Interim Results

Standard Chartered PLC 08 August 2006 8 August 2006 TO CITY EDITORS FOR IMMEDIATE RELEASE STANDARD CHARTERED PLC RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2006 HIGHLIGHTS Reported Results â€¢ Operating income up 27 per cent to $4,112 million from $3,236 million in H1 2005 (H2 2005: $3,625 million) â€¢ Operating profit before tax up 15 per cent to $1,527 million, compared with $1,333 million in H1 2005 (H2 2005: $1,348 million) â€¢ Profit attributable to ordinary shareholders up 14 per cent to $1,088 million, compared to $956 million in H1 2005 (H2 2005: $961 million) â€¢ Total assets up 16 per cent to $238 billion from $205 billion at H1 2005 (H2 2005: $215 billion) Results excluding Korea* â€¢ Operating income up 15 per cent to $3,378 million from $2,927 million (H2 2005: $2,977 million) â€¢ Operating profit before tax up 6 per cent to $1,293 million, compared with $1,225 million in H1 2005 (H2 2005: $1,192 million) â€¢ Expenses up 15 per cent to $1,765 million from $1,541 million (H2 2005: $1,638 million) â€¢ Normalised cost income ratio of 52.2 per cent (H1 2005: 52.6 per cent, H2 2005: 54.8 per cent) Performance Metrics** â€¢ Normalised earnings per share up 12 per cent at 84.1 cents (H1 2005: 75.2 cents, H2 2005: 78.7 cents) â€¢ Normalised return on ordinary shareholders' equity of 17.9 per cent (H1 2005: 18.3 per cent, H2 2005: 18.1 per cent) â€¢ Interim dividend per share increased 10 per cent to 20.83 cents â€¢ Normalised cost income ratio of 53.6 per cent (H1 2005: 52.6 per cent, H2 2005: 57.3 per cent) â€¢ Total capital ratio at 14.2 per cent (H1 2005: 12.9 per cent, H2 2005: 13.6 per cent) Significant achievements â€¢ Record operating profit before tax up 15% despite losses in Taiwan â€¢ Double-digit operating income growth in both Wholesale Banking and Consumer Banking â€¢ Operating profit before tax in Korea up 50% on H2 2005 â€¢ Standard and Poors long term credit rating for Standard Chartered raised to A+ Commenting on these results, the Chairman of Standard Chartered PLC, Bryan Sanderson, said: 'This is another strong performance and reflects the successful implementation of our strategy. Our broader geographic spread and product portfolio have increased our resilience to individual market events. We are confident in our ability to continue to deliver good returns to our shareholders.' * Results excluding Korea are shown because H1 2006 includes a full six months of Standard Chartered First Bank Korea Limited (SCFB) compared to only two and a half months in H1 2005. ** Results on a normalised basis reflect the results of Standard Chartered PLC and its subsidiaries (the Group) excluding items presented in note 4 on page 37. Standard Chartered PLC - Stock Code: 2888 Page Summary of Results 3 Chairman's Statement 4, 5 Group Chief Executive's Review 6 - 9 Financial Review Group Summary 10 Consumer Banking 11 -13 Wholesale Banking 13 -15 Risk 16 - 30 Capital 31 Financial Statements Condensed Consolidated Interim Income Statement 32 Condensed Consolidated Interim Balance Sheet 33 Condensed Consolidated Interim Statement of Recognised Income and Expenses 34 Condensed Consolidated Interim Cash Flow Statement 35 Notes 36 - 39 Additional Information 40 Unless another currency is specified, the word 'dollar' or symbol '$' in this document means United States dollar and the word 'cent' or symbol 'c' means one-hundredth of one United States dollar. Within this document, the Hong Kong Special Administrative Region of the People's Republic of China is referred to as 'Hong Kong'; 'Middle East and Other South Asia' (MESA) includes: United Arab Emirates (UAE), Bahrain, Jordan, Pakistan and Bangladesh; and 'Other Asia Pacific' includes: China, Indonesia, Thailand, Taiwan and the Philippines. 6 months 6 months 6 months ended ended ended 30.06.06 30.06.05 31.12.05 $million $million $million RESULTS Operating income 4,112 3,236 3,625 Impairment losses on loans and advances (349) (194) (125) Operating profit before taxation 1,527 1,333 1,348 Profit attributable to parent company's shareholders 1,103 971 975 Profit attributable to ordinary shareholders* 1,088 956 961 BALANCE SHEET Total assets 238,148 204,643 215,096 Total equity 13,850 12,534 12,333 Capital base 19,164 15,720 17,118 INFORMATION PER ORDINARY SHARE Cents Cents Cents Earnings per share - normalised basis** 84.1 75.2 78.7 - basic 82.8 74.7 74.0 Dividend per share 20.83 18.94 45.06 Net asset value per share 983.5 841.0 889.4 RATIOS % % % Return on ordinary shareholders' equity - normalised basis** 17.9 18.3 18.1 Cost income ratio - normalised basis** 53.6 52.6 57.3 Capital ratios: Tier 1 capital 8.4 7.3 7.7 Total capital 14.2 12.9 13.6 * Profit attributable to ordinary shareholders is after the deduction of dividends payable to the holders of the non-cumulative redeemable preference shares (see note 3 on page 37). ** Results on a normalised basis reflect the results of the Group excluding items presented in note 4 on page 37. 2006 first-half results I am pleased to report another strong first half performance for Standard Chartered: â€¢ Income is up 27 per cent to over $4.1 billion â€¢ Operating profit before tax is up 15 per cent to $1.5 billion â€¢ Good earnings per share (EPS) growth with normalised EPS up 12 per cent at 84.1 cents per share The Board has declared an interim dividend per share of 20.83 cents, up 10 percent. This is another strong performance from Standard Chartered and reflects the successful implementation of our strategy. Our broader geographic spread and product portfolio have increased our resilience to individual market events. This approach is helping us deliver shareholder value and consistent performance. Economic growth We have been operating in a strong global economy and in recent years the economies across our regions have experienced strong growth, rising trade, robust domestic demand and low inflation. However, at this stage of the economic cycle it is natural to expect increased volatility and uncertainty in financial markets, as growth rates appear to peak, interest rates rise and inflation increases. Uncertainty has been compounded by the pace of oil price rises, the imbalances in the world economy and by the fact that, in recent years, some financial markets have not priced sufficiently for risk. Recent months have seen heightened risk aversion, with emerging markets most affected, and a more testing time lies ahead as liquidity conditions around the world tighten. However these factors need to be put in context. Economic growth rates across Asia, Africa and the Middle East are expected to continue to exceed growth rates within OECD economies. Overall, across the markets in which Standard Chartered operates, the economic and policy climate has improved tremendously. Compared with a decade ago, inflation across emerging markets has fallen from around 66 per cent on average to 8 per cent. Then, less than 15 per cent of emerging market economies would have been regarded as investment grade; now that figure is just over 40 per cent. Across Asia, current account positions have improved and, in addition, Asian countries now hold two-thirds of global currency reserves. In the Middle East, liquidity is ample. In 2005 this region had a trade surplus of $211 billion, even higher than Asia's huge surplus of $174 billion. Africa has benefited from high commodity prices and has seen improved macro-economic policy-making, helped by debt relief. Economic trends Emerging markets in general are in a far better position to cope than previously. Both the resilience of these markets and their ability to benefit from some of the underlying trends in the global economy give us confidence. Many of the changes we have made as a bank position us well to maximise the opportunities and minimise the risks presented by these economic developments. The breadth of our markets and the diversity of our earnings give us confidence that we remain well placed to deliver consistent results against this backdrop. An infrastructure boom is underway across Asia, Africa and the Middle East, as economies there diversify and also seek to grow domestic demand. Asia looks set to add three-quarters of a billion jobs over the next decade as the region witnesses an emerging debt-free middle class and China and India emerge as powerful economies. Financial markets are set to deepen, broaden and grow, hand in hand with economic growth across Asia, economic diversification across the Middle East and economic emergence within Africa. We also expect further currency shifts as the Gulf introduces a single currency at the end of this decade and as more economies across Asia seek to manage their currencies against their trade baskets. New trade corridors continue to emerge. We are already witnessing increased flows of commodities, goods, services, finance and capital, people and remittances. Intra-Asian trade is rising sharply, reflecting the growth of China, the emergence of regional companies and multinational firms shifting their investment towards Asia. Supply chains across Asia have become interlinked, resulting in better specialisation and more efficient resource allocation, promoting regional integration and growth. Inter-regional trade has risen sharply. Sino-African trade has risen from $6.5 billion in 1999 to $40 billion in 2005. New trade corridors are a clear indication of shifting economic, social and political ties. Many economies in Asia and other emerging regions should now be viewed as drivers of future global growth. Governance In environments as dynamic as those in which we operate, governance is more important than ever. Our Board has been further strengthened by the appointment of a new, independent Non-Executive Director. Lord Turner has rich experience in business and public life, including banking, consulting and his leadership of the Confederation of British Industry in the 1990s. Most recently he is known for his work as the Chairman of the UK's Independent Pensions Commission. We are delighted to welcome him to our Board. In addition, at the end of this year, Rudy Markham takes on additional Board responsibilities, bringing his great experience and insight to his role as our new Senior Independent Director. Summary Standard Chartered continues to make excellent progress and is in good financial shape, a message endorsed by the recent upgrade to our credit ratings. It is well positioned to maximise the opportunities and minimise the risks presented by recent economic developments. The Group has appropriate governance in place. The breadth of our markets and the diversity of our earnings give us confidence in our ability to continue to deliver good returns to our shareholders. Bryan Sanderson CBE Chairman 8 August 2006 Performance Through the disciplined execution of our strategy and the hard work of our teams around the world, we have delivered another set of strong results: â€¢ We are driving strong organic growth, supported by balance between and within our businesses, and by our geographic diversity. â€¢ SC First Bank in Korea is performing well. â€¢ We are maintaining our discipline in managing expenses and risk. â€¢ We are continuing to invest for the future. Since the first half of 2001 normalised earnings per share have grown by 16 per cent (compound annual growth rate) and income has grown by 14 per cent. Our track record is clear and we are proud of the performance culture we have built across the Group. Delivering on management agenda At the beginning of the year we stated the priorities for 2006: â€¢ Accelerate growth in both businesses, focusing on priority markets - Deepen client relationships in Wholesale Banking - Enter new customer segments in Consumer Banking â€¢ Drive growth and performance in Korea â€¢ Excel in service and innovation â€¢ Lead by Example in corporate responsibility In each of these areas we are making good progress. Wholesale Banking In Wholesale Banking, growth is coming from deepening of client relationships, as a broader product array and more effective cross-selling lead to increased client income. The transformation of Wholesale Banking continues. These results demonstrate that our network gives us a clear competitive advantage. Our ability to originate and deliver complex cross border transactions is also driving income growth. As a result, we are becoming a leader in many geographies with a range of innovative products, services and transactions. We are currently in the top two for All Asian currencies fixed income transactions and the top three for Asia-Pacific syndicated loans. Our project finance business, started in 2003, is now in the top two across Asia (ex-Japan, Australia). We launched our India mergers and acquisitions (M&A) advisory group just under three years ago, and it is now the leader in cross border M&A in that market. In July, in Malaysia, we concluded the first ever Islamic Banking cross-currency swap transaction in the country. We now offer a 'round the clock', 24 hour trade processing service in several markets - an example of our innovation in more traditional banking services. Consumer Banking In Consumer Banking, we have achieved widespread, double-digit growth across an increasingly broad footprint. Our increased focus on segments such as Small and Medium Enterprises (SME) and Wealth Management is delivering good results, with SME customer assets up 15 per cent and Wealth Management income up 46 per cent. Consumer Banking's priorities continue to be product innovation, service excellence and investment for the future. In product innovation, we have led the