Interim Results

Standard Chartered PLC 08 August 2005 PART 1 8 August 2005 TO CITY EDITORS FOR IMMEDIATE RELEASE STANDARD CHARTERED PLC RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2005 HIGHLIGHTS STANDARD CHARTERED PLC RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2005 Reported Results â€¢ Profit before tax up 20 per cent to $1,333 million, compared with $1,107 million* in H1 2004 (H2 2004: $1,144 million*) â€¢ Income up 19 per cent to $3,236 million from $2,725 million* (H2 2004: $2,657 million*) â€¢ Total assets up 54 per cent to $203.9 billion from $132.6 billion (H2 2004: $147.1 billion) including $46 billion on the acquisition of Korea First Bank (KFB) Underlying Results** â€¢ Profit before tax up 15 per cent to $1,249 million, compared with $1,082 million* in H1 2004 (H2 2004: $1,143 million*) â€¢ Income up 14 per cent to $2,978 million from $2,615 million* (H2 2004: $2,628 million*) â€¢ Expenses up 12 per cent to $1,562 million from $1,392 million*; (H2 2004: $1,415 million*) â€¢ Loan impairment charge up 19 per cent to $166 million from $139 million (H2 2004: $71 million) Key Metrics â€¢ Normalised earnings per share up 32 per cent at 75.2 cents (H1 2004: 57.1 cents*; H2 2004: 67.5 cents*) â€¢ Normalised return on ordinary shareholders' equity is 18.4 per cent* (H1 2004: 18.0 per cent;* H2 2004: 18.6 per cent*) â€¢ Interim dividend per share increased 11 per cent to 18.94 cents â€¢ Cost income ratio improves to 52.6 per cent (H1 and H2 2004: 54.0 per cent). Significant achievements â€¢ Underlying income in Consumer and Wholesale Banking both grew at 14 per cent â€¢ Record profits in Consumer Banking, up 24 per cent, underlying up 14 per cent â€¢ Record profits in Wholesale Banking, up 23 per cent, underlying up 17 per cent â€¢ Completed acquisition of Korea First Bank; good progress on integration â€¢ 2004 acquisitions and alliances delivering ahead of expectations Commenting on these results, the Chairman of Standard Chartered PLC, Bryan Sanderson, said: 'This is a strong set of results. We are making good progress. We are on course to achieve our strategic goals, building on our track record of performance.' *Comparative restated in the transition to IFRS (see note 6 on page 47). ** Underlying income and costs excludes the post acquisition results of KFB and one-off items in 2004. STANDARD CHARTERED PLC - TABLE OF CONTENTS Page Summary of Results 3 Chairman's Statement 4 Group Chief Executive's Review 6 Financial Review Group Summary 11 Consumer Banking 12 Wholesale Banking 16 Acquisition of Korea First Bank 20 Risk 22 Capital 40 Financial Statements Consolidated Income Statement 41 Consolidated Balance Sheet 42 Consolidated Statement of Recognised Income and Expenses 43 Consolidated Cash Flow Statement 44 Notes 45 On 1 January 2005 the Group adopted European Union (EU) endorsed International Financial Reporting Standards (IFRSs). The comparative amounts presented have accordingly been restated to comply with IFRSs that have been endorsed by the EU, and those that are expected to be endorsed in 2005, with the exception of IAS 32/39. The impact of the restatement was published by the Group on 12 May 2005. Copies of this announcement are available from the Group's website at http://investors.standardchartered.com The Group has taken advantage of the transition rules of IFRS 1, First time adoption of International Financial Reporting Standards to apply IAS 32/39 with effect from 1 January 2005. (see note 6 on page 47). Unless another currency is specified, the word 'dollar' or symbol '$' in this document means United States dollar. STANDARD CHARTERED PLC - SUMMARY OF RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2005 6 months 6 months 6 months ended ended ended 30.06.05 30.06.04 31.12.04 $m $m $m RESULTS Operating income 3,236 2,725 2,657 Impairment losses on loans and advances (194) (139) (75) Profit before taxation 1,333 1,107 1,144 Profit attributable to shareholders 971 756 822 Profit attributable to ordinary shareholders 956 727 793 BALANCE SHEET Total assets 203,927 132,648 147,078 Total equity 12,494 8,862 10,069 Capital base 15,753 12,595 13,786 INFORMATION PER ORDINARY SHARE Cents Cents Cents Earnings per share - normalised basis 75.2 57.1 67.5 - basic 74.7 62.1 67.5 Dividend per share 18.94 17.06 40.44 Net asset value per share 830.0 676.5 715.2 RATIOS % % % Post-tax return on equity - normalised basis 18.4 18.0 18.6 Cost income ratio - normalised basis 52.6 54.0 54.0 Capital ratios: Tier 1 capital 7.3 9.2 8.6 Total capital 13.0 15.6 15.0 Results on a normalised basis reflect the Group's (Standard Chartered PLC and its subsidiaries) results excluding items presented in note 4 on page 46. CHAIRMAN'S STATEMENT I am pleased to report another strong half-year performance for Standard Chartered. Our performance is showing the benefits of our investments in organic growth, and the strategic alliances and acquisitions we have made. Our acquisition of Korea First Bank (KFB) was completed ahead of schedule in April 2005, and we are making good progress on the integration. 2005 First Half Results We continue to build on our track record of performance, with broadly based income growth in almost all our geographies and across both businesses. Our loan impairment performance has, once again, been strong, as the benign credit environment continues in many of our markets, and as we benefit from our robust risk management processes. We continue to pace expenses growth in line with income, and have shown improvement in our cost income ratio. Normalised earnings per share is up 32 per cent. At the half year, the Board has approved an interim dividend of 18.94 cents per share, up 11 per cent. Economic Environment In our markets of Asia, Africa and the Middle East, the overall economic outlook is good. While global rates of growth look set to slow during the second half of 2005, growth rates in our markets are forecast to remain above those of OECD countries. There are challenges. Oil and commodity prices look set to remain high, although moderating in 2006 to match the potential slowdown in global growth. This will benefit many of our markets, although some - particularly those with low foreign exchange reserves - may feel increased inflationary pressures. In Asia, China's recent decision to change the renminbi regime is a major policy step and is good news for the Chinese economy. We believe it is also good news for the global economy. This is a further sign of China's emergence as a global economic player. The immediate market implications are: â€¢ Stronger Asian currencies versus dollar; â€¢ Countries whose currencies strengthen may well opt for lower interest rates; â€¢ There may be some impact on US long bond yields but this is hard to predict. Longer-term, we also expect a deepening of Asian financial markets, as central banks across the region gradually start to increase their holdings in other Asian currencies. We are in growing markets, and we are executing our strategy well. Our geographic diversity is helping us to deliver a consistently good performance. Strategic Approach Our strategic focus is on organic growth. Where we consider acquisitions, we will take a very disciplined approach. Any acquisition must deliver shareholder value and allow us to do something that we cannot do organically. So far this year, we have made a number of investments, either extending our geographic or customer reach, or broadening our product range: â€¢ the purchase of Thailand's Financial Institutions Development Fund's 24.97 per cent shareholding in Standard Chartered Nakornthon Bank; â€¢ the agreement to acquire a minority stake in Travelex, the world's largest non-bank foreign exchange specialist; â€¢ the purchase of an 8.56 per cent minority stake in Asia Commercial Bank in Vietnam, one of the two joint stock banks in the country; and â€¢ the agreement to acquire the commercial banking business of American Express Bank Limited in Bangladesh. And, of course, we have completed the acquisition of KFB - the largest in the Group's history, and the largest foreign investment in Korea's financial services sector. Our results show clearly that our strategy is delivering results. Standard Chartered is growing - our businesses are growing, our presence in our markets is growing. But size itself is not the objective. The objective is, and always will be, to create shareholder value. The Board is very focused on ensuring the Group achieves its strategic objectives. Corporate Governance As Chairman, one of my most important responsibilities is to ensure proper governance. Good governance is the assurance to our shareholders of a well-run organisation. Good governance compels clear accountabilities, ensures strong controls, instils the right behaviours, and reinforces good performance. The Group is committed to ensuring the integrity of governance throughout our network, with particular emphasis on controls, management systems, and strategy. In Summary We are making good progress towards our performance goals for 2005. While there are some challenges in our markets, the economic outlook remains positive, and we are well-placed to benefit from their strength. We have a vigorous governance culture supported by strong processes and systems. This is a strong set of results. We are making good progress. We are on course to achieve our strategic goals, building on our track record of performance. Bryan Sanderson CBE Chairman 8 August 2005 GROUP CHIEF EXECUTIVE'S REVIEW We have had another strong set of results for the first half of 2005. We now have a track record for good performance and for keeping our promises to our shareholders. We will continue to do so. In the first half of 2005, we delivered against a balanced scorecard of growth and performance. Profit before tax, including KFB, was $1,333 million, a 20 per cent increase from $1,107 million. On an underlying basis, profit before tax was up 15 per cent. On a normalised basis, cost-income ratio improved to 52.6 per cent. Earnings per share saw an increase from 57.1 cents to 75.2 cents. Our Progress At the beginning of the year, we set out our top priorities for 2005: â€¢ Expand Consumer Banking customer segments and products; â€¢ Continue Wholesale Banking transformation; â€¢ Integrate Korea First Bank and deliver growth; â€¢ Accelerate growth in India and China; â€¢ Deliver further technology benefits; â€¢ Embed Outserve into our culture. We are making real progress in achieving our priorities. As a Group, we have come a long way in the past few years, doubling profits and earnings per share in three years, and achieving our target return on equity. We have changed the shape of our business: â€¢ While Hong Kong remains a key market, it is now part of a bigger, geographically balanced bank. â€¢ Eleven of our geographies now deliver over USD100 million in income. â€¢ Profits in the Middle East and South Asia region (MESA), including the United Arab Emirates (UAE), have grown sevenfold over the past 10 years. The momentum in both businesses remains strong, with income and profit growth across almost all our markets. We have confidence that this performance will continue, as we focus on our markets, our products, our service, our people, and on delivering good returns from our acquisitions and alliances. Our Markets There are opportunities in nearly all of our markets. To take three examples: India We are the largest international bank, we hold top five positions in many of our market segments, and we are the third most profitable multinational. Our service centre in Chennai is a leader in business processing. Our acquisition of Grindlays in 2000 gave us scale, and we have added to this. We now have 78 branches in 30 cities. In the first half of 2005, our operating profit has exceeded the profits we made for the full year of 2001. We are continuing to invest in growing our footprint to benefit from the scale and potential in India. China In China we have a three-strand growth strategy - organic growth, selective strategic investment, and taking advantage of the many opportunities in the Pearl River Delta, one of the world's fastest growing economic zones. Our Consumer Banking business was launched in 2003 and is already on track to break even this year. In the past six months, we have launched 12 new products, trebled our assets over end 2004, and doubled the number of permanent staff - from less than 200 to almost 400 this June - to meet the demand we see in the market. We now provide Consumer Banking services in Shanghai, Shenzhen, Beijing and Guangzhou - amongst some of the most important and wealthy cities in China. Wholesale Banking has been profitable for the last two years in China. Income is up approximately 50 per cent, year on year. We are now