Interim Results - Part 1
Standard Chartered PLC
07 August 2002
PART 1
TO CITY EDITORS 7 August 2002
FOR IMMEDIATE RELEASE
STANDARD CHARTERED PLC RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2002
HIGHLIGHTS
Results
• Pre-tax profit up at $634 million compared with $628 million* in H1 2001
and $461 million* in H2 2001.
• Net revenue up 6 per cent to $2,285 million from $2,164 million.* (H2
2001: $2,241 million*).
• Costs down by 2 per cent over H1 2001 and down 6 per cent over H2 2001.
• Debt charge $138 million higher at $407 million (Hong Kong personal
bankruptcies caused $149 million), but $55 million lower than H2 2001.
• Normalised earnings per share at 36.1 cents (H1 2001: 40.2 cents; H2 2001:
26.1 cents).
• Normalised return on equity at 12.8 per cent (H1 2001: 14.4 per cent*, H2
2001: 9.3 per cent*).
• Interim dividend per share increased by 10 per cent to 14.1 cents.
Significant achievements
• Pre-tax profit up 38 per cent from H2 2001 and 1 per cent from H1 2001.
• Cost income ratio (normalised basis) reduced from 55.6 per cent* in H1
2001 to 51.9 per cent (H2 2001: 56.0 per cent*).
• Strong growth in Consumer Banking in a wide range of dynamic markets.
Commenting on these results, the Chairman of Standard Chartered PLC, Sir Patrick
Gillam, said:
'This is a good performance. We have begun to improve our returns on equity and
have achieved excellent growth in a number of Asian and Middle Eastern markets.
We are beginning to see real benefits from the acquisitions made in the past few
years and from our cost efficiency programme. This progress has enabled us to
absorb two major issues - Hong Kong bankruptcies and Argentina - and still
deliver increased profitability.'
* Comparative restated (see note 15)
STANDARD CHARTERED PLC - SUMMARY OF RESULTS FOR THE SIX MONTHS ENDED 30 JUNE
2002
6 months 6 months 6 months
ended ended ended
30.06.02 30.06.01 31.12.01
$m $m $m
RESULTS
Net revenue 2,285 2,164* 2,241*
Provisions for bad and doubtful debts and contingent liabilities (407) (269) (462)
Profit before taxation 634 628* 461*
Profit attributable to shareholders 416 404 295
BALANCE SHEET
Total assets 112,817 109,837* 107,535*
Shareholders' funds:
Equity 6,470 6,391* 6,279*
Non-equity 1,273 1,251 1,259
Capital resources 13,507 13,155* 12,959*
INFORMATION PER ORDINARY SHARE Cents Cents Cents
Earnings per share - normalised basis 36.1 40.2 26.1
Dividends per share 14.1 12.82 29.1
Net asset value per share 570.69 566.27* 555.33*
RATIOS % % %
Post-tax return on equity - normalised basis 12.8 14.4* 9.3*
Cost to income ratio - normalised basis 51.9 55.6* 56.0*
Capital ratios:
Tier 1 capital 9.0 9.0* 9.0*
Total capital 15.9 16.5* 16.2*
Results on a normalised basis reflect the Group's results excluding amortisation
of goodwill, profits on disposal of subsidiary undertakings and profits/losses
on disposal of investment securities.
* Comparative restated (see note 15)
STANDARD CHARTERED PLC - CHAIRMAN'S STATEMENT
As I said six months ago the challenge for us in the first half was to grow our
business and produce better performance in an uncertain world. Our results today
show that we have done this. This is a good performance. We have begun to
improve our returns on equity and have achieved excellent growth in a number of
Asian and Middle Eastern markets. We are beginning to see real benefits from the
acquisitions made in the past few years and from our cost efficiency programme.
This progress has enabled us to absorb two major issues - Hong Kong bankruptcies
and Argentina - and still deliver increased profitability.
Results
Highlights of our results are shown on page one. Pre tax profits have increased
by 1 per cent over the first half of 2001 and by 38 per cent over the second
half of 2001.
We have declared a dividend of 14.1 cents per share for the half year, an
increase of 1.28 cents.
Business Progress
Our Group Chief Executive, Mervyn Davies, made it clear at the 2001 Annual
Results announcement in February that the top priority was to turn Standard
Chartered from a company that is well known for its emerging market franchise
into one with a reputation for strong performance. Standard Chartered is in the
right businesses and in the right markets but we need to demonstrate that we can
improve returns on equity. During the past six months, the senior management
team has focussed on this. A solid start has been made with Return on Equity
improving to 12.8 per cent from the low of 9.3 per cent in the second half of
last year.
These results show we are beginning to see benefits from the acquisitions we
have made in the past few years. Standard Chartered Nakornthon in Thailand has
moved into profit while the benefits of the Grindlays acquisition are
demonstrated by the stronger contribution from India and the Middle East, with
trading profit up 43 per cent and 53 per cent respectively. Hong Kong, despite
being affected by the personal bankruptcy issue, still represents a tremendous
market for us. The integration of the Chase consumer business is ahead of
schedule and, in Manhattan, we have a strong and complementary brand. Singapore
is performing strongly and Malaysia is turning around. As a result we are a
better balanced bank with a greater number of major markets contributing to
overall performance.
Improving our returns is our key goal whilst still making the right investments
for the longer term. Last month we opened our first consumer banking branch in
China, where we intend to be the leading foreign bank as this market opens up.
We were also invited by the Bank of China to make a strategic investment in Bank
of China Hong Kong at the time of its initial public offering. This reflects the
strong and long-standing relationship between the two banks and, I believe, will
result in new business opportunities for us both in and outside China.
Our cost programmes have progressed extremely well. Our global hubs in Chennai
and Kuala Lumpur have been a great success, while we have taken strong action to
reduce central costs.
Signs of Economic Recovery
The strength of Asian economies has exceeded expectations. Singapore, Malaysia
and Thailand have all improved with forecast growth for 2002 of 3.5 per cent, 4
per cent and 3.8 per cent
STANDARD CHARTERED PLC - CHAIRMAN'S STATEMENT (continued)
respectively. However Hong Kong, our largest market, remains sluggish with 1 per
cent forecast growth this year.
China's economic story is well-known. Less known is the impact it is having on
the rest of the region.
Entry into the World Trade Organisation was a significant event. While everyone
seems to be aware of the competitive threat posed by China, less coverage has
been given to the opportunity it now provides. It represents a huge market for
the rest of Asia to sell into. Exports to China from the rest of Asia increased
from 3.3 per cent of total exports in 1990 to 6.5 per cent in 2000. Although
China's progress is likely to be uneven, all economies in Asia are positioning
themselves in relation to China. Singapore and Hong Kong are moving themselves
up the value chain. Clearly this takes time and the adjustment costs of doing so
are reflected in Hong Kong's sluggish performance.
Continued recovery in the region will further strengthen our position. However,
in the short term, much still depends on the health of the United States, which
still accounts for 25 per cent of Asia's exports. Although we are optimistic
about the future we feel that a note of caution is appropriate.
Capital Strategy
We see listing in Hong Kong as an integral component of our strategy. It will
raise our profile in our biggest market and expand our investor base. We hope to
secure a dual primary listing in Hong Kong in the fourth quarter this year.
Whilst we believe that a modest equity offering could optimise the impact of the
listing, any decision on whether to effect such an equity offering will be taken
in the context of circumstances nearer the time and our overall desire to
improve Return on Equity.
The Board
I am delighted to welcome Peter Sands, who joined us as Finance Director in May.
Peter brings a wealth of experience and a rigorous approach to the role.
