SCPLC Half Year Results 2024 - Part 1

Standard Chartered PLC
30 July 2024
 

Standard Chartered PLC - Half Year Results 2024 - Part 1

Table of  content

Performance highlights

2

Statement of results

5

Group Chief Executive's review

6

Group Chief Financial Officer's review

9

Supplementary financial information

18

Underlying versus reported results reconciliations

26

Alternative performance measures

28

Group Chief Risk Officer's review

30

 

 

 

 

Unless another currency is specified, the word 'dollar' or symbol '$' in this document means US dollar and the word 'cent' or symbol 'c' means one-hundredth of one US dollar.

The information within this report is unaudited.

Unless the context requires, within this document, 'China' refers to the People's Republic of China and, for the purposes of this document only, excludes Hong Kong Special Administrative Region (Hong Kong), Macau Special Administrative Region (Macau) and Taiwan. 'Korea' or 'South Korea' refers to the Republic of Korea.

Within the tables in this report, blank spaces indicate that the number is not disclosed, dashes indicate that the number is zero and nm stands for not meaningful. Standard Chartered PLC is incorporated in England and Wales with limited liability. Standard Chartered PLC is headquartered in London.

The Group's head office provides guidance on governance and regulatory standards. Standard Chartered PLC stock codes are: HKSE 02888 and LSE STAN.LN.

 

 

 

 

Page 1


Standard Chartered PLC - Results for the first half and second quarter ended 30 June 2024

All figures are presented on an underlying basis and comparisons are made to 2023 on a reported currency basis, unless otherwise stated. A reconciliation of restructuring and other items excluded from underlying results is set out below.

Bill Winters, Group Chief Executive, said:

"We produced a strong set of results for the first half of the year, demonstrating the value of our franchise as a cross-border corporate and investment bank and a leading wealth manager for affluent clients. We generated double-digit income growth, with positive momentum continuing into the second quarter, and with continued discipline in managing our expenses. This led to a 20% growth in underlying profit before tax. Reflecting confidence in our performance and robust capital position, we are upgrading our guidance for income growth, which we now expect to be above 7% in 2024, and we are announcing our largest ever share buyback of $1.5bn. This brings our total shareholder distributions announced since full-year 2023 results to $2.7bn."

Selected information on Q2'24 financial performance with comparisons to Q2'23 unless otherwise stated

• Operating income up 6% to $4.8bn, up 7% at constant currency (ccy)

-  Net interest income (NII) up 6% at ccy to $2.6bn, primarily due to the short-term hedge roll-off and benefit from treasury optimisation activities; Non NII up 9% at ccy to $2.2bn

-  Wealth Solutions up 27% at ccy, with broad-based growth across products and supported by robust leading indicators in net new sales and Affluent new to bank clients

-  Global Banking up 11% at ccy, driven by pipeline execution and higher origination and distribution volumes

-  Global Markets down 7% at ccy with non-repeat of strong prior year episodic income in Macro Trading

• Operating expenses up 2% to $2.9bn, up 4% at ccy driven by inflation and business growth

• Credit impairment charge of $73m includes $146m from Wealth & Retail Banking (WRB) in line with recent run rate and $66m release from impact of sovereign upgrades booked across CIB and Central & Other

-  High risk assets of $8.5bn broadly flat quarter-on-quarter

-  Loan-loss rate (LLR) of 12bps, down 4bps on prior year and down 11bps on prior quarter

• Underlying profit before tax of $1.8bn, up 15% at ccy; reported profit before tax of $1.6bn, up 5% at ccy

• Restructuring and other items of $250m of which $174m primarily relates to recycling of FX translation losses from reserves into the P&L on the sale of Zimbabwe (no impact on tangible net asset value and capital ratios)

• Balance sheet remains strong, liquid and well diversified

-  Loans and advances to customers of $276bn, down $8bn or 3% since 31.3.24 from run-off of Treasury balances and FX translation; up $1bn on an underlying basis with continued growth in CIB offsetting mortgage headwinds in WRB

-  Customer deposits of $468bn, up $9bn or 2% since 31.3.24; growth in WRB term deposits and CIB CASA

• Risk-weighted assets (RWA) of $242bn, down $10bn or 4% since 31.3.24

-  Credit risk RWA down $8bn; from improved asset quality including sovereign upgrades, optimisation initiatives and FX translation

-  Market risk RWA down $2bn reflecting lower risk as Markets activity reduced

• The Group remains strongly capitalised:

-  Common equity tier 1 (CET1) ratio 14.6% (31.3.24: 13.6%), above 13-14% target range

-  $1.5bn share buyback starting imminently is expected to reduce CET1 ratio by approximately 60bps

-  Interim ordinary dividend increased 50% to 9 cents per share ($230m)

• Tangible net asset value per share of $14.44, up 54 cents since 31.3.24

 

• Return on Tangible Equity (RoTE) of 12.9%, up 1%pts

Page 2


 

Selected information on H1'24 financial performance with comparisons to H1'23 unless otherwise stated

• Operating income up 11% to $10.0bn, up 13% at ccy; up 10% at ccy excluding notable items

-  NII up 5% at ccy to $5.0bn; Non NII up 22% at ccy to $5.0bn, up 16% at ccy excluding two notable items

-  Wealth Solutions up 25% at ccy, record performance, net new sales more than doubled to $13bn and Wealth AUM increased by 12% since 31.12.23 to $135bn

-  Global Banking up 14% at ccy driven by higher origination and distribution volumes, executing on a strong pipeline

-  Global Markets up 5% at ccy with flow income up 7%. Strong double-digit growth in Credit Trading and Commodities offset lower episodic income in FX and Rates

-  Two notable items of $258m from revaluation of FX positions in Egypt and hyperinflation in Ghana

• Operating expenses up 3% to $5.7bn, up 5% at ccy

-  Positive 8% income-to-cost jaws at ccy, with the cost-to-income ratio improving 4%pts to 57%

• Credit impairment charge of $249m, up $77m as WRB charges normalise following the release of management overlays
in the first half last year

• Other impairment charge of $143m mostly relates to write-off of software assets with no impact on capital ratios

• Underlying profit before tax of $4.0bn, up 21% at ccy; reported profit before tax of $3.5bn, up 6% at ccy

• Restructuring charges of $150m; Other items of $289m primarily the recycling of FX translation losses and a provision
in respect of the Korea equity linked securities portfolio

• Tax charge of $1.1bn; underlying effective tax rate of 30.1%

• Balance sheet remains strong, liquid and well diversified

-  Loans and advances to customers of $276bn, down $11bn or 4% since 31.12.23; up $5bn or 2% on an underlying basis

-  Customer deposits of $468bn, broadly flat since 31.12.23

-  Liquidity coverage ratio of 148% (31.12.23: 145%)

• Underlying earnings per share (EPS) increased 23.5 cents or 31% to 98.5 cents; Reported EPS increased 7.7 cents or 10% to 83.3 cents

• RoTE of 14.0%, up 2%pts

Update on 2024-2026 strategic actions for H1'24 unless otherwise stated

• Drive growth in high returning businesses in CIB: Cross-border (network) income up 12% year-on-year (YoY), excluding interest rate impact

• Build on strengths in Affluent client business in WRB: $23bn of net new money for the first six months of the year (H1'23: $13bn)

• Deliver profitability and drive returns accretion in Ventures: ~600k customers in Mox and ~800k customers in Trust

• Improve operational leverage through Fit for Growth programme: >200 projects scoped, execution in progress

• Deliver substantial shareholder distributions: $2.7bn of total distributions announced since FY'23

Other updates

• Sustainability: Sustainable Finance income up 18% YoY; mobilised over $105bn in Sustainable Finance since 1.1.21

Page 3


 

Guidance

We are upgrading our 2024 income guidance while all other key points of guidance remain unchanged:

• Operating income to increase above 7% in 2024 at ccy, excluding the two notable items

• Net interest income for 2024 of $10bn to $10.25bn, at ccy

• Positive income-to-cost jaws, excluding UK bank levy, at ccy in 2024

• Low single-digit percentage growth in underlying loans and advances to customers and RWA in 2024

• Continue to expect LLR to normalise towards the historical through the cycle 30 to 35bps range

• Continue to operate dynamically within the full 13-14% CET1 ratio target range

• Continue to increase full-year dividend per share over time

• RoTE increasing steadily from 10%, targeting 12% in 2026 and to progress thereafter

Page 4


 

Statement of results

6 months ended 30.06.24
$million

6 months ended 30.06.23
$million

Change¹
%

Underlying performance




Operating income

9,958

8,951

11

Operating expenses

(5,673)

(5,504)

(3)

Credit impairment

(249)

(172)

(45)

Other impairment

(143)

(63)

(127)

Profit from associates and joint ventures

64

94

(32)

Profit before taxation

3,957

3,306

20

Profit attributable to ordinary shareholders²

2,567

2,128

21

Return on ordinary shareholders' tangible equity (%)

14.0

12.0

200bps

Cost-to-income ratio (%)

57.0

61.5

453bps

Reported performance⁷




Operating income

9,791

9,127

7

Operating expenses

(6,056)

(5,668)

(7)

Credit impairment

(240)

(161)

(49)

Goodwill and other impairment

(147)

(77)

(91)

Profit from associates and joint ventures

144

102

41

Profit before taxation

3,492

3,323

5

Taxation

(1,123)

(938)

(20)

Profit for the period

2,369

2,385

(1)

Profit attributable to parent company shareholders

2,378

2,388

0

Profit attributable to ordinary shareholders2

2,169

2,145

1

Return on ordinary shareholders' tangible equity (%)

11.9

11.9

-

Cost-to-income ratio (%)

61.9

62.1

20bps

Net interest margin (%) (adjusted)6

1.85

1.67

18bps

 

30.06.24
$million

31.12.23
$million

Change¹
%

Balance sheet and capital




Total assets

835,427

822,844

2

Total equity

51,327

50,353

2

Average tangible equity attributable to ordinary shareholders2

36,529

36,098

1

Loans and advances to customers

275,896

286,975

(4)

Customer accounts

468,157

469,418

-

Risk-weighted assets

241,926

244,151

(1)

Total capital

53,569

51,741

4

Total capital ratio (%)

22.1

21.2

90bps

Common Equity Tier 1

35,418

34,314

3

Common Equity Tier 1 ratio (%)

14.6

14.1

50bps

Advances-to-deposits ratio (%)3

52.6

53.3

(70)bps

Liquidity coverage ratio (%)

148

145

300bps

UK leverage ratio (%)

4.8

4.7

10bps

 

30.06.24

30.06.23

Change¹


Cents

Cents

Cents

Information per ordinary share




Earnings per share     - underlying4

98.5

75.0

23.5

                                                - reported⁴

83.3

75.6

7.7

Net asset value per share5

1,683

1,513

170

Tangible net asset value per share5

1,444

1,302

142

Number of ordinary shares at period end (millions)

2,550

2,797

(9)

1   Variance is better/(worse) other than assets, liabilities and risk-weighted assets. Change is percentage points difference between two points rather than percentage change for total capital ratio (%), common equity tier 1 ratio (%), net interest margin (%), advances-to-deposits ratio (%), liquidity coverage ratio (%), UK leverage ratio (%). Change is cents difference between two points rather than percentage change for earnings per share, net asset value per share and tangible net asset value per share

2   Profit/(loss) attributable to ordinary shareholders is after the deduction of dividends payable to the holders of non-cumulative redeemable preference shares and Additional Tier 1 securities classified as equity

3   When calculating this ratio, total loans and advances to customers excludes reverse repurchase agreements and other similar secured lending, excludes approved balances held with central banks, confirmed as repayable at the point of stress and includes loans and advances to customers held at fair value through profit and loss. Total customer accounts include customer accounts held at fair value through profit or loss

4   Represents the underlying or reported earnings divided by the basic weighted average number of shares.

5   Calculated on period end net asset value, tangible net asset value and number of shares

6   Net interest margin is calculated as adjusted net interest income divided by average interest-earning assets, annualised

7   Reported performance/results within this interim financial report means amounts reported under UK-adopted IAS and EU IFRS. In prior periods Reported performance/results were described as Statutory performance/results

Page 5


Group Chief Executive's review

Delivering a strong performance in the first six months of the year

We posted a strong set of results for the first six months of 2024, generating a 14 per cent return on tangible equity (RoTE). Income of $10.0 billion was up 13 per cent on a constant currency basis, supported by continued positive momentum in the second quarter. We delivered an encouraging performance across our engines of non net interest income, including a record performance in Wealth Solutions, with income up 25 per cent.

Good cost discipline has enabled us to generate significantly positive income-to-cost jaws of 8 per cent, even with continued underlying investments. Credit impairment rose year-on-year, though lower charges in the first half of 2023 in Wealth & Retail Banking (WRB) benefitted from provision releases. The broader portfolios have proved resilient, and we remain vigilant in the face of volatile global environment. All this has helped to increase underlying profit before tax by 21 per cent year-on-year to $4.0 billion.

We remain highly liquid with a diverse and stable deposit base and an advances-to-deposits ratio of 52.6 per cent. We are well capitalised, with equity generation and continued discipline on risk weighted assets (RWA) delivering a Common Equity Tier 1 (CET1) ratio of 14.6 per cent in the second quarter.

Driving sustainably higher returns

In February, we set out a series of further actions in each of our three client businesses to drive income growth of 5 to
7 per cent over the next three years, well above the anticipated rate of growth for the global economy. I am extremely pleased with the progress we have made since we made these commitments.

• In Corporate & Investment Banking (CIB), we said we are going to drive growth in high-returning businesses targeting an 8 to 10 per cent underlying income growth over the next three years in cross-border (network) business and from Financial Institutions clients, as well as Financing income. Leveraging the significant opportunities of supply chain shifts, with China, ASEAN, South Asia and the Middle East as epicentres, the team delivered 6 per cent growth (12 per cent excluding interest rate impact) in our cross-border (network) income. Almost one third of our cross border income is intra-Asia, with particularly strong growth in the China-to-ASEAN corridor, up 11 per cent. Financing and underlying Financial Institutions income grew 12 per cent and 6 per cent respectively during the first half of the year

• In WRB, we said we will build on our strengths in the Affluent client business, and in the first six months of the year, the team has attracted $23 billion of Affluent net new money, which is great progress against our $80 billion three-year target. We are also focusing on accelerating growth in international clients in our wealth hubs, with 296,000 at the end of the first half, making good progress towards our target of more than 375,000 by 2026. We are also growing the Affluent client business through up-tiering our clients across the wealth continuum, with 155,000 clients up-tiered in the first six months of the year

• For Ventures, we said we will deliver profitability and drive returns accretion targeting for the overall segment to be RoTE accretive by 2026. In Mox, our digital bank in Hong Kong, we now have around 600,000 customers, with income for the first six months of the year up almost 20 per cent. While in Trust, our digital bank in Singapore, we have increased the number of customers to around 800,000 and we are aiming for Trust to become the fourth largest retail bank, by customer numbers, in Singapore by the end of 2024. In SC Ventures, we have raised $55 million of external funds in the first six months of the year. We also recently established an office in the UAE, to engage the fintech and business innovation ecosystem in Abu Dhabi and the broader region

Improving operational leverage through the Fit for Growth programme

We are taking actions to transform the way we operate, addressing structural inefficiencies and complexity through our three-year enterprise-wide Fit for Growth programme, that aims to simplify, standardise and digitise key elements of our business, setting the stage for accelerated growth.