expanding corporate advisory and other Global Markets services. But it is not only the giant economies of India and China that are contributing to our growth. Middle East and South Asia The economies in the Middle East and South Asia region are doing very well, partly due to strong commodities and oil prices. We are very pleased with our performance in MESA. We made a decision to invest in both infrastructure and talent, to strengthen our wealth management business, and to upgrade our project finance and debt capital markets capabilities. These investments are paying off. Our income in the first half this year grew 25 per cent over the same period last year. As countries like the UAE and Qatar look to increase their role in the world, we see further growth opportunities. We also have opportunities in capturing the trade and investment flows between our markets. The pattern of trade flows is changing with rapid growth in intra- Asia and Afro-Asia trade. The Asian regional financial hubs of Hong Kong and Singapore remain core to these opportunities. We have seen a return to growth in Hong Kong, where tight discipline on expenses and risks has delivered record growth in operating profit. Singapore is a very challenging market with a highly competitive environment leading to strong margin compression. We are taking action to reposition our business in Singapore while taking the lead in product innovation to win market share. Our Products Product innovation has become a driver of our organic growth. So far this year, we have launched 200 new product variations across 15 markets in Consumer Banking, ranging from Small and Medium Sized Enterprises (SME) loans in Pakistan to personal loans in South Africa. Time to market is vital and we are shortening this. Our 'M wallet', launched earlier this year in India, is the first mobile phone credit card in the country, and took just 90 days from concept to launch. A fresh approach to traditional products can also help give us competitive advantage in mature markets. Singapore's e-saver is an on-line savings product, and a first of its kind in the market. The product has no minimum balance, no monthly fees, no fixed term, no passbook - but a very competitive interest rate. The overwhelming response from customers has enabled us to reach our 18 month target in just two weeks. This is just one of 15 new products launched in Singapore in the first half. In Wholesale Banking, we have launched over 30 products in over 20 markets including Fund Services, Yield Enhancing FX Solutions and Renewal Energy Financing. An example of a product we invested in a few years ago and is now paying off is B2BeX, our award-winning Internet platform for trade services. It was launched at the end of 2002, when many other institutions were viewing trade banking as in decline. In the first six months of 2005, more than 80,000 purchase orders and 5,000 letters of credit issuances, with a value of about USD750 million, were sent over the platform. Transaction activity is up approximately 50 per cent over the same period a year earlier. In an increasingly commoditised industry, where some products are under margin pressure, you have to keep innovating. These are just three examples. But having the right products in the right markets needs to be matched with the right service levels. Our Service Outserve is our initiative to improve service through the effective measurement and use of customer feedback to drive process improvements. There are over 400 process improvement initiatives completed or in progress this year throughout the Group, in sales, risk, finance, middle office and operations functions. Over 600 staff have already been trained in our process improvement methodology, and 90 per cent of all staff worldwide have completed their introductory Outserve training. One example of how this is adding value is in Thailand, where Consumer Banking has completed an Outserve project with one of our SME loan products. As a result of this project, they have improved their processing time dramatically, increasing fivefold the percentage of loans they can process within the target time. In the first month, loan volumes for the product increased nearly 40 per cent. Outserve is becoming a part of our culture and is already contributing to the bottom line today, but we still have more to do. Our People You can only create innovative products and give the right service, if you have the right people. We spend a huge amount of time on developing people. Any growing company needs a relentless focus on talent management, whether it is recruitment, development, or succession planning. The Group is a very diverse organisation. We are in 56 countries and territories, have 80 nationalities among our staff and 45 nationalities in our senior management team, giving us a multi-lingual, multi-national, multi- cultural mix that is a huge advantage. Having strong general managers, able to move across businesses and across countries, is critical. Last year we made 200 cross border moves around the group at senior manager level, and so far this year we have already moved over 170 people. We not only have a wealth of talent in the company. We are also able to attract strong people from the marketplace, and at all levels. We spend at least a day each quarter on succession planning for the top 100 jobs in the company. The next generation of this Group's top management has been identified, and they are very strong. We have great talent across the organisation - that's what really gives us confidence in our continued performance. Our Investments In the last 12 months, we have supplemented organic growth with selective acquisitions and alliances that extend our customer or geographic reach, or broaden our product range. Let me update you on how three of these - PT Bank Permata Tbk (Bank Permata), Standard Chartered Nakornthon Bank, and Asia Commercial Bank - are performing. Bank Permata As part of a consortium with PT Astra International Tbk, we took a controlling interest in Bank Permata to extend our market penetration in Indonesia. Bank Permata is a key investment because it is a strong consumer bank with over one million customers, more than 300 branches, as well as other distribution channels including mobile, internet and call centres. Bank Permata's first half results for this year are very encouraging - it has contributed $35 million of income and $11 million of operating profit to our Group's results. It is a well-managed bank, and we have now appointed a new Chief Executive who is one of our very senior international bankers with experience in Indonesia. We will be introducing further products and our own management infrastructure to allow us to grow assets and returns. Standard Chartered Nakornthon Bank It has been six years now since we bought a majority stake in Nakornthon Bank in Thailand. In May this year we purchased the 24.97 per cent owned by Thailand's Financial Institutions Development Fund, taking our total ownership to over 99 per cent. We have recently announced our plan to integrate our branch into Standard Chartered Nakornthon Bank. With the integration, we will have a strong competitive advantage as one of only two international banks with a meaningful domestic branch network. It is encouraging to see income growth of over 40 per cent and profits growing over 20 per cent across a range of products already in Thailand. We have ambitious plans for the future. Asia Commercial Bank In June, we purchased a minority stake in Asia Commercial Bank (ACB), one of the two joint stock banks in Vietnam. With a population of over 80 million people, Vietnam is one of the fastest growing economies in Asia, enjoying GDP growth of over seven per cent. It is an attractive consumer market, fast-growing albeit from a small base. ACB gives us a foothold, and a great opportunity to learn and grow with the marketplace. Korea First Bank Our most important strategic step this year has been the acquisition of Korea First Bank (KFB). We have said KFB will be EPS accretive in 2006, and we will deliver on this. Since completing the acquisition ahead of schedule in April 2005, we have made a good start on integration. We are clear on the areas we must address: â€¢ We are aligning both management and governance; â€¢ We are integrating two cultures - and this includes building productive working relationships with our key stakeholders; â€¢ We are expanding the product range at KFB, and moving quickly and effectively to bring new products to the market. Management and governance We have implemented our management model for Consumer and Wholesale Banking, and filled most key roles. We have put in place our assessment processes for performance management, and Korea is now part of our Group-wide monthly performance tracking reviews. The Asset and Liability Committee is reshaping the balance sheet, focusing on integrating policies, and reviewing capital and liquidity structures. The Risk Committee has already finalised the risk governance framework for KFB. This is a good beginning. Culture After extensive consultation with our staff and customers, we have announced our new brand name, and in September (subject to regulatory approvals), KFB will become SC First Bank and we will rebrand our 400 branches. We integrated both communications networks on Day One, and all KFB staff now receive the same communications as all our Standard Chartered staff. We have begun a staff engagement programme around the Group's brand and shared values, with a number of joint events for Standard Chartered and Korea First Bank staff such as celebrating Korea Day around our network, and holding a Family Day in Korea for staff and families. We are clear about the challenges of integration and it will take time to embed our processes and standards and to get the culture right. So far, our engagement of key stakeholders is going well. Our regulatory relationships are in good shape. Our relationship with the union is important to us. I have had the opportunity to meet many staff and many of our key customers, and we are receiving very positive response from both. Products There are gaps in product offerings, and we have moved quickly to address the most immediate of these. In Wholesale Banking, the new dealing room - the largest in Korea - has gone live with our international standard risk controls and processes in place. We have extended new FX limits, we are launching a full suite of Global Markets products by year-end, and we are linking KFB's domestic cash management channels with Standard Chartered's international transaction banking network. In Consumer Banking, we launched KFB's first Personal Loan product on 18 July. It is the first of its kind in Korea to provide immediate approval by mobile phone and has been very well received. We have identified offshore mutual funds, foreign currency deposits, and Bancassurance as immediate opportunities to expand our presence in Wealth Management. And, we are building on KFB's excellent reputation in mortgages with our newest product that combines a mortgage loan with insurance. All of these actions are already having a positive impact on KFB results. We have made a good start, with staff and customers engaged. KFB is a strong bank with great potential. Outlook Standard Chartered is performing well and we are taking advantage of the momentum in our businesses. We are confident in our ability to continue to drive forward performance despite challenges to global business from terrorism, high liquidity affecting margins, oil price uncertainty, and asset bubbles, mainly in real estate, in certain parts of the world. There is cause to remain cautious on the outlook for risk. However, the economic environment in our markets is good. Overall: â€¢ We are well-placed in growing markets; â€¢ The balance of our businesses and products has never been better; and â€¢ Our acquisitions and alliances are doing well. In particular, we are already seeing progress with KFB. We are showing we have the ability to consistently deliver performance across a range of market conditions. We look forward to continuing this in the second half. Mervyn Davies CBE Group Chief Executive 8 August 2005 STANDARD CHARTERED PLC - FINANCIAL REVIEW GROUP SUMMARY The Group has delivered another strong performance in the six months ended 30 June 2005. Operating profit before tax of $1,333 million was up 20 per cent on the equivalent period last year. Normalised earnings per share has grown by 32 per cent to 75.2 cents. (Refer to note 4 on page 46 for the details of basic and diluted earnings per share). On 15 April 2005 the Group acquired 100 per cent of Korea First Bank (KFB). The impact of including the post acquisition results of KFB in 2005 together with significant one-off items in the first half of 2004, make the comparability of the results for the six months to June 2005 with the equivalent period in 2004 complex. The underlying results are analysed in the table below to assist with an understanding of the underlying trends excluding these two components. 