There is some sadness for me as this is my last Interim Results. As you know, we
had hoped to announce my successor by now, but our desire to ensure that we
apply the best governance standards to this process has meant that we are not in
a position to make the announcement at this time. We will do so as soon as
possible. Following a wide ranging review of potential candidates, a shortlist
of strong, well-qualified candidates has been drawn up. The Nominations
Committee is currently reviewing these candidates and the process is at an
advanced stage.
Sir Patrick Gillam 7 August 2002
Chairman
STANDARD CHARTERED PLC - GROUP CHIEF EXECUTIVE'S REVIEW
At our Annual Results presentation in February, I outlined my agenda for
transforming Standard Chartered into a truly performance driven institution and
for driving our Return on Equity towards 20 per cent.
Results
Our first half results show a good performance. Although economic growth has
been constrained in many of our markets, we have delivered revenue growth of 6
per cent. We have also taken action to reduce costs. The benefits of our
centralisation, reengineering and integration programmes have delivered a 2 per
cent cost reduction over the first half of 2001. As a result, profit before
provisions has increased 16 per cent first half on first half.
Bad debts have had an impact on our pre-tax profit. This has been due to two
major issues: the rapid increase in personal bankruptcies in Hong Kong, and
Argentina. I will cover both of these in more detail later. Despite this,
however, pre-tax profit has increased by 1 per cent over the first half, and by
38 per cent compared to the second half of 2001.
The underlying growth clearly shows the positive impact of our strategic
re-positioning - investing and growing in the right business and geographies.
The United Arab Emirates and India's first half performance now place them
within the Group's top five contributors in terms of trading profit. Profits in
Hong Kong were down in very difficult market conditions. Singapore has delivered
a 26 per cent increase in trading profits. Malaysia has improved from last
year's disappointing performance and our other countries combined in the Asia
Pacific Region delivered a 42 per cent increase in trading profits. Our
investments in markets like Taiwan and Thailand are paying off.
Progress on Management Agenda
At the full year results in February, I outlined nine key tasks designed to
achieve a better Return on Equity. We have made progress on every one of them. I
wish to highlight a few.
Consumer Banking
Consumer Banking has many attractive qualities as a business and continues to be
a great opportunity for us. It has a high Return on Equity, high barriers to
entry and regulated environments.
In Consumer Banking, excluding Hong Kong, we have achieved a 54 per cent
increase in trading profit. This is an outstanding performance.
Our Hong Kong business has been seriously affected by the rise in personal
bankruptcies. The Hong Kong Government is launching a consultation on changes to
privacy rules which would allow the establishment of a positive credit checking
bureau. We are hopeful that this will be in place by the end of the year. It
would be a major factor in resolving the issue for the banking industry.
STANDARD CHARTERED PLC - GROUP CHIEF EXECUTIVE'S REVIEW (continued)
Hong Kong remains a core and attractive market. For example, we had a good first
half in mortgages, with revenue growth once again being achieved.
Our second biggest market is Singapore. Having attained qualifying full bank
licence status, we have managed to grow our customer base by 11 per cent and
have enhanced our distribution capability through a shared ATM network. All in
all, with the growth of cards, mortgages, unit trusts and Bancassurance,
Singapore achieved a growth in profitability of 15 per cent.
Cards and personal loans
One of our most important businesses is cards. We already have about six million
cards in issue. Cards and personal loans generate high returns on equity. We
delivered 21 per cent growth in year-on-year revenues and a nine per cent
increase in number of cards in issue.
We have strong market shares. Let me take India as an example. In India, the
card industry is growing at the rate of 25-30 per cent CAGR. There are
approximately five million cards in issue of which Standard Chartered has around
1.3 million.
We have been traditionally weak in the under 35 age group for cards and the roll
out of the Manhattan brand proposition across Asia will attract this customer
segment. We continue to improve our end-to-end processing. This will allow us to
drive cost efficiencies from our scale.
Wealth Management
Cards is not our only great opportunity in Consumer Banking. The first half of
this year saw a seven per cent growth in revenue in all wealth management
products despite a lower margin environment.
Despite the gloom affecting markets globally, unit trust sales recorded
impressive growth. Assets under management have grown in the last 12 months from
$ 2.6 billion to $ 3.6 billion, with an increasing contribution from Taiwan,
India and Indonesia. In Hong Kong we have been a market leader in the launch of
corporate bonds distributed to retail customers.
Although small at this stage, retail foreign exchange has grown by 75 per cent.
Hong Kong and Singapore currently account for 87 per cent of the revenues, but
this is a significant cross sell opportunity across all of our markets. Finally,
Bancassurance continues to flourish with revenues 28 per cent ahead of the first
half of last year, with Hong Kong alone up 84 per cent.
STANDARD CHARTERED PLC - GROUP CHIEF EXECUTIVE'S REVIEW (continued)
Wholesale Banking
One of my stated objectives was to increase our focus on value creating
businesses within Wholesale Banking and to prioritise our capital allocation.
We are exiting from some relationships that are not generating the returns that
we need. We have reduced committed levels on investment grade companies by $2.1
billion to $43 billion. This is having a short term impact on revenue, but it is
absolutely the right thing to do to improve our returns.
We are prioritising Consumer Banking in the allocation of incremental capital.
This is not only helping the Consumer Bank to grow but also ensures that we are
driving our capital within the Wholesale Bank towards those relationships which
have the highest returns.
There are several high return areas in which we have been actively growing our
Wholesale Banking business. Bond markets in Asia are developing rapidly. Our
pipeline of capital market transactions is excellent. This should not overshadow
the fact that we continue to win high quality mandates in cash management,
custody and trade. For example, we were recently appointed by the Hong Kong
Monetary Authority as the Settlement Institution for Euro clearing in Hong Kong.
Latin America has been a drag on our profitability and we are consequently
undergoing a review of this business.
We are in the process of transforming our Wholesale business. We are making good
progress - in the first half there was a particularly good story on the bad debt
line in Asia - but we need to do even better.
Controlling Risk
Given the current risk environment we are operating in we have taken steps to
enhance our control of risk. We have expanded our market risk and operational
risk teams and conducted a review of our procedures and processes. We continue
to dedicate resources to meeting the requirements of the Basel project. We are
limiting our exposure to higher risk industry sectors.
The first half of this year has seen our problems confined largely to the
personal bankruptcies problem in Hong Kong and to Argentine defaults.
With regard to the problem of personal bankruptcies in Hong Kong we have taken
action to tackle the issue. Internally, we have tightened our approval criteria
on new applications whilst reducing lines on higher risk customers. We have also
developed early warning trigger mechanisms and improved our collections
processes.
Externally, we have been very active in supporting the development of a positive
credit bureau. We have led the lobbying for credit bureaux across Asia and
sponsored the recent gathering of central banks in Thailand on this subject.
We were the first bank to recognise the bankruptcy problem in Hong Kong, the
first to take action to address it and we believe that we have a good chance of
being the first bank to recover from these problems.
STANDARD CHARTERED PLC - GROUP CHIEF EXECUTIVE'S REVIEW (continued)
Delivering Efficiency in Technology and Operations
A huge amount of work has been underway to upgrade our technology and
operations. There has been substantial consolidation in many different areas of
our business. We are re-engineering our HR and Finance functions and have
standardised many of our operating models. Such initiatives are already starting
to deliver substantial cost savings and increased operational flexibility.
The introduction of Global Shared Service Centres in Chennai and Kuala Lumpur is
transforming the way our business is managed. By the year end we will have 2,000
people working in these centres, only 18 months after they opened. We are also
looking into a third hub in China which is likely to provide call centre
services and processing. The financial benefits of this are, as yet,
unquantified.
