Final Results Part 1 of 2

Standard Chartered PLC 19 February 2003 TO CITY EDITORS 19 February 2003 FOR IMMEDIATE RELEASE STANDARD CHARTERED PLC RESULTS FOR 2002 HIGHLIGHTS Results • Net revenue up 3 per cent to $4 539 million from $4 405 million. • Costs down by $28 million over 2001. • Debt charge down by $19 million at $712 million despite bankruptcy issue in Hong Kong and Argentina. • Pre-tax profit rose 16 per cent to $1 262 million compared with $1 089 million in 2001. • Normalised earnings per share at 74.9 cents (2001: 66.3 cents). • Normalised return on equity at 13.4 per cent (2001: 12.0 per cent). • Annual dividend per share increased by 12.1 per cent to 47.0 cents. Significant achievements • Cost income ratio (normalised basis) reduced from 55.8 per cent to 53.6 per cent. • Good growth in Consumer Banking across a wide range of dynamic markets. • Wholesale Banking profit up 35 per cent. • Launched dual listing in Hong Kong. • Generated strong growth in India and Middle East. • Established a strategic partnership with Bank of China. • Made $50 million investment in BOC Hong Kong (Holdings) Limited. • Signed Memorandum of Understanding for alliances on product and distribution. • Significant expansion of shared service centres in Chennai and Kuala Lumpur leading to efficiency gains. Commenting on these results the Chairman of Standard Chartered PLC Sir Patrick Gillam said: 'We have delivered a strong performance with a good increase in trading profit despite turbulent economic conditions. We have reduced our costs and brought down our bad debt charge. In 2003 we celebrate our 150th year as a company. This longevity says a lot about our strengths and the market positions we hold. However the anniversary is a time to look forward not back. There is an opportunity to deliver a step change in performance by continuing to be innovative and aggressive in our markets and remaining focused on moves that will improve shareholder returns.' STANDARD CHARTERED PLC - TABLE OF CONTENTS Page Summary of Results 3 Chairman's Statement 4 Group Chief Executive's Review 8 Business Review 14 Financial Review Group Summary 18 Consumer Banking 20 Wholesale Banking 23 Risk 25 Capital 37 Efficiency Programme 39 Financial Statements Consolidated Profit and Loss Account 40 Summarised Consolidated Balance Sheet 41 Other Statements 42 Consolidated Cash Flow Statement 43 Notes to the Financial Statements 44 STANDARD CHARTERED PLC - SUMMARY OF RESULTS FOR 2002 2002 2001* $m $m RESULTS Net revenue 4 539 4 405 Provisions for bad and doubtful debts contingent liabilities and commitments (712) (731) Profit before taxation 1 262 1 089 Profit attributable to shareholders 844 699 BALANCE SHEET Total assets 113 010 107 535 Shareholders' funds: Equity 6 695 6 279 Non-equity 632 1 259 Capital resources 13 031 12 959 INFORMATION PER ORDINARY SHARE Cents Cents Earnings per share - normalised basis 74.9 66.3 Dividends per share 47.00 41.92 Net asset value per share 572.20 555.33 RATIOS % % Post-tax return on equity - normalised basis 13.4 12.0 Cost to income ratio - normalised basis 53.6 55.8 Capital ratios: Tier 1 capital 8.6 9.0 Total capital 14.5 16.2 Results on a normalised basis reflect the Group's results excluding amortisation of goodwill profits/losses of a capital nature and profits/losses on repurchase of share capital. Please refer to note 8 for the Basic Earnings per share. * Comparative restated (see note 16) STANDARD CHARTERED PLC - CHAIRMAN'S STATEMENT We have delivered a strong performance with a good increase in trading profit despite turbulent economic conditions. We have reduced our costs and brought down our bad debt charge. Results • Net revenue increased to $4 539 million up 3 per cent. • Costs were reduced and the cost/income ratio came down from 56 per cent to 54 per cent. • Debt charge down by $19 million despite bankruptcy issue in Hong Kong and Argentina. • Pre-tax profits rose to $1 262 million up 16 per cent compared with $1 089 million in the previous year. • Normalised earnings per share was 74.9 cents as against 66.3 cents in 2001. • Normalised return on equity increased to 13.4 per cent. We are recommending a final dividend of 32.9 cents per share compared with 29.10 cents in 2001. This gives a total dividend of 47.0 cents an increase of 12.1 per cent over 2001. The dividend is covered 1.4 times. The sterling amount will be set in April. A Turbulent World In the past two years the world economy has suffered a succession of economic financial and terrorist shocks. We witnessed economic collapse in Argentina war in Afghanistan corporate governance issues in the United States (US) and the continued bear market for equities. Yet despite all this world economies continued to grow and in most of Asia economic growth was good. Resilient consumer demand in the US and the increasing regional importance of China as a consumer market boosted exports in Asia. Domestic demand was stronger too. The need to compete with China is forcing economies like Hong Kong and Singapore to move up the value chain leading to a painful near-term transition. The Hong Kong economy remains weak. Unemployment is high and there are still deflationary pressures. Although we remain cautious on the near-term outlook we believe the current pessimism on the longer-term prospects is overdone. The Middle East enjoyed healthy economic growth despite the uncertainties associated with Iraq. The combination of firm oil prices and healthy government finances provided solid support. Africa benefited from an improved economic environment with a softer dollar higher commodity prices and continued economic reform. Last year finished with a successful election in Kenya highlighting the positive political change in parts of the region. The biggest exception was Zimbabwe where deteriorating conditions have reduced our profits by $50 million. Prospects for 2003 Last year three key economic themes dominated. We expect these three themes to dominate again in 2003 which are: STANDARD CHARTERED PLC - CHAIRMAN'S STATEMENT (continued) • First modest growth • Second low inflation with low interest rates • Third investors searching for higher yields and safer havens. This has favoured Asia over Latin America bonds over equities and is continuing to contribute to higher commodity prices and a softer dollar. The start to this year shows that we continue to live in uncertain times. Oil prices have risen sharply and the Iraq situation has contributed to weak business confidence around the globe including Asia. Given this environment policy makers are taking measures to boost growth with relaxed fiscal policies and low interest rates. As a result we expect continued moderate growth providing the US economy continues to grow. Asia has been a net exporter of capital since the 1997 crisis but may now see a return of investment flows to the region as the world economy shifts its focus. China has already become the world's biggest recipient of foreign direct investment. There is a shift in the service sector too with India a big beneficiary as international firms move service centres software and back office functions to take advantage of lower costs and a high skill base. China and India are future economic powerhouses. Both are central to our strategy and success. Investments and Acquisitions In July we took a $50 million stake in the initial public offering of BOC Hong Kong (Holdings) Limited on the Stock Exchange of Hong Kong. It is a subsidiary of the Bank of China one of the largest state-owned commercial banks. We have since signed a Memorandum of Understanding with Bank of China. We have identified eight areas for alliances on product and distribution in the mainland and internationally. We completed the integration of Grindlays in Middle East and South Asia (MESA) and India in 2002. Today we are the largest foreign bank across much of MESA and in India. Both India and the United Arab Emirates now contribute more than $100 million in trading profit per year. The Nakornthon acquisition in 1999 began to deliver profits this year. This is another example of our ability to take on an existing organisation and integrate it profitably with ours. Hong Kong Listing In October 2002 we became the first major FTSE-listed company to launch a new dual primary listing in Hong Kong. We are one of the three note-issuing banks in Hong Kong and listing on the Stock Exchange of Hong Kong was a further demonstration of our commitment to Hong Kong and China. The listing will