6 months ended 30.06.05 6 months ended 30.06.04 6 months ended 31.12.04 *One *One off off Under-lying As items Under-lying As items Under-lying As reported reported reported KFB $m $m $m Acquisitions $m $m $m $m $m $m $m Net interest 214 1,758 1,972 - 1,551 1,551 27 - 1,604 1,631 income Fees and 22 705 727 - 663 663 1 - 668 669 commissions income, net Net trading 12 397 409 - 333 333 2 - 316 318 income Other operating 10 118 128 110 68 178 1 (2) 40 39 income 44 1,220 1,264 110 1,064 1,174 4 (2) 1,024 1,026 258 2,978 3,236 110 2,615 2,725 31 (2) 2,628 2,657 Operating income (146) (1,562) (1,708) (18) (1,392) (1,410) (19) (5) (1,415) (1,439) Operating expenses Operating profit 112 1,416 1,528 92 1,223 1,315 12 (7) 1,213 1,218 before provisions Impairment (28) (166) (194) - (139) (139) (4) - (71) (75) losses on loans and advances Other impairment - (1) (1) (67) (2) (69) - - 1 1 Operating profit 84 1,249 1,333 25 1,082 1,107 8 (7) 1,143 1,144 before taxation * See note 4 on page 46 Operating Income and Profit Underlying profit before tax was $1,249 million, up 15 per cent. Operating income including the acquisition of KFB increased by 19 per cent to $3,236 million compared to the first half of last year. Of this increase, $258m arose from the inclusion of KFB. The underlying income growth, excluding KFB and 2004 one-off items was 14 per cent to $2,978 million. On an underlying basis Consumer Banking and Wholesale Banking continued to deliver double-digit income growth. Business momentum is strong. Net interest income grew by 27 per cent to $1,972 million. Underlying growth was 13 per cent. Interest margins have remained broadly stable at 2.6 per cent with the growth driven by an increase in average earning assets. Fees and commissions increased by 10 per cent from $663 million to $727 million. Underlying growth of six per cent was driven by wealth management, mortgages, trade and corporate advisory services. STANDARD CHARTERED PLC - FINANCIAL REVIEW (continued) GROUP SUMMARY (continued) Net trading income grew by 23 per cent from $333 million to $409 million. Underlying growth was 19 per cent largely driven by customer led foreign exchange dealing. Other operating income at $128 million compares to $178 million for the same period last year. This reduction is primarily due to inclusion of income from the sale of shares in KorAm and Bank of China (Hong Kong) in the first half of 2004. On an underlying basis there has been strong growth driven by asset and liability management. Operating expenses increased from $1,410 million to $1,708 million. Of this increase, $146 million arose from the inclusion of KFB. The underlying expense increase was 12 per cent, which was lower than the underlying income growth. As such the normalised cost income ratio has fallen from 54.0 per cent in the first half of 2004 to 52.6 per cent. The Group's investments in market expansion, new products, distribution outlets and sales capabilities have been paying off in good double-digit income growth. This investment continued in 2005 together with increased expenditure on the Group's technology and operations platforms and support infrastructure. Impairment losses on loans and advances rose by 40 per cent from $139 million to $194 million an increase of $55 million, of which KFB accounted for $28 million. The underlying increase in impairment losses was 19 per cent reflecting mainly asset growth in Consumer Banking and changes in provisioning due to IAS 39. Wholesale Banking continued to benefit from a benign credit environment and strong recoveries. The investments made in Travelex, Asia Commercial Bank Vietnam and the commercial banking business of American Express Limited in Bangladesh have had no impact on the first half results. CONSUMER BANKING Including the acquisition of KFB, Consumer Banking grew operating profit by 24 per cent to $642 million compared to the first half of 2004. Of the $123 million incremental profit, KFB accounted for $52 million. Underlying growth was 14 per cent. Consumer Banking has maintained its strong revenue momentum with income up 29 per cent to $1,723 million. Underlying growth was up 14 per cent to $1,525 million. The accelerated investment in growth opportunities in the second half of 2004 is delivering sustained results. Excluding KFB, assets grew 31 per cent outside Hong Kong and Singapore. Businesses acquired in 2004, including Prime Credit and Bank Permata, contributed to income growth. Bank Permata accounted for $35 million of income and $11 million of profit before tax in the first half of 2005. Over 200 new products and variants were launched in the last six months. Reflecting the rising interest rate environment, the revenue mix has changed with narrower margins in asset products offset by strong growth in fee and interest income in Wealth Management. Excluding KFB, total expense growth to sustain income momentum was 14 per cent, broadly in line with income growth for the period. Efficiencies in support and operational functions have allowed Consumer Banking to invest in new businesses such as Bank Permata and Prime Credit, launch new products and extend distribution in fast growing markets like India, MESA and China. KFB accounted for $117 million, or just over half of the $209 million first half expense growth. Overall, Consumer Banking impairment losses on loans and advances rose to $193 million from $137 million reflecting the impact of asset growth, KFB and IAS 39. On the back of this asset growth, impairment losses on loans and advances grew by 20 per cent to $164 million excluding KFB. The charge in Hong Kong fell by half due to the improving economic environment. Bankruptcy charges in Hong Kong reduced from $40 million in 2004 to $21 million in 2004. Hong Kong delivered an increase in operating profit of nine per cent to $254 million. This was largely driven by a lower impairment charge and tight expense control. Income growth was broadly flat year on year but up four per cent on the second half of 2004 reflecting a good performance in Wealth Management and SME, offset by lower asset margins across the market. Customer assets grew by two per cent. Costs were kept flat as investment for growth was funded from the actions taken to reconfigure the cost base towards the end of 2004. In Singapore, income was slightly down on the first half of 2004, but up on the second half. Singapore is an intensively competitive environment, primarily in Mortgage lending. Income from other products showed good growth driven by better margins and volumes in Wealth Management and SME. Operating profit in Malaysia was up nine per cent to $38 million with strong performance across all products. Income grew by 15 per cent. Continued margin pressure in the Mortgage portfolio was offset by higher volume. Wealth Management income increased significantly, driven by investment product sales. Cards and Loans enjoyed good growth in both volume and income through the introduction of new products. In Other Asia Pacific excluding KFB, operating profit grew 117 per cent to $78 million. Income grew at 69 per cent, expense growth was 49 per cent, underpinned by asset growth of 45 per cent. There was good income and profit growth in Taiwan fuelled by Cards and Loans. Wealth Management, business and personal loans helped contribute to income growth of 49 per cent and 40 per cent respectively in Indonesia and Thailand. Income in China grew by 70 per cent. The Consumer Banking division of KFB earned $52 million of operating profit on an operating income of $198 million. This is a broadly based business with income from Wealth Management showing steady growth, a high quality Mortgage portfolio growing strongly but facing margin pressure and a significant but stable Cards and Loans portfolio. The product range will be expanded by the Group in the remainder of 2005. In India, 15 per cent income growth was achieved through excellent Wealth Management growth offset by significant compression in asset margins. Mortgage lending assets grew 54 per cent. Expenses increased by $16 million to $86 million as a result of continued investment to support rapid business growth coupled with an enhanced risk management and control infrastructure. Operating profit in the UAE increased by $5 million to $35 million with income up by 25 per cent, driven by credit cards and personal loans, SME and Wealth Management. Expenses were higher by $6 million, reflecting continued investment in distribution and technology. Elsewhere MESA operating profit grew by 38 per cent to $44 million with strong performance in Pakistan. In Africa, operating profit nearly doubled to $21 million with income up by 16 per cent to $124 million, largely fuelled by 42 per cent asset growth. This was particularly strong in Botswana, Kenya and Uganda in SME, credit cards and personal loans. Wealth Management revenue also grew strongly as margins improved. The Americas, UK and Group Head Office saw a decrease in operating profit from $10 million to $6 million, largely driven by continued reconfiguration of the Jersey business. STANDARD CHARTERED PLC - FINANCIAL REVIEW (continued) CONSUMER BANKING (continued) The following tables provide an analysis of operating profit by geographic segment for Consumer Banking: 6 months ended 30.06.05 Asia Pacific *Other Hong Asia Kong Singapore Malaysia Pacific India $m $m $m $m $m Income 483 163 101 502 143 Expenses (201) (62) (46) (285) (86) Loan impairment (28) (17) (17) (87) (27) Operating profit 254 84 38 130 30 6 months ended 30.06.05 Other Americas Middle UK & East & Group Consumer Other Head Banking UAE S Asia Africa Office Total $m $m $m $m $m Income 74 103 124 30 1,723 Expenses (31) (53) (100) (24) (888) Loan impairment (8) (6) (3) - (193) Operating profit 35 44 21 6 642 6 months ended 30.06.04 Asia Pacific Other Hong Asia Kong Singapore Malaysia Pacific India $m $m $m $m $m Income 489 168 88 180 124 Expenses (201) (59) (45) (113) (70) Specific (55) (20) (8) (31) (11) General - - - - - Loan impairment (55) (20) (8) (31) (11) Operating Profit 233 89 35 36 43 6 months ended 30.06.04 Other Americas Middle UK & East & Group Consumer Other Head Banking UAE S Asia Africa Office Total $m $m $m $m $m Income 59 81 107 39 1,335 Expenses (25) (44) (93) (29) (679) Specific (4) (5) (3) - (137) General - - - - - Loan impairment (4) (5) (3) - (137) Operating Profit 30 32 11 10 519 6 months ended 31.12.04 Asia Pacific Other Hong Asia Kong Singapore Malaysia Pacific India $m $m $m $m $m Income 465 162 87 220 134 Expenses (215) (58) (41) (124) (83) Specific (33) (20) (10) (38) (18) General 11 6 4 3 2 Loan impairment (22) (14) (6) (35) (16) Operating Profit 228 90 40 61 35 6 months ended 31.12.04 Other Americas Middle UK & East & Group Consumer Other Head Banking UAE S Asia Africa Office Total $m $m $m $m $m Income 65 91 111 30 1,365 Expenses (26) (49) (103) (22) (721) Specific (6) (6) (3) - (134) General 1 1 - 1 29 Loan impairment (5) (5) (3) 1 (105) Operating Profit 34 37 5 9 539 * Includes post acquisition results of KFB (income $198 million, expenses $117 million, loan impairment $29 million and operating profit of $52 million). See page 20. STANDARD CHARTERED PLC - FINANCIAL REVIEW (continued) CONSUMER BANKING (continued) An analysis of Consumer Banking income by product is set out below: 6 months ended 30.06.05 6 months 6 months ended ended Income by product Total KFB Underlying 30.06.04 31.12.04 $m $m $m $m $m Cards and Loans 677 77 600 538 579 Wealth Management / Deposits 634 53 581 425 466 Mortgages and Auto Finance 350 66 284 351 287 Other 62 2 60 21 33 1,723 198 1,525 1,335 1,365 Including KFB, Cards and Loans have delivered a solid performance with 26 per cent growth in income to $677 million in an increasingly competitive environment. Underlying assets have grown by 22 per cent outside of Hong Kong. Loans now contribute nearly half of total underlying Cards and Loans outstandings with a 27 per cent growth in assets. This is a result of continued investment in products and sales channels. Despite a seven per cent decline in Card outstandings Hong Kong has had strong growth in profitability. Overall Wealth Management income has increased by 49 per cent to $634 million driven by strong fee income growth in investment products and improved deposit margins. Innovation in core and structured products has boosted sales in Singapore, India, MESA and China. Fee income in KFB is growing. Total Mortgages and Auto Finance income including KFB is flat at $350 million. Underlying