This programme is targeting to save around $1.5 billion of expenses over the next three years, and we expect to incur a similar amount in terms of the cost to achieve these sustainable organisational and financial benefits, creating lasting capacity to reinvest in our growth.

Page 6

 

Since its launch in February this year, we are progressing the programme at pace, having identified more than 200 individual projects as in-scope or being scoped. Around 50 per cent of these projects are in execution or ready to commence execution, with the plan to have all of them in execution by the end of this year.

These projects are well diversified, which will help to minimise concentration and execution risk, with around 80 per cent of the projects expected to deliver savings of less than $10 million individually.

Delivering substantial shareholder distributions

We remain committed to sharing our success with our shareholders and will continue to actively manage our capital position with this objective in mind. We are today announcing a further share buyback programme of $1.5 billion, to commence imminently. This new share buyback, and the interim dividend of 9 cents per share, up 50 per cent year-on-year, brings our total shareholder returns announced since the full year 2023 results to $2.7 billion, well on our way to our 2024 to 2026 target of at least $5 billion.

Strong progress to our sustainability goals

We continue to see strong momentum in our Sustainable Finance franchise, which is up 18 per cent year-on-year in the first six months of the year, and we remain on-track to deliver over a billion dollars in income by 2025, as planned. We have mobilised over $105 billion of sustainable finance since the beginning of 2021, making good progress as we advance towards our $300 billion target by 2030.

On the broader sustainability agenda, building on the good progress we made in 2023, and in line with our position statements, we have updated our approach to greenhouse gas emissions reduction by adding methane emissions resulting from client activities. We announced in May the commitment that by 2025 we will set a methane emission baseline and interim 2030 target.

We facilitate the movement of capital to where it is needed most, and where it can have the biggest societal impact.
For instance, this year we launched an innovative Adaptation Trade Finance Facility to protect businesses against extreme weather events. We have also released the "Guide for Adaptation and Resilience Finance" in partnership with the United Nations Office for Disaster Risk Reduction (UNDRR) and KPMG, with input from over 30 other organisations.

Optimistic outlook for the markets in our footprint

Looking forward, we expect global growth of 3.1 per cent this year, with Asia set to remain the primary engine of global growth, expanding by 5.1 per cent in 2024 and 4.9 per cent in 2025. We expect Africa and the Middle East to grow faster in 2024 than in 2023, accelerating again in 2025.

We are uniquely positioned to take advantage of significant growth opportunities that will continue to come from the markets in our footprint, generating value for our clients and the communities in which we operate. Global trade and investment will continue to grow and is expected to be anchored in Asia, Africa and the Middle East (AME), and in Asia wealth creation is also expected to outpace that in the rest of world.

We have an unparalleled presence in 21 Asia markets, including all 10 ASEAN markets, as well as being one of the largest international banks in South Asia. We have a deep-rooted heritage in AME, where we are one of the largest international banks on the continent of Africa and have a significant presence across seven markets in the Middle East.

We will continue to invest in our core capabilities serving our clients' cross-border needs and with a particular focus on Affluent clients. These segments are fast-growing and high returning and returns on incremental investment are high.

Page 7


 

Concluding remarks

We've delivered a strong financial performance in the first half of the year demonstrating the value of our franchise as a cross-border corporate and investment bank and a leading wealth manager for Affluent clients. We have also made very encouraging early progress against the key actions we laid out in February to drive sustainably higher returns.

Reflecting confidence in our performance and robust capital position, we are announcing our largest ever share buyback of $1.5 billion, bringing our total shareholder distributions announced since full-year 2023 results to $2.7 billion. We are also upgrading our guidance for income growth, which we now expect to be above 7 per cent in 2024.

Delivering strong income growth, combined with improving operational leverage through our Fit for Growth programme
and maintaining our responsible approach to risk and capital, we continue to expect RoTE to increase steadily from
10 per cent in 2023, targeting 12 per cent in 2026 and to progress thereafter.

I believe we have the right strategy, business model and ambition to deliver our 2026 targets. My management team and I remain focused on delivering these targets while we create exceptional long-term value for the Group.

Finally, I would like to acknowledge the remarkable efforts of our colleagues for a strong start to the year. Their impressive dedication to our customers and the communities that we serve help to manifest our brand promise of here for good.

 

Bill Winters

Group Chief Executive

30 July 2024

Page 8


 

 

Group Chief Financial Officer's review

The Group delivered a strong performance in the first six months of 2024

Summary of financial performance

H1'24
$million

H1'23
$million

Change
%

Constant currency change1
%

Q2'24
$million

Q2'23
$million

Change
%

Constant currency change1
%

Q1'24
$million

Change
%

Constant currency change1
%

Underlying net interest income

4,979

4,777

4

5

2,560

2,436

5

6

2,419

6

6

Underlying non NII

4,979

4,174

19

22

2,246

2,119

6

9

2,733

(18)

(16)

Underlying operating income

9,958

8,951

11

13

4,806

4,555

6

7

5,152

(7)

(6)

Other operating expenses

(5,673)

(5,501)

(3)

(5)

(2,887)

(2,826)

(2)

(4)

(2,786)

(4)

(5)

UK bank levy

-

(3)

100

100

-

(3)

100

100

-

nm³

nm³

Underlying operating expenses

(5,673)

(5,504)

(3)

(5)

(2,887)

(2,829)

(2)

(4)

(2,786)

(4)

(5)

Underlying operating profit before impairment and taxation

4,285

3,447

24

26

1,919

1,726

11

13

2,366

(19)

(17)

Credit impairment

(249)

(172)

(45)

(52)

(73)

(146)

50

43

(176)

59

59

Other impairment

(143)

(63)

(127)

(118)

(83)

(63)

(32)

(27)

(60)

(38)

(40)

Profit from associates and
joint ventures

64

94

(32)

(32)

65

83

(22)

(23)

(1)

nm³

nm³

Underlying profit before taxation

3,957

3,306

20

21

1,828

1,600

14

15

2,129

(14)

(12)

Restructuring

(150)

56

nm³

nm³

(95)

8

nm³

nm³

(55)

(73)

(76)

DVA

(26)

(39)

33

32

22

(93)

124

124

(48)

146

146

Other items

(289)

-

nm³

nm³

(177)

-

nm³

nm³

(112)

(58)

(59)

Reported profit before taxation

3,492

3,323

5

6

1,578

1,515

4

5

1,914

(18)

(16)

Taxation

(1,123)

(938)

(20)

(24)

(604)

(474)

(27)

(37)

(519)

(16)

(20)

Profit for the year

2,369

2,385

(1)

-

974

1,041

(6)

(8)

1,395

(30)

(29)

Net interest margin (%)2

1.85

1.67

18


1.93

1.71

22


1.76

17


Underlying return on tangible
equity (%)2

14.0

12.0

200


12.9

12.1

79


15.2

(231)


Underlying earnings per share (cents)

98.5

75.0

31


45.5

37.3

22


52.9

(14)


1   Comparisons presented on the basis of the current period's transactional currency rate, ensuring like-for-like currency rates between the two periods

2   Change is the basis points (bps) difference between the two periods rather than the percentage change

3   Not meaningful

Reported financial performance summary

H1'24
$million

H1'23
$million

Change
%

Constant currency change1
%

Q2'24
$million

Q2'23
$million

Change
%

Constant currency change1
%

Q1'24
$million

Change
%

Constant currency change1
%

Net interest income

3,175

3,984

(20)

(19)

1,603

1,978

(19)

(18)

1,572

2

3

Non NII

6,616

5,143

29

32

3,058

2,589

18

21

3,558

(14)

(13)

Reported operating income

9,791

9,127

7

9

4,661

4,567

2

4

5,130

(9)

(8)

Reported operating expenses

(6,056)

(5,668)

(7)

(9)

(3,059)

(2,918)

(5)

(7)

(2,997)

(2)

(3)

Reported operating profit before impairment and taxation

3,735

3,459

8

10

1,602

1,649

(3)

(1)

2,133

(25)

(23)

Credit impairment

(240)

(161)

(49)

(61)

(75)

(141)

47

40

(165)

55

55

Goodwill and Other impairment

(147)

(77)

(91)

(91)

(87)

(77)

(13)

(14)

(60)

(45)

(47)

Profit from associates and
joint ventures

144

102

41

41

138

84

64

64

6

nm³

nm³

Reported profit before taxation

3,492

3,323

5

6

1,578

1,515

4

5

1,914

(18)

(16)

Taxation

(1,123)

(938)

(20)

(24)

(604)

(474)

(27)

(37)

(519)

(16)

(20)

Profit for the year

2,369

2,385

(1)

-

974

1,041

(6)

(8)

1,395

(30)

(29)

Reported return on tangible
equity (%)2

11.9

11.9

-


10.4

10.8

(40)


13.5

(310)


Reported earnings per share (cents)

83.3

75.6

10


36.7

34.8

5


46.5

(21)


1   Comparisons presented on the basis of the current period's transactional currency rate, ensuring like-for-like currency rates between the two periods

2   Change is the basis points (bps) difference between the two periods rather than the percentage change

3   Not meaningful

Page 9


 

The Group delivered a strong performance in the first half of 2024. Underlying operating income grew 13 per cent at constant currency to $10.0 billion and was up 10 per cent at constant currency excluding two notable items relating to gains on revaluation of FX positions in Egypt and hyperinflationary accounting adjustments in Ghana. Underlying net interest income (NII) was up 5 per cent at constant currency as the Group benefitted from the roll-off of short-term hedges and improved mix from Treasury activities. Underlying non net interest income (Non NII) increased 22 per cent or up 16 per cent at constant currency excluding the impact of the two notable items. The Group generated 8 per cent positive income-to-cost jaws at constant currency as expenses grew 5 per cent driven by inflation and continued investment into business growth initiatives. Credit impairment charges of $249 million were equivalent to an annualised loan-loss rate of 18 basis points and benefitted from sovereign upgrades. This resulted in an underlying profit before tax of $4.0 billion, up 21 per cent at constant currency.

The Group remains well capitalised and highly liquid with a diverse and stable deposit base. The liquidity coverage ratio of 148 per cent was 2 percentage points higher on the prior quarter, reflecting disciplined asset and liability management. The common equity tier 1 (CET1) ratio of 14.6 per cent is above the Group's target range, reflecting profit accretion and actions to lower risk-weighted assets (RWA). This capital strength has enabled the Board to announce an interim ordinary dividend of 9 cents per share, up 3 cents or 50 per cent, and announce a further $1.5 billion share buyback programme to commence imminently. This follows the recently completed $1 billion share buyback in the first half.

All commentary that follows is on an underlying basis and comparisons are made to the equivalent period in 2023 on a reported currency basis, unless otherwise stated.

• Underlying operating income of $10 billion was up 13 per cent or 10 per cent at constant currency excluding the benefit of two notable items. The double-digit growth was driven by a record performance in Wealth Solutions, strong pipeline execution in Global Banking, and the roll-off of short-term hedges within Treasury

• Underlying NII increased 4 per cent, or 5 per cent at constant currency, with a $207 million benefit from the roll-off the short-term hedges and Treasury optimisation actions partly offset by an accounting asymmetry resulting from Treasury management of FX positions and elevated deposit passthrough rates in Corporate & Investment Banking (CIB)

• Underlying non NII increased 19 per cent or 22 per cent at constant currency. Excluding two notable items booked respectively within Treasury and Other income, underlying non NII was up 16 per cent at constant currency driven by strong double-digit growth in both Wealth Solutions and Global Banking

• Underlying operating expenses excluding the UK bank levy increased 3 per cent or 5 per cent at constant currency largely driven by inflation and continued investment into business growth initiatives, including strategic hiring of Relationship Managers in Wealth & Retail Banking (WRB) and coverage bankers in CIB. Expenses in the second quarter benefitted from lower investment spend, and are expected to increase slightly in the second half of 2024. The Group generated 8 per cent positive income-to-cost jaws while the cost-to-income ratio improved 4 percentage points to 57 per cent

• Credit impairment was a charge of $249 million with $282 million in WRB, where charges have normalised following overlay releases in the first half of the prior year. Sovereign upgrades contributed to net releases in CIB and Central & Other items. There was a $20 million increase in the Ventures charge, albeit it continued to decline for the second successive quarter. The annualised loan-loss rate for the first half of the year was 18 basis points

• Other impairment charge of $143 million reflects the write-off of software assets with no impact on capital ratios

• Profit from associates and joint ventures decreased 32 per cent to $64 million for the first six months of the year, reflecting lower profits at China Bohai Bank

• Restructuring, DVA and Other items charges totalled $465 million. Restructuring of $150 million reflect the impact of actions to transform the organisation to improve productivity, partly offset by gains on the remaining Principal Finance portfolio. Other items of $289 million include $174 million related to the loss from the sale of Zimbabwe primarily from the recycling of FX translation losses from reserves into the income statement, with no impact on tangible equity or capital. There was also a $100 million charge booked for participation in a compensation scheme recommended by the Korean Financial Supervisory Service in respect of the Korea equity linked securities (ELS) portfolio. Movements in Debit Valuation Adjustment (DVA) were a negative $26 million

Page 10

 

• Taxation was $1.1 billion on a reported basis with an underlying year-to-date effective tax rate of 30.1 per cent, up 1.7 per cent from 28.4 per cent in the first half of 2023, driven by increased deferred tax not recognised for UK losses,
US tax adjustments and a change in the geographic mix of profits. This underlying effective tax rate is expected to continue into the second half of 2024

• Underlying return on tangible equity (RoTE) increased by 200 basis points to 14.0 per cent reflecting the increase in profits

Operating income by product

H1'24
$million

H1'23
$million

Change
%

Constant currency change¹
%

Q2'24
$million

Q2'23
$million

Change
%

Constant currency change¹
%

Q1'24
$million

Change
%

Constant currency change¹
%

Transaction Services

3,220

3,192

1

2

1,605

1,620

(1)

-

1,615

(1)

-

Payments and Liquidity

2,300

2,242

3

3

1,139

1,148

(1)

(1)

1,161

(2)

(2)

Securities & Prime Services

294

272

8

10

153

131

17

19

141

9

9

Trade & Working Capital

626

678

(8)

(4)

313

341

(8)

(6)

313

-

2

Global Banking²

960

858

12

14

488

447

9

11

472

3

4

Lending & Financial Solutions

836

749

12

14

422

396

7

9

414

2

2

Capital Markets & Advisory

124

109

14

14

66

51

29

27

58

14

14

Global Markets²

1,837

1,799

2

5

796

877

(9)

(7)

1,041

(24)

(23)

Macro Trading

1,515

1,562

(3)

-

631

776

(19)

(17)

884

(29)

(28)

Credit Trading

332

237

40

46

165

116

42

46

167

(1)

(1)

Valuation & Other Adj

(10)

-

nm³

nm³

-

(15)

100

100

(10)

100

100

Wealth Solutions

1,234

1,006

23

25

618

495

25

27

616

-

1

Investment Products

868

695

25

27

444

343

29

32

424

5

5

Bancassurance

366

311

18

19

174

152

14

15

192

(9)

(9)

CCPL & Other Unsecured Lending

585

576

2

4

298

286

4

6

287

4

4

Deposits

1,816

1,684

8

9

908

881

3

4

908

-

-

Mortgages & Other Secured Lending

227

274

(17)

(14)

124

113

10

13

103

20

23

Treasury

13

(393)

103

104

(30)

(160)

81

95

43

(170)

(135)

Other

66

(45)

nm³

nm³

(1)

(4)

75

(100)

67

(101)

(100)

Total underlying operating income

9,958

8,951

11

13

4,806

4,555

6

7

5,152

(7)

(6)

1    Comparisons presented on the basis of the current period's transactional currency rate, ensuring like-for-like currency rates between the two periods

2   Banking and Markets products have been renamed to Global Banking and Global Markets respectively

3   Not meaningful

The operating income by product commentary that follows is on an underlying basis and comparisons are made to the equivalent period in 2023 on a constant currency basis, unless otherwise stated.