The benefit of our progress can be seen in our headcount numbers. We have
reduced headcount from a total of 31,000 at the end of 2000 to 28,000 today.
This is helping us make substantial progress in driving towards a cost income
ratio of 50 per cent. We have also created a better mix. In the first half of
this year the number of sales and marketing staff has increased by 22 per cent
while the number of processing and support staff have been reduced by 13 per
cent.
China
In July, we opened in Shanghai our first Consumer Banking branch in China in
modern times. This branch has been approved by the People's Bank of China to
provide customers, including local Chinese citizens, a full-range of foreign
currency products and services. Standard Chartered Bank is one of only a few
international banks to have been granted such approval. We will be opening three
more branches in China during the next eight months in Shenzhen, Guangzhou and
Beijing.
Last month we also took a $50 million stake in the initial public offering in
the Bank of China Hong Kong. The fact that we were the only bank invited to
subscribe ahead of the listing speaks volumes about the strength of the
relationship that we have with the Bank of China. We believe that this stake
will materially enhance this relationship and benefit business development.
Given the competitive advantages which we already have in China, we are very
well positioned to build a large profitable business there in the future.
Transitioning Thailand and Taiwan to Profitability
One of my agenda items was to move both Thailand and Taiwan to profitability. I
am pleased to say that both were profitable in the first half of 2002.
In Thailand we have successfully completed the integration of Nakornthon, with
all operations merged and the overall branch network rationalised. Our people
and organisation have been upgraded, new products and services launched and a
compliance and control culture fully embedded. Of the 67 Nakornthon branches
acquired, we closed or combined 35 which were unprofitable or in the wrong
locations. We have added eight new branches, seven of which are in Tesco-Lotus
hypermarket sites.
STANDARD CHARTERED PLC - GROUP CHIEF EXECUTIVE'S REVIEW (continued)
The result of these actions is a strong turnaround in performance. Trading
profit in Standard Chartered Nakornthon Bank (SCNB) has been transformed from a
loss of $47 million in the first 12 months after acquisition in September 1999
to a profit of $3 million in the first half of this year. Likewise, in Taiwan,
trading profit for the branch has been increased from a loss of $25 million in
1999 to a profit of $11 million in the first half of this year.
Simplified Management Agenda
Thailand and Taiwan have been transitioned to profitability and we are now
managing them as business as usual. We are combining our cost objectives into
one. The agenda therefore has been simplified to six items:
1. Improve capital efficiency;
2. Consumer - build market share;
3. Reposition Wholesale to drive returns;
4. Control risk and balance with reward;
5. Drive cost efficiency;
6. Capture profitable growth in China and India.
India, which saw a 43 per cent increase in trading profits for the first half,
has been added to the management agenda. Although the Grindlays integration has
gone well there is more potential in this market.
Middle East and Other South Asia (MESA)
MESA's performance warrants special mention. It reflects very strong organic
business growth and highlights the success of the Grindlays integration.
Revenues are 16 per cent higher than the same period last year and costs are 7
per cent lower, resulting in an increase in trading profits of 53 per cent.
Headcount has been reduced by 21 per cent and we now have a wide array of
innovative products. The United Arab Emirates generates trading profit in excess
of $100 million a year and Pakistan, Bangladesh and Bahrain are all well
established businesses with great potential.
THE FUTURE
We are confident about our ability to grow, although the pace of growth will
reflect market conditions. We are also confident about controlling the cost
base, although investment spend will accelerate in the second half. Against this
the Hong Kong bankruptcy situation remains uncertain, and the world in general
is highly unpredictable. Given this mix of opportunities and uncertainty we feel
that cautious optimism is the right stance to take.
Mervyn Davies
7 August 2002
Group Chief Executive
STANDARD CHARTERED PLC - FINANCIAL REVIEW
GROUP SUMMARY
The results for the six months to 30 June 2002 indicate a strong performance
with operating profit before provisions 16 per cent higher than the equivalent
period last year at $1,041 million. Provisions for bad debts have been adversely
affected by two major issues: bankruptcies in Hong Kong and the economic
deterioration in Argentina in the first quarter. Despite these issues the
Group's profit before taxation was $634 million compared to $628 million last
year.
In February 2002 the Urgent Issues Task Force of the Accounting Standards Board
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 impact has been restated as follows:-
6 months ended 6 months ended 6 months ended
30.06.02 30.06.01 31.12.01
Net Profit Net Profit Net Profit
Interest Before Interest Before Interest Before
Tax Tax Tax
$m $m $m $m $m $m
As previously published 1,578 670 1,428 651 1,531 497
Transfer from minority interests to interest
payable on:
Euro 500m issued March 2000 (18) (18) (18) (18) (18) (18)
GBP 300m issued May 2001 (18) (18) (5) (5) (18) (18)
As published 30 June 2002 1,542 634 1,405 628 1,495 461
If the changes caused by the UITF had not applied the Groups net tax profit for
the six months ended 30 June 2002 would have been $670 million.
Revenue has grown by six per cent to $2,285 million. This is a satisfactory
performance given the economic climate with weak demand in many of our markets,
particularly Hong Kong. Net interest income increased by ten per cent driven
largely by volume growth in Consumer Banking and strong earnings on asset and
liability management. The Group's average interest earning assets rose by $3.1
billion compared to the first six months of 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 the equivalent period last year.
Fees and commissions are broadly flat at $476 million compared to $477 million
which reflects generally weak demand for corporate banking products, partially
offset by growth in Wealth Management.
Dealing profits have fallen by $20 million or eight per cent. This is mainly due
to lower volumes in Africa.
STANDARD CHARTERED PLC - FINANCIAL REVIEW (continued)
Total operating expenses fell by two per cent compared to the first half of
2001. The benefits of the centralisation and operational efficiency programmes,
together with the higher than targeted cost synergies driven from the
integration of acquisitions, have contributed net cost benefits of $78 million
in the six months to 30 June 2002. This has enabled the Group to continue to
invest for future growth. The cost income ratio improved from 55.6 per cent in
the first half of 2001 to 51.9 per cent this period on a normalised basis.
Net provisions for bad and doubtful debts and contingents at $407 million were
$138 million higher than the equivalent period last year but lower than the
second half of last year. Two significant issues drove the debt charge. The
worsening economic situation in Argentina in the first quarter resulted in
provisions of $75 million in addition to $35 million taken in the second half of
last year, and the Hong Kong bankruptcy situation which caused provisions of
$149 million.
Post tax return on equity (normalised) was 12.8 per cent, down from 14.4 per
cent in the first half of 2001. Compared to the second half of 2001 the Return
on Equity has improved from 9.3 per cent.
STANDARD CHARTERED PLC - FINANCIAL REVIEW (continued)
CONSUMER BANKING
Consumer Banking remains the key growth engine of the bank. Revenue in Consumer
Banking has increased by 13 per cent from $1,078 million to $1,215 million, and
costs have been cut seven per cent by $46 million. However the total debt charge
has increased by $198 million to $321 million mainly due to the bankruptcy
situation in Hong Kong. This has had the effect of reducing the operating profit
by four per cent.
The following table provides an analysis of operating profit before tax by
geographic segment for Consumer Banking.