growth was affected by significant margin compression in Hong Kong, Singapore and India, in spite of record new sales. Proactive repricing by the Group has helped to offset margin compression. However, margins are down as much as half on the same period in 2004. STANDARD CHARTERED PLC - FINANCIAL REVIEW (continued) WHOLESALE BANKING Wholesale Banking's performance continued to reflect the successful execution of its strategy, delivering strong client driven growth across multiple geographies, products and customer segments. Including KFB, operating profit was up 23 per cent to $691 million. Underlying growth was 17 per cent to $659 million. This was achieved through targeted development of new businesses such as project finance, local corporates, and by deepening core banking relationships whilst keeping a tight hold on expenses. Total income increased by 18 per cent to $1,513 million. Underlying growth was up 14 per cent to $1,453 million. Client revenues grew at 16 per cent. The strong performance in the first half of 2005 was driven by Global Markets and Cash Management. Expenses in Wholesale Banking increased by 15 per cent to $820 million. Underlying expense growth was 11 per cent. Expense growth was focused on increased investment in corporate finance, local corporates and geographic expansion, with increased spend on credit risk infrastructure and controls together with an increase in performance driven compensation. The loan impairment charge in the first half of 2005 was $1 million, compared to a charge of $2 million in 2004. New provisions were up by 28 per cent and recoveries up by 36 per cent. This reflected continued enhancement of risk management processes, success in recoveries, together with a favourable credit environment. It also includes the successful resolution of the Loan Management Agreement (LMA) in Thailand. STANDARD CHARTERED PLC - FINANCIAL REVIEW (continued) WHOLESALE BANKING (continued) The following tables provide an analysis of operating profit by geographic segment for Wholesale Banking: 6 months ended 30.06.05 Asia Pacific *Other Hong Asia Kong Singapore Malaysia Pacific India $m $m $m $m $m Income 264 98 56 330 159 Expenses (116) (61) (27) (178) (57) Loan impairment (41) (17) 3 64 4 Other impairment (1) - - - 1 Operating profit 106 20 32 216 107 6 months ended 30.06.05 Other Americas Middle UK & East & Group Wholesale Other Head Banking UAE S Asia Africa Office Total $m $m $m $m $m Income 87 124 131 264 1,513 Expenses (32) (42) (95) (212) (820) Loan impairment 1 (2) (27) 14 (1) Other impairment - - - (1) (1) Operating profit 56 80 9 65 691 6 months ended 30.06.04 Asia Pacific Other Hong Asia Kong Singapore Malaysia Pacific India $m $m $m $m $m Income 201 97 51 222 136 Expenses (114) (60) (30) (136) (47) Specific (37) 3 7 17 - General - - - - - Loan impairment (37) 3 7 17 - Other impairment - - - - - Operating profit 50 40 28 103 89 6 months ended 30.06.04 Other Americas Middle UK & East & Group Wholesale Other Head Banking UAE S Asia Africa Office Total $m $m $m $m $m Income 75 95 163 240 1,280 Expenses (26) (37) (75) (188) (713) Specific 4 7 4 (7) (2) General - - - - - Loan impairment 4 7 4 (7) (2) Other impairment - - - (2) (2) Operating profit 53 65 92 43 563 6 months ended 31.12.04 Asia Pacific Other Hong Asia Kong Singapore Malaysia Pacific India $m $m $m $m $m Income 215 86 44 203 95 Expenses (112) (51) (28) (145) (51) Specific (17) (5) 4 5 3 General 6 3 1 4 2 Loan impairment (11) (2) 5 9 5 Other impairment - - - - 2 Operating profit 92 33 21 67 51 6 months ended 31.12.04 Other Americas Middle UK & East & Group Wholesale Other Head Banking UAE S Asia Africa Office Total $m $m $m $m $m Income 72 110 203 266 1,294 Expenses (23) (39) (89) (175) (713) Specific 2 - (10) 22 4 General 2 2 - 6 26 Loan impairment 4 2 (10) 28 30 Other impairment - - - (1) 1 Operating profit 53 73 104 118 612 * Includes post acquisition profits of KFB (income $60 million, expenses $29 million, loan impairment recovery $1million and operating profit of $32 million). See page 20. STANDARD CHARTERED PLC - FINANCIAL REVIEW (continued) WHOLESALE BANKING (continued) In Hong Kong, income grew by 31 per cent from $201 million to $264 million. Growth was driven by Global Markets and Cash Management on the back of strong local corporates volumes and rising interest rates. Expenses were up two per cent at $116 million with investment focused on the local corporates segment. Income in Singapore was flat at $98 million. Strong customer income was offset by a decline in income from asset and liability management. Expenses also remained flat with productivity improvements absorbing investments. In Malaysia, income increased 10 per cent from $51 million to $56 million with good growth in Global Markets products. Expenses were lower by 10 per cent at $27 million. The Other Asia Pacific region delivered strong results with excellent contributions from all countries. Income grew by 49 per cent to $330 million, including $60 million income from KFB. The underlying increase of 22 per cent was broadly spread across geographies, products and segments. Expenses increased by 31 per cent to $178 million, reflecting investment in product capability in the region together with $29 million of KFB expenses. Underlying expense growth was 10 per cent. The Wholesale Banking division of KFB earned $32 million of operating profit on an operating income of $60 million. The current business is focused on trade, clearing services and lending and a limited range of Global Markets products. Integration activities to date have contributed to income through winning an asset backed securities mandate, moving US dollar clearings to the Group, expanding the product range and sales capacity in Global Markets and reshaping of the balance sheet. In India, income grew by 17 percent with strong client income growth partially offset by lower trading income. The increase in expenses of 21 per cent to $57 million is the result of investment in a broader product mix and increased staffing to capture further growth opportunities. In the UAE, income increased by 16 per cent to $87 million, driven largely by corporate finance, cash management and debt capital markets. Elsewhere in the MESA region income grew 31 per cent to $124 million, led by strong growth in the large local corporates and financial institutions segments. The increase in expenses of 14 per cent in the region was due to investment in new products, infrastructure and continued strengthening of risk and governance functions. In Africa, income at $131 million was 20 per cent lower than in 2004. Lower income in key markets together with a marked deterioration in Zimbabwe have contributed to this result. A hyper-inflationary charge of $44 million has been taken in Zimbabwe reflecting the rapid exchange devaluation. This was largely borne by Wholesale Banking. The difficult trading environment was further affected by margin compression in some product areas. Expenses grew by $20 million, mainly due to inflationary pressure and broad based expansion, including South Africa. The Americas, UK and Group Head Office has seen income increase by 10 per cent to $264 million. STANDARD CHARTERED PLC - FINANCIAL REVIEW (continued) WHOLESALE BANKING (continued) An analysis of Wholesale Banking income by product is set out below: 6 months ended 30.06.05 6 months 6 months ended ended Income by product Total KFB Underlying 30.06.04 31.12.04 $m $m $m $m $m Trade and Lending 437 25 412 433 435 Global Markets 757 32 725 618 599 Cash Management and Custody 319 3 316 229 260 1,513 60 1,453 1,280 1,294 Trade and Lending income was broadly flat at $437 million. Trade finance grew on the back of a 21 per cent volume increase, underpinned by strong intra-Asian trade flow, but this was offset by a decline in lending. Global Markets income has grown strongly at 22 per cent. Underlying growth was 17 per cent. Investment in new product capability and expansion in corporate finance, options and fixed income have delivered good returns. Income from asset and liability management was strong. Cash Management and Custody revenue was up by 39 per cent to $319 million. Cash Management grew on the back of rising interest rates coupled with steady volumes and new client acquisitions. STANDARD CHARTERED PLC - FINANCIAL REVIEW (continued) ACQUISITION OF KOREA FIRST BANK On 15 April 2005 the Group acquired 100 per cent of KFB. The post-acquisition profit has been included in the Group results within Other Asia Pacific geographic segment. The following table provides an analysis of KFB's post acquisition results by business segment. Consumer Banking 6 months ended 30.06.05 6 months ended Total KFB Underlying 30.06.04 $m $m $m $m Income 1,723 198 1,525 1,335 Expenses (888) (117) (771) (679) Loan impairment (193) (29) (164) (137) Operating profit 642 52 590 519 KFB Consumer Banking income was broadly based with fee income growth in Wealth Management and Mortgage volume growth. The portfolio quality continues to improve. Wholesale Banking 6 months ended 30.06.05 6 months ended 30.06.04 Total KFB Underlying $m $m $m $m Income 1,513 60 1,453 1,280 Expenses (820) (29) (791) (713) Loan impairment (1) 1 (2) (2) Other impairment (1) - (1) (2) Operating profit 691 32 659 563 KFB Wholesale Banking income is largely based on trade services and a quality lending portfolio, together with an increasing contribution from Global Markets products as the balance sheet is reshaped. Other Asia Pacific - Total 6 months ended 30.06.05 6 months ended 30.06.04 Total KFB Underlying $m $m $m $m Income 832 258 574 402 Expenses (463) (146) (317) (249) Loan impairment (23) (28) 5 (14) Operating profit 346 84 262 139 Operating profit from KFB for the two and half months since taking control on 15 April 2005 was $84 million. Operating income for the period was $258 million, expenses were $146 million and loan impairment was $28 million. STANDARD CHARTERED PLC - FINANCIAL REVIEW (continued) ACQUISITION OF KOREA FIRST BANK (continued) Other Asia Pacific - Total Loans and Advances 6 months ended 30.06.05 6 months ended 30.06.04 Total KFB Underlying $m $m $m $m Mortgages 19,687 18,792 895 714 Other 6,634 3,394 3,240 2,241 Small and medium enterprises 4,932 4,616 316 124 Consumer Banking 31,253 26,802 4,451 3,079 Wholesale Banking 12,608 5,929 6,679 5,085 Portfolio impairment provision (164) (88) (76) - Total loans and advances to customers 43,697 32,643 11,054 8,164 Non-Performing Loans and Advances - Consumer 6 months ended 30.06.05 6 months ended Banking 30.06.04 Total KFB Underlying $m $m $m $m Loans and advances - Gross non-performing 1,252 707 545 583 Individual impairment provision (438) (242) (196) (138) Non-performing loans and advances net of 814 465 349 445 individual impairment provision Portfolio impairment provision (220) (46) (174) - Interest in suspense - - - (63) Net non-performing loans 594 419 175 382 Cover Ratio 53% 41% 68% 34% Non-Performing Loans and Advances - Wholesale 6 months ended 30.06.05 6 months ended Banking 30.06.04 Total KFB Underlying $m $m $m $m Loans and advances - Gross non-performing 1,548 92 1,456 2,917 Individual impairment provision (1,236) (15) (1,221) (1,395) Non-performing loans and advances net of 312 77 235 1,522 individual impairment provision Portfolio impairment provision (127) (42) (85) - Interest in suspense - - - (521) Net non-performing loans 185 35 150 1,001 Cover Ratio 88% 62% 90% 66% STANDARD CHARTERED PLC - FINANCIAL REVIEW (continued) RISK Through its risk management structure the Group seeks to manage efficiently the core risks: credit, market, country and liquidity risk. These arise directly through the Group's commercial activities whilst business, regulatory, operational and reputational risks are normal consequences 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. The basic principles of risk management followed by the Group include: â€¢ ensuring that business activities are controlled on the basis of risk adjusted return; â€¢ managing risk within agreed parameters with risk quantified wherever possible; â€¢ assessing risk at the outset and throughout the time that we continue to be exposed to it; â€¢ abiding by all applicable laws, regulations, and governance standards in every country in which we do business; â€¢ applying high and consistent ethical standards to our relationships with all customers, employees and other stakeholders; and â€¢ undertaking activities in accordance with fundamental control standards. These controls include the disciplines of planning, monitoring, segregation, authorisation and approval, recording, safeguarding, reconciliation and valuation. Risk Management Framework Ultimate responsibility for the effective management of risk rests with the Company's Board of