help us to expand our shareholder base to include both dedicated Asian institutional and retail investors. The offer was comfortably over-subscribed. STANDARD CHARTERED PLC - CHAIRMAN'S STATEMENT (continued) Move to Manhattan Our New York office was one of many that were destroyed on that terrible day 11 September 2001. After a year of operating from temporary offices our colleagues moved back to Manhattan. The move signified the end of a difficult and emotional year. Board Changes I will be retiring in May 2003 after 10 years as Chairman. It is with great pleasure that I welcome Bryan Sanderson as my successor. He is currently Chairman of BUPA and was BP's director responsible for Asia until 2000. He is also Chairman of the Learning and Skills Council. Bryan Sanderson joined Standard Chartered as a non-executive director in December 2002. Under his guidance Standard Chartered will continue to grow as a performance driven organisation. There were also two other new members of the Board. Peter Sands joined in May 2002 as Finance Director from McKinsey & Co replacing Nigel Kenny. Richard Meddings joined in November 2002 as Director of Risk from Barclays PLC. I would also like to thank Keith Mackrell who retired from the Board during 2002 and Cob Stenham who will be retiring in May after nearly 12 years. I have valued their contribution to the Board. In addition Gareth Bullock and Peter Wong became Directors of Standard Chartered Bank our main operating subsidiary. All these appointments have significantly strengthened our top team. 150th Anniversary In 2003 we celebrate our 150th year as a company. This longevity says a lot about our strengths and the market positions we hold. However the anniversary is a time to look forward not back. There is an opportunity to deliver a step change in performance by continuing to be innovative and aggressive in our markets and remaining focused on moves that will improve shareholder returns. We are part of the fabric of the communities in which we operate around the world. We are using our 150th year to launch a number of initiatives that will enable us to put something back into these communities. In 2002 we started to take our award winning African staff HIV/AIDS education awareness programme worldwide. In February 2003 we launched our 'Seeing Is Believing' campaign in Bangladesh. This is a joint initiative with Sight Savers International aimed at raising enough funds to restore the sight of 28 000 people around the world. In 10 years as Chairman I have been proud of the way Standard Chartered has responded to the challenges it has faced from the difficulties of the early 1990s to the growth opportunities of the present day. Total shareholder return has grown more than seven times. In writing my first Chairman's Statement in 1993 I referred to the opportunities that lay ahead with the emergence of China and India. We have grasped those opportunities. Today we are one of the most profitable multi-nationals in India and we are very well positioned in China. We have increased our focus on markets where we have a competitive advantage and reduced our business in OECD countries. We have also achieved a better geographic balance. STANDARD CHARTERED PLC - CHAIRMAN'S STATEMENT (continued) In addition we have increased our emphasis on Consumer Banking where the greatest opportunities lie as middle income earners increase in size and prosperity in all our markets. In 1993 Consumer Banking accounted for about 33 per cent of our revenues now it is 53 per cent. One of the changes over the past 10 years that has given me the most pleasure is that we have become a truly multi-cultural organisation that offers opportunities to good managers whatever their ethnic background. Today 40 per cent of our senior managers are from non-OECD countries. That figure will continue to grow. I leave the business in good shape with an experienced new Chairman who knows Asia well and a dynamic management team led by Group Chief Executive Mervyn Davies. Sir Patrick Gillam 19 February 2003 Chairman STANDARD CHARTERED PLC - GROUP CHIEF EXECUTIVE'S REVIEW Last year I set out four key areas of focus which were to: • achieve our potential through a strong set of values that are shared by all employees; • build a sustainable performance culture with the right balance between risk and reward; • become a company that is known for top performance not just for its great franchise; • increase our customer focus to achieve the highest standards of service excellence. These are the internal goals that underpin the improvement in our results. 2002 Performance This was a strong performance. Revenue momentum has been sustained despite market conditions. There was strong cost control and a resilient performance on bad debts. Despite the Hong Kong bankruptcy issue bad debts fell in 2002. Our cost income ratio improved from 56 per cent to 54 per cent and our target is to bring it below 50 per cent. At the same time we are beginning to see efficiency gains from our shared service centres in Chennai and Kuala Lumpur. These global hubs are helping us to re-engineer our cost base. We have seen good growth in Consumer Banking outside Hong Kong and our Wholesale Banking business has generated improved profitability as it focuses on improving returns. Delivering On Our Agenda In 2002 we set out nine management agenda items to drive improved return on equity. These were to: • build market share in Consumer Banking; • increase focus on value creation in Wholesale Banking; • capture profitable growth in India and China; • transition Thailand and Taiwan to profitability; • deliver efficiency and flexibility in technology and operations; • rationalise central costs; • reduce costs in smaller countries; • control risk; • improve capital efficiency. We have made good progress against all of these goals. Consumer Banking Consumer Banking continues to offer the highest potential for growth. We have excellent positions in a number of markets with scale and momentum. There is strong momentum in Consumer Banking despite the short-term pressures caused by the rapid rise in personal bankruptcies. We took early action to contain the impact of this industry-wide issue and we are now seeing improvement within our own book. The Hong Kong Government will begin implementation of a positive data-sharing bureau in early 2003 which will enable banks to share information on customer creditworthiness. Hong Kong remains an STANDARD CHARTERED PLC - GROUP CHIEF EXECUTIVE'S REVIEW (continued) attractive market for our company. We have a strong and resilient business which is demonstrated by the continuing performance of our mortgage book. In Singapore we have expanded our distribution network and seen significant growth in our customer base. We have gained market share and achieved good growth in revenue and profit. In Malaysia revenue growth has been boosted by the success of our MortgageOne home loan product which now accounts for the majority of our new housing loans there. We have seen rapid growth in the United Arab Emirates (UAE) and we have an ambitious branch expansion plan in India. Mortgages remain a good business. Though we have seen margin pressure in more mature markets there is significant potential as countries like India and China open up. It is a product that helps us attract new customers and it offers good returns. On a geographic belt running from the Middle East to China we have almost 6 million credit cards in issue and have a leadership position in Hong Kong India and parts of the Middle East. Most of our markets are under-penetrated including India where we have 1.4 million of the country's total of five million credit card users. The population of card users and the amount of card spend is growing rapidly across Asia and this offers us enormous scope for growth. In Wealth Management we have grown market share. The impact of falling interest rates has been offset by good growth in unit trust sales and bancassurance products. Wholesale Banking We have reshaped our business. We have deliberately traded revenue for lower risk exiting relationships not generating the right return and have taken a more disciplined approach to pricing risk. At the same time we have strengthened our capital markets business cross-selling products that provide higher return. In an otherwise difficult market we have seen new revenue growth from a broader and more sophisticated product range including derivatives fixed income loan syndications