6 months ended 30.06.02
Asia Pacific
Hong Other
Kong Singapore Malaysia Asia Pacific
$m $m $m $m
Revenue 533 149 75 135
Costs (200) (49) (38) (80)
Charge for debts (238) (16) (10) (30)
Operating profit 95 84 27 25
6 months ended 30.06.02
Americas
Middle UK &
East & Group Consumer
Other Head Banking
India S Asia Africa Office Total
$m $m $m $m $m
Revenue 101 102 70 50 1,215
Costs (62) (49) (60) (30) (568)
Charge for debts (18) (7) (1) (1) (321)
Operating profit 21 46 9 19 326
6 months ended 30.06.01
Asia Pacific
Other
Hong Asia
Kong Singapore Malaysia Pacific
$m $m $m $m
Revenue 506 122 69 97
Costs (227) (43) (35) (84)
Charge for debts (88) (6) (3) (8)
Operating profit 191 73 31 5
6 months ended 30.06.01
Americas
Middle UK &
East & Group Consumer
Other Africa Head Banking
India S Asia Office Total
$m $m $m $m $m
Revenue 96 86 62 40 1,078
Costs (70) (52) (67) (36) (614)
Charge for debts (9) (7) (1) (1) (123)
Operating profit 17 27 (6) 3 341
6 months ended 31.12.01
Asia Pacific
Other
Hong Asia
Kong Singapore Malaysia Pacific
$m $m $m $m
Revenue 534 128 70 113
Costs (247) (52) (42) (87)
Charge for debts (138) (11) (8) (27)
Operating profit 149 65 20 (1)
6 months ended 31.12.01
Americas
Middle UK &
East & Group Consumer
Other Africa Head Banking
India S Asia Office Total
$m $m $m $m $m
Revenue 94 93 69 43 1,144
Costs (62) (56) (55) (39) (640)
Charge for debts (10) (8) (2) (3) (207)
Operating profit 22 29 12 1 297
Hong Kong profits have fallen overall by 50 per cent from $191 million to $95
million. Market conditions are difficult with the bankruptcy problem affecting
the whole industry, a deflationary environment and higher unemployment. Customer
loans and deposits both fell two per cent (the advances/deposits ratio was 74
per cent). Despite this, revenue has improved by five per cent and costs reduced
by 12 per cent. However the $150 million increase in bad debts led to the
overall decline in profitability. In addition to the bankruptcy situation, the
Group incurred a further charge
STANDARD CHARTERED PLC - FINANCIAL REVIEW (continued)
of $11 million in Hong Kong by reducing the charge off period on credit cards
from 150 days to 120 days past due.
Singapore has increased operating profit by 15 per cent. Significant market
share inroads have been made in Consumer Banking leveraging Standard Chartered's
Qualifying Full Banking license.
Other Asia Pacific increased profits five-fold from $5 million to $25 million.
This was mainly due to the Group's investments in the markets of Taiwan and
Thailand. Thailand benefited from higher volume and margin in the unsecured
lending business. Taiwan saw dramatic growth in consumer business due to a
successful mortgage campaign.
MESA increased operating profit by 70 per cent to $46 million and India by 24
per cent to $21 million. This is due to the success of the Grindlays integration
and growth in the business.
Africa delivered operating profit of $9 million after a loss of $6 million in
the first half of last year. The region has been successful despite a tough
environment and depreciating currencies.
The Americas and the UK have increased profit from $3 million to $19 million, as
we reposition off-shore banking.
An analysis of revenue by product is set out below:
6 months 6 months ended 6 months ended
ended 30.06.01 31.12.01
30.06.02
Revenue by product
$m $m $m
Cards / Personal Loans 557 462 523
Wealth Management / Deposits 412 386 388
Mortgages and Auto Finance 232 201 194
Other 14 29 39
1,215 1,078 1,144
There has been strong revenue growth in credit cards and personal loans of 21
per cent, and they continue to make impressive returns. Cards revenue alone grew
14 per cent and cards in issue grew nine per cent despite a cautious approach to
new account acquisition in Hong Kong.
Mortgages have shown robust growth, with new product innovation. Margins have
remained flat throughout the period. In Hong Kong, mortgages grew by five per
cent. The average book margin was Prime less 167 basis points, with new business
pricing staying at Prime less 236 basis points - better than the market average.
The delinquency ratio was 0.76 per cent (June), 33 per cent better than the
market average.
Wealth management has performed well and revenues are up seven per cent over the
first half of 2001. This has been driven by growth in fee earning activities
which offset the impact of the lower interest rate environment.
Total costs in Consumer Banking have fallen by seven per cent as a result of
stringent cost control, particularly in Hong Kong. Despite the overall cost
reduction the Group has maintained its investment in initiatives key to future
growth, for example customer sales and service capability. Investment in
Consumer Banking is ongoing with the Manhattan brand about to be rolled out
across Asia, and end-to-end processing being improved.
STANDARD CHARTERED PLC - FINANCIAL REVIEW (continued)
The net debt charge increased from $123 million to $321 million as a result of
the bankruptcy situation that has affected the whole industry in Hong Kong.
Charges relating to this in the first half amounted to $149 million,
predominantly in our unsecured lending non-mortgage business. The data from the
Official Receiver's Office show that petition numbers have stabilised in the
last quarter. However, the situation is volatile and unemployment high. We need
to be cautious on the outlook. In addition, 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 54 per cent required incremental
risk weighted assets of only $2 billion, indicating that growth in Consumer
Banking need not be hugely capital intensive.
STANDARD CHARTERED PLC - FINANCIAL REVIEW (continued)
WHOLESALE BANKING
The Wholesale Banking business is being developed from a traditional lending
orientated and capital intensive business to one focused on debt capital
markets, treasury, cash management and structured trade business that will
deliver better returns. The Group is rejecting business opportunities that do
not deliver an adequate return to the bank which in the short term has an impact
on revenue growth. Overall revenues fell by one per cent.
The following table provides an analysis of operating profit before tax by
geographic segment:
6 months ended 30.06.02
Asia Pacific
Hong Other
Kong Singapore Malaysia Asia Pacific
$m $m $m $m
Revenue 201 86 40 148
Costs (96) (48) (35) (115)
Charge for debts 7 (1) - (4)
Operating profit 112 37 5 29
6 months ended 30.06.02
Americas
Middle UK &
East & Group Wholesale
India Other Africa Head Banking
S Asia Office Total
$m $m $m $m $m
Revenue 97 140 106 252 1,070
Costs (41) (43) (51) (179) (608)
Charge for debts (1) 7 4 (98) (86)
Operating profit 55 104 59 (25) 376
6 months ended 30.06.01
Asia Pacific
Other
Hong Asia
Kong Singapore Malaysia Pacific
$m $m $m $m
Revenue 191 96 55 168
Costs (103) (56) (26) (116)
Charge for debts (14) (17) (52) (19)
Operating profit 74 23 (23) 33
6 months ended 30.06.01
Americas
Middle UK &
East & Group Wholesale
Other Africa Head Banking
India S Asia Office Total
$m $m $m $m $m
Revenue 74 122 115 265 1,086
Costs (36) (47) (43) (158) (585)
Charge for debts (2) (4) (2) (36) (146)
Operating profit 36 71 70 71 355
6 months ended 31.12.01
Asia Pacific
Other
Hong Asia
Kong Singapore Malaysia Pacific
$m $m $m $m
Revenue 211 94 43 151
Costs (102) (54) (28) (117)
Charge for debts (17) (17) (67) (32)
Operating profit 92 23 (52) 2
6 months ended 31.12.01
Americas
Middle UK &
East & Group Wholesale
Other Head Banking
India S Asia Africa Office Total
$m $m $m $m $m
Revenue 91 135 109 263 1,097
Costs (41) (52) (61) (151) (606)
Charge for debts (6) (20) (8) (88) (255)
Operating profit 44 63 40 24 236
The greater focus on global markets was partially responsible for the improved
results of Hong Kong. In Malaysia profit improved by $28 million. This is due to
the improvement in the trading environment which has resulted in debt charges
reducing from $52 million to $Nil.
