Additional Financial Information - Part 2
Standard Chartered PLC - Additional Financial information - Part 2
Highlights
Standard Chartered PLC (the Group) today releases its results for the year ended 31 December 2020. The following pages provide additional information related to the announcement.
Table of contents
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Financial statements |
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Independent Auditor's report |
2 |
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Consolidated income statement |
14 |
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Consolidated statement of comprehensive income |
15 |
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Consolidated balance sheet |
16 |
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Consolidated statement of changes in equity |
17 |
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Cash flow statement |
18 |
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Notes to the financial statements |
19 |
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Shareholder information |
140 |
Independent Auditor's Report to the members of Standard Chartered PLC
Opinion
In our opinion:
• the financial statements of Standard Chartered PLC (the 'Parent Company') and its subsidiaries (the 'Group') give a true and fair view of the state of the Group's and of the Parent Company's affairs as at 31 December 2020 and of the Group's profit for the year then ended
• the Group financial statements have been properly prepared in accordance with International Accounting Standards in conformity with the requirements of the Companies Act 2006 and International Financial Reporting Standards (IFRSs) adopted pursuant to Regulation (EC) No. 1606/2002 as it applies in the European Union (EU);
• the Parent Company financial statements have been properly prepared in accordance with International Accounting Standards in conformity with the requirements of the Companies Act 2006 as applied in accordance with section 408 of the Companies Act 2006; and
• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
We have audited the financial statements of Group and Parent Company for the year ended 31 December 2020 which comprise:
Group | Parent company |
Consolidated balance sheet as at 31 December 2020; | Balance sheet as at 31 December 2020 |
Consolidated income statement for the year then ended; | Statement of changes in equity for the year then ended |
Consolidated statement of comprehensive income for the year then ended; | Parent Company cash flow statement for the year then ended; and |
Consolidated statement of changes in equity for the year then ended; | Related notes 1 and 40 to the financial statements including |
Group cash flow statement for the year then ended; |
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Related notes 1-40 to the financial statements, including a summary of significant accounting policies; |
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Risk and capital disclosures marked as 'audited'; and |
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Information marked as 'audited' within the Directors' Remuneration Report. |
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The financial reporting framework that has been applied in their preparation is applicable law and International Accounting Standards in conformity with the requirements of the Companies Act 2006 and , as regards the Group financial statements, IFRSs adopted pursuant to Regulation (EC) No. 1606/2002 as it applies in the European Union and as regards the Parent Company financial statements, as applied in accordance with section 408 of the Companies Act 2006..
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the financial statements section of our report. We are independent of the Group in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the Financial Reporting Council's (FRC's) Ethical Standard as applied to listed public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the directors' use of the going concern basis of accounting in the preparation of the financial statements is appropriate. Our evaluation of the directors' assessment of the Group and Parent Company's ability to continue to adopt the going concern basis of accounting included:
• Understanding management's going concern assessment process, including the impact of the COVID-19 pandemic (COVID-19), and evaluating the appropriateness of the going concern disclosure included in note 1 to the financial statements;
• Review of the Corporate Plan, including assessing the reasonableness of assumptions and historical forecasting accuracy;
• Assessing the results of management's stress testing, including consideration of principal and emerging risks on funding, liquidity and regulatory capital;
• Reviewing correspondence with prudential regulators and authorities for matters that may impact the going concern assessment; and
• Evaluating the appropriateness of the going concern disclosure included in note 1 to the financial statements.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the Group and Parent Company's ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue.
In relation to the Group and Parent Company's reporting on how they have applied the UK Corporate Governance Code, we have nothing material to add or draw attention to in relation to the directors' statement in the financial statements about whether the directors considered it appropriate to adopt the going concern basis of accounting.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report. However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the Group's ability to continue as a going concern.
Overview of our audit approach
Audit scope | • We performed an audit of the complete financial information of 28 components across 17 countries and audit procedures on specific balances for a further 5 components across 3 countries. • The components where we performed full or specific audit procedures accounted for 85% of adjusted absolute profit before tax (PBT), 89% of absolute operating income and 97% of Total assets. |
Key audit matters | 1. Credit impairment 2. User Access Management 3. Valuation of financial instruments held at fair value with higher risk characteristics 4. Impairment of non-financial assets (Aircraft, Goodwill and Investment in subsidiary undertakings) 5. Accounting and impairment of investment in associate |
Materiality | • Overall Group materiality of $144m which represents 5% of adjusted profit before tax. |
Initial audit considerations
In preparation for our first-year audit of the Group and Parent Company, we performed a number of transitional procedures. This involved considering previous commercial relationships and personal financial arrangements and confirming that all staff who work on the audit are independent of the Group. Following our selection, we held discussions with the predecessor auditor and reviewed their 2019 financial statement audit work papers. We gained an understanding of the Group's processes, including the risk assessment and key judgements made by the predecessor auditors. At the outset of our audit we gained an understanding of the business issues and met with executive and key management of the Group and Parent Company. We used this understanding in the formulation of our audit strategy for the 2020 Group audit. Our procedures are in line with the requirements of ISA 510 - initial audit engagements to gain comfort over the opening balances as at 1 January 2020.
An overview of the scope of the Parent Company and Group audits
Tailoring the scope
Our assessment of audit risk, our evaluation of materiality and our allocation of performance materiality determine our audit scope for each entity within the Group. Taken together, this enables us to form an opinion on the consolidated financial statements. We took into account the size, risk profile, the organisation of the Group and effectiveness of group-wide controls, changes in the business environment and other factors such as material issues or misstatements noted in prior periods by the predecessor auditor when assessing the level of work to be performed at each entity.
In assessing the risk of material misstatement to the Group financial statements, and to ensure we had adequate quantitative coverage of significant accounts in the financial statements, of the 365 reporting components of the Group, we selected 33 components across 20 countries covering entities within Bangladesh, Germany, Hong Kong, India, Indonesia, Ireland, Japan, Kenya, South Korea, Mainland China, Malaysia, Nigeria, Pakistan, Singapore, Sri Lanka, Taiwan, Thailand, United Arab Emirates, United Kingdom, and the United States of America which represent the principal business units within the Group. The definition of a component is aligned with the structure of the Group's consolidation system, typically these are either a branch, group of branches or a subsidiary.
We took a centralised approach to auditing certain processes and controls, as well as the substantive testing of specific balances. This included audit work over Global Business Services, Commercial Banking, Corporate and Institutional Banking, Credit Impairment and Technology.
Of the 33 components selected representing 20 countries, we performed an audit of the complete financial information of 28 components representing 17 countries ('full scope components') which were selected based on their size or risk characteristics. For the remaining 5 components representing 3 countries ("specific scope components"), we performed audit procedures on specific accounts within that component that we considered had the potential for the greatest impact on the significant accounts in the financial statements either because of the size of these accounts or their risk profile.
The reporting components where we performed audit procedures accounted for 86% (2019: KPMG 89%) of the Group's adjusted profit before tax (PBT), 89% of the Group's absolute operating income and 97% (2019: KPMG 96%) of the Group's Total assets. For the current year, the full scope components contributed 82% (2019: KPMG 88%) of the Group's adjusted PBT, 82% of the Group's absolute operating income and 90% (2019: KPMG 87%) of the Group's total assets. The specific scope components contributed 4% of the Group's adjusted PBT, 7% of the Group's absolute operating income and 7% (2019: KPMG 9%) of the Group's Total assets. The audit scope of these components may not have included testing of all significant accounts of the component but will have contributed to the coverage of significant accounts tested for the Group.
Of the remaining 332 components that together represent 14% of the Group's adjusted PBT, none are individually greater than 1.7% of the Group's adjusted PBT. For these components, we performed other procedures which included, but were not limited to, performing analytical reviews at a Group financial statement line item level, testing entity level controls, performing audit procedures on the centralised shared service centres, testing of consolidation journals and intercompany eliminations, inquiring with local component teams and assessing the outcome of prior year local statutory audits.
Involvement with component teams
In establishing our overall approach to the Group audit, we determined the type of work that needed to be undertaken at each of the components by the Group audit engagement team, or by component auditors from other EY global network firms and another firm operating under our instruction. Of the 28 full scope components, audit procedures were performed on 2 of these directly by the primary audit team, EY London (including audit of the parent Company). In addition, the Group has centralised processes and controls over key areas in its shared service centres. Members of the Group audit engagement team provide direct oversight, review and coordination of our shared service centres audit teams.
Our programme of planned visits to components and shared service centres in several locations were impacted by the current travel restrictions and other imposed government measures as a result of COVID-19. As part of our alternative procedures during the current year's audit cycle, we undertook virtual site visits. These virtual site visits involved discussing the audit approach with the component and shared service centres team and any issues arising from their work, meeting with local management, attending interim and closing meetings and performing remote reviews of key audit workpapers.
As a result of COVID-19, we extended our involvement and oversight of the component teams. This includes the Group audit engagement partners and senior members of the primary audit team increasing their involvement and oversight, increased regular interactions through calls and video conferences during various stages of the audit process, increasing our written communications to and reporting from the component teams and inviting component teams to our virtual planning event and subsequent dedicated virtual events.
For all significant and fraud risk areas, substantial elements of the audit work were led centrally, either within the Group audit engagement team, or within other teams performing centralised procedures.
These, together with the additional procedures performed at Group level, gave us sufficient and appropriate evidence for our opinion on the Group and Parent Company financial statements.
Key audit matters
Key audit matters (KAMs) are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified. These matters included those which had the greatest effect on the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the Group audit engagement team. These matters were addressed in the context of our audit of the financial statements, and in our opinion thereon, and we do not provide a separate opinion on these matters.
Risk | Our response to the risk | Key observations communicated |
1. Credit Impairment Refer to the Audit Committee Report; Accounting policies; Note 8 of the Consolidated Financial Statements; and relevant credit risk disclosures At 31 December 2020 the Group reported total credit impairment of $7,145 million (2019: $6,391 million). Management's judgements and estimates which are especially subjective to audit due to significant uncertainty associated with the assumptions used in the estimation in respect of the timing and measurement of expected credit losses (ECL) include: • Allocation of assets to stage 1, 2, or 3 on a timely basis using criteria in accordance with IFRS 9 considering the impact of COVID-19 and related government support measures, such as payment deferrals, on customer behaviours; • Accounting interpretations, modelling assumptions and data used to build and run the models that calculate the ECL considering the impact of COVID-19 on model performance and any additional data to be considered in the ECL calculation; • There are significant judgements involved with the determination of parameters used in Monte Carlo Simulation and the evaluation of the appropriateness of using Monte Carlo Simulation in the context of COVID-19 with regards to whether the simulation can sufficiently capture the non-linearity of expected credit losses and appropriately generate a wide range of possible outcomes. | We evaluated the design and operating effectiveness of controls relevant to the Group's processes over material ECL balances, including the judgements and estimates noted, involving EY specialists to assist us in performing our procedures to the extent it was appropriate. These included: • controls over the allocation of assets into stages such as management's monitoring of stage effectiveness; • the governance and review of post model adjustments; • risk event overlays; • completeness and accuracy of data; • multiple economic scenarios; • credit monitoring; and • individual provisions, We obtained papers and minutes of the executive forums that evaluate credit models and ECL provisions for evidence of executive review and challenge. We performed an overall assessment of the ECL provision levels by stage to determine if they were reasonable by considering the overall credit quality of the Group's portfolios, risk profile, impact of COVID-19 including geographic considerations and high risk industries. We also assessed the effect of government support measures in key locations (e.g., payment deferrals), which may delay and mask stage migrations. Our assessment also included the evaluation of the macroeconomic environment by considering trends in the economies and industries to which the Group is exposed. We evaluated the criteria used to allocate financial assets to stage 1, 2 or 3 in accordance with IFRS 9. We reperformed the staging distribution for a sample of assets and assessed the reasonableness of staging downgrades applied by management. | Our testing of models, model assumptions and the Group's Monte Carlo Simulation identified some instances of over and under estimation. We aggregated these differences and were satisfied that the overall estimate recorded was reasonable. The COVID-19 adjustment on the ECL as at year end was reasonable. Overall modelled ECL levels, staging and individually assessed provisions were reasonable. We concluded that the Group's ECL provisions was reasonable and recognised in accordance with IFRS 9. |
Risk | Our response to the risk | Key observations communicated |
1. Credit Impairment continued • Appropriateness, completeness and valuation of post model adjustments and COVID-19 specific risk event overlays given the increased uncertainty and less reliance on modelled outputs increasing the risk of management override; and • Measurement of individual provisions including the assessment of probability weighted scenarios and the impact COVID-19 had on exit strategies, collateral valuations and time to collect. | We reperformed the staging distribution for a sample of assets and assessed the reasonableness of staging downgrades applied by management. We performed a risk assessment on models involved in the ECL calculation to select a sample of models to test. Our modelling specialists evaluated a sample of ECL models by assessing the reasonableness of underpinning assumptions, inputs and formulae used. This included a combination of assessing the appropriateness of model design and formulae used, alternative modelling techniques and recalculating the Probability of Default, Loss Given Default and Exposure at Default. We also assessed the material post-model adjustments which were applied as a response to model ineffectiveness and risk event overlays as a result of COVID-19. With our modelling specialists, we also considered the completeness and appropriateness of these adjustments by considering the judgements, methodology and governance applied. In response to new models implemented this year which addressed known weaknesses, we performed more extensive substantive procedures in testing the modelled ECL. To test credit monitoring, we challenged the risk ratings for a sample of performing loans and focused our testing on high risk industries impacted by COVID-19. To evaluate data quality, we agreed a sample of ECL calculation data points to source systems, including balance sheet data used to run the models. We also tested a sample of the ECL data points from the calculation engine through to the general ledger and disclosures. We included COVID-19 specific data points in this testing. We involved economic specialists to assist us in evaluating the reasonableness of the base forecast and the range of economic scenarios produced by the Monte Carlo Simulation. Procedures performed included benchmarking a sample of core macro-economic variables to a variety of external sources. For material models, in collaboration with our economists and modelling specialists, we also challenged the completeness and appropriateness of the macroeconomic variables used as inputs to these models. When recalculating a sample of individually assessed provisions, our procedures included challenging management's forward-looking economic assumptions of the recovery outcomes identified and assigning individual probability weightings. We also engaged our valuation specialists to test the value of the collateral used in management's calculations. Our sample was based on quantitative thresholds and qualitative factors including vulnerable sectors. We considered the impact COVID-19 had on collateral valuations and time to collect. We also considered whether planned exit strategies remained viable under COVID-19. We tested the data flows used to populate |
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Risk | Our response to the risk | Key observations communicated |
2. User Access Management Refer to the Audit Committee Report IT General Controls (ITGCs) support continuous operation of the automated controls within the business processes related to financial reporting. Effective IT GCs are needed to ensure that IT applications process business data as expected and that changes are made in an appropriate manner. During 2018 and 2019, the Group Internal Audit and the predecessor auditor identified a number of significant privileged ID management control deficiencies. These control deficiencies are still in the process of being fully remediated. In addition, we identified new control findings in the current year audit, as well as observations relating to the effectiveness of management's remediation activities. The possibility of users gaining access privileges beyond those necessary to perform their assigned duties may result in breaches in segregation of duties, including inappropriate manual intervention, and unauthorised changes to systems or programmes.. | We reviewed the results of management's remediation programmes and risk assessments for applications within the scope of our audit and assessed the impact on the financial statements for the year ended 31 December 2020. We tested IT compensating controls, and where these compensating controls were not effective, we performed additional IT substantive procedures to confirm whether the risks associated with the reported deficiencies materialised during the year. Where required, we tested business compensating controls and performed additional business substantive procedures. | We communicated weaknesses in internal control to the Audit Committee, in respect of the effectiveness of IT user-access management.. We explained the additional procedures performed, including IT substantive testing, testing of IT and business compensating controls, and where required, additional substantive testing over impacted account balances. As a result of the procedures performed, we have reduced the risk that our audit has not identified a material error in the Group and Parent Company financial statements, related to user access management, to an appropriate level. |
3. Valuation of financial instruments held at fair value with higher risk characteristics Refer to the Audit Committee Report; Accounting policies; and Note 13 of the Consolidated Financial Statements At 31 December 2020, the Group reported financial assets measured at fair value of $310,089 million, and financial liabilities at fair value of $139,906 million, of which financial assets of $2,948 million and financial liabilities of $446 million are classified as Level 3 in the fair value hierarchy. The fair value of financial instruments with higher risk characteristics is determined through the application of valuation techniques, which involve the use of management judgement in the selection of valuation models, assumptions and pricing inputs, and present the risk of inappropriate revenue recognition through incorrect pricing. A higher level of estimation uncertainty is involved for financial instruments valued using complex models, pricing inputs that have limited observability, and fair value adjustments, including the Debit Valuation Adjustment , Funding Valuation Adjustment and Credit Valuation Adjustment in relation to derivative transactions with counterparties where credit spreads are less readily able to be determined. Management's estimates that required significant auditor judgement included: • Level 3 derivative financial instruments and certain Level 2 derivative financial instruments valued using complex models; and • Unlisted equity investments, loans at fair value, debt and other financial instruments classified in Level 3 with unobservable pricing inputs. Significant judgement is required due to the absence of verifiable third-party information to determine the key inputs and assumptions in the valuation models. | We evaluated the design and operating effectiveness of controls relating to the valuation of financial instruments, including independent price verification, model review and approval, collateral management, and income statement analysis and reporting. We engaged valuation specialists to assist the audit team in performing the following procedures: • Tested complex model-dependent valuations by independently revaluing Level 3 and certain complex Level 2 derivatives that had been valued using less liquid pricing inputs, in order to assess the appropriateness of models and the adequacy of assumptions and inputs used by the Group; • Tested valuations of other financial instruments with higher estimation uncertainty, such as unlisted equity investments, loans at fair value, debt and other financial instruments. We compared management's valuation to our own independently developed range, where appropriate; • Assessed the appropriateness of pricing inputs as part of the Independent Price Verification process; and • Compared the methodology used for fair value adjustments to current market practice. We revalued a sample of valuation adjustments, compared funding spreads to third party data and challenged the basis for determining illiquid credit spreads. Where differences between our independent valuation and management's valuation were outside our thresholds, we performed additional testing over each variance to assess the impact on the valuation of financial instruments with higher risk characteristics, including related income from trading activities. | We concluded that the assumptions used by management to estimate the fair value of financial instruments with higher risk characteristics and the recognition of related income was reasonable. We highlighted the following matters to the Audit Committee: • Complex-model-dependent valuations were appropriate based on the output of our independent revaluations; • Fair values of derivative transactions, unlisted equity investments, loans, debt and other financial instruments valued using pricing information with limited observability were not materially misstated at 31 December 2020, based on the output of our independent calculations; and • Valuation adjustments in respect of credit, funding and other risks applied to derivative portfolios and debt securities issued were appropriate, based on our analysis of market data and benchmarking of pricing information. |
Risk | Our response to the risk | Key observations communicated |
4. Impairment of non-financial assets Refer to the Audit Committee Report a) Impairment of aircraft: Accounting policies; and Note 18 of the financial statements b) Impairment of investment in subsidiary undertakings: Accounting policies; and Note 17 of the financial statements c) Impairment of Goodwill: Accounting policies; and Note 17 of the financial statements COVID-19 and government measures taken in response to the pandemic have had, and are expected to continue to have, a significant economic impact globally. As a result, the Group recorded impairment charges in respect of various non-financial assets during 2020, the most significant of which are set out below. The Group owns a portfolio of aircraft, which are leased to airlines. The aircraft are measured at cost less accumulated depreciation and impairment. As at 31 December 2020, the Group has reported a $132 million impairment charge in respect of aircraft. Each aircraft was tested for impairment. Impairment of aircraft is determined by comparing the carrying value to the higher of the current market value, provided by third party appraisers, and the value in use (VIU). The judgmental inputs into the VIU calculation are the discount rate and residual values. In addition, as at 31 December 2020, the Group impaired goodwill by $489 million (2019: $27 million) and, in the Parent Company accounts, impaired investments in subsidiary undertakings by $349m (2019: $259m). Impairment of goodwill and investments in subsidiary undertakings is determined by comparing the carrying value to VIU. The VIU is based on future profitability forecasts, which are inherently uncertain, require significant judgement and are subject to the risk of management bias. Aside from profit forecasts, other significant judgements included in the VIU are discount rates and macroeconomic assumptions such as long-term growth rates. Consequently, there is a risk that if the judgements and assumptions underpinning the impairment assessments are inappropriate, then the aircraft, goodwill and investments in subsidiaries balances may be misstated. | We obtained an understanding of management's processes for impairment assessment and evaluated the design of controls. Impairment of aircraft We assessed the appropriateness of the Group's VIU methodology for testing the impairment of aircraft. We tested the mathematical accuracy of the VIU model and engaged valuation specialists to support the audit team in calculating an independent range for assumptions underlying the VIU calculations, such as discount rates and residual values. Where appraisal values were used to support the carrying value or as an input into the VIU, we benchmarked those values to external market data. We evaluated management's sensitivity analysis to assumptions in VIU calculations and performed stress testing for reasonably possible changes to the discount rate and market values. Impairment of goodwill and investment in subsidiary undertakings We assessed the appropriateness of the Group's VIU methodology for testing the impairment of goodwill and investments in subsidiaries. We tested the mathematical accuracy of the VIU model and engaged valuation specialists to support the audit team in calculating an independent range for assumptions underlying the VIU calculations, such as the discount rate and long-term growth rates for each cash generating unit. We reconciled the future profitability forecasts to the Group's approved Corporate Plan. We performed audit procedures to assess the reasonableness of the forecasts, review of the Group Strategy and Corporate Plan and benchmarking the Corporate Plan using institutional forecasts, assessing the reasonableness of assumptions and testing historical forecasting accuracy. In addition, we performed a stand back test to assess whether the forecasts and assumptions utilised by the Group were consistent across the key estimates. We evaluated management's sensitivity analysis and performed independent stress tests to identify the cash generating units that were most sensitive to potential change in assumptions, including the long-term growth rate, discount rates and profitability forecasts. We assessed the appropriateness of disclosures in relation to the impact of reasonably possible changes in key assumptions on the carrying values of non-financial assets.
| Impairment of aircraft We concluded that management's methodology, judgements and assumptions related to the impairment assessment for aircraft were reasonable and in accordance with IFRS. We highlighted the following matters to the Audit Committee: · Current market values and residual values were appropriate based on benchmarking to independently sourced market data; and · The discount rate was within our independent expectation of a reasonable range, with due regard to the risks facing the aviation industry and the characteristics of the Group's portfolio of aircraft. Impairment of Goodwill We concluded that the goodwill balance as at 31 December 2020 was not materially misstated. We concluded that the disclosures in the annual report appropriately reflect the sensitivity of the carrying value of goodwill to reasonably possible changes in key assumptions, and that these downside sensitivities could require an adjustment to the carrying amount of goodwill in future. Impairment of investment in subsidiary undertakings We concluded that the investment in subsidiaries balance is not materially misstated as at 31 December 2020.
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Risk | Our response to the risk | Key observations communicated |
5. Accounting and Impairment of investment in associate Refer to the Audit Committee Report; Accounting policies; and Note 32 ofthe financial statements At 31 December 2020, the Group reported an investment in associate, China Bohai Bank (Bohai), of $2,025 million (2019: $1,803 million). On 16 July 2020, Bohai was listed on the Hong Kong Stock Exchange, and as a result, the Group's investment in Bohai was diluted to 16.26% as at 31 December 2020 (2019: 19.99%). We focused on judgements, including the appropriateness ofequity accounting, impairment considerations and non-coterminous reporting. Equity accounting There is a presumption that an investor holding less than a 20% stake in an investee cannot exert significant influence, and continue to account For the investment as an associate, unless such influence can be clearly demonstrated. Prior to listing, the Group equity accounted its interest in Bohai on a one-month lag basis. Following the listing, Bohai is now subject to regulations in respect of price sensitive information and, as such, the Group now includes Bohai's results on a three-month lag basis. In 2020, the Group accounted for 10 months ofprofits from Bohai (2019: 12 months). Impairment testing At 31 December 2020, there was a 7% deficit between the Group's share ofBohai's market capitalisation, as compared with the carrying value ofthe investment, which represents an impairment trigger. Impairment ofthe investment in Bohai is determined by comparing the carrying value to VIU. The VIU is based on Future profitability Forecasts, which are inherently uncertain, require significant judgement and are subject to the risk ofmanagement bias. Aside from profit forecasts, other significant judgements included in the VIU are discount rates and macroeconomic assumptions such as long-term growth rates. Consequently, there is a risk that ifthe judgements and assumptions underpinning the impairment assessments are inappropriate, then the investment in associate may be overstated. | We evaluated the facts and circumstances that the Group presented to demonstrate its ability to maintain significant influence over the management, and financial and operating policies of Bohai, through Board representation and the provision of technical skills to Bohai. In addition, we assessed the appropriateness in the change in basis of inclusion of Bohai's results from a one-month lag to a three-month lag. We assessed the appropriateness of the Group's VIU methodology for testing the impairment of the investment in Bohai. We tested the mathematical accuracy of the VIU model and engaged valuation specialists to support the audit team in calculating an independent range for assumptions underlying the VIU calculations, such as the discount rate and long-term growth rate. We reconciled the future profitability forecasts to the available analyst reports. We assessed the appropriateness of disclosures in the annual report in relation to the impact of reasonably possible changes in key assumptions on the carrying values of the investment in Bohai. | We concluded that the Group continues to maintain significant influence over Bohai as at 31 December 2020. We concluded that the investment in associate balance as at 31 December 2020 was not materially misstated. We concluded that the disclosures in the annual report appropriately reflect the sensitivity of the carrying value to reasonably possible changes in key assumptions. |
Other than the additional KAMs 4a and 5 noted in the table above, the current year KAMs are consistent with prior year KAMs reported by the predecessor auditor.
Our application of materiality
We apply the concept of materiality in planning and performing the audit, in evaluating the effect of identified misstatements on the audit and in forming our audit opinion.
Materiality
The magnitude of an omission or misstatement that, individually or in the aggregate, could reasonably be expected to influence the economic decisions of the users of the financial statements. Materiality provides a basis for determining the nature and extent of our audit procedures.
We determined materiality for the Group to be $144 million (2019: KPMG $140 million), which is 5% of adjusted PBT. We believe that adjusted PBT provides us with the most appropriate measure for the users of the financial statements, given the Group is profit making; it is consistent with the wider industry and is the standard for listed and regulated entities and we believe it reflects the most useful measure for users of the financial statements. We also believe that the adjustments are appropriate as they relate to material non-recurring items.
Performance materiality
The application of materiality at the individual account or balance level. It is set at an amount to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality.
On the basis of our risk assessments, together with our assessment of the Group's overall control environment, our judgement was that performance materiality was 50% of our planning materiality, namely $72m (2019: KPMG $91m). We have set performance materiality at this percentage since this is an initial audit.
Audit work at component locations for the purpose of obtaining audit coverage over significant financial statement accounts is undertaken based on a percentage of total performance materiality. The performance materiality set for each component is based on the relative size and risk of the component to the Group as a whole and our assessment of the risk of misstatement at that component. In the current year, the range of performance materiality allocated to components was $7m to $22m (2019: KPMG $1m to $60m).
Reporting threshold
An amount below which identified misstatements are considered as being clearly trivial.
We agreed with the Audit Committee that we would report to them all uncorrected audit differences in excess of $7m (2019: KPMG $5m), which is set at 5% of planning materiality, as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds.
We evaluate any uncorrected misstatements against both the quantitative measures of materiality discussed above and in light of other relevant qualitative considerations in forming our opinion.
Other information
The other information comprises the information included in the annual report including the Strategic report, the Directors' report, the Directors' remuneration report, the Risk review and Capital review, and the Supplementary information, other than the Financial statements, the specific disclosures or tables marked as 'audited' and our auditor's report thereon. The directors are responsible for the other information contained within the annual report.
Our opinion on the Financial statements does not cover the other information and, except to the extent otherwise explicitly stated in this report, we do not express any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the Financial statements or our knowledge obtained in the course of the audit, or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the Financial statements themselves. If, based on the work we have performed, we conclude that there is a material misstatement of the other information, we are required to report that fact.
We have nothing to report in this regard.
Opinions on other matters prescribed by the Companies Act 2006
In our opinion, the part of the directors' remuneration report to be audited has been properly prepared in accordance with the Companies Act 2006.
In our opinion, based on the work undertaken in the course of the audit:
• the information given in the strategic report and the directors' report for the financial year for which the financial statements are prepared is consistent with the financial statements; and
• the strategic report and the directors' report have been prepared in accordance with applicable legal requirements.
Matters on which we are required to report by exception
In the light of the knowledge and understanding of the Group and the Parent Company and its environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the directors' report.
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion:
• adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit have not been received from branches not visited by us; or
• the Parent Company financial statements and the part of the Directors' Remuneration Report to be audited are not in agreement with the accounting records and returns; or
• certain disclosures of directors' remuneration specified by law are not made; or
• we have not received all the information and explanations we require for our audit
Corporate Governance Statement
The Listing Rules require us to review the directors' statement in relation to going concern, longer-term viability and that part of the Corporate Governance Statement relating to the Group and Company's compliance with the provisions of the UK Corporate Governance Code specified for our review.
• Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the Corporate Governance Statement is materially consistent with the financial statements or our knowledge obtained during the audit:
• Directors' statement with regards to the appropriateness of adopting the going concern basis of accounting and any material uncertainties identified set out is set out in the Annual Report;
• Directors' explanation as to its assessment of the Company's prospects, the period this assessment covers and why the period is appropriate is set out in the Annual Report;
• Directors' statement on fair, balanced and understandable set out is set out in the Annual Report;
• Board's confirmation that it has carried out a robust assessment of the emerging and principal risks is set out in the Annual Report;
• The section of the annual report that describes the review of effectiveness of risk management and internal control systems is set out in the Annual Report; and;
• The section describing the work of the audit committee set out in the Annual Report
Responsibilities of directors
As explained more fully in the Statement of Directors' responsibilities, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the Group and Parent 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 Group or the Parent Company or to cease operations, or have no realistic alternative but to do so..
Auditor's responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
Explanation as to what extent the audit was considered capable of detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined below, to detect irregularities, including fraud. The risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery or intentional misrepresentations, or through collusion. The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below.
However, the primary responsibility for the prevention and detection of fraud rests with both those charged with governance of the Company and management.
• We obtained an understanding of the legal and regulatory frameworks that are applicable to the Group and determined that the most significant are those that relate to the reporting framework (IFRS, Companies Act 2006 and the UK Corporate Governance Code), regulations and supervisory requirements of the Prudential Regulation Authority (PRA), FRC, Financial Conduct Authority (FCA) and other overseas regulatory requirements, including but not limited to regulations in its major markets such as Hong Kong, India, South Korea, Singapore, United States of America, and the relevant tax compliance regulations in the jurisdictions in which the Group operates. In addition, we concluded that there are certain significant laws and regulations that may have an effect on the determination of the amounts and disclosures in the Financial statements and those laws and regulations relating to regulatory capital and liquidity, conduct, Financial crime including anti-money laundering, sanctions, market abuse and environmental regulations recognising the Financial and regulated nature of the Group's activities.
• We understood how the Group is complying with those frameworks by performing a combination of inquiries of senior management and those charged with governance as required by auditing standards, review of board and committee meeting minutes, gaining an understanding of the Group's approach to governance and inspection of regulatory correspondences in the year. We also engaged EY financial crime specialists to perform procedures on areas relating to anti-money laundering and sanctions. Through these procedures, we became aware of actual or suspected non-compliance. The identified actual or suspected non-compliance was not sufficiently significant to our audit that would have resulted in being identified as a key audit matter.
• We assessed the susceptibility of the Group's financial statements to material misstatement, including how fraud might occur by considering the controls that the Group has established to address risks identified by the entity, or that otherwise seek to prevent, deter or detect fraud. Our procedures to address the risks identified also included incorporation of unpredictability into the nature, timing and/or extent of our testing, challenging assumptions and judgements made by management in their significant accounting estimates and journal entry testing.
• Based on this understanding we designed our audit procedures to identify non-compliance with such laws and regulations. Our procedures involved inquiries of Group legal counsel, money laundering reporting officer, internal audit, certain senior management executives and focused testing. We also performed inspection of key regulatory correspondence from the relevant regulatory authorities.
• For instances of actual or suspected non-compliance with laws and regulations, which have a material impact on the financial statements, these were communicated to the Group audit engagement team and component teams who performed audit procedures such as inquiries with management and external legal counsel, sending confirmations to external lawyers and meeting with external regulators. Where appropriate, we involved specialists from our firm to support the audit team.
• The Group operates in the banking industry which is a highly regulated environment. As such the Senior Statutory Auditor considered the experience and expertise of the Group audit engagement team, the component teams and the shared service centre teams to ensure that the team had the appropriate competence and capabilities, which included the use of specialists where appropriate.
A further description of our responsibilities for the audit of the financial statements is located on the FRC's website at https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor's report.
Other matters we are required to address
• Following the recommendation from the Audit Committee, we were appointed as auditors of the Company and signed an engagement letter on 31 March 2020, and were appointed by the Company at the AGM on 6 May 2020, to audit the financial statements for the year ended 31 December 2020 and subsequent financial periods. The period of total uninterrupted engagement is 1 year, covering the year ended 31 December 2020.
• The non-audit services prohibited by the FRC's Ethical Standard were not provided to the Group or the Parent Company and we remain independent of the Group and the Parent Company in conducting the audit.
• The audit opinion is consistent with the additional report to the Audit Committee.
Use of our report
This report is made solely to the Company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company's members as a body, for our audit work, for this report, or for the opinions we have formed.
David Canning-Jones (Senior statutory auditor)
for and on behalf of Ernst & Young LLP, Statutory Auditor
London
25 February 2021
Consolidated income statement
For the year ended 31 December 2020
| Notes | 2020 | 2019 |
Interest income |
| 12,292 | 16,549 |
Interest expense |
| (5,440) | (8,882) |
Net interest income | 3 | 6,852 | 7,667 |
Fees and commission income |
| 3,865 | 4,111 |
Fees and commission expense |
| (705) | (589) |
Net fee and commission income | 4 | 3,160 | 3,522 |
Net trading income | 5 | 3,672 | 3,350 |
Other operating income | 6 | 1,070 | 878 |
Operating income |
| 14,754 | 15,417 |
Staff costs |
| (6,886) | (7,122) |
Premises costs |
| (412) | (420) |
General administrative expenses |
| (1,831) | (2,211) |
Depreciation and amortisation |
| (1,251) | (1,180) |
Operating expenses | 7 | (10,380) | (10,933) |
Operating profit before impairment losses and taxation |
| 4,374 | 4,484 |
Credit impairment | 8 | (2,325) | (908) |
Goodwill, property, plant and equipment and other impairment | 9 | (587) | (163) |
Profit from associates and joint ventures | 32 | 151 | 300 |
Profit before taxation |
| 1,613 | 3,713 |
Taxation | 10 | (862) | (1,373) |
Profit for the year |
| 751 | 2,340 |
|
|
|
|
Profit attributable to: |
|
|
|
Non-controlling interests | 29 | 27 | 37 |
Parent company shareholders |
| 724 | 2,303 |
Profit for the year |
| 751 | 2,340 |
|
| cents | cents |
Earnings per share: |
|
|
|
Basic earnings per ordinary share | 12 | 10.4 | 57.0 |
Diluted earnings per ordinary share | 12 | 10.3 | 56.4 |
The notes form an integral part of these financial statements.
Consolidated statement of comprehensive income
For the year ended 31 December 2020
| Notes | 2020 | 2019 |
Profit for the year |
| 751 | 2,340 |
Other comprehensive income/(loss) |
|
|
|
Items that will not be reclassified to income statement: |
| (9) | (531) |
Own credit losses on financial liabilities designated at fair value through profit or loss |
| (55) | (462) |
Equity instruments at fair value through other comprehensive income |
| 62 | 13 |
Actuarial gains/(losses) on retirement benefit obligations | 30 | 1 | (124) |
Taxation relating to components of other comprehensive income | 10 | (17) | 42 |
Items that may be reclassified subsequently to income statement: |
| 922 | 131 |
Exchange differences on translation of foreign operations: |
|
|
|
Net gains/(losses) taken to equity |
| 657 | (386) |
Net (losses)/gains on net investment hedges |
| (287) | 191 |
Reclassified to income statement on sale of joint venture |
| 246 | - |
Share of other comprehensive (loss)/income from associates and joint ventures |
| (37) | 25 |
Debt instruments at fair value through other comprehensive income: |
|
|
|
Net valuation gains taken to equity |
| 815 | 555 |
Reclassified to income statement |
| (431) | (170) |
Net impact of expected credit losses |
| 21 | 7 |
Cash flow hedges: |
|
|
|
Net losses taken to equity |
| (25) | (64) |
Reclassified to income statement | 14 | 17 | 21 |
Taxation relating to components of other comprehensive income | 10 | (54) | (48) |
Other comprehensive income/(loss) for the year, net of taxation |
| 913 | (400) |
Total comprehensive income for the year |
| 1,664 | 1,940 |
|
|
|
|
Total comprehensive income attributable to: |
|
|
|
Non-controlling interests | 29 | 15 | 20 |
Parent company shareholders |
| 1,649 | 1,920 |
Total comprehensive income for the year |
| 1,664 | 1,940 |
Consolidated balance sheet
As at 31 December 2020
| Notes | 2020 | 2019 |
Assets |
|
|
|
Cash and balances at central banks | 13, 35 | 66,712 | 52,728 |
Financial assets held at fair value through profit or loss | 13 | 106,787 | 92,818 |
Derivative financial instruments | 13, 14 | 69,467 | 47,212 |
Loans and advances to banks | 13, 15 | 44,347 | 53,549 |
Loans and advances to customers | 13, 15 | 281,699 | 268,523 |
Investment securities | 13 | 153,315 | 143,731 |
Other assets | 20 | 48,688 | 42,022 |
Current tax assets | 10 | 808 | 539 |
Prepayments and accrued income |
| 2,122 | 2,700 |
Interests in associates and joint ventures | 32 | 2,162 | 1,908 |
Goodwill and intangible assets | 17 | 5,063 | 5,290 |
Property, plant and equipment | 18 | 6,515 | 6,220 |
Deferred tax assets | 10 | 919 | 1,105 |
Assets classified as held for sale | 21 | 446 | 2,053 |
Total assets |
| 789,050 | 720,398 |
|
|
|
|
Liabilities |
|
|
|
Deposits by banks | 13 | 30,255 | 28,562 |
Customer accounts | 13 | 439,339 | 405,357 |
Repurchase agreements and other similar secured borrowing | 13 | 1,903 | 1,935 |
Financial liabilities held at fair value through profit or loss | 13 | 68,373 | 66,974 |
Derivative financial instruments | 13, 14 | 71,533 | 48,484 |
Debt securities in issue | 13, 22 | 55,550 | 53,025 |
Other liabilities | 23 | 47,904 | 41,583 |
Current tax liabilities | 10 | 660 | 703 |
Accruals and deferred income |
| 4,546 | 5,369 |
Subordinated liabilities and other borrowed funds | 13, 27 | 16,654 | 16,207 |
Deferred tax liabilities | 10 | 695 | 611 |
Provisions for liabilities and charges | 24 | 466 | 449 |
Retirement benefit obligations | 30 | 443 | 469 |
Liabilities included in disposal groups held for sale | 21 | - | 9 |
Total liabilities |
| 738,321 | 669,737 |
|
|
|
|
Equity |
|
|
|
Share capital and share premium account | 28 | 7,058 | 7,078 |
Other reserves |
| 12,688 | 11,685 |
Retained earnings |
| 26,140 | 26,072 |
Total parent company shareholders' equity |
| 45,886 | 44,835 |
Other equity instruments | 28 | 4,518 | 5,513 |
Total equity excluding non-controlling interests |
| 50,404 | 50,348 |
Non-controlling interests | 29 | 325 | 313 |
Total equity |
| 50,729 | 50,661 |
Total equity and liabilities |
| 789,050 | 720,398 |
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 25 February 2021 and signed on its behalf by:
José Viñals Bill Winters Andy Halford
Chairman Group Chief Executive Group Chief Financial Officer
Consolidated statement of changes in equity
For the year ended 31 December 2020
| Ordinary share capital and share premium account | Prefer-ence share capital and share premium account | Capital and merger reserves | Own credit adjust-ment reserve | Fair value through other compre-hensive income reserve - debt | Fair value through other compre-hensive income reserve - equity | Cash flow hedge reserve | Trans-lation reserve | Retained earnings | Parent company share-holders' equity | Other equity instru-ments | Non-controlling interests | Total |
As at 1 January 2019 | 5,617 | 1,494 | 17,1291 | 412 | (161) | 120 | (10) | (5,612) | 26,129 | 45,118 | 4,961 | 273 | 50,352 |
Profit for the period | - | - | - | - | - | - | - | - | 2,303 | 2,303 | - | 37 | 2,340 |
Other comprehensive (loss)/income | - | - | - | (410) | 358 | 30 | (49) | (180) | (132)2 | (383) | - | (17) | (400) |
Distributions | - | - | - | - | - | - | - | - | - | - | - | (35) | (35) |
Shares issued, net of expenses3 | 25 | - | - | - | - | - | - | - | - | 25 | - | - | 25 |
Other equity instruments issued, net of expenses | - | - | - | - | - | - | - | - | - | - | 552 | - | 552 |
Treasury shares purchased | - | - | - | - | - | - | - | - | (206) | (206) | - | - | (206) |
Treasury shares issued | - | - | - | - | - | - | - | - | 7 | 7 | - | - | 7 |
Share option expense | - | - | - | - | - | - | - | - | 139 | 139 | - | - | 139 |
Dividends on ordinary shares | - | - | - | - | - | - | - | - | (720) | (720) | - | - | (720) |
Dividends on preference shares and | - | - | - | - | - | - | - | - | (448) | (448) | - | - | (448) |
Share buy-back4 | (58) | - | 58 | - | - | - | - | - | (1,006) | (1,006) | - | - | (1,006) |
Other movements | - | - | - | - | - | - | - | - | 65 | 6 | - | 556 | 61 |
As at 31 December 2019 | 5,584 | 1,494 | 17,187 | 2 | 197 | 150 | (59) | (5,792) | 26,072 | 44,835 | 5,513 | 313 | 50,661 |
Profit for the period | - | - | - | - | - | - | - | - | 724 | 724 | - | 27 | 751 |
Other comprehensive (loss)/income | - | - | - | (54) | 332 | (2) | 7 | 631 | 112 | 925 | - | (12) | 913 |
Distributions | - | - | - | - | - | - | - | - | - | - | - | (20) | (20) |
Other equity instruments issued, net of expenses | - | - | - | - | - | - | - | - | - | - | 992 | - | 992 |
Redemption of other equity instruments | - | - | - | - | - | - | - | - | (13) | (13) | (1,987) | - | (2,000) |
Treasury shares purchased | - | - | - | - | - | - | - | - | (98) | (98) | - | - | (98) |
Treasury shares issued | - | - | - | - | - | - | - | - | 8 | 8 | - | - | 8 |
Share option expense | - | - | - | - | - | - | - | - | 133 | 133 | - | - | 133 |
Dividends on preference shares and | - | - | - | - | - | - | - | - | (395) | (395) | - | - | (395) |
Share buy-back7 | (20) | - | 20 | - | - | - | - | - | (242) | (242) | - | - | (242) |
Other movements | - | - | - | - | - | - | - | 69 | (60)8 | 9 | - | 179 | 26 |
As at 31 December 2020 | 5,564 | 1,494 | 17,207 | (52) | 529 | 148 | (52) | (5,092) | 26,140 | 45,886 | 4,518 | 325 | 50,729 |
1 Includes capital reserve of $5 million, capital redemption reserve of $13 million and merger reserve of $17,111 million
2 Comprises actuarial gain, net of taxation $11 million and nil share from associates and joint ventures ($130 million actuarial loss and $2 million share of loss from associates and joint ventures for the year ending 31 December 2019)
3 Comprises share capital of shares issued to fulfil discretionary awards $1 million, share capital of shares issued to fulfil employee share save options $1 million (nil for the year ended 31 December 2020) and share premium of shares issued to fulfil employee Sharesave options exercised $23 million (nil for the year ended 31 December 2020)
4 On 1 May 2019, the Group commenced a share buy-back of its ordinary shares of $0.50 each up to a maximum consideration of $1,000 million. Nominal value of share purchases is $58 million for the year ended 31 December 2019 and the total consideration paid was $1,006 million which includes share buyback expenses
of $6 million. The total number of shares purchased was 116,103,483 representing 3.51 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
5 Comprises $10 million disposal of non-controlling interest of Phoon Huat Pte Ltd offset by $4 million withholding tax on capitalisation of revenue reserves for Standard Chartered Bank Ghana Limited
6 Comprises $72 million of non-controlling interest in Mox Bank Limited offset by $17 million disposal of non-controlling interest in Phoon Huat Pte Ltd, Sirat Holdings Limited and Ori Private Limited
7 On 28 February 2020, the Group announced the buy-back programme for a share buy-back of its ordinary shares of $0.50 each. Nominal value of share purchases was $20 million, and the total consideration paid was $242 million. The total number of shares purchased was 40,029,585 representing 1.25 per cent of the ordinary shares in issue. The nominal value of the shares was transferred from the share capital to the capital redemption reserve account. On 31 March 2020, the Group announced that, in response to a request from the Prudential Regulation Authority and as a consequence of the unprecedented challenges facing the world due to the COVID-19 pandemic, its board had decided after careful consideration to withdraw the recommendation to pay a final dividend for 2019 of 20 cents per ordinary share, and to suspend the buy-back programme
8 Includes $69 million related to prior period adjustments to reclass FX movements from translation reserve to retained earnings ($45 million related to FX movements of the hedging instruments for net investment hedges and $24 million related to FX movements for monetary items, which were considered structural positions), and $9 million increase related to revenue reserves of PT Bank Permata Tbk
9 $17 million movement related to non-controlling interest from Mox Bank Limited
Note 28 includes a description of each reserve.
The notes form an integral part of these financial statements.
Cash flow statement
For the year ended 31 December 2020
| Notes | Group |
| Company | ||
2020 | 2019 | 2020 | 2019 | |||
Cash flows from operating activities: |
|
|
|
|
|
|
Profit before taxation |
| 1,613 | 3,713 |
| 666 | 22,306 |
Adjustments for non-cash items and other adjustments included within income statement | 34 | 4,342 | 2,417 |
| 19 | (16,760) |
Change in operating assets | 34 | (38,064) | (35,433)1 |
| (8,451) | (5,473) |
Change in operating liabilities | 34 | 54,437 | 29,935 |
| 6,415 | (4,182) |
Contributions to defined benefit schemes | 30 | (123) | (137) |
| - | - |
UK and overseas taxes paid | 10 | (971) | (1,421) |
| 3 | - |
Net cash from/(used in) operating activities |
| 21,234 | (926)1 |
| (1,348) | (4,109) |
Cash flows from investing activities: |
|
|
|
|
|
|
Purchase of property, plant and equipment | 18 | (1,270) | (518)1 |
| - | - |
Disposal of property, plant and equipment |
| 178 | 5661 |
| - | - |
Acquisition of investment in subsidiaries, associates, and joint ventures, net of cash acquired | 32 | (52) | - |
| - | - |
Dividends received from subsidiaries, associates and joint ventures | 32 | - | 3 |
| 1,110 | 4,494 |
Disposal of joint ventures, net of cash acquired |
| 1,066 | - |
| - | - |
Purchase of investment securities |
| (285,026) | (259,473) |
| - | (7,583) |
Disposal and maturity of investment securities |
| 280,626 | 241,600 |
| 2,590 | 1,065 |
Net cash (used in)/from investing activities |
| (4,478) | (17,822) |
| 3,700 | (2,024) |
Cash flows from financing activities: |
|
|
|
|
|
|
Issue of ordinary and preference share capital, | 28 | - | 25 |
| - | 25 |
Exercise of share options |
| 8 | 7 |
| 8 | 7 |
Purchase of own shares |
| (98) | (206) |
| (98) | (206) |
Cancellation of shares including share buy-back |
| (242) | (1,006) |
| (242) | (1,006) |
Premises and equipment lease liability principal payment |
| (319) | (332) |
| - | - |
Issue of AT1 capital, net of expenses | 28 | 992 | 552 |
| 990 | 552 |
Redemption of Tier 1 capital | 28 | (2,000) | - |
| (2,000) | - |
Gross proceeds from issue of subordinated liabilities | 34 | 2,473 | 1,000 |
| 2,473 | 1,000 |
Interest paid on subordinated liabilities | 34 | (601) | (603) |
| (537) | (547) |
Repayment of subordinated liabilities | 34 | (2,446) | (23) |
| (1,402) | - |
Proceeds from issue of senior debts | 34 | 9,953 | 9,169 |
| 2,193 | 6,012 |
Repayment of senior debts | 34 | (4,305) | (7,692) |
| (2,106) | (3,780) |
Interest paid on senior debts | 34 | (627) | (797) |
| (575) | (740) |
Investment from non-controlling interests |
| - | 56 |
| - | - |
Dividends paid to non-controlling interests, preference shareholders and AT1 securities |
| (415) | (483) |
| (395) | (448) |
Dividends paid to ordinary shareholders |
| - | (720) |
| - | (720) |
Net cash from/(used in) financing activities |
| 2,373 | (1,053) |
| (1,691) | 149 |
Net increase/(decrease) in cash and cash equivalents |
| 19,129 | (19,801) |
| 661 | (5,984) |
Cash and cash equivalents at beginning of the year |
| 77,454 | 97,500 |
| 11,622 | 17,606 |
Effect of exchange rate movements on cash and cash equivalents |
| 1,291 | (245) |
| - | - |
Cash and cash equivalents at end of the year | 35 | 97,874 | 77,454 |
| 12,283 | 11,622 |
1 Aircraft and shipping purchases and disposals re-presented as cash flows from investing activities
Contents - Notes to the financial statements
Section | Note |
|
Basis of preparation | 1 | Accounting policies |
Performance/return | 2 | Segmental information |
3 | Net interest income | |
4 | Net fees and commission | |
5 | Net trading income | |
6 | Other operating income | |
7 | Operating expenses | |
8 | Credit impairment | |
9 | Goodwill, property, plant and equipment and other impairment | |
10 | Taxation | |
11 | Dividends | |
12 | Earnings per ordinary share | |
Assets and liabilities held at fair value | 13 | Financial instruments |
14 | Derivative financial instruments | |
Financial instruments held at amortised cost | 15 | Loans and advances to banks and customers |
16 | Reverse repurchase and repurchase agreements including other similar lending and borrowing | |
Other assets and investments | 17 | Goodwill and intangible assets |
18 | Property, plant and equipment | |
19 | Leased assets | |
20 | Other assets | |
21 | Assets held for sale and associated liabilities | |
Funding, accruals, provisions, contingent liabilities and legal proceedings | 22 | Debt securities in issue |
23 | Other liabilities | |
24 | Provisions for liabilities and charges | |
25 | Contingent liabilities and commitments | |
26 | Legal and regulatory matters | |
Capital instruments, equity and reserves | 27 | Subordinated liabilities and other borrowed funds |
28 | Share capital, other equity instruments and reserves | |
29 | Non-controlling interests | |
Employee benefits | 30 | Retirement benefit obligations |
31 | Share-based payments | |
Scope of consolidation | 32 | Investments in subsidiary undertakings, joint ventures and associates |
33 | Structured entities | |
Cash flow statement | 34 | Cash flow statement |
35 | Cash and cash equivalents | |
Other disclosure matters | 36 | Related party transactions |
37 | Post balance sheet events | |
38 | Auditor's remuneration | |
39 | Standard Chartered PLC (Company) | |
40 | Related undertakings of the Group |
Notes to the financial statements
1. Accounting policies
Statement of compliance
The Group financial statements consolidate Standard Chartered PLC (the Company) and its subsidiaries (together referred to as the Group) and equity account the Group's interests in associates and jointly controlled entities. The parent company financial statements present information about the Company as a separate entity.
The Group financial statements have been prepared and approved by the directors in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 and with International Financial Reporting Standards (IFRS) adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union (EU IFRS). As the Group has early adopted 'Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 Interest Rate Benchmark Reform - Phase 2', which have been endorsed by the EU and UK in January 2021 (see 'New accounting standards adopted by the Group' below), the Group has applied international accounting standards which have been adopted for use within the UK.
The Company financial statements have been prepared and approved by the directors in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006. The Company has taken advantage of the exemption in section 408 of the Companies Act 2006 not to present its individual statement of comprehensive income and related notes that form a part of these financial statements..
The following parts of the Risk review and Capital review form part of these financial statements:
a) Risk review: Disclosures marked as 'audited' from the start of the Credit Risk section to the end of Other principal risks in the same section.
b) Capital review: Tables marked as 'audited' 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 and Company 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, 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 ($), being the presentation currency of the Group and functional currency of the Company, and all values are rounded to the nearest million dollars, except when otherwise indicated.
