests and
based on simplified scenarios, estimating the aggregate
impact of an unanticipated, instantaneous 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 the size and mix of the
balance sheet remain constant and that there are no specific
management actions in response to the change in rates. No
assumptions are made in relation to the impact on credit spreads in
a changing rate environment.
Significant modelling and behavioural assumptions are made
regarding scenario simplification, market competition, pass-through
rates, asset and liability re-pricing tenors, and price flooring.
In particular, the assumption that interest rates of all currencies
and maturities shift by the same amount concurrently, and that no
actions are taken to mitigate the impacts arising from this are
considered unlikely. Reported sensitivities will vary over time due
to a number of factors including changes in balance sheet
composition, market conditions, customer behaviour and risk
management strategy. Therefore, while the NII sensitivities are a
relevant measure of the Group's interest rate exposure, they should
not be considered an income or profit forecast.
Page 56
30.06.22
---------------------------------- ---------------------------------------------------------------------------
Estimated one-year impact to Other
earnings from a parallel shift currency
in yield curves at the beginning USD bloc HKD bloc SGD bloc KRW bloc CNY bloc bloc Total
of the period of: $million $million $million $million $million $million $million
---------------------------------- --------- --------- --------- --------- --------- --------- ---------
+ 50 basis points 40 40 70 40 10 190 390
- 50 basis points (40) (40) (70) (30) (10) (190) (380)
+ 100 basis points 80 80 140 70 20 360 750
---------------------------------- --------- --------- --------- --------- --------- --------- ---------
31.12.21
---------------------------------- ---------------------------------------------------------------------------
Estimated one-year impact to Other
earnings from a parallel shift currency
in yield curves at the beginning USD bloc HKD bloc SGD bloc KRW bloc CNY bloc bloc Total
of the period of: $million $million $million $million $million $million $million
---------------------------------- --------- --------- --------- --------- --------- --------- ---------
+ 50 basis points 200 150 70 50 50 140 660
- 50 basis points (210) (170) (70) (40) (50) (130) (670)
+ 100 basis points 380 280 130 80 90 300 1,260
---------------------------------- --------- --------- --------- --------- --------- --------- ---------
As at 30 June 2022, 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 $390 million. The
equivalent impact from a parallel decrease of 50 basis points would
result in a reduction in projected NII of $380 million. The Group
estimates the one-year impact of an instantaneous, parallel
increase across all yield curves of 100 basis points to increase
projected NII by $750 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. NII sensitivity in all scenarios
has decreased versus 31 December 2021. The change in NII
sensitivity reflects updates to the Group's base case scenario to
factor in higher interest rates as at 30 June 2022. In addition,
NII sensitivities have reduced due to the migration of the HKD
mortgage book from HIBOR to Prime rate, and the dampening effect of
USD hedging strategies intended to provide short term income
certainty and smooth longer term NII volatility.
Operational and Technology Risk
Operational and Technology Risk is defined as the "Potential for
loss from inadequate or failed internal processes, technology
events, human error, or from the impact of external events
(including legal risks)". It is inherent in the Group carrying out
business.
Operational and Technology Risk profile
Risk management practices help the business grow safely and
ensures governance and management of Operational and Technology
Risk through the delivery and embedding of effective frameworks and
policies, together with continuous oversight and assurance.
The Group continues to ensure the operational and technology
risk framework supports the business and functions in effectively
managing risk and controls within risk appetite to meet their
strategic objectives.
Overall, the Group's risk profile has remained stable with the
quality of risk understanding and identification improving.
Operational and Technology Risks remain heightened in areas such as
Fraud, Data Management, and Information and Cyber Security. Other
focus risk areas are Third Party Risk, Technology risk, People Risk
and Change Management. We continue to enhance our operational
resilience and defences against these risks, as well as continue to
monitor impacts of the ongoing pandemic, through vigorous
improvement programmes.
Digitalisation and wider technological improvements remain a key
focus for the Group, to keep pace with new business developments
whilst ensuring control frameworks and Risk Appetite evolve
accordingly.
Other principal risks
Losses arising from operational failures for other principal
risks are reported as operational losses. Operational losses do not
include Operational Risk-related credit impairments.
Page 57
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
high levels of loss-absorbing capacity.
30.06.22 31.12.21
------------------------------------ -------- --------
CET1 capital 13.9% 14.1%
Tier 1 capital 15.9% 16.6%
Total capital 21.0% 21.3%
Leverage ratio 4.5% 4.9%
MREL ratio 31.0% 31.7%
Risk-weighted assets (RWA) $million 255,082 271,233
------------------------------------ -------- --------
-- The Group's CET1 capital and Tier 1 leverage position are
above current requirements. For further detail see the Capital
section in the Standard Chartered PLC Pillar 3 Disclosures for HY
2022
-- The Group's CET1 ratio decreased 28 basis points to 13.9 per
cent as profits for the period and lower RWA driven largely by
optimisation initiatives, were more than offset by regulatory
changes, foreign exchange movements, FVOCI reserve movements, and
distributions (including completion of the FY 21 share
buy-back)
-- The PRA sets the Group's current Pillar 2A requirement as a
nominal value instead of a percentage of RWA. At the half year this
equated to 3.6 per cent of RWA, of which at least 2.0 per cent must
be held in CET1. As the Pillar 2A requirement is a nominal value,
the decrease in RWA in the period caused the CET1 requirement
expressed in ratio terms to increase by 12 basis points. As a
result, the Group's minimum CET1 requirement including the combined
buffer (comprising the capital conservation buffer, the GSII buffer
and the countercyclical buffer) was 10.2 per cent at 30 June
2022
-- The Group's minimum requirement for own funds and eligible
liabilities (MREL) is set as the higher of an RWA or leverage
requirement. The Group's MREL requirement including buffers was 7.8
per cent of leverage exposure at 30 June 2022, equivalent to 27.4
per cent of RWA. The Group's MREL position was 8.9 per cent of
leverage exposure and 31.0 per cent of RWA at 30 June 2022
-- In the first half of the year the Group made good progress on
its MREL issuance plan, successfully raising around $4 billion of
MREL eligible debt from its holding company. Issuance was across
the capital structure including, $0.8 billion of Tier 2 and around
$3.2 billion of callable senior debt
-- The Group CET1 ratio at 30 June includes the share buy-back
of $754 million completed in the first half of 2022 and an accrual
for a 2022 interim dividend. The Board has recommended an interim
dividend for HY 2022 of $119 million or 4 cents per share
representing a third of the total 2021 dividend in line with the
prior year
-- In addition, the Board has announced a further share buy-back
of $500 million, which will impact the Group's CET1 position in the
third quarter of 2022 by around 20bps
-- The Group is a G-SII, with a 1.0 per cent G-SII CET1 buffer.
The Standard Chartered PLC G-SII disclosure is published at:
sc.com/en/investors/financial-results
Page 58
CRD Capital base1 (reviewed)
30.06.22 31.12.21
$million $million
---------------------------------------------------------------- ---------- ----------
CET1 instruments and reserves
Capital instruments and the related share premium accounts 5,472 5,528
---------- ----------
Of which: share premium accounts 3,989 3,989
---------- ----------
Retained earnings2 26,266 24,968
Accumulated other comprehensive income (and other reserves) 8,837 11,805
Non-controlling interests (amount allowed in consolidated
CET1) 188 201
Independently reviewed interim and year-end profits 2,092 2,346
Foreseeable dividends (303) (493)
---------------------------------------------------------------- ---------- ----------
CET1 capital before regulatory adjustments 42,552 44,355
---------------------------------------------------------------- ---------- ----------
CET1 regulatory adjustments
Additional value adjustments (prudential valuation adjustments) (766) (665)
Intangible assets (net of related tax liability) (5,468) (4,392)
Deferred tax assets that rely on future profitability
(excludes those arising from temporary differences) (120) (150)
Fair value reserves related to net losses on cash flow
hedges 475 34
Deduction of amounts resulting from the calculation
of excess expected loss (702) (580)
Net gains on liabilities at fair value resulting from
changes in own credit risk (100) 15
Defined-benefit pension fund assets (184) (159)
Fair value gains arising from the institution's own
credit risk related to derivative liabilities (165) (60)
Exposure amounts which could qualify for risk weighting
of 1,250% (138) (36)
Other regulatory adjustments to CET1 capital(3) (11) -
---------------------------------------------------------------- ---------- ----------
Total regulatory adjustments to CET1 (7,179) (5,993)
---------------------------------------------------------------- ---------- ----------
CET1 capital 35,373 38,362
---------------------------------------------------------------- ---------- ----------
Additional Tier 1 capital (AT1) instruments 5,264 6,811
---------------------------------------------------------------- ---------- ----------
AT1 regulatory adjustments (20) (20)
---------------------------------------------------------------- ---------- ----------
Tier 1 capital 40,617 45,153
---------------------------------------------------------------- ---------- ----------
Tier 2 capital instruments 13,050 12,521
Tier 2 regulatory adjustments (30) (30)
---------- ----------
Tier 2 capital 13,020 12,491
---------------------------------------------------------------- ---------- ----------
Total capital 53,637 57,644
---------------------------------------------------------------- ---------- ----------
Total risk-weighted assets (unreviewed) 255,082 271,233
---------------------------------------------------------------- ---------- ----------
1 CRD capital is prepared on the regulatory scope of
consolidation
2 Retained earnings includes IFRS 9 capital relief
(transitional) of $164 million, including dynamic relief of $58
million
3 Other regulatory adjustments to CET1 capital includes
Insufficient coverage for non-performing exposures of -$11
million
Page 59
Movement in total capital (reviewed)
6 months 6 months
ended ended
30.06.22 31.12.21
$million $million
--------------------------------------------------------------- ---------- ----------
CET1 at 1 January/1 July 38,362 39,589
Ordinary shares issued in the period and share premium - -
Share buy-back (754) (251)
Profit for the period 2,092 422
Foreseeable dividends net of scrip deducted from CET1 (303) (493)
Difference between dividends paid and foreseeable dividends 3 9
Movement in goodwill and other intangible assets (1,076) (320)
Foreign currency translation differences (1,394) (350)
Non-controlling interests (13) 10
Movement in eligible other comprehensive income (1,020) (281)
Deferred tax assets that rely on future profitability 30 (41)
Decrease/(increase) in excess expected loss (122) 284
Additional value adjustments (prudential valuation adjustment) (101) (33)
IFRS 9 transitional impact on regulatory reserves including
day one (88) (17)
Exposure amounts which could qualify for risk weighting (102) 4
Fair value gains arising from the institution's own
Credit Risk related to derivative liabilities (105) (14)
Other (36) (156)
--------------------------------------------------------------- ---------- ----------
CET1 at 30 June/31 December 35,373 38,362
--------------------------------------------------------------- ---------- ----------
AT1 at 1 January/1 July 6,791 6,293
Net issuances (redemptions) (990) 497
Foreign currency translation difference - (5)
Excess on AT1 grandfathered limit (ineligible) (557) 6
--------------------------------------------------------------- ---------- ----------
AT1 at 30 June/31 December 5,244 6,791
--------------------------------------------------------------- ---------- ----------
Tier 2 capital at 1 January/1 July 12,491 13,279
Regulatory amortisation 546 (512)
Net issuances (redemptions) (298) (72)
Foreign currency translation difference (307) (120)
Tier 2 ineligible minority interest 27 (83)
Recognition of ineligible AT1 557 (6)
Other 4 5
--------------------------------------------------------------- ---------- ----------
Tier 2 capital at 30 June/31 December 13,020 12,491
--------------------------------------------------------------- ---------- ----------
Total capital at 30 June/31 December 53,637 57,644
--------------------------------------------------------------- ---------- ----------
The main movements in capital in the period were:
-- CET1 decreased by $3.0 billion as retained profits of $2.0
billion were more than offset by removal of the software benefit of
$1.0 billion, the completion of the FY 21 share buy-back of $0.8
billion, foreseeable dividends of $0.3 billion, foreign exchange
translation losses of $1.4 billion, FVOCI movements (on higher
yields and wider credit spreads) of $1.3 billion and an increase in
other regulatory deductions of $0.3 billion
-- Additional Tier 1 capital decreased by $1.5 billion following
the redemption of $1.0 billion of 7.5 per cent securities, and the
final $0.5 billion derecognition of legacy Tier 1 securities
-- Tier 2 capital increased by $0.5 billion as issuance of $0.8
billion new Tier 2 instruments and the recognition of ineligible
Additional Tier 1 as Tier 2 were partly offset by regulatory
amortisation and the redemption of $1.0 billion of Tier 2
securities during the period
Page 60
Risk-weighted assets by business
30.06.22
-------------------------------------- ---------------------------------------------
Credit Operational Market
risk risk risk Total risk
$million $million $million $million
-------------------------------------- --------- ----------- --------- ----------
Corporate, Commercial & Institutional
Banking 117,789 17,038 19,350 154,177
Consumer, Private & Business Banking 43,879 8,639 - 52,518
Ventures 1,034 6 3 1,043
Central & Other items 42,477 1,494 3,373 47,344
-------------------------------------- --------- ----------- --------- ----------
Total risk-weighted assets 205,179 27,177 22,726 255,082
-------------------------------------- --------- ----------- --------- ----------
31.12.211
-------------------------------------- ---------------------------------------------
Credit Operational Market
risk risk risk Total risk
$million $million $million $million
-------------------------------------- --------- ----------- --------- ----------
Corporate, Commercial & Institutional
Banking2 125,813 16,595 20,789 163,197
Consumer, Private & Business Banking2 42,731 8,501 - 51,232
Ventures 756 5 - 761
Central & Other items 50,288 2,015 3,740 56,043
-------------------------------------- --------- ----------- --------- ----------
Total risk-weighted assets 219,588 27,116 24,529 271,233
-------------------------------------- --------- ----------- --------- ----------
1 Following the increased strategic importance and reporting of
Ventures to management, this has been established as a separate
operating segment from 1 January 2022. Prior period has been
restated
2 Following Group's change in organisational structure in 2021,
certain clients have been moved between the two new client
segments, Corporate, Commercial & Institutional Banking and
Consumer, Private & Business Banking. Prior period has been
restated
Risk-weighted assets by geographic region
30.06.22 31.12.21
$million $million
--------------------------- ---------- ----------
Asia 160,345 170,381
Africa & Middle East 43,613 48,852
Europe & Americas 50,038 50,283
Central & Other items 1,086 1,717
--------------------------- ---------- ----------
Total risk-weighted assets 255,082 271,233
--------------------------- ---------- ----------
Page 61
Movement in risk-weighted assets
Credit Risk
--------------- ---------------------------------------------------------------- ----------- ---------- ----------
Market Total
Commercial, Consumer,
Corporate Private Central
& Institutional & Business & Other Operational
Banking Banking Ventures1 items Total Risk Risk Risk
$million $million $million $million $million $million $million $million
--------------- --------------- ----------- ---------- ---------- ---------- ----------- ---------- ----------
At 31 December
2020 127,663 44,755 48,023 220,441 26,800 21,593 268,834
At 1 January
2021 127,581 44,755 289 47,816 220,441 26,800 21,593 268,834
Assets growth &
mix 5,445 3,827 224 384 9,880 - - 9,880
Asset quality 1,956 (292) - (382) 1,282 - - 1,282
Risk-weighted
assets
efficiencies - - - (657) (657) - - (657)
Model updates - (27) - - (27) - - (27)
Methodology and
policy
changes - - - - - - - -
Acquisitions
and disposals - - - - - - - -
Foreign
currency
translation (873) (603) - (412) (1,888) - - (1,888)
Other,
including
non-credit
risk movements - - - 317 317 316 2,170 2,803
--------------- --------------- ----------- ---------- ---------- ---------- ----------- ---------- ----------
At 30 June 2021 134,109 47,660 513 47,066 229,348 27,116 23,763 280,227
Assets growth &
mix (3,175) (216) 243 3,510 362 - - 362
Asset quality (3,493) (370) - 395 (3,468) - - (3,468)
Risk-weighted
assets
efficiencies (415) (30) - - (445) - - (445)
Model updates - (3,674) - - (3,674) - - (3,674)
Methodology and
policy
changes - - - - - - 2,065 2,065
Acquisitions
and disposals - - - - - - - -
Foreign
currency
translation (1,213) (639) - (694) (2,546) - - (2,546)
Other,
including
non-credit
risk movements - - - 11 11 - (1,299) (1,288)
--------------- --------------- ----------- ---------- ---------- ---------- ----------- ---------- ----------
At 31 December
2021 125,813 42,731 756 50,288 219,588 27,116 24,529 271,233
Assets growth &
mix (2,392) 58 278 (4,289) (6,345) - - (6,345)
Asset quality (5,648) (32) - (163) (5,843) - - (5,843)
Risk-weighted
assets
efficiencies - - - - - - - -
Model updates 2,073 2,628 - - 4,701 - (1,000) 3,701
Methodology and
policy
changes 2,024 85 - 38 2,147 - 1,100 3,247
Acquisitions
and disposals - - - - - - - -
Foreign
currency
translation (4,081) (1,591) - (2,392) (8,064) - - (8,064)
Other,
including
non-credit
risk movements - - - (1,005) (1,005) 61 (1,903) (2,847)
--------------- --------------- ----------- ---------- ---------- ---------- ----------- ---------- ----------
At 30 June 2022 117,789 43,879 1,034 42,477 205,179 27,177 22,726 255,082
--------------- --------------- ----------- ---------- ---------- ---------- ----------- ---------- ----------
1 Following the increased strategic importance and reporting of
Ventures to management, this has been established as a separate
operating segment from 1 January 2022. Prior period has been
restated
Movements in risk-weighted assets
RWA decreased by $16.2 billion, or 6.0 per cent from 31 December
2021 to $255.1 billion. This was mainly due to decreases in Credit
Risk RWA of $14.4 billion and Market Risk RWA of $1.8 billion
offset by marginal increase in Operational Risk RWA of $0.1
billion
Corporate, Commercial & Institutional Banking
Credit Risk RWA decreased by $8.0 billion to $117.8 billion
mainly due to:
-- $6.9 billion decrease from optimisation actions including
reduction in lower returning portfolios
-- $6.2 billion decrease from other business efficiency
actions
-- $5.6 billion decrease mainly due to improvement in asset
quality reflecting client upgrades
-- $4.1 billion decrease from foreign currency translation
-- $10.7 billion increase from asset balance growth
-- $2.1 billion increase from industry-wide regulatory changes
to align IRB model performance
-- $2.0 billion increase from revised rules on capital
requirements
Page 62
Consumer, Private & Business Banking
Credit Risk RWA increased by $1.1 billion to $43.9 billion
mainly due to:
-- $2.6 billion increase from industry-wide regulatory changes
to align IRB model performance
-- $1.5 billion decrease from foreign currency translation
Ventures
Ventures comprised of Mox Bank Limited, Trust Bank and SC
Ventures. Credit Risk RWA increased by $0.2 billion to $1 billion
from asset balance growth.
Central & Other items
Central & Other items mainly relate to the Treasury Markets
liquidity portfolio, equity investments and current and deferred
tax assets.
Credit Risk RWA decreased by $7.8 billion to $42.5 billion
mainly due to:
-- $2.9 billion decrease in asset balance
-- $2.4 billion decrease from foreign currency translation
-- $1.3 billion decrease from credit protection on certain
products
-- $1.0 billion decrease due to cessation of software relief
Market risk
Market Risk RWA decreased by $1.8 billion, or 7 per cent from 31
December 2021 to $22.7 billion mainly due to:
-- $1.7 billion decrease in Standardised Approach (SA) Specific
Interest Rate Risk RWA due to reduced positions
-- $1.0 billion decrease with enhanced Internal Models Approach
(IMA) VaR and stressed VaR methodology
-- $0.4 billion decrease in SA Structural FX risk with increased
SFX hedging
-- $1.1 billion increase due to higher IMA RWA multiplier from
back-testing exceptions
-- $0.2 billion increase of other individually smaller
movements
Operational risk
Operational risk RWA increased by $0.1 billion mainly due to
marginal increase in average income as measured over a rolling
three-year time horizon for certain products.
Page 63
Leverage ratio
The Group's leverage ratio, which excludes qualifying claims on
central banks, was 4.5 per cent, which is above the current minimum
requirement of 3.7 per cent. The leverage ratio decreased by
approximately 35 basis points in the period following a $4.0
billion decrease in Tier 1 capital due to a decrease in CET1 by
$3.0 billion and the redemption of $1 billion of Additional Tier 1.
This was partially offset by a reduction in leverage exposures by
$17 billion primarily due to derivatives and central bank
netting.
Leverage ratio
30.06.22 31.12.21
$million $million
--------------------------------------------------------- ---------- ----------
Tier 1 capital (transitional) 40,617 45,153
Additional Tier 1 capital subject to phase out - (557)
--------------------------------------------------------- ---------- ----------
Tier 1 capital (end point) 40,617 44,596
--------------------------------------------------------- ---------- ----------
Derivative financial instruments 76,676 52,445
Derivative cash collateral 11,459 9,217
Securities financing transactions (SFTs) 83,087 88,418
Loans and advances and other assets 664,695 677,738
--------------------------------------------------------- ---------- ----------
Total on-balance sheet assets 835,917 827,818
Regulatory consolidation adjustments(1) (70,350) (63,704)
Derivatives adjustments
---------- ----------
Derivatives netting (56,040) (34,819)
Adjustments to cash collateral (9,831) (17,867)
Net written credit protection 128 1,534
Potential future exposure on derivatives 41,103 50,857
---------- ----------
Total derivatives adjustments (24,640) (295)
Counterparty risk leverage exposure measure for SFTs 13,318 13,724
Off-balance sheet items 146,745 139,505
Regulatory deductions from Tier 1 capital (6,856) (5,908)
--------------------------------------------------------- ---------- ----------
Total exposure measure excluding claims on central banks 894,134 911,140
Leverage ratio excluding claims on central banks (%) 4.5% 4.9%
--------------------------------------------------------- ---------- ----------
Average leverage exposure measure excluding claims on
central banks 918,391 897,992
Average leverage ratio excluding claims on central banks
(%) 4.4% 5.0%
--------------------------------------------------------- ---------- ----------
Countercyclical leverage ratio buffer 0.1% 0.1%
G-SII additional leverage ratio buffer 0.4% 0.4%
--------------------------------------------------------- ---------- ----------
1 Includes adjustment for qualifying central bank claims $70.9
billion and unsettled regular way trades $1.5 billion
Page 64
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 UK-adopted IAS 34 Interim
Financial Reporting.
-- 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 2022 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 2022 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
29 July 2022
Page 65
Independent review report to Standard Chartered PLC
Conclusion
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
2022 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, the
related notes 1 to 31 and the risk and capital disclosures marked
as 'reviewed' from page 48 to 111 (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 set
of financial statements.
Based on our review, nothing has come to our attention that
causes us to believe that the condensed consolidated interim
financial statements in the half-yearly financial report for the
six months ended 30 June 2022 are not prepared, in all material
respects, in accordance with United Kingdom (UK) adopted
International Accounting Standard 34, 'Interim Financial Reporting'
(IAS 34), IAS 34 as adopted by the European Union (EU) and the
Disclosure Guidance and Transparency Rules of the UK's Financial
Conduct Authority (FCA).
Basis for Conclusion
We conducted our review in accordance with International
Standard on Review Engagements (ISRE) 2410 (UK) 'Review of Interim
Financial Information Performed by the Independent Auditor of the
Entity' issued by the Financial Reporting Council. 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.
As disclosed in note 1, the annual financial statements of the
Group are prepared in accordance with UK adopted international
accounting standards and International Financial Reporting
Standards as adopted by the EU. The condensed consolidated interim
financial statements included in this half-yearly financial report
has been prepared in accordance with UK adopted IAS 34 and IAS 34
as adopted by the EU.
Conclusions Relating to Going Concern
Based on our review procedures, which are less extensive than
those performed in an audit as described in the Basis of Conclusion
section of this report, nothing has come to our attention to
suggest that management have inappropriately adopted the going
concern basis of accounting or that management have identified
material uncertainties relating to going concern that are not
appropriately disclosed.
This conclusion is based on the review procedures performed in
accordance with ISRE 2410 (UK) 'Review of Interim Financial
Information Performed by the Independent Auditor of the Entity',
however future events or conditions may cause the entity to cease
to continue as a going concern.
Responsibilities of the directors
The directors are responsible for preparing the half-yearly
financial report in accordance with the Disclosure Guidance and
Transparency Rules of the UK's FCA.
In preparing the half-yearly financial report, the directors are
responsible for assessing the company's ability to continue as a
going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless the
directors either intend to liquidate the company or to cease
operations, or have no realistic alternative but to do so.
Auditor's Responsibilities for the review of the financial
information
In reviewing the half-yearly report, we are responsible for
expressing to the Company a conclusion on the condensed set of
financial statements in the half-yearly financial report. Our
conclusion, including our Conclusions Relating to Going Concern,
are based on procedures that are less extensive than audit
procedures, as described in the Basis for Conclusion paragraph of
this report.
Use of our report
This report is made solely to the company in accordance with
guidance contained in ISRE 2410 (UK) 'Review of Interim Financial
Information Performed by the Independent Auditor of the Entity'
issued by the Financial Reporting Council. 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.
Ernst & Young LLP
London
29 July 2022
Page 66
Condensed consolidated interim income statement
For the six months ended 30 June 2022
6 months 6 months
ended 30.06.22 ended 30.06.21
Notes $million $million
-------------------------------------------------- ----- --------------- ---------------
Interest income 5,785 5,122
Interest expense (2,147) (1,752)
-------------------------------------------------- ----- --------------- ---------------
Net interest income 3 3,638 3,370
--------------- ---------------
Fees and commission income 2,023 2,300
Fees and commission expense (359) (361)
--------------- ---------------
Net fee and commission income 4 1,664 1,939
Net trading income 5 2,679 1,870
Other operating income 6 244 449
-------------------------------------------------- ----- --------------- ---------------
Operating income 8,225 7,628
--------------- ---------------
Staff costs (3,853) (3,786)
Premises costs (197) (184)
General administrative expenses (686) (655)
Depreciation and amortisation (592) (596)
--------------- ---------------
Operating expenses 7 (5,328) (5,221)
-------------------------------------------------- ----- --------------- ---------------
Operating profit before impairment losses and
taxation 2,897 2,407
Credit impairment 8 (263) 51
Goodwill, property, plant and equipment and other
impairment 9 (15) (40)
Profit from associates and joint ventures 153 141
-------------------------------------------------- ----- --------------- ---------------
Profit before taxation 2,772 2,559
Taxation 10 (684) (631)
-------------------------------------------------- ----- --------------- ---------------
Profit for the period 2,088 1,928
-------------------------------------------------- ----- --------------- ---------------
Profit attributable to:
Non-controlling interests (1) 14
Parent company shareholders 2,089 1,914
-------------------------------------------------- ----- --------------- ---------------
Profit for the period 2,088 1,928
-------------------------------------------------- ----- --------------- ---------------
cents cents
------------------------------------ ----- -----
Earnings per share:
Basic earnings per ordinary share 12 62.1 54.8
Diluted earnings per ordinary share 12 61.0 53.9
------------------------------------ ----- -----
The notes form an integral part of these financial
statements.