In India, there is a 53 per cent rise in operating profit, and MESA increased
operating profit by 46 per cent. Both regions show sustained revenue growth and
improved debt charges. The improved performance is in part due to the
integration of the Grindlays acquisition.
STANDARD CHARTERED PLC - FINANCIAL REVIEW (continued)
The profit in the Americas and the UK has fallen from $71 million to a loss of
$25 million. This is mainly due to a $75 million charge for Argentina, which
followed a charge of $35 million in the second half of 2001. Despite almost all
lending in Argentina being to banks, and in particular subsidiaries of
international banks for the purpose of trade finance, substantial further
provisioning was required in these extremely uncertain circumstances. The Group
now has approximately 50 per cent cover of outstandings in Argentina. The Group
has also reviewed its exposure to Brazil. At 30 June 2002, there were net
exposures of $663 million. The Group is taking a cautious approach with a
reduction programme in place, and this exposure has been reduced by
approximately $100 million. Most of the Group's exposure is to banks. The Group
has reviewed this bank portfolio carefully and has concluded that no provisions
are required.
An analysis of revenue by product is set out below:
6 months 6 months ended 6 months ended
ended 30.06.01 31.12.01
30.06.02
Revenue by product
$m $m $m
Trade and Lending 393 439 410
Global Markets 488 429 485
Cash Management 158 166 189
Custody 31 52 13
1,070 1,086 1,097
Trade/lending revenues have reduced from $439 million to $393 million. Market
demand has been weak and the reduction is in part due to the repositioning of
the business.
Global markets revenue has increased by $59 million to $488 million. Asset and
liability management revenue comprises over half of Global Markets revenue and
is influenced by the prevailing level of interest rates.
Cash management balances have grown significantly by 24 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 40 per cent reflects the
decrease in equity activity. The revenue for this business is driven by volume
and equity values.
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 function 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.
The following table sets out an analysis of the Group's net loans and advances
as at 30 June 2002, 30 June 2001 and 31 December 2001 by the principal category
of borrowers, business or industry and/or geographical distribution:
30.06.02
Asia Pacific
Hong Other
Kong Singapore Malaysia Asia Pacific
$m $m $m $m
Loans to Individuals
Mortgages 12,764 3,447 1,970 1,104
Other 2,952 1,324 541 1,159
Consumer Banking 15,716 4,771 2,511 2,263
Loans to Governments - 40 338 67
Agriculture, Forestry and Fishing 2 2 68 42
Mining and Quarrying - 1 27 20
Manufacturing 1,129 500 203 1,999
Electricity, Gas and Water 330 44 24 285
Construction 53 47 28 108
Commerce 1,048 536 236 664
Transport, Storage and Communication 304 196 68 202
Financing, Insurance and Business services 1,643 641 208 621
Other 930 997 49 285
Wholesale Banking 5,439 3,004 1,249 4,293
General Provisions
Total loans and advances to customers 21,155 7,775 3,760 6,556
Total loans and advances to banks 4,053 2,644 725 2,771
30.06.02
Middle Americas
East & UK & Group Head
Other Office Total
India S Asia Africa
$m $m $m $m $m
Loans to Individuals
Mortgages 192 26 36 520 20,059
Other 812 1,467 188 204 8,647
Consumer Banking 1,004 1,493 224 724 28,706
Loans to Governments 2 13 - 446 906
Agriculture, Forestry and Fishing 13 16 91 182 416
Mining and Quarrying 9 126 33 744 960
Manufacturing 792 940 302 2,510 8,375
Electricity, Gas and Water 31 99 22 124 959
Construction 6 138 17 7 404
Commerce 61 799 253 864 4,461
Transport, Storage and Communication 45 157 89 1,162 2,223
Financing, Insurance and Business services 101 318 49 1,822 5,403
Other - 135 22 120 2,538
Wholesale Banking 1,060 2,741 878 7,981 26,645
General Provisions (468) (468)
Total loans and advances to customers 2,064 4,234 1,102 8,237 54,883
Total loans and advances to banks 335 1,731 279 7,565 20,103
The Consumer Banking portfolio is dominated by the mortgage portfolio in Hong
Kong. Other loans to individuals include both secured and unsecured exposure of
which credit card funding is 41.4 per cent (June 2001: 50.0 per cent; December
2001: 43.4 per cent)
STANDARD CHARTERED PLC - FINANCIAL REVIEW (continued)
In Wholesale Banking, the portfolio is well spread across all industry
groupings. Major areas of classification, including Manufacturing, Finance,
Insurance and Business Services and Commerce all reflect well diversified
portfolios and individual industry levels.
30.06.01
Asia Pacific
Hong Other
Kong Singapore Malaysia Asia Pacific
$m $m $m $m
Loans to Individuals
Mortgages 12,284 2,964 1,965 569
Other 3,088 641 249 785
Consumer Banking 15,372 3,605 2,214 1,354
Loans to Governments - - 198 71
Agriculture, Forestry and Fishing 9 30 90 82
Mining and Quarrying - 3 30 133
Manufacturing 1,132 254 344 1,953
Electricity, Gas and Water 391 49 78 167
Construction 37 22 45 58
Commerce 1,050 653 221 623
Transport, Storage and Communication 453 308 85 103
Financing, Insurance and Business services 2,329 630 238 458
Other 839 617 7 374
Wholesale Banking 6,240 2,566 1,336 4,022
General Provisions
Total loans and advances to customers 21,612 6,171 3,550 5,376
Total loans and advances to banks 4,082 4,093 1,174 3,292
30.06.01
Middle Americas
East & UK &
Other Group
India S Asia Africa Head Office Total
$m $m $m $m $m
Loans to Individuals
Mortgages 119 41 17 446 18,405
Other 642 1,194 145 123 6,867
Consumer Banking 761 1,235 162 569 25,272
Loans to Governments 7 2 5 429 712
Agriculture, Forestry and Fishing 14 19 77 242 563
Mining and Quarrying - 2 33 638 839
Manufacturing 877 857 322 2,748 8,487
Electricity, Gas and Water 33 16 25 314 1,073
Construction 15 120 19 123 439
Commerce 36 740 220 1,318 4,861
Transport, Storage and Communication 30 122 53 1,077 2,231
Financing, Insurance and Business services 116 243 39 2,012 6,065
Other 15 636 18 346 2,852
Wholesale Banking 1,143 2,757 811 9,247 28,122
General Provisions (467) (467)
Total loans and advances to customers 1,904 3,992 973 9,349 52,927
Total loans and advances to banks 255 1,455 225 12,391 26,967
31.12.01
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 3,368 1,172 519 1,111
Consumer Banking 15,928 4,177 2,303 1,809
Loans to Governments - - 309 19
Agriculture, Forestry and Fishing 8 16 69 64
Mining and Quarrying - 2 28 35
Manufacturing 1,005 510 277 2,261
Electricity, Gas and Water 318 34 28 188
Construction 56 57 40 39
Commerce 936 554 223 605
Transport, Storage and Communication 313 247 75 88
Financing, Insurance and Business services 1,836 558 309 532
Other 745 673 44 202
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
31.12.01
Middle Americas
East & UK &
Other Group
India S Asia Africa Head Office Total
$m $m $m $m $m
Loans to Individuals
Mortgages 142 38 16 506 18,749
Other 721 1,462 155 158 8,666
Consumer Banking 863 1,500 171 664 27,415
Loans to Governments 5 12 1 576 922
Agriculture, Forestry and Fishing 103 16 80 281 637
Mining and Quarrying 15 139 32 726 977
Manufacturing 553 1,037 288 2,410 8,341
Electricity, Gas and Water 80 29 40 248 965
Construction 22 104 16 68 402
Commerce 45 703 245 928 4,239
Transport, Storage and Communication 103 192 38 1,173 2,229
Financing, Insurance and Business services 124 312 40 1,468 5,179
Other 10 73 18 402 2,167
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)
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 due date. Accounts which 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 except in Hong Kong where a charge off is made immediately on
petition for bankruptcy and at 120 days past due for other balances.