and structured asset solutions. In Global Markets we were able to exploit falling US dollar interest rates generating strong revenue. In fixed income and syndications our excellent relationships and market profile keep us at the top of the league tables for Asia. Our OECD businesses in the United Kingdom and the United States were particularly successful in sourcing syndications and structured export finance transactions for customers in our emerging markets network. In 2002 we won important Asian regional mandates for cash management and trade. We are transforming our commercial banking business into one that is solution based generating transaction volumes and fee income. STANDARD CHARTERED PLC - GROUP CHIEF EXECUTIVE'S REVIEW (continued) India and China The two countries where we have the greatest opportunity to transform our business are India and China. Each country is experiencing sustained strong economic growth and we are strongly positioned in both. It is in India where the growth opportunities are most immediate. India is already one of our top markets world-wide in terms of profitability. We currently have 62 branches and 2.4 million customers in 19 cities. In September we completed the integration of Grindlays having reduced the headcount of the combined banks by 25 per cent during that process. In February 2003 we announced plans to expand our operations to additional cities bringing our network to 81 branches in 25 cities by the end of the year. In China the opportunities lie further ahead. Under an agreement with the World Trade Organisation the Wholesale Banking market will open up in 2004 and by 2007 foreign banks will be allowed to start retail banking with the Chinese people in local currency. At that time we expect to be selling credit cards mortgages and wealth management products to the emerging middle income earners in about 10 major cities. Standard Chartered is one of only a handful of international banks positioned for the opening of China's markets. In 2002 we opened our first two retail branches in Shanghai and Shenzhen and made a strategic investment in BOC Hong Kong (Holdings) Limited. Thailand and Taiwan One of our goals for the year was to transition Thailand and Taiwan to profitability. This we have done. Both have the potential to become large markets for us. In Thailand we delivered a trading profit for the first time since the acquisition of Nakornthon Bank. MESA and Africa In the Middle East and South Asia (MESA) region we completed the Grindlays integration and we are seeing strong growth. The United Arab Emirates is one of our top-five markets and Bangladesh Pakistan Bahrain Sri Lanka and Qatar are all well-established businesses with good potential. In Africa our business has seen good progress. We have an excellent competitive position. We are ranked number one or two in most of the markets where we operate. In 2002 we performed particularly well in East Africa and we expanded our business in Nigeria. Looking ahead we also expect to grow our business in South Africa. The challenge in the region has been the extremely difficult situation in Zimbabwe. We remain cautious and have realigned our operations in line with current prospects by selling five branches and reducing headcount. STANDARD CHARTERED PLC - GROUP CHIEF EXECUTIVE'S REVIEW (continued) Latin America We have refocused our Latin American business to concentrate expertise on supporting banks and multi-nationals and we have reduced our risk exposure. This will enable us to redirect capital to our core growth markets in Asia and the Middle East. We will continue to operate branches in Colombia Peru and Venezuela with representative offices in Argentina Brazil and Mexico focusing primarily on US dollar clearing trade finance and global markets activities. Cost and Efficiency Our cost performance is one of our key achievements in 2002 and the cost income ratio has improved. In particular we are beginning to reap the fruits of our investment in world class service centres in Chennai and Kuala Lumpur. The shared service centres are now providing services remotely to most of the Bank's computer users. We have stepped up our investment in expanding the service centres and now have over 2 200 people employed in them. As well as giving us economies of scale the shared service centres allow us to introduce standardised operating models across the Bank. We have also controlled costs through tighter project management and stricter discipline on general expenditure. The benefits of outsourcing activities like purchasing premises and other non-essential services and the impact of reduced telecommunications and infrastructure costs have all contributed to a great performance on costs. Risk One of our key agenda items for 2002 was to reinforce our control of risk and enhance our risk performance culture. It has been a challenging year for risk with the increased threat of terrorism corporate collapses problems in the telecommunications industry and the impact of Argentina but we have performed well. We reinforced the independence of this function with the appointment of a Director of Risk. We established a high-level task force that developed an action plan resulting in one of our lowest levels of bad debt within Wholesale Banking in recent years. We introduced a tougher credit review process in Wholesale Banking and have responded more quickly to customers showing early signs of problems. In Consumer Banking we improved customer segmentation and have strengthened our collection capability. Capital Efficiency Having carefully assessed the capital needs of the business to achieve our ambitious growth objectives we considered we had an excess of capital. To address this we launched a tender offer which led to the repurchase in November 2002 of $659 million of 8.9 per cent preference shares. STANDARD CHARTERED PLC - GROUP CHIEF EXECUTIVE'S REVIEW (continued) The premium on repurchase was $82 million which was funded from reserves. There is a net negative impact on 2002 basic earnings per share. However in future years there will be an annual saving of $59 million in preference share dividends which will have a positive impact on return on equity and earnings per share from 2003 onwards. A modest issue of 35 million new ordinary shares representing 3.1 per cent of our issued share capital facilitated our listing on the Stock Exchange of Hong Kong. As a result Tier 1 capital stands at 8.6 per cent. Listing in Hong Kong is an integral component of our strategy. It has raised our profile in our biggest market. It has also given us a platform to expand our investor base in Asia. Brand Our new brand's modern and dynamic look appeals to the growing affluent middle income earners who seek financial products and services which reflect their lifestyles and aspirations. Extensive research shows that customers prefer the new identity. The rebranding has been accompanied by the internal launch of brand values to all of our employees. Our brand values - Courageous Responsive International Creative and Trustworthy - have been enthusiastically accepted. These shared values support our performance culture. They act as a touchstone for all employees in helping to meet the needs of our customers. Our People During the year there was an increased focus on talent management. We made a number of key external hires and about 60 internal moves at senior management level. We launched a new approach to organisational learning which will allow employees more control over their own training and development as well as the opportunity to learn on-line. We have strengthened our leadership development with processes that include one-to-one coaching and a short but intensive leadership course for senior managers. Employee engagement is tracked annually through a Gallup survey. It improved significantly in 2002. The Future 2002 was a year in which we made good progress. While we will continue to look selectively at acquisitions at the heart of the improved performance in 2002 has been a drive to get more out of our existing businesses. This will continue. We are broadening our demographic base. We have added India and the UAE to the list of markets where we make operating profits of more than $100 million a year. This helps give us the scale and balance that we need. India and China are the two greatest opportunities of the 21st Century. We are strongly positioned in both. STANDARD CHARTERED PLC - GROUP CHIEF EXECUTIVE'S REVIEW (continued) We