Transaction Services income increased 2 per cent. Payments and Liquidity was up by 3 per cent driven by higher volumes. This was partly offset by lower Trade & Working Capital income which decreased 4 per cent reflecting margin compression and lower volumes.

Global Banking income increased 14 per cent as Lending & Financial Solutions grew 14 per cent from strong pipeline execution which led to higher origination and distribution volumes. Capital Market & Advisory income was up 14 per cent.

Global Markets income increased 5 per cent with strong double-digit growth in Credit Trading and Commodities supporting a 7 per cent increase in flow income. This was partly offset by lower episodic income, primarily in FX and Rates, due to a non-repeat of the pockets of volatility which led to elevated client activity in the prior year.

Wealth Solutions income was up 25 per cent with broad-based growth across all products supported by new and innovative product launches, increased investment in Affluent Relationship Managers and continued strong new client onboarding levels. Net new sales more than doubled to $13 billion and Wealth AUM of $135 billion increased by 12 per cent since 31 December 2023.

CCPL & Other Unsecured Lending income was up 4 per cent with volume growth in both Personal Loans and Credit Cards.

Deposits income increased 9 per cent from higher volumes, and active passthrough rate management leading to increasing margins in a rising interest rate environment.

Page 11


 

Mortgages & Other Secured Lending income was down 14 per cent on the back of lower mortgage volumes, particularly in Korea and Hong Kong, and margin compression, which in part reflects the impact of the Best Lending Rate cap in Hong Kong restricting the ability to reprice mortgages despite an increase in funding costs from higher interest rates.

Treasury income increased by $406 million benefitting from $151 million gain on revaluation of FX positions in Egypt and $207 million benefit from the roll-off of short-term hedges.

Other income of $66 million includes $107 million related to hyperinflationary accounting adjustments in Ghana partly offset by increased funding costs on non-financial assets from a rise in interest rates.

Profit before tax by client segment

H1'24
$million

H1'23
$million

Change
%

Constant currency change¹
%

Q2'24
$million

Q2'23
$million

Change
%

Constant currency change¹
%

Q1'24
$million

Change
%

Constant currency change¹
%

Corporate & Investment Banking

3,001

2,915

3

5

1,362

1,430

(5)

(4)

1,639

(17)

(16)

Wealth & Retail Banking

1,407

1,373

2

3

678

696

(3)

(2)

729

(7)

(7)

Ventures

(199)

(158)

(26)

(27)

(87)

(55)

(58)

(54)

(112)

22

24

Central & other items

(252)

(824)

69

68

(125)

(471)

73

76

(127)

2

23

Underlying profit before taxation

3,957

3,306

20

21

1,828

1,600

14

15

2,129

(14)

(12)

1   Comparisons presented on the basis of the current period's transactional currency rate, ensuring like-for-like currency rates between the two periods

Corporate & Investment Banking (CIB) profit before taxation increased 5 per cent. Income grew 5 per cent with broad-based growth across Transaction Services, Global Markets, and in particular, double-digit growth in Global Banking. Expenses were 5 per cent higher, while credit impairment was a net release of $35 million. Other impairment of $104 million primarily related to the write-off of software assets.

Wealth & Retail Banking (WRB) profit before taxation increased 3 per cent. Income increased 10 per cent, with record income in Wealth Solutions, up 25 per cent, partly offset by lower Mortgage income. Expenses increased 6 per cent, and the credit impairment charge of $282 million was broadly in line with recent run rates and following a non-repeat of prior year overlay releases.

Ventures loss increased by $41 million to $199 million reflecting the Group's continued investment in transformational digital initiatives. Income was down by $9 million to $80 million from lower gains in SC Ventures compared to the prior period gains. Digital Banks income of $62 million increased 77 per cent. Expenses increased by $19 million whilst there was an impairment charge of $43 million, primarily from Mox albeit delinquency rates have improved.

Central & other items (C&O) recorded a loss of $252 million approximately one third of the prior period loss. Treasury income of $10 million increased by $415 million mostly from translation gains on the revaluation of FX positions in Egypt and the roll-off of the short-term hedges. Other products income of $5 million increased by $117 million primarily from hyperinflationary accounting adjustments relating to Ghana. Expenses decreased by $34 million and there was a credit impairment release of $41 million from sovereign-related exposures. Associates income reduced by $37 million, reflecting lower profits at China Bohai Bank.

Adjusted net interest income and margin

H1'24
$million

H1'23
$million

Change1
%

Q2'23
$million

Change¹
%

Adjusted net interest income2

4,991

4,770

5

2,562

2,430

5

2,429

5

Average interest-earning assets

543,788

576,149

(6)

533,869

569,811

(6)

553,710

(4)

Average interest-bearing liabilities

537,608

-

538,054

536,142

-










Gross yield (%)3

5.25

4.49

76

5.32

4.61

71

5.18

14

Rate paid (%)3

3.44

3.02

42

3.36

3.08

28

3.52

(16)

Net yield (%)3

1.81

1.47

34

1.96

1.53

43

1.66

30

Net interest margin (%)3,4

1.85

18

1.93

1.71

17

1   Variance is better/(worse) other than assets and liabilities which is increase/(decrease)

2   Adjusted net interest income is reported net interest income less funding costs for the trading book and financial guarantee fees on interest-earning assets

3   Change is the basis points (bps) difference between the two periods rather than the percentage change

4   Adjusted net interest income divided by average interest-earning assets, annualised

5   Not meaningful


Page 12


 

Adjusted net interest income was up 5 per cent driven by an increase in the net interest margin, which averaged 185 basis points in the first half, increasing 18 basis points both year-on-year and compared to the prior half. The benefit from roll-off of the short-term hedges and Treasury optimisation was partly offset by an accounting asymmetry resulting from Treasury management of FX positions and elevated deposit passthrough rates in CIB.

Adjusted net interest income increased 5 per cent quarter-on-quarter with an $84 million uplift from an incremental two-month benefit from the short-term hedge roll-off, Treasury optimisation and a reduction in the accounting asymmetry resulting from Treasury management of FX positions. This was partly offset by the impact of elevated deposit passthrough rates in CIB

• Average interest-earning assets decreased 4 per cent on the prior quarter primarily due to a reduction in Treasury assets following on from an increase in demand for funding of trading book assets. The run down in both Treasury assets and low margin mortgages led to an improvement in the mix of assets. This, alongside roll-off of the short-term hedge contributed to gross yields increasing 14 basis points compared to the prior quarter to 532 basis points

• Average interest-bearing liabilities were broadly stable on the prior quarter as growth in WRB customer accounts was offset by lower Treasury and CIB balances. The rate paid on liabilities decreased 16 basis points compared with the average in the prior quarter, reflecting a reduction in Treasury accounting asymmetry and increase in the trading book funding cost adjustment

Credit risk summary

Income Statement (Underlying view)

H1'24
$million

H1'23
$million

Change1
%

Q2'23
$million

Change1
%

Total credit impairment charge/(release)2

249

172

45

73

146

(50)

176

(59)

Of which stage 1 and 22

73

33

121

12

27

(56)

61

(80)

Of which stage 32

176

27

61

119

(47)

1   Variance is increase/(decrease) comparing current reporting period to prior reporting period

2   Refer to Group Chief Risk Officer's section

Balance sheet

31.03.24
$million

31.12.23
$million

Change1
%

Gross loans and advances to customers2

280,893

288,643

292,145

(5)

Of which stage 1

264,249

272,133

(3)

273,692

(3)

277,711

(5)

Of which stage 2

10,005

9,520

5

11,225

(11)

10,110

(1)

Of which stage 3

6,639

6,990

7,228

(14)









Expected credit loss provisions

(4,997)

(5,240)

(5,170)

(7)

Of which stage 1

(480)

(478)

-

(430)

12

(451)

6

Of which stage 2

(362)

(359)

1

(420)

(14)

(400)

(10)

Of which stage 3

(4,155)

(4,403)

(4,320)

(8)









Net loans and advances to customers

275,896

283,403

286,975

(5)

Of which stage 1

263,769

271,655

(3)

273,262

(3)

277,260

(5)

Of which stage 2

9,643

9,161

5

10,805

(11)

9,710

(1)

Of which stage 3

2,484

2,587

2,908

(22)









Cover ratio of stage 3 before/after collateral (%)3

63/82

63/81

0/1

60/76

3/6

59/78

4/4

Credit grade 12 accounts ($million)

964

1,009

(4)

2,155

(55)

1,316

(27)

Early alerts ($million)

5,044

4,933

2

5,512

(8)

4,443

14

Investment grade corporate exposures (%)3

74

72

73

-

1   Variance is increase/(decrease) comparing current reporting period to prior reporting period

2   Includes reverse repurchase agreements and other similar secured lending held at amortised cost of $7,788 million at 30 June 2024, $11,290 million at 31 March 2024, $13,996 million at 31 December 2023 and $10,950 million at 30 June 2023

3   Change is the percentage points difference between the two points rather than the percentage change

Asset quality remained resilient in the first half of 2024, with an improvement in a number of underlying credit metrics.

The Group continues to actively manage the credit portfolio while remaining alert to a volatile and challenging external environment, including increased geopolitical tensions, which has led to idiosyncratic stress in a select number of geographies and industry sectors.

Page 13


Credit impairment was a charge of $249 million in the half, up $77 million year-on-year and representing an annualised loan-loss rate of 18 basis points.  WRB charges have broadly normalised following the release of management overlays in the first half of the prior year and totalled $282 million, an increase of $174 million.  There was a $43 million charge in Ventures, an increase of $20 million, primarily from Mox, albeit impairment charges have fallen for two successive quarters as credit criteria were adjusted after delinquency rates increased in the second half of last year. Sovereign upgrades were a net release of $54 million across CIB and C&O and were the primary contributor to the $41 million net release in C&O. CIB was a net release of $35 million as a low level of new impairment was more than offset by releases relating to historical provisions and sovereign upgrades.  Included in CIB is a China commercial real estate sector charge of $8 million as additional stage 3 provisions were offset by $55 million in management overlay releases primarily as a result of repayments. The management overlay now totals $86 million and the Group has provided $1.2 billion in total in relation to the China commercial real estate sector.

Gross stage 3 loans and advances to customers of $6.6 billion were 8 per cent lower compared with 31 December 2023 as repayments, client upgrades, reduction in exposures and write-offs more than offset new inflows. Credit-impaired loans represent 2.4 per cent of gross loans and advances, a reduction of 11 basis points compared with 31 December 2023.

The stage 3 cover ratio of 63 per cent increased 3 percentage points compared with the position at 31 December 2023, and the cover ratio post collateral of 82 per cent increased by 6 percentage points, both increasing due to the decrease in gross stage 3 loans.

Credit grade 12 balances of $1.0 billion have decreased by $1.2 billion since 31 December 2023 and are broadly stable since 31 March 2024, reflecting both improvements into stronger credit grades and downgrades to stage 3, as well as the reversal of an existing $1 billion sovereign related exposure from reverse repurchase agreements to investment securities. Early alert accounts of $5.0 billion decreased by $0.6 billion due to net upgrades and exposure reductions relating to a select number of clients.

The proportion of investment grade corporate exposures has increased by 1 percentage point since 31 December 2023 to 74 per cent.

Restructuring, goodwill impairment and other items

H1'24

H1'23

Restructuring
$million

DVA
$million

Other items
$million

Restructuring
$million

DVA
$million

Other items
$million

Operating income

48

(26)

(189)

215

(39)

-

Operating expenses

(283)

-

(100)

(164)

-

-

Credit impairment

9

-

-

11

-

-

Other impairment

(4)

-

-

(14)

-

-

Profit from associates and joint ventures

80

-

-

8

-

-

Profit/(loss) before taxation

(150)

(26)

(289)

56

(39)

-

The Group's reported performance is adjusted for profits or losses of a capital nature, amounts consequent to investment transactions driven by strategic intent, other infrequent and/or exceptional transactions that are significant or material in the context of the Group's normal business earnings for the period and items which management and investors would ordinarily identify separately when assessing underlying performance period-by period.

Restructuring charges of $150 million reflect the impact of actions to transform the organisation to improve productivity, primarily additional redundancy charges and technology related costs partly offset by profits on the remaining Principal Finance portfolio.

Other items charges of $289 million include $174 million from the sale of Zimbabwe primarily related to the recycling of FX translation losses from reserves into the income statement, which has no impact on tangible net asset value and capital; and a $100 million charge was booked in the first quarter related to the SCB Korea approved compensation scheme based on the Financial Supervisory Service guidelines . We have engaged with impacted customers and have already reached settlement with some customers under this scheme.

Movements in DVA were negative $26 million, driven by tightening of the Group's asset swap spreads on derivative liability exposures. The size of the portfolio subject to DVA did not change materially.