Directors. The Audit and Risk Committee reviews specific risk areas and monitors the activities of the Group Risk Committee and the Group Asset and Liability Committee. All the Executive Directors of Standard Chartered PLC, members of the Standard Chartered Bank Court and the Group Head of Risk and Group Special Asset Management are members of the Group Risk Committee which is chaired by the Group Executive Director responsible for Risk ('GED Risk'). Group standards and policies for risk measurement and management, and also delegating authorities and responsibilities to various sub committees. The committee process ensures that standards and policy are cascaded down through the organisation from the Board through the Group Risk Committee and the Group Asset and Liability Committee to the functional, regional and country level committees. Key information is communicated through the country, regional and functional committees to Group, to provide assurance that standards and policies are being followed. The GED Risk manages an independent risk function which: â€¢ recommends Group standards and policies for risk measurement and management; â€¢ monitors and reports Group risk exposures for country, credit, market and operational risk; â€¢ approves market risk limits and monitors exposure; â€¢ sets country risk limits and monitors exposure; â€¢ chairs the credit committee and delegates credit authorities subject to oversight; â€¢ validates risk models; and â€¢ recommends risk appetite and strategy. Individual Group Executive Directors are accountable for risk management in their businesses and support functions and for countries where they have governance responsibilities. This includes: â€¢ implementing the policies and standards as agreed by the Group Risk Committee across all business activity; â€¢ managing risk in line with appetite levels agreed by the Group Risk Committee; and â€¢ developing and maintaining appropriate risk management infrastructure and systems to facilitate compliance with risk policy. STANDARD CHARTERED PLC - FINANCIAL REVIEW (continued) The GED Risk, together with Group Internal Audit, provides independent assurance that risk is being measured and managed in accordance with the Group's standards and policies. 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 and connected groups of counterparties and portfolios on the banking and trading books. Clear responsibility for credit risk is delegated from the Board to the Group Risk Committee. Standards and policies are determined by the Group Risk Committee which also delegates credit authorities through the GED Risk to independent Risk Officers at Group and at the Wholesale Banking and Consumer Banking business levels. Procedures for managing credit risk are determined at the business levels with specific policies and procedures being adapted to different risk environment and business goals. The Risk Officers are located in the businesses to maximise the efficiency of decision-making, but have an independent reporting line into the GED Risk. Within the Wholesale Banking business, credit analysis includes a review of facility detail, credit grade determination and financial spreading/ratio analysis. The Group uses a numerical grading system for quantifying the risk associated with a counterparty. The grading is based on a probability of default measure with customers analysed against a range of quantitative and qualitative measures. There is a clear segregation of duties with loan applications being prepared separately from the approval chain. Significant exposures are reviewed and approved centrally through a Group or Regional level Credit Committee. This Committee receives its authority and delegated responsibilities from the Group Risk Committee. The businesses, working with the Risk Officers, take responsibility for managing pricing for risk, portfolio diversification and overall asset quality within the requirements of Group standards, policies, and business strategy. For Consumer Banking, standard credit application forms are generally used which are processed in central units using manual or automated approval processes as appropriate to the customer, the product or the market. As with Wholesale Banking, origination and approval roles are segregated. Loan Portfolio Loans and advances to customers have increased by 69 per cent during the year to $108 billion. Of this increase, KFB accounts for $33 billion. In Consumer Banking growth has resulted from increases in the mortgage book, mainly in Singapore, Malaysia and India. In Wholesale Banking growth was across all regions. Approximately 59 per cent (30 June 2004: 51 per cent; 31 December 2004: 49 per cent) of the portfolio relates to Consumer Banking, predominantly retail mortgages. Other Consumer Banking covers credit cards, personal loans and other secured lending. Approximately 48 per cent of the Group's loans and advances are short term in nature and have a maturity of one year or less. The Wholesale Banking portfolio is predominantly short term, with 74 per cent of loans and advances having a maturity of one year or less. In Consumer Banking, 64 per cent of the portfolio is in the mortgage book, traditionally longer term in nature. STANDARD CHARTERED PLC - FINANCIAL REVIEW (continued) Loan Portfolio (continued) The following tables set out by maturity the amount of customer loans net of provisions: 30.06.05 One One to Over year five five or less years years Total $m $m $m $m Consumer Banking Mortgages 5,016 10,432 25,555 41,003 Other 6,262 5,079 1,838 13,179 SME 7,114 415 1,941 9,470 Total 18,392 15,926 29,334 63,652 Wholesale Banking 32,898 8,011 3,715 44,624 Portfolio impairment provision (347) Loans and advances to customers 51,290 23,937 33,049 107,929 30.06.04 One One to Over year five five or less years years Total $m $m $m $m Consumer Banking Mortgages 1,937 4,256 14,379 20,572 Other 4,440 3,347 360 8,147 SME 1,342 333 2,188 3,863 Total 7,719 7,936 16,927 32,582 Wholesale Banking 25,547 4,211 1,789 31,547 General provision (386) Loans and advances to customers 33,266 12,147 18,716 63,743 31.12.04 One One to Over year five five or less years years Total $m $m $m $m Consumer Banking Mortgages 1,865 4,156 15,985 22,006 Other 4,779 3,880 403 9,062 SME 1,940 440 2,050 4,430 Total 8,584 8,476 18,438 35,498 Wholesale Banking 27,670 5,227 4,099 36,996 General provision (335) Loans and advances to customers 36,254 13,703 22,537 72,159 STANDARD CHARTERED PLC - FINANCIAL REVIEW (continued) Loan Portfolio (continued) The following tables set out an analysis of the Group's loans and advances net of impairment as at 30 June 2005, 30 June 2004 and 31 December 2004 by the principal category of borrowers, business or industry and/or geographical distribution: 30.06.05 Asia Pacific *Other Hong Asia Kong Singapore Malaysia Pacific India $m $m $m $m $m Loans to individuals Mortgages 12,599 4,416 2,559 19,687 1,390 Other 1,967 1,087 538 6,634 1,269 Small and medium 761 1,618 705 4,932 281 enterprises Consumer Banking 15,327 7,121 3,802 31,253 2,940 Agriculture, forestry and - 19 54 78 15 fishing Construction 64 240 10 92 99 Commerce 1,765 948 189 1,152 270 Electricity, gas and 507 21 90 309 108 water Financing, insurance and 1,450 909 628 3,447 605 business services Loans to governments - 1,520 1,270 279 - Mining and quarrying - 31 30 231 9 Manufacturing 1,531 288 273 4,398 837 Commercial real estate 1,181 629 1 1,590 9 Transport, storage 296 299 75 480 220 and communication Other 18 68 52 552 59 Wholesale Banking 6,812 4,972 2,672 12,608 2,231 Portfolio impairment (37) (29) (23) (164) (33) provision Total loans and 22,102 12,064 6,451 43,697 5,138 advances to customers Total loans and advances 3,667 2,956 474 4,400 195 to banks 30.06.05 Other Americas Middle UK & East & Group Other Head UAE S Asia Africa Office Total $m $m $m $m $m Loans to individuals Mortgages - 81 85 186 41,003 Other 872 183 413 216 13,179 Small and medium 24 1,057 92 - 9,470 enterprises Consumer Banking 896 1,321 590 402 63,652 Agriculture, forestry and 1 19 146 283 615 fishing Construction 98 104 47 31 785 Commerce 924 449 339 894 6,930 Electricity, gas and - 185 31 636 1,887 water Financing, insurance and 1,185 370 170 1,956 10,720 business services Loans to governments - 72 - 506 3,647 Mining and quarrying 30 103 106 729 1,269 Manufacturing 308 1,119 423 2,220 11,397 Commercial real estate - 1 33 1 3,445 Transport, storage 51 298 127 1,051 2,897 and communication Other 51 150 12 70 1,032 Wholesale Banking 2,648 2,870 1,434 8,377 44,624 Portfolio impairment (12) (17) (10) (22) (347) provision Total loans and 3,532 4,174 2,014 8,757 107,929 advances to customers Total loans and advances 432 734 199 7,898 20,955 to banks * Other Asia Pacific includes the following amounts relating to KFB: Mortgages, $18,792 million, other, $3,394 million, small and medium enterprises, $4,616 million, total Consumer Banking, $26,802 million, total Wholesale Banking, $5,929 million, total loans and advances to customers, $32,731 million, and total loans and advances to banks, $1,147 million. Under 'Loans to individuals - Other', $1,165 million (30 June 2004: $1,250 million; 31 December 2004: $1,270 million) relates to the cards portfolio in Hong Kong. The total cards portfolio is $4,362 million (30 June 2004: $3,289 million; 31 December 2004: $3,586 million). The Wholesale Banking portfolio is well diversified across both geography and industry, with no concentration in exposure to sub-industry classification levels in manufacturing, financing, insurance and business services, commerce and transport, storage and communication. STANDARD CHARTERED PLC - FINANCIAL REVIEW (continued) Loan Portfolio (continued) 30.06.04 Asia Pacific Other Hong Asia Kong Singapore Malaysia Pacific India $m $m $m $m $m Loans to individuals Mortgages 12,342 4,086 2,126 714 903 Other 1,983 1,152 390 2,241 1,082 Small and medium 663 1,359 465 124 156 enterprises Consumer Banking 14,988 6,597 2,981 3,079 2,141 Agriculture, forestry - 33 54 62 22 and fishing Construction 56 29 19 63 63 Commerce 1,327 790 154 791 160 Electricity, gas and 421 53 23 227 111 water Financing, insurance and 1,656 876 375 718 335 business services Loans to governments - 1,045 1,155 53 - Mining and quarrying - 1 66 40 - Manufacturing 1,504 587 258 2,537 902 Commercial real estate 457 680 176 344 - Transport, storage and 385 223 230 126 99 communication Other 48 86 137 124 30 Wholesale Banking 5,854 4,403 2,647 5,085 1,722 General Provision Total loans and advances 20,842 11,000 5,628 8,164 3,863 to customers Total loans and advances 4,608 799 47 4,140 128 to banks 30.06.04 Other Americas Middle UK & East & Group Other Head UAE S Asia Africa Office Total $m $m $m $m $m Loans to individuals Mortgages - 78 40 283 20,572 Other 718 176 298 107 8,147 Small and medium 2 1,017 77 - 3,863 enterprises Consumer Banking 720 1,271 415 390 32,582 Agriculture, forestry and - 40 143 325 679 fishing Construction 91 100 21 5 447 Commerce 710 384 343 737 5,396 Electricity, gas and 1 117 166 98 1,217 water Financing, insurance and 720 292 41 1,032 6,045 business services Loans to governments - 13 11 232 2,509 Mining and quarrying 98 79 40 345 669 Manufacturing 204 1,119 391 1,646 9,148 Commercial real estate - 1 11 18 1,687 Transport, storage and 33 248 139 1,539 3,022 communication Other 36 184 19 64 728 Wholesale Banking 1,893 2,577 1,325 6,041 31,547 General Provision (386) (386) Total loans and advances 2,613 3,848 1,740 6,045 63,743 to customers Total loans and advances 458 718 155 6,334 17,387 to banks STANDARD CHARTERED PLC - FINANCIAL REVIEW (continued) Loan Portfolio (continued) 31.12.04 Asia Pacific Other Hong Asia Kong Singapore Malaysia Pacific India $m $m $m $m $m Loans to individuals Mortgages 12,189 5,064 2,422 737 1,194 Other 2,097 651 488 3,103 1,201 Small and medium 731 1,622 578 200 230 enterprises Consumer Banking 15,017 7,337 3,488 4,040 2,625 Agriculture, forestry - 26 55 56 15 and fishing Construction 154 27 6 34 105 Commerce 1,560 804 136 895 262 Electricity, gas and 387 40 71 271 104 water Financing, insurance and 1,914 1,608 554 762 497 business services Loans to governments - 306 1,551 - - Mining and quarrying - 65 63 122 1 Manufacturing 1,343 423 269 2,512 814 Commercial real estate 984 721 2 388 - Transport, storage and 366 280 128 321 226 communication Other 19 128 51 354 43 Wholesale Banking 6,727 4,428 2,886 5,715 2,067 General Provision Total loans and advances 21,744 11,765 6,374 9,755 4,692 to customers Total loans and advances 2,852 2,072 349 3,351 171 to banks 31.12.04 Other Americas Middle UK & East & Group Other Head UAE S Asia Africa Office Total $m $m $m $m $m Loans to individuals Mortgages - 75 63 262 22,006 Other 819 170 431 102 9,062 Small and medium 13 980 76 - 4,430 enterprises