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. Further information about key assumptions concerning the future, and other key sources of estimation uncertainty and judgement, are set out in the relevant disclosure notes for the following areas:
• Credit impairment, including evaluation of management overlays and post-model adjustments, and determination of probability weightings for Stage 3 individually assessed provisions (Note 8)
• Taxation (Note 10)
• Financial instruments measured at fair value (Note 13)
• Goodwill impairment (Note 17)
• Recoverable amounts for aircraft operating lease assets (Note 18)
• Provisions for liabilities and charges (Note 24)
• Investments in subsidiary undertakings, joint ventures and associates (Note 32)
IFRS and Hong Kong accounting requirements
As required by the Hong Kong Listing Rules, an explanation of the differences in accounting practices between EU 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 13 Financial instruments
• Note 19 Leased assets
• Note 25 Contingent liabilities and commitments
New accounting standards adopted by the Group
Interest Rate Benchmark Reform - Phase 2 amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16
In August 2020 the IASB published the second phase of its amendments to IFRS concerning the global initiative to replace or reform Interbank Offered Rates (IBORs) that are used to determine interest cash flows on financial instruments such as loans to customers, debt securities and derivatives. These amendments were endorsed by the EU on 14 January 2021 and by the UK Secretary of State for Business, Energy and Industrial Strategy on 5 January 2021. Phase 2 focuses on issues expected to affect financial reporting when an existing IBOR is replaced with an alternative risk-free rate (RFR). The Group has elected to early adopt the Phase 2 amendments for the year ended 31 December 2020.
The first phase of amendments were early-adopted for the year ended 31 December 2019 (refer to pages 263 to 264 in the 2019 Annual Report), and continue to be in force until there is no longer uncertainty over the cash flows of both the hedged item and hedging instrument.
The Phase 2 amendments contain a practical expedient, which requires changes to the basis for determining contractual cash flows as a direct result of interest rate benchmark reform to be treated as a change in floating interest rate, provided that the transition from the IBOR benchmark to the alternative RFR takes place on an economically equivalent basis. This may include the addition of a fixed spread to compensate for a basis difference between the existing IBOR benchmark and alternative RFR, changes to reset period, reset dates or number of days between coupon payment dates that are necessary to effect reform of an IBOR benchmark and the addition of any fallback provision to the contractual terms of a financial instrument that allow any of the above changes to be made.
Any other change to contractual terms would be assessed under the Group's accounting policies for loan modifications, including an assessment of whether derecognition of the original instrument is required.
The amendments also provide reliefs which allow the Group to change hedge designations and corresponding documentation without the hedge relationship being discontinued. These include the ability to:
• Redefine the description of the hedged item and/or hedging instrument
• Redefine the hedged risk to reference an alternative RFR
• Change the method for assessing hedge effectiveness due to modifications required by IBOR reform
• Elect, on a hedge-by-hedge basis, to reset the cumulative fair value changes in the assessment of retrospective hedge effectiveness to zero
A hedge designation may be modified more than once, each time a relationship is affected as a direct result of IBOR reform (for example, if the hedged item and hedging instrument are repapered into the alternative RFR at different times).
Where an alternative RFR designated as a non-contractually specified risk portion is not separately identifiable (i.e. fair value hedge of a fixed-rate debt instrument), the Group may assume that the alternative RFR is deemed to have met that requirement provided it reasonably expected the alternative RFR will be separately identifiable within 24 months.
The 24-month period begins individually for each benchmark, but if it is subsequently assessed that the alternative RFR is no longer expected to be separately identifiable within 24 months of the first hedge designation of a benchmark, then all hedges for that benchmark are discontinued prospectively.
Disclosures required under these amendments may be found in the Emerging Risks section and in Notes 13 and 14.
Amendments to IFRS 16: COVID-19-related Rent Concessions
In May 2020 the IASB issued amendments to IFRS 16 Leases, which were endorsed by the EU on 12 October 2020. The amendments are effective for annual reporting periods beginning on or after 1 June 2020, but the Group has elected to early adopt the amendments for the year ended 31 December 2020.
The amendments provide lessees of premises and equipment a practical expedient that permits them not to assess whether a rent concession granted as a direct consequence of the COVID-19 pandemic is accounted for as a lease modification. Entities may therefore account for such rent concessions by reducing the lease liability by the value of the concession, with a corresponding gain recorded in Other income. A rent concession is only deemed a direct consequence of COVID-19 if all the following criteria are met:
• A change in lease payments results in revised consideration for the lease that is substantially the same as, or less than, the consideration for the lease immediately preceding the change;
• Any reduction in lease payments affects only payments originally due up to and including 30 June 2021 (this includes the case where the change results in reduced lease payments before this date and increased lease payments after this date); and
• There is no substantive change to other terms and conditions of the lease
The amendments have not had a material effect on the Group's financial statements, and do not result in any adjustment to opening retained earnings as of 1 January 2020.
Amendments to IFRS 3: Definition of a Business
In October 2018, the IASB issued amendments to the definition of a business in IFRS 3 Business Combinations, which were endorsed by the EU in April 2020. The amendments are effective for annual reporting periods beginning on or after 1 January 2020 and apply prospectively. The amendments:
• Clarify the minimum requirements for a business;
• Remove the assessment of whether market participants are capable of replacing any missing elements;
• Add guidance to help entities assess whether an acquired process is substantive;
• Narrow the definitions of a business and of outputs; and
• Introduce an optional fair value concentration test
These amendments do not have a material effect on these financial statements as no transactions in scope of IFRS 3 have occurred during the period and no adjustment is required to opening retained earnings.
Conceptual Framework for Financial Reporting
In March 2018 the IASB published a revised Conceptual Framework for Financial Reporting, often referred to as the 'Conceptual Framework', applicable to IFRS preparers for annual periods beginning on or after 1 January 2020. The Conceptual Framework provides guidance to preparers on determining accounting policies where no specific IFRS or IAS standard applies to a particular transaction or where a standard allows for an accounting policy choice. It includes limited revisions of definitions of an asset and a liability, as well as new guidance on measurement and derecognition, presentation and disclosure. The concept of prudence has been reintroduced with the statement that prudence supports neutrality. The Conceptual Framework is not an IFRS standard and does not replace any specific standards. The changes in the Conceptual Framework are not considered material to the Group since all of the Group's significant accounting policies are derived from specific IFRS or IAS standards.
Amendments to IAS 1 and IAS 8: Definition of Material
In October 2018 the IASB issued amendments to IAS 1 Presentation of Financial Statements and IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors ('the amendments'), applicable to IFRS preparers for annual periods beginning on or after 1 January 2020. The purpose is to align the definition of 'material' across the standards and to clarify certain aspects of the definition. Information is 'material' if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary users of general-purpose financial statements make on the basis of those financial statements, which provide financial information about a specific reporting entity. The revised definition is already aligned to how the Group assesses whether the effect of a change in accounting policy, change in accounting estimate or error would be considered 'material' to the primary users of the Group's financial statements, hence these amendments have no specific effect on the preparation of these financial statements and are not expected to affect the preparation of future financial statements.
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.
Amendments to IFRS 9 Financial Instruments: Fees in the'10 per cent' test for derecognition of financial liabilities
In May 2020 the IASB published its 2018-2020 annual improvements process which provides non-urgent but necessary amendments to IFRS. This publication included changes to IFRS 9 that will be effective prospectively from 1 January 2022, with early adoption permitted. Under these amendments, when assessing changes in terms of a financial liability, the only fees considered in the assessment of whether the terms of a new or modified financial liability are substantially different (i.e. a change in present value of more than 10 per cent) from the terms of the original financial liability are fees paid or received between the borrower or lender. This includes fees paid or received by either the borrower or lender on the other's behalf. The effect of these amendments is not expected to be material to the Group's financial statements.
Going concern
These financial statements were approved by the Board of directors on 25 February 2021. 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 updated annual budget
• Consideration of stress testing performed, including a bespoke COVID-19 stress test with scenario analysis focused on mild, moderate, severe and extreme variants across the Group's footprint markets to ensure that the Group has sufficient capital to withstand this shock. Under a range of scenarios, the results of these stress tests 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 a period of at least 12 months from the date of approval of these financial statements. For this reason, the Group continues to adopt the going concern basis of accounting for preparing the financial statements.
2. Segmental information
The Group's segmental reporting is in accordance with IFRS 8 Operating Segments and is reported consistently with the internal performance framework and as presented to the Group's Management Team. The four client segments are: Corporate & Institutional Banking, Retail Banking, Commercial Banking, and Private Banking. The four geographic regions are: Greater China & North Asia, ASEAN & South Asia, Africa & Middle East, and Europe & Americas. Activities not directly related to a client segment and/or geographic region are included in Central & other items. These mainly include Corporate Centre costs, treasury activities, certain strategic investments and the UK bank levy.
The following should also be noted:
• Transactions and funding between the segments are carried out on an arm's-length basis
• Corporate Centre costs represent stewardship and central management services roles and activities that are not directly attributable to business or country operations
• Treasury markets, joint ventures and associate investments are managed in the regions and are included within the applicable region. However, they are not managed directly by a client segment and are therefore included in the Central & other items segment
• In addition to treasury activities, Corporate Centre costs and other Group-related functions, Central & other items for regions includes globally run businesses or activities that are managed by the client segments but not directly by geographic management. These include Principal Finance and Portfolio Management
• The Group allocated central costs (excluding Corporate Centre costs) relating to client segments and geographic regions using appropriate business drivers (such as in proportion to the direct cost base of each segment before allocation of indirect costs) and these are reported within operating expenses
• The segmental and regional results reported for 2020 do not reflect changes made to the Group organisation in January 2021 as discussed in the Strategic Report. The Group's segmental and regional results will start to reflect those organisational changes in 2021.
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.
Restructuring items excluded from underlying results
The Group's statutory performance is adjusted for profits or losses of a capital nature, amounts consequent to investment transactions driven by strategic intent, other infrequent and/or exceptional transactions that are significant or material in the context of the Group's normal business earnings for the period and items which management and investors would ordinarily identify separately when assessing underlying performance period-by period.
Restructuring charges of $382 million for 2020 is broadly split evenly between actions to exit the Group's discontinued businesses, primarily ship leasing and principal finance, and actions to transform the organisation to improve productivity, primarily redundancy related charges. Charges related to restructuring increased 50% due to the significant decline in income from discontinued businesses, including negative movements in the valuation of principal finance investments.
The goodwill impairment of $489 million reflects writing off all goodwill relating to the Group's businesses in India, UAE, Indonesia and Brunei. This was primarily due to lower forward-looking cash flows, lower economic growth forecasts and higher discount rates reflecting lower interest rate environments.
Other restructuring items also include a $43 million dilution loss following the initial public offering of the Group's associate in China Bohai Bank. Charges related to other items reduced 86% primarily due to the regulatory provisions booked in the prior year.
Reconciliations between underlying and statutory results are set out in the tables below:
Profit before taxation (PBT)
| 2020 | ||||||
Underlying | Provision for regulatory matters | Restructuring | Net loss on businesses disposed/ | Goodwill impairment | Share of | Statutory | |
Operating income | 14,765 | - | 27 | (38) | - | - | 14,754 |
Operating expenses | (10,142) | 14 | (252) | - | - | - | (10,380) |
Operating profit/(loss) before impairment losses and taxation | 4,623 | 14 | (225) | (38) | - | - | 4,374 |
Credit impairment | (2,294) | - | (31) | - | - | - | (2,325) |
Other impairment | 15 | - | (113) | - | (489) | - | (587) |
Profit from associates and joint ventures | 164 | - | (13) | - | - | - | 151 |
Profit/(loss) before taxation | 2,508 | 14 | (382) | (38) | (489) | - | 1,613 |
| 2019 | ||||||
Underlying | Provision for regulatory matters | Restructuring | Net loss on businesses disposed/ | Goodwill impairment | Share of | Statutory | |
Operating income | 15,271 | - | 146 | - | - | - | 15,417 |
Operating expenses | (10,409) | (226) | (298) | - | - | - | (10,933) |
Operating profit/(loss) before impairment losses and taxation | 4,862 | (226) | (152) | - | - | - | 4,484 |
Credit impairment | (906) | - | (2) | - | - | - | (908) |
Other impairment | (38) | - | (98) | - | (27) | - | (163) |
Profit from associates and joint ventures | 254 | - | (2) | - | - | 48 | 300 |
Profit/(loss) before taxation | 4,172 | (226) | (254) | - | (27) | 48 | 3,713 |
Underlying performance by client segment
| 2020 | |||||
Corporate & Institutional Banking | Retail | Commercial Banking | Private | Central & | Total | |
Operating income | 7,214 | 5,013 | 1,409 | 540 | 589 | 14,765 |
External | 7,083 | 4,322 | 1,320 | 374 | 1,666 | 14,765 |
Inter-segment | 131 | 691 | 89 | 166 | (1,077) | - |
Operating expenses | (4,178) | (3,701) | (878) | (476) | (909) | (10,142) |
Operating profit/(loss) before impairment losses and taxation | 3,036 | 1,312 | 531 | 64 | (320) | 4,623 |
Credit impairment | (1,237) | (715) | (316) | (2) | (24) | (2,294) |
Other impairment | 42 | (10) | (1) | - | (16) | 15 |
Profit from associates and joint ventures | - | - | - | - | 164 | 164 |
Underlying profit/(loss) before taxation | 1,841 | 587 | 214 | 62 | (196) | 2,508 |
Restructuring | (164) | (50) | (57) | (11) | (100) | (382) |
Goodwill impairment & other items | - | - | - | - | (513) | (513) |
Statutory profit/(loss) before taxation | 1,677 | 537 | 157 | 51 | (809) | 1,613 |
Total assets | 355,401 | 118,067 | 32,902 | 13,716 | 268,964 | 789,050 |
Of which: loans and advances | 160,629 | 115,611 | 27,342 | 13,619 | 19,075 | 336,276 |
loans and advances to customers | 109,043 | 115,476 | 24,498 | 13,619 | 19,063 | 281,699 |
loans held at fair value through | 51,586 | 135 | 2,844 | - | 12 | 54,577 |
Total liabilities | 429,239 | 158,827 | 51,803 | 18,882 | 79,570 | 738,321 |
Of which: customer accounts2 | 262,201 | 154,831 | 48,578 | 18,675 | 7,869 | 492,154 |
| 2019 (Restated)¹ | |||||
Corporate & Institutional Banking | Retail | Commercial Banking | Private | Central & | Total | |
Operating income | 7,074 | 5,186 | 1,574 | 577 | 860 | 15,271 |
External | 7,264 | 4,236 | 1,618 | 329 | 1,824 | 15,271 |
Inter-segment | (190) | 950 | (44) | 248 | (964) | - |
Operating expenses | (4,310) | (3,759) | (953) | (514) | (873) | (10,409) |
Operating profit/(loss) before impairment losses and taxation | 2,764 | 1,427 | 621 | 63 | (13) | 4,862 |
Credit impairment | (475) | (336) | (122) | 31 | (4) | (906) |
Other impairment | (32) | 2 | - | - | (8) | (38) |
Profit from associates and joint ventures | - | - | - | - | 254 | 254 |
Underlying profit before taxation | 2,257 | 1,093 | 499 | 94 | 229 | 4,172 |
Restructuring | (110) | (63) | (11) | (11) | (59) | (254) |
Goodwill impairment & other items | - | - | - | - | (205) | (205) |
Statutory profit/(loss) before taxation | 2,147 | 1,030 | 488 | 83 | (35) | 3,713 |
Total assets | 326,565 | 109,368 | 33,978 | 14,922 | 235,565 | 720,398 |
Of which: loans and advances | 153,884 | 107,140 | 28,831 | 14,821 | 10,078 | 314,754 |
loans and advances to customers | 108,746 | 106,902 | 27,978 | 14,821 | 10,076 | 268,523 |
loans held at fair value through | 45,138 | 238 | 853 | - | 2 | 46,231 |
Total liabilities | 387,561 | 148,413 | 41,628 | 18,480 | 73,655 | 669,737 |
Of which: customer accounts2 | 243,269 | 144,760 | 38,847 | 18,424 | 7,433 | 452,733 |
1 Following a reorganisation of certain clients, there has been a reclassification of balances across client segments
2 Loans and advances to customers includes FVTPL and customer accounts includes FVTPL and repurchase agreements
Operating income by client segment
| 2020 | |||||
Corporate & Institutional Banking | Retail | Commercial Banking | Private | Central & | Total | |
Underlying operating income | 7,214 | 5,013 | 1,409 | 540 | 589 | 14,765 |
Restructuring | 11 | - | 29 | - | (13) | 27 |
Other items | - | - | - | - | (38) | (38) |
Statutory operating income | 7,225 | 5,013 | 1,438 | 540 | 538 | 14,754 |
| 2019 (Restated)¹ | |||||
Corporate & Institutional Banking | Retail | Commercial Banking | Private | Central & | Total | |
Underlying operating income | 7,074 | 5,186 | 1,574 | 577 | 860 | 15,271 |
Restructuring | 146 | - | 4 | - | (4) | 146 |
Other items | - | - | - | - | - | - |
Statutory operating income | 7,220 | 5,186 | 1,578 | 577 | 856 | 15,417 |
1 Following a reorganisation of certain clients, there has been a reclassification of balances across client segments
Underlying performance by region
| 2020 | |||||
Greater China & North Asia | ASEAN & | Africa & | Europe & | Central & | Total | |
Operating income | 6,016 | 4,366 | 2,364 | 1,922 | 97 | 14,765 |
Operating expenses | (3,739) | (2,618) | (1,683) | (1,383) | (719) | (10,142) |
Operating profit/(loss) before impairment losses and taxation | 2,277 | 1,748 | 681 | 539 | (622) | 4,623 |
Credit impairment | (352) | (1,132) | (654) | (161) | 5 | (2,294) |
Other impairment | (53) | 163 | (14) | 8 | (89) | 15 |
Profit from associates and joint ventures | 163 | - | - | - | 1 | 164 |
Underlying profit/(loss) before taxation | 2,035 | 779 | 13 | 386 | (705) | 2,508 |
Restructuring | (92) | (42) | (88) | (45) | (115) | (382) |
Goodwill impairment & other items | (43) | - | - | - | (470) | (513) |
Statutory profit/(loss) before taxation | 1,900 | 737 | (75) | 341 | (1,290) | 1,613 |
Total assets | 311,484 | 155,728 | 58,069 | 253,438 | 10,331 | 789,050 |
Of which: loans and advances | 151,879 | 87,213 | 29,413 | 67,771 | - | 336,276 |
loans and advances to customers | 143,260 | 82,897 | 28,214 | 27,328 | - | 281,699 |
loans held at fair value through | 8,619 | 4,316 | 1,199 | 40,443 | - | 54,577 |
Total liabilities | 286,855 | 134,856 | 39,980 | 211,840 | 64,790 | 738,321 |
Of which: customer accounts1 | 231,456 | 103,167 | 32,106 | 125,425 | - | 492,154 |
| 2019 | |||||
Greater China & North Asia | ASEAN & | Africa & | Europe & | Central & | Total | |
Operating income | 6,155 | 4,213 | 2,562 | 1,725 | 616 | 15,271 |
Operating expenses | (3,771) | (2,681) | (1,747) | (1,470) | (740) | (10,409) |
Operating profit/(loss) before impairment losses and taxation | 2,384 | 1,532 | 815 | 255 | (124) | 4,862 |
Credit impairment | (194) | (506) | (132) | (98) | 24 | (906) |
Other impairment | (5) | (1) | 1 | - | (33) | (38) |
Profit from associates and joint ventures | 247 | - | - | - | 7 | 254 |
Underlying profit/(loss) before taxation | 2,432 | 1,025 | 684 | 157 | (126) | 4,172 |
Restructuring | (138) | (34) | (18) | (34) | (30) | (254) |
Goodwill impairment & other items | - | 48 | - | - | (253) | (205) |
Statutory profit/(loss) before taxation | 2,294 | 1,039 | 666 | 123 | (409) | 3,713 |
Total assets | 277,704 | 149,785 | 59,828 | 220,579 | 12,502 | 720,398 |
Of which: loans and advances | 139,977 | 80,885 | 31,487 | 62,405 | - | 314,754 |
loans and advances to customers | 134,066 | 78,229 | 29,940 | 26,288 | - | 268,523 |
loans held at fair value through | 5,911 | 2,656 | 1,547 | 36,117 | - | 46,231 |
Total liabilities | 249,004 | 126,213 | 36,144 | 218,794 | 39,582 | 669,737 |
Of which: customer accounts1 | 204,286 | 97,459 | 29,280 | 121,708 | - | 452,733 |
1 Loans and advances to customers includes FVTPL and customer accounts includes FVTPL and repurchase agreements
Operating income by region
| 2020 | |||||
Greater China & North Asia | ASEAN & | Africa & | Europe & | Central & | Total | |
Underlying operating income | 6,016 | 4,366 | 2,364 | 1,922 | 97 | 14,765 |
Restructuring | 82 | (4) | (2) | - | (49) | 27 |
Other items | (43) | - | - | - | 5 | (38) |
Statutory operating income | 6,055 | 4,362 | 2,362 | 1,922 | 53 | 14,754 |
| 2019 | |||||
Greater China & North Asia | ASEAN & | Africa & | Europe & | Central & | Total | |
Underlying operating income | 6,155 | 4,213 | 2,562 | 1,725 | 616 | 15,271 |
Restructuring | 87 | (2) | - | - | 61 | 146 |
Other items | - | - | - | - | - | - |
Statutory operating income | 6,242 | 4,211 | 2,562 | 1,725 | 677 | 15,417 |
Additional segmental information (statutory)
| 2020 | |||||
Corporate & Institutional Banking | Retail | Commercial Banking | Private | Central & | Total | |
Net interest income | 2,625 | 3,102 | 880 | 262 | (17) | 6,852 |
Net fees and commission income | 1,219 | 1,457 | 280 | 237 | (33) | 3,160 |
Net trading and other income | 3,381 | 454 | 278 | 41 | 588 | 4,742 |
Operating income | 7,225 | 5,013 | 1,438 | 540 | 538 | 14,754 |
| 2019 (Restated)¹ | |||||
Corporate & Institutional Banking | Retail | Commercial Banking | Private | Central & | Total | |
Net interest income | 2,615 | 3,295 | 990 | 315 | 452 | 7,667 |
Net fees and commission income | 1,559 | 1,505 | 285 | 223 | (50) | 3,522 |
Net trading and other income | 3,046 | 386 | 303 | 39 | 454 | 4,228 |
Operating income | 7,220 | 5,186 | 1,578 | 577 | 856 | 15,417 |
1 Following a reorganisation of certain clients, there has been a reclassification of balances across client segments
| 2020 | |||||
Greater China & North Asia | ASEAN & | Africa & | Europe & | Central & | Total | |
Net interest income | 2,942 | 2,051 | 1,223 | 316 | 320 | 6,852 |
Net fees and commission income | 1,329 | 1,015 | 531 | 519 | (234) | 3,160 |
Net trading and other income | 1,784 | 1,296 | 608 | 1,087 | (33) | 4,742 |
Operating income | 6,055 | 4,362 | 2,362 | 1,922 | 53 | 14,754 |
| 2019 | |||||
Greater China & North Asia | ASEAN & | Africa & | Europe & | Central & | Total | |
Net interest income | 3,276 | 2,068 | 1,456 | 149 | 718 | 7,667 |
Net fees and commission income | 1,393 | 1,123 | 617 | 503 | (114) | 3,522 |
Net trading and other income | 1,573 | 1,020 | 489 | 1,073 | 73 | 4,228 |
Operating income | 6,242 | 4,211 | 2,562 | 1,725 | 677 | 15,417 |
| 2020 | ||||||||
Hong Kong | Korea | China | Singapore | India | Indonesia | UAE | UK | US | |
Net interest income | 1,557 | 650 | 545 | 676 | 664 | 86 | 281 | 62 | 170 |
Net fees and commission income | 760 | 175 | 163 | 515 | 202 | 66 | 113 | 61 | 371 |
Net trading and other income | 1,235 | 236 | 175 | 367 | 379 | 156 | 173 | 824 | 242 |
Operating income | 3,552 | 1,061 | 883 | 1,558 | 1,245 | 308 | 567 | 947 | 783 |
| 2019 | ||||||||
Hong Kong | Korea | China | Singapore | India | Indonesia | UAE | UK | US | |
Net interest income | 1,893 | 659 | 562 | 731 | 564 | 112 | 365 | (211) | 256 |
Net fees and commission income | 866 | 160 | 144 | 552 | 244 | 69 | 143 | 70 | 352 |
Net trading and other income | 1,082 | 152 | 166 | 354 | 232 | 91 | 110 | 904 | 151 |
Operating income | 3,841 | 971 | 872 | 1,637 | 1,040 | 272 | 618 | 763 | 759 |
3. Net interest income
Accounting policy
Interest income for financial assets held at either fair value through other comprehensive income or amortised cost, and interest expense on all financial liabilities held at amortised cost is recognised in profit or loss using the effective interest method.
The effective interest method is a method of calculating the amortised cost of a financial asset or a financial liability and of allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorter period, to the net carrying amount of the financial asset or financial liability. When calculating the effective interest rate, the Group estimates cash flows considering all contractual terms of the financial instrument (for example, prepayment options) but does not consider future credit losses. The calculation includes all fees paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts. Where the estimates of cash flows have been revised, the carrying amount of the financial asset or liability is adjusted to reflect the actual and revised cash flows, discounted at the instrument's original effective interest rate. The adjustment is recognised as interest income or expense in the period in which the revision is made.
Interest income for financial assets that are either held at fair value through other comprehensive income or amortised cost that have become credit-impaired subsequent to initial recognition (stage 3) and have had amounts written off, is recognised using the credit-adjusted effective interest rate. This rate is calculated in the same manner as the effective interest rate except that expected credit losses are included in the expected cash flows. Interest income is therefore recognised on the amortised cost of the financial asset including expected credit losses. Should the Credit Risk on a stage 3 financial asset improve such that the financial asset is no longer considered credit-impaired, interest income recognition reverts to a computation based on the rehabilitated gross carrying value of the financial asset.
| 2020 | 2019 |
Balances at central banks | 113 | 329 |
Loans and advances to banks | 801 | 1,834 |
Loans and advances to customers | 8,473 | 10,693 |
Listed debt securities | 1,783 | 2,113 |
Unlisted debt securities | 542 | 796 |
Other eligible bills | 495 | 702 |
Accrued on impaired assets (discount unwind) | 85 | 82 |
Interest income | 12,292 | 16,549 |
Of which: financial instruments held at fair value through other comprehensive income | 2,134 | 3,246 |
|
|
|
Deposits by banks | 237 | 739 |
Customer accounts | 3,671 | 6,202 |
Debt securities in issue | 836 | 1,120 |
Subordinated liabilities and other borrowed funds | 637 | 756 |
Interest expense on IFRS 16 lease liabilities | 59 | 65 |
Interest expense | 5,440 | 8,882 |
Net interest income | 6,852 | 7,667 |
4. Net fees and commission
Accounting policy
Fees and commissions charged for services provided by the Group are recognised as or when the service is completed or significant act performed.
Loan syndication fees are recognised as revenue when the syndication has been completed and the Group retained no part of the loan package for itself, or retained a part at the same effective interest rate as for the other participants.
The Group can act as trustee or in other fiduciary capacities that result in the holding or placing of assets on behalf of individuals, trusts, retirement benefit plans and other institutions. The assets and income arising thereon are excluded from these financial statements, as they are not assets and income of the Group.
The Group applies the following practical expedients:
• Information on amounts of transaction price allocated to unsatisfied (or partially unsatisfied) performance obligations at the end of the reporting period is not disclosed as almost all fee-earning contracts have an expected duration of less than one year
• Promised consideration is not adjusted for the effects of a significant financing component as the period between the Group providing a service and the customer paying for it is expected to be less than one year
• Incremental costs of obtaining a fee-earning contract are recognised upfront in 'Fees and commission expense' rather than amortised, if the expected term of the contract is less than one year
The determination of the services performed for the customer, the transaction price, and when the services are completed depends on the nature of the product with the customer. The main considerations on income recognition by product are as follows:
Transaction Banking
The Group recognises fee income associated with transactional trade and cash management at the point in time the service is provided. The Group recognises income associated with trade contingent risk exposures (such as letters of credit and guarantees) over the period in which the service is provided.
Payment of fees is usually received at the same time the service is provided. In some cases, letters of credit and guarantees issued by the Group have annual upfront premiums, which are amortised on a straight-line basis to fee income over the year.
Financial Markets and Corporate Finance
The Group recognises fee income at the point in time the service is provided. Fee income is recognised for a significant non-lending service when the transaction has been completed and the terms of the contract with the customer entitle the Group to the fee. Fees are usually received shortly after the service is provided.
Syndication fees are recognised when the syndication is complete. Fees are generally received before completion of the syndication, or within 12 months of the transaction date.
Securities services include custody services, fund accounting and administration, and broker clearing. Fees are recognised over the period the custody or fund management services are provided, or as and when broker services are requested.
Wealth Management
Upfront consideration on bancassurance agreements is amortised straight-line over the contractual term. Commissions for bancassurance activities are recorded as they are earned through sales of third-party insurance products to customers. These commissions are received within a short time frame of the commission being earned. Target-linked fees are accrued based on a percentage of the target achieved, provided it is assessed as highly probable that the target will be met. Cash payment is received at a contractually specified date after achievement of a target has been confirmed.
Upfront and trailing commissions for managed investment placements are recorded as they are confirmed. Income from these activities is relatively even throughout the period, and cash is usually received within a short time frame after the commission is earned.
Retail Products
The Group recognises most income at the point in time the Group is entitled to the fee, since most services are provided at the time of the customer's request.
Credit card annual fees are recognised at the time the fee is received since, in most of our retail markets, there are contractual circumstances under which fees are waived, so income recognition is constrained until the uncertainties associated with the annual fee are resolved. The Group defers the fair value of reward points on its credit card reward programmes, and recognises income and costs associated with fulfilling the reward at the time of redemption.
| 2020 | 2019 |
Fees and commissions income | 3,865 | 4,111 |
Of which: |
|
|
Financial instruments that are not fair valued through profit or loss | 1,122 | 1,495 |
Trust and other fiduciary activities | 254 | 166 |
|
|
|
Fees and commissions expense | (705) | (589) |
Of which: |
|
|
Financial instruments that are not fair valued through profit or loss | (219) | (138) |
Trust and other fiduciary activities | (11) | (27) |
Net fees and commission | 3,160 | 3,522 |
| 2020 | |||||
Corporate & Institutional Banking | Retail | Commercial Banking | Private | Central & | Total | |
Transaction Banking | 789 | 10 | 205 | 1 | - | 1,005 |
Trade | 399 | 10 | 143 | 1 | - | 553 |
Cash Management | 390 | - | 62 | - | - | 452 |
Financial Markets | 224 | - | 47 | - | - | 271 |
Corporate Finance | 140 | - | 21 | - | - | 161 |
Lending and Portfolio Management | 65 | - | 6 | - | - | 71 |
Principal Finance | 1 | - | - | - | - | 1 |
Wealth Management | - | 1,119 | 1 | 231 | - | 1,351 |
Retail Products | - | 328 | - | 5 | - | 333 |
Treasury | - | - | - | - | (25) | (25) |
Others | - | - | - | - | (8) | (8) |
Net fees and commission | 1,219 | 1,457 | 280 | 237 | (33) | 3,160 |
| 2019 | |||||
Corporate & Institutional Banking | Retail | Commercial Banking | Private | Central & | Total | |
Transaction Banking | 865 | 11 | 212 | - | - | 1,088 |
Trade | 434 | 11 | 154 | - | - | 599 |
Cash Management | 431 | - | 58 | - | - | 489 |
Financial Markets | 453 | - | 30 | - | - | 483 |
Corporate Finance | 168 | - | 27 | 2 | - | 197 |
Lending and Portfolio Management | 85 | - | 14 | - | - | 99 |
Principal Finance | (12) | - | - | - | - | (12) |
Wealth Management | - | 1,132 | 2 | 216 | - | 1,350 |
Retail Products | - | 362 | - | 5 | - | 367 |
Treasury | - | - | - | - | (22) | (22) |
Others | - | - | - | - | (28) | (28) |
Net fees and commission | 1,559 | 1,505 | 285 | 223 | (50) | 3,522 |
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 $718 million (31 December 2019: $802 million). The income will be earned evenly over the next 8.5 years (31 December 2019: 9.5 years). For the twelve months ended 31 December 2020, $84 million of fee income was released from deferred income (31 December 2019: $84 million).
5. Net trading income
Accounting policy
Gains and losses arising from changes in the fair value of financial instruments held at fair value through profit or loss are recorded in net trading income in the period in which they arise. This includes contractual interest receivable or payable.
Income is recognised from the sale and purchase of trading positions, margins on market making and customer business and fair value changes.
When the initial fair value of a financial instrument held at fair value through profit or loss relies on unobservable inputs, the difference between the initial valuation and the transaction price is amortised to net trading income as the inputs become observable or over the life of the instrument, whichever is shorter. Any unamortised 'day one' gain is released to net trading income if the transaction is terminated.
| 2020 | 2019 |
Net trading income | 3,672 | 3,350 |
Significant items within net trading income include: |
|
|
Gains on instruments held for trading1 | 3,254 | 3,296 |
Gains on financial assets mandatorily at fair value through profit or loss | 607 | 1,557 |
(Losses)/gains on financial assets designated at fair value through profit or loss | (4) | 31 |
Losses on financial liabilities designated at fair value through profit or loss | (247) | (1,602) |
1 Includes $395 million loss (31 December 2019: $671 million gain) from the translation of foreign currency monetary assets and liabilities
6. Other operating income
Accounting policy
Operating lease income is recognised on a straight-line basis over the period of the lease unless another systematic basis is more appropriate.
Dividends on equity instruments are recognised when the Group's right to receive payment is established.
On disposal of fair value through other comprehensive income debt instruments, the cumulative gain or loss recognised in other comprehensive income is recycled to the profit or loss in other operating income/expense.
When the Group loses control of the subsidiary or disposal group, the difference between the consideration received and the carrying amount of the subsidiary or disposal group is recognised as a gain or loss on sale of the business.
| 2020 | 2019 |
Other operating income includes: |
|
|
Rental income from operating lease assets | 495 | 540 |
Gains less losses on disposal of fair value through other comprehensive income debt instruments | 431 | 170 |
Gains less losses on amortised cost financial assets | 40 | (12) |
Net loss on sale of businesses1 | (38) | - |
Dividend income | 27 | 17 |
Gain on sale of aircrafts | 11 | 71 |
Other | 104 | 92 |
Other operating income | 1,070 | 878 |
1 Includes Bohai's dilution loss, see Note 32
7. Operating expenses
Accounting policy
Short-term employee benefits: salaries and social security expenses are recognised over the period in which the employees provide the service. Variable compensation is included within share-based payments costs and wages and salaries.
Pension costs: contributions to defined contribution pension schemes are recognised in profit or loss when payable. For defined benefit plans, net interest expense, service costs and expenses are recognised in the income statement. Further details are provided in Note 30.
Share-based compensation: the Group operates equity-settled and cash-settled share-based payment compensation plans. The fair value of the employee services (measured by the fair value of the option granted) received in exchange for the grant of the options is recognised as an expense. Further details are provided in Note 31.
| 2020 | 2019 |
Staff costs: |
|
|
Wages and salaries | 5,362 | 5,508 |
Social security costs | 168 | 180 |
Other pension costs (Note 30) | 358 | 372 |
Share-based payment costs (Note 31) | 132 | 166 |
Other staff costs | 866 | 896 |
| 6,886 | 7,122 |
Other staff costs include redundancy expenses of $179 million (31 December 2019: $173 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:
| 2020 |
| 20191 | ||||
Business | Support services | Total | Business | Support services | Total | ||
At 31 December | 34,905 | 48,752 | 83,657 |
| 37,117 | 47,281 | 84,398 |
Average for the year | 36,435 | 48,305 | 84,740 |
| 37,400 | 46,538 | 83,938 |
1 Prior year headcount has been re-presented due to a change in Management View of segments
The Company employed nil staff at 31 December 2020 (31 December 2019: nil) and it incurred costs of $87 million (31 December 2019: $32 million).
Details of directors' pay, benefits, pensions and benefits and interests in shares are disclosed in the annual report.
Transactions with directors, officers and other related parties are disclosed in Note 36.
| 2020 | 2019 |
Premises and equipment expenses | 412 | 420 |
|
|
|
General administrative expenses: |
|
|
UK bank levy | 331 | 347 |
Provision for regulatory matters | (14) | 226 |
Other general administrative expenses | 1,514 | 1,638 |
| 1,831 | 2,211 |
|
|
|
Depreciation and amortisation: |
|
|
Property, plant and equipment: |
|
|
Premises | 373 | 360 |
Equipment | 129 | 112 |
Operating lease assets | 229 | 263 |
| 731 | 735 |
Intangibles: |
|
|
Software | 515 | 436 |
Acquired on business combinations | 5 | 9 |
| 1,251 | 1,180 |
Total operating expenses | 10,380 | 10,933 |
The UK bank levy is applied on the chargeable equity and liabilities on the Group's consolidated balance sheet. Key exclusions from chargeable equity and liabilities include Tier 1 capital, insured or guaranteed retail deposits, repos secured on certain sovereign debt and liabilities subject to netting. The rate of the levy for 2020 is 0.14 per cent for chargeable short-term liabilities, with a lower rate of 0.07 per cent generally applied to chargeable equity and long-term liabilities (i.e. liabilities with a remaining maturity greater than one year). From 1 January 2021 the rates are 0.10 per cent for short-term liabilities and 0.05 per cent for long-term liabilities. In addition, the scope of the UK bank levy is restricted to the balance sheet of UK operations only from this date.
8. Credit impairment
Accounting policy
Significant accounting estimates and judgements
The Group's expected credit loss (ECL) calculations are outputs of complex models with a number of underlying assumptions. The significant judgements in determining expected credit loss include:
• The Group's criteria for assessing if there has been a significant increase in Credit Risk;
• Development of expected credit loss models, including the choice of inputs relating to macroeconomic variables;
• Evaluation of management overlays and post-model adjustments;
• Determination of probability weightings for Stage 3 individually assessed provisions
The calculation of credit impairment provisions also involves expert credit judgement to be applied by the Credit Risk Management Team based upon counterparty information they receive from various sources including relationship managers and on external market information. Details on the approach for determining expected credit loss can be found in the Credit Risk section, under IFRS 9 Methodology.
Estimates of forecasts of key macroeconomic variables underlying the expected credit loss calculation can be found within the Risk review, Key assumptions and judgements in determining expected credit loss.
Expected credit losses
Expected credit losses are determined for all financial debt instruments that are classified at amortised cost or fair value through other comprehensive income, undrawn commitments and financial guarantees.
An expected credit loss represents the present value of expected cash shortfalls over the residual term of a financial asset, undrawn commitment or financial guarantee.
A cash shortfall is the difference between the cash flows that are due in accordance with the contractual terms of the instrument and the cash flows that the Group expects to receive over the contractual life of the instrument.
Measurement
Expected credit losses are computed as unbiased, probability-weighted amounts which are determined by evaluating a range of reasonably possible outcomes, the time value of money, and considering all reasonable and supportable information including that which is forward-looking.
For material portfolios, the estimate of expected cash shortfalls is determined by multiplying the probability of default (PD) with the loss given default (LGD) with the expected exposure at the time of default (EAD). There may be multiple default events over the lifetime of an instrument. Further details on the components of PD, LGD and EAD are disclosed in the Credit Risk section. For less material Retail Banking loan portfolios, the Group has adopted less sophisticated approaches based on historical roll rates or loss rates.
Forward-looking economic assumptions are incorporated into the PD, LGD and EAD where relevant and where they influence Credit Risk, such as GDP growth rates, interest rates, house price indices and commodity prices among others. These assumptions are incorporated using the Group's most likely forecast for a range of macroeconomic assumptions. These forecasts are determined using all reasonable and supportable information, which includes both internally developed forecasts and those available externally, and are consistent with those used for budgeting, forecasting and capital planning.
To account for the potential non-linearity in credit losses, multiple forward-looking scenarios are incorporated into the range of reasonably possible outcomes for all material portfolios. For example, where there is a greater risk of downside credit losses than upside gains, multiple forward-looking economic scenarios are incorporated into the range of reasonably possible outcomes, both in respect of determining the PD (and where relevant, the LGD and EAD) and in determining the overall expected credit loss amounts. These scenarios are determined using a Monte Carlo approach centred around the Group's most likely forecast of macroeconomic assumptions.
The period over which cash shortfalls are determined is generally limited to the maximum contractual period for which the Group is exposed to Credit Risk. However, for certain revolving credit facilities, which include credit cards or overdrafts, the Group's exposure to Credit Risk is not limited to the contractual period. For these instruments, the Group estimates an appropriate life based on the period that the Group is exposed to Credit Risk, which includes the effect of Credit Risk management actions such as the withdrawal of undrawn facilities.
For credit-impaired financial instruments, the estimate of cash shortfalls may require the use of expert credit judgement.
The estimate of expected cash shortfalls on a collateralised financial instrument reflects the amount and timing of cash flows that are expected from foreclosure on the collateral less the costs of obtaining and selling the collateral, regardless of whether foreclosure is deemed probable.
Cash flows from unfunded credit enhancements held are included within the measurement of expected credit losses if they are part of, or integral to, the contractual terms of the instrument (this includes financial guarantees, unfunded risk participations and other non-derivative credit insurance). Although non-integral credit enhancements do not impact the measurement of expected credit losses, a reimbursement asset is recognised to the extent of the expected credit losses recorded.
Cash shortfalls are discounted using the effective interest rate (or credit-adjusted effective interest rate for purchased or originated credit-impaired instruments (POCI)) on the financial instrument as calculated at initial recognition or if the instrument has a variable interest rate, the current effective interest rate determined under the contract.
Instruments | Location of expected credit loss provisions |
Financial assets held at amortised cost | Loss provisions: netted against gross carrying value1 |
Financial assets held FVOCI - Debt instruments | Other comprehensive income (FVOCI expected credit loss reserve)2 |
Loan commitments | Provisions for liabilities and charges3 |
Financial guarantees | Provisions for liabilities and charges3 |
1 Purchased or originated credit-impaired assets do not attract an expected credit loss provision on initial recognition. An expected credit loss provision will be recognised only if there is an increase in expected credit losses from that considered at initial recognition
2 Debt and treasury securities classified as fair value through other comprehensive income (FVOCI) are held at fair value on the face of the balance sheet.
The expected credit loss attributed to these instruments is held as a separate reserve within other comprehensive income (OCI) and is recycled to the profit and loss account along with any fair value measurement gains or losses held within FVOCI when the applicable instruments are derecognised
3 Expected credit loss on loan commitments and financial guarantees is recognised as a liability provision. Where a financial instrument includes both a loan (i.e. financial asset component) and an undrawn commitment (i.e. loan commitment component), and it is not possible to separately identify the expected credit loss on these components, expected credit loss amounts on the loan commitment are recognised together with expected credit loss amounts on the financial asset. To the extent the combined expected credit loss exceeds the gross carrying amount of the financial asset, the expected credit loss is recognised as a liability provision
Recognition
12 months expected credit losses (stage 1) Expected credit losses are recognised at the time of initial recognition of a financial instrument and represent the lifetime cash shortfalls arising from possible default events up to 12 months into the future from the balance sheet date. Expected credit losses continue to be determined on this basis until there is either a significant increase in the Credit Risk of an instrument or the instrument becomes credit-impaired. If an instrument is no longer considered to exhibit a significant increase in Credit Risk, expected credit losses will revert to being determined on a 12-month basis.
Significant increase in Credit Risk (Stage 2) If a financial asset experiences a significant increase in Credit Risk (SICR) since initial recognition, an expected credit loss provision is recognised for default events that may occur over the lifetime of the asset.
Significant increase in Credit Risk is assessed by comparing the risk of default of an exposure at the reporting date to the risk of default at origination (after taking into account the passage of time). Significant does not mean statistically significant nor is it assessed in the context of changes in expected credit loss. Whether a change in the risk of default is significant or not is assessed using a number of quantitative and qualitative factors, the weight of which depends on the type of product and counterparty. Financial assets that are 30 or more days past due and not credit-impaired will always be considered to have experienced a significant increase in Credit Risk. For less material portfolios where a loss rate or roll rate approach is applied to compute expected credit loss, significant increase in Credit Risk is primarily based on 30 days past due.
Quantitative factors include an assessment of whether there has been significant increase in the forward-looking probability of default (PD) since origination. A forward-looking PD is one that is adjusted for future economic conditions to the extent these are correlated to changes in Credit Risk. We compare the residual lifetime PD at the balance sheet date to the residual lifetime PD that was expected at the time of origination for the same point in the term structure and determine whether both the absolute and relative change between the two exceeds predetermined thresholds. To the extent that the differences between the measures of default outlined exceed the defined thresholds, the instrument is considered to have experienced a significant increase in Credit Risk.
Qualitative factors assessed include those linked to current Credit Risk management processes, such as lending placed on non-purely precautionary early alert (and subject to closer monitoring).
A non-purely precautionary early alert account is one which exhibits risk or potential weaknesses of a material nature requiring closer monitoring, supervision, or attention by management. Weaknesses in such a borrower's account, if left uncorrected, could result in deterioration of repayment prospects and the likelihood of being downgraded. Indicators could include a rapid erosion of position within the industry, concerns over management's ability to manage operations, weak/deteriorating operating results, liquidity strain and overdue balances among other factors.
Credit-impaired (or defaulted) exposures (Stage 3) Financial assets that are credit-impaired (or in default) represent those that are at least 90 days past due in respect of principal and/or interest. Financial assets are also considered to be credit-impaired where the obligors are unlikely to pay on the occurrence of one or more observable events that have a detrimental impact on the estimated future cash flows of the financial asset. It may not be possible to identify a single discrete event but instead the combined effect of several events may cause financial assets to become credit-impaired.
Evidence that a financial asset is credit-impaired includes observable data about the following events:
• Significant financial difficulty of the issuer or borrower;
• Breach of contract such as default or a past due event;
• For economic or contractual reasons relating to the borrower's financial difficulty, the lenders of the borrower have granted the borrower concession/s that lenders would not otherwise consider. This would include forbearance actions;
• Pending or actual bankruptcy or other financial reorganisation to avoid or delay discharge of the borrower's obligation/s;
• The disappearance of an active market for the applicable financial asset due to financial difficulties of the borrower;
• Purchase or origination of a financial asset at a deep discount that reflects incurred credit losses
Lending commitments to a credit-impaired obligor that have not yet been drawn down are included to the extent that the commitment cannot be withdrawn. Loss provisions against credit-impaired financial assets are determined based on an assessment of the recoverable cash flows under a range of scenarios, including the realisation of any collateral held where appropriate. The loss provisions held represent the difference between the present value of the expected cash shortfalls, discounted at the instrument's original effective interest rate, and the gross carrying value (including contractual interest due but not paid) of the instrument prior to any credit impairment. The Group's definition of default is aligned with the regulatory definition of default as set out in European Capital Requirements Regulation (CRR178) and related guidelines.
Expert credit judgement
For Corporate & Institutional, Commercial and Private Banking, borrowers are graded by Credit Risk management on a credit grading (CG) scale from CG1 to CG14. Once a borrower starts to exhibit credit deterioration, it will move along the credit grading scale in the performing book and when it is classified as CG12 the credit assessment and oversight of the loan will normally be performed by Group Special Assets Management (GSAM).
Borrowers graded CG12 exhibit well-defined weaknesses in areas such as management and/or performance but there is no current expectation of a loss of principal or interest. Where the impairment assessment indicates that there will be a loss of principal on a loan, the borrower is graded a CG14 while borrowers of other credit-impaired loans are graded CG13. Instruments graded CG13 or CG14 are regarded as stage 3.
For individually significant financial assets within stage 3, GSAM will consider all judgements that have an impact on the expected future cash flows of the asset. These include: the business prospects, industry and geopolitical climate of the customer, quality of realisable value of collateral, the Group's legal position relative to other claimants and any renegotiation/forbearance/modification options. The future cash flow calculation involves significant judgements and estimates. As new information becomes available and further negotiations/ forbearance measures are taken, the estimates of the future cash flows will be revised, and will have an impact on the future cash flow analysis.
For financial assets which are not individually significant, such as the Retail Banking portfolio or small business loans, which comprise a large number of homogenous loans that share similar characteristics, statistical estimates and techniques are used, as well as credit scoring analysis.
Retail Banking clients are considered credit-impaired where they are more than 90 days past due. Retail Banking products are also considered credit-impaired if the borrower files for bankruptcy or other forbearance programme, the borrower is deceased or the business is closed in the case of a small business, or if the borrower surrenders the collateral, or there is an identified fraud on the account. Additionally, if the account is unsecured and the borrower has other credit accounts with the Group that are considered credit-impaired, the account may be also be credit-impaired.
Techniques used to compute impairment amounts use models which analyse historical repayment and default rates over a time horizon. Where various models are used, judgement is required to analyse the available information provided and select the appropriate model or combination of models to use.
Expert credit judgement is also applied to determine whether any post-model adjustments are required for Credit Risk elements which are not captured by the models.
Modified financial instruments
Where the original contractual terms of a financial asset have been modified for credit reasons and the instrument has not been derecognised (an instrument is derecognised when a modification results in a change in cash flows that the Group would consider substantial), the resulting modification loss is recognised within credit impairment in the income statement with a corresponding decrease in the gross carrying value of the asset. If the modification involved a concession that the bank would not otherwise consider, the instrument is considered to be credit-impaired and is considered forborne.
Expected credit loss for modified financial assets that have not been derecognised and are not considered to be credit-impaired will be recognised on a 12-month basis, or a lifetime basis, if there is a significant increase in Credit Risk. These assets are assessed (by comparison to the origination date) to determine whether there has been a significant increase in Credit Risk subsequent to the modification. Although loans may be modified for non-credit reasons, a significant increase in Credit Risk may occur. In addition to the recognition of modification gains and losses, the revised carrying value of modified financial assets will impact the calculation of expected credit losses, with any increase or decrease in expected credit loss recognised within impairment.
Forborne loans
Forborne loans are those loans that have been modified in response to a customer's financial difficulties. Forbearance strategies assist clients who are temporarily in financial distress and are unable to meet their original contractual repayment terms. Forbearance can be initiated by the client, the Group or a third-party including government-sponsored programmes or a conglomerate of credit institutions. Forbearance may include debt restructuring such as new repayment schedules, payment deferrals, tenor extensions, interest-only payments, lower interest rates, forgiveness of principal, interest or fees, or relaxation of loan covenants.
Forborne loans that have been modified (and not derecognised) on terms that are not consistent with those readily available in the market and/or where we have granted a concession compared to the original terms of the loans are considered credit-impaired if there is a detrimental impact on cash flows. The modification loss (see Classification and measurement - Modifications) is recognised in the profit or loss within credit impairment and the gross carrying value of the loan reduced by the same amount. The modified loan is disclosed as 'Loans subject to forbearance - credit-impaired'.
Loans that have been subject to a forbearance modification, but which are not considered credit-impaired (not classified as CG13 or CG14), are disclosed as 'Forborne - not credit-impaired'. This may include amendments to covenants within the contractual terms.
Write-offs of credit-impaired instruments and reversal of impairment
To the extent a financial debt instrument is considered irrecoverable, the applicable portion of the gross carrying value is written off against the related loan provision. Such loans are written off after all the necessary procedures have been completed, it is decided that there is no realistic probability of recovery and the amount of the loss has been determined. Subsequent recoveries of amounts previously written off decrease the amount of the provision for credit impairment in the income statement.
Loss provisions on purchased or originated credit-impaired instruments (POCI)
The Group measures expected credit loss on a lifetime basis for POCI instruments throughout the life of the instrument. However, expected credit loss is not recognised in a separate loss provision on initial recognition for POCI instruments as the lifetime expected credit loss is inherent within the gross carrying amount of the instruments. The Group recognises the change in lifetime expected credit losses arising subsequent to initial recognition in the income statement and the cumulative change as a loss provision. Where lifetime expected credit losses on POCI instruments are less than those at initial recognition, then the favourable differences are recognised as impairment gains in the income statement (and as impairment loss where the expected credit losses are greater).
Improvement in Credit Risk/curing
A period may elapse from the point at which instruments enter lifetime expected credit losses (stage 2 or stage 3) and are reclassified back to 12-month expected credit losses (stage 1). For financial assets that are credit-impaired (stage 3), a transfer to stage 2 or stage 1 is only permitted where the instrument is no longer considered to be credit-impaired. An instrument will no longer be considered credit-impaired when there is no shortfall of cash flows compared to the original contractual terms.
For financial assets within stage 2, these can only be transferred to stage 1 when they are no longer considered to have experienced a significant increase in Credit Risk.
Where significant increase in Credit Risk was determined using quantitative measures, the instruments will automatically transfer back to stage 1 when the original PD-based transfer criteria are no longer met. Where instruments were transferred to stage 2 due to an assessment of qualitative factors, the issues that led to the reclassification must be cured before the instruments can be reclassified to stage 1. This includes instances where management actions led to instruments being classified as stage 2, requiring that action to be resolved before loans are reclassified to stage 1.
A forborne loan can only be removed from being disclosed as forborne if the loan is performing (stage 1 or 2) and a further two-year probation period is met.
In order for a forborne loan to become performing, the following criteria have to be satisfied:
• At least a year has passed with no default based upon the forborne contract terms
• The customer is likely to repay its obligations in full without realising security
• The customer has no accumulated impairment against amount outstanding (except for expected credit loss)
Subsequent to the criteria above, a further two-year probation period has to be fulfilled, whereby regular payments are made by the customer and none of the exposures to the customer are more than 30 days past due.
| 2020 | 2019 |
Net credit impairment on loans and advances to banks and customers | 2,191 | 856 |
Net credit impairment on debt securities | 33 | 9 |
Net credit impairment relating to financial guarantees and loan commitments | 103 | 35 |
Net credit impairment relating to other financial assets | (2) | 8 |
Credit impairment1 | 2,325 | 908 |
1 No material purchased or originated credit-impaired (POCI) assets
9. Goodwill, property, plant and equipment and other impairment
Accounting policy
Refer to the below referenced notes for the relevant accounting policy
| 2020 | 2019 |
Impairment of goodwill (Note 17) | 489 | 27 |
|
|
|
Impairment of property, plant and equipment (Note 18) | 132 | 122 |
Impairment of other intangible assets (Note 17) | 17 | 12 |
Other1 | (51) | 2 |
Property, plant and equipment and other impairment | 98 | 136 |
Goodwill, property, plant and equipment and other impairment | 587 | 163 |
1 Includes a reversal of $165 million as a result of a recovery on a disputed derivative receivable, following a favourable court ruling
10. Taxation
Accounting policy
Income tax payable on profits is based on the applicable tax law in each jurisdiction and is recognised as an expense in the period in which profits arise.