market with HIBOR-based mortgages in Hong Kong this year. Other product launches across our network include Express Trade for SME clients in six markets and the launch of the Manhattan credit card in its fifth major market. We are continuing to focus on customer service. For example, in the United Arab Emirates, the Bank now offers a guaranteed one-day turnaround time for delivery of a new Manhattan or Gold Credit card, and we are now the leading issuer in UAE. We continue to invest for the future - in new products, more branches and ATMs, in our infrastructure and in the skills of our people. Korea In Korea we said we would drive growth and performance. Korea had a good first half and we continue to achieve growth with a stream of successful product launches. In Consumer Banking we provided products and account services for over 500,000 new customers. In Wholesale Banking overall, income has grown by 28 per cent over consecutive half years and we continue to see strong growth in client income. Service and innovation We remain determined to excel in service and innovation. Our Outserve programme has achieved a great deal, and we are now building on our established approach and studying leading businesses in other industries to find new ways to improve our performance. The operations team plays a significant part in our Outserve journey - for example, we now offer service guarantees on a range of banking services in a number of markets, which is creating competitive advantage. Across the Group we continue to focus on business efficiency and expense management. We are creating the room to invest and we are making significant progress in improving the infrastructure of the Bank. The upgrading of our core banking platforms and consolidation of our data centres continues. All of these elements ultimately add to the efficiency of our business and the quality of our service. Leading by Example Finally on the 2006 agenda, we continue to take steps to Lead by Example in corporate responsibility, not just by funding long-term programmes such as Seeing Is Believing and Living with HIV, but also by ensuring that we build a sustainable business and take a long term view of the consequences of our actions. Delivering a sustainable business means attracting high quality staff, offering the right products and services, contributing to a sustainable environment and ensuring that we have the trust of customers, shareholders, employees and other interested groups. We seek to support sustainable economic development through social inclusion, environmental protection and good governance. In a world in which companies' actions are increasingly under scrutiny, these elements are becoming more interlinked. We are making good progress with our priorities and the management agenda will continue to drive our growth in the second half of 2006. Investing for growth The last few years have seen focused and accelerated investment, in key markets and on targeted products, which is now paying off and generating excellent returns. We are continuing to invest in distribution, infrastructure, product innovation and people. Organic income growth in the first half of 2006 was strong and produced approximately two thirds of the Group's increase in income. We now have 16 markets producing first-half income in excess of $50 million. The Bank is increasingly well balanced. Our spread of geographies and business activities helps us to weather storms and ensure our continued performance; for example, the unsecured loan impairment charge in Taiwan has been offset by strong growth in many of our other markets. Our growth story can be highlighted by three major geographies. India In India, in the first half of 2006 our income grew by 26 per cent and operating profit by over 50 per cent over the same period a year before. We have opened 16 of our new consumer finance centres in major Indian cities so far this year. This gives us a network of 81 branches, 185 ATMs, and 21 consumer finance centres. We now have over 14,000 employees in India, in the businesses and the Group's shared service centre in Chennai. In Wholesale Banking in India, our client income in the first half of 2006 was more than the total client income for all of 2004. We have increased the number of locations where we offer services to local corporates from 16 to 33 and almost doubled the number of relationship managers. The opportunities presented by India's young population and its dynamic business environment are huge. India is an emerging economic giant, we have a major presence in the market and it plays a key part in our future growth plans. Africa Africa is benefiting from high commodity and energy prices. It is a diverse continent, including several economies forecast to grow at six per cent or more - including Nigeria, Tanzania, Ghana, Zambia and Botswana. In parts of our Africa franchise we have significant market shares, and in others we are building our presence - for example in Nigeria, where we are seeing very strong momentum. We are uniquely positioned as the only international bank with a strong presence in both Asia and Africa and we are benefiting from emerging Africa-Asia trade corridors, particularly involving China. MESA The MESA region continues to grow well, with income up 25 per cent, and we have seen particularly strong income growth in the first half from Pakistan and the UAE. We are the largest international bank in growing markets such as Bahrain, Jordan, Pakistan and Bangladesh, and the region is an area of key management, investment and strategic focus for us. Standard Chartered is a leading bank in Abu Dhabi and Dubai, where the potential is huge. The new Dubai International Financial Centre (DIFC) will be a world-class regional capital markets centre and provide a gateway for flows into and from the region. Standard Chartered was the first commercial bank to be licensed when DIFC opened in September 2004. We have a new building in the DIFC Gate Precinct and will locate 500 staff there later this year. Alliances and acquisitions Alliances and acquisitions actively support our growth story, often through niche and infill acquisitions. A recent example is the announcement in June of our agreement to purchase a 25 per cent stake in First Africa, a leading pan-African corporate finance advisory business, which will bring new opportunities for Wholesale Banking. Where we see that shareholder value can be created, either through better market penetration, major synergies or extended product reach, we will make major acquisitions such as Korea First Bank. Our first-half results for Korea demonstrate our ability to make investments generate good returns. Investing in the Brand Our brand recognition continues to grow, not only in established markets such as Hong Kong but also in our newer markets like Korea. This year we have strengthened the brand further by investing in a new campaign that reflects the Bank's values and our customers' aspirations. Diversity An important feature of the Bank is its diversity, not just of products and geographies but of people. We now have 27 nationalities in our top management population of 400, up from 22 nationalities in 2005 and we have 22 nationalities represented in our current graduate intake. As the world becomes one market, leading businesses will increasingly distinguish themselves through their international understanding and their talented workforces. We are, and will continue to be, one of those businesses, strengthening our management teams to ensure we have the right people in place to create, and then capitalise on, opportunities. Outlook The Group has made strong progress in the first half of 2006. The outlook is positive, and we expect continued good income momentum. We will maintain our focus on expense management and expense growth should be broadly in line with income growth for the full year. We will continue to take a balanced approach to risk, whilst recognising the changes in the external environment. In summary We are confident that we can continue to build on our track record of strong performance. Standard Chartered is well positioned in dynamic markets, making good strategic progress and investing for future growth. We are optimistic about the future. E Mervyn Davies CBE Group Chief Executive 8 August 2006 GROUP SUMMARY The Group has delivered another set of strong results in the six months ended 30 June 2006. Operating income increased 27 per cent, or $876 million, to $4,112 million and operating profit before tax of $1,527 million was up 15 per cent over the same period in 2005. Normalised earnings per share increased by 12 per cent to 84.1 cents. (Refer to note 4 on page 37). The Group has owned SCFB since 15 April 2005. On 28 November 2005 the assets and businesses of the Standard Chartered Bank branch in Korea were transferred to SCFB. The impact of the post acquisition results of SCFB in the 2005 results, together with the transfer of the branch, affect the comparability of the results for the six months to 30 June 2006 with the equivalent period in 2005. The 2005 results for 'Korea' reflect a full six months of the Standard Chartered Bank branch together with the post acquisition results of SCFB. To facilitate effective comparison, the table below and most of the subsequent discussion, segments the results of the Korea business from the results of the rest of the Group. 6 months ended 30.06.06 Korea Ex Korea As reported $million $million $million Net interest income 548 1,962 2,510 Fees and commissions income, net 68 826 894 Net trading income 51 480 531 Other operating income 67 110 177 186 1,416 1,602 Operating income 734 3,378 4,112 Operating expenses (460) (1,765) (2,225) Operating profit 274 1,613 1,887 before impairment losses Impairment losses on (40) (309) (349) loans and advances Other impairment - (8) (8) Loss from associate - (3) (3) Operating profit before taxation 234 1,293 1,527 6 months ended 30.06.05* 6 months ended 31.12.05* Korea Ex Korea As reported Korea Ex Korea As reported $million $million $million $million $million $million Net interest income 235 1,737 1,972 590 1,773 2,363 Fees and commissions 29 698 727 16 752 768 income, net Net trading income 34 375 409 29 331 360 Other operating income 11 117 128 13 121 134 74 1,190 1,264 58 1,204 1,262 Operating income 309 2,927 3,236 648 2,977 3,625 Operating expenses (167) (1,541) (1,708) (465) (1,638) (2,103) Operating profit 142 1,386 1,528 183 1,339 1,522 before impairment losses Impairment losses on (34) (160) (194) (27) (98) (125) loans and advances Other impairment - (1) (1) - (49) (49) Loss from associate - - - - - - Operating profit before 108 1,225 1,333 156 1,192 1,348 taxation * Restated. See note 6 on pages 38 and 39. Operating Income and Profit Excluding Korea Operating income grew 15 per cent, or $451 million, to $3,378 million over the equivalent prior year period, Consumer Banking and Wholesale Banking each delivering double-digit income growth. The growth in the first half reflected the effects of prior year investment with good growth being achieved across an increasingly broad range of geographies, products and customer segments. Net interest income grew $225 million, or 13 per cent, to $1,962 million. Net interest margin was 2.5 per cent, down from 2.6 per cent in the first half of last year reflecting continued pressure on asset margins, particularly mortgages. Fees and commissions increased by $128 million, or 18 per cent, to $826 million. This increase was driven mainly by higher volumes in wealth management, cash management and global markets products across most markets. Net trading income grew by $105 million, or 28 per cent, to $480 million driven in part due to higher volumes of foreign exchange dealing in Wholesale Banking. Other operating income decreased $7 million, or six per cent, to $110 million. Operating expenses grew $224 million, or 15 per cent, to $1,765 million, with the normalised cost income ratio falling to 52.2 per cent compared to 52.6 per cent in the first half last year. Expense growth was broadly in line with income growth with technology production and operations expenses held flat. This allowed both Consumer Banking and Wholesale Banking businesses to continue to invest in new products, infrastructure and sales capability to support double-digit operating income growth. Operating profit before impairment increased $227 million, or 16 per cent, to $1,613 million. Impairment losses on loans and advances increased by $149 million, or 93 per cent, to $309 million. This was primarily due to the increase in the impairment charge for the Consumer Banking unsecured portfolio in Taiwan. Wholesale Banking continued to benefit from a benign credit environment in most markets. Operating profit before taxation grew $68 million, or six per cent, to $1,293 million. Korea Operating Income and Profit The results for Korea for the first half of 2005 only include SCFB for less than half of that period. It is therefore more useful to compare the current period's results for Korea against the second half of 2005. Operating income grew by $86 million, or 13 per cent, to $734 million driven by strong income growth in both the Consumer and Wholesale businesses. Operating expenses decreased slightly by one per cent to $460 million. Operating profit before impairment consequently increased by 50 per cent, or $91 million. Loan impairment increased by 48 per cent, or $13 million, with most of the increment in Consumer Banking. Operating profit increased by 50 per cent, or $78 million. CONSUMER BANKING To provide meaningful