will continue to grow although the pace of growth will reflect the underlying economic uncertainties and our focus on sustainable returns. We have made progress on our cost income ratio. We are a long way down the road to restructuring the cost base and homing in on our target of a cost income ratio of below 50 per cent. I am confident that we will deliver improved returns to our shareholders. We have large-scale businesses - Cards Wealth Management Global Markets and others - and efficiency in our operations. Mervyn Davies 19 February 2003 Group Chief Executive STANDARD CHARTERED PLC - BUSINESS REVIEW CONSUMER BANKING Consumer Banking has seen strong growth in all its markets outside of Hong Kong. Business volumes revenue pre-provision profit and trading profit increased in virtually every market. Our focus on costs has also delivered a significant improvement in the cost income ratio. The bankruptcy issue in Hong Kong has had a significant impact on our profitability. However we acted decisively putting in place a number of initiatives to mitigate the impact. These initiatives focused on strengthening the risk management framework reducing exposure in high risk segments improving our collections process and driving through cost efficiencies. Bankruptcies remain a big issue for the banking industry although the impact on our portfolio has declined in recent months. Our Qualifying Full Bank status has enhanced our distribution capability in Singapore. We launched a shared ATM network in conjunction with two banks giving customers access to a total of 54 locations island-wide. In addition we are the only foreign bank admitted into the local NETS direct debit services network allowing us to offer services to 17 000 retailers. Standard Chartered was named Best Retail Bank in Singapore and Asia Pacific by the Asian Banker Journal. Cards and Personal Loans We have had very strong growth in both Credit Cards and Personal Loans. Growth across India Middle East South Asia and Singapore has been in excess of 20 per cent. Cards is one of our most important businesses generating high returns. It also presents us with a great opportunity for potential growth. We are the largest cards provider in a number of countries which gives us scale and competitive advantage in the marketplace. In India we launched a number of co-branded cards during 2002. Mortgages and Auto Finance We are well positioned in this sector and have seen margins stabilise. Key markets such as Singapore and Hong Kong delivered strong growth and outpaced the market. Singapore grew at 13 per cent and India has almost doubled its loans outstanding. Taiwan has also shown rapid growth in this sector. The credit quality of our mortgage portfolio remains resilient. For example our mortgage delinquency rates in Hong Kong have fallen from 0.77 per cent in 2001 to 0.63 per cent at the end of 2002 which is lower than the market average of 1.06 per cent according to Hong Kong Monetary Authority figures. We launched MortgageOne an innovative product which allows customers to offset the interest earned on current accounts against the interest on their mortgage. The account was initially launched in Malaysia and subsequently rolled out in Hong Kong Singapore and India with great success. As a result we gained strong market shares in our core markets. STANDARD CHARTERED PLC - BUSINESS REVIEW (continued) Wealth Management Significant revenue growth in unit trust treasury and bancassurance products has been offset by declining interest margins on deposits. While it has been a difficult market for equity funds and pensions our assets under management grew significantly with India Taiwan and Indonesia accounting for much of the new growth. In Malaysia our range of unit trusts includes eight Islamic banking funds. WHOLESALE BANKING Wholesale Banking is moving from a lending oriented and capital intensive business to one focused on a more balanced product range and improving returns. We have reshaped the business trading revenue for lower risk and strengthened our capital market franchise cross-selling products that provide higher return. We are also focusing on a smaller number of high value customers and exiting customers and segments that do not generate the right return. We have seen the benefits of the measures we have taken to control risks. These changes together with historic high levels of provisions have resulted in a lower debt charge for Wholesale Banking and good improvement in trading profit. Global Markets It was an important year for Global Markets. We have seen new revenue growth from a broader and more sophisticated product set including credit derivatives and asset backed securitisation. We have also launched innovative retail bonds for corporations such as Wharf Holdings Mass Transit Railway Corporation and Hong Kong Airport Authority. These bonds utilise both our Consumer Banking and Wholesale Banking capabilities to deliver effective debt financing solutions that meet the needs of local retail investors. We were able to exploit falling US dollar interest rates which generated strong revenues and continue to top the Asia league tables in fixed income and syndications. The Asian Fixed Income business showed further growth and we grew our syndications market share. A wider product range complements our strength in emerging markets Foreign Exchange. This includes Currency Options and Interest Rate Derivatives Fixed Income Structured Asset Solutions Loan Syndications Corporate Advisory and Funds Management. Trade Finance and Lending The repositioning of our trade and lending portfolio has had a short-term impact on revenues. However the overall quality of our portfolio has improved as a result. We have grown market share for trade products in key countries despite exiting some of the lower return segments and were appointed Asian trade finance partner to a number of other financial institutions. STANDARD CHARTERED PLC - BUSINESS REVIEW (continued) In November 2002 we launched B2BeX our leading-edge platform designed to facilitate cross-border trade and supply chain management. In December B2BeX won the ifs/BT Financial Innovation Awards 2002 in the 'Most Innovative Business to Business Initiative' category. Cash Management and Custody Cash transaction volumes continue to grow and we maintained our position as a leading Asian cash management provider. However revenues fell reflecting the low interest rate environment. We have strengthened our franchise in the Middle East and South Asia invested in cash management capabilities delivered new products to market and launched a new internet based platform. This has all contributed to the acquisition of a number of new customers. Investing in our cash management product capabilities has resulted in deposit growth of 16 per cent. In addition we have won a number of significant regional mandates from some of the world's leading multi-nationals. In July 2002 we were appointed by the Hong Kong Monetary Authority as the sole settlement institution for Euro clearing in Hong Kong. TECHNOLOGY AND OPERATIONS In 2002 we brought together the technology and operations functions under one operating model. Technology and Operations is an integrated part of the Bank supporting the development and growth of the Consumer Banking Wholesale Banking and regional businesses. It also supports our drive to improve cost service quality and flexibility through standardisation centralisation and re-engineering. Global Hubs By the end of the year there were over 2 200 staff in our centralised hubs in Kuala Lumpur and Chennai servicing a wide range of banking products such as trade credit cards and payments. We expect the number of staff to increase significantly in 2003 as the size and range of operations processes migrated increases. In addition to processing the hubs also provide information technology (IT) systems development human resources and finance services to the Bank. Telecommunications Reliable and economic telecommunications are vital to a bank with our international scale of operations and are a key enabler of our centralisation strategy. We have installed an Internet Protocol-based global wide area data network and a separate but complementary satellite network was installed for our African business. Additionally we also signed a contract for international voice telecommunications which will lead to significant cost reductions. Technology - Supporting Business Development The major focus of our investment in