Deferred tax is provided on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. Deferred tax is determined using tax rates (and laws) that have been enacted or substantively enacted as at the balance sheet date, and that are expected to apply when the related deferred tax asset is realised or the deferred income tax liability is settled.
Deferred tax assets are recognised where it is probable that future taxable profit will be available against which the temporary differences can be utilised. Where permitted, deferred tax assets and liabilities are offset on an entity basis and not by component of deferred taxation.
Current and deferred tax relating to items which are charged or credited directly to equity, is credited or charged directly to equity and is subsequently recognised in the income statement together with the current or deferred gain or loss.
Significant accounting estimates and judgements
• Determining the Group's tax charge for the year involves estimation and judgement, which includes an interpretation of local tax laws and an assessment of whether the tax authorities will accept the position taken. These judgements take account of external advice where appropriate, and the Group's view on settling with the relevant tax authorities
• The Group provides for current tax liabilities at the best estimate of the amount that is expected to be paid to the tax authorities where an outflow is probable. In making its estimates the Group assumes that the tax authorities will examine all the amounts reported to them and have full knowledge of all relevant information
The recoverability of the Group's deferred tax assets is based on management's judgement of the availability of future taxable profits against which the deferred tax assets will be utilised.
The following table provides analysis of taxation charge in the year:
| 2020 | 2019 |
The charge for taxation based upon the profit for the year comprises: |
|
|
Current tax: |
|
|
United Kingdom corporation tax at 19 per cent (2019:19 per cent): |
|
|
Current tax charge on income for the year | - | - |
Adjustments in respect of prior years (including double tax relief) | (41) | (6) |
Foreign tax: |
|
|
Current tax charge on income for the year | 1,061 | 1,427 |
Adjustments in respect of prior years | (352) | 1 |
| 668 | 1,422 |
Deferred tax: |
|
|
Origination/reversal of temporary differences | (193) | 22 |
Adjustments in respect of prior years | 387 | (71) |
| 194 | (49) |
Tax on profits on ordinary activities | 862 | 1,373 |
Effective tax rate | 53.4% | 37.0% |
The tax charge for the year of $862 million (31 December 2019: $1,373 million) on a profit before tax of $1,613 million (31 December 2019: $3,713 million) reflects the impact of non-deductible expenses, non-deductible goodwill impairment and the impact of countries with tax rates higher or lower than the UK, the most significant of which is India. The 2019 charge reflected the impact of capital gains tax on internal restructuring to establish the Hong Kong hub and other non-deductible expenses, non-creditable withholding taxes and the impact of countries with tax rates higher or lower than the UK, the most significant of which is India.
The adjustments in respect of prior years include $288 million between current and deferred tax, relating to the treatment of loan impairments in India as deductible in the period they are impaired.
Foreign tax includes current tax of $167 million (31 December 2019: $206 million) on the profits assessable in Hong Kong. Deferred tax includes origination or reversal of temporary differences of $(30) million (31 December 2019: $(1) million) provided at a rate of 16.5 per cent (31 December 2019: 16.5 per cent) on the profits assessable in Hong Kong.
Tax rate: The tax charge for the year is higher than the charge at the rate of corporation tax in the UK, 19 per cent. The differences are explained below:
| 2020 | 2019 |
Profit on ordinary activities before tax | 1,613 | 3,713 |
Tax at 19 per cent (2019: 19 per cent) | 306 | 705 |
Lower tax rates on overseas earnings | (36) | (89) |
Higher tax rates on overseas earnings | 305 | 316 |
Non-creditable withholding taxes | 127 | 144 |
Tax-free income | (133) | (138) |
Share of associates and joint ventures | (26) | (51) |
Non-deductible expenses | 266 | 288 |
Provision for regulatory matters | - | 27 |
Bank levy | 63 | 66 |
Non-taxable losses on investments | 13 | 9 |
Payments on financial instruments in reserves | (59) | (67) |
Capital gains tax on internal restructuring | - | 179 |
Goodwill impairment | 93 | 5 |
Deferred tax not recognised | 49 | 41 |
Deferred tax assets written-off | 15 | 30 |
Deferred tax rate changes | (51) | (6) |
Adjustments to tax charge in respect of prior years | (6) | (76) |
Other items | (64) | (10) |
Tax on profit on ordinary activities | 862 | 1,373 |
Factors affecting the tax charge in future years: The Group's tax charge, and effective tax rate in future years could be affected by several factors including acquisitions, disposals and restructuring of our businesses, the mix of profits across jurisdictions with different statutory tax rates, changes in tax legislation and tax rates and resolution of uncertain tax positions.
The evaluation of uncertain tax positions involves an interpretation of local tax laws which could be subject to challenge by a tax authority, and an assessment of whether the tax authorities will accept the position taken. The Group does not currently consider that assumptions or judgements made in assessing tax liabilities have a significant risk of resulting in a material adjustment within the next financial year.
Tax recognised in other | 2020 |
| 2019 | ||||
Current tax | Deferred tax | Total | Current tax | Deferred tax | Total | ||
Items that will not be reclassified to income statement | - | (17) | (17) |
| 15 | 27 | 42 |
Own credit adjustment | - | 1 | 1 |
| 17 | 35 | 52 |
Equity instruments at fair value through other comprehensive income | - | (27) | (27) |
| 5 | (10) | (5) |
Retirement benefit obligations | - | 9 | 9 |
| (7) | 2 | (5) |
|
|
|
|
|
|
|
|
Items that may be reclassed subsequently to income statement | (1) | (53) | (54) |
| 2 | (50) | (48) |
Debt instruments at fair value through other comprehensive income | (1) | (68) | (69) |
| 2 | (44) | (42) |
Cash flow hedges | - | 15 | 15 |
| - | (6) | (6) |
|
|
|
|
|
|
|
|
Total tax credit/(charge) recognised in equity | (1) | (70) | (71) |
| 17 | (23) | (6) |
Current tax: The following are the movements in current tax during the year:
Current tax comprises: | 2020 | 2019 |
Current tax assets | 539 | 492 |
Current tax liabilities | (703) | (676) |
Net current tax opening balance | (164) | (184) |
Movements in income statement | (668) | (1,422) |
Movements in other comprehensive income | (1) | 17 |
Taxes paid | 971 | 1,421 |
Other movements | 10 | 4 |
Net current tax balance as at 31 December | 148 | (164) |
Current tax assets | 808 | 539 |
Current tax liabilities | (660) | (703) |
Total | 148 | (164) |
Deferred tax: The following are the major deferred tax liabilities and assets recognised by the Group and movements thereon during the year:
| At 1 January | Exchange | (Charge)/credit | (Charge)/credit | At 31 December 2020 |
Deferred tax comprises: |
|
|
|
|
|
Accelerated tax depreciation | (526) | - | 33 | - | (493) |
Impairment provisions on loans and advances | 957 | (14) | (524) | - | 419 |
Tax losses carried forward | 263 | (5) | 24 | - | 282 |
Fair value through other comprehensive income | (49) | - | (2) | (95) | (146) |
Cash flow hedges | (13) | - | - | 15 | 2 |
Own credit adjustment | 2 | - | - | 1 | 3 |
Retirement benefit obligations | 31 | (1) | (3) | 9 | 36 |
Share-based payments | 16 | (3) | 10 | - | 23 |
Other temporary differences | (187) | 14 | 268 | 3 | 98 |
Net deferred tax assets | 494 | (9) | (194) | (67) | 224 |
| At 1 January | Exchange | (Charge)/credit | (Charge)/credit | At 31 December |
Deferred tax comprises: |
|
|
|
|
|
Accelerated tax depreciation | (494) | (5) | (27) | - | (526) |
Impairment provisions on loans and advances | 961 | (13) | 9 | - | 957 |
Tax losses carried forward | 266 | - | (3) | - | 263 |
Fair value through other comprehensive income | 3 | 1 | 1 | (54) | (49) |
Cash flow hedges | (7) | - | - | (6) | (13) |
Own credit adjustment | (33) | - | - | 35 | 2 |
Retirement benefit obligations | 40 | (3) | (8) | 2 | 31 |
Share-based payments | 15 | - | 1 | - | 16 |
Other temporary differences | (267) | 4 | 76 | - | (187) |
Net deferred tax assets | 484 | (16) | 49 | (23) | 494 |
Deferred tax comprises assets and liabilities as follows:
| 2020 |
| 2019 | ||||
Total | Asset | Liability | Total | Asset | Liability | ||
Deferred tax comprises: |
|
|
|
|
|
|
|
Accelerated tax depreciation | (493) | (30) | (463) |
| (526) | (9) | (517) |
Impairment provisions on loans | 419 | 403 | 16 |
| 957 | 956 | 1 |
Tax losses carried forward | 282 | 171 | 111 |
| 263 | 137 | 126 |
Fair value through other | (146) | (61) | (85) |
| (49) | (40) | (9) |
Cash flow hedges | 2 | 6 | (4) |
| (13) | 6 | (19) |
Own credit adjustment | 3 | 2 | 1 |
| 2 | 4 | (2) |
Retirement benefit obligations | 36 | 25 | 11 |
| 31 | 20 | 11 |
Share-based payments | 23 | 8 | 15 |
| 16 | 14 | 2 |
Other temporary differences | 98 | 395 | (297) |
| (187) | 17 | (204) |
| 224 | 919 | (695) |
| 494 | 1,105 | (611) |
At 31 December 2020, the Group has net deferred tax assets of $224 million (31 December 2019: $494 million). The recoverability of the Group's deferred tax assets is based on management's judgement of the availability of future taxable profits against which the deferred tax assets will be utilised.
Of the Group's total deferred tax assets, $282 million relates to tax losses carried forward. These tax losses have arisen in individual legal entities and will be offset as future taxable profits arise in those entities.
• $129 million of the deferred tax assets relating to losses has arisen in Ireland, where there is no expiry date for unused tax losses. These losses relate to aircraft leasing and are expected to be fully utilised over the useful economical life of the assets being up to 18 years
• $92 million of the deferred tax assets relating to losses has arisen in the US. Management forecasts show that the losses are expected to be fully utilised over a period of five years.
The remaining deferred tax assets of $61 million relating to losses have arisen in other jurisdictions and are expected to be recovered in less than 10 years.
| 2020 | 2019 |
No account has been taken of the following potential deferred tax assets/(liabilities): |
|
|
Withholding tax on unremitted earnings from overseas subsidiaries | (315) | (230) |
Tax losses | 1,597 | 1,297 |
Held-over gains on incorporation of overseas branches | (336) | (410) |
Other temporary differences | 160 | 83 |
11. Dividends
Accounting policy
Dividends on ordinary shares and preference shares classified as equity are recognised in equity in the year in which they are declared. Dividends on ordinary equity shares are recorded in the year in which they are declared and, in respect of the final dividend, have been approved by the shareholders.
On 31 March 2020, the Group announced that in response to a request from the Prudential Regulation Authority and as a consequence of the unprecedented challenges facing the world due to the COVID-19 pandemic, its Board had decided after careful consideration to withdraw the recommendation to pay a final dividend for 2019 of 20 cents per ordinary share.
Ordinary equity shares
| 2020 |
| 2019 | ||
Cents per share | $million | Cents per share | $million | ||
2019/2018 final dividend declared and paid during the year | - | - |
| 15 | 495 |
2020/2019 interim dividend declared and paid during the year | - | - |
| 7 | 225 |
Dividends on ordinary equity shares are recorded in the period in which they are declared and, in respect of the final dividend, have been approved by the shareholders. Accordingly, the final ordinary equity share dividends set out above relate to the respective prior years.
2020 recommended final ordinary equity share dividend
The 2020 ordinary equity share dividend recommended by the Board is 9 cents per share. The financial statements for the year ended 31 December 2020 do not reflect this dividend as this will be accounted for in shareholders' equity as an appropriation of retained profits in the year ending 31 December 2021.
The dividend will be paid in either pounds sterling, Hong Kong dollars or US dollars on 20 May 2021 to shareholders on the UK register of members at the close of business in the UK on 5 March 2021.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
|
| 2020 | 2019 |
Non-cumulative redeemable preference shares: | 7.014 per cent preference shares of $5 each | 53 | 53 |
| 6.409 per cent preference shares of $5 each | 20 | 30 |
|
| 73 | 83 |
Additional Tier 1 securities: Fixed rate resetting perpetual subordinated contingent convertible securities | 322 | 365 | |
|
| 395 | 448 |
12. Earnings per ordinary share
Accounting policy
Basic earnings per ordinary share is calculated by dividing the profit attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding, excluding own shares held. Diluted earnings per ordinary share is calculated by dividing the basic earnings, which require no adjustment for the effects of dilutive potential ordinary shares, by the weighted average number of ordinary shares that would have been outstanding assuming the conversion of all dilutive potential ordinary shares, excluding own shares held.
The Group also measures earnings per share on an underlying basis. This differs from earnings defined in IAS 33 Earnings per share. Underlying earnings is profit/(loss) attributable to ordinary shareholders adjusted for profits or losses of a capital nature; amounts consequent to investment transactions driven by strategic intent; and other infrequent and/or exceptional transactions that are significant or material in the context of the Group's normal business earnings for the period.
The table below provides the basis of underlying earnings.
| 2020 | 2019 |
Profit for the period attributable to equity holders | 751 | 2,340 |
Non-controlling interest | (27) | (37) |
Dividend payable on preference shares and AT1 classified as equity | (395) | (448) |
Profit for the period attributable to ordinary shareholders | 329 | 1,855 |
|
|
|
Items normalised: |
|
|
Provision for regulatory matters | (14) | 226 |
Restructuring | 382 | 254 |
Profit from joint venture | - | (48) |
Goodwill impairment (Note 9) | 489 | 27 |
Net loss on sale of businesses (Note 6) | 38 | - |
Tax on normalised items1 | (83) | 152 |
Underlying profit | 1,141 | 2,466 |
|
|
|
Basic - Weighted average number of shares (millions) | 3,160 | 3,256 |
Diluted - Weighted average number of shares (millions) | 3,199 | 3,290 |
|
|
|
Basic earnings per ordinary share (cents) | 10.4 | 57.0 |
Diluted earnings per ordinary share (cents) | 10.3 | 56.4 |
Underlying basic earnings per ordinary share (cents) | 36.1 | 75.7 |
Underlying diluted earnings per ordinary share (cents) | 35.7 | 75.0 |
1 No tax is included in respect of the impairment of goodwill as no tax relief is available
13. Financial instruments
Classification and measurement
Accounting policy
The Group classifies its financial assets into the following measurement categories: amortised cost; fair value through other comprehensive income (FVOCI); and fair value through profit or loss. Financial liabilities are classified as either amortised cost, or held at fair value through profit or loss. Management determines the classification of its financial assets and liabilities at initial recognition of the instrument or, where applicable, at the time of reclassification.
Financial assets held at amortised cost and fair value through other comprehensive income
Debt instruments held at amortised cost or held at FVOCI have contractual terms that give rise to cash flows that are solely payments of principal and interest (SPPI) characteristics. Principal is the fair value of the financial asset at initial recognition but this may change over the life of the instrument as amounts are repaid. Interest consists of consideration for the time value of money, for the credit risk associated with the principal amount outstanding during a particular period and for other basic lending risks and costs, as well as a profit margin.
In assessing whether the contractual cash flows have SPPI characteristics, the Group considers the contractual terms of the instrument. This includes assessing whether the financial asset contains a contractual term that could change the timing or amount of contractual cash flows such that it would not meet this condition. In making the assessment, the Group considers:
• Contingent events that would change the amount and timing of cash flows
• Leverage features
• Prepayment and extension terms
• Terms that limit the Group's claim to cash flows from specified assets (e.g. non-recourse asset arrangements)
• Features that modify consideration of the time value of money - e.g. periodical reset of interest rates
Whether financial assets are held at amortised cost or at FVOCI depend on the objectives of the business models under which the assets are held. A business model refers to how the Group manages financial assets to generate cash flows.
The Group makes an assessment of the objective of a business model in which an asset is held at the individual product business line, and where applicable within business lines depending on the way the business is managed and information is provided to management. Factors considered include:
• How the performance of the product business line is evaluated and reported to the Group's management
• How managers of the business model are compensated, including whether management is compensated based on the fair value of assets or the contractual cash flows collected
• The risks that affect the performance of the business model and how those risks are managed
• The frequency, volume and timing of sales in prior periods, the reasons for such sales and expectations about future sales activity
The Group's business model assessment is as follows:
Business model | Business objective | Characteristics | Businesses | Products |
Hold to collect | Intent is to originate financial assets and hold them to maturity, collecting the contractual cash flows over the term of the instrument | • Providing financing and originating assets to earn interest income as primary income stream • Performing credit risk management activities • Costs include funding costs, transaction costs and impairment losses | • Corporate Lending • Corporate Finance • Transaction Banking • Retail Lending • Treasury Markets (Loans and Borrowings) | • Loans and advances • Debt securities |
Hold to collect and sell | Business objective met through both hold to collect and by selling financial assets | • Portfolios held for liquidity needs; or where a certain interest yield profile is maintained; or that are normally rebalanced to achieve matching of duration of assets and liabilities • Income streams come from interest income, fair value changes, and impairment losses | • Treasury Markets | • Derivatives • Debt securities |
Fair value through profit or loss | All other business objectives, including trading and managing financial assets on a fair value basis | • Assets held for trading • Assets that are originated, purchased, and sold for profit taking or underwriting activity • Performance of the portfolio is evaluated on a fair value basis • Income streams are from fair value changes or trading gains | • Financial Markets • Syndication • All other business lines | • Derivatives • Trading portfolios • Financial Markets reverse repos |
Financial assets which have SPPI characteristics and that are held within a business model whose objective is to hold financial assets to collect contractual cash flows ("hold to collect") are recorded at amortised cost. Conversely, financial assets which have SPPI characteristics but are held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets ("Hold to collect and sell") are classified as held at FVOCI.
Both hold to collect business and a hold to collect and sell business model involve holding financial assets to collect the contractual cash flows. However, the business models are distinct by reference to the frequency and significance that asset sales play in meeting the objective under which a particular group of financial assets is managed. Hold to collect business models are characterised by asset sales that are incidental to meeting the objectives under which a group of assets is managed. Sales of assets under a hold to collect business model can be made to manage increases in the credit risk of financial assets but sales for other reasons should be infrequent or insignificant.
Cash flows from the sale of financial assets under a hold to collect and sell business model by contrast are integral to achieving the objectives under which a particular group of financial assets are managed. This may be the case where frequent sales of financial assets are required to manage the Group's daily liquidity requirements or to meet regulatory requirements to demonstrate liquidity of financial instruments. Sales of assets under hold to collect and sell business models are therefore both more frequent and more significant in value than those under the hold to collect model.
Equity instruments designated as held at FVOCI
Non-trading equity instruments acquired for strategic purposes rather than capital gain may be irrevocably designated at initial recognition as held at FVOCI on an instrument-by-instrument basis. Dividends received are recognised in profit or loss. Gains and losses arising from changes in the fair value of these instruments, including foreign exchange gains and losses, are recognised directly in equity and are never reclassified to profit or loss even on derecognition.
Financial assets and liabilities held at fair value through profit or loss
Financial assets which are not held at amortised cost or that are not held at FVOCI are held at fair value through profit or loss. Financial assets and liabilities held at fair value through profit or loss are either mandatorily classified fair value through profit or loss or irrevocably designated at fair value through profit or loss at initial recognition.
Mandatorily classified at fair value through profit or loss
Financial assets and liabilities which are mandatorily held at fair value through profit or loss are split between two subcategories as follows:
Trading, including:
• Financial assets and liabilities held for trading, which are those acquired principally for the purpose of selling in the short-term
• Derivatives
Non-trading mandatorily at fair value through profit or loss, including:
• Instruments in a business which has a fair value business model (see the Group's business model assessment) which are not trading or derivatives;
• Hybrid financial assets that contain one or more embedded derivatives;
• Financial assets that would otherwise be measured at amortised cost or FVOCI but which do not have SPPI characteristics;
• Equity instruments that have not been designated as held at FVOCI
• Financial liabilities that constitute contingent consideration in a business combination
Designated at fair value through profit or loss
Financial assets and liabilities may be designated at fair value through profit or loss when the designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise from measuring assets or liabilities on a different basis ('accounting mismatch').
Interest rate swaps have been acquired by the Group with the intention of significantly reducing interest rate risk on certain debt securities with fixed rates of interest. To significantly reduce the accounting mismatch between assets and liabilities and measurement bases, these debt securities have been designated at fair value through profit or loss.
Similarly, to reduce accounting mismatches, the Group has designated certain financial liabilities at fair value through profit or loss where the liabilities either:
• Have fixed rates of interest and interest rate swaps or other interest rate derivatives have been entered with the intention of significantly reducing interest rate risk; or
• Are exposed to foreign currency risk and derivatives have been acquired with the intention of significantly reducing exposure to market changes; or
• Have been acquired to fund trading asset portfolios or assets
Financial liabilities may also be designated at fair value through profit or loss where they are managed on a fair value basis or have a embedded derivative where the Group is not able to bifurcate and separately value the embedded derivative component.
Financial liabilities held at amortised cost
Financial liabilities that are not financial guarantees or loan commitments and that are not classified as financial liabilities held at fair value through profit or loss are classified as financial liabilities held at amortised cost.
Preference shares which carry a mandatory coupon that represents a market rate of interest at the issue date, or which are redeemable on a specific date or at the option of the shareholder are classified as financial liabilities and are presented in other borrowed funds. The dividends on these preference shares are recognised in the income statement as interest expense on an amortised cost basis using the effective interest method.
Financial guarantee contracts and loan commitments
The Group issues financial guarantee contracts and loan commitments in return for fees. Financial guarantee contracts and any loan commitments issued at below-market interest rates are initially recognised at their fair value as a financial liability, and subsequently measured at the higher of the initial value less the cumulative amount of income recognised in accordance with the principles of IFRS 15 Revenue from Contracts with Customers and their expected credit loss provision. Loan commitments may be designated at fair value through profit or loss where that is the business model under which such contracts are held.
Fair value of financial assets and liabilities
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal market for the asset or liability, or in the absence of a principal market, the most advantageous market to which the Group has access at the date. The fair value of a liability includes the risk that the bank will not be able to honour its obligations.
The fair value of financial instruments is generally measured on the basis of the individual financial instrument. However, when a group of financial assets and financial liabilities is managed on the basis of its net exposure to either market risk or credit risk, the fair value of the group of financial instruments is measured on a net basis.
The fair values of quoted financial assets and liabilities in active markets are based on current prices. A market is regarded as active if transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis. If the market for a financial instrument, and for unlisted securities, is not active, the Group establishes fair value by using valuation techniques.
Initial recognition
Purchases and sales of financial assets and liabilities held at fair value through profit or loss, and debt securities classified as financial assets held at fair value through other comprehensive income are initially recognised on the trade-date (the date on which the Group commits to purchase or sell the asset). Loans and advances and other financial assets held at amortised cost are recognised on the settlement date (the date on which cash is advanced to the borrowers).
All financial instruments are initially recognised at fair value, which is normally the transaction price, plus directly attributable transaction costs for financial assets which are not subsequently measured at fair value through profit or loss.
In certain circumstances, the initial fair value may be based on a valuation technique which may lead to the recognition of profits or losses at the time of initial recognition. However, these profits or losses can only be recognised when the valuation technique used is based solely on observable market data. In those cases where the initially recognised fair value is based on a valuation model that uses unobservable inputs, the difference between the transaction price and the valuation model is not recognised immediately in the income statement but is amortised or released to the income statement as the inputs become observable, or the transaction matures or is terminated.
Subsequent measurement
Financial assets and financial liabilities held at amortised cost
Financial assets and financial liabilities held at amortised cost are subsequently carried at amortised cost using the effective interest method (see Interest income and expense). Foreign exchange gains and losses are recognised in the income statement.
Where a financial instrument carried at amortised cost is the hedged item in a qualifying fair value hedge relationship, its carrying value is adjusted by the fair value gain or loss attributable to the hedged risk.
Financial assets held at FVOCI
Debt instruments held at FVOCI are subsequently carried at fair value, with all unrealised gains and losses arising from changes in fair value (including any related foreign exchange gains or losses) recognised in other comprehensive income and accumulated in a separate component of equity. Foreign exchange gains and losses on the amortised cost are recognised in income. Changes in expected credit losses are recognised in the profit or loss and are accumulated in equity. On derecognition, the cumulative fair value gains or losses, net of the cumulative expected credit loss reserve, are transferred to the profit or loss.
Equity investments designated at FVOCI are subsequently carried at fair value with all unrealised gains and losses arising from changes in fair value (including any related foreign exchange gains or losses) recognised in other comprehensive income and accumulated in a separate component of equity. On derecognition, the cumulative reserve is transferred to retained earnings and is not recycled to profit or loss.
Financial assets and liabilities held at fair value through profit or loss
Financial assets and liabilities mandatorily held at fair value through profit or loss and financial assets designated at fair value through profit or loss are subsequently carried at fair value, with gains and losses arising from changes in fair value, including contractual interest income or expense, recorded in the net trading income line in the profit or loss unless the instrument is part of a cash flow hedging relationship.
Financial liabilities designated at fair value through profit or loss
Financial liabilities designated at fair value through profit or loss are held at fair value, with changes in fair value recognised in the net trading income line in the profit or loss, other than that attributable to changes in credit risk. Fair value changes attributable to credit risk are recognised in other comprehensive income and recorded in a separate category of reserves unless this is expected to create or enlarge an accounting mismatch, in which case the entire change in fair value of the financial liability designated at fair value through profit or loss is recognised in profit or loss.
Derecognition of financial instruments
Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or where the Group has transferred substantially all risks and rewards of ownership. If substantially all the risks and rewards have been neither retained nor transferred and the Group has retained control, the assets continue to be recognised to the extent of the Group's continuing involvement.
Where financial assets have been modified, the modified terms are assessed on a qualitative and quantitative basis to determine whether a fundamental change in the nature of the instrument has occurred, such as whether the derecognition of the pre-existing instrument and the recognition of a new instrument is appropriate.
On derecognition of a financial asset, the difference between the carrying amount of the asset (or the carrying amount allocated to the portion of the asset derecognised) and the sum of the consideration received (including any new asset obtained less any new liability assumed) and any cumulative gain or loss that had been recognised in other comprehensive income is recognised in profit or loss except for equity instruments elected FVOCI (see above) and cumulative fair value adjustments attributable to the credit risk of a liability that are held in other comprehensive income.
Financial liabilities are derecognised when they are extinguished. A financial liability is extinguished when the obligation is discharged, cancelled or expires and this is evaluated both qualitatively and quantitatively. However, where a financial liability has been modified, it is derecognised if the difference between the modified cash flows and the original cash flows is more than 10 per cent, or if less than 10 per cent, the Group will perform a qualitative assessment to determine whether the terms of the two instruments are substantially different.
If the Group purchases its own debt, it is derecognised and the difference between the carrying amount of the liability and the consideration paid is included in 'Other income' except for the cumulative fair value adjustments attributable to the credit risk of a liability that are held in other comprehensive income which are never recycled to the profit or loss.
Modified financial instruments
Financial assets and financial liabilities whose original contractual terms have been modified, including those loans subject to forbearance strategies, are considered to be modified instruments. Modifications may include changes to the tenor, cash flows and or interest rates among other factors.
Where derecognition of financial assets is appropriate (see Derecognition), the newly recognised residual loans are assessed to determine whether the assets should be classified as purchased or originated credit-impaired assets (POCI).
Where derecognition is not appropriate, the gross carrying amount of the applicable instruments is recalculated as the present value of the renegotiated or modified contractual cash flows discounted at the original effective interest rate (or credit adjusted effective interest rate for POCI financial assets). The difference between the recalculated values and the pre-modified gross carrying values of the instruments are recorded as a modification gain or loss in the profit or loss.
Gains and losses arising from modifications for credit reasons are recorded as part of 'Credit impairment' (see Credit Impairment Policy). Modification gains and losses arising for non-credit reasons are recognised either as part of "Credit impairment" or within income depending on whether there has been a change in the credit risk on the financial asset subsequent to the modification. Modification gains and losses arising on financial liabilities are recognised within income. The movements in the applicable expected credit loss loan positions are disclosed in further detail in Risk Review.
Under the Phase 2 Interest Rate Benchmark Reform amendments to IFRS 9, changes to the basis for determining contractual cash flows as a direct result of interest rate benchmark reform are treated as changes to a floating interest rate to that instrument, provided that the transition from the IBOR benchmark rate to the alternative RFR takes place on an economically equivalent basis. Where the instrument is measured at amortised cost or FVOCI, this results in a change in the instrument's effective interest rate, with no change in the amortised cost value of the instrument. If the change to the instrument does not meet these criteria, the Group applies judgement to assess whether the changes are substantial and if they are, the financial instrument is derecognised and a new financial instrument is recognised. If the changes are not substantial, the Group adjusts the gross carrying amount of the financial instrument by the present value of the changes not covered by the practical expedient, discounted using the revised effective interest rate.
Reclassifications
Financial liabilities are not reclassified subsequent to initial recognition. Reclassifications of financial assets are made when, and only when, the business model for those assets changes. Such changes are expected to be infrequent and arise as a result of significant external or internal changes such as the termination of a line of business or the purchase of a subsidiary whose business model is to realise the value of pre-existing held for trading financial assets through a hold to collect model.
Financial assets are reclassified at their fair value on the date of reclassification and previously recognised gains and losses are not restated. Moreover, reclassifications of financial assets between financial assets held at amortised cost and financial assets held at fair value through other comprehensive income do not affect effective interest rate or expected credit loss computations.
Reclassified from amortised cost
Where financial assets held at amortised cost are reclassified to financial assets held at fair value through profit or loss, the difference between the fair value of the assets at the date of reclassification and the previously recognised amortised cost is recognised in profit or loss.
For financial assets held at amortised cost that are reclassified to fair value through other comprehensive income, the difference between the fair value of the assets at the date of reclassification and the previously recognised gross carrying value is recognised in other comprehensive income. Additionally, the related cumulative expected credit loss amounts relating to the reclassified financial assets are reclassified from loan loss provisions to a separate reserve in other comprehensive income at the date of reclassification.
Reclassified from fair value through other comprehensive income
Where financial assets held at fair value through other comprehensive income are reclassified to financial assets held at fair value through profit or loss, the cumulative gain or loss previously recognised in other comprehensive income is transferred to the profit or loss.
For financial assets held at fair value through other comprehensive income that are reclassified to financial assets held at amortised cost, the cumulative gain or loss previously recognised in other comprehensive income is adjusted against the fair value of the financial asset such that the financial asset is recorded at a value as if it had always been held at amortised cost. In addition, the related cumulative expected credit losses held within other comprehensive income are reversed against the gross carrying value of the reclassified assets at the date of reclassification.
Reclassified from fair value through profit or loss
Where financial assets held at fair value through profit or loss are reclassified to financial assets held at fair value through other comprehensive income or financial assets held at amortised cost, the fair value at the date of reclassification is used to determine the effective interest rate on the financial asset going forward. In addition, the date of reclassification is used as the date of initial recognition for the calculation of expected credit losses. Where financial assets held at fair value through profit or loss are reclassified to financial assets held at amortised cost, the fair value at the date of reclassification becomes the gross carrying value of the financial asset.
The Group's classification of its financial assets and liabilities is summarised in the following tables.
Assets | Notes | Assets at fair value | Assets | Total | |||||
Trading | Derivatives held for hedging | Non-trading mandatorily | Designated at fair value through profit or loss | Fair value | Total | ||||
Cash and balances at |
| - | - | - | - | - | - | 66,712 | 66,712 |
Financial assets held at fair value through profit or loss |
|
|
|
|
|
|
|
|
|
Loans and advances |
| 1,552 | - | 2,325 | - | - | 3,877 | - | 3,877 |
Loans and advances |
| 4,169 | - | 5,129 | 79 | - | 9,377 | - | 9,377 |
Reverse repurchase agreements and other similar secured lending | 16 | - | - | 63,405 | - | - | 63,405 | - | 63,405 |
Debt securities, alternative tier one and other |
| 24,919 | - | 425 | 256 | - | 25,600 | - | 25,600 |
Equity shares |
| 4,223 | - | 305 | - | - | 4,528 | - | 4,528 |
|
| 34,863 | - | 71,589 | 335 | - | 106,787 | - | 106,787 |
Derivative financial instruments | 14 | 67,826 | 1,641 | - | - | - | 69,467 | - | 69,467 |
Loans and advances to banks¹ | 15 | - | - | - | - | - | - | 44,347 | 44,347 |
of which - reverse repurchase agreements and other similar | 16 | - | - | - | - | - | - | 1,247 | 1,247 |
Loans and advances | 15 | - | - | - | - | - | - | 281,699 | 281,699 |
of which - reverse repurchase agreements and other similar | 16 | - | - | - | - | - | - | 2,919 | 2,919 |
Investment securities |
|
|
|
|
|
|
|
|
|
Debt securities, alternative tier one and other |
| - | - | - | - | 133,381 | 133,381 | 19,480 | 152,861 |
Equity shares |
| - | - | - | - | 454 | 454 | - | 454 |
|
| - | - | - | - | 133,835 | 133,835 | 19,480 | 153,315 |
Other assets | 20 | - | - | - | - | - | - | 40,978 | 40,978 |
Assets held for sale | 21 | - | - | - | 5 | - | 5 | 83 | 88 |
Total at 31 December 2020 |
| 102,689 | 1,641 | 71,589 | 340 | 133,835 | 310,094 | 453,299 | 763,393 |
1 Further analysed in Risk review and Capital review
Assets | Notes | Assets at fair value | Assets | Total | |||||
Trading | Derivatives held for hedging | Non-trading mandatorily | Designated | Fair value | Total | ||||
Cash and balances at |
| - | - | - | - | - | - | 52,728 | 52,728 |
Financial assets held at fair value through profit or loss |
|
|
|
|
|
|
|
|
|
Loans and advances |
| 198 | - | 3,330 | - | - | 3,528 | - | 3,528 |
Loans and advances |
| 2,886 | - | 4,010 | - | - | 6,896 | - | 6,896 |
Reverse repurchase agreements and other similar secured lending | 16 | - | - | 57,604 | - | - | 57,604 | - | 57,604 |
Debt securities, alternative tier one and other eligible bills |
| 21,877 | - | 166 | 278 | - | 22,321 | - | 22,321 |
Equity shares2 |
| 2,208 | - | 261 | - | - | 2,469 | - | 2,469 |
|
| 27,169 | - | 65,371 | 278 | - | 92,818 | - | 92,818 |
Derivative financial instruments | 14 | 46,424 | 788 | - | - | - | 47,212 | - | 47,212 |
Loans and advances to banks¹ | 15 | - | - | - | - | - | - | 53,549 | 53,549 |
of which - reverse repurchase agreements and other similar | 16 | - | - | - | - | - | - | 1,341 | 1,341 |
Loans and advances | 15 | - | - | - | - | - | - | 268,523 | 268,523 |
of which - reverse repurchase agreements and other similar | 16 | - | - | - | - | - | - | 1,469 | 1,469 |
Investment securities |
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Debt securities, alternative tier one and other eligible bills |
| - | - | - | - | 129,471 | 129,471 | 13,969 | 143,440 |
Equity shares |
| - | - | - | - | 291 | 291 | - | 291 |
|
| - | - | - | - | 129,762 | 129,762 | 13,969 | 143,731 |
Other assets | 20 | - | - | - | - | - | - | 36,161 | 36,161 |
Assets held for sale | 21 | - | - | 87 | 243 | - | 330 | 90 | 420 |
Total at 31 December 2019 |
| 73,593 | 788 | 65,458 | 521 | 129,762 | 270,122 | 425,020 | 695,142 |
1 Further analysed in Risk review and Capital review
2 Prior year figures have been restated as the investments in Private Equity has been reclassified from designated at fair value to Non-Trading FVTPL category to reflect correct classification of portfolio
Liabilities | Notes | Liabilities at fair value | Amortised | Total | |||
Trading | Derivatives held for hedging | Designated | Total | ||||
Financial liabilities held at fair value through |
|
|
|
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|
|
Deposits by banks |
| - | - | 1,249 | 1,249 | - | 1,249 |
Customer accounts |
| - | - | 8,897 | 8,897 | - | 8,897 |
Repurchase agreements and other similar | 16 | - | - | 48,662 | 48,662 | - | 48,662 |
Debt securities in issue | 22 | - | - | 5,811 | 5,811 | - | 5,811 |
Short positions |
| 3,754 | - | - | 3,754 | - | 3,754 |
|
| 3,754 | - | 64,619 | 68,373 | - | 68,373 |
Derivative financial instruments | 14 | 69,790 | 1,743 | - | 71,533 | - | 71,533 |
Deposits by banks |
| - | - | - | - | 30,255 | 30,255 |
Customer accounts |
| - | - | - | - | 439,339 | 439,339 |
Repurchase agreements and other similar | 16 | - | - | - | - | 1,903 | 1,903 |
Debt securities in issue | 22 | - | - | - | - | 55,550 | 55,550 |
Other liabilities | 23 | - | - | - | - | 47,228 | 47,228 |
Subordinated liabilities and other borrowed funds | 27 | - | - | - | - | 16,654 | 16,654 |
Total at 31 December 2020 |
| 73,544 | 1,743 | 64,619 | 139,906 | 590,929 | 730,835 |
Liabilities | Notes | Liabilities at fair value | Amortised | Total | |||
Trading | Derivatives held for hedging | Designated | Total | ||||
Financial liabilities held at fair value through |
|
|
|
|
|
|
|
Deposits by banks |
| - | - | 1,081 | 1,081 | - | 1,081 |
Customer accounts |
| - | - | 6,947 | 6,947 | - | 6,947 |
Repurchase agreements and other similar | 16 | - | - | 46,283 | 46,283 | - | 46,283 |
Debt securities in issue | 22 | - | - | 8,510 | 8,510 | - | 8,510 |
Short positions |
| 4,153 | - | - | 4,153 | - | 4,153 |
|
| 4,153 | - | 62,821 | 66,974 | - | 66,974 |
Derivative financial instruments | 14 | 46,906 | 1,578 | - | 48,484 | - | 48,484 |
Deposits by banks |
| - | - | - | - | 28,562 | 28,562 |
Customer accounts |
| - | - | - | - | 405,357 | 405,357 |
Repurchase agreements and other similar | 16 | - | - | - | - | 1,935 | 1,935 |
Debt securities in issue | 22 | - | - | - | - | 53,025 | 53,025 |
Other liabilities | 23 | - | - | - | - | 41,149 | 41,149 |
Subordinated liabilities and other borrowed funds | 27 | - | - | - | - | 16,207 | 16,207 |
Total at 31 December 2019 |
| 51,059 | 1,578 | 62,821 | 115,458 | 546,235 | 661,693 |
Interest rate benchmark reform
The Group has elected to early-adopt the 'Interest Rate Benchmark Reform - Phase 2' amendments to IFRS for the year ending 31 December 2020, which apply to a financial instrument when its benchmark interest rate, such as USD LIBOR, is either replaced with an alternative risk-free rate (RFR) or the benchmark itself is reformed so that it depends on actual market transactions instead of panel bank submissions. Please refer to the accounting policy for modified financial instruments which explains how the Group accounts for changes to a financial instrument as a result of interest rate benchmark reform.
The Group also applies the 'Interest Rate Benchmark Reform - Phase 1' amendments, and the Phase 2 reliefs contain additional reliefs for hedge accounting. These are discussed in Note 14.
As at 31 December 2020 the Group had the following notional principal exposures to interest rate benchmarks that are expected to be subject to interest rate benchmark reform. The Group has excluded financial instruments maturing before 31 December 2021 as it is assumed that these will not require reform, due to the expectation that the IBOR benchmarks the Group is exposed to will be published until at least this date.
IBOR exposures by benchmark | USD LIBOR | EUR LIBOR | GBP LIBOR | JPY LIBOR | CHF LIBOR | EONIA | SGD SOR | THB FIX | Total IBOR |
Assets |
|
|
|
|
|
|
|
|
|
Loans and advances to banks | 1,072 | - | 55 | - | - | - | - | - | 1,127 |
Loans and advances to customers | 34,143 | 727 | 2,861 | 134 | 44 | - | 2,011 | 33 | 39,953 |
Debt securities, AT1 and other eligible bills | 3,984 | 170 | 1,409 | - | - | - | 365 | - | 5,928 |
| 39,199 | 897 | 4,325 | 134 | 44 | - | 2,376 | 33 | 47,008 |
Liabilities |
|
|
|
|
|
|
|
|
|
Deposits by banks | 399 | - | - | - | - | - | - | - | 399 |
Customer accounts | 4,239 | - | 19 | 189 | - | - | 2 | 42 | 4,491 |
Repurchase agreements and other secured borrowing | 1,195 | - | - | - | - | - | - | - | 1,195 |
Debt securities in issue | 2,159 | - | - | - | - | - | - | - | 2,159 |
Subordinated liabilities and other borrowed funds | 160 | - | 15 | - | - | - | - | - | 175 |
| 8,152 | - | 34 | 189 | - | - | 2 | 42 | 8,419 |
Derivatives - Foreign exchange contracts |
|
|
|
|
|
|
|
|
|
Currency swaps and options | 202,086 | - | 34,205 | 14,969 | 6,634 | 55 | 5,125 | 1,998 | 265,072 |
Derivatives - Interest rate contracts |
|
|
|
|
|
|
|
|
|
Swaps | 839,653 | 73 | 104,763 | 25,328 | 13,402 | 4,850 | 72,849 | 27,013 | 1,087,931 |
Forward rate agreements and options | 21,634 | - | 523 | 2,527 | - | - | 76 | 55 | 24,815 |
Exchange traded futures | 63,239 | - | 1,445 | - | - | - | - | - | 64,684 |
Equity and stock index options | 75 | - | 2 | - | - | - | - | - | 77 |
Credit derivative contracts | 4,466 | - | - | - | - | - | - | 134 | 4,600 |
Total IBOR derivative exposure | 1,131,153 | 73 | 140,938 | 48,824 | 20,036 | 4,905 | 78,050 | 29,200 | 1,447,179 |
Total IBOR exposure | 1,178,504 | 970 | 145,297 | 43,147 | 20,080 | 4,905 | 80,428 | 29,275 | 1,502,606 |
Additionally, the Group had off-balance sheet exposures in respect of partially undrawn credit lines that reference an IBOR benchmark. The table below only includes the undrawn portion of existing facilities that are known to reference at least one IBOR benchmark; it does not include facilities that have yet to be drawn down and not known whether the customer may choose to borrow funds linked to an IBOR benchmark.
Off-balance sheet IBOR exposures | $million |
USD LIBOR | 7,176 |
EUR LIBOR | 88 |
GBP LIBOR | 763 |
CHF LIBOR | 56 |
SGD SOR | 206 |
THB FIX | 1 |
Multi-currency facilities referencing LIBOR | 1,352 |
Total off-balance sheet IBOR exposures | 9,642 |
'Multi-currency facilities referencing LIBOR' are facilities where the customer has a choice of two or more floating rates to draw down on and at least one of the floating rates available is a LIBOR benchmark.
Offsetting of financial instruments
Financial assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the asset and settle the liability simultaneously.
In practice, for credit mitigation, the Group is able to offset assets and liabilities which do not meet the IAS 32 netting criteria set out below. Such arrangements include master netting arrangements for derivatives and global master repurchase agreements for repurchase and reverse repurchase transactions. These agreements generally allow that all outstanding transactions with a particular counterparty can be offset but only in the event of default or other predetermined events.
In addition, the Group also receives and pledges readily realisable collateral for derivative transactions to cover net exposure in the event of a default. Under repurchase and reverse repurchase agreements the Group pledges (legally sells) and obtains (legally purchases) respectively, highly liquid assets which can be sold in the event of a default.
The following tables set out the impact of netting on the balance sheet. This comprises derivative transactions settled through an enforceable netting agreement where we have the intent and ability to settle net and which are offset on the balance sheet.
| 2020 | |||||
Gross amounts | Impact of | Net amounts | Related amount not offset | Net amount | ||
Financial instruments | Financial | |||||
Assets |
|
|
|
|
|
|
Derivative financial instruments | 111,979 | (42,512) | 69,467 | (47,097) | (10,136) | 12,234 |
Reverse repurchase agreements and other similar secured lending | 75,490 | (7,919) | 67,571 | - | (67,571) | - |
At 31 December 2020 | 187,469 | (50,431) | 137,038 | (47,097) | (77,707) | 12,234 |
Liabilities |
|
|
|
|
|
|
Derivative financial instruments | 114,045 | (42,512) | 71,533 | (47,097) | (11,757) | 12,679 |
Repurchase agreements and other | 58,484 | (7,919) | 50,565 | - | (50,565) | - |
At 31 December 2020 | 172,529 | (50,431) | 122,098 | (47,097) | (62,322) | 12,679 |
| 2019 | |||||
Gross amounts | Impact of | Net amounts | Related amount not offset | Net amount | ||
Financial instruments | Financial | |||||
Assets |
|
|
|
|
|
|
Derivative financial instruments | 63,854 | (16,642) | 47,212 | (28,659) | (7,824) | 10,729 |
Reverse repurchase agreements and other similar secured lending | 63,535 | (3,121) | 60,414 | - | (60,414) | - |
At 31 December 2019 | 127,389 | (19,763) | 107,626 | (28,659) | (68,238) | 10,729 |
Liabilities |
|
|
|
|
|
|
Derivative financial instruments | 65,126 | (16,642) | 48,484 | (28,659) | (9,169) | 10,656 |
Repurchase agreements and other | 51,339 | (3,121) | 48,218 | - | (48,218) | - |
At 31 December 2019 | 116,465 | (19,763) | 96,702 | (28,659) | (57,387) | 10,656 |
Related amounts not offset in the balance sheet comprises:
• Financial instruments not offset in the balance sheet but covered by an enforceable netting arrangement. This comprises master netting arrangements held against derivative financial instruments and excludes the effect of over-collateralisation
• Financial instruments where a legal opinion evidencing enforceability of the right of offset may not have been sought, or may have been unable to obtain
• Financial collateral comprises cash collateral pledged and received for derivative financial instruments and collateral bought and sold for reverse repurchase and repurchase agreements respectively and excludes the effect of over-collateralisation
Financial liabilities designated at fair value through profit or loss
| 2020 | 2019 |
Carrying balance aggregate fair value | 64,619 | 62,821 |
Amount contractually obliged to repay at maturity | 64,405 | 62,505 |
Difference between aggregate fair value and contractually obliged to repay at maturity | 214 | 316 |
Cumulative change in fair value accredited to credit risk difference | (43) | 17 |
During 2020, the Group enhanced its valuation methodology for financial liabilities designated at fair value through profit or loss. The financial impact of the revision in methodology is a loss of $56 million in net trading income and a loss in other comprehensive income of $78 million. These impacts are treated as a change in accounting estimate.
The net fair value loss on financial liabilities designated at fair value through profit or loss was $247 million for the year (31 December 2019: net loss of $1,602 million). Further details of the Group's own credit adjustment (OCA) valuation technique is described later in this Note.
Valuation of financial instruments
The fair values of quoted financial assets and liabilities in active markets are based on current prices. A market is regarded as active if transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis. Wherever possible, fair values have been calculated using unadjusted quoted market prices in active markets for identical instruments held by the Group. Where quoted market prices are not available, or are unreliable because of poor liquidity, fair values have been determined using valuation techniques which, to the extent possible, use market observable inputs, but in some cases use non market observable inputs. Valuation techniques used include discounted cash flow analysis and pricing models and, where appropriate, comparison with instruments that have characteristics similar to those of the instruments held by the Group.
The Valuation Control function is responsible for independent price verification, oversight of fair value and appropriate value adjustments and escalation of valuation issues. Independent price verification is the process of determining that the valuations incorporated into the financial statements are validated independent of the business area responsible for the product. The Valuation Control function has oversight of the fair value adjustments to ensure the financial instruments are priced to exit. These are key controls in ensuring the material accuracy of the valuations incorporated in the financial statements. The market data used for price verification may include data sourced from recent trade data involving external counterparties or third parties such as Bloomberg, Reuters, brokers and consensus pricing providers. Valuation Control performs a semi-annual review of the suitability of the market data used for price testing. Price verification uses independently sourced data that is deemed most representative of the market the instruments trade in. To determine the quality of the market data inputs, factors such as independence, relevance, reliability, availability of multiple data sources and methodology employed by the pricing provider are taken into consideration.
The Valuation and Benchmarks Committee (VBC) is the valuation governance forum consisting of representatives from Group Market Risk, Product Control, Valuation Control and the business, which meets monthly to discuss and approve the independent valuations of the inventory. For Principal Finance, the Investment Committee meeting is held on a quarterly basis to review investments and valuations.
Significant accounting estimates and judgements
The Group evaluates the significance of financial instruments and material accuracy of the valuations incorporated in the financial statements as they involve a high degree of judgement and estimation uncertainty in determining the carrying values of financial assets and liabilities at the balance sheet date.