• 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 revalued
periodically until disposal.
STANDARD CHARTERED PLC - FINANCIAL REVIEW (continued)
The following table sets out the non-performing portfolio in Consumer Banking:
30.06.02
Asia Pacific
Hong Other
Kong Singapore Malaysia Asia Pacific
$m $m $m $m
Loans and advances - Gross 200 115 172 136
non-performing
Specific provisions for bad and (121) (18) (21) (27)
doubtful debts
Interest in suspense - (3) (21) (9)
Net non-performing loans and 79 94 130 100
advances
30.06.02
Americas
Middle UK &
East & Group
Other Head
India S Asia Africa Office Total
$m $m $m $m $m
Loans and advances - Gross 40 85 17 11 776
non-performing
Specific provisions for bad (9) (54) (6) (3) (259)
and doubtful debts
Interest in suspense (5) (20) (8) (1) (67)
Net non-performing loans and 26 11 3 7 450
advances
30.06.01
Asia Pacific
Other
Hong Asia
Kong Singapore Malaysia Pacific
$m $m $m $m
Loans and advances - Gross 132 41 152 125
non-performing
Specific provisions for bad and (53) (15) (19) (20)
doubtful debts
Interest in suspense - (2) (19) (7)
Net non-performing loans and 79 24 114 98
advances
30.06.01
Americas
Middle UK &
East & Group
Other Head
India S Asia Africa Office Total
$m $m $m $m $m
Loans and advances - Gross 46 71 17 10 594
non-performing
Specific provisions for bad (14) (54) (6) - (181)
and doubtful debts
Interest in suspense (4) (12) (6) - (50)
Net non-performing loans and 28 5 5 10 363
advances
31.12.01
Asia Pacific
Other
Hong Asia
Kong Singapore Malaysia Pacific
$m $m $m $m
Loans and advances - Gross 164 115 168 126
non-performing
Specific provisions for bad and (70) (15) (20) (24)
doubtful debts
Interest in suspense - (2) (20) (8)
Net non-performing loans and 94 98 128 94
advances
31.12.01
Americas
Middle UK &
East & Group
Other Head
India S Asia Africa Office Total
$m $m $m $m $m
Loans and advances - Gross 39 78 18 21 729
non-performing
Specific provisions for bad (11) (52) (5) (13) (210)
and doubtful debts
Interest in suspense (6) (15) (7) - (58)
Net non-performing loans and 22 11 6 8 461
advances
Specific provisions and interest in suspense together cover 42 per cent (30 June
2001: 39 per cent; 31 December 2001: 37 per cent) of gross non-performing loans.
The apparent low level of cover reflects the provisioning policy which
identifies loans as non-performing at 90 days or more past due, whilst
provisions are, generally, raised at 150 days past due.
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 at net at risk 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:
30.06.02
Asia Pacific
Hong Other
Kong Singapore Malaysia Asia Pacific
$m $m $m $m
Loans and advances - Gross 151 109 247 868
non-performing
Specific provisions for bad and (32) (27) (112) (107)
doubtful debts
Interest in suspense (15) (12) (26) (22)
Net non-performing loans and 104 70 109 739
advances
30.06.02
Americas
Middle UK &
East & Group
Other Head
India S Asia Africa Office Total
$m $m $m $m $m
Loans and advances - Gross 27 147 83 667 2,299
non-performing
Specific provisions for bad (17) (90) (40) (266) (691)
and doubtful debts
Interest in suspense (7) (25) (27) (20) (154)
Net non-performing loans and 3 32 16 381 1,454
advances
30.06.01
Asia Pacific
Other
Hong Asia
Kong Singapore Malaysia Pacific
$m $m $m $m
Loans and advances - Gross 383 157 230 1,014
non-performing
Specific provisions for bad and (96) (51) (72) (217)
doubtful debts
Interest in suspense (56) (20) (21) (33)
Net non-performing loans and 231 86 137 764
advances
30.06.01
Americas
Middle UK &
East & Group
Other Head
India S Asia Africa Office Total
$m $m $m $m $m
Loans and advances - Gross 54 349 93 365 2,645
non-performing
Specific provisions for bad (22) (197) (39) (148) (842)
and doubtful debts
Interest in suspense (11) (52) (25) (17) (235)
Net non-performing loans and 21 100 29 200 1,568
advances
STANDARD CHARTERED PLC - FINANCIAL REVIEW (continued)
31.12.01
Asia Pacific
Other
Hong Asia
Kong Singapore Malaysia Pacific
$m $m $m $m
Loans and advances - Gross 252 120 275 905
non-performing
Specific provisions for bad and (60) (36) (126) (122)
doubtful debts
Interest in suspense (18) (11) (23) (14)
Net non-performing loans and 174 73 126 769
advances
31.12.01
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 2,464
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 1,556
advances
Included in Wholesale Banking in Other Asia Pacific are net non-performing loans
of $631 million (30 June 2001: 621 million; 31 December 2001: $621 million) in
Standard Chartered Nakornthon Bank ('SCNB'). Refer to note 10.
The Group reports non-performing loans at net at risk two years after first
raising a specific provision. The cumulative amount written down including SCNB
at June 2002 is $1,737 million (30 June 2001: $1,433 million; 31 December 2001:
$1,660 million).
Excluding SCNB specific provisions and interest in suspense together cover 49
per cent (30 June 2001: 51 per cent; 31 December 2001: 47 per cent) of gross
non-performing loans (if lending and provisions are adjusted to reflect the
cumulative amount of the netting exercise, the cover ratio would be 75 per cent
(30 June 2001: 71 per cent; 31 December 2001: 72 per cent)
STANDARD CHARTERED PLC - FINANCIAL REVIEW (continued)
Specific Provisions
The following table sets out the movements in the Group's total specific
provisions against loans and advances.