comparison Consumer Banking excluding Korea is compared against the first half of 2005 whilst Consumer Banking in Korea is shown against the second half of 2005. Consumer Banking Excluding Korea Operating income was up $151 million, or 10 per cent, to $1,665 million, with growth spread across a broad range of markets. Hong Kong and Singapore achieved growth of around four per cent and these two markets now account for 41 per cent of total income compared to 43 per cent in the equivalent period last year. Outside these two markets income grew 14 per cent, with particularly strong growth in Middle East and Other South Asia (MESA) which rose by 34 per cent. Income growth was driven primarily by wealth management products and the Small and Medium Enterprise (SME) customer segment. Income from deposits grew significantly reflecting both increased volumes of customer deposits and improved margins. Assets remained broadly flat, with a decline in mortgages offsetting increases in SME and unsecured lending. Expenses grew $67 million or nine per cent to $832 million. This increase included expenditure to support the growth of China and Japan, and in our private banking and consumer finance activities. Investment was also made to enhance product distribution capabilities. The impact on expenses of increased product volumes has been largely offset by gains from operational efficiencies. Operating profit before impairment grew $84 million or 11 per cent. Impairment losses more than doubled, by $213 million to $372 million. The majority of this rise came from the unsecured portfolio in Taiwan, where the banking industry as a whole has been adversely affected by a sharp increase in customer default rates. The loan impairment charge in Taiwan increased to $203 million in the first half of 2006 from $75 million in the second half of 2005 (and $23 million in the first half of 2005). These provisions include a discount on the original interest rate on the restructured portfolio of $28 million. Recent indications are that conditions are continuing to improve and it is expected that there will be a sharp reduction in the loan impairment charge in Taiwan in the second half of the year. However, given recent and prospective regulatory changes, there remains considerable uncertainty about the evolution of the consumer credit market. Impairment losses outside Taiwan increased by $33 million or 24 per cent, reflecting changes in the mix and maturity of the portfolio, plus some deterioration in credit quality in Thailand and Indonesia due to the economic environment. Consumer Banking operating profit fell $129 million, or 22 per cent, to $461 million compared to the first half of 2005. This fall was primarily due to the loan impairment charges taken in Taiwan which more than offset the increase in operating profit before impairment. Hong Kong delivered an increase in operating profit of nine per cent to $280 million. Income growth was four per cent whilst expenses rose by one per cent. Operating profit before impairment profit grew six per cent. New products such as the Marathon Savings Account, and increased marketing activity, together with better margins, drove double-digit operating income growth in wealth management and deposit balances. The SME segment also recorded double-digit income growth with good prospects for the future. The loan impairment charge decreased 21 per cent or $6 million compared to the prior period. In Singapore, income was up four per cent on the first half of 2005, driven by strong growth in wealth management products and the SME segment. There was continued product innovation through the period including, for example, the launch of foreign currency and SME saver accounts. In an intensely competitive market, mortgage margins remained under pressure. Expenses grew six per cent to $66 million driven by investment in new products. Loan impairment decreased six per cent reflecting a broadly benign consumer credit environment. Operating profit increased five per cent to $88 million. Assets were down seven per cent with increases in SME lending offset by a decline in mortgage assets. In Malaysia income increased 11 per cent to $112 million. Strong income growth in wealth management and the SME segment, underpinned by the success of new product launches, including Islamic SME products, more than offset a lower performance in mortgages, where income fell due to margin compression. Operating expenses increased $3 million or seven per cent to $49 million. Loan impairment reduced six per cent reflecting the benefit of provision releases. Operating profit increased 24 per cent to $47 million. In Other Asia Pacific, income growth of nine per cent was driven by strong balance sheet growth in all products. In China income more than doubled with good growth in the SME segment. Indonesia and Thailand also delivered double-digit income growth. These performances were offset by subdued income performance in Taiwan. Operating expenses increased by 15 per cent reflecting investment for future growth. Loan impairment increased due primarily to Taiwan, but also reflecting slightly more difficult credit conditions in Thailand and Indonesia. India's income increased 10 per cent over the equivalent period driven by growth in wealth management products and the SME segment. This was partially offset by a decline in mortgage income. Investment in new product and sales capabilities was achieved within expense growth of five per cent due to redeployment of resources and other efficiency initiatives. Operating income in MESA increased by 34 per cent to $238 million. This strong performance was led by wealth management, credit cards and the SME segment. Investments targeted at infrastructure and distribution channels to sustain good income growth increased expenses by 38 per cent to $116 million. Loan impairment increased 14 per cent to $16 million. Assets grew nine per cent. In Africa, operating profit grew 19 per cent to $25 million as a result of income growth of three per cent and a reduction in expenses of six per cent; wealth management income grew rapidly driven by new product launches and a new sales model, whilst expenses were reduced as a result of productivity gains and disciplined cost control. Loan impairment increased to $9 million. Assets grew by 30 per cent driven by unsecured lending. The Americas, UK and Group Head Office saw an increase in operating profit from $5 million to $11 million, driven primarily by higher income from the Jersey business. Korea Consumer Banking Consumer Banking's results in Korea are compared to the second half of 2005. On this basis operating income increased nine per cent to $530 million driven by wealth management products and the SME segment. Product innovation in wealth management attracted new accounts and fresh funds, with the new e-Click product attracting over 250,000 new accounts. There was a decline in mortgage margins due to a combination of the interest rate environment and competitive activity. Expenses were held broadly flat compared to the previous period. Operating profit before impairment increased by $46 million or 43 per cent. Loan impairment increased $11 million to $33 million. Assets have grown five per cent driven by mortgages and unsecured lending. The following tables provide an analysis of operating profit by geographic segment for Consumer Banking: 6 months ended 30.06.06 Asia Pacific Other Hong Asia Kong Singapore Malaysia Korea Pacific $million $million $million $million $million Operating Income 505 170 112 530 317 Expenses (203) (66) (49) (378) (186) Loan impairment (22) (16) (16) (33) (275) Operating profit 280 88 47 119 (144) 6 months ended 30.06.06 Middle Americas UK & Consumer East & Group Banking Consumer Other Head Total Ex Banking India S Asia Africa Office Korea Total $million $million $million $million $million $million Operating Income 158 238 128 37 1,665 2,195 Expenses (90) (116) (94) (28) (832) (1,210) Loan impairment (20) (16) (9) 2 (372) (405) Operating profit 48 106 25 11 461 580 6 months ended 30.06.05 Asia Pacific Other Hong Asia Kong Singapore Malaysia Korea Pacific $million $million $million $million $million Operating Income 485 163 101 209 292 Expenses (201) (62) (46) (123) (162) Loan impairment (28) (17) (17) (34) (53) Operating profit 256 84 38 52 77 6 months ended 30.06.05 Middle Americas UK & Consumer East & Group Banking Consumer Other Head Total Ex Banking India S Asia Africa Office Korea Total $million $million $million $million $million $million Operating Income 143 177 124 29 1,514 1,723 Expenses (86) (84) (100) (24) (765) (888) Loan impairment (27) (14) (3) - (159) (193) Operating profit 30 79 21 5 590 642 6 months ended 31.12.05 Asia Pacific Other Hong Asia Kong Singapore Malaysia Korea Pacific $million $million $million $million $million Operating Income* 491 161 109 488 319 Expenses (214) (64) (49) (382) (180) Loan impairment (6) (13) (20) (22) (113) Other impairment - - - - - Operating profit 271 84 40 84 26 6 months ended 31.12.05 Middle Americas UK & Consumer East & Group Banking Consumer Other Head Total Ex Banking India S Asia Africa Office Korea Total $million $million $million $million $million $million Operating Income* 143 202 134 32 1,591 2,079 Expenses (93) (98) (105) (28) (831) (1,213) Loan impairment (29) (19) (10) - (210) (232) Other impairment - - (3) - (3) (3) Operating profit 21 85 16 4 547 631 * As more fully explained in note 6 on pages 38 and 39, internal income has been restated. The impact is to reduce Consumer Banking total operating income by $5 million in the second half of 2005 with a corresponding increase in Wholesale Banking. CONSUMER BANKING CONTINUED An analysis of Consumer Banking income by product is set out below: 6 months ended 30.06.06 Total Korea Ex Korea Operating Income by Product $million $million $million Cards and Loans 824 180 644 Wealth Management and Deposits 926 179 747 Mortgages and Auto Finance 388 157 231 Other 57 14 43 2,195 530 1,665 6 months ended 30.06.05* 6 months ended 31.12.05* Total Korea Ex Korea Total Korea Ex Korea Operating Income by Product $million $million $million $million $million $million Cards and Loans 706 88 618 822 186 636 Wealth Management and Deposits 634 53 581 808 159 649 Mortgages and Auto Finance 350 66 284 408 141 267 Other 33 2 31 41 2 39 1,723 209 1,514 2,079 488 1,591 * Restated. See note 6 on pages 38 and 39. Product Performance Excluding Korea Credit cards and personal loans delivered a $26 million, or four per cent, increase in operating income to $644 million. In Hong Kong new credit card launches, including co-branded, helped increase customer balances over the equivalent period last year. Good asset growth was also seen in Pakistan, India and Thailand, all of whom recorded double-digit growth in unsecured outstandings. In wealth management, deposit growth and improved margins have been the primary drivers of a $166 million, or 29 per cent, growth in income to $747 million. This improvement was seen in most countries, with strong contributors being Hong Kong, Singapore, India and the MESA region. Deposit product innovation, such as an Islamic savings account in MESA, has helped attract new customers and funds in a number of markets. Mortgage margins continued to be under pressure in a number of markets, driven by the rising interest rate environment and competitor pricing. Mortgage outstandings fell $1,412 million or six per cent to $20,799 million. These effects served to reduce mortgage and auto finance income by $53 million or 19 per cent to $231 million. In several markets, such as Hong Kong and Singapore, product innovation and repricing actions have helped mitigate the effects of margin compression, although the near term outlook continues to be challenging. Korea Product Performance Comparisons are against the second half of 2005. Wealth management and deposits income grew 13 per cent or $20 million to $179 million on the back of new product launches. Overall credit card operating income fell three per cent from the previous period. Mortgage income grew 11 per cent or $16 million, with growth in outstandings more than offsetting the impact of margin pressure. WHOLESALE BANKING As with Consumer Banking, the performance of Wholesale Banking excluding Korea is compared to the first half of 2005, whilst Wholesale Banking in Korea is compared to the second half of 2005. Wholesale Banking Excluding Korea Wholesale Banking had a very strong first half with the client focused strategy again delivering significant income growth across multiple geographies, products and segments. Income grew $300 million, or 21 per cent, to $1,713 million underpinned by client income growth of 21 per cent. Client income continues to comprise around four fifths of total income and is the key driver of sustained growth. The pace of income growth in products such as foreign exchange, debt capital markets syndications, derivatives and options, reflects the significant investments in previous years. Operating expense growth was 20 per cent or $157 million. Investment spend was targeted at expanding product reach and capability, upgrading systems infrastructure, expanding client coverage and reinforcing compliance and control. Operating profit before impairment losses grew 22 per cent or $143 million. The net loan impairment release was $63 million compared to a net charge of $1 million in the equivalent period last year. This net release reflected the continued benign credit environment, with new provisions of only $31 million, and continued success in achieving recoveries. WHOLESALE