technology is to provide a cost-efficient platform that enables improvement in products and customer service. STANDARD CHARTERED PLC - BUSINESS REVIEW (continued) Two major initiatives were launched last year focusing on our core Consumer Banking networks in Hong Kong and Singapore. We have implemented the first stages of the Customer Sales and Service project based on a world-class customer relationship management solution and the installation of an advanced teller platform. In August we successfully launched a new core branch banking system in United Arab Emirates called eBBS which we aim to roll out in the rest of Middle East and South Asia. STANDARD CHARTERED PLC - FINANCIAL REVIEW GROUP SUMMARY The results for the year ended 31 December 2002 reflect a strong performance with profit before tax up 16 per cent from $1 089 million to $1 262 million. Revenue momentum has been sustained despite tough market conditions pressure on margins and a low interest rate environment. Costs have been reduced by $28 million without cutting investment in growth businesses and in re-engineering the Bank. Provisions for bad debts and contingent liabilities were $19 million lower mainly due to tight control on risk in Wholesale Banking where new provisions were lower and recoveries were higher than in 2001. The results were adversely impacted by increased Consumer Banking bad debts from bankruptcies in Hong Kong the economic deterioration in Argentina in the first quarter and the difficult economic environment in Zimbabwe but benefited from a gain on the unwind of a swap relating to the preference shares repurchased in November. In February 2002 the Urgent Issues Task Force of the Accounting Standards Board (UITF) issued guidance on the application of accounting standards to capital instruments that have characteristics of both liabilities and shareholders' funds. The Group has complied with these requirements and as a result has reclassified its Trust Preferred Securities and Step-up Callable Perpetual Trust Preferred Securities from 'minority interests - non-equity' to 'liabilities' and moved the cost of this capital from 'minority interests - non-equity' to 'interest payable'. The prior year has been restated as follows:- 2001 Net Profit interest before income tax $m $m As previously published 2 959 1 148 Transfer from minority interests to interest payable on: €500 million issued March 2000 (37) (37) £300 million issued May 2001 (22) (22) As published 31 December 2002 2 900 1 089 If the changes caused by UITF 33 had not applied the Group's net taxable profit for 2002 would have been $1 337 million. Revenue has grown by three per cent to $4 539 million and reflects strong momentum in Consumer Banking outside of Hong Kong. Total Group revenue has felt the impact of three significant factors in 2002. Firstly the deliberate action taken to trade revenue to improve the risk profile of the business. Secondly the deteriorating conditions and hyper-inflationary environment in Zimbabwe depressed revenue by $64 million. Thirdly the Group unwound certain interest rate swaps hedging the $659 million of preference shares which were repurchased in November with a gain of $57 million. STANDARD CHARTERED PLC - FINANCIAL REVIEW (continued) Net interest income increased by six per cent driven largely by volume growth lower funding costs and better spreads in Consumer Banking and strong earnings on asset and liability management in Wholesale Banking. The Group also benefited by $57 million from the unwind of interest rate swaps relating to the Group's preference shares repurchased in November. The Group's average interest earning assets rose by $2.9 billion compared to 2001 an increase of three per cent. Overall the average net interest margin was 3.1 per cent compared to 3.0 per cent in 2001. Net fees and commissions receivable increased by one per cent to $991 million compared to $977 million in 2001. The focus on a more sophisticated product set within Global Markets generated higher fees in the Americas and United Kingdom. In Other Asia Pacific India and MESA growth was largely in unsecured lending in Consumer Banking offsetting the impact of bankruptcy containment actions in Hong Kong. Dealing profits have fallen by $50 million or 11 per cent. Hong Kong India and MESA performed well increasing revenue by $22 million through strong trading. However in addition to the hyper-inflationary adjustment and translation losses relating to Zimbabwe lower spreads and reduced volumes in a number of countries led to a fall in revenue. Total operating expenses were reduced by $28 million to $2 557 million compared to $2 585 million in 2001. The benefits of the centralisation and operational efficiency programmes continue and the integration of Grindlays has led to higher than targeted cost synergies. This improvement is despite a $41 million charge in Latin America as a result of refocusing the strategy and has been achieved while continuing to invest for future growth. The cost income ratio for 2002 was 53.6 per cent compared to 55.8 per cent in 2001 on a normalised basis. The net provisions for bad and doubtful debts and contingent liabilities were $19 million lower than 2001 at $712 million. Wholesale Banking improved its position year on year by $292 million despite a $75 million charge for Argentina. This was achieved through a proactive focus on risk management and a strong performance on recoveries. Hong Kong bankruptcies accounted for much of the rise in Consumer Banking's bad debts with a charge of $287 million in 2002 compared to $121 million in 2001. Post tax return on equity (normalised) was 13.4 per cent up from 12.0 per cent in 2001. This has been achieved through growing high return businesses cost efficiency and active capital management. STANDARD CHARTERED PLC - FINANCIAL REVIEW (continued) CONSUMER BANKING Consumer Banking remains of prime importance to the Bank. Revenue has increased by nine per cent from $2 222 million in 2001 to $2 416 million in 2002 and costs have been reduced by five per cent to $1 190 million. The total debt charge has increased by $273 million to $603 million mainly due to the bankruptcy situation in Hong Kong. This reduced the operating profit by two per cent from $638 million to $623 million. The following table provides an analysis of operating profit before tax by geographic segment for Consumer Banking. All regions excluding Hong Kong reported increased operating profit. 2002 Asia Pacific Hong Other Kong Singapore Malaysia Asia Pacific $m $m $m $m Revenue 1 013 313 156 285 Costs (422) (106) (79) (177) Charge for debts (434) (35) (22) (58) Operating profit 157 172 55 50 2002 Americas Middle UK & East & Group Consumer India Other Africa Head Banking $m S Asia $m Office Total $m $m $m Revenue 204 213 137 95 2 416 Costs (114) (104) (124) (64) (1 190) Charge for debts (38) (16) (3) 3 (603) Operating profit 52 93 10 34 623 2001 Asia Pacific Other Hong Asia Kong Singapore Malaysia Pacific $m $m $m $m Revenue 1 040 250 139 210 Costs (474) (95) (77) (171) Charge for debts (226) (17) (11) (35) Operating profit 340 138 51 4 2001 Americas Middle UK & East & Group Consumer Other Head Banking India S Asia Africa Office Total $m $m $m $m $m Revenue 190 179 131 83 2 222 Costs (132) (108) (122) (75) (1 254) Charge for debts (19) (15) (3) (4) (330) Operating profit 39 56 6 4 638 Hong Kong profits have fallen overall by 54 per cent from $340 million to $157 million. However profits before bad debts have increased by four per cent. Market conditions continue to be difficult with rising unemployment reduced margins and the bankruptcy problem affecting the whole industry. This has impacted revenue and bad debts. Revenue has fallen by three per cent largely because the Group took decisive and early action to mitigate bankruptcy risk in its unsecured portfolio. Revenues from cards and personal loans fell by 12 per cent while revenues from Mortgages and Wealth Management grew by eight per cent. Growth in mortgages was from improved margins and volume growth. Wealth Management delivered strong growth in fee-based income partially offset by declining margins as a result of the low interest rate environment in response to lower revenues. Costs in Hong Kong have been strongly managed and have been reduced by $52 million. STANDARD CHARTERED PLC - FINANCIAL REVIEW (continued) Singapore has increased operating profit by 25 per cent and significantly increased its market share in secured and unsecured lending. This