Additional Financial Information - Part 2

RNS Number : 9473B

Standard Chartered PLC

17 February 2022

 

Standard Chartered PLC - Additional Financial information - Part 2

Highlights

Standard Chartered PLC (the Group) today releases its results for the year ended 31 December 2021. The following pages provide additional information related to the announcement.

Table of contents

Financial statements
Independent Auditor's report	2
Consolidated income statement	16
Consolidated statement of comprehensive income	17
Consolidated balance sheet	18
Consolidated statement of changes in equity	19
Cash flow statement	20
Notes to the financial statements	21
Shareholder information	145

Page 1
 

Independent Auditor's Report to the members of Standard Chartered PLC

Opinion

In our opinion:

• the financial statements of Standard Chartered PLC (the 'Company'), its subsidiaries (together, the 'Group') and the Group's interest in associates and jointly controlled entities (together, the 'Group financial statements') give a true and fair view of the state of the Group's and of the Company's affairs as at 31 December 2021 and of the Group's profit for the year then ended;

• the Group financial statements have been properly prepared in accordance with UK adopted international accounting standards (IAS) and International Financial Reporting Standards (IFRS) as adopted by the European Union (EU IFRS);

• the Company financial statements have been properly prepared in accordance with UK adopted IAS as applied in accordance with section 408 of the Companies Act 2006; and

• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.

We have audited the financial statements of Standard Chartered PLC (the 'Company') and its subsidiaries (the 'Group') for the year ended 31 December 2021 which comprise:

Group	Parent company
Consolidated income statement for the year ended 31 December 2021;	Company cash flow statement for the year ended 31 December 2021;
Consolidated statement of comprehensive income for the year then ended;	Company balance sheet as at 31 December 2021;
Consolidated balance sheet as at 31 December 2021;	Company statement of changes in equity for the year then ended; and
Consolidated statement of changes in equity for the year then ended 31 December 2021;	Related notes 1 to 39, where relevant to the financial statements, including a summary of significant accounting policies.
Consolidated cash flow statement for the year then ended
Related notes 1 to 40 to the financial statements, including a summary of significant accounting policies;
Information marked as 'audited' within the Directors' remuneration report; and
Risk review and capital review disclosures marked as 'audited'.

The financial reporting framework that has been applied in their preparation is applicable law and UK adopted IAS, and as regard to the Group financial statements, EU IFRS, and as regards the Company financial statements, as applied in accordance with section 408 of the Companies Act 2006.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Independence

We are independent of the Group and Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the Financial Reporting Council's ('FRC') Ethical Standard as applied to listed public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements.

The non-audit services prohibited by the FRC's Ethical Standard were not provided to the Group or the Company and we remain independent of the Group and the Company in conducting the audit.

Page 2

 

Conclusions relating to going concern

In auditing the financial statements, we have concluded that the directors' use of the going concern basis of accounting in the preparation of the financial statements is appropriate. Our evaluation of the directors' assessment of the group and Company's ability to continue to adopt the going concern basis of accounting included:

• Understanding management's going concern assessment process, including the impact of the COVID-19 pandemic (COVID-19);

• Review of the Corporate Plan, including assessing the reasonableness of assumptions and historical forecasting accuracy;

• Assessing the results of management's stress testing, including consideration of principal and emerging risks, on funding, liquidity and regulatory capital;

• Reviewing correspondence with prudential regulators and authorities for matters that may impact the going concern assessment; and

• Evaluating the appropriateness of the going concern disclosure included in note 1 to the financial statements.

Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the Group and Company's ability to continue as a going concern for a period of twelve months 17 February 2022.

In relation to the group and Company's reporting on how they have applied the UK Corporate Governance Code, we have nothing material to add or draw attention to in relation to the directors' statement in the financial statements about whether the directors considered it appropriate to adopt the going concern basis of accounting.

Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report. However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the Group's and Company's ability to continue as a going concern.

Overview of our audit approach

Audit scope	• We performed an audit of the complete financial information of 21 components in 14 countries and audit procedures on specific balances for a further 7 components in 4 countries. • The components where we performed full or specific audit procedures accounted for 81% of absolute adjusted profit before tax (PBT) measure used to calculate materiality, 89% of absolute operating income and 96% of Total assets.
Key audit matters	• Credit impairment • User access management • Impairment of non-financial assets (Aircraft, Goodwill and Investments in subsidiary undertakings) • Basis of accounting and impairment assessment of China Bohai Bank (Interest in Associate) • Valuation of financial instruments held at fair value with higher risk characteristics
Materiality	• Overall group materiality of $195m which represents 5% of adjusted PBT.

An overview of the scope of the Company and Group audits

Tailoring the scope

Our assessment of audit risk, our evaluation of materiality and our allocation of performance materiality determine our audit scope for each component within the Group. Taken together, this enables us to form an opinion on the consolidated financial statements. We took into account the size, risk profile, the organisation of the Group and effectiveness of group control environment, changes in the business environment and other factors such as material issues or misstatements noted in prior period when assessing the level of work to be performed at each component.

Page 3

In assessing the risk of material misstatement to the consolidated financial statements, and to ensure we had adequate quantitative coverage of significant accounts in the financial statements, of the 352 reporting components of the Group, we selected 28 components in 18 countries covering entities within Bangladesh, Germany, Hong Kong, India, Indonesia, Ireland, Japan, Kenya, Mainland China, Malaysia, Nigeria, Pakistan, Singapore, South Korea, Taiwan, United Arab Emirates, United Kingdom, and the United States of America, which represent the principal business units within the Group. The definition of a component is aligned with the structure of the Group's consolidation system, typically these are either a branch, group of branches, group of subsidiaries, a subsidiary or an associate.

We took a centralised approach to auditing certain processes and controls, as well as the substantive testing of specific balances. This included audit work over Global Business Services, Commercial, Corporate and Institutional Banking, Credit Impairment and Technology.

Of the 28 components selected in 18 countries, we performed an audit of the complete financial information of 21 components in 14 countries ('full scope components') which were selected based on their size or risk characteristics. For the remaining 7 components in 4 countries ('specific scope components'), we performed audit procedures on specific accounts within that component that we considered had the potential for the greatest impact on the significant accounts in the financial statements either because of the size of these accounts or their risk profile.

The reporting components where we performed audit procedures accounted for 81% (2020: 86%) of the Group's absolute adjusted PBT, 89% (2020: 89%) of the Group's absolute operating income and 96% (2020: 97%) of the Group's total assets. For the current year, the full scope components contributed 74% (2020: 82%) of the Group's absolute adjusted PBT, 81% (2020: 82%) of the Group's absolute operating income and 88% (2020: 90%) of the Group's total assets. The specific scope component contributed 7% (2020: 4%) of the Group's absolute adjusted PBT, 8% (2020: 7%) of the Group's absolute operating income and 8% (2020: 7%) of the Group's total assets. The audit scope of these components may not have included testing of all significant accounts of the component but will have contributed to the coverage of significant accounts tested for the Group.

Of the remaining 324 components that together represent 19% of the group's absolute adjusted PBT, none are individually greater than 1.7% of the Group's absolute adjusted PBT. For these components, we performed other procedures at a Group level which included, performing analytical reviews at a Group financial statement line item level, testing entity level controls, performing audit procedures on the centralised shared service centres, testing of consolidation journals and intercompany eliminations, inquiring with local component teams and assessing the outcome of prior year local statutory audits to respond to any potential risks of material misstatement to the Group financial statements. The charts below illustrate the coverage obtained from the work performed by our audit teams.

Changes from the prior year

We assessed our 2021 audit scope with consideration of history or expectation of unusual or complex transactions and potential for or history of material misstatements. We also kept our audit scope under review throughout the year.

A total of 5 components in 4 countries which were previously included in our prior year audit scope, that together represent 1.3% of the prior year absolute adjusted PBT have now been excluded from the Group audit scope in the current year based on our updated risk assessment.

Bangladesh which was a full scope component in the prior year is designated as a specific scope component in the current year based on our updated risk assessment.

Involvement with component teams

In establishing our overall approach to the Group audit, we determined the type of work that needed to be undertaken at each of the components by us, as the Group audit engagement team, or by component auditors from other EY global network firms and another firm operating under our instruction.

Of the 21 full scope components, audit procedures were performed on 2 of these (including the audit of the Company) directly by the Group audit engagement team (EY London) in the United Kingdom. For the 7 specific scope components, where the work was performed by component auditors, we determined the appropriate level of involvement to enable us to determine that sufficient audit evidence had been obtained as a basis for our opinion on the Group as a whole. In addition, the Group has centralised processes and controls over key areas in its shared service centres. Members of the Group audit engagement team provide direct oversight, review and coordination of our shared service centre audits.

Page 4

Our programme of planned visits to components and shared service centres in several locations was impacted by the travel restrictions and other imposed government measures which are still in place from the prior year as a result of the ongoing COVID-19 pandemic. The audit was performed remotely at both Group audit engagement team and component locations supported through the use of EY software collaboration platforms for the secure and timely delivery of requested audit evidence. We also undertook virtual engagement with local audit teams and management. These virtual meetings involved discussing the audit approach with the component and shared service centres team and any issues arising from their work, meeting with local management, attending meetings with the key audit partners of material components, attending interim and closing meetings and performing remote reviews of key audit workpapers. Furthermore, the Senior Statutory Auditor visited Singapore as it is the location where significant element of the work on significant risk areas such as credit and financial instrument valuation is performed. He attended meetings with management and held discussions on the audit approach and any issues arising from the work of the Singapore component and Shared Service Centre teams.

As a result of COVID-19, we maintained continuous involvement and oversight of the component teams. This includes the Group audit engagement partners and senior members of the primary audit team increasing regular interactions through calls and video conferences during

various stages of the audit process, increasing our written communications to and reporting from the component teams and inviting component teams to our virtual planning event and subsequent virtual events dedicated to specific areas of the audit.

For majority of the significant and fraud risk areas, substantial elements of the audit work were led centrally, either within the Group audit engagement team, or within other teams performing centralised procedures.

This, together with the additional procedures performed at Group level, gave us appropriate evidence for our opinion on the Group and Company financial statements.

Climate change

There has been increasing interest from stakeholders as to how climate change will impact the banking industry. The Group has determined climate risk to be a Primary Integrated Risk Type and the assessment of this risk is explained in the Task Force for Climate related Financial Disclosures and in the Principal Risks and Uncertainties section of the Annual Report (collectively the "Climate Disclosures")

The Climate Disclosures form part of the 'Other information,' rather than the audited financial statements. Our procedures on the Climate Disclosures therefore consisted solely of considering whether they are materially inconsistent with the financial statements or our knowledge obtained in the course of the audit or otherwise appear to be materially misstated.

Governmental and societal responses to climate change risks are still developing, and are interdependent upon each other; accordingly, financial statements cannot capture all possible future outcomes as these are not yet known. The degree of uncertainty of these climate changes risks may also mean that they cannot be taken into account when determining asset and liability valuations and the timing of future cash flows under the requirements of UK adopted IAS and EU IFRS.

Our audit effort in considering climate change risks was focused on evaluating whether the Group's assessment of the effects of material climate change risks disclosed within Basis of Preparation on page 316, have been appropriately reflected in the valuation of assets and liabilities, where these can be reliably measured. This was in the context of the Group's process being over this emerging area being limited, as a result of limitations in the availability of data and sophisticated models, and as the Group considers how it further embeds its climate ambitions into the planning process.

We also understood the Directors' considerations of climate change in their assessment of going concern and viability and the associated disclosures.

Whilst the Group has stated its commitment to the aspirations of the Paris Agreement to achieve net zero emissions by 2050, the Group considers Climate Risk as a longer-term risk and will address the risk through its business strategy and financial planning as the Group implements its net zero journey. As set out above and on page 316 within Basis of Preparation, the Group's process is currently limited, and accordingly, the potential impacts of Climate Risk may not be fully incorporated in these financial statements.

Page 5
 

Key audit matters

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified. These matters included those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in our opinion thereon, and we do not provide a separate opinion on these matters.

Risk		Our response to the risk
Credit Impairment Refer to the Audit Committee Report; Accounting policies; Note 8 of the financial statements; and relevant credit risk disclosures. At 31 December 2021, the Group reported total credit impairment balance sheet provision of $6,209 million (2020: $7,145 million). Management's judgements and estimates are especially subjective due to significant uncertainty associated with the assumptions used. Assumptions with increased complexity in respect of the timing and measurement of expected credit losses (ECL) include: • Staging - Allocation of assets to stage 1, 2, or 3 on a timely basis using criteria in accordance with IFRS 9; • Model output and adjustments - Accounting interpretations, modelling assumptions and data used to build and run the models that calculate the ECL, including the appropriateness, completeness and valuation of post-model adjustments applied to model output to address risks not fully captured by the models; • Economic scenarios - Significant judgements involved with the determination of parameters used in Monte Carlo Simulation and the evaluation of the appropriateness of using Monte Carlo Simulation with regards to whether the simulation can sufficiently capture the non-linearity of ECL and appropriately generate a wide enough range of possible outcomes; • Management overlays - Appropriateness, completeness and valuation of risk event overlays to capture risks not identified by the credit impairment models, including the consideration of the risk of management override; and • Individually assessed ECL allowances - Measurement of individual provisions including the assessment of probability weighted recovery scenarios, exit strategies, collateral valuations and time to collect. The above complexities are further exacerbated by the ongoing COVID-19 pandemic, particularly due to its dynamic nature and the diversity of its impact across geographies and time. The most notable risk in this respect remains the appropriateness of the management COVID-19 overlay recognised within the ECL. The level of risk remains consistent with the prior year.		We evaluated the design and operating effectiveness of controls relevant to the Group's processes over material ECL balances, including the judgements and estimates noted, involving EY specialists to assist us in performing our procedures to the extent it was appropriate. These included: • credit monitoring; • controls over the allocation of assets into stages such as management's monitoring of stage effectiveness; • completeness and accuracy of data; • review and approval of multiple economic scenarios; • model governance, including model monitoring, model validation and review and approval of post model adjustments; • review and approval of management overlays; and • review and approval of the individually assessed ECL. In evaluating the controls, we obtained the relevant papers and minutes of the executive forums that discuss and approve the credit models and ECL allowances for evidence of executive review and challenge. We performed an overall stand-back assessment of the ECL allowance levels by stage to determine if they were reasonable by considering the overall credit quality of the Group's portfolios, risk profile, impact of COVID-19 including geographic considerations and vulnerable sectors. We also assessed the effect of government support measures in key locations (e.g., payment deferrals), which may delay or mask stage migrations. Our assessment also included the evaluation of the macroeconomic environment by considering trends in the economies and industries to which the Group is exposed. We performed peer benchmarking where available to assess overall staging and provision coverage levels. Staging - We evaluated the criteria used to allocate financial assets to stage 1, 2 or 3 in accordance with IFRS 9. We reperformed the staging distribution for a sample of financial assets and assessed the reasonableness of staging downgrades applied by management. To test credit monitoring which largely drives the probability of default estimates used in the staging calculation, we challenged the risk ratings for a sample of performing accounts and other accounts exhibiting risk characteristics such as financial difficulties, deferment of payment, late payment and watchlist. We also considered the vulnerable sectors (as defined on page 229 in the annual report) impacted by COVID-19.

Page 6
 

Risk		Our response to the risk
Credit Impairment continued		Modelled output and adjustments - We performed a risk assessment on models involved in the ECL calculation to select a sample of models to test. We engaged our modelling specialists to evaluate a sample of ECL models by assessing the reasonableness of underpinning assumptions, inputs and formulae used. This included a combination of assessing the appropriateness of model design ,formulae and algorithms, alternative modelling techniques and recalculating the Probability of Default, Loss Given Default and Exposure at Default parameters. Together with our modelling specialists, we also assessed material post-model adjustments which were applied as a response to risks not fully captured by the models, including the completeness and appropriateness of these adjustments, for which we considered the applied judgments and methodology, and governance thereon. In response to the new models implemented this year to address known weaknesses in previous models, we performed substantive testing procedures, including code review and implementation testing. To evaluate data quality, we agreed a sample of ECL calculation data points to source systems, including, among other data points, balance sheet data used to run the models. We also tested a sample of the ECL data points from the calculation engine through to the general ledger and disclosures. We included COVID-19 specific data points in this testing. Economic scenarios - For material models, in collaboration with our economists and modelling specialists, we also challenged the completeness and appropriateness of the macroeconomic variables used as inputs to these models. Additionally, we involved our economic specialists to assist us in evaluating the reasonableness of the base forecast for sample of macroeconomic variables most relevant for the Group's ECL calculation influenced by the above assessment. Procedures performed included benchmarking the forecast for a sample of macroeconomic variables to a variety of external sources. Furthermore, we assessed the reasonableness of the non-linearity impact on ECL allowances.  By engaging our economists and modelling specialists, we assessed the Group's choice of scenarios and chosen weights used, and the underlying mechanics and formulae to determine the uplift in ECL Management overlays - We challenged the completeness and appropriateness of overlays used for risks not captured by the models, particularly the uncertainties as a result of the COVID-19 pandemic and observed in the China Commercial Real Estate sector. Our procedures included evaluating the underpinning assumptions and judgments as to whether they are appropriate in prevailing market conditions. Individually assessed ECL allowances - Our procedures included challenging management's forward-looking economic assumptions of the recovery outcomes identified and assigned individual probability weightings, and recalculating a sample of individually assessed provisions. We also engaged our valuation specialists to test the value of the collateral used in management's calculations. Our sample was based on quantitative thresholds and qualitative factors including exposure to vulnerable sectors. We considered the impact COVID-19 had on collateral valuations and time to collect. We also considered whether planned exit strategies remained viable under COVID-19.
Page 7

 

Our conclusions We concluded that management's methodology, judgements and assumptions used in calculating credit impairment are in accordance with the accounting standard.  We highlighted the following matters to the Audit Committee:: • a number of control findings in relation to the model governance framework; • some instances of over and under estimation; • the level of uncertainty in the China Commercial Real Estate  sector and the associated management overlay including the key assumptions used; • benchmarking impact of non-linearity from the baseline ECL against UK peers; and • the need for to continuously assess the composition of the CPBB COVID-19 overlay to reflect the everchanging market uncertainties Overall modelled ECL levels, staging and individually assessed provisions were reasonable. We concluded that the Group's ECL allowances were reasonable and recognised in accordance with IFRS 9.
Risk		Our response to the risk
User Access Management - Privileged Access Management Refer to the Audit Committee Report IT General Controls (ITGCs) support the continuous operation of the automated and other IT dependent controls within the business processes related to financial reporting. Effective IT general controls are needed to ensure that IT applications process business data as expected and that changes are made in an appropriate manner. During the 2020 audit, a number of significant privileged identity management (PIM) control deficiencies were identified by us. Similar deficiencies were identified by Group Internal Audit (GIA) and the predecessor auditor in 2018 and 2019. The possibility of IT application users gaining access privileges beyond those necessary to perform their assigned duties may result in breaches in segregation of duties, including inappropriate manual intervention, unauthorised changes to systems or programmes. These deficiencies are still in the process of being fully remediated. During the current year audit, we made further observations relating to the effectiveness of remediation activities. The risk has decreased in the current year due to management's remediation program, which is still in progress as at the year-end date.		We reviewed the results of management's remediation program and risk assessment for applications in our audit scope and assessed the impact on the financial statements for the year ended 31 December 2021. We tested IT compensating controls where possible, and also performed additional IT substantive procedures to assess the impact of risks associated with the reported deficiencies, on the financial statements. Where required, we tested business compensating controls and performed additional business substantive procedures.
Our conclusions • We communicated a weakness in internal control to the Audit Committee throughout the audit, in respect of the effectiveness of privileged identity management. • We explained the additional procedures performed, including IT substantive testing, testing of IT and business compensating controls, and where required, additional substantive testing over impacted account balances. • As a result of the procedures performed, we have reduced the risk that our audit has not identified a material error in the Group and Company financial statements, related to user privileged access management, to an appropriate level.

Page 8

 

Risk		Our response to the risk
Impairment assessment of non-financial assets Refer to the Audit Committee Report; a) Impairment of aircraft: Accounting policies; and Note 18 of the financial statements b) Impairment of Goodwill: Accounting policies ; and Note 17 of the financial statements and c) Impairment of investments in subsidiary undertakings: Accounting policies; and Note 32 of the financial statements (page 407); COVID-19 continues to have a significant economic impact globally. As a result, the Group assessed for impairment its various non-financial assets during 2021, the most significant of which are set out below. Impairment of aircraft The Group owns a portfolio of aircraft, which are leased to airlines. The aircraft are measured at cost less accumulated depreciation and impairment. As at 31 December 2021, the Group has reported a $64 million impairment charge in respect of aircraft. Each aircraft was tested for impairment. Impairment of aircraft is determined by comparing the carrying value to the higher of the current market value, provided by independent appraisers, and the value in use (VIU). The judgemental assumptions in the VIU calculation include the discount rate and residual values. Goodwill and investments in subsidiary undertakings The Group performed an impairment test on goodwill amounting to $2,595million (2020: $2,617 million) and, in the Company financial statements, investments in subsidiary undertakings amounting to $60,429 million (2020: $47,407 million). Impairment of goodwill and investments in subsidiary undertakings is determined by comparing the carrying value to recoverable amount. Where the recoverable amount is based on VIU, this is modelled by reference to future cashflow forecasts (profit forecast including a regulatory capital haircut adjustment), discount rates and macroeconomic assumptions such as long-term growth rates. Consequently, there is a risk that if the judgements and assumptions underpinning the impairment assessments are inappropriate, then the goodwill and investments in subsidiaries balances may be misstated. The level of risk remains consistent with the prior year.		We obtained an understanding of management's processes for assessing impairment and evaluated the design of controls. We took a fully substantive approach. Impairment of aircraft We assessed the appropriateness of the Group's VIU methodology for testing the impairment of the aircraft portfolio. We tested the mathematical accuracy of the VIU model and engaged our valuation specialists to support the audit team in calculating an independent range for assumptions in the VIU calculations, such as discount rates, re-lease assumptions and residual values. Where current market values and residual values were used to support the carrying value, we agreed a sample to independent appraisal reports. We evaluated management's sensitivity analysis in relation to assumptions in VIU calculations and performed stress testing for reasonably possible changes to the discount rate and market values. Impairment of goodwill and investments in subsidiary undertakings We assessed the appropriateness of the Group's methodology for testing the impairment of goodwill and investments in subsidiary undertakings for compliance with the accounting standards. For goodwill, we assessed the appropriateness of the cash-generating units identified by management, including the change as a result of the Group's organisational structure effective 1 January 2021. We tested the mathematical accuracy of the VIU model and engaged our specialists to support the audit team in assessing reasonableness of the regulatory haircut adjustment1 to future profitability forecasts and calculating an independent range for assumptions underlying the VIU calculations, such as the discount rate and long-term growth rate for each cash generating unit. We also reconciled the future profitability forecasts to the Group's approved Corporate Plan ('the Plan'). We performed audit procedures to assess the reasonableness of the forecasts by reviewing the Group Strategy, challenging key assumptions underpinning the Plan, reviewing the feasibility of management actions necessary to achieve the Plan, testing the reliability of the Group's historical forecasting and benchmarking key metrics against broker reports published for comparable businesses. We assessed the appropriateness of goodwill disclosures in accordance with IAS 36. 1  The forecast profits are haircut using an internal risk appetite and forecast RWA, to reflect the amount of capital to be retained by each CGU before profits may be distributed.
Our conclusions Impairment of aircraft We concluded that management's methodology, judgement and assumptions related to the impairment assessment of aircraft were reasonable and in accordance with IAS and EU IFRS. We highlighted the following matters to the Audit Committee: • Current market values and residual values were appropriate based on independently sourced market data; and • The discount rate was within our independent expectation of a reasonable range, with due regard to the risks facing the aviation industry and the characteristics of the Group's portfolio of aircraft. We concluded that the valuation of the aircraft portfolio was not materially misstated. Impairment of goodwill and investments in subsidiary undertakings We concluded that the goodwill balance as at 31 December 2021 is not materially misstated. We also concluded that the Investments in subsidiary undertakings in Company financial statements is not materially misstated. We are satisfied that the change in cash-generating units, management methodologies, judgements and assumptions supporting the carrying value were reasonable and in accordance with IAS and EU IFRS.  We concluded that the disclosures were appropriate.

Page 9
 

Risk		Our response to the risk
Basis of accounting and impairment assessment of China Bohai Bank (Interest in Associate) Refer to the Audit Committee Report; Accounting policies; and Note 32 of the financial statements Interest in Associate - China Bohai Bank $1,917 million (2020: $2,025 million) Other impairment - China Bohai Bank -$300 million (2020: nil). We focused on judgements and estimates, including the appropriateness of the equity accounting treatment under IAS 28 and the assessment of impairment. Basis of accounting The Group holds a 16.26% stake in China Bohai Bank and equity accounts for the investment as an associate, on the grounds that the Group has assessed that it exercises significant influence over China Bohai Bank. IAS 28 states that if the entity holds, directly or indirectly, less than 20% of the voting power of the investee, it is presumed that the entity does not have significant influence, unless such influence can be clearly demonstrated. There is a risk that the equity accounting treatment may not be appropriate, if the Group cannot demonstrate that it exerts significant influence over China Bohai Bank. Impairment testing At 31 December 2021, the China Bohai Bank's market capitalisation was at a significant discount compared to the carrying value of the investment, which represents an indicator of impairment. Impairment of the investment in China Bohai Bank is determined by comparing the carrying value to the VIU. Where the recoverable amount is based on VIU, this is modelled by reference to future cashflow forecasts (profit including a regulatory capital haircut adjustment), discount rates and macroeconomic assumptions such as long-term growth rates. Consequently, there is a risk that if the judgements and assumptions underpinning the impairment assessments are inappropriate, then the investment in China Bohai Bank may be misstated. The risk has increased in current year in the context of economic developments in China as well as Bohai's financial performance in 2021.		Basis of accounting We evaluated the facts and circumstances that the Group presented to demonstrate its ability to exert significant influence over the management, and financial and operating policies of China Bohai Bank, through Board representation, membership of Board Committees and the sharing of industry and technical advice. Impairment testing We assessed the appropriateness of the Group's VIU methodology for testing the impairment of the investment in China Bohai Bank for compliance with the accounting standards. We tested the mathematical accuracy of the VIU model and engaged our valuation specialists to support the audit team in calculating an independent range for the assumptions underlying the VIU calculations, such as the discount rate and long-term growth rate. We performed audit procedures to assess the reasonableness of the Group's forecast of the future cashflows relating to Bohai, by reviewing management's assessment, benchmarking the forecasts to broker reports published for comparable companies and challenging management with regard to the relevance and reliability of historical data when preparing their assessment. We assessed the appropriateness of disclosures in the annual report in relation to the impact of reasonably possible changes in key assumptions on the carrying values of the investment in Bohai.
Our conclusions We concluded that the Group continues to maintain significant influence over China Bohai Bank as at 31 December 2021. We concluded that the Interest in Associate -China Bohai Bank balance as at 31 December 2021 was not materially misstated. We concluded that the disclosures in the annual report appropriately reflect the sensitivity of the carrying value to reasonably possible changes in key assumptions.

Page 10
 

Risk		Our response to the risk
Valuation of financial instruments held at fair value with higher risk characteristics Refer to the Audit Committee Report; Accounting policies; and Note 13 of the financial statements. At 31 December 2021, the Group reported financial assets measured at fair value of $303,678 million, and financial liabilities at fair value of $138,596 million, of which financial assets of $4,116 million and financial liabilities of $1,653 million are classified as Level 3 in the fair value hierarchy. The fair value of financial instruments with higher risk characteristics involves the use of management judgement in the selection of valuation models and techniques, pricing inputs and assumptions and fair value adjustments. A higher level of estimation uncertainty is involved for financial instruments valued using complex models, pricing inputs that have limited observability, and fair value adjustments, including the Credit Valuation Adjustment and Debit Valuation Adjustment, in relation to derivative transactions with counterparties where credit spreads are less readily able to be determined. We considered the following portfolios presented a higher level of estimation uncertainty: • Level 3 derivative financial instruments and a portfolio of Level 2 derivative financial instruments due to the use of complex models or illiquid pricing inputs, and • Unlisted equity investments, loans at fair value, debt and other financial instruments classified in Level 3 with unobservable pricing inputs. The level of risk remains consistent with the prior year.		We evaluated the design and operating effectiveness of controls relating to the valuation of financial instruments, including independent price verification, model review and approval, fair value adjustments, income statement analysis and reporting. Among other procedures, we engaged our valuation specialists to assist the audit team in performing the following procedures: • Test complex model-dependent valuations by independently revaluing a sample of Level 3 and complex Level 2 derivative financial instruments, in order to assess the appropriateness of models and the adequacy of assumptions and inputs used by the Group; • Test valuations of other financial instruments with higher estimation uncertainty, such as unlisted equity investments, loans at fair value, debt and other financial instruments. We compared management's valuation to our own independently developed range, where appropriate; • Assessed the appropriateness of pricing inputs as part of the Independent Price Verification process; and • Compared the methodology used for fair value adjustments to current market practice. We revalued a sample of valuation adjustments, compared funding and credit spreads to third party data and challenged the basis for determining illiquid credit spreads. Where material differences between our independent valuation and management's valuation were outside our thresholds, we performed additional testing to assess the impact on the valuation of financial instruments.
Our conclusions We concluded that assumptions used by management to estimate the fair value of financial instruments with higher risk characteristics and the recognition of related income were reasonable. We highlighted the following matters to the Audit Committee: • Complex model-dependent valuations were appropriate based on the output of our independent revaluations; • Fair values of derivative transactions, unlisted equity investments, loans, debt and other financial instruments valued using pricing information with limited observability were not materially misstated as at 31 December 2021, based on the output of our independent calculations; and • Valuation adjustments in respect of credit, funding and other risks applied to derivative portfolios and debt securities issued were appropriate, based on our analysis of market data and benchmarking of pricing information.

The KAMs remain consistent from prior year.

Our application of materiality

We apply the concept of materiality in planning and performing the audit, in evaluating the effect of identified misstatements on the audit and in forming our audit opinion.

Materiality

The magnitude of an omission or misstatement that, individually or in the aggregate, could reasonably be expected to influence the economic decisions of the users of the financial statements. Materiality provides a basis for determining the nature and extent of our audit procedures.

We determined materiality for the Group to be $195 million (2020: $144 million), which is 5% (2020: 5%) of adjusted PBT. This reflects actual PBT adjusted for non-recurring item relating to restructuring, regulatory fine and net gain on businesses disposed/held for sale . We believe that adjusted PBT provides us with the most appropriate measure for the users of the financial statements, given the Group is profit making; it is consistent with the wider industry and is the standard for listed and regulated entities and we believe it reflects the most useful measure for users of the financial statements. We also believe that the adjustments are appropriate as they relate to material non-recurring items.

We determined materiality for the Company to be $176 million (2020: $130 million) which is 0.33% (2020: 0.25%) of the equity of the Company. We believe that equity provides us with the most appropriate measure for the users of the Company's financial statements, given that the Company is primarily a holding company.

Page 11

Performance materiality

The application of materiality at the individual account or balance level. It is set at an amount to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality.

On the basis of our risk assessments, together with our assessment of the Group's overall control environment, our judgement was that performance materiality was 50% (2020: 50%) of our planning materiality, namely $98 million (2020: $7,72 million). We have set performance materiality at this percentage based on a variety of risk assessment factors such as the expectation of misstatements, internal control environment considerations and other factors such as the global complexity of the Group.

Audit work at component locations for the purpose of obtaining audit coverage over significant financial statement accounts is undertaken based on a percentage of total performance materiality. The performance materiality set for each component is based on the relative size and risk of the component to the Group as a whole and our assessment of the risk of misstatement at that component. In the current year, the range of performance materiality allocated to components was $8m to $29m (2020: $7m to $22m).

Reporting threshold

An amount below which identified misstatements are considered as being clearly trivial.

We agreed with the Audit Committee that we would report to them all uncorrected audit differences in excess of $10m (2020: $7m), which is set at 5% of planning materiality, as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds.

We evaluate any uncorrected misstatements against both the quantitative measures of materiality discussed above and in light of other relevant qualitative considerations in forming our opinion.

Other information

The other information comprises the information included in the annual report, including the Strategic report, the Directors' report and the information not marked as 'audited' in the Directors' remuneration report and the Risk and capital review section, and the Supplementary information, other than the financial statements and our auditor's report thereon. The directors are responsible for the other information contained within the annual report.

Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in this report, we do not express any form of assurance conclusion thereon.

Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the course of the audit, or otherwise appears to be materially misstated. If we identify such material

inconsistencies or apparent material misstatements, we are required to determine whether this gives rise to a material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that there is a material misstatement of the other information, we are required to report that fact.

We have nothing to report in this regard.

Opinions on other matters prescribed by the Companies Act 2006

In our opinion, the part of the directors' remuneration report to be audited has been properly prepared in accordance with the Companies Act 2006.

In our opinion, based on the work undertaken in the course of the audit:

• the information given in the strategic report and the directors' report for the financial year for which the financial statements are prepared is consistent with the financial statements; and

• the strategic report and the directors' report have been prepared in accordance with applicable legal requirements.

Page 12

Matters on which we are required to report by exception

In the light of the knowledge and understanding of the Group and the Company and its environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the directors' report.

We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion:

• adequate accounting records have not been kept by the Company, or returns adequate for our audit have not been received from branches not visited by us; or

• the Company financial statements and the part of the Directors' remuneration report to be audited are not in agreement with the accounting records and returns; or

• certain disclosures of directors' remuneration specified by law are not made; or

• we have not received all the information and explanations we require for our audit.

Corporate Governance Statement

We have reviewed the directors' statement in relation to going concern, longer-term viability and that part of the Corporate Governance Statement relating to the Group and Company's compliance with the provisions of the UK Corporate Governance Code specified for our review by the Listing Rules.

Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the Corporate Governance Statement is materially consistent with the financial statements or our knowledge obtained during the audit:

• Directors' statement with regards to the appropriateness of adopting the going concern basis of accounting and any material uncertainties identified;

• Directors' explanation as to its assessment of the Company's prospects, the period this assessment covers and why the period is appropriate;

• Director's statement on whether it has a reasonable expectation that the Group will be able to continue in operation and meets its liabilities;

• Directors' statement on fair, balanced and understandable;

• Board's confirmation that it has carried out a robust assessment of the emerging and principal risks;

• The section of the annual report that describes the review of effectiveness of risk management and internal control systems; and;

• The section describing the work of the Audit Committee

Responsibilities of directors

As explained more fully in the Statement of Directors' Responsibilities, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the directors are responsible for assessing the Group and Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or the Company or to cease operations, or have no realistic alternative but to do so.

Auditor's responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

Page 13

Explanation as to what extent the audit was considered capable of detecting irregularities, including fraud

Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect irregularities, including fraud. The risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery or intentional misrepresentations, or through collusion. The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below.

However, the primary responsibility for the prevention and detection of fraud rests with both those charged with governance of the Company and management.

• We obtained an understanding of the legal and regulatory frameworks that are applicable to the Group and determined that the most significant are those that relate to the reporting framework (UK-adopted IAS and EU IFRS, the Companies Act 2006 and the UK Corporate Governance Code, the Financial Conduct Authority (FCA) Listing Rules, the Main Board Listing Rules of the Hong Kong Stock Exchange), regulations and supervisory requirements of the Prudential Regulation Authority (PRA), FRC, FCA and other overseas regulatory requirements, including but not limited to regulations in its major markets such as Hong Kong, India, Singapore, the United States of America, and the relevant tax compliance regulations in the jurisdictions in which the Group operates. In addition, we concluded that there are certain significant laws and regulations that may have an effect on the determination of the amounts and disclosures in the financial statements and those laws and regulations relating to regulatory capital and liquidity, conduct, financial crime including anti-money laundering, sanctions and market abuse recognising the financial and regulated nature of the Group's activities.

• We understood how the Group is complying with those frameworks by performing a combination of inquiries of senior management and those charged with governance as required by auditing standards, review of board and committee meeting minutes, gaining an understanding of the Group's approach to governance, inspection of regulatory correspondences in the year and engaging with internal and external legal counsels. We also engaged EY financial crime and forensics specialists to perform procedures on areas relating to anti-money laundering, whistleblowing, and sanctions. Through these procedures, we became aware of actual or suspected non-compliance. The identified actual or suspected non-compliance was not sufficiently significant to our audit that would have resulted in being identified as a key audit matter.

• We assessed the susceptibility of the Group's financial statements to material misstatement, including how fraud might occur by considering the controls that the Group has established to address risks identified by the entity, or that otherwise seek to prevent, deter or detect fraud. Our procedures to address the risks identified also included incorporation of unpredictability into the nature, timing and/or extent of our testing, challenging assumptions and judgements made by management in their significant accounting estimates and journal entry testing.

• Based on this understanding, we designed our audit procedures to identify non-compliance with such laws and regulations. Our procedures involved inquiries of the Group's internal and external legal counsel, money laundering reporting officer, internal audit, certain senior management executives and focused testing on a sample basis, including journal entry testing. We also performed inspection of key regulatory correspondence from the relevant regulatory authorities as well as review of board and committee minutes.

• For instances of actual or suspected non-compliance with laws and regulations, which have a material impact on the financial statements, these were communicated by management to the Group audit engagement team and component teams (where applicable) who performed audit procedures such as inquiries with management and external legal counsel, sending confirmations to external lawyers, substantive testing and meeting with regulators. Where appropriate, we involved specialists from our firm to support the audit team.

• The Group is authorised to provide banking, insurance, mortgages and home finance, consumer credit, pensions, investments and other activities. The Group operates in the banking industry which is a highly regulated environment. As such, the Senior Statutory Auditor considered the experience and expertise of the Group audit engagement team, the component teams and the shared service centre teams to ensure that the team had the appropriate competence and capabilities, which included the use of specialists where appropriate.

A further description of our responsibilities for the audit of the financial statements is located on the FRC's website at https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor's report.

Page 14

Other matters we are required to address

• Following the recommendation from the Audit Committee, we were re-appointed by the Company at the Annual General Meeting on 12 May 2021 to audit the financial statements for the year ending 31 December 2021 and subsequent financial periods.

• The period of total uninterrupted engagement is two years, covering the years ended 31 December 2020 to 31 December 2021.

• The audit opinion is consistent with the additional report to the Audit Committee.

Use of our report

This report is made solely to the Company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company's members as a body, for our audit work, for this report, or for the opinions we have formed.

David Canning Jones (Senior statutory auditor)

for and on behalf of Ernst & Young LLP, Statutory Auditor

London

17 February 2022

Page 15

 

Consolidated income statement

For the year ended 31 December 2021

	Notes	2021 $million	2020 $million
Interest income		10,246	12,292
Interest expense		(3,448)	(5,440)
Net interest income	3	6,798	6,852
Fees and commission income		4,458	3,865
Fees and commission expense		(736)	(705)
Net fee and commission income	4	3,722	3,160
Net trading income	5	3,431	3,672
Other operating income	6	750	1,070
Operating income		14,701	14,754
Staff costs		(7,668)	(6,886)
Premises costs		(387)	(412)
General administrative expenses		(1,688)	(1,831)
Depreciation and amortisation		(1,181)	(1,251)
Operating expenses	7	(10,924)	(10,380)
Operating profit before impairment losses and taxation		3,777	4,374
Credit impairment	8	(254)	(2,325)
Goodwill, property, plant and equipment and other impairment	9	(372)	(587)
Profit from associates and joint ventures	32	196	151
Profit before taxation		3,347	1,613
Taxation	10	(1,034)	(862)
Profit for the year		2,313	751
Profit attributable to:
Non-controlling interests	29	(2)	27
Parent company shareholders		2,315	724
Profit for the year		2,313	751

		cents	cents
Earnings per share:
Basic earnings per ordinary share	12	61.3	10.4
Diluted earnings per ordinary share	12	60.4	10.3

The notes form an integral part of these financial statements.

Page 16

 

Consolidated statement of comprehensive income

For the year ended 31 December 2021

	Notes	2021 $million	2020 $million
Profit for the year		2,313	751
Other comprehensive (loss)/income:
Items that will not be reclassified to income statement:		309	(9)
Own credit gains/(losses) on financial liabilities designated at fair value through profit or loss		43	(55)
Equity instruments at fair value through other comprehensive income		169	62
Actuarial gains on retirement benefit obligations	30	179	1
Taxation relating to components of other comprehensive income	10	(82)	(17)
Items that may be reclassified subsequently to income statement:		(1,081)	922
Exchange differences on translation of foreign operations:
Net (losses)/gains taken to equity		(791)	657
Net gains/(losses) on net investment hedges		118	(287)
Reclassified to income statement on sale of joint venture		-	246
Share of other comprehensive income/(loss) from associates and joint ventures		10	(37)
Debt instruments at fair value through other comprehensive income:
Net valuation (losses)/gains taken to equity		(386)	815
Reclassified to income statement		(157)	(431)
Net impact of expected credit losses		31	21
Cash flow hedges:
Net losses taken to equity		(1)	(25)
Reclassified to income statement	14	21	17
Taxation relating to components of other comprehensive income	10	74	(54)
Other comprehensive (loss)/income for the year, net of taxation		(772)	913
Total comprehensive income for the year		1,541	1,664
Total comprehensive income attributable to:
Non-controlling interests	29	(17)	15
Parent company shareholders		1,558	1,649
Total comprehensive income for the year		1,541	1,664

Page 17

Consolidated balance sheet

As at 31 December 2021

	Notes	2021 $million	2020 $million
Assets
Cash and balances at central banks	13,35	72,663	66,712
Financial assets held at fair value through profit or loss	13	129,121	106,787
Derivative financial instruments	13,14	52,445	69,467
Loans and advances to banks	13,15	44,383	44,347
Loans and advances to customers	13,15	298,468	281,699
Investment securities	13	163,437	153,315
Other assets	20	49,932	48,688
Current tax assets	10	766	808
Prepayments and accrued income		2,176	2,122
Interests in associates and joint ventures	32	2,147	2,162
Goodwill and intangible assets	17	5,471	5,063
Property, plant and equipment	18	5,616	6,515
Deferred tax assets	10	859	919
Assets classified as held for sale	21	334	446
Total assets		827,818	789,050
Liabilities
Deposits by banks	13	30,041	30,255
Customer accounts	13	474,570	439,339
Repurchase agreements and other similar secured borrowing	13	3,260	1,903
Financial liabilities held at fair value through profit or loss	13	85,197	68,373
Derivative financial instruments	13,14	53,399	71,533
Debt securities in issue	13,22	61,293	55,550
Other liabilities	23	44,314	47,904
Current tax liabilities	10	348	660
Accruals and deferred income		4,651	4,546
Subordinated liabilities and other borrowed funds	13,27	16,646	16,654
Deferred tax liabilities	10	800	695
Provisions for liabilities and charges	24	453	466
Retirement benefit obligations	30	210	443
Total liabilities		775,182	738,321
Equity
Share capital and share premium account	28	7,022	7,058
Other reserves		11,805	12,688
Retained earnings		27,184	26,140
Total parent company shareholders' equity		46,011	45,886
Other equity instruments	28	6,254	4,518
Total equity excluding non-controlling interests		52,265	50,404
Non-controlling interests	29	371	325
Total equity		52,636	50,729
Total equity and liabilities		827,818	789,050

The notes form an integral part of these financial statements.

These financial statements were approved by the Board of Directors and authorised for issue on 17 February 2022 and signed on its behalf by:

José Viñals  Bill Winters      Andy Halford

Group Chairman  Group Chief Executive  Group Chief Financial Officer

Page 18

Consolidated statement of changes in equity

For the year ended 31 December 2021

	Ordinary share capital and share premium account $million	Preference share capital and share premium account $million	Capital and merger reserves1 $million	Own credit adjus- ment  reserve $million	Fair value through other compre-hensive income reserve - debt $million	Fair value through other compre-hensive income reserve - equity $million	Cash flow hedge reserve $million	Trans-lation reserve $million	Retained earnings $million	Parent company share-holders' equity $million	Other equity instru-ments $million	Non-controlling interests $million	Total $million
As at 1 January 2020	5,584	1,494	17,187	2	197	150	(59)	(5,792)	26,072	44,835	5,513	313	50,661
Profit for the year	-	-	-	-	-	-	-	-	724	724	-	27	751
Other comprehensive (loss)/income	-	-	-	(54)	332	(2)	7	631	112	925	-	(12)	913
Distributions	-	-	-	-	-	-	-	-	-	-	-	(20)	(20)
Other equity instruments issued, net of expenses	-	-	-	-	-	-	-	-	-	-	992	-	992
Redemption of other equity instruments	-	-	-	-	-	-	-	-	(13)	(13)	(1,987)	-	(2,000)
Treasury shares purchased	-	-	-	-	-	-	-	-	(98)	(98)	-	-	(98)
Treasury shares issued	-	-	-	-	-	-	-	-	8	8	-	-	8
Share option expenses	-	-	-	-	-	-	-	-	133	133	-	-	133
Dividends on preference shares and AT1 securities	-	-	-	-	-	-	-	-	(395)	(395)	-	-	(395)
Share buy-back3	(20)	-	20	-	-	-	-	-	(242)	(242)	-	-	(242)
Other movements	-	-	-	-	-	-	-	69	(60)4	9	-	175	26
As at 31 December 2020	5,564	1,494	17,207	(52)	529	148	(52)	(5,092)	26,140	45,886	4,518	325	50,729
Profit/(loss) for the year	-	-	-	-	-	-	-	-	2,315	2,315	-	(2)	2,313
Other comprehensive income/(loss)	-	-	-	37	(426)	101	18	(662)	1752	(757)	-	(15)	(772)
Distributions	-	-	-	-	-	-	-	-	-	-	-	(31)	(31)
Other equity instruments issued, net of expenses	-	-	-	-	-	-	-	-	-	-	2,728	-	2,728
Redemption of other equity instruments	-	-	-	-	-	-	-	-	(51)	(51)	(992)	-	(1,043)
Treasury shares purchased	-	-	-	-	-	-	-	-	(242)	(242)	-	-	(242)
Treasury shares issued	-	-	-	-	-	-	-	-	7	7	-	-	7
Share option expenses	-	-	-	-	-	-	-	-	147	147	-	-	147
Dividends on ordinary shares	-	-	-	-	-	-	-	-	(374)	(374)	-	-	(374)
Dividends on preference shares and AT1 securities	-	-	-	-	-	-	-	-	(410)	(410)	-	-	(410)
Share buy-back6, 7	(39)	-	39	-	-	-	-	-	(506)	(506)	-	-	(506)
Other movements	3	-	-	-	-	-	-	10	(17)8	(4)	-	949	90
As at 31 December 2021	5,528	1,494	17,246	(15)	103	249	(34)	(5,744)	27,184	46,011	6,254	371	52,636

1  Includes capital reserve of $5 million, capital redemption reserve of $130 million and merger reserve of $17,111 million

2  Comprises actuarial gain, net of taxation on Group defined benefit scheme

3  On 28 February 2020, the Group announced the buy-back programme for a share buy-back of its ordinary shares of $0.50 each. Nominal value of share purchases was $20 million, and the total consideration paid was $242 million. The total number of shares purchased was 40,029,585 representing 1.25 per cent of the ordinary shares in issue. The nominal value of the shares was transferred from the share capital to the capital redemption reserve account. On 1 April 2020, the Group announced that, in response to a request from the Prudential Regulation Authority and as a consequence of the unprecedented challenges facing the world due to the COVID-19 pandemic, its Board had decided after careful consideration to withdraw the recommendation to pay a final dividend for 2019 of 20 cents per ordinary share, and to suspend the buy-back programme

4  Includes $69 million related to prior period adjustments to reclass FX movements from translation reserve to retained earnings ($45 million related to FX movements of the hedging instruments for net investment hedges and $24 million related to FX movements for monetary items, which were considered structural positions)

5  Movement related to non-controlling interest from Mox Bank Limited

6  On 25 February 2021, the Group announced the buy-back programme for a share buy-back of its ordinary shares of $0.50 each. Nominal value of share purchases was $19 million, and the total consideration paid was $255 million (including $2 million of fees and stamp duty). The total number of shares purchased was 37,148,399 representing 1.18 per cent of the ordinary shares in issue. The nominal value of the shares was transferred from the share capital to the capital redemption reserve account

7  On 3 August 2021, the Group announced the buy-back programme for a share buy-back of its ordinary shares of $0.50 each. Nominal value of share purchases was $20 million, and the total consideration paid was $251 million (including $1 million of fees and stamp duty). The total number of shares purchased was 39,914,763 representing 1.28 per cent of the ordinary shares in issue. The nominal value of the shares was transferred from the share capital to the capital redemption reserve account

8  Movement related to Translation adjustment and AT1 securities charges

9  Movements related to non-controlling interest from Mox Bank Limited ($21 million), Trust Bank Singapore Limited ($70 million) and Zodia Markets Holdings Limited ($3 million)

Note 28 includes a description of each reserve.