• Fair value of financial instruments is determined using valuation techniques and estimates (see below) which, to the extent possible, use market observable inputs, but in some cases use non-market observable inputs. Changes in the observability of significant valuation inputs can materially affect the fair values of financial instruments
• When establishing the exit price of a financial instrument using a valuation technique, the Group estimates valuation adjustments in determining the fair value
• In determining the valuation of financial instruments, the Group makes judgements on the amounts reserved to cater for model and valuation risks, which cover both Level 2 and Level 3 assets, and the significant valuation judgements in respect of Level 3 instruments
Where the estimated measurement of fair value is more judgemental in respect of Level 3 assets, these are valued based on models that use a significant degree of non-market-based unobservable inputs
Valuation techniques
Refer to the fair value hierarchy explanation - Level 1, 2 and 3
• Financial instruments held at fair value
• Debt securities - asset-backed securities: Asset-backed securities are valued based on external prices obtained from consensus pricing providers, broker quotes, recent trades, arrangers' quotes, etc. Where an observable price is available for a given security, it is classified as Level 2. In instances where third-party prices are not available or reliable, the security is classified as Level 3. The fair value of Level 3 securities is estimated using market standard cash flow models with input parameter assumptions which include prepayment speeds, default rates, discount margins derived from comparable securities with similar vintage, collateral type, and credit ratings
• Debt securities in issue: These debt securities relate to structured notes issued by the Group. Where independent market data is available through pricing vendors and broker sources these positions are classified as Level 2. Where such liquid external prices are not available, valuations of these debt securities are implied using input parameters such as bond spreads and credit spreads, and are classified as Level 3. These input parameters are determined with reference to the same issuer (if available) or proxies from comparable issuers or assets
• Derivatives: Derivative products are classified as Level 2 if the valuation of the product is based upon input parameters which are observable from independent and reliable market data sources. Derivative products are classified as Level 3 if there are significant valuation input parameters which are unobservable in the market, such as products where the performance is linked to more than one underlying variable. Examples are foreign exchange basket options, equity options based on the performance of two or more underlying indices and interest rate products with quanto payouts. In most cases these unobservable correlation parameters cannot be implied from the market, and methods such as historical analysis and comparison with historical levels or other benchmark data must be employed
• Equity shares - private equity: The majority of private equity unlisted investments are valued based on earning multiples - Price-to-Earnings (P/E) or enterprise value to earnings before income tax, depreciation and amortisation (EV/EBITDA) ratios - of comparable listed companies. The two primary inputs for the valuation of these investments are the actual or forecast earnings of the investee companies and earning multiples for the comparable listed companies. To ensure comparability between these unquoted investments and the comparable listed companies, appropriate adjustments are also applied (for example, liquidity and size) in the valuation. In circumstances where an investment does not have direct comparables or where the multiples for the comparable companies cannot be sourced from reliable external sources, alternative valuation techniques (for example, discounted cash flow models), which use predominantly unobservable inputs or Level 3 inputs, may be applied. Even though earning multiples for the comparable listed companies can be sourced from third-party sources (for example, Bloomberg), and those inputs can be deemed Level 2 inputs, all unlisted investments (excluding those where observable inputs are available, for example, Over-the-counter (OTC) prices) are classified as Level 3 on the basis that the valuation methods involve judgements ranging from determining comparable companies to discount rates where the discounted cash flow method is applied
• Loans and advances: These primarily include loans in the global syndications business which were not syndicated as of the balance sheet date and other financing transactions within Financial Markets and loans and advances including reverse repurchase agreements that do not have SPPI cash flows or are managed on a fair value basis. These loans are generally bilateral in nature and, where available, their valuation is based on observable clean sales transactions prices or market observable spreads. If observable credit spreads are not available, proxy spreads based on comparable loans with similar credit grade, sector and region, are used. Where observable credit spreads and market standard proxy methods are available, these loans are classified as Level 2. Where there are no recent transactions or comparable loans, these loans are classified as Level 3
• Other debt securities: These debt securities include convertible bonds, corporate bonds, credit and structured notes. Where quoted prices are available through pricing vendors, brokers or observable trading activities from liquid markets, these are classified as Level 2 and valued using such quotes. Where there are significant valuation inputs which are unobservable in the market, due to illiquid trading or the complexity of the product, these are classified as Level 3. The valuations of these debt securities are implied using input parameters such as bond spreads and credit spreads. These input parameters are determined with reference to the same issuer (if available) or proxied from comparable issuers or assets
• Financial instruments held at amortised cost
The following sets out the Group's basis for establishing fair values of amortised cost financial instruments and their classification between Levels 1, 2 and 3. As certain categories of financial instruments are not actively traded, there is a significant level of management judgement involved in calculating the fair values:
• Cash and balances at central banks: The fair value of cash and balances at central banks is their carrying amounts
• Debt securities in issue, subordinated liabilities and other borrowed funds: The aggregate fair values are calculated based on quoted market prices. For those notes where quoted market prices are not available, a discounted cash flow model is used based on a current market related yield curve appropriate for the remaining term to maturity
• Deposits and borrowings: The estimated fair value of deposits with no stated maturity is the amount repayable on demand. The estimated fair value of fixed interest-bearing deposits and other borrowings without quoted market prices is based on discounted cash flows using the prevailing market rates for debts with a similar Credit Risk and remaining maturity
• Investment securities: For investment securities that do not have directly observable market values, the Group utilises a number of valuation techniques to determine fair value. Where available, securities are valued using input proxies from the same or closely related underlying (for example, bond spreads from the same or closely related issuer) or input proxies from a different underlying (for example, a similar bond but using spreads for a particular sector and rating). Certain instruments cannot be proxies as set out above, and in such cases the positions are valued using non-market observable inputs. This includes those instruments held at amortised cost and predominantly relates to asset-backed securities. The fair value for such instruments is usually proxies from internal assessments of the underlying cash flows
• Loans and advances to banks and customers: For loans and advances to banks, the fair value of floating rate placements and overnight deposits is their carrying amounts. The estimated fair value of fixed interest-bearing deposits is based on discounted cash flows using the prevailing money market rates for debts with a similar Credit Risk and remaining maturity. The Group's loans and advances to customers' portfolio is well diversified by geography and industry. Approximately a quarter of the portfolio re-prices within one month, and approximately half re-prices within 12 months. Loans and advances are presented net of provisions for impairment. The fair value of loans and advances to customers with a residual maturity of less than one year generally approximates the carrying value. The estimated fair value of loans and advances with a residual maturity of more than one year represents the discounted amount of future cash flows expected to be received, including assumptions relating to prepayment rates and Credit Risk. Expected cash flows are discounted at current market rates to determine fair value. The Group has a wide range of individual instruments within its loans and advances portfolio and as a result providing quantification of the key assumptions used to value such instruments is impractical
• Other assets: Other assets comprise primarily of cash collateral and trades pending settlement. The carrying amount of these financial instruments is considered to be a reasonable approximation of fair value as they are either short-term in nature or re-price to current market rates frequently
Fair value adjustments
When establishing the exit price of a financial instrument using a valuation technique, the Group considers adjustments to the modelled price which market participants would make when pricing that instrument. The main valuation adjustments (described further below) in determining fair value for financial assets and financial liabilities are as follows:
| 01.01.2020 | Movement | 31.12.20 | 01.01.2019 | Movement | 31.12.19 |
Bid-offer valuation adjustment | 79 | 24 | 103 | 67 | 12 | 79 |
Credit valuation adjustment | 136 | 53 | 189 | 196 | (60) | 136 |
Debit valuation adjustment | (43) | (12) | (55) | (143) | 100 | (43) |
Model valuation adjustment | 7 | (2) | 5 | 6 | 1 | 7 |
Funding valuation adjustment | 26 | (21) | 5 | 60 | (34) | 26 |
Other fair value adjustments | 45 | (13) | 32 | 59 | (14) | 45 |
Total | 250 | 29 | 279 | 245 | 5 | 250 |
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|
Income deferrals |
|
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|
|
Day 1 and other deferrals | 103 | 35 | 138 | 100 | 3 | 103 |
Total | 103 | 35 | 138 | 100 | 3 | 103 |
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 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
• 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 may be based on a valuation technique which differs to the transaction price at the time of initial recognition. However, 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 own credit component (OCA) 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 31 December 2020 is a loss of $43 million (31 December 2019: $17million 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 as at the end of the reporting period.
• Level 1: Fair value measurements are those derived from unadjusted quoted prices in active markets for identical assets or liabilities
• Level 2: Fair value measurements are those with quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in inactive markets and financial instruments valued using models where all significant inputs are observable
• Level 3: Fair value measurements are those where inputs which could have a significant effect on the instrument's valuation are not based on observable market data
The following tables show the classification of financial instruments held at fair value into the valuation hierarchy:
Assets | Level 1 | Level 2 | Level 3 | Total |
Financial instruments held at fair value through profit or loss |
|
|
|
|
Loans and advances to banks | - | 3,677 | 200 | 3,877 |
Loans and advances to customers | - | 8,659 | 718 | 9,377 |
Reverse repurchase agreements and other similar secured lending | - | 62,341 | 1,064 | 63,405 |
Debt securities and other eligible bills | 9,453 | 15,889 | 258 | 25,600 |
Of which: |
|
|
|
|
Government bonds and treasury bills | 8,904 | 7,929 | - | 16,833 |
Issued by corporates other than financial institutions1 | 49 | 3,880 | 256 | 4,185 |
Issued by financial institutions1 | 500 | 4,080 | 2 | 4,582 |
|
|
|
|
|
Equity shares | 3,657 | 592 | 279 | 4,528 |
|
|
|
|
|
Derivative financial instruments | 473 | 68,986 | 8 | 69,467 |
Of which: |
|
|
|
|
Foreign exchange | 111 | 54,533 | 3 | 54,647 |
Interest rate | 36 | 11,788 | 2 | 11,826 |
Credit | - | 1,700 | 2 | 1,702 |
Equity and stock index options | - | 109 | 1 | 110 |
Commodity | 326 | 856 | - | 1,182 |
|
|
|
|
|
Investment securities |
|
|
|
|
Debt securities and other eligible bills | 68,280 | 65,061 | 40 | 133,381 |
Of which: |
|
|
|
|
Government bonds and treasury bills | 52,771 | 27,171 | 40 | 79,982 |
Issued by corporates other than financial institutions1 | 6,229 | 9,498 | - | 15,727 |
Issued by financial institutions¹ | 9,280 | 28,392 | - | 37,672 |
|
|
|
|
|
Equity shares | 68 | 5 | 381 | 454 |
Total financial instruments at 31 December 2020² | 81,931 | 225,210 | 2,948 | 310,089 |
|
|
|
|
|
Liabilities |
|
|
|
|
Financial instruments held at fair value through profit or loss |
|
|
|
|
Deposits by banks | - | 1,103 | 146 | 1,249 |
Customer accounts | - | 8,876 | 21 | 8,897 |
Repurchase agreements and other similar secured borrowing | - | 48,662 | - | 48,662 |
Debt securities in issue | - | 5,651 | 160 | 5,811 |
Short positions | 2,573 | 1,181 | - | 3,754 |
|
|
|
|
|
Derivative financial instruments | 413 | 71,001 | 119 | 71,533 |
Of which: |
|
|
|
|
Foreign exchange | 115 | 56,968 | 2 | 57,085 |
Interest rate | 11 | 10,387 | 26 | 10,424 |
Credit | - | 2,904 | 86 | 2,990 |
Equity and stock index options | - | 255 | 5 | 260 |
Commodity | 287 | 487 | - | 774 |
|
|
|
|
|
Total financial instruments at 31 December 20202 | 2,986 | 136,474 | 446 | 139,906 |
1 Includes covered bonds of $7,216 million, securities issued by Multilateral Development Banks/International Organisations of $10,870 million and State-owned agencies and development banks of $15,606 million
2 The above table does not include held for sale assets of $5 million and liabilities of $nil. These are reported in Note 21 together with their fair value hierarchy
There were no significant changes to valuation or levelling approaches in 2020.
There were no significant transfers of financial assets and liabilities measured at fair value between Level 1 and Level 2 during the year.
Assets | Level 1 | Level 2 | Level 3 | Total |
Financial instruments held at fair value through profit or loss |
|
|
|
|
Loans and advances to banks | - | 3,163 | 365 | 3,528 |
Loans and advances to customers | - | 6,453 | 443 | 6,896 |
Reverse repurchase agreements and other similar secured lending | - | 57,604 | - | 57,604 |
Debt securities and other eligible bills | 5,963 | 16,158 | 200 | 22,321 |
Of which: |
|
|
|
|
Government bonds and treasury bills | 5,656 | 7,898 | - | 13,554 |
Issued by corporates other than financial institutions1 | 7 | 5,090 | 200 | 5,297 |
Issued by financial institutions1 | 300 | 3,170 | - | 3,470 |
|
|
|
|
|
Equity shares | 2,241 | - | 228 | 2,469 |
|
|
|
|
|
Derivative financial instruments | 466 | 46,729 | 17 | 47,212 |
Of which: |
|
|
|
|
Foreign exchange | 69 | 25,929 | 8 | 26,006 |
Interest rate | 28 | 19,342 | 4 | 19,374 |
Credit | - | 1,231 | 1 | 1,232 |
Equity and stock index options | - | 23 | 4 | 27 |
Commodity | 369 | 204 | - | 573 |
|
|
|
|
|
Investment securities |
|
|
|
|
Debt securities and other eligible bills | 73,699 | 55,734 | 38 | 129,471 |
Of which: |
|
|
|
|
Government bonds and treasury bills | 54,637 | 19,664 | 33 | 74,334 |
Issued by corporates other than financial institutions1 | 11,667 | 14,505 | 5 | 26,177 |
Issued by financial institutions1 | 7,395 | 21,565 | - | 28,960 |
|
|
|
|
|
Equity shares | 30 | 4 | 257 | 291 |
Total financial instruments at 31 December 2019² | 82,399 | 185,845 | 1,548 | 269,792 |
|
|
|
|
|
Liabilities |
|
|
|
|
Financial instruments held at fair value through profit or loss |
|
|
|
|
Deposits by banks | - | 1,025 | 56 | 1,081 |
Customer accounts | - | 6,907 | 40 | 6,947 |
Repurchase agreements and other similar secured borrowing | - | 46,283 | - | 46,283 |
Debt securities in issue | - | 8,100 | 410 | 8,510 |
Short positions | 2,499 | 1,654 | - | 4,153 |
|
|
|
|
|
Derivative financial instruments | 515 | 47,912 | 57 | 48,484 |
Of which: |
|
|
|
|
Foreign exchange | 97 | 26,824 | 5 | 26,926 |
Interest rate | 31 | 18,891 | 9 | 18,931 |
Credit | - | 1,892 | 23 | 1,915 |
Equity and stock index options | - | 76 | 20 | 96 |
Commodity | 387 | 229 | - | 616 |
|
|
|
|
|
Total financial instruments at 31 December 20192 | 3,014 | 111,881 | 563 | 115,458 |
1 Includes covered bonds of $6,137 million (represented from $3,499 million), securities issued by Multilateral Development Banks/International Organisations of $11,894 million and State-owned agencies and development banks of $17,936 million
2 The above table does not include held for sale assets of $330 million and liabilities of $nil. These are reported in Note 21 together with their fair value hierarchy
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.
| Carrying value | Fair value | |||
Level 1 | Level 2 | Level 3 | Total | ||
Assets |
|
|
|
|
|
Cash and balances at central banks¹ | 66,712 | - | 66,712 | - | 66,712 |
Loans and advances to banks | 44,347 | - | 44,275 | 4 | 44,279 |
of which - reverse repurchase agreements and other similar secured lending | 1,247 | - | 1,265 | - | 1,265 |
Loans and advances to customers | 281,699 | - | 29,145 | 251,991 | 281,136 |
of which - reverse repurchase agreements and other similar secured lending | 2,919 | - | 2,922 | - | 2,922 |
Investment securities2 | 19,480 | - | 20,349 | 7 | 20,356 |
Other assets¹ | 40,978 | - | 40,978 | - | 40,978 |
Assets held for sale | 83 | - | 25 | 58 | 83 |
At 31 December 2020 | 453,299 | - | 201,484 | 252,060 | 453,544 |
Liabilities |
|
|
|
|
|
Deposits by banks | 30,255 | - | 30,288 | - | 30,288 |
Customer accounts | 439,339 | - | 439,407 | - | 439,407 |
Repurchase agreements and other similar secured borrowing | 1,903 | - | 1,903 | - | 1,903 |
Debt securities in issue | 55,550 | 25,638 | 30,441 | - | 56,079 |
Subordinated liabilities and other borrowed funds | 16,654 | 16,993 | 607 | - | 17,600 |
Other liabilities¹ | 47,228 | - | 47,228 | - | 47,228 |
At 31 December 2020 | 590,929 | 42,631 | 549,874 | - | 592,505 |
| Carrying value | Fair value | |||
Level 1 | Level 2 | Level 3 | Total | ||
Assets |
|
|
|
|
|
Cash and balances at central banks¹ | 52,728 | - | 52,728 | - | 52,728 |
Loans and advances to banks | 53,549 | - | 53,431 | - | 53,431 |
of which - reverse repurchase agreements and other similar secured lending | 1,341 | - | 1,356 | - | 1,356 |
Loans and advances to customers | 268,523 | - | 22,829 | 246,632 | 269,461 |
of which - reverse repurchase agreements and other similar secured lending | 1,469 | - | 1,341 | 130 | 1,471 |
Investment securities2 | 13,969 | - | 14,238³ | 20 | 14,261 |
Other assets¹ | 36,161 | - | 36,161 | - | 36,161 |
Assets held for sale | 90 | - | 70 | 20 | 90 |
At 31 December 2019 | 425,020 | - | 179,457 | 246,672 | 426,132 |
Liabilities |
|
|
|
|
|
Deposits by banks | 28,562 | - | 28,577 | - | 28,577 |
Customer accounts | 405,357 | - | 405,361 | - | 405,361 |
Repurchase agreements and other similar secured borrowing | 1,935 | - | 1,935 | - | 1,935 |
Debt securities in issue | 53,025 | 20,031 | 33,269 | - | 53,300 |
Subordinated liabilities and other borrowed funds | 16,207 | 15,986 | 803 | - | 16,789 |
Other liabilities¹ | 41,149 | - | 41,149 | - | 41,149 |
At 31 December 2019 | 546,235 | 36,017 | 511,094 | - | 547,111 |
1 The carrying amount of these financial instruments is considered to be a reasonable approximation of fair value as they are short-term in nature or reprice to current market rates frequently
2 Includes Government bonds and Treasury bills of $ 7,371 million at 31 December 2020 and $5,973 million at 31 December 2019
3 Fair value of investment securities restated from $13,107 million to $14,238 million as a result of an observable price in the market now being used
Loans and advances to customers by client segment1
| 2020 | ||||||
Carrying value |
| Fair value | |||||
Stage 3 | Stage 1 and | Total | Stage 3 | Stage 1 and | Total | ||
Corporate & Institutional Banking | 2,441 | 106,513 | 108,954 |
| 2,487 | 106,316 | 108,803 |
Retail Banking | 604 | 114,941 | 115,545 |
| 610 | 114,737 | 115,347 |
Commercial Banking | 601 | 23,902 | 24,503 |
| 622 | 23,645 | 24,267 |
Private Banking | 227 | 13,321 | 13,548 |
| 228 | 13,342 | 13,570 |
Central & other items | - | 19,149 | 19,149 |
| - | 19,149 | 19,149 |
At 31 December 2020 | 3,873 | 277,826 | 281,699 |
| 3,947 | 277,189 | 281,136 |
| 2019 (Restated) | ||||||
Carrying value |
| Fair value | |||||
Stage 3 | Stage 1 and | Total | Stage 3 | Stage 1 and | Total | ||
Corporate & Institutional Banking | 1,193 | 107,459 | 108,652 |
| 1,244 | 109,996 | 111,240 |
Retail Banking | 472 | 106,466 | 106,938 |
| 482 | 106,939 | 107,421 |
Commercial Banking | 510 | 27,584 | 28,094 |
| 541 | 25,463 | 26,004 |
Private Banking | 219 | 14,522 | 14,741 |
| 219 | 14,471 | 14,690 |
Central & other items | - | 10,098 | 10,098 |
| - | 10,106 | 10,106 |
At 31 December 2019 | 2,394 | 266,129 | 268,523 |
| 2,486 | 266,975 | 269,461 |
1 Loans and advances includes reverse repurchase agreements and other similar secured lending: carrying value $2,919 million and fair value $2,922 million (31 December 2019: $1,469 million and $1,471 million respectively)
2 Corporate & Institutional Banking, Commercial Banking and Retail Banking carrying value numbers have been restated to reflect client transfers between the segments. The changes are in stage 1 and stage 2 only
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:
Instrument | Value as at |
| Principal valuation | Significant unobservable inputs | Range1 | Weighted average2 | |
Assets | Liabilities | ||||||
Loans and advances to Banks | 200 | - |
| Discounted cash flows | Price/yield | 12.7%-12.9% | 12.8% |
Loans and advances to customers | 718 | - |
| Discounted cash flows | Price/yield | 0.9% - 11.5% | 4.6% |
Recovery rates | 34.2% - 100% | 83.4% | |||||
Reverse repurchase agreements and other similar secured lending | 1,064 | - |
| Discounted cash flows | Repo curve | 1.0%-3.2% | 2.8% |
Debt securities, alternative tier one and other eligible securities | 171 | - |
| Discounted cash flows | Price/yield | 4.7%-11.5% | 10.5% |
Government bonds and treasury bills | 40 | - |
| Discounted cash flows | Price/yield | 2.8% - 5.5% | 3.6% |
Asset-backed securities | 87 | - |
| Discounted cash flows | Price/yield | 8.3%-12.0% | 11.7% |
Recovery rates | 55.0% | 55.0% | |||||
Equity shares (includes private equity investments) | 660 | - |
| Comparable pricing/yield | EV/EBITDA multiples | 3.3x - 14.2x | 8.7x |
P/E multiples | N/A | N/A | |||||
P/B multiples | 0.5x - 2.0x | 0.7x | |||||
P/S multiples | N/A | N/A | |||||
Liquidity discount | 20.0% | 20.0% | |||||
Discounted cash flows | Discount rates | 6.0% - 15.0% | 9.1% | ||||
Option pricing model | Equity value based on | 13.5x - 130.9x | 114.9x | ||||
Derivative financial instruments of which: |
|
|
|
|
|
|
|
Foreign exchange | 3 | 2 |
| Option pricing model | Foreign exchange option implied volatility | N/A | N/A |
Discounted cash flows | Foreign exchange curves | 2.7%-5.6% | 4.1% | ||||
Interest rate | 2 | 26 |
| Discounted cash flows | Interest rate curves | (5.2)%-18.6% | 10.0% |
Option pricing model | Bond option implied volatility | 20.0%-30.0% | 24.2% | ||||
Credit | 2 | 86 |
| Discounted cash flows | Credit spreads | 2.0% | 2.0% |
| Price/yield | 0.9%-12.0% | 11.2% | ||||
Equity and stock index | 1 | 5 |
| Internal pricing model | Equity correlation | 20.0% - 90.0% | 49.0% |
| Equity-FX correlation | (70.0)% - 80.0% | (59.0)% | ||||
Deposits by banks | - | 146 |
| Discounted cash flows | Credit spreads | 1.0% - 1.4% | 1.1% |
Bond option implied volatility | N/A | N/A | |||||
Customer accounts | - | 21 |
| Discounted cash flows | Credit spreads | 1.0% | 1.0% |
Interest rate curves | (0.4)% - 7.7% | 3.9% | |||||
Recovery rates | 55.0% | 55.0% | |||||
Debt securities in issue | - | 160 |
| Discounted cash flows | Credit spreads | 0.1% - 11.5% | 2.3% |
Internal pricing model | Equity correlation | 20.0% - 90.0% | 49.0% | ||||
Equity-FX correlation | (70.0)% - 80.0% | (59.0)% | |||||
Total | 2,948 | 446 |
|
|
|
|
|
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 2020. The ranges of values used are reflective of the underlying characteristics of these Level 3 financial instruments based on the market conditions at the balance sheet date. However, these ranges of values may not represent the uncertainty in fair value measurements of the Group's Level 3 financial instruments
2 Weighted average for non-derivative financial instruments has been calculated by weighting inputs by the relative fair value. Weighted average for derivatives has been provided by weighting inputs by the risk relevant to that variable. N/A has been entered for the cases where weighted average is not a meaningful indicator
Level 3 Summary and significant unobservable inputs continued
Instrument | Value as at |
| Principal valuation | Significant unobservable inputs | Range1 | Weighted average2 | |
Assets | Liabilities | ||||||
Loans and advances to Banks | 365 | - |
| Discounted cash flows | Price/yield | 1.0%-15.6% | 10.8% |
Loans and advances to customers | 443 | - |
| Discounted cash flows | Price/yield | 0.5% - 6.9% | 4.2% |
| Recovery rates | 18.9% - 100% | 92.1% | ||||
Debt securities, alternative tier one and other eligible securities | 184 | - |
| Discounted cash flows | Price/yield | 3.8% - 18.7% | 11.6% |
Government bonds and treasury bills | 33 | - |
| Discounted cash flows | Price/yield | 2.9% - 5.5% | 3.7% |
Asset-backed securities | 21 | - |
| Discounted cash flows | Price/yield | 1.4% - 3.2% | 2.7% |
Equity shares (includes private equity investments)3 | 485 | - |
| Comparable pricing/yield | EV/EBITDA multiples | 3.5x - 7.3x | 4.6x |
P/E multiples | 17.4x | 17.4x | |||||
P/B multiples | 0.6x - 1.0x | 0.9x | |||||
P/S multiples | N/A | N/A | |||||
Liquidity discount | 10.0% - 20.0% | 15.9% | |||||
Discounted cash flows | Discount rates | 8.4% - 16.2% | 9.5% | ||||
Derivative financial instruments of which: |
|
|
|
|
|
|
|
Foreign exchange | 8 | 5 |
| Option pricing model | Foreign exchange option implied volatility | 4.4% - 18.9% | 16.7% |
Discounted cash flows | Foreign exchange curves | 7.8% - 8.0% | 7.9% | ||||
Interest rate | 4 | 9 |
| Discounted cash flows | Interest rate curves | 5.3% - 19.6% | 8.6% |
Option pricing model | Bond option implied volatility | 17.0% - 28.0% | 24.0% | ||||
Credit | 1 | 23 |
| Discounted cash flows | Credit spreads | 1.0% - 7.9% | 1.1% |
Equity and stock index | 4 | 20 |
| Internal pricing model | Equity correlation | 1.0% - 90.0% | 58.0% |
| Equity-FX correlation | (80.0)% - 70.0% | (29.0)% | ||||
Deposits by banks | - | 56 |
| Discounted cash flows | Credit spreads | 1.0% - 1.8% | 1.4% |
Customer accounts | - | 40 |
| Discounted cash flows | Credit spreads | 1.0% - 5.8% | 2.7% |
Debt securities in issue | - | 410 |
| Discounted cash flows | Credit spreads | 0.1% - 1.4% | 0.9% |
Internal pricing model | Equity correlation | 1.0% - 90.0% | 58.0% | ||||
| Equity-FX correlation | (80.0)% - 70.0% | (29.0)% | ||||
Total | 1,548 | 563 |
|
|
|
|
|
1 The ranges of values shown in the above table represent the highest and lowest levels used in the valuation of the Group's Level 3 financial instruments as at 31 December 2019. The ranges of values used are reflective of the underlying characteristics of these Level 3 financial instruments based on the market conditions at the balance sheet date. However, these ranges of values may not represent the uncertainty in fair value measurements of the Group's Level 3 financial instruments
2 Weighted average for non-derivative financial instruments has been calculated by weighting inputs by the relative fair value. Weighted average for derivatives has been provided by weighting inputs by the risk relevant to that variable. N/A has been entered for the cases where weighted average is not a meaningful indicator
3 The Group has an equity investment in the Series B preferred shares of Ripple Labs, Inc., which owns a digital currency (XRP) and is being carried at a fair value based on the shares' initial offering price
Level 3 Summary and significant unobservable inputs continued
The following section describes the significant unobservable inputs identified in the valuation technique table:
• Comparable price/yield is a valuation methodology in which the price of a comparable instrument is used to estimate the fair value where there are no direct observable prices. Yield is the interest rate that is used to discount the future cash flows in a discounted cash flow model. Valuation using comparable instruments can be done by calculating an implied yield (or spread over a liquid benchmark) from the price of a comparable instrument, then adjusting that yield (or spread) to derive a value for the instrument. The adjustment should account for relevant differences in the financial instruments such as maturity and/or credit quality. Alternatively, a price-to-price basis can be assumed between the comparable instrument and the instrument being valued in order to establish the value of the instrument (for example, deriving a fair value for a junior unsecured bond from the price of a senior secured bond). An increase in price, in isolation, would result in a favourable movement in the fair value of the asset. An increase in yield, in isolation, would result in an unfavourable movement in the fair value of the asset
• 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 ratio multiples is the ratio of Enterprise Value (EV) to Earnings Before Interest, Taxes, Depreciation and Amortisation (EBITDA). EV is the aggregate market capitalisation and debt minus the cash and cash equivalents. An increase in EV/EBITDA multiples in isolation, will result in a favourable movement in the fair value of the unlisted firm
• Foreign exchange curves is the term structure for forward rates and swap rates between currency pairs over a specified period
• Interest rate curves is the term structure of interest rates and measure of future interest rates at a particular point in time
• Liquidity discounts in the valuation of unlisted investments primarily applied to the valuation of unlisted firms' investments to reflect the fact that these stocks are not actively traded. An increase in liquidity discount will result in unfavourable movement in the fair value of the unlisted firm
• Price-Earnings (P/E) multiples is the ratio of the Market Capitalisation to the net income after tax. The multiples are determined from multiples of listed comparables, which are observable. An increase in P/E multiple will result in a favourable movement in the fair value of the unlisted firm
• Price-Book (P/B) multiple is the ratio of the market value of equity to the book value of equity. An increase in P/B multiple will result in a favourable movement in the fair value of the unlisted firm
• Price-Sales (P/S) multiple is the ratio of the market value of equity to sales. An increase in P/S multiple will result in a favourable movement in the fair value of the unlisted firm
• Recovery rates are the expectation of the rate of return resulting from the liquidation of a particular loan. As the probability of default increases for a given instrument, the valuation of that instrument will increasingly reflect its expected recovery level assuming default. An increase in the recovery rate, in isolation, would result in a favourable movement in the fair value of the loan
• Volatility represents an estimate of how much a particular instrument, parameter or index will change in value over time. Generally, the higher the volatility, the more expensive the option will be
Level 3 movement tables - financial assets
The table below analyses movements in Level 3 financial assets carried at fair value.
Assets | Held at fair value through profit or loss | Derivative financial instruments | Investment securities | Total | |||||
Loans and advances to banks | Loans and advances to customers | Reverse repurchase agreements and other similar secured lending | Debt securities, alternative | Equity shares | Debt securities, alternative | Equity shares | |||
At 1 January 2020 | 365 | 443 | - | 200 | 228 | 17 | 38 | 257 | 1,548 |
Total gains/(losses) recognised in income statement | 16 | (15) | 1 | (20) | (54) | (6) | - | - | (78) |
Net trading income | 16 | (15) | 1 | (18) | (54) | (6) | - | - | (76) |
Other operating income | - | - | - | (2) | - | - | - | - | (2) |
Total gains recognised in other comprehensive income (OCI) | - | - | - | - | - | - | 6 | 22 | 28 |
Fair value through | - | - | - | - | - | - | 7 | 19 | 26 |
Exchange difference | - | - | - | - | - | - | (1) | 3 | 2 |
Purchases | 321 | 540 | 1,165 | 203 | 7 | 115 | 36 | 109 | 2,496 |
Sales | (164) | (28) | (102) | (237) | (37) | (70) | - | (4) | (642) |
Settlements | (416) | (567) | - | (68) | - | (7) | - | - | (1,058) |
Transfers out1 | - | (174) | - | (37) | (1) | (41) | (40) | (3) | (296) |
Transfers in2 | 78 | 519 | - | 217 | 136 | - | - | - | 950 |
At 31 December 2020 | 200 | 718 | 1,064 | 258 | 279 | 8 | 40 | 381 | 2,948 |
Total unrealised (losses)/gains recognised in the income statement, within net trading income, relating to change in fair value of assets held at | - | (6) | - | 4 | (3) | - | - | - | (5) |
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. Transfers in of $62 million further relates to Equity Shares moved from Held for Sale
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
The table below analyses movements in Level 3 financial assets carried at fair value.
Assets | Held at fair value through profit or loss | Derivative financial instruments | Investment securities | Total | |||||
Loans and advances to banks | Loans and advances to customers | Reverse repurchase agreements and other similar secured lending | Debt securities, alternative | Equity | Debt securities, alternative | Equity | |||
At 1 January 2019 | 632 | 492 | - | 317 | 327 | 12 | 412 | 230 | 2,422 |
Total (losses)/gains recognised in income statement | (25) | (31) | - | (14) | (26) | (15) | 2 | - | (109) |
Net trading income | (25) | (31) | - | (14) | (26) | (15) | - | - | (111) |
Other operating income | - | - | - | - | - | - | 2 | - | 2 |
Total (losses)/gains recognised in other comprehensive income (OCI) | - | - | - | - | - | - | (341) | 5 | (336) |
Fair value through | - | - | - | - | - | - | (4) | 12 | 8 |
Exchange difference | - | - | - | - | - | - | (337) | (7) | (344) |
Purchases | 826 | 133 | - | 106 | 139 | 109 | 156 | 26 | 1,495 |
Sales | - | (8) | - | (248) | (153) | (26) | (1) | (7) | (443) |
Settlements | (1,068) | (253) | - | (3) | - | (5) | (34) | - | (1,363) |
Transfers out1 | - | (6) | - | (86) | (134) | (75) | (161) | - | (462) |
Transfers in2 | - | 116 | - | 128 | 75 | 17 | 5 | 3 | 344 |
At 31 December 2019 | 365 | 443 | - | 200 | 228 | 17 | 38 | 257 | 1,548 |
Total unrealised gains recognised in the income statement, within net trading income, relating to change in fair value of assets held at | - | - | - | (1) | - | (1) | - | - | (2) |
1 Transfers out includes debt securities, alternative tier one and other eligible bills, equity shares, derivative financial instruments and loans and advances where the valuation parameters became observable during the year and were transferred to Level 1 and Level 2. Transfers out further relates to $74 million equity shares held for sale
2 Transfers in primarily relate to debt securities, alternative tier one and other eligible bills, loans and advances, equity shares and derivative financial instruments where the valuation parameters become unobservable during the year
Level 3 movement tables - financial liabilities
| 2020 | ||||
Deposits by banks | Customer accounts | Debt securities | Derivative financial instruments | Total | |
At 1 January 2020 | 56 | 40 | 410 | 57 | 563 |
Total losses/(gains) recognised in income statement - net trading income | 7 | (1) | (10) | 12 | 8 |
Issues | 136 | 90 | 557 | 201 | 984 |
Settlements | (53) | (116) | (575) | (118) | (862) |
Transfers out1 | - | - | (223) | (53) | (276) |
Transfers in2 | - | 8 | 1 | 20 | 29 |
At 31 December 2020 | 146 | 21 | 160 | 119 | 446 |
Total unrealised losses recognised in the income statement, within net trading income, relating to change in fair value of liabilities held at 31 December 2020 | - | 1 | - | 1 | 2 |
| 2019 | ||||
Deposits by banks | Customer accounts | Debt securities | Derivative financial instruments³ | Total | |
At 1 January 2019 | 4 | - | 439 | 65 | 508 |
Total(gains)/losses recognised in income statement - | (1) | (2) | 22 | 54 | 73 |
Issues | 53 | 41 | 592 | 436 | 1,122 |
Settlements | - | - | (522) | (642) | (1,164) |
Transfers out1 | - | - | (121) | (13) | (134) |
Transfers in2 | - | 1 | - | 157 | 158 |
At 31 December 2019 | 56 | 40 | 410 | 57 | 563 |
Total unrealised (gains)/losses recognised in the income statement, within net trading income, relating to change in fair value of liabilities held at 31 December 2019 | - | (2) | 16 | 2 | 16 |
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, customer accounts and debt securities in issue where the valuation parameters become unobservable during the year
3 Prior period movements have been restated on account of restatement done during 2019 due to change in observability parameters
Sensitivities in respect of the fair values of Level 3 assets and liabilities
Sensitivity analysis is performed on products with significant unobservable inputs. The Group applies a 10 per cent increase or decrease on the values of these unobservable inputs, to generate a range of reasonably possible alternative valuations. The percentage shift is determined by statistical 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 profit or loss |
| Fair value through other comprehensive income | ||||
Net exposure | Favourable | Unfavourable | Net exposure | Favourable | Unfavourable | ||
Financial instruments held at fair value |
|
|
|
|
|
|
|
Loans and advances | 918 | 947 | 867 |
| - | - | - |
Reverse repurchase agreements and other similar secured lending | 1,064 | 1,089 | 1,040 |
| - | - | - |
Asset-backed securities | 87 | 94 | 80 |
| - | - | - |
Debt securities, alternative tier one and other eligible bills | 171 | 183 | 159 |
| 40 | 40 | 39 |
Equity shares | 279 | 307 | 251 |
| 381 | 418 | 345 |
Derivative financial instruments | (111) | (98) | (126) |
| - | - | - |
Customer accounts | (21) | (18) | (24) |
| - | - | - |
Deposits by banks | (146) | (146) | (146) |
| - | - | - |
Debt securities in issue | (160) | (154) | (167) |
| - | - | - |
At 31 December 2020 | 2,081 | 2,204 | 1,934 |
| 421 | 458 | 384 |
|
|
|
|
|
|
|
|
Financial instruments held at fair value |
|
|
|
|
|
|
|
Loans and advances | 808 | 820 | 787 |
| - | - | - |
Asset-backed securities | 21 | 21 | 21 |
| - | - | - |
Debt securities, alternative tier one and other eligible bills | 179 | 189 | 170 |
| 38 | 38 | 38 |
Equity shares | 228 | 255 | 201 |
| 257 | 283 | 231 |
Derivative financial instruments | (40) | (34) | (46) |
| - | - | - |
Customer accounts | (40) | (40) | (40) |
| - | - | - |
Deposits by banks | (56) | (56) | (56) |
| - | - | - |
Debt securities in issue | (410) | (379) | (441) |
| - | - | - |
At 31 December 2019 | 690 | 776 | 596 |
| 295 | 321 | 269 |
The reasonably possible alternatives could have increased or decreased the fair values of financial instruments held at fair value through profit or loss and those classified as fair value through other comprehensive income by the amounts disclosed below.
Financial instruments | Fair value changes | 2020 | 2019 |
Held at fair value through profit or loss | Possible increase | 123 | 86 |
Possible decrease | (147) | (94) | |
Fair value through other comprehensive income | Possible increase | 37 | 26 |
Possible decrease | (37) | (26) |
14. Derivative financial instruments
Accounting policy
Derivatives are financial instruments that derive their value in response to changes in interest rates, financial instrument prices, commodity prices, foreign exchange rates, credit risk and indices. Derivatives are categorised as trading unless they are designated as hedging instruments.
Derivatives are initially recognised and subsequently measured at fair value, with revaluation gains recognised in profit or loss (except where cash flow or net investment hedging has been achieved, in which case the effective portion of changes in fair value is recognised within other comprehensive income).
Fair values may be obtained from quoted market prices in active markets, recent market transactions, and valuation techniques, including discounted cash flow models and option pricing models, as appropriate. Where the initially recognised fair value of a derivative contract is based on a valuation model that uses inputs which are not observable in the market, it follows the same initial recognition accounting policy as for other financial assets and liabilities. All derivatives are carried as assets when fair value is positive and as liabilities when fair value is negative.
Hedge accounting
Under certain conditions, the Group may designate a recognised asset or liability, a firm commitment, highly probable forecast transaction or net investment of a foreign operation into a formal hedge accounting relationship with a derivative that has been entered to manage interest rate and/or foreign exchange risks present in the hedged item. The Group continues to apply the 'Phase 1' hedge accounting requirements of IAS 39 Financial Instruments: Recognition and Measurement and has early adopted the 'Phase 2' amendments to IFRS in respect of interest rate benchmark reform. There are three categories of hedge relationships:
• Fair value hedge: to manage the fair value of interest rate and/or foreign currency risks of recognised assets or liabilities or firm commitments
• Cash flow hedge: to manage interest rate or foreign exchange risk of highly probable future cash flows attributable to a recognised asset or liability, or a forecasted transaction
• Net investment hedge: to manage the structural foreign exchange risk of an investment in a foreign operation
The Group formally documents at the inception of the transaction the relationship between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking hedge transactions. This is described in more detail in the categories of hedges below.
The Group assesses, both at hedge inception and on a quarterly basis, whether the derivatives designated in hedge relationships are highly effective in offsetting changes in fair values or cash flows of hedged items. Hedges are considered to be highly effective if all the following criteria are met:
• At inception of the hedge and throughout its life, the hedge is prospectively expected to be highly effective in achieving offsetting changes in fair value or cash flows attributable to the hedged risk
• Actual results of the hedge are within a range of 80-125%. This is tested using regression analysis
• The regression co-efficient (R squared), which measures the correlation between the variables in the regression, is at least 80%
• In the case of the hedge of a forecast transaction, the transaction must have a high probability of occurring and must present an exposure to variations in cash flows that are expected to affect reported profit or loss. The Group assumes that any interest rate benchmarks on which hedged item cash flows are based are not altered by IBOR reform
The Group discontinues hedge accounting in any of the following circumstances:
• The hedging instrument is not, or has ceased to be, highly effective as a hedge
• The hedging instrument has expired, is sold, terminated or exercised
• The hedged item matures, is sold or repaid
• The forecast transaction is no longer deemed highly probable
• The Group elects to discontinue hedge accounting voluntarily
For interest rate benchmarks deemed in scope of IBOR reform, if the actual result of a hedge is outside the 80-125% range, but the hedge passes the prospective assessment, then the Group will not de-designate the hedge relationship.
Under the Phase 2 Interest Rate Benchmark Reform amendments to IFRS 9 and IAS 39, the Group may change hedge designations and corresponding documentation without the hedge being discontinued where there is a change in interest rate benchmark of the hedged item, hedging instrument or designated hedged risk. Permitted changes include the right to:
• Redefine the description of the hedged item and/or hedging instrument
• Redefine the hedged risk to reference an alternative risk-free rate
• Change the method for assessing hedge effectiveness due to modifications required by IBOR reform
• Elect, on a hedge-by-hedge basis, to reset the cumulative fair value changes in the assessment of retrospective hedge effectiveness to zero
A hedge designation may be modified more than once, each time a relationship is affected as a direct result of IBOR reform.
Fair value hedge
Changes in the fair value of derivatives that are designated and qualify as fair value hedging instruments are recorded in net trading income, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk. If the hedge no longer meets the criteria for hedge accounting, the adjustment to the carrying amount of a hedged item for which the effective interest method is used is amortised to the income statement over the remaining term to maturity of the hedged item. If the hedged item is sold or repaid, the unamortised fair value adjustment is recognised immediately in the income statement. For financial assets classified as fair value through other comprehensive income, the hedge accounting adjustment attributable to the hedged risk is included in net trading income to match the hedging derivative.
Cash flow hedge
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedging instruments are initially recognised in other comprehensive income, accumulating in the cash flow hedge reserve within equity. These amounts are subsequently recycled to the income statement in the periods when the hedged item affects profit or loss. Both the derivative fair value movement and any recycled amount are recorded in the 'Cashflow hedges' line item in other comprehensive income.
The Group assesses hedge effectiveness using the hypothetical derivative method, which creates a derivative instrument to serve as a proxy for the hedged transaction. The terms of the hypothetical derivative match the critical terms of the hedged item and it has a fair value of zero at inception. The hypothetical derivative and the actual derivative are regressed to establish the statistical significance of the hedge relationship. Any ineffective portion of the gain or loss on the hedging instrument is recognised in the net trading income immediately.
If a cash flow hedge is discontinued, the amount accumulated in the cash flow hedge reserve is released to the income statement as and when the hedged item affects the income statement.
For interest rate benchmarks deemed in scope of IBOR reform, the Group will retain the cumulative gain or loss in the cash flow hedge reserve for designated cash flow hedges even though there is uncertainty arising from these reforms with respect to the timing and amount of the cash flows of the hedged items. Should the Group consider the hedged future cash flows are no longer expected to occur due to reasons other than IBOR reform, the cumulative gain or loss will be immediately reclassified to profit or loss.
Net investment hedge
Hedges of net investments are accounted for in a similar manner to cash flow hedges, with gains and losses arising on the effective portion of the hedges recorded in the line 'Exchange differences on translation of foreign operations' in other comprehensive income, accumulating in the translation reserve within equity. These amounts remain in equity until the net investment is disposed of. The ineffective portion of the hedges is recognised in the net trading income immediately.
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
| 2020 |
| 2019 | ||||
Notional principal amounts | Assets | Liabilities | Notional principal amounts | Assets | Liabilities | ||
Foreign exchange derivative contracts: |
|
|
|
|
|
|
|
Forward foreign exchange contracts | 3,018,866 | 37,505 | 39,181 |
| 2,290,781 | 16,281 | 16,396 |
Currency swaps and options | 1,423,520 | 17,142 | 17,904 |
| 806,226 | 9,725 | 10,530 |
Exchange traded futures and options | - | - | - |
| - | - | - |
| 4,442,386 | 54,647 | 57,085 |
| 3,097,007 | 26,006 | 26,926 |
Interest rate derivative contracts: |
|
|
|
|
|
|
|
Swaps | 3,165,532 | 52,755 | 50,982 |
| 4,046,209 | 34,011 | 33,351 |
Forward rate agreements and options | 606,357 | 1,350 | 1,770 |
| 284,973 | 1,826 | 2,061 |
Exchange traded futures and options | 261,372 | 233 | 184 |
| 359,031 | 179 | 161 |
| 4,033,261 | 54,338 | 52,936 |
| 4,690,213 | 36,016 | 35,573 |
Credit derivative contracts | 140,437 | 1,702 | 2,990 |
| 80,972 | 1,232 | 1,915 |
Equity and stock index options | 6,018 | 110 | 260 |
| 3,412 | 27 | 96 |
Commodity derivative contracts | 67,664 | 1,182 | 774 |
| 79,458 | 573 | 616 |
Gross total derivatives | 8,689,766 | 111,979 | 114,045 |
| 7,951,062 | 63,854 | 65,126 |
Offset | - | (42,512) | (42,512) |
| - | (16,642) | (16,642) |
Total derivatives | 8,689,766 | 69,467 | 71,533 |
| 7,951,062 | 47,212 | 48,484 |
The Group limits exposure to credit losses in the event of default by entering into master netting agreements with certain market counterparties. As required by IAS 32, exposures are only presented net in these accounts where they are subject to legal right of offset and intended to be settled net in the ordinary course of business.
The Group applies balance sheet offsetting only in the instance where we are able to demonstrate legal enforceability of the right to offset (e.g. via legal opinion) and the ability and intention to settle on a net basis (e.g. via operational practice).
The Group has met the criteria to offset the derivative asset and liability balances and related variation margin for trades cleared on behalf of clients with LCH SwapClear. This applies to both trades between the Group and the clients and between the Group and LCH SwapClear. The impact of this as at 31 December 2020 is a decrease in the derivative assets and derivative liabilities of $15.4 billion. Prior periods have not been restated as the effect would not be material. The impact at 31 December 2019 would have been a decrease in the derivative assets and derivative liabilities of $8.7 billion.
The Group has also met the criteria to derecognise initial margin for trades cleared on behalf of clients with LCH SwapClear. The impact of this as at 31 December 2020 is a decrease in other assets and other liabilities of $1.4 billion. Prior periods have not been restated as the effect would not be material. The impact at 31 December 2019 would have been a decrease in other assets and other liabilities of $3.2 billion.
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.
The Derivatives and Hedging sections of the Risk review and Capital review explain the Group's risk management of derivative contracts and application of hedging.
Derivatives held for hedging
The Group enters into derivative contracts for the purpose of hedging interest rate, currency and structural foreign exchange risks inherent in assets, liabilities and forecast transactions. The table below summarises the notional principal amounts and carrying values of derivatives designated in hedge accounting relationships at the reporting date.
| 2020 |
| 2019 | ||||
Notional principal amounts | Assets | Liabilities | Notional principal amounts | Assets | Liabilities | ||
Derivatives designated as fair value hedges: |
|
|
|
|
|
|
|
Interest rate swaps | 70,846 | 1,500 | 712 |
| 69,121 | 617 | 589 |
Currency swaps | 4,136 | 25 | 179 |
| 8,405 | 47 | 774 |
| 74,982 | 1,525 | 891 |
| 77,526 | 664 | 1,363 |
Derivatives designated as cash flow hedges: |
|
|
|
|
|
|
|
Interest rate swaps | 9,347 | 83 | 129 |
| 9,277 | 53 | 74 |
Forward foreign exchange contracts | 164 | 21 | - |
| 289 | 6 | 20 |
Currency swaps | 9,935 | 12 | 340 |
| 5,254 | 34 | 51 |
| 19,446 | 116 | 469 |
| 14,820 | 93 | 145 |
Derivatives designated as net investment hedges: |
|
|
|
|
|
|
|
Forward foreign exchange contracts | 5,376 | - | 383 |
| 5,103 | 31 | 70 |
Total derivatives held for hedging | 99,804 | 1,641 | 1,743 |
| 97,449 | 788 | 1,578 |
Fair value hedges
The Group issues various long-term fixed rate debt issuances that are measured at amortised cost, including some denominated in foreign currency, such as unsecured senior and subordinated debt (see Notes 22 and 27). The Group also holds various fixed rate debt securities such as government and corporate bonds, including some denominated in foreign currency (see Note 13). These assets and liabilities held are exposed to changes in fair value due to movements in market interest and foreign currency rates.
The Group uses interest rate swaps to exchange fixed rates for floating rates on funding to match floating rates received on assets, or exchange fixed rates on assets to match floating rates paid on funding. The Group further uses cross currency swaps to match the currency of the issued debt or held asset with that of the entity's functional currency.
Hedge ineffectiveness from fair value hedges is driven by cross currency basis risk. The amortisation of fair value hedge adjustments for hedged items no longer designated is recognised in net trading income. In future periods hedge relationships linked to an interest rate benchmark deemed in scope of benchmark reform may experience ineffectiveness due to market participants' expectations for when the change from the existing IBOR benchmark to an alternative risk-free rate will occur, since the transition may occur at different times for the hedged item and hedging instrument.
At 31 December 2020 the Group held the following interest rate and cross currency swaps as hedging instruments in fair value hedges of interest and currency risk.
Hedging instruments and ineffectiveness
Interest rate1 | 2020 | ||||
Notional | Carrying amount | Change in fair | Ineffectiveness recognised in | ||
Asset | Liability | ||||
Interest rate swaps - issued notes | 29,598 | 1,475 | 14 | 858 | 17 |
Interest rate swaps - loans and advances | 2,535 | 2 | 38 | (27) | - |
Interest rate swaps - debt securities and other eligible bills | 38,713 | 23 | 660 | (934) | 3 |
Interest and currency risk1 |
|
|
|
|
|
Cross currency swaps - subordinated notes issued | 3,329 | 17 | 146 | 267 | 5 |
Cross currency swaps - debt securities and other eligible bills | 807 | 8 | 33 | (70) | (2) |
Total at 31 December 2020 | 74,982 | 1,525 | 891 | 94 | 23 |
1 Interest rate swaps are designated in hedges of the fair value of interest rate risk attributable to the hedged item. Cross currency swaps are used to hedge both interest rate and currency risks. All of the hedging instruments are derivatives, with changes in fair value including hedge ineffectiveness recorded within net trading income
Interest rate1 | 2019 | ||||
Notional | Carrying amount | Change in fair | Ineffectiveness recognised in | ||
Asset | Liability | ||||
Interest rate swaps - issued notes | 22,029 | 559 | 44 | 511 | - |
Interest rate swaps - loans and advances | 1,410 | 1 | 24 | (22) | (1) |
Interest rate swaps - debt securities and other eligible bills | 45,682 | 57 | 521 | (589) | 12 |
Interest and currency risk1 |
|
|
|
|
|
Cross currency swaps - subordinated notes issued | 5,451 | 17 | 751 | 32 | 6 |
Cross currency swaps - debt securities and other eligible bills | 2,954 | 30 | 23 | (18) | 1 |
Total at 31 December 2019 | 77,526 | 664 | 1,363 | (86) | 18 |
1 Interest rate swaps are designated in hedges of the fair value of interest rate risk attributable to the hedged item. Cross currency swaps are used to hedge both interest rate and currency risks. All of the hedging instruments are derivatives, with changes in fair value including hedge ineffectiveness recorded within net trading income
Hedged items in fair value hedges
| 2020 | ||||||
Carrying amount |
| Accumulated amount of fair value hedge adjustments included in the | Change in the | Cumulative | |||
Asset | Liability | Asset | Liability | ||||
Issued notes | - | 33,737 |
| - | 1,096 | (1,103) | 856 |
Debt securities and other eligible bills | 40,663 | - |
| 577 | - | 1,005 | (92) |
Loans and advances to customers | 2,561 | - |
| 32 | - | 27 | - |
Total at 31 December 2020 | 43,224 | 33,737 |
| 609 | 1,096 | (71) | 764 |
| 2019 | ||||||
Carrying amount |
| Accumulated amount of fair value | Change in fair | Cumulative | |||
Asset | Liability | Asset | Liability | ||||
Issued notes | - | 27,921 |
| - | 271 | (537) | 611 |
Debt securities and other eligible bills | 49,190 | - |
| 373 | - | 620 | (120) |
Loans and advances to customers | 1,431 | - |
| 22 | - | 21 | - |
Total at 31 December 2019 | 50,621 | 27,921 |
| 395 | 271 | 104 | 491 |
1 This represents a credit/(debit) to the balance sheet value
Income statement impact of fair value hedges
| 2020 | 2019 |
Change in fair value of hedging instruments | 94 | (86) |
Change in fair value of hedged risks attributable to hedged items | (71) | 104 |
Net ineffectiveness gain to net trading income | 23 | 18 |
Amortisation loss to net interest income | (31) | (5) |
Cash flow hedges
The Group has exposure to market movements in future interest cash flows on portfolios of customer accounts, debt securities and loans and advances to customers. The amounts and timing of future cash flows, representing both principal and interest flows, are projected on the basis of contractual terms and other relevant factors, including estimates of prepayments and defaults.
The hedging strategy of the Group involves using interest rate swaps to manage the variability in future cash flows on assets and liabilities that have floating rates of interest by exchanging the floating rates for fixed rates. It also uses foreign exchange contracts and currency swaps to manage the variability in future exchange rates on its assets and liabilities and costs in foreign currencies. This is done on both a micro basis whereby a single interest rate or cross currency swap is designated in a separate relationship with a single hedged item (such as a floating rate loan to a customer), and on a portfolio basis whereby each hedging instrument is designated against a group of hedged items that share the same risk (such as a group of customer accounts).
The hedged risk is determined as the variability of future cash flows arising from changes in the designated benchmark interest rate, e.g. one-month or three-month LIBOR.
Hedging instruments and ineffectiveness
| 2020 | ||||||
Notional | Carrying amount | Change in fair value used to calculate hedge ineffectiveness | Gain/(loss) recognised | Ineffectiveness gain/(loss) recognised in net trading income | Amount reclassified from reserves to income | ||
Asset | Liability | ||||||
Interest rate risk |
|
|
|
|
|
|
|
Interest rate swaps | 9,347 | 83 | 129 | (45) | (45) | - | - |
Currency risk |
|
|
|
|
|
|
|
Forward foreign exchange contract | 164 | 21 | - | 14 | 14 | - | - |
Cross currency swaps | 9,935 | 12 | 340 | (261) | (261) | - | - |
Total as at 31 December 2020 | 19,446 | 116 | 469 | (292) | (292) | - | - |
| 2019 | ||||||
Notional | Carrying amount | Change in fair value used to calculate hedge ineffectiveness | Gain/(loss) recognised | Ineffectiveness gain/(loss) recognised in net trading income | Amount reclassified from reserves to income | ||
Asset | Liability | ||||||
Interest rate risk |
|
|
|
|
|
|
|
Interest rate swaps | 9,277 | 53 | 74 | (87) | (87) | - | - |
Currency risk |
|
|
|
|
|
|
|
Forward foreign exchange contract | 289 | 6 | 20 | 6 | 6 | - | - |
Cross currency swaps | 5,254 | 34 | 51 | (5) | (5) | - | (2) |
Total as at 31 December 2019 | 14,820 | 93 | 145 | (86) | (86) | - | (2) |
Hedged items in cash flow hedges
| 2020 | ||
Change in fair | Cash flow | Cumulative balance in the cash flow hedge reserve from de-designated hedge relationships | |
Customer accounts | 105 | (110) | (8) |
Debt securities and other eligible bills | 92 | 16 | - |
Loans and advances to customers | (45) | 34 | 1 |
Forecast cashflow currency hedge | (14) | 21 | - |
Intragroup lending currency hedge | 169 | 5 | - |
Intragroup borrowing currency hedge | (15) | 2 | - |
Total at 31 December 2020 | 292 | (32) | (7) |
| 2019 | ||
Change in fair | Cash flow | Cumulative balance in the cash flow hedge reserve from de-designated hedge relationships | |
Customer accounts | 86 | (58) | (4) |
Debt securities and other eligible bills | (3) | 1 | - |
Loans and advances to customers | (28) | (10) | (4) |
Forecast cashflow currency hedge | 40 | - | - |
Intragroup lending currency hedge | (9) | (6) | - |
Total at 31 December 2019 | 86 | (73) | (8) |
Impact of cash flow hedges on profit and loss and other comprehensive income
| 2020 | 2019 |
Cash flow hedge reserve balance as at 1 January | (59) | (10) |
Loss recognised in other comprehensive income on effective portion of changes in fair value of | (25) | (64) |
Gain transferred to net trading income on hedging instruments no longer in a hedging relationship | - | 10 |
Gain reclassified to income statement when hedged item affected net profit | 17 | 11 |
Taxation charge relating to cash flow hedges | 15 | (6) |
Cash flow hedge reserve balance as at 31 December | (52) | (59) |
Net investment hedges
Foreign currency exposures arise from investments in subsidiaries that have a different functional currency from that of the presentation currency of the Group. This risk arises from the fluctuation in spot exchange rates between the functional currency of the subsidiaries and the Group's presentation currency, which causes the value of the investment to vary.