Page 67
Condensed consolidated interim statement of comprehensive
income
For the six months ended 30 June 2022
6 months 6 months
ended 30.06.22 ended 30.06.21
Notes $million $million
--------------------------------------------------------------- ----- --------------- ---------------
Profit for the year 2,088 1,928
Other comprehensive (loss)/income
Items that will not be reclassified to income statement: 135 244
--------------- ---------------
Own credit gains/(losses) on financial liabilities
designated at fair value through profit or loss 138 (2)
Equity instruments at fair value through other comprehensive
income (70) 184
Actuarial gains on retirement benefit obligations 26 84 107
Taxation relating to components of other comprehensive
income (17) (45)
--------------- ---------------
Items that may be reclassified subsequently to income
statement: (3,106) (565)
Exchange differences on translation of foreign operations:
--------------- ---------------
Net losses taken to equity (1,885) (367)
Net gains on net investment hedges 482 64
Share of other comprehensive (loss)/income from associates
and joint ventures (82) 5
Debt instruments at fair value through other comprehensive
income:
Net valuation losses taken to equity (1,279) (186)
Reclassified to income statement (12) (153)
Net impact of expected credit losses (9) 4
Cash flow hedges:
Net (losses)/gains taken to equity (529) 10
Reclassified to income statement 4 7
Taxation relating to components of other comprehensive
income 204 51
--------------- ---------------
Other comprehensive loss for the year, net of taxation (2,971) (321)
--------------------------------------------------------------- ----- --------------- ---------------
Total comprehensive (loss)/income for the period (883) 1,607
--------------------------------------------------------------- ----- --------------- ---------------
Total comprehensive income attributable to:
Non-controlling interests (32) 16
Parent company shareholders (851) 1,591
--------------------------------------------------------------- ----- --------------- ---------------
Total comprehensive (loss)/income for the period (883) 1,607
--------------------------------------------------------------- ----- --------------- ---------------
Page 68
Condensed consolidated interim balance sheet
As at 30 June 2022
30.06.22 31.12.21
Notes $million $million
--------------------------------------------------- ------ ---------- ----------
Assets
Cash and balances at central banks 67,005 72,663
Financial assets held at fair value through profit
or loss 13 118,141 129,121
Derivative financial instruments 13, 14 76,676 52,445
Loans and advances to banks 13 36,201 44,383
Loans and advances to customers 13 293,508 298,468
Investment securities 13 164,892 163,437
Other assets 18 62,111 49,932
Current tax assets 586 766
Prepayments and accrued income 2,354 2,176
Interests in associates and joint ventures 19 2,105 2,147
Goodwill and intangible assets 16 5,537 5,471
Property, plant and equipment 17 5,671 5,616
Deferred tax assets 10 909 859
Assets classified as held for sale 20 221 334
--------------------------------------------------- ------ ---------- ----------
Total assets 835,917 827,818
--------------------------------------------------- ------ ---------- ----------
Liabilities
Deposits by banks 13 31,173 30,041
Customer accounts 13 453,742 474,570
Repurchase agreements and other similar secured
borrowing 13, 15 1,723 3,260
Financial liabilities held at fair value through
profit or loss 13 82,983 85,197
Derivative financial instruments 13, 14 76,097 53,399
Debt securities in issue 13 58,043 61,293
Other liabilities 21 61,515 44,314
Current tax liabilities 506 348
Accruals and deferred income 4,168 4,651
Subordinated liabilities and other borrowed funds 13, 24 14,933 16,646
Deferred tax liabilities 10 797 800
Provisions for liabilities and charges 404 453
Retirement benefit obligations 26 141 210
--------------------------------------------------- ------ ---------- ----------
Total liabilities 786,225 775,182
--------------------------------------------------- ------ ---------- ----------
Equity
Share capital and share premium account 25 6,966 7,022
Other reserves 8,837 11,805
Retained earnings 28,251 27,184
--------------------------------------------------- ------ ---------- ----------
Total parent company shareholders' equity 44,054 46,011
Other equity instruments 25 5,264 6,254
--------------------------------------------------- ------ ---------- ----------
Total equity excluding non-controlling interests 49,318 52,265
Non-controlling interests 374 371
--------------------------------------------------- ------ ---------- ----------
Total equity 49,692 52,636
--------------------------------------------------- ------ ---------- ----------
Total equity and liabilities 835,917 827,818
--------------------------------------------------- ------ ---------- ----------
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 29 July 2022 and signed on
its behalf by:
Andy Halford
Group Chief Financial Officer
Page 69
Condensed consolidated interim statement of changes in
equity
For the six months ended 30 June 2022
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 adjustment reserve reserve hedge Translation Retained share-holders' equity Non-controlling
account account reserves(1) reserve - debt - equity reserve reserve earnings equity instru-ments interests Total
$million $million $million $million $million $million $million $million $million $million $million $million $million
-------------- ---------- ---------- ----------- ---------- -------------- -------------- ---------- ----------- ---------- -------------- ------------ --------------- ----------
As at 1
January 2021 5,564 1,494 17,207 (52) 529 148 (52) (5,092) 26,140 45,886 4,518 325 50,729
Profit for the
period - - - - - - - - 1,914 1,914 - 14 1,928
Other
comprehensive
(loss)/income - - - (1) (282) 142 14 (302) 106(2) (323) - 2 (321)
Distributions - - - - - - - - - - - (12) (12)
Other equity
instruments
issued,
net of
expenses - - - - - - - - - - 1,239 - 1,239
Treasury
shares net
movement - - - - - - - - (80) (80) - - (80)
Share option
expenses - - - - - - - - 88 88 - - 88
Dividends on
ordinary
shares - - - - - - - - (282) (282) - - (282)
Dividends on
preference
shares and
AT1
securities - - - - - - - - (196) (196) - - (196)
Share
buy-back3 (19) - 19 - - - - - (255) (255) - - (255)
-------------- ---------- ---------- ----------- ---------- -------------- -------------- ---------- ----------- ---------- -------------- ------------ --------------- ----------
Other
movements 3 - - - - - - - (3) - - 19 19
-------------- ---------- ---------- ----------- ---------- -------------- -------------- ---------- ----------- ---------- -------------- ------------ --------------- ----------
As at 30 June
2021 5,548 1,494 17,226 (53) 247 290 (38) (5,394) 27,432 46,752 5,757 348 52,857
Profit/(loss)
for
the period - - - - - - - - 401 401 - (16) 385
Other
comprehensive
income/(loss) - - - 38 (144) (41) 4 (360) 69(2) (434) - (17) (451)
Distributions - - - - - - - - - - - (19) (19)
Other equity
instruments
issued,
net of
expenses - - - - - - - - - - 1,489 - 1,489
Redemption of
other
equity
instruments - - - - - - - - (51) (51) (992) - (1,043)
Treasury
shares net
movement - - - - - - - - (155) (155) - - (155)
Share option
expenses - - - - - - - - 59 59 - - 59
Dividends on
ordinary
shares - - - - - - - - (92) (92) - - (92)
Dividends on
preference
shares and
AT1
securities - - - - - - - - (214) (214) - - (214)
Share
buy-back5 (20) - 20 - - - - - (251) (251) - - (251)
Other
movements - - - - - - - 10 (14) (4) - 75 71
-------------- ---------- ---------- ----------- ---------- -------------- -------------- ---------- ----------- ---------- -------------- ------------ --------------- ----------
As at 31
December
2021 5,528 1,494 17,246 (15) 103 249 (34) (5,744) 27,184 46,011 6,254 371 52,636
Profit/(loss)
for
the period - - - - - - - - 2,089 2,089 - (1) 2,088
Other
comprehensive
income/(loss) - - - 115 (1,261) (43) (441) (1,382) 72(2) (2,940) - (31) (2,971)
Distributions - - - - - - - - - - - (26) (26)
Redemption of
other
equity
instruments - - - - - - - - - - (990) - (990)
Treasury
shares net
movement - - - - - - - - 11 11 - - 11
Share option
expenses - - - - - - - - 104 104 - - 104
Dividends on
ordinary
shares - - - - - - - - (274) (274) - - (274)
Dividends on
preference
shares and
AT1
securities - - - - - - - - (216) (216) - - (216)
Share
buy-back8 (56) - 56 - - - - - (754) (754) - - (754)
Other
movements - - - - - - - (12) 35 23 - 61(1) 84
-------------- ---------- ---------- ----------- ---------- -------------- -------------- ---------- ----------- ---------- -------------- ------------ --------------- ----------
As at 30 June
2022 5,472 1,494 17,302 100 (1,158) 206 (475) (7,138) 28,251 44,054 5,264 374 49,692
-------------- ---------- ---------- ----------- ---------- -------------- -------------- ---------- ----------- ---------- -------------- ------------ --------------- ----------
1 Includes capital reserve of $5 million, capital redemption
reserve of $186 million and merger reserve of $17,111 million
2 Comprises actuarial gain, net of taxation on Group defined
benefit scheme
3 On 25 February 2021, 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 $19 million, and the total consideration paid was $255
million (including $2 million of fees). The total number of shares
purchased was 37,148,399 representing
1.18 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
4 Movement related to non-controlling interest from Mox Bank
Limited
5 On 3 August 2021, 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 $251 million
(including $1 million of fees and stamp duty). The total number of
shares purchased was 39,914,763 representing 1.28 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
6 Movement related to Translation adjustment and AT1 securities
charges
7 Movements related to non-controlling interest from Mox Bank
Limited ($2 million), Trust Bank Singapore Limited ($70 million)
and Zodia Markets Holdings Limited
($3 million)
8 On 18 February 2022, 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 $56 million, and the
total consideration paid was $754 million (including $4 million of
fees and stamp duty), the buy-back completed on 19 May 2022. The
total number of shares purchased was 111,295,408, representing 3.61
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.
9 Movements related to $21 million NCI on Power2SME Pte Limited
and $12 million translation adjustment
10 Movements related to non-controlling interest from Mox Bank
Limited ($29 million), Trust Bank Singapore Limited ($23 million)
and Power2SME Pte Limited ($9 million)
Note 25 includes a description of each reserve.
The notes form an integral part of these financial
statements.
Page 70
Condensed consolidated interim cash flow statement
For the six months ended 30 June 2022
6 months 6 months
ended 30.06.22 ended 30.06.21
Notes $million $million
---------------------------------------------------------- ----- --------------- ---------------
Cash flows from operating activities:
Profit before taxation 2,772 2,559
Adjustments for non-cash items and other adjustments
included within income statement 31 700 593
Change in operating assets 31 (24,285) (7,031)
Change in operating liabilities 31 26,042 5,403
Contributions to defined benefit schemes (15) (20)
UK and overseas taxes paid (252) (534)
---------------------------------------------------------- ----- --------------- ---------------
Net cash from /(used in) operating activities 4,962 970
---------------------------------------------------------- ----- --------------- ---------------
Cash flows from investing activities:
Internally generated capitalised software 16 (486) (416)
Purchase of property, plant and equipment 17 (553) (185)
Disposal of property, plant and equipment 17 139 355
Disposal of held for sale property, plant and equipment 20 79 140
Acquisition of investment in subsidiaries, associates,
and joint ventures, net of cash acquired 19 (4) (4)
Dividends received from associates and joint ventures 19 58 38
Purchase of investment securities (145,272) (157,290)
Disposal and maturity of investment securities 135,373 159,859
---------------------------------------------------------- ----- --------------- ---------------
Net cash (used in)/from investing activities (10,666) 2,497
---------------------------------------------------------- ----- --------------- ---------------
Cash flows from financing activities:
Exercise of share options 11 5
Purchase of own shares - (85)
Cancellation of shares including share buy-back (754) (255)
Premises and equipment lease liability principal
payment (164) (253)
Issue of Additional Tier 1 capital, net of expenses 25 - 1,239
Redemption of Tier 1 capital 25 (990) -
Gross proceeds from issue of subordinated liabilities 31 750 1,186
Interest paid on subordinated liabilities 31 (310) (293)
Repayment of subordinated liabilities 31 (1,048) (530)
Proceeds from issue of senior debts 31 6,511 8,276
Repayment of senior debts 31 (3,618) (4,865)
Interest paid on senior debts 31 (487) (366)
Net cash inflow due to non-controlling interest 82 19
Dividends paid to non-controlling interests, preference
shareholders and AT1 securities (242) (208)
Dividends paid to ordinary shareholders (274) (282)
---------------------------------------------------------- ----- --------------- ---------------
Net cash (used in)/from financing activities (533) 3,588
---------------------------------------------------------- ----- --------------- ---------------
Net (decrease) /increase in cash and cash equivalents (6,237) 7,055
Cash and cash equivalents at beginning of the period 99,605 97,874
Effect of exchange rate movements on cash and cash
equivalents (2,553) (769)
---------------------------------------------------------- ----- --------------- ---------------
Cash and cash equivalents at end of the period(1) 90,815 104,160
---------------------------------------------------------- ----- --------------- ---------------
1 Comprises cash and balances at central banks $67,005 million
(30 June 2021: $72,985 million), treasury bills and other eligible
bills $12,826 million (30 June 2021: $11,085 million), loans and
advances to banks $21,195 million (30 June 2021: $27,600 million),
trading securities $1,062 million (30 June 2021: $2,265 million)
less restricted balances $11,273 million (30 June 2021: $9,775
million)
Interest received was $6,043 million (30 June 2021: $5,343
million), interest paid was $1,878 million (30 June 2021: $1,762
million).
Page 71
Contents - Notes to the financial statements
Section Note Name of Notes
------------------------------ ---- -----------------------------------------------
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 Goodwill, property, plant and equipment and
other impairment
10 Taxation
11 Dividends
12 Earnings per ordinary share
------------------------------ ---- -----------------------------------------------
Assets and liabilities 13 Financial instruments
held at fair value
14 Derivative financial instruments
------------------------------ ---- -----------------------------------------------
Financial instruments 15 Reverse repurchase and repurchase agreements
held at amortised cost including other similar lending and borrowing
------------------------------ ---- -----------------------------------------------
Other assets and investments 16 Goodwill and intangible assets
17 Property, plant and equipment
18 Other assets
19 Investment in associates and joint ventures
20 Assets held for sale and associated liabilities
------------------------------ ---- -----------------------------------------------
Funding, accruals, provisions, 21 Other liabilities
contingent liabilities
and legal proceedings
------------------------------
22 Contingent liabilities and commitments
------------------------------
23 Legal and regulatory matters
------------------------------ ---- -----------------------------------------------
Capital instruments, equity 24 Subordinated liabilities and other borrowed
and reserves funds
25 Share capital, other equity instruments and
reserves
------------------------------ ---- -----------------------------------------------
Employee benefits 26 Retirement benefit obligations
------------------------------ ---- -----------------------------------------------
Other disclosure matters 27 Related party transactions
28 Post balance sheet events
29 Corporate governance
30 Statutory accounts
31 Cash flow statement
------------------------------ ---- -----------------------------------------------
Page 72
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), with
UK-adopted IAS 34 Interim Financial Reporting and with IAS 34
Interim Financial Reporting as adopted by the EU. They should be
read in conjunction the 2021 Annual Report, which was prepared in
accordance with UK-adopted international accounting standards and
International Financial Reporting Standards (IFRS) as adopted by
the European Union (EU IFRS).
The following parts of the Risk review and Capital review form
part of these condensed consolidated interim financial
statements:
a) Risk review: Disclosures marked as 'reviewed' from the start
of the Credit Risk section to the end of Other principal risks in
the same section; and
b) Capital review: Tables marked as 'reviewed' from the start of
'CRD Capital base' to the end of 'Movement in total capital',
excluding 'Total risk-weighted assets'.
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. The consolidated
financial statements are presented in United States dollars ($),
and all values are rounded to the nearest million dollars, except
when otherwise indicated. The considerations of the impact of
climate risk on the Groups financial report are the same as those
applied to the consolidated financial statements as at, and for the
year ended 31 December 2021.
Significant accounting estimates and judgements
In determining the carrying amounts of certain assets and
liabilities, the Group makes assumptions of the effects of
uncertain future events on those assets and liabilities at the
balance sheet date. The Group's estimates and assumptions are based
on historical experience and expectation of future events and are
reviewed periodically. 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 2021 , except for revenue recognition within Net fees and
commissions for bancassurance contracts as detailed below.
Summaries of the Group's significant accounting policies are
included throughout the 2021 Annual Report.
-- Note 4 Net fees and commission
IFRS and Hong Kong accounting requirements
As required by the Hong Kong Listing Rules, an explanation of
the differences in accounting practices between UK-adopted IFRS and
Hong Kong Financial Reporting Standards is required to be
disclosed. There would be no significant differences had these
accounts been prepared in accordance with Hong Kong Financial
Reporting Standards.
Comparatives
Certain comparatives have been restated in line with current
year disclosures. Details of these changes are set out in the
relevant sections and notes below:
-- Note 2 Segmental information
-- Note 4 Net fees and commission
-- Note 13 Financial instruments
-- Risk review: Tables marked as 'reviewed' disaggregating
Credit Risk information by client segment have been restated
following the Group's change in organisational structure that came
into effect on 1 January 2022
-- Risk review: Credit quality by industry
Page 73
New accounting standards in issue but not yet effective
IFRS 17 Insurance Contracts
IFRS 17 Insurance Contracts was issued in May 2017 to replace
IFRS 4 Insurance Contracts and to establish a comprehensive
standard for inceptors of insurance policies. The effective date
has been deferred to 1 January 2023. The Group is assessing the
likely implementation impact on adopting the standards on its
financial statements.
Going concern
These interim financial statements were approved by the Board of
Directors on 29 July 2022. 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, including:
-- A review of the Group Strategy and Corporate Plan, both of
which cover a year from the date of signing the annual report
-- An assessment of the actual performance to date, loan book
quality, credit impairment, legal, regulatory and compliance
matters, and the annual budget
-- Consideration of stress testing performed, including both the
Bank of England annual stress test and a Group Recovery and
Resolution Plan (RRP) as submitted to the PRA. Both these
submissions include the application of stressed scenarios
including; COVID additional waves with the accompanying economic
shocks, credit impact and short-term liquidity shocks. Under the
tests and through the range of scenarios, the results of these
stress tests and the RRP demonstrate that the Group has sufficient
capital and liquidity to continue as a going concern and meet
minimum regulatory capital and liquidity requirements
-- Analysis of the capital, funding and liquidity position of
the Group, including the capital and leverage ratios, and ICAAP
which summarises the Group's capital and risk assessment processes,
assesses its capital requirements and the adequacy of resources to
meet them. Further, funding and liquidity was considered in the
context of the risk appetite metrics, including the ADR and LCR
ratios
-- The Group's Internal Liquidity Adequacy Assessment Process
(ILAAP), which considers the Group's liquidity position, its
framework and whether sufficient liquidity resources are being
maintained to meet liabilities as they fall due, was also
reviewed
-- The level of debt in issue, including redemptions and
issuances during the year, debt falling due for repayment in the
next 12 months and further planned debt issuances, including the
appetite in the market for the Group's debt
-- A detailed review of all principal and emerging risks
Based on the analysis performed, the directors confirm they are
satisfied that the Group has adequate resources to continue in
business for the period from 29 July 2022 to 29 July 2023. 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 (on an underlying basis) 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.
Page 74
Segments and regions
The Group's segmental reporting is in accordance with IFRS 8
Operating Segments and is reported consistently with the internal
performance framework and as presented to the Group's Management
Team.
As part of the ongoing execution of its refreshed strategy, the
Group has expanded and reorganised its reporting structure with the
creation of a third client segment, Ventures, effective on 1st
January 2022. Ventures is a consolidation of SC Ventures and its
related entities as well as the Group's two majority-owned digital
banks Mox in Hong Kong and Trust in Singapore.
-- SC Ventures is the platform and catalyst for the Group to
promote innovation, invest in disruptive financial technology and
explore alternative business models and was previously reported in
Central & other items (segment)
-- Mox, a cloud-native, mobile only digital bank, was launched
in Hong Kong as a joint venture with HKT, PCCW and Trip.com in
September 2020
-- Trust in Singapore, in partnership with NTUC Enterprise, is
the Group's second separately licensed digital bank in Asia, after
Mox, with go-live planned for later this year
The changes above require comparative periods to be
restated.
Restructuring items excluded from underlying results
The Group's statutory IFRS performance is adjusted for certain
items to arrive at alternative performance measures. These items
include 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 consistent
performance period by period. The alternative performance measures
are not within the scope of IFRS and not a substitute for IFRS
measures. These adjustments are set out below.
Restructuring charges of $45 million primarily relate to
redundancies partly offset by income from the Principal Finance and
Ship Leasing portfolios.