The notes form an integral part of these financial statements.

Page 19

Cash flow statement

For the year ended 31 December 2021

	Notes	Group			Company
		2021 $million	2020 $million		2021 $million	2020 $million
Cash flows from operating activities:
Profit before taxation		3,347	1,613		2,090	666
Adjustments for non-cash items and other adjustments included within income statement	34	2,104	4,342		(1,201)	19
Change in operating assets	34	(37,904)	(38,064)		(5,366)	(8,451)
Change in operating liabilities	34	45,952	54,437		3,127	6,415
Contributions to defined benefit schemes	30	(120)	(123)		-	-
UK and overseas taxes paid	10	(1,161)	(971)		-	3
Net cash from/(used in) operating activities		12,218	21,234		(1,350)	(1,348)
Cash flows from investing activities:
Internally generated capitalised software	17	(989)	-		-	-
Purchase of property, plant and equipment	18	(352)	(1,270)		-	-
Disposal of property, plant and equipment	18	816	178		-	-
Disposal of held for sale property, plant and equipment	21	149	-		-	-
Acquisition of investment in subsidiaries, associates, and joint ventures, net of cash acquired	32	(35)	(52)		-	-
Dividends received from subsidiaries, associates and joint ventures	32	38	-		2,244	1,110
Disposal of joint ventures, net of cash acquired	21	-	1,066		-	-
Purchase of investment securities		(299,468)	(285,026)		-	-
Disposal and maturity of investment securities		290,846	280,626		1,650	2,590
Net cash (used in)/from investing activities		(8,995)	(4,478)		3,894	3,700
Cash flows from financing activities:
Exercise of share options		7	8		7	8
Purchase of own shares		(242)	(98)		(242)	(98)
Cancellation of shares including share buy-back		(506)	(242)		(506)	(242)
Premises and equipment lease liability principal payment		(278)	(319)		-	-
Issue of Additional Tier 1 Capital, net of expenses	28	2,728	992		2,728	990
Redemption of Additional Tier 1 Capital	28	(1,043)	(2,000)		(1,043)	(2,000)
Gross proceeds from issue of subordinated liabilities	34	1,137	2,473		1,137	2,473
Interest paid on subordinated liabilities	34	(580)	(601)		(580)	(537)
Repayment of subordinated liabilities	34	(546)	(2,446)		(546)	(1,402)
Proceeds from issue of senior debts	34	10,944	9,953		2,250	2,193
Repayment of senior debts	34	(9,945)	(4,305)		(5,408)	(2,106)
Interest paid on senior debts	34	(690)	(627)		(504)	(575)
Net cash inflow from non-controlling interest		94	-		-	-
Dividends paid to non-controlling interests, preference shareholders and AT1 securities		(441)	(415)		(410)	(395)
Dividends paid to ordinary shareholders		(374)	-		(374)	-
Net cash from/(used in) financing activities		265	2,373		(3,491)	(1,691)
Net increase/(decrease) in cash and cash equivalents		3,488	19,129		(947)	661
Cash and cash equivalents at beginning of the year		97,874	77,454		12,283	11,622
Effect of exchange rate movements on cash and cash equivalents		(1,757)	1,291		-	-
Cash and cash equivalents at end of the year1	35	99,605	97,874		11,336	12,283

1  Comprises cash and balances at central banks $72,663 million (31 December 2020: $66,712 million), Treasury bills and other eligible bills $9,132 million (31 December 2020: $10,499 million), loans and advances to banks $24,788 million (31 December 2020: $25,758 million), trading securities $1,174 million (31 December 2020: $2,239 million) less restricted balances $8,152 million (31 December 2020: $7,341 million)

Interest received was $10,167 million (31 December 2020: $12,619 million), interest paid was $3,591 million (31 December 2020: $5,809 million).

Page 20

Contents - Notes to the financial statements

Section	Note
Basis of preparation	1	Accounting policies
Performance/return	2	Segmental information
	3	Net interest income
	4	Net fees and commission
	5	Net trading income
	6	Other operating income
	7	Operating expenses
	8	Credit impairment
	9	Goodwill, property, plant and equipment and other impairment
	10	Taxation
	11	Dividends
	12	Earnings per ordinary share
Assets and liabilities held at fair value	13	Financial instruments
	14	Derivative financial instruments
Financial instruments held at amortised cost	15	Loans and advances to banks and customers
	16	Reverse repurchase and repurchase agreements including other similar lending and borrowing
Other assets and investments	17	Goodwill and intangible assets
	18	Property, plant and equipment
	19	Leased assets
	20	Other assets
	21	Assets held for sale and associated liabilities
Funding, accruals, provisions, contingent liabilities and legal proceedings	22	Debt securities in issue
	23	Other liabilities
	24	Provisions for liabilities and charges
	25	Contingent liabilities and commitments
	26	Legal and regulatory matters
Capital instruments, equity and reserves	27	Subordinated liabilities and other borrowed funds
	28	Share capital, other equity instruments and reserves
	29	Non-controlling interests
Employee benefits	30	Retirement benefit obligations
	31	Share-based payments
Scope of consolidation	32	Investments in subsidiary undertakings, joint ventures and associates
	33	Structured entities
Cash flow statement	34	Cash flow statement
	35	Cash and cash equivalents
Other disclosure matters	36	Related party transactions
	37	Post balance sheet events
	38	Auditor's remuneration
	39	Standard Chartered PLC (Company)
	40	Related undertakings of the Group

Page 21

Notes to the financial statements

1. Accounting policies

Statement of compliance

The Group financial statements consolidate Standard Chartered PLC (the Company) and its subsidiaries (together referred to as the Group) and equity account the Group's interests in associates and jointly controlled entities. The Company financial statements present information about the Company as a separate entity.

The Group financial statements have been prepared in accordance with UK-adopted international accounting standards and International Financial Reporting Standards (IFRS) as adopted by the European Union (EU IFRS). The Company financial statements have been prepared in accordance with UK-adopted international accounting standards as applied in conformity with section 408 of the Companies Act 2006. The financial statements have been prepared in accordance with the requirements of the Companies Act 2006.

There are no significant differences between UK-adopted international accounting standards and EU IFRS.

The following parts of the Risk review and Capital review form part of these financial statements:

a) Risk review: Disclosures marked as 'audited' from the start of the Credit Risk section to the end of Other principal risks in the same section.

b) Capital review: Tables marked as 'audited' from the start of 'CRD Capital base' to the end of 'Movement in total capital', excluding 'Total risk-weighted assets'

Basis of preparation

The Group and Company financial statements have been prepared on a going concern basis and under the historical cost convention, as modified by the revaluation of cash-settled share-based payments, fair value through other comprehensive income, and financial assets and liabilities (including derivatives) at fair value through profit or loss.

The consolidated financial statements are presented in United States dollars ($), being the presentation currency of the Group and functional currency of the Company, and all values are rounded to the nearest million dollars, except when otherwise indicated.

The Group has assessed the impact of climate risk on the Group's financial report. As set out in the Task Force for Climate related Financial Disclosures and the Principal Risks and Uncertainties section of the Annual Report, the Group has determined climate risk to be a Primary Integrated Risk Type. The areas of impact were credit risk and the impact on lending portfolios; ESG features within issued loans and bonds; physical risk on our mortgage lending portfolio; and, the corporate plan, in respect of which forward looking cash flows impact the recoverability of certain assets, including of goodwill, deferred tax assets and investments in subsidiary undertakings.

This assessment was undertaken by considering the maturity profile of the loan portfolio which is majority shorter term. Transition risk, as our clients move to lower carbon emitting revenues is considered with reference to client transition pathways and manifests over a longer term than the maturity of the loan book (up to 2050). Physical risk is already included within the majority of our mortgage lending and we have applied scenario analysis against the pathways of different temperature additions and country policy scenarios. We also assess the impact of climate risk on the classification of financial instruments under IFRS 9, when Environmental, Sustainability or Governance (ESG) triggers may affect the cash flows received by the Group under the contractual terms of the instrument.

Our corporate plan has a 5 year outlook and already includes where we have committed to transitioning away from certain high carbon sectors (i.e. coal), offset by transition finance opportunities. This is shorter term than many of the climate scenario outlooks but seeks to capture the nearer term performance as required by recoverability models.

Page 22

We have further participated in the first Climate Biennial Exploratory Scenario (CBES) to explore key risks from climate change, being transition risk of the economy as it moves away from carbon and the physical risks associated with higher global temperatures. Focussed on credit risk in the loans and advances portfolio to corporate and institutional clients as well as personal customers over a thirty year time horizon. Estimates included the impact of transition risk on the Group's lending portfolios with impacts moving from temporarily lower growth up to recession and permanently lower growth.

Our process was limited in the context of this being an emerging area, particularly given the availability of data and the sophistication of models, and so the potential impact of Climate Risk may not be fully reflected in these financial statements. The Group considers Climate Risk to have limited impact in the immediate term and as a longer term risk will be addressed through its business strategy and financial planning as the Group implements its net zero journey.

Significant accounting estimates and judgements

In determining the carrying amounts of certain assets and liabilities, the Group makes assumptions of the effects of uncertain future events on those assets and liabilities at the balance sheet date. The Group's estimates and assumptions are based on historical experience and expectation of future events and are reviewed periodically. Further information about key assumptions concerning the future, and other key sources of estimation uncertainty and judgement, are set out in the relevant disclosure notes for the following areas:

• Credit impairment, including evaluation of management overlays and post-model adjustments, and determination of probability weightings for Stage 3 individually assessed provisions (Note 8)

• Taxation (Note 10)

• Financial instruments measured at fair value (Note 13)

• Goodwill impairment (Note 17)

• Recoverable amounts for aircraft operating lease assets (Note 18)

• Provisions for liabilities and charges (Note 24)

• Investments in subsidiary undertakings, joint ventures and associates - China Bohai associate accounting and impairment analysis (Note 32)

IFRS and Hong Kong accounting requirements

As required by the Hong Kong Listing Rules, an explanation of the differences in accounting practices between UK-adopted IFRS and Hong Kong Financial Reporting Standards is required to be disclosed. There would be no significant differences had these accounts been prepared in accordance with Hong Kong Financial Reporting Standards.

Comparatives

Certain comparatives have been restated in line with current year disclosures. Details of these changes are set out in the relevant sections and notes below:

• Note 2 Segmental information

• Note 4 Net fees and commission

• Note 13 Financial instruments

• Note 17 Goodwill and intangible assets

• Risk review: various credit risk tables for change in segment policy

• Risk review: interest rate risk in the banking book

• Risk review: tables marked as 'audited' disaggregating Credit Risk information by client segment have been restated following the Group's change in organisational structure that came into effect on 1 January 2021

• Risk review: market risk changes

Page 23

New accounting standards adopted by the Group

Amendments to IFRS 16 Leases: Covid-19-Related Rent Concessions beyond 30 June 2021

The Group has adopted amendments to IFRS 16 that permit the Group not to assess whether a rent concession granted as a direct consequence of the COVID-19 pandemic is accounted for as a lease modification. In March 2021 the IASB extended the availability of the practical expedient by one year and this was endorsed by the UK Endorsement Board on 12 May 2021, therefore a rent concession is deemed to be a direct consequence of COVID-19 if and only if all the following criteria are met:

• A change in lease payments results in revised consideration for the lease that is substantially the same as, or less than, the consideration for the lease immediately preceding the change;

• Any reduction in lease payments affects only payments originally due up to and including 30 June 2022 (this includes the case where the change results in reduced lease payments before this date and increased lease payments after this date); and

• There is no substantive change to other terms and conditions of the lease

The amendments have not had a material effect on the Group's financial statements.

New accounting standards in issue but not yet effective

IFRS 17 Insurance Contracts

IFRS 17 Insurance Contracts was issued in May 2017 to replace IFRS 4 Insurance Contracts and to establish a comprehensive standard for inceptors of insurance policies. The effective date is 1 January 2023. The Group is assessing the likely implementation impact of adopting the standards on its financial statements.

Amendments to IFRS 9 Financial Instruments: Fees in the'10 per cent' test for derecognition of financial liabilities

In May 2020 the IASB published its 2018-2020 annual improvements process which provides non-urgent but necessary amendments to IFRS. This publication included changes to IFRS 9 that will be effective prospectively from 1 January 2022, with early adoption permitted. Under these amendments, when assessing changes in terms of a financial liability, the only fees considered in the assessment of whether the terms of a new or modified financial liability are substantially different (i.e. a change in present value of more than 10 per cent) from the terms of the original financial liability are fees paid or received between the borrower or lender. This includes fees paid or received by either the borrower or lender on the other's behalf. The effect of these amendments is not expected to be material to the Group's financial statements.

Page 24

Going concern

These financial statements were approved by the Board of Directors on 17 February 2022. The directors have made an assessment of the Group's ability to continue as a going concern. This assessment has been made having considered the impact of COVID-19, macroeconomic and geopolitical headwinds, including:

• A review of the Group Strategy and Corporate Plan, both of which cover a year from the date of signing the annual report

• An assessment of the actual performance to date, loan book quality, credit impairment, legal, regulatory and compliance matters, and the updated annual budget

• Consideration of stress testing performed, including both the Bank of England annual stress test and a Group Recovery and Resolution Plan (RRP) as submitted to the PRA. Both these submissions include the application of stressed scenarios including; COVID-19 additional waves with the accompanying economic shocks, credit impact and short term liquidity shocks. Under the tests and through the range of scenarios, the results of these exercises and the RRP demonstrate that the Group has sufficient capital and liquidity to continue as a going concern and meet minimum regulatory capital and liquidity requirements

• Analysis of the capital, funding and liquidity position of the Group, including the capital and leverage ratios, and ICAAP which summarises the Group's capital and risk assessment processes, assesses its capital requirements and the adequacy of resources to meet them. Further, funding and liquidity was considered in the context of the risk appetite metrics, including the ADR and LCR ratios

• The Group's Internal Liquidity Adequacy Assessment Process (ILAAP), which considers the Group's liquidity position, its framework and whether sufficient liquidity resources are being maintained to meet liabilities as they fall due, was also reviewed

• The level of debt in issue, including redemptions and issuances during the year, debt falling due for repayment in the next 12 months and further planned debt issuances, including the appetite in the market for the Group's debt

• A detailed review of all principal and emerging risks

Based on the analysis performed, the directors confirm they are satisfied that the Group has adequate resources to continue in business for a period of 12 months from 17 February 2022. For this reason, the Group continues to adopt the going concern basis of accounting for preparing the financial statements.

2. Segmental information

Segments and regions

The Group's segmental reporting is in accordance with IFRS 8 Operating Segments and is reported consistently with the internal performance framework and as presented to the Group's Management Team.

Following the Group's change in organisational structure, effective 1 January 2021, the composition of the reportable segments has been amended to reflect this new structure.

As such, there are two new reportable business segments:

• Corporate & Institutional Banking and Commercial Banking have been combined to form Corporate, Commercial & Institutional Banking, serving larger companies and institutions.

• Retail and Private banking have been combined to form Consumer, Private & Business Banking serving individual and business banking clients.

From a regional perspective, Greater China & North Asia and ASEAN & South Asia have been combined to form a single Asia region.

The three geographic regions are now: Asia, Africa & Middle East, and Europe & Americas. Activities not directly related to a client segment and/or geographic region are included in Central & other items. These mainly include Corporate Centre costs, Treasury activities, certain strategic investments and the UK bank levy.

The changes above require comparative periods to be restated.

Page 25

The following should also be noted:

• Transactions and funding between the segments are carried out on an arm's-length basis

• Corporate Centre costs represent stewardship and central management services roles and activities that are not directly attributable to business or country operations

• Treasury markets, joint ventures and associate investments are managed in the regions and are included within the applicable region. However, they are not managed directly by a client segment and are therefore included in the Central & other items segment

Basis of preparation

The analysis reflects how the client segments and geographic regions are managed internally. This is described as the Management View (on an underlying basis) and is principally the location from which a client relationship is managed, which may differ from where it is financially booked and may be shared between businesses and/or regions. In certain instances this approach is not appropriate and a Financial View is disclosed, that is, the location in which the transaction or balance was booked. Typically, the Financial View is used in areas such as the Market and Liquidity Risk reviews where actual booking location is more important for an assessment. Segmental information is therefore on a Management View unless otherwise stated.

Restructuring items excluded from underlying results

The Group's statutory 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 $507 million for 2021 reflects, the impact of actions to transform the organisation to improve productivity, primarily redundancy related charges, the majority of which, including an early retirement programme in Korea, were booked in 2021.

Other restructuring items include a $62 million regulatory financial penalty and a $20 million fair-value gain relating to a SC Ventures investment.

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

Profit before taxation (PBT)

	2021
	Underlying $million	Regulatory Fine $million	Restructuring $million	Net gain on businesses disposed/ held for sale $million	Goodwill impairment $million	Statutory $million
Operating income	14,713	-	(32)	20	-	14,701
Operating expenses	(10,375)	(62)	(487)	-	-	(10,924)
Operating profit/(loss) before impairment losses and taxation	4,338	(62)	(519)	20	-	3,777
Credit impairment	(263)	-	9	-	-	(254)
Other impairment	(355)	-	(17)	-	-	(372)
Profit from associates and joint ventures	176	-	20	-	-	196
Profit/(loss) before taxation	3,896	(62)	(507)	20	-	3,347

	2020
	Underlying $million	Regulatory Fine $million	Restructuring $million	Net loss on businesses disposed/ held for sale $million	Goodwill impairment $million	Statutory $million
Operating income	14,765	-	27	(38)	-	14,754
Operating expenses	(10,142)	14	(252)	-	-	(10,380)
Operating profit/(loss) before impairment losses and taxation	4,623	14	(225)	(38)	-	4,374
Credit impairment	(2,294)	-	(31)	-	-	(2,325)
Other impairment	15	-	(113)	-	(489)	(587)
Profit from associates and joint ventures	164	-	(13)	-	-	151
Profit/(loss) before taxation	2,508	14	(382)	(38)	(489)	1,613

Page 26

Underlying performance by client segment

	2021
	Corporate, Commercial &  Institutional Banking $million	Consumer Private & Business Banking $million	Central & other items (segment) $million	Total $million
Operating income	8,407	5,733	573	14,713
External	7,952	5,373	1,388	14,713
Inter-segment	455	360	(815)	-
Operating expenses	(5,278)	(4,377)	(720)	(10,375)
Operating profit/(loss) before impairment losses and taxation	3,129	1,356	(147)	4,338
Credit impairment	44	(285)	(22)	(263)
Other impairment	(49)	-	(306)	(355)
Profit from associates and joint ventures	-	-	176	176
Underlying profit/(loss) before taxation	3,124	1,071	(299)	3,896
Restructuring	(114)	(235)	(158)	(507)
Goodwill impairment	-	-	-	-
Other items	-	-	(42)	(42)
Statutory profit/(loss) before taxation	3,010	836	(499)	3,347
Total assets	405,839	139,992	281,987	827,818
Of which: loans and advances to customers	208,729	136,565	24,409	369,703
loans and advances to customers	139,335	136,498	22,635	298,468
loans held at fair value through profit or loss (FVTPL)2	69,394	67	1,774	71,235
Total liabilities	481,397	182,941	110,844	775,182
Of which: customer accounts3	351,696	178,777	11,982	542,455

	2020(Restated)1
	Corporate, Commercial & Institutional Banking1 $million	Consumer Private & Business Banking1 $million	Central & other items (segment) $million	Total $million
Operating income	8,485	5,691	589	14,765
External	8,304	4,795	1,666	14,765
Inter-segment	181	896	(1,077)	-
Operating expenses	(5,003)	(4,230)	(909)	(10,142)
Operating profit/(loss) before impairment losses and taxation	3,482	1,461	(320)	4,623
Credit impairment	(1,529)	(741)	(24)	(2,294)
Other impairment	41	(10)	(16)	15
Profit from associates and joint ventures	-	-	164	164
Underlying profit/(loss) before taxation	1,994	710	(196)	2,508
Restructuring	(221)	(61)	(100)	(382)
Goodwill impairment	-	-	(489)	(489)
Other items	-	-	(24)	(24)
Statutory profit/(loss) before taxation	1,773	649	(809)	1,613
Total assets	388,303	131,783	268,964	789,050
Of which: loans and advances to customers	187,971	129,230	19,075	336,276
loans and advances to customers	133,541	129,095	19,063	281,699
loans held at fair value through profit or loss (FVTPL)2	54,430	135	12	54,577
Total liabilities	481,042	177,709	79,570	738,321
Of which: customer accounts3	310,779	173,506	7,869	492,154

1   Following the Group's change in organisational structure, there has been an integration of Corporate & Institutional Banking and Commercial Banking to Corporate, Commercial & Institutional Banking; Private Banking and Retail Banking to Consumer, Private & Business Banking. Further, certain clients have been moved between the two new client segments. Prior period has been restated

2   Loans and advances includes reverse repurchase agreements and other similar secured lending of $61,282 million (31 December 2020: $45,200 million) held at fair value through profit or loss

3   Customer accounts include repurchase agreements and other similar secured borrowing of $58,594 million (31 December 2020: $43,918 million)

Page 27

Operating income by client segment

	2021
	Corporate, Commercial & Institutional Banking $million	Consumer Private & Business Banking $million	Central & other items (segment) $million	Total $million
Underlying operating income	8,407	5,733	573	14,713
Restructuring	9	-	(41)	(32)
Other items	-	-	20	20
Statutory operating income	8,416	5,733	552	14,701

	2020(Restated)1
	Corporate, Commercial & Institutional Banking1 $million	Consumer Private & Business Banking1 $million	Central & other items (segment) $million	Total $million
Underlying operating income	8,485	5,691	589	14,765
Restructuring	40	-	(13)	27
Other items	-	-	(38)	(38)
Statutory operating income	8,525	5,691	538	14,754

1   Following the Group's change in organisational structure, there has been an integration of Corporate & Institutional Banking and Commercial Banking to Corporate, Commercial & Institutional Banking; Private Banking and Retail Banking to Consumer, Private & Business Banking. Further, certain clients have been moved between the two new client segments. Prior period has been restated

Underlying performance by region

	2021
	Asia $million	Africa & Middle East $million	Europe & Americas $million	Central & other items $million	Total $million
Operating income	10,448	2,446	2,003	(184)	14,713
Operating expenses	(6,773)	(1,623)	(1,485)	(494)	(10,375)
Operating profit/(loss) before impairment losses and taxation	3,675	823	518	(678)	4,338
Credit impairment	(434)	34	144	(7)	(263)
Other impairment	(300)	(1)	(18)	(36)	(355)
Profit from associates and joint ventures	175	-	-	1	176
Underlying profit/(loss) before taxation	3,116	856	644	(720)	3,896
Restructuring	(286)	(25)	(69)	(127)	(507)
Goodwill impairment	-	-	-	-	-
Other items	-	-	-	(42)	(42)
Statutory profit/(loss) before taxation	2,830	831	575	(889)	3,347
Total assets	483,950	57,405	277,008	9,455	827,818
Of which: loans and advances to customers	265,744	27,600	76,359	-	369,703
loans and advances to customers	243,861	25,177	29,430	-	298,468
loans held at fair value through profit or loss (FVTPL)2	21,883	2,423	46,929	-	71,235
Total liabilities	434,200	41,260	233,915	65,807	775,182
Of which: customer accounts3	355,792	34,701	151,962	-	542,455

Page 28

	2020(Restated)1
	Asia1 $million	Africa & Middle East $million	Europe & Americas $million	Central & other items $million	Total $million
Operating income	10,382	2,364	1,922	97	14,765
Operating expenses	(6,357)	(1,683)	(1,383)	(719)	(10,142)
Operating profit/(loss) before impairment losses and taxation	4,025	681	539	(622)	4,623
Credit impairment	(1,484)	(654)	(161)	5	(2,294)
Other impairment	110	(14)	8	(89)	15
Profit from associates and joint ventures	163	-	-	1	164
Underlying profit/(loss) before taxation	2,814	13	386	(705)	2,508
Restructuring	(134)	(88)	(45)	(115)	(382)
Goodwill impairment	-	-	-	(489)	(489)
Other items	(43)	-	-	19	(24)
Statutory profit/(loss) before taxation	2,637	(75)	341	(1,290)	1,613
Total assets	467,212	58,069	253,438	10,331	789,050
Of which: loans and advances to customers	239,092	29,413	67,771	-	336,276
loans and advances to customers	226,157	28,214	27,328	-	281,699
loans held at fair value through profit or loss (FVTPL)2	12,935	1,199	40,443	-	54,577
Total liabilities	421,711	39,980	211,840	64,790	738,321
Of which: customer accounts3	334,623	32,106	125,425	-	492,154

1   Following the Group's change in organisational structure, there has been an integration of Greater China & North Asia and ASEAN & South Asia to Asia. Prior period has been restated

2   Loans and advances includes reverse repurchase agreements and other similar secured lending of $61,282 million (31 December 2020: $45,200 million) held at fair value through profit or loss

3   Customer accounts include repurchase agreements and other similar secured borrowing of $58,594 million (31 December 2020: $43,918 million)

Operating income by region

	2021
	Asia $million	Africa & Middle East $million	Europe & Americas $million	Central & other items $million	Total $million
Underlying operating income	10,448	2,446	2,003	(184)	14,713
Restructuring	30	3	(30)	(35)	(32)
Other items	-	-	-	20	20
Statutory operating income	10,478	2,449	1,973	(199)	14,701

	2020(Restated)1
	Asia1 $million	Africa & Middle East $million	Europe & Americas $million	Central & other items $million	Total $million
Underlying operating income	10,382	2,364	1,922	97	14,765
Restructuring	78	(2)	-	(49)	27
Other items	(43)	-	-	5	(38)
Statutory operating income	10,417	2,362	1,922	53	14,754

1  Following the Group's change in organisational structure, there has been an integration of Greater China & North Asia and ASEAN & South Asia to Asia. Prior period has been restated

Page 29

Additional segmental information (statutory)

	2021
	Corporate, Commercial & Institutional Banking $million	Consumer Private & Business Banking $million	Central & other items (segment) $million	Total $million
Net interest income	3,267	3,214	317	6,798
Net fees and commission income	1,784	2,003	(65)	3,722
Net trading and other income	3,365	516	300	4,181
Operating income	8,416	5,733	552	14,701

	2020(Restated)1
	Corporate, Commercial & Institutional Banking1 $million	Consumer Private & Business Banking1 $million	Central & other items (segment) $million	Total $million
Net interest income	3,411	3,458	(17)	6,852
Net fees and commission income	1,477	1,716	(33)	3,160
Net trading and other income	3,637	517	588	4,742
Operating income	8,525	5,691	538	14,754

1   Following the Group's change in organisational structure, there has been an integration of Corporate & Institutional Banking and Commercial Banking to Corporate, Commercial & Institutional Banking; Private Banking and Retail Banking to Consumer, Private & Business Banking. Further, certain clients have been moved between the two new client segments. Prior period has been restated

	2021
	Asia $million	Africa & Middle East $million	Europe & Americas $million	Central & other items $million	Total $million
Net interest income	5,069	1,190	490	49	6,798
Net fees and commission income	2,764	614	547	(203)	3,722
Net trading and other income	2,645	645	936	(45)	4,181
Operating income	10,478	2,449	1,973	(199)	14,701

	2020(Restated)1
	Asia1 $million	Africa & Middle East $million	Europe & Americas $million	Central & other items $million	Total $million
Net interest income	4,993	1,223	316	320	6,852
Net fees and commission income	2,344	531	519	(234)	3,160
Net trading and other income	3,080	608	1,087	(33)	4,742
Operating income	10,417	2,362	1,922	53	14,754

1   Following the Group's change in organisational structure, there has been an integration of Greater China & North Asia and ASEAN & South Asia to Asia. Prior period has been restated

	2021
	Hong Kong $million	Korea $million	China $million	Singapore $million	India $million	Indonesia $million	UAE $million	UK $million	US $million
Net interest income	1,422	724	589	742	706	90	229	220	198
Net fees and commission income	902	213	192	664	240	54	101	21	414
Net trading and other income	1,148	174	306	192	336	69	216	624	206
Operating income	3,472	1,111	1,087	1,598	1,282	213	546	865	818

	2020
	Hong Kong $million	Korea $million	China $million	Singapore $million	India $million	Indonesia $million	UAE $million	UK $million	US $million
Net interest income	1,557	650	545	676	664	86	281	62	170
Net fees and commission income	760	175	163	515	202	66	113	61	371
Net trading and other income	1,235	236	175	367	379	156	173	824	242
Operating income	3,552	1,061	883	1,558	1,245	308	567	947	783

Page 30

3. Net interest income

Accounting policy

Interest income for financial assets held at either fair value through other comprehensive income or amortised cost, and interest expense on all financial liabilities held at amortised cost is recognised in profit or loss using the effective interest method.

The effective interest method is a method of calculating the amortised cost of a financial asset or a financial liability and of allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorter period, to the net carrying amount of the financial asset or financial liability. When calculating the effective interest rate, the Group estimates cash flows considering all contractual terms of the financial instrument (for example, prepayment options) but does not consider future credit losses. The calculation includes all fees paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts. Where the estimates of cash flows have been revised, the carrying amount of the financial asset or liability is adjusted to reflect the actual and revised cash flows, discounted at the instruments original effective interest rate. The adjustment is recognised as interest income or expense in the period in which the revision is made.

Interest income for financial assets that are either held at fair value through other comprehensive income or amortised cost that have become credit-impaired subsequent to initial recognition (stage 3), is recognised using the original effective interest rate applied to the net carrying value.. Interest income is therefore recognised on the amortised cost of the financial asset including expected credit losses. Should the credit risk on a stage 3 financial asset improve such that the financial asset is no longer considered credit-impaired, interest income recognition reverts to a computation based on the gross carrying value of the financial asset.

	2021 $million	2020 $million
Balances at central banks	92	113
Loans and advances to banks	490	801
Loans and advances to customers	7,347	8,473
Debt securities	1,787	2,325
Other eligible bills	303	495
Accrued on impaired assets (discount unwind)	2271	85
Interest income	10,246	12,292
Of which: financial instruments held at fair value through other comprehensive income	1,541	2,134
Deposits by banks	136	237
Customer accounts	2,196	3,671
Debt securities in issue	566	836
Subordinated liabilities and other borrowed funds	497	637
Interest expense on IFRS 16 lease liabilities	53	59
Interest expense	3,448	5,440
Net interest income	6,798	6,852

1  Includes a $171 million adjustment in relation to interest earned on impaired assets as required by IFRS9 Financial Instruments Recognition and Measurement

Page 31

4. Net fees and commission

Accounting policy

Fees and commissions charged for services provided by the Group are recognised as or when the service is completed or significant act performed.

Loan syndication fees are recognised as revenue when the syndication has been completed and the Group retained no part of the loan package for itself, or retained a part at the same effective interest rate as for the other participants.

The Group can act as trustee or in other fiduciary capacities that result in the holding or placing of assets on behalf of individuals, trusts, retirement benefit plans and other institutions. The assets and income arising thereon are excluded from these financial statements, as they are not assets and income of the Group.

The Group applies the following practical expedients:

• information on amounts of transaction price allocated to unsatisfied (or partially unsatisfied) performance obligations at the end of the reporting period is not disclosed as almost all fee-earning contracts have an expected duration of less than one year

• promised consideration is not adjusted for the effects of a significant financing component as the period between the Group providing a service and the customer paying for it is expected to be less than one year

• incremental costs of obtaining a fee-earning contract are recognised upfront in 'Fees and commission expense' rather than amortised, if the expected term of the contract is less than one year

The determination of the services performed for the customer, the transaction price, and when the services are completed depends on the nature of the product with the customer. The main considerations on income recognition by product are as follows:

Transaction Banking

The Group recognises fee income associated with transactional trade and cash management at the point in time the service is provided. The Group recognises income associated with trade contingent risk exposures (such as letters of credit and guarantees) over the period in which the service is provided.

Payment of fees is usually received at the same time the service is provided. In some cases, letters of credit and guarantees issued by the Group have annual upfront premiums, which are amortised on a straight-line basis to fee income over the year.

Financial Markets

The Group recognises fee income at the point in time the service is provided. Fee income is recognised for a significant non-lending service when the transaction has been completed and the terms of the contract with the customer entitle the Group to the fee. Fees are usually received shortly after the service is provided.

Syndication fees are recognised when the syndication is complete. Fees are generally received before completion of the syndication, or within 12 months of the transaction date.

Securities services include custody services, fund accounting and administration, and broker clearing. Fees are recognised over the period the custody or fund management services are provided, or as and when broker services are requested.

Wealth Management

Upfront consideration on bancassurance agreements is amortised straight-line over the contractual term. Commissions for bancassurance activities are recorded as they are earned through sales of third-party insurance products to customers. These commissions are received within a short time frame of the commission being earned. Target-linked fees are accrued based on percentage of the target achieved, provided it is assessed as highly probable that the target will be met. Cash payment is received at a contractually specified date after achievement of a target has been confirmed.

Upfront and trailing commissions for managed investment placements are recorded as they are confirmed. Income from these activities is relatively even throughout the period, and cash is usually received within a short time frame after the commission is earned.

Page 32

Retail Products

The Group recognises most income at the point in time the Group is entitled to the fee, since most services are provided at the time of the customer's request.

Credit card annual fees are recognised at the time the fee is received since in most of our retail markets there are contractual circumstances under which fees are waived, so income recognition is constrained until the uncertainties associated with the annual fee are resolved. The Group defers the fair value of reward points on its credit card reward programmes, and recognises income and costs associated with fulfilling the reward at the time of redemption.

	2021 $million	2020 $million
Fees and commissions income	4,458	3,865
Of which:
Financial instruments that are not fair valued through profit or loss	1,282	1,122
Trust and other fiduciary activities	703	254
Fees and commissions expense	(736)	(705)
Of which:
Financial instruments that are not fair valued through profit or loss	(234)	(219)
Trust and other fiduciary activities	(49)	(11)
Net fees and commission	3,722	3,160

	2021
	Corporate, Commercial & Institutional Banking $million	Consumer Private & Business Banking $million	Central & other Items (Segment) $million	Total $million
Transaction Banking	1,097	39	-	1,136
Trade	590	27	-	617
Cash Management	507	12	-	519
Financial Markets	549	-	-	549
Lending & Portfolio Management	143	1	-	144
Principal Finance	(5)	-	-	(5)
Wealth Management	-	1,556	-	1,556
Retail Products	-	406	-	406
Treasury	-	-	(47)	(47)
Others	-	1	(18)	(17)
Net fees and commission	1,784	2,003	(65)	3,722

	2020 (Restated)1
	Corporate, Commercial & Institutional Banking1 $million	Consumer Private & Business Banking1 $million	Central & other Items (Segment) $million	Total $million
Transaction Banking	973	32	-	1,005
Trade	531	22	-	553
Cash Management	442	10	-	452
Financial Markets	432	-	-	432
Lending & Portfolio Management	70	1	-	71
Principal Finance	1	-	-	1
Wealth Management	1	1,350	-	1,351
Retail Products	-	333	-	333
Treasury	-	-	(25)	(25)
Others	-	-	(8)	(8)
Net fees and commission	1,477	1,716	(33)	3,160

1   Following the Group's change in organisational structure, there has been an integration of Corporate & Institutional Banking and Commercial Banking to Corporate, Commercial & Institutional Banking; Private Banking and Retail Banking to Consumer, Private & Business Banking. Further, certain clients have been moved between the two new client segments. Prior period has been restated

Page 33
 

Upfront bancassurance consideration amounts are amortised on a straight-line basis over the contractual period to which the consideration relates. Deferred income on the balance sheet in respect of these activities is $ 634million (31 December 2020: $718 million). The income will be earned evenly over the next 7.5 years (31 December 2020: 8.5 years). For the 12 months ended 31 December 2021, $84 million of fee income was released from deferred income (31 December 2020: $84 million).

5. Net trading income

Accounting policy

Gains and losses arising from changes in the fair value of financial instruments held at fair value through profit or loss are recorded in net trading income in the period in which they arise. This includes contractual interest receivable or payable.

Income is recognised from the sale and purchase of trading positions, margins on market making and customer business and fair value changes.

When the initial fair value of a financial instrument held at fair value through profit or loss relies on unobservable inputs, the difference between the initial valuation and the transaction price is amortised to net trading income as the inputs become observable or over the life of the instrument, whichever is shorter. Any unamortised 'day one' gain is released to net trading income if the transaction is terminated.

	2021 $million	2020 $million
Net trading income	3,431	3,672
Significant items within net trading income include:
Gains on instruments held for trading¹	3,381	3,254
Gains on financial assets mandatorily at fair value through profit or loss	181	607
Losses on financial assets designated at fair value through profit or loss	(8)	(4)
Losses on financial liabilities designated at fair value through profit or loss	(133)	(247)

1   Includes $339 million gain (31 December 2020: $395 million loss) from the translation of foreign currency monetary assets and liabilities

6. Other operating income

Accounting policy

Operating lease income is recognised on a straight-line basis over the period of the lease unless another systematic basis is more appropriate.

Dividends on equity instruments are recognised when the Group's right to receive payment is established.

On disposal of fair value through other comprehensive income debt instruments, the cumulative gain or loss recognised in other comprehensive income is recycled to the profit or loss in other operating income/expense.

When the Group loses control of the subsidiary or disposal group, the difference between the consideration received and the carrying amount of the subsidiary or disposal group is recognised as a gain or loss on sale of the business.

	2021 $million	2020 $million
Other operating income includes:
Rental income from operating lease assets	463	495
Gains less losses on disposal of fair value through other comprehensive income debt instruments	157	431
Gains less losses on amortised cost financial assets	22	40
Net gain/(loss) on sale of businesses	20	(38)
Dividend income	14	27
Gain on sale of aircrafts	23	11
Other	51	104
Other operating income	750	1,070

7. Operating expenses

Accounting policy

Short-term employee benefits: salaries and social security expenses are recognised over the period in which the employees provide the service. Variable compensation is included within share-based payments costs and wages and salaries. Further details are disclosed in the Directors' remuneration report in the full Annual Report.

Page 34

Pension costs: contributions to defined contribution pension schemes are recognised in profit or loss when payable. For defined benefit plans, net interest expense, service costs and expenses are recognised in the income statement. Further details are provided in Note 30.

Share-based compensation: the Group operates equity-settled and cash-settled share-based payment compensation plans. The fair value of the employee services (measured by the fair value of the option granted) received in exchange for the grant of the options is recognised as an expense. Further details are provided in Note 31.

	2021 $million	2020 $million
Staff costs:
Wages and salaries	5,834	5,362
Social security costs	209	168
Other pension costs (Note 30)	377	358
Share-based payment costs (Note 31)	167	132
Other staff costs	1,081	866
	7,668	6,886

Other staff costs include redundancy expenses of $328 million (31 December 2020: $179 million). Further costs in this category include training, travel costs and other staff-related costs.

The following table summarises the number of employees within the Group:

	2021				20201
	Business	Support services	Total		Business	Support services	Total
At 31 December	30,614	51,343	81,957		34,905	48,752	83,657
Average for the year	31,468	51,268	82,736		36,435	48,305	84,740

The Company employed Nil staff at 31 December 2021 (31 December 2020: Nil) and it incurred costs of $1 million (31 December 2020: $87 million).

Details of directors' pay, benefits, pensions and benefits and interests in shares are disclosed in the Directors' remuneration report.

Transactions with directors, officers and other related parties are disclosed in Note 36.

	2021 $million	2020 $million
Premises and equipment expenses:	387	412
General administrative expenses:
UK bank levy	100	331
Regulatory fine	62	(14)
Other general administrative expenses	1,526	1,514
	1,688	1,831
Depreciation and amortisation:
Property, plant and equipment:
Premises	370	373
Equipment	129	129
Operating lease assets	213	229
	712	731
Intangibles:
Software	461	515
Acquired on business combinations	8	5
	1,181	1,251
Total operating expenses	10,924	10,380

Operating expenses include research expenditure of $945 million (31 December 2020: $777 million), which was recognized as an expense in the year.

The UK bank levy is applied on the chargeable equity and liabilities on the Group's consolidated balance sheet. Key exclusions from chargeable equity and liabilities include Tier 1 capital, insured or guaranteed retail deposits, repos secured on certain sovereign debt and liabilities subject to netting. From 1 January 2021 the rates are 0.10 per cent for short-term liabilities and 0.05 per cent for long-term liabilities. In addition, the scope of the UK bank levy is restricted to the balance sheet of UK operations only from this date.

Page 35

8. Credit impairment

Accounting policy

Significant accounting estimates and judgements

The Group's expected credit loss (ECL) calculations are outputs of complex models with a number of underlying assumptions. The significant judgements in determining expected credit loss include:

• The Group's criteria for assessing if there has been a significant increase in credit risk;

• Development of expected credit loss models, including the choice of inputs relating to macroeconomic variables;

• Evaluation of management overlays and post-model adjustments;

• Determination of probability weightings for Stage 3 individually assessed provisions

The calculation of credit impairment provisions also involves expert credit judgement to be applied by the credit risk management team based upon counterparty information they receive from various sources including relationship managers and on external market information. Details on the approach for determining expected credit loss can be found in the credit risk section, under IFRS 9 Methodology.

Estimates of forecasts of key macroeconomic variables underlying the expected credit loss calculation can be found within the Risk review, Key assumptions and judgements in determining expected credit loss.

Expected credit losses

Expected credit losses are determined for all financial debt instruments that are classified at amortised cost or fair value through other comprehensive income, undrawn commitments and financial guarantees.

An expected credit loss represents the present value of expected cash shortfalls over the residual term of a financial asset, undrawn commitment or financial guarantee.

A cash shortfall is the difference between the cash flows that are due in accordance with the contractual terms of the instrument and the cash flows that the Group expects to receive over the contractual life of the instrument.

Measurement

Expected credit losses are computed as unbiased, probability-weighted amounts which are determined by evaluating a range of reasonably possible outcomes, the time value of money, and considering all reasonable and supportable information including that which is forward-looking.

For material portfolios, the estimate of expected cash shortfalls is determined by multiplying the probability of default (PD) with the loss given default (LGD) with the expected exposure at the time of default (EAD). There may be multiple default events over the lifetime of an instrument. Further details on the components of PD, LGD and EAD are disclosed in the Credit risk section. For less material Retail Banking loan portfolios, the Group has adopted less sophisticated approaches based on historical roll rates or loss rates.

Forward-looking economic assumptions are incorporated into the PD, LGD and EAD where relevant and where they influence credit risk, such as GDP growth rates, interest rates, house price indices and commodity prices among others.
These assumptions are incorporated using the Group's most likely forecast for a range of macroeconomic assumptions. These forecasts are determined using all reasonable and supportable information, which includes both internally developed forecasts and those available externally, and are consistent with those used for budgeting, forecasting and capital planning.

To account for the potential non-linearity in credit losses, multiple forward-looking scenarios are incorporated into the range of reasonably possible outcomes for all material portfolios. For example, where there is a greater risk of downside credit losses than upside gains, multiple forward-looking economic scenarios are incorporated into the range of reasonably possible outcomes, both in respect of determining the PD (and where relevant, the LGD and EAD) and in determining the overall expected credit loss amounts. These scenarios are determined using a Monte Carlo approach centred around the Group's most likely forecast of macroeconomic assumptions.

The period over which cash shortfalls are determined is generally limited to the maximum contractual period for which the Group is exposed to credit risk. However, for certain revolving credit facilities, which include credit cards or overdrafts, the Group's exposure to credit risk is not limited to the contractual period. For these instruments, the Group estimates an appropriate life based on the period that the Group is exposed to credit risk, which includes the effect of credit risk management actions such as the withdrawal of undrawn facilities.

Page 36

For credit-impaired financial instruments, the estimate of cash shortfalls may require the use of expert credit judgement.

The estimate of expected cash shortfalls on a collateralised financial instrument reflects the amount and timing of cash flows that are expected from foreclosure on the collateral less the costs of obtaining and selling the collateral, regardless of whether foreclosure is deemed probable.

Cash flows from unfunded credit enhancements held are included within the measurement of expected credit losses if they are part of, or integral to, the contractual terms of the instrument (this includes financial guarantees, unfunded risk participations and other non-derivative credit insurance). Although non-integral credit enhancements do not impact the measurement of expected credit losses, a reimbursement asset is recognised to the extent of the expected credit losses recorded.

Cash shortfalls are discounted using the effective interest rate (or credit-adjusted effective interest rate for purchased or originated credit-impaired instruments (POCI)) on the financial instrument as calculated at initial recognition or if the instrument has a variable interest rate, the current effective interest rate determined under the contract.

Instruments	Location of expected credit loss provisions
Financial assets held at amortised cost	Loss provisions: netted against gross carrying value1
Financial assets held FVOCI - Debt instruments	Other comprehensive income (FVOCI expected credit loss reserve)2
Loan commitments	Provisions for liabilities and charges3
Financial guarantees	Provisions for liabilities and charges3

1  Purchased or originated credit-impaired assets do not attract an expected credit loss provision on initial recognition. An expected credit loss provision will be recognised only if there is an increase in expected credit losses from that considered at initial recognition

2  Debt and treasury securities classified as fair value through other comprehensive income (FVOCI) are held at fair value on the face of the balance sheet.
The expected credit loss attributed to these instruments is held as a separate reserve within other comprehensive income (OCI) and is recycled to the profit and loss account along with any fair value measurement gains or losses held within FVOCI when the applicable instruments are derecognised

3  Expected credit loss on loan commitments and financial guarantees is recognised as a liability provision. Where a financial instrument includes both a loan (i.e. financial asset component) and an undrawn commitment (i.e. loan commitment component), and it is not possible to separately identify the expected credit loss on these components, expected credit loss amounts on the loan commitment are recognised together with expected credit loss amounts on
the financial asset. To the extent the combined expected credit loss exceeds the gross carrying amount of the financial asset, the expected credit loss is recognised as a liability provision

Recognition

12 months expected credit losses (Stage 1) Expected credit losses are recognised at the time of initial recognition of a financial instrument and represent the lifetime cash shortfalls arising from possible default events up to 12 months into the future from the balance sheet date. Expected credit losses continue to be determined on this basis until there is either a significant increase in the credit risk of an instrument or the instrument becomes credit-impaired. If an instrument is no longer considered to exhibit a significant increase in credit risk, expected credit losses will revert to being determined on a 12-month basis.

Significant increase in credit risk (Stage 2) If a financial asset experiences a significant increase in credit risk (SICR) since initial recognition, an expected credit loss provision is recognised for default events that may occur over the lifetime of the asset.

Significant increase in credit risk is assessed by comparing the risk of default of an exposure at the reporting date to the risk of default at origination (after taking into account the passage of time). Significant does not mean statistically significant nor is it assessed in the context of changes in expected credit loss. Whether a change in the risk of default is significant or not is assessed using a number of quantitative and qualitative factors, the weight of which depends on the type of product and counterparty. Financial assets that are 30 or more days past due and not credit-impaired will always be considered to have experienced a significant increase in credit risk. For less material portfolios where a loss rate or roll rate approach is applied to compute expected credit loss, significant increase in credit risk is primarily based on 30 days past due.

Quantitative factors include an assessment of whether there has been significant increase in the forward-looking probability of default (PD) since origination. A forward-looking PD is one that is adjusted for future economic conditions to the extent these are correlated to changes in credit risk. We compare the residual lifetime PD at the balance sheet date to the residual lifetime PD that was expected at the time of origination for the same point in the term structure and determine whether both the absolute and relative change between the two exceeds predetermined thresholds. To the extent that the differences between the measures of default outlined exceed the defined thresholds, the instrument is considered to have experienced a significant increase in credit risk.

Page 37

Qualitative factors assessed include those linked to current credit risk management processes, such as lending placed on non-purely precautionary early alert (and subject to closer monitoring).

A non-purely precautionary early alert account is one which exhibits risk or potential weaknesses of a material nature requiring closer monitoring, supervision, or attention by management. Weaknesses in such a borrower's account, if left uncorrected, could result in deterioration of repayment prospects and the likelihood of being downgraded. Indicators could include a rapid erosion of position within the industry, concerns over management's ability to manage operations, weak/deteriorating operating results, liquidity strain and overdue balances among other factors.

Credit-impaired (or defaulted) exposures (Stage 3) Financial assets that are credit-impaired (or in default) represent those that are at least 90 days past due in respect of principal and/or interest. Financial assets are also considered to be credit-impaired where the obligors are unlikely to pay on the occurrence of one or more observable events that have a detrimental impact on the estimated future cash flows of the financial asset. It may not be possible to identify a single discrete event but instead the combined effect of several events may cause financial assets to become credit-impaired.