Page 14


 

Balance sheet and liquidity

31.03.24
$million

31.12.23
$million

Change1
%

Assets








Loans and advances to banks

45,231

39,698

14

44,977

1

44,602

1

Loans and advances to customers

275,896

283,403

(3)

286,975

(4)

290,137

(5)

Other assets

514,300

489,424

490,892

2

Total assets

835,427

812,525

822,844

-

Liabilities








Deposits by banks

28,087

29,691

(5)

28,030

-

28,560

(2)

Customer accounts

468,157

459,386

2

469,418

-

469,567

-

Other liabilities

287,856

272,609

275,043

(1)

Total liabilities

784,100

761,686

772,491

(1)

Equity

51,327

50,839

50,353

3

Total equity and liabilities

835,427

812,525

822,844

-









Advances-to-deposits ratio (%)2

52.6%

54.3%


53.3%


53.6%


Liquidity coverage ratio (%)

148%

146%

145%


1   Variance is increase/(decrease)comparing current reporting period to prior reporting periods

2   The Group excludes $18,419 million held with central banks (31.03.24: $21,258 million, 31.12.23: $20,710 million, 30.06.23: $24,749 million) that has been confirmed as repayable at the point of stress. Advances exclude repurchase agreement and other similar secured lending of $7,788 million (31.03.24: $11,290 million and 31.12.23: $13,996 million) and include loans and advances to customers held at fair value through profit or loss of $6,877 million (31.03.24: $7,950 million and 31.12.23: $7,212 million). Deposits include customer accounts held at fair value through profit or loss of $19,850 million (31.03.24: $17,595 million and 31.12.23: $17,248 million)

The Group's balance sheet remains strong, liquid and well diversified.

• Loans and advances to customers decreased 4 per cent since 31 December 2023 to $276 billion and were up $5 billion or 2 per cent on an underlying basis with growth in CIB mostly from higher origination volumes in Global Banking, and short-term structured loans in Global Markets. WRB balances reduced as an increase in Wealth Lending was more than offset by lower Mortgage balances as the Group reduced the number of new mortgages written in markets experiencing an uneconomic pricing environment. The underlying increase excludes the impact of a $10 billion reduction from Treasury and securities based loans held to collect and a $6 billion reduction from currency translation

• Customer accounts of $468 billion were broadly flat since 31 December 2023 but increased an underlying 1 per cent excluding the impact of currency translation. An increase in WRB Time Deposits and Ventures was partly offset by a reduction in Transaction Services CASA

• Other assets increased 5 per cent or $23 billion from 31 December 2023, with a $35 billion increase in financial assets held at fair value through profit or loss, primarily in relation to the trading book. This was partly offset by a $9 billion reduction in investment securities fair valued through other comprehensive income and $6 billion decrease in cash and balances held at central banks

• Other liabilities increased 5 per cent or $13 billion from 31 December 2023, with a $14 billion increase in financial liabilities held at fair value through profit or loss primarily in repurchase agreements and short positions as well as a $5 billion increase in unsettled trades and other financial liabilities. This was partly offset by a $5 billion reduction in derivative balances and a $5 billion reduction in repurchase agreements and other similar secured borrowing booked at amortised cost

The advances-to-deposits ratio decreased to 52.6 per cent from 53.3 per cent at 31 December 2023 reflecting the reduction in loans and advances to customers. The point-in-time liquidity coverage ratio increased to 148 per cent and remains well above the minimum regulatory requirement.

Risk-weighted assets

31.03.24
$million

31.12.23
$million

Change1
%

By risk type








Credit risk

185,004

193,009

(4)

191,423

(3)

197,151

(6)

Operational risk

29,479

29,805

(1)

27,861

6

27,861

6

Market risk

27,443

29,302

24,867

14

Total RWAs

241,926

252,116

244,151

(3)

1   Variance is increase/(decrease) comparing current reporting period to prior reporting periods

Page 15


 

Total risk-weighted assets (RWA) decreased 1 per cent or $2.2 billion since 31 December 2023 to $241.9 billion.

• Credit risk RWA decreased $6.4 billion to $185.0 billion, from improved asset quality including sovereign upgrades, optimisation initiatives and FX translation  

• Operational risk RWA increased by $1.6 billion reflecting an increase in average income as measured over a rolling three-year time horizon, with higher 2023 income replacing lower 2020 income, partly offset by a reduction in the second quarter from a regulatory waiver granted to exclude the impact of the disposed Aviation business

• Market risk RWA increased by $2.6 billion to $27.4 billion since 31 December 2023 as RWA was deployed to help clients capture opportunities in Markets, partly offset by reductions from methodology changes related to our Internal Model Approach

Capital base and ratios

31.03.24
$million

31.12.23
$million

Change¹
%

CET1 capital

35,418

34,279

3

34,314

3

34,896

1

Additional Tier 1 capital (AT1)

6,484

6,486

5,492

18

Tier 1 capital

41,902

40,765

3

39,806

5

40,388

4

Tier 2 capital

11,667

11,773

11,935

(5)

Total capital

53,569

52,538

51,741

2

CET1 capital ratio (%)2

14.6

13.6

1.0

14.1

0.5

14.0

0.6

Total capital ratio (%)2

22.1

20.8

1.3

21.2

0.9

21.1

1.0

Leverage ratio (%)2

4.8

4.8

4.7

-

1   Variance is increase/(decrease) comparing current reporting period to prior reporting periods

2   Change is percentage points difference between two points rather than percentage change

The Group's CET1 ratio of 14.6 per cent increased 59 basis points since 31 December 2023 and remains 4.1 percentage points above the Group's latest regulatory minimum of 10.6 per cent. Underlying profit accretion was partly offset by shareholder distributions.

As well as the 99 basis points of CET1 accretion from underlying profits, there was a further 26 basis points uplift primarily from fair value gains on other comprehensive income and regulatory capital adjustments.

The Group spent $1 billion purchasing 113.3 million ordinary shares of $0.50 each during the first half, representing a volume-weighted average price per share of £6.97. These shares were subsequently cancelled, reducing the total issued share capital by 4 per cent and the CET1 ratio by approximately 40 basis points. The Group is accruing a provisional interim 2024 ordinary share dividend over the first half of 2024, which is calculated formulaically at one-third of the ordinary dividend paid in 2023 or 9 cents a share. This, combined with payments due to AT1 and preference shareholders reduced the CET1 ratio by 19 basis points.

The Board has decided to carry out a share buyback commencing imminently for up to a maximum consideration of $1.5 billion to further reduce the number of ordinary shares in issue by cancelling the repurchased shares. The terms of the buyback will be announced and it is expected to reduce the Group's CET1 ratio in the third quarter of 2024 by approximately 60 basis points.

The Group's UK leverage ratio of 4.8 per cent increased 7 basis points compared with the ratio at 31 December 2023 and remains significantly above its minimum requirement of 3.8 per cent.

Page 16

 

Outlook

We are upgrading our 2024 income guidance while all other key points of guidance remain unchanged:

• Operating income to increase above 7 per cent in 2024 at constant currency, excluding the two notable items

• Net interest income for 2024 of $10 billion to $10.25 billion, at constant currency

• Positive income-to-cost jaws, excluding UK bank levy, at constant currency in 2024

• Low single-digit percentage growth in underlying loans and advances to customers and RWA in 2024

• Continue to expect loan-loss ratio to normalise towards the historical through the cycle 30 to 35 basis points range

• Continue to operate dynamically within the full 13-14 per cent CET1 ratio target range

• Continue to increase full-year dividend per share over time

• RoTE increasing steadily from 10 per cent, targeting 12 per cent in 2026 and to progress thereafter

 

Diego De Giorgi

Group Chief Financial Officer

30 July 2024

Page 17


 

Supplementary financial information

Underlying performance by client segment

H1'24

Corporate & Investment Banking
$million

Wealth &
Retail Banking
$million

Ventures
$million

Central &
other items
$million

Total
$million

Operating income

5,991

3,872

80

15

9,958

External

5,018

1,749

80

3,111

9,958

Inter-segment

973

2,123

-

(3,096)

-

Operating expenses

(2,921)

(2,156)

(230)

(366)

(5,673)

Operating profit/(loss) before impairment losses
and taxation

3,070

1,716

(150)

(351)

4,285

Credit impairment

35

(282)

(43)

41

(249)

Other impairment

(104)

(27)

-

(12)

(143)

Profit from associates and joint ventures

-

-

(6)

70

64

Underlying profit/(loss) before taxation

3,001

1,407

(199)

(252)

3,957

Restructuring

(59)

(51)

(1)

(39)

(150)

DVA

(26)

-

-

-

(26)

Other items

-

(100)

-

(189)

(289)

Reported profit/(loss) before taxation

2,916

1,256

(200)

(480)

3,492

Total assets

443,442

122,846

5,280

263,859

835,427

Of which: loans and advances to customers

190,298

120,277

1,110

24,022

335,707

loans and advances to customers

130,496

120,268

1,110

24,022

275,896

loans held at fair value through profit or loss (FVTPL)1

59,802

9

-

-

59,811

Total liabilities

467,875

208,565

4,347

103,313

784,100

Of which: customer accounts1

315,767

204,154

4,046

8,295

532,262

Risk-weighted assets

149,133

52,459

2,129

38,205

241,926

Income return on risk-weighted assets (%)

8.1

14.8

8.3

0.1

8.1

Underlying return on tangible equity (%)

21.0

27.8

nm²

(16.9)

14.0

Cost-to-income ratio (%)

48.8

55.7

nm²

nm²

57.0

 

H1'23

Corporate & Investment Banking
$million

Wealth &
Retail Banking
$million

Ventures
$million

Central &
other items
$million

Total
$million

Operating Income

5,823

3,556

89

(517)

8,951

External

4,569

2,154

89

2,139

8,951

Inter-segment

1,254

1,402

-

(2,656)

-

Operating Expenses

(2,818)

(2,075)

(211)

(400)

(5,504)

Operating profit/(loss) before impairment losses
and taxation

3,005

1,481

(122)

(917)

3,447

Credit impairment

(69)

(108)

(23)

28

(172)

Other impairment

(21)

-

-

(42)

(63)

Profit from associates and joint ventures

-

-

(13)

107

94

Underlying profit/(loss) before taxation

2,915

1,373

(158)

(824)

3,306

Restructuring

73

(16)

(1)

-

56

DVA

(39)

-

-

-

(39)

Reported profit/(loss) before taxation

2,949

1,357

(159)

(824)

3,323

Total assets

401,001

129,660

3,076

304,974

838,711

Of which: loans and advances to customers

174,214

127,039

947

33,623

335,823

loans and advances to customers

128,548

127,020

947

33,622

290,137

loans held at fair value through profit or loss (FVTPL)1

45,666

19

-

1

45,686

Total liabilities

490,697

190,690

2,317

105,326

789,030

Of which: customer accounts1

333,584

185,741

2,072

8,394

529,791

Risk-weighted assets

147,258

50,664

1,925

49,270

249,117

Income return on risk-weighted assets (%)

8.0

14.1

13.0

(2.1)

7.3

Underlying return on tangible equity (%)

20.8

28.2

nm²

(25.6)

12.0

Cost-to-income ratio (%)

48.4

58.4

nm²

nm²

61.5

1   Loans and advances to customers includes FVTPL and customer accounts includes FVTPL and repurchase agreements

2   Not meaningful

Page 18


Corporate & Investment Banking

H1'24
$million

H1'23
$million

Change2
%

Constant currency change1,2
%

Q2'24
$million

Q2'23
$million

Change2
%

Constant currency change1,2
%

Q1'24
$million

Change2
%

Constant currency change1,2
%

Operating income

5,991

5,823

3

5

2,876

2,931

(2)

(1)

3,115

(8)

(7)

Transaction Services

3,196

3,169

1

2

1,593

1,608

(1)

-

1,603

(1)

-

Payments and Liquidity

2,300

2,242

3

3

1,139

1,148

(1)

(1)

1,161

(2)

(2)

Securities & Prime Services

294

272

8

10

153

131

17

19

141

9

9

Trade & Working Capital

602

655

(8)

(4)

301

329

(9)

(6)

301

-

2

Global Banking3

960

858

12

14

488

447

9

11

472

3

4

Lending & Financial Solutions

836

749

12

14

422

396

7

9

414

2

2

Capital Markets & Advisory

124

109

14

14

66

51

29

27

58

14

14

Global Markets3

1,837

1,799

2

5

796

877

(9)

(7)

1,041

(24)

(23)

Macro Trading

1,515

1,562

(3)

-

631

776

(19)

(17)

884

(29)

(28)

Credit Trading

332

237

40

46

165

116

42

46

167

(1)

(1)

Valuation & Other Adj

(10)

-

nm⁷

nm⁷

-

(15)

100

100

(10)

100

100

Deposits

-

1

(100)

(100)

-

1

(100)

nm⁷

-

nm⁷

nm⁷

Other

(2)

(4)

50

50

(1)

(2)

50

50

(1)

-

-

Operating expenses

(2,921)

(2,818)

(4)

(5)

(1,498)

(1,403)

(7)

(8)

(1,423)

(5)

(6)

Operating profit before impairment losses
and taxation

3,070

3,005

2

4

1,378

1,528

(10)

(9)

1,692

(19)

(18)

Credit impairment

35

(69)

151

149

35

(77)

145

156

-

nm⁷

nm⁷

Other impairment

(104)

(21)

nm⁷

nm⁷

(51)

(21)

(143)

(122)

(53)

4

4

Underlying profit
before taxation

3,001

2,915

3

5

1,362

1,430

(5)

(4)

1,639

(17)

(16)

Restructuring

(59)

73

(181)

(198)

(48)

34

nm⁷

nm⁷

(11)

nm⁷

nm⁷

DVA

(26)

(39)

33

32

22

(93)

124

124

(48)

146

146

Reported profit
before taxation

2,916

2,949

(1)

1

1,336

1,371

(3)

(1)

1,580

(15)

(15)

Total assets

443,442

401,001

11

12

443,442

401,001

11

12

415,090

7

7

Of which: loans and advances to customers4

190,298

174,214

9

11

190,298

174,214

9

11

190,083

-

1

Total liabilities

467,875

490,697

(5)

(4)

467,875

490,697

(5)

(4)

450,072

4

4

Of which: customer accounts4

315,767

333,584

(5)

(5)

315,767

333,584

(5)

(5)

310,079

2

2

Risk-weighted assets

149,133

147,258

1

nm⁷

149,133

147,258

1

nm⁷

150,600

(1)

nm⁷

Income return on risk-weighted assets (%)5

8.1

8.0

10bps

nm⁷

7.7

8.1

(40)bps

nm⁷

8.5

(80)bps

nm⁷

Underlying return on
tangible equity (%)5

21.0

20.8

20bps

nm⁷

18.9

20.4

(150)bps

nm⁷

23.0

(410)bps

nm⁷

Cost-to-income ratio (%)6

48.8

48.4

-

-

52.1

47.9

(4.2)

(4.3)

45.7

(6.4)

(2.2)

1   Comparisons presented on the basis of the current period's transactional currency rate, ensuring like-for-like currency rates between the two periods

2   Variance is better/(worse) other than risk-weighted assets, assets and liabilities which is increase/(decrease)

3   Banking and Markets products have been renamed to Global Banking and Global Markets respectively

4   Loans and advances to customers and customer accounts includes FVTPL and repurchase agreements

5   Change is the basis points (bps) difference between the two periods rather than the percentage change

6   Change is the percentage points difference between the two periods rather than the percentage change

7   Not meaningful

Performance highlights

• Underlying profit before tax of $3,001 million was up 5 per cent at constant currency (ccy) driven by higher income and, lower credit impairment, partly offset by higher operating expenses and other impairment