The Group has announced the exit of seven markets in the AME
region and will focus solely on the CCIB segment in two more. It is
expected that the results from the markets and businesses being
exited will be reported in restructuring by the end of 2022
Reconciliations between underlying and statutory results are set
out in the tables below:
Profit before taxation (PBT)
6 months ended 30.06.22
------------------------------------------------- ------------------------------------
Underlying Restructuring Statutory
$million $million $million
------------------------------------------------- ---------- ------------- ---------
Operating income 8,200 25 8,225
Operating expenses (5,267) (61) (5,328)
------------------------------------------------- ---------- ------------- ---------
Operating profit/(loss) before impairment losses
and taxation 2,933 (36) 2,897
Credit impairment (267) 4 (263)
Other impairment (2) (13) (15)
Profit from associates and joint ventures 153 - 153
------------------------------------------------- ---------- ------------- ---------
Profit/(loss) before taxation 2,817 (45) 2,772
------------------------------------------------- ---------- ------------- ---------
6 months ended 30.06.21
------------------------------------------------- ------------------------------------
Underlying Restructuring Statutory
$million $million $million
------------------------------------------------- ---------- ------------- ---------
Operating income 7,618 10 7,628
Operating expenses (5,092) (129) (5,221)
------------------------------------------------- ---------- ------------- ---------
Operating profit/(loss) before impairment losses
and taxation 2,526 (119) 2,407
Credit impairment 47 4 51
Other impairment (25) (15) (40)
Profit from associates and joint ventures 134 7 141
------------------------------------------------- ---------- ------------- ---------
Profit/(loss) before taxation 2,682 (123) 2,559
------------------------------------------------- ---------- ------------- ---------
Page 75
Underlying performance by client segment
6 months ended 30.06.22
-------------------------------------- --------------------------------------------------------------
Corporate, Consumer, Central
Commercial Private &
& Institutional & Business other
Banking Banking Ventures items Total
$million $million $million $million $million
-------------------------------------- ---------------- ----------- --------- --------- ---------
Operating income 4,877 2,871 5 447 8,200
---------------- ----------- --------- --------- ---------
External 4,581 2,612 5 1,002 8,200
Inter-segment 296 259 - (555) -
---------------- ----------- --------- --------- ---------
Operating expenses (2,714) (2,071) (146) (336) (5,267)
-------------------------------------- ---------------- ----------- --------- --------- ---------
Operating profit/(loss) before
impairment losses and taxation 2,163 800 (141) 111 2,933
Credit impairment (196) (79) (3) 11 (267)
Other impairment - (1) - (1) (2)
Profit/(loss) from associates
and joint ventures - - (7) 160 153
-------------------------------------- ---------------- ----------- --------- --------- ---------
Underlying profit/(loss) before
taxation 1,967 720 (151) 281 2,817
Restructuring (4) (21) (1) (19) (45)
-------------------------------------- ---------------- ----------- --------- --------- ---------
Statutory profit/(loss) before
taxation 1,963 699 (152) 262 2,772
-------------------------------------- ---------------- ----------- --------- --------- ---------
Total assets 427,483 134,979 1,371 272,084 835,917
Of which: loans and advances to
customers2 192,439 132,275 342 29,418 354,474
---------------- ----------- --------- --------- ---------
loans and advances to customers 134,154 132,233 342 26,779 293,508
loans held at fair value through
profit or loss (FVTPL) 58,285 42 - 2,639 60,966
---------------- ----------- --------- --------- ---------
Total liabilities 500,400 179,637 770 105,418 786,225
Of which: customer accounts2 321,517 175,747 689 9,058 507,011
-------------------------------------- ---------------- ----------- --------- --------- ---------
6 months ended 30.06.21 (Restated)(1)
-------------------------------------- ------------------------------------------------------------------
Central
&
Corporate, Consumer,
Commercial Private
& Institutional & Business other
Banking(1) Banking(1) Ventures(1) items(1) Total
$million $million $million $million $million
-------------------------------------- ---------------- ----------- ----------- ---------- ----------
Operating income 4,292 2,971 (3) 358 7,618
---------------- ----------- ----------- ---------- ----------
External 4,087 2,775 (3) 759 7,618
Inter-segment 205 196 - (401) -
---------------- ----------- ----------- ---------- ----------
Operating expenses (2,582) (2,025) (118) (367) (5,092)
-------------------------------------- ---------------- ----------- ----------- ---------- ----------
Operating profit/(loss) before
impairment losses and taxation 1,710 946 (121) (9) 2,526
Credit impairment 136 (93) - 4 47
Other impairment (25) - - - (25)
Profit/(loss) from associates
and joint ventures - - (2) 136 134
-------------------------------------- ---------------- ----------- ----------- ---------- ----------
Underlying profit/(loss) before
taxation 1,821 853 (123) 131 2,682
Restructuring (38) (22) - (63) (123)
-------------------------------------- ---------------- ----------- ----------- ---------- ----------
Statutory profit/(loss) before
taxation 1,783 831 (123) 68 2,559
-------------------------------------- ---------------- ----------- ----------- ---------- ----------
Total assets 387,542 137,190 624 270,554 795,910
Of which: loans and advances to
customers2 197,732 134,281 10 23,153 355,176
---------------- ----------- ----------- ---------- ----------
loans and advances to customers 141,205 134,182 10 22,606 298,003
loans held at fair value through
profit or loss (FVTPL) 56,527 99 - 547 57,173
---------------- ----------- ----------- ---------- ----------
Total liabilities 452,449 179,249 757 110,598 743,053
Of which: customer accounts2 307,619 174,862 695 8,416 491,592
-------------------------------------- ---------------- ----------- ----------- ---------- ----------
1 Following the increased strategic importance and reporting of
Ventures to management, this has been established as a separate
operating segment from 1 January 2022. Prior period has been
restated
2 Loans and advances to customers includes FVTPL and customer
accounts includes FVTPL and repurchase agreements
Page 76
Operating income by client segment
6 months ended 30.06.22
---------------------------- ------------------------------------------------------------------------
Central
&
Corporate, Consumer
Commercial Private
& Institutional & Business other
Banking Banking Ventures items (segment) Total
$million $million $million $million $million
---------------------------- ---------------- ----------- ---------- ----------------- ----------
Underlying operating income 4,877 2,871 5 447 8,200
Restructuring 25 - - - 25
---------------------------- ---------------- ----------- ---------- ----------------- ----------
Statutory operating income 4,902 2,871 5 447 8,225
---------------------------- ---------------- ----------- ---------- ----------------- ----------
6 months ended 30.06.21 (Restated)(1)
---------------------------- ------------------------------------------------------------------------
Central
&
Corporate, Consumer
Commercial Private
& Institutional & Business other
Banking1 Banking1 Ventures items (segment) Total
$million $million $million $million $million
---------------------------- ---------------- ----------- ---------- ----------------- ----------
Underlying operating income 4,292 2,971 (3) 358 7,618
Restructuring 12 - - (2) 10
---------------------------- ---------------- ----------- ---------- ----------------- ----------
Statutory operating income 4,304 2,971 (3) 356 7,628
---------------------------- ---------------- ----------- ---------- ----------------- ----------
1 Following the increased strategic importance and reporting of
Ventures to management, this has been established as a separate
operating segment from 1 January 2022. Prior period has been
restated
Underlying performance by region
6 months ended 30.06.22
-------------------------------------- ------------------------------------------------------
Africa Central
& Europe &
Middle & other
Asia East Americas items Total
$million $million $million $million $million
-------------------------------------- --------- ---------- --------- --------- ---------
Operating income 5,522 1,291 1,445 (58) 8,200
Operating expenses (3,417) (808) (771) (271) (5,267)
-------------------------------------- --------- ---------- --------- --------- ---------
Operating profit/(loss) before
impairment losses
and taxation 2,105 483 674 (329) 2,933
Credit impairment (398) 99 29 3 (267)
Other impairment (2) (1) 1 - (2)
Profit/(loss) from associates
and joint ventures 157 - - (4) 153
-------------------------------------- --------- ---------- --------- --------- ---------
Underlying profit/(loss) before
taxation 1,862 581 704 (330) 2,817
Restructuring (19) (7) (6) (13) (45)
-------------------------------------- --------- ---------- --------- --------- ---------
Statutory profit/(loss) before
taxation 1,843 574 698 (343) 2,772
-------------------------------------- --------- ---------- --------- --------- ---------
Total assets 477,485 57,859 291,264 9,309 835,917
Of which: loans and advances to
customers1 259,484 28,003 66,987 - 354,474
--------- ---------- --------- --------- ---------
loans and advances to customers 243,169 26,656 23,683 - 293,508
loans held at fair value through
profit or loss (FVTPL) 16,315 1,347 43,304 - 60,966
--------- ---------- --------- --------- ---------
Total liabilities 431,424 42,672 243,877 68,252 786,225
Of which: customer accounts1 332,705 33,480 140,826 - 507,011
-------------------------------------- --------- ---------- --------- --------- ---------
6 months ended 30.06.21
-------------------------------------- ------------------------------------------------------
Africa Central
& Europe &
Middle & other
Asia East Americas items Total
$million $million $million $million $million
-------------------------------------- --------- ---------- --------- --------- ---------
Operating income 5,463 1,250 993 (88) 7,618
Operating expenses (3,298) (815) (725) (254) (5,092)
-------------------------------------- --------- ---------- --------- --------- ---------
Operating profit/(loss) before
impairment losses
and taxation 2,165 435 268 (342) 2,526
Credit impairment (47) 40 62 (8) 47
Other impairment (15) - 7 (17) (25)
Profit/(loss) from associates
and joint ventures 136 - - (2) 134
-------------------------------------- --------- ---------- --------- --------- ---------
Underlying profit/(loss) before
taxation 2,239 475 337 (369) 2,682
Restructuring (27) (3) (20) (73) (123)
-------------------------------------- --------- ---------- --------- --------- ---------
Statutory profit/(loss) before
taxation 2,212 472 317 (442) 2,559
-------------------------------------- --------- ---------- --------- --------- ---------
Total assets 467,933 57,797 261,041 9,139 795,910
Of which: loans and advances to
customers1 255,630 29,825 69,721 - 355,176
--------- ---------- --------- --------- ---------
loans and advances to customers 240,297 27,256 30,450 - 298,003
loans held at fair value through
profit or loss (FVTPL) 15,333 2,569 39,271 - 57,173
--------- ---------- --------- --------- ---------
Total liabilities 418,583 39,464 213,713 71,293 743,053
Of which: customer accounts1 334,639 32,847 124,106 - 491,592
-------------------------------------- --------- ---------- --------- --------- ---------
1 Loans and advances to customers includes FVTPL and customer
accounts includes FVTPL and repurchase agreements
Page 77
Operating income by region
6 months ended 30.06.22
---------------------------- ------------------------------------------------------
Africa Central
& Europe &
Middle & other
Asia East Americas items Total
$million $million $million $million $million
---------------------------- --------- ---------- --------- --------- ---------
Underlying operating income 5,522 1,291 1,445 (58) 8,200
Restructuring 10 1 (1) 15 25
---------------------------- --------- ---------- --------- --------- ---------
Statutory operating income 5,532 1,292 1,444 (43) 8,225
---------------------------- --------- ---------- --------- --------- ---------
6 months ended 30.06.21
---------------------------- -----------------------------------------------------------
Africa Europe Central
& & &
Middle other
Asia1 East Americas items Total
$million $million $million $million $million
---------------------------- ---------- ----------- ---------- ---------- ----------
Underlying operating income 5,463 1,250 993 (88) 7,618
Restructuring 25 2 - (17) 10
---------------------------- ---------- ----------- ---------- ---------- ----------
Statutory operating income 5,488 1,252 993 (105) 7,628
---------------------------- ---------- ----------- ---------- ---------- ----------
Additional segmental information (statutory)
6 months ended 30.06.22
------------------------------- ------------------------------------------------------------------------
Central
&
Corporate, Consumer
Commercial Private
& Institutional & Business other
Banking Banking Ventures items (segment) Total
$million $million $million $million $million
------------------------------- ---------------- ----------- ---------- ----------------- ----------
Net interest income 1,579 1,735 4 320 3,638
Net fees and commission income 788 868 3 5 1,664
Net trading and other income 2,535 268 (2) 122 2,923
------------------------------- ---------------- ----------- ---------- ----------------- ----------
Operating income 4,902 2,871 5 447 8,225
------------------------------- ---------------- ----------- ---------- ----------------- ----------
6 months ended 30.06.21 (Restated)(1)
------------------------------- ------------------------------------------------------------------------
Central
&
Corporate, Consumer
Commercial Private
& Institutional & Business other
Banking1 Banking1 Ventures1 items (segment) Total
$million $million $million $million $million
------------------------------- ---------------- ----------- ---------- ----------------- ----------
Net interest income 1,596 1,611 (2) 165 3,370
Net fees and commission income 882 1,078 - (21) 1,939
Net trading and other income 1,826 282 (1) 212 2,319
------------------------------- ---------------- ----------- ---------- ----------------- ----------
Operating income 4,304 2,971 (3) 356 7,628
------------------------------- ---------------- ----------- ---------- ----------------- ----------
1 Following the increased strategic importance and reporting of
Ventures to management, this has been established as a separate
operating segment from 1 January 2022. Prior period has been
restated
6 months ended 30.06.22
------------------------------- -----------------------------------------------------
Africa Central
& Europe &
Middle & other
Asia East Americas items Total
$million $million $million $million $million
------------------------------- --------- --------- --------- --------- ---------
Net interest income 2,668 577 357 36 3,638
Net fees and commission income 1,167 271 301 (75) 1,664
Net trading and other income 1,697 444 786 (4) 2,923
------------------------------- --------- --------- --------- --------- ---------
Operating income 5,532 1,292 1,444 (43) 8,225
------------------------------- --------- --------- --------- --------- ---------
6 months ended 30.06.21
------------------------------- -----------------------------------------------------
Africa Central
& Europe &
Middle & other
Asia East Americas items Total
$million $million $million $million $million
------------------------------- --------- --------- --------- --------- ---------
Net interest income 2,549 585 233 3 3,370
Net fees and commission income 1,464 310 256 (91) 1,939
Net trading and other income 1,475 357 504 (17) 2,319
------------------------------- --------- --------- --------- --------- ---------
Operating income 5,488 1,252 993 (105) 7,628
------------------------------- --------- --------- --------- --------- ---------
Page 78
6 months ended 30.06.22
----------- ---------------------------------------------------------------------------------------------------------
Hong
Kong Korea China Taiwan Singapore India Indonesia UAE UK US
$million $million $million $million $million $million $million $million $million $million
----------- -------- -------- -------- --------- --------- --------- --------- --------- --------- ---------
Net
interest
income 819 384 273 92 407 315 43 109 122 189
Net fees
and
commission
income 307 89 75 86 307 135 30 53 42 198
Net trading
and
other
income 620 138 251 58 161 227 38 143 609 145
----------- -------- -------- -------- --------- --------- --------- --------- --------- --------- ---------
Operating
income 1,746 611 599 236 875 677 111 305 773 532
----------- -------- -------- -------- --------- --------- --------- --------- --------- --------- ---------
6 months ended 30.06.21
----------- ---------------------------------------------------------------------------------------------------------
Hong
Kong Korea China Taiwan Singapore India Indonesia UAE UK US
$million $million $million $million $million $million $million $million $million $million
----------- -------- -------- -------- --------- --------- --------- --------- --------- --------- ---------
Net
interest
income 702 365 305 88 369 317 45 109 101 89
Net fees
and
commission
income 465 124 111 113 353 128 26 45 28 170
Net trading
and
other
income 696 99 153 57 94 168 38 122 355 130
----------- -------- -------- -------- --------- --------- --------- --------- --------- --------- ---------
Operating
income 1,863 588 569 258 816 613 109 276 484 389
----------- -------- -------- -------- --------- --------- --------- --------- --------- --------- ---------
3. Net interest income
6 months 6 months
ended 30.06.22 ended 30.06.21
$million $million
------------------------------------------------------------- --------------- ---------------
Balances at central banks 146 42
Loans and advances to banks 326 247
Loans and advances to customers 3,962 3,665(1)
Debt securities 1,080 904
Other eligible bills 206 149
Accrued on impaired assets (discount unwind) 65 115
------------------------------------------------------------- --------------- ---------------
Interest income 5,785 5,122
------------------------------------------------------------- --------------- ---------------
Of which: financial instruments held at fair value through
other comprehensive income 833 783
Deposits by banks 92 74
Customer accounts 1,438 1,121
Debt securities in issue 347 284
Subordinated liabilities and other borrowed funds 247 246
Interest expense on IFRS 16 lease liabilities 23 27
------------------------------------------------------------- --------------- ---------------
Interest expense 2,147 1,752
------------------------------------------------------------- --------------- ---------------
Net interest income 3,638 3,370
------------------------------------------------------------- --------------- ---------------
1 Includes a $73 million adjustment in relation to interest
earned on impaired assets as required by IFRS9 Financial
Instruments: Recognition and Measurement
Page 79
4. Net fees and commission
Significant accounting estimates and judgements
Included within one of our bancassurance contracts is an annual
performance bonus that is only received if an annual performance
sales target is met. In applying the accounting policy on revenue
recognition, management have made the judgement that it is highly
probable that the annual target will be met.
This judgement is based on management's forecast analysis of
performance against the bonus targets. This analysis is a
significant estimate which includes assumptions based on historical
actual performance and projected future sales initiatives expected
to increase sales volumes over time.
6 months 6 months
ended 30.06.22 ended 30.06.21
$million $million
--------------------------------------------------------- --------------- ---------------
Fees and commissions income 2,023 2,300
Of which:
--------------- ---------------
Financial instruments that are not fair valued through
profit or loss 650 660
Trust and other fiduciary activities 284 385
--------------- ---------------
Fees and commissions expense (359) (361)
Of which:
--------------- ---------------
Financial instruments that are not fair valued through
profit or loss (114) (104)
Trust and other fiduciary activities (24) (23)
--------------------------------------------------------- --------------- ---------------
Net fees and commission 1,664 1,939
--------------------------------------------------------- --------------- ---------------
6 months ended 30.06.22
-------------------------------- ------------------------------------------------------------------------
Central
&
Corporate, Consumer
Commercial Private
& Institutional & Business other
Banking Banking Ventures Items (Segment) Total
$million $million $million $million $million
-------------------------------- ---------------- ----------- ---------- ----------------- ----------
Transaction Banking 558 16 - - 574
---------------- ----------- ---------- ----------------- ----------
Trade & Working Capital2 299 13 - - 312
Cash Management 259 3 - - 262
---------------- ----------- ---------- ----------------- ----------
Financial Markets 178 - - - 178
Lending & Portfolio Management2 52 3 - - 55
Wealth Management - 658 - - 658
Retail Products - 191 2 - 193
Treasury - - - (20) (20)
Others - - 1 25 26
-------------------------------- ---------------- ----------- ---------- ----------------- ----------
Net fees and commission 788 868 3 5 1,664
-------------------------------- ---------------- ----------- ---------- ----------------- ----------
6 months ended 30.06.21 (Restated)(1)
-------------------------------- ------------------------------------------------------------------------
Central
&
Corporate, Consumer
Commercial Private
& Institutional & Business other
Banking Banking1 Ventures1 Items (Segment) Total
$million $million $million $million $million
-------------------------------- ---------------- ----------- ---------- ----------------- ----------
Transaction Banking 547 20 - - 567
---------------- ----------- ---------- ----------------- ----------
Trade & Working Capital2 298 14 - - 312
Cash Management 249 6 - - 255
---------------- ----------- ---------- ----------------- ----------
Financial Markets 268 - - - 268
Lending & Portfolio Management2 66 1 - - 67
Wealth Management 1 849 - - 850
Retail Products - 208 (1) - 207
Treasury - - - (19) (19)
Others - - 1 (2) (1)
-------------------------------- ---------------- ----------- ---------- ----------------- ----------
Net fees and commission 882 1,078 - (21) 1,939
-------------------------------- ---------------- ----------- ---------- ----------------- ----------
1 Following the increased strategic importance and reporting of
Ventures to management, this has been established as a separate
operating segment from 1 January 2022. Prior period has been
restated
2 Following a reorganisation, there has been a reclassification
of balances from Lending & Portfolio Management into Trade
& Working Capital including prior period numbers. Prior periods
have been re-presented and there is no change in the total
income
Page 80
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 $592 million (30 June 2021: $676
million). The income will be earned evenly over the next 7 years
(30 June 2021: 8 years). For the six months ended 30 June 2022, $42
million of fee income was released from deferred income (30 June
2021: $42 million).
For the bancassurance contract with the annual performance
bonus, based on progress so far and expectation of meeting the
performance targets by year-end with a high probability, a pro-rata
portion of the total performance fee, equal to $84 million of the
fee has been recognised as fee income in the period.
5. Net trading income
6 months 6 months
ended 30.06.22 ended 30.06.21
$million $million
------------------------------------------------------ --------------- ---------------
Net trading income 2,679 1,870
------------------------------------------------------ --------------- ---------------
Significant items within net trading income include:
Gains on instruments held for trading(1) 2,480 1,865
Gains on financial assets mandatorily at fair value
through profit or loss 157 81
Losses on financial assets designated at fair value
through profit or loss (6) (9)
Gains/(losses) on financial liabilities designated at
fair value through profit or loss 178 (25)
------------------------------------------------------ --------------- ---------------
1 Includes $666 million gain (30 June 2021: $250 million gain)
from the translation of foreign currency monetary assets and
liabilities
6. Other operating income
6 months 6 months
ended 30.06.22 ended 30.06.21
$million $million
----------------------------------------------------- --------------- ---------------
Other operating income includes:
Rental income from operating lease assets 203 229
Gains less losses on disposal of fair value through
other comprehensive income debt instruments 12 153
Gains less losses on amortised cost financial assets 2 8
Dividend income 6 7
Gain on sale of aircrafts 6 23
Other 15 29
----------------------------------------------------- --------------- ---------------
Other operating income 244 449
----------------------------------------------------- --------------- ---------------
7. Operating expenses
6 months 6 months
ended 30.06.22 ended 30.06.21
$million $million
-------------------------------- --------------- ---------------
Staff costs:
Wages and salaries 2,963 2,914
Social security costs 115 103
Other pension costs (Note 26) 195 199
Share-based payment costs 122 99
Other staff costs 458 471
-------------------------------- --------------- ---------------
3,853 3,786
-------------------------------- --------------- ---------------
Other staff costs include redundancy expenses of $24 million (30
June 2021: $43 million). Further costs in this category include
training, travel costs and other staff-related costs.
The following table summarises the number of employees within
the Group:
Support
Business services Total
----------------------- -------- --------- ------
At 30 June 2022 31,436 51,797 83,233
-------- --------- ------
At 31 December 2021(1) 30,940 51,017 81,957
----------------------- -------- --------- ------
The Company employed nil staff at 30 June 2022 (30 June 2021:
nil) and it incurred costs of nil (30 June 2021: nil).
Page 81
6 months 6 months
ended 30.06.22 ended 30.06.21
$million $million
---------------------------------------- --------------- ---------------
Premises and equipment expenses: 197 184
General administrative expenses:
Other general administrative expenses 686 655
---------------------------------------- --------------- ---------------
686 655
---------------------------------------- --------------- ---------------
Depreciation and amortisation:
Property, plant and equipment:
--------------- ---------------
Premises 161 188
Equipment 64 60
Operating lease assets 105 112
--------------- ---------------
330 360
Intangibles:
Software 260 233
Acquired on business combinations 2 3
---------------------------------------- --------------- ---------------
592 596
---------------------------------------- --------------- ---------------
Total operating expenses 5,328 5,221
---------------------------------------- --------------- ---------------
Operating expenses include research expenditure of $408 million
(30 June 2021: $376 million), which was recognised as an expense in
the period.
8. Credit impairment
6 months 6 months
ended 30.06.22 ended 30.06.21
$million $million
------------------------------------------------------- --------------- ---------------
Net credit impairment on loans and advances to banks
and customers 278 (6)
Net credit impairment on debt securities (1) 6
Net credit impairment relating to financial guarantees
and loan commitments (14) (51)
------------------------------------------------------- --------------- ---------------
Credit impairment1 263 (51)
------------------------------------------------------- --------------- ---------------
1 No material purchased or originated credit-impaired (POCI)
assets
9. Goodwill, property, plant and equipment and other
impairment
6 months 6 months
ended 30.06.22 ended 30.06.21
$million $million
------------------------------------------------------------- --------------- ---------------
Impairment of goodwill (Note 16) - -
------------------------------------------------------------- --------------- ---------------
Impairment of property, plant and equipment (Note 17) (1) 47
Impairment of other intangible assets (Note 16) 1 -
Other 15 (7)
------------------------------------------------------------- --------------- ---------------
Property, plant and equipment and other impairment 15 40
------------------------------------------------------------- --------------- ---------------
Goodwill, property, plant and equipment and other impairment 15 40
------------------------------------------------------------- --------------- ---------------
Page 82
10. Taxation
The following table provides analysis of taxation charge in the
period:
6 months 6 months
ended 30.06.22 ended 30.06.21
$million $million
------------------------------------------------------------ --------------- ---------------
The charge for taxation based upon the profit for the
period comprises:
Current tax:
United Kingdom corporation tax at 19 per cent (2021:19
per cent):
--------------- ---------------
Current tax charge on income for the period - -
Adjustments in respect of prior periods (including double
tax relief) - 2
Foreign tax:
Current tax charge on income for the period 578 497
Adjustments in respect of prior periods (6) (34)
--------------- ---------------
572 465
Deferred tax:
--------------- ---------------
Origination/reversal of temporary differences 113 167
Adjustments in respect of prior periods (1) (1)
--------------- ---------------
112 166
------------------------------------------------------------ --------------- ---------------
Tax on profits on ordinary activities 684 631
------------------------------------------------------------ --------------- ---------------
Effective tax rate 24.7% 24.7%
------------------------------------------------------------ --------------- ---------------
The tax charge for the period has been calculated by applying
the effective rate of tax which is expected to apply for the year
ending 31 December 2022 using rates substantively enacted at 30
June 2022. The rate has been calculated by estimating and applying
an average annual effective income tax rate to each tax
jurisdiction individually.
The tax charge for the period of $684 million (30 June 2021:
$631 million) on a profit before tax of $2,772 million (30 June
2021: $2,559 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 and non-creditable withholding
taxes.
Foreign tax includes current tax of $4 million (30 June 2021:
$60 million) on the profits assessable in Hong Kong. Deferred tax
includes origination or reversal of temporary differences of $36
million (30 June 2021: $35 million) provided at a rate of 16.5 per
cent (30 June 2021: 16.5 per cent) on the profits assessable in
Hong Kong.
Deferred tax comprises assets and liabilities as follows:
30.06.22 31.12.21
------------------------------- ------------------------------- -------------------------------
Total Asset Liability Total Asset Liability
$million $million $million $million $million $million
------------------------------- --------- --------- --------- --------- --------- ---------
Deferred tax comprises:
Accelerated tax depreciation (566) 13 (579) (515) 18 (533)
Impairment provisions
on loans and advances 334 350 (16) 351 389 (38)
Tax losses carried forward 274 138 136 263 172 91
Fair value through other
comprehensive income 24 49 (25) (126) (22) (104)
Cash flow hedges 84 65 19 - (3) 3
Own credit adjustment (26) (10) (16) (3) (1) (2)
Retirement benefit obligations (1) 13 (14) 27 16 11
Share-based payments 30 2 28 32 - 32
Other temporary differences (41) 289 (330) 30 290 (260)
------------------------------- --------- --------- --------- --------- --------- ---------
112 909 (797) 59 859 (800)
------------------------------- --------- --------- --------- --------- --------- ---------
Page 83
11. Dividends
Ordinary equity shares
6 months ended 6 months ended 6 months ended
30.06.22 31.12.21 30.06.21
----------------------------- ------------------- ------------------- -------------------
Cents per Cents per Cents per
share $million share $million share $million
----------------------------- --------- -------- --------- -------- --------- --------
2021 / 2020 final dividend
declared and
paid during the year 9 274 - - 9 282
2022 / 2021 interim dividend
declared and paid during
the year - - 3 92 - -
----------------------------- --------- -------- --------- -------- --------- --------
The 2021 final dividend per share of 9 cents per ordinary share
($274 million) was paid to eligible shareholders on 12 May 2022,
and is recognised in these interim accounts.
Interim dividends on ordinary equity shares are recorded in the
period in which they are declared and, in respect of the final
dividend, have been approved by the shareholders.
2022 recommended interim dividend
The 2022 interim dividend of 4 cents per ordinary share will be
paid in pounds sterling, Hong Kong dollars or US dollars on 14
October 2022 to shareholders on the UK register of members at the
close of business in the UK on 12 August 2022.
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 6 months
ended 30.06.22 ended 31.12.21 ended 30.06.21
$million $million $million
-------------------------- -------------------------- --------------- --------------- ---------------
Non-cumulative redeemable 7.014 per cent preference
preference shares: shares of $5 each 26 27 26
6.409 per cent preference
shares of $5 each 6 6 7
----------------------------------------------------- --------------- --------------- ---------------
32 33 33
Additional Tier 1 securities: fixed rate resetting
perpetual subordinated contingent convertible
securities 184 181 163
------------------------------------------------------ --------------- --------------- ---------------
216 214 196
----------------------------------------------------- --------------- --------------- ---------------
12. Earnings per ordinary share
6 months 6 months
ended 30.06.22 ended 30.06.21
$million $million
------------------------------------------------------------ --------------- ---------------
Profit for the period attributable to equity holders 2,088 1,928
------------------------------------------------------------ --------------- ---------------
Non-controlling interest 1 (14)
Dividend payable on preference shares and AT1 classified
as equity (216) (196)
------------------------------------------------------------ --------------- ---------------
Profit for the period attributable to ordinary shareholders 1,873 1,718
------------------------------------------------------------ --------------- ---------------
Items normalised:
Restructuring 45 123
Tax on normalised items (8) (15)
------------------------------------------------------------ --------------- ---------------
Underlying profit 1,910 1,826
------------------------------------------------------------ --------------- ---------------
Basic - Weighted average number of shares (millions) 3,014 3,133
Diluted - Weighted average number of shares (millions) 3,069 3,185
Basic earnings per ordinary share (cents) 62.1 54.8
------------------------------------------------------------ --------------- ---------------
Diluted earnings per ordinary share (cents) 61.0 53.9
------------------------------------------------------------ --------------- ---------------
Underlying basic earnings per ordinary share (cents) 63.4 58.3
------------------------------------------------------------ --------------- ---------------
Underlying diluted earnings per ordinary share (cents) 62.2 57.3
------------------------------------------------------------ --------------- ---------------
Page 84
13. Financial instruments
Classification and measurement
The Group's classification of its financial assets and
liabilities is summarised in the following tables.