• Evidence that a financial asset is credit-impaired includes observable data about the following events:

• Significant financial difficulty of the issuer or borrower;

• Breach of contract such as default or a past due event;

• For economic or contractual reasons relating to the borrower's financial difficulty, the lenders of the borrower have granted the borrower concession/s that lenders would not otherwise consider. This would include forbearance actions;

• Pending or actual bankruptcy or other financial reorganisation to avoid or delay discharge of the borrower's obligation/s;

• The disappearance of an active market for the applicable financial asset due to financial difficulties of the borrower;

• Purchase or origination of a financial asset at a deep discount that reflects incurred credit losses

Lending commitments to a credit-impaired obligor that have not yet been drawn down are included to the extent that the commitment cannot be withdrawn. Loss provisions against credit-impaired financial assets are determined based on an assessment of the recoverable cash flows under a range of scenarios, including the realisation of any collateral held where appropriate. The loss provisions held represent the difference between the present value of the expected cash shortfalls, discounted at the instrument's original effective interest rate, and the gross carrying value (including contractual interest due but not paid) of the instrument prior to any credit impairment. The Group's definition of default is aligned with the regulatory definition of default as set out in the UK's onshored capital requirements regulations (Art 178).

Expert credit judgement

For Corporate & Institutional, Commercial and Private Banking, borrowers are graded by credit risk management on a credit grading (CG) scale from CG1 to CG14. Once a borrower starts to exhibit credit deterioration, it will move along the credit grading scale in the performing book and when it is classified as CG12 the credit assessment and oversight of the loan will normally be performed by Group Special Assets Management (GSAM).

Borrowers graded CG12 exhibit well-defined weaknesses in areas such as management and/or performance but there is no current expectation of a loss of principal or interest. Where the impairment assessment indicates that there will be a loss of principal on a loan, the borrower is graded a CG14 while borrowers of other credit-impaired loans are graded CG13. Instruments graded CG13 or CG14 are regarded as stage 3.

For individually significant financial assets within stage 3, GSAM will consider all judgements that have an impact on the expected future cash flows of the asset. These include: the business prospects, industry and geo political climate of the customer, quality of realisable value of collateral, the Group's legal position relative to other claimants and any renegotiation/ forbearance/ modification options. The future cash flow calculation involves significant judgements and estimates. As new information becomes available and further negotiations/ forbearance measures are taken the estimates of the future cash flows will be revised, and will have an impact on the future cash flow analysis.

Page 38

For financial assets which are not individually significant, such as the Retail Banking portfolio or small business loans, which comprise a large number of homogenous loans that share similar characteristics, statistical estimates and techniques are used, as well as credit scoring analysis.

Retail Banking clients are considered credit-impaired where they are more 90 days past due. Retail Banking products are also considered credit-impaired if the borrower files for bankruptcy or other forbearance programme, the borrower is deceased or the business is closed in the case of a small business, or if the borrower surrenders the collateral, or there is an identified fraud on the account. Additionally, if the account is unsecured and the borrower has other credit accounts with the Group that are considered credit-impaired, the account may be also be credit-impaired.

Techniques used to compute impairment amounts use models which analyse historical repayment and default rates over a time horizon. Where various models are used, judgement is required to analyse the available information provided and select the appropriate model or combination of models to use.

Expert credit judgement is also applied to determine whether any post-model adjustments are required for credit risk elements which are not captured by the models.

Modified financial instruments

Where the original contractual terms of a financial asset have been modified for credit reasons and the instrument has not been derecognised (an instrument is derecognised when a modification results in a change in cash flows that the Group would consider substantial), the resulting modification loss is recognised within credit impairment in the income statement with a corresponding decrease in the gross carrying value of the asset. If the modification involved a concession that the bank would not otherwise consider, the instrument is considered to be credit-impaired and is considered forborne.

Expected credit loss for modified financial assets that have not been derecognised and are not considered to be credit-impaired will be recognised on a 12-month basis, or a lifetime basis, if there is a significant increase in credit risk. These assets are assessed (by comparison to the origination date) to determine whether there has been a significant increase in credit risk subsequent to the modification. Although loans may be modified for non-credit reasons, a significant increase in credit risk may occur. In addition to the recognition of modification gains and losses, the revised carrying value of modified financial assets will impact the calculation of expected credit losses, with any increase or decrease in expected credit loss recognised within impairment.

Forborne loans

Forborne loans are those loans that have been modified in response to a customer's financial difficulties. Forbearance strategies assist clients who are temporarily in financial distress and are unable to meet their original contractual repayment terms. Forbearance can be initiated by the client, the Group or a third-party including government sponsored programmes or a conglomerate of credit institutions. Forbearance may include debt restructuring such as new repayment schedules, payment deferrals, tenor extensions, interest only payments, lower interest rates, forgiveness of principal, interest or fees, or relaxation of loan covenants.

Forborne loans that have been modified (and not derecognised) on terms that are not consistent with those readily available in the market and/or where we have granted a concession compared to the original terms of the loans are considered credit-impaired if there is a detrimental impact on cash flows. The modification loss (see Classification and measurement - Modifications) is recognised in the profit or loss within credit impairment and the gross carrying value of the loan reduced by the same amount. The modified loan is disclosed as 'Loans subject to forbearance - credit-impaired'.

Loans that have been subject to a forbearance modification, but which are not considered credit-impaired (not classified as CG13 or CG14), are disclosed as 'Forborne - not credit-impaired'. This may include amendments to covenants within the contractual terms.

Page 39

Write-offs of credit-impaired instruments and reversal of impairment

To the extent a financial debt instrument is considered irrecoverable, the applicable portion of the gross carrying value is written off against the related loan provision. Such loans are written off after all the necessary procedures have been completed, it is decided that there is no realistic probability of recovery and the amount of the loss has been determined. Subsequent recoveries of amounts previously written off decrease the amount of the provision for credit impairment in the income statement.

Loss provisions on purchased or originated credit-impaired instruments (POCI)

The Group measures expected credit loss on a lifetime basis for POCI instruments throughout the life of the instrument. However, expected credit loss is not recognised in a separate loss provision on initial recognition for POCI instruments as the lifetime expected credit loss is inherent within the gross carrying amount of the instruments. The Group recognises the change in lifetime expected credit losses arising subsequent to initial recognition in the income statement and the cumulative change as a loss provision. Where lifetime expected credit losses on POCI instruments are less than those at initial recognition, then the favourable differences are recognised as impairment gains in the income statement (and as impairment loss where the expected credit losses are greater).

Improvement in credit risk/curing

A period may elapse from the point at which instruments enter lifetime expected credit losses (stage 2 or stage 3) and are reclassified back to 12-month expected credit losses (stage 1). For financial assets that are credit-impaired (stage 3), a transfer to stage 2 or stage 1 is only permitted where the instrument is no longer considered to be credit-impaired. An instrument will no longer be considered credit-impaired when there is no shortfall of cash flows compared to the original contractual terms.

For financial assets within stage 2, these can only be transferred to stage 1 when they are no longer considered to have experienced a significant increase in credit risk.

Where significant increase in credit risk was determined using quantitative measures, the instruments will automatically transfer back to stage 1 when the original PD based transfer criteria are no longer met. Where instruments were transferred to stage 2 due to an assessment of qualitative factors, the issues that led to the reclassification must be cured before the instruments can be reclassified to stage 1. This includes instances where management actions led to instruments being classified as stage 2, requiring that action to be resolved before loans are reclassified to stage 1.

A forborne loan can only be removed from being disclosed as forborne if the loan is performing (stage 1 or 2) and a further two-year probation period is met.

In order for a forborne loan to become performing, the following criteria have to be satisfied:

• At least a year has passed with no default based upon the forborne contract terms

• The customer is likely to repay its obligations in full without realising security

• The customer has no accumulated impairment against amount outstanding (except for ECL)

Subsequent to the criteria above, a further two-year probation period has to be fulfilled, whereby regular payments are made by the customer and none of the exposures to the customer are more than 30 days past due.

	2021 $million	2020 $million
Net credit impairment on loans and advances to banks and customers	258	2,191
Net credit impairment on debt securities	26	33
Net credit impairment relating to financial guarantees and loan commitments	(30)	103
Net credit impairment relating to other financial assets	-	(2)
Credit impairment1	254	2,325

1   No material purchased or originated credit-impaired (POCI) assets

Page 40

9. Goodwill, property, plant and equipment and other impairment

Accounting policy

Refer to the below referenced notes for the relevant accounting policy.

	2021 $million	2020 $million
Impairment of goodwill (Note 17)	-	489
Impairment of property, plant and equipment (Note 18)	106	132
Impairment of other intangible assets (Note 17)	4	17
Other	2621	(51)²
Property, plant and equipment and other impairment	372	98
Goodwill, property, plant and equipment and other impairment	372	587

1   Other Includes Impairment of investment in China Bohai $300 million

2   Includes a reversal of $165 million as a result of recovery on a disputed derivative receivable, following a favourable court ruling

10. Taxation

Accounting policy

Income tax payable on profits is based on the applicable tax law in each jurisdiction and is recognised as an expense in the period in which profits arise.

Deferred tax is provided on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. Deferred tax is determined using tax rates (and laws) that have been enacted or substantively enacted as at the balance sheet date, and that are expected to apply when the related deferred tax asset is realised or the deferred income tax liability is settled.

Deferred tax assets are recognised where it is probable that future taxable profit will be available against which the temporary differences can be utilised. Where permitted, deferred tax assets and liabilities are offset on an entity basis and not by component of deferred taxation.

Current and deferred tax relating to items which are charged or credited directly to equity, is credited or charged directly to equity and is subsequently recognised in the income statement together with the current or deferred gain or loss.

Significant accounting estimates and judgements

• Determining the Group's tax charge for the year involves estimation and judgement, which includes an interpretation of local tax laws and an assessment of whether the tax authorities will accept the position taken. These judgements take account of external advice where appropriate, and the Group's view on settling with the relevant tax authorities

• The Group provides for current tax liabilities at the best estimate of the amount that is expected to be paid to the tax authorities where an outflow is probable. In making its estimates the Group assumes that the tax authorities will examine all the amounts reported to them and have full knowledge of all relevant information

The recoverability of the Group's deferred tax assets is based on management's judgement of the availability of future taxable profits against which the deferred tax assets will be utilised. In preparing management forecasts the effect of applicable laws and regulations relevant to the utilisation of future taxable profits have been considered.

Page 41

 

The following table provides analysis of taxation charge in the year:

	2021 $million	2020 $million
The charge for taxation based upon the profit for the year comprises:
Current tax:
United Kingdom corporation tax at 19 per cent (2020: 19 per cent):
Current tax charge on income for the year	-	-
Adjustments in respect of prior years (including double tax relief)	9	(41)
Foreign tax:
Current tax charge on income for the year	896	1,061
Adjustments in respect of prior years	(26)	(352)
	879	668
Deferred tax:
Origination/reversal of temporary differences	218	(193)
Adjustments in respect of prior years	(63)	387
	155	194
Tax on profits on ordinary activities	1,034	862
Effective tax rate	30.9%	53.4%

The tax charge for the year of $1,034 million (31 December 2020: $862 million) on a profit before tax of $3,347 million (31 December 2020: $1,613 million) reflects the impact of countries with tax rates higher or lower than the UK, the most significant of which is India, non-deductible expenses and non-creditable withholding taxes. The 2020 charge included adjustments in respect of prior years of $288 million, between current and deferred tax, relating to the treatment of loan impairments in India as deductible in the period they are impaired.

Foreign tax includes current tax of $78 million (31 December 2020: $167 million) on the profits assessable in Hong Kong. Deferred tax includes origination or reversal of temporary differences of $39 million (31 December 2020: $(30) million) provided at a rate of 16.5 per cent (31 December 2020: 16.5 per cent) on the profits assessable in Hong Kong.

Tax rate: The tax charge for the year is higher than the charge at the rate of corporation tax in the UK, 19 per cent.
The differences are explained below:

	2021			2020
	$million	%		$million	%
Profit on ordinary activities before tax	3,347			1,613
Tax at 19 per cent (2020: 19 per cent)	636	19.0		306	19.0
Lower tax rates on overseas earnings	(93)	(2.8)		(36)	(2.2)
Higher tax rates on overseas earnings	366	10.9		305	18.9
Tax at domestic rates applicable where profits earned	909	27.1		575	35.7
Non-creditable withholding taxes	120	3.6		127	7.9
Tax exempt income1	(85)	(2.5)		(127)	(7.9)
Share of associates and joint ventures	(33)	(1.0)		(26)	(1.6)
Non-deductible expenses1	217	6.5		164	10.2
Regulatory fine	12	0.4		-	-
Bank levy	19	0.6		63	3.9
Non-taxable losses on investments	-	-		13	0.8
Payments on financial instruments in reserves	(62)	(1.9)		(59)	(3.7)
Goodwill impairment	-	-		93	5.8
Deferred tax not recognised	54	1.6		49	3.0
Deferred tax assets written-off	1	-		15	0.9
Deferred tax rate changes	-	-		(51)	(3.2)
Adjustments to tax charge in respect of prior years	(80)	(2.4)		(6)	(0.4)
Other items1	(38)	(1.1)		32	2.0
Tax on profit on ordinary activities	1,034	30.9		862	53.4

1   The 2020 comparatives have been reclassified as follows to align with presentation in the current period: tax exempt income by $6 million from $(133) million to $(127) million, non-deductible expenses by $102 million from $266 million to $164 million and other items by $96 million from $(64) million to $32 million

Factors affecting the tax charge in future years: the Group's tax charge, and effective tax rate in future years could be affected by several factors including acquisitions, disposals and restructuring of our businesses, the mix of profits across jurisdictions with different statutory tax rates, changes in tax legislation and tax rates and resolution of uncertain tax positions.

Page 42

The evaluation of uncertain tax positions involves an interpretation of local tax laws which could be subject to challenge by a tax authority, and an assessment of whether the tax authorities will accept the position taken. The Group does not currently consider that assumptions or judgements made in assessing tax liabilities have a significant risk of resulting in a material adjustment within the next financial year.

Tax recognised in other comprehensive income	2021				2020
	Current tax $million	Deferred tax $million	Total $million		Current tax $million	Deferred tax $million	Total $million
Items that will not be reclassified to income statement	-	(82)	(82)		-	(17)	(17)
Own credit adjustment	-	(6)	(6)		-	1	1
Equity instruments at fair value through other comprehensive income	-	(59)	(59)		-	(27)	(27)
Retirement benefit obligations	-	(17)	(17)		-	9	9
Items that may be reclassed subsequently to income statement	-	74	74		(1)	(53)	(54)
Debt instruments at fair value through other comprehensive income	-	76	76		(1)	(68)	(69)
Cash flow hedges	-	(2)	(2)		-	15	15
Total tax credit/(charge) recognised in equity	-	(8)	(8)		(1)	(70)	(71)

Current tax: The following are the movements in current tax during the year:

Current tax comprises:	2021 $million	2020 $million
Current tax assets	808	539
Current tax liabilities	(660)	(703)
Net current tax opening balance	148	(164)
Movements in income statement	(879)	(668)
Movements in other comprehensive income	-	(1)
Taxes paid	1,161	971
Other movements	(12)	10
Net current tax balance as at 31 December	418	148
Current tax assets	766	808
Current tax liabilities	(348)	(660)
Total	418	148

Deferred tax: The following are the major deferred tax liabilities and assets recognised by the Group and movements thereon during the year:

	At 1 January 2021 $million	Exchange & other adjustments $million	(Charge)/credit to profit $million	(Charge)/credit to equity $million	At 31 December 2021 $million
Deferred tax comprises:
Accelerated tax depreciation	(493)	4	(26)	-	(515)
Impairment provisions on loans and advances	419	12	(80)	-	351
Tax losses carried forward	282	(3)	(16)	-	263
Fair value through other comprehensive income	(146)	5	(2)	17	(126)
Cash flow hedges	2	-	-	(2)	-
Own credit adjustment	3	-	-	(6)	(3)
Retirement benefit obligations	36	13	(5)	(17)	27
Share-based payments	23	-	9	-	32
Other temporary differences	98	(33)	(35)	-	30
Net deferred tax assets	224	(2)	(155)	(8)	59

Page 43

	At 1 January 2020 $million	Exchange & other adjustments $million	(Charge)/credit to profit $million	(Charge)/credit to equity $million	At 31 December 2020 $million
Deferred tax comprises:
Accelerated tax depreciation	(526)	-	33	-	(493)
Impairment provisions on loans and advances	957	(14)	(524)	-	419
Tax losses carried forward	263	(5)	24	-	282
Fair value through other comprehensive income	(49)	-	(2)	(95)	(146)
Cash flow hedges	(13)	-	-	15	2
Own credit adjustment	2	-	-	1	3
Retirement benefit obligations	31	(1)	(3)	9	36
Share-based payments	16	(3)	10	-	23
Other temporary differences	(187)	14	268	3	98
Net deferred tax assets	494	(9)	(194)	(67)	224

Deferred tax comprises assets and liabilities as follows:

	2021				2020
	Total $million	Asset $million	Liability $million		Total $million	Asset $million	Liability $million
Deferred tax comprises:
Accelerated tax depreciation	(515)	18	(533)		(493)	(30)	(463)
Impairment provisions on loans and advances	351	389	(38)		419	403	16
Tax losses carried forward	263	172	91		282	171	111
Fair value through other comprehensive income	(126)	(22)	(104)		(146)	(61)	(85)
Cash flow hedges	-	(3)	3		2	6	(4)
Own credit adjustment	(3)	(1)	(2)		3	2	1
Retirement benefit obligations	27	16	11		36	25	11
Share-based payments	32	-	32		23	8	15
Other temporary differences	30	290	(260)		98	395	(297)
	59	859	(800)		224	919	(695)

At 31 December 2021, the Group has net deferred tax assets of $59 million (31 December 2020: $224 million). The recoverability of the Group's deferred tax assets is based on management's judgement of the availability of future taxable profits against which the deferred tax assets will be utilised.

Of the Group's total deferred tax assets, $263 million relates to tax losses carried forward. These tax losses have arisen in individual legal entities and will be offset as future taxable profits arise in those entities.

• $104 million of the deferred tax assets relating to losses has arisen in Ireland, where there is no expiry date for unused tax losses. These losses relate to aircraft leasing and are expected to be fully utilised over the useful economical life of the assets being up to 18 years.

• $112 million of the deferred tax assets relating to losses has arisen in the US. Management forecasts show that the losses are expected to be fully utilised over a period of three years.

The remaining deferred tax assets of $47 million relating to losses have arisen in other jurisdictions and are expected to be recovered in less than 10 years.

Unrecognised deferred tax

	2021 $million	2020 $million
No account has been taken of the following potential deferred tax assets/(liabilities):
Withholding tax on unremitted earnings from overseas subsidiaries and associates	(426)	(397)
Tax losses	2,104	1,612
Held over gains on incorporation of overseas branches	(422)	(336)
Other temporary differences	208	221

The aggregate temporary differences relating to unrecognised deferred tax arising on unremitted earnings from overseas subsidiaries and associates at the balance sheet date was $(5,544) million (31 December 2020: $(5,183) million), the gross value of the unrecognised tax losses (including capital losses) was $8,292 million (31 December 2020: $7,213 million), gross value of held over gains on incorporation of overseas branches $(1,476) million (31 December 2020: $(1,489) million), and other temporary differences $790 million (31 December 2020: $946 million).
  Page 44

11. Dividends

Accounting policy

Dividends on ordinary shares and preference shares classified as equity are recognised in equity in the year in which they are declared. Dividends on ordinary equity shares are recorded in the year in which they are declared and, in respect of the final dividend, have been approved by the shareholders.

The Board considers a number of factors prior to dividend declaration which includes the rate of recovery in the Group's financial performance, the macroeconomic environment, and opportunities to further invest in our business and grow profitably in our markets.

Ordinary equity shares

	2021
	Cents per share	$million
2020 final dividend declared and paid during the year	9	282
2021 interim dividend declared and paid during the year	3	92

Dividends on ordinary equity shares are recorded in the period in which they are declared and, in respect of the final dividend, have been approved by the shareholders. Accordingly, the final ordinary equity share dividends set out above relate to the respective prior years.

On 31 March 2020, the Group announced that in response to a request from the Prudential Regulation Authority and as a consequence of the unprecedented challenges facing the world due to the COVID-19 pandemic, its Board had decided after careful consideration to withdraw the recommendation to pay a final dividend for 2019 of 20 cents per ordinary share.

2021 recommended final ordinary equity share dividend

The 2021 ordinary equity share dividend recommended by the Board is 9 cents per share. The financial statements for the year ended 31 December 2021 do not reflect this dividend as this will be accounted for in shareholders' equity as an appropriation of retained profits in the year ending 31 December 2022.

The dividend will be paid in either pounds sterling, Hong Kong dollars or US dollars on 12 May 2022 to shareholders on the UK register of members at the close of business in the UK on 25 February 2022.

Preference shares and Additional Tier 1 securities

Dividends on these preference shares and securities classified as equity are recorded in the period in which they are declared.

		2021 $million	2020 $million
Non-cumulative redeemable preference shares:	7.014 per cent preference shares of $5 each	53	53
	6.409 per cent preference shares of $5 each	13	20
		66	73
Additional Tier 1 securities: fixed rate resetting perpetual subordinated contingent convertible securities		344	322
		410	395

12. Earnings per ordinary share

Accounting policy

Basic earnings per ordinary share is calculated by dividing the profit attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding, excluding own shares held. Diluted earnings per ordinary share is calculated by dividing the basic earnings, which require no adjustment for the effects of dilutive potential ordinary shares, by the weighted average number of ordinary shares that would have been outstanding assuming the conversion of all dilutive potential ordinary shares, excluding own shares held.

The Group also measures earnings per share on an underlying basis. This differs from earnings defined in IAS 33 Earnings per share. Underlying earnings is profit/(loss) attributable to ordinary shareholders adjusted for profits or losses of a capital nature; amounts consequent to investment transactions driven by strategic intent; and other infrequent and/or exceptional transactions that are significant or material in the context of the Group's normal business earnings for the year.

Page 45

The table below provides the basis of underlying earnings.

	2021 $million	2020 $million
Profit for the period attributable to equity holders	2,313	751
Non-controlling interest	2	(27)
Dividend payable on preference shares and AT1 classified as equity	(410)	(395)
Profit for the period attributable to ordinary shareholders	1,905	329
Items normalised:
Regulatory fine	62	(14)
Restructuring	507	382
Goodwill impairment (Note 9)	-	489
Net (gain)/loss on sale of Businesses (Note 6)	(20)	38
Tax on normalised items1	(87)	(83)
Underlying profit attributable to equity holders	2,367	1,141
Basic - Weighted average number of shares (millions)	3,108	3,160
Diluted - Weighted average number of shares (millions)	3,154	3,199
Basic earnings per ordinary share (cents)	61.3	10.4
Diluted earnings per ordinary share (cents)	60.4	10.3
Underlying basic earnings per ordinary share (cents)	76.2	36.1
Underlying diluted earnings per ordinary share (cents)	75.0	35.7

1   No tax is included in respect of the impairment of goodwill as no tax relief is available

13. Financial instruments

Classification and measurement

Accounting policy

The Group classifies its financial assets into the following measurement categories: amortised cost; fair value through other comprehensive income (FVOCI); and fair value through profit or loss (FVTPL). Financial liabilities are classified as either amortised cost, or held at fair value through profit or loss. Management determines the classification of its financial assets and liabilities at initial recognition of the instrument or, where applicable, at the time of reclassification.

Financial assets held at amortised cost and fair value through other comprehensive income

Debt instruments held at amortised cost or held at FVOCI have contractual terms that give rise to cashflows that are solely payments of principal and interest (SPPI) characteristics. Principal is the fair value of the financial asset at initial recognition but this may change over the life of the instrument as amounts are repaid. Interest consists of consideration for the time value of money, for the Credit Risk associated with the principal amount outstanding during a particular period and for other basic lending risks and costs, as well as a profit margin.

In assessing whether the contractual cashflows have SPPI characteristics, the Group considers the contractual terms of the instrument. This includes assessing whether the financial asset contains a contractual term that could change the timing or amount of contractual cashflows such that it would not meet this condition. In making the assessment, the Group considers:

• Contingent events that would change the amount and timing of cashflows

• Leverage characteristics which increase the variability of contractual cashflows

• Prepayment and extension terms

• Terms that limit the Group's claim to cashflows from specified assets (e.g. non-recourse asset arrangements)

• Features that modify consideration of the time value of money - for example, periodical reset of interest rates

Whether financial assets are held at amortised cost or at FVOCI depends on the objectives of the business models under which the assets are held. A business model refers to how the Group manages financial assets to generate cashflows.

Page 46

The Group makes an assessment of the objective of a business model in which an asset is held at the individual product business line, and, where applicable, within business lines depending on the way the business is managed and information is provided to management. Factors considered include:

• How the performance of the product business line is evaluated and reported to the Group's management

• How managers of the business model are compensated, including whether management is compensated based on the fair value of assets or the contractual cashflows collected

• The risks that affect the performance of the business model and how those risks are managed

• The frequency, volume and timing of sales in prior periods, the reasons for such sales and expectations about future sales activity

The Group's business model assessment is as follows:

Business model	Business objective	Characteristics	Businesses	Products
Hold to collect	Intent is to originate financial assets and hold them to maturity, collecting the contractual cashflows over the term of the instrument	• Providing financing and originating assets to earn interest income as primary income stream • Performing Credit Risk management activities • Costs include funding costs, transaction costs and impairment losses	• Corporate Lending • Financial Markets • Transaction Banking • Retail Lending • Treasury Markets (Loans and Borrowings)	• Loans and advances • Debt securities
Hold to collect and sell	Business objective met through both hold to collect and by selling financial assets	• Portfolios held for liquidity needs; or where a certain interest yield profile is maintained; or that are normally rebalanced to achieve matching of duration of assets and liabilities • Income streams come from interest income, fair value changes, and impairment losses	• Treasury Markets	• Derivatives • Debt securities
Fair value through profit or loss	All other business objectives, including trading and managing financial assets on a fair value basis	• Assets held for trading • Assets that are originated, purchased, and sold for profit-taking or underwriting activity • Performance of the portfolio is evaluated on a fair value basis • Income streams are from fair value changes or trading gains or losses	• Financial Markets • All other business lines	• Derivatives • Trading portfolios • Financial Markets reverse repos • Financial Markets (FM Bond and Loan Syndication)

Financial assets which have SPPI characteristics and that are held within a business model whose objective is to hold financial assets to collect contractual cashflows (hold to collect) are recorded at amortised cost. Conversely, financial assets which have SPPI characteristics but are held within a business model whose objective is achieved by both collecting contractual cashflows and selling financial assets (Hold to collect and sell) are classified as held at FVOCI.

Both hold to collect business and hold to collect and sell business models involve holding financial assets to collect the contractual cashflows. However, the business models are distinct by reference to the frequency and significance that asset sales play in meeting the objective under which a particular group of financial assets is managed. Hold to collect business models are characterised by asset sales that are incidental to meeting the objectives under which a group of assets is managed. Sales of assets under a hold to collect business model can be made to manage increases in the credit risk of financial assets but sales for other reasons should be infrequent or insignificant.

Cashflows from the sale of financial assets under a hold to collect and sell business model by contrast are integral to achieving the objectives under which a particular group of financial assets are managed. This may be the case where frequent sales of financial assets are required to manage the Group's daily liquidity requirements or to meet regulatory requirements to demonstrate liquidity of financial instruments. Sales of assets under hold to collect and sell business models are therefore both more frequent and more significant in value than those under the hold to collect model.

Page 47

 

Equity instruments designated as held at FVOCI

Non-trading equity instruments acquired for strategic purposes rather than capital gain may be irrevocably designated at initial recognition as held at FVOCI on an instrument-by-instrument basis. Dividends received are recognised in profit or loss. Gains and losses arising from changes in the fair value of these instruments, including foreign exchange gains and losses, are recognised directly in equity and are never reclassified to profit or loss, even on derecognition.

Financial assets and liabilities held at fair value through profit or loss

Financial assets which are not held at amortised cost or that are not held FVOCI are held at fair value through profit or loss. Financial assets and liabilities held at fair value through profit or loss are either mandatorily classified fair value through profit or loss or irrevocably designated at fair value through profit or loss at initial recognition.

Mandatorily classified at fair value through profit or loss

Financial assets and liabilities which are mandatorily held at fair value through profit or loss are split between two subcategories as follows:

Trading, including:

• Financial assets and liabilities held for trading, which are those acquired principally for the purpose of selling in the short-term

• Derivatives

Non-trading mandatorily at fair value through profit or loss, including:

• Instruments in a business which has a fair value business model (see the Group's business model assessment) which are not trading or derivatives

• Hybrid financial assets that contain one or more embedded derivatives

• Financial assets that would otherwise be measured at amortised cost or FVOCI but which do not have SPPI characteristics

• Equity instruments that have not been designated as held at FVOCI

• Financial liabilities that constitute contingent consideration in a business combination. 

Designated at fair value through profit or loss

 Financial assets and liabilities may be designated at fair value through profit or loss when the designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise from measuring assets or liabilities on a different basis ('accounting mismatch').

Financial liabilities may also be designated at fair value through profit or loss where they are managed on a fair value basis or have a embedded derivative where the Group is not able to bifurcate and separately value the embedded derivative component.

Financial liabilities held at amortised cost

Financial liabilities that are not financial guarantees or loan commitments and that are not classified as financial liabilities held at fair value through profit or loss are classified as financial liabilities held at amortised cost.

Preference shares which carry a mandatory coupon that represents a market rate of interest at the issue date, or which are redeemable on a specific date or at the option of the shareholder are classified as financial liabilities and are presented in other borrowed funds. The dividends on these preference shares are recognised in the income statement as interest expense on an amortised cost basis using the effective interest method.

Financial guarantee contracts and loan commitments

The Group issues financial guarantee contracts and loan commitments in return for fees. Financial guarantee contracts and any loan commitments issued at below-market interest rates are initially recognised at their fair value as a financial liability, and subsequently measured at the higher of the initial value less the cumulative amount of income recognised in accordance with the principles of IFRS 15 Revenue from Contracts with Customers and their expected credit loss provision. Loan commitments may be designated at fair value through profit or loss where that is the business model under which such contracts are held.

Page 48

 

Fair value of financial assets and liabilities

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal market for the asset or liability, or in the absence of a principal market, the most advantageous market to which the Group has access at the date. The fair value of a liability includes the risk that the bank will not be able to honour its obligations.

The fair value of financial instruments is generally measured on the basis of the individual financial instrument. However, when a group of financial assets and financial liabilities is managed on the basis of its net exposure to either Market Risk or Credit Risk, the fair value of the group of financial instruments is measured on a net basis.

The fair values of quoted financial assets and liabilities in active markets are based on current prices. A market is regarded as active if transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis. If the market for a financial instrument, and for unlisted securities, is not active, the Group establishes fair value by using valuation techniques.

Initial recognition

Purchases and sales of financial assets and liabilities held at fair value through profit or loss, and debt securities classified as financial assets held at fair value through other comprehensive income are initially recognised on the trade date (the date on which the Group commits to purchase or sell the asset). Loans and advances and other financial assets held at amortised cost are recognised on the settlement date (the date on which cash is advanced to the borrowers).

All financial instruments are initially recognised at fair value, which is normally the transaction price, plus directly attributable transaction costs for financial assets which are not subsequently measured at fair value through profit or loss.

In certain circumstances, the initial fair value may be based on a valuation technique which may lead to the recognition of profits or losses at the time of initial recognition. However, these profits or losses can only be recognised when the valuation technique used is based solely on observable market data. In those cases where the initially recognised fair value is based on a valuation model that uses unobservable inputs, the difference between the transaction price and the valuation model is not recognised immediately in the income statement but is amortised or released to the income statement as the inputs become observable, or the transaction matures or is terminated.

Subsequent measurement

Financial assets and financial liabilities held at amortised cost

Financial assets and financial liabilities held at amortised cost are subsequently carried at amortised cost using the effective interest method (see Interest income and expense). Foreign exchange gains and losses are recognised in the income statement.

Where a financial instrument carried at amortised cost is the hedged item in a qualifying fair value hedge relationship, its carrying value is adjusted by the fair value gain or loss attributable to the hedged risk.

Financial assets held at FVOCI

Debt instruments held at FVOCI are subsequently carried at fair value, with all unrealised gains and losses arising from changes in fair value (including any related foreign exchange gains or losses) recognised in other comprehensive income and accumulated in a separate component of equity. Foreign exchange gains and losses on the amortised cost are recognised in income. Changes in expected credit losses are recognised in the profit or loss and are accumulated in equity. On derecognition, the cumulative fair value gains or losses, net of the cumulative expected credit loss reserve, are transferred to the profit or loss.

Equity investments designated at FVOCI are subsequently carried at fair value with all unrealised gains and losses arising from changes in fair value (including any related foreign exchange gains or losses) recognised in other comprehensive income and accumulated in a separate component of equity. On derecognition, the cumulative reserve is transferred to retained earnings and is not recycled to profit or loss.

Financial assets and liabilities held at fair value through profit or loss

Financial assets and liabilities mandatorily held at fair value through profit or loss and financial assets designated at fair value through profit or loss are subsequently carried at fair value, with gains and losses arising from changes in fair value, including contractual interest income or expense, recorded in the net trading income line in the profit or loss unless the instrument is part of a cashflow hedging relationship.

Page 49

Financial liabilities designated at fair value through profit or loss

Financial liabilities designated at fair value through profit or loss are held at fair value, with changes in fair value recognised in the net trading income line in the profit or loss, other than that attributable to changes in Credit Risk. Fair value changes attributable to Credit Risk are recognised in other comprehensive income and recorded in a separate category of reserves, unless this is expected to create or enlarge an accounting mismatch, in which case the entire change in fair value of the financial liability designated at fair value through profit or loss is recognised in profit or loss.

Derecognition of financial instruments

Financial assets are derecognised when the rights to receive cashflows from the financial assets have expired, or where the Group has transferred substantially all risks and rewards of ownership. If substantially all the risks and rewards have been neither retained nor transferred and the Group has retained control, the assets continue to be recognised to the extent of the Group's continuing involvement.

Where financial assets have been modified, the modified terms are assessed on a qualitative and quantitative basis to determine whether a fundamental change in the nature of the instrument has occurred, such as whether the derecognition of the pre-existing instrument and the recognition of a new instrument is appropriate.

On derecognition of a financial asset, the difference between the carrying amount of the asset (or the carrying amount allocated to the portion of the asset derecognised) and the sum of the consideration received (including any new asset obtained less any new liability assumed) and any cumulative gain or loss that had been recognised in other comprehensive income is recognised in profit or loss, except for equity instruments elected FVOCI (see above) and cumulative fair value adjustments attributable to the Credit Risk of a liability that are held in other comprehensive income.

Financial liabilities are derecognised when they are extinguished. A financial liability is extinguished when the obligation is discharged, cancelled or expires and this is evaluated both qualitatively and quantitatively. However, where a financial liability has been modified, it is derecognised if the difference between the modified cashflows and the original cashflows is more than 10 per cent; or if less than 10 per cent, the Group will perform a qualitative assessment to determine whether the terms of the two instruments are substantially different.

If the Group purchases its own debt, it is derecognised and the difference between the carrying amount of the liability and the consideration paid is included in Other income except for the cumulative fair value adjustments attributable to the Credit Risk of a liability that are held in other comprehensive income which are never recycled to the profit or loss.

Modified financial instruments

Financial assets and financial liabilities whose original contractual terms have been modified, including those loans subject to forbearance strategies, are considered to be modified instruments. Modifications may include changes to the tenor, cashflows and or interest rates, among other factors.

Where derecognition of financial assets is appropriate (see Derecognition), the newly recognised residual loans are assessed to determine whether the assets should be classified as purchased or originated Credit-Impaired assets (POCI).

Where derecognition is not appropriate, the gross carrying amount of the applicable instruments is recalculated as the present value of the renegotiated or modified contractual cashflows discounted at the original effective interest rate (or credit-adjusted effective interest rate for POCI financial assets). The difference between the recalculated values and the pre-modified gross carrying values of the instruments are recorded as a modification gain or loss in the profit or loss.

Gains and losses arising from modifications for credit reasons are recorded as part of 'Credit impairment' (see Credit Impairment policy). Modification gains and losses arising for non-credit reasons are recognised either as part of Credit impairment or within income, depending on whether there has been a change in the Credit Risk on the financial asset subsequent to the modification. Modification gains and losses arising on financial liabilities are recognised within income. The movements in the applicable expected credit loss loan positions are disclosed in further detail in Risk review.

Page 50
 

Under the Phase 2 Interest Rate Benchmark Reform amendments to IFRS 9, changes to the basis for determining contractual cashflows as a direct result of interest rate benchmark reform are treated as changes to a floating interest rate to that instrument, provided that the transition from the Interbank Offered Rate (IBOR) benchmark rate to the alternative risk-free rate (RFR) takes place on an economically equivalent basis. Where the instrument is measured at amortised cost or FVOCI, this results in a change in the instrument's effective interest rate, with no change in the amortised cost value of the instrument. If the change to the instrument does not meet these criteria, the Group applies judgement to assess whether the changes are substantial and, if they are, the financial instrument is derecognised and a new financial instrument is recognised. If the changes are not substantial, the Group adjusts the gross carrying amount of the financial instrument by the present value of the changes not covered by the practical expedient, discounted using the revised effective interest rate.

Reclassifications

Financial liabilities are not reclassified subsequent to initial recognition. Reclassifications of financial assets are made when, and only when, the business model for those assets changes. Such changes are expected to be infrequent and arise as a result of significant external or internal changes, such as the termination of a line of business or the purchase of a subsidiary whose business model is to realise the value of pre-existing held for trading financial assets through a hold to collect model.

Financial assets are reclassified at their fair value on the date of reclassification and previously recognised gains and losses are not restated. Moreover, reclassifications of financial assets between financial assets held at amortised cost and financial assets held at fair value through other comprehensive income do not affect effective interest rate or expected credit loss computations.

Reclassified from amortised cost

Where financial assets held at amortised cost are reclassified to financial assets held at fair value through profit or loss, the difference between the fair value of the assets at the date of reclassification and the previously recognised amortised cost is recognised in profit or loss.

For financial assets held at amortised cost that are reclassified to air value through other comprehensive income, the difference between the fair value of the assets at the date of reclassification and the previously recognised gross carrying value is recognised in other comprehensive income. Additionally, the related cumulative expected credit loss amounts relating to the reclassified financial assets are reclassified from loan loss provisions to a separate reserve in other comprehensive income at the date of reclassification.

Reclassified from air value through other comprehensive income

Where financial assets held at air value through other comprehensive income are reclassified to financial assets held at fair value through profit or loss, the cumulative gain or loss previously recognised in other comprehensive income is transferred to the profit or loss.

For financial assets held at fair value through other comprehensive income that are reclassified to financial assets held at amortised cost, the cumulative gain or loss previously recognised in other comprehensive income is adjusted against the fair value of the financial asset such that the financial asset is recorded at a value as if it had always been held at amortised cost. In addition, the related cumulative expected credit losses held within other comprehensive income are reversed against the gross carrying value of the reclassified assets at the date of reclassification.

Reclassified from fair value through profit or loss

Where financial assets held at fair value through profit or loss are reclassified to financial assets held at air value through other comprehensive income or financial assets held at amortised cost, the fair value at the date of reclassification is used to determine the effective interest rate on the financial asset going forward. In addition, the date of reclassification is used as the date of initial recognition for the calculation of expected credit losses. Where financial assets held at fair value through profit or loss are reclassified to financial assets held at amortised cost, the fair value at the date of reclassification becomes the gross carrying value of the financial asset.

Page 51

The Group's classification of its financial assets and liabilities is summarised in the following tables.

Assets	Notes	Assets at fair value
		Trading $million	Derivatives held for hedging $million	Non-trading mandatorily at fair value through profit or loss $million	Designated at fair value through profit or loss $million	Fair value through other comprehensive income $million	Total financial assets at fair value $million	Assets held at amortised cost $million	Total $million
Cash and balances at central banks		-	-	-	-	-	-	72,663	72,663
Financial assets held at fair value through profit or loss
Loans and advances to banks¹		1,491	-	2,356	-	-	3,847	-	3,847
Loans and advances to customers¹		5,813	-	4,140	-	-	9,953	-	9,953
Reverse repurchase agreements and other similar secured lending	16	-	-	80,009	-	-	80,009	-	80,009
Debt securities, alternative tier one and other eligible bills		28,801	-	463	161	-	29,425	-	29,425
Equity shares		5,653	-	208	-	-	5,861	-	5,861
Other assets		-	-	26	-	-	26	-	26
		41,758	-	87,202	161	-	129,121	-	129,121
Derivative financial instruments	14	51,002	1,443	-	-	-	52,445	-	52,445
Loans and advances to banks¹	15	-	-	-	-	-	-	44,383	44,383
of which - reverse repurchase agreements and other similar secured lending	16	-	-	-	-	-	-	1,079	1,079
Loans and advances to customers¹	15	-	-	-	-	-	-	298,468	298,468
of which - reverse repurchase agreements and other similar secured lending	16	-	-	-	-	-	-	7,331	7,331
Investment securities
Debt securities, alternative tier one and other eligible bills		-	-	-	-	121,375	121,375	41,325	162,700
Equity shares		-	-	-	-	737	737	-	737
		-	-	-	-	122,112	122,112	41,325	163,437
Other assets	20	-	-	-	-	-	-	40,068	40,068
Assets held for sale	21	-	-	-	43	-	43	52	95
Total at 31 December 2021		92,760	1,443	87,202	204	122,112	303,721	496,959	800,680

1   Further analysed in Risk review and Capital review

Page 52

Assets	Notes	Assets at fair value
		Trading $million	Derivatives held for hedging $million	Non-trading mandatorily at fair value through profit or loss $million	Designated at fair value through profit or loss $million	Fair value through other comprehensive income $million	Total financial assets at fair value $million	Assets held at amortised cost $million	Total $million
Cash and balances at central banks		-	-	-	-	-	-	66,712	66,712
Financial assets held at fair value through profit or loss
Loans and advances to banks¹		1,552	-	2,325	-	-	3,877	-	3,877
Loans and advances to customers¹		4,169	-	5,129	79	-	9,377	-	9,377
Reverse repurchase agreements and other similar secured lending	16	-	-	63,405	-	-	63,405	-	63,405
Debt securities, alternative tier one and other eligible bills		24,919	-	425	256	-	25,600	-	25,600
Equity shares		4,223	-	305	-	-	4,528	-	4,528
Other assets		-	-	-	-	-	-	-	-
		34,863	-	71,589	335	-	106,787	-	106,787
Derivative financial instruments	14	67,826	1,641	-	-	-	69,467	-	69,467
Loans and advances to banks¹	15	-	-	-	-	-	-	44,347	44,347
of which - reverse repurchase agreements and other similar secured lending	16	-	-	-	-	-	-	1,247	1,247
Loans and advances to customers¹	15	-	-	-	-	-	-	281,699	281,699
of which - reverse repurchase agreements and other similar secured lending	16	-	-	-	-	-	-	2,919	2,919
Investment securities
Debt securities, alternative tier one and other eligible bills		-	-	-	-	133,381	133,381	19,480	152,861
Equity shares		-	-	-	-	454	454	-	454
		-	-	-	-	133,835	133,835	19,480	153,315
Other assets	20	-	-	-	-	-	-	40,978	40,978
Assets held for sale	21	-	-	-	5	-	5	83	88
Total at 31 December 2020		102,689	1,641	71,589	340	133,835	310,094	453,299	763,393

1   Further analysed in Risk review and Capital review

Page 53

Liabilities	Notes	Liabilities at fair value				Amortised cost $million	Total $million
		Trading $million	Derivatives held for hedging $million	Designated at fair value through profit or loss $million	Total financial liabilities at fair value $million
Financial liabilities held at fair value through profit or loss
Deposits by banks		-	-	1,352	1,352	-	1,352
Customer accounts		198	-	9,093	9,291	-	9,291
Repurchase agreements and other similar secured borrowing	16	-	-	62,388	62,388	-	62,388
Debt securities in issue	22	-	-	5,597	5,597	-	5,597
Short positions		6,562	-	-	6,562	-	6,562
Other liabilities		6	-	1	7	-	7
		6,766	-	78,431	85,197	-	85,197
Derivative financial instruments	14	52,706	693	-	53,399	-	53,399
Deposits by banks		-	-	-	-	30,041	30,041
Customer accounts		-	-	-	-	474,570	474,570
Repurchase agreements and other similar secured borrowing	16	-	-	-	-	3,260	3,260
Debt securities in issue	22	-	-	-	-	61,293	61,293
Other liabilities	23	-	-	-	-	43,432	43,432
Subordinated liabilities and other borrowed funds	27	-	-	-	-	16,646	16,646
Total at 31 December 2021		59,472	693	78,431	138,596	629,242	767,838

Liabilities	Notes	Liabilities at fair value				Amortised cost $million	Total $million
		Trading $million	Derivatives held for hedging $million	Designated at fair value through profit or loss $million	Total financial liabilities at fair value $million
Financial liabilities held at fair value through profit or loss
Deposits by banks		-	-	1,249	1,249	-	1,249
Customer accounts		-	-	8,897	8,897	-	8,897
Repurchase agreements and other similar secured borrowing	16	-	-	48,662	48,662	-	48,662
Debt securities in issue	22	-	-	5,811	5,811	-	5,811
Short positions		3,754	-	-	3,754	-	3,754
Other liabilities		-	-	-	-	-	-
		3,754	-	64,619	68,373	-	68,373
Derivative financial instruments	14	69,790	1,743	-	71,533	-	71,533
Deposits by banks		-	-	-	-	30,255	30,255
Customer accounts		-	-	-	-	439,339	439,339
Repurchase agreements and other similar secured borrowing	16	-	-	-	-	1,903	1,903
Debt securities in issue	22	-	-	-	-	55,550	55,550
Other liabilities	23	-	-	-	-	47,228	47,228
Subordinated liabilities and other borrowed funds	27	-	-	-	-	16,654	16,654
Total at 31 December 2020		73,544	1,743	64,619	139,906	590,929	730,835

Interest rate benchmark reform

In 2017, the Financial Conduct Authority (FCA) announced that it had reached an agreement with LIBOR panel banks to contribute to LIBOR until the end of 2021, after which there would be a transition from LIBORs to risk-free rates (RFRs). Since then, there have been further updates, particularly with respect to the cessation date for certain USD LIBOR tenors being deferred from 31 December 2021 to 30 June 2023.

Page 54

How the Group is managing the transition to alternative benchmark rates

In 2018, the Group established its IBOR Transition Programme, with Senior Manager oversight from the Group Chief Operating Officer, to manage the transition away from LIBOR. The Programme's strategic bank-wide approach aims to support clients throughout the transition, while ensuring key risks and issues are identified and effectively managed. The Programme is governed by a principal Programme Steering Committee that oversees 16 workstreams aligned to the Group's businesses and functions. Within the Programme, separate committee meetings are held for each workstream, with all workstreams having dedicated accountable executives.

Additional governance is supported by regular updates provided to senior risk committees, including the Group Risk Committee, Board Risk Committee and the Corporate, Commercial and Institutional Banking Risk Committee.

From an industry and regulatory perspective, the Group actively participates in and contributes to RFR working groups, industry associations and business forums that focus on different aspects of the transition. The Group monitors the developments at these forums and reflects, then aligns significant decisions into its broader transition plans.

Progress during 2021

Supported by a number of system enhancements, the Group has successfully enabled the transition to RFR products, with end-to-end capabilities developed across a full suite of derivative and cash products. The Group maintained full adherence to all the interim GBP LIBOR cessation milestones set by the Bank of England's Working Group on Sterling Risk-Free Reference Rates. Activity in products referencing RFRs continued to grow throughout the year.

The Group has adhered to the International Swaps and Derivatives Association (ISDA) 2020 IBOR Fallbacks Protocol for all its trading entities and engaged clients that had not adhered to negotiate remediation of non-USD LIBOR contracts by 31 December 2021. The conversion events at the London Clearing House were successfully completed for cleared derivatives. At the end of 2021, remediation of all cleared and uncleared derivative contracts referencing ceasing LIBORs was complete.

Clients with legacy non-USD LIBOR loans were engaged to remediate their contracts via active conversions to alternative rates, fallbacks, or other suitable transition mechanisms. At end of 2021, all negotiations for drawn non-USD LIBOR exposures were concluded, and all but four loans had their documentation completed (it is expected the documentation will be finished prior to the respective next fixing dates).

The Group is well-positioned to support the transition to Secured Overnight Financing Rate (SOFR) for the USD LIBOR transition. The Group is operationally ready and is actively offering SOFR products, in line with the regulatory prohibitions on new USD LIBOR financial instruments. Preparations are also underway to ensure that the Group is ready to remediate legacy USD LIBOR transactions. Over the course of 2021, the Group made considerable progress in automating IBOR-related data, and increasing process automation remains a priority for 2022.

Frontline and client engagement, including internal and client communications, frontline training, and client webinars, were a key feature of the Programme throughout 2021. This allowed for a smooth client experience during the transition of non-USD LIBOR to RFRs, and this approach will continue in 2022 for USD LIBOR. Following an initial USD LIBOR-focused client outreach and internal communications in early December 2021, the Group has already started engaging clients to ascertain their level of readiness, and to secure an indicative timeline for remediation activities.