The Group's policy is to hedge these exposures only when not doing so would be expected to have a significant impact on the regulatory ratios of the Group and its banking subsidiaries. The Group uses foreign exchange forwards to manage the effect of exchange rates on its net investments in foreign subsidiaries.
Hedging instruments and ineffectiveness
| 2020 | ||||||
Notional | Carrying amount | Change in fair value used to calculate hedge ineffectiveness | Changes in the value of the hedging instrument recognised | Ineffectiveness recognised in profit or loss | Amount reclassified | ||
Asset | Liability | ||||||
Derivative forward currency contracts¹ | 5,376 | - | 383 | (286) | (286) | - | - |
| 2019 | ||||||
Notional | Carrying amount | Change in fair value used to calculate hedge ineffectiveness | Changes in the value of the hedging instrument recognised | Ineffectiveness recognised in profit or loss | Amount reclassified | ||
Asset | Liability | ||||||
Derivative forward currency contracts¹ | 5,103 | 31 | 70 | 98 | 98 | - | - |
1 These derivative forward currency contracts have a maturity of less than one year. The hedges are rolled on a periodic basis
Hedged items in net investment hedges
| 2020 | ||
Change in the | Translation reserve | Balances remaining in the translation reserve from hedging relationships for which hedge accounting is no longer applied | |
Net investments | 286 | (383) | - |
| 2019 | ||
Change in the | Translation reserve | Balances remaining in the translation reserve from hedging relationships for which hedge accounting is no longer applied | |
Net investments | (98) | 98 | - |
Impact of net investment hedges on other comprehensive income
| 2020 | 2019 |
Gains/(losses) recognised in other comprehensive income | (287) | 191 |
Maturity of hedging instruments
Fair value hedges |
| 2020 | |||
Less than | More than | One to | More than | ||
Interest rate swap |
|
|
|
|
|
Notional | $million | 2,334 | 13,908 | 40,768 | 13,836 |
|
|
|
|
|
|
Average fixed interest rate | USD | 1.44% | 1.28% | 1.47% | 1.64% |
| EUR | - | 1.86% | 1.49% | 1.72% |
Cross currency swap |
|
|
|
|
|
Notional | $million | 837 | 1,384 | 1,915 | - |
|
|
|
|
|
|
Average fixed interest rate (to USD) | EUR | 0.25% | 1.63% | 3.43% | - |
JPY | (0.12)% | - | (0.23)% | - | |
|
|
|
|
|
|
Average exchange rate | EUR/USD | 0.82 | 0.74 | 0.79 | - |
JPY/USD | 109.93 | - | 107.91 | - | |
Cash flow hedges
Interest rate swap |
|
|
|
|
|
Notional | $million | - | 3,428 | 4,686 | 1,233 |
|
|
|
|
|
|
Average fixed interest rate | HKD | - | 1.46% | 0.62% | - |
| USD | - | 0.96% | 1.80% | 1.32% |
Cross currency swap |
|
|
|
|
|
Notional | $million | - | 7,822 | 2,084 | 29 |
|
|
|
|
|
|
Average fixed interest rate | HKD | - | 1.15% | - | - |
KRO | - | 0.79% | - | - | |
TWD¹ | - | (0.63)% | - | - | |
JPY | - | (0.21)% | (0.16)% | - | |
|
|
|
|
|
|
Average exchange rate | HKD/USD | - | 7.75 | - | - |
KRO/USD | - | 1,174.75 | - | - | |
TWD¹/USD | - | 29.88 | - | - | |
JPY/USD | - | 107.54 | 107.12 | - | |
Forward foreign exchange contracts |
|
|
|
|
|
Notional | $million | 27 | 137 | - | - |
|
|
|
|
|
|
Average exchange rate | GBP/USD | 0.84 | 0.84 | - | - |
Net investment hedges
Foreign exchange derivatives |
|
|
|
|
|
Notional | $million | 5,376 | - | - | - |
|
|
|
|
|
|
Average exchange rate | CNY¹/USD | 7.07 | - | - | - |
KRW¹/USD | 1,197.02 | - | - | - | |
TWD¹/USD | 28.89 | - | - | - |
1 Offshore currency
Maturity of hedging instruments
Fair value hedges |
| 2019 | |||
Less than | More than | One to | More than | ||
Interest rate swap |
|
|
|
|
|
Notional | $million | 433 | 12,032 | 46,229 | 10,427 |
|
|
|
|
|
|
Average fixed interest rate | USD | 2.78% | 2.50% | 2.47% | 4.05% |
Cross currency swap |
|
|
|
|
|
Notional | $million | 92 | 4,267 | 3,379 | 667 |
|
|
|
|
|
|
Average fixed interest rate (to USD) | EUR | - | 4.00% | 2.61% | - |
GBP | - | 5.38% | 4.71% | 4.38% | |
JPY | (0.16)% | (0.17)% | - | - | |
|
|
|
|
|
|
Average exchange rate | EUR/USD | - | 0.74 | 0.77 | - |
GBP/USD | - | 0.55 | 0.63 | 0.62 | |
JPY/USD | 107.90 | 109.90 | - | - | |
Cash flow hedges
Interest rate swap |
|
|
|
|
|
Notional | $million | 193 | 4,440 | 3,891 | 753 |
|
|
|
|
|
|
Average fixed interest rate | HKD | 1.91% | 1.95% | 1.80% | - |
USD | - | 2.72% | 1.65% | 2.46% | |
Cross currency swap |
|
|
|
|
|
Notional | $million | 403 | 4,121 | 730 | - |
|
|
|
|
|
|
Average fixed interest rate | CNY1 | 3.22% | 3.49% | 3.94% | - |
HKD | - | 2.52% | - | - | |
INR1 | - | 4.32% | 3.85% | - | |
KRW1 | - | 1.25% | - | - | |
|
|
|
|
|
|
Average exchange rate | CNY1/USD | 6.86 | 6.93 | 7.08 | - |
HKD/USD | - | 7.84 | - | - | |
INR1/USD | - | 69.43 | 68.85 | - | |
KRW1/USD | - | 1,201.23 | - | - | |
Forward foreign exchange contracts |
|
|
|
|
|
Notional | $million | 196 | 93 | - | - |
|
|
|
|
|
|
Average exchange rate | INR1/USD | 81.20 | - | - | - |
INR/USD | 81.01 | - | - | - | |
GBP/USD | 0.80 | 0.79 | - | - |
Net investment hedges
Foreign exchange derivatives |
|
|
|
|
|
Notional | $million | 5,103 | - | - | - |
|
|
|
|
|
|
Average exchange rate | CNY/USD | 6.90 | - | - | - |
KRW/USD | 1,188.90 | - | - | - | |
TWD/USD | 30.56 | - | - | - |
1 Offshore currency
Interest rate benchmark reform
The Group applies the Phase 1 'Interest Rate Benchmark Reform Amendments to IFRS 9, IAS 39 and IFRS 7' which allow the Group to assume that the interest rate benchmark on which cash flows for the hedged item and/or hedging instrument are based is are altered as a result of IBOR reform for the following activities:
• Prospective hedge assessment
• Determining whether a cash flow or forecast transaction for a cash flow hedge is highly probable. However, the Group otherwise assesses whether the cash flows are considered highly probable
• Determining when cumulative balances in the cash flow hedge reserve from de-designated hedges should be recycled to the income statement
The Group will not de-designate a hedge relationship of a benchmark in scope of IBOR reform if the retrospective hedge result is outside the required 80-125% range but, the hedge passes the prospective assessment. Any hedge ineffectiveness continues to be recorded in net trading income.
For hedges of non-contractually specified benchmark portions of an interest rate (such as fair value hedges of interest rate risk on fixed rate debt instruments) the Group only assesses whether the designated benchmark is separately identifiable at hedge inception. The choice of designated benchmark is not revisited for existing hedge relationships.
In applying these amendments, the Group has made the following key assumptions for the period end, to be reviewed on an ongoing basis:
• The interest rate benchmarks applicable to the Group that are in scope of the IFRS amendments are all LIBORs, EONIA, Singapore Swap Offer Rate (SGD SOR) and Thai Baht Interest Rate Fixing (THB FIX)
• EURIBOR is not in scope of the IFRS amendments because its revised methodology incorporates market transaction data, hence the benchmark is expected to continue to exist in future reporting periods
• The Group believes it is too early to reliably estimate when interest rate benchmark uncertainty will be resolved for all benchmarks assumed to be in scope of the amendments. It therefore assumes that the uncertainty arising from interest rate benchmark reform will be present until 31 December 2021, at which time the amendments to IFRS no longer apply
The Group has established an IBOR Transition Programme that is overseen by the Group's Chief Operating Officer, and updates a number of committees including the Board Risk Committee and Group Risk Committee regularly updated. The programme comprises a series of business and function workstreams, with oversight and coordination of the specific areas and risks provided by a central project team. The key objectives of these workstreams include identifying all contracts in scope of benchmark reform, upgrading internal systems to support business in the alternative RFR product suite, identifying and communicating to customers with whom repricing and/or re-papering IBOR-referenced contracts is required and executing the necessary change in contracts. Workstreams actively participate in industry-wide working groups to ensure they are kept informed of the latest developments and are consistent with the approaches of other market participants.
As at 31 December 2020, the following populations of derivative instruments designated in fair value or cash flow hedge accounting relationships were linked to IBOR reference rates:
| Fair value hedges |
| Cash flow hedges | Total | Weighted | ||
Notional | Notional | Notional | Notional | ||||
Interest rate swaps |
|
|
|
|
|
|
|
USD LIBOR | 9,454 | 36,024 |
| 345 | 2,733 | 48,556 | 3.2 |
GBP LIBOR | 268 | 1,720 |
| 89 | - | 2,077 | 10.9 |
JPY LIBOR | 552 | 1,785 |
| - | - | 2,337 | 3.0 |
SGD SOR | 360 | 123 |
| - | - | 483 | 1.2 |
| 10,634 | 39,652 |
| 434 | 2,733 | 53,453 | 3.5 |
Cross currency swaps |
|
|
|
|
|
|
|
USD LIBOR vs Fixed rate foreign currency | 2,221 | 1,915 |
| - | - | 4,136 | 1.3 |
Total notional of hedging instruments | 12,855 | 41,567 |
| 434 | 2,733 | 57,589 | 3.4 |
| Fair value hedges |
| Cash flow hedges | Total | Weighted | ||
Notional | Notional | Notional | Notional | ||||
Interest rate swaps |
|
|
|
|
|
|
|
USD LIBOR | 26,159 | 25,622 |
| 950 | 2,559 | 55,290 | 2.7 |
GBP LIBOR | 613 | 4,049 |
| - | - | 4,662 | 5.5 |
JPY LIBOR | 1,429 | 569 |
| - | - | 1,998 | 2.4 |
SGD SOR | 563 | 132 |
| - | - | 695 | 1.7 |
| 28,764 | 30,372 |
| 950 | 2,559 | 62,645 | 2.9 |
Cross currency swaps |
|
|
|
|
|
|
|
USD LIBOR vs Fixed rate foreign currency | 6,216 | 2,189 |
| - | - | 8,405 | 2.7 |
Total notional of hedging instruments in scope of IFRS amendments as at | 34,980 | 32,561 |
| 950 | 2,559 | 71,050 | 2.9 |
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. Loans and advances to banks and customers
Accounting policy
Refer to Note 13 Financial instruments for the relevant accounting policy
| 2020 | 2019 |
Loans and advances to banks | 44,364 | 53,558 |
Expected credit loss | (17) | (9) |
| 44,347 | 53,549 |
|
|
|
Loans and advances to customers | 288,312 | 274,306 |
Expected credit loss | (6,613) | (5,783) |
| 281,699 | 268,523 |
Total loans and advances to banks and customers | 326,046 | 322,072 |
The Group has outstanding residential mortgage loans to Korea residents of $22.1 billion (31 December 2019: $17.8 billion) and Hong Kong residents of $32 billion (31 December 2019: $29.9 billion).
Analysis of loans and advances to customers by geographic region and client segment together with their related impairment provisions are set out within the Risk review and Capital review.
16. Reverse repurchase and repurchase agreements including other similar lending and borrowing
Accounting policy
The Group purchases securities (a reverse repurchase agreement - 'reverse repo') typically with financial institutions subject to a commitment to resell or return the securities at a predetermined price. These securities are not included in the balance sheet as the Group does not acquire the risks and rewards of ownership, however they are recorded off-balance sheet as collateral received. Consideration paid (or cash collateral provided) is accounted for as a loan asset at amortised cost, unless it is managed on a fair value basis or designated at fair value through profit or loss. In the majority of cases through the contractual terms of a reverse repo arrangement, the Group as the transferee of the security collateral has the right to sell or repledge the asset concerned.
The Group also sells securities (a repurchase agreement - 'repo') subject to a commitment to repurchase or redeem the securities at a predetermined price. The securities are retained on the balance sheet as the Group retains substantially all the risks and rewards of ownership and these securities are disclosed as pledged collateral. Consideration received (or cash collateral received) is accounted for as a financial liability at amortised cost, unless it is either mandatorily classified as fair value through profit or loss or irrevocably designated at fair value through profit or loss at initial recognition.
Financial assets are pledged as collateral as part of sales and repurchases, securities borrowing and securitisation transactions under terms that are usual and customary for such activities. The Group is obliged to return equivalent securities.
Repo and reverse repo transactions typically entitle the Group and its counterparties to have recourse to assets similar to those provided as collateral in the event of a default. Securities sold subject to repos, either by way of a Global Master Repurchase Agreement (GMRA), or through a securities sale and Total Return Swap (TRS) continue to be recognised on the balance sheet as the Group retains substantially the associated risks and rewards of the securities (the TRS is not recognised). The counterparty liability is included in deposits by banks or customer accounts, as appropriate. Assets sold under repurchase agreements are considered encumbered as the Group cannot pledge these to obtain funding.
Reverse repurchase agreements and other similar secured lending
| 2020 | 2019 |
Banks | 19,452 | 19,610 |
Customers | 48,119 | 40,804 |
| 67,571 | 60,414 |
Of which: |
|
|
Fair value through profit or loss | 63,405 | 57,604 |
Banks | 18,205 | 18,269 |
Customers | 45,200 | 39,335 |
Held at amortised cost | 4,166 | 2,810 |
Banks | 1,247 | 1,341 |
Customers | 2,919 | 1,469 |
|
|
|
Under reverse repurchase and securities borrowing arrangements, the Group obtains securities on terms which permit it to repledge or resell the securities to others. Amounts on such terms are:
| 2020 | 2019 |
Securities and collateral received (at fair value) | 99,676 | 86,308 |
Securities and collateral which can be repledged or sold (at fair value) | 99,238 | 85,415 |
Amounts repledged/transferred to others for financing activities, to satisfy liabilities under sale and repurchase agreements (at fair value) | 46,209 | 44,530 |
Repurchase agreements and other similar secured borrowing
| 2020 | 2019 |
Banks | 6,647 | 7,789 |
Customers | 43,918 | 40,429 |
| 50,565 | 48,218 |
Of which: |
|
|
Fair value through profit or loss | 48,662 | 46,283 |
Banks | 6,107 | 7,401 |
Customers | 42,555 | 38,882 |
Held at amortised cost | 1,903 | 1,935 |
Banks | 540 | 388 |
Customers | 1,363 | 1,547 |
|
|
|
The tables below set out the financial assets provided as collateral for repurchase and other secured borrowing transactions:
Collateral pledged against repurchase agreements | 2020 | ||||
Fair value | Fair value | Amortised cost | Off-balance sheet | Total | |
On-balance sheet |
|
|
|
|
|
Debt securities and other eligible bills | 2,664 | 2,108 | 355 | - | 5,127 |
Off-balance sheet |
|
|
|
|
|
Repledged collateral received | - | - | - | 46,209 | 46,209 |
At 31 December 2020 | 2,664 | 2,108 | 355 | 46,209 | 51,336 |
Collateral pledged against repurchase agreements | 2019 | ||||
Fair value | Fair value | Amortised cost | Off-balance sheet | Total | |
On-balance sheet |
|
|
|
|
|
Debt securities and other eligible bills | 1,036 | 2,137 | 1,023 | - | 4,196 |
Off-balance sheet |
|
|
|
|
|
Repledged collateral received | - | - | - | 44,530 | 44,530 |
At 31 December 2019 | 1,036 | 2,137 | 1,023 | 44,530 | 48,726 |
17. Goodwill and intangible assets
Accounting policy
Goodwill
Goodwill represents the excess of the cost of an acquisition over the fair value of the Group's share of the identifiable net assets and contingent liabilities of the acquired subsidiary, associate or joint venture at the date of acquisition. Goodwill on acquisitions of subsidiaries is included in intangible assets. Goodwill on acquisitions of associates is included in Investments in associates. Goodwill included in Intangible assets is assessed at each balance sheet date for impairment and carried at cost less any accumulated impairment losses. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. Detailed calculations are performed based on discounting expected cash flows of the relevant cash-generating units (CGUs) and discounting these at an appropriate discount rate, the determination of which requires the exercise of judgement. Goodwill is allocated to CGUs for the purpose of impairment testing. CGUs represent the lowest level within the Group which generate separate cash inflows and at which the goodwill is monitored for internal management purposes. These are equal to or smaller than the Group's reportable segments (as set out in Note 2) as the Group views its reportable segments on a global basis. The major CGUs to which goodwill has been allocated are set out in the CGU table.
Significant accounting estimates and judgements
The carrying amount of goodwill is based on the application of judgements including the basis of goodwill impairment calculation assumptions. Judgement is also applied in determination of cash-generating units.
Estimates include forecasts used for determining cash flows for CGUs, the appropriate long term growth rates to use and discount rates which factor in country risk-free rates and applicable risk premiums. These estimates are periodically assessed for appropriateness. The Group undertakes an annual assessment to evaluate whether the carrying value of goodwill is impaired. The estimation of future cash flows and the level to which they are discounted is inherently uncertain and requires significant judgement and is subject to potential change over time.
Acquired intangibles
At the date of acquisition of a subsidiary or associate, intangible assets which are deemed separable and that arise from contractual or other legal rights are capitalised and included within the net identifiable assets acquired. These intangible assets are initially measured at fair value, which reflects market expectations of the probability that the future economic benefits embodied in the asset will flow to the entity and are amortised on the basis of their expected useful lives (4 to 16 years). At each balance sheet date, these assets are assessed for indicators of impairment. In the event that an asset's carrying amount is determined to be greater than its recoverable amount, the asset is written down immediately.
Computer software
Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring to use the specific software.
Internally generated software represents substantially all of the total software capitalised. Direct costs of the development of separately identifiable internally generated software are capitalised where it is probable that future economic benefits attributable to the asset will flow from its use (internally generated software). These costs include salaries and wages, materials, service providers and contractors, and directly attributable overheads. Costs incurred in the ongoing maintenance of software are expensed immediately when incurred. Internally generated software is amortised over a three to five-year time period. On an annual basis software assets' residual values and useful lives are reviewed, including assessing for indicators of impairment. Indicators of impairment include loss of business relevance, obsolescence of asset, exit of the business to which the software relates, technological changes, change in use of the asset, reduction in useful life, plans to reduce usage or scope.
For capitalised software, judgement is required to determine which costs relate to research (and therefore expensed) and which costs relate to development (capitalised). Further judgement is required to determine the technical feasibility of completing the software such that it will be available for use. Estimates are used to determine how the software will generate probable future economic benefits, these estimates include: cost savings, income increases, balance sheet improvements, improved functionality or improved asset safeguarding.
| 2020 |
| 2019 | ||||||
Goodwill | Acquired intangibles | Computer software | Total | Goodwill | Acquired intangibles | Computer software | Total | ||
Cost |
|
|
|
|
|
|
|
|
|
At 1 January | 3,079 | 461 | 3,239 | 6,779 |
| 3,116 | 510 | 2,835 | 6,461 |
Exchange translation differences | 27 | 16 | 60 | 103 |
| (10) | (5) | 26 | 11 |
Additions | - | - | 790 | 790 |
| - | 1 | 753 | 754 |
Disposals | - | - | (4) | (4) |
| - | (1) | (3) | (4) |
Impairment | (489) | - | - | (489) |
| (27) | - | - | (27) |
Amounts written off | - | (4) | (403) | (407) |
| - | (44) | (372) | (416) |
Classified as held for sale | - | - | - | - |
| - | - | - | - |
At 31 December | 2,617 | 473 | 3,682 | 6,772 |
| 3,079 | 461 | 3,239 | 6,779 |
Provision for amortisation |
|
|
|
|
|
|
|
|
|
At 1 January | - | 431 | 1,058 | 1,489 |
| - | 458 | 947 | 1,405 |
Exchange translation differences | - | 15 | 21 | 36 |
| - | (5) | 6 | 1 |
Amortisation | - | 5 | 515 | 520 |
| - | 9 | 436 | 445 |
Impairment charge | - | - | 17 | 17 |
| - | - | 12 | 12 |
Disposals | - | - | (4) | (4) |
| - | (1) | - | (1) |
Amounts written off | - | - | (349) | (349) |
| - | (30) | (343) | (373) |
At 31 December | - | 451 | 1,258 | 1,709 |
| - | 431 | 1,058 | 1,489 |
Net book value | 2,617 | 22 | 2,424 | 5,063 |
| 3,079 | 30 | 2,181 | 5,290 |
At 31 December 2020, accumulated goodwill impairment losses incurred from 1 January 2005 amounted to $3,317 million (31 December 2019: $2,828 million), of which $489 million was recognised in 2020 (31 December 2019: $27 million).
Goodwill
Testing of goodwill for impairment
An annual assessment is made as to whether the current carrying value of goodwill is impaired. For the purposes of impairment testing, goodwill is allocated at the date of acquisition to a CGU. Goodwill is considered to be impaired if the carrying amount of the relevant CGU exceeds its recoverable amount. Indicators of impairment include changes in the economic performance and outlook of the region including geopolitical changes, changes in market value of regional investments, large credit defaults and strategic decisions to exit certain regions. The recoverable amounts for all the CGUs were measured based on value-in-use (ViU). The calculation of ViU for each CGU is calculated using five-year cash flow projections and an estimated terminal value based on a perpetuity value after year five. The cash flow projections are based on forecasts approved by management up to 2025. The perpetuity terminal value amount is calculated using year five cash flows using long-term GDP growth rates. All cash flows are discounted using discount rates which reflect market rates appropriate to the CGU.
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.
Cash-generating unit | 2020 |
| 2019 | ||||
Goodwill | Discount rates | Long-term forecast GDP growth rates | Goodwill | Discount rates | Long-term forecast GDP growth rates | ||
Country CGUs |
|
|
|
|
|
|
|
Greater China & North Asia | 934 |
|
|
| 900 |
|
|
Hong Kong | 359 | 9.7 | 2.7 |
| 358 | 9.2 | 2.4 |
Taiwan | 575 | 8.6 | 2.1 |
| 542 | 10.6 | 2.0 |
Africa & Middle East | 303 |
|
|
| 512 |
|
|
Pakistan | 183 | 15.0 | 5.0 |
| 188 | 21.0 | 4.0 |
UAE | - | - | - |
| 204 | 7.1 | 2.5 |
Others (4)¹ | 120 | 8.1-14.3 | 2.8-5.8 |
| 120 | 8.3-16.6 | 2.5-4.9 |
ASEAN & South Asia | 414 |
|
|
| 706 |
|
|
India | - | - | - |
| 259 | 16.4 | 7.3 |
Singapore | 345 | 10.3 | 3.0 |
| 342 | 10.4 | 1.9 |
Others ² | 69 | 12.8-13.4 | 6.9-7.2 |
| 105 | 11.7-15.4 | 3.3-7.3 |
Global CGUs | 966 |
|
|
| 961 |
|
|
Global Private Banking | 84 | 10.0 | 3.6 |
| 84 | 9.1 | 3.5 |
Global Corporate & Institutional Banking | 882 | 10.0 | 3.0 |
| 877 | 9.1 | 3.5 |
|
|
|
|
|
|
|
|
| 2,617 |
|
|
| 3,079 |
|
|
1 Bahrain, Ghana, Jordan and Qatar
2 Bangladesh and Vietnam, Indonesia and Brunei goodwill was written off in 2020
Four country CGUs; India, UAE, Indonesia and Brunei have had all the goodwill allocated to them written off, totalling $489 million. This was primarily due to lower economic growth forecasts, higher discount rates and forward-looking cash flows reflecting lower interest rate environments. As a result, the carrying amount of each CGU, which included goodwill, was greater than the recoverable amount.
In view of the increased economic uncertainty caused by the COVID-19 pandemic, the Group has performed sensitivity analysis on the key assumptions for each CGU's recoverable amount. The following CGUs are considered sensitive to the key variables and any individual movements on the estimates (cashflow, discount rate and GDP growth rate) up to the levels disclosed below would eliminate the current headroom.
CGU | 2020 | ||||||||||||||
Goodwill | Base case | Sensitivities | |||||||||||||
GDP | Discount rates | Cashflow | Cashflow | Cashflow | Downside scenario | Extreme downside scenario | |||||||||
+ 1% | -1% | + 1% | -1% | + 10% | - 10% | +20% | - 20% | - 30% | GDP - 1% DR + 1% CF - 10% | GDP - 1% DR + 1% CF - 20% | |||||
Head-room $million | Discount rate | GDP | Head-room $million | Head-room $million | Head-room $million | Head-room $million | Head-room $million | Head-room $million | Head-room $million | Head-room $million | Head- | Head- | Head- | ||
Taiwan | 575 | 359 | 8.6% | 2.1% | 652 | 144 | 84 | 734 | 620 | 97 | 882 | (165) | (426) | (276) | (479) |
Global Corporate & Institutional Banking | 882 | 3,845 | 10.0% | 3.0% | 7,233 | 1,304 | 546 | 8,245 | 7,369 | 322 | 10,893 | (3,202) | (6,726) | (4,150) | (6,938) |
The table above represents reasonably possible scenarios that could occur if either; economic factors (which drive GDP rates and discount rates); country-specific cash flows; or a combination of both are different from the assumptions used in the goodwill impairment assessment at 31 December 2020.
For there to be no headroom, the discount rate will need to increase by 1.37 per cent and 1.19 per cent, for Taiwan and Global Corporate & Institutional Banking (CIB) respectively. Similarly, the GDP rates will need to decrease by 1.87 per cent, 1.63 per cent and cash flows would need to decrease by 13.71 per cent, 10.91 per cent for Taiwan and Global CIB respectively .
Acquired intangibles
These primarily comprise those items recognised as part of the acquisitions of Union Bank (now amalgamated into Standard Chartered Bank (Pakistan) Limited), Hsinchu (now amalgamated into Standard Chartered Bank (Taiwan) Limited), Pembroke, American Express Bank and ABSA's custody business in Africa. Maintenance intangible assets represent the value in the difference between the contractual right under acquired leases to receive aircraft in a specified maintenance condition at the end of the lease and the actual physical condition of the aircraft at the date of acquisition.
The acquired intangibles are amortised over periods from four years to a maximum of 16 years. The constituents are as follows:
| 2020 | 2019 |
Acquired intangibles comprise: |
|
|
Aircraft maintenance | 6 | 10 |
Core deposits | - | 1 |
Customer relationships | 7 | 12 |
Licences | 9 | 7 |
Net book value | 22 | 30 |
18. Property, plant and equipment
Accounting policy
All property, plant and equipment is stated at cost less accumulated depreciation and impairment losses. Cost includes expenditure that is directly attributable to the acquisition of the assets. Subsequent costs are included in the asset's carrying amount or are recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably.
At each balance sheet date the assets' residual values and useful lives are reviewed, and adjusted if appropriate, including assessing for indicators of impairment. In the event that an asset's carrying amount is determined to be greater than its recoverable amount, the asset is written down to the recoverable amount. Gains and losses on disposals are included in the income statement.
Repairs and maintenance are charged to the income statement during the financial period in which they are incurred.
Land and buildings comprise mainly branches and offices. Freehold land is not depreciated although it is subject to impairment testing.
Depreciation on other assets is calculated using the straight-line method to allocate their cost to their residual values over their estimated useful lives, as follows:
• Buildings • up to 50 years
• Leasehold improvements life of lease • up to 50 years
• Equipment and motor vehicles • three to 15 years
• Aircraft • up to 18 years
• Ships • up to 15 years
Where the Group is a lessee of a right-of-use asset, the leased assets are capitalised and included in Property, plant and equipment with a corresponding liability to the lessor recognised in Other liabilities, in accordance with the Group's leased assets accounting policy in Note 19.
All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred.
Significant accounting estimates and judgements
The carrying amount of the Group's aircraft leasing portfolio is based on the application of judgement and estimates to determine the most appropriate recoverable amount for each aircraft when assessing for impairment. Estimates involve the appropriate cash flows, discount rates and residual values used in determining a value-in-use for aircraft, and judgement is required in determining the appropriate observable third-party valuations to use for assessing current market value.
| 2020 | |||||
Premises | Equipment | Operating | Leased premises | Leased equipment assets | Total | |
Cost or valuation |
|
|
|
|
|
|
At 1 January | 2,058 | 800 | 4,461 | 1,493 | 23 | 8,835 |
Exchange translation differences | 40 | 6 | (2) | 11 | 4 | 59 |
Additions1 | 36 | 121 | 952 | 155 | 6 | 1,270 |
Disposals and fully depreciated assets written off2 | (83) | (53) | (178) | (82) | (2) | (398) |
Transfers to assets held for sale | (3) | - | - | - | - | (3) |
As at 31 December | 2,048 | 874 | 5,233 | 1,577 | 31 | 9,763 |
Depreciation |
|
|
|
|
|
|
Accumulated at 1 January | 737 | 518 | 1,067 | 286 | 7 | 2,615 |
Exchange translation differences | 13 | 6 | - | - | - | 19 |
Charge for the year | 73 | 122 | 229 | 300 | 7 | 731 |
Impairment charge3 | - | - | 132 | - | - | 132 |
Attributable to assets sold, transferred or written off2 | (52) | (52) | (92) | (50) | (2) | (248) |
Transfers to assets held for sale | (1) | - | - | - | - | (1) |
Accumulated at 31 December | 770 | 594 | 1,336 | 536 | 12 | 3,248 |
Net book amount at 31 December | 1,278 | 280 | 3,897 | 1,041 | 19 | 6,515 |
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 $1,270 million
2 Disposals for property, plant and equipment during the year of $178 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 year and the net book value disposed
3 Aircraft have been impaired due to a decrease in the market values, particularly wide-body variants
| 2019 | |||||
Premises | Equipment | Operating | Leased premises | Leased equipment | Total | |
Cost or valuation |
|
|
|
|
|
|
At 1 January | 2,070 | 766 | 6,323 | 1,408 | 13 | 10,580 |
Exchange translation differences | (31) | (17) | (5) | (35) | - | (88) |
Additions | 961 | 1231 | 2991 | 128 | 10 | 656 |
Disposals and fully depreciated assets written off | (62)2 | (72)2 | (694)2 | (8) | - | (836) |
Transfers to assets held for sale | (15) | - | (1,462) | - | - | (1,477) |
As at 31 December | 2,058 | 800 | 4,461 | 1,493 | 23 | 8,835 |
Depreciation |
|
|
|
|
|
|
Accumulated at 1 January | 706 | 494 | 1,469 | - | 1 | 2,670 |
Exchange translation differences | (7) | (10) | (5) | 7 | - | (15) |
Charge for the year | 77 | 106 | 263 | 283 | 6 | 735 |
Impairment charge | 1 | - | 121 | - | - | 122 |
Attributable to assets sold, transferred or written off | (35)2 | (72)2 | (155)2 | (4) | - | (266) |
Transfers to assets held for sale | (5) | - | (626) | - | - | (631) |
Accumulated at 31 December | 737 | 518 | 1,067 | 286 | 7 | 2,615 |
Net book amount at 31 December | 1,321 | 282 | 3,394 | 1,207 | 16 | 6,220 |
1 Refer to the cash flow statement under cash flows from investing activities section for the purchase of property, plant and equipment during the period $518 million
2 Disposals for property, plant and equipment during the period $566 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
3 Leased premises assets and leased equipment assets were newly recognised on 1 January 2019 due to the adoption of IFRS 16 Leases. The Group applied the modified retrospective transition approach, such that the right-of-use asset recognised equalled the lease liability, adjusted for prepayments and accruals recognised under IAS 17 as of 31 December 2018
Operating lease assets
The operating lease assets subsection of property, plant and equipment is the Group's aircraft leasing business, consisting of 114 commercial aircraft, of which 107 are narrow-body and 7 wide-body, leased to clients under operating leases. 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 31 December 2020, these assets had a net book value of $3,897 million (31 December 2019: $3,394 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 31 December 2020 is approximately six 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 the two biggest risks remain either an increase in the discount rate in conjunction with further market value decreases, as the majority of the leased portfolio is now 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 and a future market value decrease of 10 per cent, which resulted in a possible increase in impairment of $46 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 $38million.
During 2020 the Group offered payment concessions to customers as a result of the COVID-19 pandemic, allowing them to defer lease payments for between three and nine months. As of 31 December 2020 the outstanding amount of deferred lease payments was $19 million. For customers who have not defaulted on their obligations, deferrals do not affect income recognition provided the total lease rentals and lease expiry date are unchanged. For customers who have defaulted, any income not covered by collateral is provided against. The provision is reversed on receipt of the deferred payment.
The table below gives a maturity analysis of undiscounted lease payments receivable in future periods:
| 2020 | 2019 |
Within one year | 478 | 473 |
One to two years | 436 | 451 |
Two to three years | 374 | 403 |
Three to four years | 328 | 337 |
Four to five years | 251 | 82 |
After five years | 697 | 789 |
| 2,564 | 2,535 |
19. Leased assets
Accounting policy
The Group assesses whether a contract is a lease in scope of this policy by determining whether the contract gives it the right to use a specified underlying physical asset for a lease term greater than 12 months, unless the underlying asset is of low value.
Where the Group is a lessee and the lease is deemed in scope, it recognises a liability equal to the present value of lease payments over the lease term, discounted using the incremental borrowing rate applicable in the economic environment of the lease. The liability is recognised in 'Other liabilities'. A corresponding right-of-use asset equal to the liability, adjusted for any lease payments made at or before the commencement date, is recognised in 'Property, plant and equipment'. The lease term includes any extension options contained in the contract that the Group is reasonably certain it will exercise.
The Group subsequently depreciates the right-of-use asset using the straight-line method over the lease term and measures the lease liability using the effective interest method. Depreciation on the asset is recognised in 'Depreciation and amortisation', and interest on the lease liability is recognised in 'Interest expense'.
The judgements in determining lease balances are the determination of whether the Group is reasonably certain that it will exercise extension options present in lease contracts. On initial recognition, the Group considers a range of characteristics such as premises function, regional trends and the term remaining on the lease to determine whether it is reasonably certain that a contractual right to extend a lease will be exercised. Where a change in assumption is confirmed by the local property management team, a remeasurement is performed in the Group-managed vendor system.
The estimates were the determination of incremental borrowing rates in the respective economic environments. The Group uses third-party broker quotes to estimate its USD cost of senior unsecured borrowing, then uses cross-currency swap pricing information to determine the equivalent cost of borrowing in other currencies. If it is not possible to estimate an incremental borrowing rate through this process, other proxies such as local government bond yields are used.
The Group primarily enters lease contracts that grant it the right to use premises such as office buildings and retail branches.
Existing lease liabilities may change in future periods due to changes in assumptions or decisions to exercise lease renewal or termination options, changes in payments due to renegotiations of market rental rates as permitted by those contracts and changes to payments due to rent being contractually linked to an inflation index. In general the remeasurement of a lease liability under these circumstances leads to an equal change to the right-of-use asset balance, with no immediate effect on the income statement.
The total cash outflow during the year for premises and equipment leases was $352 million (2019: $397 million).
The total expense during the year in respect of leases with a term less than or equal to 12 months was less than $1 million (2019: $20 million).
The right-of-use asset balances and depreciation charges are disclosed in Note 18. The lease liability balances are disclosed in Note 23 and the interest expense on lease liabilities is disclosed in Note 3.
Maturity analysis
The maturity profile for lease liabilities associated with leased premises and equipment assets is as follows:
| 2020 | ||||
One year | Between | Between | More than | Total | |
Other liabilities - lease liabilities | 368 | 280 | 559 | 188 | 1,395 |
| restated 20191 | ||||
One year | Between | Between | More than | Total | |
Other liabilities - lease liabilities | 364 | 335 | 626 | 325 | 1,650 |
1 Prior year values have been restated to reflect undiscounted contractual cash flows that are allocated to the periods in which the Group is required to pay them
20. Other assets
Accounting policy
Refer to Note 13 Financial instruments for the relevant accounting policy.
Commodities represent physical holdings where the Group has title and exposure to the Market Risk associated with the holding.
Commodities are fair valued with the fair value derived from observable spot or short-term futures prices from relevant exchanges.
Other assets include:
| 2020 | 2019 |
Financial assets held at amortised cost (Note 13): |
|
|
Hong Kong SAR Government certificates of indebtedness (Note 23)¹ | 7,295 | 6,911 |
Cash collateral | 11,757 | 9,169 |
Acceptances and endorsements2 | 5,868 | 5,518 |
Unsettled trades and other financial assets | 16,058 | 14,563 |
| 40,978 | 36,161 |
Non-financial assets: |
|
|
Commodities3 | 7,239 | 5,465 |
Other assets | 471 | 396 |
| 48,688 | 42,022 |
1 The Hong Kong SAR Government certificates of indebtedness are subordinated to the claims of other parties in respect of bank notes issued
2 Trade finance whereby the Group offers a guarantee of payment between trade counterparties for a fee
3 Commodities are carried at fair value and classified as Level 2
21. Assets held for sale and associated liabilities
Accounting policy
Financial instruments can be reclassified as held for sale if they are non-current assets or if they are part of a disposal group; however, in these circumstances financial instruments continue to be measured per the requirements of IFRS 9 Financial Instruments. Refer to Note 13 Financial instruments for the relevant accounting policy.
Non-current assets are classified as held for sale and measured at the lower of their carrying amount and fair value less cost to sell when:
a) Their carrying amounts will be recovered principally through sale;
b) They are available for immediate sale in their present condition; and
c) Their sale is highly probable.
Immediately before the initial classification as held for sale, the carrying amounts of the assets are measured in accordance with the applicable accounting policies related to the asset or liability before reclassification as held for sale.
The assets below have been presented as held for sale following the approval of Group management and the transactions are expected to complete in 2020.
Following a decision by the Board of directors to exit the ship leasing business within CIB, the shipping portfolio has been moved to 'Held for sale'.
The financial assets reported below are classified under Level 1 $nil (31 December 2019: $70 million), Level 2 $25 million (31 December 2019: nil ) and Level 3 $63 million (31 December 2019: $260 million).
Assets held for sale
| 2020 | 2019 |
Financial assets held at fair value through profit or loss | 5 | 330 |
Loans and advances to customers | 5 | - |
Equity shares | - | 330 |
|
|
|
Financial assets held at amortised cost | 83 | 90 |
Loans and advances to customers | 83 | 32 |
Debt securities held at amortised cost | - | 58 |
|
|
|
Interests in joint venture | - | 800 |
Property, plant and equipment | 358 | 833 |
Aircraft | - | 49 |
Vessels | 354 | 769 |
Others | 4 | 15 |
| 446 | 2,053 |
Interests in joint venture
On the 20 May 2020 the Group completed the sale of its 44.56 per cent equity interest in PT Bank Permata Tbk to Bangkok Bank Public Company Limited for cash consideration of IDR 17 trillion ($1,072 million).
The profit on sale is as follows:
| 2020 |
Cash received | 1,072 |
Less: Investment in joint venture | (800) |
Gain on carrying value | 272 |
Less: Translation and other reserve recycling and transaction costs1 | (266) |
Net gain on disposal | 6 |
1 Includes $246 million exchange differences on translation of foreign operations
Liabilities held for sale
| 2020 | 2019 |
Other liabilities | - | 9 |
| - | 9 |
22. Debt securities in issue
Accounting policy
Refer to Note 13 Financial instruments for the relevant accounting policy.
| 2020 |
| 2019 | ||||
Certificates | Other debt | Total | Certificates | Other debt | Total | ||
Debt securities in issue | 21,020 | 34,530 | 55,550 |
| 22,242 | 30,783 | 53,025 |
Debt securities in issue included within: |
|
|
|
|
|
|
|
Financial liabilities held at fair value through profit or loss (Note 13) | - | 5,811 | 5,811 |
| - | 8,510 | 8,510 |
Total debt securities in issue | 21,020 | 40,341 | 61,361 |
| 22,242 | 39,293 | 61,535 |
In 2020, the Company issued a total of $6.8 billion senior notes for general business purposes of the Group as shown below:
Securities | $million |
$2,000 million fixed rate senior notes due 2026 (callable 2025) | 2,000 |
$2,000 million fixed rate senior notes due 2031 (callable 2030) | 2,000 |
$1,000 million fixed rate senior notes due 2023 (callable 2022) | 1,000 |
EUR 750 million fixed rate senior notes due 2028 (callable 2027) | 917 |
$500 million floating rate senior notes due 2023 (callable 2022) | 500 |
HKD 1,081 million fixed rate senior notes due 2023 (callable 2022) | 139 |
$100 million zero coupon callable bond due 2050 (callable 2025) | 100 |
$80 million zero coupon callable bond due 2050 (callable 2023) | 80 |
JPY 5,500 million fixed rate senior notes due 2023 (callable 2022) | 53 |
$50 million zero coupon callable bond due 2050 (callable 2023) | 50 |
Total senior notes issued | 6,839 |
In 2019, the Company issued a total of $6.1 billion senior notes for general business purposes of the Group as shown below:
Securities | $million |
$1,500 million callable floating rate senior notes due 2022 (callable 2021) | 1,500 |
$1,250 million callable fixed rate senior notes due 2022 (callable 2021) | 1,250 |
$1,000 million callable fixed rate senior notes due 2025 (callable 2024) | 1,000 |
$1,000 million callable fixed rate senior notes due 2030 (callable 2029) | 1,000 |
EUR 500 million callable fixed rate senior notes due 2027 (callable 2026) | 567 |
AUD 600 million callable fixed rate senior notes due 2025 (callable 2024) | 417 |
AUD 400 million callable fixed rate senior notes due 2025 (callable 2024) | 278 |
$100 million zero coupon callable bond due 2049 (callable 2024) | 100 |
Total senior notes issued | 6,112 |
Where a debt instrument is callable, the issuer has the right to call.
23. Other liabilities
Accounting policy
Refer to Note 13 Financial instruments for the relevant accounting policy for financial liabilities, Note 19 Leased assets for the accounting policy for leases, and Note 31 Share-based payments for the accounting policy for cash-settled share-based payments.
| 2020 | 2019 |
Financial liabilities held at amortised cost (Note 13) |
|
|
Notes in circulation1 | 7,295 | 6,911 |
Acceptances and endorsements2 | 5,868 | 5,518 |
Cash collateral | 10,136 | 7,824 |
Property leases3 | 1,127 | 1,275 |
Equipment leases3 | 20 | 20 |
Unsettled trades and other financial liabilities | 22,782 | 19,601 |
| 47,228 | 41,149 |
Non-financial liabilities |
|
|
Cash-settled share-based payments | 41 | 50 |
Other liabilities | 635 | 384 |
| 47,904 | 41,583 |
1 Hong Kong currency notes in circulation of $7,295 million (31 December 2019: $6,911 million) that are secured by the Government of Hong Kong SAR certificates of indebtedness of the same amount included in Other assets (Note 20)
2 Trade finance whereby the Group offers a guarantee of payment between trade counterparties for a fee
3 Other financial liabilities include the present value of lease liabilities, as required by IFRS 16 from 1 January 2019; refer to Note 19
24. Provisions for liabilities and charges
Accounting policy
The Group recognises a provision for a present legal or constructive obligation resulting from a past event when it is more likely than not that it will be required to transfer economic benefits to settle the obligation and the amount of the obligation can be estimated reliably. Where a liability arises based on participation in a market at a specified date, the obligation is recognised in the financial statements on that date and is not accrued over the period.
Significant accounting estimates and judgements
The recognition and measurement of provisions for liabilities and charges requires significant judgement and the use of estimates about uncertain future conditions or events.
Estimates include the best estimate of the probability of outflow of economic resources, cost of settling a provision and timing of settlement. Judgements are required for inherently uncertain areas such as legal decisions (including external advice obtained), and outcome of regulator reviews.
| 2020 |
| 2019 | ||||
Provision | Other | Total | Provision | Other | Total | ||
At 1 January | 317 | 132 | 449 |
| 281 | 1,049 | 1,330 |
Exchange translation differences | (50) | (3) | (53) |
| 5 | 4 | 9 |
Transfer | - | 9 | 9 |
| - | - | - |
Charge against profit | 103 | 22 | 125 |
| 35 | 239 | 274 |
Provisions utilised | (3) | (61) | (64) |
| (4) | (1,160) | (1,164) |
At 31 December | 367 | 99 | 466 |
| 317 | 132 | 449 |
Provision for credit commitment comprises those undrawn contractually committed facilities where there is doubt as to the borrowers' ability to meet their repayment obligations.
Other provisions consist mainly of provisions for regulatory settlements and legal claims, the nature of which are described in Note 26.
25. Contingent liabilities and commitments
Accounting policy
Financial guarantee contracts and loan commitments
The Group issues financial guarantee contracts and loan commitments in return for fees. Financial guarantee contracts and any loan commitments issued at below-market interest rates are initially recognised at their fair value as a financial liability, and subsequently measured at the higher of the initial value less the cumulative amount of income recognised in accordance with the principles of IFRS 15 Revenue from Contracts with Customers and their expected credit loss provision. Loan commitments may be designated at fair value through profit or loss where that is the business model under which such contracts are held. Notional values of financial guarantee contracts and loan commitments are disclosed in the table below.
Financial guarantees, trade credits and irrevocable letters of credit are the notional values of contracts issued by the Group's Transaction Banking business for which an obligation to make a payment has not arisen at the reporting date. Transaction Banking will issue contracts to clients and counterparties of clients, whereby in the event the holder of the contract is not paid, the Group will reimburse the holder of the contract for the actual financial loss suffered. These contracts have various legal forms such as letters of credit, guarantee contracts and performance bonds. The contracts are issued to facilitate trade through export and import business, provide guarantees to financial institutions where the Group has a local presence, as well as guaranteeing project financing involving large construction projects undertaken by sovereigns and corporates. The contracts may contain performance clauses which require the counterparty performing services or providing goods to meet certain conditions before a right to payment is achieved, however the Group does not guarantee this performance. The Group will only guarantee the credit of the counterparty paying for the services or goods.
Commitments are where the Group has confirmed its intention to provide funds to a customer or on behalf of a customer under prespecified terms and conditions in the form of loans, overdrafts, future guarantees whether cancellable or not and the Group has not made payments at the balance sheet date; those instruments are included in these financial statements as commitments. Commitments and contingent liabilities are generally considered on demand as the Group may have to honour them, or the client may draw down at any time.
Capital commitments are contractual commitments the Group has entered into to purchase non-financial assets.
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.
| 2020 | Restated |
Financial guarantees and trade credits |
|
|
Financial guarantees, trade credits and irrevocable letters of credit | 53,832 | 46,714¹ |
| 53,832 | 46,714 |
Commitments |
|
|
Undrawn formal standby facilities, credit lines and other commitments to lend |
|
|
One year and over | 68,848 | 64,450 |
Less than one year | 24,500 | 19,520² |
Unconditionally cancellable | 60,055 | 57,224² |
| 153,403 | 141,194 |
Capital commitments |
|
|
Contracted capital expenditure approved by the directors but not provided for in these accounts3 | 135 | 419 |
1 Financial guarantees, trade credits and irrevocable letters of credit: separate disclosure as individual line items in 2019 as follows: Guarantees and irrevocable letters of credit $37,007 million, Other contingent liabilities $5,425 million, Documentary credits and short-term trade related transactions $4,282 million
2 Undrawn formal standby facilities, credit lines and other commitments to lend: Less than one year - restated from $34,925 million to $19,520 million. Unconditionally cancellable - restated from $41,819 million to $57,224 million. Certain non-revolving facilities have now been classified as unconditionally cancellable
3 Of which the Group has commitments totalling $110 million to purchase aircraft for delivery in 2021 (31 December 2019: $400 million). No pre-delivery payments have been made in respect of these commitments (2019: $ nil)
The Group's share of contingent liabilities and commitments relating to joint ventures is $ nil (31 December 2019: $251 million). On 20 May 2020 the Group completed the sale of its 44.56 per cent equity interest in PT Bank Permata Tbk to Bangkok Bank Public Company Limited. Please refer to Note 21 for further details. As set out in Note 26, 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.
26. Legal and regulatory matters
Accounting policy
Where appropriate, the Group recognises a provision for liabilities when it is probable that an outflow of economic resources embodying economic benefits will be required and for which a reliable estimate can be made of the obligation. The uncertainties inherent in legal and regulatory matters affect the amount and timing of any potential outflows with respect to which provisions have been established. These uncertainties also mean that it is not possible to give an aggregate estimate of contingent liabilities arising from such 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.
The Group is a defendant in a number of lawsuits that have been filed since 2014 in the United States District Courts for the Southern and Eastern Districts of New York, against a number of banks on behalf of plaintiffs who are, or are relatives of, victims of various terrorist attacks in Iraq. The plaintiffs allege that the defendant banks aided and abetted the unlawful conduct of US sanctioned parties in breach of the US Anti-Terrorism Act. One lawsuit has been withdrawn by the plaintiffs and the courts have ruled in favour of the banks' motions to dismiss in five of the lawsuits. Following those rulings, in one lawsuit the plaintiffs appealed against the dismissal and a ruling on their appeal is awaited. Appeals are also expected by the plaintiffs in three of the other dismissed lawsuits. The remaining lawsuits are still at an early procedural stage and have been stayed pending the outcomes of the appeals in the dismissed cases.
In January 2020, a shareholder derivative complaint was filed in the 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. Standard Chartered PLC, Standard Chartered Holdings Limited and Standard Chartered Bank are each named as "nominal defendants" in the complaint. The case is at an early procedural stage. On 23 December 2020, the Group filed a motion to dismiss the complaint.
In October 2020, a claim was filed in the English High Court by 249 shareholders against Standard Chartered PLC alleging untrue and/or misleading statements were made, and/or there were 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, anti-money laundering and financial crime compliance issues. The case is at an early stage.
Based on the facts currently known, it is not possible for the Group to predict the outcome of these lawsuits.
27. Subordinated liabilities and other borrowed funds
Accounting policy
Subordinated liabilities and other borrowed funds are classified as financial instruments. Refer to Note 13 Financial instruments for the accounting policy.