• Underlying operating income of $5,991 million increased 5 per cent at ccy, driven by strong double-digit growth of 14 per cent growth in Global Banking from higher origination and distribution volumes. Global Markets was up 5 per cent, despite a strong comparator in Q2'24, driven by robust client flow incomes. Transaction services income increased 2 per cent, within which Payments and Liquidity income was up 3 per cent benefiting from elevated rates and volumes and Securities & Prime Services income increased 10 per cent, mainly driven by higher custody, funds and prime brokerage fees. This was partly offset by lower Trade & Working Capital income which decreased by 4 percent reflecting margin compression

 

• Underlying operating expenses increased 5 per cent at ccy largely due to inflation and investment in business growth initiatives including strategic hiring of coverage bankers

Page 19


 

• Credit impairment was a net release of $35 million, as a low level of new impairment was more than offset by releases relating to historical provisions and sovereign upgrades. Other impairment was primarily related to the write-off of software assets

• Loans and Advances to customers increased by 2 per cent at ccy since 31 December 2023, mainly driven by Global Banking due to higher origination and distribution volumes

• Risk-weighted assets (RWA) of $149 billion were up $7 billion since 31 December 2023, mainly from asset growth and mix, increased market risk RWA and mechanically higher operational risk RWA

• Underlying RoTE of 21 per cent was broadly flat  to H1'23

Wealth & Retail Banking

H1'24
$million

H1'23
$million

Change2
%

Constant currency change1,2
%

Q2'24
$million

Q2'23
$million

Change2
%

Constant currency change1,2
%

Q1'24
$million

Change2
%

Constant currency change1,2
%

Operating income

3,872

3,556

9

10

1,955

1,784

10

11

1,917

2

2

Transaction Services

24

23

4

4

12

12

-

-

12

-

-

Trade & Working Capital

24

23

4

4

12

12

-

-

12

-

-

Wealth Solutions

1,234

1,006

23

25

618

495

25

27

616

-

1

Investment Products

868

695

25

27

444

343

29

32

424

5

5

Bancassurance

366

311

18

19

174

152

14

15

192

(9)

(9)

CCPL & Other Unsecured Lending

530

539

(2)

1

270

264

2

5

260

4

4

Deposits

1,834

1,703

8

8

917

890

3

4

917

-

-

Mortgages & Other
Secured Lending

227

274

(17)

(14)

124

113

10

13

103

20

23

Other

23

11

109

100

14

10

40

40

9

56

75

Operating expenses

(2,156)

(2,075)

(4)

(6)

(1,109)

(1,042)

(6)

(8)

(1,047)

(6)

(7)

Operating profit before impairment losses and taxation

1,716

1,481

16

16

846

742

14

15

870

(3)

(3)

Credit impairment

(282)

(108)

(161)

(169)

(146)

(46)

nm⁷

nm⁷

(136)

 (7)

(7)

Other impairment

(27)

-

nm⁷

nm⁷

(22)

-

nm⁷

nm⁷

(5)

nm⁷

nm⁷

Underlying profit/(loss) before taxation

1,407

1,373

2

3

678

696

(3)

(2)

729

(7)

(7)

Restructuring

(51)

(16)

nm⁷

(174)

(32)

(14)

(129)

(129)

(19)

(68)

(60)

Other items3

(100)

-

nm⁷

nm⁷

-

-

nm⁷

nm⁷

(100)

100

100

Reported profit/(loss)
before taxation

1,256

1,357

(7)

(7)

646

682

(5)

(5)

610

6

6

Total assets

122,846

129,660

(5)

(4)

122,846

129,660

(5)

(4)

124,456

(1)

(1)

Of which: loans and advances
to customers4

120,277

127,039

(5)

(4)

120,277

127,039

(5)

(4)

122,089

(1)

(1)

Total liabilities

208,565

190,690

9

10

208,565

190,690

9

10

201,870

3

4

Of which: customer accounts4

204,154

185,741

10

11

204,154

185,741

10

11

197,121

4

4

Risk-weighted assets

52,459

50,664

4

nm⁷

52,459

50,664

4

nm⁷

52,706

-

nm⁷

Income return on risk-weighted assets (%)5

14.8

14.1

70bps

nm⁷

14.9

14.1

80bps

nm⁷

14.7

20bps

nm⁷

Underlying return on tangible equity (%)5

27.8

28.2

(40)bps

nm⁷

26.8

28.3

(150)bps

nm⁷

28.8

(200)bps

nm⁷

Cost-to-income ratio (%)6

55.7

58.4

2.7

2.2

56.7

58.4

1.7

1.4

54.6

(2.1)

(2.3)

1   Comparisons presented on the basis of the current period's transactional currency rate, ensuring like-for-like currency rates between the two periods

2   Variance is better/(worse) other than risk-weighted assets, assets and liabilities which is increase/(decrease)

3   Other items include $100m charge relating to Korea ELS

4   Loans and advances to customers and customer accounts includes FVTPL and repurchase agreements

5   Change is the basis points (bps) difference between the two periods rather than the percentage change

6   Change is the percentage points difference between the two periods rather than the percentage change

7   Not meaningful

Page 20


 

Performance highlights

• Underlying profit before tax of $1,407 million was up 3 per cent at constant currency (ccy) mainly driven by higher income partly offset by higher operating expenses and credit impairment

• Underlying operating income of $3,872 million was up 10 per cent at ccy, driven by Wealth Solutions, up 25  per cent from increased investment in Affluent Relationship Managers, continued momentum in Affluent new to bank client onboarding and positive net new sales of $13 billion. Deposits income increased 8 per cent from higher volumes and active passthrough rate management leading to increasing margins in a rising interest rate environment. This was partly offset by lower Mortgage income which was down 14 per cent largely due to lower mortgage volumes particularly in Korea and Hong Kong and margin compression

• Underlying operating expenses increased 6 per cent at ccy, mainly from inflation and investment in business growth initiatives including strategic hiring of Affluent relationship managers

• Credit impairment charge of $282 million up $174 million, has broadly normalised following the release of management overlays in the first half of the prior year

• Loans and advances to customers decreased by 2 per cent at ccy since 31 December 2023, mainly driven by lower Mortgages particularly in Hong Kong and Korea

• Customer accounts increased 6 per cent at ccy since 31 December 2023

• Underlying RoTE of 27.8 per cent was down 40 basis points

Ventures

H1'24
$million

H1'23
$million

Change2
%

Constant currency change1,2
%

Q2'24
$million

Q2'23
$million

Change2
%

Constant currency change1,2
%

Q1'24
$million

Change2
%

Constant currency change1,2
%

Operating income

80

89

(10)

(10)

48

72

(33)

(32)

32

50

58

Of which: SCV

18

54

(67)

(67)

15

51

(71)

(69)

3

nm⁷

nm⁷

Of which: Digital Banks6

62

35

77

77

33

21

57

57

29

14

14

CCPL & Other Unsecured Lending

55

37

49

49

28

22

27

27

27

4

4

Deposits

(18)

(20)

10

10

(9)

(10)

10

10

(9)

-

-

Treasury

3

12

(75)

(67)

2

7

(71)

(57)

1

100

nm⁷

Other

40

60

(33)

(35)

27

53

(49)

(49)

13

108

125

Operating expenses

(230)

(211)

(9)

(10)

(117)

(109)

(7)

(7)

(113)

(4)

(4)

Operating profit/(loss) before impairment losses and taxation

(150)

(122)

(23)

(24)

(69)

(37)

(86)

(84)

(81)

15

17

Credit impairment

(43)

(23)

(87)

(87)

(15)

(13)

(15)

(7)

(28)

46

46

Profit from associates and joint ventures

(6)

(13)

54

54

(3)

(5)

40

40

(3)

-

-

Underlying profit/(loss) before taxation

(199)

(158)

(26)

(27)

(87)

(55)

(58)

(54)

(112)

22

24

Restructuring

(1)

(1)

-

-

(1)

(1)

-

nm⁷

-

nm⁷

nm⁷

Reported profit/(loss) before taxation

(200)

(159)

(26)

(27)

(88)

(56)

(57)

(55)

(112)

21

23

Total assets

5,280

3,076

72

79

5,280

3,076

72

79

4,916

7

11

Of which: loans and advances to customers3

1,110

947

17

17

1,110

947

17

17

1,024

8

8

Total liabilities

4,347

2,317

88

87

4,347

2,317

88

87

3,967

10

10

Of which: customer accounts3

4,046

2,072

95

95

4,046

2,072

95

95

3,694

10

10

Risk-weighted assets

2,129

1,925

11

nm⁷

2,129

1,925

11

nm⁷

2,084

2

nm⁷

Income return on risk-weighted assets (%)4

8.3

13.0

(470)bps

nm⁷

9.1

18.9

(980)bps

nm⁷

7.2

190bps

nm⁷

Underlying return on tangible
equity (%)4

nm⁷

nm⁷

nm⁷

nm⁷

nm⁷

nm⁷

nm⁷

nm⁷

nm⁷

nm⁷

nm⁷

Cost-to-income ratio (%)5

nm⁷

nm⁷

nm⁷

nm⁷

nm⁷

nm⁷

nm⁷

nm⁷

nm⁷

nm⁷

nm⁷

1   Comparisons presented on the basis of the current period's transactional currency rate, ensuring like-for-like currency rates between the two periods

2   Variance is better/(worse) other than risk-weighted assets, assets and liabilities which is increase/(decrease)

3   Loans and advances to customers and customer accounts includes FVTPL and repurchase agreements

4   Change is the basis points (bps) difference between the two periods rather than the percentage change

5   Change is the percentage points difference between the two periods rather than the percentage change

6   Digital Banks income includes Mox and Trust bank

7   Not meaningful

Page 21

Performance highlights

• Underlying loss before tax increased $41 million to $199 million reflecting Group's continued investment in transformational digital initiatives. Income declined by 10 per cent to $80 million from $89 million, from lower gains in SC ventures compared to the prior period gains. Digital Banks (Mox & Trust) income increased by 77 per cent

• Operating expenses increased by 10 per cent due to inflation and investment in business growth initiatives

• Credit impairment increased from $23 million to $43 million primarily from charges in Mox, albeit delinquency rates
have improved

• Loans and advances to customers of $1.1 billion increased 8 per cent since 31 December 2023 and consumer accounts of $4 billion increased 45 per cent, with strong growth in the two digital banks, Mox and Trust

Central & other items

H1'24
$million

H1'23
$million

Change2
%

Constant currency change1,2
%

Q2'24
$million

Q2'23
$million

Change2
%

Constant currency change1,2
%

Q1'24
$million

Change2
%

Constant currency change1,2
%

Operating income

15

(517)

103

104

(73)

(232)

69

77

88

(183)

(174)

Treasury

10

(405)

102

103

(32)

(167)

81

94

42

(176)

(150)

Other

5

(112)

104

107

(41)

(65)

37

27

46

(189)

(185)

Operating expenses

(366)

(400)

9

3

(163)

(275)

41

36

(203)

20

16

Operating loss before impairment losses and taxation

(351)

(917)

62

60

(236)

(507)

53

57

(115)

(105)

(67)

Credit impairment

41

28

46

37

53

(10)

nm⁶

nm⁶

(12)

nm⁶

nm⁶

Other impairment

(12)

(42)

71

71

(10)

(42)

76

76

(2)

nm⁶

nm⁶

Profit from associates and
joint ventures

70

107

(35)

(35)

68

88

(23)

(24)

2

nm⁶

nm⁶

Underlying loss before taxation

(252)

(824)

69

68

(125)

(471)

73

76

(127)

2

23

Restructuring

(39)

-

nm⁶

nm⁶

(14)

(11)

(27)

(29)

(25)

44

22

Other items

(189)

-

nm⁶

nm⁶

(177)

-

nm⁶

nm⁶

(12)

nm⁶

nm⁶

Reported loss before taxation

(480)

(824)

42

39

(316)

(482)

34

34

(164)

(93)

(71)

Total assets

263,859

304,974

(13)

(13)

263,859

304,974

(13)

(13)

268,063

(2)

(1)

Of which: loans and advances
to customers3

24,022

33,623

(29)

(28)

24,022

33,623

(29)

(28)

25,725

(7)

(6)

Total liabilities

103,313

105,326

(2)

(2)

103,313

105,326

(2)

(2)

105,777

(2)

(2)

Of which: customer accounts3

8,295

8,394

(1)

(1)

8,295

8,394

(1)

(1)

10,610

(22)

(22)

Risk-weighted assets

38,205

49,270

(22)

nm⁶

38,205

49,270

(22)

nm⁶

46,726

(18)

nm⁶

Income return on risk-weighted assets (%)4

0.1

(2.1)

220bps

nm⁶

(0.7)

(1.9)

120bps

nm⁶

0.7

(140)bps

nm⁶

Underlying return on tangible
equity (%)4

(16.9)

(25.6)

870bps

nm⁶

(17.1)

(25.4)

830bps

nm⁶

(16.7)

(40)bps

nm⁶

Cost-to-income ratio (%) (excluding UK bank levy)5

nm⁶

nm⁶

nm⁶

nm⁶

nm⁶

nm⁶

nm⁶

nm⁶

nm⁶

nm⁶

nm⁶

1   Comparisons presented on the basis of the current period's transactional currency rate, ensuring like-for-like currency rates between the two periods

2   Variance is better/(worse) other than risk-weighted assets, assets and liabilities which is increase/(decrease)

3   Loans and advances to customers and customer accounts includes FVTPL and repurchase agreements

4   Change is the basis points (bps) difference between the two periods rather than the percentage change

5   Change is the percentage points difference between the two periods rather than the percentage change

6   Not meaningful

Performance highlights

• Underlying loss before tax of $252 million was just under third of the prior period loss from higher income coupled with lower operating expenses and impairments, being partially offset by Associate income, which reduced 35 per cent reflecting lower profits at China Bohai Bank

• Underlying operating income of $15 million was $532 million better year-on-year. Treasury income of $10 million increased by $415 million mostly from translation gains on the revaluation of FX positions in Egypt and the roll-off of short-term hedges. Other income of $5 million increased by $117 million, primarily from hyperinflation accounting adjustments relating to Ghana

 

• Other items include $174m related to the loss on the sale of Zimbabwe primarily from the recycling of FX translation losses from reserves into the income statement with no impact to on tangible equity or capital

Page 22

Underlying performance by key geography

H1'24

Hong Kong
$million

Korea
$million

China
$million

Taiwan
$million

Singapore
$million

India
$million

UAE
$million

UK
$million

US
$million

Other2
$million

Group
$million

Operating income

2,303

556

664

298

1,302

657

447

136

596

2,999

9,958

Operating expenses

(992)

(348)

(441)

(167)

(627)

(440)

(217)

(480)

(346)

(1,615)

(5,673)

Operating profit/(loss) before impairment losses and taxation

1,311

208

223

131

675

217

230

(344)

250

1,384

4,285

Credit impairment

(93)

(19)

(87)

(19)