BANKING CONTINUED The following tables provide an analysis of operating profit by geographic segment for Wholesale Banking: 6 months ended 30.06.06 Asia Pacific Other Hong Asia Kong Singapore Malaysia Korea Pacific $million $million $million $million $million Operating Income 289 120 76 204 265 Expenses (141) (71) (30) (82) (150) Loan impairment 30 (3) 4 (7) (2) Other impairment - - - - - Operating profit 178 46 50 115 113 6 months ended 30.06.06 Middle Americas UK & Wholesale East & Group Banking Wholesale Other Head Total Ex Banking India S Asia Africa Office Korea Total $million $million $million $million $million $million Operating Income 222 244 187 310 1,713 1,917 Expenses (70) (109) (107) (255) (933) (1,015) Loan impairment 13 2 (8) 27 63 56 Other impairment - - (6) (2) (8) (8) Operating profit 165 137 66 80 835 950 6 months ended 30.06.05 Asia Pacific Other Hong Asia Kong Singapore Malaysia Korea Pacific $million $million $million $million $million Operating Income* 265 98 55 100 232 Expenses (116) (61) (27) (44) (134) Loan impairment (41) (17) 3 - 64 Other impairment (1) - - - - Operating profit 107 20 31 56 162 6 months ended 30.06.05 Middle Americas UK & Wholesale East & Group Banking Wholesale Other Head Total Ex Banking India S Asia Africa Office Korea Total $million $million $million $million $million $million Operating Income* 159 210 131 263 1,413 1,513 Expenses (57) (74) (95) (212) (776) (820) Loan impairment 4 (1) (27) 14 (1) (1) Other impairment 1 - - (1) (1) (1) Operating profit 107 135 9 64 635 691 6 months ended 31.12.05 Asia Pacific Other Hong Asia Kong Singapore Malaysia Korea Pacific $million $million $million $million $million Operating Income* 243 92 70 160 214 Expenses (118) (59) (28) (83) (134) Loan impairment (42) 4 4 (5) 53 Other impairment - - - - - Operating profit 83 37 46 72 133 6 months ended 31.12.05 Middle Americas UK & Wholesale East & Group Banking Wholesale Other Head Total Ex Banking India S Asia Africa Office Korea Total $million $million $million $million $million $million Operating Income* 148 223 164 232 1,386 1,546 Expenses (70) (83) (99) (216) (807) (890) Loan impairment 2 43 (3) 51 112 107 Other impairment - - (8) (2) (10) (10) Operating profit 80 183 54 65 681 753 * As more fully explained in note 6 on pages 38 and 39, internal income has been restated. The impact is to increase Wholesale Banking total operating income by $5 million in the second half of 2005 with a corresponding decrease in Consumer Banking. When looking at the performance of Wholesale Banking on a geographic basis it is important to note that it is a network business. This means the geographic segmentation can give a somewhat imperfect view of the relative performance of different parts of the business. In Hong Kong, income grew $24 million, or nine per cent, to $289 million, with a sharp 47 per cent increase in global markets' sales, particularly in derivatives and foreign exchange. Cash management benefited from the favourable interest rate environment and custody from active equity markets. Expenses grew 22 per cent to $141 million with most of this increase directed towards building the sales force, product capabilities, and deepening income generation from existing client relationships. Recoveries drove a sharp improvement in the loan impairment charge with a net release of $30 million. WHOLESALE BANKING CONTINUED Income in Singapore was up 22 per cent to $120 million. Cash management benefited from the interest rate environment and helped to deliver 25 per cent client income growth. Global markets' sales were up 37 per cent driven by derivatives and foreign exchange products together with strong contributions from corporate finance and syndications. Much of this growth came from global corporates. Expenses grew 16 per cent to $71 million reflecting increased investments in product and sales capabilities to sustain the strong client income momentum. In Malaysia, income increased 38 per cent to $76 million with strong growth in cash management and foreign exchange, particularly in the local corporate segment. Expenses increased 11 per cent to $30 million. Other Asia Pacific delivered strong income growth of 14 per cent to $265 million, with expenses rising 12 per cent, to $150 million. Operating profit before impairment increased 17 per cent or $17 million. Loan impairment was only $2 million but in the absence of the significant loan impairment releases and recoveries seen last year, operating profit was lower by 30 per cent at $113 million. India delivered operating income growth of $63 million or 40 per cent to $222 million. Operating income was driven by cash management, trade finance, derivatives and foreign exchange, and corporate finance, and also benefited from legal recoveries. Expenses increased 23 per cent with investment in new products, infrastructure and sales. Loan impairment benefited from the benign credit environment, with recoveries and releases contributing to a net credit of $13 million. Operating profit increased 54 per cent. Operating income in MESA rose 16 per cent to $244 million. Client income grew 23 per cent driven by a strong performance in cash management. Corporate finance and strong interest rate derivatives performance also contributed to income growth. Investments in staff and in infrastructure to support the double-digit income growth increased expenses 47 per cent to $109 million. Operating profit in MESA grew by one per cent to $137 million. In Africa, income at $187 million was up 43 per cent on the prior period. Operating income improvements were driven by product sales and strong trading results from asset and liability management (ALM). Client income growth was particularly strong in Kenya, Ghana and Nigeria. Expenses increased 13 per cent. Operating profit increased $57 million to $66 million. Africa also benefited from the absence of the hyperinflationary charge of $44 million taken in the first half of 2005. Operating income in the Americas, UK and Group Head Office increased by 18 per cent to $310 million. Expenses grew by 20 per cent reflecting investment in products and sales. Strong loan recoveries helped drive operating profit up 25 per cent. Korea Wholesale Banking Wholesale Banking's results in Korea are compared to the second half of 2005. Operating income increased by 28 per cent and operating profit increased by 60 per cent to $115 million. The increase in operating income was primarily driven by trade and lending and by global markets' products, particularly derivatives and foreign exchange. An analysis of Wholesale Banking income by product is set out below: 6 months ended 30.06.06 Total Korea Ex Korea Operating Income by Product $million $million $million Trade and Lending 511 77 434 Global Markets** 925 86 839 Cash Management and Custody 481 41 440 1,917 204 1,713 6 months ended 30.06.05* 6 months ended 31.12.05* Total Korea Ex Korea Total Korea Ex Korea Operating Income by Product $million $million $million $million $million $million Trade and Lending 438 33 405 442 45 397 Global Markets** 756 58 698 681 65 616 Cash Management and Custody 319 9 310 423 50 373 1,513 100 1,413 1,546 160 1,386 * Restated. See note 6 on pages 38 and 39. ** Global markets comprises the following businesses: derivatives and foreign exchange, debt capital markets, corporate finance and ALM. Product Performance Excluding Korea Trade and lending income increased seven per cent to $434 million. Trade balances grew, with a double-digit increase in volumes, more than offsetting the impact of tightening margins whilst lending income was broadly flat due to margin compression and tight discipline on asset growth. Global markets' income grew strongly by $141 million or 20 per cent to $839 million. Rates and foreign exchange sales benefited from a more sophisticated suite of products aided by market volatility resulting in increased penetration amongst local corporates. The debt capital markets business grew significantly as both product and distribution capability was expanded. In addition corporate finance achieved good growth. ALM income was down over the equivalent period. Cash management and custody income was up 42 per cent at $440 million. The drivers of this increase were both increased balances, up almost 25 per cent year on year, as well as improved margins in a higher rate environment. 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 compliance and regulatory risk, operational risk and reputational risks are normal consequences of any business undertaking. 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 the Group continues to be exposed to it; â€¢ abiding by all applicable laws and regulations and good governance standards in every country in which the Group does business; â€¢ applying high and consistent ethical standards to the Group's 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. Acting with authority delegated by the Board, the Audit and Risk Committee (ARC), whose members are all independent Non-Executive Directors of the Company, reviews specific risk areas and monitors the activities of the Group Risk Committee (GRC) and the Group Asset and Liability Committee (GALCO). GRC is responsible for credit risk, market risk, operational risk, compliance and regulatory risk, legal risk and reputational risk. GALCO is responsible for liquidity risk, structural interest rate and foreign exchange exposures, and for capital ratios. All the Group Executive Directors (GEDs) of Standard Chartered PLC, directors of Standard Chartered Bank and the Group Head of Risk and Group Special Asset Management (Group Head of Risk) are members of the GRC. This Committee is chaired by the Group Head of Risk. The GRC is responsible for agreeing Group standards for risk measurement and management, and also delegating authorities and responsibilities to risk committees and the Group and Regional Credit Committees and Risk Officers. The committee process is designed to ensure that standards and policies are cascaded down through the organisation from the Board through the GRC and the GALCO to the functional, regional and country level committees. Key information is communicated through the country, regional and functional committees to Group so as to provide assurance that standards and policies are being followed. The Group Finance Director and the Group Head of Risk manage a risk function that is separate from the business line 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; â€¢ validates risk models; and â€¢ recommends risk appetite and strategy. Individual GEDs 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 GRC across all business activity; â€¢ managing risk in line with appetite levels agreed by the GRC; and â€¢ developing and maintaining appropriate risk management infrastructure and systems to facilitate compliance with risk policy. The Group's Risk Management Framework identifies 18 risk types, which are managed by designated Risk Type Owners (RTOs), who are all approved persons under the FSA regulatory framework and who have responsibility for setting minimum standards and governance and assurance processes. The RTOs report up through specialist risk committees to the GRC, or in the case of Liquidity Risk, to the GALCO. The Group Finance Director and the Group Head of Risk, together with Group Internal Audit, provide assurance that risk is being measured and managed in accordance with the Group's standards and policies. RISK continued Credit Risk Management 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 in the banking and trading books. The GRC has clear responsibility for credit risk. Standards are approved by the GRC, which oversees the delegation of credit authorities through the Group Finance Director to the Group Head of Risk, the Group and Regional Credit Committees and 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 a reporting line which is separate from the business lines into the Group Head of Risk. The businesses working with the Risk Officer take responsibility for managing pricing for risk, portfolio diversification and overall asset quality within the requirements of Group standards, policies and business strategy. Wholesale Banking Within the Wholesale Banking business, a numerical grading system is used 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. These Committees are responsible to the GRC. Consumer Banking 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 Total loans and advances to customers have increased by 12 per cent to $120 billion over the equivalent period last year. The Wholesale Banking portfolio is well diversified across both geography and industry, with no significant concentration to sub-industry classification levels under manufacturing, financing, insurance and business services, commerce or transport, storage and communication. RISK continued 30.06.06 Other Hong Asia Kong Singapore Malaysia Korea Pacific $million $million $million $million $million Loans to individuals Mortgages 11,281 3,903 2,562 23,240 1,096 Other 2,132 1,044 725 4,727 3,114 Small and medium enterprises 861 1,651 840 4,754 908 Consumer Banking 14,274 6,598 4,127 32,721 5,118 Agriculture, forestry 22 24 43 9 96 and fishing Construction 72 33 23 141 85 Commerce 1,291 1,132 328 278 826 Electricity, gas and water 347 16 61 50 257 Financing, insurance and 2,535 1,460 687 1,748 1,178 business services Governments - 2,625 3,199 15 155 Mining and quarrying - - 8 64 244 Manufacturing 1,773 360 402 2,865 3,053 Commercial real estate 1,249 589 7 737 549 Transport, storage 567 243 106 170 231 and communication Other 112 115 