Page 55

Risks which the Group is exposed to due to IBOR transition

The Group has largely mitigated all material adverse outcomes associated with the cessation of LIBOR benchmarks, and these have not required a change to the Group's risk management strategy. However, the Group will continue to focus on the remediation required for other benchmarks, and will continue to monitor and manage the inherent risks of the transition, with particular attention being paid to the following:

• Legal Risk: LIBOR transition introduces significant legal risks and the Group has taken action to mitigate them where possible. These include risks around contracts that reference USD LIBOR and other LIBORs such as GBP and JPY. Steps have been taken to either insert robust fallbacks or actively convert transactions from the relevant LIBOR to the new RFR-based options.

• Conduct Risk: The Group considers Conduct Risk to be a significant area of non-financial risk management throughout the transition. Our risk appetite statement on Conduct Risk strives to maintain appropriate outcomes by continuously demonstrating that we are 'Doing the Right Thing' in the way we do business. Accordingly, we recognise that the identification and mitigation of conduct risks arising in respect of the transition are fundamental to the successful transition to new RFR-based rates by 30 June 2023. The Group has therefore taken actions in this regard as an integral part of its IBOR Transition Programme, including an extensive outreach programme.

• Operational Risk: The Group has recognised the importance of the ongoing identification and management of Operational Risk as a result of LIBOR transition. The Programme has adopted the Group's existing Operational Risk Framework in its approach to identifying, quantifying, and mitigating the impact of operational risks resulting from the transition.

• Market Risk: As trades are transitioned from IBOR to RFR, the business-as-usual metrics, limit structure and controls will continue to apply. Limits for value at risk and Market Risk sensitivities are in accordance with the Group Risk Appetite Statement. New limits will be set following engagement with the business, to consider client demand and market liquidity in RFR-linked products, as well as the regulatory expectations and interim milestones agreed by the industry.

• Financial and Credit Risk: As part of the 'Data collection on exposures' exercise undertaken for the Prudential Regulation Authority and FCA, the Group set out its view of the impact of LIBOR transition on its Financial Risk profile, including its Credit Risk and funding profile. At present, the Group has yet to see any material change to any of these categories. However, all of these risks will continue to be monitored as part of the Programme across business and functional workstreams.

• Accounting Risk: The Group has identified the financial instruments that may be affected by accounting issues such as accounting for contractual changes due to IBOR reform, fair value measurement and hedge accounting. We continue to monitor and contribute to industry developments on tax and accounting changes.

At 31 December 2021, the Group had the following notional principal exposures to interest rate benchmarks that are expected to be subject to interest rate benchmark reform. The Group has excluded financial instruments linked to USD LIBOR maturing before 30 June 2023 as it is assumed these will not require reform due to USD LIBOR no longer being published beyond this date. The Group has also excluded $2.7 billion of exposures that transitioned under fallback clauses immediately after 31 December 2021.

Page 56

 

IBOR exposures by benchmark as of 31 December 2021	USD LIBOR $million	GBP LIBOR $million	SGD SOR $million	THB FIX $million	Other IBOR $million	Total IBOR $million
Assets
Loans and advances to banks	552	-	-	-	-	552
Loans and advances to customers	27,843	123¹	1,479	15	58	29,518
Debt securities, Additional Tier 1 and other eligible bills	2,735	237¹	17	-	-	2,989
	31,130	360	1,496	15	58	33,059
Liabilities
Deposits by banks	815	-	-	-	-	815
Customer accounts	3,575	-	1	36	-	3,612
Repurchase agreements and other secured borrowing	671	-	-	-	-	671
Debt securities in issue	326	-	-	-	-	326
Subordinated liabilities and other borrowed funds	160	-	-	-	-	160
	5,547	-	1	36	-	5,584
Derivatives - Foreign exchange contracts
Currency swaps and options	158,184	-	3,877	1,725	-	163,786
Derivatives - Interest rate contracts
Swaps	686,403	-	10,091	51,395	-	747,889
Forward rate agreements and options	28,406	-	74	124	-	28,604
Exchange traded futures and options	24,236	-	-	-	-	24,236
Equity and stock index options	74	-	-	-	-	74
Credit derivative contracts	5,515	-	72	277	-	5,864
Total IBOR derivative exposure	902,818	-	14,114	53,521	-	970,453
Total IBOR exposure	939,495	360	15,611	53,572	58	1,009,096
Loan commitments off balance sheet	4,161	285	179	-	966	5,591

1   Residual GBP LIBOR exposures are mainly due to debt security assets where the issuers have yet to confirm revised instrument terms, and loans to customers where the terms of remediation have been agreed but legal documentation is not complete. It is expected that these exposures will be remediated before their next interest rate fixing, however, should this not be achieved a 'synthetic LIBOR' based on Term SONIA will apply

IBOR exposures by benchmark as at 31 December 2020	USD LIBOR $million	GBP LIBOR $million	SGD SOR $million	THB FIX $million	Other IBOR $million	Total IBOR $million
Assets
Loans and advances to banks	1,072	55	-	-	-	1,127
Loans and advances to customers	34,143	2,861	2,011	33	905	39,953
Debt securities, Additional Tier 1 and other eligible bills	3,984	1,409	365	-	170	5,928
	39,199	4,325	2,376	33	1,075	47,008
Liabilities
Deposits by banks	399	-	-	-	-	399
Customer accounts	4,239	19	2	42	189	4,491
Repurchase agreements and other secured borrowing	1,195	-	-	-	-	1,195
Debt securities in issue	2,159	-	-	-	-	2,159
Subordinated liabilities and other borrowed funds	160	15	-	-	-	175
	8,152	34	2	42	189	8,419
Derivatives - Foreign exchange contracts
Currency swaps and options	202,086	34,205	5,125	1,998	21,658	265,072
Derivatives - Interest rate contracts
Swaps	839,653	104,763	72,849	27,013	43,653	1,087,931
Forward rate agreements and options	21,634	523	76	55	2,527	24,815
Exchange traded futures and options	63,239	1,445	-	-	-	64,684
Equity and stock index options	75	2	-	-	-	77
Credit derivative contracts	4,466	-	-	134	-	4,600
Total IBOR derivative exposure	1,131,153	140,938	78,050	29,200	67,838	1,447,179
Total IBOR exposure	1,178,504	145,297	80,428	29,275	69,102	1,502,606
Loan commitments off balance sheet	7,176	763	206	1	1,496	9,642

Page 57

 

Offsetting of financial instruments

Financial assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the asset and settle the liability simultaneously.

In practice, for credit mitigation, the Group is able to offset assets and liabilities which do not meet the IAS 32 netting criteria set out below. Such arrangements include master netting arrangements for derivatives and global master repurchase agreements for repurchase and reverse repurchase transactions. These agreements generally allow that all outstanding transactions with a particular counterparty can be offset, but only in the event of default or other predetermined events.

In addition, the Group also receives and pledges readily realisable collateral for derivative transactions to cover net exposure in the event of a default. Under repurchase and reverse repurchase agreements, the Group pledges (legally sells) and obtains (legally purchases) respectively, highly liquid assets which can be sold in the event of a default.

The following tables set out the impact of netting on the balance sheet. This comprises derivative transactions settled through an enforceable netting agreement where we have the intent and ability to settle net and which are offset on the balance sheet.

	2021
	Gross amounts of recognised financial instruments $million	Impact of offset in the balance sheet $million	Net amounts of financial instruments presented in the balance sheet $million	Related amount not offset in the balance sheet		Net amount $million
				Financial instruments $million	Financial collateral $million
Assets
Derivative financial instruments	79,043	(26,598)	52,445	(39,502)	(8,092)	4,851
Reverse repurchase agreements and other similar secured lending	95,845	(7,426)	88,419	-	(88,419)	-
At 31 December 2021	174,888	(34,024)	140,864	(39,502)	(96,511)	4,851
Liabilities
Derivative financial instruments	79,997	(26,598)	53,399	(39,502)	(9,217)	4,680
Repurchase agreements and other similar secured borrowing	73,074	(7,426)	65,648	-	(65,648)	-
At 31 December 2021	153,071	(34,024)	119,047	(39,502)	(74,865)	4,680

	2020
	Gross amounts of recognised financial instruments $million	Impact of offset in the balance sheet $million	Net amounts of financial instruments presented in the balance sheet $million	Related amount not offset in the balance sheet		Net amount $million
				Financial instruments $million	Financial collateral $million
Assets
Derivative financial instruments	119,979	(42,512)	69,467	(47,097)	(10,136)	12,234
Reverse repurchase agreements and other similar secured lending	75,490	(7,919)	67,571	-	(67,571)	-
At 31 December 2020	187,469	(50,431)	137,038	(47,097)	(77,707)	12,234
Liabilities
Derivative financial instruments	114,405	(42,512)	71,533	(47,097)	(11,757)	12,679
Repurchase agreements and other similar secured borrowing	58,484	(7,919)	50,565	-	(50,565)	-
At 31 December 2020	172,529	(50,431)	122,098	(47,097)	(62,322)	12,679

Related amounts not offset in the balance sheet comprise:

• Financial instruments not offset in the balance sheet but covered by an enforceable netting arrangement. This comprises master netting arrangements held against derivative financial instruments and excludes the effect of over-collateralisation

• Financial instruments where a legal opinion evidencing enforceability of the right of offset may not have been sought, or may have been unable to obtain

• Financial collateral comprises cash collateral pledged and received for derivative financial instruments and collateral bought and sold for reverse repurchase and repurchase agreements respectively, and excludes the effect of over-collateralisation

Page 58

Financial liabilities designated at fair value through profit or loss

	2021 $million	2020 $million
Carrying balance aggregate fair value	78,431	64,619
Amount contractually obliged to repay at maturity	78,691	64,405
Difference between aggregate fair value and contractually obliged to repay at maturity	(260)	214
Cumulative change in fair value accredited to Credit Risk difference	3	(43)

The net fair value loss on financial liabilities designated at fair value through profit or loss was $133 million for the year (31 December 2020: net loss of $247 million). Further details of the Group's own credit adjustment (OCA) valuation technique is described later in this Note.

Valuation of financial instruments

The fair values of quoted financial assets and liabilities in active markets are based on current prices. A market is regarded as active if transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis. Wherever possible, fair values have been calculated using unadjusted quoted market prices in active markets for identical instruments held by the Group. Where quoted market prices are not available, or are unreliable because of poor liquidity, fair values have been determined using valuation techniques which, to the extent possible, use market observable inputs, but in some cases use non market observable inputs. Valuation techniques used include discounted cashflow analysis and pricing models and, where appropriate, comparison with instruments that have characteristics similar to those of the instruments held by the Group.

The Valuation Methodology function is responsible for independent price verification, oversight of fair value and appropriate value adjustments and escalation of valuation issues. Independent price verification is the process of determining that the valuations incorporated into the financial statements are validated independent of the business area responsible for the product. The Valuation Methodology function has oversight of the fair value adjustments to ensure that the financial instruments are priced to exit. These are key controls in ensuring the material accuracy of the valuations incorporated in the financial statements. The market data used for price verification (PV) may include data sourced from recent trade data involving external counterparties or third parties such as Bloomberg, Reuters, brokers and consensus pricing providers. Valuation Methodology perform an ongoing review of the market data sources that are used as part of the PV and fair value processes which are formally documented on a semi-annual basis, detailing the suitability of the market data used for price testing. PV uses independently sourced data that is deemed most representative of the market the instruments trade in. To determine the quality of the market data inputs, factors such as independence, relevance, reliability, availability of multiple data sources and methodology employed by the pricing provider are taken into consideration.

The Valuation and Benchmarks Committee (VBC) is the valuation governance forum consisting of representatives from Group Market Risk, Product Control, Valuation Methodology and the business, which meets monthly to discuss and approve the independent valuations of the inventory. For Principal Finance, the Investment Committee meeting is held on a quarterly basis to review investments and valuations.

Significant accounting estimates and judgements

The Group evaluates the significance of financial instruments and material accuracy of the valuations incorporated in the financial statements as they involve a high degree of judgement and estimation uncertainty in determining the carrying values of financial assets and liabilities at the balance sheet date.

• Fair value of financial instruments is determined using valuation techniques and estimates (see below) which, to the extent possible, use market observable inputs, but in some cases use non-market observable inputs. Changes in the observability of significant valuation inputs can materially affect the fair values of financial instruments.

• When establishing the exit price of a financial instrument using a valuation technique, the Group estimates valuation adjustments in determining the fair value.

• In determining the valuation of financial instruments, the Group makes judgements on the amounts reserved to cater for model and valuation risks, which cover both Level 2 and Level 3 assets, and the significant valuation judgements in respect of Level 3 instruments.

Where the estimated measurement of fair value is more judgemental in respect of Level 3 assets, these are valued based on models that use a significant degree of non-market-based unobservable inputs.

Page 59

Valuation techniques

Refer to the fair value hierarchy explanation - Level 1, 2 and 3

• Financial instruments held at fair value

• Debt securities - asset-backed securities: Asset-backed securities are valued based on external prices obtained from consensus pricing providers, broker quotes, recent trades, arrangers' quotes, etc. Where an observable price is available for a given security, it is classified as Level 2. In instances where third-party prices are not available or reliable, the security is classified as Level 3. The fair value of Level 3 securities is estimated using market standard cashflow models with input parameter assumptions, which include prepayment speeds, default rates, discount margins derived from comparable securities with similar vintage, collateral type, and credit ratings

• Debt securities in issue: These debt securities relate to structured notes issued by the Group. Where independent market data is available through pricing vendors and broker sources, these positions are classified as Level 2. Where such liquid external prices are not available, valuations of these debt securities are implied using input parameters such as bond spreads and credit spreads, and are classified as Level 3. These input parameters are determined with reference to the same issuer (if available) or proxies from comparable issuers or assets

• Derivatives: Derivative products are classified as Level 2 if the valuation of the product is based upon input parameters which are observable from independent and reliable market data sources. Derivative products are classified as Level 3 if there are significant valuation input parameters which are unobservable in the market, such as products where the performance is linked to more than one underlying variable. Examples are foreign exchange basket options, equity options based on the performance of two or more underlying indices and interest rate products with quanto payouts. In most cases these unobservable correlation parameters cannot be implied from the market, and methods such as historical analysis and comparison with historical levels or other benchmark data must be employed

• Equity shares - private equity: The majority of private equity unlisted investments are valued based on earning multiples -Price-to-Earnings (P/E) or enterprise value to earnings before income tax, depreciation and amortisation (EV/EBITDA) ratios - of comparable listed companies. The two primary inputs for the valuation of these investments are the actual or forecast earnings of the investee companies and earning multiples for the comparable listed companies. To ensure comparability between these unquoted investments and the comparable listed companies, appropriate adjustments are also applied (for example, liquidity and size) in the valuation. In circumstances where an investment does not have direct comparables, or where the multiples for the comparable companies cannot be sourced from reliable external sources, alternative valuation techniques (for example, discounted cashflow models), which use predominantly unobservable inputs or Level 3 inputs, may be applied. Even though earning multiples for the comparable listed companies can be sourced from third-party sources (for example, Bloomberg), and those inputs can be deemed Level 2 inputs, all unlisted investments (excluding those where observable inputs are available, for example, over-the-counter (OTC) prices) are classified as Level 3 on the basis that the valuation methods involve judgements ranging from determining comparable companies to discount rates where the discounted cashflow method is applied

• Loans and advances: These primarily include loans in the FM Bond and Loan Syndication business which were not syndicated as of the balance sheet date and other financing transactions within Financial Markets, and loans and advances including reverse repurchase agreements that do not have SPPI cashflows or are managed on a fair value basis. These loans are generally bilateral in nature and, where available, their valuation is based on observable clean sales transactions prices or market observable spreads. If observable credit spreads are not available, proxy spreads based on comparable loans with similar credit grade, sector and region, are used. Where observable credit spreads and market standard proxy methods are available, these loans are classified as Level 2. Where there are no recent transactions or comparable loans, these loans are classified as Level 3

Page 60

 

Other debt securities: These debt securities include convertible bonds, corporate bonds, credit and structured notes. Where quoted prices are available through pricing vendors, brokers or observable trading activities from liquid markets, these are classified as Level 2 and valued using such quotes. Where there are significant valuation inputs which are unobservable in the market, due to illiquid trading or the complexity of the product, these are classified as Level 3. The valuations of these debt securities are implied using input parameters such as bond spreads and credit spreads. These input parameters are determined with reference to the same issuer (if available) or proxied from comparable issuers or assets.

• Financial instruments held at amortised cost

The following sets out the Group's basis for establishing fair values of amortised cost financial instruments and their classification between Levels 1, 2 and 3. As certain categories of financial instruments are not actively traded, there is a significant level of management judgement involved in calculating the fair values:

• Cash and balances at central banks: The fair value of cash and balances at central banks is their carrying amounts

• Debt securities in issue, subordinated liabilities and other borrowed funds: The aggregate fair values are calculated based on quoted market prices. For those notes where quoted market prices are not available, a discounted cashflow model is used based on a current market related yield curve appropriate for the remaining term to maturity

• Deposits and borrowings: The estimated fair value of deposits with no stated maturity is the amount repayable on demand. The estimated fair value of fixed interest-bearing deposits and other borrowings without quoted market prices is based on discounted cashflows using the prevailing market rates for debts with a similar Credit Risk and remaining maturity

• Investment securities: For investment securities that do not have directly observable market values, the Group utilises a number of valuation techniques to determine fair value. Where available, securities are valued using input proxies from the same or closely related underlying (for example, bond spreads from the same or closely related issuer) or input proxies from a different underlying (for example, a similar bond but using spreads for a particular sector and rating). Certain instruments cannot be proxies as set out above, and in such cases the positions are valued using non-market observable inputs. This includes those instruments held at amortised cost and predominantly relates to asset-backed securities. The fair value for such instruments is usually proxies from internal assessments of the underlying cashflows

• Loans and advances to banks and customers: For loans and advances to banks, the fair value of floating rate placements and overnight deposits is their carrying amounts. The estimated fair value of fixed interest-bearing deposits is based on discounted cashflows using the prevailing money market rates for debts with a similar Credit Risk and remaining maturity. The Group's loans and advances to customers' portfolio is well diversified by geography and industry. Approximately a quarter of the portfolio re-prices within one month, and approximately half re-prices within 12 months. Loans and advances are presented net of provisions for impairment. The fair value of loans and advances to customers with a residual maturity of less than one year generally approximates the carrying value. The estimated fair value of loans and advances with a residual maturity of more than one year represents the discounted amount of future cashflows expected to be received, including assumptions relating to prepayment rates and Credit Risk. Expected cash flows are discounted at current market rates to determine fair value. The Group has a wide range of individual instruments within its loans and advances portfolio and as a result providing quantification of the key assumptions used to value such instruments is impractical

• Other assets: Other assets comprise primarily of cash collateral and trades pending settlement. The carrying amount of these financial instruments is considered to be a reasonable approximation of fair value as they are either short-term in nature or re-price to current market rates frequently

 

Page 61

Fair value adjustments

When establishing the exit price of a financial instrument using a valuation technique, the Group considers adjustments to the modelled price which market participants would make when pricing that instrument. The main valuation adjustments (described further below) in determining fair value for financial assets and financial liabilities are as follows:

	01.01.21 $million	Movement during the year $million	31.12.21 $million		01.01.20 $million	Movement during the year $million	31.12.20 $million
Bid-offer valuation adjustment	103	(2)	101		79	24	103
Credit valuation adjustment	189	(24)	165		136	53	189
Debit valuation adjustment	(55)	(15)	(70)		(43)	(12)	(55)
Model valuation adjustment	5	-	5		7	(2)	5
Funding valuation adjustment	5	(5)	-		26	(21)	5
Other fair value adjustments	32	(12)	20		45	(13)	32
Total	279	(58)	221		250	29	279
Income deferrals
Day 1 and other deferrals	138	9	147		103	35	138
Total	138	9	147		103	35	138

Note: Bracket represents an asset and credit to the income statement

• Bid-offer valuation adjustment: Generally, market parameters are marked on a mid-market basis in the revaluation systems, and a bid-offer valuation adjustment is required to quantify the expected cost of neutralising the business' positions through dealing away in the market, thereby bringing long positions to bid and short positions to offer. The methodology to calculate the bid-offer adjustment for a derivative portfolio involves netting between long and short positions and the grouping of risk by strike and tenor based on the hedging strategy where long positions are marked to bid and short positions marked to offer in the systems

• Credit valuation adjustment (CVA): The Group accounts for CVA against the fair value of derivative products. CVA is an adjustment to the fair value of the transactions to reflect the possibility that our counterparties may default and we may not receive the full market value of the outstanding transactions. It represents an estimate of the adjustment a market participant would include when deriving a purchase price to acquire our exposures. CVA is calculated for each subsidiary, and within each entity for each counterparty to which the entity has exposure and takes account of any collateral we may hold. The Group calculates the CVA by using estimates of future positive exposure, market-implied probability of default (PD) and recovery rates. Where market-implied data is not readily available, we use market-based proxies to estimate the PD. Wrong-way risk occurs when the exposure to a counterparty is adversely correlated with the credit quality of that counterparty, and the Group has implemented a model to capture this impact for key wrong-way exposures. The Group also captures the uncertainties associated with wrong-way risk in the Group's Prudential Valuation Adjustments framework

• Debit valuation adjustment (DVA): The Group calculates DVA adjustments on its derivative liabilities to reflect changes in its own credit standing. The Group's DVA adjustments will increase if its credit standing worsens and conversely, decrease if its credit standing improves. For derivative liabilities, a DVA adjustment is determined by applying the Group's probability of default to the Group's negative expected exposure against the counterparty. The Group's probability of default and loss expected in the event of default is derived based on bond and credit default swap (CDS) spreads associated with the Group's issuances and market standard recovery levels. The expected exposure is modelled based on the simulation of the underlying risk factors over the expected life of the deal. This simulation methodology incorporates the collateral posted by the Group and the effects of master netting agreements

• Model valuation adjustment: Valuation models may have pricing deficiencies or limitations that require a valuation adjustment. These pricing deficiencies or limitations arise due to the choice, implementation and calibration of the pricing model

Page 62

 

Funding valuation adjustment (FVA): The Group makes FVA adjustment against derivative products. FVA reflects an estimate of the adjustment to its fair value that a market participant would make to incorporate funding costs or benefits that could arise in relation to the exposure. FVA is calculated by determining the net expected exposure at a counterparty level and then applying a funding rate to those exposures that reflect the market cost of funding. The FVA for uncollateralised (including partially collateralised) derivatives incorporates the estimated present value of the market funding cost or benefit associated with funding these transactions

• Other fair value adjustments: The Group calculates the fair value on the interest rate callable products by calibrating to a set of market prices with differing maturity, expiry and strike of the trades

• Day one and other deferrals: In certain circumstances the initial fair value is based on a valuation technique which differs to the transaction price at the time of initial recognition. However, these gains can only be recognised when the valuation technique used is based primarily on observable market data. In those cases where the initially recognised fair value is based on a valuation model that uses inputs which are not observable in the market, the difference between the transaction price and the valuation model is not recognised immediately in the income statement. The difference is amortised to the income statement until the inputs become observable, or the transaction matures or is terminated. Other deferrals primarily represent adjustments taken to reflect the specific terms and conditions of certain derivative contracts which affect the termination value at the measurement date

In addition, the Group calculates own credit adjustment (OCA) on its issued debt designated at fair value, including structured notes, in order to reflect changes in its own credit standing. Own issued note liabilities are discounted utilising spreads as at the measurement date. These spreads consist of a market level of funding component and an idiosyncratic own credit component. Under IFRS 9 the change in the OCA component is reported under other comprehensive income. The Group's OCA reserve will increase if its credit standing worsens and, conversely, decrease if its credit standing improves. The Group's OCA reserve will reverse over time as its liabilities mature. The OCA at 31 December 2021 is a gain of $3 million (31 December 2020: $43 million loss).

Fair value hierarchy - financial instruments held at fair value

Assets and liabilities carried at fair value, or for which fair values are disclosed, have been classified into three levels according to the observability of the significant inputs used to determine the fair values. Changes in the observability of significant valuation inputs during the reporting period may result in a transfer of assets and liabilities within the fair value hierarchy. The Group recognises transfers between levels of the fair value hierarchy when there is a significant change in either its principal market or the level of observability of the inputs to the valuation techniques at the end of the reporting period.

• Level 1: Fair value measurements are those derived from unadjusted quoted prices in active markets for identical assets or liabilities

• Level 2: Fair value measurements are those with quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in inactive markets and financial instruments valued using models where all significant inputs are observable

• Level 3: Fair value measurements are those where inputs which could have a significant effect on the instrument's valuation are not based on observable market data

Page 63

The following tables show the classification of financial instruments held at fair value into the valuation hierarchy:

Assets	Level 1 $million	Level 2 $million	Level 3 $million	Total $million
Financial instruments held at fair value through profit or loss
Loans and advances to banks	-	3,838	9	3,847
Loans and advances to customers	-	8,596	1,357	9,953
Reverse repurchase agreements and other similar secured lending	-	78,443	1,566	80,009
Debt securities and other eligible bills	12,057	17,019	349	29,425
Of which:
Issued by central banks & governments	10,731	7,201	-	17,932
Issued by corporates other than financial institutions1	1	3,750	111	3,862
Issued by financial institutions1	1,325	6,068	238	7,631
Equity shares	5,637	38	186	5,861
Derivative financial instruments	1,066	51,289	90	52,445
Of which:
Foreign exchange	161	41,577	10	41,748
Interest rate	9	6,314	53	6,376
Credit	-	2,265	24	2,289
Equity and stock index options	-	133	3	136
Commodity	896	1,000	-	1,896
Investment securities
Debt securities and other eligible bills	51,298	70,037	40	121,375
Of which:
Issued by central banks & governments	39,590	24,651	40	64,281
Issued by corporates other than financial institutions1	-	1,963	-	1,963
Issued by financial institutions1	11,708	43,423	-	55,131
Equity shares	227	17	493	737
Other assets	-	-	26	26
Total financial instruments at 31 December 2021²	70,285	229,277	4,116	303,678
Liabilities
Financial instruments held at fair value through profit or loss
Deposits by banks	-	1,069	283	1,352
Customer accounts	-	8,837	454	9,291
Repurchase agreements and other similar secured borrowing	-	62,388	-	62,388
Debt securities in issue	-	4,776	821	5,597
Short positions	4,187	2,375	-	6,562
Derivative financial instruments	949	52,356	94	53,399
Of which:
Foreign exchange	169	41,555	3	41,727
Interest rate	7	6,448	16	6,471
Credit	-	3,084	41	3,125
Equity and stock index options	-	126	34	160
Commodity	773	1,143	-	1,916
Other liabilities	-	6	1	7
Total financial instruments at 31 December 2021²	5,136	131,807	1,653	138,596

1   Includes covered bonds of $7,326 million, securities issued by Multilateral Development Banks/International Organisations of $12,109 million and State-owned agencies and development banks of $19,959 million

2   The above table does not include held for sale assets of $43 million and liabilities of $nil. These are reported in Note 21 together with their fair value hierarchy

There were no significant changes to valuation or levelling approaches in 2021.

There were no significant transfers of financial assets and liabilities measured at fair value between Level 1 and Level 2 during the year.

Page 64

Assets	Level 1 $million	Level 2 $million	Level 3 $million	Total $million
Financial instruments held at fair value through profit or loss
Loans and advances to banks	-	3,677	200	3,877
Loans and advances to customers	-	8,659	718	9,377
Reverse repurchase agreements and other similar secured lending	-	62,341	1,064	63,405
Debt securities and other eligible bills	9,453	15,889	258	25,600
Of which:
Issued by central banks & governments1	8,630	7,900	-	16,530
Issued by corporates other than financial institutions1,2	209	2,781	154	3,144
Issued by financial institutions1,2	614	5,208	104	5,926
Equity shares	3,657	592	279	4,528
Derivative financial instruments	473	68,986	8	69,467
Of which:
Foreign exchange	111	54,533	3	54,647
Interest rate	36	11,788	2	11,826
Credit	-	1,700	2	1,702
Equity and stock index options	-	109	1	110
Commodity	326	856	-	1,182
Investment securities
Debt securities and other eligible bills	68,280	65,061	40	133,381
Of which:
Issued by central banks & governments1	55,020	23,456	40	78,516
Issued by corporates other than financial institutions1,2	1,822	3,378	-	5,200
Issued by financial institutions1,2	11,438	38,227	-	49,665
Equity shares	68	5	381	454
Other assets	-	-	-	-
Total financial instruments at 31 December 2020³	81,931	225,210	2,948	310,089
Liabilities
Financial instruments held at fair value through profit or loss
Deposits by banks	-	1,103	146	1,249
Customer accounts	-	8,876	21	8,897
Repurchase agreements and other similar secured borrowing	-	48,662	-	48,662
Debt securities in issue	-	5,651	160	5,811
Short positions	2,573	1,181	-	3,754
Derivative financial instruments	413	71,001	119	71,533
Of which:
Foreign exchange	115	56,968	2	57,085
Interest rate	11	10,387	26	10,424
Credit	-	2,904	86	2,990
Equity and stock index options	-	255	5	260
Commodity	287	487	-	774
Other liabilities	-	-	-	-
Total financial instruments at 31 December 2020³	2,986	136,474	446	139,906

1   Represented to reflect correct classification of counterparty types. There has been no change to the levelling approach or between FVTPL and Investment securities categories due to the restatement

2   Includes covered bonds of $7,216 million, securities issued by Multilateral Development Banks/International Organisations of $11,454 million (represented from $10,870 million), and State-owned agencies and development banks of $13,950 million (represented from $15,606 million)

3   The above table does not include held for sale assets of $5 million and liabilities of $nil. These are reported in Note 21 together with their fair value hierarchy

Page 65

Fair value hierarchy - financial instruments measured at amortised cost

The following table shows the carrying amounts and incorporates the Group's estimate of fair values of those financial assets and liabilities not presented on the Group's balance sheet at fair value. These fair values may be different from the actual amount that will be received or paid on the settlement or maturity of the financial instrument. For certain instruments, the fair value may be determined using assumptions for which no observable prices are available.

	Carrying value $million	Fair value
		Level 1 $million	Level 2 $million	Level 3 $million	Total $million
Assets
Cash and balances at central banks¹	72,663	-	72,663	-	72,663
Loans and advances to banks	44,383	-	44,383	-	44,383
of which - reverse repurchase agreements and other similar secured lending	1,079	-	1,079	-	1,079
Loans and advances to customers	298,468	-	42,136	256,289	298,425
of which - reverse repurchase agreements and other similar secured lending	7,331	-	3,764	3,567	7,331
Investment securities²	41,325	-	41,864	-	41,864
Other assets¹	40,068	-	40,067	1	40,068
Assets held for sale	52	-	-	52	52
At 31 December 2021	496,959	-	241,113	256,342	497,455
Liabilities
Deposits by banks	30,041	-	30,041	-	30,041
Customer accounts	474,570	-	474,645	-	474,645
Repurchase agreements and other similar secured borrowing	3,260	-	3,260	-	3,260
Debt securities in issue	61,293	26,073	35,503	-	61,576
Subordinated liabilities and other borrowed funds	16,646	16,811	519	-	17,330
Other liabilities¹	43,432	-	43,431	1	43,432
At 31 December 2021	629,242	42,884	587,399	1	630,284

	Carrying value $million	Fair value
		Level 1 $million	Level 2 $million	Level 3 $million	Total $million
Assets
Cash and balances at central banks¹	66,712	-	66,712	-	66,712
Loans and advances to banks	44,347	-	44,275	4	44,279
of which - reverse repurchase agreements and other similar secured lending	1,247	-	1,265	-	1,265
Loans and advances to customers	281,699	-	29,145	251,991	281,136
of which - reverse repurchase agreements and other similar secured lending	2,919	-	2,922	-	2,922
Investment securities²	19,480	-	20,349	7	20,356
Other assets¹	40,978	-	40,978	-	40,978
Assets held for sale	83	-	25	58	83
At 31 December 2020	453,299	-	201,484	252,060	453,544
Liabilities
Deposits by banks	30,255	-	30,288	-	30,288
Customer accounts	439,339	-	439,407	-	439,407
Repurchase agreements and other similar secured borrowing	1,903	-	1,903	-	1,903
Debt securities in issue	55,550	25,638	30,441	-	56,079
Subordinated liabilities and other borrowed funds	16,654	16,993	607	-	17,600
Other liabilities¹	47,228	-	47,228	-	47,228
At 31 December 2020	590,929	42,631	549,874	-	592,505

1   The carrying amount of these financial instruments is considered to be a reasonable approximation of fair value as they are short-term in nature or reprice to current market rates frequently

2   Includes government bonds and Treasury bills of $17,153 million at 31 December 2021 and $ 7,371 million at 31 December 2020

Page 66

Loans and advances to customers by client segment1

	2021
	Carrying value				Fair value
	Stage 3 $million	Stage 1 and stage 2 $million	Total $million		Stage 3 $million	Stage 1 and stage 2 $million	Total $million
Corporate, Commercial & Institutional Banking	2,659	136,742	139,401		2,750	136,463	139,213
Consumer, Private & Business Banking	779	135,739	136,518		780	135,870	136,650
Central & other items	-	22,549	22,549		-	22,562	22,562
At 31 December 2021	3,438	295,030	298,468		3,530	294,895	298,425

	2020
	Carrying value				Fair value
	Stage 3 $million	Stage 1 and stage 2 $million	Total $million		Stage 3 $million	Stage 1 and stage 2 $million	Total $million
Corporate, Commercial & Institutional Banking²	3,042	130,415	133,457		3,109	129,961	133,070
Consumer, Private & Business Banking²	831	128,262	129,093		838	128,079	128,917
Central & other items	-	19,149	19,149		-	19,149	19,149
At 31 December 2020	3,873	277,826	281,699		3,947	277,189	281,136

1   Loans and advances include reverse repurchase agreements and other similar secured lending: carrying value $7,331 million and fair value $7,331 million (31 December 2020: $2,919 million and $2,922 million respectively)

2   Following the Group's change in organisational structure, there has been an integration of Corporate & Institutional Banking and Commercial Banking to Corporate, Commercial & Institutional Banking; Private Banking and Retail Banking to Consumer, Private & Business Banking. Further, certain clients have been moved between the two new client segments. Prior period has been restated

Page 67

Fair value of financial instruments

Level 3 summary and significant unobservable inputs

The following table presents the Group's primary Level 3 financial instruments which are held at fair value. The table also presents the valuation techniques used to measure the fair value of those financial instruments, the significant unobservable inputs, the range of values for those inputs and the weighted average of those inputs:

Instrument	Value as at 31 December 2021			Principal valuation technique	Significant unobservable inputs	Range1	Weighted average2
	Assets $million	Liabilities $million
Loans and advances to banks	9	-		Discounted cashflows	Recovery rates	87.3%-100%	93.6%
Loans and advances to customers	1,357	-		Discounted cashflows	Price/yield	0.2% - 11.8%	3.1%
					Recovery rates	10.6% - 100%	87.8%
Reverse repurchase agreements and other similar secured lending	1,566	-		Discounted cashflows	Repo curve	0.3%-3.0%	2.4%
Debt securities, alternative tier one and other eligible securities	349	-		Discounted cashflows	Price/yield	5.1% - 12.4%	7.5%
					Recovery rates	0.01% - 1.0%	0.2%
Government bonds and Treasury bills	40	-		Discounted cashflows	Price/yield	2.7% - 5.5%	3.7%
Asset-backed securities	-	-		Discounted cashflows	Price/yield	N/A	N/A
Equity shares (includes private equity investments)	679	-		Comparable pricing/yield	EV/EBITDA multiples	6.1x-15.3x	8.6x
					EV/Revenue multiples	10.1x	10.1x
					P/E multiples	12.6x-25.3x	14.9x
					P/B multiples	0.4x-3.3x	1.4x
					P/S multiples	1.8x-2.6x	1.8x
					Liquidity discount	7.9%-29.2%	16.5%
				Discounted cashflows	Discount rates	6.0%-17.4%	8.6%
				Option pricing model	EV/Revenue multiples	4.0x-85.5x	12.1x
					Volatility	55.0%-65.0%	60.3%
Other assets	26	-		NAV	N/A	N/A	N/A
Derivative financial instruments of which:
Foreign exchange	10	3		Option pricing model	Foreign exchange option implied volatility	3.1% - 6.1%	5.1%
				Discounted cashflows	Foreign exchange curves	(16.4)% - 57.3%	9.0%
Interest rate	53	16		Discounted cashflows	Interest rate curves	(16.4)%-18.8%	5.0%
				Option pricing model	Bond option implied volatility	N/A	N/A
Credit	24	41		Discounted cashflows	Credit spreads	0.1%-11.5%	1.0%
					Price/yield	5.9% -7.3%	6.6%
Equity and stock index	3	34		Internal pricing model	Equity correlation	8.0% - 96.0%	70.0%
					Equity-FX correlation	(70.0)%-85.0%	(33.0)%
Deposits by banks	-	283		Discounted cashflows	Credit spreads	0.4% - 3.0%	1.4%
					Price/yield	6.8%-8.3%	7.5%
Customer accounts	-	454		Discounted cashflows	Credit spreads	1.0% - 2.0%	1.2%
					Interest rate curves	0.9%-5.6%	4.7%
					Price/yield	8.9%-12.1%	10.1%
Debt securities in issue	-	821		Discounted cashflows	Credit spreads	0.9%-2.2%	1.0%
					Interest rate curves	0.9% - 5.6%	4.9%
				Internal pricing model	Equity correlation	8.0% - 96.0%	70.0%
					Equity-FX correlation	(70.0)%-85.0%	(33.0)%
Other liabilities	-	1		Comparable pricing/yield	EV/EBITDA multiples	3.07x-9.95x	6.84x
Total	4,116	1,653

1   The ranges of values shown in the above table represent the highest and lowest levels used in the valuation of the Group's Level 3 financial instruments at 31 December 2021. The ranges of values used are reflective of the underlying characteristics of these Level 3 financial instruments based on the market conditions at the balance sheet date. However, these ranges of values may not represent the uncertainty in fair value measurements of the Group's Level 3 financial instruments

2   Weighted average for non-derivative financial instruments has been calculated by weighting inputs by the relative fair value. Weighted average for derivatives has been provided by weighting inputs by the risk relevant to that variable. N/A has been entered for the cases where weighted average is not a meaningful indicator

Page 68

Level 3 summary and significant unobservable inputs continued

Instrument	Value as at 31 December 2020			Principal valuation technique	Significant unobservable inputs	Range1	Weighted average2
	Assets $million	Liabilities $million
Loans and advances to banks	200	-		Discounted cashflows	Price/yield	12.7%-12.9%	12.8%
Loans and advances to customers	718	-		Discounted cashflows	Price/yield	0.9% - 11.5%	4.6%
					Recovery rates	34.2% - 100%	83.4%
Reverse repurchase agreements and other similar secured lending	1,064	-		Discounted cashflows	Repo curve	1.0%-3.2%	2.8%
Debt securities, alternative tier one and other eligible securities	171	-		Discounted cashflows	Price/yield	4.7%-11.5%	10.5%
Government bonds and Treasury bills	40	-		Discounted cashflows	Price/yield	2.8% - 5.5%	3.6%
Asset-backed securities	87	-		Discounted cashflows	Price/yield	8.3%-12.0%	11.7%
					Recovery rates	55.0%	55.0%
Equity shares (includes private equity investments)	660	-		Comparable pricing/yield	EV/EBITDA multiples	3.3x - 14.2x	8.7x
					P/E multiples	N/A	N/A
					P/B multiples	0.5x - 2.0x	0.7x
					P/S multiples	N/A	N/A
					Liquidity discount	20.0%	20.0%
				Discounted cashflows	Discount rates	6.0% - 15.0%	9.1%
Other assets	-	-
Derivative financial instruments of which:
Foreign exchange	3	2		Option pricing model	Foreign exchange option implied volatility	N/A	N/A
				Discounted cashflows	Foreign exchange curves	2.7%-5.6%	4.1%
Interest rate	2	26		Discounted cashflows	Interest rate curves	(5.2)%-18.6%	10.0%
				Option pricing model	Bond option implied volatility	20.0%-30.0%	24.2%
Credit	2	86		Discounted cashflows	Credit spreads	2.0%	2.0%
Equity and stock index	1	5		Internal pricing model	Equity correlation	20.0% - 90.0%	49.0%
					Equity-FX correlation	(70.0)% - 80.0%	(59.0)%
Deposits by banks	-	146		Discounted cashflows	Credit spreads	1.0% - 1.4%	1.1%
					Bond option implied volatility	N/A	N/A
Customer accounts	-	21		Discounted cashflows	Credit spreads	1.0%	1.0%
					Interest rate curves	(0.4)% - 7.7%	3.9%
					Recovery rates	55.0%	55.0%
Debt securities in issue	-	160		Discounted cashflows	Credit spreads	0.1% - 11.5%	2.3%
				Internal pricing model	Equity correlation	20.0% - 90.0%	49.0%
					Equity-FX correlation	(70.0)% - 80.0%	(59.0)%
Other liabilities	-	-
Total	2,948	446

1   The ranges of values shown in the above table represent the highest and lowest levels used in the valuation of the Group's Level 3 financial instruments at 31 December 2020. The ranges of values used are reflective of the underlying characteristics of these Level 3 financial instruments based on the market conditions at the balance sheet date. However, these ranges of values may not represent the uncertainty in fair value measurements of the Group's Level 3 financial instruments

2   Weighted average for non-derivative financial instruments has been calculated by weighting inputs by the relative fair value. Weighted average for derivatives has been provided by weighting inputs by the risk relevant to that variable. N/A has been entered for the cases where weighted average is not a meaningful indicator

Page 69

 

The following section describes the significant unobservable inputs identified in the valuation technique table:

• Comparable price/yield is a valuation methodology in which the price of a comparable instrument is used to estimate the fair value where there are no direct observable prices. Yield is the interest rate that is used to discount the future cashflows in a discounted cashflow model. Valuation using comparable instruments can be done by calculating an implied yield (or spread over a liquid benchmark) from the price of a comparable instrument, then adjusting that yield (or spread) to derive a value for the instrument. The adjustment should account for relevant differences in the financial instruments such as maturity and/or credit quality. Alternatively, a price-to-price basis can be assumed between the comparable instrument and the instrument being valued in order to establish the value of the instrument (for example, deriving a fair value for a junior unsecured bond from the price of a senior secured bond). An increase in price, in isolation, would result in a favourable movement in the fair value of the asset. An increase in yield, in isolation, would result in an unfavourable movement in the fair value of the asset

• Correlation is the measure of how movement in one variable influences the movement in another variable. An equity correlation is the correlation between two equity instruments, while an interest rate correlation refers to the correlation between two swap rates

• Credit spread represents the additional yield that a market participant would demand for taking exposure to the Credit Risk of an instrument

• Discount rate refers to the rate of return used to convert expected cash flows into present value

• Equity-FX correlation is the correlation between equity instrument and foreign exchange instrument

• EV/EBITDA multiple is the ratio of Enterprise Value (EV) to Earnings Before Interest, Taxes, Depreciation and Amortisation (EBITDA). EV is the aggregate market capitalisation and debt minus the cash and cash equivalents. An increase in EV/EBITDA multiple will result in a favourable movement in the fair value of the unlisted firm

• EV/Revenue multiple is the ratio of Enterprise Value (EV) to Revenue. An increase in EV/Revenue multiple will result in a favourable movement in the fair value of the unlisted firm

• Foreign exchange curves is the term structure for forward rates and swap rates between currency pairs over a specified period

• Net asset value (NAV) is the value of an entity's assets after deducting any liabilities

• Interest rate curves is the term structure of interest rates and measure of future interest rates at a particular point in time

• Liquidity discounts in the valuation of unlisted investments primarily applied to the valuation of unlisted firms' investments to reflect the fact that these stocks are not actively traded. An increase in liquidity discount will result in unfavourable movement in the fair value of the unlisted firm

• Price-Earnings (P/E) multiple is the ratio of the market value of the equity to the net income after tax. An increase in P/E multiple will result in a favourable movement in the fair value of the unlisted firm

• Price-Book (P/B) multiple is the ratio of the market value of equity to the book value of equity. An increase in P/B multiple will result in a favourable movement in the fair value of the unlisted firm

• Price-Sales (P/S) multiple is the ratio of the market value of equity to sales. An increase in P/S multiple will result in a favourable movement in the fair value of the unlisted firm

• Recovery rates are the expectation of the rate of return resulting from the liquidation of a particular loan. As the probability of default increases for a given instrument, the valuation of that instrument will increasingly reflect its expected recovery level assuming default. An increase in the recovery rate, in isolation, would result in a favourable movement in the fair value of the loan

• Repo curve is the term structure of repo rates on repos and reverse repos at a particular point in time

• Volatility represents an estimate of how much a particular instrument, parameter or index will change in value over time. Generally, the higher the volatility, the more expensive the option will be

Page 70

Level 3 movement tables - financial assets

The table below analyses movements in Level 3 financial assets carried at fair value.

Assets	2021
	Held at fair value through profit or loss						Derivative financial instruments $million	Investment securities		Total $million
	Loans and advances to banks $million	Loans and advances to customers $million	Reverse repurchase agreements and other similar secured lending $million	Debt securities, alternative tier one and other eligible bills $million	Equity shares $million	Other assets $million		Debt securities, alternative tier one and other eligible bills $million	Equity  shares $million
At 1 January 2021	200	718	1,064	258	279	-	8	40	381	2,948
Total gains/(losses) recognised in income statement	1	(97)	2	(24)	(30)	-	34	-	-	(114)
Net trading income	1	(97)	2	(23)	(30)	-	34	-	-	(113)
Other operating income	-	-	-	(1)	-	-	-	-	-	(1)
Total gains recognised in other comprehensive income (OCI)	-	-	-	-	-	-	-	3	61	64
Fair value through OCI reserve	-	-	-	-	-	-	-	6	63	69
Exchange difference	-	-	-	-	-	-	-	(3)	(2)	(5)
Purchases	9	1,281	4,973	387	7	-	91	-	123	6,871
Issues
Sales	-	(687)	(4,392)	(226)	(55)	-	(32)	-	(9)	(5,401)
Settlements	(201)	(302)	(81)	(70)	-	-	(5)	(13)	-	(672)
Transfers out1	-	(60)	-	-	(15)	-	(11)	-	(63)	(149)
Transfers in2	-	504	-	24	-	26	5	10	-	569
At 31 December 2021	9	1,357	1,566	349	186	26	90	40	493	4,116
Total unrealised gains/(losses) recognised in the income statement, within net trading income, relating to change in fair value of assets held at 31 December 2021	-	-	-	8	(15)	-	19	-	-	12

1   Transfers out include loans and advances, derivative financial instruments and equity shares where the valuation parameters became observable during the period and were transferred to Level 1 and Level 2

2   Transfers in primarily relate to loans and advances, debt securities, alternative tier one and other eligible bills, derivative financial instruments and other assets where the valuation parameters become unobservable during the year

Page 71

The table below analyses movements in Level 3 financial assets carried at fair value.