has been driven by lower funding costs the successful launch of the innovative MortgageOne housing loan solution which offers debt consolidation liquidity management and wealth management and through leveraging Standard Chartered's Qualifying Full Banking licence. Other Asia Pacific increased profits twelve-fold from $4 million to $50 million. This was mainly due to the Group's investments in Taiwan and Thailand. Thailand benefited from higher volume and margin in credit cards and personal loans. Revenue in Taiwan increased substantially due to increased volumes from a successful mortgage campaign together with lower funding costs. MESA increased operating profit by 66 per cent to $93 million and India by 33 per cent to $52 million. This was due to the growth in the business and the success of the Grindlays integration. In India the mortgage portfolio doubled in size aided by the successful launch of MortgageOne. Africa delivered operating profit of $10 million an increase of $4 million from 2001. This was despite an extremely difficult environment in Zimbabwe. Improved fees and commissions contributed to this performance. The Americas and the United Kingdom have increased profit from $4 million to $34 million mainly due to cost efficiencies arising from restructuring in 2001. An analysis of revenue by product is set out below: 2002 2001 $m $m Cards / Personal Loans 1 082 985 Wealth Management / Deposits 815 774 Mortgages and Auto Finance 492 395 Other 27 68 2 416 2 222 There has been strong revenue growth in credit cards and personal loans of ten per cent and they continue to make impressive returns. Lending outside of Hong Kong grew 20 per cent. Bankruptcy containment actions taken in Hong Kong offset growth elsewhere. Wealth Management has performed well with revenues up by five per cent over 2001. This has been driven by growth in unit trust treasury and bancassurance products which offset the impact of the lower interest rate environment. Mortgages and Auto Finance revenue increased by 25 per cent. Mortgage outstandings grew by nine per cent aided by the successful implementation of MortgageOne Account in Singapore Malaysia and India and E-Mortgage in Hong Kong. Margins improved in 2002. STANDARD CHARTERED PLC - FINANCIAL REVIEW (continued) Total costs in Consumer Banking have fallen by $64 million (five per cent) to $1 190 million with $52 million of the reduction in Hong Kong. These savings are after taking account of accelerated investment in new sales platforms rebranding and distribution channels. The MortgageOne product has been successfully rolled out and E-Mortgage developed in Hong Kong. The net debt charge increased from $330 million to $603 million. This was largely driven by personal bankruptcies in Hong Kong. The data from the Official Receiver's Office shows that although petition rates appear to have stabilised they remain high and volatile. The charge off period for credit cards has been reduced from 150 days past due to 120 days past due in Hong Kong as a consequence of the market environment. Elsewhere the growth in bad debts reflects higher volumes changes in the business mix and economic conditions. Outside Hong Kong trading profit growth of 56 per cent required incremental risk weighted assets of $2.4 billion a 22 per cent increase indicating that growth in Consumer Banking need not be capital intensive. STANDARD CHARTERED PLC - FINANCIAL REVIEW (continued) WHOLESALE BANKING The Wholesale Banking business continues to be repositioned to focus on products which offer higher returns. The Group has deliberately traded revenue to improve the risk profile of the business and this is reflected in the results for 2002. Overall revenues fell by three per cent. However operating profit has risen by 35 per cent due to the substantial reduction in the charge for debts. The debt charge has improved due to lower provisions and improved recoveries. The following table provides an analysis of operating profit before tax by geographic segment: 2002 Asia Pacific Other Hong Asia Kong Singapore Malaysia Pacific $m $m $m $m Revenue 403 172 78 287 Costs (200) (103) (64) (229) Charge for debts contingent 6 (6) 9 (3) liabilities and commitments Amounts written off fixed asset investments - - - - Operating profit 209 63 23 55 2002 Americas Middle UK & East & Group Wholesale Other Head Banking India S Asia Africa Office Total $m $m $m $m $m Revenue 190 288 195 510 2 123 Costs (76) (92) (104) (343) (1 211) Charge for debts - 3 - (118) (109) contingent liabilities and commitments Amounts written off fixed asset investments - - - (8) (8) Operating profit 114 199 91 41 795 2001 Asia Pacific Other Hong Asia Kong Singapore Malaysia Pacific $m $m $m $m Revenue 402 190 98 319 Costs (205) (110) (54) (233) Charge for debts contingent (31) (34) (119) (51) liabilities and commitments Operating profit 166 46 (75) 35 2001 Americas Middle UK & East & Group Wholesale Other Head Banking India S Asia Africa Office Total $m $m $m $m $m Revenue 165 257 224 528 2 183 Costs (77) (99) (104) (309) (1 191) Charge for debts contingent (8) (24) (10) (124) (401) liabilities and commitments Operating profit 80 134 110 95 591 Most regions have improved their results through focusing more closely on Global Markets reduced costs and improved debt charges. Malaysia has generated an additional $98 million MESA $65 million and Hong Kong $43 million. In MESA and India the improved performance was in part due to the integration of the Grindlays acquisition and higher volume growth and improved margins in Global Markets. In Africa the reduction in revenue of $29 million was driven by hyper-inflationary adjustments in Zimbabwe. STANDARD CHARTERED PLC - FINANCIAL REVIEW (continued) The profit in the Americas and the United Kingdom has fallen from $95 million to $41 million. This is mainly due to a $75 million charge taken against Argentina in the first quarter of 2002. An analysis of revenue by product is set out below: 2002 2001 $m $m Trade and Lending 775 849 Global Markets 973 914 Cash Management 315 355 Custody 60 65 2 123 2 183 Trade and Lending revenues have fallen by nine per cent from $849 million to $775 million. The reduction in business is in line with the strategy to trade revenue for risk and to concentrate resources on Global Markets. This together with weak market demand has had an impact on results. Global Markets revenue has increased by six per cent to $973 million. Asset and liability management is a significant component within Global Markets and the positions taken generated substantial revenues in the low interest rate environment particularly in the first half of 2002. Revenue growth was also generated as the Group focused on higher return business. Cash Management balances have grown significantly by 16 per cent but revenues have not improved as margins have declined as a result of the low interest rate environment. The reduction in Custody revenues by eight per cent reflects the decrease in equity activity as this business is driven by volume and equity values. However partially offsetting this was additional revenue from winning new mandates. Costs have risen by $20 million. Costs in 2002 include $45 million staff redundancy and other costs associated with repositioning the business. Investment to enhance product capability has been funded by other underlying cost efficiencies within the Wholesale Banking business. The significant improvement in the charge for debts reflects the risk management initiatives over the last two years and strong recoveries. STANDARD CHARTERED PLC - FINANCIAL REVIEW (continued) RISK Risk is inherent in the Group's business and the effective management of that risk is seen as a core competence within Standard Chartered. Through its risk management structure the Group seeks to manage efficiently the eight core risks: Credit Market Country and Liquidity risk arise directly through the Group's commercial activities whilst Business Regulatory Operational and Reputational risk are a normal consequence of any business undertaking. The key element of risk management philosophy is for the risk functions to operate as an independent control working in partnership with the business units to provide a competitive advantage to the Group. Credit Risk Credit risk is the risk that a counterparty will not settle its obligations in accordance with agreed terms. Credit exposures include individual borrowers connected groups of counterparties and portfolios on the banking and trading books. Loan Portfolio The following table sets out by maturity the amount of customer loans net of provisions. 