Assets at fair value
--------------- ----- ------------------------------------------------------------------------- --------- --------
Non-trading
mandatorily Designated Fair
at fair at fair value Total Assets
value value through financial held
Derivatives through through other assets at
held profit profit compre-hensive at 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 - - - - - - 67,005 67,005
Financial
assets held
at fair value
through
profit or loss
-------- ----------- ----------- ---------- -------------- --------- --------- --------
Loans and
advances
to banks(1) 1,884 - 2,678 - - 4,562 - 4,562
Loans and
advances
to
customers(1) 5,223 - 3,222 - - 8,445 - 8,445
Reverse
repurchase
agreements
and other
similar
secured
lending 15 528 - 73,870 - - 74,398 - 74,398
Debt
securities,
alternative
tier one and
other
eligible
bills 27,665 - 646 75 - 28,386 - 28,386
Equity shares 2,105 - 220 - - 2,325 - 2,325
Other assets 18 - - 25 - - 25 - 25
-------- ----------- ----------- ---------- -------------- --------- --------- --------
37,405 - 80,661 75 - 118,141 - 118,141
Derivative
financial
instruments 14 73,448 3,228 - - - 76,676 - 76,676
Loans and
advances
to banks(1) - - - - - - 36,201 36,201
-------- ----------- ----------- ---------- -------------- --------- --------- --------
Of which:
reverse
repurchase
agreements
and other
similar
secured
lending 15 - - - - - - 795 795
-------- ----------- ----------- ---------- -------------- --------- --------- --------
Loans and
advances
to
customers(1) - - - - - - 293,508 293,508
-------- ----------- ----------- ---------- -------------- --------- --------- --------
Of which:
reverse
repurchase
agreements
and other
similar
secured
lending 15 - - - - - - 7,894 7,894
-------- ----------- ----------- ---------- -------------- --------- --------- --------
Investment
securities
-------- ----------- ----------- ---------- -------------- --------- --------- --------
Debt
securities,
alternative
tier one and
other
eligible
bills - - - - 112,271 112,271 51,866 164,137
Equity shares - - - - 755 755 - 755
-------- ----------- ----------- ---------- -------------- --------- --------- --------
- - - - 113,026 113,026 51,866 164,892
Other assets 18 - - - - - - 51,135 51,135
Assets held for
sale 20 - - - 1 - 1 60 61
--------------- ----- -------- ----------- ----------- ---------- -------------- --------- --------- --------
Total at 30
June 2022 110,853 3,228 80,661 76 113,026 307,844 499,775 807,619
--------------- ----- -------- ----------- ----------- ---------- -------------- --------- --------- --------
1 Further analysed in Risk review and Capital review
Page 85
Assets at fair value
--------------- ----- ------------------------------------------------------------------------- --------- --------
Non-trading
mandatorily Designated Fair
at fair at fair value Total Assets
value value through financial held
Derivatives through through other assets at
held profit profit compre-hensive at 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 - - - - - - 72,663 72,663
Financial
assets held
at fair value
through
profit or loss
-------- ----------- ----------- ---------- -------------- --------- --------- --------
Loans and
advances
to banks(1) 1,491 - 2,356 - - 3,847 - 3,847
Loans and
advances
to
customers(1) 5,813 - 4,140 - - 9,953 - 9,953
Reverse
repurchase
agreements
and other
similar
secured
lending 15 - - 80,009 - - 80,009 - 80,009
Debt
securities,
alternative
tier one and
other
eligible
bills 28,801 - 463 161 - 29,425 - 29,425
Equity shares 5,653 - 208 - - 5,861 - 5,861
Other assets 18 - - 26 - - 26 - 26
-------- ----------- ----------- ---------- -------------- --------- --------- --------
41,758 - 87,202 161 - 129,121 - 129,121
Derivative
financial
instruments 14 51,002 1,443 - - - 52,445 - 52,445
Loans and
advances
to banks(1) - - - - - - 44,383 44,383
-------- ----------- ----------- ---------- -------------- --------- --------- --------
Of which:
reverse
repurchase
agreements
and other
similar
secured
lending 15 - - - - - - 1,079 1,079
-------- ----------- ----------- ---------- -------------- --------- --------- --------
Loans and
advances
to
customers(1) - - - - - - 298,468 298,468
-------- ----------- ----------- ---------- -------------- --------- --------- --------
Of which:
reverse
repurchase
agreements
and other
similar
secured
lending 15 - - - - - - 7,331 7,331
-------- ----------- ----------- ---------- -------------- --------- --------- --------
Investment
securities
-------- ----------- ----------- ---------- -------------- --------- --------- --------
Debt
securities,
alternative
tier one and
other
eligible
bills - - - - 121,375 121,375 41,325 162,700
Equity shares - - - - 737 737 - 737
-------- ----------- ----------- ---------- -------------- --------- --------- --------
- - - - 122,112 122,112 41,325 163,437
Other assets 18 - - - - - - 40,068 40,068
Assets held for
sale 20 - - - 43 - 43 52 95
--------------- ----- -------- ----------- ----------- ---------- -------------- --------- --------- --------
Total at 31
December
2021 92,760 1,443 87,202 204 122,112 303,721 496,959 800,680
--------------- ----- -------- ----------- ----------- ---------- -------------- --------- --------- --------
1 Further analysed in Risk review and Capital review
Page 86
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 63 - 1,527 1,590 - 1,590
Customer accounts 98 - 10,937 11,035 - 11,035
Repurchase agreements and other
similar
secured borrowing 15 - - 55,320 55,320 - 55,320
Debt securities in issue - - 6,807 6,807 - 6,807
Short positions 8,218 - - 8,218 - 8,218
Other liabilities 9 - 4 13 - 13
--------- ------------ ---------- ------------ --------- ---------
8,388 - 74,595 82,983 - 82,983
Derivative financial instruments 14 73,196 2,901 - 76,097 - 76,097
Deposits by banks - - - - 31,173 31,173
Customer accounts - - - - 453,742 453,742
Repurchase agreements and other
similar
secured borrowing 15 - - - - 1,723 1,723
Debt securities in issue - - - - 58,043 58,043
Other liabilities 21 - - - - 60,102 60,102
Subordinated liabilities and
other borrowed funds 24 - - - - 14,933 14,933
---------------------------------- ----- --------- ------------ ---------- ------------ --------- ---------
Total at 30 June 2022 81,584 2,901 74,595 159,080 619,716 778,796
---------------------------------- ----- --------- ------------ ---------- ------------ --------- ---------
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 - - 1,352 1,352 - 1,352
Customer accounts 198 - 9,093 9,291 - 9,291
Repurchase agreements and other
similar
secured borrowing 15 - - 62,388 62,388 - 62,388
Debt securities in issue - - 5,597 5,597 - 5,597
Short positions 6,562 - - 6,562 - 6,562
Other liabilities 6 - 1 7 - 7
--------- ------------ ---------- ------------ --------- ---------
6,766 - 78,431 85,197 - 85,197
Derivative financial instruments 14 52,706 693 - 53,399 - 53,399
Deposits by banks - - - - 30,041 30,041
Customer accounts - - - - 474,570 474,570
Repurchase agreements and other
similar
secured borrowing 15 - - - - 3,260 3,260
Debt securities in issue - - - - 61,293 61,293
Other liabilities 21 - - - - 43,432 43,432
Subordinated liabilities and
other borrowed funds 24 - - - - 16,646 16,646
---------------------------------- ----- --------- ------------ ---------- ------------ --------- ---------
Total at 31 December 2021 59,472 693 78,431 138,596 629,242 767,838
---------------------------------- ----- --------- ------------ ---------- ------------ --------- ---------
Financial liabilities designated at fair value through profit or
loss
30.06.22 31.12.21
$million $million
---------------------------------------------------------- ---------- ----------
Carrying balance aggregate fair value 74,595 78,431
Amount contractually obliged to repay at maturity 75,495 78,691
Difference between aggregate fair value and contractually
obliged to repay at maturity (900) (260)
Cumulative change in fair value accredited to Credit
Risk difference 140 3
---------------------------------------------------------- ---------- ----------
The net fair value gain on financial liabilities designated at
fair value through profit or loss was $178 million for the half
year ended 30 June 2022 (31 December 2021: net loss of $133
million). Further details of the Group's own credit adjustment
(OCA) valuation technique is described later in this Note.
Page 87
Interest rate benchmark reform
The Group previously disclosed its exposures to IBOR benchmarks
as of 31 December 2021 (refer to page 348 of the 2021 Annual
Report). In the Group's view the change in exposure since this date
has not been significant, with USD LIBOR continuing to be the
Group's largest exposure for both cash products and derivatives. In
the second half of 2022 the Group will continue its efforts to
actively transition financial contracts referencing USD LIBOR that
mature after 30 June 2023 to the Secured Overnight Financing Rate
(SOFR). For bilateral lending products, the plan is to achieve such
remediation through bilateral negotiation with clients or, where
that is not possible, amending the loan contract by adding a clause
agreeing to a robust contractual fallback in advance of the
cessation of LIBOR. For syndicated lending products, the
remediation approach will largely be determined by the lender
syndicate in consultation with the client. The Group will also be
looking to achieve remediation of trade assets through bilateral
negotiation with clients.
The Group's approach to managing the transition to alternative
benchmark rates and risks to which the Group is exposed to due to
IBOR transition are substantially the same as they were at 31
December 2021, except that the Group is no longer exposed to GBP,
JPY, EUR and CHF LIBORs - please refer to pages 347-348 of the 2021
Annual Report.
Valuation of financial instruments
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 cashflow 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 Methodology 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 Methodology function has oversight of the
fair value adjustments to ensure that 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 (PV) may
include data sourced from recent trade data involving external
counterparties or third parties such as Bloomberg, Reuters, brokers
and consensus pricing providers. Valuation Methodology performs an
ongoing review of the market data sources that are used as part of
the PV, fair and prudential valuation processes which are formally
documented on a semi-annual basis, detailing the suitability of the
market data used for price testing. PV 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 Methodology and the business,
which meets monthly to discuss and approve the independent
valuations of the inventory. For Principal Finance and Strategic
Investments, the valuation forums are held on a quarterly basis to
review investments and their 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.
Page 88
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 cashflow models with input
parameter assumptions, which include prepayments, 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 market multiples
-Price-to-Earnings (P/E), Price-to-Book (P/B) 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 or book values of the investee
companies and market 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 cashflow models), which use
predominantly unobservable inputs or Level 3 inputs, may be
applied. Even though market 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 cashflow method is applied
-- Loans and advances: These primarily include loans in the FM
Bond and Loan Syndication 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 cashflows 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 comparables 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 comparables,
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.
Page 89
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 cashflow 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
cashflows 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
cashflows
-- 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
cashflows 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 cashflows expected to be received,
including assumptions relating to prepayment rates and creditrRisk.
Expected cash flows are discounted at current market rates to
determine fair value. The Group has a wide range of individual
instruments within its loans and advances portfolio and as a result
providing quantification of the key assumptions used to value such
instruments is impractical
-- Other assets: Other assets comprise primarily cash collateral
and trades pending settlement. The carrying amount of these
financial instruments is considered to be a reasonable
approximation of fair value as they are either short-term in nature
or re-price to current market rates frequently
Page 90
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
01.01.22 the period 30.06.22 01.01.21 the period 31.12.21
$million $million $million $million $million $million
------------------------------- ---------- ----------- ---------- ---------- ----------- ----------
Bid-offer valuation adjustment 101 16 117 103 (2) 101
Credit valuation adjustment 165 82 247 189 (24) 165
Debit valuation adjustment (70) (115) (185) (55) (15) (70)
Model valuation adjustment 5 (1) 4 5 - 5
Funding valuation adjustment - 33 33 5 (5) -
Other fair value adjustments 20 10 30 32 (12) 20
------------------------------- ---------- ----------- ---------- ---------- ----------- ----------
Total 221 25 246 279 (58) 221
------------------------------- ---------- ----------- ---------- ---------- ----------- ----------
Income deferrals
Day 1 and other deferrals 147 (36) 111 138 9 147
------------------------------- ---------- ----------- ---------- ---------- ----------- ----------
Total 147 (36) 111 138 9 147
------------------------------- ---------- ----------- ---------- ---------- ----------- ----------
Note: Bracket represents an asset and credit to the income
statement
-- Bid-offer valuation adjustment: Generally, market parameters
are marked on a mid-market basis in the revaluation systems, and 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 accounts for CVA
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
key wrong-way exposures. The Group also captures the uncertainties
associated with wrong-way risk in the Group's Prudential Valuation
Adjustments framework
-- 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 credit default swap (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 expected life of
the deal. This simulation methodology incorporates the collateral
posted by the Group and the effects of master netting
agreements
Page 91
-- 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 or benefits
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 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 is based on a valuation technique which differs
to the transaction price at the time of initial recognition.
However, these gains 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. Own
issued note liabilities are discounted utilising spreads as at the
measurement date. These spreads consist of a market level of
funding component and an idiosyncratic own credit component. Under
IFRS 9 the change in the OCA component is reported under other
comprehensive income. The Group's OCA reserve will increase if its
credit standing worsens and, conversely, decrease if its credit
standing improves. The Group's OCA reserve will reverse over time
as its liabilities mature. The OCA at 30 June 2022 is a gain of
$140 million (31 December 2021: $3 million gain).
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 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 inputs which
could have a significant effect on the instrument's valuation are
not based on observable market data
Page 92
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 - 4,476 86 4,562
Loans and advances to customers 4 7,456 985 8,445
Reverse repurchase agreements and other
similar secured lending - 72,784 1,614 74,398
Debt securities and other eligible bills 12,714 15,135 537 28,386
Of which:
---------- ---------- ---------- ----------
Issued by central banks & governments 12,254 5,283 - 17,537
Issued by corporates other than financial
institutions(1) 52 4,087 504 4,643
Issued by financial institutions(1) 408 5,765 33 6,206
---------- ---------- ---------- ----------
Equity shares 2,069 11 245 2,325
Derivative financial instruments 1,681 74,891 104 76,676
Of which:
---------- ---------- ---------- ----------
Foreign exchange 130 62,947 62 63,139
Interest rate 24 7,356 20 7,400
Credit - 2,115 1 2,116
Equity and stock index options - 210 1 211
Commodity 1,527 2,263 20 3,810
---------- ---------- ---------- ----------
Investment securities
Debt securities and other eligible bills 50,959 61,298 14 112,271
Of which:
---------- ---------- ---------- ----------
Issued by central banks & governments 38,265 23,727 14 62,006
Issued by corporates other than financial
institutions(1) 1,544 4,164 - 5,708
Issued by financial institutions(1) 11,150 33,407 - 44,557
---------- ---------- ---------- ----------
Equity shares 182 6 567 755
Other assets - - 25 25
----------------------------------------------- ---------- ---------- ---------- ----------
Total financial instruments at 30 June
2022(2) 67,609 236,057 4,177 307,843
----------------------------------------------- ---------- ---------- ---------- ----------
Liabilities
Financial instruments held at fair value
through profit or loss
Deposits by banks - 1,271 319 1,590
Customer accounts - 10,350 685 11,035
Repurchase agreements and other similar
secured borrowing - 55,320 - 55,320
Debt securities in issue - 6,162 645 6,807
Short positions 5,154 2,967 97 8,218
Derivative financial instruments 1,636 74,265 196 76,097
Of which:
---------- ---------- ---------- ----------
Foreign exchange 139 59,525 16 59,680
Interest rate 22 9,031 53 9,106
Credit - 2,695 5 2,700
Equity and stock index options - 126 122 248
Commodity 1,475 2,888 - 4,363
Other liabilities - 9 4 13
---------- ---------- ---------- ----------
Total financial instruments at 30 June
2022(2) 6,790 150,344 1,946 159,080
----------------------------------------------- ---------- ---------- ---------- ----------
1 Includes covered bonds of $9,347 million, securities issued by
Multilateral Development Banks/International Organisations of
$12,830 million and State-owned agencies and development banks of
$11,950 million
2 The above table does not include held for sale assets of $1
million and liabilities of $ nil
There were no significant changes to valuation or levelling
approaches during the period ended 30 June 2022.
There were no significant transfers of financial assets and
liabilities measured at fair value between Level 1 and Level 2
during the period ended 30 June 2022.
Page 93
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 - 3,838 9 3,847
Loans and advances to customers - 8,596 1,357 9,953
Reverse repurchase agreements and other
similar secured lending - 78,443 1,566 80,009
Debt securities and other eligible bills 12,057 17,019 349 29,425
Of which:
---------- ---------- ---------- ----------
Issued by central banks & governments 10,731 7,201 - 17,932
Issued by corporates other than financial
institutions(1) 1 3,750 111 3,862
Issued by financial institutions(1) 1,325 6,068 238 7,631
---------- ---------- ---------- ----------
Equity shares 5,637 38 186 5,861
Derivative financial instruments 1,066 51,289 90 52,445
Of which:
---------- ---------- ---------- ----------
Foreign exchange 161 41,577 10 41,748
Interest rate 9 6,314 53 6,376
Credit - 2,265 24 2,289
Equity and stock index options - 133 3 136
Commodity 896 1,000 - 1,896
---------- ---------- ---------- ----------
Investment securities
Debt securities and other eligible bills 51,298 70,037 40 121,375
Of which:
---------- ---------- ---------- ----------
Issued by central banks & governments 39,590 24,651 40 64,281
Issued by corporates other than financial
institutions(1) - 1,963 - 1,963
Issued by financial institutions(1) 11,708 43,423 - 55,131
---------- ---------- ---------- ----------
Equity shares 227 17 493 737
Other Assets - - 26 26
----------------------------------------------- ---------- ---------- ---------- ----------
Total financial instruments at 31 December
2021(2) 70,285 229,277 4,116 303,678
----------------------------------------------- ---------- ---------- ---------- ----------
Liabilities
Financial instruments held at fair value
through profit or loss
---------- ---------- ---------- ----------
Deposits by banks - 1,069 283 1,352
Customer accounts - 8,837 454 9,291
Repurchase agreements and other similar
secured borrowing - 62,388 - 62,388
Debt securities in issue - 4,776 821 5,597
Short positions 4,187 2,375 - 6,562
---------- ---------- ---------- ----------
Derivative financial instruments 949 52,356 94 53,399
Of which:
Foreign exchange 169 41,555 3 41,727
Interest rate 7 6,448 16 6,471
Credit - 3,084 41 3,125
Equity and stock index options - 126 34 160
Commodity 773 1,143 - 1,916
Other Liabilities - 6 1 7
---------- ---------- ---------- ----------
Total financial instruments at 31 December
2021(2) 5,136 131,807 1,653 138,596
----------------------------------------------- ---------- ---------- ---------- ----------
1 Includes covered bonds of $7,326 million, securities issued by
Multilateral Development Banks/International Organisations of
$12,109 million, and State-owned agencies and development banks of
$19,959 million
2 The above table does not include held for sale assets of $43 million and liabilities of $ nil
Page 94
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 banks(1) 67,005 - 67,005 - 67,005
Loans and advances to banks 36,201 - 36,146 32 36,178
---------- ---------- ---------- ---------- ----------
Of which: reverse repurchase agreements
and other
similar secured lending 795 - 795 - 795
---------- ---------- ---------- ---------- ----------
Loans and advances to customers 293,508 - 53,961 239,075 293,036
---------- ---------- ---------- ---------- ----------
Of which: reverse repurchase agreements
and other
similar secured lending 7,894 - 3,189 4,705 7,894
---------- ---------- ---------- ---------- ----------
Investment securities(2) 51,866 - 50,627 25 50,652
Other assets(1) 51,135 - 51,135 - 51,135
Assets held for sale 60 - - 60 60
------------------------------------------ ---------- ---------- ---------- ---------- ----------
At 30 June 2022 499,775 - 258,874 239,192 498,066
------------------------------------------ ---------- ---------- ---------- ---------- ----------
Liabilities
Deposits by banks 31,173 - 31,248 - 31,248
Customer accounts 453,742 - 453,691 - 453,691
Repurchase agreements and other
similar secured borrowing 1,723 - 1,723 - 1,723
Debt securities in issue 58,043 25,231 32,400 - 57,631
Subordinated liabilities and other
borrowed funds 14,933 14,143 68 - 14,211
Other liabilities(1) 60,102 - 60,101 1 60,102
------------------------------------------ ---------- ---------- ---------- ---------- ----------
At 30 June 2022 619,716 39,374 579,231 1 618,606
------------------------------------------ ---------- ---------- ---------- ---------- ----------
Fair value
------------------------------------------ ---------- ----------------------------------------------
Carrying
value Level 1 Level 2 Level 3 Total
$million $million $million $million $million
------------------------------------------ ---------- ---------- ---------- ---------- ----------
Assets
Cash and balances at central banks(1) 72,663 - 72,663 - 72,663
Loans and advances to banks 44,383 - 44,383 - 44,383
---------- ---------- ---------- ---------- ----------
Of which: reverse repurchase agreements
and other
similar secured lending 1,079 - 1,079 - 1,079
---------- ---------- ---------- ---------- ----------
Loans and advances to customers 298,468 - 42,136 256,289 298,425
---------- ---------- ---------- ---------- ----------
Of which: reverse repurchase agreements
and other
similar secured lending 7,331 - 3,764 3,567 7,331
---------- ---------- ---------- ---------- ----------
Investment securities(2) 41,325 - 41,864 - 41,864
Other assets(1) 40,068 - 40,067 1 40,068
Assets held for sale 52 - - 52 52
------------------------------------------ ---------- ---------- ---------- ---------- ----------
At 31 December 2021 496,959 - 241,113 256,342 497,455
------------------------------------------ ---------- ---------- ---------- ---------- ----------
Liabilities
Deposits by banks 30,041 - 30,041 - 30,041
Customer accounts 474,570 - 474,645 - 474,645
Repurchase agreements and other
similar secured borrowing 3,260 - 3,260 - 3,260
Debt securities in issue 61,293 26,073 35,503 - 61,576
Subordinated liabilities and other
borrowed funds 16,646 16,811 519 - 17,330
Other liabilities(1) 43,432 - 43,431 1 43,432
------------------------------------------ ---------- ---------- ---------- ---------- ----------
At 31 December 2021 629,242 42,884 587,399 1 630,284
------------------------------------------ ---------- ---------- ---------- ---------- ----------
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 $17,570
million at 30 June 2022 and $17,153 million at 31 December 2021
Page 95
Fair value of financial instruments
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 2022
---------------------- ---------------------- -------------------- -------------------- ------------- ---------
Significant
Assets Liabilities Principal valuation unobservable Weighted
Instrument $million $million technique inputs Range1 average2
---------------------- --------- ----------- -------------------- -------------------- ------------- ---------
Loans and advances Discounted cash
to banks 86 - flows Price/yield 1.5% - 10.2% 8.4%
---------------------- --------- -----------
Credit spreads 1.0% 1.0%
---------------------- --------- ----------- -------------------- -------------------- ------------- ---------
Loans and advances Discounted cash
to customers 985 - flows Price/yield 1.3% - 16.3% 4.6%
---------------------- --------- -----------
Recovery rates 5.3% - 100% 89.8%
---------------------- --------- ----------- -------------------- -------------------- ------------- ---------
Reverse repurchase
agreements and
other similar Discounted cash
secured lending 1,614 - flows Repo curve 0.4% - 4.9% 3.1%
---------------------- --------- ----------- -------------------- -------------------- ------------- ---------
Debt securities,
alternative tier
one and other Discounted cash
eligible securities 536 - flows Price/yield 3.3% - 12.4% 8.3%
---------------------- --------- -----------
0.01% -
Recovery rates 1.0% 0.2%
---------------------- --------- ----------- -------------------- -------------------- ------------- ---------
Government bonds Discounted cash
and treasury bills 14 - flows Price/yield 2.7% - 5.5% 3.7%
---------------------- --------- ----------- -------------------- -------------------- ------------- ---------
Asset-backed Discounted cash
securities 1 - flows Price/yield 5.0% 5.0%
---------------------- --------- ----------- -------------------- -------------------- ------------- ---------
Equity shares
(includes private Comparable
equity investments) 812 - pricing/yield EV/EBITDA multiples 6.1x - 13.3x 7.5x
---------------------- --------- ----------- -------------------- -------------------- ------------- ---------
EV/Revenue multiples 8.7x - 57.6x 24.1x
---------------------- --------- ----------- -------------------- -------------------- ------------- ---------
12.2x -
P/E multiples 21.2x 13.7x
-------------------- ------------- ---------
P/B multiples 0.4x - 3.2x 1.2x
-------------------- ------------- ---------
P/S multiples 1.8x 1.8x
-------------------- ------------- ---------
Liquidity discount 9.3% - 29.5% 14.6%
-------------------- -------------------- ------------- ---------
Discounted cash
flows Discount rates 6.9% - 18.1% 8.7%
-------------------- -------------------- ------------- ---------
Equity value based
Option pricing on EV/Revenue
model multiples 1.3x - 87.0x 15.8x
-------------------- -------------------- ------------- ---------
Equity value based 60.0% -
on volatility 70.0% 66.8%
-------------------- -------------------- ------------- ---------
Internal pricing
model Equity correlation 15.0%-99.0% 69.0%
-------------------- ------------- ---------
Equity-FX
correlation (70.0%)-85.0% (21.0)%
---------------------- --------- ----------- -------------------- -------------------- ------------- ---------
Other Assets 25 - NAV N/A N/A N/A
---------------------- --------- ----------- -------------------- -------------------- ------------- ---------
Derivative financial
instruments of
which:
---------------------- --------- ----------- -------------------- -------------------- ------------- ---------
Foreign exchange
Option pricing option implied
Foreign exchange 62 16 model volatility 5.9% - 15.4% 7.2%
---------------------- --------- ----------- -------------------- -------------------- ------------- ---------
Discounted cash Foreign exchange (15.8%)
flows curves - 39.3% 0.9%
---------------------- --------- ----------- -------------------- -------------------- ------------- ---------
Discounted cash Interest rate (15.8%)
Interest rate 20 53 flows curves - 15.3% 0.1%
---------------------- --------- ----------- -------------------- -------------------- ------------- ---------
Option pricing Bond option implied
model volatility 20.0% 20.0%