Consumer Banking 832 1,225 570 364 35,498 Agriculture, forestry and - 19 171 314 656 fishing Construction 103 136 46 4 615 Commerce 824 378 353 1,113 6,325 Electricity, gas and - 119 102 300 1,394 water Financing, insurance and 951 411 47 2,268 9,012 business services Loans to governments - 16 7 225 2,105 Mining and quarrying 92 57 95 1,032 1,527 Manufacturing 236 1,031 404 2,294 9,326 Commercial real estate - - 29 2 2,126 Transport, storage and 56 243 165 1,177 2,962 communication Other 38 205 24 86 948 Wholesale Banking 2,300 2,615 1,443 8,815 36,996 General Provision (335) (335) Total loans and advances 3,132 3,840 2,013 8,844 72,159 to customers Total loans and advances 237 655 374 7,321 17,382 to banks STANDARD CHARTERED PLC - FINANCIAL REVIEW (continued) Problem Credits The Group employs a variety of tools to monitor the loan portfolio and to ensure the timely recognition of problem credits. In Wholesale Banking, accounts or portfolios are placed on Early Alert when they display signs of weakness. Such accounts and portfolios are subject to a dedicated process involving senior risk officers and representatives from the 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. Until 31 December 2004, a general provision was held to cover the inherent risk of losses, which, although not identified, were known by experience to be present in a loan portfolio and to other material uncertainties where specific provisioning is not appropriate. It was not held to cover losses arising from future events. At 31 December 2004, the balance of general provision stood at $335 million, 0.5 per cent of Loans and Advances to Customers. With the adoption of IAS 39 from 1 January 2005, the Group holds a portfolio impairment provision. Consumer Banking Provisions are raised on a formulaic basis depending on the product. For secured lending provisions are generally raised at 150 days past due for mortgages and 90 days past due for other secured products on the difference between the outstanding amount of the loan and the present value of the estimated cash flows. For unsecured products loans are charged off at 150 days past due. A portfolio impairment provision is held to cover the inherent risk of losses, which, although not identified, are known by experience to be present in the loan portfolio. The provision is set with reference to past experience using flow rate methodology as well as taking account of judgemental factors such as the economic environment in our core markets, and a range of portfolio indicators. At 30 June 2005 the portfolio impairment provision was $220 million, 0.3 per cent of the Consumer Bank portfolio. This includes $46 million relating to KFB. The relatively low Consumer Banking cover ratio reflects the fact that for a number of products the underlying loan is secured. STANDARD CHARTERED PLC - FINANCIAL REVIEW (continued) The following tables set out the non-performing portfolio in Consumer Banking: 30.06.05 Asia Pacific *Other Hong Asia Kong Singapore Malaysia Pacific India $m $m $m $m $m Loans and advances Gross 69 124 162 771 42 non-performing Individual impairment (28) (29) (61) (267) (12) provision Non-performing loans net of 41 95 101 504 30 individual impairment provision Portfolio impairment provision Net non-performing loans and advances Cover ratio 30.06.05 Other Americas Middle UK & East & Group Other Head UAE S Asia Africa Office Total $m $m $m $m $m Loans and advances Gross 13 24 16 31 1,252 non-performing Individual impairment (11) (18) (7) (5) (438) provision Non-performing loans net of 2 6 9 26 814 individual impairment provision Portfolio impairment provision (220) Net non-performing loans and 594 advances Cover ratio 53% * Other Asia Pacific includes net non performing loans and advances net of individual impairment provision relating to KFB of $465 million (see page 21). 30.06.04 Asia Pacific Other Hong Asia Kong Singapore Malaysia Pacific India $m $m $m $m $m Loans and advances Gross 101 125 170 61 42 non-performing Impairment provision (38) (19) (26) (15) (10) Interest in suspense (1) (3) (22) (8) (9) Net non-performing loans and 62 103 122 38 23 advances Cover ratio 30.06.04 Other Americas Middle UK & East & Group Other Head UAE S Asia Africa Office Total $m $m $m $m $m Loans and advances Gross 13 24 20 27 583 non-performing Impairment provision (11) (8) (6) (5) (138) Interest in suspense (2) (8) (8) (2) (63) Net non-performing loans and - 8 6 20 382 advances Cover ratio 34% 31.12.04 Asia Pacific Other Hong Asia Kong Singapore Malaysia Pacific India $m $m $m $m $m Loans and advances Gross 72 146 181 94 42 non-performing Impairment provision (32) (24) (28) (47) (12) Interest in suspense (1) (4) (24) (7) (8) Net non-performing loans and 39 118 129 40 22 advances Cover ratio 31.12.04 Other Americas Middle UK & East & Group Other Head UAE S Asia Africa Office Total $m $m $m $m $m Loans and advances Gross 14 28 24 46 647 non-performing Impairment provision (11) (11) (9) (5) (179) Interest in suspense (2) (13) (8) (7) (74) Net non-performing loans and 1 4 7 34 394 advances Cover ratio 39% STANDARD CHARTERED PLC - FINANCIAL REVIEW (continued) Wholesale Banking Loans are designated as impaired as soon as payment of interest or principal is 90 days or more overdue or where sufficient weakness is recognised and full payment of either interest or principal becomes questionable. Where customer accounts are recognised as impaired, management control is passed to a specialist unit which is independent of the main businesses of the Group. Where the principal, or a portion thereof, is considered uncollectible 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. The provision is measured as the difference between the loan carrying amount and the present value of estimated future cash flows. 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. A portfolio impairment provision is held to cover the inherent risk of losses, which, although not identified, are known by experience to be present in any loan portfolio. The provision is not held to cover losses arising from future events. In the Wholesale Bank, the provision is set with reference to past experience using expected loss and judgement factors such as the economic environment and key portfolio indicators. At 30 June 2005 the portfolio impairment provision was $127 million, 0.3 per cent of the Wholesale Banking portfolio of which KFB is $42 million. STANDARD CHARTERED PLC - FINANCIAL REVIEW (continued) The following tables set out the total non-performing portfolio in Wholesale Banking. 30.06.05 Asia Pacific *Other Hong Asia Kong Singapore Malaysia Pacific India $m $m $m $m $m Loans and advances Gross 356 135 50 258 79 non-performing Individual Impairment (300) (116) (47) (163) (69) provision Non-performing loans and 56 19 3 95 10 advances net of individual impairment provision Portfolio impairment provision Net non-performing loans and advances 30.06.05 Other Americas Middle UK & East & Group Other Head UAE S Asia Africa Office Total $m $m $m $m $m Loans and advances Gross 39 57 85 489 1,548 non-performing Individual Impairment (27) (57) (50) (407) (1,236) provision Non-performing loans and 12 - 35 82 312 advances net of individual impairment provision Portfolio impairment (127) provision Net non-performing loans and 185 advances * Other Asia Pacific includes net non-performing loans and advances net of individual impairment provision relating to KFB of $77 million (see page 21). 30.06.04 Asia Pacific Other Hong Asia Kong Singapore Malaysia Pacific India $m $m $m $m $m Loans and advances Gross 404 183 170 957 69 non-performing Impairment provision (247) (86) (98) (333) (24) Interest in suspense (92) (53) (46) (55) (28) Net non-performing loans and 65 44 26 569 17 advances 30.06.04 Other Americas Middle UK & East & Group Other Head UAE S Asia Africa Office Total $m $m $m $m $m Loans and advances Gross 52 166 90 826 2,917 non-performing Impairment provision (35) (83) (40) (449) (1,395) Interest in suspense (13) (62) (40) (132) (521) Net non-performing loans and 4 21 10 245 1,001 advances 31.12.04 Asia Pacific Other Hong Asia Kong Singapore Malaysia Pacific India $m $m $m $m $m Loans and advances Gross 409 185 117 558 68 non-performing Impairment provision (257) (89) (68) (256) (29) Interest in suspense (92) (56) (35) (54) (26) Net non-performing loans and 60 40 14 248 13 advances 31.12.04 Other Americas Middle UK & East & Group Other Head UAE S Asia Africa Office Total $m $m $m $m $m Loans and advances Gross 49 126 104 674 2,290 non-performing Impairment provision (31) (69) (46) (435) (1,280) Interest in suspense (13) (55) (42) (127) (500) Net non-performing loans and 5 2 16 112 510 advances STANDARD CHARTERED PLC - FINANCIAL REVIEW (continued) Wholesale Banking Cover Ratio The following tables show the Wholesale Banking cover ratio. At 88 per cent, the Wholesale Banking non-performing portfolio is well covered. The balance uncovered by impairment provision represents the value of collateral held and/or the Group's estimate of the net value of any work-out strategy. In the comparative period, the non-performing loans recorded below under Standard Chartered Nakornthon Bank (SCNB) are excluded from the cover ratio calculation as they are the subject of a Loan Management Agreement (LMA) with a Thai Government Agency. Claims under the LMA were settled in the first half of 2005 and accordingly, the balances reported under SCNB have reduced to nil in the June 2005 table below. 30.06.05 Total SCNB excl Total (LMA) LMA $m $m $m Loans and advances - Gross non-performing 1,548 - 1,548 Impairment provision (1,363) - (1,363) Net non-performing loans and advances 185 - 185 Cover ratio 88% The June 2005 cover ratio of 88 per cent above includes KFB. Excluding KFB, the June 2005 cover ratio is 90 per cent. The cover ratios as at June 2004 and December 2004 shown below were calculated on a UK GAAP basis which includes interest in suspense as part of the cover. 30.06.04 Total SCNB excl Total (LMA) LMA $m $m $m Loans and advances - Gross non-performing 2,917 711 2,206 Impairment provision (1,395) (108) (1,287) Interest in suspense (521) - (521) Net non-performing loans and advances 1,001 603 398 Cover ratio 82% 31.12.04 Total SCNB excl Total (LMA) LMA $m $m $m Loans and advances - Gross non-performing 2,290 351 1,939 Impairment provision (1,280) (115) (1,165) Interest in suspense (500) - (500) Net non-performing loans and advances 510 236 274 Cover ratio 86% STANDARD CHARTERED PLC - FINANCIAL REVIEW (continued) Group The following tables set out the movements in the Group's total individual specific impairment provisions against loans and advances. 6 months ended 30.06.05 Asia Pacific *Other Hong Asia Kong Singapore Malaysia Pacific India $m $m $m $m $m Provisions held at 1 January 289 113 96 303 41 2005 Adjusted for adoption of 5 6 31 17 2 IAS 39 Restated provision held at 1 294 119 127 320 43 January 2005 Exchange translation 2 (4) - (10) - differences Amounts written off (48) (9) (36) (151) (30) Recoveries of amounts 17 3 5 16 11 previously written off Acquisitions - - - 258 37 Discount unwind (3) (2) (2) (11) - Other - - 4 (4) - New provisions 92 56 26 103 57 Recoveries/provisions no (26) (18) (16) (91) (37) longer required Net charge against/(credit 66 38 10 12 20 to) profit Provisions held at 30 June 328 145 108 430 81 2005 6 months ended 30.06.05 Other Americas Middle UK & East & Group Other Head UAE S Asia Africa Office Total $m $m $m $m $m Provisions held at 1 January 42 80 55 440 1,459 2005 Adjusted for adoption of 1 2 9 17 90 IAS 39 Restated provision held at 1 43 82 64 457 1,549 January 2005 Exchange translation - (2) (4) (6) (24) differences Amounts written off (15) (12) (21) (30) (352) Recoveries of amounts 4 2 2 5 65 previously written off Acquisitions - - - - 295 Discount unwind - 1 (3) (3) (23) Other - - - - - New provisions 10 15 28 2 389 Recoveries/provisions no (4) (11) (9) (13) (225) longer required Net charge against/(credit 6 4 19 (11) 164 to) profit Provisions held at 30 June 38 75 57 412 1,674 2005 *Other Asia Pacific provisions at 30 June 2005 includes $257 million relating to KFB. 6 months ended 30.06.04 Asia Pacific Other Hong Asia Kong Singapore Malaysia Pacific India $m $m $m $m $m Provisions held at 1 January 268 123 144 390 55 2004 Exchange translation (1) (1) - (4) - differences Amounts written off (87) (37) (25) (58) (39) Recoveries of amounts 13 3 4 6 12 previously written off Other - - - - (5) New provisions 128 26 14 46 54 Recoveries/provisions no (36) (9) (13) (32) (43) longer required Net charge against/(credit 92 17 1 14 11 to) profit Provisions held at 30 June 285 105 124 348 34 2004 6 months ended 30.06.04 Other Americas Middle UK & East & Group Other Head UAE S Asia Africa Office Total $m $m $m $m $m Provisions held