Assets	2020
	Held at fair value through profit or loss						Derivative financial instruments $million	Investment securities		Total $million
	Loans and advances to banks $million	Loans and advances to customers $million	Reverse repurchase agreements and other similar secured lending $million	Debt securities, alternative tier one and other eligible bills $million	Equity shares $million	Other assets $million		Debt securities, alternative tier one and other eligible bills $million	Equity shares $million
At 1 January 2020	365	443	-	200	228	-	17	38	257	1,548
Total gains/(losses) recognised in income statement	16	(15)	1	(20)	(54)	-	(6)	-	-	(78)
Net trading income	16	(15)	1	(18)	(54)	-	(6)	-	-	(76)
Other operating income	-	-	-	(2)	-	-	-	-	-	(2)
Total gains recognised in other comprehensive income (OCI)	-	-	-	-	-	-	-	6	22	28
Fair value through OCI reserve	-	-	-	-	-	-	-	7	19	26
Exchange difference	-	-	-	-	-	-	-	(1)	3	2
Purchases	321	540	1,165	203	7	-	115	36	109	2,496
Issues
Sales	(164)	(28)	(102)	(237)	(37)	-	(70)	-	(4)	(642)
Settlements	(416)	(567)	-	(68)	-	-	(7)	-	-	(1,058)
Transfers out1	-	(174)	-	(37)	(1)	-	(41)	(40)	(3)	(296)
Transfers in2	78	519	-	217	136	-	-	-	-	950
At 31 December 2020	200	718	1,064	258	279	-	8	40	381	2,948
Total unrealised (losses)/ gains recognised in the income statement, within net trading income, relating to change in fair value of assets held at 31 December 2020	-	(6)	-	4	(3)	-	-	-	-	(5)

1   Transfers out include loans and advances, derivative financial instruments, debt securities, alternative tier one and other eligible bills and equity shares where the valuation parameters became observable during the year and were transferred to Level 1 and Level 2. Transfers in of $62 million further relates to equity shares moved from held for sale

2   Transfers in primarily relate to loans and advances, debt securities, alternative tier one and other eligible bills, and equity shares where the valuation parameters become unobservable during the year

Page 72

Level 3 movement tables - financial liabilities

	2021
	Deposits by banks $million	Customer accounts $million	Debt securities in issue $million	Derivative financial instruments $million	Other Liabilities $million	Total $million
At 1 January 2021	146	21	160	119	-	446
Total losses/(gains) recognised in income statement - net trading income	8	(5)	(12)	(23)	-	(32)
Issues	269	803	1,615	166	-	2,853
Settlements	(145)	(365)	(986)	(181)	-	(1,677)
Transfers out1	-	-	(48)	(6)	-	(54)
Transfers in2	5	-	92	19	1	117
At 31 December 2021	283	454	821	94	1	1,653
Total unrealised (gains) recognised in the income statement, within net trading income, relating to change in fair value of liabilities held at 31 December 2021	-	-	-	(14)	-	(14)

	2020
	Deposits by banks $million	Customer Accounts $million	Debt securities in issue $million	Derivative financial instruments $million	Other Liabilities $million	Total $million
At 1 January 2020	56	40	410	57	-	563
Total losses/(gains) recognised in income statement - net trading income	7	(1)	(10)	12	-	8
Issues	136	90	557	201	-	984
Settlements	(53)	(116)	(575)	(118)	-	(862)
Transfers out1	-	-	(223)	(53)	-	(276)
Transfers in2	-	8	1	20	-	29
At 31 December 2020	146	21	160	119	-	446
Total unrealised losses recognised in the income statement, within net trading income, relating to change in fair value of liabilities held at 31 December 2020	-	1	-	1	-	2

1   Transfers out during the year primarily relate to debt securities in issue and derivative financial instruments where the valuation parameters became observable during the year and were transferred to Level 2 financial liabilities

2   Transfers in during the year primarily relate to derivative financial instruments, bank deposits and debt securities in issue where the valuation parameters become unobservable during the year

Page 73

Sensitivities in respect of the fair values of Level 3 assets and liabilities

Sensitivity analysis is performed on products with significant unobservable inputs. The Group applies a 10 per cent increase or decrease on the values of these unobservable inputs, to generate a range of reasonably possible alternative valuations. The percentage shift is determined by statistical analysis performed on a set of reference prices based on the composition of the Group's Level 3 inventory as the measurement date. Favourable and unfavourable changes (which show the balance adjusted for input change) are determined on the basis of changes in the value of the instrument as a result of varying the levels of the unobservable parameters. The Level 3 sensitivity analysis assumes a one-way market move and does not consider offsets
for hedges.

	Held at fair value through profit or loss				Fair value through other comprehensive income
	Net exposure $million	Favourable changes $million	Unfavourable changes $million		Net exposure $million	Favourable changes $million	Unfavourable changes $million
Financial instruments held at fair value
Loans and advances	1,366	1,398	1,328		-	-	-
Reverse repurchase agreements and other similar secured lending	1,566	1,579	1,550		-	-	-
Asset-backed securities	-	-	-		-	-	-
Debt securities, alternative tier one and other eligible bills	349	366	332		40	41	38
Equity shares	186	205	168		493	541	442
Other assets	26	29	24		-	-	-
Derivative financial instruments	(4)	10	(16)		-	-	-
Customer accounts	(454)	(447)	(461)		-	-	-
Deposits by banks	(283)	(278)	(287)		-	-	-
Debt securities in issue	(821)	(764)	(879)		-	-	-
Other liabilities	(1)	(1)	(1)		-	-	-
At 31 December 2021	1,930	2,097	1,758		533	582	480
Financial instruments held at fair value
Loans and advances	918	947	867		-	-	-
Reverse repurchase agreements and other similar secured lending	1,064	1,089	1,040		-	-	-
Asset-backed securities	87	94	80		-	-	-
Debt securities, alternative tier one and other eligible bills	171	183	159		40	40	39
Equity shares	279	307	251		381	418	345
Other assets	-	-	-		-	-	-
Derivative financial instruments	(111)	(98)	(126)		-	-	-
Customer accounts	(21)	(18)	(24)		-	-	-
Deposits by banks	(146)	(146)	(146)		-	-	-
Debt securities in issue	(160)	(154)	(167)		-	-	-
Other liabilities	-	-	-		-	-	-
At 31 December 2020	2,081	2,204	1,934		421	458	384

The reasonably possible alternatives could have increased or decreased the fair values of financial instruments held at fair value through profit or loss and those classified as fair value through other comprehensive income by the amounts disclosed below.

Financial instruments	Fair value changes	31.12.21 $million	31.12.20 $million
Held at fair value through profit or loss	Possible increase	167	123
	Possible decrease	(172)	(147)
Fair value through other comprehensive income	Possible increase	49	37
	Possible decrease	(53)	(37)

Page 74

14. Derivative financial instruments

Accounting policy

Derivatives are financial instruments that derive their value in response to changes in interest rates, financial instrument prices, commodity prices, foreign exchange rates, Credit Risk and indices. Derivatives are categorised as trading unless they are designated as hedging instruments.

Derivatives are initially recognised and subsequently measured at fair value, with revaluation gains recognised in profit or loss (except where cashflow or net investment hedging has been achieved, in which case the effective portion of changes in fair value is recognised within other comprehensive income).

Fair values may be obtained from quoted market prices in active markets, recent market transactions, and valuation techniques, including discounted cashflow models and option pricing models, as appropriate. Where the initially recognised fair value of a derivative contract is based on a valuation model that uses inputs which are not observable in the market, it follows the same initial recognition accounting policy as for other financial assets and liabilities. All derivatives are carried as assets when fair value is positive and as liabilities when fair value is negative.

Hedge accounting

Under certain conditions, the Group may designate a recognised asset or liability, a firm commitment, highly probable forecast transaction or net investment of a foreign operation into a formal hedge accounting relationship with a derivative that has been entered to manage interest rate and/or foreign exchange risks present in the hedged item. The Group applies the 'Phase 1' hedge accounting requirements of IAS 39 Financial Instruments: Recognition and Measurement and the 'Phase 2' amendments to IFRS in respect of interest rate benchmark reform. There are three categories of hedge relationships:

• Fair value hedge: to manage the fair value of interest rate and/or foreign currency risks of recognised assets or liabilities or firm commitments

• Cashflow hedge: to manage interest rate or foreign exchange risk of highly probable future cashflows attributable to a recognised asset or liability, or a forecasted transaction

• Net investment hedge: to manage the structural foreign exchange risk of an investment in a foreign operation.

The Group formally documents at the inception of the transaction the relationship between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking hedge transactions. This is described in more detail in the categories of hedges below.

The Group assesses, both at hedge inception and on a quarterly basis, whether the derivatives designated in hedge relationships are highly effective in offsetting changes in fair values or cashflows of hedged items. Hedges are considered to be highly effective if all the following criteria are met:

• At inception of the hedge and throughout its life, the hedge is prospectively expected to be highly effective in achieving offsetting changes in fair value or cash flows attributable to the hedged risk

• Actual results of the hedge are within a range of 80-125%. This is tested using regression analysis

• The regression co-efficient (R squared), which measures the correlation between the variables in the regression, is at least 80%

• In the case of the hedge of a forecast transaction, the transaction must have a high probability of occurring and must present an exposure to variations in cashflows that are expected to affect reported profit or loss. The Group assumes that any interest rate benchmarks on which hedged item cashflows are based are not altered by IBOR reform.

The Group discontinues hedge accounting in any of the following circumstances:

• The hedging instrument is not, or has ceased to be, highly effective as a hedge

• The hedging instrument has expired, is sold, terminated, or exercised

• The hedged item matures, is sold, or repaid

• The forecast transaction is no longer deemed highly probable

• The Group elects to discontinue hedge accounting voluntarily

 

Page 75

For interest rate benchmarks deemed in scope of IBOR reform, if the actual result of a hedge is outside the 80-125% range, but the hedge passes the prospective assessment, then the Group will not de-designate the hedge relationship.

Under the Phase 2 Interest Rate Benchmark Reform amendments to IFRS 9 and IAS 39, the Group may change hedge designations and corresponding documentation without the hedge being discontinued where there is a change in interest rate benchmark of the hedged item, hedging instrument or designated hedged risk. Permitted changes include the right to:

• Redefine the description of the hedged item and/or hedging instrument

• Redefine the hedged risk to reference an alternative risk-free rate

• Change the method for assessing hedge effectiveness due to modifications required by IBOR reform

• Elect, on a hedge-by-hedge basis, to reset the cumulative fair value changes in the assessment of retrospective hedge effectiveness to zero

A hedge designation may be modified more than once, each time a relationship is affected as a direct result of IBOR reform.

Fair value hedge

Changes in the fair value of derivatives that are designated and qualify as fair value hedging instruments are recorded in net trading income, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk. If the hedge no longer meets the criteria for hedge accounting, the adjustment to the carrying amount of a hedged item for which the effective interest method is used is amortised to the income statement over the remaining term to maturity of the hedged item. If the hedged item is sold or repaid, the unamortised fair value adjustment is recognised immediately in the income statement. For financial assets classified as fair value through other comprehensive income, the hedge accounting adjustment attributable to the hedged risk is included in net trading income to match the hedging derivative.

Cashflow hedge

The effective portion of changes in the fair value of derivatives that are designated and qualify as cashflow hedging instruments are initially recognised in other comprehensive income, accumulating in the cashflow hedge reserve within equity. These amounts are subsequently recycled to the income statement in the periods when the hedged item affects profit or loss. Both the derivative fair value movement and any recycled amount are recorded in the 'Cashflow hedges' line item in other comprehensive income.

The Group assesses hedge effectiveness using the hypothetical derivative method, which creates a derivative instrument to serve as a proxy for the hedged transaction. The terms of the hypothetical derivative match the critical terms of the hedged item and it has a fair value of zero at inception. The hypothetical derivative and the actual derivative are regressed to establish the statistical significance of the hedge relationship. Any ineffective portion of the gain or loss on the hedging instrument is recognised in the net trading income immediately.

If a cash flow hedge is discontinued, the amount accumulated in the cashflow hedge reserve is released to the income statement as and when the hedged item affects the income statement.

For interest rate benchmarks deemed in scope of IBOR reform, the Group will retain the cumulative gain or loss in the cashflow hedge reserve for designated cashflow hedges even though there is uncertainty arising from these reforms with respect to the timing and amount of the cashflows of the hedged items. Should the Group consider the hedged future cashflows are no longer expected to occur due to reasons other than IBOR reform, the cumulative gain or loss will be immediately reclassified to profit or loss.

Page 76

Net investment hedge

Hedges of net investments are accounted for in a similar manner to cashflow hedges, with gains and losses arising on the effective portion of the hedges recorded in the line 'Exchange differences on translation of foreign operations' in other comprehensive income, accumulating in the translation reserve within equity. These amounts remain in equity until the net investment is disposed of. The ineffective portion of the hedges is recognised in the net trading income immediately.

The tables below analyse the notional principal amounts and the positive and negative fair values of derivative financial instruments. Notional principal amounts are the amounts of principal underlying the contract at the reporting date.

Derivatives	2021				2020
	Notional principal amounts $million	Assets $million	Liabilities $million		Notional principal amounts $million	Assets $million	Liabilities $million
Foreign exchange derivative contracts:
Forward foreign exchange contracts	3,750,151	30,256	30,068		3,018,866	37,505	39,181
Currency swaps and options	1,412,055	11,492	11,659		1,423,520	17,142	17,904
	5,162,206	41,748	41,727		4,442,386	54,647	57,085
Interest rate derivative contracts:
Swaps	3,609,625	31,490	31,078		3,165,532	52,755	50,982
Forward rate agreements and options	127,287	1,328	1,859		606,357	1,350	1,770
Exchange traded futures and options	295,192	156	132		261,372	233	184
	4,032,104	32,974	33,069		4,033,261	54,338	52,936
Credit derivative contracts	184,953	2,289	3,125		140,437	1,702	2,990
Equity and stock index options	8,714	136	160		6,018	110	260
Commodity derivative contracts	113,807	1,896	1,916		67,664	1,182	774
Gross total derivatives	9,501,784	79,043	79,997		8,689,766	111,979	114,045
Offset	-	(26,598)	(26,598)		-	(42,512)	(42,512)
Net total derivatives	9,501,784	52,445	53,399		8,689,766	69,467	71,533

The Group limits exposure to credit losses in the event of default by entering into master netting agreements with certain market counterparties. As required by IAS 32, exposures are only presented net in these accounts where they are subject to legal right of offset and intended to be settled net in the ordinary course of business.

The Group applies balance sheet offsetting only in the instance where we are able to demonstrate legal enforceability of the right to offset (e.g. via legal opinion) and the ability and intention to settle on a net basis (e.g. via operational practice).

The Group may enter into economic hedges that do not qualify for IAS 39 hedge accounting treatment, including derivatives such as interest rate swaps, interest rate futures and cross-currency swaps to manage interest rate and currency risks of the Group. These derivatives are measured at fair value, with fair value changes recognised in net trading income: refer to Market Risk.

The Derivatives and Hedging sections of the Risk review and Capital review explain the Group's risk management of derivative contracts and application of hedging.

Derivatives held for hedging

The Group enters into derivative contracts for the purpose of hedging interest rate, currency and structural foreign exchange risks inherent in assets, liabilities and forecast transactions. The table below summarises the notional principal amounts and carrying values of derivatives designated in hedge accounting relationships at the reporting date.

Page 77

Included in the table above are derivatives held for hedging purposes as follows:

	2021				2020
	Notional principal amounts $million	Assets $million	Liabilities $million		Notional principal amounts $million	Assets $million	Liabilities $million
Derivatives designated as fair value hedges:
Interest rate swaps	78,666	957	338		70,846	1,500	712
Currency swaps	2,262	43	151		4,136	25	179
	80,928	1,000	489		74,982	1,525	891
Derivatives designated as cash flow hedges:
Interest rate swaps	10,381	60	74		9,347	83	129
Forward foreign exchange contracts	72	2	-		164	21	-
Currency swaps	12,214	293	51		9,935	12	340
	22,667	355	125		19,446	116	469
Derivatives designated as net investment hedges:
Forward foreign exchange contracts	13,198	88	79		5,376	-	383
Total derivatives held for hedging	116,793	1,443	693		99,804	1,641	1,743

Fair value hedges

The Group issues various long-term fixed-rate debt issuances that are measured at amortised cost, including some denominated in foreign currency, such as unsecured senior and subordinated debt (see Notes 22 and 27). The Group also holds various fixed-rate debt securities such as government and corporate bonds, including some denominated in foreign currency (see Note 13). These assets and liabilities held are exposed to changes in fair value due to movements in market interest and foreign currency rates.

The Group uses interest rate swaps to exchange fixed rates for floating rates on funding to match floating rates received on assets, or exchange fixed rates on assets to match floating rates paid on funding. The Group further uses cross-currency swaps to match the currency of the issued debt or held asset with that of the entity's functional currency.

Hedge ineffectiveness from fair value hedges is driven by cross currency basis risk. The amortisation of fair value hedge adjustments for hedged items no longer designated is recognised in net trading income. In future periods, hedge relationships linked to an interest rate benchmark deemed in scope of benchmark reform may experience ineffectiveness due to market participants' expectations for when the change from the existing IBOR benchmark to an alternative risk-free rate will occur, since the transition may occur at different times for the hedged item and hedging instrument.

At 31 December 2021 the Group held the following interest rate and cross-currency swaps as hedging instruments in fair value hedges of interest and currency risk.

Hedging instruments and ineffectiveness

Interest rate1	2021
	Notional $million	Carrying amount		Change in fair value used to calculate hedge ineffectiveness $million	Ineffectiveness recognised in profit or loss $million
		Asset $million	Liability $million
Interest rate swaps - issued notes	35,310	575	212	(891)	(9)
Interest rate swaps - loans and advances	2,079	19	13	13	-
Interest rate swaps - debt securities and other eligible bills	41,277	363	113	717	(1)
Interest and currency risk1
Cross-currency swaps - subordinated notes issued	1,469	-	150	(139)	6
Cross-currency swaps - debt securities and other eligible bills	793	43	1	50	-
Total at 31 December 2021	80,928	1,000	489	(250)	(4)

Page 78

Interest rate1	2020
	Notional $million	Carrying amount		Change in fair value used to calculate hedge ineffectiveness $million	Ineffectiveness recognised in profit or loss $million
		Asset $million	Liability $million
Interest rate swaps - issued notes	29,598	1,475	14	858	17
Interest rate swaps - loans and advances	2,535	2	38	(27)	-
Interest rate swaps - debt securities and other eligible bills	38,713	23	660	(934)	3
Interest and currency risk1
Cross-currency swaps - subordinated notes issued	3,329	17	146	267	5
Cross-currency swaps - debt securities and other eligible bills	807	8	33	(70)	(2)
Total at 31 December 2020	74,982	1,525	891	94	23

1  Interest rate swaps are designated in hedges of the fair value of interest rate risk attributable to the hedged item. Cross-currency swaps are used to hedge both interest rate and currency risks. All the hedging instruments are derivatives, with changes in fair value including hedge ineffectiveness recorded within net trading income

Hedged items in fair value hedges

	2021
	Carrying amount			Accumulated amount of fair value hedge adjustments included in the carrying amount		Change in the value used for calculating hedge ineffectiveness $million	Cumulative balance of fair value adjustments from de-designated hedge relationships¹ $million
	Asset $million	Liability $million		Asset $million	Liability $million
Issued notes	-	35,206		-	31	1,029	862
Debt securities and other eligible bills	41,637	-		(363)	-	(769)	(19)
Loans and advances to customers	2,072	-		(7)	-	(14)	(1)
Total at 31 December 2021	43,709	35,206		(370)	31	246	842

	2020
	Carrying Amount			Accumulated amount of fair value hedge adjustments included in the carrying amount		Change in fair value used for calculating hedge ineffectiveness $million	Cumulative balance of fair value adjustments from de-designated hedge relationships¹ $million
	Asset $million	Liability $million		Asset $million	Liability $million
Issued notes	-	33,737		-	1,096	(1,103)	856
Debt securities and other eligible bills	40,663	-		577	-	1,005	(92)
Loans and advances to customers	2,561	-		32	-	27	-
Total at 31 December 2020	43,224	33,737		609	1,096	(71)	764

1   This represents a credit/(debit) to the balance sheet value

Income statement impact of fair value hedges

	2021 $million Income/(expense)	2020 $million Income/(expense)
Change in fair value of hedging instruments	(250)	94
Change in fair value of hedged risks attributable to hedged items	246	(71)
Net ineffectiveness (loss)/gain to net trading income	(4)	23
Amortisation gain/(loss) to net interest income	31	(31)

Cashflow hedges

The Group has exposure to market movements in future interest cashflows on portfolios of customer accounts, debt securities and loans and advances to customers. The amounts and timing of future cashflows, representing both principal and interest flows, are projected on the basis of contractual terms and other relevant factors, including estimates of prepayments and defaults.

 

Page 79

The hedging strategy of the Group involves using interest rate swaps to manage the variability in future cashflows on assets and liabilities that have floating rates of interest by exchanging the floating rates for fixed rates. It also uses foreign exchange contracts and currency swaps to manage the variability in future exchange rates on its assets and liabilities and costs in foreign currencies. This is done on both a micro basis, whereby a single interest rate or cross-currency swap is designated in a separate relationship with a single hedged item (such as a floating rate loan to a customer), and on a portfolio basis, whereby each hedging instrument is designated against a group of hedged items that share the same risk (such as a group of customer accounts).

The hedged risk is determined as the variability of future cashflows arising from changes in the designated benchmark interest rate.

Hedging instruments and ineffectiveness

	2021
	Notional $million	Carrying amount		Change in fair value used to calculate hedge ineffectiveness $million	Gain recognised in OCI $million	Ineffectiveness gain/(loss) recognised in net trading income $million	Amount reclassified from reserves to income $million
		Asset $million	Liability $million
Interest rate risk
Interest rate swaps	10,381	60	74	77	77	-	-
Currency risk
Forward foreign exchange contract	72	2	-	2	2	-	-
Cross-currency swaps	12,214	293	51	297	297	-	-
Total as at 31 December 2021	22,667	355	125	376	376	-	-

	2020
	Notional $million	Carrying amount		Change in fair value used to calculate hedge ineffectiveness $million	(Loss)/gain recognised in OCI $million	Ineffectiveness gain/(loss) recognised in net trading income $million	Amount reclassified from reserves to income $million
		Asset $million	Liability $million
Interest rate risk
Interest rate swaps	9,347	83	129	(45)	(45)	-	-
Currency risk
Forward foreign exchange contract	164	21	-	14	14	-	-
Cross-currency swaps	9,935	12	340	(261)	(261)	-	-
Total as at 31 December 2020	19,446	116	469	(292)	(292)	-	-

Hedged items in cashflow hedges

	2021
	Change in fair value used for calculating hedge ineffectiveness $million	Cashflow hedge reserve $million	Cumulative balance in the cash flow hedge reserve from de-designated hedge relationships $million
Customer accounts	(95)	(10)	(4)
Debt securities and other eligible bills	(231)	-	-
Loans and advances to customers	23	(8)	1
Forecast cashflow currency hedge	-	-	-
Intragroup lending currency hedge	(73)	1	-
Intragroup borrowing currency hedge	-	-	-
Total at 31 December 2021	(376)	(17)	(3)

Page 80

	2020
	Change in fair value used for calculating hedge ineffectiveness $million	Cashflow hedge reserve $million	Cumulative balance in the cash flow hedge reserve from de-designated hedge relationships $million
Customer accounts	105	(110)	(8)
Debt securities and other eligible bills	92	16	-
Loans and advances to customers	(45)	34	1
Forecast cashflow currency hedge	(14)	21	-
Intragroup lending currency hedge	169	5	-
Intragroup borrowing currency hedge	(15)	2	-
Total at 31 December 2020	292	(32)	(7)

Impact of cashflow hedges on profit and loss and other comprehensive income

	2021 Income/(expense) $million	2020 Income/(expense) $million
Cashflow hedge reserve balance as at 1 January	(52)	(59)
Loss recognised in other comprehensive income on effective portion of changes in fair value of hedging instruments	(1)	(25)
Gain reclassified to income statement when hedged item affected net profit	21	17
Taxation (charge)/credit relating to cashflow hedges	(2)	15
Cashflow hedge reserve balance at 31 December	(34)	(52)

Net investment hedges

Foreign currency exposures arise from investments in subsidiaries that have a different functional currency from that of the presentation currency of the Group. This risk arises from the fluctuation in spot exchange rates between the functional currency of the subsidiaries and the Group's presentation currency, which causes the value of the investment to vary.

The Group's policy is to hedge these exposures only when not doing so would be expected to have a significant impact on the regulatory ratios of the Group and its banking subsidiaries. The Group uses foreign exchange forwards to manage the effect of exchange rates on its net investments in foreign subsidiaries.

Hedging instruments and ineffectiveness

	2021
	Notional $million	Carrying amount		Change in fair value used to calculate hedge ineffectiveness $million	Changes in the value of the hedging instrument recognised in OCI $million	Ineffectiveness recognised in profit or loss $million	Amount reclassified from reserves to income $million
		Asset $million	Liability $million
Derivative forward currency contracts¹	13,198	88	79	116	116	-	-

	2020
	Notional $million	Carrying amount		Change in fair value used to calculate hedge ineffectiveness $million	Changes in the value of the hedging instrument recognised in OCI $million	Ineffectiveness recognised in profit or loss $million	Amount reclassified from reserves to income $million
		Asset $million	Liability $million
Derivative forward currency contracts¹	5,376	-	383	(286)	(286)	-	-

1   These derivative forward currency contracts have a maturity of less than one year. The hedges are rolled on a periodic basis

Hedged items in net investment hedges

	2021
	Change in the value used for calculating hedge ineffectiveness $million	Translation reserve $million	Balances remaining in the translation reserve from hedging relationships for which hedge accounting is no longer applied $million
Net investments	(116)	9	-

Page 81

	2020
	Change in the value used for calculating hedge ineffectiveness $million	Translation reserve $million	Balances remaining in the translation reserve from hedging relationships for which hedge accounting is no longer applied $million
Net investments	286	(383)	-

Impact of net investment hedges on other comprehensive income

	2021 Income/(expense) $million	2020 Income/(expense) $million
Gains/(losses) recognised in other comprehensive income	118	(287)

Maturity of hedging instruments

Fair value hedges		2021
		Less than one month	More than one month and less than one year	One to five years	More than five years
Interest rate swap
Notional	$million	3,186	7,175	49,386	18,919
Average fixed interest rate	USD	2.00%	0.72%	1.05%	1.43%
	EUR	-	0.12%	(0.17)%	(0.11)%
Cross-currency swap
Notional	$million	48	1,492	722	-
Average fixed interest rate (to USD)	EUR	-	1.29%	0.54%	-
	KRO	-	0.09%	-	-
Average exchange rate	EUR/USD	-	0.78	0.80	-
	KRO/USD	-	1,134.50	-	-

Cashflow hedges

Interest rate swap
Notional	$million	-	4,443	4,750	1,188
Average fixed interest rate	HKD	-	0.57%	0.41%	-
	USD	-	0.08%	2.13%	1.29%
Cross-currency swap
Notional	$million	152	10,260	1,802	-
Average fixed interest rate	HKD	-	0.73%	-	-
	KRO	-	1.09%	-	-
	JPY	-	(0.13)%	-	-
	TWD	(0.33)%	(0.33)%	-	-
Average exchange rate	HKD/USD	-	7.78	-	-
	KRO/USD	-	1,158.03	-	-
	JPY/USD	-	109.05	-	-
	TWD/USD	27.98	27.85	-	-
Forward foreign exchange contracts
Notional	$million	-	-	72	-
Average exchange rate	CLO/USD	-	-	868.10	-

Page 82

Net investment hedges

Foreign exchange derivatives
Notional	$million	5,234	7,964	-	-
Average exchange rate	CNY¹/USD	6.57	-	-	-
	KRW¹/USD	1,144.04	1,185.10	-	-
	TWD/USD	27.55	27.34	-	-
	HKD/USD	-	7.05	-	-

1   Offshore currency

Fair value hedges		2020
		Less than one month	More than one month and less than one year	One to five years	More than five years
Interest rate swap
Notional	$million	2,334	13,908	40,768	13,836
Average fixed interest rate	USD	1.44%	1.28%	1.47%	1.64%
	EUR	-	1.86%	1.49%	1.72%
Cross-currency swap
Notional	$million	837	1,384	1,915	-
Average fixed interest rate (to USD)	EUR	0.25%	1.63%	3.43%	-
	JPY	(0.12)%	-	(0.23)%	-
Average exchange rate	EUR/USD	0.82	0.74	0.79	-
	JPY/USD	109.93	-	107.91	-

Cashflow hedges

Interest rate swap
Notional	$million	-	3,428	4,686	1,233
Average fixed interest rate	HKD	-	1.46%	0.62%	-
	USD	-	0.96%	1.80%	1.32%
Cross-currency swap
Notional	$million	-	7,822	2,084	29
Average fixed interest rate	HKD	-	1.15%	-	-
	KRO	-	0.79%	-	-
	TWD¹	-	(0.63)%	-	-
	JPY	-	(0.21)%	(0.16)%	-
Average exchange rate	HKD/USD	-	7.75	-	-
	KRO/USD	-	1,174.75	-	-
	TWD¹/USD	-	29.88	-	-
	JPY/USD	-	107.54	107.12	-
Forward foreign exchange contracts
Notional	$million	27	137	-	-
Average exchange rate	GBP/USD	0.84	0.84	-	-

Net investment hedges

Foreign exchange derivatives
Notional	$million	5,376	-	-	-
Average exchange rate	CNY¹/USD	7.07	-	-	-
	KRW¹/USD	1,197.02	-	-	-
	TWD¹/USD	28.89	-	-	-

1   Offshore currency

Page 83

Interest rate benchmark reform

The Group applies the Phase 1 Interest Rate Benchmark Reform Amendments to IFRS 9, IAS 39 and IFRS 7 which allow the Group to assume that the interest rate benchmark on which cashflows for the hedged item and/or hedging instrument are based is are altered as a result of IBOR reform for the following activities:

• Prospective hedge assessment

• Determining whether a cash flow or forecast transaction for a cashflow hedge is highly probable. However, the Group otherwise assesses whether the cashflows are considered highly probable

• Determining when cumulative balances in the cashflow hedge reserve from de-designated hedges should be recycled to the income statement

The Group will not de-designate a hedge relationship of a benchmark in scope of IBOR reform if the retrospective hedge result is outside the required 80-125% range but, the hedge passes the prospective assessment. Any hedge ineffectiveness continues to be recorded in net trading income.

For hedges of non-contractually specified benchmark portions of an interest rate (such as fair value hedges of interest rate risk on fixed rate debt instruments) the Group only assesses whether the designated benchmark is separately identifiable at hedge inception. The choice of designated benchmark is not revisited for existing hedge relationships.

In applying these amendments, the Group has made the following key assumptions for the period end, to be reviewed on an ongoing basis:

• the interest rate benchmarks applicable to the Group that are in scope of the IFRS amendments are all LIBORs, EONIA, Singapore Swap Offer Rate (SGD SOR) and Thai Baht Interest Rate Fixing (THB FIX)

• EURIBOR is not in scope of the IFRS amendments because its revised methodology incorporates market transaction data, hence the benchmark is expected to continue to exist in future reporting periods

The Group assumes that the uncertainty arising from USD LIBOR will be present until 30 June 2023, at which time the amendments to IFRS no longer apply.

As at 31 December 2021, the following notional principal amounts of derivative instruments designated in fair value or cash flow hedge accounting relationships were linked to IBOR reference rates:

	Fair value hedges $million	Cashflow hedges $million	Total $million	Weighted average exposure Years
Interest rate swaps
USD LIBOR	46,615	2,636	49,251	3.6
GBP LIBOR	1,444	-	1,444	0.1
JPY LIBOR	637	-	637	0.2
SGD SOR	-	-	-	-
	48,696	2,636	51,332	3.5
Cross-currency swaps
USD LIBOR vs fixed rate foreign currency	2,262	3,681	5,943	0.9
Total notional of hedging instruments in scope of IFRS amendments as at 31 December 2021	50,958	6,317	57,275	3.2

	Fair value hedges $million	Cashflow hedges $million	Total $million	Weighted average exposure Years
Interest rate swaps
USD LIBOR	45,478	3,078	48,556	3.2
GBP LIBOR	1,988	89	2,077	10.9
JPY LIBOR	2,337	-	2,337	3.0
SGD SOR	483	-	483	1.2
	50,286	3,167	53,453	3.5
Cross-currency swaps
USD LIBOR vs fixed rate foreign currency	4,136	-	4,136	1.3
Total notional of hedging instruments in scope of IFRS amendments as at 31 December 2020	54,422	3,167	57,589	3.4

Page 84

The Group's primary exposure is to USD LIBOR due to the extent of fixed rate debt security assets and issued notes denominated in USD that are designated in fair value hedge relationships. Where fixed rate instruments are in other currencies, cross-currency swaps are used to achieve an equivalent floating USD exposure.

Exposures in GBP LIBOR and JPY LIBOR are short-dated basis swaps created per the LCH's methodology for converting derivatives to alternative benchmark rates. Under this methodology, if an interest rate swap referencing either of these benchmarks would have had a fixing between its conversion date and 31 December 2021, the original swap is replaced with a RFR swap of the same maturity and a LIBOR versus RFR basis swap that matures at the end of the last LIBOR fixing period set before 31 December 2021. This replacement is treated as continuation of the original LIBOR swap as the new bookings do not alter or amend the legal rights and obligations under the original derivative. The Group has applied the Phase 2 amendments to IAS 39 to redefine the description of the hedging instrument and hedged risk to reference the alternative benchmark rate in order to continue these hedge relationships.

15. Loans and advances to banks and customers

Accounting policy

Refer to Note 13 Financial instruments for the relevant accounting policy.

	2021 $million	2020 $million
Loans and advances to banks	44,410	44,364
Expected credit loss	(27)	(17)
	44,383	44,347
Loans and advances to customers	304,122	288,312
Expected credit loss	(5,654)	(6,613)
	298,468	281,699
Total loans and advances to banks and customers	342,851	326,046

The Group has outstanding residential mortgage loans to Korea residents of $21.7 billion (31 December 2020: $22.1 billion) and Hong Kong residents of $34.5 billion (31 December 2020: $32 billion).

Analysis of loans and advances to customers by geographic region and client segment together with their related impairment provisions are set out within the Risk review and Capital review.

16. Reverse repurchase and repurchase agreements including other similar lending and borrowing

Accounting policy

The Group purchases securities (a reverse repurchase agreement - 'reverse repo') typically with financial institutions subject to a commitment to resell or return the securities at a predetermined price. These securities are not included in the balance sheet as the Group does not acquire the risks and rewards of ownership, however they are recorded off-balance sheet as collateral received. Consideration paid (or cash collateral provided) is accounted for as a loan asset at amortised cost unless it is managed on a fair value basis or designated at fair value through profit or loss. In majority of cases through the contractual terms of a reverse repo arrangement, the Group as the transferee of the security collateral has the right to sell or repledge the asset concerned.

The Group also sells securities (a repurchase agreement - 'repo') subject to a commitment to repurchase or redeem the securities at a predetermined price. The securities are retained on the balance sheet as the Group retains substantially all the risks and rewards of ownership and these securities are disclosed as pledged collateral. Consideration received (or cash collateral received) is accounted for as a financial liability at amortised cost unless it is either mandatorily classified as fair value through profit or loss or irrevocably designated at fair value through profit or loss at initial recognition.

Financial assets are pledged as collateral as part of sales and repurchases, securities borrowing and securitisation transactions under terms that are usual and customary for such activities. The Group is obliged to return equivalent securities.

 

Repo and reverse repo transactions typically entitle the Group and its counterparties to have recourse to assets similar to those provided as collateral in the event of a default. Securities sold subject to repos, either by way of a Global Master Repurchase Agreement (GMRA), or through a securities sale and Total Return Swap (TRS) continue to be recognised on the balance sheet as the Group retains substantially the associated risks and rewards of the securities (the TRS is not recognised). The counterparty liability is included in deposits by banks or customer accounts, as appropriate. Assets sold under repurchase agreements are considered encumbered as the Group cannot pledge these to obtain funding.  Page 85

Reverse repurchase agreements and other similar secured lending

	2021 $million	2020 $million
Banks	19,806	19,452
Customers	68,613	48,119
	88,419	67,571
Of which:
Fair value through profit or loss	80,009	63,405
Banks	18,727	18,205
Customers	61,282	45,200
Held at amortised cost	8,410	4,166
Banks	1,079	1,247
Customers	7,331	2,919

Under reverse repurchase and securities borrowing arrangements, the Group obtains securities on terms which permit it to repledge or resell the securities to others. Amounts on such terms are:

	2021 $million	2020 $million
Securities and collateral received (at fair value)	118,636	99,676
Securities and collateral which can be repledged or sold (at fair value)	117,408	99,238
Amounts repledged/transferred to others for financing activities, to satisfy liabilities under sale and repurchase agreements (at fair value)	57,879	46,209

Repurchase agreements and other similar secured borrowing

	2021 $million	2020 $million
Banks	7,054	6,647
Customers	58,594	43,918
	65,648	50,565
Of which:
Fair value through profit or loss	62,388	48,662
Banks	5,107	6,107
Customers	57,281	42,555
Held at amortised cost	3,260	1,903
Banks	1,947	540
Customers	1,313	1,363

The tables below set out the financial assets provided as collateral for repurchase and other secured borrowing transactions:

Collateral pledged against repurchase agreements	2021
	Fair value through profit or loss $million	Fair value through Other Comprehensive Income $million	Amortised cost $million	Off-balance sheet $million	Total $million
On-balance sheet
Debt securities and other eligible bills	3,427	2,655	2,601	-	8,683
Off-balance sheet
Repledged collateral received	-	-	-	57,879	57,879
At 31 December 2021	3,427	2,655	2,601	57,879	66,562

Collateral pledged against repurchase agreements	2020
	Fair value through profit or loss $million	Fair value through Other Comprehensive Income $million	Amortised cost $million	Off-balance sheet $million	Total
On-balance sheet
Debt securities and other eligible bills	2,664	2,108	355	-	5,127
Off-balance sheet
Repledged collateral received	-	-	-	46,209	46,209
At 31 December 2020	2,664	2,108	355	46,209	51,336

Page 86

17. Goodwill and intangible assets

Accounting policy

Goodwill

Goodwill represents the excess of the cost of an acquisition over the fair value of the Group's share of the identifiable net assets and contingent liabilities of the acquired subsidiary, associate or joint venture at the date of acquisition. Goodwill on acquisitions of subsidiaries is included in intangible assets. Goodwill on acquisitions of associates is included in Investments in associates. Goodwill included in intangible assets is assessed at each balance sheet date for impairment and carried at cost less any accumulated impairment losses. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. Detailed calculations are performed based on discounting expected cash flows of the relevant cash-generating units (CGUs) and discounting these at an appropriate discount rate, the determination of which requires the exercise of judgement. Goodwill is allocated to CGUs for the purpose of impairment testing. CGUs represent the lowest level within the Group which generate separate cash inflows and at which the goodwill is monitored for internal management purposes. These are equal to or smaller than the Group's reportable segments (as set out in Note 2) as the Group views its reportable segments on a global basis. The major CGUs to which goodwill has been allocated are set out in the CGU table.

Significant accounting estimates and judgements

The carrying amount of goodwill is based on the application of judgements including the basis of goodwill impairment calculation assumptions. Judgement is also applied in determination of cash-generating units.

Estimates include forecasts used for determining cash flows for CGUs, the appropriate long-term growth rates to use and discount rates which factor in country risk-free rates and applicable risk premiums. The Group undertakes an annual assessment to evaluate whether the carrying value of goodwill is impaired. The estimation of future cash flows and the level to which they are discounted is inherently uncertain and requires significant judgement and is subject to potential change over time.

Acquired intangibles

At the date of acquisition of a subsidiary or associate, intangible assets which are deemed separable and that arise from contractual or other legal rights are capitalised and included within the net identifiable assets acquired. These intangible assets are initially measured at fair value, which reflects market expectations of the probability that the future economic benefits embodied in the asset will flow to the entity and are amortised on the basis of their expected useful lives (4 to 16 years). At each balance sheet date, these assets are assessed for indicators of impairment. In the event that an asset's carrying amount is determined to be greater than its recoverable amount, the asset is written down immediately.

Computer software

Acquired computer software licences are capitalised if the principles of development are met on the basis of the costs incurred to acquire and bring to use the specific software.

Internally generated software represents substantially all of the total software capitalised. Direct costs of the development of separately identifiable internally generated software are capitalised where it is probable that future economic benefits attributable to the asset will flow from its use (internally generated software). These costs include salaries and wages, materials, service providers and contractors, and directly attributable overheads. Costs incurred in the ongoing maintenance of software are expensed immediately when incurred. Internally generated software is amortised over each asset's useful life to a maximum of a 10-year time period. On an annual basis software assets' residual values and useful lives are reviewed, including assessing for indicators of impairment. Indicators of impairment include loss of business relevance, obsolescence of asset, exit of the business to which the software relates, technological changes, change in use of the asset, reduction in useful life, plans to reduce usage or scope.

For capitalised software, judgement is required to determine which costs relate to research (and therefore expensed) and which costs relate to development (capitalised). Further judgement is required to determine the technical feasibility of completing the software such that it will be available for use. Estimates are used to determine how the software will generate probable future economic benefits, these estimates include: cost savings, income increases, balance sheet improvements, improved functionality or improved asset safeguarding.

Page 87

	2021					2020
	Goodwill $million	Acquired intangibles $million	Computer software $million	Total $million		Goodwill $million	Acquired intangibles $million	Computer software $million	Total $million
Cost
At 1 January	2,617	473	3,682	6,772		3,079	461	3,239	6,779
Exchange translation differences	(22)	(14)	(73)	(109)		27	16	60	103
Additions	-	-	989	989		-	-	790	790
Disposals	-	-	-	-		-	-	(4)	(4)
Impairment	-	-	-	-		(489)	-	-	(489)
Amounts written off	-	(2)	(134)	(136)		-	(4)	(403)	(407)
At 31 December	2,595	457	4,464	7,516		2,617	473	3,682	6,772
Provision for amortisation
At 1 January	-	451	1,258	1,709		-	431	1,058	1,489
Exchange translation differences	-	(22)	(20)	(42)		-	15	21	36
Amortisation	-	8	461	469		-	5	515	520
Impairment charge	-	-	4	4		-	-	17	17
Disposals	-	-	-	-		-	-	(4)	(4)
Amounts written off	-	-	(95)	(95)		-	-	(349)	(349)
At 31 December	-	437	1,608	2,045		-	451	1,258	1,709
Net book value	2,595	20	2,856	5,471		2,617	22	2,424	5,063

At 31 December 2021, accumulated goodwill impairment losses incurred from 1 January 2005 amounted to $3,317 million (31 December 2020: $3,317 million), of which $Nil was recognised in 2021 (31 December 2020: $489 million).

Software amortisation change in estimate

During the period the Group has reassessed the useful economic life for software assets to reflect the period over which the assets are expected to be available for use by the Group. As a result of this change in estimate, the Group has recorded a decrease in software amortisation of approximately $88 million for the year when compared to the previous estimate.

Goodwill

Outcome of impairment assessment

Change in cash-generating units (CGUs) Goodwill is allocated to CGUs, which are considered the level at which goodwill is managed and which generate independent cash inflows. At year-end 2021, the Group had two global CGUs representing Corporate, Commercial & Institutional Banking (CCIB) and Private Banking (PB), along with six individual country CGUs representing Retail Banking (RB) for each country.

Following the changes in the Group's organisational structure as described in Note 2 - Operating Segments which has resulted in two new business segments, CCIB and CPBB, the CGUs have changed. Goodwill relating to CB ($478 million), which was previously allocated to country CGUs, has been reallocated to the global CCIB CGU. The CB goodwill has been allocated on a relative value basis with reference to the ratio of RB and CB risk-weighted assets in the individual country at 1 January 2021.

The changes above require comparative periods to be restated.

Testing of goodwill for impairment

An annual assessment is made as to whether the current carrying value of goodwill is impaired. For the purposes of impairment testing, goodwill is allocated at the date of acquisition to a CGU. Goodwill is considered to be impaired if the carrying amount of the relevant CGU exceeds its recoverable amount. Indicators of impairment include changes in the economic performance and outlook of the region including geopolitical changes, changes in market value of regional investments, large credit defaults and strategic decisions to exit certain regions. The recoverable amounts for all the CGUs were measured based on value in use (VIU). The calculation of ViU for each CGU is calculated using five-year cashflow projections and an estimated terminal value based on a perpetuity value after year five. The cashflow projections are based on forecasts approved by management up
to 2026. The perpetuity terminal value amount is calculated using year five cashflows using long-term GDP growth rates. All cashflows are discounted using discount rates which reflect market rates appropriate to the CGU.

Page 88

The goodwill allocated to each CGU and key assumptions used in determining the recoverable amounts are set out below and are solely estimates for the purposes of assessing impairment of acquired goodwill.

Cash-generating unit1	2021				2020
	Goodwill $million	Pre-Tax discount rates per cent	Long-term forecast GDP growth rates per cent		Goodwill $million	Pre-Tax discount rates per cent	Long-term forecast GDP growth rates per cent
Country CGUs
Asia	1,073				1,079
Hong Kong	357	10.6	2.5		359	11.1	2.7
Taiwan	361	10.4	2.0		360	10.6	2.1
Singapore	341	11.6	2.4		346	12.0	3.0
Bangladesh	14	15.0	7.3		14	19.6	7.2
Africa & Middle East	92				97
Pakistan	43	22.2	6.0		48	20.2	5.0
Bahrain	49	13.1	3.0		49	14.2	2.8
Global CGUs	1,430				1,441
Global Private Banking	84	12.4	2.5		84	12.9	3.6
Corporate, Commercial & Institutional Banking	1,346	12.5	3.0		1,357	13.4	3.0
	2,595				2,617

1   Following the Group's change in organisational structure, there has been an integration of segments (CIB and CB to CCIB and PB and RB to CPBB) and regions (Greater China & North Asia and ASEAN & South Asia to Asia). Prior periods have been restated

In the current year there are no CGUs that are sensitive to any individual movement on key estimates (cashflow, discount rate and GDP growth rate). This is primarily due to increased anticipated cashflows as economic uncertainty caused by the COVID-19 pandemic has abated and the change in CGUs as described above.

Acquired intangibles

These primarily comprise those items recognised as part of the acquisitions of Union Bank (now amalgamated into Standard Chartered Bank (Pakistan) Limited), Hsinchu (now amalgamated into Standard Chartered Bank (Taiwan) Limited), Pembroke, American Express Bank and ABSA's custody business in Africa. Maintenance intangible assets represent the value in the difference between the contractual right under acquired leases to receive aircraft in a specified maintenance condition at the end of the lease and the actual physical condition of the aircraft at the date of acquisition.

The acquired intangibles are amortised over periods from four years to a maximum of 16 years. The constituents are as follows:

	2021 $million	2020 $million
Acquired intangibles comprise:
Aircraft maintenance	5	6
Brand names	1	-
Customer relationships	3	7
Licences	11	9
Net book value	20	22

Page 89

18. Property, plant and equipment

Accounting policy

All property, plant and equipment is stated at cost less accumulated depreciation and impairment losses. Cost includes expenditure that is directly attributable to the acquisition of the assets. Subsequent costs are included in the asset's carrying amount or are recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably.

At each balance sheet date the asset's residual values and useful lives are reviewed, and adjusted if appropriate, including assessing for indicators of impairment. In the event that an asset's carrying amount is determined to be greater than its recoverable amount, the asset is written down to the recoverable amount. Gains and losses on disposals are included in the income statement.

Repairs and maintenance are charged to the income statement during the financial period in which they are incurred.

Land and buildings comprise mainly branches and offices. Freehold land is not depreciated, although it is subject to impairment testing.

Depreciation on other assets is calculated using the straight-line method to allocate their cost to their residual values over their estimated useful lives, as follows:

• Buildings   • up to 50 years

• Leasehold improvements life of lease   • up to 50 years

• Equipment and motor vehicles     • three to 15 years

• Aircraft     • up to 18 years

• Ships     • up to 15 years

Where the Group is a lessee of a right-of-use asset, the leased assets are capitalised and included in Property, plant and equipment with a corresponding liability to the lessor recognised in Other liabilities, in accordance with the Group's leased assets accounting policy in Note 19.

All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred.

Significant accounting estimates and judgements

The carrying amount of the Group's aircraft leasing portfolio is based on the application of judgement and estimates to determine the most appropriate recoverable amount for each aircraft when assessing for impairment. Estimates involve the appropriate cash flows, discount rates and residual values used in determining a value-in-use for aircraft, and judgement is required in determining the appropriate observable third-party valuations to use for assessing current market value. 

Page 90

	2021
	Premises $million	Equipment $million	Operating lease assets $million	Leased premises assets $million	Leased equipment assets $million	Total $million
Cost or valuation
At 1 January	2,048	874	5,233	1,577	31	9,763
Exchange translation differences	(63)	(13)	-	(38)	(1)	(115)
Additions1	107	135	110	373	4	729
Disposals and fully depreciated assets written off2	(100)	(95)	(1,095)	(58)	(1)	(1,349)
Transfers to assets held for sale	(12)	-	-	-	-	(12)
As at 31 December	1,980	901	4,248	1,854	33	9,016
Depreciation
Accumulated at 1 January	770	594	1,336	536	12	3,248
Exchange translation differences	(15)	(14)	-	(15)	-	(44)
Charge for the year	74	121	213	296	8	712
Impairment charge	-	-	64	42	-	106
Attributable to assets sold or written off2	(31)	(90)	(458)	(40)	-	(619)
Transfers to assets held for sale	(3)	-	-	-	-	(3)
Accumulated at 31 December	795	611	1,155	819	20	3,400
Net book amount at 31 December	1,185	290	3,092	1,036	13	5,616

1   Refer to the cash flow statement under cash flows from investing activities section for the purchase of property, plant and equipment during the year of $351 million

2   Disposals for property, plant and equipment during the year of $816 million in the cash flow statement would include the gains and losses incurred as part of other operating income (Note 6) on disposal of assets during the year and the net book value disposed

	2020
	Premises $million	Equipment $million	Operating lease assets $million	Leased premises assets $million	Leased equipment assets3 $million	Total $million
Cost or valuation
At 1 January	2,058	800	4,461	1,493	23	8,835
Exchange translation differences	40	6	(2)	11	4	59
Additions	36	121	952	155	6	1,270
Disposals and fully depreciated assets written off	(83)	(53)	(178)	(82)	(2)	(398)
Transfers to assets held for sale	(3)	-	-	-	-	(3)
As at 31 December	2,048	874	5,233	1,577	31	9,763
Depreciation
Accumulated at 1 January	737	518	1,067	286	7	2,615
Exchange translation differences	13	6	-	-	-	19
Charge for the year	73	122	229	300	7	731
Impairment charge	-	-	132	-	-	132
Attributable to assets sold, transferred or written off	(52)	(52)	(92)	(50)	(2)	(248)
Transfers to assets held for sale	(1)	-	-	-	-	(1)
Accumulated at 31 December	770	594	1,336	536	12	3,248
Net book amount at 31 December	1,278	280	3,897	1,041	19	6,515

1   Refer to the cash flow statement under cash flows from investing activities section for the purchase of property, plant and equipment during the year of $1,270 million

2   Disposals for property, plant and equipment during the year of $178 million in the cash flow statement would include the gains and losses incurred as part of other operating income (Note 6) on disposal of assets during the year and the net book value disposed

3   Aircraft have been impaired due to a decrease in the market values, particularly wide-body variants

Operating lease assets

The operating lease assets subsection of property, plant and equipment is the Group's aircraft operating leasing business, consisting of 97 commercial aircraft at year end, of which 94 are narrow-bodies and three are wide-bodies. The leases are classified as operating leases as they do not transfer substantially all the risks and rewards incidental to the ownership of the assets to the lessee, and rental income from operating lease assets is disclosed in Note 6. At 31 December 2021, these assets had a net book value of $3,092 million (31 December 2020: $3,897 million).