(20)

(7)

(1)

(5)

(1)

3

(249)

Other impairment

(12)

(1)

(4)

(1)

(8)

(6)

(3)

5

-

(113)

(143)

Profit from associates and
joint ventures

-

-

72

-

-

-

-

(5)

-

(3)

64

Underlying profit/(loss) before taxation

1,206

188

204

111

647

204

226

(349)

249

1,271

3,957

Total assets employed

202,878

51,017

45,451

21,180

105,312

36,752

27,218

155,831

75,001

114,787

835,427

Of which: loans and advances
to customers1

84,272

26,970

16,798

11,002

60,791

15,479

8,934

32,609

25,405

53,447

335,707

Total liabilities employed

191,631

42,224

36,588

19,000

110,318

28,004

20,411

106,861

66,564

162,499

784,100

Of which: customer accounts1

160,948

32,323

27,081

16,983

86,049

20,661

14,935

79,545

33,920

59,817

532,262

 

H1'23

Hong Kong
$million

Korea
$million

China
$million

Taiwan
$million

Singapore
$million

India
$million

UAE
$million

UK
$million

US
$million

Other
$million

Group
$million

Operating income

2,091

582

593

288

1,263

627

421

185

452

2,449

8,951

Operating expenses

(962)

(359)

(439)

(165)

(606)

(420)

(200)

(425)

(324)

(1,604)

(5,504)

Operating profit/(loss) before impairment losses and taxation

1,129

223

154

123

657

207

221

(240)

128

845

3,447

Credit impairment

(110)

(23)

(35)

(31)

2

(3)

9

(7)

8

18

(172)

Other impairment

-

-

-

-

(1)

-

(1)

5

(3)

(63)

(63)

Profit from associates and
joint ventures

-

-

105

-

-

-

-

-

-

(11)

94

Underlying profit/(loss)
before taxation

1,019

200

224

92

658

204

229

(242)

133

789

3,306

Total assets employed

182,512

62,885

41,808

21,536

99,103

35,830

19,105

171,028

91,860

113,044

838,711

Of which: loans and advances
to customers1

85,004

37,764

14,554

10,838

64,268

14,980

7,519

34,338

19,284

47,274

335,823

Total liabilities employed

170,945

53,204

34,064

20,448

103,381

27,937

16,742

132,756

84,648

144,905

789,030

Of which: customer accounts1

142,766

41,075

24,127

18,656

77,591

20,788

12,856

85,767

49,749

56,416

529,791

1   Loans and advances to customers and customer accounts includes FVTPL and repurchase agreements

2   Other includes notable items of Egypt revaluation and Ghana hyperinflation

Page 23

 

Quarterly underlying operating income by product

Q4'23
$million

Q2'23 $million

Q3'22
$million

Transaction Services

1,605

1,659

1,620

1,221

Payments and Liquidity

1,139

1,161

1,207

1,196

1,148

1,094

962

758

Securities & Prime Services

153

141

140

138

131

141

126

120

Trade & Working Capital

313

312

341

343

Global Banking¹

488

400

447

459

Lending & Financial Solutions

422

414

358

393

396

353

366

410

Capital Market & Advisory

66

42

51

49

Global Markets¹

796

534

877

907

Macro Trading

631

884

463

595

776

786

536

725

Credit Trading

165

167

92

122

116

121

123

163

Valuation & Other Adj

-

(21)

(15)

19

Wealth Solutions

618

412

495

454

Investment Products

444

424

298

364

343

352

266

330

Bancassurance

174

114

152

124

CCPL & Other Unsecured Lending

298

287

288

297

286

290

294

298

Deposits

908

908

933

953

881

803

833

640

Mortgages & Other Secured Lending

124

103

57

69

113

161

55

191

Treasury

(30)

43

(235)

(274)

(160)

(233)

(173)

(5)

Other

(1)

(24)

(4)

(27)

Total underlying operating income

4,806

4,024

4,555

4,138

1   Banking and Markets products have been renamed to Global Banking and Global Markets respectively

Earnings per ordinary share

H1'24
$million

H1'23
$million

Change
%

Q2'23
$million

Change
%

Profit for the period attributable to
equity holders

2,369

(1)

974

1,041

(30)

Non-controlling interest

9

3

200

1

6

(83)

8

(88)

Dividend payable on preference shares and AT1 classified as equity

(209)

14

(29)

(65)

84

Profit for the period attributable to
ordinary shareholders

2,169

1

946

982

(23)










Items normalised:









Restructuring

150

(56)

nm³

95

(8)

nm³

55

73

Other items2

100

-

nm³

-

-

nm³

100

nm³

DVA

26

39

(33)

(22)

93

nm³

48

nm³

Net loss on sale of Businesses

189

-

nm³

177

-

nm³

12

nm³

Tax on normalised items

(67)

nm³

(22)

(15)

51

Underlying profit/(loss)

2,567

21

1,174

1,052

(16)










Basic - Weighted average number of
shares (millions)

2,605

2,839

(8)

2,578

2,818

(9)

2,632

(2)

Diluted - Weighted average number of
shares (millions)

2,669

2,902

(8)

2,645

2,884

(8)

2,692

(2)







Basic earnings per ordinary share (cents)¹

83.3

7.7

36.7

34.8

(9.8)

Diluted earnings per ordinary share (cents)¹

81.3

7.4

35.8

34.0

(9.6)

Underlying basic earnings per ordinary
share (cents)¹

98.5

23.5

45.5

37.3

(7.4)

Underlying diluted earnings per ordinary share (cents)¹

96.2

22.9

44.4

36.5

(7.3)

1   Change is the percentage points difference between the two periods rather than the percentage change

2   Charge relating to Korea ELS

3   Not meaningful

Page 24

 

Return on Tangible Equity

H1'24
$million

H1'23
$million

Change
%

Q2'23
$million

Change
%

Average parent company Shareholders' Equity

44,180

43,803

1

44,171

43,964

-

44,188

-

Less Preference share premium

(1,494)

(1,494)

-

(1,494)

(1,494)

-

(1,494)

-

Less Average intangible assets

(6,157)

(5)

(6,128)

(5,895)

1

Average Ordinary Shareholders'
Tangible Equity

36,529

-

36,549

36,575

-







Profit/(loss) for the period attributable to
equity holders

2,369

(1)

974

1,041

(30)

Non-controlling interests

9

3

200

1

6

nm²

8

(88)

Dividend payable on preference shares and AT1 classified as equity

(209)

14

(28)

(65)

84

Profit/(loss) for the period attributable to ordinary shareholders

2,169

1

947

982

(23)










Items normalised:









Restructuring

150

(56)

nm²

95

(8)

nm²

55

73

Other items1

100

-

nm²

-

-

nm²

100

nm²

Net loss on sale of businesses

189

-

nm²

177

-

nm²

12

nm²

Ventures FVOCI unrealised gains/(losses)
net of tax

(15)

43

nm²

(3)

52

nm²

(13)

77

DVA

26

39

(33)

(22)

93

nm²

48

nm²

Tax on normalised items

(67)

nm²

(22)

(15)

51

Underlying profit for the period attributable to ordinary shareholders

2,552

18

1,172

1,104

(15)







Underlying Return on Tangible Equity

14.0%

200bps

12.9%

12.1%

(230)bps

Reported Return on Tangible Equity

11.9%

0bps

10.4%

10.8%

(310)bps

1   Charge relating to Korea ELS

2   Not meaningful

Net Tangible Asset Value per Share

30.06.24
$million

30.06.23
$million

Change
%

31.12.23
$million

Change
%

Parent company shareholders' equity

44,413

43,803

1

44,445

-

43,929

1

Less Preference share premium

(1,494)

(1,494)

-

(1,494)

-

(1,494)

-

Less Intangible assets

(6,103)

(5,898)

(3)

(6,214)

1

Net shareholders tangible equity

36,816

36,411

1

36,737

1









Ordinary shares in issue, excluding own shares (millions)

2,550

2,797

(9)

2,637

(2)

Net Tangible Asset Value per share (cents)1

1,444

1,302

142

1,393

54

1   Change is cents difference between the two periods rather than percentage change

Page 25

 

Underlying versus reported results reconciliations

Reconciliations between underlying and reported results are set out in the tables below:

Operating income by client segment

Reconciliation of underlying versus reported operating income by client segment set out in note 2 Segmental information.

Net interest income and Non NII

H1'24

H1'23

Restructuring
$million

Adjustment for Trading book funding cost and Others
$million

Reported
$million

Restructuring
$million

Reported
$million

Net interest income1

4,979

12

(1,816)

3,175

4,777

(7)

(786)

3,984

Non NII1

4,979

(179)

1,816

6,616

183

5,143

Total income

9,958

(167)

-

9,791

176

9,127

1   To be consistent with how we the compute Net Interest Margin, we have changed our definition of Underlying Net Interest Income (NII) and Underlying non NII. The adjustments made to NIM, including Interest expense relating to funding our trading book, will now be shown against Underlying non NII rather than Underlying NII. There is no impact on total income

Profit before taxation (PBT)

Reconciliation of underlying versus reported PBT set out in note 2 Segmental information.

Profit before taxation (PBT) by client segment

Reconciliation of underlying versus reported PBT by client segment set out in note 2 Segmental information.

Return on tangible equity (RoTE)

H1'24
$million

H1'23
$million

Average parent company Shareholders' Equity

44,180

43,803

Less Preference share premium

(1,494)

(1,494)

Less Average intangible assets

(6,157)

(5,887)

Average Ordinary Shareholders' Tangible Equity

36,529

36,422

Profit for the period attributable to equity holders

2,369

2,385

Non-controlling interests

9

3

Dividend payable on preference shares and AT1 classified as equity

(209)

(243)

Profit for the period attributable to ordinary shareholders

2,169

2,145

Items normalised:



Restructuring

150

(56)

Net  loss on sale of businesses

189

-

Ventures FVOCI unrealised gains/(losses) net of tax

(15)

43

DVA

26

39

Other Items¹

100

-

Tax on normalised items

(67)

-

Underlying profit for the period attributable to ordinary shareholders

2,552

2,171

Underlying Return on Tangible Equity

14.0%

12.0%

Reported Return on Tangible Equity

11.9%

11.9%

1   Charge relating to Korea ELS

Page 26

 

Net charge-off ratio

30.06.24

30.06.23

Credit impairment (charge)/ release for the year/ period
$million

Net average exposure
$million

Net
Charge-off Ratio
%

Credit impairment (charge)/ release for the year/ period
$million

Net average exposure
$million

Net
Charge-off Ratio
%

Stage 1

46

312,091

(0.01)%

34

325,639

(0.01)%

Stage 2

(129)

10,015

1.29%

(115)

11,803

0.97%

Stage 3

(173)

2,715

6.37%

(144)

3,205

4.49%

Total exposure

(256)

324,821

0.08%

(225)

340,647

0.07%

Earnings per ordinary share (EPS)

H1'24

Restructuring
$ million

Net loss
on sale of businesses
$ million

Other
Items¹
$ million

DVA
$ million

Tax on normalised items
$ million

Reported
$ million

Profit for the year attributable to ordinary shareholders

2,567

(150)

(189)

(100)

(26)

67

2,169

Basic - Weighted average number of shares (millions)

2,605






2,605

Basic earnings per ordinary share (cents)

98.5






83.3

 

H1'23

Restructuring
$ million

Net gain
on sale of businesses
$ million

Other
Items
$ million

DVA
$ million

Tax on normalised items
$ million

Reported
$ million

Profit for the year attributable to ordinary shareholders

2,128

56

-

-

(39)

-

2,145

Basic - Weighted average number of shares (millions)

2,839






2,839

Basic earnings per ordinary share (cents)



75.6

1  Charge relating to Korea ELS

Page 27

 

Alternative performance measures

An alternative performance measure is a financial measure of historical or future financial performance, financial position, or cash flows, other than a financial measure defined or specified in the applicable financial reporting framework. The following are key alternative performance measures used by the Group to assess financial performance and financial position.

Measure

Definition

Advances-to-deposits/customer advances-to-deposits (ADR) ratio

The ratio of total loans and advances to customers relative to total customer accounts, excluding approved balances held with central banks, confirmed as repayable at the point of stress. A low advances-to-deposits ratio demonstrates that customer accounts exceed customer loans resulting from emphasis placed on generating a high level of stable funding from customers.

Average interest earning balance

Daily average of the interest earning assets and interest bearing liabilities balances excluding the daily average cash collateral balances in other assets and other liabilities that are related to the Global Markets trading book.

Constant currency basis

A performance measure on a constant currency basis is presented such that comparative periods are adjusted for the current year's functional currency rate. The following balances are presented on a constant currency basis when described as such:

•  Operating income

•  Operating expenses

•  Profit before tax

•  RWAs or Risk-weighted assets

Cost-to-income ratio

The proportion of total operating expenses to total operating income.

Cover ratio

The ratio of impairment provisions for each stage to the gross loan exposure for each stage.

Cover ratio after collateral/cover ratio including collateral

The ratio of impairment provisions for stage 3 loans and realisable value of collateral held against these non-performing loan exposures to the gross loan exposure of stage 3 loans.

Gross yield

Reported interest income divided by average interest earning assets.

Income return on risk weighted assets (IRoRWA)

Annualised Income excluding Debit Valuation Adjustment as a percentage of Average RWA

Jaws

The difference between the rates of change in revenue and operating expenses. Positive jaws occurs when the percentage change in revenue is higher than, or less negative than, the corresponding rate for operating expenses.

Loan loss rate

Credit Impairment Profit & Loss on Loans & Advances to Banks & Customers over Average Loans and Advances to Banks and Customers.

Net charge-off ratio

The ratio of net credit impairment charge or release to average outstanding net loans and advances.

Net tangible asset value per share

Ratio of net tangible assets (total tangible assets less total liabilities) to the number of ordinary shares outstanding at the end of a reporting period.

Net yield

Gross yield on average assets less rate paid on average liabilities.

NIM or Net interest margin

Reported net interest income adjusted for trading book funding cost, cash collateral and prime services on interest earning assets, divided by average interest-earning assets excluding financial assets measured at fair value through profit or loss.

Non NII

Reported Non NII is a sum of net fees and commission, net trading income and other operating income

RAR per FTE or Risk adjusted revenue per full-time equivalent

Risk adjusted revenue (RAR) is defined as underlying operating income less underlying impairment revenue per full-time equivalent over the past 12 months. RAR is then divided by the 12 month rolling average full-time equivalent (FTE) to determine RAR per FTE.

Rate paid

Reported interest expense adjusted for interest expense incurred on amortised cost liabilities used to fund financial instruments held at fair value through profit or loss, divided by average interest bearing liabilities.

RoE or Return on equity

The ratio of the current year's profit available for distribution to ordinary shareholders plus fair value movements through other comprehensive income relating to the Ventures segment to the weighted average ordinary shareholders' equity for the reporting period.