39 - 13 Wholesale Banking 7,968 6,597 4,903 6,077 6,687 Portfolio impairment provision (54) (26) (23) (74) (198) Total loans and advances 22,188 13,169 9,007 38,724 11,607 to customers Total loans and advances 3,131 1,155 153 1,835 3,433 to banks 30.06.06 Middle Americas East & UK & Group Other Head India S Asia Africa Office Total $million $million $million $million $million Loans to individuals Mortgages 1,440 159 214 144 44,039 Other 924 2,160 442 148 15,416 Small and medium enterprises 389 90 116 - 9,609 Consumer Banking 2,753 2,409 772 292 69,064 Agriculture, forestry 83 71 150 378 876 and fishing Construction 248 290 48 18 958 Commerce 469 1,530 359 1,343 7,556 Electricity, gas and water 26 228 54 684 1,723 Financing, insurance and 466 1,048 119 1,589 10,830 business services Governments - 84 - 282 6,360 Mining and quarrying 28 207 104 863 1,518 Manufacturing 1,310 1,392 491 2,191 13,837 Commercial real estate 238 3 7 7 3,386 Transport, storage 101 647 138 1,661 3,864 and communication Other 3 266 24 55 627 Wholesale Banking 2,972 5,766 1,494 9,071 51,535 Portfolio impairment provision (30) (32) (10) (7) (454) Total loans and advances 5,695 8,143 2,256 9,356 120,145 to customers Total loans and advances 285 1,501 563 5,586 17,642 to banks Total loans and advances to customers include $595 million held at fair value through profit or loss. Total loans and advances to banks include $892 million held at fair value through profit or loss account. RISK CONTINUED 30.06.05 Other Hong Asia Kong Singapore Malaysia Korea Pacific $million $million $million $million $million Loans to individuals Mortgages 12,599 4,416 2,559 18,792 895 Other 1,967 1,087 538 3,691 2,943 Small and medium enterprises 761 1,618 705 4,475 315 Consumer Banking 15,327 7,121 3,802 26,958 4,153 Agriculture, forestry and fishing - 19 54 - 78 Construction 64 240 10 14 78 Commerce 1,765 948 189 347 805 Electricity, gas and water 507 21 90 76 233 Financing, insurance and 1,450 909 628 2,467 980 business services Governments - 1,520 1,270 51 228 Mining and quarrying - 31 30 5 226 Manufacturing 1,531 288 273 1,382 2,577 Commercial real estate 1,181 629 1 1,116 474 Transport, storage and 296 299 75 211 269 communication Other 18 68 52 441 111 Wholesale Banking 6,812 4,972 2,672 6,110 6,059 Portfolio impairment (37) (29) (23) (61) (70) Provision Total loans and advances 22,102 12,064 6,451 33,007 10,142 to customers Total loans and advances 3,667 2,956 474 2,804 1,596 to banks 30.06.05 #Middle Americas East & UK & Group Other Head India S Asia Africa Office #Total $million $million $million $million $million Loans to individuals Mortgages 1,390 81 85 186 41,003 Other 1,269 2,052 413 216 14,176 Small and medium enterprises 281 84 92 - 8,331 Consumer Banking 2,940 2,217 590 402 63,510 Agriculture, forestry and fishing 15 20 146 283 615 Construction 99 202 47 31 785 Commerce 270 1,373 339 894 6,930 Electricity, gas and water 108 185 31 636 1,887 Financing, insurance and 605 1,555 170 1,956 10,720 business services Governments - 72 - 506 3,647 Mining and quarrying 9 133 106 729 1,269 Manufacturing 837 1,427 423 2,220 10,958 Commercial real estate 9 1 33 1 3,445 Transport, storage and 220 349 127 1,051 2,897 communication Other 59 201 12 70 1,032 Wholesale Banking 2,231 5,518 1,434 8,377 44,185 Portfolio impairment (33) (29) (10) (22) (314) Provision Total loans and advances 5,138 7,706 2,014 8,757 107,381 to customers Total loans and advances 195 1,166 199 7,898 20,955 to banks # A reclassification of $997 million from Other to Small and medium enterprises that was made at 30 June 2005 has been reversed. Total loans and advances to customers include $871 million held at fair value through profit or loss. Total loans and advances to banks include $1,081 million held at fair value through profit or loss account. RISK CONTINUED 31.12.05 Asia Pacific Other Hong Asia Kong Singapore Malaysia Korea Pacific $million $million $million $million $million Loans to individuals Mortgages 12,051 4,129 2,532 22,522 996 Other 2,154 1,043 663 3,954 3,145 Small and medium enterprises 791 1,673 794 4,727 989 Consumer Banking 14,996 6,845 3,989 31,203 5,130 Agriculture, forestry and fishing 24 - 44 9 110 Construction 91 48 11 90 64 Commerce 2,004 958 325 237 598 Electricity, gas and water 290 1 65 17 284 Financing, insurance and 1,425 925 589 1,135 1,065 business services Governments - 2,323 1,976 66 101 Mining and quarrying 24 11 8 19 140 Manufacturing 1,223 302 344 1,702 2,955 Commercial real estate 1,194 834 3 797 555 Transport, storage and 320 235 240 80 304 communication Other 50 85 49 750 11 Wholesale Banking 6,645 5,722 3,654 4,902 6,187 Portfolio impairment (57) (26) (30) (68) (107) provision Total loans and advances 21,584 12,541 7,613 36,037 11,210 to customers Total loans and advances 5,688 2,431 173 3,222 2,213 to banks 31.12.05 Middle Americas East & UK & Group Other Head India S Asia Africa Office Total $million $million $million $million $million Loans to individuals Mortgages 1,469 132 88 152 44,071 Other 947 2,001 525 158 14,590 Small and medium enterprises 332 78 107 - 9,491 Consumer Banking 2,748 2,211 720 310 68,152 Agriculture, forestry and fishing 17 25 183 234 646 Construction 139 223 41 6 713 Commerce 392 1,324 420 819 7,077 Electricity, gas and water 49 180 12 664 1,562 Financing, insurance and 502 1,235 168 1,842 8,886 business services Governments - 70 7 331 4,874 Mining and quarrying 10 185 75 656 1,128 Manufacturing 1,019 1,210 402 2,186 11,343 Commercial real estate 61 5 13 18 3,480 Transport, storage and 108 452 174 1,477 3,390 communication Other 5 257 46 40 1,293 Wholesale Banking 2,302 5,166 1,541 8,273 44,392 Portfolio impairment (33) (29) (10) (7) (367) provision Total loans and advances 5,017 7,348 2,251 8,576 112,177 to customers Total loans and advances 238 1,255 313 7,426 22,959 to banks Total loans and advances to customers include $386 million held at fair value through profit or loss. Total loans and advances to banks include $1,258 million held at fair value through profit or loss account. RISK CONTINUED Maturity analysis Approximately 49 per cent of the Group's loans and advances are short term having a contractual maturity of one year or less. The Wholesale Banking portfolio is predominately short term, with 79 per cent of loans and advances having a contractual 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. Whilst the Other and SME loans in Consumer Banking have short contractual maturities, in the normal course of business they may be renewed and repaid over longer terms. 30.06.06 One to Over One year five five or less years years Total $million $million $million $million Consumer Banking Mortgages 3,513 9,201 31,325 44,039 Other 8,527 5,882 1,007 15,416 SME 5,827 2,038 1,744 9,609 Total 17,867 17,121 34,076 69,064 Wholesale Banking 40,942 7,443 3,150 51,535 Portfolio impairment provision (454) Loans and advances to customers 58,809 24,564 37,226 120,145 30.06.05 One to Over One year five five or less years years Total $million $million $million $million Consumer Banking Mortgages 5,016 10,432 25,555 41,003 Other 7,259 5,079 1,838 14,176 SME 6,117 415 1,799 8,331 Total 18,392 15,926 29,192 63,510 Wholesale Banking 32,898 7,572 3,715 44,185 Portfolio impairment provision (314) Loans and advances to customers 51,290 23,498 32,907 107,381 31.12.05 One to Over One year five five or less years years Total $million $million $million $million Consumer Banking Mortgages 4,756 9,598 29,717 44,071 Other 8,352 4,666 1,572 14,590 SME 5,883 1,687 1,921 9,491 Total 18,991 15,951 33,210 68,152 Wholesale Banking 33,450 7,246 3,696 44,392 Portfolio impairment provision (367) Loans and advances to customers 52,441 23,197 36,906 112,177 RISK continued Problem Credit Management and Provisioning 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 accounts are closely monitored and subject to a special collections process. Accounts that are overdue by more than 90 days are considered non-performing. For mortgages those accounts more than 150 days past due are considered non-performing. The process used for raising provisions is dependant on the product. For mortgages, individual provisions are generally raised at 150 days past due, and for other secured products at 90 days past due, based on the difference between the outstanding amount of the loan and the present value of the estimated future cash flows. For unsecured products individual provisions are raised, and 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 individually, are known by experience to be present in the loan portfolio including performing loans and loans overdue. 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 and business environment in our core markets, and the trends in a range of portfolio indicators. The cover ratio reflects the extent that the gross non-performing loans are covered by the individual and portfolio impairment provisions. The balance of non-performing loans not covered by impairment provisions reflects the level of collateral held and/or the estimated net value of any recoveries. The following tables set out the total non-performing portfolio in Consumer Banking: 30.06.06 Asia Pacific Other Hong Asia Kong Singapore Malaysia Korea Pacific $million $million $million $million $million Loans and advances 102 113 186 683 157 Gross non-performing Individual impairment provision (27) (33) (67) (287) (94) Non-performing loans net of 75 80 119 396 63 individual impairment provision Portfolio impairment provision Net non-performing loans and advances Cover ratio 30.06.06 Middle Americas East & UK & Group Other Head India S Asia Africa Office Total $million $million $million $million $million Loans and advances 48 26 17 20 1,352 Gross non-performing Individual impairment provision (14) (18) (11) - (551) Non-performing loans net of 34 8 6 20 801 individual impairment provision Portfolio impairment provision (362) Net non-performing loans 439 and advances Cover ratio 68% 30.06.05* Asia Pacific Other Hong Asia Kong Singapore Malaysia Korea Pacific $million $million $million $million $million Loans and advances 69 124 162 868 63 Gross non-performing Individual impairment provision (28) (29) (61) (302) (24) Non-performing loans net of 41 95 101 566 39 individual impairment provision Portfolio impairment provision Net non-performing loans and advances Cover ratio 30.06.05* Middle Americas East & UK & Group Other Head India S Asia Africa Office Total $million $million $million $million $million Loans and advances 42 37 16 31 1,412 Gross non-performing Individual impairment provision (12) (29) (7) (5) (497) Non-performing loans net of 30 8 9 26 915 individual impairment provision Portfolio impairment provision (222) Net non-performing loans 693 and advances Cover ratio 51% * The balance sheet as at 30 June 2005 has been restated to reflect the revised fair values of assets and liabilities acquired on the acquisition of SCFB. RISK CONTINUED 31.12.05* Asia Pacific Other Hong Asia Kong Singapore Malaysia Korea Pacific $million $million $million $million $million Loans and advances 81 117 171 856 101 Gross non-performing Individual impairment provision (22) (31) (63) (310) (61) Non-performing loans net of 59 86 108 546 40 individual impairment provision Portfolio impairment provision Net non-performing loans and advances Cover ratio 31.12.05* Middle Americas East & UK & Group Other Head India S Asia Africa Office Total $million $million $million $million $million Loans and advances 53 22 17 29 1,447 Gross non-performing Individual impairment provision (13) (16) (9) (3) (528) Non-performing loans net of 40 6 8 26 919 individual impairment provision Portfolio impairment provision (278) Net non-performing loans 641 and advances Cover ratio 56% * The balance sheet as at 30 June 2005 has been restated to reflect the revised fair values of assets and liabilities acquired on the acquisition of SCFB Wholesale Banking 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 with oversight involving senior Risk Officers and Group Special Assets Management (GSAM). 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 GSAM, the specialist recovery unit. Loans are designated as impaired and considered non-performing as soon as payment of interest or principal is 90 days or more overdue or where recognised weakness implies that full payment of either interest or principal is questionable. Impaired accounts are managed by GSAM, which is independent of the main businesses of the Group. Where the principal, or a portion thereof, is considered uncollectible, an individual impairment provision is raised being the difference between the loan carrying amount and the present value of estimated future cash flows arising from the loan, including the value of any realisable collateral. 