6 months ended 30.06.02
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 - (6)
Amounts written off and written down (215) (26) (29) (46)
Recoveries of amounts previously written off 5 2 6 6
New provisions 269 25 21 62
Recoveries/provisions no longer required (38) (8) (11) (28)
Net charge against profit 231 17 10 34
Provisions held at 30 June 2002 153 45 133 134
6 months ended 30.06.02
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) (3) 1 (6)
Amounts written off and written down (38) (29) - (44) (427)
Recoveries of amounts previously written off 6 1 - - 26
New provisions 45 17 3 108 550
Recoveries/provisions no longer required (27) (17) (6) (9) (144)
Net charge against profit 18 - (3) 99 406
Provisions held at 30 June 2002 26 144 46 269 950
6 months ended 30.06.01
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 (4) (3) - 8
Amounts written off and written down (180) (47) (43) (68)
Recoveries of amounts previously written off 4 3 8 5
Other - - - (27)
New provisions 129 32 71 64
Recoveries/provisions no longer required (27) (9) (16) (37)
Net charge against profit 102 23 55 27
Provisions held at 30 June 2001 149 66 91 237
6 months ended 30.06.01
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) (6) (5) (3) (14)
Amounts written off and written down (32) 8 (5) (37) (404)
Recoveries of amounts previously written off 4 1 - 5 30
Other 1 28 - (6) (4)
New provisions 27 24 6 51 404
Recoveries/provisions no longer required (16) (13) (3) (14) (135)
Net charge against profit 11 11 3 37 269
Provisions held at 30 June 2001 36 251 45 148 1,023
6 months ended 31.12.01
Asia Pacific
Other
Hong Asia
Kong Singapore Malaysia Pacific
$m $m $m $m
Provisions held at 1 July 2001 149 66 91 237
Exchange translation differences 1 1 - (2)
Amounts written off and written down (179) (49) (21) (162)
Recoveries of amounts previously written off 4 4 3 5
Other - - (2) 9
New provisions 189 39 83 76
Recoveries/provisions no longer required (34) (10) (8) (17)
Net charge against profit 155 29 75 59
Provisions held at 31 December 2001 130 51 146 146
6 months ended 31.12.01
Americas
Middle UK &
East & Group
Other Head
India S Asia Africa Office Total
$m $m $m $m $m
Provisions held at 1 July 2001 36 251 45 148 1,023
Exchange translation differences - 4 - (2) 2
Amounts written off and written down (22) (114) (4) (46) (597)
Recoveries of amounts previously written off 4 - 1 - 21
Other 6 4 - 22 39
New provisions 41 42 14 106 590
Recoveries/provisions no longer required (25) (14) (4) (15) (127)
Net charge against profit 16 28 10 91 463
Provisions held at 31 December 2001 40 173 52 213 951
STANDARD CHARTERED PLC - FINANCIAL REVIEW (continued)
Of the amounts written off and the recoveries of amounts previously written off:
6 months 6 months 6 months
ended ended ended
30.06.02 30.06.01 31.12.01
$m $m $m
Covered by specific provisions raised in previous periods 321 323 494
Not covered by specific provisions raised in previous periods 106 81 103
Recoveries of loans previously written off (26) (30) (21)
401 374 576
Country Risk
Country Risk is the risk that a counterparty is unable to meet its contractual
obligations as a result of adverse economic conditions or actions taken by
governments in the relevant country. The following table shows the Group's cross
border assets, including acceptances, where they exceed 1 per cent of the
Group's total assets. Cross border assets exclude facilities provided within the
Group. They comprise loans and advances, interest bearing deposits with other
banks, trade and other bills, acceptances, amounts receivable under finance
leases, certificates of deposit and other negotiable paper and investment
securities where the counterparty is resident in a country other than that where
the cross border asset is recorded. Cross border assets also include exposures
to local residents denominated in currencies other than the local currency.
30.06.02
Public Banks Other Total
sector
$m $m $m $m
USA 1,078 1,154 2,078 4,310
Germany - 3,554 118 3,672
Italy 438 1,322 323 2,083
Singapore 10 395 1,420 1,825
Hong Kong 8 100 1,671 1,779
France 4 1,316 336 1,656
Korea 164 1,355 128 1,647
Austria - 1,216 - 1,216
Australia 387 656 94 1,137
30.06.01
Public
Sector Banks Other Total
$m $m $m $m
Germany - 4,930 25 4,955
USA 1,658 1,323 1,229 4,210
France 280 1,510 587 2,377
Hong Kong 19 480 1,713 2,212
Italy 218 1,503 77 1,798
Korea - 1,297 320 1,617
Singapore 14 520 1,071 1,605
STANDARD CHARTERED PLC - FINANCIAL REVIEW (continued)
31.12.01
Public
Sector Banks Other Total
$m $m $m $m
USA 1,637 1,330 1,750 4,717
Germany - 3,546 119 3,665
Hong Kong 8 167 1,685 1,860
Singapore 25 310 1,485 1,820
France - 1,281 409 1,690
Italy 396 1,047 239 1,682
Korea 5 1,214 203 1,422
Market Risk
The Group recognises market risk as the exposure created by the potential
changes in market prices and rates. The Group measures the impact of market
price and rate risk using Value at Risk ('VaR') models.
The total VaR for market risks in the Group's trading book as at 30 June 2002
was $5.8 million (31 December 2001: $3.5 million). Of this total $3.6 million
related to interest rate risk and $2.8 million to exchange rate risk. The
corresponding figures as at 31 December 2001 were $2.1 million and $1.5 million
respectively. The differences are a result of increased market volatility.
The Group has no significant trading exposure to equity or commodity price risk.
No offsets are allowed between exchange rate and interest rate exposures when
VaR limits are set. The average VaR in the trading book during the six months to
30 June 2002 was $6 million (12 months to 31 December 2001: $5.1 million) with a
maximum exposure of $9.6 million. The average level of risk was higher than in
2001 due to an increase in market volatility.
VaR for interest rate risk in the non-trading books of the Group totalled $11.2
million at 30 June 2002, compared to $11.6 million at 31 December 2001.
Liquidity Risk
The Group defines liquidity risk as the risk that funds will not be available to
meet liabilities as they fall due.
A range of tools are used for the management of liquidity. These comprise
commitment and wholesale borrowing guidelines, key balance sheet ratios and
medium term funding requirements.
At the local level, in line with policy, the day to day monitoring of future
cash flows takes place and suitable levels of easily marketable assets are
maintained by the businesses.
Operational and Other Risks
Operational Risk is the risk of direct or indirect loss due to an event or
action causing failure of technology, processes, infrastructure, personnel, and
other risks having operational risk impact. Other risks recognised by the Group
include Business, Legal, Regulatory and Reputational risks. Standard Chartered
seeks to minimise actual or potential losses from Operational Risk failures
through a framework of policies and procedures that identify, assess, control,
manage and report risks.
STANDARD CHARTERED PLC - FINANCIAL REVIEW (continued)
An independent Group Operational Risk function is responsible for establishing
and maintaining the overall Operational Risk framework. The Group Operational
Risk function provides reports to the Group Risk Committee and the Audit and
Risk Committee.
Compliance with Operational Risk policy is the responsibility of all managers.
In every country, a Country Operational Risk Group (CORG) has been established.
It is the responsibility of the CORG to ensure appropriate risk management
frameworks are in place and to monitor and manage operational risk. CORGs are
chaired by Country Chief Executives.
Business units are required to monitor their Operational Risks using Group and
business level standards and indicators. Significant issues and exceptions must
be reported to the CORG. Where appropriate, issues must also be reported to
Business Risk Committees and the Group Risk Committee.
STANDARD CHARTERED PLC - FINANCIAL REVIEW (continued)
CAPITAL
Standard Chartered's policy is to maintain a conservative balance sheet and
strong capital base. The Group Asset and Liability Committee targets Tier 1 and
Total capital ratios of 7 - 9 per cent and 12 - 14 per cent respectively.
Capital ratios
30.06.02 30.06.01 31.12.01
$m $m $m
Tier 1 capital 6,581 6,170* 6,232*
Tier 2 capital 5,185 5,130 5,010
11,766 11,300 11,242
Less supervisory adjustments (214) (30) (19)
Adjusted capital base 11,552 11,270 11,223
Risk weighted assets 55,756 53,373 53,825
Risk weighted contingents 17,096 15,138 15,517
Total risk weighted assets and contingents 72,852 68,511 69,342
Capital ratios % % %
Tier 1 capital 9.0 9.0* 9.0*
Total capital 15.9 16.5* 16.2*
30.06.02 30.06.01 31.12.01
$m $m $m
Shareholders' funds
Equity 6,470 6,391* 6,279*
Non Equity 1,273 1,251 1,259
7,743 7,642 7,538
Post tax Return on Equity (normalised) 12.8% 14.4%* 9.3%*
* Comparative restated (see note 15)
The Group identified improving the efficiency of capital management as a
strategic priority for 2002. Progress has been made during the first half of the
year to develop a capital plan to achieve this. The plan includes several key
elements. The Group believes that being well capitalised is important.