RoTE or Return on ordinary shareholders' tangible equity

The ratio of the current year's profit available for distribution to ordinary shareholders to the average tangible equity, being ordinary shareholders' equity less the average intangible assets for the reporting period. Where a target RoTE is stated, this is based on profit and equity expectations for future periods.

TSR or Total shareholder return

The total return of the Group's equity (share price growth and dividends) to investors.

Underlying net interest income

Reported net interest income normalised to an underlying basis adjusted for trading book funding cost and financial guarantee Fees on interest earning assets.


Page 28

 

Underlying/Normalised

A performance measure is described as underlying/normalised if the statutory result has been adjusted for restructuring and other items representing profits or losses of a capital nature; DVA; amounts consequent to investment transactions driven by strategic intent, excluding amounts consequent to Ventures transactions, as these are considered part of the Group's ordinary course of business; and other infrequent and/or exceptional transactions that are significant or material in the context of the Group's normal business earnings for the period, and items which management and investors would ordinarily identify separately when assessing performance period-by-period. Restructuring includes impacts to profit or loss from businesses that have been disclosed as no longer part of the Group's ongoing business, redundancy costs, costs of closure or relocation of business locations, impairments of assets and other costs which are not related to the Group's ongoing business. Restructuring in this context is not the same as a restructuring provision as defined in IAS 37.

A reconciliation between underlying/normalised and statutory performance is contained in Note 2 to the financial statements. The following balances and measures are presented on an underlying basis when described as such:

•  Operating income

•  Operating expense

•  Profit before tax

•  Earnings per share (basic and diluted)

•  Cost-to-income ratio

•  Jaws

•  RoTE or Return on tangible equity

Underlying Non NII

Reported Non NII normalised to an underlying basis adjusted for trading book funding cost and financial guarantee Fees on interest earning assets. In prior periods Underlying Non NII was described as underlying other income

Underlying RoTE

The ratio of the current year's underlying profit attributable to ordinary shareholders plus fair value on OCI equity movement relating to Ventures segment to the weighted average tangible equity, being ordinary shareholders' equity less the intangible assets for the reporting period.


Page 29

 

Group Chief Risk Officer's review

"Proactively managing our risks whilst keeping our focus on the Group's strategy"

Managing Risks

The first half of 2024 continues to see a world in flux presenting several challenges across many of our markets. The market expectation of interest rate cuts in 2024 has reduced, as the Federal Reserve cited that inflation levels are still above target levels, and in several Asian countries interest rates have increased to respond to challenges accompanied by higher US rates and weaker local currencies. Inflation has yet to decline significantly in many countries, and central banks are wary that maintaining high rates for too long may risk damaging economic activity. Given the challenging geopolitical and macroeconomic environment, we continue to monitor sovereign risks across emerging markets in Asia, Africa and the Middle East.

Political risks in 2024 have increased with over 70 elections taking place, potentially impacting both foreign and domestic policy. The US presidential election will be particularly consequential for the balance of power in the international system and could create uncertainty over the future of US involvement in multilateral initiatives. For the regions in conflict, the Group has limited direct exposure across Corporate and Investment Banking and Wealth and Retail Banking to Ukraine and to the countries in the Middle East which are most impacted by conflict.

We have been vigilant in managing these risks through proactive reviews of our exposure and limits across our portfolios to identify vulnerable industries and clients for closer monitoring. We also continue to monitor the impact of continued high interest rates and the effects of inflation across our risks, and we take proactive steps to further strengthen our risk management. In China in particular, the property market recovery remained slower than expected amidst government support measures, and we continued to monitor our developers and sponsors portfolios through dedicated reviews. We remain vigilant on the challenges in the real estate sector globally and any contagion risks.

Further details on other risks and uncertainties which we are monitoring can be found in the 'Topical and Emerging Risks' section.

Corporate and Investment Banking (CIB)

Our CIB credit portfolio remained resilient with overall good asset quality, as evidenced by our largely investment grade corporate portfolio (30 June 2024: 74 per cent; 31 December 2023: 73 per cent). In consideration of the above challenges, additional stress tests and portfolio reviews have been conducted in the first half of 2024, including examining the impact
of oil price fluctuations and sustained high interest rate levels. We closely monitored vulnerable sectors and identified clients that may face difficulties on account of increased interest rates, foreign exchange movements, commodity volatility or increased prices of essential goods.

Wealth and Retail Banking (WRB)

The uncertainties around the prolonged higher interest rate environment in our major markets remain a key focus, but the credit portfolios have continued to demonstrate resilience. Sluggish consumer confidence in China and underperforming residential property markets in Hong Kong and Korea also present challenges. For our consumer credit portfolios, we have continued to monitor customer affordability and have dynamically adjusted origination criteria, portfolio management and collections strategies, as appropriate. We were mindful of the higher credit risk associated with increased lending to the mass market segment through our digital partnerships and digital banks, and have tailored our lending criteria and portfolio management approach to the unique risks and customer behaviours observed in these segments.

Treasury Risk

Our liquidity and capital risks are managed to ensure a strong and resilient balance sheet that supports sustainable growth. We continued to enhance our Treasury Risk framework to incorporate the lessons from the 2023 market events. Liquidity remained resilient across the Group and major legal entities. Group liquidity coverage ratio (LCR) was 148 per cent as at June 2024 (31 December 2023: 145 per cent) with a surplus to both Risk Appetite and regulatory requirements. CET1 ratio was 14.6 per cent as at June 2024 (31 December 2023: 14.1 per cent) whilst the Leverage ratio was 4.8 per cent (31 December 2023: 4.7 per cent). Market conditions have been stable during 2024 across our markets.

Further details on managing Liquidity and Funding Risk and Interest Rate Risk in the Banking Book can be found in the respective sections.

Page 30

 

Risk Performance Summary

Asset quality is resilient. The percentage of investment-grade corporate net exposure remained high at 74 per cent (31 December 2023: 73 per cent). In H1 2024, we saw a $0.5 billion reduction in Early Alerts exposure to $5 billion (31 December 2023: $5.5 billion), reflecting outflows due to improved credit outlook and exposure reductions. Credit grade 12 balances reduced by $1.2 billion to $1 billion (31 December 2023: $2.2 billion), reflecting both improvements into stronger credit grades and downgrades to stage 3, as well as due to the maturity of short-term loan exposures being replaced with debt securities in the Middle East .

Key indicators

30.06.24

31.12.23

Group total business1

280.9

292.1

Stage 1 loans ($ billion)

264.2

273.7

Stage 2 loans ($ billion)

10.0

11.2

Stage 3 loans, credit-impaired ($ billion)

6.6

7.2

Stage 3 cover ratio

63%

62%

Stage 3 cover ratio (including collateral)

82%

76%

Corporate & Investment Banking



Investment grade corporate exposures as a percentage of total corporate exposures

74%

73%

Early Alert portfolio exposures ($ billion)

5

5.5

Credit grade 12 balances ($ billion)

1.0

2.2

Aggregate top 20 corporate exposures as a percentage of Tier 1 capital2

58%

62%

Collateralisation of sub-investment grade net exposures maturing in more than one year

40%

41%

Wealth & Retail Banking



Loan-to-value ratio of Wealth & Retail Banking mortgages

47.9%

47.1%

1   These numbers represent total gross loans and advances to customers

2   Excludes reverse repurchase agreements

The Group's credit impairment was a net charge of $240 million (30 June 2023: $161 million), an increase of $79 million. The charge of $240 million was driven by WRB, with stage 1 and 2 charges of $135 million mainly due to the release of COVID-19 overlays and other one-off releases present in 2023 and $147 million in stage 3 from gross charge-offs in credit cards and personal loans. The Ventures charge of $43 million was driven by Mox Bank, with releases offsetting the total from CIB and Central and other items.

Further details can be found in the Risk Review section.

Credit impairment

30.06.24

30.06.23

Stage 1 & 2
$million

Stage 3
$million

Total
$million

Stage 1 & 2
$million

Stage 3
$million

Total
$million

Ongoing business portfolio







Corporate & Investment Banking

(38)

3

(35)

33

36

69

Wealth & Retail Banking

135

147

282

15

93

108

Ventures

7

36

43

12

11

23

Central & other items

(31)

(10)

(41)

(27)

(1)

(28)

Credit impairment charge/(release)

73

176

249

33

139

172

Restructuring business portfolio







Others

2

(11)

(9)

(2)

(9)

(11)

Credit impairment charge/(release)

2

(11)

(9)

(2)

(9)

(11)

Total credit impairment charge/(release)

75

165

240

31

130

161

Our Risk Management Approach

Standard Chartered PLC Group's Enterprise Risk Management Framework (ERMF) outlines how we manage risk across the Group, as well as at branch and subsidiary levels1. It gives us the structure to manage existing risks effectively in line with our Group Risk Appetite, as well as allowing for holistic risk identification. The ERMF also sets out the roles and responsibilities and the minimum governance requirements for the management of principal risks.

Page 31

 

Principal Risk Types

Principal Risk Types (PRT) are risks inherent in our strategy and business model. These are formally defined in our ERMF, which provides a structure for monitoring and controlling these risks through the Risk Appetite Statement. We will not compromise compliance with our Risk Appetite in order to pursue revenue growth or higher returns.

The table below provides an overview of Risk Appetite Statements for the PRTs.

Risk Types

Risk Appetite Statements

Credit Risk

The Group manages its credit exposures following the principle of diversification across products, geographies, client segments and industry sectors.

Traded Risk

The Group should control its financial markets activities to ensure that market and counterparty credit risk losses do not cause material damage to the Group's franchise.

Treasury Risk

The Group should maintain sufficient capital, liquidity and funding to support its operations, and an interest rate profile ensuring that the reductions in earnings or value from movements in interest rates impacting banking book items do not cause material damage to the Group's franchise. In addition, the Group should ensure its Pension plans are adequately funded.

Operational and Technology Risk

The Group aims to control operational and technology risks to ensure that operational losses (financial or reputational), including any related to conduct of business matters, do not cause material damage to the Group's franchise.

Financial Crime Risk

The Group has no appetite for breaches in laws and regulations related to Financial Crime, recognising that whilst incidents are unwanted, they cannot be entirely avoided.

Compliance Risk

The Group has no appetite for breaches in laws and regulations related to regulatory non-compliance; recognising that whilst incidents are unwanted, they cannot be entirely avoided.

Information and Cyber Security (ICS) Risk

The Group aims to mitigate and control ICS risks to ensure that incidents do not cause the Bank material harm, business disruption, financial loss or reputational damage - recognising that whilst incidents are unwanted, they cannot be entirely avoided.

Reputational and Sustainability Risk

The Group aims to protect the franchise from material damage to its reputation by ensuring that any business activity is satisfactorily assessed and managed with the appropriate level of management and governance oversight. This includes a potential failure to uphold responsible business conduct in striving to do no significant environmental and social harm.

Model Risk

The Group has no appetite for material adverse implications arising from misuse of models or errors in the development or implementation of models; whilst accepting some model uncertainty.

In addition to the PRTs, the Group has defined the following Risk Appetite Statement for Climate Risk: "The Group aims to measure and manage financial and non-financial risks arising from climate change, and reduce emissions related to our own activities and those related to the financing of clients in alignment with the Paris Agreement."

1   The Group's ERMF and system of internal control applies only to wholly controlled subsidiaries of the Group, and not to Associates, Joint Ventures or Structured Entities of the Group.

Topical and Emerging Risks (TERs)

Topical risks refer to themes that may have emerged but are still evolving rapidly and unpredictably. Emerging risks refer to unpredictable and uncontrollable outcomes from certain events which may have the potential to adversely impact our business.

As part of our ongoing risk identification process, we have updated the Group's TERs from those disclosed in the 2023 Annual Report. These remain relevant with nuances in their evolution noted where pertinent. Below is a summary of the TERs, and the actions we are taking to mitigate them based on our current knowledge and assumptions. This reflects the latest internal assessment by senior management.

The TERs list is not exhaustive and there may be additional risks which could have an adverse effect on the Group. There are some horizon risks that, although not highly likely at present, could become threats in the future, and thus we are monitoring them. These include future pandemics and the world's preparedness for them, and potential cross-border conflicts. Our mitigation approach for these risks may not eliminate them but demonstrates the Group's awareness and attempt to reduce or manage their impact. As certain risks develop and materialise over time, we will take appropriate steps to mitigate them based on their materiality to the Group.

Macroeconomic and geopolitical considerations

There is a complex interconnectedness between risks due to the direct influence of geopolitics on macroeconomics, as well as the global or concentrated nature of key supply chains for energy, food, semi-conductors and critical minerals.

The Group is exposed to these risks directly through investments, infrastructure and staff, and also indirectly through its clients. Whilst the primary impact is financial, there may be other ramifications such as reputational, compliance or operational considerations.

Page 32

 

Expanding array of global tensions and new geopolitical order

The international order is undergoing transformation, with a shift towards a multipolar global system resulting in more transactional and less predictable interactions between global powers. This can give rise to new and more fluid political and economic alliances. This transformation has been accelerated by conflicts in Ukraine and the Middle East.

Whilst the Group has limited direct exposure to the countries which are currently in direct conflict, it may be impacted by second order effects on its clients and markets such as agricultural commodities, oil and gas. The threat of escalation to the surrounding regions remains and could reach markets in the Group's footprint.

The positioning of middle powers is complex and evolving; and there is a rise in mini-lateral groupings of countries that
are ideologically aligned. The negotiating power of exporters of energy and other natural resources has expanded and can shape global markets. With five countries joining in early 2024, BRICS now encompasses almost half of the world's population and produces nearly half of global crude oil supplies, giving it significant leverage, especially as other supply routes remain strained.

Relations between the West, led by the US and EU, and China are in a state of flux, with a declining trend likely to prevail as we head towards the US election. Tariffs, embargos, sanctions, and restrictions on technology exports and investments are expected to continue to be ratcheted up in pursuit of both economic and security goals.

With elections scheduled worldwide in the second half of 2024, there is uncertainty over the direction of domestic and foreign policies in many of the affected countries. There is a significant risk of short-term political expediency taking precedence over long-term strategic decision-making. So far elections have ranged from maintaining status quo in India and Taiwan, to notable shifts in leadership in the UK and France. With the US election coming in November, there is uncertainty over the direction of US domestic as well as foreign policy towards some markets.

The malicious use of artificial intelligence (AI) enabled disinformation could also cause disruption and undermine trust in the political process. This, combined with already fractured societies and persistent inequality, may lead to heightened societal tensions, with a high risk of unrest regardless of election outcomes. This will be particularly in focus in relation to the US presidential election.

Terrorism and cyber warfare are ongoing threats, with unpredictability exacerbated by the wider range of ideologies at play. Cyber attacks can disrupt infrastructure and institutions in rival countries.

West Africa, the Sahel and the Democratic Republic of the Congo face growing concerns due to conflict, population displacement and potential disruption to mineral resource acquisition.

A more complex and less integrated global political and economic landscape could challenge cross-border business models but also provide new business opportunities.