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 an element of an account against which an impairment 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 Wholesale Banking, the portfolio impairment provision is set with reference to past experience using expected loss and judgemental factors such as the economic environment and the trends in key portfolio indicators. The cover ratio reflects the extent to which the gross non-performing loans are covered by the individual and portfolio impairment provisions. At 79 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. The following tables set out the total non-performing portfolio in Wholesale Banking: 30.06.06 Asia Pacific Other Hong Asia Kong Singapore Malaysia Korea Pacific $million $million $million $million $million Loans and advances 295 113 32 125 117 Gross non-performing Individual Impairment provision (176) (85) (31) (45) (104) Non-performing loans and 119 28 1 80 13 advances net of individual impairment provision Portfolio impairment provision Net non-performing loans and advances Cover ratio 30.06.06 Middle Americas East & UK & Group Other Head India S Asia Africa Office Total $million $million $million $million $million Loans and advances 28 45 97 219 1,071 Gross non-performing Individual Impairment provision (23) (30) (57) (204) (755) Non-performing loans and 5 15 40 15 316 advances net of individual impairment provision Portfolio impairment provision (93) Net non-performing loans and advances 223 Cover ratio 79% RISK CONTINUED 30.06.05 Asia Pacific Other Hong Asia Kong Singapore Malaysia Korea Pacific $million $million $million $million $million Loans and advances 356 135 50 150 165 Gross non-performing Individual Impairment provision (300) (116) (47) (50) (148) Non-performing loans and 56 19 3 100 17 advances net of individual impairment provision Portfolio impairment provision Net non-performing loans and advances Cover ratio 30.06.05 Middle Americas East & UK & Group Other Head India S Asia Africa Office Total $million $million $million $million $million Loans and advances 79 96 85 489 1,605 Gross non-performing Individual Impairment provision (32) (84) (50) (407) (1,234) Non-performing loans and 47 12 35 82 371 advances net of individual impairment provision Portfolio impairment provision (92) Net non-performing loans and advances 279 Cover ratio 83% 31.12.05 Asia Pacific Other Hong Asia Kong Singapore Malaysia Korea Pacific $million $million $million $million $million Loans and advances 355 125 36 156 133 Gross non-performing Individual Impairment provision (257) (109) (33) (51) (118) Non-performing loans and 98 16 3 105 15 advances net of individual impairment provision Portfolio impairment provision Net non-performing loans and advances Cover ratio 31.12.05 Middle Americas East & UK & Group Other Head India S Asia Africa Office Total $million $million $million $million $million Loans and advances 83 60 89 210 1,247 Gross non-performing Individual Impairment provision (27) (48) (51) (164) (858) Non-performing loans and 56 12 38 46 389 advances net of individual impairment provision Portfolio impairment provision (90) Net non-performing loans and advances 299 Cover ratio 76% RISK CONTINUED Movement in Group Individual Impairment Provision The following tables set out the movements in the Group's total individual impairment provisions against loans and advances: 30.06.06 Asia Pacific Other Hong Asia Kong Singapore Malaysia Korea Pacific $million $million $million $million $million Provisions held at 279 140 96 361 179 1 January 2006 Exchange translation differences - 5 3 23 6 Amounts written off (37) (51) (24) (63) (185) Recoveries of amounts previously 30 4 6 - 9 written off Discount unwind (2) (1) (2) (18) - Other (63) - - - - New provisions 59 36 49 48 203 Recoveries/provisions (63) (15) (30) (19) (14) no longer required Net charge against/(credit) to profit (4) 21 19 29 189 Provisions held at 203 118 98 332 198 30 June 2006 30.06.06 Middle Americas East & UK & Group Other Head India S Asia Africa Office Total $million $million $million $million $million Provisions held at 40 64 60 167 1,386 1 January 2006 Exchange translation differences (1) (1) (1) 6 40 Amounts written off (33) (33) (6) (4) (436) Recoveries of amounts previously 9 6 - 1 65 written off Discount unwind - - (1) (1) (25) Other 1 - - 65 3 New provisions 37 27 25 2 486 Recoveries/provisions (16) (15) (9) (32) (213) no longer required Net charge against/(credit) to profit 21 12 16 (30) 273 Provisions held at 37 48 68 204 1,306 30 June 2006 30.06.05 Asia Pacific Other Hong Asia Kong Singapore Malaysia Korea Pacific $million $million $million $million $million Provisions held at 294 119 127 1 319 1 January 2005 Exchange translation differences 2 (4) - (3) (7) Amounts written off (48) (9) (36) (17) (134) Recoveries of amounts previously 17 3 5 - 16 written off Acquisitions - - - 352 - Discount unwind (3) (2) (2) (9) (2) Other - - 4 - (4) New provisions 92 56 26 31 72 Recoveries/provisions (26) (18) (16) (3) (88) no longer required Net charge against/(credit) to profit 66 38 10 28 (16) Provisions held at 328 145 108 352 172 30 June 2005 30.06.05 Middle Americas East & UK & Group Other Head India S Asia Africa Office Total $million $million $million $million $million Provisions held at 43 125 64 457 1,549 1 January 2005 Exchange translation differences - (2) (4) (6) (24) Amounts written off (30) (27) (21) (30) (352) Recoveries of amounts previously 11 6 2 5 65 written off Acquisitions - - - - 352 Discount unwind - 1 (3) (3) (23) Other - - - - - New provisions 57 25 28 2 389 Recoveries/provisions (37) (15) (9) (13) (225) no longer required Net charge against/(credit) to profit 20 10 19 (11) 164 Provisions held at 44 113 57 412 1,731 30 June 2005 RISK CONTINUED 31.12.05 Asia Pacific Other Hong Asia Kong Singapore Malaysia Korea Pacific $million $million $million $million $million Provisions held at 328 145 108 352 172 1 July 2005 Exchange translation differences (9) 2 1 7 (1) Amounts written off (108) (21) (22) (4) (70) Recoveries of amounts previously 32 3 6 5 20 written off Discount unwind - (1) (2) (19) - Other 1 - (4) - 23 New provisions 73 36 36 26 81 Recoveries/provisions (38) (24) (27) (6) (46) no longer required Net charge against/(credit) to profit 35 12 9 20 35 Provisions held at 279 140 96 361 179 31 December 2005 31.12.05 Middle Americas East & UK & Group Other Head India S Asia Africa Office Total $million $million $million $million $million Provisions held at 44 113 57 412 1,731 1 July 2005 Exchange translation differences (1) 7 - (7) (1) Amounts written off (36) (43) (22) (193) (519) Recoveries of amounts previously 10 8 2 2 88 written off Discount unwind (1) (1) 1 (2) (25) Other (1) 1 (2) 3 21 New provisions 48 23 32 10 365 Recoveries/provisions (23) (44) (8) (58) (274) no longer required Net charge against/(credit) to profit 25 (21) 24 (48) 91 Provisions held at 40 64 60 167 1,386 31 December 2005 Country Risk Country Risk is the risk that a counterparty is unable to meet its contractual obligations as a result of adverse economic conditions or actions taken by governments in the relevant country. The GRC approves country risk. The setting and management of country limits is delegated to the Group Head, Credit and Country Risk. The business and Country Chief Executive Officers manage exposures within these limits and policies. Countries designated as higher risk are subject to increased central monitoring. Cross border assets 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 are recorded. Cross border assets also include exposures to local residents denominated in currencies other than the local currency. 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. 30.06.06 30.06.05 Public Public sector Banks Other Total sector Banks Other Total $million $million $million $million $million $million $million $million Korea 14 1,500 2,854 4,368 15 1,644 2,228 3,887 Hong Kong 1 480 3,846 4,327 2 218 2,731 2,951 USA 881 540 2,673 4,094 1,676 830 2,637 5,143 Australia - 2,667 259 2,926 1 1,806 129 1,936 France 137 2,530 214 2,881 164 2,032 194 2,390 Singapore - 716 2,132 2,848 1 173 2,075 2,249 India 2 1,028 1,652 2,682 49 885 1,252 2,186 China 57 1,073 1,322 2,452 41 903 1,233 2,177 31.12.05 Public sector Banks Other Total $million $million $million $million Korea 13 1,476 2,006 3,495 Hong Kong 1 311 2,776 3,088 USA 1,227 555 2,505 4,287 Australia - 1,587 242 1,829 France 159 2,550 155 2,864 Singapore - 326 1,945 2,271 India 1 949 1,456 2,406 China 63 982 1,405 2,450 RISK 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 GRC, which agrees policies and levels of risk appetite in terms of Value at Risk (VaR). The Group Market Risk Committee (GMRC) 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 (GMR) approves the limits within delegated authorities and monitors exposures against these limits. GMR 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. Stress testing is an integral part of the market risk management framework and considers both historical market events and forward looking scenarios. Ad hoc scenarios are also prepared in response to particular market conditions. A consistent stress testing approach is applied to trading and banking books. Stress scenarios are regularly updated to reflect changes in risk profile and economic events. GMRC has responsibility for reviewing stress exposures and, where necessary, enforcing reductions in overall market risk exposure. GRC considers stress testing as part of its oversight of risk appetite. The stress test methodology assumes that management action would be limited during a stress event, reflecting the decrease in liquidity that often occurs. 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 historical simulation to measure VaR on all market risk related activities. The total VaR for trading and banking books combined at 30 June 2006 was $9.7 million (30 June 2005: $12.9 million, 31 December 2005: $10.8 million). Interest rate related VaR for trading and banking books was $9.2 million (30 June 2005: $14.0 million, 31 December 2005: $10.3 million) and foreign exchange related VaR was $2.9 million (30 June 2005: $1.4 million, 31 December 2005: $1.1 million). The average total VaR for trading and banking books during the period to 30 June 2006 was $10.7 million (30 June 2005: $14.3 million, 31 December 2005: $12.4 million) with a maximum exposure of $12.7 million. VaR for interest rate risk in the banking books of the Group totalled $8.4 million at 30 June 2006 (30 June 2005: $10.8 million, 31 December 2005: $9.2 million). The Group has no significant trading exposure to equity or commodity price risk. The average daily income earned from market risk related activities was $5.5 million, compared with $4.1 million during the period to 30 June 2005 and $4.5 million in the period to 31 December 2005. FOREIGN EXCHANGE EXPOSURE The Group's foreign exchange exposures comprise trading and banking foreign currency translation exposures and structural currency exposures in net investments in non-US dollar units. Foreign exchange trading exposures are principally derived from customer driven transactions. The average daily income from foreign exchange trading businesses during the period was $2.6 million (30 June 2005: $2.1 million, 31 December $2.0 million). INTEREST RATE EXPOSURE The Group's interest rate exposures comprise trading exposures and non-trading interest rate exposures. Structural interest rate risk arises from the differing re-pricing characteristics of commercial banking assets and liabilities. The average daily income from interest rate trading businesses during the period was $2.9 million (30 June 2005: $2.4 million, 31 December 2005: $2.1 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. RISK CONTINUED 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 may hedge the value of its foreign currency denominated investments in subsidiaries and branches where it considers there is a risk of a significant exchange rate movement. In general, however, management believes that the Group's reserves are sufficient to absorb any foreseeable adverse currency depreciation. The effect of exchange rate movements on the capital risk asset ratio is mitigated by the fact that both the net asset 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. 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 aims to be in a position to meet all obligations, to repay depositors, to fulfil commitments to lend and to meet any other commitments made as they fall due. Liquidity risk management is governed by GALCO, which is chaired by the Group Finance Director. GALCO 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 with regional and country Asset and Liability Committees (ALCOs). Due to the diversified nature of the Group's business, the Group's policy is that liquidity is more effectively managed 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 for 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 also oversees the structural foreign exchange and interest rate exposures that arise within the Group. These responsibilities are managed through the provision of authorities, policies and procedures that are co-ordinated by the Capital Management Committee. Policies and guidelines for the maintenance of capital ratio levels are approved by GALCO. Compliance with Group ratios is monitored centrally by Group Corporate Treasury, while local requirements are monitored by the local ALCO. 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. A separate 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. These units are responsible for ensuring compliance with policies and procedures in the business, monitoring key operational risk exposures, and for 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. 