---------------------- --------- ----------- -------------------- -------------------- ------------- ---------
Discounted cash
Credit 1 5 flows Credit spreads 0.1% - 4.5% 1.4%
---------------------- --------- ----------- -------------------- -------------------- ------------- ---------
Price/yield 5.1% - 14.6% 8.9%
---------------------- --------- ----------- -------------------- -------------------- ------------- ---------
Internal pricing
Commodities 20 model CM-CM correlation 92.7% 92.7%
---------------------- --------- ----------- -------------------- -------------------- ------------- ---------
Equity and stock Internal pricing 15.0% -
index 1 122 model Equity correlation 99.0% 69.0%
---------------------- --------- ----------- -------------------- -------------------- ------------- ---------
Equity-FX (70.0)%
correlation - 85.0% (21.0)%
---------------------- --------- ----------- -------------------- -------------------- ------------- ---------
Discounted cash
Deposits by banks - 319 flows Credit spreads 0.3% - 3.7% 2.0%
---------------------- --------- ----------- -------------------- -------------------- ------------- ---------
Price/yield N/A N/A
---------------------- --------- ----------- -------------------- -------------------- ------------- ---------
Discounted cash
Customer accounts - 685 flows Credit spreads 1.0% - 2.4% 1.0%
---------------------- --------- ----------- -------------------- -------------------- ------------- ---------
Interest rate 27.8% -
curves 39.3% 31.0%
---------------------- --------- ----------- -------------------- -------------------- ------------- ---------
Price/yield 6.7% - 18.1% 14.8%
-------------------- -------------------- ------------- ---------
Internal pricing 15.0% -
model Equity correlation 99.0% 69.0%
-------------------- -------------------- ------------- ---------
Equity-FX (70.0)%
correlation - 85.0% (21.0)%
---------------------- --------- ----------- -------------------- -------------------- ------------- ---------
Debt securities Discounted cash
in issue - 645 flows Credit spreads 0.5% - 2.4% 1.1%
---------------------- --------- ----------- -------------------- -------------------- ------------- ---------
Price/yield 6.9% - 13.7% 10.5%
---------------------- --------- ----------- -------------------- -------------------- ------------- ---------
Internal pricing 15.0% -
model Equity correlation 99.0% 69.0%
-------------------- -------------------- ------------- ---------
Equity-Fx (70.0)%
correlation - 85.0% (21.0)%
---------------------- --------- ----------- -------------------- -------------------- ------------- ---------
Discounted cash
Short positions - 97 flows Price/yield 7.7% - 7.7% 7.7%
---------------------- --------- ----------- -------------------- -------------------- ------------- ---------
Comparable 3.14x -
Other Liabilities - 4 pricing/yield EV/EBITDA multiples 9.41x 6.32x
---------------------- --------- ----------- -------------------- -------------------- ------------- ---------
Total 4,177 1,946
---------------------- --------- ----------- -------------------- -------------------- ------------- ---------
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 2022. 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
Page 96
Value as at
31 December
2021
--------------------- ---------------------- ------------------- -------------------- ------------- -----------
Significant
Assets Liabilities Principal valuation unobservable Weighted
Instrument $million $million technique inputs Range1 average(2)
--------------------- --------- ----------- ------------------- -------------------- ------------- -----------
Loans and advances Discounted cash
to banks 9 - flows Recovery rates 87.3%-100% 93.6%
--------------------- --------- ----------- ------------------- -------------------- ------------- -----------
Loans and advances Discounted cash
to customers 1,357 - flows Price/yield 0.2% - 11.8% 3.1%
--------------------- --------- ----------- ------------------- -------------------- ------------- -----------
10.6% -
Recovery rates 100% 87.8%
--------------------- --------- ----------- ------------------- -------------------- ------------- -----------
Reverse repurchase
agreements and
other similar Discounted cash
secured lending 1,566 - flows Repo curve 0.3%-3.0% 2.4%
--------------------- --------- ----------- ------------------- -------------------- ------------- -----------
Debt securities,
alternative tier
one and other Discounted cash
eligible securities 349 - flows Price/yield 5.1% - 12.4% 7.5%
--------------------- --------- ----------- ------------------- -------------------- ------------- -----------
0.01% -
Recovery rates 1.0% 0.2%
--------------------- --------- ----------- ------------------- -------------------- ------------- -----------
Government bonds Discounted cash
and treasury bills 40 - flows Price/yield 2.7% - 5.5% 3.7%
--------------------- --------- ----------- ------------------- -------------------- ------------- -----------
Asset-backed - - Discounted cash Price/yield N/A N/A
securities flows
--------------------- --------- ----------- ------------------- -------------------- ------------- -----------
Equity shares
(includes private Comparable
equity investments) 679 - pricing/yield EV/EBITDA multiples 6.1x-15.3x 8.6x
--------------------- --------- ----------- ------------------- -------------------- ------------- -----------
EV/Revenue multiples 10.1x 10.1x
--------------------- --------- ----------- ------------------- -------------------- ------------- -----------
P/E multiples 12.6x-25.3x 14.9x
-------------------- ------------- -----------
P/B multiples 0.4x-3.3x 1.4x
-------------------- ------------- -----------
P/S multiples 1.8x-2.6x 1.8x
-------------------- ------------- -----------
Liquidity discount 7.9%-29.2% 16.5%
------------------- -------------------- ------------- -----------
Discounted cash
flows Discount rates 6.0%-17.4% 8.6%
------------------- -------------------- ------------- -----------
Option pricing
model EV/Revenue multiples 4.0x-85.5x 12.1x
------------------- -------------------- ------------- -----------
Volatility 55.0%-65.0% 60.3%
--------------------- --------- ----------- ------------------- -------------------- ------------- -----------
Other Assets 26 - NAV N/A N/A N/A
--------------------- --------- ----------- ------------------- -------------------- ------------- -----------
Derivative financial
instruments of
which:
--------------------- --------- ----------- ------------------- -------------------- ------------- -----------
Foreign exchange
Option pricing option implied
Foreign exchange 10 3 model volatility 3.1% - 6.1% 5.1%
--------------------- --------- -----------
Discounted cash Foreign exchange (16.4)%
flows curves - 57.3% 9.0%
--------------------- --------- -----------
Discounted cash Interest rate
Interest rate 53 16 flows curves (16.4)%-18.8% 5.0%
--------------------- --------- ----------- ------------------- -------------------- ------------- -----------
Option pricing Bond option implied N/A N/A
model volatility
--------------------- --------- ----------- ------------------- -------------------- ------------- -----------
Discounted cash
Credit 24 41 flows Credit spreads 0.1%-11.5% 1.0%
--------------------- --------- ----------- ------------------- -------------------- ------------- -----------
Price/yield 5.9% -7.3% 6.6%
--------------------- --------- ----------- ------------------- -------------------- ------------- -----------
Equity and stock Internal pricing
index 3 34 model Equity correlation 8.0% - 96.0% 70.0%
--------------------- --------- ----------- ------------------- -------------------- ------------- -----------
Equity-FX
correlation (70.0)%-85.0% (33.0)%
--------------------- --------- ----------- ------------------- -------------------- ------------- -----------
Discounted cash
Deposits by banks - 283 flows Credit spreads 0.4% - 3.0% 1.4%
--------------------- --------- ----------- ------------------- -------------------- ------------- -----------
Price/yield 6.8%-8.3% 7.5%
--------------------- --------- ----------- ------------------- -------------------- ------------- -----------
Discounted cash
Customer accounts - 454 flows Credit spreads 1.0% - 2.0% 1.2%
--------------------- --------- ----------- ------------------- -------------------- ------------- -----------
Interest rate
curves 0.9%-5.6% 4.7%
--------------------- --------- ----------- ------------------- -------------------- ------------- -----------
Price/yield 8.9%-12.1% 10.1%
--------------------- --------- ----------- ------------------- -------------------- ------------- -----------
Debt securities Discounted cash
in issue - 821 flows Credit spreads 0.9%-2.2% 1.0%
--------------------- --------- ----------- ------------------- -------------------- ------------- -----------
Interest rate
curves 0.9% - 5.6% 4.9%
--------------------- --------- ----------- ------------------- -------------------- ------------- -----------
Internal pricing
model Equity correlation 8.0% - 96.0% 70.0%
------------------- -------------------- ------------- -----------
Equity-FX
correlation (70.0)%-85.0% (33.0)%
--------------------- --------- ----------- ------------------- -------------------- ------------- -----------
Short positions - - N/A N/A N/A N/A
--------------------- --------- ----------- ------------------- -------------------- ------------- -----------
Comparable
Other Liabilities - 1 pricing/yield EV/EBITDA multiples 3.07x-9.95x 6.84x
--------------------- --------- ----------- ------------------- -------------------- ------------- -----------
Total 4,116 1,653
--------------------- --------- ----------- ------------------- -------------------- ------------- -----------
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 2021. 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
Page 97
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 cashflows in a
discounted cashflow model. Valuation using comparable instruments
can be done by calculating an implied yield (or spread over a
liquid benchmark) from the price of a comparable instrument, then
adjusting that yield (or spread) to derive a value for the
instrument. The adjustment should account for relevant differences
in the financial instruments such as maturity and/or credit
quality. Alternatively, a price-to-price basis can be assumed
between the comparable instrument and the instrument being valued
in order to establish the value of the instrument (for example,
deriving a fair value for a junior unsecured bond from the price of
a senior secured bond). An increase in price, in isolation, would
result in a favourable movement in the fair value of the asset. An
increase in yield, in isolation, would result in an unfavourable
movement in the fair value of the asset
-- Correlation is the measure of how movement in one variable
influences the movement in another variable. An equity correlation
is the correlation between two equity instruments, while an
interest rate correlation refers to the correlation between two
swap rates
-- Credit spread represents the additional yield that a market
participant would demand for taking exposure to the Credit Risk of
an instrument
-- Discount rate refers to the rate of return used to convert
expected cash flows into present value
-- Equity-FX correlation is the correlation between equity
instrument and foreign exchange instrument
-- EV/EBITDA multiple 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 multiple will result in a favourable movement in the
fair value of the unlisted firm
-- EV/Revenue multiple is the ratio of Enterprise Value (EV) to
Revenue. An increase in EV/Revenue multiple will result in a
favourable movement in the fair value of the unlisted firm
-- Foreign exchange curves is the term structure for forward
rates and swap rates between currency pairs over a specified
period
-- Net asset value (NAV) is the value of an entity's assets
after deducting any liabilities
-- Interest rate curves is the term structure of interest rates
and measure of future interest rates at a particular point in
time
-- Liquidity discounts in the valuation of unlisted investments
are 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 an
unfavourable movement in the fair value of the unlisted firm
-- Price-Earnings (P/E) multiple is the ratio of the market
value of the equity to the net income after tax. 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
-- 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
-- Repo curve is the term structure of repo rates on repos and
reverse repos at a particular point in time
-- 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
Page 98
Level 3 movement tables - financial assets
The table below analyses movements in Level 3 financial assets
carried at fair value.
30.06.22
--------------- ---------------------------------------------------------------------------------------------------------------
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 Other financial eligible Equity
to banks customers lending bills shares Assets instruments bills shares Total
$million $million $million $million $million $million $million $million $million $million
--------------- -------- --------- ---------- ----------- -------- -------- ----------- ----------- --------- --------
At 1 January
2022 9 1,357 1,566 349 186 26 90 40 493 4,116
Total
(losses)/gains
recognised
in
income
statement (4) (76) 2 (129) 4 - 13 - - (190)
-------- --------- ---------- ----------- -------- -------- ----------- ----------- --------- --------
Net trading
income (4) (76) 2 (129) 4 - 13 - - (190)
Other
operating
income - - - - - - - - - -
-------- --------- ---------- ----------- -------- -------- ----------- ----------- --------- --------
Total
(losses)/gains
recognised
in other
comprehensive
income (OCI) - - - - - - - - (40) (40)
-------- --------- ---------- ----------- -------- -------- ----------- ----------- --------- --------
Fair value
through OCI
reserve - - - - - - - - (32) (32)
Exchange
difference - - - - - - - - (8) (8)
-------- --------- ---------- ----------- -------- -------- ----------- ----------- --------- --------
Purchases 90 326 2,764 347 58 - 44 (1) 115 3,743
Issues
Sales (9) (255) (2,497) (104) (3) (1) (46) - (1) (2,916)
Settlements - (321) (221) (2) - - (4) (25) - (573)
Transfers out1 - (65) - - - - (4) - - (69)
Transfers in2 - 19 - 76 - - 11 - - 106
--------------- -------- --------- ---------- ----------- -------- -------- ----------- ----------- --------- --------
At 30 June
2022 86 985 1,614 537 245 25 104 14 567 4,177
--------------- -------- --------- ---------- ----------- -------- -------- ----------- ----------- --------- --------
Total
unrealised
(losses)/gains
recognised
in the income
statement,
within net
trading
income,
relating to
change in fair
value
of assets
held at
30 June 2022 - (40) - (2) 8 - 3 - - (31)
--------------- -------- --------- ---------- ----------- -------- -------- ----------- ----------- --------- --------
1 Transfers out includes loans and advances 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, and
derivatives financial instruments where the valuation parameters
become unobservable during the period
Page 99
The table below analyses movements in Level 3 financial assets
carried at fair value.
30.06.21
--------------- ---------------------------------------------------------------------------------------------------------------
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 Other financial eligible Equity
to banks customers lending bills shares Assets instruments bills shares Total
Assets $million $million $million $million $million $million $million $million $million $million
--------------- -------- --------- ---------- ----------- -------- -------- ----------- ----------- --------- --------
At 1 January
2021 200 718 1,064 258 279 - 8 40 381 2,948
Total
gains/(losses)
recognised
in
income
statement 1 (42) - - (21) - - - - (62)
-------- --------- ---------- ----------- -------- -------- ----------- ----------- --------- --------
Net trading
income 1 (42) - - (21) - - - - (62)
Other
operating
income - - - - - - - - - -
-------- --------- ---------- ----------- -------- -------- ----------- ----------- --------- --------
Total gains
recognised
in other
comprehensive
income (OCI) - - - - - - - 1 42 43
-------- --------- ---------- ----------- -------- -------- ----------- ----------- --------- --------
Fair value
through OCI
reserve - - - - - - - 1 42 43
Exchange
difference - - - - - - - - - -
-------- --------- ---------- ----------- -------- -------- ----------- ----------- --------- --------
Purchases - 495 2,454 184 8 - 43 - 28 3,212
Issues
Sales - (316) (2,196) (115) (44) - (2) - (3) (2,676)
Settlements (201) (153) - - - - (3) (10) - (367)
Transfers out1 - (46) - - (6) - (4) - (60) (116)
Transfers in2 - 558 - - - 17 4 10 - 589
--------------- -------- --------- ---------- ----------- -------- -------- ----------- ----------- --------- --------
At 30 June
2021 - 1,214 1,322 327 216 17 46 41 388 3,571
--------------- -------- --------- ---------- ----------- -------- -------- ----------- ----------- --------- --------
Total
unrealised
(losses)
recognised
in the income
statement,
within
net trading
income,
relating
to change
in fair value
of assets held
at 30 June
2021 - (1) - (7) (2) - (3) - - (13)
--------------- -------- --------- ---------- ----------- -------- -------- ----------- ----------- --------- --------
Page 100
31.12.21
--------------- ---------------------------------------------------------------------------------------------------------------
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 Other financial eligible Equity
to banks customers lending bills shares Assets instruments bills shares Total
Assets $million $million $million $million $million $million $million $million $million $million
--------------- -------- --------- ---------- ----------- -------- -------- ----------- ----------- --------- --------
At 1 July 2021 - 1,214 1,322 327 216 17 46 41 388 3,571
Total
(losses)/gains
recognised
in
income
statement - (55) 2 (24) (9) - 34 - - (52)
-------- --------- ---------- ----------- -------- -------- ----------- ----------- --------- --------
Net trading
income - (55) 2 (23) (9) - 34 - - (51)
Other
operating
income - - - (1) - - - - - (1)
-------- --------- ---------- ----------- -------- -------- ----------- ----------- --------- --------
Impairment
charge - - - - - - - - - -
Total gains
/(losses)
recognised
in other
comprehensive
income (OCI) - - - - - - - 2 19 21
-------- --------- ---------- ----------- -------- -------- ----------- ----------- --------- --------
Fair value
through OCI
reserve - - - - - - - 5 21 26
Cash flow
hedge reserve - - - - - - - - - -
Exchange
difference - - - - - - - (3) (2) (5)
-------- --------- ---------- ----------- -------- -------- ----------- ----------- --------- --------
Purchases 9 786 2,519 203 - - 48 - 95 3,660
Issues
Sales - (371) (2,196) (111) (11) - (30) - (6) (2,725)
Settlements - (149) (81) (70) - - (2) (3) - (305)
Transfers out1 - (14) - - (10) - (7) - (3) (34)
Transfers in2 - (54) - 24 - 9 1 - - (20)
--------------- -------- --------- ---------- ----------- -------- -------- ----------- ----------- --------- --------
At 31 December
2021 9 1,357 1,566 349 186 26 90 40 493 4,116
--------------- -------- --------- ---------- ----------- -------- -------- ----------- ----------- --------- --------
Total
unrealised
gains/(losses)
recognised
in the income
statement,
within net
trading
income,
relating to
change in fair
value
of assets
held at
31 December
2021 - 1 - 15 (13) - 22 - - 25
--------------- -------- --------- ---------- ----------- -------- -------- ----------- ----------- --------- --------
1 Transfers out includes loans and advances, derivative
financial instruments, debt securities, alternative tier one and
other eligible bills and equity shares 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, and
equity shares where the valuation parameters become unobservable
during the year
Page 101
Level 3 movement tables - financial liabilities
30.06.22
-------------------------------- ------------------------------------------------------------------------------------
Debt Derivative
Deposits Customer securities financial Short Other
by banks accounts in issue instruments positions Liabilities Total
$million $million $million $million $million $million $million
-------------------------------- --------- --------- ----------- ------------ ---------- ------------ ---------
At 1 January 2022 283 454 821 94 - 1 1,653
Total (gains)/losses recognised
in income statement -
net trading income (15) (56) (142) 104 (3) 3 (109)
Issues 223 934 387 89 100 - 1,733
Settlements (172) (647) (473) (89) - - (1,381)
Transfers out1 - - (24) (3) - - (27)
Transfers in2 - - 76 1 - - 77
-------------------------------- --------- --------- ----------- ------------ ---------- ------------ ---------
At 30 June 2022 319 685 645 196 97 4 1,946
-------------------------------- --------- --------- ----------- ------------ ---------- ------------ ---------
Total unrealised (gains)
recognised
in the income statement, within
net trading income, relating
to change in fair value of
liabilities
held at 30 June 2022 - (2) (7) (2) - - (11)
-------------------------------- --------- --------- ----------- ------------ ---------- ------------ ---------
30.06.21
-------------------------------- ------------------------------------------------------------------------------------
Debt Derivative
Deposits Customer securities financial Short Other
by banks Accounts in issue instruments positions Liabilities Total
$million $million $million $million $million $million $million
-------------------------------- --------- --------- ----------- ------------ ---------- ------------ ---------
At 1 January 2021 146 21 160 119 - - 446
Total losses/(gains) recognised
in income statement -
net trading income 8 11 - (3) - - 16
Issues 268 228 734 100 - - 1,330
Settlements (146) (52) (361) (107) - - (666)
Transfers out1 - - (22) (1) - - (23)
Transfers in2 - - 92 3 - - 95
-------------------------------- --------- --------- ----------- ------------ ---------- ------------ ---------
At 30 June 2021 276 208 603 111 - - 1,198
-------------------------------- --------- --------- ----------- ------------ ---------- ------------ ---------
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 2021 - 12 (7) - - - 5
-------------------------------- --------- --------- ----------- ------------ ---------- ------------ ---------
31.12.21
-------------------------------- ------------------------------------------------------------------------------------
Debt Derivative
Deposits Customer securities financial Short Other
by banks Accounts in issue instruments positions Liabilities Total
$million $million $million $million $million $million $million
-------------------------------- --------- --------- ----------- ------------ ---------- ------------ ---------
At 1 July 2021 276 208 603 111 - - 1,198
Total (gains) recognised in
income statement -
net trading income - (16) (12) (20) - - (48)
Issues 1 575 881 66 - - 1,523
Settlements 1 (313) (625) (74) - - (1,011)
Transfers out1 - - (26) (5) - - (31)
Transfers in2 5 - - 16 - 1 22
-------------------------------- --------- --------- ----------- ------------ ---------- ------------ ---------
At 31 December 2021 283 454 821 94 - 1 1,653
-------------------------------- --------- --------- ----------- ------------ ---------- ------------ ---------
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 2021 - (12) 7 (14) - - (19)
-------------------------------- --------- --------- ----------- ------------ ---------- ------------ ---------
1 Transfers out during the year primarily relate to debt
securities in issue and derivative financial instruments where the
valuation parameters became observable during the year and were
transferred to Level 2 financial liabilities
2 Transfers in during the year primarily relate to derivative
financial instruments and debt securities in issue where the
valuation parameters become unobservable during the year
Page 102
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 analysis performed on
a set of reference prices based on the composition
of the Group's Level 3 inventory as the measurement date.
Favourable and unfavourable changes (which show the balance
adjusted for input change) are determined on the basis of changes
in the value of the instrument as a result of varying the levels of
the unobservable parameters. The 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
profit or loss comprehensive 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 1,071 1,096 1,030 - - -
Reverse Repurchase agreements
and other similar secured
lending 1,614 1,624 1,604 - - -
Asset backed securities 1 1 1 - - -
Debt securities, alternative
tier one and other eligible
bills 536 554 519 14 14 14
Equity shares 245 270 220 567 614 514
Other Assets 25 28 23 - - -
Derivative financial instruments (92) (57) (127) - - -
Customers accounts (685) (654) (716) - - -
Deposits by banks (319) (319) (319) - - -
Debt securities in issue (645) (594) (696) - - -
Short positions (97) (95) (99) - - -
Other Liabilities (4) (4) (4) - - -
--------------------------------- ------------ ---------- ------------ ------------ ---------- ------------
At 30 June 2022 1,650 1,850 1,436 581 628 528
--------------------------------- ------------ ---------- ------------ ------------ ---------- ------------
Financial instruments
held at fair value
Loans and advances 1,366 1,398 1,328 - - -
Reverse Repurchase agreements
and other similar secured
lending 1,566 1,579 1,550 - - -
Asset backed securities - - - - - -
Debt securities, alternative
tier one and other eligible
bills 349 366 332 40 41 38
Equity shares 186 205 168 493 541 442
Other Assets 26 29 24 - - -
Derivative financial instruments (4) 10 (16) - - -
Customers accounts (454) (447) (461) - - -
Deposits by banks (283) (278) (287) - - -
Debt securities in issue (821) (764) (879) - - -
Short positions - - - - - -
Other Liabilities (1) (1) (1) - - -
--------------------------------- ------------ ---------- ------------ ------------ ---------- ------------
At 31 December 2021 1,930 2,097 1,758 533 582 480
--------------------------------- ------------ ---------- ------------ ------------ ---------- ------------
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.
30.06.22 31.12.21
Financial instruments Fair value changes $million $million
--------------------------------------- ------------------- ---------- ----------
Held at fair value through
profit or loss Possible increase 200 167
---------------------------------------
Possible decrease (214) (172)
----------------------------------------------------------- ---------- ----------
Fair value through other comprehensive
income Possible increase 47 49
---------------------------------------
Possible decrease (53) (53)
----------------------------------------------------------- ---------- ----------
Page 103
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.
Derivatives
30.06.22 31.12.21
------------------------------- ---------------------------------- ----------------------------------
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 3,519,329 43,417 39,988 3,750,151 30,256 30,068
Currency swaps and options 1,405,464 19,722 19,692 1,412,055 11,492 11,659
------------------------------- ---------- --------- ----------- ---------- --------- -----------
4,924,793 63,139 59,680 5,162,206 41,748 41,727
------------------------------- ---------- --------- ----------- ---------- --------- -----------
Interest rate derivative
contracts:
Swaps 3,925,932 48,516 49,707 3,609,625 31,490 31,078
Forward rate agreements
and options 105,819 1,742 2,290 127,287 1,328 1,859
Exchange traded futures
and options 409,195 355 322 295,192 156 132
------------------------------- ---------- --------- ----------- ---------- --------- -----------
4,440,946 50,613 52,319 4,032,104 32,974 33,069
------------------------------- ---------- --------- ----------- ---------- --------- -----------
Credit derivative contracts 229,152 2,116 2,700 184,953 2,289 3,125
------------------------------- ---------- --------- ----------- ---------- --------- -----------
Equity and stock index
options 5,907 211 248 8,714 136 160
------------------------------- ---------- --------- ----------- ---------- --------- -----------
Commodity derivative contracts 154,156 3,810 4,363 113,807 1,896 1,916
------------------------------- ---------- --------- ----------- ---------- --------- -----------
Gross total derivatives 9,754,954 119,889 119,310 9,501,784 79,043 79,997
------------------------------- ---------- --------- ----------- ---------- --------- -----------
Offset - (43,213) (43,213) - (26,598) (26,598)
------------------------------- ---------- --------- ----------- ---------- --------- -----------
Net total derivatives 9,754,954 76,676 76,097 9,501,784 52,445 53,399
------------------------------- ---------- --------- ----------- ---------- --------- -----------
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 may enter into economic hedges that do not qualify for
IAS 39 hedge accounting treatment, including derivative such as
interest rate swaps, interest rate futures and cross-currency swaps
to manage interest rate and currency risks of the Group. These
derivatives are measured at fair value, with fair value changes
recognised in net trading income: refer to Market Risk.