All subordinated liabilities are unsecured, unguaranteed and subordinated to the claims of other creditors including without limitation, customer deposits and deposits by banks. The Group has the right to settle these debt instruments in certain circumstances as set out in the contractual agreements. Where a debt instrument is callable, the issuer has the right to call.
| 2020 | 2019 |
Subordinated loan capital - issued by subsidiary undertakings |
|
|
£675 million 5.375 per cent undated step-up subordinated notes (callable 2020)¹ | - | 298 |
£200 million 7.75 per cent subordinated notes (callable 2022)¹ | 52 | 53 |
$750 million 5.875 per cent subordinated notes due 2020² | - | 754 |
$700 million 8.0 per cent subordinated notes due 2031¹ | 454 | 429 |
| 506 | 1,534 |
Subordinated loan capital - issued by the Company3 |
|
|
Primary capital floating rate notes: |
|
|
$400 million floating rate undated subordinated notes | 16 | 16 |
$300 million floating rate undated subordinated notes (Series 2) | 69 | 69 |
$400 million floating rate undated subordinated notes (Series 3) | 50 | 50 |
$200 million floating rate undated subordinated notes (Series 4) | 26 | 26 |
£150 million floating rate undated subordinated notes | 16 | 16 |
£900 million 5.125 per cent subordinated notes due 2034 | 930 | 855 |
$2 billion 5.7 per cent subordinated notes due 2044 | 2,370 | 2,379 |
$2 billion 3.95 per cent subordinated notes due 2023 | 2,066 | 2,009 |
$1 billion 5.7 per cent subordinated notes due 2022 | 1,001 | 1,002 |
$1 billion 5.2 per cent subordinated notes due 2024 | 1,141 | 1,069 |
$750 million 5.3 per cent subordinated notes due 2043 | 785 | 786 |
€1.25 billion 4 per cent subordinated notes due 2025 (callable 2020) | - | 1,421 |
€750 million 3.625 per cent subordinated notes due 2022 | 955 | 884 |
€500 million 3.125 per cent subordinated notes due 2024 | 646 | 585 |
SGD 700 million 4.4 per cent subordinated notes due 2026 (callable 2021) | 530 | 525 |
$1.25 billion 4.3 per cent subordinated notes due 2027 | 1,310 | 1,214 |
$1 billion 3.516 per cent subordinated notes due 2030 (callable 2025) | 997 | 996 |
$500 million 4.886 per cent subordinated notes due 2033 (callable 2028) | 499 | 499 |
£ 96.035m 7.375% Non-Cumulative Irredeemable Preference Shares (reclassed as Debt) | 134 | 134 |
£ 99.250m 8.25% Non-Cumulative Irredeemable Preference Shares (reclassed as Debt) | 138 | 138 |
€ 1 billion 2.5 per cent subordinated debt 2030 | 1,217 | - |
$1.25 billion 3.265 per cent subordinated notes due 2036 | 1,252 | - |
| 16,148 | 14,673 |
Total for Group | 16,654 | 16,207 |
1 Issued by Standard Chartered Bank
2 Issued by Standard Chartered Bank (Hong Kong) Limited
3 In the balance sheet of the Company the amount recognised is $16,069 million (2019: $14,588 million), with the difference being the effect of hedge accounting achieved on a Group basis
| 2020 | ||||
USD | GBP | EUR | Others | Total | |
Fixed rate subordinated debt | 11,875 | 1,254 | 2,818 | 530 | 16,477 |
Floating rate subordinated debt | 161 | 16 | - | - | 177 |
Total | 12,036 | 1,270 | 2,818 | 530 | 16,654 |
| 2019 | ||||
USD | GBP | EUR | Others | Total | |
Fixed rate subordinated debt | 11,137 | 1,478 | 2,890 | 525 | 16,030 |
Floating rate subordinated debt | 161 | 16 | - | - | 177 |
Total | 11,298 | 1,494 | 2,890 | 525 | 16,207 |
Redemptions and repurchases during the year
On 24 June 2020, Standard Chartered Bank (Hong Kong) Limited exercised its right to redeem USD 750 million 5.875 per cent subordinated notes 2020.
On 14 July 2020, Standard Chartered Bank exercised its right to redeem the remaining GBP 275 million of GBP 675 million 5.375 per cent undated step-up subordinated notes (callable 2020).
On 21 October 2020, Standard Chartered PLC exercised its right to redeem GBP 1250 million 4 per cent subordinated debt 2025 (callable 2020).
Issuance during the year
On 9 June 2020, Standard Chartered PLC issued EUR 1,000 million 2.5 per cent subordinated debt 2030 (callable 2025).
On 19 November 2020, Standard Chartered PLC issued USD 1250 million 3.265 per cent subordinated notes due 2036.
28. Share capital, other equity instruments and reserves
Accounting policy
Financial instruments issued are classified as equity when there is no contractual obligation to transfer cash, other financial assets or issue available number of own equity instruments. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds.
Securities which carry a discretionary coupon and have no fixed maturity or redemption date are classified as other equity instruments. Interest payments on these securities are recognised, net of tax, as distributions from equity in the period in which they are paid.
Where the Company or other members of the consolidated Group purchase the Company's equity share capital, the consideration paid is deducted from the total shareholders' equity of the Group and/or of the Company as treasury shares until they are cancelled. Where such shares are subsequently sold or reissued, any consideration received is included in shareholders' equity of the Group and/or the Company.
| Number of | Ordinary | Ordinary | Preference | Total share | Other equity |
At 1 January 2019 | 3,308 | 1,654 | 3,963 | 1,494 | 7,111 | 4,961 |
Shares issued | 4 | 2 | 23 | - | 25 | - |
Cancellation of shares including | (116) | (58) | - | - | (58) | - |
Additional Tier 1 equity securities | - | - | - | - | - | 552 |
At 31 December 2019 | 3,196 | 1,598 | 3,986 | 1,494 | 7,078 | 5,513 |
Cancellation of shares including | (40) | (20) | - | - | (20) | - |
Additional Tier 1 equity issuance | - | - | - | - | - | 992 |
Additional Tier 1 redemption | - | - | - | - | - | (1,987) |
At 31 December 2020 | 3,156 | 1,578 | 3,986 | 1,494 | 7,058 | 4,518 |
1 Issued and fully paid ordinary shares of 50 cents each
2 Includes preference share capital of $75,000
Share buy-back
On 28 February 2020, the Group announced the buy-back programme for a share buy-back of its ordinary shares of $0.50 each. Nominal value of share purchases was $20 million, and the total consideration paid was $242 million. The total number of shares purchased was 40,029,585 representing 1.25 per cent of the ordinary shares in issue. The nominal value of the shares was transferred from the share capital to the capital redemption reserve account. On 31 March 2020, the Group announced that in response to a request from the Prudential Regulation Authority and as a consequence of the unprecedented challenges facing the world due to the COVID-19 pandemic, its Board had decided after careful consideration to withdraw the recommendation to pay a final dividend for 2019 of 20 cents per ordinary share and to suspend the buy-back programme.
Share buy-back of 2020 | Number of | Average price paid per share | Aggregate | Aggregate |
Mar - 2020 | 40,029,585 | 4.89428 | 195,916,167 | 241,705,472 |
Ordinary share capital
In accordance with the Companies Act 2006 the Company does not have authorised share capital. The nominal value of each ordinary share is 50 cents.
During the period nil shares were issued under employee share plans.
Preference share capital
At 31 December 2020, the Company has 15,000 $5 non-cumulative redeemable preference shares in issue, with a premium of $99,995 making a paid-up amount per preference share of $100,000. The preference shares are redeemable at the option of the Company and are classified in equity.
The available profits of the Company are distributed to the holders of the issued preference shares in priority to payments made to holders of the ordinary shares and in priority to, or pari passu with, any payments to the holders of any other class of shares in issue. On a winding up, the assets of the Company are applied to the holders of the preference shares in priority to any payment to the ordinary shareholders and in priority to, or pari passu with, the holders of any other shares in issue, for an amount equal to any dividends payable (on approval of the board) and the nominal value of the shares together with any premium as determined by the Board. The redeemable preference shares are redeemable at the paid up amount (which includes premium) at the option of the Company in accordance with the terms of the shares. The holders of the preference shares are not entitled to attend or vote at any general meeting except where any relevant dividend due is not paid in full or where a resolution is proposed varying the rights of the preference shares.
Other equity instruments
On 2 April 2015, Standard Chartered PLC issued $2,000 million Fixed Rate Resetting Perpetual Subordinated Contingent Convertible Securities as Additional Tier 1 (AT1) securities, raising $1,987 million after issue costs. This security was redeemed on its first optional redemption date of 2 April 2020. On 18 August 2016, Standard Chartered PLC issued $2,000 million fixed rate resetting perpetual subordinated contingent convertible securities as AT1 securities, raising $1,982 million after issue costs. On 18 January 2017, Standard Chartered PLC issued $1,000 million fixed rate resetting perpetual subordinated contingent convertible securities as AT1 securities, raising $992 million after issue costs. On 3 July 2019, Standard Chartered PLC issued SGD 750 million Fixed Rate Resetting Perpetual Subordinated Contingent Convertible Securities as AT1 securities, raising $552 million after issue costs. On 26 June 2020, Standard Chartered PLC issued $1,000 million fixed rate resetting perpetual subordinated AT1 securities, raising $ 992 million after issue costs All issuances are made for general business purposes and to increase the regulatory capital base of the Group.
The principal terms of the AT1 securities are described below:
• The securities are perpetual and redeemable, at the option of Standard Chartered PLC in whole but not in part, on the first interest reset date and each date falling five years after the first reset date
• The securities are also redeemable for certain regulatory or tax reasons on any date at 100 per cent of their principal amount together with any accrued but unpaid interest up to (but excluding) the date fixed for redemption. Any redemption is subject to Standard Chartered PLC giving notice to the relevant regulator and the regulator granting permission to redeem
• The interest rate in respect of the securities issued on 26 June 2020 for the period from (and including) the issue date to (but excluding) 26 July 2025 is a fixed rate of 6 per cent per annum. The first reset date for the interest rate is 26 July 2025 and each date falling five years, or an integral multiple of five years, after the first reset date.
• Interest on the securities are accounted for as a dividend and it is due and payable only at the sole and absolute discretion of Standard Chartered PLC, subject to certain additional restrictions set out in the terms and conditions. Accordingly, Standard Chartered PLC may at any time elect to cancel any interest payment (or part thereof) which would otherwise be payable on any interest payment date
• The securities convert into ordinary shares of Standard Chartered PLC, at a pre-determined price detailed in the table below, should the fully loaded Common Equity Tier 1 ratio of the Group fall below 7.0 per cent. Approximately 645 million ordinary shares would be required to satisfy the conversion of all the securities mentioned above
Issuance date | Nominal value | Fixed coupon | Interest payment dates | First reset dates* | Conversion price |
18 August 2016 | USD 2,000 million | 7.5% | 2 April, 2 October | 2 April 2022 | USD 7.732 |
18 January 2017 | USD 1,000 million | 7.75% | 2 April, 2 October | 2 April 2023 | USD 7.732 |
3 July 2019 | SGD 750 million | 5.375% | 3 April, 3 October | 3 October 2024 | SGD 10.909 |
26 Jun 2020 | USD 1,000 million | 6% | 26 January, 26 July | 26 January 2026 | USD 5.331 |
* Subsequent reset dates are each date falling five years, or an integral multiple of five years, after the first reset date.
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' represent the premium arising on shares issued using a cash box financing structure, which required the Company to create a merger reserve under section 612 of the Companies Act 2006. Shares were issued using this structure in 2005 and 2006 to assist in the funding of Korea ($1.9 billion) and Taiwan ($1.2 billion) acquisitions, in 2008, 2010 and 2015 for the shares issued by way of a rights issue, primarily for capital maintenance requirements and for the shares issued in 2009 by way of an accelerated book build, the proceeds of which were used in the ordinary course of business of the Group. The funding raised by the 2008, 2010 and 2015 rights issues and 2009 share issue was fully retained within the Company. Of the 2015 funding, $1.5 billion was used to subscribe to additional equity in Standard Chartered Bank, a wholly owned subsidiary of the Company. Apart from the Korea, Taiwan and Standard Chartered Bank funding, the merger reserve is considered realised and distributable.
• Own credit adjustment reserve represents the cumulative gains and losses on financial liabilities designated at fair value through profit or loss relating to own credit. Gains and losses on financial liabilities designated at fair value through profit or loss relating to own credit in the year have been taken through other comprehensive income into this reserve. On derecognition of applicable instruments, the balance of any OCA will not be recycled to the income statement, but will be transferred within equity to retained earnings
• Fair value through other comprehensive income (FVOCI) debt reserve represents the unrealised fair value gains and losses in respect of financial assets classified as FVOCI, net of expected credit losses and taxation. Gains and losses are deferred in this reserve and are reclassified to the income statement when the underlying asset is sold, matures or becomes impaired.
• FVOCI equity reserve represents unrealised fair value gains and losses in respect of financial assets classified as FVOCI, net of taxation. Gains and losses are recorded in this reserve and never recycled to the income statement
• Cash flow hedge reserve represents the effective portion of the gains and losses on derivatives that meet the criteria for these types of hedges. Gains and losses are deferred in this reserve and are reclassified to the income statement when the underlying hedged item affects profit and loss or when a forecast transaction is no longer expected to occur
• Translation reserve represents the cumulative foreign exchange gains and losses on translation of the net investment of the Group in foreign operations. Since 1 January 2004, gains and losses are deferred to this reserve and are reclassified to the income statement when the underlying foreign operation is disposed. Gains and losses arising from derivatives used as hedges of net investments are netted against the foreign exchange gains and losses on translation of the net investment of the foreign operations
• Retained earnings represents profits and other comprehensive income earned by the Group and Company in the current and prior periods, together with the after tax increase relating to equity-settled share options, less dividend distributions, own shares held (treasury shares) and share buy-backs
A substantial part of the Group's reserves is held in overseas subsidiary undertakings and branches, principally to support local operations or to comply with local regulations. The maintenance of local regulatory capital ratios could potentially restrict the amount of reserves which can be remitted. In addition, if these overseas reserves were to be remitted, further unprovided taxation liabilities might arise.
As at 31 December 2020, the distributable reserves of Standard Chartered PLC (the Company) were $14.3 billion (31 December 2019: $14.3 billion). These comprised retained earnings and $12.6 billion of the merger reserve account. Distribution of reserves is subject to maintaining minimum capital requirements.
Own shares
Computershare Trustees (Jersey) Limited is the trustee of the 2004 Employee Benefit Trust ('2004 Trust') and Ocorian Trustees (Jersey) Limited (formerly known as Bedell Trustees Limited) is the trustee of the 1995 Employees' Share Ownership Plan Trust ('1995 Trust'). The 2004 Trust is used in conjunction with the Group's employee share schemes and the 1995 Trust is used for the delivery of other employee share-based payments (such as upfront shares and fixed pay allowances). Group companies fund these trusts from time to time to enable the trustees to acquire shares to satisfy these arrangements.
Except as disclosed, neither the Company nor any of its subsidiaries has bought, sold or redeemed any securities of the Company listed on The Stock Exchange of Hong Kong Limited during the period. Details of the shares purchased and held by the trusts are set out below.
| 1995 Trust |
| 2004 Trust1 |
| Total | |||
2020 | 2019 | 2020 | 2019 | 2020 | 2019 | |||
Shares purchased during the period | 2,999,210 | 646,283 |
| 14,359,481 | 24,065,354 |
| 17,358,691 | 24,711,637 |
Market price of shares purchased ($million) | 22 | 5 |
| 86 | 201 |
| 108 | 206 |
Shares transferred between trusts | (2,999,210) | (3,001,103) |
| 2,999,210 | 3,001,103 |
| - | - |
Shares held at the end of the period | - | - |
| 6,119,666 | 5,113,455 |
| 6,119,666 | 5,113,455 |
Maximum number of shares held during the period |
|
|
|
|
|
| 11,262,818 | 15,070,923 |
1 Note that 1,489,139 shares were purchased by the trustee of the 2004 Trust using $10 million participant savings as part of Sharesave exercises
Changes in share capital and other equity instruments of Standard Chartered PLC subsidiaries
The table below details the transactions in equity instruments (including convertible and hybrid instruments) of the Group's subsidiaries, including issuances, conversions, redemptions, purchase or cancellation. This is required under the Hong Kong Listing requirements, appendix 16 paragraph 10.
Name and registered address | Country of incorporation | Description of shares | Issued/(redeemed) capital | Issued/(redeemed) Shares | Proportion of shares held |
The following companies have the address of 1 Basinghall Avenue, London, EC2V 5DD, United Kingdom |
|
|
|
|
|
Standard Chartered Bank | United Kingdom | $1.00 Ordinary shares | $300,000,000 | 300,000,000 | 100 |
Standard Chartered Holdings Limited | United Kingdom | $2.00 Ordinary shares | $370,000,000 | 185,000,000 | 100 |
Standard Chartered I H Limited | United Kingdom | $1.00 Ordinary shares | $70,000,000 | 70,000,000 | 100 |
Standard Chartered UK Holdings Limited | United Kingdom | £10.00 Ordinary shares | £56,164,330 | 5,616,433 | 100 |
The following companies have the address of TMF Group, 8th Floor, 20 Farringdon Street, London, EC4A 4AB, United Kingdom. |
|
|
|
|
|
Zodia Custody Limited | United Kingdom | $1.00 Ordinary shares | $3,000,000 | 3,000,000 | 100 |
Zodia Holdings Limited | United Kingdom | $1.00 Ordinary shares | $4,999,999 | 4,999,999 | 100 |
The following company has the address |
|
|
|
|
|
Standard Chartered Participacoes Ltda | Brazil | BRL1.00 Ordinary shares | BRL(241,371,991) | (241,371,991) | 100 |
The following company has the address |
|
|
|
|
|
Sirat Holdings Limited | Cayman Islands | $0.01 Preference shares | $(3) | (300) | 100 |
The following company have the address of Units 61-65 (Office use only), Self-numbered Room 01-04, Room 901, No 6, Zhujiang East Road, Tianhe District, Guangzhou City, Guangdong Province, China |
|
|
|
|
|
Standard Chartered (Guangzhou) Business Management Co.Ltd. | China | $ Ordinary shares | $13,000,000 | 13,000,000 | 100 |
Standard Chartered Global Business Services (Guangzhou) Co.Ltd. | China | $ Ordinary shares | $3,000,000 | 3,000,000 | 100 |
The following company has the address of Standard Chartered Bank Ghana Limited, 87, Independence Avenue, Post Office Box 678, Accra, Ghana |
|
|
|
|
|
Standard Chartered Wealth Management Limited Company | Ghana | GHS Ordinary shares | GHS100,000 | 100,000 | 100 |
The following company has the address of 25/F, Standard Chartered Bank Building, 4-4A Des Voeux Road, Central, Hong Kong |
|
|
|
|
|
Marina Leasing Limited | Hong Kong | $ Ordinary shares | $36,000,000 | 36,000,000 | 100 |
The following company has the address of 3/F Standard Chartered Bank Building, 4-4A Des Voeux Road Central, Hong Kong |
|
|
|
|
|
Standard Chartered Private Equity Limited | Hong Kong | $ Ordinary shares | $(573,000,000) | (573,000,000) | 100 |
The following company has the address of 21/F, Standard Chartered Tower, 388 Kwun Tong Road, Kwun Tong, Kowloon, Hong Kong |
|
|
|
|
|
Standard Chartered Asia Limited | Hong Kong | $ Ordinary shares | $(612,000,000) | (612,000,000) | 100 |
The following company has the address of 32/F, Standard Chartered Bank Building, 4-4A Des Voeux Road, Central, Hong Kong |
|
|
|
|
|
Mox Bank Limited | Hong Kong | HKD Ordinary shares | HKD46,920,000 | 46,920,000 | 65.1 |
The following company has the address |
|
|
|
|
|
Standard Chartered Research and Technology India Private Limited | India | INR10.00 A Equity shares | INR41,555,370 | 4,155,537 | 100 |
INR10.00 Preference shares | INR189,923,900 | 18,992,390 | 100 | ||
The following company has the address of Trust Company Complex, Ajeltake Road, Ajeltake Island, Majuro, MH96960, Marshall Islands |
|
|
|
|
|
Marina Lilac Shipping Limited | Marshall Islands | $1.00 Ordinary shares | $49,990 | 49,990 | 100 |
The following company has the address |
|
|
|
|
|
Standard Chartered Private Equity (Mauritius) Limited | Mauritius | $ Redeemable preference shares | $(21,584,069) | (21,584,069) | 100 |
The following company has the address of Rondo Daszyńskiego 2B, 00-843 , Warsaw, Poland |
|
|
|
|
|
Standard Chartered Global Business Services spólka z ograniczona odpowiedzialnoscia | Poland | PLN50.00 Ordinary shares | PLN4,923,100 | 98,462 | 100 |
The following company has the address of 9 & 11, Lightfoot Boston Street, Freetown, Sierra Leone |
|
|
|
|
|
Standard Chartered Bank Sierra Leone Limited | Sierra Leone | SLL1.00 Ordinary shares | SLL34,564,477,113 | 34,564,477,113 | 80.7 |
The following company has the address of 8 Marina Boulevard, Level 26, Marina Bay Financial Centre, Tower 1, 018981, Singapore |
|
|
|
|
|
Marina Poise Shipping Pte. Ltd. | Singapore | $ Ordinary shares | $13,142 | 13,142 | 100 |
The following company has the address of 8 Marina Boulevard, #27-01 Marina Bay Financial Centre Tower 1, 018981, Singapore |
|
|
|
|
|
SC Bank Solutions (Singapore) Limited | Singapore | SGD Ordinary shares | SGD50,000,000 | 50,000,000 | 100 |
The following companies have the address of 80 Robinson Road, #02-00, 068898, Singapore |
|
|
|
|
|
Autumn Life Pte. Ltd. | Singapore | $ Ordinary shares | $4,500,000 | 4,500,000 | 100 |
Cardspal Pte. Ltd. | Singapore | $ Ordinary shares | $3,240,000 | 3,240,000 | 100 |
Nexco Pte. Ltd. | Singapore | $ Ordinary shares | $1 | 1 | 100 |
The following company has the address |
|
|
|
|
|
Standard Chartered Principal Finance (Cayman) Limited | Cayman Islands | $0.0001 Ordinary shares | $140 | 1,400,000 | 100 |
The following company has the address of 20 Adelaide Street, Suite 1105 , Toronto ON M5C 2T6 Canada |
|
|
|
|
|
Standard Chartered (Canada) Limited | Canada | CAD1.00 Ordinary shares | CAD10 | 10 | 100 |
Please see Note 22 Debt securities in issue for issuances and redemptions of senior notes.
Please see Note 27 Subordinated liabilities and other borrowed funds for issuance and redemptions of subordinated liabilities and AT1 securities.
Please see Note 40 Related undertakings of the Group for subsidiaries liquidated, dissolved or sold during the year.
29. Non-controlling interests
Accounting policy
Non-controlling interests are measured at the non-controlling interest's proportionate share of the acquiree's identifiable net assets.
| $million |
At 1 January 2019 | 273 |
Income in equity attributable to non-controlling interests | (17) |
Other profits attributable to non-controlling interests | 37 |
Comprehensive income for the year | 20 |
Distributions | (35) |
Other increases1 | 55 |
At 31 December 2019 | 313 |
Income in equity attributable to non-controlling interests | (12) |
Other profits attributable to non-controlling interests | 27 |
Comprehensive income for the year | 15 |
Distributions | (20) |
Other increases2 | 17 |
At 31 December 2020 | 325 |
1 Comprises $72 million of non-controlling interest in Mox Bank Limited offset by $17 million disposal of non-controlling interest of Phoon Huat Ltd, Sirat Holdings Limited and Ori Private Limited
2 $17 million movement related to non-controlling interest from Mox Bank Limited
30. Retirement benefit obligations
Accounting policy
The Group operates pension and other post-retirement benefit plans around the world, which can be categorised into defined contribution plans and defined benefit plans. For defined contribution plans, the Group pays contributions to publicly or privately administered pension plans on a statutory or contractual basis, and such amounts are charged to operating expenses. The Group has no further payment obligations once the contributions have been paid.
For funded defined benefit plans, the liability recognised in the balance sheet is the present value of the defined benefit obligation at the balance sheet date less the fair value of plan assets. For unfunded defined benefit plans the liability recognised at the balance sheet date is the present value of the defined benefit obligation.
The defined benefit obligation is calculated annually by independent actuaries using the projected unit method.
Actuarial gains and losses that arise are recognised in shareholders' equity and presented in the statement of other comprehensive income in the period they arise. The Group determines the net interest expense on the net defined benefit liability for the year by applying the discount rate used to measure the defined benefit obligation at the beginning of the annual period to the net defined benefit liability, taking into account any changes in the net defined benefit liability during the year as a result of contributions and benefit payments. Net interest expense, the cost of the accrual of new benefits, benefit enhancements (or reductions) and administration expenses met directly from plan assets are recognised in the income statement in the period in which they were incurred.
Significant accounting estimates and judgements
There are many factors that affect the measurement of the retirement benefit obligations. This measurement requires the use of estimates, such as discount rates, inflation, pension increases, salary increases, and life expectancies which are inherently uncertain. Discount rates are determined by reference to market yields at the end of the reporting period on high-quality corporate bonds (or, in countries where there is no deep market in such bonds, government bonds) of a currency and term consistent with the currency and term of the post-employment benefit obligations. This is the approach adopted across our geographies. Where there are inflation-linked bonds available (e.g. United Kingdom and the eurozone), the Group derives inflation based on the market on those bonds, with the market yield adjusted in respect of the United Kingdom to take account of the fact that liabilities are linked to Consumer Price Index inflation, whereas the reference bonds are linked to Retail Price Index inflation. Where no inflation-linked bonds exist, we determine inflation assumptions based on a combination of long-term forecasts and short-term inflation data. Salary growth assumptions reflect the Group's long-term expectations, taking into account future business plans and macroeconomic data (primarily expected future long-term inflation). Demographic assumptions, including mortality and turnover rates, are typically set based on the assumptions used in the most recent actuarial funding valuation, and will generally use industry standard tables, adjusted where appropriate to reflect recent historic experience and/or future expectations. The sensitivity of the liabilities to changes in these assumptions is shown in the Note below.
Retirement benefit obligations comprise:
| 2020 | 2019 |
Defined benefit plans obligation | 434 | 458 |
Defined contribution plans obligation | 9 | 11 |
Net obligation | 443 | 469 |
Retirement benefit charge comprises:
| 2020 | 2019 |
Defined benefit plans | 81 | 73 |
Defined contribution plans | 277 | 299 |
Charge against profit (Note 7) | 358 | 372 |
The Group operates over 60 defined benefit plans across its geographies, many of which are closed to new entrants who now join defined contribution arrangements. The aim of all these plans is, as part of the Group's commitment to financial wellbeing for employees, to give employees the opportunity to save appropriately for retirement in a way that is consistent with local regulations, taxation requirements and market conditions. The defined benefit plans expose the Group to currency risk, interest rate risk, investment risk and actuarial risks such as Longevity Risk.
The material holdings of government and corporate bonds partially hedge movements in the liabilities resulting from interest rate and inflation changes. Setting aside movements from other drivers such as currency fluctuation, the reductions in discount rates in most geographies over 2020 have led to higher liabilities. These have been largely offset by increases in the value of bonds held and good stock market performance. These movements are shown as actuarial losses versus gains respectively in the tables below. Contributions into a number of plans in excess of the amounts required to fund benefits accruing have also helped to reduce the net deficit over the year.
The disclosures required under IAS 19 have been calculated by independent qualified actuaries based on the most recent full actuarial valuations updated, where necessary, to 31 December 2020.
UK Fund
The Standard Chartered Pension Fund (the 'UK Fund') is the Group's largest pension plan, representing 63 per cent (31 December 2019: 60 per cent) of total pension liabilities. The UK Fund is set up under a trust that is legally separate from the Bank (its formal sponsor) and, as required by UK legislation, at least one-third of the trustee directors are nominated by members; the remainder are appointed by the Bank. The trustee directors have a fiduciary duty to members and are responsible for governing the UK Fund in accordance with its Trust Deed and Rules.
The UK Fund was closed to new entrants from 1 July 1998 and closed to the accrual of new benefits from 1 April 2018: all employees are now offered membership of a defined contribution plan.
The financial position of the UK Fund is regularly assessed by an independent qualified actuary. The funding valuation as at 31 December 2017 was completed in December 2018 by the then Scheme Actuary, A Zegleman of Willis Towers Watson, using assumptions different from those in Note 30, and agreed with the UK Fund trustee. It showed that the UK Fund was 89% funded at that date revealing a past service deficit of $210 million (£159 million). To repair the deficit, four annual cash payments of $42.2 million (£32.9 million) were agreed, with three of these having been paid in December 2018, December 2019 and December 2020. The agreement allows that if the funding position improves to being at or near a surplus in future years the payments due in December 2021 will be reduced or eliminated. In addition, an escrow account of $150 million (£110 million) exists to provide security for future contributions. The 31 December 2020 funding valuation is currently underway and may conclude by altering, or adding to, the cash payment due in 2021. Its analysis of mortality experience has driven the small adjustment to life expectancy assumptions shown below.
The Group is not required to recognise any additional liability under IFRIC 14 or the 2015 exposure draft of proposed amendments to it, as the Bank has control of any pension surplus under the Trust Deed and Rules.
Overseas plans
The principal overseas defined benefit arrangements operated by the Group are in Germany, Hong Kong, India, Jersey, Korea, Taiwan, United Arab Emirates (UAE) and the United States of America (US). Plans in Germany, Hong Kong, India, Korea, Taiwan and UAE remain open for accrual of future benefits.
Key assumptions
The principal financial assumptions used at 31 December 2020 were:
| Funded plans | ||||
UK Fund |
| Overseas Plans1 | |||
2020 | 2019 | 2020 | 2019 | ||
Discount rate | 1.4 | 2.0 |
| 0.3 - 2.8 | 0.7 - 3.4 |
Price Inflation | 2.2 | 2.1 |
| 1.0 - 3.0 | 1.0 - 3.0 |
Salary increases | n/a | n/a |
| 2.9 - 4.0 | 3.0 - 4.0 |
Pension increases | 2.1 | 2.1 |
| 1.3 - 2.7 | 1.4 - 3.0 |
1 The range of assumptions shown is for the main defined benefit overseas plans in Germany, Hong Kong, Jersey, Korea, Taiwan, UAE and the US. These comprise around 85 per cent of the total liabilities of overseas defined benefit plans
| Unfunded plans | ||||
US post-retirement medical |
| Other1 | |||
2020 | 2019 | 2020 | 2019 | ||
Discount rate | 2.8 | 3.4 |
| 1.4 - 6.3 | 1.5 - 7.0 |
Price inflation | 2.5 | 2.5 |
| 2.0 - 4.0 | 2.0 - 4.0 |
Salary increases | N/A | N/A |
| 3.5 - 7.0 | 3.5 - 7.0 |
Pension increases | N/A | N/A |
| 0.0 - 2.1 | 0.0 - 2.1 |
Post-retirement medical rate | 7% in 2020 reducing | 8% in 2019 reducing |
|
| N/A |
1 The range of assumptions shown is for the main unfunded plans in Bahrain, India, Korea, Thailand, UAE and the UK. They comprise around 95 per cent of the total liabilities of other unfunded plans
The principal non-financial assumptions are those made for UK life expectancy. The assumptions for life expectancy for the UK Fund are that a male member currently aged 60 will live for 27 years (31 December 2019: 28 years) and a female member for 30 years (31 December 2019: 29 years) and a male member currently aged 40 will live for 29 years (31 December 2019: 31 years) and a female member for 31 years (31 December 2019: 30 years) after their 60th birthdays.
Both financial and non-financial assumptions can be expected to change in the future, which would affect the value placed on the liabilities. For example, changes at the reporting date to one of the relevant actuarial assumptions, holding other assumptions constant, would have affected the defined benefit obligation by the amounts shown below:
• If the discount rate increased by 25 basis points the liability would reduce by approximately $75 million for the UK Fund (31 December 2019: $65 million) and $40 million for the other plans (31 December 2019: $35 million)
• If the rate of inflation increased by 25 basis points the liability, allowing for the consequent impact on pension and salary increases would increase by approximately $50 million for the UK Fund (31 December 2019: $45 million) and $25 million for the other plans (31 December 2019: $25 million)
• If the rate salaries increase compared to inflation increased by 25 basis points the liability would increase by nil for the UK Fund (31 December 2019: nil) and approximately $15 million for the other plans (31 December 2019: $15 million)
• If longevity expectations increased by one year the liability would increase by approximately $70 million for the UK Fund (31 December 2019: $60 million) and $20 million for the other plans (31 December 2019: $15 million)
Although this analysis does not take account of the full distribution of cash flows expected, it does provide an approximation of the sensitivity to the main assumptions. While changes in other assumptions would also have an impact, the effect would not be as significant.
Profile of plan obligations
| Funded plans |
| Unfunded plans | ||
UK Fund | Overseas | Post-retirement medical | Other | ||
Duration of the defined benefit obligation (in years) | 15 | 11 |
| 10 | 11 |
(Duration of the defined benefit obligation - 2019) | 16 | 11 |
| 10 | 12 |
Benefits expected to be paid from plans |
|
|
|
|
|
Benefits expected to be paid during 2021 | 86 | 60 |
| 1 | 17 |
Benefits expected to be paid during 2022 | 88 | 79 |
| 1 | 15 |
Benefits expected to be paid during 2023 | 90 | 77 |
| 1 | 15 |
Benefits expected to be paid during 2024 | 92 | 80 |
| 1 | 15 |
Benefits expected to be paid during 2025 | 94 | 78 |
| 1 | 16 |
Benefits expected to be paid during 2026 to 2030 | 499 | 516 |
| 5 | 79 |
Fund values:
The fair value of assets and present value of liabilities of the plans attributable to defined benefit members were:
At 31 December | 2020 |
| 2019 | ||||||||
Funded plans |
| Unfunded plans | Funded plans |
| Unfunded plans | ||||||
UK Fund | Overseas plans | Post-retirement medical | Other | UK Fund | Overseas plans | Post-retirement medical | Other | ||||
Equities | 118 | 374 |
| N/A | N/A |
| 102 | 349 |
| N/A | N/A |
Government bonds | 844 | 189 |
| N/A | N/A |
| 956 | 196 |
| N/A | N/A |
Corporate bonds | 508 | 129 |
| N/A | N/A |
| 189 | 121 |
| N/A | N/A |
Absolute Return Fund | 94 | - |
| N/A | N/A |
| 158 | - |
| N/A | N/A |
Hedge funds1 | 89 | - |
| N/A | N/A |
| 100 | - |
| N/A | N/A |
Insurance linked funds1 | 36 | - |
| N/A | N/A |
| 37 | - |
| N/A | N/A |
Property | 74 | 9 |
| N/A | N/A |
| 75 | 32 |
| N/A | N/A |
Derivatives | 20 | 4 |
| N/A | N/A |
| 13 | 3 |
| N/A | N/A |
Cash and equivalents | 141 | 297 |
| N/A | N/A |
| 77 | 163 |
| N/A | N/A |
Others1 | 10 | 21 |
| N/A | N/A |
| 8 | 31 |
| N/A | N/A |
Total fair value of assets2 | 1,934 | 1,023 |
| N/A | N/A |
| 1,715 | 895 |
| N/A | N/A |
Present value of liabilities | (1,982) | (1,147) |
| (16) | (246) |
| (1,832) | (1,010) |
| (16) | (210) |
Net pension plan obligation | (48) | (124) |
| (16) | (246) |
| (117) | (115) |
| (16) | (210) |
1 Unquoted assets
2 Self-investment is monitored closely and is less than $1 million of Standard Chartered equities and bonds for 2020 (31 December 2019: <$1 million). Self-investment is only allowed where it is not practical to exclude it - for example through investment in index-tracking funds where the Group is a constituent of the relevant index
The pension cost for defined benefit plans was:
2020 | Funded plans |
| Unfunded plans | Total | ||
UK Fund | Overseas plans | Post- retirement medical | Other | |||
Current service cost1 | - | 50 |
| - | 7 | 57 |
Past service cost and curtailments2 | - | - |
| - | 14 | 14 |
Settlement cost | - | - |
| - | - | - |
Interest income on pension plan assets | (32) | (28) |
| - | - | (60) |
Interest on pension plan liabilities | 35 | 29 |
| 1 | 5 | 70 |
Total charge to profit before deduction of tax | 3 | 51 |
| 1 | 26 | 81 |
Net gain on plan assets3 | (160) | (81) |
| - | - | (241) |
Losses on liabilities | 131 | 88 |
| (1) | 22 | 240 |
Total (gains)/losses recognised directly in statement | (29) | 7 |
| (1) | 22 | (1) |
Deferred taxation | - | (9) |
| - | - | (9) |
Total (gains) /losses after tax | (29) | (2) |
| (1) | 22 | (10) |
1 Includes administrative expenses paid out of plan assets of $2 million (31 December 2019: $2 million)
2 Past service costs arose primarily due to recognition of a legacy UK long-term sick plan which has been clarified as technically representing a defined benefit
3 The actual return on the UK Fund assets was a gain of $192 million and on overseas plan assets was a gain of $109 million
The pension cost for defined benefit plans was:
2019 | Funded plans |
| Unfunded plans | Total | ||
UK Fund | Overseas plans | Post- retirement medical | Other | |||
Current service cost1 | - | 49 |
| - | 12 | 61 |
Past service cost and curtailments2 | - | 2 |
| - | (1) | 1 |
Settlement cost | - | - |
| - | - | - |
Interest income on pension plan assets | (43) | (26) |
| - | - | (69) |
Interest on pension plan liabilities | 44 | 29 |
| 1 | 6 | 80 |
Total charge to profit before deduction of tax | 1 | 54 |
| 1 | 17 | 73 |
Net gain on plan assets3 | (86) | (88) |
| - | - | (174) |
Losses on liabilities | 196 | 77 |
| (2) | 27 | 298 |
Total losses/(gains) recognised directly in statement | 110 | (11) |
| (2) | 27 | 124 |
Deferred taxation | 5 | - |
| - | - | 5 |
Total losses/(gains) after tax | 115 | (11) |
| (2) | 27 | 129 |
1 Includes administrative expenses paid out of plan assets of $1 million (31 December 2018: $2 million)
2 Past service costs arose primarily due to plan changes in Thailand and US, and were largely offset by past service credits due to plan changes in UAE
3 The actual return on the UK Fund assets was a gain of $129 million and on overseas plan assets was a gain of $114 million
Movement in the defined benefit pension plans and post-retirement medical deficit during the year comprise:
| Funded plans |
| Unfunded plans | Total | ||
UK Fund | Overseas plans | Post- retirement medical | Other | |||
Deficit at 1 January 2020 | (117) | (115) |
| (16) | (210) | (458) |
Contributions | 44 | 63 |
| - | 16 | 123 |
Current service cost1 | - | (50) |
| - | (7) | (57) |
Past service cost and curtailments | - | - |
| - | (14) | (14) |
Settlement costs and transfers impact2 | - | (5) |
| - | - | (5) |
Net interest on the net defined benefit asset/liability | (3) | (1) |
| (1) | (5) | (10) |
Actuarial gains/(losses) | 29 | (7) |
| 1 | (22) | 1 |
Exchange rate adjustment | (1) | (9) |
| - | (4) | (14) |
Deficit at 31 December 2020³ | (48) | (124) |
| (16) | (246) | (434) |
1 Includes administrative expenses paid out of plan assets of $2 million (31 December 2019: $1 million)
2 Impact of transfers relates to a gratuity plan in India which was included within IAS 19 disclosures for the first time this year. Previously, a separate provision for these liabilities was included on the balance sheet
3 The deficit total of $434 million is made up of plans in deficit of $476 million (31 December 2019: $486 million) net of plans in surplus with assets totalling $42 million (31 December 2019: $28 million)
Movement in the defined benefit pension plans and post-retirement medical deficit during the year comprise:
| Funded plans |
| Unfunded plans | Total | ||
UK Fund | Overseas plans | Post- retirement medical | Other | |||
Deficit at 1 January 2019 | (50) | (129) |
| (17) | (190) | (386) |
Contributions | 44 | 73 |
| - | 20 | 137 |
Current service cost1 | - | (49) |
| - | (12) | (61) |
Past service cost and curtailments | - | (2) |
| - | 1 | (1) |
Settlement costs and transfers impact | - | - |
| - | - | - |
Net interest on the net defined benefit asset/liability | (1) | (3) |
| (1) | (6) | (11) |
Actuarial (losses)/gains | (110) | 11 |
| 2 | (27) | (124) |
Exchange rate adjustment | - | (16) |
| - | 4 | (12) |
Deficit at 31 December 2019² | (117) | (115) |
| (16) | (210) | (458) |
1 Includes administrative expenses paid out of plan assets of $1 million (31 December 2018: $2 million)
2 The deficit total of $458 million is made up of plans in deficit of $486 million (31 December 2018: $421 million) net of plans in surplus with assets totalling $28 million (31 December 2018: $35 million)
The Group's expected contribution to its defined benefit pension plans in 2021 is $120 million.
| 2020 |
| 2019 | ||||
Assets | Obligations | Total | Assets | Obligations | Total | ||
At 1 January 2020 | 2,610 | (3,068) | (458) |
| 2,410 | (2,796) | (386) |
Contributions1 | 123 | - | 123 |
| 137 | - | 137 |
Current service cost2 | - | (57) | (57) |
| - | (61) | (61) |
Past service cost and curtailments | - | (14) | (14) |
| - | (1) | (1) |
Settlement costs & impact of transfers3 | 19 | (24) | (5) |
| (7) | 7 | - |
Interest cost on pension plan liabilities | - | (70) | (70) |
| - | (80) | (80) |
Interest income on pension plan assets | 60 | - | 60 |
| 69 | - | 69 |
Benefits paid out2 | (161) | 161 | - |
| (165) | 165 | - |
Actuarial gains/(losses)4 | 241 | (240) | 1 |
| 174 | (298) | (124) |
Exchange rate adjustment | 65 | (79) | (14) |
| (8) | (4) | (12) |
At 31 December 2020 | 2,957 | (3,391) | (434) |
| 2,610 | (3,068) | (458) |
1 Includes employee contribution of nil (31 December 2019: nil)
2 Includes administrative expenses paid out of plan assets of $1 million (31 December 2019: $ 1 million)
3 Impact of transfers relates to a gratuity plan in India which was included within IAS 19 Disclosures for the first time this year. Previously, a separate provision for these liabilities was included elsewhere on the balance sheet
4 Actuarial loss on obligation comprises $256 million loss (31 December 2019: $267 million loss) from financial assumption changes, $21 million gain (31 December 2019: $4 million loss) from demographic assumption changes and $5 million loss (31 December 2019: $18 million loss) from experience
31. Share-based payments
Accounting policy
The Group operates equity-settled and cash-settled share-based compensation plans. The fair value of the employee services (measured by the fair value of the awards granted) received in exchange for the grant of the shares and awards is recognised as an expense. For deferred share awards granted as part of an annual performance award, the expense is recognised over the period from the start of the performance period to the vesting date. For example, the expense for three-year awards granted in 2021 in respect of 2020 performance, which vest in 2022-24, is recognised as an expense over the period from 1 January 2020 to the vesting dates in 2022-24. For all other awards, the expense is recognised over the period from the date of grant to the vesting date.
For equity-settled awards, the total amount to be expensed over the vesting period is determined by reference to the fair value of the shares and awards at the date of grant, which excludes the impact of any non-market vesting conditions (for example, profitability and growth targets). The fair value of equity instruments granted is based on market prices, if available, at the date of grant. In the absence of market prices, the fair value of the instruments is estimated using an appropriate valuation technique, such as a binomial option pricing model. Non-market vesting conditions are included in assumptions for the number of shares and awards that are expected to vest.
At each balance sheet date, the Group revises its estimates of the number of shares and awards that are expected to vest. It recognises the impact of the revision of original estimates, if any, in the income statement and a corresponding adjustment to equity over the remaining vesting period. Forfeitures prior to vesting attributable to factors other than the failure to satisfy service conditions and non-market vesting conditions are treated as a cancellation and the remaining unamortised charge is debited to the income statement at the time of cancellation. The proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium when awards in the form of options are exercised.
Cash-settled awards are revalued at each balance sheet date and a liability recognised on the balance sheet for all unpaid amounts, with any changes in fair value charged or credited to staff costs in the income statement until the awards are exercised. Where forfeitures occur prior to vesting that are attributable to factors other than a failure to satisfy service conditions or market-based performance conditions, the cumulative charge incurred up to the date of forfeiture is credited to the income statement. Any revaluation related to cash-settled awards is recorded as an amount due from subsidiary undertakings.
The Group operates a number of share-based arrangements for its executive directors and employees. Details of the share-based payment charge are set out below.
| 2020¹ |
| 2019¹ | ||||
Cash | Equity | Total | Cash | Equity | Total | ||
Deferred share awards | (1) | 59 | 58 |
| 13 | 88 | 101 |
Other share awards | (1) | 75 | 74 |
| 12 | 53 | 65 |
Total share-based payments | (2) | 134 | 132 |
| 25 | 141 | 166 |
1 No forfeiture assumed
2011 Standard Chartered Share Plan (the '2011 Plan')
The 2011 Plan was approved by shareholders in May 2011 and is the Group's main share plan. Since approval, it has been used to deliver various types of share awards:
• Long term incentive plan (LTIP) awards: granted with vesting subject to performance measures. Performance measures attached to awards granted previously include: total shareholder return (TSR); return on equity (RoE) and return on tangible equity (RoTE) (in the case of both RoE and RoTE, with a Common Equity Tier 1 (CET1) underpin); strategic measures; earnings per share (EPS) growth; and return on risk-weighted assets (RoRWA). Each measure is assessed independently over a three-year period. Awards granted from 2016 have an individual conduct gateway requirement that results in the award lapsing if not met
• Deferred awards are used to deliver the deferred portion of variable remuneration, in line with both market practice and regulatory requirements. These awards vest in instalments on anniversaries of the award date specified at the time of grant. Deferred awards are not subject to any plan limit. This enables the Group to meet regulatory requirements relating to deferral levels, and is in line with market practice
• Restricted share awards, made outside of the annual performance process as replacement buy-out awards to new joiners who forfeit awards on leaving their previous employers, vest in instalments on the anniversaries of the award date specified at the time of grant. This enables the Group to meet regulatory requirements relating to buy-outs, and is in line with market practice. In line with similar plans operated by our competitors, restricted share awards are not subject to an annual limit and do not have any performance measures
Under the 2011 Plan, no grant price is payable to receive an award. The remaining life of the 2011 Plan during which new awards can be made is one year.
Valuation - LTIP awards
The vesting of awards granted in both 2020 and 2019 is subject to relative TSR performance measures and achievement of a strategic scorecard. The vesting of awards granted in 2019 and 2020 are subject to the satisfaction of RoTE (subject to a capital CET1 underpin). The fair value of the TSR component is calculated using the probability of meeting the measures over a three-year performance period, using a Monte Carlo simulation model. The number of shares expected to vest is evaluated at each reporting date, based on the expected performance against the RoTE and strategic measures in the scorecard, to determine the accounting charge.
No dividend equivalents accrue for the LTIP awards made in 2019 or 2020 and the fair value takes this into account, calculated by reference to market consensus dividend yield.
| 2020 | 2019 |
Grant date | 09 March | 11 March |
Share price at grant date (£) | 5.20 | 6.11 |
Vesting period (years) | 3-7 | 3-7 |
Expected divided yield (%) | 4.2 | 4.2 |
Fair value (RoTE) (£) | 1.40, 1.34 | 2.02, 2.02 |
Fair value (TSR) (£) | 0.75, 0.72 | 0.97, 0.91 |
Fair value (Strategic) (£) | 1.40, 1.34 | 2.02, 2.02 |
Valuation - deferred shares and restricted shares
The fair value for deferred awards which are not granted to material risk-takers is based on 100 per cent of the face value of the shares at the date of grant as the share price will reflect expectations of all future dividends. For awards granted to material risk-takers in 2020, the fair value of awards takes into account the lack of dividend equivalents, calculated by reference to market consensus dividend yield.
Deferred share awards
Grant date | 2020 | ||||
22 June |
| 30 March |
| 9 March | |
Share price at grant date (£) | 4.27 | 4.67 | 5.20 | ||
Vesting period (years) | Expected | Fair value |
| Expected | Fair value |
| Expected | Fair value |
1-3 years | NA | 4.27 |
| NA,4.2 | 4.67,4.13 |
| NA,4.2,4.2 | 5.20,4.79,4.59 |
1-5 years | - | - |
| 4.2 | 4.04 |
| 4.2,4.2 | 4.59,4.50 |
3-7 years | - | - |
| - | - |
| 4.2,4.2 | 4.23,4.06 |
Grant date | 2019 | ||
24 June |
| 11 March | |
Share price at grant date (£) | 7.03 | 6.11 | |
Vesting period (years) | Expected dividend yield (%) | Fair value |
| Expected dividend yield (%) | Fair value |
1-3 years | N/A,4.2,4.2 | 7.03,6.47,6.21 |
| N/A,4.2,4.2 | 6.11,5.62,5.40 |
1-5 years | - | - |
| 4.2,4.2 | 5.29,5.40 |
3-7 years | - | - |
| 4.2,4.2 | 4.77,4.97 |
Other restricted share awards
Grant date | 2020 | ||||||
26 November |
| 30 September |
| 22 June |
| 9 March | |
Share price at grant date (£) | 4.71 | 3.52 | 4.27 | 5.20 | |||
Vesting period (years) | Expected dividend | Fair value |
| Expected dividend | Fair value |
| Expected dividend | Fair value |
| Expected dividend | Fair value |
1 year | 4.2 | 4.34,4.52 |
| 4.2 | 3.38 |
| 4.2 | 4.10 |
| 4.2 | 4.99 |
2 years | 4.2 | 4.16,4.34 |
| 4.2 | 3.24 |
| 4.2 | 3.93 |
| 4.2 | 4.79 |
2-3 years | - | - |
| - | - |
| - | - |
| - | - |
3 years | 4.2 | 4.16 |
| 4.2 | 3.11 |
| 4.2 | 3.77 |
| 4.2 | 4.59 |
4 years | 4.2 | 4.00 |
| 4.2 | 2.98 |
| 4.2 | 3.62 |
| 4.2 | 4.41 |
5 years | - | - |
| - | - |
| 4.2 | 3.48 |
| 4.2 | 4.23 |
Grant date | 2019 | ||||||
28 November |
| 1 October |
| 24 June |
| 11 March | |
Share price at grant date (£) | 7.04 | 6.84 | 7.03 | 6.11 | |||
Vesting period (years) | Expected dividend | Fair value |
| Expected dividend | Fair value |
| Expected dividend | Fair value |
| Expected dividend | Fair value |
1 year | 4.2 | 6.75 |
| 4.2 | 6.57 |
| 4.2 | 6.74 |
| 4.2 | 5.86, 5.62, 5.74 |
2 years | 4.2 | 6.48 |
| 4.2 | 6.30 |
| 4.2 | 6.47 |
| 4.2 | 5.62, 5.40 |
2-3 years | - | - |
| - | - |
| - | - |
| - | - |
3 years | 4.2 | 6.22 |
| 4.2 | 6.05 |
| 4.2 | 6.21 |
| 4.2 | 5.40 |
4 years | - | - |
| 4.2 | 5.80 |
| 4.2 | 5.96 |
| 4.2 | 5.18 |
5 years | - | - |
| 4.2 | 5.57 |
| 4.2 | 5.72 |
| - | - |
All Employee Sharesave Plans
2013 Sharesave Plan
Under the 2013 Sharesave Plan, employees may open a savings contract. Within a maturity period of six months after the third anniversary, employees may save up to £250 per month over three years to 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 operate Sharesave plans, typically due to securities law and regulatory restrictions. In these countries, where possible, the Group offers an equivalent cash-based plan to its employees.
The 2013 Sharesave Plan was approved by shareholders in May 2013 and all future Sharesave invitations are made under this plan. The remaining life of the 2013 Sharesave Plan is two years.
Valuation - Sharesave:
Options under the Sharesave plans are valued using a binomial option-pricing model. The same fair value is applied to all employees including executive directors. The fair value per option granted and the assumptions used in the calculation are as follows:
All Employee Sharesave Plan (Sharesave)
| 2020 | 2019 |
Grant date | 30 September | 1 October |
Share price at grant date (£) | 3.52 | 6.84 |
Exercise price (£) | 3.14 | 4.98 |
Vesting period (years) | 3 | 3 |
Expected volatility (%) | 31.8 | 25.3 |
Expected option life (years) | 3.33 | 3.33 |
Risk-free rate (%) | (0.07) | 0.26 |
Expected dividend yield (%) | 4.2 | 4.2 |
Fair value (£) | 0.69 | 1.62 |
The expected volatility is based on historical volatility over the last three years, or three years prior to grant. The expected life is the average expected period to exercise. The risk-free rate of return is the yield on zero-coupon UK government bonds of a term consistent with the assumed option life. The expected dividend yield is calculated by reference to market consensus dividend yield.
Limits
An award shall not be granted under the 2011 Plan in any calendar year if, at the time of its proposed grant, it would cause the number of Standard Chartered PLC ordinary shares allocated in the period of 10 calendar years ending with that calendar year under the 2011 Plan and under any other discretionary share plan operated by Standard Chartered PLC to exceed such number as represents 5 per cent of the ordinary share capital of Standard Chartered PLC in issue at that time.
An award shall not be granted under the 2011 Plan or 2013 Sharesave Plan in any calendar year if, at the time of its proposed grant, it would cause the number of Standard Chartered PLC ordinary shares allocated in the period of 10 calendar years ending with that calendar year under the 2011 Plan or 2013 Sharesave Plan and under any other employee share plan operated by Standard Chartered PLC to exceed such number as represents 10 per cent of the ordinary share capital of Standard Chartered PLC in issue at that time.
An award shall not be granted under the 2011 Plan or 2013 Sharesave Plan in any calendar year if, at the time of its proposed grant, it would cause the number of Standard Chartered PLC ordinary shares which may be issued or transferred pursuant to awards then outstanding under the 2011 Plan or 2013 Sharesave Plan as relevant to exceed such number as represents 10 per cent of the ordinary share capital of Standard Chartered PLC in issue at that time.
The number of Standard Chartered PLC ordinary shares which may be issued pursuant to awards granted under the 2011 Plan in any 12-month period must not exceed such number as represents 1 per cent of the ordinary share capital of Standard Chartered PLC in issue at that time. The number of Standard Chartered PLC ordinary shares which may be issued pursuant to awards granted under the 2013 Sharesave Plan in any 12-month period must not exceed such number as represents 1 per cent of the ordinary share capital of Standard Chartered PLC in issue at that time.