However, there is potential to reduce the amount of Tier 2 capital and to
improve the overall capital mix within the broad target ratios.
STANDARD CHARTERED PLC - FINANCIAL REVIEW (continued)
EFFICIENCY PROGRAMME
In August 2000 the Group announced an efficiency programme, the purpose of which
was to improve productivity and to build an operational platform to support
future growth. Excellent progress continues to be made.
Headcount reductions have exceeded the original targets set.
Original Target
Achieved at 30.06.02 over 3 Years
Headcount Headcount Headcount Headcount
reduction addition reduction addition
Centralising of processing and support operations 1,200 1,020 2,000 1,000
Operational efficiencies 2,890 - 2,100 -
Integration of acquisitions 2,570 - 2,100 -
6,660 1,020 6,200 1,000
Achieved Target
Cost Synergies 6 months
Full year ended Original Revised
2001 30.06.02 2001 2002 2003
Centralising of processing and support operations 19 19 29 64 100
Operational efficiencies 60 41 29 80 90
Integration of acquisitions 70 57 50 100 115
149 117 108 244 305
Investment Spend (93) (39) (167) (114) (136)
Net Cost Benefit 56 78 (59) 130 169
Original Net Cost Benefit (59) 82 159
At the end of last year the Group increased its targets for savings from the
Efficiency Programme. We are well on track to deliver these higher targets in
2002.
STANDARD CHARTERED PLC - FINANCIAL STATEMENTS
CONSOLIDATED PROFIT AND LOSS ACCOUNT
For the six months ended 30 June 2002
6 months 6 months 6 months
ended ended ended
30.06.02 30.06.01* 31.12.01*
Notes $m $m $m
Interest receivable 2,553 3,400 3,019
Interest payable (1,011) (1,995) (1,524)
Net interest income 1,542 1,405 1,495
Fees and commissions receivable, net 476 477 500
Dealing profits and exchange 3 229 249 221
Other operating income 4 38 33 25
743 759 746
Net revenue 2,285 2,164 2,241
Administrative expenses:
Staff (634) (617) (624)
Premises (138) (150) (135)
Other (315) (348) (387)
Depreciation and amortisation, of which: (157) (152) (172)
Amortisation of goodwill (68) (68) (72)
Other (89) (84) (100)
Total operating expenses (1,244) (1,267) (1,318)
Operating profit before provisions 1,041 897 923
Provisions for bad and doubtful debts 1,2,9 (406) (269) (463)
Provisions for contingent liabilities and commitments (1) - 1
Opening profit before taxation 1,2 634 628 461
Taxation 5 (201) (218) (160)
Profit after taxation 433 410 301
Minority interests (equity) (17) (6) (6)
Profit for the year attributable to shareholders 416 404 295
Dividends on non-equity preference shares 6 (56) (12) (56)
Dividends on ordinary equity shares 7 (160) (145) (329)
Retained profit 200 247 (90)
* Comparative restated (see note 15)
STANDARD CHARTERED PLC - FINANCIAL STATEMENTS (continued)
SUMMARISED CONSOLIDATED BALANCE SHEET
As at 30 June 2002
30.06.02 30.06.01* 31.12.01*
$m $m $m
Notes
Assets
Cash, balances at central banks and cheques in course of collection 1,004 1,172 1,174
Treasury bills and other eligible bills 4,501 3,227 5,105
Loans and advances to banks 1 20,103 26,967 19,578
Loans and advances to customers 1 54,883 52,927 53,005
Debt securities and equity shares 18,790 14,393 16,080
Intangible fixed assets 2,201 2,342 2,269
Tangible fixed assets 993 970 992
Prepayments, accrued income and other assets 10,342 7,839 9,332
Total assets 112,817 109,837 107,535
Liabilities
Deposits by banks 1 13,281 14,771 11,688
Customer accounts 1 70,178 66,884 67,855
Debt securities in issue 1 3,485 4,983 3,706
Accruals, deferred income and other liabilities 12,366 10,044 11,327
Subordinated liabilities:
Undated loan capital 1,829 1,788 1,804
Dated loan capital 3,767 3,645 3,544
Minority interests (equity) 168 80 73
Shareholders' funds 12 7,743 7,642 7,538
Total liabilities and shareholders' funds 112,817 109,837 107,535
* Comparative restated (see note 15)
STANDARD CHARTERED PLC - FINANCIAL STATEMENTS (continued)
CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
For the six months ended 30 June 2002
6 months 6 months ended 6 months ended
ended 30.06.01 31.12.01
30.06.02
$m $m $m
Notes
Profit attributable to shareholders 416 404 295
Exchange translation differences (39) (98) (21)
Total recognised gains and losses relating to the current period 377 306 274
Prior year adjustment 15 156 - -
Total recognised gains and losses since the last annual report 533 306 274
NOTE OF CONSOLIDATED HISTORICAL COST PROFITS AND LOSSES
For the six months ended 30 June 2002
There is no material difference between the results as reported and the results
that would have been reported on a historical cost basis. Accordingly, no note
of historical cost profits and losses has been included.
STANDARD CHARTERED PLC - FINANCIAL STATEMENTS (continued)
Consolidated cash flow statement
For the six months ended 30 June 2002
6 months 6 months 6 months
ended ended ended
30.06.02 30.06.01* 31.12.01*
$m $m $m
Net cash inflow from operating activities (see note 14) 960 1,258 4,855
Returns on investment and servicing of finance
Interest paid on subordinated loan capital (208) (164) (157)
Subordinated loan capital issue expenses - (12) -
Dividends paid to minority shareholders of subsidiary undertakings (1) (3) (15)
Dividends paid on preference shares (57) (11) (30)
Net cash outflow from returns on investment and servicing of finance (266) (190) (202)
Taxation
UK taxes paid (29) (52) (51)
Overseas taxes paid (154) (198) (219)
Total taxes paid (183) (250) (270)
Capital expenditure and financial investment
Purchases of tangible fixed assets (99) (115) (168)
Acquisitions of treasury bills held for investment purposes (5,449) (4,043) (6,340)
Acquisitions of debt securities held for investment purposes (15,044) (13,427) (12,929)
Acquisitions of equity shares held for investment purposes (37) (8) (20)
Disposals of tangible fixed assets 13 16 42
Disposals and maturities of treasury bills held for investment purposes 6,177 4,735 4,403
Disposals and maturities of debt securities held for investment purposes 13,622 8,763 11,799
Disposals of equity shares held for investment purposes 9 13 4
Net cash outflow from capital expenditure and financial investment (808) (4,066) (3,209)
Net cash (outflow)/inflow before acquisitions and disposals, equity dividends (297) (3,248) 1,174
paid and financing
Acquisitions and disposals
Disposals of interests in subsidiary and associated undertakings - 2 (2)
Net cash inflow/(outflow) from acquisitions and disposals - 2 (2)
Equity dividends paid to members of the Company (308) (298) (144)
Financing
Gross proceeds from issue of ordinary share capital 25 15 7
Issue of preference share capital - 1,000 -
Preference shares - issue expenses - (31) -
Issue of subordinated loan capital - 700 -
Proceeds from issue of preferred securities - 418 3
Repayment of subordinated liabilities - (3) (201)
Net cash inflow/(outflow) from financing 25 2,099 (191)
(Decrease)/increase in cash in the period (580) (1,445) 837
* Comparative restated (see note 15)
This information is provided by RNS
The company news service from the London Stock Exchange
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