Derivatives held for hedging
30.06.22 31.12.21
--------------------------- ---------------------------------- ----------------------------------
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 78,903 1,704 2,034 78,666 957 338
Currency swaps 2,280 33 274 2,262 43 151
--------------------------- ---------- --------- ----------- ---------- --------- -----------
81,183 1,737 2,308 80,928 1,000 489
--------------------------- ---------- --------- ----------- ---------- --------- -----------
Derivatives designated
as cash flow hedges:
Interest rate swaps 38,698 139 498 10,381 60 74
Forward foreign exchange
contracts 5,353 275 - 72 2 -
Currency swaps 10,434 610 94 12,214 293 51
--------------------------- ---------- --------- ----------- ---------- --------- -----------
54,485 1,024 592 22,667 355 125
--------------------------- ---------- --------- ----------- ---------- --------- -----------
Derivatives designated
as net investment hedges:
Forward foreign exchange
contracts 17,096 467 1 13,198 88 79
--------------------------- ---------- --------- ----------- ---------- --------- -----------
Total derivatives held
for hedging 152,764 3,228 2,901 116,793 1,443 693
--------------------------- ---------- --------- ----------- ---------- --------- -----------
Page 104
Interest rate benchmark reform
As at 30 June 2022, the following populations of derivative
instruments designated in fair value or cash flow hedge accounting
relationships were linked to IBOR reference rates:
Weighted
Fair value Cash flow average
hedges hedges Total exposure
$million $million $million Years
----------------------------------------- ---------- --------- --------- ---------
Interest rate swaps
USD LIBOR 35,906 29,743 65,649 2.6
GBP LIBOR - - - -
JPY LIBOR - - - -
SGD SOR - - - -
----------------------------------------- ---------- --------- --------- ---------
35,906 29,743 65,649 2.6
----------------------------------------- ---------- --------- --------- ---------
Cross-currency swaps
USD LIBOR vs Fixed rate foreign currency 1,646 3,079 4,725 0.7
----------------------------------------- ---------- --------- --------- ---------
Total notional of hedging instruments
in scope of IFRS amendments as at
30 June 2022 37,552 32,822 70,374 2.5
----------------------------------------- ---------- --------- --------- ---------
Weighted
Fair value Cash flow average
hedges hedges Total exposure
$million $million $million Years
----------------------------------------- ---------- --------- --------- ---------
Interest rate swaps
USD LIBOR 46,615 2,636 49,251 3.6
GBP LIBOR 1,444 - 1,444 0.1
JPY LIBOR 637 - 637 0.2
SGD SOR - - - -
----------------------------------------- ---------- --------- --------- ---------
48,696 2,636 51,332 3.5
----------------------------------------- ---------- --------- --------- ---------
Cross-currency swaps
USD LIBOR vs Fixed rate foreign currency 2,262 3,681 5,943 0.9
----------------------------------------- ---------- --------- --------- ---------
Total notional of hedging instruments
in scope of IFRS amendments as at
31 December 2021 50,958 6,317 57,275 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 lending and borrowing
Reverse repurchase agreements and other similar secured
lending
30.06.22 31.12.21
$million $million
---------------------------------- ---------- ----------
Banks 22,672 19,806
Customers 60,415 68,613
---------------------------------- ---------- ----------
83,087 88,419
---------------------------------- ---------- ----------
Of which:
Fair value through profit or loss 74,398 80,009
---------- ----------
Banks 21,877 18,727
Customers 52,521 61,282
---------- ----------
Held at amortised cost 8,689 8,410
---------- ----------
Banks 795 1,079
Customers 7,894 7,331
---------- ----------
Page 105
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:
30.06.22 31.12.21
$million $million
-------------------------------------------------------------- ---------- ----------
Securities and collateral received (at fair value) 109,863 118,636
-------------------------------------------------------------- ---------- ----------
Securities and collateral which can be repledged or
sold (at fair value) 108,816 117,408
-------------------------------------------------------------- ---------- ----------
Amounts repledged/transferred to others for financing
activities, to satisfy liabilities under sale and repurchase
agreements (at fair value) 48,520 57,879
-------------------------------------------------------------- ---------- ----------
Repurchase agreements and other similar secured borrowing
30.06.22 31.12.21
$million $million
---------------------------------- ---------- ----------
Banks 14,809 7,054
Customers 42,234 58,594
---------------------------------- ---------- ----------
57,043 65,648
---------------------------------- ---------- ----------
Of which:
Fair value through profit or loss 55,320 62,388
---------- ----------
Banks 13,086 5,107
Customers 42,234 57,281
---------- ----------
Held at amortised cost 1,723 3,260
---------- ----------
Banks 1,723 1,947
Customers - 1,313
---------- ----------
The tables below set out the financial assets provided as
collateral for repurchase and other secured borrowing
transactions:
30.06.22
-------------------------------------- -------------------------------------------------------------------
Fair value Fair value
through through
profit other comprehensive Amortised Off-balance
Collateral pledged against repurchase or loss income cost sheet Total
agreements $million $million $million $million $million
-------------------------------------- ---------- -------------------- --------- ----------- ---------
On-balance sheet
Debt securities and other eligible
bills 4,368 2,014 3,492 - 9,874
Off-balance sheet
Repledged collateral received - - - 48,520 48,520
-------------------------------------- ---------- -------------------- --------- ----------- ---------
At 30 June 2022 4,368 2,014 3,492 48,520 58,394
-------------------------------------- ---------- -------------------- --------- ----------- ---------
31.12.21
-------------------------------------- -------------------------------------------------------------------
Fair value Fair value
through through
profit other comprehensive Amortised Off-balance
Collateral pledged against repurchase or loss income cost sheet Total
agreements $million $million $million $million $million
-------------------------------------- ---------- -------------------- --------- ----------- ---------
On-balance sheet
Debt securities and other eligible
bills 3,427 2,655 2,601 - 8,683
Off-balance sheet
Repledged collateral received - - - 57,879 57,879
-------------------------------------- ---------- -------------------- --------- ----------- ---------
At 31 December 2021 3,427 2,655 2,601 57,879 66,562
-------------------------------------- ---------- -------------------- --------- ----------- ---------
Page 106
16. Goodwill and intangible assets
30.06.22 31.12.21
------------------------ --------------------------------------------- ---------------------------------------------
Acquired Computer Acquired Computer
Goodwill intangibles software Total Goodwill intangibles software Total
$million $million $million $million $million $million $million $million
------------------------ --------- ------------ --------- --------- --------- ------------ --------- ---------
Cost
At 1 January 2,595 457 4,464 7,516 2,617 473 3,682 6,772
Exchange translation
differences (82) (50) (119) (251) (22) (14) (73) (109)
Additions - - 486 486 - - 989 989
Amounts written off - - (26) (26) - (2) (134) (136)
------------------------ --------- ------------ --------- --------- --------- ------------ --------- ---------
At 30 June/31 December 2,513 407 4,805 7,725 2,595 457 4,464 7,516
------------------------ --------- ------------ --------- --------- --------- ------------ --------- ---------
Provision for
amortisation
At 1 January - 437 1,608 2,045 - 451 1,258 1,709
Exchange translation
differences - (52) (49) (101) - (22) (20) (42)
Amortisation - 2 260 262 - 8 461 469
Impairment charge - - 1 1 - - 4 4
Amounts written off - - (19) (19) - - (95) (95)
------------------------ --------- ------------ --------- --------- --------- ------------ --------- ---------
At 30 June/31 December - 387 1,801 2,188 - 437 1,608 2,045
------------------------ --------- ------------ --------- --------- --------- ------------ --------- ---------
Net book value 2,513 20 3,004 5,537 2,595 20 2,856 5,471
------------------------ --------- ------------ --------- --------- --------- ------------ --------- ---------
At 30 June 2022, accumulated goodwill impairment losses incurred
from 1 January 2005 amounted to $3,317 million (31 December 2021:
$3,317 million), of which nil was recognised in 2022 (31 December
2021: nil million).
Outcome of impairment assessment
At 30 June 2022, the Group performed a review of the goodwill
that has been assigned to the Group's CGUs for indicators of
impairment, considering whether there were any reduced expectations
for future cashflows and/or fluctuations in the discount rate or
the assumptions. Due to the ongoing global pandemic and global
economic environment, it was decided to perform a full impairment
analysis. The results of this review indicated that at 30 June 2022
there are no goodwill impairments to be recognised in the first
half of 2022.
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.
30.06.22 31.12.21
--------------------------- --------------------------------- ---------------------------------
Long-term Long-term
Pre-tax forecast Pre-tax 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
Asia 1,046 1,073
--------- ---------
Hong Kong 355 10.9 2.2 357 10.6 2.5
Taiwan 342 10.9 1.2 361 10.4 2.0
Singapore 335 11.7 1.6 341 11.6 2.4
Bangladesh 14 18.7 6.5 14 15.0 7.3
--------- ---------
Africa & Middle East 88 92
--------- ---------
Pakistan 39 25.4 5.1 43 22.2 6.0
Bahrain 49 13.3 2.1 49 13.1 3.0
--------- ---------
Global CGUs 1,379 1,430
--------- ---------
Global Private Banking 84 12.6 1.8 84 12.4 2.5
Corporate, Commercial
& Institutional Banking 1,295 12.7 2.5 1,346 12.5 3.0
--------- ---------
2,513 2,595
--------------------------- --------- --------- ----------- --------- --------- -----------
In the current period there are no CGUs that are sensitive to
any individual movement on key estimates (cashflow, discount rate
and GDP growth rate).
Page 107
17. Property, plant and equipment
30.06.22
----------------------------------------- -----------------------------------------------------------------
Operating Leased Leased
lease premises equipment
Premises Equipment assets assets assets Total
$million $million $million $million $million $million
----------------------------------------- --------- --------- --------- --------- ---------- ---------
Cost or valuation
At 1 January 1,980 901 4,248 1,854 33 9,016
Exchange translation differences (92) (59) - (66) (3) (220)
Additions1 36 39 478 54 1 608
Disposals and fully depreciated assets
written off2 (36) (15) (258) (25) (1) (335)
Transfers to assets held for sale - - - - - -
----------------------------------------- --------- --------- --------- --------- ---------- ---------
As at 30 June 1,888 866 4,468 1,817 30 9,069
----------------------------------------- --------- --------- --------- --------- ---------- ---------
Depreciation
Accumulated at 1 January 795 611 1,155 819 20 3,400
Exchange translation differences (35) (31) - (33) (4) (103)
Charge for the period 35 60 105 126 4 330
Impairment charge - - (1) - - (1)
Attributable to assets sold, transferred
or written off2 (19) (15) (177) (17) - (228)
Transfers to assets held for sale - - - - - -
----------------------------------------- --------- --------- --------- --------- ---------- ---------
Accumulated at 30 June 776 625 1,082 895 20 3,398
----------------------------------------- --------- --------- --------- --------- ---------- ---------
Net book amount at 30 June 1,112 241 3,386 922 10 5,671
----------------------------------------- --------- --------- --------- --------- ---------- ---------
1 Refer to the cash flow statement under cash flows from
investing activities section for the purchase of property, plant
and equipment during the year of $553 million, primarily on
aircraft purchases for the Group's aircraft operating leasing
business
2 Disposals for property, plant and equipment during the year of
$139 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
31.12.21
----------------------------------------- ----------------------------------------------------------------------
Operating Leased
lease premises
Leased
equipment
Premises Equipment assets assets assets3 Total
$million $million $million $million $million $million
----------------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Cost or valuation
At 1 January 2,048 874 5,233 1,577 31 9,763
Exchange translation differences (63) (13) - (38) (1) (115)
Additions1 107 135 110 373 4 729
Disposals and fully depreciated assets
written off2 (100) (95) (1,095) (58) (1) (1,349)
Transfers to assets held for sale (12) - - - - (12)
----------------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
As at 31 December 1,980 901 4,248 1,854 33 9,016
----------------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Depreciation
Accumulated at 1 January 770 594 1,336 536 12 3,248
Exchange translation differences (15) (14) - (15) - (44)
Charge for the period 74 121 213 296 8 712
Impairment charge - - 64 42 - 106
Attributable to assets sold, transferred
or written off2 (31) (90) (458) (40) - (619)
Transfers to assets held for sale (3) - - - - (3)
----------------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Accumulated at 31 December 795 611 1,155 819 20 3,400
----------------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Net book amount at 31 December 1,185 290 3,092 1,036 13 5,616
----------------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
1 Refer to the cash flow statement (FY'21) under cash flows from
investing activities section for the purchase of property, plant
and equipment during the year of $352 million, primarily on
aircrafts purchase for the Group's aircraft operating leasing
business
2 Disposals for property, plant and equipment during the year of
$816 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
Page 108
Operating lease assets
The operating lease assets subsection of property, plant and
equipment is the Group's aircraft leasing business, consisting of
100 commercial aircraft at 30 June 2022, of which 98 are
narrow-bodies and 2 wide-bodies. 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.
At 30 June 2022, these assets had a net book value of $3,386
million (31 December 2021: $3,092 million).
Under these leases the lessee is responsible for the maintenance
and servicing of the aircraft during the lease term while the Group
receives rental income and assumes the risks of the residual value
of the aircraft at the end of the lease. Initial lease terms range
in length up to 12 years, while the average remaining lease term at
30 June 2022 is approximately five years. By varying the lease
terms the effects of changes in cyclical market conditions at the
time aircraft become eligible for re-lease are mitigated. The Group
will look at entering into a lease extension with existing lessees
well in advance of lease expiry in order to minimise the risk of
aircraft downtime and aircraft transition costs. Aircraft may also
be sold from time to time to manage the composition and average age
of the fleet.
A series of stress sensitivities conducted on the narrow-body
portfolio highlight that the two biggest risks remain either an
increase in the discount rate, as the majority of the leased
portfolio is valued on a VIU basis, or a substantial number of
airline clients defaulting. A sensitivity test was performed on the
narrow-body portfolio assuming a discount rate increase of 50 basis
points which resulted in a possible increase in impairment of $47
million.
A further sensitivity test considered that the lessees with
lower credit ratings defaulted on their current leases. This
scenario would result in a possible increase in impairment of $47
million.
18. Other assets
30.06.22 31.12.21
$million $million
-------------------------------------------------------- ---------- ----------
Financial assets held at amortised cost (Note 13):
Hong Kong SAR Government certificates of indebtedness
(Note 21)(1) 7,232 7,284
Cash collateral 11,459 9,217
Acceptances and endorsements 6,037 4,930
Unsettled trades and other financial assets 26,407 18,637
-------------------------------------------------------- ---------- ----------
51,135 40,068
Non-financial assets:
Commodities and emissions certificates(2) 10,506 9,265
Other assets 470 599
-------------------------------------------------------- ---------- ----------
62,111 49,932
-------------------------------------------------------- ---------- ----------
1 The Hong Kong SAR Government certificates of indebtedness are
subordinated to the claims of other parties in respect of bank
notes issued
2 Commodities and emissions certificates are carried at fair
value less costs to sell, $5.0 billion are classified as Level 1
and $5.5 million are classified as Level 2
19. Investment in associates and joint ventures
Share of profit from investment in associates and joint ventures
comprises:
30.06.22 31.12.21
$million $million
--------------------------------------- ---------- ----------
Loss from investment in joint ventures (3) (2)
Profit from investment in associates 156 198
--------------------------------------- ---------- ----------
Total 153 196
--------------------------------------- ---------- ----------
30.06.22 31.12.21
Interests in associates and joint ventures $million $million
------------------------------------------- ---------- ----------
As at 1 January 2,147 2,162
Exchange translation difference (58) 43
Additions 4 90
Share of profits 153 196
Dividend received (58) (38)
Disposals (1) (16)
Impairment - (300)
Share of FVOCI and Other reserves (82) 10
------------------------------------------- ---------- ----------
As at 30 June/ 31 December 2,105 2,147
------------------------------------------- ---------- ----------
Page 109
The Group's principal associate are:
Group interest
in ordinary
Nature Main areas share capital
Associate of activities of operation %
--------------------- --------------- -------------- --------------
China Bohai Bank Banking China 16.26
CurrencyFair Limited Banking Ireland 43.42
--------------------- --------------- -------------- --------------
The Group's investment in China Bohai Bank is less than 20 per
cent but it is considered to be an associate because of the
significant influence the Group exercises over the financial and
operating policy decisions. This influence is through board
representation and the provision of technical expertise to Bohai.
The Group applies the equity method of accounting for investments
in associates.
The Group's ownership percentage in China Bohai Bank is 16.26
per cent.
For the period ended 30 June 2022, the Group recognised Bohai's
results from 1 October 2021 through 31 March 2022 (six months of
earnings). Bohai publishes their results after the Group. The Group
will therefore continue on a three-month lag in recognising its
share of Bohai's earnings going forward.
If the Group did not have significant influence in Bohai, the
investment would be carried at fair value rather than the current
carrying value.
Impairment testing
At 30 June 2022, the listed equity value, which is considered
the fair value of Bohai is below the carrying amount of the
investment in associate. As a result, the Group has performed an
impairment test on the carrying amount, which confirmed that there
was no impairment at 30 June 2022.
30.06.22 31.12.21
Bohai $million $million
------------------- ---------- ----------
VIU 1,881 1,917
Carrying amount(1) 1,881 2,217
Fair value 491 1,114
------------------- ---------- ----------
1 The above represents the Group's 16.26 per cent share of net
assets less other equity instruments the Group does not hold (for
2022 this is net of a $300m impairment taken in 2021)
Basis of recoverable amount
The impairment test was performed by comparing the recoverable
amount of Bohai, determined by a VIU calculation, with its carrying
amount. The VIU calculation uses the following primary inputs:
-- short to medium term projections based on management's best
estimates of future profits available to ordinary shareholders.
These projections have been determined with reference to the latest
published financial results and
historical performance. We have adjusted these cash flows as a
result of continued market uncertainty in China;
-- a discount rate based upon a capital asset pricing model
(CAPM) calculation for Bohai representing the risk-free rate and
company risk premium. Management compares this CAPM against
external sources and the cost of equity used for transactions in
the China market;
-- a long-term growth rate, for China, which is used to
extrapolate in perpetuity those expected short to medium term
earnings to derive a terminal value, and;
-- an estimation of RWAs and RWA growth to determine a capital
maintenance haircut to forecast profits. This haircut is taken in
order for Bohai to meet its target regulatory capital requirements
over the forecast period. This haircut takes into account movements
in risk weighted assets and the total capital required, including
required retained earnings over time to meet the target capital
ratios.
Page 110
The key assumptions used in the VIU calculation:
30.06.22 31.12.21
per cent per cent
-------------------------------------- --------- ---------
Pre-tax discount rate 14.90 14.83
Forecast profit long-term growth rate 4.00 4.75
Long-term RWA growth rate 4.00 4.75
Capital requirement adequacy ratio 7.50 7.50
-------------------------------------- --------- ---------
Base case Sensitivities - 30.06.22
--------- ----------------------------------- ---------------------------------------------------------------------------------------------------
Combined Combined
-------- -------- -------- ----- -------- -------- -------- -------- -------- -------- -------- -------- -------- ---------
Discount Forecast RWA RWA
GDP rate profit RWA -10% +10%
------------------ ------------------ ------------------ ------------------ -------- ---------
+1% -1% +1% -1% +10% -10% +10% -10% CF -10% CF +10%
-------- -------- -------- -------- -------- -------- -------- -------- -------- ---------
Carrying Pre-tax
amount VIU Headroom discount Headroom Headroom Headroom Headroom Headroom Headroom Headroom Headroom Headroom Headroom
$millions $million $million rate GDP $million $million $million $million $million $million $million $million $million $million
--------- -------- -------- -------- ----- -------- -------- -------- -------- -------- -------- -------- -------- -------- ---------
1,881 1,881 - 14.90% 4.00% 1 (5) (197) 263 265 (265) (180) 180 (85) 85
--------- -------- -------- -------- ----- -------- -------- -------- -------- -------- -------- -------- -------- -------- ---------
The movement in RWAs is correlated to forecast profit growth.
This can be seen above in the combined RWA and cashflow scenarios
in the sensitivity table.
The following table sets out the summarised financial statements
of China Bohai Bank prior to the Group's share of the associates
being applied:
31.03.22 31.03.2021
$million $million
---------------------------- ---------- ----------
Total assets 240,876 225,705
Total liabilities 224,212 209,356
Operating income1 1,954 2,545
Profit after tax1 963 834
Other comprehensive income1 (483) (29)
---------------------------- ---------- ----------
1 This represents six months of earnings (1 October to 31
March)
20. Assets held for sale and associated liabilities
Assets held for sale
30.06.22 31.12.21
$million $million
------------------------------------------------------ ---------- ----------
Financial assets held at fair value through profit or
loss 1 43
---------- ----------
Loans and advances to customers - 20
Equity shares 1 23
---------- ----------
Financial assets held at amortised cost 60 52
---------- ----------
Loans and advances to customers 60 52
---------- ----------
Property, plant and equipment 160 239
---------- ----------
Vessels 156 230
Others 4 9
------------------------------------------------------ ---------- ----------
221 334
------------------------------------------------------ ---------- ----------
Disposal of Property, Plant and equipment classified under
assets held for sale during 30 June 2022 was $79 million (31
December 2021: $149 million).
As at 30 June 2022, there were no liabilities included in
disposal groups held for sale (31 December 2021: nil).
Page 111
21. Other liabilities
30.06.22 31.12.21
$million $million
------------------------------------------------------- ---------- ----------
Financial liabilities held at amortised cost (Note 13)
Notes in circulation1 7,232 7,284
Acceptances and endorsements 6,037 4,930
Cash collateral 14,559 8,092
Property leases2 1,045 1,170
Equipment leases2 13 17
Unsettled trades and other financial liabilities 31,216 21,940
------------------------------------------------------- ---------- ----------
60,102 43,433
Non-financial liabilities
Cash-settled share-based payments 61 55
Other liabilities 1,352 826
------------------------------------------------------- ---------- ----------
61,515 44,314
------------------------------------------------------- ---------- ----------
1 Hong Kong currency notes in circulation of $7,232 million (31
December 2021: $7,284 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 Other financial liabilities include the present value of lease
liabilities, as required by IFRS 16 from 1 January 2019.
22. Contingent liabilities and commitments
The table below shows the contract or underlying principal
amounts of unmatured off-balance sheet transactions at the balance
sheet date. The contract or underlying principal amounts indicate
the volume of business outstanding and do not represent amounts at
risk.
30.06.22 31.12.21
$million $million
--------------------------------------------------------- ---------- ----------
Financial guarantees and trade credits
Financial guarantees, trade credits and irrevocable
letters of credit 58,415 58,535
--------------------------------------------------------- ---------- ----------
58,415 58,535
--------------------------------------------------------- ---------- ----------
Commitments
Undrawn formal standby facilities, credit lines and
other commitments to lend
One year and over 72,055 69,542
Less than one year 28,341 27,306
Unconditionally cancellable 62,445 61,675
--------------------------------------------------------- ---------- ----------
162,841 158,523
--------------------------------------------------------- ---------- ----------
Capital Commitments
Contracted capital expenditure approved by the directors
but not provided for in these accounts(1) 120 124
--------------------------------------------------------- ---------- ----------
1 Of which the Group has commitments totalling $96 million to
purchase aircraft for delivery in 2022 (31 December 2021: $96
million). Pre-delivery payments of $26 million (2021: $26 million)
have been made in respect of these commitments
As set out in Note 23, 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.
23. 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.
Page 112
Since 2014, the Group has been named as a defendant in a series
of lawsuits that have been filed in the United States District
Courts for the Southern and Eastern Districts of New York against a
number of banks (including Standard Chartered Bank or its
affiliates) on behalf of plaintiffs who are, or are relatives of,
victims of various terrorist attacks in Iraq and Afghanistan. The
most recent lawsuit was filed in April 2022 and concerns terrorist
attacks that occurred in Afghanistan between 2013 and 2016. The
plaintiffs in each of these lawsuits have alleged that the
defendant banks aided and abetted the unlawful conduct of parties
with connections to terrorist organisations in breach of the U.S.
Anti-Terrorism Act. While the courts have ruled in favour of the
banks' motions to dismiss in five of these lawsuits, plaintiffs
have appealed or are expected to appeal against certain of these
judgements. The remaining cases are at an early procedural stage
and, except for the lawsuit filed in April 2022 and a similar
lawsuit filed in August 2021, have been stayed pending the outcomes
of the appeals in the dismissed cases. None of these lawsuits have
specified the amount of damages claimed.
In January 2020, a shareholder derivative complaint was filed by
the City of Philadelphia in New York State Court against 45 current
and former directors and senior officers of the Group. It is
alleged 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. In March 2021, an amended complaint was
served in which SCB and seven individuals were removed from the
case. Standard Chartered PLC and Standard Chartered Holdings
Limited remained as named "nominal defendants" in the complaint. In
May 2021, Standard Chartered PLC filed a motion to dismiss the
complaint. On 2 February 2022, the New York State Court ruled in
favour of Standard Chartered PLC's motion to dismiss the complaint.
On 2 March 2022, the plaintiffs filed a notice of appeal against
the 2 February 2022 ruling.
Since October 2020, two lawsuits have been filed in the English
High Court against Standard Chartered PLC on behalf of more than
300 shareholders in relation to alleged untrue and/or misleading
statements and/or omissions in information published by Standard
Chartered PLC in its rights issue prospectuses of 2008, 2010 and
2015 and/or public statements regarding the Group's historic
sanctions, money laundering and financial crime compliance issues.
These lawsuits have been brought under sections 90 and 90A of the
Financial Services and Markets Act 2000. Section 90 permits
shareholders to pursue a claim if they acquire shares, and suffer
loss, as a result of misleading statements in, or omissions of
necessary information from, a prospectus or listing particulars.
Section 90A permits shareholders to pursue a claim if they acquire,
hold or dispose of shares in reliance upon a knowingly or
recklessly made untrue or misleading statement in, or dishonest
omission of required information from published information, or if
there has been a dishonest delay in publishing relevant
information. These lawsuits are at an early procedural stage.
As the Group has previously disclosed, Bernard Madoff's 2008
confession to running a Ponzi scheme through Bernard L. Madoff
Investment Securities LLC (BMIS) gave rise to a number of lawsuits
against the Group. BMIS and the Fairfield funds (which invested in
BMIS) are in bankruptcy and liquidation, respectively. Between 2010
and 2012, five lawsuits were brought against the Group by the BMIS
bankruptcy trustee and the Fairfield funds' liquidators, in each
case seeking to recover funds paid to the Group's clients pursuant
to redemption requests made prior to BMIS' bankruptcy filing. The
total amount sought in these cases exceeds USD 300 million,
excluding any pre-judgment interest that may be awarded. The four
lawsuits commenced by the Fairfield funds' liquidators have been
dismissed and the appeals of those dismissals by the funds'
liquidators are ongoing. The lawsuit brought against the Group by
the BMIS bankruptcy trustee had been stayed pending a ruling by the
US Second Circuit Court of Appeals in related cases brought by the
BMIS bankruptcy trustee against other defendants that had been
dismissed. In August 2021, the US Court of Appeals issued its
ruling in the related cases with the result that the BMIS
bankruptcy trustee's lawsuit against the Group is no longer stayed
and is now ongoing. While the Group continues to vigorously defend
these lawsuits, there is a range of possible outcomes in this
litigation.
The Group has concluded that the threshold for recording
provisions pursuant to IAS 37 Provisions, Contingent Liabilities
and Contingent Assets is not met with respect to the above matters;
however, the outcomes of these lawsuits are inherently uncertain
and difficult to predict.
Page 113
24. Subordinated liabilities and other borrowed funds
30.06.22
-------------------------------- ------------------------------------------
USD GBP EUR Total
$million $million $million $million
-------------------------------- --------- --------- --------- ---------
Fixed rate subordinated debt 10,662 903 3,207 14,772
Floating rate subordinated debt 161 - - 161
-------------------------------- --------- --------- --------- ---------
Total 10,823 903 3,207 14,933
-------------------------------- --------- --------- --------- ---------
31.12.21
-------------------------------- ------------------------------------------
USD GBP EUR Total
$million $million $million $million
-------------------------------- --------- --------- --------- ---------
Fixed rate subordinated debt 11,636 1,160 3,689 16,485
Floating rate subordinated debt 161 - - 161
-------------------------------- --------- --------- --------- ---------
Total 11,797 1,160 3,689 16,646
-------------------------------- --------- --------- --------- ---------
Redemption during the year
On 25 January 2022, Standard Chartered PLC exercised its right
to redeem USD 1 billion 5.7 per cent subordinated notes 2022.
Issuance during the year
On 12 January 2022, Standard Chartered PLC issued USD 750
million 3.603 per cent Fixed Rate Reset Dated Subordinated Notes
due 2033.
25. Share capital, other equity instruments and reserves
Group and Company
Ordinary Ordinary
Total share
Number capital
of ordinary share share Preference and share Other equity
shares capital1 premium share premium2 premium instruments
millions $million $million $million $million $million
----------------------------- ------------ ---------- ---------- --------------- ----------- ------------
At 1 January 2021 3,156 1,578 3,986 1,494 7,058 4,518
Cancellation of shares
including share buy-back (37) (19) - - (19) -
Additional Tier 1 equity
issuance - - - - - 1,239
Other movements - - 3 - 3 -
----------------------------- ------------ ---------- ---------- --------------- ----------- ------------
At 30 June 2021 3,119 1,559 3,989 1,494 7,042 5,757
Cancellation of shares
including share buy-back (40) (20) - - (20) -
Additional Tier 1 equity
issuance - - - - - 1,489
Additional Tier 1 redemption - - - - - (992)
----------------------------- ------------ ---------- ---------- --------------- ----------- ------------
At 31 December 2021 3,079 1,539 3,989 1,494 7,022 6,254
Cancellation of shares
including share buy-back (111) (56) - - (56) -
Additional Tier 1 redemption - - - - - (990)
----------------------------- ------------ ---------- ---------- --------------- ----------- ------------
At 30 June 2022 2,968 1,483 3,989 1,494 6,966 5,264
----------------------------- ------------ ---------- ---------- --------------- ----------- ------------
1 Issued and fully paid ordinary shares of 50 cents each
2 Includes preference share capital of $75,000
Share buy-back
On 18 February 2022, 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 $56 million,
and the total consideration paid was $754 million (including $4
million of fees and stamp duty), The buy-back completed on 19 May
2022. The total number of shares purchased was 111,295,408,
representing 3.61% 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. The shares were
purchased by Standard Chartered PLC on various exchanges not
including the Hong Kong Stock Exchange.