Page 91

Under these leases the lessee is responsible for the maintenance and servicing of the aircraft during the lease term while the Group receives rental income and assumes the risks of the residual value of the aircraft at the end of the lease. Initial lease terms range in length up to 12 years, while the average remaining lease term at 31 December 2021 is approximately five years. By varying the lease terms, the effects of changes in cyclical market conditions at the time aircraft become eligible for re-lease are mitigated. The Group will look at entering into a lease extension with existing lessees well in advance of lease expiry in order to minimise the risk of aircraft downtime and aircraft transition costs. Aircraft may also be sold from time to time to manage the composition and average age of the fleet.

A series of stress sensitivities conducted on the narrow-body portfolio highlight the two biggest risks remain either an increase in the discount rate or a substantial number of airline clients defaulting. A sensitivity test was performed on the narrow-body portfolio assuming a discount rate increase of 100 basis points, from a base range of  4.5%-5.5%, (31 December 2020: 4.5%-6%), which resulted in a possible increase in impairment of $26 million.

A further sensitivity test considered that the lessees with lower credit ratings defaulted on their current leases. This scenario would result in a possible increase in impairment of $75 million.

During 2020 the Group offered payment concessions to customers as a result of the COVID-19 pandemic, allowing them to defer lease payments for between three and nine months. For customers who have not defaulted on their obligations, deferrals do not affect income recognition provided the total lease rentals and lease expiry date are unchanged. For customers who have defaulted, any income not covered by collateral is provided against. The provision is reversed on receipt of the deferred payment.

	2021 Minimum lease receivables under operating leases falling due: $million	2020 Minimum lease receivables under operating leases falling due: $million
Within one year	330	478
One to two years	285	436
Two to three years	251	374
Three to four years	197	328
Four to five years	153	251
After five years	411	697
	1,627	2,564

19. Leased assets

Accounting policy

The Group assesses whether a contract is a lease in scope of this policy by determining whether the contract gives it the right to use a specified underlying physical asset for a lease term greater than 12 months, unless the underlying asset is of low value.

Where the Group is a lessee and the lease is deemed in scope, it recognises a liability equal to the present value of lease payments over the lease term, discounted using the incremental borrowing rate applicable in the economic environment of the lease. The liability is recognised in 'Other liabilities'. A corresponding right-of-use asset equal to the liability, adjusted for any lease payments made at or before the commencement date, is recognised in 'Property, plant and equipment'. The lease term includes any extension options contained in the contract that the Group is reasonably certain it will exercise.

The Group subsequently depreciates the right-of-use asset using the straight-line method over the lease term and measures the lease liability using the effective interest method. Depreciation on the asset is recognised in 'Depreciation and amortisation', and interest on the lease liability is recognised in 'Interest expense'.

If a leased premise, or a physically distinct portion of a premise such as an individual floor, is deemed by management to be surplus to the Group's needs and action has been taken to abandon the space before the lease expires, this is considered an indicator of impairment. An impairment loss is recognised if the right-of-use asset, or portion thereof, has a carrying value in excess of its value-in-use when taking into account factors such as the ability and likelihood of obtaining a subtenant.

Page 92

The judgements in determining lease balances are the determination of whether the Group is reasonably certain that it will exercise extension options present in lease contracts. On initial recognition, the Group considers a range of characteristics such as premises function, regional trends and the term remaining on the lease to determine whether it is reasonably certain that a contractual right to extend a lease will be exercised. Where a change in assumption is confirmed by the local property management team, a remeasurement is performed in the Group-managed vendor system.

The estimates were the determination of incremental borrowing rates in the respective economic environments. The Group uses third-party broker quotes to estimate its USD cost of senior unsecured borrowing, then uses cross-currency swap pricing information to determine the equivalent cost of borrowing in other currencies. If it is not possible to estimate an incremental borrowing rate through this process, other proxies such as local government bond yields are used.

The Group primarily enters lease contracts that grant it the right to use premises such as office buildings and retail branches.

Existing lease liabilities may change in future periods due to changes in assumptions or decisions to exercise lease renewal or termination options, changes in payments due to renegotiations of market rental rates as permitted by those contracts and changes to payments due to rent being contractually linked to an inflation index. In general the re-measurement of a lease liability under these circumstances leads to an equal change to the right-of-use asset balance, with no immediate effect on the income statement.

The total cash outflow during the year for premises and equipment leases was $331 million (2020: $352 million).

The total expense during the year in respect of leases with a term less than or equal to 12 months was less than $1 million (2020: $1 million).

The right-of-use asset balances and depreciation charges are disclosed in Note 18. The lease liability balances are disclosed in Note 23 and the interest expense on lease liabilities is disclosed in Note 3.

Maturity analysis

The maturity profile for lease liabilities associated with leased premises and equipment assets is as follows:

	2021
	One year or less $million	Between one year and two years $million	Between two years and five years $million	More than five years $million	Total $million
Other liabilities - lease liabilities	293	247	521	175	1,236

	2020
	One year or less $million	Between one year and two years $million	Between two years and five years $million	More than five years $million	Total $million
Other liabilities - lease liabilities	368	280	559	188	1,395

20. Other assets

Accounting policy

Refer to Note 13 Financial instruments for the relevant accounting policy.

Commodities represent physical holdings where the Group has title and exposure to the Market Risk associated with the holding.

Commodities are fair valued with the fair value derived from observable spot or short-term futures prices from
relevant exchanges.

Page 93

Other assets include:

	2021 $million	2020 $million
Financial assets held at amortised cost (Note 13):
Hong Kong SAR Government certificates of indebtedness (Note 23)¹	7,284	7,295
Cash collateral	9,217	11,757
Acceptances and endorsements	4,930	5,868
Unsettled trades and other financial assets	18,637	16,058
	40,068	40,978
Non-financial assets:
Commodities and emissions certificates2	9,265	7,239
Other assets	599	471
	49,932	48,688

1   The Hong Kong SAR Government certificates of indebtedness are subordinated to the claims of other parties in respect of bank notes issued

2  Commodities and emissions certificates are carried at fair value less costs to sell, $5.7 billion are classified as Level 1 and $3.6 billion are classified as Level 2

21. Assets held for sale and associated liabilities

Accounting policy

Financial instruments can be reclassified as held for sale if they are non-current assets or if they are part of a disposal group; however, in these circumstances financial instruments continue to be measured per the requirements of IFRS 9 Financial Instruments. Refer to Note 13 Financial instruments for the relevant accounting policy.

Non-current assets are classified as held for sale and measured at the lower of their carrying amount and fair value less cost to sell when:

a) Their carrying amounts will be recovered principally through sale;

b) They are available for immediate sale in their present condition; and

c) Their sale is highly probable.

Immediately before the initial classification as held for sale, the carrying amounts of the assets are measured in accordance with the applicable accounting policies related to the asset or liability before reclassification as held for sale.

The assets below have been presented as held for sale following the approval of Group management, and the transactions are expected to complete in 2022.

Following a decision by the Board of Directors to exit the ship leasing business within CCIB, the shipping portfolio is classified as 'Held for sale'.

The financial assets reported below are classified under Level 1 $ nil (31 December 2020: $nil), Level 2 $nil (31 December 2020: $25 million ) and Level 3 $95 million (31 December 2020: $63 million).

Assets held for sale

	2021 $million	2020 $million
Financial assets held at fair value through profit or loss	43	5
Loans and advances to customers	20	5
Equity shares	23	-
Financial assets held at amortised cost	52	83
Loans and advances to customers	52	83
Property, plant and equipment	239	358
Vessels	230	354
Others	9	4
	334	446

On the 20 May 2020 the Group completed the sale of its 44.56 per cent equity interest in PT Bank Permata Tbk to Bangkok Bank Public Company Limited for cash consideration of IDR 17 trillion ($1,072 million).

Page 94

22. Debt securities in issue

Accounting policy

Refer to Note 13 Financial instruments for the relevant accounting policy.

	2021				2020
	Certificates of deposit of $100,000 or more $million	Other debt securities in issue $million	Total $million		Certificates of deposit of $100,000 or more $million	Other debt securities in issue $million	Total $million
Debt securities in issue	23,896	37,397	61,293		21,020	34,530	55,550
Debt securities in issue included within:
Financial liabilities held at fair value through profit or loss (Note 13)	-	5,597	5,597		-	5,811	5,811
Total debt securities in issue	23,896	42,994	66,890		21,020	40,341	61,361

In 2021, the Company issued a total of $6.8 billion senior notes for general business purposes of the Group as shown below:

Securities	$million
$500 million fixed-rate senior notes due 2025 (callable 2024)	500
$500 million floating rate senior notes due 2025 (callable 2024)1	500
EUR 500 million fixed-rate senior notes due 2029 (callable 2028)	569
$1,000 million fixed-rate senior notes due 2025 (callable 2024)	1,000
$1,250 million fixed-rate senior notes due 2032 (callable 2031)	1,250
$1,500 million fixed-rate senior notes due 2025 (callable 2024)	1,500
$1,500 million fixed-rate senior notes due 2027 (callable 2026)	1,500
Total senior notes issued	6,819

In 2020, the Company issued a total of $6.8 billion senior notes for general business purposes of the Group as shown below:

Securities	$million
$2,000 million fixed-rate senior notes due 2026 (callable 2025)	2,000
$2,000 million fixed-rate senior notes due 2031 (callable 2030)	2,000
$1,000 million fixed-rate senior notes due 2023 (callable 2022)	1,000
EUR 750 million fixed -rate senior notes due 2028 (callable 2027)	917
$500 million floating rate senior notes due 2023 (callable 2022)	500
HKD 1,081 million fixed-rate senior notes due 2023 (callable 2022)	139
$100 million zero coupon callable bond due 2050 (callable 2025)	100
$80 million zero coupon callable bond due 2050 (callable 2023)	80
JPY 5,500 million fixed-rate senior notes due 2023 (callable 2022)	53
$50 million zero coupon callable bond due 2050 (callable 2023)	50
Total senior notes issued	6,839

1   These notes will be subject to remediation under interest rate benchmark reform. Please refer to Note 13 for further information on this

Page 95

 

23. Other liabilities

Accounting policy

Refer to Note 13 Financial instruments for the relevant accounting policy for financial liabilities, Note 19 Leased assets for the accounting policy for leases, and Note 31 Share-based payments for the accounting policy for cash-settled share based payments.

	2021 $million	2020 $million
Financial liabilities held at amortised cost (Note 13)
Notes in circulation1	7,284	7,295
Acceptances and endorsements	4,930	5,868
Cash collateral	8,092	10,136
Property leases²	1,170	1,127
Equipment leases²	17	20
Unsettled trades and other financial liabilities	21,940	22,782
	43,433	47,228
Non-financial liabilities
Cash-settled share-based payments	55	41
Other liabilities	826	635
	44,314	47,904

1   Hong Kong currency notes in circulation of $7,284 million (31 December 2020: $7,295 million) that are secured by the Government of Hong Kong SAR certificates
of indebtedness of the same amount included in 'Other assets' (Note 18)

2  Other financial liabilities include the present value of lease liabilities, as required by IFRS 16 from 1 January 2019; refer to Note 19

24. Provisions for liabilities and charges

Accounting policy

The Group recognises a provision for a present legal or constructive obligation resulting from a past event when it is more likely than not that it will be required to transfer economic benefits to settle the obligation and the amount of the obligation can be estimated reliably. Where a liability arises based on participation in a market at a specified date, the obligation is recognised in the financial statements on that date and is not accrued over the period.

Significant accounting estimates and judgements

The recognition and measurement of provisions for liabilities and charges requires significant judgement and the use of estimates about uncertain future conditions or events.

Estimates include the best estimate of the probability of outflow of economic resources, cost of settling a provision and timing of settlement. Judgements are required for inherently uncertain areas such as legal decisions (including external advice obtained), and outcome of regulator reviews.

	2021				2020
	Provision for credit commitments $million	Other provisions $million	Total $million		Provision for credit commitments $million	Other provisions $million	Total $million
At 1 January	367	99	466		317	132	449
Exchange translation differences	9	(1)	8		(50)	(3)	(53)
Transfer	-	2	2		-	9	9
Charge against profit	(30)	54	24		103	22	125
Provisions utilised	-	(47)	(47)		(3)	(61)	(64)
At 31 December	346	107	453		367	99	466

Provision for credit commitment comprises those undrawn contractually committed facilities where there is doubt as to the borrower's ability to meet their repayment obligations.

Other provisions consist mainly of provisions for regulatory settlements and legal claims, the nature of which are described in Note 26.

Page 96

25. Contingent liabilities and commitments

Accounting policy

Financial guarantee contracts and loan commitments

The Group issues financial guarantee contracts and loan commitments in return for fees. Financial guarantee contracts and any loan commitments issued at below-market interest rates are initially recognised at their fair value as a financial liability, and subsequently measured at the higher of the initial value less the cumulative amount of income recognised in accordance with the principles of IFRS 15 Revenue from Contracts with Customers and their expected credit loss provision. Loan commitments may be designated at fair value through profit or loss where that is the business model under which such contracts are held. Notional values of financial guarantee contracts and loan commitments are disclosed in the table below.

Financial guarantees, trade credits and irrevocable letters of credit are the notional values of contracts issued by the Group's Transaction Banking business for which an obligation to make a payment has not arisen at the reporting date. Transaction Banking will issue contracts to clients and counterparties of clients, whereby in the event the holder of the contract is not paid, the Group will reimburse the holder of the contract for the actual financial loss suffered. These contracts have various legal forms such as letters of credit, guarantee contracts and performance bonds. The contracts are issued to facilitate trade through export and import business, provide guarantees to financial institutions where the Group has a local presence, as well as guaranteeing project financing involving large construction projects undertaken by sovereigns and corporates. The contracts may contain performance clauses which require the counterparty performing services or providing goods to meet certain conditions before a right to payment is achieved, however the Group does not guarantee this performance. The Group will only guarantee the credit of the counterparty paying for the services or goods.

Commitments are where the Group has confirmed its intention to provide funds to a customer or on behalf of a customer under prespecified terms and conditions in the form of loans, overdrafts, future guarantees, whether cancellable or not and the Group has not made payments at the balance sheet date; those instruments are included in these financial statements as 'commitments'. Commitments and contingent liabilities are generally considered on demand as the Group may have to honour them, or the client may draw down at any time.

'Capital commitments' are contractual commitments the Group has entered into to purchase non-financial assets.

The table below shows the contract or underlying principal amounts of unmatured off-balance sheet transactions at the balance sheet date. The contract or underlying principal amounts indicate the volume of business outstanding and do not represent amounts at risk.

	2021 $million	2020 $million
Financial guarantees and trade credits
Financial guarantees, trade credits and irrevocable letters of credit	58,535	53,832
	58,535	53,832
Commitments
Undrawn formal standby facilities, credit lines and other commitments to lend
One year and over	69,542	68,848
Less than one year	27,306	24,500
Unconditionally cancellable	61,675	60,055
	158,523	153,403
Capital commitments
Contracted capital expenditure approved by the directors but not provided for in these accounts1	124	135

1   Of which the Group has commitments totalling $96 million to purchase aircraft for delivery in 2022 (31 December 2020: $110 million). Pre-delivery payments of
$26 million (2020: $nil) have been made in respect of these commitments

As set out in Note 26, the Group has contingent liabilities in respect of certain legal and regulatory matters for which it is not practicable to estimate the financial impact as there are many factors that may affect the range of possible outcomes.

Page 97

26. Legal and regulatory matters

Accounting policy

Where appropriate, the Group recognises a provision for liabilities when it is probable that an outflow of economic resources embodying economic benefits will be required, and for which a reliable estimate can be made of the obligation. The uncertainties inherent in legal and regulatory matters affect the amount and timing of any potential outflows with respect to which provisions have been established. These uncertainties also mean that it is not possible to give an aggregate estimate of contingent liabilities arising from such legal and regulatory matters.

The Group receives legal claims against it in a number of jurisdictions and is subject to regulatory and enforcement investigations and proceedings from time to time. Apart from the matters described below, the Group currently considers none of the ongoing claims, investigations or proceedings to be material. However, in light of the uncertainties involved in such matters there can be no assurance that the outcome of a particular matter or matters currently not considered to be material may not ultimately be material to the Group's results in a particular reporting period depending on, among other things, the amount of the loss resulting from the matter(s) and the results otherwise reported for such period.

Since 2014, the Group has been named as a defendant in a series of lawsuits that have been filed in the United States District Courts for the Southern and Eastern Districts of New York against a number of banks (including Standard Chartered Bank or its affiliates) on behalf of plaintiffs who are, or are relatives of, victims of various terrorist attacks in Iraq and Afghanistan. The most recent lawsuit was filed in August 2021 and concerns terrorist attacks that occurred in Afghanistan between 2011 and 2016. The plaintiffs in each of these lawsuits have alleged that the defendant banks aided and abetted the unlawful conduct of U.S. sanctioned parties in breach of the U.S. Anti-Terrorism Act. While the courts have ruled in favour of the banks' motions to dismiss in five of these lawsuits, plaintiffs' have appealed or are expected to appeal against certain of these judgements. The remaining cases are at an early procedural stage and, except for the lawsuit filed in August 2021, have been stayed pending the outcomes of the appeals in the dismissed cases. None of these lawsuits have specified the amount of damages claimed.

In January 2020, a shareholder derivative complaint was filed by the City of Philadelphia in New York State Court against 45 current and former directors and senior officers of the Group. It is alleged that the individuals breached their duties to the Group and caused a waste of corporate assets by permitting the conduct that gave rise to the costs and losses to the Group related to legacy conduct and control issues. In March 2021, an amended complaint was served in which SCB and seven individuals were removed from the case. Standard Chartered PLC and Standard Chartered Holdings Limited remained as named "nominal defendants" in the complaint. In May 2021, Standard Chartered PLC filed a motion to dismiss the complaint. On 2 February 2022, the New York State Court ruled in favour of Standard Chartered PLC's motion to dismiss the complaint. The plaintiffs have a right of appeal.

Since October 2020, two lawsuits have been filed in the English High Court against Standard Chartered PLC on behalf of more than 300 shareholders in relation to alleged untrue and/or misleading statements and/or omissions in information published by Standard Chartered PLC in its rights issue prospectuses of 2008, 2010 and 2015 and/or public statements regarding the Group's historic sanctions, money laundering and financial crime compliance issues. These lawsuits have been brought under sections 90 and 90A of the Financial Services and Markets Act 2000. Section 90 permits shareholders to pursue a claim if they acquire shares, and suffer loss, as a result of misleading statements in, or omissions of necessary information from, a prospectus or listing particulars. Section 90A permits shareholders to pursue a claim if they acquire, hold or dispose of shares in reliance upon a knowingly or recklessly made untrue or misleading statement in, or dishonest omission of required information from published information, or if there has been a dishonest delay in publishing relevant information. These lawsuits are at an early procedural stage.

 

Page 98

As the Group has previously disclosed, Bernard Madoff's 2008 confession to running a Ponzi scheme through Bernard L. Madoff Investment Securities LLC (BMIS) gave rise to a number of lawsuits against the Group. BMIS and the Fairfield funds (which invested in BMIS) are in bankruptcy and liquidation, respectively. Between 2010 and 2012, five lawsuits were brought against the Group by the BMIS bankruptcy trustee and the Fairfield funds' liquidators, in each case seeking to recover funds paid to the Group's clients pursuant to redemption requests made prior to BMIS' bankruptcy filing. The total amount sought in these cases exceeds USD 300 million, excluding any pre-judgment interest that may be awarded. The four lawsuits commenced by the Fairfield funds' liquidators have been dismissed and the appeals of those dismissals by the funds' liquidators are ongoing. The lawsuit brought against the Group by the BMIS bankruptcy trustee had been stayed pending a ruling by the US Second Circuit Court of Appeals in related cases brought by the BMIS bankruptcy trustee against other defendants that had been dismissed. In August 2021, the US Court of Appeals issued its ruling in the related cases with the result that the BMIS bankruptcy trustee's lawsuit against the Group is no longer stayed and is now ongoing. While the Group continues to vigorously defend these lawsuits, there is a range of possible outcomes in this litigation.

Based on the facts currently known, it is not possible for the Group to predict the outcome of these lawsuits.

27. Subordinated liabilities and other borrowed funds

Accounting policy

Subordinated liabilities and other borrowed funds are classified as financial instruments. Refer to Note 13 Financial instruments for the accounting policy.

All subordinated liabilities are unsecured, unguaranteed and subordinated to the claims of other creditors including without limitation, customer deposits and deposits by banks. The Group has the right to settle these debt instruments in certain circumstances, as set out in the contractual agreements. Where a debt instrument is callable, the issuer has the right to call.

	2021 $million	2020 $million
Subordinated loan capital - issued by subsidiary undertakings
£200 million 7.75 per cent subordinated notes (callable 2022)¹	48	52
$700 million 8.0 per cent subordinated notes due 2031 (callable 2026)¹	418	454
	466	506
Subordinated loan capital - issued by the Company2
Primary capital floating rate notes:
$400 million floating-rate undated subordinated notes3	16	16
$300 million floating-rate undated subordinated notes (Series 2)3	69	69
$400 million floating-rate undated subordinated notes (Series 3)3	50	50
$200 million floating-rate undated subordinated notes (Series 4)3	26	26
£150 million floating-rate undated subordinated notes	-	16
£900 million 5.125 per cent subordinated notes due 2034	848	930
$2 billion 5.7 per cent subordinated notes due 2044	2,361	2,370
$2 billion 3.95 per cent subordinated notes due 2023	2,027	2,066
$1 billion 5.7 per cent subordinated notes due 2022	1,000	1,001
$1 billion 5.2 per cent subordinated notes due 2024	1,049	1,141
$750 million 5.3 per cent subordinated notes due 2043	788	785
€750 million 3.625 per cent subordinated notes due 2022	868	955
€500 million 3.125 per cent subordinated notes due 2024	585	646
SGD 700 million 4.4 per cent subordinated notes due 2026 (callable 2021)	-	530
$1.25 billion 4.3 per cent subordinated notes due 2027	1,250	1,310
$1 billion 3.516 per cent subordinated notes due 2030 (callable 2025)	1,012	997
$500 million 4.886 per cent subordinated notes due 2033 (callable 2028)	543	499
£ 96.035 million 7.375% non-cumulative irredeemable preference shares (reclassed as Debt)	129	134
£ 99.250 million 8.25% non-cumulative irredeemable preference shares (reclassed as Debt)	134	138
€ 1 billion 2.5 per cent subordinated debt 2030	1,123	1,217
$1.25 billion 3.265 per cent subordinated notes due 2036	1,188	1,252
€1 billion 1.200 per cent fixed rate reset dated subordinated notes due 2031 (callable 2026)	1,114	-
	16,180	16,148
Total for Group	16,646	16,654

1   Issued by Standard Chartered Bank

2   In the balance sheet of the Company the amount recognised is $16,162 million (2020: $16,069 million), with the difference being the effect of hedge accounting achieved on a Group basis

3   These notes will be subject to remediation under interest rate benchmark reform. Please refer to Note 13 for further information on this

Page 99

	2021
	USD $million	GBP $million	EUR $million	Others $million	Total $million
Fixed-rate subordinated debt	11,636	1,160	3,689	-	16,485
Floating-rate subordinated debt	161	-	-	-	161
Total	11,797	1,160	3,689	-	16,646

	2020
	USD $million	GBP $million	EUR $million	Others $million	Total $million
Fixed-rate subordinated debt	11,875	1,254	2,818	530	16,477
Floating-rate subordinated debt	161	16	-	-	177
Total	12,036	1,270	2,818	530	16,654

Redemptions and repurchases during the year

On 26 January 2021, Standard Chartered PLC exercised its right to redeem SGD 700 million 4.4 per cent subordinated notes due 2026 (callable 2021).

On 31 March 2021, Standard Chartered Bank exercised its right to redeem the remaining USD 16 million £ 150 million undated primary capital floating rate notes.

Issuance during the year

On 23 March 2021, Standard Chartered PLC issued EUR 1 billion 1.2 per cent fixed rate reset dated subordinated notes due 2031 (callable 2026).

28. Share capital, other equity instruments and reserves

Accounting policy

Financial instruments issued are classified as equity when there is no contractual obligation to transfer cash, other financial assets or issue available number of own equity instruments. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds.

Securities which carry a discretionary coupon and have no fixed maturity or redemption date are classified as other equity instruments. Interest payments on these securities are recognised, net of tax, as distributions from equity in the period in which they are paid.

Where the Company or other members of the consolidated Group purchase the Company's equity share capital, the consideration paid is deducted from the total shareholders' equity of the Group and/or of the Company as Treasury shares until they are cancelled. Where such shares are subsequently sold or reissued, any consideration received is included in shareholders' equity of the Group and/or the Company.

	Number of ordinary shares millions	Ordinary share capital1 millions	Ordinary share premium millions	Preference share premium2 millions	Total share capital and share premium millions	Other equity instruments millions
At 1 January 2020	3,196	1,598	3,986	1,494	7,078	5,513
Cancellation of shares including share buy-back	(40)	(20)	-	-	(20)	-
Additional Tier 1 equity issuance	-	-	-	-	-	992
Additional Tier 1 equity redemption	-	-	-	-	-	(1,987)
At 31 December 2020	3,156	1,578	3,986	1,494	7,058	4,518
Cancellation of shares including share buy-back	(77)	(39)	-	-	(39)	-
Additional Tier 1 equity issuance	-	-	-	-	-	2,728
Additional Tier 1 redemption	-	-	-	-	-	(992)
Other movements	-	-	3	-	3	-
At 31 December 2021	3,079	1,539	3,989	1,494	7,022	6,254

1   Issued and fully paid ordinary shares of 50 cents each

2   Includes preference share capital of $75,000

Page 100

Share buy-back

On 25 February 2021, the Group announced the buy-back programme for a share buy-back of its ordinary shares of $0.50 each. Nominal value of share purchases was $19 million, and the total consideration paid was $255 million (including $2 million of fees and stamp duty). The total number of shares purchased was 37,148,399 representing 1.18 per cent of the ordinary shares in issue. The nominal value of the shares was transferred from the share capital to the capital redemption reserve account. The shares were purchased by Standard Chartered PLC on various exchanges, not including the Hong Kong Stock Exchange.

On 3 August 2021, the Group announced the buy-back programme for a share buy-back of its ordinary shares of $0.50 each. Nominal value of share purchases was $20 million, and the total consideration paid was $251 million (including $1 million of fees and stamp duty). The total number of shares purchased was 39,914,763 representing 1.28 per cent of the ordinary shares in issue. The nominal value of the shares was transferred from the share capital to the capital redemption reserve account. The shares were purchased by Standard Chartered PLC on various exchanges, not including the Hong Kong Stock Exchange.

	Number of ordinary shares	Highest price paid £	Lowest price paid £	Average price paid per share £	Aggregate price paid £	Aggregate price paid $
March 2021	37,148,399	5.09200	4.68000	4.92011	182,774,269	253,593,477
August 2021	23,892,155	4.68200	4.40200	4.55018	108,732,693	149,886,418
September 2021	16,022,608	4.64600	4.36700	4.51573	72,387,340	100,113,434

Ordinary share capital

In accordance with the Companies Act 2006 the Company does not have authorised share capital. The nominal value of each ordinary share is 50 cents.

During the period nil shares were issued under employee share plans.

Preference share capital

At 31 December 2021, the Company had 15,000 $5 non-cumulative redeemable preference shares in issue, with a premium of $99,995 making a paid-up amount per preference share of $100,000. The preference shares are redeemable at the option of the Company and are classified in equity.

The available profits of the Company are distributed to the holders of the issued preference shares in priority to payments made to holders of the ordinary shares and in priority to, or pari passu with, any payments to the holders of any other class of shares in issue. On a winding up, the assets of the Company are applied to the holders of the preference shares in priority to any payment to the ordinary shareholders and in priority to, or pari passu with, the holders of any other shares in issue, for an amount equal to any dividends payable (on approval of the Board) and the nominal value of the shares together with any premium as determined by the Board. The redeemable preference shares are redeemable at the paid-up amount (which includes premium) at the option of the Company in accordance with the terms of the shares. The holders of the preference shares are not entitled to attend or vote at any general meeting, except where any relevant dividend due is not paid in full, or where a resolution is proposed varying the rights of the preference shares.

Other equity instruments

The table provides details of outstanding fixed rate resetting perpetual subordinated contingent convertible AT1 securities issued by Standard Chartered PLC. All issuances are made for general business purposes and to increase the regulatory capital base of the Group.

Issuance date	Nominal value	Proceeds net of issue costs	Interest rate2	Coupon payment dates3	First reset dates4	Conversion price per ordinary share
18 August 2016	USD 999 million1	USD 990 million	7.50%	2 April, 2 October each year	2 April 2022	USD 7.732
18 January 2017	USD 1,000 million	USD 992 million	7.75%	2 April, 2 October each year	2 April 2023	USD 7.732
3 July 2019	SGD 750 million	USD 552 million	5.375%	3 April, 3 October each year	3 October 2024	SGD 10.909
26 June 2020	USD 1,000 million	USD 992 million	6%	26 January, 26 July each year	26 January 2026	USD 5.331
14 January 2021	USD 1,250 million	USD 1,239 million	4.75%	14 January, 14 July each year	14 July 2031	USD 6.353
19 August 2021	USD 1,500 million	USD 1,489 million	4.30%	19 February, 19 August each year	19 August 2028	USD 6.382

1   During the period, the Group repurchased around USD 1,001 million of these securities via a tender offer

2   Interest rates for the period from (and including) the issue date to (but excluding) the first reset date

3   Interest payable semi-annually in arrears

4   Securities are resettable each date falling five years, or an integral multiple of five years, after the first reset date

The AT1 issuances above are primarily purchased by institutional investors.

 

Page 101

The principal terms of the AT1 securities are described below:

• The securities are perpetual and redeemable, at the option of Standard Chartered PLC in whole but not in part, on the first interest reset date and each date falling five years after the first reset date

• The securities are also redeemable for certain regulatory or tax reasons on any date at 100 per cent of their principal amount together with any accrued but unpaid interest up to (but excluding) the date fixed for redemption. Any redemption is subject to Standard Chartered PLC giving notice to the relevant regulator and the regulator granting permission to redeem

• Interest payments on these securities will be accounted for as a dividend.

• Interest on the securities is due and payable only at the sole and absolute discretion of Standard Chartered PLC, subject to certain additional restrictions set out in the terms and conditions. Accordingly, Standard Chartered PLC may at any time elect to cancel any interest payment (or part thereof) which would otherwise be payable on any interest payment date.

• The securities convert into ordinary shares of Standard Chartered PLC, at a predetermined price detailed in the table above, should the fully loaded Common Equity Tier 1 ratio of the Group fall below 7.0 per cent. Approximately 947 million ordinary shares would be required to satisfy the conversion of all the securities mentioned above

The securities rank behind the claims against Standard Chartered PLC of; (a) unsubordinated creditors; (b) which are expressed to be subordinated to the claims of unsubordinated creditors of Standard Chartered PLC but not further or otherwise; or (c) which are, or are expressed to be, junior to the claims of other creditors of Standard Chartered PLC, whether subordinated or unsubordinated, other than claims which rank, or are expressed to rank, pari passu with, or junior to, the claims of holders of the AT1 securities in a winding-up occurring prior to the conversion trigger.

Reserves

The constituents of the reserves are summarised as follows:

• The capital reserve represents the exchange difference on redenomination of share capital and share premium from sterling to US dollars in 2001. The capital redemption reserve represents the nominal value of preference shares redeemed

• The amounts in the 'Capital and Merger Reserve' represents, the premium arising on shares issued using a cash box financing structure, which required the Company to create a merger reserve under section 612 of the Companies Act 2006. Shares were issued using this structure in 2005 and 2006 to assist in the funding of Korea ($1.9 billion) and Taiwan ($1.2 billion) acquisitions, in 2008, 2010 and 2015 for the shares issued by way of a rights issue, primarily for capital maintenance requirements, and for the shares issued in 2009 by way of an accelerated book build, the proceeds of which were used in the ordinary course of business of the Group. The funding raised by the 2008, 2010 and 2015 rights issues and 2009 share issue was fully retained within the Company. Of the 2015 funding, $1.5 billion was used to subscribe to additional equity in Standard Chartered Bank, a wholly owned subsidiary of the Company. Apart from the Korea, Taiwan and Standard Chartered Bank funding, the merger reserve is considered realised and distributable.

• Own credit adjustment (OCA) reserve represents the cumulative gains and losses on financial liabilities designated at fair value through profit or loss relating to own credit. Gains and losses on financial liabilities designated at fair value through profit or loss relating to own credit in the year have been taken through other comprehensive income into this reserve. On derecognition of applicable instruments, the balance of any OCA will not be recycled to the income statement, but will be transferred within equity to retained earnings

• Fair value through other comprehensive income (FVOCI) debt reserve represents the unrealised fair value gains and losses in respect of financial assets classified as FVOCI, net of expected credit losses and taxation. Gains and losses are deferred in this reserve and are reclassified to the income statement when the underlying asset is sold, matures or becomes impaired.

• FVOCI equity reserve represents unrealised fair value gains and losses in respect of financial assets classified as FVOCI, net of taxation. Gains and losses are recorded in this reserve and never recycled to the income statement

Page 102

• Cash flow hedge reserve represents the effective portion of the gains and losses on derivatives that meet the criteria for these types of hedges. Gains and losses are deferred in this reserve and are reclassified to the income statement when the underlying hedged item affects profit and loss or when a forecast transaction is no longer expected to occur

• Translation reserve represents the cumulative foreign exchange gains and losses on translation of the net investment of the Group in foreign operations. Since 1 January 2004, gains and losses are deferred to this reserve and are reclassified to the income statement when the underlying foreign operation is disposed. Gains and losses arising from derivatives used as hedges of net investments are netted against the foreign exchange gains and losses on translation of the net investment of the foreign operations

• Retained earnings represents, profits and other comprehensive income earned by the Group and Company in the current and prior periods, together with the after-tax increase relating to equity-settled share options, less dividend distributions, own shares held (Treasury shares) and share buy-backs

A substantial part of the Group's reserves is held in overseas subsidiary undertakings and branches, principally to support local operations or to comply with local regulations. The maintenance of local regulatory capital ratios could potentially restrict the amount of reserves which can be remitted. In addition, if these overseas reserves were to be remitted, further unprovided taxation liabilities might arise.

As at 31 December 2021, the distributable reserves of Standard Chartered PLC (the Company) were $15.0 billion (31 December 2020: $14.3 billion). These comprised retained earnings and $12.6 billion of the merger reserve account. Distribution of reserves is subject to maintaining minimum capital requirements.

Own shares

Computershare Trustees (Jersey) Limited is the trustee of the 2004 Employee Benefit Trust ('2004 Trust') and Ocorian Trustees (Jersey) Limited (formerly known as Bedell Trustees Limited) is the trustee of the 1995 Employees' Share Ownership Plan Trust ('1995 Trust'). The 2004 Trust is used in conjunction with the Group's employee share schemes and the 1995 Trust is used for the delivery of other employee share-based payments (such as upfront shares and fixed pay allowances). Group companies fund these trusts from time to time to enable the trustees to acquire shares to satisfy these arrangements.

Except as disclosed, neither the Company nor any of its subsidiaries has bought, sold or redeemed any securities of the Company listed on The Stock Exchange of Hong Kong Limited during the period. Details of the shares purchased and held by the trusts are set out below.

	1995 Trust			2004 Trust1			Total
	2021	2020		2021	2020		2021	2020
Shares purchased during the period	-	2,999,210		36,487,747	14,359,481		36,487,747	17,358,691
Market price of shares purchased ($million)	-	22		237	86		237	108
Shares transferred between trusts	-	(2,999,210)		-	2,999,210		-	-
Shares held at the end of the period	-	-		22,461,243	6,119,666		22,461,243	6,119,666
Maximum number of shares held during the period							23,076,993	11,262,818

1   Note that 35,768 shares were purchased by the trustee of the 2004 Trust using $0.2 million participant savings as part of Sharesave exercises

Dividend waivers

The trustees of the 2004 Trust, which holds ordinary shares in Standard Chartered PLC in connection with the operation of its employee share plans, have lodged standing instructions in relation to shares held by them that have not been allocated to employees, whereby any dividend is waived on the balance of ordinary shares and recalculated and paid at the rate of 0.01p per share.

Page 103

Changes in share capital and other equity instruments of Standard Chartered PLC subsidiaries

The table below details the transactions in equity instruments (including convertible and hybrid instruments) of the Group's subsidiaries, including issuances, conversions, redemptions, purchase or cancellation. This is required under the Hong Kong Listing requirements, appendix 16, paragraph 10.

Name and registered address	Country of incorporation	Description of shares	Issued/(redeemed) capital	Issued/(redeemed) Shares	Proportion of shares held (%)
The following companies have the address of 1 Basinghall Avenue, London, EC2V 5DD, United Kingdom
SCMB Overseas Limited	United Kingdom	£0.10 Ordinary shares	£1,500,000	15,000,000	100
Standard Chartered Bank	United Kingdom	$1.00 Ordinary shares	$1,273,000,000	1,273,000,000	100
Standard Chartered Holdings Limited	United Kingdom	$2.00 Ordinary shares	$1,273,000,000	636,500,000	100
Standard Chartered Overseas Holdings Limited	United Kingdom	£1.00 Ordinary shares	£(4,369,087)	(4,369,087)	100
Standard Chartered UK Holdings Limited	United Kingdom	£10.00 Ordinary shares	£167,240,340	16,724,034	100
The following companies have the address of Thomas House, 84 Eccleston Square, London, SW1V 1PX, United Kingdom
Zodia Custody Limited	United Kingdom	$1.00 Ordinary shares	$14,886,435	14,886,435	100
Zodia Holdings Limited	United Kingdom	$1.00 Ordinary-A shares	$33,906,999	33,906,999	100
The following companies have the address of Spaces, 25 Wilton Road, Victoria, London, SW1V 1LW, United Kingdom
Zodia Markets Holdings Limited	United Kingdom	$1.00 Ordinary shares	$10,000	10,000	75.01
The following companies have the address of 15/F, Two International Finance Centre, No. 8 Finance Street, Central, Hong Kong
Marina Angelite Shipping Limited	Hong Kong	$ Ordinary shares	$2,558,984	2,558,984	100
Marina Beryl Shipping Limited	Hong Kong	$ Ordinary shares	$2,579,431	2,579,431	100
Marina Emerald Shipping Limited	Hong Kong	$ Ordinary shares	$2,006,284	2,006,284	100
Marina Iridot Shipping Limited	Hong Kong	$ Ordinary shares	$2,880,258	2,880,258	100
Marina Mimosa Limited Hong Kong	Hong Kong	$ Ordinary shares	$16,356,848	16,356,848	100
Marina Sapphire Shipping Limited	Hong Kong	$ Ordinary shares	$2,361,118	2,361,118	100
Marina Tourmaline Shipping Limited	Hong Kong	$ Ordinary shares	$2,566,770	2,566,770	100
The following company has the address of 32/F, Standard Chartered Bank Building, 4-4A Des Voeux Road, Central, Hong Kong
Mox Bank Limited	Hong Kong	HKD Ordinary shares	HKD46,920,000	46,920,000	65.1
The following company has the address of Second Floor, Indiqube Edge, Khata No. 571/630/6/4, Sy.No.6/4, Ambalipura Village, Varthur Hobli, Marathahalli Sub-Division, Ward No. 150, Bengaluru, 560102, India.
Standard Chartered Research and Technology India Private Limited	India	INR10.00 A Equity shares	INR232,039,640	23,203,964	100
The following company has the address of StandardChartered@Chiromo, Number 48, Westlands Road, P. O. Box 30003 - 00100, Nairobi, Kenya
Standard Chartered Bancassurance Intermediary Limited	Kenya	KES100.00 Ordinary shares	KES4,000,000	40,000	100
The following company has the address of C/o IQ EQ Corporate Services (Mauritius) Ltd, 33 Edith Cavell Street, Port Louis, 11324, Mauritius
FAI Limited	Mauritius	$1.00 Ordinary shares	$35,000	35,000	76.6

Page 104

The following company has the address of Standard Chartered Bank Nepal Limited, Madan Bhandari Marg, Ward No.34, Kathmandu Metropolitan City, Kathmandu District, Bagmati Zone, Kathmandu, Nepal
Standard Chartered Bank Nepal Limited	Nepal	NPR100.00 Ordinary shares	NPR1,418,023,000	14,180,230	70.21
The following companies have the address of 1 Basinghall Avenue, London, EC2V 5DD, United Kingdom
Standard Chartered Holdings (Africa) B.V.	Netherlands	€4.50 Ordinary shares	€1,800,000	400,000	100
Standard Chartered Holdings (International) B.V.	Netherlands	€4.50 Ordinary shares	€1,800,000	400,000	100
The following company has the address of 9 & 11, Lightfoot Boston Street, Freetown, Sierra Leone
Standard Chartered Bank Sierra Leone Limited	Sierra Leone	SLL1.00 Ordinary shares	SLL21,697,073,680	21,697,073,680	80.7

The following companies have the address of 8 Marina Boulevard, #27-01 Marina Bay Financial Centre Tower 1, 018981, Singapore
Standard Chartered Bank (Singapore) Limited	Singapore	$ Ordinary-A shares	$868,671,601	868,671,601	100
	Singapore	$ Ordinary-B shares	$559,193,805	559,193,805	100
	Singapore	$ Ordinary-C shares	$254,040,296	254,040,296	100
Standard Chartered Holdings (Singapore) Private Limited	Singapore	$ Ordinary shares	$868,671,601	868,671,601	100
The following companies have the address of 80 Robinson Road, #02-00, 068898, Singapore
Autumn Life Pte. Ltd.1	Singapore	$ Ordinary-A shares	$9,450,184	9,450,184	100
Cardspal Pte. Ltd.2	Singapore	$ Ordinary-A shares	$7,009,000	7,009,000	100
Discovery Technology Services Pte. Ltd.	Singapore	$ Ordinary shares	$9,416,001	9,416,001	100
Pegasus Dealmaking Pte. Ltd.	Singapore	$ Ordinary shares	$1	1	100
Power2SME Pte. Ltd.	Singapore	$ Ordinary shares	$59,906,501	59,906,501	100
SCV Master Holding Company Pte. Ltd.	Singapore	$ Ordinary shares	$60,906,501	60,906,501	100
SCV Research and Development Pte. Ltd.	Singapore	$ Ordinary shares	$1	1	100
Solv-India Pte. Ltd.	Singapore	$ Ordinary shares	$44,806,501	44,806,501	100
The following companies have the address of 140 Robinson Road, #17-01, Crown At Robinson, Singapore, 068907.
Trust Bank Singapore Limited	Singapore	SGD Ordinary shares	SGD190,000,000	190,000,000	60
The following company has the address of Room 1810-1815, Level 18, Building 72, Keangnam Hanoi Landmark Tower, Pham Hung Road, Cau Giay New Urban Area, Me Tri Ward, Nam Tu Liem District, Hanoi10000, Vietnam
Standard Chartered Bank (Vietnam) Limited	Vietnam	VND Charter Capital shares	VND 2,739,600,000,000	2,739,600,000,000	100

1   Redenomination of 4,500,000 shares from US$ Ordinary shares to US$ Ordinary-A shares

2   Redenomination of 1,620,000 shares from US$ Ordinary shares to US$ Ordinary-A shares

Please see Note 22 Debt securities in issue for issuances and redemptions of senior notes.

Please see Note 27 Subordinated liabilities and other borrowed funds for issuance and redemptions of subordinated liabilities and AT1 securities.

Please see Note 40 Related undertakings of the Group for subsidiaries liquidated, dissolved or sold during the year.

Page 105

29. Non-controlling interests

Accounting policy

Non-controlling interests are measured at the non-controlling interest's proportionate share of the acquiree's identifiable net assets.

	$million
At 1 January 2020	313
Income in equity attributable to non-controlling interests	(12)
Other profits attributable to non-controlling interests	27
Comprehensive income for the year	15
Distributions	(20)
Other increases1	17
At 31 December 2020	325
Income in equity attributable to non-controlling interests	(15)
Other profits attributable to non-controlling interests	(2)
Comprehensive income for the year	(17)
Distributions	(31)
Other increases2	94
At 31 December 2021	371

1  Movement related to non-controlling interests from Mox Bank Limited ($17 million)

2  Movements related to non-controlling interests from Mox Bank Limited ($21 million), Trust Bank Singapore Limited ($70 million), Zodia Markets Holdings Limited ($3 million)

Page 106

30. Retirement benefit obligations

Accounting policy

The Group operates pension and other post-retirement benefit plans around the world, which can be categorised into defined contribution plans and defined benefit plans. For defined contribution plans, the Group pays contributions to publicly or privately administered pension plans on a statutory or contractual basis, and such amounts are charged to operating expenses. The Group has no further payment obligations once the contributions have been paid.

For funded defined benefit plans, the liability recognised in the balance sheet is the present value of the defined benefit obligation at the balance sheet date less the fair value of plan assets. For unfunded defined benefit plans the liability recognised at the balance sheet date is the present value of the defined benefit obligation.

The defined benefit obligation is calculated annually by independent actuaries using the projected unit method.

Actuarial gains and losses that arise are recognised in shareholders' equity and presented in the statement of other comprehensive income in the period they arise. The Group determines the net interest expense on the net defined benefit liability for the year by applying the discount rate used to measure the defined benefit obligation at the beginning of the annual period to the net defined benefit liability, taking into account any changes in the net defined benefit liability during the year as a result of contributions and benefit payments. Net interest expense, the cost of the accrual of new benefits, benefit enhancements (or reductions) and administration expenses met directly from plan assets are recognised in the income statement in the period in which they were incurred.

Significant accounting estimates and judgements

There are many factors that affect the measurement of the retirement benefit obligations. This measurement requires the use of estimates, such as discount rates, inflation, pension increases, salary increases, and life expectancies which are inherently uncertain. Discount rates are determined by reference to market yields at the end of the reporting period on high-quality corporate bonds (or, in countries where there is no deep market in such bonds, government bonds) of a currency and term consistent with the currency and term of the post-employment benefit obligations. This is the approach adopted across our geographies. Where there are inflation-linked bonds available (e.g. United Kingdom and the eurozone), the Group derives inflation based on the market on those bonds, with the market yield adjusted in respect of the United Kingdom to take account of the fact that liabilities are linked to Consumer Price Index inflation, whereas the reference bonds are linked to Retail Price Index inflation. Where no inflation-linked bonds exist, we determine inflation assumptions based on a combination of long-term forecasts and short-term inflation data. Salary growth assumptions reflect the Group's long-term expectations, taking into account future business plans and macroeconomic data (primarily expected future long-term inflation). Demographic assumptions, including mortality and turnover rates, are typically set based on the assumptions used in the most recent actuarial funding valuation, and will generally use industry standard tables, adjusted where appropriate to reflect recent historic experience and/or future expectations. The sensitivity of the liabilities to changes in these assumptions is shown in the Note below.