at 1 January 51 107 58 465 1,661 2004 Exchange translation - (1) - 2 (5) differences Amounts written off (5) (12) (12) (13) (288) Recoveries of amounts 3 2 1 - 44 previously written off Other (3) (3) - (7) (18) New provisions 6 10 9 11 304 Recoveries/provisions no (6) (12) (10) (4) (165) longer required Net charge against/(credit - (2) (1) 7 139 to) profit Provisions held at 30 June 46 91 46 454 1,533 2004 STANDARD CHARTERED PLC - FINANCIAL REVIEW (continued) Group (continued) 6 months ended 31.12.04 Asia Pacific Other Hong Asia Kong Singapore Malaysia Pacific India $m $m $m $m $m Provisions held at 1 July 2004 285 105 124 348 34 Exchange translation 1 4 - 6 2 differences Acquisitions - - - 36 - Amounts written off (67) (25) (38) (84) (26) Recoveries of amounts 16 4 6 6 12 previously written off Other 4 - (2) (6) 4 New provision 79 34 22 49 52 Recoveries/provisions no longer (29) (9) (16) (16) (37) required Net charge against/(credit to) 50 25 6 33 15 profit Provisions held at 31 December 289 113 96 339 41 2004 6 months ended 31.12.04 Other Americas Middle UK & East & Group Other Head UAE S Asia Africa Office Total $m $m $m $m $m Provisions held at 1 July 2004 46 91 46 454 1,533 Exchange translation (3) - 2 6 18 differences Acquisitions - - - - 36 Amounts written off (8) (17) (9) (45) (319) Recoveries of amounts - 2 3 2 51 previously written off Other 3 (2) - 9 10 New provision 9 18 18 24 305 Recoveries/provisions no longer (5) (12) (5) (46) (175) required Net charge against/(credit to) 4 6 13 (22) 130 profit Provisions held at 31 December 42 80 55 404 1,459 2004 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. This covers the risk that: â€¢ the sovereign borrower of a country may be unable or unwilling to fulfil its foreign currency or cross-border contractual obligations; and/or â€¢ a non-sovereign counterparty may be unable to fulfil its contractual obligations as a result of currency shortage due to adverse economic conditions or actions taken by the government of the country. The Group Risk Committee approves country risk policy and procedures and delegates the setting and management of country limits to the Group Head, Credit and Country Risk. The business and country Chief Executive Officers manage exposures within these set limits and policies. Countries designated as higher risk are subject to increased central monitoring. 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 assets is recorded. Cross border assets also include exposures to local residents denominated in currencies other than the local currency. STANDARD CHARTERED PLC - FINANCIAL REVIEW (continued) Country Risk (continued) The following table, based on the Bank of England Cross Border Reporting (CE) guidelines, shows the Group's cross border assets including acceptances where they exceed one per cent of the Group's total assets. 30.06.05 30.06.04 Public Public sector Banks Other Total sector Banks Other Total $m $m $m $m $m $m $m $m USA 1,676 830 2,637 5,143 1,558 891 2,170 4,619 Korea 15 1,644 2,228 3,887 19 1,534 632 2,185 Hong Kong 2 218 2,731 2,951 38 150 2,537 2,725 France 164 2,032 194 2,390 4 1,331 182 1,517 Singapore 1 173 2,075 2,249 1 853 937 1,791 India 49 885 1,252 2,186 37 1,146 917 2,100 China 41 903 1,233 2,177 62 652 692 1,406 Netherlands* - - - - - 2,091 308 2,399 Germany* - - - - - 1,372 300 1,672 31.12.04 Public sector Banks Other Total $m $m $m $m USA 824 745 2,660 4,229 Hong Kong 4 199 2,719 2,922 Netherlands - 2,639 406 3,045 Korea 47 1,258 698 2,003 India 74 1,132 867 2,073 Singapore - 325 1,939 2,264 France 149 1,243 183 1,575 China 101 686 902 1,689 * Less than one per cent of total assets at 30 June 2005 STANDARD CHARTERED PLC - FINANCIAL REVIEW (continued) Market Risk The Group recognises market risk as the exposure created by potential changes in market prices and rates. The Group is exposed to market risk arising principally from customer driven transactions. Market Risk is governed by the Group Risk Committee, which agrees policies and levels of risk appetite in terms of Value at Risk (VaR). The Group Market Risk Committee provides market risk oversight and guidance on policy setting. Policies cover the trading book of the Group and also market risks within the banking book. Trading and Banking books are defined as per the Financial Services Authority (FSA) Handbook IPRU (Bank). Limits by location and portfolio are proposed by the businesses within the terms of agreed policy. Group Market Risk approves the limits within delegated authorities and monitors exposures against these limits. Group Market Risk complements the VaR measurement by regularly stress testing market risk exposures to highlight potential risk that may arise from extreme market events that are rare but plausible. In addition, VaR models are back tested against actual results to ensure pre-determined levels of accuracy are maintained. Additional limits are placed on specific instruments and currency concentrations where appropriate. Sensitivity measures are used in addition to VaR as risk management tools. Option risks are controlled through revaluation limits on currency and volatility shifts, limits on volatility risk by currency pair and other underlying variables that determine the options' value. Value at Risk The Group uses historic simulation to measure VaR on all market risk related activities. The total VaR for trading and banking books combined at 30 June 2005 was $12.9 million (30 June 2004: $13.6 million; 31 December 2004: $15.4 million). Interest rate related VaR was $14.0 million (30 June 2004: $13.5 million; 31 December 2004: $15.6 million) and foreign exchange related VaR was $1.4 million (30 June 2004: $2.5 million; 31 December 2004: $3.0 million). The total VaR recognises offsets between interest rate and foreign exchange risks. The average total VaR for trading and banking books during the six months to 30 June 2005 was $14.3 million (30 June 2004: $15.1 million; 31 December 2004: $15.8 million) with a maximum exposure of $20.6 million. VaR for interest rate risk in the banking books of the Group totalled $10.8 million at 30 June 2005 (30 June 2004: $13.2 million; 31 December 2004: $16.7 million). The Group has no significant trading exposure to equity or commodity price risk. The average daily revenue earned from market risk related activities was $4.5 million, compared with $3.8 million during 2004. Foreign Exchange Exposure The Group's foreign exchange exposures comprise trading and banking foreign currency translation exposures. Foreign exchange trading exposures are principally derived from customer driven transactions. The average daily revenue from foreign exchange trading businesses during the six months ended 30 June 2005 was $2.1 million. Interest Rate Exposure The Group's interest rate exposures comprise trading exposures and banking interest rate exposures. Structural interest rate risk arises from the differing re-pricing characteristics of commercial banking assets and liabilities. STANDARD CHARTERED PLC - FINANCIAL REVIEW (continued) The average daily revenue from interest rate trading businesses during the six months ended 30 June 2005 was $2.4 million. Derivatives Derivatives are contracts whose characteristics and value derive from underlying financial instruments, interest and exchange rates or indices. They include futures, forwards, swaps and options transactions in the foreign exchange, credit and interest rate markets. Derivatives are an important risk management tool for banks and their customers because they can be used to manage the risk of price, interest rate and exchange rate movements. The Group's derivative transactions are principally in instruments where the mark-to-market values are readily determinable by reference to independent prices and valuation quotes or by using standard industry pricing models. The Group enters into derivative contracts in the normal course of business to meet customer requirements and to manage its own exposure to fluctuations in interest, credit and exchange rates. Derivatives are carried at fair value and shown in the balance sheet as separate totals of assets and liabilities. Recognition of fair value gains and losses depends on whether the derivatives are classified as trading or for hedging purposes. The Group applies a future exposure methodology to manage counterparty credit exposure associated with derivative transactions. Hedging In accounting terms, hedges are classified into three typical types: Fair value hedges, where fixed rates of interest or foreign exchange are exchanged for floating rates; cash flow hedges, where variable rates of interest or foreign exchange are exchanged for fixed rates, and; hedges of net investments in overseas operations translated to the parent company's functional currency, US dollars. The Group uses futures, forwards, swaps and options transactions in the foreign exchange and interest rate markets to hedge risk. The Group occasionally hedges the value of its foreign currency denominated investments in subsidiaries and branches. Hedges may be taken where there is a risk of a significant exchange rate movement but, in general, management believes that the Group's reserves are sufficient to absorb any foreseeable adverse currency depreciation. The Group seeks to match assets denominated in foreign currencies with corresponding liabilities in the same currencies. The effect of exchange rate movements on the capital risk asset ratio is mitigated by the fact that both the value of these investments and the risk weighted value of assets and contingent liabilities follow substantially the same exchange rate movements. Liquidity Risk The Group defines liquidity risk as the risk that the bank either does not have sufficient financial resources available to meet all its obligations and commitments as they fall due, or can access them only at excessive cost. STANDARD CHARTERED PLC - FINANCIAL REVIEW (continued) It is the policy of the Group to maintain adequate liquidity at all times, in all geographical locations and for all currencies. Hence the Group is in a position to meet all obligations, to repay depositors, to fulfil commitments to lend and to meet any other commitments made. Liquidity risk management is governed by the Group Asset and Liability Committee (GALCO). This Committee, chaired by the Group Executive Director Finance and with authority derived from the Board, is responsible for both statutory and prudential liquidity. These responsibilities are managed through the provision of authorities, policies and procedures that are co-ordinated by the Liquidity Management Committee (LMC) with regional and country Asset and Liability Committees (ALCO). Due to the diversified nature of the Group's business, the Group's policy is that liquidity is more effectively managed locally, in-country. Each Country ALCO is responsible for ensuring that the country is self-sufficient and is able to meet all its obligations to make payments as they fall due. The Country ALCO has primary responsibility for compliance with regulations and Group policy and maintaining a Country Liquidity Crisis Contingency Plan. A substantial portion of the Group's assets are funded by customer deposits made up of current and savings accounts and other deposits. These customer deposits, which are widely diversified by type and maturity, represent a stable source of funds. Lending is normally funded by liabilities in the same currency. The Group also maintains significant levels of marketable securities either for compliance with local statutory requirements or as prudential investments of surplus funds. The GALCO oversees the structural foreign exchange and interest rate exposures that arise within the Group. Policies and terms of reference are set within which Group Corporate Treasury manage these exposures on a day-to-day basis. Policies and guidelines for the setting and maintenance of capital ratio levels are also delegated by GALCO. Group ratios are monitored centrally by Group Corporate Treasury, while local requirements are monitored by the local ALCO. Operational Risk Operational risk is the risk of direct or indirect loss due to an event or action resulting from the failure of technology, processes, infrastructure, personnel and other risks having an operational impact. The Group seeks to ensure that key operational risks are managed in a timely and effective manner through a framework of policies, procedures and tools to identify, assess, monitor, control, and report such risks. The Group Operational Risk Committee (GORC) has been established to supervise and direct the management of operational risks across the Group. GORC is also responsible for ensuring adequate and appropriate policies and procedures are in place for the