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. RISK CONTINUED Reputational Risk Reputational Risk is the risk of failing to meet the standards of performance or behaviour required or expected by stakeholders in commercial activities or the way in which business is conducted. Reputational Risks arise as a result of poor management of issues occurring in one or more of the primary banking risk areas (Credit, Market, Operational risk areas) and/or from Social, Ethical or Environmental Risk issues. All members of staff have a responsibility for maintaining the Group's reputation. From an organisational perspective, the Group manages reputational risk through a combination of Country Management Committees and the Group Reputational Risk Committee. Wholesale Banking has a specialised Reputational Risk Committee which reviews individual transactions. In Consumer Banking, potential reputational risks resulting from transactions or products are reviewed by the Product and Reputational Risk Committee. A critical element of the role of the Group Reputational Risk Committee is to act as a radar for the Group in relation to the identification of emerging or thematic risks. At a country level, the Country Chief Executive Officer (CEO) is responsible for the Group's reputation in their market. The Country CEO and their Management Committee must actively: â€¢ Promote awareness and application of the Group's policy and procedures regarding Reputational Risk; â€¢ Encourage business and functions to take account of the Group's reputation in all decision-making, including dealings with customers and suppliers; â€¢ Implement effective functioning of the in-country reporting system to ensure their management committee is alerted of all potential issues; and â€¢ Promote effective, proactive stakeholder management. Independent Monitoring Group Internal Audit is a separate Group function that reports to the ARC and the Group Chief Executive. Group Internal Audit provides independent confirmation that Group and business standards, policies and procedures are being complied with. Where necessary, corrective action is recommended. 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. 30.06.06 *30.06.05 31.12.05 $million $million $million Tier 1 capital: Called up ordinary share capital and preference shares 6,067 5,964 5,982 Eligible reserves 7,510 5,466 6,151 Minority interests 165 84 115 Innovative Tier 1 securities 2,186 1,458 1,542 Less: Restriction on innovative Tier 1 securities (492) (125) (83) Goodwill and other intangible assets (4,459) (4,233) (4,321) Unconsolidated associated companies 226 180 186 Other regulatory adjustments 90 95 153 Total Tier 1 capital 11,293 8,889 9,725 Tier 2 capital: Eligible revaluation reserves 191 94 195 Portfolio impairment provision 455 314 368 Qualifying subordinated liabilities: Perpetual subordinated debt 3,260 2,618 3,128 Other eligible subordinated debt 4,325 4,027 4,169 Less: Amortisation of qualifying subordinated liabilities (496) (237) (229) Restricted innovative Tier 1 securities 492 125 83 Total Tier 2 capital 8,227 6,941 7,714 Investments in other banks (149) (24) (148) Other deductions (207) (86) (173) Total capital base 19,164 15,720 17,118 Banking book: Risk weighted assets 104,466 95,856 99,378 Risk weighted contingents 21,477 16,576 16,274 125,943 112,432 115,652 Trading book: Market risk 4,249 6,091 6,701 Counterparty/settlement risk 4,906 3,008 3,571 Total risk weighted assets and contingents 135,098 121,531 125,924 Capital ratios: Tier 1 capital 8.4% 7.3% 7.7% Total capital 14.2% 12.9% 13.6% * The balance sheet as at 30 June 2005 has been restated to reflect the revised fair values of assets and liabilities acquired on the acquisition of SCFB. Notes 6 months 6 months 6 months ended ended ended 30.06.06 30.06.05 31.12.05 $million $million $million Interest income 5,970 3,678 5,072 Interest expense (3,460) (1,706) (2,709) Net interest income 2,510 1,972 2,363 Fees and commission income 1,103 868 972 Fees and commission expense (209) (141) (204) Net trading income 531 409 360 Other operating income 177 128 134 1,602 1,264 1,262 Operating income 4,112 3,236 3,625 Staff costs (1,381) (990) (1,155) Premises costs (206) (181) (182) General administrative expenses (519) (417) (603) Depreciation and amortisation (119) (120) (163) Operating expenses (2,225) (1,708) (2,103) Operating profit before impairment losses and taxation 1,887 1,528 1,522 Impairment losses on loans and advances and (349) (194) (125) other credit risk provisions Other impairment (8) (1) (49) Loss from associates (3) - - Profit before taxation 1,527 1,333 1,348 Taxation 2 (395) (367) (343) Profit for the period 1,132 966 1,005 Profit attributable to: Minority interests 29 (5) 30 Parent company's shareholders 1,103 971 975 Profit for the period 1,132 966 1,005 Earnings per share: Basic earnings per ordinary share 4 82.8c 74.7c 74.0c Diluted earnings per ordinary share 4 82.2c 73.2c 73.5c Dividends per ordinary share: Interim dividend declared 3 20.83c - - Interim dividend paid - 18.94c - Final dividend paid - - 45.06c Total interim dividend payable $274m - - Total interim dividend paid - $248m - Total final dividend paid - - $595m 30.06.06 *30.06.05 31.12.05 $million $million $million Assets Cash and balances at central banks 11,813 5,667 8,012 Financial assets held at fair value through profit or loss 13,082 8,459 10,333 Derivative financial instruments 12,721 10,704 9,370 Loans and advances to banks 16,750 19,874 21,701 Loans and advances to customers 119,550 106,510 111,791 Investment securities 46,037 38,334 37,863 Interests in associates 206 - 128 Goodwill and intangible assets 4,459 4,359 4,321 Property, plant and equipment 1,767 1,615 1,644 Deferred tax assets 492 392 498 Other assets 7,653 6,820 7,163 Prepayments and accrued income 3,618 1,909 2,272 Total assets 238,148 204,643 215,096 Liabilities Deposits by banks 21,994 20,958 18,834 Customer accounts 130,176 107,056 119,931 Financial liabilities at fair value through profit or loss 8,420 5,820 6,293 Derivative financial instruments 13,390 10,388 9,864 Debt securities in issue 24,953 26,761 25,913 Current tax liabilities 410 275 283 Other liabilities 11,198 9,844 8,446 Accruals and deferred income 2,430 1,854 2,319 Provisions for liabilities and charges 56 81 55 Retirement benefit obligations 466 535 476 Subordinated liabilities and other borrowed funds 10,805 8,537 10,349 Total liabilities 224,298 192,109 202,763 Equity Share capital and share premium 5,720 5,614 5,638 Reserves and retained earnings 7,630 5,609 6,244 Total parent company shareholders' equity 13,350 11,223 11,882 Minority interests 500 1,311 451 Total equity 13,850 12,534 12,333 Total equity and liabilities 238,148 204,643 215,096 * The balance sheet as at 30 June 2005 has been restated to reflect the revised fair values of assets and liabilities acquired on the acquisition of SCFB and the re-presentation of balances to conform with that used as at 31 December 2005; specifically, financial assets and liabilities held at fair value, other than derivatives, have been presented in single lines under assets and liabilities (see note 6). 6 months 6 months 6 months ended ended ended 30.06.06 30.06.05 31.12.05 $million $million $million Exchange differences on translation of foreign operations 364 (71) (19) Actuarial gains/(losses) on retirement benefits 68 (36) (114) Available-for-sale investments: Valuation gains/(losses) taken to equity 134 12 (5) Transferred to income on disposal/redemption (52) (74) (33) Cash flow hedges: Gains/(losses) taken to equity 45 (28) (37) Losses/(gains) transferred to income for the period 6 (19) (1) Deferred tax on items recognised directly in equity (56) 37 104 Other 3 (37) 38 512 (216) (67) Profit for the period 1,132 966 1,005 Total recognised income and expenses for the period 1,644 750 938 Effect of change in accounting policy Effect of adopting IAS 32 and 39 on 1 January 2005: Available-for-sale reserve 73 Cash flow hedge reserve 42 Retained earnings 36 151 901 Attributable to: Parent company shareholders 1,615 906 908 Minority interests 29 (5) 30 1,644 901 938 6 months 6 months 6 months ended ended ended 30.06.06 *30.06.05 31.12.05 $million $million $million Cash flow from operating activities Profit before taxation 1,527 1,333 1,348 Adjustment for items not involving cash flow or shown separately Depreciation and amortisation of property, plant and equipment, and 119 120 163 intangibles Gain on disposal of property plant and equipment (2) (1) 2 Gain on disposal of investment securities (52) (74) (33) Amortisation of investments (21) 55 (38) Impairment losses 349 194 125 Other impairment 8 1 49 Assets written off, net of recoveries (371) (287) (431) Increase in accruals and deferred income 47 577 375 Increase in prepayments and accrued income (1,282) (918) (330) Net increase in mark-to-market adjustment 152 341 598 Interest paid on subordinated loan capital 285 165 223 UK and overseas taxes paid (369) (278) (333) Net increase in treasury bills and other eligible bills (460) (170) (516) Net increase in loans and advances to banks and customers (4,328) (3,944) (1,786) Net increase in deposits from banks, customer accounts and debt securities 10,019 8,633 10,363 in issue Net increase in trading securities (2,127) (361) (1,133) Net decrease in other accounts (254) (2,486) (1,496) Net cash from operating activities 3,240 2,900 7,150 Net cash flows from investing activities Purchase of property plant and equipment (112) (37) (98) Acquisition of investment in subsidiaries, net of cash acquired - (1,093) - Acquisition of treasury bills and other eligible bills (12,201) (7,552) (5,891) Acquisition of debt securities (24,471) (16,573) (17,082) Acquisition of equity shares (109) (450) (208) Disposal of property plant and equipment 1 - 8 Disposal and maturity of treasury bills 10,853 5,625 6,974 Disposal and maturity of debt securities 18,872 19,497 16,251 Disposal of equity shares 46 95 256 Net cash (used in)/from investing activities (7,121) (488) 210 Net cash (outflow)/inflow from financing activities Issue of ordinary share capital 3 1,975 25 Purchase of own shares, net of exercise, for share option awards 96 (167) 94 Interest paid on subordinated loan capital (374) (206) (91) Gross proceeds from issue of subordinated loan capital 550 3,362 512 Repayment of subordinated liabilities (340) (731) (295) Dividends and payments to minority interests and preference shareholders (43) (104) (69) Dividends paid to ordinary shareholders (343) (474) (211) Net cash (used in)/from financing activities (451) 3,655 (35) Net (decrease)/increase in cash and cash equivalents (4,332) 6,067 7,325 Cash and cash equivalents at beginning of period 35,226 22,112 27,810 Effect of exchange rate changes on cash and cash equivalents 493 (369) 91 Cash and cash equivalents at end of period (note 5) 31,387 27,810 35,226 * Restated to reflect the revised fair values of assets and liabilities acquired on the acquisition of SCFB and the re-presentation of balances to conform with that used as at 31 December 2005 (see note 6). 1. BASIS OF PREPARATION The Group condensed interim financial statements consolidate those of the Company and its subsidiaries (together referred to as the 'Group'), equity account the Group's interest in associates and proportionately consolidate interests in jointly controlled entities. These condensed consolidated interim financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU. They do not include all of the information required for full annual financial statements, and should be read in conjunction with the consolidated financial statements of the Group as at and for the year ended 31 December 2005. These condensed consolidated interim financial statements were approved by the Board of Directors on 8 August 2006. Except as noted below, the accounting polices applied by the Group in these condensed consolidated interim financial statements are the same as those applied by the Group in its consolidated financial statements as at and for the year ended 31 December 2005. On 1 January 2006 the Group retrospectively adopted: Amendments to IAS 39 and IFRS 4 - Financial Guarantee Contracts; and IFRIC Interpretation 4, 'Determining whether an arrangement contains a lease' neither of which had a material impact on the Group's consolidated financial statements. The preparation of interim financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates. The significant judgements made by management in applying the Group's accounting polices and key sources of uncertainty were the same as those that applied to the consolidated financial statements as at and for the year ended 31 December 2005. The balance sheet as at 30 June 2005 has been restated as explained in note 6, to reflect the revised fair values of assets and liabilities acquired on the acquisition of SCFB and the re-presentation of balances to conform with that used as at 31 December 2005. 