Persistent high interest rates and credit downturn

Although rate cuts have been signalled in most major markets, global rates could stay higher than expected for longer due to structurally higher spending, continued supply disruptions and other inflationary pressures.

A higher-for-longer interest rate environment will continue to stretch companies and sovereigns alike, with global corporate defaults in Q1 2024 at the highest rate since the global financial crisis.

Despite this, markets have remained surprisingly resilient to adverse geopolitical conditions and inflation forecasts in recent months. The conflict in the Middle East has had a limited immediate impact on commodity prices and the wider global economy, however, this could change should the conflict spread. Whilst credit spreads remain below those observed at the outbreak of the Russia-Ukraine conflict, volatility and abrupt changes in sentiment remain a risk.

Concern for the credit outlook spans both commercial and retail lending, with price inflation and the cliff effects of energy, mortgage and debt repricing ultimately leading to higher defaults. This has crystallised most notably in the global commercial real estate sector as well as unsecured lending, and may extend to mortgages if high rates persist. Existing stress in commercial real estate has spread beyond China to North America and Europe. This could result in higher loss rates for the lenders as well as further exacerbate the risk of global societal unrest.

Page 33

 

Economic challenges in China

China's growth rate looks unlikely to return to pre-pandemic levels. The International Monetary Fund (IMF) forecasts a decline in China's growth to 5 per cent in 2024 from 5.2 per cent in 2023, with a further drop to 4.5 per cent in 2025. Most recently, Fitch revised China's outlook to 'negative' from 'stable' in April 2024, indicating reduced clarity on the economic outlook.

Competition with the US and the EU is intense, particularly around modern technologies. Areas such as electric vehicles and AI are key battlegrounds. China's industrial overcapacity leads to an increased search for export markets; electric vehicles and steel are prime examples. This is stoking trade-related frictions and provoking economic countermeasures such as the May 2024 tariffs announced by the US, and by the EU in June, although these are not yet implemented.

China is urging some partners to increase the use of the renminbi (RMB) in trade. In March 2024 RMB's share of global payments was 4.7 per cent, over double that of a year earlier, showing potential signs of a slow structural shift.

Given China's importance to global trade, a prolonged slowdown would have wider implications across the supply chain, especially for its trading partners, as well as for countries which rely on it for investment, such as those in Africa. However, opportunities arise from the diversification of intra-Asia trade and other global trade routes, and growth acceleration in South Asia, especially India.

Sovereign Risk

Credit fundamentals have been deteriorating across both emerging and advanced economies due to persistently high interest rates, food and energy prices. In addition, increased spending on areas such as defence is expected to further stretch budgets.

After sharp declines in 2021-2022, global public debt edged up again in 2023 and remained above pre-pandemic levels by 9 percentage points of GDP. Whilst markets have remained opened for all categories of sovereign issuers, the refinancing cost has been rising, and interest payments are an increasing burden on both emerging and developed markets. Emerging markets could become affected by weakness in local currencies versus the US dollar, making refinancing existing debt or accessing hard currency liquidity more challenging.

Some countries face a heightened risk of failing to manage social demands, increasing political vulnerability and possibly social unrest. Food and security challenges exacerbated by armed conflict and climate change have the potential to drive social unrest. Disorderly outcomes of fractious elections could also have implications for sovereign ratings as markets become more volatile.

Debt moratoria and refinancing initiatives for some emerging markets are complicated by a larger number of financiers, with much financing done on a bilateral basis outside of the Paris Club. Whilst the Global Sovereign Debt Roundtable has made some progress on coordinating approaches between the Paris Club and other lenders, their interests do not always match. This can lead to delays in negotiations on debt resolutions for developing nations.

Supply chain issues and key material shortages

Whilst the initial disruption caused by the Russia-Ukraine conflict has somewhat abated, recent volatility in the Red Sea has highlighted the vulnerability of global supply lines.

There is growing political awareness around the need for key component and resource security at national level. Countries are enacting rules to de-risk by reducing reliance on rivals or concentrated suppliers (for example, semiconductors) and look to either re-industrialise or make use of near-shoring and friend-shoring production.

The EU probe into unfair commercial practices in the provision of renewable energy equipment, particularly subsidies related to offshore wind and solar energy, may add to strain on associated supply chains, and add to inflationary pressures.

The growing need for minerals and rare earth elements to power green energy technologies can be leveraged to achieve economic or political aims by restricting access. This can bolster the negotiating influence of the main refiners and producers, such as China, Indonesia and some African nations, whilst prompting some nations to slow down their green transition plans.

Page 34

 

How these risks are mitigated

• We remain vigilant in monitoring risk and assessing impacts from geopolitical and macroeconomic risks to portfolio concentrations.

• We maintain a diversified portfolio across products and geographies, with specific Risk Appetite metrics to monitor concentrations.

• Mitigations in our WRB segment include building a resilient revenue base and maintaining close relations with clients for the awareness of early alerts.

• Increased scrutiny is applied when onboarding clients in sensitive industries and in ensuring compliance with sanctions.

• We utilise Credit Risk mitigation measures including collateral and credit insurance.

• We conduct portfolio reviews as well as macroeconomic, thematic and event-driven stress tests at Group, country, and business level, with regular reviews of vulnerable sectors, and undertake mitigating actions.

• We have a dedicated Country Risk team that closely monitors Sovereign Risk.

• We run a series of daily Market Risk stress scenarios to assess the impact of unlikely but plausible market shocks.

• We run a suite of management scenarios with differing severities to assess their impact on key Risk Appetite metrics.

Environmental, Social and Governance (ESG) considerations

ESG risks

Higher frequencies of extreme weather events are observed each year and the cost of managing the climate impacts is increasing, with the burden disproportionately borne by developing markets, where we have a large footprint. Alongside climate, other environmental risks pose incremental challenges to food, health systems and energy security, for example, biodiversity loss, pollution, and depletion of water.

Modern slavery and human rights concerns are increasingly in focus, with the scope expanding beyond direct operations to extended supply chain and vendors.

ESG regulation continues to develop across the world, often with differing taxonomies and disclosure requirements. This increased regulation is also generating stakeholder scrutiny on greenwashing risk, with ESG litigation being brought against corporations and governments in multiple markets.

A succession of political, social and economic disruptions in recent years have diverted attention and resources away from longer-term action on climate and sustainable development as competing spending demands are made of stretched budgets. For companies and governments, the anticipated trade-off between pragmatism and environmentalism has started to crystalise, with several delaying or rolling back targets. A slower transition to low-carbon business models may impact progress towards the Group's Net Zero targets and product roadmap.

How these risks are mitigated

• Climate Risk considerations are embedded across all relevant Principal Risk Types. This includes client-level Climate Risk assessments, including setting adequate mitigants or controls as part of decision-making and portfolio management activities.

• We embed our values through our Position Statements for sensitive sectors and a list of prohibited activities. We also maintain environmental and social risk management standards to identify, assess and manage these risks when providing financial services to clients.

• The management of greenwashing risks has been integrated into our Reputational and Sustainability Risk Framework, Sustainability Risk policy and Sustainable Finance greenwashing standard.

• Detailed portfolio reviews and stress tests are conducted to test resilience to climate-related physical and transition risks and enhance modelling capabilities to understand the financial risks and opportunities from climate change. A scenario focusing on ESG litigation has been introduced in our internal capital adequacy assessment.

• We assess our relevant corporate clients and suppliers against various international human rights principles, as well as through our social safeguards.

Page 35

 

New business structures, channels and competition

Speed and breadth of technological developments

Traditional banking faces challenges in its external competitive environment from a range of fintechs. At the same time, banks themselves have an opportunity to defend or leverage their competitive advantage by harnessing new technologies, partnerships or new asset classes.

Conventional loan and deposit businesses could be challenged by digital enterprise business models, which integrate financial services with emerging technologies like AI, big data analytics and cloud computing fostering financial disintermediation.

In the longer term, increased adoption of stable coins and digital currencies could similarly create alternative deposit channels and bank disintermediation.

The rapid adoption of new technologies, partnership models or digital assets by banks brings a range of inherent risks, requiring clear operating models and risk frameworks. It is essential to upskill our people to develop in-house expertise
and capabilities to manage associated risks, including model risks or managing external third parties which deliver these technologies. We must ensure that the people, process and technology agendas are viewed holistically to ensure the most effective and efficient implementation of new infrastructure.

Cyber security and data

The Group's digital footprint is expanding. This increases inherent Cyber Risk as more services and products are digitised, outsourced and made more accessible. Highly interconnected and extended enterprises drive efficiencies but can expand the opportunities available for malicious actors to gain entry or access to corporate assets. This includes infrastructure such as cloud services.

The risk of data breaches is amplified by highly organised actors, with threats such as 'Ransomware as a Service' and affordable, sophisticated AI systems helping to facilitate attacks on organisations and individuals. Increasing cross-border tensions further drive the arms race to develop new attack types and commoditise new tools.

How these risks are mitigated

• We monitor emerging technology trends, business models and opportunities relevant to the banking sector.

• We invest in our capabilities to prepare for and protect against disruption and new risks.

• We have established enhanced governance for novel areas through the Digital Asset Risk Committee and Responsible AI Council, which considers emerging regulatory guidance.

• The Group has developed the Responsible AI Standard to govern innovative and safe use of the technology in adherence with responsible AI principles.

• We manage data risks through our Compliance Risk Type Framework and information security risks through our ICS Risk Type Framework. We maintain a dedicated Group Data Conduct Policy with globally applicable standards. These standards undergo regular review to ensure alignment with changing regulations and industry best practice.

• We maintain programmes to enhance our data risk management capabilities and controls, including compliance with the Basel Committee on Banking Supervision 239 requirements on effective risk data aggregation, with progress tracked at executive level risk governance committees.

• Risks embedded in key software programmes are continuously reassessed together with enhancements made in testing stages of new systems before they go live.

• The Group has implemented a 'defence-in-depth' ICS control environment strategy to protect, detect and respond to known and emerging ICS threats.

• New risks arising from partnerships, alliances, digital assets and generative technologies are identified through the
New Initiatives Risk Assessment and Third-Party Risk Management Policy and Standards.

• Work is already underway to gauge the potential benefits and threats of nascent technologies such as quantum computing.

Page 36

 

Regulatory considerations

Regulatory evolution and fragmentation

The regulatory framework for banks is expanding, becoming more complex and remains subject to continual evolution. Aside from changes in prudential, financial markets, climate and data regulations, we anticipate a rise in consultations and regulations relating to the use of AI, and particularly around its ethical application in decision-making.

Jurisdictional risk arises from internationally diverging regulations, with differing pace and scale of regulatory adoption, conflicting rules, extraterritorial and localisation requirements around data, staff, capital and revenues. Data sovereignty and ESG regulation are prime examples of jurisdictional risk.

This makes it challenging for multinational groups to manage cross-border activities, as well as adding complexity and cost. Such fragmented regulatory changes can also create frictions in the market as a whole.

How these risks are mitigated

• We actively monitor regulatory developments, including those related to sustainable finance, ESG, digital assets and AI, and respond to consultations either bilaterally or through well-established industry bodies.

• We track evolving country-specific requirements, and actively collaborate with regulators to support important initiatives.

• We help shape regulation, particularly in new areas like AI and Central Bank Digital Currencies through thought leadership, and actively engaging with policymakers and central banks.

Demographic considerations

Skills of the future

Evolving client expectations and the rapid development of technologies such as AI are transforming the workplace,
and further accelerating changes to how people deliver outcomes, connect and collaborate. The skills needed to grow businesses and sustain careers are being changed as a result, with a balance of both technical and human skills becoming increasingly critical.

Employee priorities also continue to evolve. 'What' work people do and 'how' they get to deliver it have become differentiators in attracting future-focused talent. Workers have a greater desire to do work aligned to individual purpose, and have increasing expectations from employers to invest in skills and careers. These trends are even more distinct among Millennials and Generation Z who make up an increasing proportion of the global talent pool and, as digital natives, possess the attributes needed to pursue our strategy.

To sustainably attract, grow and retain the relevant skills and talent, we must continue to invest in building future-focused skills as well as further strengthen our Employee Value Proposition (EVP) and brand promise.

Demographic trends

Divergent demographic trends across developed and emerging markets create contrasting challenges. Developed markets' state budgets will be increasingly strained by ageing and shrinking populations in time, whilst political stances reduce the ability to fill skills gaps through immigration. Conversely, emerging markets are experiencing fast-growing, younger workforces. Whilst it is an opportunity to develop talent, population growth will put pressure on key resources such as food, water, education and health, as well as government budgets.

Population displacement, whether as a result of climate events, lack of key resources, political issues or war, may increase the fragility of societal structures in vulnerable centres. Large-scale movement could cause social unrest, as well as propagate disease transmission and accelerate the spread of future pandemics.

Page 37

 

How these risks are mitigated

• We are helping colleagues to upskill and reskill, both through classroom sessions and our online learning platform.

• We have an internal Talent Marketplace which enables colleagues to sign up for projects to access diverse experiences and career opportunities.

• We place emphasis on skills and aspiration to identify the talent to accelerate, as well as deploy it in areas with the
highest impact for our clients and the business. We are piloting a differentiated learning proposition for this talent with the highest potential.

• We emphasise frequent two-way feedback through performance and development conversations to embed a culture of continuous learning and development.

• Our culture and EVP work is addressing the emerging expectations of our diverse talent base, particularly around being purpose-led.

• We provide support and resources to all colleagues to help balance productivity, collaboration and wellbeing, with more than 70 per cent of our workforce having signed up to work flexibly.

 

Sadia Ricke

Group Chief Risk Officer

30 July 2024

 

Page 38

CONTACT INFORMATION

Global headquarters
 Standard Chartered Group
1 Basinghall Avenue
London, EC2V 5DD
United Kingdom

telephone: +44 (0)20 7885 8888
facsimile: +44 (0)20 7885 9999

Shareholder enquiries
ShareCare information

website: sc.com/shareholders
helpline: +44 (0)370 702 0138

ShareGift information
website: ShareGift.org
helpline: +44 (0)20 7930 3737

Registrar information

UK

Computershare Investor Services PLC

The Pavilions
Bridgwater Road
Bristol, BS99 6ZZ
helpline: +44 (0)370 702 0138

Hong Kong

Computershare Hong Kong Investor Services Limited

17M Floor, Hopewell Centre
183 Queen's Road East
Wan Chai
Hong Kong

website: computershare.com/hk/investors

Chinese translation

Computershare Hong Kong Investor Services Limited

17M Floor, Hopewell Centre
183 Queen's Road East
Wan Chai
Hong Kong

Register for electronic communications
website: investorcentre.co.uk

For further information, please contact:

Manus Costello, Global Head of Investor Relations
 +44 (0) 20 7885 0017

LSE Stock code: STAN.LN
HKSE Stock code: 02888

Page 39

 

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.

RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our Privacy Policy.
 
END
 
 

Companies

Standard Chartered (STAN)
UK 100
FTSE quotes by TradingView

Latest directors dealings

All directors dealings today