Reconciliation of share award movements for the year to 31 December 2020
| 2011 Plan1 | PSP1 | Sharesave | Weighted | |
LTIP | Deferred/ | ||||
Outstanding at 1 January 2020 | 20,912,679 | 28,235,461 | - | 12,602,842 | 5.28 |
Granted2,3 | 3,086,220 | 23,452,802 | - | 7,373,729 | - |
Lapsed | (824,269) | (657,697) | - | (3,228,307) | 5.37 |
Exercised | (256,388) | (11,487,018) | - | (156,560) | 5.30 |
Outstanding at 31 December | 22,918,242 | 39,543,548 | - | 16,591,704 | 4.31 |
Total number of securities available for issue under the plan | 22,918,242 | 39,543,548 | - | 16,591,704 | 4.31 |
Percentage of the issued shares this represents as at 31 December | 0.7% | 1.3% | - | 0.5% |
|
Exercisable as at 31 December | 27,810 | 2,395,136 | - | 1,549,597 | 6.16 |
Range of exercise prices (£)3 | - | - | - | 3.14 - 6.20 | - |
Intrinsic value of vested but not exercised options ($ million) | 0.18 | 15.23 | - | 0.02 |
|
Weighted average contractual remaining life (years) | 6.28 | 8.36 | - | 2.47 |
|
Weighted average share price for awards exercised during the period (£) | 4.28 | 4.55 | - | 6.76 |
|
1 Employees do not contribute towards the cost of these awards
2 22,007,464 (DRSA/RSA) granted on 9 March 2020, 189,991 (DRSA/RSA) granted as notional dividend on 6 March 2020, 3,025,163 (LTIP) granted on 9 March 2020, 56,805 (LTIP) granted as notional dividend on 6 March 2020, 86,319 (DRSA/RSA) granted on 30 March 2020, 214,754 (DRSA/RSA) granted on 22 June 2020, 4,252 (LTIP) granted as notional dividend on 25 August 2020, 503,520 (DRSA/RSA) granted on 30 September 2020, 7, 373,729 (Sharesave) granted on 30 September 2020, 450,754 (DRSA/RSA) granted on 26 November 2020
3 For Sharesave granted in 2020 the exercise price is £3.14 per share, which was a 20% discount to the closing share price on 28 August 2020. The closing share price on 28 August 2020 was £3.924
Reconciliation of share award movements for the year to 31 December 2019
| 2011 Plan1 | PSP1 | Sharesave | Weighted | |
LTIP | Deferred/ | ||||
Outstanding at 1 January 2019 | 27,003,333 | 26,612,980 | 4,270 | 13,724,361 | 5.48 |
Granted2,3 | 2,777,179 | 15,140,609 | - | 5,025,310 | - |
Lapsed | (2,824,549) | (1,441,046) | - | (1,821,467) | 5.50 |
Exercised | (6,043,284) | (12,077,082) | (4,270) | (4,325,362) | 5.49 |
Outstanding at 31 December | 20,912,679 | 28,235,461 | - | 12,602,842 | 5.28 |
Total number of securities available for issue under the plan | 20,912,679 | 28,235,461 | - | 12,602,842 |
|
Percentage of the issued shares this represents as at 31 December | 0.7% | 0.9% | - | 0.4% |
|
Exercisable as at 31 December | 53,986 | 2,539,752 | - | 1,231,333 | 5.30 |
Range of exercise prices (£)3 | - | - | - | 4.98 - 6.20 |
|
Intrinsic value of vested but not exercised options ($ million) | 0.51 | 24.13 | - | 3.06 |
|
Weighted average contractual remaining life (years) | 6.85 | 8.25 | - | 2.44 |
|
Weighted average share price for awards exercised during the period (£) | 6.37 | 6.33 | 6.95 | 6.72 |
|
1. Employees do not contribute towards the cost of these awards
2. 14,346,920 (DRSA/RSA) granted on 11 March 2019, 186,955 (DRSA/RSA) granted as notional dividend on 8 March 2019, 2,530,325 (LTIP) granted on 11 March 2019, 232,895 (LTIP) granted as notional dividend on 8 March 2019, 278,813 (DRSA/RSA) granted on 24 June 2019, 74,125 (DRSA/RSA) granted as notional dividend on
9 August 2019, 13,959 (LTIP) granted as notional dividend on 9 August 2019, 151,751 (RSA) granted on 1 October 2019, 5,025,310 (Sharesave) granted on 1 October 2019 and 102,045 (RSA) granted on 28 November 2019
3. For Sharesave granted in 2019 the exercise price is £4.98 per share, which was a 20% discount to the closing share price on 30 August 2019. The closing share price on 30 August 2019 was £6.22
32. Investments in subsidiary undertakings, joint ventures and associates
Accounting policy
Subsidiaries
Subsidiaries are all entities, including structured entities, which the Group controls. The Group controls an entity when it is exposed to, and has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the investee. The assessment of power is based on the Group's practical ability to direct the relevant activities of the entity unilaterally for the Group's own benefit and is subject to reassessment if and when one or more of the elements of control change. Subsidiaries are fully consolidated from the date on which the Group effectively obtains control. They are deconsolidated from the date that control ceases, and where any interest in the subsidiary remains, this is remeasured to its fair value and the change in carrying amount is recognised in the income statement.
Associates and joint arrangements
Joint arrangements are where two or more parties either have rights to the assets, and obligations of the joint arrangement (joint operations), or have rights to the net assets of the joint arrangement (joint venture). The Group evaluates the contractual terms of joint arrangements to determine whether a joint arrangement is a joint operation or a joint venture. The Group did not have any contractual interest in joint operations.
An associate is an entity over which the Group has significant influence.
Investments in associates and joint ventures are accounted for by the equity method of accounting and are initially recognised at cost. The Group's investment in associates and joint ventures includes goodwill identified on acquisition (net of any accumulated impairment loss).
The Group's share of its associates' and joint ventures' post-acquisition profits or losses is recognised in the income statement, and its share of post-acquisition movements in other comprehensive income is recognised in reserves. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. When the Group's share of losses in an associate or a joint venture equals or exceeds its interest in the associate, including any other unsecured receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate or joint venture.
Unrealised gains and losses on transactions between the Group and its associates and joint ventures are eliminated to the extent of the Group's interest in the associates and joint ventures. At each balance sheet date, the Group assesses whether there is any objective evidence of impairment in the investment in associates and joint ventures. Such evidence includes a significant or prolonged decline in the fair value of the Group's investment in an associate or joint venture below its cost, among other factors.
Significant accounting estimates and judgements
The Group applies judgement in determining if it has control, joint control or significant influence over subsidiaries, joint ventures and associates respectively. These judgements are based upon identifying the relevant activities of counterparties, being those activities that significantly affect the entities' returns, and further making a decision of if the Group has control over those entities, joint control, or has significant influence (being the power to participate in the financial and operating policy decisions but not control them).
These judgements are at times determined by equity holdings, and the voting rights associated with those holdings. However, further considerations including but not limited to board seats, advisory committee members and specialist knowledge of some decision-makers are also taken into account. Further judgement is required when determining if the Group has de-facto control over an entity even though it may hold less than 50 per cent of the voting shares of that entity. Judgement is required to determine the relative size of the Group's shareholding when compared to the size and dispersion of other shareholders.
Impairment testing of investments in associates and joint ventures is performed if there is a possible indicator of impairment. Judgement is used to determine if there is objective evidence of impairment. Objective evidence may be observable data such as losses incurred on the investment when applying the equity method, the granting of concessions as a result of financial difficulty, or breaches of contracts/regulatory fines of the associate or joint venture. Further judgement is required when considering broader indicators of impairment such as losses of active markets or ratings downgrades across key markets in which the associate or joint venture operate.
Impairment testing is based on estimates including forecasting the expected cash flows from the investments, growth rates, terminal values and the discount rate used in calculation of the present values of those cash flows. The estimation of future cash flows and the level to which they are discounted is inherently uncertain and requires significant judgement.
Business combinations
The acquisition method of accounting is used to account for the acquisition of subsidiaries by the Group. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, together with the fair value of any contingent consideration payable. The excess of the cost of acquisition over the fair value of the Group's share of the identifiable net assets and contingent liabilities acquired is recorded as goodwill (see Note 17 for details on goodwill recognised by the Group). If the cost of acquisition is less than the fair value of the net assets and contingent liabilities of the subsidiary acquired, the difference is recognised directly in the income statement.
Where the fair values of the identifiable net assets and contingent liabilities acquired have been determined provisionally, or where contingent or deferred consideration is payable, adjustments arising from their subsequent finalisation are not reflected in the income statement if: (i) they arise within 12 months of the acquisition date (or relate to acquisitions completed before 1 January 2014); and (ii) the adjustments arise from better information about conditions existing at the acquisition date (measurement period adjustments). Such adjustments are applied as at the date of acquisition and, if applicable, prior year amounts are restated. All changes that are not measurement period adjustments are reported in income other than changes in contingent consideration not classified as financial instruments, which are accounted for in accordance with the appropriate accounting policy, and changes in contingent consideration classified as equity, which is not remeasured.
Changes in ownership interest in a subsidiary, which do not result in a loss of control, are treated as transactions between equity holders and are reported in equity. Where a business combination is achieved in stages, the previously held equity interest is remeasured at the acquisition date fair value with the resulting gain or loss recognised in the income statement.
In the Company's financial statements, investment in subsidiaries, associates and joint ventures are held at cost less impairment and dividends from pre-acquisition profits received prior to 1 January 2009, if any. Inter-company transactions, balances and unrealised gains and losses on transactions between Group companies are eliminated in the Group accounts.
Investments in subsidiary undertakings | 2020 | 2019 |
As at 1 January | 58,037 | 34,853 |
Additions1 | 1,370 | 23,184 |
Disposal2 | (2,000) | - |
As at 31 December | 57,407 | 58,037 |
1 Includes internal Additional Tier 1 issuances of $1 billion by Standard Chartered Bank (Hong Kong) Limited. (31 December 2019: Includes internal Additional Tier 1 issuances of $900 million by Standard Chartered Bank (Hong Kong) Limited and $500 million and SGD750 million by Standard Chartered Bank (Singapore) Limited)
2 Redemption of Additional Tier 1 capital of $2 billion by Standard Chartered Bank
At 31 December 2020, the principal subsidiary undertakings, all indirectly held except for Standard Chartered Bank (Hong Kong) Limited, and principally engaged in the business of banking and provision of other financial services, were as follows:
Country and place of incorporation or registration | Main areas of operation | Group interest |
Standard Chartered Bank, England and Wales | United Kingdom, Middle East, South Asia, Asia Pacific, Americas and, through Group companies, Africa | 100 |
Standard Chartered Bank (China) Limited, China1 | China | 100 |
Standard Chartered Bank (Hong Kong) Limited, Hong Kong | Hong Kong | 100 |
Standard Chartered Bank Korea Limited, Korea | Korea | 100 |
Standard Chartered Bank Malaysia Berhad, Malaysia | Malaysia | 100 |
Standard Chartered Bank Nigeria Limited, Nigeria | Nigeria | 100 |
Standard Chartered Bank (Singapore) Limited, Singapore | Singapore | 100 |
Standard Chartered Bank (Taiwan) Limited, Taiwan | Taiwan | 100 |
Standard Chartered Bank (Pakistan) Limited, Pakistan | Pakistan | 98.99 |
Standard Chartered Bank (Thai) Public Company Limited, Thailand | Thailand | 99.87 |
Standard Chartered Bank Kenya Limited, Kenya | Kenya | 74.32 |
1 Under PRC law, registered as 'Standard Chartered Bank (China) Limited, China'
A complete list of subsidiary undertaking is included in Note 40.
The Group does not have any material non-controlling interests in any of its subsidiaries except the 25.68 per cent non-controlling interest in Standard Chartered Bank Kenya Limited. This contributes $13 million (31 December 2019: $20 million) of the profit attributable to non-controlling interests and $111 million (31 December 2019: $111 million) of the equity attributable to non-controlling interests.
While the Group's subsidiaries are subject to local statutory capital and liquidity requirements in relation to foreign exchange remittance, these restrictions arise in the normal course of business and do not significantly restrict the Group's ability to access or use assets and settle liabilities of the Group.
The Group does not have significant restrictions on its ability to access or use its assets and settle its liabilities other than those resulting from the regulatory framework within which the banking subsidiaries operate. These frameworks require banking operations to keep certain levels of regulatory capital, liquid assets, exposure limits and comply with other required ratios. These restrictions are summarised below:
Regulatory and liquidity requirements
The Group's subsidiaries are required to maintain minimum capital, leverage ratios, liquidity and exposure ratios which therefore restrict the ability of these subsidiaries to distribute cash or other assets to the parent company.
The subsidiaries are also required to maintain balances with central banks and other regulatory authorities in the countries in which they operate. At 31 December 2020, the total cash and balances with central banks was $67 billion (31 December 2019: $53 billion) of which $7 billion (31 December 2019: $10 billion) is restricted.
Statutory requirements
The Group's subsidiaries are subject to statutory requirements not to make distributions of capital and unrealised profits to the parent company, generally to maintain solvency. These requirements restrict the ability of subsidiaries to remit dividends to the Group. Certain subsidiaries are also subject to local exchange control regulations which provide for restrictions on exporting capital from the country other than through normal dividends.
Contractual requirements
The encumbered assets in the balance sheet of the Group's subsidiaries are not available for transfer around the Group. Encumbered assets are disclosed in Risk review and Capital review.
Share of profit from investment in associates and joint ventures comprises:
| 2020 | 2019 |
(Loss)/profit from investment in joint ventures | (3) | 48 |
Profit from investment in associates | 154 | 252 |
Total | 151 | 300 |
Interests in associates and joint ventures | 2020 | 2019 |
As at 1 January | 1,908 | 2,307 |
Exchange translation difference | 123 | 15 |
Additions | 52 | 64 |
Share of profits | 151 | 300 |
Dividend received | - | (3) |
Disposals | (35) | - |
Share of FVOCI and Other reserves | (37) | 25 |
Transfer to held for sale assets1 | - | (800) |
As at 31 December | 2,162 | 1,908 |
1 Refer to Note 21 Assets held for sale and associated liabilities where our joint venture PT Bank Permata Tbk (Permata) is disclosed
A complete list of the Group's interest in associates is included in Note 40. The Group's principal associate is:
Associate | Nature of activities | Main areas of operation | Group interest |
China Bohai Bank | Banking | China | 16.26 |
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 is able to exercise over the management and financial and operating policies. 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 decreased to 16.26 per cent from 19.99 per cent as a result of the IPO which was completed on the 16 July 2020 in which the Group did not participate. A $35 million loss was recognised on the dilution of the Group's ownership percentage as the IPO price was based on the net asset value of Bohai at 31 December 2019.
The Group has recognised 19.99 per cent of Bohai's earnings through the date of the IPO after which it has recognised 16.26 per cent of Bohai's earnings. Bohai has a statutory year end of 31 December, but Bohai publishes their results after the Group. For the year ended 31 December 2019, the Group was on a one-month lag in recognising its share of Bohai's earnings. For the year ended 31December 2020, the Group recognised Bohai's results through 30 September 2020 (10 months of earnings, including December 2019). The Group will continue on a three-month lag in recognising its share of Bohai's earnings going forward.
Impairment testing
At 31 December 2020, the listed equity 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 31 December 2020 as the recoverable amount as determined by a value-in-use ('VIU') calculation was higher than the carrying value.
| ViU | Carrying | Fair value |
Bohai | 2,943 | 2,025 | 1,888 |
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 three primary inputs, being;
• Discounted short to medium term cash flow projections based on management's best estimates of future earnings available to ordinary shareholders;
• A discount rate representing the risk-free rate and company risk premiums, and;
• A long term sustainable growth rate which is used to extrapolate in perpetuity those expected short to medium term earnings to derive a terminal value.
From the estimated cash flows a capital maintenance 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 retained earnings to meet the target capital ratios.
The key assumptions used in the VIU calculation:
| % |
Discount rate | 10.00 |
Long term growth rate | 5.00 |
Capital requirement adequacy ratio | 7.50 |
Carrying amount | Base case |
| Sensitivities 2020 | ||||||||||
VIU $million | Headroom $million | Discount Rate | GDP | GDP |
| Discount rates |
| Cash flows | |||||
+1% | -1% | +1% | -1% | +10% | -10% | ||||||||
Headroom $million | Headroom $million | Headroom $million | Headroom $million | Headroom $million | Headroom $million | ||||||||
2,025 | 2,943 | 918 | 10% | 5% |
| 1,460 | 557 |
| 480 | 1,573 |
| 1,353 | 483 |
The following table sets out the summarised financial statements of China Bohai Bank prior to the Group's share of the associates being applied:
| 30 Sep 2020 | 30 Nov 2019 |
Total assets | 202,537 | 156,429 |
Total liabilities | 187,024 | 147,407 |
Other equity instruments | 3,053 | 2,865 |
|
|
|
Operating income | 3,474 | 3,769 |
Net profit | 950 | 1,163 |
Other comprehensive income | (121) | (63) |
33. Structured entities
Accounting policy
A structured entity is an entity that has been designed so that voting or similar rights are not the dominant factor in deciding who controls the entity. Contractual arrangements determine the rights and therefore relevant activities of the structured entity. Structured entities are generally created to achieve a narrow and well-defined objective with restrictions around their activities. Structured entities are consolidated when the substance of the relationship between the Group and the structured entity indicates the Group has power over the contractual relevant activities of the structured entity, is exposed to variable returns, and can use that power to affect the variable return exposure.
In determining whether to consolidate a structured entity to which assets have been transferred, the Group takes into account its ability to direct the relevant activities of the structured entity. These relevant activities are generally evidenced through a unilateral right to liquidate the structured entity, investment in a substantial proportion of the securities issued by the structured entity or where the Group holds specific subordinate securities that embody certain controlling rights. The Group may further consider relevant activities embedded within contractual arrangements such as call options which give the practical ability to direct the entity, special relationships between the structured entity and investors, and if a single investor has a large exposure to variable returns of the structured entity.
Judgement is required in determining control over structured entities. The purpose and design of the entity is considered, along with a determination of what the relevant activities are of the entity and who directs these. Further judgements are made around which investor is exposed to, and absorbs the variable returns of the structured entity. The Group will have to weigh up all of these facts to consider whether the Group, or another involved party is acting as a principal in its own right or as an agent on behalf of others. Judgement is further required in the ongoing assessment of control over structured entities, specifically if market conditions have an effect on the variable return exposure of different investors.
The Group has involvement with both consolidated and unconsolidated structured entities, which may be established by the Group as a sponsor or by a third-party.
Interests in consolidated structured entities: A structured entity is consolidated into the Group's financial statements where the Group controls the structured entity, as per the determination in the accounting policy above.
The following table presents the Group's interests in consolidated structured entities.
| 2020 | 2019 |
Aircraft and ship leasing | 4,388 | 4,312 |
Principal and other structured finance | 365 | 816 |
Total | 4,753 | 5,128 |
Interests in unconsolidated structured entities:
Unconsolidated structured entities are all structured entities that are not controlled by the Group. The Group enters into transactions with unconsolidated structured entities in the normal course of business to facilitate customer transactions and for specific investment opportunities. An interest in a structured entity is contractual or non-contractual involvement which creates variability of the returns of the Group arising from the performance of the structured entity.
The table below presents the carrying amount of the assets recognised in the financial statements relating to variable interests held in unconsolidated structured entities, the maximum exposure to loss relating to those interests and the total assets of the structured entities. Maximum exposure to loss is primarily limited to the carrying amount of the Group's on-balance sheet exposure to the structured entity. For derivatives, the maximum exposure to loss represents the on-balance sheet valuation and not the notional amount. For commitments and guarantees, the maximum exposure to loss is the notional amount of potential future losses.
| 2020 |
| 2019 | ||||||||
Asset-backed securities | Structured finance | Principal Finance funds | Other activities | Total | Asset-backed securities | Structured finance | Principal Finance funds | Other activities | Total | ||
Group's interest - assets |
|
|
|
|
|
|
|
|
|
|
|
Financial assets held at fair value through profit or loss | 1,002 | - | 197 | 271 | 1,470 |
| 1,055 | - | 105 | 181 | 1,341 |
Loans and advances/Investment securities at amortised cost | 8,270 | 3,081 | 267 | - | 11,618 |
| 4,939 | 2,020 | 343 | 251 | 7,553 |
Investment securities (fair value through other comprehensive income) | 2,912 | - | - | - | 2,912 |
| 3,158 | - | - | - | 3,158 |
Other assets | - | - | 34 | - | 34 |
| - | - | 289 | - | 289 |
Total assets | 12,184 | 3,081 | 498 | 271 | 16,034 |
| 9,152 | 2,020 | 737 | 432 | 12,341 |
Off-balance sheet | 69 | 914 | 67 | - | 1,050 |
| 65 | 572 | 109 | - | 746 |
Group's maximum exposure to loss | 12,253 | 3,995 | 565 | 271 | 17,084 |
| 9,217 | 2,592 | 846 | 432 | 13,087 |
Total assets of structured entities | 198,622 | 10,410 | 2,424 | 276 | 211,732 |
| 153,948 | 6,594 | 3,028 | 7,976 | 171,546 |
The main types of activities for which the Group utilises unconsolidated structured entities cover synthetic credit default swaps for managed investment funds (including specialised Principal Finance funds), portfolio management purposes, structured finance and asset-backed securities. These are detailed as follows:
• Asset-backed securities (ABS): The Group also has investments in asset-backed securities issued by third-party sponsored and managed structured entities. For the purpose of market making and at the discretion of ABS trading desk, the Group may hold an immaterial amount of debt securities from structured entities originated by credit portfolio management. This is disclosed in the ABS column above
Portfolio management (Group sponsored entities): For the purposes of portfolio management, the Group purchased credit protection via synthetic credit default swaps from note-issuing structured entities. This credit protection creates credit risk which the structured entity and subsequently the end investor absorbs. The referenced assets remain on the Group's balance sheet as they are not assigned to these structured entities. The Group continues to own or hold all of the risks and returns relating to these assets. The credit protection obtained from the regulatory-compliant securitisation only serves to protect the Group against losses upon the occurrence of eligible credit events and the underlying assets are not derecognised from the Group's balance sheet. The Group does not hold any equity interests in the structured entities, but may hold an insignificant amount of the issued notes for market making purposes. This is disclosed in the ABS section above. The proceeds of the notes' issuance are typically held as cash collateral in the issuer's account operated by a trustee or invested in AAA-rated government-backed securities to collateralise the structured entities swap obligations to the Group, and to repay the principal to investors at maturity. The structured entities reimburse the Group on actual losses incurred, through the use of the cash collateral or realisation of the collateral security. Correspondingly, the structured entities write down the notes issued by an equal amount of the losses incurred, in reverse order of seniority. All funding is committed for the life of these vehicles and the Group has no indirect exposure in respect of the vehicles' liquidity position. The Group has reputational risk in respect of certain portfolio management vehicles and investment funds either because the Group is the arranger and lead manager or because the structured entities have Standard Chartered branding.
• Structured finance: Structured finance comprises interests in transactions that the Group or, more usually, a customer has structured, using one or more structured entities, which provide beneficial arrangements for customers. The Group's exposure primarily represents the provision of funding to these structures as a financial intermediary, for which it receives a lender's return. The transactions largely relate to real estate financing and the provision of aircraft leasing and ship finance.
• Principal Finance Fund: The Group's exposure to Principal Finance Funds represents committed or invested capital in unleveraged investment funds, primarily investing in pan-Asian infrastructure, real estate and private equity.
• Other activities: Other activities include structured entities created to support margin financing transactions, the refinancing of existing credit and debt facilities, as well as setting up of bankruptcy remote structured entities.
34. Cash flow statement
Adjustment for non-cash items and other adjustments included within income statement
| Group |
| Company | ||
2020 | 2019 | 2020 | 2019 | ||
Amortisation of discounts and premiums of investment securities | (588) | (818) |
| - | - |
Interest expense on subordinated liabilities | 637 | 756 |
| 606 | 688 |
Interest expense on senior debt securities in issue | 639 | 677 |
| 559 | 606 |
Other non-cash items | 686 | 792 |
| (36) | (75) |
Pension costs for defined benefit schemes | 81 | 73 |
| - | - |
Share-based payment costs | 132 | 166 |
| - | - |
Impairment losses on loans and advances and other credit risk provisions | 2,325 | 908 |
| - | - |
Dividend income from subsidiaries | - | - |
| (1,110) | (17,979) |
Other impairment | 587 | 163 |
| - | - |
Net gain on derecognition of investment in associate | (6) | - |
| - | - |
Profit from associates and joint ventures | (151) | (300) |
| - | - |
Total | 4,342 | 2,417 |
| 19 | (16,760) |
Change in operating assets
| Group |
| Company | ||
2020 | 2019 | 2020 | 2019 | ||
Increase in derivative financial instruments | (21,640) | (1,603) |
| (742) | (220) |
Increase in debt securities, treasury bills and equity shares held at | (5,385) | (5,579) |
| (8,281) | (4,502) |
Increase in loans and advances to banks and customers | (5,361) | (19,108) |
| - | - |
Net decrease/(increase) in prepayments and accrued income | 588 | (199) |
| - | - |
Net (increase)/decrease in other assets | (6,266) | (8,944)1 |
| 572 | (751) |
Total | (38,064) | (35,433) |
| (8,451) | (5,473) |
1 Aircraft and shipping purchases and disposals re-presented as cash flows from investing activities. This was previously presented under operating activities
Change in operating liabilities
| Group |
| Company | ||
2020 | 2019 | 2020 | 2019 | ||
Increase/(decrease) in derivative financial instruments | 22,399 | 1,290 |
| (378) | (390) |
Net increase in deposits from banks, customer accounts, debt securities in issue, Hong Kong notes in circulation and short positions | 28,087 | 27,850 |
| 6,630 | 1,131 |
(Decrease)/increase in accruals and deferred income | (845) | (15) |
| 67 | (18) |
Net increase/(decrease) in other liabilities | 4,796 | 810 |
| 96 | (4,905) |
Total | 54,437 | 29,935 |
| 6,415 | (4,182) |
Changes in liabilities arising from financing activities
| Group |
| Company | ||
2020 | 2019 | 2020 | 2019 | ||
Subordinated debt (including accrued interest): |
|
|
|
|
|
Opening balance | 16,445 | 15,227 |
| 14,737 | 13,648 |
Proceeds from the issue | 2,473 | 1,000 |
| 2,473 | 1,000 |
Interest paid | (601) | (603) |
| (537) | (547) |
Repayment | (2,446) | (23) |
| (1,402) | - |
Foreign exchange movements | 170 | (2) |
| 166 | (14) |
Fair value changes | 255 | 227 |
| 243 | 147 |
Other | 596 | 619 |
| 552 | 503 |
Closing balance | 16,892 | 16,445 |
| 16,232 | 14,737 |
|
|
|
|
|
|
Senior debt (including accrued interest): |
|
|
|
|
|
Opening balance | 23,889 | 21,998 |
| 19,849 | 17,361 |
Proceeds from the issue | 9,953 | 9,169 |
| 2,193 | 6,012 |
Interest paid | (627) | (797) |
| (575) | (740) |
Repayment | (4,305) | (7,692) |
| (2,106) | (3,780) |
Foreign exchange movements | 622 | (1) |
| 468 | (1) |
Fair value changes | 574 | 360 |
| 426 | 283 |
Other | (117) | 852 |
| 634 | 714 |
Closing balance | 29,989 | 23,889 |
| 20,889 | 19,849 |
35. Cash and cash equivalents
Accounting policy
For the purposes of the cash flow statement, cash and cash equivalents comprise cash, on demand and overnight balances with central banks (unless restricted) and balances with less than three months' maturity from the date of acquisition, including treasury bills and other eligible bills, loans and advances to banks, and short-term government securities.
The following balances with less than three months' maturity from the date of acquisition have been identified by the Group as being cash and cash equivalents.
| Group |
| Company | ||
2020 | 2019 | 2020 | 2019 | ||
Cash and balances at central banks | 66,712 | 52,728 |
| - | - |
Less: restricted balances | (7,341) | (9,843) |
| - | - |
Treasury bills and other eligible bills | 10,500 | 10,078 |
| - | - |
Loans and advances to banks | 25,762 | 21,556 |
| - | - |
Trading securities | 2,241 | 2,935 |
| - | - |
Amounts owed by and due to Subsidiary undertakings | - | - |
| 12,283 | 11,622 |
Total | 97,874 | 77,454 |
| 12,283 | 11,622 |
36. Related party transactions
Directors and officers
Details of directors' remuneration and interests in shares are disclosed in the Directors' remuneration report.
IAS 24 Related party disclosures requires the following additional information for key management compensation. Key management comprises non-executive directors, executive directors of Standard Chartered PLC, the Court directors of Standard Chartered Bank and the persons discharging managerial responsibilities (PDMR) of Standard Chartered PLC.
| 2020 | 2019 |
Salaries, allowances and benefits in kind | 35 | 37 |
Share-based payments | 26 | 28 |
Bonuses paid or receivable | 1 | 4 |
Total | 62 | 69 |
Transactions with directors and others
At 31 December 2020, the total amounts to be disclosed under the Companies Act 2006 (the Act) and the Listing Rules of the Hong Kong Stock Exchange Limited (Hong Kong Listing Rules) about loans to directors were as follows:
| 2020 |
| 2019 | ||
Number | $million | Number | $million | ||
Directors1 | 3 | - |
| 3 | - |
1 Outstanding loan balances were below $50,000
The loan transactions provided to the directors of Standard Chartered PLC were a connected transaction under Chapter 14A of the Hong Kong Listing Rules. It was fully exempt as financial assistance under Rule 14A.87(1), as it was provided in our ordinary and usual course of business and on normal commercial terms.
As at 31 December 2020, Standard Chartered Bank had created a charge over $89 million (31 December 2019: $86 million) of cash assets in favour of the non-consolidated independent trustee of its employer financed retirement benefit scheme.
Company
The Company has received $904 million (31 December 2019: $1006 million) of net interest income from its subsidiaries. The Company issues debt externally and lends proceeds to Group companies.
The Company has an agreement with Standard Chartered Bank that in the event of Standard Chartered Bank defaulting on its debt coupon interest payments, where the terms of such debt requires it, the Company shall issue shares as settlement for non-payment of the coupon interest.
| 2020 |
| 2019 | ||||
Standard | Standard | Others1 $million | Standard | Standard | Others1 $million | ||
Assets |
|
|
|
|
|
|
|
Due from subsidiaries | 11,706 | 45 | 356 |
| 11,068 | 32 | 346 |
Derivative financial instruments | 846 | 126 | - |
| 212 | 17 | - |
Debt securities | 18,092 | 4,686 | 1,151 |
| 13,665 | 3,953 | 548 |
Total assets | 30,644 | 4,857 | 1,507 |
| 24,945 | 4,002 | 894 |
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
Due to subsidiaries | 212 | - | - |
| 26 | - | - |
Derivative financial instruments | 347 | - | 13 |
| 738 | - | - |
Total liabilities | 559 | - | 13 |
| 764 | - | - |
1 Others include Standard Chartered Bank (Singapore) Limited, Standard Chartered Holdings Limited and Standard Chartered I H Limited
Associate and joint ventures
The following transactions with related parties are on an arm's length basis:
| 2020 | 2019 |
Assets |
|
|
Loans and advances | 5 | 2 |
Debt securities | - | 79 |
Total assets | 5 | 81 |
|
|
|
Liabilities |
|
|
Deposits | 1,061 | 225 |
Derivative liabilities | 5 | - |
Total liabilities | 1,066 | 225 |
Loan commitments and other guarantees¹ | 55 | 53 |
1 The maximum loan commitments and other guarantees during the year was $55 million
On 26 March 2020, the Group entered into an investment agreement and shareholders' agreement with Clifford Capital Holdings Pte. Ltd (a related party of the Group), the special purpose vehicles wholly owned by Temasek (namely, Kovan Investments Pte. Ltd. and Aranda Investments Pte. Ltd.), DBS Bank Ltd., Sumitomo Mitsui Banking Corporation, Prudential Assurance Company Singapore (Pte) Limited, and John Hancock Life Insurance Company (U.S.A.), with Asian Development Bank subsequently joining as a party. This transaction is considered to be a related party transaction under IAS 24. This transaction also constitutes a connected transaction under Chapter 14A of the Hong Kong Listing Rules and has complied with the requirements of that Chapter. Further details of the transaction are set out in the Annual Report.
Other than as disclosed in the Annual Report, there were no other transactions, arrangements or agreements outstanding for any director, connected person or officer of the Company which have to be disclosed under the Act, the rules of the UK Listing Authority or the Hong Kong Listing Rules.
37. Post balance sheet events
On 14 January 2021, Standard Chartered PLC issued $1,250 million fixed rate Additional Tier 1 (AT1) securities. On 14 January 2021, Standard Chartered PLC also issued $1,500 million 0.991 per cent senior debt due 2025 and $1,500 million 1.456 per cent senior debt due 2027.
Following the publication of recent PRA guidance, the Board has recommended a final ordinary dividend for 2020 of 9 cents a share or $284 million. The Board has also decided to carry out a share buy-back for up to a maximum consideration of $254 million to further reduce the number of ordinary shares in issue by cancelling the repurchased shares.
Nine vessels within the ship leasing business, disclosed as held for sale at year end, were sold in January 2021.
38. Auditor's remuneration
Auditor's remuneration is included within other general administration expenses. The amounts paid by the Group to their principal auditor, Ernst & Young LLP and its associates (together Ernst & Young LLP), are set out below. All services are approved by the Group Audit Committee and are subject to controls to ensure the external auditor's independence is unaffected by the provision of other services.
| 2020 | 2019 |
Audit fees for the Group statutory audit | 11.0 | 10.0 |
Fees payable to EY/KPMG for other services provided to the Group: |
|
|
Audit of Standard Chartered PLC subsidiaries | 9.9 | 8.4 |
Total audit fees | 20.9 | 18.4 |
Audit-related assurance services | 5.1 | 7.6 |
Other assurance services | 2.1 | 0.1 |
Other non-audit services | 0.1 | - |
Corporate finance transaction services | 0.4 | 0.6 |
Total fees payable | 28.6 | 26.7 |
The following is a description of the type of services included within the categories listed above:
• Audit fees for the Group statutory audit are in respect of fees payable to Ernst & Young LLP for the statutory audit of the consolidated financial statements of the Group and the separate financial statements of Standard Chartered PLC
• Audit-related fees consist of fees such as those for services required by law or regulation to be provided by the auditor, reviews of interim financial information, reporting on regulatory returns, reporting to a regulator on client assets and extended work performed over financial information and controls authorised by those charged with governance
• Other assurance services include agreed-upon-procedures in relation to statutory and regulatory filings
• Corporate finance transaction services are fees payable to Ernst & Young LLP for issuing comfort letters
Expenses for costs incurred and disbursements made in respect of their role as auditor, were reimbursed to EY. Such expenses since their appointment on 31 March 2020, did not exceed 1% of total fees charged above.
39. Standard Chartered PLC (Company)
Group reorganisation
The Board of the Group approved in 2018 an in principle group reorganisation which would result in Standard Chartered Bank (SCB) transferring its ordinary shares in Standard Chartered Bank (Hong Kong) Limited (SCB HK), Standard Chartered Bank (China) Limited (SCB China), Standard Chartered NEA Limited (SC NEA) and Standard Chartered Bank (Taiwan) Limited (SCB TW) to other entities within the Standard Chartered PLC Group.
On 4 March 2019, SCB transferred via a dividend in specie its ordinary shares in SCB HK to Standard Chartered Holdings Limited (SCH). SCH in turn transferred via a dividend in specie 100% of the ordinary shares of SCB HK to Standard Chartered PLC (SC PLC), the Group's ultimate parent.
On 1 June 2019, the Company transferred its shareholding in SCB China to SCB HK in exchange for ordinary shares in SCB HK. On 3 June 2019, the Company transferred via dividend in specie such SCB HK shares to SCH and in turn, SCH transferred via dividend in specie such SCB HK shares to SC PLC.
On 1 October 2019, the Company transferred its ordinary shares in SC NEA, the holding company of Standard Chartered Bank Korea Limited, to SCB HK, and on the same day, its ordinary shares in SCB TW to SC NEA.
All of the transfers were done on a fair value basis in the Standard Chartered PLC (Company) accounts. The result of these transfers was an increase in Investment in Subsidiaries and corresponding dividend income of $20,989 million. This resulted in an increase to retained earnings but no change to distributable reserves.
Classification and measurement of financial instruments
Financial assets | 2020 |
| 2019 | ||||||
Derivatives held for hedging | Amortised cost | Non-trading mandatorily at fair value through profit or loss | Total | Derivatives held for hedging | Amortised cost | Non-trading mandatorily at fair value through profit or loss | Total | ||
Derivatives | 971 | - | - | 971 |
| 229 | - | - | 229 |
Investment securities | - | 11,146 | 12,783 | 23,929 |
| - | 13,665 | 4,5021 | 18,167 |
Amounts owed by subsidiary undertakings | - | 12,283 | - | 12,283 |
| - | 11,622 | - | 11,622 |
Total | 971 | 23,429 | 12,783 | 37,183 |
| 229 | 25,287 | 4,502 | 30,018 |
1 Standard Chartered Bank, Standard Chartered Bank (Hong Kong) Limited and Standard Chartered Bank (Singapore) Limited issued Loss Absorbing Capacity (LAC) eligible debt securities
Instruments classified as amortised cost are recorded in Stage 1.
Derivatives held for hedging are held at fair value and are classified as Level 2 while the counterparty is Standard Chartered Bank and Standard Chartered Bank (Hong Kong) Limited.
Debt securities comprise corporate securities issued by Standard Chartered Bank and have a fair value equal to carrying value of $11,146 million (31 December 2019: $13,665 million).
In 2020 and 2019, amounts owed by Subsidiary undertakings have a fair value equal to carrying value.
Financial liabilities | 2020 |
| 2019 | ||||||
Derivatives held for hedging | Amortised cost | Designated at fair value through profit or loss | Total | Derivatives held for hedging | Amortised cost | Designated at fair value through profit or loss | Total | ||
Derivatives | 360 | - | - | 360 |
| 738 | - | - | 738 |
Debt securities in issue | - | 20,701 | 5,266 | 25,967 |
| - | 19,713 | 112 | 19,825 |
Subordinated liabilities and other borrowed funds | - | 14,783 | 1,286 | 16,069 |
| - | 14,588 | - | 14,588 |
Amounts owed to subsidiary undertakings | - | 212 | - | 212 |
| - | 26 | - | 26 |
Total | 360 | 35,696 | 6,552 | 42,608 |
| 738 | 34,327 | 112 | 35,177 |
Derivatives held for hedging are held at fair value and are classified as Level 2 while the counterparty is Standard
Chartered Bank.
The fair value of debt securities in issue is $21,231 million (31 December 2019: $20,030 million) and have fair value equal to carrying value.
The fair value of subordinated liabilities and other borrowed funds is $15,792 million (31 December 2019: $15,238 million).
Derivative financial instruments
Derivatives | 2020 |
| 2019 | ||||
Notional principal amounts | Assets | Liabilities | Notional principal amounts | Assets | Liabilities | ||
Foreign exchange derivative contracts: |
|
|
|
|
|
|
|
Forward foreign exchange | 3,300 | 126 | 125 |
| - | 17 | - |
Currency swaps | 3,895 | 17 | 186 |
| 5,114 | - | 642 |
Other foreign exchange (OTC) | - | - | - |
| 1,564 | 34 | - |
Interest rate derivative contracts: |
|
|
|
|
|
|
|
Swaps | 14,677 | 777 | - |
| 13,201 | 178 | 96 |
Forward rate agreements and options | 394 | 51 | 49 |
| - | - | - |
Total | 22,266 | 971 | 360 |
| 19,879 | 229 | 738 |
Credit risk
Maximum exposure to credit risk
| 2020 | 2019 |
Derivative financial instruments | 971 | 229 |
Debt securities | 23,929 | 18,167 |
Amounts owed by subsidiary undertakings | 12,283 | 11,622 |
Total | 37,183 | 30,018 |
In 2020 and 2019, amounts owed by Subsidiary undertakings were neither past due nor impaired; the Company had no individually impaired loans.
In 2020 and 2019, the Company had no impaired debt securities. The debt securities held by the Company are issued by Standard Chartered Bank (Hong Kong) Limited and by Standard Chartered Bank (Singapore) Limited, subsidiary undertaking with credit ratings of A+/A/A1.
There is no material expected credit loss on these instruments as they are Stage 1 assets, short term in nature and of a high quality.
Liquidity risk
The following table analyses the residual contractual maturity of the assets and liabilities of the Company on a
discounted basis:
| 2020 | ||||||||
One month | Between | Between | Between | Between | Between | Between | More than | Total | |
Assets |
|
|
|
|
|
|
|
|
|
Derivative financial instruments | 136 | - | - | - | 21 | 3 | 326 | 485 | 971 |
Investment securities | - | - | - | - | - | 4,247 | 4,770 | 14,912 | 23,929 |
Amount owed by subsidiary undertakings | 574 | 600 | 1,355 | 975 | - | 2,370 | 3,300 | 3,109 | 12,283 |
Investments in Subsidiary undertakings | - | - | - | - | - | - | - | 57,407 | 57,407 |
Other assets | - | - | - | - | - | - | - | 9 | 9 |
Total assets | 710 | 600 | 1,355 | 975 | 21 | 6,620 | 8,396 | 75,922 | 94,599 |
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
Derivative financial instruments | 138 | - | 114 | - | - | 10 | 50 | 48 | 360 |
Senior debt | 1,000 | - | 1,230 | 436 | - | 2,760 | 9,950 | 10,591 | 25,967 |
Amount owed to subsidiary undertakings | - | - | - | - | - | - | - | 212 | 212 |
Other liabilities | 179 | 126 | 92 | 12 | 10 | - | - | 46 | 465 |
Subordinated liabilities and other borrowed funds | - | - | - | - | - | 1,956 | 3,710 | 10,403 | 16,069 |
Total liabilities | 1,317 | 126 | 1,436 | 448 | 10 | 4,726 | 13,710 | 21,300 | 43,073 |
Net liquidity gap | (607) | 474 | (81) | 527 | 11 | 1,894 | (5,314) | 54,622 | 51,526 |
| 2019 | ||||||||
One month | Between | Between | Between | Between | Between | Between | More than | Total | |
Assets |
|
|
|
|
|
|
|
|
|
Derivative financial instruments | 34 | - | 1 | - | - | 8 | 52 | 134 | 229 |
Investment securities | - | - | - | - | - | - | 7,024 | 11,143 | 18,167 |
Amount owed by subsidiary undertakings | - | 5 | 2,104 | - | - | 1,025 | 5,249 | 3,239 | 11,622 |
Investments in Subsidiary undertakings | - | - | - | - | - | - | - | 58,037 | 58,037 |
Other assets | - | - | - | - | - | - | - | 15 | 15 |
Total assets | 34 | 5 | 2,105 | - | - | 1,033 | 12,325 | 72,568 | 88,070 |
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
Derivative financial instruments | - | - | 3 | - | 286 | 229 | 127 | 93 | 738 |
Senior debt | - | - | 2,104 | - | - | 2,547 | 7,734 | 7,328 | 19,713 |
Other debt securities in issue | - | - | - | - | - | - | - | - | - |
Amount owed to subsidiary undertakings | - | - | - | - | - | - | - | 26 | 26 |
Other liabilities | 298 | 86 | 68 | 7 | 20 | - | - | 36 | 515 |
Subordinated liabilities and other borrowed funds | - | - | - | - | - | - | 5,478 | 9,110 | 14,588 |
Total liabilities | 298 | 86 | 2,175 | 7 | 306 | 2,776 | 13,339 | 16,593 | 35,580 |
Net liquidity gap | (264) | (81) | (70) | (7) | (306) | (1,743) | (1,014) | 55,975 | 52,490 |
Financial liabilities on an undiscounted basis
| 2020 | ||||||||
One month | Between | Between | Between | Between | Between | Between | More than | Total | |
Derivative financial instruments | 138 | - | 114 | - | - | 10 | 50 | 48 | 360 |
Debt securities in issue | 1,000 | 11 | 1,517 | 446 | 317 | 3,350 | 11,225 | 11,783 | 29,649 |
Subordinated liabilities and other borrowed funds | - | - | 239 | - | 359 | 2,567 | 5,069 | 14,700 | 22,934 |
Other liabilities | - | - | - | - | - | - | - | 36 | 36 |
Total liabilities | 1,138 | 11 | 1,870 | 446 | 676 | 5,927 | 16,344 | 26,567 | 52,979 |
| 2019 | ||||||||
One month | Between | Between | Between | Between | Between | Between | More than | Total | |
Derivative financial instruments | - | - | 3 | - | 286 | 229 | 127 | 93 | 738 |
Debt securities in issue | - | 18 | 2,331 | 18 | 250 | 3,030 | 8,879 | 8,145 | 22,671 |
Subordinated liabilities and other borrowed funds | - | - | 221 | 26 | 361 | 618 | 7,002 | 14,166 | 22,394 |
Other liabilities | 172 | 86 | 68 | 7 | 20 | - | - | 13 | 366 |
Total liabilities | 172 | 104 | 2,623 | 51 | 917 | 3,877 | 16,008 | 22,417 | 46,169 |
40. Related undertakings of the Group
As at 31 December 2020, the Group's interests in related undertakings are disclosed below. Unless otherwise stated, the share capital disclosed comprises ordinary or common shares which are held by subsidiaries of the Group. Standard Chartered Bank (Hong Kong) Limited, Standard Chartered Funding (Jersey) Limited, Stanchart Nominees Limited, Standard Chartered Holdings Limited and Standard Chartered Nominees Limited are directly held subsidiaries, all other related undertakings are held indirectly. Unless otherwise stated, the principal country of operation of each subsidiary is the same as its country of incorporation. Note 32 details undertakings that have a significant contribution to the Group's net profit or net assets.