identification, assessment, monitoring, control and reporting of operational risks. An independent Group operational risk function is responsible for establishing and maintaining the overall operational risk framework, and for monitoring the Group's key operational risk exposures. This unit is supported by Wholesale Banking and Consumer Banking Operational Risk units. They are responsible for ensuring compliance with policies and procedures in the business, monitoring key operational risk exposures, and the provision of guidance to the respective business areas on operational risk. Compliance with operational risk policies and procedures is the responsibility of all managers. Every country operates a Country Operational Risk Group (CORG). The CORG has in-country governance responsibility for ensuring that an appropriate and robust risk management framework is in place to monitor and manage operational risk. STANDARD CHARTERED PLC - FINANCIAL REVIEW (continued) Business Risk Business risk is the risk of failing to achieve business targets due to inappropriate strategies, inadequate resources or changes in the economic or competitive environment and is managed through the Group's management processes. Regular reviews of the performance of Group businesses by the Group Management Committee, comprising Group Executive Directors and other senior management are used to assess business risks and agree management action. The reviews include corporate financial performance measures, capital usage, resource utilisation and risk statistics to provide a broad understanding of the current business position. Compliance and Regulatory Risk Compliance and Regulatory risk includes the risk of non-compliance with regulatory requirements in a country in which the Group operates. The Group Compliance and Regulatory Risk function is responsible for establishing and maintaining an appropriate framework of Group compliance policies and procedures. Compliance with such policies and procedures is the responsibility of all managers. Legal Risk Legal risk is the risk of unexpected loss, including reputational loss, arising from defective transactions or contracts, claims being made or some other event resulting in a liability or other loss for the Group, failure to protect the title to and ability to control the rights to assets of the Group (including intellectual property rights), changes in the law, or jurisdictional risk. The Group manages legal risk through the Group Legal Risk Committee, Legal risk policies and procedures and effective use of its internal and external lawyers. Reputational Risk Reputational risk is defined as the risk that any action taken by the Group or its employees creates a negative perception in the external market place. This includes the Group's and/or its customers' impact on the environment. The Group Risk Committee examines issues that are considered to have reputational repercussions for the Group and issues guidelines or policies as appropriate. It also delegates responsibilities for the management of legal/regulatory and reputational risk to the business through business risk committees. In Wholesale Banking, potential reputational risks resulting from transactions or policies and procedures are reviewed and actioned through the Wholesale Banking Reputational Risk Committee. Consumer Banking's Product and Reputational Risk Committee provides similar assurance. Independent Monitoring Group Internal Audit is an independent Group function that reports directly to the Group Chief Executive and the Audit and Risk Committee. Group Internal Audit provides independent confirmation that Group and business standards, policies and procedures are being complied with. Where necessary, corrective action is recommended. STANDARD CHARTERED PLC - FINANCIAL REVIEW (continued) CAPITAL The Group Asset and Liability Committee targets Tier 1 and Total capital ratios of 7 - 9 per cent and 12 - 14 per cent respectively. 30.06.05 *30.06.04 *31.12.04 $m $m $m $m Tier 1 capital: Called up ordinary share capital and preference shares 5,964 3,778 3,818 Eligible reserves 5,466 4,244 4,617 Minority interests 84 93 111 Innovative Tier 1 securities 1,458 1,142 1,246 Less: Restriction on innovative Tier 1 securities (125) (42) (68) Goodwill and other intangible assets (4,233) (1,895) (1,900) Unconsolidated associated companies 180 9 30 Other regulatory adjustments 95 81 110 Total Tier 1 capital 8,889 7,410 7,964 Tier 2 capital: Eligible revaluation reserves 94 - - Portfolio impairment provision (2004: general provision) 347 386 335 Qualifying subordinated liabilities: Perpetual subordinated debt 2,618 1,572 1,961 Other eligible subordinated debt 4,027 3,209 3,525 Less: Amortisation of qualifying subordinated liabilities (237) - - Restricted innovative Tier 1 securities 125 42 68 Total Tier 2 capital 6,974 5,209 5,889 Investments in other banks (24) (20) (33) Other deductions (86) (4) (34) Total capital base 15,753 12,595 13,786 Banking book: Risk weighted assets 95,856 59,999 69,438 Risk weighted contingents 16,576 13,525 14,847 112,432 73,524 84,285 Trading book: Market risks 6,091 4,576 4,608 Counterparty/settlement risk 3,008 2,877 3,231 Total risk weighted assets and contingents 121,531 80,977 92,124 Capital ratios Tier 1 capital 7.3% 9.2% 8.6% Total capital 13.0% 15.6% 15.0% * As previously reported under UK GAAP STANDARD CHARTERED PLC - FINANCIAL STATEMENTS CONSOLIDATED INCOME STATEMENT For the six months ended 30 June 2005 Notes Excluding KFB 6 months 6 months 6 months KFB acquisition ended ended ended 30.06.05 30.06.04 31.12.04 $m $m $m $m $m Interest income 3,183 495 3,678 2,568 2,744 Interest expense (1,425) (281) (1,706) (1,017) (1,113) Net interest income 1,758 214 1,972 1,551 1,631 Fees and commissions income 818 50 868 793 821 Fees and commissions expense (113) (28) (141) (130) (152) Net trading income 397 12 409 333 318 Other operating income 118 10 128 178 39 1,220 44 1,264 1,174 1,026 Operating income 2,978 258 3,236 2,725 2,657 Staff costs (910) (80) (990) (793) (766) Premises costs (169) (12) (181) (158) (163) Other administrative expenses (380) (37) (417) (336) (395) Depreciation and amortisation (103) (17) (120) (123) (115) Operating expenses (1,562) (146) (1,708) (1,410) (1,439) Operating profit before provisions and 1,416 112 1,528 1,315 1,218 taxation Impairment losses on loans and advances (166) (28) (194) (139) (75) and other credit risk provisions Other impairment (1) - (1) (69) 1 Profit before taxation 1,249 84 1,333 1,107 1,144 Taxation 2 (342) (25) (367) (331) (299) Profit for the period 907 59 966 776 845 Loss/(profit) attributable to minority 1 4 5 (20) (23) interest Profit attributable to parent company's 908 63 971 756 822 shareholders Dividends on equity preference shares (15) (29) (29) Profits attributable to ordinary 956 727 793 shareholders Dividends on ordinary equity shares 3 (519) (429) (201) Retained profit attributed to ordinary 437 298 592 shareholders Basic earnings per ordinary share 4 74.7c 62.1c 67.5c Diluted earnings per ordinary share 4 73.2c 61.1c 66.3c STANDARD CHARTERED PLC - FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEET As at 30 June 2005 30.06.05 30.06.04 31.12.04 $m $m $m Assets Cash and balances at central banks 5,667 3,447 3,960 Treasury bills and other eligible bills 13,011 5,978 4,425 Loans and advances to banks 20,955 17,387 17,382 Derivative financial instruments 10,704 - - Loans and advances to customers 107,929 63,743 72,159 Debt securities 30,877 28,900 32,842 Equity shares 945 179 253 Intangible assets 4,233 2,154 2,353 Property, plant and equipment 1,614 525 555 Deferred tax assets 320 251 272 Other assets 5,763 8,817 11,597 Prepayments and accrued income 1,909 1,267 1,280 Total assets 203,927 132,648 147,078 Liabilities Deposits by banks 21,653 16,999 15,814 Derivative financial instruments 10,388 - - Customer accounts 108,770 78,219 85,458 Debt securities in issue 27,955 9,985 11,627 Current tax liabilities 275 258 295 Other liabilities 11,222 11,259 15,542 Accruals and deferred income 1,854 1,006 1,321 Provisions for liabilities and charges 81 50 61 Retirement benefit liabilities 397 87 123 Other borrowed funds 8,838 5,923 6,768 Total liabilities 191,433 123,786 137,009 Equity Share capital 5,614 3,762 3,802 Reserves and retained earnings 5,569 4,470 5,303 Total shareholders' equity 11,183 8,232 9,105 Minority interests 1,311 630 964 Total equity 12,494 8,862 10,069 Total equity and liabilities 203,927 132,648 147,078 STANDARD CHARTERED PLC - FINANCIAL STATEMENTS CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSES For the six months ended 30 June 2005 6 months 6 months 6 months ended ended ended 30.06.05 30.06.04 31.12.04 $m $m $m Profit for the period 966 776 845 Exchange differences on translation of foreign operations (71) (66) 162 Actuarial (losses)/gains on retirement benefits (36) 15 (20) Available for sale investments: Valuation gains taken to equity 12 - - Transferred to income on disposal (74) - - Cash flow hedges: Losses taken to equity (28) - - Transferred to income for the period (19) - - Deferred tax on items taken directly to reserves 37 (5) 6 Other (37) 24 (5) Total recognised income and expenses for the period 750 744 988 Attributable to: Shareholders 755 724 965 Minority interests (5) 20 23 750 744 988 STANDARD CHARTERED PLC - FINANCIAL STATEMENTS CONSOLIDATED CASH FLOW STATEMENT For the six months ended 30 June 2005 6 months 6 months 6 months ended ended ended 30.06.05 30.06.04 31.12.04 $m $m $m Cash flow from operating activities Profit before taxation 1,333 1,107 1,144 Adjustment for items not involving cash flow or shown separately Depreciation and amortisation of premises, plant and equipment 60 123 115 Gain on disposal of property plant and equipment (1) (5) 1 Gain on disposal of investment securities (74) (159) (5) Amortisation of investments 63 18 (59) Loss on disposal of subsidiary undertakings - (4) 4 Loan impairment losses 194 139 75 Other impairment 62 69 (1) Debts written off, net of recoveries (287) (74) (430) Increase/(decrease) in accruals and deferred income 577 (178) 258 (Decrease)/increase in prepayments and accrued income (918) (197) 33 Net increase/(decrease) in mark to market adjustment 341 473 (732) Interest paid on subordinated loan capital 177 253 85 UK and overseas taxes paid (278) (271) (302) Net (decrease)/increase in cheques in the course of collection (505) (83) 38 Net (decrease)/increase in treasury bills and other eligible bills (170) 52 (130) Net decrease in loans and advances to banks and customers (3,944) (6,927) (5,072) Net increase in deposits from banks, customer accounts/debt securities in 8,633 12,103 2,901 issue Net decrease in dealing securities (361) (286) (1,832) Net (decrease)/increase in other accounts (1,824) 105 3,010 Net cash from/(used in) operating activities 3,078 6,258 (899) Net cash flows from investing activities Purchase of property plant and equipment (37) (95) (145) Acquisition of subsidiaries, net of cash acquired (989) - (333) Acquisition of treasury bills (7,542) (6,346) (2,842) Acquisition of debt securities (16,315) (33,931) (41,422) Acquisition of equity shares (77) (42) (79) Disposal of subsidiaries, associated undertakings and branches - 6 - Disposal of property plant and equipment - 53 (2) Disposal and maturity of treasury bills 5,625 5,363 5,415 Disposal and maturity of debt securities 19,444 31,788 39,694 Disposal of equity shares 71 352 4 Net cash from/(used in) investing activities 180 (2,852) 290 Net cash (outflow)/inflow from financing activities Issue of ordinary share capital 1,975 4 13 Purchase of own shares, net of exercise, for share option awards (41) (127) 32 Interest paid on subordinated loan capital (177) (253) (85) Gross proceeds from issue of subordinated loan capital 3,362 4 495 Repayment of subordinated liabilities (731) (21) (4) Dividends and payments to minority interests and preference shareholders (195) (32) (43) Dividends paid to ordinary shareholders (474) (396) (191) Net cash from/(used in) financing activities 3,719 (821) 217 Net increase/(decrease) in cash and cash equivalents 6,977 2,585 (392) Cash and cash equivalents at beginning of period 24,023 21,773 24,319 Effect of exchange rate changed on cash and cash equivalents (371) (39) 96 Cash and cash equivalents at end of period (note 5 on page 47) 30,629 24,319 24,023 This information is provided by RNS The company news service from the London Stock Exchange MORE TO FOLLOW IR IIFVITDITIIE

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Reckitt Benckiser shares jump notably on a US legal ruling in favour of a subsidiary company, Boohoo appoints a new CEO – likely to the chagrin of Frasers Group – and Aston Martin gives back some of its recent gains.

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