Average
Highest Lowest price Aggregate Aggregate
Number price price paid price price
of ordinary paid paid per share paid paid
shares GBP GBP GBP GBP $
-------------- ------------ ------- ------ ---------- ----------- -----------
February 2022 14,397,852 5.85 5.15 5.55486 79,978,036 107,767,620
March 2022 49,510,420 5.45 4.31 4.94563 244,860,409 322,288,357
April 2022 29,085,345 5.27 4.79 5.05874 147,135,270 190,912,883
May 2022 18,301,791 5.99 5.45 5.71978 104,682,211 129,028,610
-------------- ------------ ------- ------ ---------- ----------- -----------
Page 114
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 2022, 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
The table provides details of outstanding Fixed Rate Resetting
Perpetual Subordinated Contingent Convertible AT1 securities issued
by Standard Chartered PLC. All issuances are made for general
business purposes and to increase the regulatory capital base of
the Group.
Proceeds Conversion
net price per
Issuance of issue Interest First reset ordinary
date Nominal value costs rate1 Coupon payment dates2 dates3 share
------------ --------------- --------- -------- --------------------- ------------ ----------
18 January USD 1,000 USD 992 2 April, 2 October
2017 million million 7.75% each year 2 April 2023 USD 7.732
USD 552 3 April, 3 October 3 October
3 July 2019 SGD 750 million million 5.375% each year 2024 SGD 10.909
USD 1,000 USD 992 26 January, 26 July 26 January
26 June 2020 million million 6% each year 2026 USD 5.331
14 January USD 1,250 USD 1,239 14 January, 14 July
2021 million million 4.75% each year 14 July 2031 USD 6.353
19 August USD 1,500 USD 1,489 19 February, 19 19 August
2021 million million 4.30% August each year 2028 USD 6.382
------------ --------------- --------- -------- --------------------- ------------ ----------
1 Interest rates for the period from (and including) the issue
date to (but excluding) the first reset date
2 Interest payable semi-annually in arrears
3 Securities are resettable each date falling five years, or an
integral multiple of five years, after the first reset date
Standard Chartered PLC redeemed $999m Fixed Rate Resetting
Perpetual Contingent Convertible Securities on its first optional
redemption date of 2 April 2022.
The AT1 issuances above are primarily purchased by institutional
investors.
Page 115
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
-- Interest payments on these securities 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
above, should the fully loaded Common Equity Tier 1 ratio of the
Group fall below 7.0 per cent. Approximately 817 million ordinary
shares would be required to satisfy the conversion of all the
securities mentioned above
The securities rank behind the claims against Standard Chartered
PLC of (a) unsubordinated creditors; (b) which are expressed to be
subordinated to the claims of unsubordinated creditors of Standard
Chartered PLC but not further or otherwise; or (c) which are, or
are expressed to be, junior to the claims of other creditors of
Standard Chartered PLC, whether subordinated or unsubordinated,
other than claims which rank, or are expressed to rank, pari passu
with, or junior to, the claims of holders of the AT1 securities in
a winding-up occurring prior to the conversion trigger.
Reserves
The constituents of the reserves are summarised as follows:
-- The capital reserve represents the exchange difference on
redenomination of share capital and share premium from sterling to
US dollars in 2001. The capital redemption reserve represents the
nominal value of preference shares redeemed
-- 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
Page 116
-- 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 2022, the distributable reserves of Standard
Chartered PLC (the Company) were $13.8 billion (31 December 2021:
$15.0 billion). These comprised retained earnings and $12.6 billion
of the merger reserve account. Distribution of reserves is subject
to maintaining minimum capital requirements.
Own shares
Computershare Trustees (Jersey) Limited is the trustee of the
2004 Employee Benefit Trust ('2004 Trust') and Ocorian Trustees
(Jersey) Limited is the trustee of the 1995 Employees' Share
Ownership Plan Trust ('1995 Trust'). The 2004 Trust is used in
conjunction with the Group's employee share schemes and other
employee share-based payments (such as upfront shares and salary
shares) and the 1995 Trust has historically been used for the
delivery of other employee share-based payments (such as upfront
shares and fixed pay allowances). Group companies fund these trusts
from time to time to enable the trustees to acquire shares to
satisfy these arrangements.
Except as disclosed, neither the Company nor any of its
subsidiaries has bought, sold or redeemed any securities of the
Company listed on The Stock Exchange of Hong Kong Limited during
the period. Details of the shares purchased and held by the trusts
are set out below.
1995 Trust 2004 Trust1 Total
------------------ ---------------------------- -------------------------------- ----------------------------------
30.06.22 31.12.21 30.06.21 30.06.22 31.12.21 30.06.21 30.06.22 31.12.21 30.06.21
------------------ -------- -------- -------- -------- ---------- ---------- ---------- ---------- ----------
Shares purchased
during
the period - - - - 36,487,747 12,243,256 - 36,487,747 12,243,256
------------------ -------- -------- -------- -------- ---------- ---------- ---------- ---------- ----------
Market price of
shares
purchased
($million) - - - - 237 82 - 237 82
------------------ -------- -------- -------- -------- ---------- ---------- ---------- ---------- ----------
Shares transferred
between trusts - - - - - - - - -
------------------ -------- -------- -------- -------- ---------- ---------- ---------- ---------- ----------
Shares held at the
end of
the period - - - 479,591 22,461,243 82,213 479,591 22,461,243 82,213
------------------ -------- -------- -------- -------- ---------- ---------- ---------- ---------- ----------
Maximum number of
shares held
during
the period 22,459,399 23,076,993 17,560,740
------------------ -------- -------- -------- -------- ---------- ---------- ---------- ---------- ----------
1 Note that in 2021, 35,768 shares were purchased by the trustee
of the 2004 Trust using $0.2 million participant savings as part of
Sharesave exercises
Dividend waivers
The trustees of the 2004 Trust, which holds ordinary shares in
Standard Chartered PLC in connection with the operation of its
employee share plans, have lodged standing instructions in relation
to shares held by them that have not been allocated to employees,
whereby any dividend is waived on the balance of ordinary shares
and recalculated and paid at the rate of 0.01p per share.
Page 117
26. Retirement benefit obligations
Retirement benefit obligations comprise:
30.06.22 31.12.21 30.06.21
$million $million $million
--------------------------------------- ---------- ---------- ----------
Total market value of assets 2,242 2,942 2,889
Present value of the plans liabilities (2,362) (3,134) (3,228)
--------------------------------------- ---------- ---------- ----------
Defined benefit plans obligation (120) (192) (339)
Defined contribution plans obligation (21) (18) (17)
--------------------------------------- ---------- ---------- ----------
Net obligation (141) (210) (356)
--------------------------------------- ---------- ---------- ----------
Retirement benefit charge comprises:
6 months 6 months 6 months
ended 30.06.22 ended 31.12.21 ended 30.06.21
$mIllion $million $million
---------------------------------------------------- --------------- --------------- ---------------
The pension cost for defined benefit plans was:
Current service cost 28 33 31
Past service cost and curtailments (1) (5) -
Settlement cost - (4) -
Interest income on pension plan assets (32) (28) (25)
Interest on pension plan liabilities 34 31 29
---------------------------------------------------- --------------- --------------- ---------------
Total charge to profit before deduction of tax 29 27 35
---------------------------------------------------- --------------- --------------- ---------------
Losses /(returns) on plan assets excluding interest
income 429 (110) 39
(Gains) /losses on liabilities (513) 38 (146)
---------------------------------------------------- --------------- --------------- ---------------
Total (gains) /losses recognised directly in
statement of comprehensive income before tax (84) (72) (107)
Deferred taxation 23 3 14
---------------------------------------------------- --------------- --------------- ---------------
Total (gains) /losses after tax (61) (69) (93)
---------------------------------------------------- --------------- --------------- ---------------
Defined benefit liability values have decreased since 31
December 2021 due to rising bond yields, which lead to the
liabilities being discounted at a higher rate. Asset values have
fallen since 31 December due to the effect of rising yields on bond
assets, in addition to poor equity performance over the 6 months to
30 June 2022.
Liabilities have decreased to a greater extent than assets, and
as a result there is a reduction in the net balance sheet liability
compared to 31 December 2021.
The defined benefit income statement charge for the six months
to 30 June 2022 is lower than the corresponding income statement
charge for the six months to 30 June 2021, driven by increase in
the yields used to calculate current service cost at December 2021
(compared to 31 December 2020 yields used for FY21 service cost), a
reduction in the finance cost due to improvement in funding levels
from 31 Dec 2020 to 31 Dec 2021, and currency depreciation against
the US dollar which has led to a reduction in the DB service cost
in USD terms in most countries.
27. Related party transactions
Directors and officers
As at 30 June 2022, Standard Chartered Bank had in place a
charge over $89 million (31 December 2021: $100 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 2021 that could have or have had a
material effect on the financial position or performance of the
Group in the period ended 30 June 2022. All related party
transactions have taken place in the period were similar in nature
to those disclosed in the Annual Report 2021.
Page 118
Associate and joint ventures
The following transactions with related parties are on an arm's
length basis:
30.06.22 31.12.21
$million $million
----------------------------------------- ---------- ----------
Assets
Loans and advances - -
Debt securities - -
----------------------------------------- ---------- ----------
Total assets - -
----------------------------------------- ---------- ----------
Liabilities
Deposits 702 984
Derivative liabilities - 1
----------------------------------------- ---------- ----------
Total liabilities 702 985
----------------------------------------- ---------- ----------
Loan commitments and other guarantees(1) 52 80
----------------------------------------- ---------- ----------
1 The maximum loan commitments and other guarantees during the
period were $52 million (31 December 2021: $80 million)
28. Post balance sheet events
The Board has recommended an interim ordinary dividend for the
half year 2022 of 4 cents a share or $119 million.
The Board has also decided to carry out a share buy-back for up
to a maximum consideration of $500 million to further reduce the
number of ordinary shares in issue by cancelling the repurchased
shares.
29. 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, the following changes to the
composition of the Board have taken place since 31 December
2021. On 30 April 2022, Naguib Kheraj, Deputy Chairman, Chair of
the Board Risk Committee (BRC) and member of the Governance and
Nomination Committee, retired from the Board. Phil Rivett was
appointed as interim Chair of the BRC with effect from 1 May 2022,
pending the appointment of Maria Ramos as Chair of the BRC
receiving regulatory approval. Shirish Apte was appointed to the
Board as an Independent Non-Executive Director (INED) and a member
of each of the Audit Committee and BRC on 4 May 2022. Robin Lawther
was appointed to the Board as an INED and a member of each of the
BRC and Remuneration Committee on 1 July 2022. Biographies for each
of the directors and a list of the committees' membership can be
found at sc.com.
Given the progress made on the Board Financial Crime Risk
Committee's (BFCRC) purpose with respect to financial crime risk
management, the BFCRC ceased to be a standalone Board Committee
with effect from 1 April 2022. Its remit was reallocated to a
combination of the BRC, the Audit Committee and the Board. This
enables a more holistic and efficient examination and discussion of
risk as fraud, information and cyber security and financial crime
are closely linked, as these areas are currently discussed in
different meetings of the Board and its Committees. Gay Huey Evans,
CBE; David Conner; Christine Hodgson, CBE; Naguib Kheraj and
Carlson Tong stepped down from their respective roles on the BFCRC.
With the exception of Naguib Kheraj, who retired from the Group on
30 April 2022, all former BFCRC members have continued to perform
their other Board and Board Committee roles. The two BFCRC external
advisors, Sir Iain Lobban and Boon Hui Khoo, have agreed to remain
at the disposal of the Board Risk Committee and Audit Committee for
a further year.
In compliance with Rule 13.51B(1) of the Hong Kong Listing
Rules, the Company confirms that, Gay Huey Evans, CBE, INED, was
appointed to the board of S&P Global as a non-executive
director and member of its Audit Committee on 28 February 2022, and
resigned as an independent director of IHS Markit on the same date.
On 25 May 2022, Carlson Tong, INED, was appointed to the board of
MTR Corporation Limited, a company listed on the Hong Kong Stock
Exchange, as an INED, Chairman of its Audit & Risk Committee
and a member of its Finance and Investment Committee. Byron Grote,
INED, retired from Anglo American plc on 19 April 2022 and was
appointed to the board of InterContinental Hotels Group PLC as a
non-executive director and member of its Audit and Remuneration
Committees, with effect from 1 July 2022.
Page 119
30. 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 29 July 2022. The statutory accounts for the year ended 31
December 2021 have been audited 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.
31. Cash flow note
Adjustment for non-cash items and other adjustments included
within income statement
30.06.22 30.06.21
$million $million
--------------------------------------------------------- ---------- ----------
Amortisation of discounts and premium of investment
securities 195 46
Interest expense on subordinated liabilities 247 246
Interest expense on senior debt securities in issue 283 259
Other non-cash items 16 (84)
Pension costs for defined benefit schemes 29 35
Share-based payment costs 122 99
Impairment losses on loans and advances and other Credit
Risk provisions 263 (51)
Other impairment 15 40
Gain on disposal of property, plant and equipment (32) (34)
Gain on disposal of FVOCI and AMCST financial assets (14) (161)
Depreciation and amortisation 592 596
Fair value changes taken to income statement (199) (7)
Foreign currency revaluation (666) (250)
Loss on derecognition of investment in associate 2 -
Profit from associates and joint ventures (153) (141)
--------------------------------------------------------- ---------- ----------
Total 700 593
--------------------------------------------------------- ---------- ----------
Change in operating assets
30.06.22 30.06.21
$million $million
----------------------------------------------------------- ---------- ----------
(Increase)/decrease in derivative financial instruments (25,182) 16,982
Net decrease/(increase) in debt securities, treasury
bills and equity shares held at fair value through profit
or loss 7,861 (17)
Decrease/(increase) in loans and advances to banks and
customers 5,139 (20,881)
Net (increase) in prepayments and accrued income (244) (118)
Net (increase) in other assets (11,859) (2,997)
----------------------------------------------------------- ---------- ----------
Total (24,285) (7,031)
----------------------------------------------------------- ---------- ----------
Change in operating liabilities
30.06.22 30.06.21
$million $million
--------------------------------------------------------- ---------- ----------
Increase/(decrease) in derivative financial instruments 23,620 (19,161)
Net (decrease)/increase in deposits from banks, customer
accounts, debt securities in issue, Hong Kong notes
in circulation and short positions (14,783) 13,528
Net decrease in accruals and deferred income (353) (381)
Net increase in other liabilities 17,558 11,417
--------------------------------------------------------- ---------- ----------
Total 26,042 5,403
--------------------------------------------------------- ---------- ----------
In H1 2021, $416 million of additions to internally generated
capitalised software were included in the cash flows from operating
activities section of the cash flow statement within change in
operating assets. In H1 2022, $486 million of additions to
internally generated capitalised software are included in cash
flows from investing activities as a separate line item. The H1
2021 comparative cash flow statement has been adjusted for this
change in classification.
Page 120
Disclosures
30.06.22 30.06.21
$million $million
------------------------------------------------ ---------- ----------
Subordinated debt (including accrued interest):
Opening balance 16,885 16,892
Proceeds from the issue 750 1,186
Interest paid (310) (293)
Repayment (1,048) (530)
Foreign exchange movements (401) (69)
Fair value changes (1,018) (282)
Accrued Interest and Others 320 313
------------------------------------------------ ---------- ----------
Closing balance 15,178 17,217
------------------------------------------------ ---------- ----------
Senior debt (including accrued interest):
Opening balance 29,904 29,989
Proceeds from the issue 6,511 8,276
Interest paid (487) (366)
Repayment (3,618) (4,865)
Foreign exchange movements (881) (316)
Fair value changes (804) (248)
Accrued Interest and Others 521 369
------------------------------------------------ ---------- ----------
Closing balance 31,146 32,839
------------------------------------------------ ---------- ----------
Page 121
Other supplementary financial 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
2022, 31 December 2021 and 30 June 2021. 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 30.06.22
-------------------------------------- -------------------------------------------------------------
Average Average Gross yield
non-interest interest interest Gross yield
earning earning Interest earning total
balance balance income balance balance
$million $million $million % %
-------------------------------------- ------------- --------- --------- ----------- -----------
Cash and balances at central banks 23,650 55,603 146 0.53 0.37
Gross loans and advances to banks 28,854 41,945 326 1.57 0.93
Gross loans and advances to customers 62,985 305,280 4,027 2.66 2.21
Impairment provisions against
loans and advances to banks and
customers - (5,496) - - -
Investment securities 32,943 168,003 1,286 1.54 1.29
Property, plant and equipment
and intangible assets 8,727 - - - -
Prepayments, accrued income and
other assets 130,842 - - - -
Investment associates and joint
ventures 2,196 - - - -
-------------------------------------- ------------- --------- --------- ----------- -----------
Total average assets 290,197 565,335 5,785 2.06 1.36
-------------------------------------- ------------- --------- --------- ----------- -----------
6 months ended 31.12.21
-------------------------------------- -------------------------------------------------------------
Average Average Gross yield
non-interest interest interest Gross yield
earning earning Interest earning total
balance balance income balance balance
$million $million $million % %
-------------------------------------- ------------- --------- --------- ----------- -----------
Cash and balances at central banks 24,043 55,517 50 0.18 0.12
Gross loans and advances to banks 21,869 45,294 243 1.06 0.72
Gross loans and advances to customers 59,776 309,765 3,796 2.43 2.04
Impairment provisions against
loans and advances to banks and
customers - (5,582) - - -
Investment securities 32,884 156,571 1,037 1.31 1.09
Property, plant and equipment
and intangible assets 8,779 - - - -
Prepayments, accrued income and
other assets 109,490 - - - -
Investment associates and joint
ventures 2,392 - - - -
-------------------------------------- ------------- --------- --------- ----------- -----------
Total average assets 259,234 561,565 5,126 1.81 1.24
-------------------------------------- ------------- --------- --------- ----------- -----------
6 months ended 30.06.21
-------------------------------------- -------------------------------------------------------------
Average Average Gross yield
non-interest interest interest Gross yield
earning earning Interest earning total
balance balance income balance balance
$million $million $million % %
-------------------------------------- ------------- --------- --------- ----------- -----------
Cash and balances at central banks 23,174 56,473 42 0.15 0.11
Gross loans and advances to banks 22,809 46,623 247 1.07 0.72
Gross loans and advances to customers 53,335 305,302 3,780 2.50 2.13
Impairment provisions against
loans and advances to banks and
customers - (6,451) - - -
Investment securities 31,605 155,268 1,053 1.37 1.14
Property, plant and equipment
and intangible assets 8,960 - - - -
Prepayments, accrued income and
other assets 113,672 - - - -
Investment associates and joint
ventures 2,267 - - - -
-------------------------------------- ------------- --------- --------- ----------- -----------
Total average assets 255,822 557,215 5,122 1.85 1.27
-------------------------------------- ------------- --------- --------- ----------- -----------
Page 122
Average liabilities
6 months ended 30.06.22
---------------------------------------- ---------------------------------------------------------
Average Average Rate paid
non-interest interest interest Rate paid
bearing bearing Interest bearing total
balance balance expense balance balance
$million $million $million % %
---------------------------------------- ------------- --------- --------- --------- ---------
Deposits by banks 18,293 29,193 92 0.64 0.39
Customer accounts:
Current accounts and savings deposits 54,567 270,071 584 0.44 0.36
Time and other deposits 63,898 149,866 854 1.15 0.81
Debt securities in issue 6,228 61,288 347 1.14 1.04
Accruals, deferred income and
other liabilities 132,958 1,127 23 4.12 0.03
Subordinated liabilities and other
borrowed funds - 15,559 247 3.20 3.20
Non-controlling interests 340 - - - -
Shareholders' funds 49,493 - - - -
---------------------------------------- ------------- --------- --------- --------- ---------
325,777 527,104 2,147 0.82 0.51
---------------------------------------- ------------- --------- --------- --------- ---------
Adjustment for Financial Markets
funding costs (106)
---------------------------------------- ------------- --------- --------- --------- ---------
Financial guarantee fees on interest
earning assets 47
---------------------------------------- ------------- --------- --------- --------- ---------
Total average liabilities and
shareholders' funds 325,777 527,104 2,088 0.80 0.49
---------------------------------------- ------------- --------- --------- --------- ---------
6 months ended 31.12.21
---------------------------------------- ---------------------------------------------------------
Average Average Rate paid
non-interest interest interest Rate paid
|bearing bearing Interest bearing total
balance balance expense balance balance
$million $million $million % %
---------------------------------------- ------------- --------- --------- --------- ---------
Deposits by banks 19,731 28,218 62 0.44 0.26
Customer accounts:
Current accounts and savings deposits 53,310 267,231 460 0.34 0.28
Time and other deposits 55,727 147,441 615 0.83 0.60
Debt securities in issue 6,450 57,003 282 0.98 0.88
Accruals, deferred income and
other liabilities 112,614 1,206 26 4.28 0.05
Subordinated liabilities and other
borrowed funds - 16,666 251 2.99 2.99
Non-controlling interests 356 - - - -
Shareholders' funds 51,533 - - - -
---------------------------------------- ------------- --------- --------- --------- ---------
299,722 517,766 1,696 0.65 0.41
---------------------------------------- ------------- --------- --------- --------- ---------
Adjustment for Financial Markets
funding costs (97)
---------------------------------------- ------------- --------- --------- --------- ---------
Financial guarantee fees on interest
earning assets 156
---------------------------------------- ------------- --------- --------- --------- ---------
Total average liabilities and
shareholders' funds 299,722 517,766 1,755 0.67 0.43
---------------------------------------- ------------- --------- --------- --------- ---------
6 months ended 30.06.21
----------------------------------------- ---------------------------------------------------------
Average Average Rate paid
non-interest interest interest Rate paid
bearing bearing Interest bearing total
balance balance expense balance balance
$million $million $million % %
----------------------------------------- ------------- --------- --------- --------- ---------
Deposits by banks 17,261 26,599 74 0.56 0.34
Customer accounts:
Current accounts and savings deposits 48,934 257,233 388 0.30 0.26
Time and other deposits 53,606 151,262 733 0.98 0.72
Debt securities in issue 6,129 61,232 284 0.94 0.85
Accruals, deferred income and
other liabilities 118,293 1,093 27 4.98 0.05
Subordinated liabilities and other
borrowed funds - 16,386 246 3.03 3.03
Non-controlling interests1 328 - - - -
Shareholders' funds 51,088 - - - -
----------------------------------------- ------------- --------- --------- --------- ---------
295,639 513,805 1,752 0.69 0.44
----------------------------------------- ------------- --------- --------- --------- ---------
Adjustment for Financial Markets
funding costs (52)
----------------------------------------- ------------- --------- --------- --------- ---------
Financial guarantee fees on interest
earning assets 47
----------------------------------------- ------------- --------- --------- --------- ---------
Total average liabilities and
shareholders' funds 295,639 513,805 1,747 0.69 0.44
----------------------------------------- ------------- --------- --------- --------- ---------
Page 123
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 2021 Annual
Report together with a summary of our progress in implementing
these across the Group, and our third external Fair Pay Report,
published in February 2022, is available on our Group website.
B. Group share plans
Discretionary share plans
The Group has two discretionary share plans: the 2011 Standard
Chartered Share Plan, approved by shareholders in May 2011, and the
2021 Standard Chartered Share Plan, approved by shareholders in May
2021. Awards made in 2022 were granted under the 2021 Standard
Chartered Share Plan. The discretionary share plans are 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 discretionary share plans, no grant price is payable
to receive an award. New awards cannot be made under the 2011
Standard Chartered Share Plan. The remaining life of the 2021
Standard Chartered Share Plan during which new awards can be made
is nine years.
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 laws 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 less than one year since it expires in May
2023.
Page 124
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 2021 Annual Report.
Reconciliation of share award movements for the period to 30
June 2022
Weighted
average
Sharesave
Deferred/Restricted exercise
LTIP1 shares1 Sharesave price (GBP)
-------------------------------------------- ----------- ------------------- ----------- ------------
Outstanding at 1 January 2022 11,627,751 39,718,654 16,897,075 3.95
Granted2 3,063,815 24,095,928 - -
Lapsed (2,418,663) (322,775) (1,866,289) 4.42
Exercised (405,209) (15,507,237) (1,383,500) 5.11
-------------------------------------------- ----------- ------------------- ----------- ------------
Outstanding at 30 June 2022 11,867,694 47,984,570 13,647,286 3.77
-------------------------------------------- ----------- ------------------- ----------- ------------
Exercisable as at 30 June 2022 - 1,446,976 57,966 3.94
-------------------------------------------- ----------- ------------------- ----------- ------------
3.14 -
Range of exercise prices (GBP)3,4 - - 5.13
-------------------------------------------- ----------- ------------------- ----------- ------------
Intrinsic value of vested but not exercised
options ($ million) 0.00 10.88 0.16
-------------------------------------------- ----------- ------------------- ----------- ------------
Weighted average contractual remaining
life (years) 8.31 8.64 1.96
-------------------------------------------- ----------- ------------------- ----------- ------------
Weighted average closing price of shares
immediately before the dates
on which options were exercised N/A 5.43 4.63
-------------------------------------------- ----------- ------------------- ----------- ------------
1 Employees do not contribute towards the cost of these awards,
which are covered under the rules of the 2011 Standard Chartered
Share Plan for grants prior to May 2021, and under the rules of the
2021 Standard Chartered Share Plan for grants from June 2021
2 23,434,127 (DRSA/RSA) granted on 14 March 2022, 77,479
(deferred / restricted shares) granted as notional dividend on 01
March 2022, 3,048,826 (LTIP) granted on 14 March 2022, 14,989
(LTIP) granted as notional dividend on 01 March 2022, 584,322
(deferred / restricted shares) granted on 20 June 2022
3 No discretionary awards (LTIP or deferred / restricted shares)
have been granted in the form of options since June 2015. For
historic awards granted as options and exercised in the period to
30 June 2022, the exercise price of deferred / restricted shares
options was nil
4 All Sharesave awards are in the form of options. The exercise
price of Sharesave options exercised was GBP3.67 for options
granted in 2021, GBP3.14 for options granted in 2020, GBP4.98 for
options granted in 2019 and GBP5.13 for options granted in 2018
5 No options were cancelled in the period
C. Group Chairman and independent non-executive directors'
interests in ordinary shares as at 30 June 20221,2
Shares Shares
beneficially beneficially
held as held as
at at
31 December 30 June
2021 2022
------------------------------------ ------------- -------------
Group Chairman
J Viñals 30,000 30,000
------------------------------------ ------------- -------------
Independent non-executive directors
S M Apte3 - 2,000
D P Conner 10,000 10,000
B E Grote 90,041 90,041
C Hodgson, CBE 2,571 2,571
G Huey Evans, CBE 2,615 2,615
N Kheraj4 150,571 -
M Ramos 2,000 2,000
P G Rivett 2,128 2,128
D Tang 2,000 2,000
C Tong 2,000 2,000
J M Whitbread 3,615 3,615
------------------------------------ ------------- -------------
1. 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
as at 30 June 2022
3. Shirish Apte was appointed to the Board on 4 May 2022
4. Naguib Kheraj retired from the Board on 30 April 2022
Page 125
D. Executive directors' interests in ordinary shares as at 30
June 2022
Scheme interests awarded, exercised and lapsed during the
period
Employees, including executive directors, are not permitted to
engage in any personal investment strategies with regards to their
Company shares, including hedging against the share price of
Company shares. The main features of the outstanding shares and
awards are summarised below:
Performance Accrues notional No. of Post-vest regulatory Performance
Award measures dividends?1 tranches Tranche splits retention period2 outcome
-------- --------------------- ----------------- --------- ---------------- -------------------- ---------------
6 months on
50% tranche 50% of the
2016-18 33% - RoE Yes 5 1 award 27%
12.5% tranches
33% - TSR 2-5
33% - Strategic
---------------------------------------- ------- --------- ---------------- -------------------- ---------------
6 months on
50% of the
2017-19 Yes 5 5 equal tranches award 38%
------------------------------- ---------------- --------- ---------------- -------------------- ---------------
2018-20 No 5 12 months 26%
------------------------------- ---------------- --------- ---------------- -------------------- ---------------
33% - RoTE
33% - TSR
2019-21 33% - Strategic No 5 12 months 23%
-------- --------------------- ----------------- --------- -------------------- ---------------
2020-22 No 5 12 months To be assessed
at end of 2022
------------------------------- ---------------- --------- -------------------- ---------------
2021-23 30% - RoTE No 5 12 months To be assessed
30% - TSR at end of 2023
15% - Sustainability
25% - Strategic
-------- --------------------- ----------------- --------- -------------------- ---------------
2022-24 30% - RoTE No 5 12 months To be assessed
30% - TSR at end of 2024
15% - Sustainability
25% - Strategic
-------- --------------------- ----------------- --------- ---------------- -------------------- ---------------
5. 2016-18 and 2017-19 LTIP awards may receive dividend
equivalent shares based on dividends declared between grant and
vest. From 1 January 2017 remuneration regulations for European
banks prohibited the award of dividend equivalent shares.