Retirement benefit obligations comprise:

	2021 $million	2020 $million
Defined benefit plans obligation	192	434
Defined contribution plans obligation	18	9
Net obligation	210	443

Retirement benefit charge comprises:

	2021 $million	2020 $million
Defined benefit plans	62	81
Defined contribution plans1	315	277
Charge against profit (Note 7)	377	358

1   The Group has during the year utilised against defined contribution payments, $5m forfeited pension contributions in respect of employees who left before their interests vested fully. The residual balance of forfeited contributions is $17m

The Group operates over 60 defined benefit plans across its geographies, many of which are closed to new entrants who now join defined contribution arrangements. The aim of all these plans is, as part of the Group's commitment to financial wellbeing for employees, to give employees the opportunity to save appropriately for retirement in a way that is consistent with local regulations, taxation requirements and market conditions. The defined benefit plans expose the Group to currency risk, interest rate risk, investment risk and actuarial risks such as longevity risk.  Page 107

The material holdings of government and corporate bonds shown partially hedge movements in the liabilities resulting from interest rate and inflation changes. Setting aside movements from other drivers such as currency fluctuation, the increases in discount rates in most geographies over 2021 have led to lower liabilities. These have been partly offset by decreases in the value of bonds held but good stock market performance has led to assets broadly holding level over the year resulting in a material fall in the pension deficit reported. These movements are shown as actuarial gains in the tables below. Contributions into a number of plans in excess of the amounts required to fund benefits accruing have also helped to reduce the net deficit over the year.

The disclosures required under IAS 19 have been calculated by independent qualified actuaries based on the most recent full actuarial valuations updated, where necessary, to 31 December 2021.

UK Fund

The Standard Chartered Pension Fund (the 'UK Fund') is the Group's largest pension plan, representing 58 per cent (31 December 2020: 63 per cent) of total pension liabilities. The UK Fund is set up under a trust that is legally separate from the Bank (its formal sponsor) and, as required by UK legislation, at least one third of the trustee directors are nominated by members; the remainder are appointed by the Bank. The trustee directors have a fiduciary duty to members and are responsible for governing the UK Fund in accordance with its Trust Deed and Rules.

The UK Fund was closed to new entrants from 1 July 1998 and closed to the accrual of new benefits from 1 April 2018: all UK employees are now offered membership of a defined contribution plan.

The financial position of the UK Fund is regularly assessed by an independent qualified actuary. The funding valuation as at 31 December 2020 was completed in December 2021 by the Scheme Actuary, T Kripps of Willis Towers Watson, using assumptions different from those, and agreed with the UK Fund trustee. It showed that the UK Fund was 92% funded at that date, revealing a past service deficit of $172 million (£127 million).

To repair the deficit, three annual cash payments each of $45 million (£32.9 million) were agreed, with the first of these paid in December 2021, and two further instalments to be paid in December 2022 and December 2023. The agreement allows that, if the funding position improves to being at or near a surplus in future years, the payments due in 2022 and 2023 will be reduced or eliminated. In addition, an additional payment of $68 million (£50 million) has been made to top up the existing escrow account of $149 million (£110 million) which exists to provide security for future contributions.

The Group has not recognised any additional liability under IFRIC 14, as the Bank has control of any pension surplus under the Trust Deed and Rules.

Overseas plans

The principal overseas defined benefit arrangements operated by the Group are in Germany, Hong Kong, India, Jersey, Korea, Taiwan, United Arab Emirates (UAE) and the United States of America (US). Plans in Germany, Hong Kong, India, Korea, Taiwan and UAE remain open for accrual of future benefits.

Key assumptions

The principal financial assumptions used at 31 December 2021 were:

	Funded plans
	UK Fund			Overseas Plans1
	2021 %	2020 %		2021 %	2020 %
Discount rate	2.0	1.4		0.4 - 3.1	0.3 - 2.8
Price Inflation	2.6	2.2		1.0 - 3.1	1.0 - 3.0
Salary increases	n/a	n/a		3.5 - 4.5	2.9 - 4.0
Pension increases	2.5	2.1		1.9 - 3.1	1.3 - 2.7

1   The range of assumptions shown is for the funded defined benefit overseas plans in Germany, Hong Kong, Jersey, Korea, Taiwan, and the US. These comprise around 80 per cent of the total liabilities of overseas funded plans.

Page 108

	Unfunded plans
	US post-retirement medical			Other1
	2021 %	2020 %		2021 %	2020 %
Discount rate	3.1	2.8		2.2 - 6.7	1.4 - 6.3
Price inflation	2.5	2.5		2.0 - 4.0	2.0 - 4.0
Salary increases	N/A	N/A		3.7 - 7.0	3.5 - 7.0
Pension increases	N/A	N/A		0.0 - 2.6	0.0 - 2.1
Post-retirement medical rate	7% in 2021 reducing by 0.5% per annum to 5% in 2025	7% in 2020 reducing by 0.5% per annum to 5% in 2024		N/A	N/A

1   The range of assumptions shown is for the main unfunded defined benefit plans in Bahrain, India, Korea, Thailand, UAE and the UK. They comprise around 90 per cent of the total liabilities of other unfunded plans

The principal non-financial assumptions are those made for UK life expectancy. The UK mortality tables are S3PMA for males and S3PFA for females, projected by year of birth with the CMI 2019 improvement model with a 1.25% annual trend and initial addition parameter of 0.25%. Scaling factors of 92% for male pensioners, 92% for female pensioners, 92% for male dependants and 82% for female dependants have been applied.

The resulting assumptions for life expectancy for the UK Fund are that a male member currently aged 60 will live for 27 years (31 December 2020: 27 years) and a female member for 30 years (31 December 2020: 30 years) and a male member currently aged 40 will live for 29 years (31 December 2020: 29 years) and a female member for 31 years (31 December 2020: 31 years) after their 60th birthdays..

Both financial and non-financial assumptions can be expected to change in the future, which would affect the value placed on the liabilities. For example, changes at the reporting date to one of the relevant actuarial assumptions, holding other assumptions constant, would have affected the defined benefit obligation by the amounts shown below:

• If the discount rate increased by 25 basis points the liability would reduce by approximately $65 million for the UK Fund (31 December 2020: $75 million) and $35 million for the other plans (31 December 2020: $40 million)

• If the rate of inflation increased by 25 basis points the liability, allowing for the consequent impact on pension and salary increases would increase by approximately $45 million for the UK Fund (31 December 2020: $50 million) and $20 million for the other plans (31 December 2020: $25 million)

• If the rate salaries increase compared to inflation increased by 25 basis points the liability would increase by nil for the UK Fund (31 December 2020: nil) and approximately $15 million for the other plans (31 December 2020: $15 million)

• If longevity expectations increased by one year the liability would increase by approximately $80 million for the UK Fund (31 December 2020: $70 million) and $15 million for the other plans (31 December 2020: $20 million)

Although this analysis does not take account of the full distribution of cash flows expected, it does provide an approximation of the sensitivity to the main assumptions. While changes in other assumptions would also have an impact, the effect would not be as significant.

Profile of plan obligations

	Funded plans			Unfunded plans
	UK Fund	Overseas		Post-retirement medical	Other
Duration of the defined benefit obligation (in years)	15	11		9	11
(Duration of the defined benefit obligation - 2020)	15	11		10	11
Benefits expected to be paid from plans
Benefits expected to be paid during 2022	86	59		1	16
Benefits expected to be paid during 2023	88	82		1	14
Benefits expected to be paid during 2024	90	72		1	14
Benefits expected to be paid during 2025	93	70		1	14
Benefits expected to be paid during 2026	95	73		1	15
Benefits expected to be paid during 2027 to 2030	514	489		5	72

Page 109

 

Fund values: The fair value of assets and present value of liabilities of the defined benefit plans were:

At 31 December	2021						2020
	Funded plans			Unfunded plans			Funded plans			Unfunded plans
	UK Fund $million	Overseas plans $million		Post-retirement medical $million	Other $million		UK Fund $million	Overseas plans $million		Post-retirement medical $million	Other $million
Equities	145	306		N/A	N/A		118	374		N/A	N/A
Government bonds	695	224		N/A	N/A		844	189		N/A	N/A
Corporate bonds	610	164		N/A	N/A		508	129		N/A	N/A
Absolute Return Fund	91	-		N/A	N/A		94	-		N/A	N/A
Hedge funds1	19	-		N/A	N/A		89	-		N/A	N/A
Insurance linked funds1	11	-		N/A	N/A		36	-		N/A	N/A
Property	127	11		N/A	N/A		74	9		N/A	N/A
Derivatives	10	-		N/A	N/A		20	4		N/A	N/A
Cash and equivalents	108	260		N/A	N/A		141	297		N/A	N/A
Others1	94	67		N/A	N/A		10	21		N/A	N/A
Total fair value of assets2	1,910	1,032		N/A	N/A		1,934	1,023		N/A	N/A
Present value of liabilities	(1,822)	(1,076)		(13)	(223)		(1,982)	(1,147)		(16)	(246)
Net pension plan surplus/obligation	88	(44)		(13)	(223)		(48)	(124)		(16)	(246)

1   Unquoted asset

2   Self-investment is monitored closely and is less than $1 million of Standard Chartered equities and bonds for 2021 (31 December 2020: <$1 million). Self-investment is only allowed where it is not practical to exclude it - for example through investment in index-tracking funds where the Group is a constituent of the relevant index

The pension cost for defined benefit plans was:

2021	Funded plans			Unfunded plans		Total $million
	UK Fund $million	Overseas plans $million		Post- retirement medical $million	Other $million
Current service cost1	-	55		-	9	64
Past service cost and curtailments2	-	(1)		-	(4)	(5)
Settlement cost2	-	(3)		-	(1)	(4)
Interest income on pension plan assets	(26)	(27)		-	-	(53)
Interest on pension plan liabilities	27	29		-	4	60
Total charge to profit before deduction of tax	1	53		-	8	62
Net (gains)/losses on plan assets3	(6)	(65)		-	-	(71)
(Gains)/losses on liabilities	(87)	(10)		(2)	(9)	(108)
Total (gains)/losses recognised directly in statement of comprehensive income before tax	(93)	(75)		(2)	(9)	(179)
Deferred taxation	-	17		-	-	17
Total (gains)/losses after tax	(93)	(58)		(2)	(9)	(162)

1   Includes administrative expenses paid out of plan assets of $ 1 million (31 December 2020: $2 million)

2   Includes various small costs and gains from plan amendments and settlements in India, Kenya, South Korea and Sri Lanka

3   The actual return on the UK Fund assets was a gain of $32 million and on overseas plan assets was a gain of $92 million

2020	Funded plans			Unfunded plans		Total $million
	UK Fund $million	Overseas plans $million		Post- retirement medical $million	Other $million
Current service cost1	-	50		-	7	57
Past service cost and curtailments2	-	-		-	14	14
Settlement cost2	-	-		-	-	-
Interest income on pension plan assets	(32)	(28)		-	-	(60)
Interest on pension plan liabilities	35	29		1	5	70
Total charge to profit before deduction of tax	3	51		1	26	81
Net (gains)/losses on plan assets3	(160)	(81)		-	-	(241)
Losses/(Gains) on liabilities	131	88		(1)	22	240
Total (gains)/losses recognised directly in statement of comprehensive income before tax	(29)	7		(1)	22	(1)
Deferred taxation	-	(9)		-	-	(9)
Total (gains)/losses after tax	(29)	(2)		(1)	22	(10)

1   Includes administrative expenses paid out of plan assets of $2 million (31 December 2019: $2 million)

2   Past service costs arose primarily due to recognition of a legacy UK long-term sick plan which has been clarified as technically representing a defined benefit

3   The actual return on the UK Fund assets was a gain of $192 million and on overseas plan assets was a gain of $109 million

 

Page 110

Movement in the defined benefit pension plans and post-retirement medical deficit during the year comprise:

	Funded plans			Unfunded plans		Total $million
	UK Fund $million	Overseas plans $million		Post- retirement medical $million	Other $million
(Deficit)/surplus at January 2021	(48)	(124)		(16)	(246)	(434)
Contributions	45	58		1	18	122
Current service cost1	-	(55)		-	(9)	(64)
Past service cost and curtailments	-	1		-	4	5
Settlement costs and transfers impact	-	3		-	1	4
Net interest on the net defined benefit asset/liability	(1)	(2)		-	(4)	(7)
Actuarial gains/(losses)	93	75		2	9	179
Exchange rate adjustment	(1)	-		-	4	3
Surplus/(deficit) at 31 December 2021²	88	(44)		(13)	(223)	(192)

1   Includes administrative expenses paid out of plan assets of $1 million (31 December 2020: $2 million)

2   The deficit total of $192 million is made up of plans in deficit of $355 million (31 December 2020: $476 million) net of plans in surplus with assets totalling $163 million (31 December 2020: $42 million)

Movement in the defined benefit pension plans and post-retirement medical deficit during the year comprise:

	Funded plans			Unfunded plans		Total $million
	UK Fund $million	Overseas plans $million		Post- retirement medical $million	Other $million
(Deficit)/surplus at January 2020	(117)	(115)		(16)	(210)	(458)
Contributions	44	63		-	16	123
Current service cost1	-	(50)		-	(7)	(57)
Past service cost and curtailments	-	-		-	(14)	(14)
Settlement costs and transfers impact2	-	(5)		-	-	(5)
Net interest on the net defined benefit asset/liability	(3)	(1)		(1)	(5)	(10)
Actuarial gains/(losses)	29	(7)		1	(22)	1
Exchange rate adjustment	(1)	(9)		-	(4)	(14)
(Deficit)/surplus at 31 December 2020³	(48)	(124)		(16)	(246)	(434)

1   Includes administrative expenses paid out of plan assets of $2 million (31 December 2019: $1 million)

2   Impact of transfers relates to a gratuity plan in India which was included within IAS 19 disclosures for the first time this year. Previously, a separate provision for these liabilities was included on the balance sheet.

3   The deficit total of $434 million is made up of plans in deficit of $476 million (31 December 2019: $486 million) net of plans in surplus with assets totalling $42 million (31 December 2019: $28 million)

The Group's expected contribution to its defined benefit pension plans in 2022 is $ 116 million.

	2021				2020
	Assets $million	Obligations $million	Total $million		Assets $million	Obligations $million	Total $million
At 1 January 2021	2,957	(3,391)	(434)		2,610	(3,068)	(458)
Contributions1	123	(1)	122		123	-	123
Current service cost2	-	(64)	(64)		-	(57)	(57)
Past service cost and curtailments	-	5	5		-	(14)	(14)
Settlement costs & impact of transfers3	10	(6)	4		19	(24)	(5)
Interest cost on pension plan liabilities	-	(60)	(60)		-	(70)	(70)
Interest income on pension plan assets	53	-	53		60	-	60
Benefits paid out2	(220)	220	-		(161)	161	-
Actuarial gains/(losses)4	71	108	179		241	(240)	1
Exchange rate adjustment	(52)	55	3		65	(79)	(14)
At 31 December 2021	2,942	(3,134)	(192)		2,957	(3,391)	(434)

1   Includes employee contributions of $1 million (31 December 2020: nil)

2   Includes administrative expenses paid out of plan assets of $1 million (31 December 2020: $2 million)

3   Impact of transfers includes a defined contribution plan in Zambia which was recognized within IAS 19 Disclosures for the first time this year due to the existence of an investment guarantee which constitutes a defined benefit under IAS 19. Previously, this plan was accounted for as a pure defined contribution plan.

4   Actuarial gain on obligation comprises of $108 million gain (31 December 2020: $256 million loss) from financial assumption changes, $3 million gain (31 December 2020: $21 million gain) from demographic assumption changes and $3 million loss (31 December 2020: $5 million loss) from experience

Page 111

31. Share-based payments

Accounting policy

The Group operates equity-settled and cash-settled share-based compensation plans. The fair value of the employee services (measured by the fair value of the awards granted) received in exchange for the grant of the shares and awards is recognised as an expense. For deferred share awards granted as part of an annual performance award, the expense is recognised over the period from the start of the performance period to the vesting date. For example, the expense for three-year awards granted in 2022 in respect of 2021 performance, which vest in 2023-2025, is recognised as an expense over the period from 1 January 2021 to the vesting dates in 2023-2025. For all other awards, the expense is recognised over the period from the date of grant to the vesting date.

For equity-settled awards, the total amount to be expensed over the vesting period is determined by reference to the fair value of the shares and awards at the date of grant, which excludes the impact of any non-market vesting conditions (for example, profitability and growth targets). The fair value of equity instruments granted is based on market prices, if available, at the date of grant. In the absence of market prices, the fair value of the instruments is estimated using an appropriate valuation technique, such as a binomial option pricing model. Non-market vesting conditions are included in assumptions for the number of shares and awards that are expected to vest.

At each balance sheet date, the Group revises its estimates of the number of shares and awards that are expected to vest. It recognises the impact of the revision of original estimates, if any, in the income statement and a corresponding adjustment to equity over the remaining vesting period. Forfeitures prior to vesting attributable to factors other than the failure to satisfy service conditions and non-market vesting conditions are treated as a cancellation and the remaining unamortised charge is debited to the income statement at the time of cancellation. The proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium when awards in the form of options are exercised.

Cash-settled awards are revalued at each balance sheet date and a liability recognised on the balance sheet for all unpaid amounts, with any changes in fair value charged or credited to staff costs in the income statement until the awards are exercised. Where forfeitures occur prior to vesting that are attributable to factors other than a failure to satisfy service conditions or market-based performance conditions, the cumulative charge incurred up to the date of forfeiture is credited to the income statement. Any revaluation related to cash-settled awards is recorded as an amount due from subsidiary undertakings.

The Group operates a number of share-based arrangements for its executive directors and employees. Details of the share-based payment charge are set out below.

	2021¹				2020¹
	Cash $million	Equity $million	Total $million		Cash $million	Equity $million	Total $million
Deferred share awards	9	81	90		(1)	59	58
Other share awards	10	67	77		(1)	75	74
Total share-based payments	19	148	167		(2)	134	132

1   No forfeiture assumed

2021 Standard Chartered Share Plan (the '2021 Plan') and 2011 Standard Chartered Share Plan (the '2011 Plan')

The 2021 Plan was approved by shareholders in May 2021 and is the Group's main share plan, replacing the 2011 Plan for new awards, June 2021. It may be used to deliver various types of share awards, previously granted under the 2011 Plan:

• Long Term Incentive Plan (LTIP) awards: granted with vesting subject to performance measures. Performance measures attached to awards granted previously include: total shareholder return (TSR); return on equity (RoE) and return on tangible equity (RoTE) (in the case of both RoE and RoTE, with a Common Equity Tier 1 (CET1) underpin); strategic measures; earnings per share (EPS) growth; and return on risk-weighted assets (RoRWA). Each measure is assessed independently over a three-year period. Awards granted from 2016 have an individual conduct gateway requirement that results in the award lapsing if not met

• Deferred awards are used to deliver the deferred portion of variable remuneration, in line with both market practice and regulatory requirements. These awards vest in instalments on anniversaries of the award date specified at the time of grant. Deferred awards are not subject to any plan limit. This enables the Group to meet regulatory requirements relating to deferral levels, and is in line with market practice

Page 112

• Restricted share awards, made outside of the annual performance process as replacement buy-out awards to new joiners who forfeit awards on leaving their previous employers, vest in instalments on the anniversaries of the award date specified at the time of grant. This enables the Group to meet regulatory requirements relating buy- to buy-outs, and is in line with market practice. In line with similar plans operated by our competitors, restricted share awards are not subject to an annual limit and do not have any performance measures

Under the 2021 Plan and 2011 Plan, no grant price is payable to receive an award. The remaining life of the 2021 Plan during which new awards can be made is ten years. The 2011 Plan has expired and no further awards will be granted under this plan.

Valuation - LTIP awards

The vesting of awards granted in both 2021 and 2020 is subject to relative TSR performance measures, achievement of a strategic scorecard and satisfaction of RoTE (subject to a capital CET1 underpin). The vesting of awards granted in 2021 has additional conditions under strategic measures related to targets set for sustainability linked to business strategy. The fair value of the TSR component is calculated using the probability of meeting the measures over a three-year performance period, using a Monte Carlo simulation model. The number of shares expected to vest is evaluated at each reporting date, based on the expected performance against the RoTE and strategic measures in the scorecard, to determine the accounting charge.

No dividend equivalents accrue for the LTIP awards made in 2020 or 2021 and the fair value takes this into account, calculated by reference to market consensus dividend yield.

	2021	2020
Grant date	15-March	09-March
Share price at grant date (£)	4.9	5.2
Vesting period (years)	03-Jul	03-Jul
Expected divided yield (%)	3.4	4.2
Fair value (RoTE) (£)	1.25, 1.20	1.40, 1.34
Fair value (TSR) (£)	0.72, 0.71	0.75, 0.72
Fair value (Strategic) (£)	1.66, 1.60	1.40, 1.34

Valuation - deferred shares and restricted shares

The fair value for deferred awards which are not granted to material risk takers is based on 100 per cent of the face value of the shares at the date of grant as the share price will reflect expectations of all future dividends. For awards granted to material risk takers in 2021, the fair value of awards takes into account the lack of dividend equivalents, calculated by reference to market consensus dividend yield.

Deferred share awards

Grant date	2021
	21-Jun		15-Mar
Share price at grant date (£)	4.69		4.9

Vesting period (years)	Expected dividend yield (%)	Fair value (£)		Expected dividend yield (%)	Fair value (£)
1-3 years	N/A,3.4	4.69,4.24		N/A,3.4,3.4	4.90,4.58,4.43
1-5 years	3.4	4.17		3.4,3.4,3.4	4.43,4.36,4.29
3-7 years	-	-		3.4,3.4	4.15,4.01

Grant date	2020
	22-Jun		30-Mar		09-Mar
Share price at grant date (£)	4.27		4.67		5.2

Vesting period (years)	Expected dividend yield (%)	Fair value (£)		Expected dividend yield (%)	Fair value (£)		Expected dividend yield (%)	Fair value (£)
1-3 years	NA	4.27		NA,4.2	4.67,4.13		NA,4.2,4.2	5.20,4.79,4.59
1-5 years	-	-		4.2	4.04		4.2,4.2	4.59,4.50
3-7 years	-	-		-	-		4.2,4.2	4.23,4.06

Page 113

Other restricted share awards

Grant date	2021
	30 September		21 June		15 March
Share price at grant date (£)	4.37		4.69		4.90

Vesting period (years)	Expected dividend yield (%)	Fair value (£)		Expected dividend yield (%)	Fair value (£)		Expected dividend yield (%)	Fair value (£)
1 year	3.4	4.23		3.4	4.53		3.4	4.74
2 years	3.4	4.09		3.4	4.38		3.4	4.58
3 years	3.4	3.95		3.4	4.24		3.4	4.43
4 years	3.4	3.82		3.4	4.10		3.4	4.29
5 years	3.4	3.70		-	-		-	-

Grant date	2020
	26 November		30 September		22 June		9 March
Share price at grant date (£)	4.71		3.52		4.27		5.20

Vesting period (years)	Expected dividend yield (%)	Fair value (£)		Expected dividend yield (%)	Fair value (£)		Expected dividend yield (%)	Fair value (£)		Expected dividend yield (%)	Fair value (£)
1 year	4.2	4.34,4.52		4.2	3.38		4.2	4.10		4.2	4.99
2 years	4.2	4.16,4.34		4.2	3.24		4.2	3.93		4.2	4.79
3 years	4.2	4.16		4.2	3.11		4.2	3.77		4.2	4.59
4 years	4.2	4.00		4.2	2.98		4.2	3.62		4.2	4.41
5 years	-	-		-	-		4.2	3.48		4.2	4.23

All Employee Sharesave Plans

2013 SharesavePlan

Under the 2013 Sharesave Plan, employees may open a savings contract. Within a maturity period of six months after the third anniversary, employees may save up to £250 per month over three years to purchase ordinary shares in the Company at a discount of up to 20 per cent on the share price at the date of invitation (this is known as the 'option exercise price'). There are no performance measures attached to options granted under the 2013 Sharesave Plan and no grant price is payable to receive an option. In some countries in which the Group operates, it is not possible to operate Sharesave plans, typically due to securities law and regulatory restrictions. In these countries, where possible, the Group offers an equivalent cash-based plan to its employees.

The 2013 Sharesave Plan was approved by shareholders in May 2013 and all future Sharesave invitations are made under this plan. The remaining life of the 2013 Sharesave Plan is one year.

Valuation - Sharesave:

Options under the Sharesave plans are valued using a binomial option-pricing model. The same fair value is applied to all employees including executive directors. The fair value per option granted and the assumptions used in the calculation are as follows:

All Employee Sharesave Plan (Sharesave)

	2021	2020
Grant date	30-September	30-September
Share price at grant date (£)	4.37	3.52
Exercise price (£)	3.67	3.14
Vesting period (years)	3	3
Expected volatility (%)	35.1	31.8
Expected option life (years)	3.33	3.33
Risk-free rate (%)	0.42	-0.07
Expected dividend yield (%)	3.4	4.2
Fair value (£)	1.11	0.69

Page 114

The expected volatility is based on historical volatility over the last three years, or three years prior to grant. The expected life is the average expected period to exercise. The risk-free rate of return is the yield on zero-coupon UK Government bonds of a term consistent with the assumed option life. The expected dividend yield is calculated by reference to market consensus dividend yield.

Limits

An award shall not be granted under the 2021 Plan in any calendar year if, at the time of its proposed grant, it would cause the number of Standard Chartered PLC ordinary shares allocated in the period of 10 calendar years ending with that calendar year under the 2021 Plan and under any other discretionary share plan operated by Standard Chartered PLC to exceed such number as represents 5 per cent of the ordinary share capital of Standard Chartered PLC in issue at that time.

An award shall not be granted under the 2021 Plan or 2013 Sharesave Plan in any calendar year if, at the time of its proposed grant, it would cause the number of Standard Chartered PLC ordinary shares allocated in the period of 10 calendar years ending with that calendar year under the 2021 Plan or 2013 Sharesave Plan and under any other employee share plan operated by Standard Chartered PLC to exceed such number as represents 10 per cent of the ordinary share capital of Standard Chartered PLC in issue at that time.

An award shall not be granted under the 2021 Plan or 2013 Sharesave Plan in any calendar year if, at the time of its proposed grant, it would cause the number of Standard Chartered PLC ordinary shares which may be issued or transferred pursuant to awards then outstanding under the 2021 Plan or 2013 Sharesave Plan as relevant to exceed such number as represents 10 per cent of the ordinary share capital of Standard Chartered PLC in issue at that time.

The number of Standard Chartered PLC ordinary shares which may be issued pursuant to awards granted under the 2021 Plan in any 12-month period must not exceed such number as represents 1 per cent of the ordinary share capital of Standard Chartered PLC in issue at that time. The number of Standard Chartered PLC ordinary shares which may be issued pursuant to awards granted under the 2013 Sharesave Plan in any 12-month period must not exceed such number as represents 1 per cent of the ordinary share capital of Standard Chartered PLC in issue at that time.

Standard Chartered PLC has been granted a waiver from strict compliance with Rules 17.03(3), 17.03(9) and 17.03(18) of the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong. Details are set out in the market announcement made on 5 May 2021.

Reconciliation of share award movements for the year to 31 December 2021:

	2011 Plan1		Sharesave	Weighted average Sharesave exercise price (£)
	LTIP1	Deferred / Restricted shares
Outstanding at 1 January 2021	22,918,242	39,543,548	16,591,704	4.31
Granted2,3	4,038,071	17,113,973	4,274,039	-
Lapsed	-15,005,847	-1,018,379	-3,964,053	5.16
Exercised	-322,715	-15,920,488	-4,615	3.53
Outstanding at 31 December 2021	11,627,751	39,718,654	16,897,075	3.95
Total number of securities available for issue under the plan	11,627,751	39,718,654	16,897,075
Percentage of the issued shares this represents as at 31 December 2021	0.40%	1.30%	0.50%	3.95
Exercisable as at 31 December 2021	3,952	1,701,506	2,571,103	4.96
Range of exercise prices (£)3	-	-	3.14 - 6.20	-
Intrinsic value of vested but not exercised options ($ million)	0.02	10.33	0.38
Weighted average contractual remaining life (years)	7.85	8.12	2.18
Weighted average share price for awards exercised during the period (£)	4.97	4.89	4.66

1   Employees do not contribute towards the cost of these awards

2   16,704,511 (DRSA/RSA) granted on 15 March 2021, 94,954 (DRSA/RSA) granted as notional dividend on 01 March 2021, 4,023,843 (LTIP) granted on 15 March 2021, 10,954 (LTIP) granted as notional dividend on 01 March 2021, 197,111 (DRSA/RSA) granted on 21 June 2021. 34,606 (DRSA/RSA) granted as notional dividend on
13 August 2021, 3,274 (LTIP) granted as notional dividend on 13 August 2021, 82,791 (RSA) granted on 30 September 2021, 4,274,039 (Sharesave) granted on
30 September 2021. LTIP and DRSA/RSA awards granted in March 2021 were granted under the 2011 Plan, and DRSA/RSA awards granted in June and September 2021 were granted under the 2021 Plan. Notional dividends were granted under the 2011 Plan. Sharesave options granted in 2021 were granted under the 2013 Sharesave Plan.

3   For Sharesave options granted in 2021 the exercise price is £3.67 per share, which was a 20% discount to the closing share price on 27 August 2021. The closing share price on 27 August 2021 was £4.578.

Page 115

 

Reconciliation of share award movements for the year to 31 December 2020:

	2011 Plan1		PSP1	Sharesave	Weighted average Sharesave exercise price (£)
	LTIP	Deferred /Restricted shares
Outstanding at 1 January 2020	20,912,679	28,235,461		12,602,842	5.28
Granted2,3	3,086,220	23,452,802		7,373,729	-
Lapsed	(824,269)	(657,697)		(3,228,307)	5.37
Exercised	(256,388)	(11,487,018)		(156,560)	5.30
Outstanding at 31 December	22,918,242	39,543,548		16,591,704	4.31
Total number of securities available for issue under the plan	22,918,242	39,543,548		16,591,704	4.31
Percentage of the issued shares this represents as at 31 December	0.7%	1.3%		0.5%
Exercisable as at 31 December	27,810	2,395,136		1,549,597	6.16
Range of exercise prices (£)3	-	-		3.14 - 6.20	-
Intrinsic value of vested but not exercised options ($ million)	0.18	15.23		0.02
Weighted average contractual remaining life (years)	6.28	8.36		2.47
Weighted average share price for awards exercised during the period (£)	4.28	4.55		6.76

1.   Employees do not contribute towards the cost of these awards

2.   22,007,464 (DRSA/RSA) granted on 09 March 2020, 189,991 (DRSA/RSA) granted as notional dividend on 06 March 2020, 3,025,163 (LTIP) granted on 09 March 2020, 56,805 (LTIP) granted as notional dividend on 06 March 2020, 86,319 (DRSA/RSA) granted on 30 March 2020, 214,754 (DRSA/RSA) granted on 22 June 2020, 4,252 (LTIP) granted as notional dividend on 25 August 2020, 503,520 (DRSA/RSA) granted on 30 September 2020, 7, 373,729 (Sharesave) granted on 30 September 2020, 450,754 (DRSA/RSA) granted on 26 November 2020.

3.   For Sharesave granted in 2020 the exercise price is £3.14 per share, which was a 20% discount to the closing share price on 28 August 2020. The closing share price on 28 August 2020 was £3.924.

32. Investments in subsidiary undertakings, joint ventures and associates

Accounting policy

Subsidiaries

Subsidiaries are all entities, including structured entities, which the Group controls. The Group controls an entity when it is exposed to, and has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the investee. The assessment of power is based on the Group's practical ability to direct the relevant activities of the entity unilaterally for the Group's own benefit and is subject to reassessment if and when one or more of the elements of control change. Subsidiaries are fully consolidated from the date on which the Group effectively obtains control. They are deconsolidated from the date that control ceases, and where any interest in the subsidiary remains, this is remeasured to its fair value and the change in carrying amount is recognised in the income statement.

Associates and joint arrangements

Joint arrangements are where two or more parties either have rights to the assets, and obligations of the joint arrangement (joint operations), or have rights to the net assets of the joint arrangement (joint venture). The Group evaluates the contractual terms of joint arrangements to determine whether a joint arrangement is a joint operation or a joint venture. The Group did not have any contractual interest in joint operations.

An associate is an entity over which the Group has significant influence.

Investments in associates and joint ventures are accounted for by the equity method of accounting and are initially recognised at cost. The Group's investment in associates and joint ventures includes goodwill identified on acquisition (net of any accumulated impairment loss).

The Group's share of its associates' and joint ventures' post-acquisition profits or losses is recognised in the income statement, and its share of post-acquisition movements in other comprehensive income is recognised in reserves. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. When the Group's share of losses in an associate or a joint venture equals or exceeds its interest in the associate, including any other unsecured receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate or joint venture.

 

Unrealised gains and losses on transactions between the Group and its associates and joint ventures are eliminated to the extent of the Group's interest in the associates and joint ventures. At each balance sheet date, the Group assesses whether there is any objective evidence of impairment in the investment in associates and joint ventures. Such evidence includes a significant or prolonged decline in the fair value of the Group's investment in an associate or joint venture below its cost, among other factors.  Page 116

Significant accounting estimates and judgements

The Group applies judgement in determining if it has control, joint control or significant influence over subsidiaries, joint ventures and associates respectively. These judgements are based upon identifying the relevant activities of counterparties, being those activities that significantly affect the entities returns, and further making a decision of if the Group has control over those entities, joint control, or has significant influence (being the power to participate in the financial and operating policy decisions but not control them).

These judgements are at times determined by equity holdings, and the voting rights associated with those holdings. However, further considerations including but not limited to board seats, advisory committee members and specialist knowledge of some decision-makers are also taken into account. Further judgement is required when determining if the Group has de-facto control over an entity even though it may hold less than 50% of the voting shares of that entity. Judgement is required to determine the relative size of the Group's shareholding when compared to the size and dispersion of other shareholders.

Impairment testing of investments in associates and joint ventures, and on a Company level investments in subsidiaries is performed if there is a possible indicator of impairment. Judgement is used to determine if there is objective evidence of impairment. Objective evidence may be observable data such as losses incurred on the investment when applying the equity method, the granting of concessions as a result of financial difficulty, or breaches of contracts/regulatory fines of the associate or joint venture. Further judgement is required when considering broader indicators of impairment such as losses of active markets or ratings downgrades across key markets in which the associate or joint venture operate in.

Impairment testing is based on estimates including forecasting the expected cash flows from the investments, growth rates, terminal values and the discount rate used in calculation of the present values of those cash flows. The estimation of future cash flows and the level to which they are discounted is inherently uncertain and requires significant judgement.

Business combinations

The acquisition method of accounting is used to account for the acquisition of subsidiaries by the Group. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, together with the fair value of any contingent consideration payable. The excess of the cost of acquisition over the fair value of the Group's share of the identifiable net assets and contingent liabilities acquired is recorded as goodwill (see Note 17 for details on goodwill recognised by the Group). If the cost of acquisition is less than the fair value of the net assets and contingent liabilities of the subsidiary acquired, the difference is recognised directly in the income statement.

Where the fair values of the identifiable net assets and contingent liabilities acquired have been determined provisionally, or where contingent or deferred consideration is payable, adjustments arising from their subsequent finalisation are not reflected in the income statement if (i) they arise within 12 months of the acquisition date (or relate to acquisitions completed before 1 January 2014) and (ii) the adjustments arise from better information about conditions existing at the acquisition date (measurement period adjustments). Such adjustments are applied as at the date of acquisition and, if applicable, prior year amounts are restated. All changes that are not measurement period adjustments are reported in income other than changes in contingent consideration not classified as financial instruments, which are accounted for in accordance with the appropriate accounting policy, and changes in contingent consideration classified as equity, which is not remeasured.

Changes in ownership interest in a subsidiary, which do not result in a loss of control, are treated as transactions between equity holders and are reported in equity. Where a business combination is achieved in stages, the previously held equity interest is remeasured at the acquisition date fair value with the resulting gain or loss recognised in the income statement.

In the Company's financial statements, investment in subsidiaries, associates and joint ventures are held at cost less impairment and dividends from pre-acquisition profits received prior to 1 January 2009, if any. Inter-company transactions, balances and unrealised gains and losses on transactions between Group companies are eliminated in the Group accounts.

Page 117

Investments in subsidiary undertakings	2021 $million	2020 $million
As at 1 January	57,407	58,037
Additions1	4,023	1,370
Disposal2	(1,001)	(2,000)
As at 31 December	60,429	57,407

1   Includes internal Additional Tier 1 issuances of $2.7 billion by Standard Chartered Bank and $1.3 billion by Standard Chartered Holdings Limited (31 December 2020: Includes internal Additional Tier 1 issuances of $1 billion by Standard Chartered Bank (Hong Kong) Limited)

2   Redemption of Additional Tier1 capital of $1 billion by Standard Chartered Bank (31 December 2020: Redemption of Additional Tier1 capital of $2 billion by Standard Chartered Bank)

At 31 December 2021, the principal subsidiary undertakings, all indirectly held except for Standard Chartered Bank (Hong Kong) Limited, and principally engaged in the business of banking and provision of other financial services, were as follows:

Country and place of incorporation or registration	Main areas of operation	Group interest in ordinary share capital %
Standard Chartered Bank, England and Wales	United Kingdom, Middle East, South Asia, Asia Pacific, Americas and, through Group companies, Africa	100
Standard Chartered Bank (Hong Kong) Limited, Hong Kong	Hong Kong	100
Standard Chartered Bank (Singapore) Limited, Singapore	Singapore	100
Standard Chartered Bank Korea Limited, Korea	Korea	100
Standard Chartered Bank (China) Limited, China1	China	100
Standard Chartered Bank (Taiwan) Limited, Taiwan	Taiwan	100
Standard Chartered Bank AG, Germany	France, Germany, Sweden	100
Standard Chartered Bank Malaysia Berhad, Malaysia	Malaysia	100

1   Under PRC law, registered as Standard Chartered Bank (China) Limited

Country and place of incorporation or registration	Main areas of operation	Group interest in ordinary share capital %
Standard Chartered Bank (Thai) Public Company Limited, Thailand	Thailand	99.87
Standard Chartered Bank (Pakistan) Limited, Pakistan	Pakistan	98.99
Standard Chartered Bank Botswana Limited, Botswana	Botswana	75.83
Standard Chartered Bank Kenya Limited, Kenya	Kenya	74.32
Standard Chartered Bank Nepal Limited, Nepal	Nepal	70.21
Standard Chartered Bank Ghana PLC, Ghana	Ghana	69.42
Mox Bank Limited, Hong Kong	Hong Kong	65.10

A complete list of subsidiary undertaking is included in Note 40.

The Group does not have any material non-controlling interest except as listed above, which contribute $17 million (31 December 2020: $26 million) of the profit attributable to non-controlling interest and $298 million (31 December 2020: $308 million) of the equity attributable to non-controlling interests

While the Group's subsidiaries are subject to local statutory capital and liquidity requirements in relation to foreign exchange remittance, these restrictions arise in the normal course of business and do not significantly restrict the Group's ability to access or use assets and settle liabilities of the Group.

The Group does not have significant restrictions on its ability to access or use its assets and settle its liabilities other than those resulting from the regulatory framework within which the banking subsidiaries operate. These frameworks require banking operations to keep certain levels of regulatory capital, liquid assets, exposure limits and comply with other required ratios. These restrictions are summarised below:

Regulatory and liquidity requirements

The Group's subsidiaries are required to maintain minimum capital, leverage ratios, liquidity and exposure ratios which therefore restrict the ability of these subsidiaries to distribute cash or other assets to the parent company.

The subsidiaries are also required to maintain balances with central banks and other regulatory authorities in the countries in which they operate. At 31 December 2021, the total cash and balances with central banks was $73 billion (31 December 2020: $67 billion) of which $8 billion (31 December 2020: $7 billion) is restricted.

Page 118

Statutory requirements

The Group's subsidiaries are subject to statutory requirements not to make distributions of capital and unrealised profits to the parent company, generally to maintain solvency. These requirements restrict the ability of subsidiaries to remit dividends to the Group. Certain subsidiaries are also subject to local exchange control regulations which provide for restrictions on exporting capital from the country other than through normal dividends.

Contractual requirements

The encumbered assets in the balance sheet of the Group's subsidiaries are not available for transfer around the Group. Encumbered assets are disclosed in Risk review and Capital review.

Share of profit from investment in associates and joint ventures comprises:

	2021 $million	2020 $million
Loss from investment in joint ventures	(2)	(3)
Profit from investment in associates	198	154
Total	196	151

Interests in associates and joint ventures	2021 $million	2020 $million
As at 1 January	2,162	1,908
Exchange translation difference	43	123
Additions	90	52
Share of profits	196	151
Dividend received	(38)	-
Disposals	(16)	(35)
Impairment	(300)	-
Share of FVOCI and Other reserves	10	(37)
As at 31 December	2,147	2,162

A complete list of the Group's interest in associates is included in Note 40. The Group's principal associates are:

Associate	Nature of activities	Main areas of operation	Group interest in ordinary share capital %
China Bohai Bank	Banking	China	16.26
CurrencyFair Limited	Banking	Ireland	43.42

On the 10th September 2021, the Group, through its subsidiary Standard Chartered UK Holdings Limited completed its investment in CurrencyFair Limited, an Irish foreign exchange payments platform.

The Group purchased CurrencyFair through the contribution of its existing investment in its joint venture, Assembly Payments Pte. Limited, and a cash injection into CurrencyFair of $35 million, which provided the Group with equity of 43.42% in CurrencyFair. This ownership, along with seats on the board of directors resulted in the Group having significant influence over CurrencyFair and as such will equity method account the investment.

The transaction will facilitate creation of a combined payments and foreign exchange products franchise, combining the customer base, staff, expertise and capabilities of both CurrencyFair and Assembly Payments.

The fair value of consideration for the investment was as follows:

Consideration	$million
Fair value of the Group's investment in Assembly Payments1	36
Cash consideration	35
Total consideration/investment in associate	71

1   The fair value of Assembly Payments was determined to be $60 million, of which the Group's equity ownership on transfer was 59.63%. The Group carried this investment under the equity method at a balance of $16 million resulting in a profit on disposal of $20 million

The Group's investment in China Bohai Bank is less than 20 per cent but it is considered to be an associate because of the significant influence the Group is able to exercise over the management and financial and operating policies. This influence is through board representation and the provision of technical expertise to Bohai. The Group applies the equity method of accounting for investments in associates.

The Group's ownership percentage in China Bohai Bank is 16.26%.   Page 119
 

For the year ended 31 December 2021, the Group recognised Bohai's results through 30 September 2021 (12 months of earnings, including the fourth quarter of 2020). Bohai has a statutory year end of 31 December, but publishes their results after the Group. The Group will therefore continue on a three-month lag in recognising its share of Bohai's earnings going forward.

If the Group did not have significant influence in Bohai, the investment would be carried at fair value rather than the current carrying value.

Impairment testing

At 31 December 2021, the carrying amount of Group's investment in Bohai was greater than its fair value based on the Group's shareholding and Bohai's quoted share price. As a result, the Group assessed its investment in associate for impairment and concluded an impairment loss of $300 million was required due to the shortfall between the value-in-use and the carrying amount. The decrease in recoverable amount of Bohai is primarily a result of lower forecast cashflows due to the latest published results being weaker than expected.

Bohai	2021 $million	2020 $million
VIU	1,917	2,943
Carrying amount pre impairment¹	2,217	2,025
Fair value	1,114	1,888

1   The above represents the Group's 16.26% share of net assets less other equity instruments the Group does not hold

Basis of recoverable amount

The impairment test was performed by comparing the recoverable amount of Bohai, determined by a VIU calculation, with its carrying amount. The VIU calculation uses the following primary inputs;

• short to medium term projections based on management's best estimates of future profits available to ordinary shareholders. These projections have been determined with reference to the latest published financial results and historical performance;

• a discount rate based upon a capital asset pricing model (CAPM) calculation for Bohai representing the risk-free rate and company risk premiums. Management compares this CAPM against external sources and the cost-of-equity used for transactions in the China market;

• a long term growth rate, for China, which is used to extrapolate in perpetuity those expected short to medium term earnings to derive a terminal value, and;

• an estimation of RWAs and RWA growth to determine a capital maintenance haircut to forecast profits. This haircut  is taken in order for Bohai to meet its target regulatory capital requirements over the forecast period. This haircut takes into account movements in risk weighted assets and the total capital required, including required retained earnings over time to meet the target capital ratios.

The key assumptions used in the VIU calculation:

	2021 %	2020 %
Pre tax discount rate	14.83	12.75
Forecast profit long term growth rate	4.75	5.00
Long term RWA growth rate	4.75	5.00
Capital requirement adequacy ratio	7.50	7.50

Carrying amount Pre impairment $millions

Base Case

Sensitivities - 2021

VIU $million

Headroom $million

Pre tax discount rate

GDP

GDP

Discount rate

Forecast profit

RWA

Combined

Combined

RWA -10%

RWA +10%

+1%

-1%

+1%

-1%

+10%

-10%

+10%

-10%

CF -10%

CF +10%

Headroom $million

Headroom $million

Headroom $million

Headroom $million

Headroom $million

Headroom $million

Headroom $million

Headroom $million

Headroom $million

Headroom $million

2,217

1,917

(300)

14.83%

4.75%

(50)

(482)

(531)

18

9

(609)

(613)

12

(297)

(304)

To improve the headroom to zero would require, on the basis of changing individual assumptions, an increase in forecast profits by 9.71%, decrease in discount rate by 0.95%, increase in GDP growth rate by 1.16% or decrease in RWAs by 9.6%.

Page 120

The movement in RWAs is correlated to forecast profit growth. This can be seen above in the combined RWA and cashflow scenarios in the sensitivity table.

The following table sets out the summarised financial statements of China Bohai Bank prior to the Group's share of the associates being applied:

	30 Sep 2021 $million	30 Sep 2020 $million
Total assets	250,951	202,537
Total liabilities	234,196	187,024
Other equity instruments	3,120	3,053
Operating income	3,557	3,474
Net profit	946	950
Other comprehensive income	58	(121)

33. Structured entities

Accounting policy

A structured entity is an entity that has been designed so that voting or similar rights are not the dominant factor in deciding who controls the entity. Contractual arrangements determine the rights and therefore relevant activities of the structured entity. Structured entities are generally created to achieve a narrow and well-defined objective with restrictions around their activities. Structured entities are consolidated when the substance of the relationship between the Group and the structured entity indicates the Group has power over the contractual relevant activities of the structured entity, is exposed to variable returns, and can use that power to affect the variable return exposure.

In determining whether to consolidate a structured entity to which assets have been transferred, the Group takes into account its ability to direct the relevant activities of the structured entity. These relevant activities are generally evidenced through a unilateral right to liquidate the structured entity, investment in a substantial proportion of the securities issued by the structured entity or where the Group holds specific subordinate securities that embody certain controlling rights. The Group may further consider relevant activities embedded within contractual arrangements such as call options which give the practical ability to direct the entity, special relationships between the structured entity and investors, and if a single investor has a large exposure to variable returns of the structured entity.

Judgement is required in determining control over structured entities. The purpose and design of the entity is considered, along with a determination of what the relevant activities are of the entity and who directs these. Further judgements are made around which investor is exposed to, and absorbs the variable returns of the structured entity. The Group will have to weigh up all of these facts to consider whether the Group, or another involved party is acting as a principal in its own right or as an agent on behalf of others. Judgement is further required in the ongoing assessment of control over structured entities, specifically if market conditions have an effect on the variable return exposure of different investors.

The Group has involvement with both consolidated and unconsolidated structured entities, which may be established by the Group as a sponsor or by a third-party.

Interests in consolidated structured entities: A structured entity is consolidated into the Group's financial statements where the Group controls the structured entity, as per the determination in the accounting policy above.

The following table presents the Group's interests in consolidated structured entities.

	2021 $million	2020 $million
Aircraft and ship leasing	3,450	4,388
Principal and other structured finance	229	365
Total	3,679	4,753

Page 121

Interests in unconsolidated structured entities:

Unconsolidated structured entities are all structured entities that are not controlled by the Group. The Group enters into transactions with unconsolidated structured entities in the normal course of business to facilitate customer transactions and for specific investment opportunities. An interest in a structured entity is contractual or non-contractual involvement which creates variability of the returns of the Group arising from the performance of the structured entity.

The table below presents the carrying amount of the assets recognised in the financial statements relating to variable interests held in unconsolidated structured entities, the maximum exposure to loss relating to those interests and the total assets of the structured entities. Maximum exposure to loss is primarily limited to the carrying amount of the Group's on-balance sheet exposure to the structured entity. For derivatives, the maximum exposure to loss represents the on-balance sheet valuation and not the notional amount. For commitments and guarantees, the maximum exposure to loss is the notional amount of potential future losses.