2. TAXATION Analysis of taxation charge in the period: 6 months 6 months 6 months ended ended ended 30.06.06 30.06.05 31.12.05 $million $million $million The charge for taxation based upon the profits for the period comprises: United Kingdom corporation tax at 30% (30 June 2005, 31 December 2005: 30%): Current tax on income for the period 93 158 168 Adjustments in respect of prior periods (114) - 4 Double taxation relief (88) (150) (158) Foreign tax: Current tax on income for the period 505 314 357 Adjustments in respect of prior periods 41 (8) (10) Total current tax 437 314 361 Deferred tax: Origination/reversal of temporary differences (42) 53 (18) Tax on profits on ordinary activities 395 367 343 Effective tax rate 25.9% 27.5% 25.5% Overseas taxation includes taxation on Hong Kong profits of $115 million (30 June 2005: $78 million, 31 December 2005: $131 million) provided at a rate of 17.5 per cent (30 June 2005: 17.5 per cent, 31 December 2005: 17.5 per cent) on the profits assessable in Hong Kong. 3. DIVIDENDS Ordinary equity shares Dividends are recorded in the period in which they are declared. The 2005 interim dividend of 18.94 cents per ordinary was paid to eligible shareholders on 14 October 2005 and the final dividend of 45.06 cents per ordinary share was paid to eligible shareholders on 12 May 2006. The 2006 interim dividend of 20.83 cents per share will be paid in either sterling, Hong Kong dollars or US dollars on 11 October 2006 to shareholders on the UK register of members at the close of business on 18 August 2006 and to shareholders on the Hong Kong branch register of members at the opening of business in Hong Kong (9:00am Hong Kong time) on 18 August 2006. It is intended that shareholders will be able to elect to receive shares credited as fully paid instead of all or part of the interim cash dividend. Details of the dividend arrangements will be sent to shareholders on or around 1 September 2006. Preference Shares 6 months 6 months 6 months ended ended ended 30.06.06 30.06.05 31.12.05 $million $million $million Non-cumulative irredeemable preference shares: 7 3/8 per cent preference shares of Â£1 each* 7 7 7 8 1/4 per cent preference shares of Â£1 each* 7 7 8 Non-cumulative redeemable preference shares: 8.9 per cent preference shares of $5 each 15 15 14 * Instruments classified as liabilities with dividends recorded as interest expense 4. EARNINGS PER ORDINARY SHARE 30.06.06 Profit Weighted Per $million average number share of shares amount ('000) cents Basic earnings per ordinary share 1,088 1,314,467 82.8 Effect of dilutive potential ordinary shares: Convertible bonds - - Options - 9,666 Diluted earnings per share 1,088 1,324,133 82.2 30.06.05 31.12.05 Profit Weighted Per Profit Weighted Per $million average number share $million average number share of shares amount of shares amount ('000) cents ('000) cents Basic earnings per 956 1,279,432 74.7 961 1,297,821 74.0 ordinary share Effect of dilutive potential ordinary shares: Convertible bonds 7 20,578 - - Options - 15,366 - 9,418 Diluted earnings per share 963 1,315,376 73.2 961 1,307,239 73.5 Normalised earnings per ordinary share The Group measures earnings per share on a normalised basis. This differs from earnings defined in IAS 33, Earnings per share. The table below provides a reconciliation. 30.06.06 30.06.05 31.12.05 $million $million $million Profit attributable to ordinary shareholders 1,088 956 961 Amortisation of intangible assets arising on business combinations 20 5 27 Other impairment - 1 41 Premium and costs paid on repurchase of subordinated debt 4 - - Tax on normalised items (7) - (7) Normalised earnings 1,105 962 1,022 Normalised earnings per ordinary share (cents) 84.1 75.2 78.7 No ordinary shares were issued after the balance sheet date that would have significantly affected the number of ordinary shares used in the above calculations had they been issued prior to the end of the balance sheet period. 5. CASH AND CASH EQUIVALENTS For the purposes of the cash flow statement, cash and cash equivalents comprises of the following balances with less than three months maturity from the date of acquisition: 30.06.06 30.06.05 31.12.05 $million $million $million Cash and balances with central banks 11,813 5,667 8,012 Less restricted balances (7,194) (2,769) (4,269) Treasury bills and other eligible bills 6,222 4,686 4,049 Loans and advances to banks 12,627 13,719 17,590 Trading securities 7,919 6,507 9,844 Total 31,387 27,810 35,226 6. RESTATEMENT OF PRIOR PERIODS Acquisition of SCFB The fair values of assets and liabilities acquired on the acquisition of SCFB and presented in the 30 June 2005 interim report were provisional. The fair values were revised in the 2005 annual report and accounts as at 31 December 2005, as required under IFRS 3 Business Combinations. The effect of the reassessed fair values was to increase goodwill by $126 million. This, together with reclassifications, has been included in the 30 June 2005 balance sheet. The effect of the restatement is set out in the table below. Re-presentation of financial assets and liabilities held at fair value As at 30 June 2005 financial assets and liabilities held at fair value were presented in separate balance sheet lines. In the 2005 annual report and accounts as at 31 December 2005, these financial assets and liabilities were re-presented in separate financial asset and liability lines. Treasury bill, debt securities and equity securities were aggregated into a single line called investment securities (after reclassifying those held at fair value). The effect of this re-presentation is set out in the table below. As reported at Adjustment Restated at 30.06.05 Re-presentation to SCFB 30.06.05 $million $million $million $million Cash and balances at central banks 5,667 - - 5,667 Financial assets held at fair value through profit or loss - 8,459 - 8,459 Treasury bills and other eligible bills 13,011 (13,011) - - Derivative financial instruments 10,704 - - 10,704 Loans and advances to banks 20,955 (1,081) - 19,874 Loans and advances to customers 107,929 (871) (548) 106,510 Debt securities 30,877 (30,877) - - Equity shares 945 (945) - - Investment securities - 38,326 8 38,334 Goodwill and intangible assets 4,233 - 126 4,359 Property, plant and equipment 1,614 - 1 1,615 Deferred tax assets 320 - 72 392 Other assets 5,763 1,060 (3) 6,820 Prepayments and accrued income 1,909 - - 1,909 Total assets 203,927 1,060 (344) 204,643 Deposits by banks 21,653 (695) - 20,958 Customer accounts 108,770 (1,304) (410) 107,056 Financial liabilities held at fair value through profit or - 5,699 121 5,820 loss Derivative financial instruments 10,388 - - 10,388 Debt securities in issue 27,955 (1,073) (121) 26,761 Current tax liabilities 275 - - 275 Other liabilities 11,222 (1,607) 229 9,844 Accruals and deferred income 1,854 - - 1,854 Provisions for liabilities and charges 81 - - 81 Retirement benefit obligations 397 - 138 535 Subordinated liabilities and other borrowed funds 8,838 - (301) 8,537 Total liabilities 191,433 1,020 (344) 192,109 Total equity 12,494 40 - 12,534 Total equity and liabilities 203,927 1,060 (344) 204,643 Segmental analysis The Group has refined its method of charging for and allocating capital and as a consequence the segmental results for the periods ended 30 June 2005 and 31 December 2005 have been restated. There has been no effect on the Group's total reported numbers but the effect on the business and geographic segments is set out below. 31.12.05 Consumer Wholesale Corporate Total Banking Banking items not $million $million $million allocated $million Operating income as previously reported 2,084 1,541 - 3,625 Restatement (5) 5 - - Operating income as restated 2,079 1,546 - 3,625 7. INTERIM REPORT AND STATUTORY ACCOUNTS The information in this interim statement is unaudited and does not constitute statutory accounts within the meaning of Section 240 of the Companies Act 1985. This document was approved by the Board on 8 August 2006. The comparative figures for the financial year end 31 December 2005 are not the Company's statutory accounts for that financial period. These statutory accounts have been reported on by the Company's auditors and delivered to the Registrar of Companies. The report of the auditors was unqualified and did not contain a statement under Section 237 (2) or (3) of the Companies Act 1985. This news release does not constitute the unaudited Interim financial information which is contained in the interim report. The unaudited Interim financial information has been reviewed by the Company's auditor, KPMG Audit Plc, in accordance with the guidance contained in Bulletin 1999/4: Review of interim financial information issued by the Auditing Practices Board. On the basis of its review, KPMG Audit Plc is not aware of any material modifications that should be made to the unaudited interim financial information as presented for the six months ended 30 June 2006 in the interim report. The full independent review report is included in the interim report. 8. CORPORATE GOVERNANCE The directors confirm that, throughout the period, the Company has complied with the provisions of Appendix 14 of the Listing Rules of the Hong Kong Stock Exchange. The directors also confirm that the announcement of these results has been reviewed by the Company's Audit and Risk Committee 9. PURCHASE OF LISTED SECURITIES Bedell Cristin Trustees Limited is trustee of both the 1995 Employees' Share Ownership Plan Trust (1995 trust), which is an employee benefit trust used in conjunction with some of the Group's employee share schemes, and the Standard Chartered 2004 Employee Benefit Trust (2004 trust) which is an employee benefit trust used in conjunction with the Group's Deferred Bonus Plan. The trustee has agreed to satisfy a number of awards made under the employee share schemes and the deferred bonus plan through the relevant employee benefit trust. As part of these arrangements Group companies fund, from time to time, the trusts to enable the trustee to acquire shares to satisfy these awards. For the period ended 30 June 2006, the 1995 trust has acquired, at market value, nil (30 June 2005: 11,700,000, 31 December 2005: nil) Standard Chartered PLC shares for an aggregate price of $nil million (30 June 2005: $211 million, 31 December 2005: $nil million). These shares are held in a pool for the benefit of participants under the Group's Restricted Share Scheme, Performance Share Plan and Executive Shares Option Schemes. The purchase of these shares has been fully funded by the Group. At 30 June 2006, the 1995 trust held 5,104,262 (30 June 2005: 19,503,732, 31 December 2005: 13,631,745) Standard Chartered PLC shares, of which 5,104,262 (30 June 2005: 16,793,958, 31 December 2005 11,521,682) have vested unconditionally. For the period ended 30 June 2006, the 2004 trust has acquired, at market value, 321,242 (30 June 2005: 422,659, 31 December 2005: nil) Standard Chartered PLC shares for an aggregate price of $9 million (30 June 2005: $8 million, 31 December 2005: $nil million). These shares are held in a pool for the benefit of participants under the Group's Deferred Bonus Plan. The purchase of these shares has been fully funded by the Group. At 30 June 2006, the 2004 trust held 311,575 (30 June 2005: 429,012, 31 December 2005: 409,160) Standard Chartered PLC shares, of which nil (30 June 2005: 7,333, 31 December 2005: 7,333) have vested unconditionally. None of the shares held by the 1995 trust or the 2004 trust were purchased on The Stock Exchange of Hong Kong Limited. Financial Calendar Ex-dividend date 16 August 2006 Record date 18 August 2006 Expected posting to shareholders of 2006 Interim Report 1 September 2006 Payment date - interim dividend on ordinary shares 11 October 2006 Copies of the interim report are available from: Investor Relations, Standard Chartered PLC, 1 Aldermanbury Square, London, EC2V 7SB or from our website on http://investors.standardchartered.com For further information please contact: Annemarie Durbin, Group Head of Corporate Affairs +44 20 7280 6438 Romy Murray, Head of Investor Relations +44 20 7280 7245 Ruth Naderer, Head of Investor Relations, Asia Pacific +852 2820 3075 Sean Farrell, Head of Media Relations +44 20 7280 7163 The following information will be available on our website â€¢ A live webcast of the interim results analyst presentation (available from 10.45 am UK time) â€¢ The archived webcast and Q/A session of analyst presentation in London (available 1.00 pm UK time) â€¢ Interviews with Mervyn Davies, Group Chief Executive and Peter Sands, Group Finance Director (available from 9.15 am UK time) â€¢ Slides for the Group's presentations (available after 10.45 am UK time) Images of Standard Chartered are available for the media at http://www.standardchartered.com/global/mc/plib/directors_p01.html Information regarding the Group's commitment to Corporate Responsibility is available at http://www.standardchartered.com/corporateresponsibility The 2006 Interim Report will be made available on the website of the Stock Exchange of Hong Kong Limited and on our website http://investors.standardchartered.com as soon as is practicable. Forward looking statements It is possible that this document could or may contain forward-looking statements that are based on current expectations or beliefs, as well as assumptions about future events. These forward-looking statements can be identified by the fact that they do not relate only to historical or current facts. Forward-looking statements often use words such as anticipate, target, expect, estimate, intend, plan, goal, believe, will, may, should, would, could or other words of similar meaning. Undue reliance should not be placed on any such statements because, by their very nature, they are subject to known and unknown risks and uncertainties and can be affected by other factors that could cause actual results, and the Group's plans and objectives, to differ materially from those expressed or implied in the forward-looking statements. There are several factors which could cause actual results to differ materially from those expressed or implied in forward looking statements. Among the factors that could cause actual results to differ materially from those described in the forward looking statements are changes in the global, political, economic, business, competitive, market and regulatory forces, future exchange and interest rates, changes in tax rates and future business combinations or dispositions. The Group undertakes no obligation to revise or update any forward looking statement contained within this document, regardless of whether those statements are affected as a result of new information, future events or otherwise. This information is provided by RNS The company news service from the London Stock Exchange

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