Subsidiary undertakings
Name and registered address | Country of incorporation | Description of shares | Proportion of shares held (%) |
The following companies have the address of 1 Basinghall Avenue, London, EC2V 5DD, United Kingdom |
|
|
|
FinVentures UK Limited | United Kingdom | $1.00 Ordinary shares | 100 |
Pembroke Aircraft Leasing (UK) Limited | United Kingdom | £1.00 Ordinary shares | 100 |
SC (Secretaries) Limited | United Kingdom | £1.00 Ordinary shares | 100 |
SC Transport Leasing 1 Limited | United Kingdom | £1.00 Ordinary shares | 100 |
SC Transport Leasing 2 Limited | United Kingdom | £1.00 Ordinary shares | 100 |
SC Ventures Innovation Investment L.P. | United Kingdom | Limited Partnership interest | 100 |
SCMB Overseas Limited | United Kingdom | £0.10 Ordinary shares | 100 |
Stanchart Nominees Limited | United Kingdom | £1.00 Ordinary shares | 100 |
Standard Chartered Africa Limited | United Kingdom | £1.00 Ordinary shares | 100 |
Standard Chartered Bank | United Kingdom | $0.01 Non-Cumulative Irredeemable Preference shares | 100 |
$5.00 Non-Cumulative Redeemable Preference shares | 100 | ||
$1.00 Ordinary shares | 100 | ||
Standard Chartered Foundation1 | United Kingdom | Guarantor | 100 |
Standard Chartered Health Trustee (UK) Limited | United Kingdom | £1.00 Ordinary shares | 100 |
Standard Chartered Holdings Limited | United Kingdom | $2.00 Ordinary shares | 100 |
Standard Chartered I H Limited | United Kingdom | $1.00 Ordinary shares | 100 |
Standard Chartered Leasing (UK) 2 Limited | United Kingdom | $1.00 Ordinary shares | 100 |
Standard Chartered Leasing (UK) 3 Limited | United Kingdom | $1.00 Ordinary shares | 100 |
Standard Chartered Leasing (UK) Limited | United Kingdom | $1.00 Ordinary shares | 100 |
Standard Chartered NEA Limited | United Kingdom | $1.00 Ordinary shares | 100 |
Standard Chartered Nominees Limited | United Kingdom | £1.00 Ordinary shares | 100 |
Standard Chartered Nominees (Private Clients UK) Limited | United Kingdom | $1.00 Ordinary shares | 100 |
Standard Chartered Overseas Holdings Limited | United Kingdom | £1.00 Ordinary shares | 100 |
Standard Chartered Securities (Africa) Holdings Limited | United Kingdom | $1.00 Ordinary shares | 100 |
Standard Chartered Trustees (UK) Limited | United Kingdom | £1.00 Ordinary shares | 100 |
Standard Chartered UK Holdings Limited | United Kingdom | £10.00 Ordinary shares | 100 |
The SC Transport Leasing Partnership 1 | United Kingdom | Limited Partnership interest | 100 |
The SC Transport Leasing Partnership 2 | United Kingdom | Limited Partnership interest | 100 |
The SC Transport Leasing Partnership 3 | United Kingdom | Limited Partnership interest | 100 |
The SC Transport Leasing Partnership 4 | United Kingdom | Limited Partnership interest | 100 |
The BW Leasing Partnership 1 LP1 | United Kingdom | Limited Partnership interest | 100 |
The BW Leasing Partnership 2 LP1 | United Kingdom | Limited Partnership interest | 100 |
The BW Leasing Partnership 3 LP1 | United Kingdom | Limited Partnership interest | 100 |
The BW Leasing Partnership 4 LP1 | United Kingdom | Limited Partnership interest | 100 |
The BW Leasing Partnership 5 LP1 | United Kingdom | Limited Partnership interest | 100 |
The following companies have the address of 2 More London Riverside, London SE1 2JT, United Kingdom |
|
|
|
Bricks (C&K) LP1 | United Kingdom | Limited Partnership interest | 100 |
Bricks (C) LP1 | United Kingdom | Limited Partnership interest | 100 |
Bricks (T) LP1 | United Kingdom | Limited Partnership interest | 100 |
The following company has the address of 8th Floor, 20 Farringdon Street, London, EC4A 4AB, United Kingdom |
|
|
|
SC Ventures G.P. Limited | United Kingdom | £1.00 Ordinary shares | 100 |
The following companies have the address of TMF Group, 8th Floor, 20 Farringdon Street, London, EC4A 4AB, United Kingdom. |
|
|
|
Zodia Custody Limited | United Kingdom | $1.00 Ordinary shares | 100 |
Zodia Holdings Limited | United Kingdom | $1.00 Ordinary shares | 100 |
The following company has the address of Rua Gamal Abdel Nasser, Edificio Tres Torres, Eixo Viario, Distrito Urbano da Ingombota, Municipio de Luanda, Provincia de Luanda, Angola |
|
|
|
Standard Chartered Bank Angola S.A. | Angola | AOK8,742.05 Ordinary shares | 60 |
The following company has the address of Level 5, 345 George St, Sydney NSW 2000, Australia |
|
|
|
Standard Chartered Grindlays Pty Limited | Australia | AUD Ordinary shares | 100 |
The following companies have the address of 5th Floor Standard House Bldg, The Mall, Queens Road, PO Box 496, Gaborone, Botswana |
|
|
|
Standard Chartered Bank Insurance Agency (Proprietary) Limited | Botswana | BWP Ordinary shares | 100 |
Standard Chartered Investment Services (Proprietary) Limited | Botswana | BWP Ordinary shares | 100 |
Standard Chartered Bank Botswana Limited | Botswana | BWP Ordinary shares | 75.8 |
Standard Chartered Botswana Education Trust2 | Botswana | Interest in trust | 100 |
Standard Chartered Botswana Nominees (Proprietary) Limited | Botswana | BWP Ordinary shares | 100 |
The following company has the address of Avenida Brigadeiro Faria Lima, no 3.477, 6 andar, conjunto 62 - Torre Norte, Condominio Patio Victor Malzoni, CEP 04538-133, São Paulo, Brazil |
|
|
|
Standard Chartered Participacoes Ltda | Brazil | BRL1.00 Ordinary shares | 100 |
The following company has the address of Avenida Brigadeiro Faria Lima, 3600 - 7° andar, conj 72 04538-132, São Paulo, Brazil. |
|
|
|
Standard Chartered Representaço Ltda | Brazil | BRL1.00 Ordinary shares | 100 |
The following company has the address of G01-02, Wisma Haji Mohd Taha Building, Jalan Gadong, BE4119, Brunei Darussalam |
|
|
|
Standard Chartered Securities (B) Sdn Bhd | Brunei Darussalam | BND1.00 Ordinary shares | 100 |
The following company has the address of 1155, Boulevard de la Liberté, Douala, B.P. 1784, Cameroon |
|
|
|
Standard Chartered Bank Cameroon S.A | Cameroon | XAF10,000.00 Ordinary shares | 100 |
The following company has the address of Maples Corporate Services Limited, PO Box 309, Ugland House, Grand Cayman KY1-1104, Cayman Islands |
|
|
|
Cerulean Investments LP | Cayman Islands | Limited Partnership interest | 100 |
The following company has the address of Maples Finance Limited, PO Box 1093 GT, Queensgate House, Georgetown, Grand Cayman, Cayman Islands |
|
|
|
SCB Investment Holding Company Limited | Cayman Islands | $1,000.00 A Ordinary shares | 100 |
The following company has the address of Walkers Corporate Limited, Cayman Corporate Centre, 27 Hospital Road George Town, Grand Cayman KY1-9008, Cayman Islands |
|
|
|
Sirat Holdings Limited | Cayman Islands | $0.01 Ordinary shares | 100 |
The following company has the address of No. 1034, Managed by Tianjin Dongjiang Secretarial Services Co. Ltd, Room 202, Office Area of Inspection Warehouse, No.6262 Ao Zhou Road, Dongjiang Free Trade Port Zone, Tianjin Pilot Free Trade Zone, China |
|
|
|
Pembroke Aircraft Leasing (Tianjin) Limited3 | China | $1.00 Ordinary shares | 100 |
The following company has the address of No. 1035, Managed by Tianjin Dongjiang Secretarial Services Co. Ltd, Room 202, Office Area of Inspection Warehouse, No.6262 Ao Zhou Road, Dongjiang Free Trade Port Zone, Tianjin Pilot Free Trade Zone, China |
|
|
|
Pembroke Aircraft Leasing Tianjin 1 Limited3 | China | CNY1.00 Ordinary shares | 100 |
The following company has the address of No. 1036, Managed by Tianjin Dongjiang Secretarial Services, Co. Ltd, Room 202, Office Area of Inspection Warehouse, No.6262 Ao Zhou Road, Dongjiang Free Trade Port Zon, Tianjin Pilot Free Trade Zone, China |
|
|
|
Pembroke Aircraft Leasing Tianjin 2 Limited3 | China | CNY1.00 Ordinary shares | 100 |
The following company has the address of Standard Chartered Tower, 201 Century Avenue, Pudong, Shanghai 200120, China |
|
|
|
Standard Chartered Bank (China) Limited3 | China | CNY Ordinary shares | 100 |
The following company has the address of 26F, Fortune Financial Centre, #5, Dong San Huan Zhong Lu, Chaoyang District, Beijing, P. R. China. |
|
|
|
Standard Chartered Corporate Advisory Co. Ltd3 | China | $1.00 Ordinary shares | 100 |
The following company has the address of No. 35, Xinhuanbei Road, TEDA, Tianjin, 300457, China |
|
|
|
Standard Chartered Global Business Services Co. Limited3 | China | $ Ordinary shares | 100 |
The following companies have the address of Units 61-65 (Office use only), Self-numbered Room 01-04, Room 901, No 6, Zhujiang East Road, Tianhe District, Guangzhou City, Guangdong Province, China |
|
|
|
Standard Chartered (Guangzhou) Business Management Co. Ltd.3 | China | $ Ordinary shares | 100 |
Standard Chartered Global Business Services (Guangzhou) Co. Ltd.3 | China | $ Ordinary shares | 100 |
The following company has the address of Standard Chartered Bank Cote d'Ivoire, 23 Boulevard de la République, Abidjan 17, 17 B.P. 1141, Cote d'Ivoire |
|
|
|
Standard Chartered Bank Cote d' Ivoire SA | Cote d'Ivoire | XOF100,000.00 Ordinary shares | 100 |
The following company has the address of Standard Chartered Bank France, 32 Rue de Monceau, 75008, Paris, France |
|
|
|
Pembroke Lease France SAS | France | €1.00 Ordinary shares | 100 |
The following company has the address of 8 Ecowas Avenue, Banjul, Gambia |
|
|
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Standard Chartered Bank Gambia Limited | Gambia | GMD1.00 Ordinary shares | 74.85 |
The following company has the address of Taunusanlage 16, 60325, Frankfurt am Main, Germany |
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Standard Chartered Bank AG | Germany | € Ordinary shares | 100 |
The following companies have the address of Standard Chartered Bank Building, 87 Independence Avenue, P.O. Box 768, Accra, Ghana |
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Standard Chartered Bank Ghana PLC | Ghana | GHS Ordinary shares | 69.4 |
GHS0.52 Preference shares | 87.0 | ||
Standard Chartered Ghana Nominees Limited | Ghana | GHS Ordinary shares | 100 |
The following company has the address of Standard Chartered Bank Ghana Limited, 87, Independence Avenue, Post Office Box 678, Accra, Ghana |
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Standard Chartered Wealth Management Limited Company | Ghana | GHS Ordinary shares | 100 |
The following company has the address of 15/F, Standard Chartered Tower, 388 Kwun Tong Road, Kwun Tong, Kowloon, Hong Kong |
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Horsford Nominees Limited | Hong Kong | HKD Ordinary shares | 100 |
The following companies have the address of 14th Floor, One Taikoo Place, 979 King's Road, Quarry Bay, Hong Kong. |
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Kozagi Limited | Hong Kong | HKD Ordinary shares | 100 |
Standard Chartered PF Real Estate (Hong Kong) Limited | Hong Kong | $ Ordinary shares | 100 |
The following companies have the address of 25/F, Standard Chartered Bank Building, 4-4A Des Voeux Road, Central, Hong Kong |
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Marina Acacia Shipping Limited | Hong Kong | $ Ordinary shares | 100 |
Marina Amaryllis Shipping Limited | Hong Kong | $ Ordinary shares | 100 |
Marina Amethyst Shipping Limited | Hong Kong | $ Ordinary shares | 100 |
Marina Ametrine Shipping Limited | Hong Kong | $ Ordinary shares | 100 |
Marina Angelite Shipping Limited | Hong Kong | $ Ordinary shares | 100 |
Marina Apollo Shipping Limited | Hong Kong | $ Ordinary shares | 100 |
Marina Beryl Shipping Limited | Hong Kong | $ Ordinary shares | 100 |
Marina Carnelian Shipping Limited | Hong Kong | $ Ordinary shares | 100 |
Marina Emerald Shipping Limited | Hong Kong | $ Ordinary shares | 100 |
Marina Flax Shipping Limited | Hong Kong | $ Ordinary shares | 100 |
Marina Gloxinia Shipping Limited | Hong Kong | $ Ordinary shares | 100 |
Marina Hazel Shipping Limited | Hong Kong | $ Ordinary shares | 100 |
Marina Honor Shipping Limited | Hong Kong | HKD Ordinary shares | 100 |
$ Ordinary shares | 100 | ||
Marina Ilex Shipping Limited | Hong Kong | $ Ordinary shares | 100 |
Marina Iridot Shipping Limited | Hong Kong | $ Ordinary shares | 100 |
Marina Kunzite Shipping Limited | Hong Kong | $ Ordinary shares | 100 |
Marina Leasing Limited | Hong Kong | $ Ordinary shares | 100 |
Marina Mimosa Shipping Limited | Hong Kong | $ Ordinary shares | 100 |
Marina Moonstone Shipping Limited | Hong Kong | $ Ordinary shares | 100 |
Marina Peridot Shipping Limited | Hong Kong | $ Ordinary shares | 100 |
Marina Sapphire Shipping Limited | Hong Kong | $ Ordinary shares | 100 |
Marina Splendor Shipping Limited | Hong Kong | HKD Ordinary shares | 100 |
$ Ordinary shares | 100 | ||
Marina Tourmaline Shipping Limited | Hong Kong | $ Ordinary shares | 100 |
Standard Chartered Leasing Group Limited | Hong Kong | $ Ordinary shares | 100 |
Standard Chartered Trade Support (HK) Limited | Hong Kong | HKD Ordinary shares | 100 |
The following companies have the address of 3/F Standard Chartered Bank Building, 4-4A Des Voeux Road Central, |
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Standard Chartered Private Equity Limited | Hong Kong | HKD Ordinary shares | 100 |
Standard Chartered Private Equity Managers (Hong Kong) Limited | Hong Kong | HKD Ordinary shares | 100 |
The following company has the address of 13/F, Standard Chartered Bank Building, 4-4A Des Voeux Road, Central, |
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Standard Chartered Trust (Hong Kong) Limited | Hong Kong | HKD Ordinary shares | 100 |
The following company has the address of 15/F, Two International Finance Centre, No. 8 Finance Street, Central, |
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Standard Chartered Securities (Hong Kong) Limited | Hong Kong | HKD Ordinary shares | 100 |
The following company has the address of 21/F, Standard Chartered Tower, 388 Kwun Tong Road, Kwun Tong, Kowloon, Hong Kong |
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Standard Chartered Asia Limited | Hong Kong | HKD Deferred shares | 100 |
HKD Ordinary shares | 100 | ||
$ Ordinary shares | 100 | ||
The following companies have the address of 32/F, Standard Chartered Bank Building, 4-4A Des Voeux Road, Central, Hong Kong |
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Standard Chartered Bank (Hong Kong) Limited | Hong Kong | HKD A Ordinary shares | 100 |
HKD B Ordinary shares | 100 | ||
$ D Ordinary shares | 100 | ||
$ C Ordinary shares | 100 | ||
Mox Bank Limited | Hong Kong | HKD Ordinary shares | 65.1 |
The following company has the address of 1st Floor, Europe Building, No.1, Haddows Road, Nungambakkam, Chennai, 600 006, India |
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Standard Chartered Global Business Services Private Limited | India | INR10.00 Equity shares | 100 |
The following company has the address of 90 M.G.Road, II Floor, Fort, Mumbai, Maharashtra, 400 001, India |
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Standard Chartered Finance Private Limited | India | INR10.00 Ordinary shares | 98.68 |
The following company has the address of Crescenzo, 6th Floor, Plot No 38-39, G Block, Bandra Kurla Complex, Bandra East, Mumbai, Maharashtra, 400051, India |
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Standard Chartered Investments and Loans (India) Limited | India | INR10.00 Ordinary shares | 100 |
The following company has the address of Crescenzo, 3A Floor, Plot No 38-39, G Block, Bandra Kurla Complex, Bandra East, Mumbai, Maharashtra, 400051, India |
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Standard Chartered Private Equity Advisory (India) Private Limited | India | INR1,000.00 Ordinary shares | 100 |
The following company has the address of Second Floor, Indiqube Edge, Khata No. 571/630/6/4, Sy.No.6/4, Ambalipura Village, Varthur Hobli, Marathahalli Sub-Division, Ward No. 150, Bengaluru, 560102, India. |
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Standard Chartered Research and Technology India Private Limited | India | INR10.00 A Equity shares | 100 |
INR10.00 Preference shares | 100 | ||
The following company has the address of 2nd Floor, 23-25 M.G. Road, Fort, Mumbai, 400 001, India |
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Standard Chartered Securities (India) Limited | India | INR10.00 Ordinary shares | 100 |
The following company has the address of Ground Floor, Crescenzo Building, G Block, C 38/39 , Bandra Kurla Complex, Bandra (East), Mumbai, Maharashtra, 400051, India |
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St Helen's Nominees India Private Limited | India | INR10.00 Equity shares | 100 |
The following company has the address of Vaishnavi Serenity, First Floor, No. 112, Koramangala Industrial Area, 5th Block, Koramangala, Bangalore, Karnataka, 560095, India |
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Standard Chartered (India) Modeling and Analytics Centre Private Limited | India | INR10.00 Equity shares | 100 |
The following companies have the address of 32 Molesworth Street, Dublin 2, D02 Y512, Ireland |
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Inishbrophy Leasing Limited | Ireland | €1.00 Ordinary shares | 100 |
Inishcannon Leasing Limited | Ireland | $1.00 Ordinary shares | 100 |
Inishcrean Leasing Limited | Ireland | $1.00 Ordinary shares | 100 |
Inishdawson Leasing Limited | Ireland | €1.00 Ordinary shares | 100 |
Inisherkin Leasing Limited | Ireland | $1.00 Ordinary shares | 100 |
Inishlynch Leasing Limited | Ireland | €1.00 Ordinary shares | 100 |
Inishoo Leasing Limited | Ireland | $1.00 Ordinary shares | 100 |
Nightjar Limited | Ireland | $1.00 Ordinary shares | 100 |
Pembroke Aircraft Leasing 1 Limited | Ireland | €1.00 Ordinary shares | 100 |
Pembroke Aircraft Leasing 2 Limited | Ireland | €1.00 Ordinary shares | 100 |
Pembroke Aircraft Leasing 3 Limited | Ireland | $1.00 Ordinary shares | 100 |
Pembroke Aircraft Leasing 4 Limited | Ireland | $1.00 Ordinary shares | 100 |
Pembroke Aircraft Leasing 5 Limited | Ireland | $1.00 Ordinary shares | 100 |
Pembroke Aircraft Leasing 6 Limited | Ireland | $1.00 Ordinary shares | 100 |
Pembroke Aircraft Leasing 7 Limited | Ireland | $1.00 Ordinary shares | 100 |
Pembroke Aircraft Leasing 8 Limited | Ireland | $1.00 Ordinary shares | 100 |
Pembroke Aircraft Leasing 9 Limited | Ireland | $1.00 Ordinary shares | 100 |
Pembroke Aircraft Leasing 10 Limited | Ireland | $1.00 Ordinary shares | 100 |
Pembroke Aircraft Leasing 11 Limited | Ireland | $1.00 Ordinary shares | 100 |
Pembroke Aircraft Leasing 12 Limited | Ireland | $1.00 Ordinary shares | 100 |
Pembroke Aircraft Leasing 13 Limited | Ireland | $1.00 Ordinary shares | 100 |
Pembroke Aircraft Leasing 14 Limited | Ireland | $1.00 Ordinary shares | 100 |
Pembroke Aircraft Leasing 15 Limited | Ireland | $1.00 Ordinary shares | 100 |
Pembroke Aircraft Leasing 16 Limited | Ireland | $1.00 Ordinary shares | 100 |
Pembroke Aircraft Leasing Holdings Limited | Ireland | $1.00 Ordinary shares | 100 |
Pembroke Capital Limited | Ireland | €1.25 Ordinary shares | 100 |
$1.00 Ordinary shares | 100 | ||
Skua Limited | Ireland | $1.00 Ordinary shares | 100 |
The following company has the address of First Names House, Victoria Road, Douglas, IM2 4DF, Isle of Man |
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Pembroke Group Limited5 | Isle of Man | $0.01 Ordinary shares | 100 |
The following companies have the address of 1st Floor, Goldie House, 1-4 Goldie Terrace, Upper Church Street, Douglas, IM1 1EB, Isle of Man |
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Standard Chartered Assurance Limited | Isle of Man | $1.00 Ordinary shares | 100 |
$1.00 Redeemable Preference shares | 100 | ||
Standard Chartered Insurance Limited6 | Isle of Man | $1.00 Ordinary shares | 100 |
The following company has the address of 21/F, Sanno Park Tower, 2-11-1 Nagatacho, Chiyoda-ku, Tokyo, 100-6155, Japan |
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Standard Chartered Securities (Japan) Limited | Japan | JPY50,000 Ordinary shares | 100 |
The following company has the address of 15 Castle Street, St Helier, |
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SCB Nominees (CI) Limited | Jersey | $1.00 Ordinary shares | 100 |
The following company has the address of IFC 5, St Helier, JE1 1ST, Jersey |
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Standard Chartered Funding (Jersey) Limited6 | Jersey | £1.00 Ordinary shares | 100 |
The following companies have the address of StandardChartered@Chiromo, Number 48, Westlands Road, |
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Standard Chartered Investment Services Limited | Kenya | KES20.00 Ordinary shares | 100 |
Standard Chartered Bank Kenya Limited | Kenya | KES5.00 Ordinary shares | 74.32 |
KES5.00 Preference shares | 100 | ||
Standard Chartered Securities (Kenya) Limited | Kenya | KES10.00 Ordinary shares | 100 |
Standard Chartered Financial Services Limited | Kenya | KES20.00 Ordinary shares | 100 |
Standard Chartered Insurance Agency Limited | Kenya | KES100.00 Ordinary shares | 100 |
Standard Chartered Kenya Nominees Limited | Kenya | KES20.00 Ordinary shares | 100 |
The following company has the address of M6-2701, West 27Fl, Suha-dong, 26, Eulji-ro 5-gil, Jung-gu, Seoul, Korea, Republic of |
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Resolution Alliance Korea Ltd4 | Korea, Republic of | KRW5,000.00 Ordinary shares | 100 |
The following companies have the address of 2/F, 47 Jongno, Jongno-gu, Seoul, 110-702, Korea, Republic of |
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Standard Chartered Bank Korea Limited | Korea, Republic of | KRW5,000.00 Ordinary shares | 100 |
Standard Chartered Securities Korea Limited | Korea, Republic of | KRW5,000.00 Ordinary shares | 100 |
The following company has the address of Atrium Building, Maarad Street, 3rd Floor, P.O.Box: 11-4081 Riad El Solh, Beirut, Beirut Central District, Lebanon |
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Standard Chartered Metropolitan Holdings SAL | Lebanon | $10.00 Ordinary A shares | 100 |
The following companies have the address of Level 26, Equatorial Plaza, Jalan Sultan Ismail, 50250 Kuala Lumpur, Malaysia |
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Cartaban (Malaya) Nominees Sdn Berhad | Malaysia | RM Ordinary shares | 100 |
Cartaban Nominees (Asing) Sdn Bhd | Malaysia | RM Ordinary shares | 100 |
Cartaban Nominees (Tempatan) Sdn Bhd | Malaysia | RM Ordinary shares | 100 |
Golden Maestro Sdn Bhd | Malaysia | RM Ordinary shares | 100 |
Popular Ambience Sdn Bhd | Malaysia | RM Ordinary shares | 100 |
Price Solutions Sdn Bhd | Malaysia | RM Ordinary shares | 100 |
SCBMB Trustee Berhad | Malaysia | RM Ordinary shares | 100 |
Standard Chartered Bank Malaysia Berhad | Malaysia | RM Irredeemable Convertible Preference shares | 100 |
RM Ordinary shares | 100 | ||
Standard Chartered Saadiq Berhad | Malaysia | RM Ordinary shares | 100 |
The following companies have the address of TMF Trust Labuan Limited, Brumby Centre, Lot 42, Jalan Muhibbah, 87000 Labuan F.T., Malaysia |
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Marina Morganite Shipping Limited7 | Malaysia | $ Ordinary shares | 100 |
Marina Moss Shipping Limited7 | Malaysia | $ Ordinary shares | 100 |
Marina Tanzanite Shipping Limited7 | Malaysia | $ Ordinary shares | 100 |
Pembroke Leasing (Labuan) 3 Berhad | Malaysia | $ Ordinary shares | 100 |
The following company has the address of Suite 18-1, Level 18, Vertical Corporate Tower B, Avenue 10, The Vertical, Bangsar South City , No. 8, Jalan Kerinchi , 59200 Kuala Lumpur, Wilayah Persekutuan, Malaysia |
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Resolution Alliance Sdn Bhd1 | Malaysia | RM Ordinary shares | 91 |
RM Irredeemable Preference shares | 100 | ||
The following company has the address of Level 1, Wisma Standard Chartered, Jalan Teknologi 8, Taman Teknologi Malaysia, 57000 Bukit Jalil, Kuala Lumpur, Wilayah Persekutuan, Malaysia |
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Standard Chartered Global Business Services Sdn Bhd | Malaysia | RM Ordinary shares | 100 |
The following companies have the address of Trust Company Complex, Ajeltake Road, Ajeltake Island, Majuro, MH96960, Marshall Islands |
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Marina Alysse Shipping Limited7 | Marshall Islands | $1.00 Ordinary shares | 100 |
Marina Amandier Shipping Limited7 | Marshall Islands | $1.00 Ordinary shares | 100 |
Marina Ambroisee Shipping Limited7 | Marshall Islands | $1.00 Ordinary shares | 100 |
Marina Angelica Shipping Limited7 | Marshall Islands | $1.00 Ordinary shares | 100 |
Marina Aventurine Shipping Limited7 | Marshall Islands | $1.00 Ordinary shares | 100 |
Marina Buxus Shipping Limited7 | Marshall Islands | $1.00 Ordinary shares | 100 |
Marina Citrine Shipping Limited7 | Marshall Islands | $1.00 Ordinary shares | 100 |
Marina Dahlia Shipping Limited7 | Marshall Islands | $1.00 Ordinary shares | 100 |
Marina Dittany Shipping Limited7 | Marshall Islands | $1.00 Ordinary shares | 100 |
Marina Dorado Shipping Limited7 | Marshall Islands | $1.00 Ordinary shares | 100 |
Marina Lilac Shipping Limited7 | Marshall Islands | $1.00 Ordinary shares | 100 |
Marina Lolite Shipping Limited7 | Marshall Islands | $1.00 Ordinary shares | 100 |
Marina Obsidian Shipping Limited7 | Marshall Islands | $1.00 Ordinary shares | 100 |
Marina Pissenlet Shipping Limited7 | Marshall Islands | $1.00 Ordinary shares | 100 |
Marina Protea Shipping Limited7 | Marshall Islands | $1.00 Ordinary shares | 100 |
Marina Quartz Shipping Limited7 | Marshall Islands | $1.00 Ordinary shares | 100 |
Marina Remora Shipping Limited7 | Marshall Islands | $1.00 Ordinary shares | 100 |
Marina Turquoise Shipping Limited7 | Marshall Islands | $1.00 Ordinary shares | 100 |
Marina Zircon Shipping Limited7 | Marshall Islands | $1.00 Ordinary shares | 100 |
The following company has the address of SGG Corporate Services (Mauritius) Ltd, 33, Edith Cavell St, Port Louis, 11324, Mauritius |
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Actis Treit Holdings (Mauritius) Limited1 | Mauritius | Class A $1.00 Ordinary shares | 62.001 |
Class B $1.00 Ordinary shares | 62.001 | ||
The following company has the address of 6/F, Standard Chartered Tower, 19, Bank Street, Cybercity, Ebene, 72201, Mauritius |
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Standard Chartered Bank (Mauritius) Limited | Mauritius | $ Ordinary shares | 100 |
The following companies have the address of c/o Ocorian Corporate Services (Mauritius) Ltd, 6th Floor, Tower A, 1 Cybercity, Ebene, 72201, Mauritius |
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Standard Chartered Financial Holdings | Mauritius | $1.00 Ordinary shares | 100 |
Standard Chartered Private Equity (Mauritius) Limited | Mauritius | $1.00 Ordinary shares | 100 |
Standard Chartered Private Equity (Mauritius) II Limited | Mauritius | $1.00 Ordinary shares | 100 |
Standard Chartered Private Equity (Mauritius) lll Limited | Mauritius | $1.00 Ordinary shares | 100 |
The following company has the address of C/O International Proximity, 5th Floor, Ebene Esplanade, 24 Bank Street, Cybercity, Ebene, Plaines, Wilhems, 72201, Mauritius |
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Subcontinental Equities Limited | Mauritius | $1.00 Ordinary shares | 100 |
The following company has the address of Standard Chartered Bank Nepal Limited, Madan Bhandari Marg, Ward No.34, Kathmandu Metropolitan City, Kathmandu District, Bagmati Zone, Kathmandu, Nepal |
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Standard Chartered Bank Nepal Limited | Nepal | NPR100.00 Ordinary shares | 70.21 |
The following company has the address of Hoogoorddreef 15, 1101 BA, Amsterdam, Netherlands |
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Pembroke Holland B.V. | Netherlands | €450.00 Ordinary shares | 100 |
The following companies have the address of 1 Basinghall Avenue, London, EC2V 5DD, United Kingdom |
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Standard Chartered Holdings (Africa) B.V6. | Netherlands | €4.50 Ordinary shares | 100 |
Standard Chartered Holdings (Asia Pacific) B.V.6 | Netherlands | €4.50 Ordinary shares | 100 |
Standard Chartered Holdings (International) B.V.6 | Netherlands | €4.50 Ordinary shares | 100 |
Standard Chartered MB Holdings B.V.6 | Netherlands | €4.50 Ordinary shares | 100 |
The following companies have the address of 142, Ahmadu Bello Way, Victoria Island, Lagos, 101241, Nigeria |
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Cherroots Nigeria Limited | Nigeria | NGN1.00 Ordinary Shares | 100 |
Standard Chartered Bank Nigeria Limited | Nigeria | NGN1.00 Irredeemable Non Cumulative Preference shares | 100 |
NGN1.00 Ordinary shares | 100 | ||
NGN1.00 Redeemable Preference shares | 100 | ||
Standard Chartered Capital & Advisory Nigeria Limited | Nigeria | NGN1.00 Ordinary shares | 100 |
Standard Chartered Nominees (Nigeria) Limited | Nigeria | NGN1.00 Ordinary shares | 100 |
The following company has the address of 3/F Main SCB Building, I.I Chundrigar Road, Karachi, Sindh, 74000, Pakistan |
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Price Solution Pakistan (Private) Limited | Pakistan | PKR10.00 Ordinary shares | 100 |
The following company has the address of P.O. Box No. 5556I.I. Chundrigar Road, Karachi, 74000, Pakistan |
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Standard Chartered Bank (Pakistan) Limited | Pakistan | PKR10.00 Ordinary shares | 98.99 |
The following company has the address of Rondo Daszyńskiego 2B, 00-843 , Warsaw, Poland |
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Standard Chartered Global Business Services spólka z ograniczona odpowiedzialnoscia | Poland | PLN50.00 Ordinary shares | 100 |
The following company has the address of Vistra Corporate Services Centre, Ground Floor, NPF Building, Beach Road, Apia, Samoa |
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Standard Chartered Nominees (Western Samoa) Limited | Samoa | $1.00 Ordinary shares | 100 |
The following company has the address of Al Faisaliah Office Tower Floor No 7 (T07D) , King Fahad Highway, Olaya District, Riyadh P.O. box 295522, Riyadh, 11351, Saudi Arabia |
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Standard Chartered Capital (Saudi Arabia) | Saudi Arabia | SAR10.00 Ordinary shares | 100 |
The following company has the address of 9 & 11, Lightfoot Boston Street, Freetown, Sierra Leone |
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Standard Chartered Bank Sierra Leone Limited | Sierra Leone | SLL1.00 Ordinary shares | 80.7 |
The following company has the address of Marina Bay Financial Centre (Tower 1), 8 Marina Boulevard, Level 23, 018981, Singapore |
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Standard Chartered Private Equity (Singapore) Pte. Ltd | Singapore | $ Ordinary shares | 100 |
The following companies have the address of 8 Marina Boulevard, Level 26, Marina Bay Financial Centre, Tower 1, 018981, Singapore |
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Marina Aquata Shipping Pte. Ltd | Singapore | $ Ordinary shares | 100 |
Marina Aruana Shipping Pte. Ltd | Singapore | SGD Ordinary shares | 100 |
$ Ordinary shares | 100 | ||
Marina Aster Shipping Pte. Ltd | Singapore | SGD Ordinary shares | 100 |
Marina Cobia Shipping Pte. Ltd | Singapore | SGD Ordinary shares | 100 |
$ Ordinary shares | 100 | ||
Marina Daffodil Shipping Pte. Ltd | Singapore | SGD Ordinary shares | 100 |
Marina Fatmarini Shipping Pte. Ltd | Singapore | $ Ordinary shares | 100 |
Marina Frabandari Shipping Pte. Ltd | Singapore | $ Ordinary shares | 100 |
Marina Freesia Shipping Pte. Ltd | Singapore | SGD Ordinary shares | 100 |
Marina Gerbera Shipping Pte. Ltd | Singapore | $ Ordinary shares | 100 |
Marina Mars Shipping Pte. Ltd | Singapore | SGD Ordinary shares | 100 |
Marina Mercury Shipping Pte. Ltd | Singapore | SGD Ordinary shares | 100 |
Marina Opah Shipping Pte. Ltd | Singapore | SGD Ordinary shares | 100 |
$ Ordinary shares | 100 | ||
Marina Partawati Shipping Pte. Ltd | Singapore | $ Ordinary shares | 100 |
Marina Poise Shipping Pte. Ltd | Singapore | $ Ordinary shares | 100 |
The following companies have the address of 9 Raffles Place, #27-00 Republic Plaza, 048619, Singapore. |
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Actis RE Investment 1 Private Limited1 | Singapore | SGD Ordinary shares | 100 |
Actis RE Investment 2 Private Limited1 | Singapore | SGD Ordinary shares | 100 |
Actis RE Investment 3 Private Limited1 | Singapore | SGD Ordinary shares | 100 |
Actis RE Investment 4 Private Limited1 | Singapore | SGD Ordinary shares | 100 |
Actis Treit Holdings No.1 (Singapore) Private Limited1 | Singapore | SGD Ordinary shares | 100 |
Actis Treit Holdings No.2 (Singapore) Private Limited1 | Singapore | SGD Ordinary shares | 100 |
The following company has the address of 7 Changi Business Park Crescent, #03-00 Standard Chartered @ Changi, 486028, Singapore |
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Raffles Nominees (Pte.) Limited | Singapore | SGD Ordinary shares | 100 |
The following companies have the address of 8 Marina Boulevard, #27-01 Marina Bay Financial Centre Tower 1, 018981, Singapore |
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SCTS Capital Pte. Ltd | Singapore | SGD Ordinary shares | 100 |
SCTS Management Pte. Ltd | Singapore | SGD Ordinary shares | 100 |
Standard Chartered Bank (Singapore) Limited | Singapore | SGD Ordinary shares | 100 |
SGD Non-cumulative Preference shares | 100 | ||
SGD Non-cumulative Class C Preference shares | 100 | ||
$ Ordinary shares | 100 | ||
$ Preference shares | 100 | ||
Standard Chartered Trust (Singapore) Limited | Singapore | SGD Ordinary shares | 100 |
Standard Chartered Holdings (Singapore) Private Limited | Singapore | SGD Ordinary shares | 100 |
$ Ordinary shares | 100 | ||
SC Bank Solutions (Singapore) Limited | Singapore | SGD Ordinary shares | 100 |
Standard Chartered Real Estate Investment Holdings (Singapore) Private Limited | Singapore | $ Ordinary shares | 100 |
The following company has the address of 120 Robinson Road, #08-01, 068913, Singapore |
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Standard Chartered Nominees (Singapore) Pte Ltd | Singapore | SGD Ordinary shares | 100 |
The following companies have the address of 80 Robinson Road, #02-00, 068898, Singapore |
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Autumn Life Pte. Ltd | Singapore | $ Ordinary shares | 100 |
Cardspal Pte. Ltd | Singapore | $ Ordinary shares | 100 |
Nexco Pte. Ltd | Singapore | $ Ordinary shares | 100 |
The following companies have the address of 2nd Floor, 115 West Street, Sandton, Johannesburg, 2196, South Africa |
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CMB Nominees (RF) PTY Limited | South Africa | ZAR1.00 Ordinary shares | 100 |
Standard Chartered Nominees South Africa Proprietary Limited (RF) | South Africa | ZAR Ordinary shares | 100 |
The following company has the address of 1, 2, 4, 7, 9, 10F, No. 168/170 &, 8F, 12F, No.168, Tun Hwa N. Rd., Songshan Dist., Taipei, 105, Taiwan |
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Standard Chartered Bank (Taiwan) Limited | Taiwan | TWD10.00 Ordinary shares | 100 |
The following companies have the address of 1 Floor, International House, Shaaban Robert Street / Garden Avenue, PO Box 9011, Dar Es Salaam, Tanzania, United Republic of |
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Standard Chartered Bank Tanzania Limited | Tanzania, United Republic of | TZS1,000.00 Ordinary shares | 100 |
TZS1,000.00 Preference shares | 100 | ||
Standard Chartered Tanzania Nominees Limited | Tanzania, United Republic of | TZS1,000.00 Ordinary shares | 100 |
The following company has the address of 100 North Sathorn Road, Silom, Bangrak Bangkok , 10500, Thailand |
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Standard Chartered Bank (Thai) Public Company Limited | Thailand | THB10.00 Ordinary shares | 99.99 |
The following company has the address of Buyukdere Cad. Yapi Kredi Plaza C Blok, Kat 15, Levent, Istanbul, 34330, Turkey |
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Standard Chartered Yatirim Bankasi Turk Anonim Sirketi | Turkey | TRL0.10 Ordinary shares | 100 |
The following company has the address of Standard Chartered Bank Bldg, 5 Speke Road, PO Box 7111, Kampala, Uganda |
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Standard Chartered Bank Uganda Limited | Uganda | UGS1,000.00 Ordinary shares | 100 |
The following company has the address of 505 Howard St. #201, San Francisco, CA 94105, United States |
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SC Studios, LLC | United States | Membership Interest | 100 |
The following company has the address of Standard Chartered Bank, 37F, 1095 Avenue of the Americas, New York 10036, United States |
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Standard Chartered Bank International (Americas) Limited | United States | $1,000.00 Ordinary shares | 100 |
The following companies have the address of Corporation Trust Centre, 1209 Orange Street, Wilmington DE 19801, United States |
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Standard Chartered Holdings Inc. | United States | $100.00 Common shares | 100 |
Standard Chartered Capital Management (Jersey), LLC | United States | $ Ordinary shares | 100 |
Standard Chartered Securities (North America) LLC | United States | Membership interest | 100 |
StanChart Securities International LLC | United States | Membership interest | 100 |
Standard Chartered International (USA) LLC | United States | Membership interest | 100 |
The following company has the address of 50 Fremont Street, San Francisco CA 94105, United States |
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Standard Chartered Overseas Investment Inc. | United States | $10.00 Ordinary shares | 100 |
The following company has the address of C/O Corporation Service Company, 251 Little Falls Drive, Wilmington DE 19808, United States |
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Standard Chartered Trade Services Corporation | United States | $0.01 Common shares | 100 |
The following company has the address of Room 1810-1815, Level 18, Building 72, Keangnam Hanoi Landmark Tower, Pham Hung Road, Cau Giay New Urban Area, Me Tri Ward, Nam Tu Liem District, Hanoi 10000, Vietnam |
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Standard Chartered Bank (Vietnam) Limited | Vietnam | VND Charter Capital shares | 100 |
The following companies have the address of Vistra Corporate Services Centre, Wickhams Cay II, Road Town, Tortola, VG1110, Virgin Islands, British |
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Sky Favour Investments Limited | Virgin Islands, British | $1.00 Ordinary shares | 100 |
Sky Harmony Holdings Limited | Virgin Islands, British | $1.00 Ordinary shares | 100 |
The following companies have the address of Stand 13, Standard Chartered House, Cairo Road, P.O. Box 32238, Lusaka, Zambia , 10101, Zambia |
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Standard Chartered Bank Zambia Plc | Zambia | ZMW0.25 Ordinary shares | 90 |
Standard Chartered Zambia Securities Services Nominees Limited | Zambia | ZMW1.00 Ordinary shares | 100 |
The following companies have the address of Africa Unity Square Building, 68 Nelson Mandela Avenue, Harare, Zimbabwe |
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Africa Enterprise Network Trust2 | Zimbabwe | Interest in trust | 100 |
Standard Chartered Bank Zimbabwe Limited | Zimbabwe | $1.00 Ordinary shares | 100 |
Standard Chartered Nominees Zimbabwe (Private) Limited | Zimbabwe | $2.00 Ordinary shares | 100 |
1 The Group has determined that these undertakings are excluded from being consolidated into the Groups accounts, and do not meet the definition of a subsidiary under IFRS. See Notes 31 and 32 for the consolidation policy and disclosure of the undertaking
2 No share capital by virtue of being a trust
3 Limited liability company
4 The Group has determined the principal country of operation to be Singapore
5 The Group has determined the principal country of operation to be Ireland
6 The Group has determined the principal country of operation to be the United Kingdom
7 The Group has determined the principal country of operation to be Hong Kong
Joint ventures
Name and registered address | Country of incorporation | Description of shares | Proportion of shares held (%) |
The following company has the address of 38 Beach Road, |
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Assembly Payments Pte. Ltd. | Singapore | $ Ordinary shares | 50 |
$ Preference shares | 50 | ||
The following company has the address of 100/36 Sathorn Nakorn Tower, Fl 21 North Sathorn Road, Silom Sub-District, Bangrak District, Bangkok, 10500, Thailand |
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Resolution Alliance Limited | Thailand | THB10.00 Ordinary shares | 49 |
Associates
Name and registered address | Country of incorporation | Description of shares | Proportion of shares held (%) |
The following company has the address of 3 More London Riverside, London, England, SE1 2AQ, United Kingdom |
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Trade Information Network Limited | United Kingdom | $1.00 Ordinary shares | 16.667 |
The following company has the address of Bohai Bank Building, No.218 Hai He Dong Lu, Hedong District, Tianjin, China, 300012, China |
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China Bohai Bank Co. Ltd | China | CNY Ordinary shares | 16.263 |
The following company has the address of 17/F, 100, Gongpyeong-dong, Jongno-gu, Seoul, Korea, Republic of |
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Ascenta IV | Korea, Republic of | KRW1.00 Partnership interest | 39.063 |
The following company has the address of C/o CIM Corporate Services Ltd, Les Cascades, Edith Cavell Street, Port Louis, Mauritius |
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FAI Limited | Mauritius | $1.00 Ordinary shares | 25 |
The following company has the address of Victoria House, State House Avenue, Victoria, MAHE, Seychelles |
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Seychelles International Mercantile Banking Corporation Limited | Seychelles | SCR1,000.00 Ordinary shares | 22 |
The following company has the address of 1 Raffles Quay, #23-01, One Raffles Quay, 048583, Singapore |
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Clifford Capital Holdings Pte. Ltd. | Singapore | $1.00 Ordinary shares | 9.9 |
The following company has the address of Avenue de Tivoli 2, 1007, Lausanne, Switzerland |
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Metaco SA | Switzerland | CHF 0.01 Preference A shares | 29.505 |
Significant investment holdings and other related undertakings
Name and registered address | Country of incorporation | Description of shares | Proportion of shares held (%) |
The following company has the address of Intertrust Corporate Services (Cayman) Limited, 190 Elgin Avenue, George Town, Grand Cayman, KY1-9005, Cayman Islands |
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ATSC Cayman Holdco Limited | Cayman Islands | $0.01 A Ordinary shares | 5.3 |
$0.01 B Ordinary shares | 100 | ||
The following company has the address of 3, Floor 1, No.1, Shiner Wuxingcaiyuan, West Er Huan Rd, Xi Shan District, Kunming, Yunnan Province, PR, China |
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Yunnan Golden Shiner Property Development Co. Ltd | China | CNY1.00 Ordinary shares | 42.5 |
The following companies have the address of Unit 605-08, 6/F Wing On Centre, 111 Connaught Rd, Central Sheung Wan, Hong Kong |
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Actis Carrock Holdings (HK) Limited | Hong Kong | $ Class A Ordinary shares | 39.69 |
$ Class B Ordinary shares | 39.69 | ||
Actis Jack Holdings (HK) Limited | Hong Kong | $ Class A Ordinary shares | 39.69 |
$ Class B Ordinary shares | 39.69 | ||
Actis Rivendell Holdings (HK) Limited | Hong Kong | $ Class A Ordinary shares | 39.69 |
$ Class B Ordinary shares | 39.69 | ||
Actis Temple Stay Holdings (HK) Limited | Hong Kong | $ Class A Ordinary shares | 39.69 |
$ Class B Ordinary shares | 39.69 | ||
Actis Young City Holdings (HK) Limited | Hong Kong | $ Class A Ordinary shares | 39.69 |
$ Class B Ordinary shares | 39.69 | ||
The following company has the address of 1221 A, Devika Tower, 12th Floor, 6 Nehru Place, New Delhi 110019, India |
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Mikado Realtors Private Limited | India | INR10.00 Ordinary shares | 26 |
The following company has the address of Elphinstone Building, 2nd Floor, 10 Veer Nariman Road, Fort, Mumbai -400001, Maharashtra, India |
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TRIL IT4 Private Limited | India | INR10.00 Ordinary shares | 26 |
The following company has the address of 4/F, 274, Chitalia House, Dr. Cawasji Hormusji Road, Dhobi Talao, Mumbai City, Maharashtra, India 400 002, India |
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Industrial Minerals and Chemical Co. Pvt. Ltd | India | INR100.00 Ordinary shares | 26 |
The following company has the address of 17/F (Gongpyung-dong), 100, Jongno-gu, Seoul, Korea, Republic of |
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Ascenta III | Korea, Republic of | KRW Class B Equity shares | 31 |
The following company has the address of 1 Venture Avenue, #07-07 Big Box, 608521, Singapore |
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Omni Centre Pte. Ltd. | Singapore | SGD Redeemable Convertible Preference shares | 100 |
The following company has the address of 3 Jalan Pisang, c/o Watiga Trust Ltd, 199070 Singapore |
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SCIAIGF Liquidating Trust | Singapore | Interest in trust | 43.96 |
The following company has the address of 251 Little Falls Drive, Wilmington, New Castle DE 19808, United States |
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Paxata, Inc. | United States | $0.0001 Series C2 Preferred Stock | 40.741 |
$0.0001 Series C3 Preferred Stock | 10.112 |
In liquidation
Subsidiary undertakings
Name and registered address | Country of incorporation | Description of shares | Proportion of shares held (%) |
The following company has the address of Deloitte LLP, |
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SC Leaseco Limited | United Kingdom | $1.00 Ordinary shares | 100 |
The following companies have the address of Hill House, 1 Little New Street, London, EC4A 3TR, United Kingdom |
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Standard Chartered APR Limited | United Kingdom | $1.00 Ordinary shares | 100 |
Compass Estates Limited | United Kingdom | £1.00 Ordinary shares | 100 |
Standard Chartered Masterbrand Licensing Limited | United Kingdom | $1.00 Ordinary shares | 100 |
The following company has the address of 2 More London Riverside, London SE1 2JT, United Kingdom |
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Bricks (M) LP | United Kingdom | Limited Partnership interest | 100 |
The following company has the address of 51-55 Jalan Sultan, Complex Jalan sultan, Bandar Seri Begawan, BS8811, Brunei Darussalam |
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Standard Chartered Finance (Brunei) Bhd | Brunei Darussalam | BND1.00 Ordinary shares | 100 |
The following company has the address of Mourant Ozannes Corporate Services (Cayman) Limited, Harbour Centre, 42 North Church Street, PO Box 1348, Grand Cayman KY1-1108, Cayman Islands |
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Sunflower Cayman SPC | Cayman Islands | $1.00 Management shares | 100 |
The following company has the address of Walkers Corporate Limited, Cayman Corporate Centre, 27 Hospital Road George Town, Grand Cayman KY1-9008, Cayman Islands |
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Standard Chartered Principal Finance (Cayman) Limited | Cayman Islands | $0.0001 Ordinary shares | 100 |
The following company has the address of No. 188 Yeshen Rd, 11F, A-1161 RM, Pudong New District, Shanghai 31201308, China |
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Standard Chartered Trading (Shanghai) Limited | China | $15,000,000.00 Ordinary shares | 100 |
The following companies have the address of Bordeaux Court, Les Echelons, South Esplanade, St. Peter Port, Guernsey |
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Birdsong Limited | Guernsey | £1.00 Ordinary shares | 100 |
Nominees One Limited | Guernsey | £1.00 Ordinary shares | 100 |
Nominees Two Limited | Guernsey | £1.00 Ordinary shares | 100 |
Songbird Limited | Guernsey | £1.00 Ordinary shares | 100 |
Standard Chartered Secretaries (Guernsey) Limited | Guernsey | £1.00 Ordinary shares | 100 |
Standard Chartered Trust (Guernsey) Limited | Guernsey | £1.00 Ordinary shares | 100 |
The following company has the address of 13/F, Standard Chartered Tower, 388 Kwun Tong Road, Kwun Tong, Kowloon, Hong Kong |
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S C Learning Limited | Hong Kong | HKD Ordinary shares | 100 |
The following company has the address of 8/Floor, Gloucester Tower , The Landmark, 15 Queen's Road Central, Hong Kong |
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Leopard Hong Kong Limited | Hong Kong | $ Ordinary shares | 100 |
The following company has the address of 32/F, Standard Chartered Bank Building, 4-4A Des Voeux Road, Central, Hong Kong |
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Standard Chartered Sherwood (HK) Limited | Hong Kong | HKD Ordinary shares | 100 |
The following company has the address of 14th Floor, One Taikoo Place, 979 King's Road, Quarry Bay, Hong Kong. |
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Ori Private Limited | Hong Kong | $ Ordinary shares | 100 |
$ A Ordinary shares | 90.7 | ||
The following company has the address of Menara Standard Chartered, 3rd Floor, Jl. Prof.Dr. Satrio no. 164, Setiabudi, Jarkarta Selatan, Indonesia |
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PT Solusi Cakra Indonesia (dalam likuidasi) | Indonesia | IDR23,809,600.00 Ordinary shares | 99 |
The following company has the address of No. 157 - 157 A, Jakarta Barat, 11130, Indonesia |
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PT. Price Solutions Indonesia (dalam likuidasi) | Indonesia | $100.00 Ordinary shares | 100 |
The following company has the address of Standard Chartered@Chiromo, Number 48, Westlands Road, P. O. Box 30003 - 00100, Nairobi, Kenya |
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Standard Chartered Management Services Limited | Kenya | KES20.00 Ordinary shares | 100 |
The following company has the address of 30 Rue Schrobilgen, 2526, Luxembourg |
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Standard Chartered Financial Services (Luxembourg) S.A. | Luxembourg | €25.00 Ordinary shares | 100 |
The following companies have the address of Brumby Centre, Lot 42, Jalan Muhibbah, 87000 Labuan F.T., Malaysia |
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Pembroke Leasing (Labuan) 2 Berhad | Malaysia | $ Ordinary shares | 100 |
Pembroke Leasing (Labuan) Pte Limited | Malaysia | $ Ordinary shares | 100 |
The following company has the address of IQ EQ Corporate Services (Mauritius) Ltd , Les Cascades Building, 33, Edith Cavell Street Port Louis, 11324, Mauritius |
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Actis Asia Real Estate (Mauritius) Limited | Mauritius | Class A $1.00 Ordinary shares | 100 |
Class B $1.00 Ordinary shares | 100 | ||
The following company has the address of Jiron Huascar 2055, Jesus Maria, Lima 15072, Peru |
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Banco Standard Chartered en Liquidacion | Peru | $75.133 Ordinary shares | 100 |
The following company has the address of 8 Marina Boulevard, Level 27, Marina Bay Financial Centre, Tower 1, 018981, Singapore |
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Standard Chartered (2000) Limited | Singapore | SGD1.00 Ordinary shares | 100 |
The following company has the address of Abogado Pte Ltd, No. 8 Marina Boulevard, #05-02 MBFC Tower 1, 018981, Singapore |
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Standard Chartered IL&FS Management (Singapore) Pte. Limited | Singapore | $ Ordinary shares | 50 |
The following company has the address of 6/F, Hewlett Packard Building, 337 Fu Hsing North Road, Taipei, Taiwan |
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Kwang Hua Mocatta Company Ltd. (Taiwan) | Taiwan | TWD1,000.00 Ordinary shares | 97.92 |
The following company has the address of Luis Alberto de Herrera 1248, Torre II, Piso 11, Esc. 1111, Uruguay |
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Standard Chartered Uruguay Representacion S.A. | Uruguay | UYU1.00 Ordinary shares | 100 |
Significant investment holdings and other related undertakings
Name and registered address | Country of incorporation | Description of shares | Proportion of shares held (%) |
The following company has the address of Lot 6.05, Level 6, KPMG Tower, 8 First Avenue, Bandar Utama, 47800 Petaling Jaya, Selangor, Malaysia |
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House Network SDN BHD | Malaysia | RM1.00 Ordinary shares | 25 |
Liquidated/dissolved/sold
Subsidiary undertakings
Name and registered address | Country of incorporation | Description of shares | Proportion of shares held (%) |
B.W.A Dependents Limited | United Kingdom | £1.00 Ordinary shares | 100 |
Bricks (P) LP | United Kingdom | Limited Partnership interest | 100 |
Standard Chartered Capital Markets Limited | United Kingdom | £1.00 Ordinary shares | 100 |
$1.00 Ordinary shares | 100 | ||
Chartered Financial Holdings Limited | United Kingdom | £5.00 Ordinary shares | 100 |
£1.00 Preference shares | 100 | ||
Standard Chartered Debt Trading Limited | United Kingdom | £1.00 Ordinary shares | 100 |
Standard Chartered (Canada) Limited | Canada | CAD1.00 Ordinary shares | 100 |
Standard Chartered Saadiq Mudarib Company Limited | Cayman Islands | $1.00 Ordinary shares | 100 |
Sociedad Fiduciaria Extebandes S.A. | Colombia | COP1.00 Ordinary shares | 100 |
American Express International Finance Corp.N.V. | Curaçao | $1,000.00 Ordinary shares | 100 |
Ricanex Participations N.V. | Curaçao | $1,000.00 Ordinary shares | 100 |
Majestic Legend Limited | Hong Kong | HKD1.00 Ordinary shares | 100 |
Standard Chartered Global Trading Investments Limited | Hong Kong | HKD Ordinary shares | 100 |
Pembroke Capital Shannon Limited | Ireland | €1.25 Ordinary shares | 100 |
Ascenta II | Korea, Republic of | KRW1,000,000.00 Partnership interest | 100 |
Amphissa Corporation Sdn Bhd | Malaysia | RM1.00 Ordinary shares | 100 |
Marina Celsie Shipping Limited | Marshall Islands | $1.00 Ordinary shares | 100 |
Standard Chartered PF Managers Pte. Limited | Singapore | $ Ordinary shares | 100 |
Standard Chartered Bank (Switzerland) S.A. | Switzerland | CHF1,000.00 Ordinary shares | 100 |
CHF100.00 Participation Capital shares | 100 |
Joint ventures
Name and registered address | Country of incorporation | Description of shares | Proportion of shares held (%) |
PT Bank Permata Tbk | Indonesia | IDR125.00 B shares | 44.6 |
Significant investment holdings and other related undertakings
Name and registered address | Country of incorporation | Description of shares | Proportion of shares held (%) |
Standard Chartered IL&FS Asia Infrastructure (Cayman) Limited | Cayman Islands | $0.01 Ordinary shares | 50 |
Standard Chartered IL&FS Asia Infrastructure Growth Fund Company Limited | Cayman Islands | $1.00 Ordinary shares | 50 |
Standard Chartered IL&FS Asia Infrastructure Growth Fund, L.P. | Cayman Islands | Partnership interest | 38.6 |
PT Trikomsel Oke Tbk | Indonesia | IDR50.00 Series B shares | 29.195 |
Standard Jazeera Limited | Jersey | $1.00 Class A Redeemable Preference shares | 20 |
$1.00 Class C Redeemable Preference shares | 100 | ||
$1.00 Ordinary shares | 20 | ||
Standard Topaz Limited | Jersey | $1,000.00 Ordinary shares | 20.1 |
$1.00 Class C Redeemable Preference shares | 100 |
41. Dealings in Standard Chartered PLC listed securities
This is also disclosed as part of Note 28 Share capital, other equity and reserves
Except as disclosed, neither the Company nor any of its subsidiaries has bought, sold or redeemed any securities of the company listed on The Stock Exchange of Hong Kong Limited during the period. Details of the shares purchased and held by the trusts are set out below.
Number of shares | 1995 Trust |
| 2004 Trust |
| Total | |||
2020 | 2019 | 2020 | 2019 | 2020 | 2019 | |||
Shares purchased during the year | 2,999,210 | 646,283 |
| 14,359,481 | 24,065,354 |
| 17,358,691 | 24,711,637 |
Market price of shares purchased ($million) | 22 | 5 |
| 86 | 201 |
| 108 | 206 |
Shares transferred between trusts | (2,999,210) | (3,001,103) |
| 2,999,210 | 3,001,103 |
| - | - |
Shares held at the end of the period | - | - |
| 6,119,666 | 5,113,455 |
| 6,119,666 | 5,113,455 |
Maximum number of shares held during the year |
|
|
|
|
|
| 11,262,818 | 15,070,923 |
42. Corporate governance
The directors confirm that Standard Chartered PLC (the Company) has complied with all of the provisions set out in the UK Corporate Governance Code 2014 during the year ended 31 December 2020. The directors also confirm that, throughout the year, the Company has complied with the code provisions set out in the Hong Kong Corporate Governance Code contained in Appendix 14 of the Hong Kong Listing Rules. The Group confirms that it has adopted a code of conduct regarding directors' securities transactions on terms no less exacting than required by Appendix 10 of the Hong Kong Listing Rules and that the directors of the Company have complied with the required standards of the adopted code of conduct. The directors also confirm that the announcement of these results has been reviewed by the Company's Audit Committee.
Shareholder information
Forward-looking statements
This document may contain 'forward-looking statements' that are based on current expectations or beliefs, as well as assumptions about future events. These forward-looking statements can be identified by the fact that they do not relate only to historical or current facts. Forward-looking statements often use words such as 'may', 'could', 'will', 'expect', 'intend', 'estimate', 'anticipate', 'believe', 'plan', 'seek', 'continue' or other words of similar meaning. By their very nature, such statements are subject to known and unknown risks and uncertainties and can be affected by other factors that could cause actual results, and the Group's plans and objectives, to differ materially from those expressed or implied in the forward-looking statements.
Recipients should not place reliance on, and are cautioned about relying on, any forward-looking statements. There are several factors which could cause actual results to differ materially from those expressed or implied in forward-looking statements. The factors that could cause actual results to differ materially from those described in the forward-looking statements include (but are not limited to) changes in global, political, economic, business, competitive, market and regulatory forces or conditions, future exchange and interest rates, changes in tax rates, future business combinations or dispositions and other factors specific to the Group. Any forward-looking statement contained in this document is based on past or current trends and/or activities of the Group and should not be taken as a representation that such trends or activities will continue in the future.
No statement in this document is intended to be a profit forecast or to imply that the earnings of the Group for the current year or future years will necessarily match or exceed the historical or published earnings of the Group. Each forward-looking statement speaks only as of the date of the particular statement. Except as required by any applicable laws or regulations, the Group expressly disclaims any obligation to revise or update any forward-looking statement contained within this document, regardless of whether those statements are affected as a result of new information, future events or otherwise.
Nothing in this document shall constitute, in any jurisdiction, an offer or solicitation to sell or purchase any securities or other financial instruments, nor shall it constitute a recommendation or advice in respect of any securities or other financial instruments or any other matter.
Further information can be obtained from the Company's registrars or from ShareGift on 020 7930 3737 or from sharegift.org
Details of voting at the Company's AGM and of proxy votes cast can be found on the Company's website at sc.com/agm
Please register online at investorcentre.co.uk or contact our registrar for a mandate form.
This information will be available on the Group's website at sc.com
You can check your shareholding at computershare.com/hk/investors
If you would like to receive more information, please visit our website at sc.com/shareholders or contact the shareholder helpline on 0370 702 0138.
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