2002 One One to Over year five five or less years years Total $m $m $m $m Consumer Banking Mortgages 1 977 4 399 14 012 20 388 Other 4 798 3 197 1 218 9 213 Total 6 775 7 596 15 230 29 601 Wholesale Banking 22 035 4 077 1 764 27 876 General Provisions (468) Net Loans and Advances to Customers 28 810 11 673 16 994 57 009 2001 One One to Over year five five or less years years Total $m $m $m $m Consumer Banking Mortgages 2 372 4 136 12 241 18 749 Other 4 907 2 756 1 003 8 666 Total 7 279 6 892 13 244 27 415 Wholesale Banking 20 289 3 309 2 460 26 058 General Provisions (468) Net Loans and Advances to Customers 27 568 10 201 15 704 53 005 The Group's loans and advances to customers is predominately a short-term portfolio with 51 per cent having a maturity of one year or less. The long-term portfolio i.e. with a maturity of over five years primarily relates to the Consumer Banking retail mortgages portfolio. The following table sets out an analysis of the Group's net loans and advances as at 31 December 2002 and 31 December 2001 by borrowers' business or industry and geographical distribution: STANDARD CHARTERED PLC - FINANCIAL REVIEW (continued) 2002 Asia Pacific Hong Other Kong Singapore Malaysia Asia Pacific $m $m $m $m Loans to Individuals Mortgages 13 045 3 813 2 031 779 Other (see note below) 2 573 1 524 575 1 684 Consumer Banking 15 618 5 337 2 606 2 463 Agriculture forestry and fishing 5 7 59 35 Construction 58 38 37 18 Commerce 1 251 777 147 572 Electricity gas and water 269 40 12 178 Financing insurance and business services 1 645 586 404 489 Loans to Governments - 41 552 66 Mining and quarrying - 19 51 26 Manufacturing 1 019 399 201 2 020 Commercial real estate 1 012 665 18 112 Transport storage and communication 405 112 77 217 Other 31 39 37 194 Wholesale Banking 5 695 2 723 1 595 3 927 General Provisions Total loans and advances to customers 21 313 8 060 4 201 6 390 Total loans and advances to banks 2 507 2 027 394 2 703 2002 Americas Middle UK & East & Group Other Head India S Asia Africa Office Total $m $m $m $m $m Loans to Individuals Mortgages 283 20 35 382 20 388 Other (see note below) 882 1 537 231 207 9 213 Consumer Banking 1 165 1 557 266 589 29 601 Agriculture forestry and fishing 15 14 62 365 562 Construction 4 157 25 7 344 Commerce 19 784 283 1 151 4 984 Electricity gas and water 23 50 35 109 716 Financing insurance and business services 209 638 47 1 921 5 939 Loans to Governments - 13 - 273 945 Mining and quarrying 23 134 20 536 809 Manufacturing 887 1 242 299 2 256 8 323 Commercial real estate - - 6 6 1 819 Transport storage and communication 113 178 107 1 577 2 786 Other - 116 18 214 649 Wholesale Banking 1 293 3 326 902 8 415 27 876 General Provisions (468) (468) Total loans and advances to customers 2 458 4 883 1 168 8 536 57 009 Total loans and advances to banks 212 1 792 218 6 148 16 001 2001 Asia Pacific Hong Other Kong Singapore Malaysia Asia Pacific $m $m $m $m Loans to Individuals Mortgages 12 560 3 005 1 784 698 Other (see note below) 3 368 1 172 519 1 111 Consumer Banking 15 928 4 177 2 303 1 809 Agriculture forestry and fishing 8 16 69 64 Construction 56 57 40 39 Commerce 936 554 223 605 Electricity gas and water 318 34 28 188 Financing insurance and business services 1 836 558 309 532 Loans to Governments - - 309 19 Mining and quarrying - 2 28 35 Manufacturing 1 005 510 277 2 261 Commercial real estate 681 1 26 202 Transport storage and communication 313 247 75 88 Other 64 672 18 - Wholesale Banking 5 217 2 651 1 402 4 033 General Provisions Total loans and advances to customers 21 145 6 828 3 705 5 842 Total loans and advances to banks 1 227 2 315 607 3 184 2001 Americas Middle UK & East & Group Other Head India S Asia Africa Office Total $m $m $m $m $m Loans to Individuals Mortgages 142 38 16 506 18 749 Other (see note below) 721 1 462 155 158 8 666 Consumer Banking 863 1 500 171 664 27 415 Agriculture forestry and fishing 103 16 80 281 637 Construction 22 104 16 68 402 Commerce 45 703 245 928 4 239 Electricity gas and water 80 29 40 248 965 Financing insurance and business services 124 312 40 1 468 5 179 Loans to Governments 5 12 1 576 922 Mining and quarrying 15 139 32 726 977 Manufacturing 553 1 037 288 2 410 8 341 Commercial real estate - - 3 13 926 Transport storage and communication 103 192 38 1 173 2 229 Other 10 73 15 389 1 241 Wholesale Banking 1 060 2 617 798 8 280 26 058 General Provisions (468) (468) Total loans and advances to customers 1 923 4 117 969 8 476 53 005 Total loans and advances to banks 398 1 704 325 9 818 19 578 STANDARD CHARTERED PLC - FINANCIAL REVIEW (continued) Under 'Other Loans to Individuals' $1 487 million (2001: $2 112 million) relates to the cards portfolio in Hong Kong and $3 378 million (2001: $3 757 million) relates to the total cards portfolio. Approximately 52 per cent (2001: 52 per cent) of total loans and advances to customers relate to Consumer Banking lending predominantly personal residential mortgages. The Wholesale Banking portfolio is well diversified across both geography and industry. The Group does not have any significant concentration to industries of special interest such as Telecommunications Aviation and Tourism. Exposure to each of these industries is less than five per cent of Wholesale Banking loans and advances to customers. Problem Credits The Group employs a variety of tools to monitor the portfolio and to ensure the timely recognition of problem credits. In Wholesale Banking accounts are placed on Early Alert when they display signs of weakness. Such accounts are subject to a dedicated process involving senior risk officers and representatives from a specialist recovery unit which is independent of the business units. Account plans are re-evaluated and remedial actions are agreed and monitored until complete. Remedial actions include but are not limited to exposure reduction security enhancement exit of the account or immediate movement of the account into the control of the specialist recovery unit. In Consumer Banking an account is considered to be in default when payment is not received on the due date. Accounts that are overdue by more than 30 days (60 days for mortgages) are considered delinquent. These are closely monitored and subject to a special collections process. In general loans are treated as non-performing when interest or principal is 90 days or more past due. Consumer Banking Provisions are derived on a formulaic basis depending on the product: • Mortgages: a provision is raised where accounts are 150 days past due based on the difference between the outstanding value of the loan and the forced sale value of the underlying asset. • Credit cards: a charge off is made for all balances which are 150 days past due or earlier as circumstances dictate. In Hong Kong charge off is currently at 120 days. • Other unsecured Consumer Banking products: a charge off is made at 150 days past due. • Other secured Consumer Banking products: a provision is raised at 90 days past due for the difference between the outstanding value and the forced sale value of the underlying asset. The underlying asset is then re-valued periodically until disposal. It is current practice to provision and write-off exposure in respect of Hong Kong bankruptcies at the time the customer petitions for bankruptcy. The Small and Medium Enterprises (SME) portfolio is provisioned on a case by case basis. STANDARD CHARTERED PLC - FINANCIAL REVIEW (continued) The following table sets out the non-performing portfolio in Consumer Banking: 2002 Asia Pacific Other Hong Asia Kong Singapore Malaysia Pacific $m $m $m $m Loans and advances - Gross non-performing 118 111 176 68 Specific provisions for bad and doubtful debts (45) (18) (24) (16) Interest in suspense (1) (3) (22) (10) Net non-performing loans and 72 90 130 42 advances Cover ratio 2002 Americas Middle UK & East & Group Other Head India S Asia Africa Office Total $m $m $m $m $m Loans and advances - Gross non-performing 41 27 15 18 574 Specific provisions for bad and doubtful debts (8) (7) (8) (1) (127) Interest in suspense (7) (7) (7) (1) (58) Net non-performing loans and 26 13 - 16 389 advances Cover ratio 32% 2001 Asia Pacific Other Hong Asia Kong Singapore Malaysia Pacific $m $m $m $m Loans and advances - Gross non-performing 164 115 168 68 Specific provisions for bad (70) (15) (20) (24) and doubtful debts Interest in suspense - (2) (20) (8) Net non-performing