Therefore, the number of shares awarded in respect of the 2018-20,
2019-21, 2020-22 and 2021-23 LTIP awards 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
6. As executive directors are material risk takers, regulatory
retention periods apply to net shares delivered. The requirements
changed over the years. Where the retention was not required on the
entire award this was because the total share-linked remuneration
for the executive directors in the relevant performance years
exceeded the regulatory requirement for share-linked
remuneration.
Page 126
The following table shows the changes in share interests.
Changes in interests during the period 1 January
to 30 June 2022
------------- ------ ---------- --------------------------------------------------------------------------
Share
award Performance
price As of Dividends As of period Vesting
(GBP) 1 January Awarded1 awarded2 Vested3 Lapsed 30 June end date
------------- ------ ---------- -------- --------- ------- ------- -------- ----------- ----------
B Winters
------------- ------ ---------- -------- --------- ------- ------- -------- ----------- ----------
11 Mar
33,506 - 2,517 36,023 - - 2019 4 May 2022
------------- ------ ---------- -------- --------- ------- ------- -------- ----------- ----------
2016-18 LTIP 5.560 33,507 - - - - 33,507 4 May 2023
------------- ------ ---------- -------- --------- ------- ------- -------- ----------- ----------
13 Mar 13 Mar
45,049 - 3,380 48,428 - - 2020 2022
------------- ------ ---------- -------- --------- ------- ------- -------- ----------- ----------
13 Mar
45,049 - - - - 45,049 2023
---------- -------- --------- ------- ------- -------- ----------- ----------
13 Mar
2017-19 LTIP 7.450 45,049 - - - - 45,049 2024
------------- ------ ---------- -------- --------- ------- ------- -------- ----------- ----------
28,178 - - 28,178 - - 9 Mar 2021 9 Mar 2022
------------- ------ ---------- -------- --------- ------- ------- -------- ----------- ----------
28,178 - - - - 28,178 9 Mar 2023
---------- -------- --------- ------- ------- -------- ----------- ----------
28,178 - - - - 28,178 9 Mar 2024
---------- -------- --------- ------- ------- -------- ----------- ----------
2018-20 LTIP 7.782 28,179 - - - - 28,179 9 Mar 2025
------------- ------ ---------- -------- --------- ------- ------- -------- ----------- ----------
11 Mar 11 Mar
133,065 - - 30,604 102,461 - 2022 2022
------------- ------ ---------- -------- --------- ------- ------- -------- ----------- ----------
11 Mar
133,065 - - - 102,461 30,604 2023
---------- -------- --------- ------- ------- -------- ----------- ----------
11 Mar
133,065 - - - 102,461 30,604 2024
---------- -------- --------- ------- ------- -------- ----------- ----------
11 Mar
133,065 - - - 102,461 30,604 2025
---------- -------- --------- ------- ------- -------- ----------- ----------
11 Mar
2019-21 LTIP 6.105 133,067 - - - 102,462 30,605 2026
------------- ------ ---------- -------- --------- ------- ------- -------- ----------- ----------
161,095 - - - - 161,095 9 Mar 2023 9 Mar 2023
------------- ------ ---------- -------- --------- ------- ------- -------- ----------- ----------
161,095 - - - - 161,095 9 Mar 2024
---------- -------- --------- ------- ------- -------- ----------- ----------
161,095 - - - - 161,095 9 Mar 2025
---------- -------- --------- ------- ------- -------- ----------- ----------
161,095 - - - - 161,095 9 Mar 2026
---------- -------- --------- ------- ------- -------- ----------- ----------
2020-22 LTIP 5.196 161,095 - - - - 161,095 9 Mar 2027
------------- ------ ---------- -------- --------- ------- ------- -------- ----------- ----------
15 Mar 15 Mar
150,621 - - - - 150,621 2024 2024
------------- ------ ---------- -------- --------- ------- ------- -------- ----------- ----------
15 Mar
150,621 - - - - 150,621 2025
---------- -------- --------- ------- ------- -------- ----------- ----------
15 Mar
150,621 - - - - 150,621 2026
---------- -------- --------- ------- ------- -------- ----------- ----------
15 Mar
150,621 - - - - 150,621 2027
---------- -------- --------- ------- ------- -------- ----------- ----------
15 Mar
2021-23 LTIP 4.901 150,621 - - - - 150,621 2028
------------- ------ ---------- -------- --------- ------- ------- -------- ----------- ----------
14 Mar 14 Mar
- 151,386 - - - 151,386 2025 2026
------------- ------ ---------- -------- --------- ------- ------- -------- ----------- ----------
14 Mar
- 151,386 - - - 151,386 2027
---------- -------- --------- ------- ------- -------- ----------- ----------
14 Mar
- 151,386 - - - 151,386 2028
---------- -------- --------- ------- ------- -------- ----------- ----------
14 Mar
- 151,386 - - - 151,386 2029
---------- -------- --------- ------- ------- -------- ----------- ----------
14 Mar
2022-24 LTIP 4.876 - 151,388 - - - 151,388 2030
------------- ------ ---------- -------- --------- ------- ------- -------- ----------- ----------
A Halford
------------- ------ ---------- -------- --------- ------- ------- -------- ----------- ----------
11 Mar
20,008 - 1,502 21,510 - - 2019 4 May 2022
------------- ------ ---------- -------- --------- ------- ------- -------- ----------- ----------
2016-18 LTIP 5.560 20,009 - - - - 20,009 4 May 2023
------------- ------ ---------- -------- --------- ------- ------- -------- ----------- ----------
13 Mar 13 Mar
27,888 - 2,094 29,982 - - 2020 2022
------------- ------ ---------- -------- --------- ------- ------- -------- ----------- ----------
13 Mar
27,888 - - - - 27,888 2023
---------- -------- --------- ------- ------- -------- ----------- ----------
13 Mar
2017-19 LTIP 7.450 27,890 - - - - 27,890 2024
------------- ------ ---------- -------- --------- ------- ------- -------- ----------- ----------
17,448 - - 17,448 - - 9 Mar 2021 9 Mar 2022
------------- ------ ---------- -------- --------- ------- ------- -------- ----------- ----------
17,448 - - - - 17,448 9 Mar 2023
---------- -------- --------- ------- ------- -------- ----------- ----------
17,448 - - - - 17,448 9 Mar 2024
---------- -------- --------- ------- ------- -------- ----------- ----------
2018-20 LTIP 7.782 17,448 - - - - 17,448 9 Mar 2025
------------- ------ ---------- -------- --------- ------- ------- -------- ----------- ----------
11 Mar 11 Mar
85,094 - - 19,571 65,523 - 2022 2022
------------- ------ ---------- -------- --------- ------- ------- -------- ----------- ----------
11 Mar
85,094 - - - 65,523 19,571 2023
---------- -------- --------- ------- ------- -------- ----------- ----------
11 Mar
85,094 - - - 65,523 19,571 2024
---------- -------- --------- ------- ------- -------- ----------- ----------
11 Mar
85,094 - - - 65,523 19,571 2025
---------- -------- --------- ------- ------- -------- ----------- ----------
11 Mar
2019-21 LTIP 6.105 85,096 - - - 65,524 19,572 2026
------------- ------ ---------- -------- --------- ------- ------- -------- ----------- ----------
99,976 - - - - 99,976 9 Mar 2023 9 Mar 2023
------------- ------ ---------- -------- --------- ------- ------- -------- ----------- ----------
99,976 - - - - 99,976 9 Mar 2024
---------- -------- --------- ------- ------- -------- ----------- ----------
99,976 - - - - 99,976 9 Mar 2025
---------- -------- --------- ------- ------- -------- ----------- ----------
99,976 - - - - 99,976 9 Mar 2026
---------- -------- --------- ------- ------- -------- ----------- ----------
2020-22 LTIP 5.196 99,977 - - - - 99,977 9 Mar 2027
------------- ------ ---------- -------- --------- ------- ------- -------- ----------- ----------
15 Mar 15 Mar
96,283 - - - - 96,283 2024 2024
------------- ------ ---------- -------- --------- ------- ------- -------- ----------- ----------
15 Mar
96,283 - - - - 96,283 2025
---------- -------- --------- ------- ------- -------- ----------- ----------
15 Mar
96,283 - - - - 96,283 2026
---------- -------- --------- ------- ------- -------- ----------- ----------
15 Mar
96,283 - - - - 96,283 2027
---------- -------- --------- ------- ------- -------- ----------- ----------
15 Mar
2021-23 LTIP 4.901 96,283 - - - - 96,283 2028
------------- ------ ---------- -------- --------- ------- ------- -------- ----------- ----------
14 Mar 14 Mar
- 96,772 - - - 96,772 2025 2026
------------- ------ ---------- -------- --------- ------- ------- -------- ----------- ----------
14 Mar
- 96,772 - - - 96,772 2027
---------- -------- --------- ------- ------- -------- ----------- ----------
14 Mar
- 96,772 - - - 96,772 2028
---------- -------- --------- ------- ------- -------- ----------- ----------
14 Mar
- 96,772 - - - 96,772 2029
---------- -------- --------- ------- ------- -------- ----------- ----------
14 Mar
2022-24 LTIP 4.876 - 96,773 - - - 96,773 2030
------------- ------ ---------- -------- --------- ------- ------- -------- ----------- ----------
Sharesave 4.980 1,807 - - - - 1,807 - 1 Dec 2022
------------- ------ ---------- -------- --------- ------- ------- -------- ----------- ----------
Page 127
1. For the 2022-24 LTIP awards granted to Bill Winters and Andy
Halford on 14 March 2022, the values granted were: Bill Winters:
GBP3.1 million; Andy Halford GBP2.0 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 2022-24
LTIP awards. The closing price on the day before grant was
GBP4.876.
2. Dividend equivalent shares may be awarded on vesting for
awards granted prior to 1 January 2018. On 31 March 2020 Standard
Chartered announced that in response to the request from the PRA
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. Dividend
equivalent shares allocated to the 2016-18 LTIP and 2017-19 awards
vesting in 2022 did not include any shares relating to the
cancelled dividend.
3. On 10 March 2022, 28,178 shares (before tax) were delivered
to Bill Winters from the vesting element of the 2018-20 LTIP award
and 17,448 shares (before tax) were delivered to Andy Halford from
the vesting element of the 2018-20 LTIP award. The closing share
price on the day before the shares were delivered was GBP4.931. On
14 March 2022, 48,428 shares (before tax) were delivered to Bill
Winters from the vesting element of the 2017-19 LTIP award and
29,982 shares (before tax) were delivered to Andy Halford from the
vesting element of the 2017-19 LTIP award. The closing share price
on the day before the shares were delivered was GBP4.876. On 21
March 2022, 30,604 shares (before tax) were delivered to Bill
Winters from the vesting element of the 2019-21 LTIP award and
19,571 shares (before tax) were delivered to Andy Halford from the
vesting element of the 2019-21 LTIP award. The closing share price
on the day before the delivery was GBP5.064. On 6 May 2022, Bill
Winters 36,023 shares (before tax) were delivered to Bill Winters
from the vesting element of the 2016-18 LTIP award and 21,510
shares (before tax) were delivered to Andy Halford from the vesting
element of the 2016-18 LTIP award. The closing share price on the
day before the delivery was GBP5.65.
4. The unvested LTIP awards held by Bill Winters and Andy
Halford are conditional rights. They do not have to pay towards
these awards. Under these awards, shares are delivered on vesting
or as soon as practicable thereafter.
5. 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, which has been discounted by 20 per cent
As at 30 June 2022, none of the directors had registered an
interest or short position in the shares, underlying shares or
debentures of the Company or any of its associated corporations
that was required to be recorded pursuant to section 352 of the
Securities and Futures Ordinance, or as otherwise notified to the
Company and the Hong Kong Stock Exchange pursuant to the Model Code
for Securities Transactions by Directors of Listed Issuers.
Shareholdings and share interests
The following table summarises the executive directors'
shareholdings and share interests.
Value of
Unvested shares
share awards counting Unvested
not subject towards share awards
to Total shares shareholding subject
performance counting requirement to performance
Shares measures towards as a measures
held (net of shareholding Shareholding percentage (before
beneficially1,2,3 tax)4 requirement requirement Salary2 of salary1 tax)
---------- ----------------- ------------- ------------- ------------ ------------ ------------- --------------
B Winters 2,309,799 171,064 2,480,863 250% salary GBP2,434,000 631% 2,315,512
---------- ----------------- ------------- ------------- ------------ ------------ ------------- --------------
A Halford 985,216 108,627 1,093,843 200% salary GBP1,556,000 435% 1,465,157
---------- ----------------- ------------- ------------- ------------ ------------ ------------- --------------
1. All figures are as of 30 June 2022 unless stated otherwise.
The closing share price on 30 June 2022 was GBP6.186. 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 interested 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 so not have any non-beneficial interest in the
Company's shares. Neither 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. 23 per cent of the 2019-21 LTIP award is no longer subject to
performance measures due to achievement against 2019-21 strategic
measures
5. As Bill and Andy are both UK taxpayers: zero per cent tax is
assumed to apply to Sharesave (as Sharesave is a UK tax qualified
share plan) and 48.25 per cent tax
is assumed to apply to other unvested share awards (marginal
combined PAYE rate of income tax at 45 per cent and employee social
security contributions at
3.25 per cent) - rates may change
E. Share price information
The middle market price of an ordinary share at the close of
business on 30 June 2022 was 618.6 pence. The share price range
during the first half of 2022 was 450.4 pence to 638.6 pence (based
on the closing middle market prices).
F. Substantial shareholders
The Company and its shareholders have been granted partial
exemption from the disclosure requirements under Part XV of the
Securities and Futures Ordinance (SFO). As a result of this
exemption, shareholders no longer have an obligation under Part XV
of the SFO (other than Divisions 5, 11 and 12 thereof) to notify
the Company of substantial shareholding interests, and the Company
is no longer required to maintain a register of interests of
substantial shareholders under section 336 of the SFO. The Company
is, however, required to file with The Stock Exchange of Hong Kong
Limited any disclosure of interests made in the UK.
G. Code for Financial Reporting Disclosure
The UK Finance Code for Financial Reporting Disclosure sets out
five disclosure principles together with supporting guidance. The
principles are that UK banks will: provide high-quality, meaningful
and decision useful disclosures; review and enhance their financial
instrument disclosures for key areas of interest; assess the
applicability and relevance of good practice recommendations to
their disclosures, acknowledging the importance of such guidance;
seek to enhance the comparability of financial statement
disclosures across the UK banking sector; and clearly differentiate
in their annual reports between information that is audited and
information that is unaudited.
The Group's interim financial statements for the six months
ended 30 June 2022 have been prepared in accordance with the Code's
principles.
H. Employees
The details regarding our remuneration policies, bonus schemes
and training schemes have not materially changed from our 2021
Annual Report and Accounts and we will be updating on these in our
2022 Annual Report.
Page 128
Shareholder information
Dividend and interest payment dates
Ordinary shares 2022 interim dividend (cash only)
------------------------------------ ---------------------------------
Results and dividend announced 29 July 2022
------------------------------------ ---------------------------------
Ex-dividend date 11 (UK) 10 (HK) August 2022
------------------------------------ ---------------------------------
Record date 12 August 2022
------------------------------------ ---------------------------------
Last date to amend currency election
instructions for cash dividend* 19 September 2022
------------------------------------ ---------------------------------
Dividend payment date 14 October 2022
------------------------------------ ---------------------------------
*in either US dollars, sterling, or Hong Kong dollars
2022 final dividend (provisional
only)
--------------------------------- ---------------------------------
Results and dividend announcement
date 16 February 2023
Preference shares Second half-yearly dividend
------------------------------------------- -----------------------------
7 3/ 8 per cent Non-Cumulative Irredeemable
preference shares of GBP1 each 1 October 2022
8 1/4 per cent Non-Cumulative Irredeemable
preference shares of GBP1 each 1 October 2022
------------------------------------------- -----------------------------
6.409 per cent Non-Cumulative preference
shares of $5 each 30 July 2022, 30 October 2022
------------------------------------------- -----------------------------
7.014 per cent Non-Cumulative preference
shares of $5 each 30 July 2022
------------------------------------------- -----------------------------
Previous dividend payments (unadjusted for the impact of the
2015/2010/2008 rights issues)
Cost of one new
Dividend ordinary share
and financial under share dividend
year Payment date Dividend per ordinary share 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
Interim 2020 No dividend declared N/A N/A
Final 2020 25 February 2021 9.00c/6.472413p/HK$0.698501 N/A
Interim 2021 22 October 2021 3.00c/2.204877p/HK$0.233592 N/A
Final 2021 12 May 2022 9.00c/6.894144p/HK$0.705772 N/A
-------------- -------------------- ---------------------------------------------------- ---------------------
1 The INR dividend was per Indian Depository Receipt. In March
2020, the Group announced the termination of the IDR programme. 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.
Further details regarding dividends can be found on our website
at sc.com/shareholders
Page 129
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 will receive any dividend paid 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/en.
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.
Page 130
Important notices
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 and
market forces or conditions; future exchange and interest rates;
changes in environmental, social or physical risks; legislative,
regulatory and policy developments; the development of standards
and interpretations; the ability of the Group to mitigate the
impact of climate
change effectively; risks arising out of health crisis and
pandemics; 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.
Financial instruments
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.
Caution regarding climate and environment related
information
Some of the climate and environment related information in this
document is subject to certain limitations, and therefore the
reader should treat the information provided, as well as
conclusions, projections and assumptions drawn from such
information, with caution. The information may be limited due to a
number of factors, which include (but are not limited to): a lack
of reliable data; a lack of standardisation of data; and future
uncertainty. The information includes externally sourced data that
may not have been verified. Furthermore, some of the data, models
and methodologies used to create the information is subject to
adjustment which is beyond our control, and the information is
subject to change without notice. This disclaimer does not apply to
the Group's condensed consolidated interim financial statements and
notes as set out in Note 1 - Statement of compliance.
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Glossary
Absolute financed emissions
A measurement of our attributed share of our clients' greenhouse
gas emissions.
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
(as it forms part of UK domestic law) 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.
Capital-lite income
Income derived from products with low RWA consumption or
products which are non-funding in nature.
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CRD or Capital Requirements Directive
A capital adequacy legislative package adopted by the PRA. CRD
comprises the Capital Requirements Directive and the UK onshored
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.
The EU 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. Only those parts of the EU CRR II that applied on or before
31 December 2020, when the UK was a member of the EU, have been
implemented. The PRA recently finalised the UK's version of the CRR
II for implementation into the PRA Rulebook on 1 January 2022.
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.
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.
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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 transferable certificates of
indebtedness of the Group to the bearer of the certificate. These
are liabilities of the Group and include certificates of
deposits.
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.
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.
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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.
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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.
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.
Exposures
Credit exposures represent the amount lent to a customer,
together with any undrawn commitments.
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.
ESG
Environmental, Social and Governance.
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'.
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.
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 Financial Stability Board (FSB) and
the BCBS. In the UK, the G-SIB framework is implemented via the CRD
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 UK, the G-SIB buffer is implemented via the CRD as
Global Systemically Important Institutions (G-SII) buffer
requirement.
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Green and Sustainable Product Framework
Sets out underlying eligible qualifying themes and activities
that may be considered ESG. This has been developed with the
support of external experts, has been informed by industry and
supervisory principles and standards such as the Green Bond
Principles and EU Taxonomy for sustainable activities.
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.
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/CRR.
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.
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 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.
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.
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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'.
LGD or Loss given default
The percentage of an exposure that a lender expects to lose in
the event of obligor default.
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.
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.
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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.
Net zero
The commitment to reaching net zero carbon emissions from our
operations by 2025 and from our financing by 2050.
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 a bad economic environment could have
a larger impact on ECL calculation than a good economic
environment.
Normalised items
See 'Underlying/Normalised'.
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.
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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 that are not already covered by Pillar 1 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 or Prudential consolidation
The regulatory consolidation of Standard Chartered PLC differs
from the statutory consolidation in that it only includes
undertakings that are credit institutions, investment firms, other
financial institutions, and ancillary service undertakings.
Subsidiaries continue to be fully consolidated, whilst
participations in undertakings that principally engage in these
financial services activities are proportionally consolidated.
These participations are considered associates for statutory
accounting purposes. Insurance or corporate entities are excluded
from the scope of prudential consolidation and recognised on an
equity accounted basis.
140
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'.
Revenue-based carbon intensity
A measurement of the quantity of greenhouse gases emitted by our
clients per USD of their revenue.
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.
Scope 1 emissions
Arise from the consumption of energy from direct sources during
the use of property occupied by the Group. On-site combustion of
fuels such as diesel, liquefied petroleum gas and natural gas is
recorded using meters or, where metering is not available, collated
from fuel vendor invoices. Emissions from the combustion of fuel in
Group-operated transportation devices, as well as fugitive
emissions, are excluded as being immaterial.
Scope 2 emissions
Arise from the consumption of indirect sources of energy during
the use of property occupied by the Group. Energy generated
off-site in the form of purchased electricity, heat, steam or
cooling is collected as kilowatt hours consumed using meters or,
where metering is not available, collated from vendor invoices. For
leased properties we include all indirect and direct sources of
energy consumed by building services (amongst other activities)
within the space occupied by the Group. This can include base
building services under landlord control but over which we
typically hold a reasonable degree of influence. All data centre
facilities with conditioning systems and hardware remaining under
the operational control of the Group are included in the reporting.
This does not include energy used at outsourced data centre
facilities which are captured under Scope 3.
Scope 3 emissions
Occur as a consequence of the Group's activities but arising
from sources not controlled by the Group. Business air travel data
is collected as person kilometres travelled by seating class by
employees of the Group. Data are drawn from country operations that
have processes in place to gather accurate employee air travel data
from travel management companies. Flights are categorised as short,
medium or long haul trips. Emissions from other potential Scope 3
sources such as electricity transmission and distribution line
losses are not currently accounted for on the basis that they
cannot be calculated with an acceptable level of reliability or
consistency. The Group does, however, capture Scope 3 emissions
from outsourced data centres managed by third parties.
Page 141
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 10 August 2020 differs
from Standard Chartered Bank Company in that it includes the full
consolidation of nine 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, Cerulean Investments L.P., SC
Ventures Innovation Investment L.P. and SC Ventures G.P.
Limited.
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.
Page 142
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.
Sustainability Aspirations
A series of targets and metrics by which we aim to promote
social and economic development, and deliver sustainable outcomes
in the areas in which we can make the most material contribution to
the delivery of the UN Sustainable Development Goals.
Sustainable Finance assets
Assets from clients whose activities are aligned with the Green
and Sustainable Product Framework and/or from transactions for
which the use of proceeds will be utilised directly to contribute
towards eligible themes and activities set out within the Green and
Sustainable Product Framework.
Sustainable Finance revenue
Revenue from clients whose activities are aligned with the Green
and Sustainable Product Framework and/or from transactions for
which proceeds will be utilised directly to contribute towards
eligible themes and activities set out within the Green and
Sustainable Product Framework and/or from approved 'labelled'
transactions such as any transaction referred to as "green",
"social", "sustainable", "SDG (sustainable development goal)
aligned", "ESG", "transition", "COVID-19 facility" or "COVID-19
response" which have been approved by the Sustainable Finance
Governance Committee.
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 UK tax
resident entities' balance sheets. 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.
Page 143
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'.
Page 144
CONTACT INFORMATION
Global headquarters
Standard Chartered Group
1 Basinghall Avenue
London, EC2V 5DD
United Kingdom
telephone: +44 (0)20 7885 8888
facsimile: +44 (0)20 7885 9999
Shareholder enquiries
ShareCare information
website: sc.com/shareholders
helpline: 0370 702 0138
ShareGift information
website: ShareGift.org
helpline: +44 (0)20 7930 3737
Registrar information
UK
Computershare Investor Services PLC
The Pavilions
Bridgwater Road
Bristol, BS99 6ZZ
Helpline: 0370 702 0138
Hong Kong
Computershare Hong Kong Investor Services Limited
17M Floor, Hopewell Centre
183 Queen's Road East
Wan Chai
Hong Kong
website: computershare.com/hk/investors
Chinese translation
Computershare Hong Kong Investor Services Limited
17M Floor, Hopewell Centre
183 Queen's Road East
Wan Chai
Hong Kong
Register for electronic communications
website: investorcentre.co.uk
For further information, please contact:
Gregg Powell, Head of Investor Relations
+852 2820 3050
LSE Stock code: STAN.LN
HKSE Stock code: 02888
Page 145
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