loans and 94 98 128 36 advances Cover ratio 2001 Americas Middle UK & East & Group Other Head India S Asia Africa Office Total $m $m $m $m $m Loans and advances - Gross 671 non-performing 39 78 18 21 Specific provisions for bad and (11) (52) (5) (13) (210) doubtful debts Interest in suspense (6) (15) (7) - (58) Net non-performing loans and 22 11 6 8 403 advances Cover ratio 40% In 2001 gross non-performing loans and advances for Other Asia Pacific have been restated. $58 million of gross non-performing loans in Standard Chartered Nakornthon Bank (SCNB) subject to a Loan Management Agreement (LMA) are now reported in Wholesale Banking. The relatively low Consumer Banking cover ratio reflects the fact that Standard Chartered classifies all exposure which is 90+ days past due as non-performing whilst provisions on unsecured lending are only raised at the time of charge-off (see details relating to the raising of provisions above). STANDARD CHARTERED PLC - FINANCIAL REVIEW (continued) Wholesale Banking Loans are designated as non-performing as soon as payment of interest or principal is 90 days or more overdue or where sufficient weakness is recognised that full payment of either interest or principal becomes questionable. Where customer accounts are recognised as non-performing or display weakness that may result in non-performing status being assigned they are passed to the management of a specialist unit which is independent of the main businesses of the Group. For loans and advances designated non-performing interest continues to accrue on the customer's account but is not included in income. Where the principal or a portion thereof is considered uncollectable and of such little realisable value that it can no longer be included at its full nominal amount on the balance sheet a specific provision is raised. In any decision relating to the raising of provisions the Group attempts to balance economic conditions local knowledge and experience and the results of independent asset reviews. Where it is considered that there is no realistic prospect of recovering the principal of an account against which a specific provision has been raised then that amount will be written off. The Group reports non-performing loans on a net at risk basis two years after first raising a specific provision. Net at risk is the result of netting interest in suspense and specific provision against applicable gross outstandings. Normal account management and collection efforts are not impacted by this process. The following table sets out the non-performing portfolio in Wholesale Banking: 2002 Asia Pacific Other Hong Asia Kong Singapore Malaysia Pacific $m $m $m $m Loans and advances - Gross non-performing 121 101 192 810 Specific provisions for bad and doubtful debts (28) (28) (100) (69) Interest in suspense (13) (14) (34) (19) Net non-performing loans and 80 59 58 722 advances 2002 Americas Middle UK & East & Group Other Head India S Asia Africa Office Total $m $m $m $m $m Loans and advances - Gross non-performing 22 97 80 608 2 031 Specific provisions for bad and doubtful debts (15) (41) (36) (244) (561) Interest in suspense (5) (13) (30) (19) (147) Net non-performing loans and 2 43 14 345 1 323 advances 2001 Asia Pacific Other Hong Asia Kong Singapore Malaysia Pacific $m $m $m $m Loans and advances - Gross 252 120 275 963 non-performing Specific provisions for bad (60) (36) (126) (122) and doubtful debts Interest in suspense (18) (11) (23) (14) Net non-performing loans and 174 73 126 827 advances 2001 Americas Middle UK & East & Group Other Head India S Asia Africa Office Total $m $m $m $m $m Loans and advances - Gross 43 284 87 498 2 522 non-performing Specific provisions for bad (29) (121) (47) (200) (741) and doubtful debts Interest in suspense (10) (33) (29) (29) (167) Net non-performing loans and 4 130 11 269 1 614 advances STANDARD CHARTERED PLC - FINANCIAL REVIEW (continued) Included in Other Asia Pacific are net non-performing loans of $690 million (2001: $739 million) in Standard Chartered Nakornthon Bank ('SCNB') which are subject to a Loan Management Agreement (LMA). Refer to note 10 on page 50. In 2001 gross non-performing loans for Other Asia Pacific have been restated to include $58 million of gross non-performing loans subject to the LMA which were previously reported under Consumer Banking. Wholesale Banking Cover Ratio Corporate loans and advances to customers against which provisions have been outstanding for two years or more are written down to their net realisable value. The following table shows the cover ratio after adjusting for the cumulative amounts written-down. The non-performing loans recorded in SCNB are excluded from the cover ratio calculation as they are the subject of a Loan Management Agreement with a Thai Government Agency. Refer to note 10 on page 50. 2002 Adjustment for cumulative amounts Exclude Adjusted Total written down LMA Total $m $m $m $m Loans and advances - Gross non-performing 2 031 1 652 (781) 2 902 Specific provisions for bad and doubtful debts (561) (1 136) 91 (1 606) Interest in suspense (147) (516) - (663) Net non-performing loans and advances 1 323 - (690) 633 Cover ratio 78% 2001 Adjustment for cumulative amounts Exclude Adjusted Total written down LMA Total $m $m $m $m Loans and advances - Gross non-performing 2 522 1 574 (828) 3 268 Specific provisions for bad and doubtful debts (741) (1 108) 89 (1 760) Interest in suspense (167) (466) - (633) Net non-performing loans and advances 1 614 - (739) 875 Cover ratio 73% Net non-performing loans have decreased by $291 million to $1 323 million at 31 December 2002 on the back of strong recoveries as work-out strategies initiated in earlier years take effect. Net non-performing loans are covered by collateral and on-going work-out strategies. The Wholesale Banking adjusted cover ratio also shows significant improvement year-on-year and now stands at 78 per cent (2001: 73 per cent). STANDARD CHARTERED PLC - FINANCIAL REVIEW (continued) Group The following table sets out the movements in the Group's total specific provisions against loans and advances: 2002 Asia Pacific Other Hong Asia Kong Singapore Malaysia Pacific $m $m $m $m Provisions held at 1 January 2002 130 51 146 146 Exchange translation differences 2 1 - (3) Amounts written off and written down (501) (52) (45) (126) Recoveries of amounts previously written off 14 5 10 13 Other - - - (6) New provisions 502 59 45 115 Recoveries/provisions no longer required (74) (18) (32) (54) Net charge against profit 428 41 13 61 Provisions held at 31 December 2002 73 46 124 85 2002 Americas Middle UK & East & Group Other Head India S Asia Africa Office Total $m $m $m $m $m Provisions held at 1 January 2002 40 173 52 213 951 Exchange translation differences - (1) (4) 6 1 Amounts written off and written down (67) (135) (7) (98) (1 031) Recoveries of amounts previously written off 13 1 - 9 65 Other - 3 - - (3) New provisions 104 40 9 138 1 012 Recoveries/provisions no longer required (67) (33) (6) (23)( (307) Net charge against profit 37 7 3 115 705 Provisions held at 31 December 2002 23 48 44 245 688 2001 Asia Pacific Other Hong Asia Kong Singapore Malaysia Pacific $m $m $m $m Provisions held at 1 January 2001 227 90 71 292 Exchange translation differences (3) (2) - 6 Amounts written off and written down (359) (96) (64) (230) Recoveries of amounts previously written off 8 7 11 10 Other - - (2) (18) New provisions 318 71 154 140 Recoveries/provisions no longer required (61) (19) (24) (54) Net charge against profit 257 52 130 86 Provisions held at 31 December 2001 130 51 146 146 2001 Americas Middle UK & East & Group Other Head India S Asia Africa Office Total $m $m $m $m $m Provisions held at 1 January 2001 53 209 52 152 1 146 Exchange translation differences (1) (2) (5) (5) (12) Amounts written off and written down (54) (106) (9) (83) (1 001) Recoveries of amounts previously written off 8 1 1 5 51 Other 7 32 - 16 35 New provisions 68 66 20 157 994 Recoveries/provisions no longer required (41) (27) (7) (29) (262) Net charge against profit 27 39 13 128 732 Provisions held at 31 December 2001 40 173 52 213 951 Of the amounts written off and the recoveries of amounts previously written off: 2002 2001 $m $m Covered by specific provisions 786 817 Not covered by specific provisions 245 184 Recoveries of loans previously written off (65) (51) This information is provided by RNS The company news service from the London Stock Exchange

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