	2021						2020
	Asset-backed securities $million	Structured finance $million	Principal Finance funds $million	Other activities $million	Total $million		Asset-backed securities $million	Structured finance $million	Principal Finance funds $million	Other activities $million	Total $million
Group's interest - assets
Financial assets held at fair value through profit or loss	1,144	-	128	35	1,307		1,002	-	197	271	1,470
Loans and advances/Investment securities at amortised cost	13,635	3,466	-	-	17,101		8,270	3,081	267	-	11,618
Investment securities (fair value through other comprehensive income)	2,221	-	-	-	2,221		2,912	-	-	-	2,912
Other assets	-	-	10	-	10		-	-	34	-	34
Total assets	17,000	3,466	138	35	20,639		12,184	3,081	498	271	16,034
Off-balance sheet	42	1,135	102	-	1,279		69	914	67	-	1,050
Group's maximum exposure to loss	17,042	4,601	240	35	21,918		12,253	3,995	565	271	17,084
Total assets of structured entities	241,580	13,956	1,014	37	256,587		198,622	10,410	2,424	276	211,732

The main types of activities for which the Group utilises unconsolidated structured entities cover synthetic credit default swaps for managed investment funds (including specialised Principal Finance funds), portfolio management purposes, structured finance and asset-backed securities. These are detailed as follows:

• Asset-backed securities (ABS): The Group also has investments in asset-backed securities issued by third-party sponsored and managed structured entities. For the purpose of market making and at the discretion of ABS trading desk, the Group may hold an immaterial amount of debt securities from structured entities originated by credit portfolio management. This is disclosed in the ABS column above.

Portfolio management (Group sponsored entities): For the purposes of portfolio management, the Group purchased credit protection via synthetic credit default swaps from note-issuing structured entities. This credit protection creates credit risk which the structured entity and subsequently the end investor absorbs. The referenced assets remain on the Group's balance sheet as they are not assigned to these structured entities. The Group continues to own or hold all of the risks and returns relating to these assets. The credit protection obtained from the regulatory-compliant securitisation only serves to protect the Group against losses upon the occurrence of eligible credit events and the underlying assets are not derecognised from the Group's balance sheet. The Group does not hold any equity interests in the structured entities, but may hold an insignificant amount of the issued notes for market making purposes. This is disclosed in the ABS section above. The proceeds of the notes' issuance are typically held as cash collateral in the issuer's account operated by a trustee or invested in AAA-rated government-backed securities to collateralise the structured entities swap obligations to the Group, and to repay the principal to investors at maturity. The structured entities reimburse the Group on actual losses incurred, through the use of the cash collateral or realisation of the collateral security. Correspondingly, the structured entities write down the notes issued by an equal amount of the losses incurred, in reverse order of seniority. All funding is committed for the life of these vehicles and the Group has no indirect exposure in respect of the vehicles' liquidity position. The Group has reputational risk in respect of certain portfolio management vehicles and investment funds either because the Group is the arranger and lead manager or because the structured entities have Standard Chartered branding.

Page 122

• Structured finance: Structured finance comprises interests in transactions that the Group or, more usually, a customer has structured, using one or more structured entities, which provide beneficial arrangements for customers. The Group's exposure primarily represents the provision of funding to these structures as a financial intermediary, for which it receives a lender's return. The transactions largely relate to real estate financing and the provision of aircraft leasing and ship finance.

• Principal Finance Fund: The Group's exposure to Principal Finance Funds represents committed or invested capital in unleveraged investment funds, primarily investing in pan-Asian infrastructure, real estate and private equity.

• Other activities: Other activities include structured entities created to support margin financing transactions, the refinancing of existing credit and debt facilities, as well as setting up of bankruptcy remote structured entities.

34. Cash flow statement

Adjustment for non-cash items and other adjustments included within income statement

	Group			Company
	2021 $million	2020 $million		2021 $million	2020 $million
Amortisation of discounts and premius of investment securities	9	(588)		-	-
Interest expense on subordinated liabilities	497	637		551	606
Interest expense on senior debt securities in issue	528	639		522	559
Other non-cash items	(113)	(67)		(30)	(36)
Pension costs for defined benefit schemes	62	81		-	-
Share-based payment costs	167	132		-	-
Impairment losses on loans and advances and other credit risk provisions	254	2,325		-	-
Dividend income from subsidiaries	-	-		(2,244)	(1,110)
Other impairment	372	587		-	-
Gain on disposal of property, plant and equipment	(93)	(27)		-	-
Gain on disposal of FVOCI and AMCST financial assets	(179)	(471)		-	-
Depreciation and amortisation	1,181	1,251		-	-
Fair value changes taken to PL	(48)	-		-	-
Foreign Currency revaluation	(337)	-		-	-
Net gain on derecognition of investment in associate	-	(6)		-	-
Profit from associates and joint ventures	(196)	(151)		-	-
Total	2,104	4,342		(1,201)	19

Change in operating assets

	Group			Company
	2021 $million	2020 $million		2021 $million	2020 $million
Decrease/(increase) in derivative financial instruments	16,527	(21,640)		630	(742)
Increase in debt securities, treasury bills and equity shares held at fair value through profit or loss	(7,707)	(5,385)		(2,864)	(8,281)
Increase in loans and advances to banks and customers	(41,066)	(5,361)		-	-
Net (increase)/decrease in prepayments and accrued income	(84)	588		-	-
Net (increase)/decrease in other assets	5,574	(6,266)		(3,131)	572
Total	37,904	(38,064)		(5,365)	(8,451)

Change in operating liabilities

	Group			Company
	2021 $million	2020 $million		2021 $million	2020 $million
(Decrease)/increase in derivative financial instruments	(17,664)	22,399		-	(378)
Net increase in deposits from banks, customer accounts, debt securities in issue, Hong Kong notes in circulation and short positions	66,805	28,087		3,977	6,630
Increase/(decrease) in accruals and deferred income	176	(845)		(15)	67
Net (decrease)/ increase in other liabilities	(3,365)	4,796		(835)	96
Total	45,952	54,437		3,127	6,415

 

In 2020, $790 million of additions to internally generated capitalised software were included in the cash flows from operating activities section of the cash flow statement within change in operating assets. In 2021, $989 million of additions to internally generated capitalised software are included in cash flows from investing activities as a separate line item. The 2020 comparative cash flow statement has not been adjusted for this change in classification.  Page 123

Disclosures

	Group			Company
	2021 $million	2020 $million		2021 $million	2020 $million
Subordinated debt (including accrued interest):
Opening balance	16,892	16,445		16,301	14,737
Proceeds from the issue	1,137	2,473		1,137	2,473
Interest paid	(580)	(601)		(576)	(537)
Repayment	(546)	(2,446)		(546)	(1,402)
Foreign exchange movements	(201)	170		(201)	166
Fair value changes	(401)	255		(305)	243
Accrued Interest and Others	584	596		585	552
Closing balance	16,885	16,892		16,395	16,232
Senior debt (including accrued interest):
Opening balance	29,990	23,889		20,889	19,849
Proceeds from the issue	10,944	9,953		2,250	2,193
Interest paid	(690)	(627)		(504)	(575)
Repayment	(9,945)	(4,305)		(5,408)	(2,106)
Foreign exchange movements	(678)	622		(366)	468
Fair value changes	(402)	574		(372)	426
Accrued Interest and Others	685	(117)		492	634
Closing balance	29,904	29,989		16,981	20,889

35. Cash and cash equivalents

Accounting policy

For the purposes of the cash flow statement, cash and cash equivalents comprise cash, on demand and overnight balances with central banks (unless restricted) and balances with less than three months' maturity from the date of acquisition, including treasury bills and other eligible bills, loans and advances to banks, and short-term government securities.

The following balances with less than three months' maturity from the date of acquisition have been identified by the Group as being cash and cash equivalents.

	Group			Company
	2021 $million	2020 $million		2021 $million	2020 $million
Cash and balances at central banks	72,663	66,712		-	-
Less: restricted balances	(8,152)	(7,341)		-	-
Treasury bills and other eligible bills	9,132	10,500		-	-
Loans and advances to banks	24,788	25,762		-	-
Trading securities	1,174	2,241		-	-
Amounts owed by subsidiary undertakings	-	-		11,336	12,283
Total	99,605	97,874		11,336	12,283

36. Related party transactions

Directors and officers

Details of directors' remuneration and interests in shares are disclosed in the Directors' remuneration report.

IAS 24 Related party disclosures requires the following additional information for key management compensation. Key management comprises non-executive directors, executive directors of Standard Chartered PLC, the Court directors of Standard Chartered Bank and the persons discharging managerial responsibilities (PDMR) of Standard Chartered PLC.

	2021 $million	2020 $million
Salaries, allowances and benefits in kind	40	35
Share-based payments	28	26
Bonuses paid or receivable	4	1
Total	72	62

Page 124

Transactions with directors and others

At 31 December 2021, the total amounts to be disclosed under the Companies Act 2006 (the Act) and the Listing Rules of the Hong Kong Stock Exchange Limited (Hong Kong Listing Rules) about loans to directors were as follows:

	2021			2020
	Number	$million		Number	$million
Directors1	3	-		3	-

1   Outstanding loan balances were below $50,000

The loan transactions provided to the directors of Standard Chartered PLC were a connected transaction under Chapter 14A of the Hong Kong Listing Rules. It was fully exempt as financial assistance under Rule 14A.87(1), as it was provided in our ordinary and usual course of business and on normal commercial terms.

As at 31 December 2021, Standard Chartered Bank had in place a charge over $100 million (31 December 2020: $89 million) of cash assets in favour of the independent trustee of its employer financed retirement benefit scheme.

Other than as disclosed in the Annual Report and Accounts, there were no other transactions, arrangements or agreements outstanding for any director, connected person or officer of the Company which have to be disclosed under the Act, the rules of the UK Listing Authority or the Hong Kong Listing Rules.

Company

The Company has received $907 million (31 December 2020: $904 million) of net interest income from its subsidiaries. The Company issues debt externally and lends proceeds to Group companies.

The Company has an agreement with Standard Chartered Bank that in the event of Standard Chartered Bank defaulting on its debt coupon interest payments, where the terms of such debt requires it, the Company shall issue shares as settlement for non-payment of the coupon interest.

	2021				2020
	Standard Chartered Bank $million	Standard Chartered Bank (Hong Kong) Limited $million	Others1 $million		Standard Chartered Bank $million	Standard Chartered Bank (Hong Kong) Limited $million	Others1 $million
Assets
Due from subsidiaries	10,814	82	279		11,706	45	356
Derivative financial instruments	266	54	-		846	126	-
Debt securities	19,047	4,852	1,173		18,092	4,686	1,151
Total assets	30,127	4,988	1,452		30,644	4,857	1,507
Liabilities
Due to subsidiaries	-	-	-		212	-	-
Derivative financial instruments	339	-	-		347	-	13
Total liabilities	339	-	-		559	-	13

1   Others include Standard Chartered Bank (Singapore) Limited, Standard Chartered Holdings Limited and Standard Chartered I H Limited

Associate and joint ventures

The following transactions with related parties are on an arm's length basis:

	2021 $million	2020 $million
Assets
Loans and advances	-	5
Total assets	-	5
Liabilities
Deposits	984	1,061
Derivative liabilities	1	5
Total liabilities	985	1,066
Loan commitments and other guarantees¹	80	55

1   The maximum loan commitments and other guarantees during the period were $80 million (31 December 2020: $55 million)

Page 125

37. Post balance sheet events

On 12 January 2022, Standard Chartered PLC issued $1,250 million 2.608 per cent senior debt due 2028 (callable 2027) and $750 million 3.603 per cent subordinated debt security due 2033 (callable 2032).

A share buy-back for up to a maximum consideration of $750 million has been declared by the directors after 31 December 2021. This will reduce the number of ordinary shares in issue by cancelling the repurchased shares.

A final dividend for 2021 of 9 cents per ordinary share was declared by the directors after 31 December 2021.

38. Auditor's remuneration

Auditor's remuneration is included within other general administration expenses. The amounts paid by the Group to their principal auditor, Ernst & Young LLP and its associates (together Ernst & Young LLP), are set out below. All services are approved by the Group Audit Committee and are subject to controls to ensure the external auditor's independence is unaffected by the provision of other services.

	2021 $million	2020 $million
Audit fees for the Group statutory audit	15.9	11.0
of which fees for the audit of Standard Chartered Bank Group	11.8	8.1
Fees payable to EY for other services provided to the SC PLC Group:
Audit of Standard Chartered PLC subsidiaries	10.8	9.9
Total audit fees	26.7	20.9
Audit-related assurance services	5.3	5.1
Other assurance services	3.2	2.1
Other non-audit services	0.1	0.1
Corporate finance transaction services	0.6	0.4
Total fees payable	35.9	28.6

The following is a description of the type of services included within the categories listed above:

• Audit fees for the Group statutory audit are in respect of fees payable to Ernst & Young LLP for the statutory audit of the consolidated financial statements of the Group and the separate financial statements of Standard Chartered PLC

• Audit-related fees consist of fees such as those for services required by law or regulation to be provided by the auditor, reviews of interim financial information, reporting on regulatory returns, reporting to a regulator on client assets and extended work performed over financial information and controls authorised by those charged with governance

• Other assurance services include agreed-upon-procedures in relation to statutory and regulatory filings

• Corporate finance transaction services are fees payable to EY LLP for issuing comfort letters

Expenses incurred in respect of their role as auditors were reimbursed to EY LLP ($0.2 million). Such expenses did not exceed 1% of total fees charged above.

39. Standard Chartered PLC (Company)

Group reorganisation

The Group has completed a Group reorganisation. The purpose of the reorganisation was to form a holding company structure (a "Singapore Hub") under the existing Standard Chartered Bank Group.

The Singapore Hub has been created with Standard Chartered Bank (Singapore) Limited ("SCB SL") acquiring ownership of 100% of Standard Chartered Bank Malaysia Berhad ("SCB MY"), Standard Chartered Bank (Vietnam) Limited ("SCB VN"),and 99.871% of Standard Chartered Bank (Thai) Public Company Limited ("SCB TH").

On 1 September 2021, SCB SL purchased SCB MY from Standard Chartered Holdings (Asia Pacific) B.V. ("SCHAP").

On 1 November 2021, SCB SL purchased SCB TH directly from the Company for the issuance of SCB SL share capital.

On 1 December 2021, SCB SL purchased SCB VN directly from the Company for the issuance of SCB SL share capital.

The above had no impact on the PLC Group.

Page 126

Classification and measurement of financial instruments

Financial assets	2021					2020
	Derivatives held for hedging $million	Amortised cost $million	Non-trading mandatorily at fair value through profit or loss $million	Total $million		Derivatives held for hedging $million	Amortised cost $million	Non-trading mandatorily at fair value through profit or loss $million	Total $million
Derivatives	320	-	-	320		971	-	-	971
Investment securities	-	9,424	15,6471	25,071		-	11,146	12,7831	23,929
Amounts owed by subsidiary undertakings	-	11,336	-	11,336		-	12,283	-	12,283
Total	320	20,760	15,647	36,727		971	23,429	12,783	37,183

1   Standard Chartered Bank, Standard Chartered Bank (Hong Kong) Limited, Standard Chartered Bank (China) Limited and Standard Chartered Bank (Singapore) Limited issued Loss Absorbing Capacity (LAC) eligible debt securities

Instruments classified as amortised cost are recorded in Stage 1.

Derivatives held for hedging are held at fair value and are classified as Level 2 while the counterparty is Standard Chartered Bank and Standard Chartered Bank (Hong Kong) Limited.

Debt securities comprise corporate securities issued by Standard Chartered Bank and have a fair value equal to carrying value of $9,424 million (31 December 2020: $11,146 million).

In 2021 and 2020, amounts owed by subsidiary undertakings have a fair value equal to carrying value.

Financial liabilities	2021					2020
	Derivatives held for hedging $million	Amortised cost $million	Designated at fair value through profit or loss $million	Total $million		Derivatives held for hedging $million	Amortised cost $million	Designated at fair value through profit or loss $million	Total $million
Derivatives	339	-	-	339		360	-	-	360
Debt securities in issue	-	16,809	9,472	26,281		-	20,701	5,266	25,967
Subordinated liabilities and other borrowed funds	-	13,830	2,332	16,162		-	14,783	1,286	16,069
Amounts owed to subsidiary undertakings	-	-	-	-		-	212	-	212
Total	339	30,639	11,804	42,782		360	35,696	6,552	42,608

Derivatives held for hedging are held at fair value and are classified as Level 2 while the counterparty is Standard Chartered Bank.

The fair value of debt securities in issue held at amortised cost is $17,171 million (31 December 2020: $21,231 million).

The fair value of subordinated liabilities and other borrowed funds held at amortised cost is $14,569 million (31 December 2020: $15,798 million).

Derivative financial instruments

Derivatives	2021				2020
	Notional principal amounts $million	Assets $million	Liabilities $million		Notional principal amounts $million	Assets $million	Liabilities $million
Foreign exchange derivative contracts:
Forward foreign exchange	8,362	54	51		3,300	126	125
Currency swaps	2,049	-	207		3,895	17	186
Interest rate derivative contracts:
Swaps	14,465	266	81		14,677	777	-
Forward rate agreements and options	-	-	-		394	51	49
Total	24,876	320	339		22,266	971	360

Page 127

Credit risk

Maximum exposure to credit risk

	2021 $million	2020 $million
Derivative financial instruments	320	971
Debt securities	25,071	23,929
Amounts owed by subsidiary undertakings	11,336	12,283
Total	36,727	37,183

In 2021 and 2020, amounts owed by subsidiary undertakings were neither past due nor impaired; the Company had no individually impaired loans.

In 2021 and 2020, the Company had no impaired debt securities. The debt securities held by the Company are issued by Standard Chartered Bank, Standard Chartered Bank (Hong Kong) Limited, Standard Chartered Bank (China) Limited and Standard Chartered Bank (Singapore) Limited, subsidiary undertakings with credit ratings of A+/A/A1.

There is no material expected credit loss on these instruments as they are Stage 1 assets, and of a high quality.

Liquidity risk

The following table analyses the residual contractual maturity of the assets and liabilities of the Company on a
discounted basis:

	2021
	One month or less $million	Between one month and three months $million	Between three months and six months $million	Between six months and nine months $million	Between nine months and one year $million	Between one year and two years $million	Between two years and five years $million	More than five years and undated $million	Total $million
Assets
Derivative financial instruments	55	1	2	-	-	55	104	103	320
Investment securities	-	-	-	-	960	4,444	2,947	16,720	25,071
Amount owed by subsidiary undertakings	2,335	159	216	305	853	2,349	2,132	2,987	11,336
Investments in subsidiary undertakings	-	-	-	-	-	-	-	60,429	60,429
Total assets	2,390	160	218	305	1,813	6,848	5,183	80,239	97,156
Liabilities
Derivative financial instruments	47	-	-	4	95	-	117	76	339
Senior debt	-	-	-	-	-	4,542	11,873	9,866	26,281
Other liabilities	169	126	83	15	10	-	-	59	462
Subordinated liabilities and other borrowed funds	1,007	47	15	240	883	2,409	2,470	9,091	16,162
Total liabilities	1,223	173	98	259	988	6,951	14,460	19,092	43,244
Net liquidity gap	1,167	(13)	120	46	825	(103)	(9,277)	61,147	53,912

Page 128

	2020
	One month or less $million	Between one month and three months $million	Between three months and six months $million	Between six months and nine months $million	Between nine months and one year $million	Between one year and two years $million	Between two years and five years $million	More than five years and undated $million	Total $million
Assets
Derivative financial instruments	136	-	-	-	21	3	326	485	971
Investment securities	-	-	-	-	-	4,247	4,770	14,912	23,929
Amount owed by subsidiary undertakings	574	600	1,355	975	-	2,370	3,300	3,109	12,283
Investments in subsidiary undertakings	-	-	-	-	-	-	-	57,407	57,407
Other assets	-	-	-	-	-	-	-	9	9
Total assets	710	600	1,355	975	21	6,620	8,396	75,922	94,599
Liabilities
Derivative financial instruments	138	-	114	-	-	10	50	48	360
Senior debt	1,000	-	1,230	436	-	2,760	9,950	10,591	25,967
Amount owed to subsidiary undertakings	-	-	-	-	-	-	-	212	212
Other liabilities	179	126	92	12	10	-	-	46	465
Subordinated liabilities and other borrowed funds	-	-	-	-	-	1,956	3,710	10,403	16,069
Total liabilities	1,317	126	1,436	448	10	4,726	13,710	21,300	43,073
Net liquidity gap	(607)	474	(81)	527	11	1,894	(5,314)	54,622	51,526

Financial liabilities on an undiscounted basis

	2021
	One month or less $million	Between one month and three months $million	Between three months and six months $million	Between six months and nine months $million	Between nine months and one year $million	Between one year and two years $million	Between two years and five years $million	More than five years and undated $million	Total $million
Derivative financial instruments	47	-	-	4	95	-	117	76	339
Debt securities in issue	102	30	179	130	196	5,144	13,122	11,019	29,922
Subordinated liabilities and other borrowed funds	1,114	134	37	261	917	2,522	2,786	15,376	23,147
Other liabilities	-	-	-	-	-	-	-	59	59
Total liabilities	1,263	164	216	395	1,208	7,666	16,025	26,530	53,467

	2020
	One month or less $million	Between one month and three months $million	Between three months and six months $million	Between six months and nine months $million	Between nine months and one year $million	Between one year and two years $million	Between two years and five years $million	More than five years and undated $million	Total $million
Derivative financial instruments	138	-	114	-	-	10	50	48	360
Debt securities in issue	1,000	11	1,517	446	317	3,350	11,225	11,783	29,649
Subordinated liabilities and other borrowed funds	-	-	239	-	359	2,567	5,069	14,700	22,934
Other liabilities	-	-	-	-	-	-	-	36	36
Total liabilities	1,138	11	1,870	446	676	5,927	16,344	26,567	52,979

Page 129

40. Related undertakings of the Group

As at 31 December 2021, the Group's interests in related undertakings are disclosed below. Unless otherwise stated, the share capital disclosed comprises ordinary or common shares which are held by subsidiaries of the Group. Standard Chartered Bank (Hong Kong) Limited, Standard Chartered Funding (Jersey) Limited, Stanchart Nominees Limited, Standard Chartered Holdings Limited and Standard Chartered Nominees Limited are directly held subsidiaries, all other related undertakings are held indirectly. Unless otherwise stated, the principal country of operation of each subsidiary is the same as its country of incorporation. Note 32 details undertakings that have a significant contribution to the Group's net profit or net assets.

Subsidiary Undertakings

Name and registered address	Country of incorporation	Description of shares	Proportion of shares held (%)
The following companies have the address of 1 Basinghall Avenue, London, EC2V 5DD, United Kingdom
FinVentures UK Limited	United Kingdom	$1.00 Ordinary shares	100
Pembroke Aircraft Leasing (UK) Limited	United Kingdom	£1.00 Ordinary shares	100
SC (Secretaries) Limited	United Kingdom	£1.00 Ordinary shares	100
SC Transport Leasing 1 LTD	United Kingdom	£1.00 Ordinary shares	100
SC Transport Leasing 2 Limited	United Kingdom	£1.00 Ordinary shares	100
SC Ventures Innovation Investment L.P.	United Kingdom	Limited Partnership interest	100
SCMB Overseas Limited	United Kingdom	£0.10 Ordinary shares	100
Stanchart Nominees Limited	United Kingdom	£1.00 Ordinary shares	100
Standard Chartered Africa Limited	United Kingdom	£1.00 Ordinary shares	100
Standard Chartered Bank	United Kingdom	$0.01 Non-Cumulative Irredeemable Preference shares	100
		$5.00 Non-Cumulative Redeemable Preference shares	100
		$1.00 Ordinary shares	100
Standard Chartered Foundation1	United Kingdom	Guarantor	100
Standard Chartered Health Trustee (UK) Limited	United Kingdom	£1.00 Ordinary shares	100
Standard Chartered Holdings Limited	United Kingdom	$2.00 Ordinary shares	100
Standard Chartered I H Limited	United Kingdom	$1.00 Ordinary shares	100
Standard Chartered Leasing (UK) 2 Limited	United Kingdom	$1.00 Ordinary shares	100
Standard Chartered Leasing (UK) 3 Limited	United Kingdom	$1.00 Ordinary shares	100
Standard Chartered Leasing (UK) Limited	United Kingdom	$1.00 Ordinary shares	100
Standard Chartered NEA Limited	United Kingdom	$1.00 Ordinary shares	100
Standard Chartered Nominees Limited	United Kingdom	£1.00 Ordinary shares	100
Standard Chartered Nominees (Private Clients UK) Limited	United Kingdom	$1.00 Ordinary shares	100
Standard Chartered Overseas Holdings Limited	United Kingdom	£1.00 Ordinary shares	100
Standard Chartered Securities (Africa) Holdings Limited	United Kingdom	$1.00 Ordinary shares	100
Standard Chartered Trustees (UK) Limited	United Kingdom	£1.00 Ordinary shares	100
Standard Chartered UK Holdings Limited	United Kingdom	£10.00 Ordinary shares	100
The SC Transport Leasing Partnership 1	United Kingdom	Limited Partnership interest	100
The SC Transport Leasing Partnership 2	United Kingdom	Limited Partnership interest	100
The SC Transport Leasing Partnership 3	United Kingdom	Limited Partnership interest	100
The SC Transport Leasing Partnership 4	United Kingdom	Limited Partnership interest	100
The BW Leasing Partnership 1 LP1	United Kingdom	Limited Partnership interest	100
The BW Leasing Partnership 2 LP1	United Kingdom	Limited Partnership interest	100
The BW Leasing Partnership 3 LP1	United Kingdom	Limited Partnership interest	100
The BW Leasing Partnership 4 LP1	United Kingdom	Limited Partnership interest	100
The BW Leasing Partnership 5 LP1	United Kingdom	Limited Partnership interest	100
The following companies have the address of 2 More London Riverside, London SE1 2JT, United Kingdom
Bricks (C&K) LP1	United Kingdom	Limited Partnership interest	100
Bricks (C) LP1	United Kingdom	Limited Partnership interest	100
Bricks (T) LP1	United Kingdom	Limited Partnership interest	100
Bricks (M) LP1	United Kingdom	Limited Partnership interest	100
The following companies have the address of 8th Floor, 20 Farringdon Street, London, EC4A 4AB, United Kingdom.
SC Ventures G.P. Limited	United Kingdom	£1.00 Ordinary shares	100

Page 130

Assembly Payments UK Ltd	United Kingdom	£1.00 Ordinary shares	100
The following company has the address of 1 Bartholomew Lane, London, EC2N 2AX, United Kingdom
Corrasi Covered Bonds LLP	United Kingdom	Membership Interest	50
The following companies have the address of Thomas House, 84 Eccleston Square, London, SW1V 1PX, United Kingdom
Zodia Custody Limited	United Kingdom	$1.00 Ordinary shares	100
Zodia Holdings Limited	United Kingdom	$1.00 Ordinary shares	100
The following company has the address of TMF Group, 8th Floor, 20 Farringdon Street, London, EC4A 4AB, United Kingdom
Zodia Markets (UK) Limited	United Kingdom	$1.00 Ordinary shares	100
The following company has the address of Spaces, 25 Wilton Road, Victoria, London, SW1V 1LW, United Kingdom
Zodia Markets Holdings Limited	United Kingdom	$1.00 Ordinary shares	75.01
The following company has the address of Robert Denholm House, Bletchingly Road, Nutfield, Redhill, RH1 4HW, United Kingdom
CurrencyFair (UK) Limited	United Kingdom	£1.00 Ordinary shares	100
The following company has the address Edifício Kilamba, 7º Avenida 4 de Fevereiro, Marginal, Luanda, Angola
Standard Chartered Bank Angola S.A.	Angola	AOK8,742.05 Ordinary shares	60
The following company has the address of Level 5, 345 George St, Sydney NSW 2000, Australia
Standard Chartered Grindlays Pty Limited	Australia	AUD Ordinary shares	100
The following company has the address of 17/31 Queen Street, Melbourne VIC 3000, Australia
Assembly Payments Australia Pty Ltd	Australia	$ Ordinary shares	100
The following company has the address of Wilsons Landing, Level 5, 6A Glen Street, Milsons Point NSW 2061, Australia
CurrencyFair Australia Pty Ltd	Australia	AUD Ordinary	100
The following company has the address of Level 20, 31 Queen Street, Melbourne VIC 3000, Australia
Zai Australia Pty Ltd	Australia	AUD0.01 Ordinary shares	100
		$1.00 Ordinary shares	100
The following companies have the address of 5th Floor Standard House Bldg, The Mall, Queens Road, PO Box 496, Gaborone, Botswana
Standard Chartered Bank Insurance Agency (Proprietary) Limited	Botswana	BWP Ordinary shares	100
Standard Chartered Investment Services (Proprietary) Limited	Botswana	BWP Ordinary shares	100
Standard Chartered Bank Botswana Limited	Botswana	BWP Ordinary shares	75.8
Standard Chartered Botswana Nominees (Proprietary) Limited	Botswana	BWP Ordinary shares	100
Standard Chartered Botswana Education Trust2	Botswana	Interest in Trust	100
The following companies have the address of Avenida Brigadeiro Faria Lima, no 3.477, 6º , conjunto 62 - Torre Norte, Condominio Patio Victor Malzoni, CEP 04538-133, Sao Paulo, Brazil
Standard Chartered Participacoes Ltda	Brazil	BRL1.00 Ordinary shares	100
Standard Chartered Representaço Ltda	Brazil	BRL1.00 Ordinary shares	100
The following company has the address of G01-02, Wisma Haji Mohd Taha Building, Jalan Gadong, BE4119, Brunei Darussalam
Standard Chartered Securities (B) Sdn Bhd	Brunei Darussalam	BND1.00 Ordinary shares	100
The following company has the address of Standard Chartered Bank Cameroon S.A, 1155, Boulevard de la Liberté, Douala, B.P. 1784, Cameroon
Standard Chartered Bank Cameroon S.A.	Cameroon	XAF10,000.00 Ordinary shares	100
The following company has the address of 66 Wellington Street, West, Suite 4100, Toronto Dominion Centre, Toronto ON M5K 1B7, Canada
CurrencyFair (Canada) Ltd	Canada	CAN$ Common shares	100
The following company has the address of Maples Corporate Services Limited, PO Box 309, Ugland House, Grand Cayman KY1-1104, Cayman Islands
Cerulean Investments LP	Cayman Islands	Limited Partnership interest	100
The following company has the address of Maples Finance Limited, PO Box 1093 GT, Queensgate House, Georgetown, Grand Cayman, Cayman Islands

Page 131

SCB Investment Holding Company Limited	Cayman Islands	$1,000.00 A Ordinary shares	100
The following company has the address of Walkers Corporate Limited, Cayman Corporate Centre, 27 Hospital Road George Town, Grand Cayman KY1-9008, Cayman Islands
Sirat Holdings Limited4	Cayman Islands	$0.01 Ordinary shares	100
The following company has the address of No. 1034, Managed by Tianjin Dongjiang Secretarial Services , Co., Ltd., Room 202, Office Area of Inspection Warehouse, No.6262 Ao Zhou Road, Dongjiang Free Trade Port Zone, Tianjin Pilot Free Trade Zone, China
Pembroke Aircraft Leasing (Tianjin) Limited³	China	$1.00 Ordinary shares	100
The following company has the address of No. 1035, Managed by Tianjin Dongjiang Secretarial Services , Co., Ltd., Room 202, Office Area of Inspection Warehouse, No.6262 Ao Zhou Road, Dongjiang Free Trade Port Zone, Tianjin Pilot Free Trade Zone, China
Pembroke Aircraft Leasing Tianjin 1 Limited3	China	CNY1.00 Ordinary shares	100
The following company has the address of No. 1036, Managed by Tianjin Dongjiang Secretarial Services , Co., Ltd., Room 202, Office Area of Inspection Warehouse, No.6262 Ao Zhou Road, Dongjiang Free Trade Port Zone, Tianjin Pilot Free Trade Zone, China
Pembroke Aircraft Leasing Tianjin 2 Limited3	China	CNY1.00 Ordinary shares	100
The following company has the address of Standard Chartered Tower, 201 Century Avenue, Pudong, Shanghai 200120, China
Standard Chartered Bank (China) Limited3	China	CNY Ordinary shares	100
The following company has the address of 26F, Fortune Financial Centre, #5, Dong San Huan Zhong Lu, Chaoyang District, Beijing, P. R. China.
Standard Chartered Corporate Advisory Co. Ltd3	China	$1.00 Ordinary shares	100
The following company has the address of No. 35, Xinhuanbei Road, TEDA, Tianjin, 300457, China
Standard Chartered Global Business Services Co., Ltd3	China	$ Ordinary shares	100
The following companies have the address of Units 61-65 (Office use only), Self-numbered Room 01-04, Room 901, No 6, Zhujiang East Road, Tianhe District, Guangzhou City, Guangdong Province, China
Standard Chartered Global Business Services (Guangzhou) Co., Ltd.3	China	$ Ordinary shares	100
Standard Chartered (Guangzhou) Business Management Co., Ltd.3	China	$ Ordinary shares	100
The following company has the address of Room 2619, No 9, Linhe West Road, Tianhe District, Guangzhou, China
Guangzhou CurrencyFair Information Technology Limited³	China	CNY Ordinary shares	100
The following company has the address of No. 188 Yeshen Rd, 11F, A-1161 RM, Pudong New District, Shanghai, 31, 201308, China
Standard Chartered Trading (Shanghai) Limited3	China	$15,000,000.00 Ordinary Shares	100
The following company has the address of Standard Chartered Bank Cote d'Ivoire, 23 Boulevard de la République, Abidjan 17, 17 B.P. 1141, Cote d'Ivoire
Standard Chartered Bank Cote d' Ivoire SA	Cote d'Ivoire	XOF100,000.00 Ordinary shares	100
The following company has the address of Standard Chartered Bank France, 32 Rue de Monceau,75008, Paris, France
Pembroke Lease France SAS	France	€1.00 Ordinary shares	100
The following company has the address of 8 Ecowas Avenue, Banjul, Gambia
Standard Chartered Bank Gambia Limited	Gambia	GMD1.00 Ordinary shares	74.85
The following company has the address of Taunusanlage 16, 60325, Frankfurt am Main, Germany
Standard Chartered Bank AG	Germany	€ Ordinary shares	100
The following companies have the address of Standard Chartered Bank Building, 87 Independence Avenue, P.O. Box 768, Accra,Ghana
Standard Chartered Bank Ghana PLC	Ghana	GHS Ordinary shares	69.4
		GHS0.52 Preference shares	87.0
Standard Chartered Ghana Nominees Limited	Ghana	GHS Ordinary shares	100
The following company has the address of Standard Chartered Bank Ghana Limited, 87, Independence Avenue, Post Office Box 678, Accra, Ghana
Standard Chartered Wealth Management Limited Company	Ghana	GHS Ordinary shares	100

Page 132

The following company has the address of 18/F., Standard Chartered Tower, 388 Kwun Tong Road, Kwun Tong, Kowloon, Hong Kong
Horsford Nominees Limited	Hong Kong	HKD Ordinary shares	100
The following companies have the address of 14th Floor, One Taikoo Place, 979 King's Road, Quarry Bay, Hong Kong.
Kozagi Limited	Hong Kong	HKD Ordinary shares	100
Standard Chartered PF Real Estate (Hong Kong) Limited	Hong Kong	$ Ordinary shares	100
The following companies have the address of 15/F., Two International Finance Centre, No. 8 Finance Street, Central, Hong Kong
Marina Acacia Shipping Limited	Hong Kong	$ Ordinary shares	100
Marina Amethyst Shipping Limited	Hong Kong	$ Ordinary shares	100
Marina Angelite Shipping Limited	Hong Kong	$ Ordinary shares	100
Marina Beryl Shipping Limited	Hong Kong	$ Ordinary shares	100
Marina Emerald Shipping Limited	Hong Kong	$ Ordinary shares	100
Marina Flax Shipping Limited	Hong Kong	$ Ordinary shares	100
Marina Gloxinia Shipping Limited	Hong Kong	$ Ordinary shares	100
Marina Hazel Shipping Limited	Hong Kong	$ Ordinary shares	100
Marina Ilex Shipping Limited	Hong Kong	$ Ordinary shares	100
Marina Iridot Shipping Limited	Hong Kong	$ Ordinary shares	100
Marina Leasing Limited	Hong Kong	$ Ordinary shares	100
Marina Mimosa Shipping Limited	Hong Kong	$ Ordinary shares	100
Marina Moonstone Shipping Limited	Hong Kong	$ Ordinary shares	100
Marina Peridot Shipping Limited	Hong Kong	$ Ordinary shares	100
Marina Sapphire Shipping Limited	Hong Kong	$ Ordinary shares	100
Marina Tourmaline Shipping Limited	Hong Kong	$ Ordinary shares	100
Standard Chartered Leasing Group Limited	Hong Kong	$ Ordinary shares	100
Standard Chartered Trade Support (HK) Limited	Hong Kong	HKD Ordinary shares	100
The following companies have the address of 13/F Standard Chartered Bank Building, 4-4A Des Voeux Road Central, Hong Kong
Standard Chartered Private Equity Limited	Hong Kong	HKD Ordinary shares	100
Standard Chartered Private Equity Managers (Hong Kong) Limited	Hong Kong	HKD Ordinary shares	100
The following company has the address of 13/F, Standard Chartered Bank Building, 4-4A Des Voeux Road, Central, Hong Kong
Standard Chartered Trust (Hong Kong) Limited	Hong Kong	HKD Ordinary shares	100
The following company has the address of 15/F, Two International Finance Centre, No. 8 Finance Street, Central, Hong Kong
Standard Chartered Securities (Hong Kong) Limited	Hong Kong	HKD Ordinary shares	100
The following company has the address of 21/F, Standard Chartered Tower, 388 Kwun Tong Road, Kwun Tong, Kowloon, Hong Kong
Standard Chartered Asia Limited	Hong Kong	HKD Deferred shares	100
		HKD Ordinary shares	100
		$ Ordinary shares	100
The following companies have the address of 32/F, Standard Chartered Bank Building, 4-4A Des Voeux Road, Central, Hong Kong
Standard Chartered Bank (Hong Kong) Limited	Hong Kong	HKD A Ordinary shares	100
		HKD B Ordinary shares	100
		$ D Ordinary shares	100
		$ C Ordinary shares	100
Mox Bank Limited	Hong Kong	HKD Ordinary shares	65.1
The following company has the address of 31/F, Tower 2 Times Square, 1 Matheson St, Causeway Bay, Hong Kong
Assembly Payments HK Limited	Hong Kong	HKD Ordinary Shares	100
The following company has the address of Suites 1103-4 AXA Tower, Landmark East, 100 How Ming Street, Kwun Tong, Hong Kong
Currencyfair Asia Limited	Hong Kong	HKD Ordinary shares	100
The following company has the address of 1st Floor, Europe Building, No.1, Haddows Road, Nungambakkam, Chennai, 600 006, India

Page 133

Standard Chartered Global Business Services Private Limited	India	INR10.00 Equity shares	100
The following company has the address of 90 M.G.Road, II Floor, Fort, Mumbai, Maharashtra, 400 001, India
Standard Chartered Finance Private Limited	India	INR10.00 Ordinary shares	98.68
The following company has the address of Ground Floor, Crescenzo Building, G Block, C 38/39 , Bandra Kurla Complex, Bandra (East) , Mumbai , Mumbai , Maharashtra , 400051, India
Standard Chartered Private Equity Advisory (India) Private Limited	India	INR1,000.00 Ordinary shares	99.996
The following company has the address of Second Floor, Indiqube Edge, Khata No. 571/630/6/4, Sy.No.6/4, Ambalipura Village, Varthur Hobli, Marathahalli Sub-Division, Ward No. 150, Bengaluru, 560102, India.
Standard Chartered Research and Technology India Private Limited	India	INR10.00 A Equity shares	100
		INR10.00 Preference shares	100
The following company has the address of Crescenzo, 6th Floor, Plot No 38-39 G Block , Bandra Kurla Complex, , Bandra East, Mumbai , Maharashtra , 400051, India
Standard Chartered Capital Limited	India	INR10.00 Equity shares	100
The following company has the address of 2nd Floor, 23-25 M.G. Road, Fort, Mumbai, 400 001, India
Standard Chartered Securities (India) Limited	India	INR10.00 Equity shares	100
The following company has the address of Ground Floor, Crescenzo Building, G Block, C 38/39 , Bandra Kurla Complex, Bandra (East) , Mumbai , Mumbai , Maharashtra , 400051, India
St Helen's Nominees India Private Limited	India	INR10.00 Equity shares	100
The following company has the address of Vaishnavi Serenity, First Floor, No. 112, Koramangala Industrial Area, 5th Block, Koramangala, Bangalore, Karnataka, 560095, India
Standard Chartered (India) Modeling and Analytics Centre Private Limited	India	INR10.00 Equity shares	100
The following companies have the address of 91 Pembroke Road, Dublin 4, Ballsbridge, Dublin, DO4 EC42, Ireland
CurrencyFair (Canada) Limited	Ireland	€1.00 Ordinary	100
CurrencyFair Nominees Limited	Ireland	€1.00 Ordinary	100
The following companies have the address of 32 Molesworth Street, Dublin 2, D02Y512, Ireland
Inishbrophy Leasing Limited	Ireland	€1.00 Ordinary shares	100
Inishcannon Leasing Limited	Ireland	$1.00 Ordinary shares	100
Inishcrean Leasing Limited	Ireland	$1.00 Ordinary shares	100
Inishdawson Leasing Limited	Ireland	€1.00 Ordinary shares	100
Inisherkin Leasing Limited	Ireland	$1.00 Ordinary shares	100
Inishoo Leasing Limited	Ireland	$1.00 Ordinary shares	100
Nightjar Limited	Ireland	$1.00 Ordinary shares	100
Pembroke Aircraft Leasing 1 Limited	Ireland	€1.00 Ordinary shares	100
Pembroke Aircraft Leasing 2 Limited	Ireland	€1.00 Ordinary shares	100
Pembroke Aircraft Leasing 3 Limited	Ireland	$1.00 Ordinary shares	100
Pembroke Aircraft Leasing 4 Limited	Ireland	$1.00 Ordinary shares	100
Pembroke Aircraft Leasing 5 Limited	Ireland	$1.00 Ordinary shares	100
Pembroke Aircraft Leasing 6 Limited	Ireland	$1.00 Ordinary shares	100
Pembroke Aircraft Leasing 7 Limited	Ireland	$1.00 Ordinary shares	100
Pembroke Aircraft Leasing 8 Limited	Ireland	$1.00 Ordinary shares	100
Pembroke Aircraft Leasing 9 Limited	Ireland	$1.00 Ordinary shares	100
Pembroke Aircraft Leasing 10 Limited	Ireland	$1.00 Ordinary shares	100
Pembroke Aircraft Leasing 11 Limited	Ireland	$1.00 Ordinary shares	100
Pembroke Aircraft Leasing 12 Limited	Ireland	$1.00 Ordinary shares	100
Pembroke Aircraft Leasing 13 Limited	Ireland	$1.00 Ordinary shares	100
Pembroke Aircraft Leasing 14 Limited	Ireland	$1.00 Ordinary shares	100
Pembroke Aircraft Leasing 15 Limited	Ireland	$1.00 Ordinary shares	100
Pembroke Aircraft Leasing 16 Limited	Ireland	$1.00 Ordinary shares	100
Pembroke Aircraft Leasing Holdings Limited	Ireland	$1.00 Ordinary shares	100

Page 134

Pembroke Capital Limited	Ireland	€1.25 Ordinary shares	100
		$1.00 Ordinary shares	100
Skua Limited	Ireland	$1.00 Ordinary shares	100

The following companies have the address of TMF, 3rd Floor, Kilmore House, Park Lane, Spencer Dock , Dublin 1, Ireland
Zodia Custody (Ireland) Limited	Ireland	$1.00 Ordinary shares	100
Zodia Markets (Ireland) Limited	Ireland	$1.00 Ordinary shares	100
The following company has the address of 91 Pembroke Road, Dublin 4, Ballsbridge, Dublin, DO4 EC42, Ireland
CurrencyFair Limited	Ireland	€0.001 A Ordinary shares	100
		€0.001 Ordinary shares	27.952
The following company has the address of First Names House, Victoria Road, Douglas, IM2 4DF, Isle of Man
Pembroke Group Limited5	Isle of Man	$0.01 Ordinary shares	100
The following companies have the address of 1st Floor, Goldie House, 1-4 Goldie Terrace, Upper Church Street, Douglas, IM1 1EB, Isle of Man
Standard Chartered Assurance Limited	Isle of Man	$1.00 Ordinary shares	100
		$1.00 Redeemable Preference shares	100
Standard Chartered Insurance Limited5	Isle of Man	$1.00 Ordinary shares	100
The following company has the address of 21/F, Sanno Park Tower, 2-11-1 Nagatacho, Chiyoda-ku, Tokyo, 100-6155, Japan
Standard Chartered Securities (Japan) Limited	Japan	JPY50,000 Ordinary shares	100
The following company has the address of 15 Castle Street, St Helier, JE4 8PT, Jersey
SCB Nominees (CI) Limited	Jersey	$1.00 Ordinary shares	100
The following company has the address of IFC 5, St Helier, JE1 1ST, Jersey
Standard Chartered Funding (Jersey) Limited⁶	Jersey	£1.00 Ordinary shares	100
The following companies have the address of StandardChartered@Chiromo, Number 48, Westlands Road, P. O. Box 30003 - 00100, Nairobi, Kenya
Standard Chartered Bancassurance Intermediary Limited	Kenya	KES100.00 Ordinary shares	100
Standard Chartered Investment Services Limited	Kenya	KES20.00 Ordinary shares	100
Standard Chartered Bank Kenya Limited	Kenya	KES5.00 Ordinary shares	74.32
		KES5.00 Preference shares	100
Standard Chartered Securities (Kenya) Limited	Kenya	KES10.00 Ordinary shares	100
Standard Chartered Financial Services Limited	Kenya	KES20.00 Ordinary shares	100
Standard Chartered Kenya Nominees Limited	Kenya	KES20.00 Ordinary shares	100
The following company has the address of 47 Jongno, Jongno-gu, Seoul, 110-702, Republic of Korea
Standard Chartered Bank Korea Limited	Korea, Republic of	KRW5,000.00 Ordinary shares	100
The following company has the address of 2F, 47 Jongno, Jongno-gu, Seoul, 110-702, Republic of Korea
Standard Chartered Securities Korea Co. Ltd	Korea, Republic of	KRW5,000.00 Ordinary shares	100
The following company has the address of Atrium Building, Maarad Street, 3rd Floor, P.O.Box: 11-4081 Riad El Solh, Beirut, Beirut Central District, Lebanon
Standard Chartered Metropolitan Holdings SAL	Lebanon	$10.00 Ordinary A shares	100
The following companies have the address of Level 26, Equatorial Plaza, Jalan Sultan Ismail, 50250 Kuala Lumpur, Malaysia
Cartaban (Malaya) Nominees Sdn Berhad	Malaysia	RM Ordinary shares	100
Cartaban Nominees (Asing) Sdn Bhd	Malaysia	RM Ordinary shares	100
Cartaban Nominees (Tempatan) Sdn Bhd	Malaysia	RM Ordinary shares	100
Golden Maestro Sdn Bhd	Malaysia	RM Ordinary shares	100
Price Solutions Sdn Bhd	Malaysia	RM Ordinary shares	100
SCBMB Trustee Berhad	Malaysia	RM Ordinary shares	100
Standard Chartered Bank Malaysia Berhad	Malaysia	RM Irredeemable Convertible Preference shares	100
		RM Ordinary shares	100
Standard Chartered Saadiq Berhad	Malaysia	RM Ordinary shares	100

Page 135

The following companies have the address of TMF Trust Labuan Limited, Brumby Centre, Lot 42,, Jalan Muhibbah, 87000 Labuan F.T., Malaysia
Marina Morganite Shipping Limited7	Malaysia	$ Ordinary shares	100
Marina Moss Shipping Limited7	Malaysia	$ Ordinary shares	100
Marina Tanzanite Shipping Limited7	Malaysia	$ Ordinary shares	100
Pembroke Leasing (Labuan) 3 Berhad	Malaysia	$ Ordinary shares	100
The following company has the address of Suite 18-1, Level 18, Vertical Corporate Tower B, Avenue 10, The Vertical, Bangsar South City , No. 8, Jalan Kerinchi , 59200 Kuala Lumpur, Wilayah Persekutuan, Malaysia
Resolution Alliance Sdn Bhd	Malaysia	RM Ordinary shares	91
		RM Irredeemable Preference shares	100
The following company has the address of Level 1, Wisma Standard Chartered, Jalan Teknologi 8, Taman Teknologi Malaysia, 57000 Bukit Jalil, Kuala Lumpur, Wilayah Persekutuan, Malaysia
Standard Chartered Global Business Services Sdn Bhd	Malaysia	RM Ordinary shares	100
The following company has the address of 10th Floor, Menara Hap Seng, No. 1&3, Jalan P. Ramlee, 50250 Kuala Lumpur, Malaysia
Assembly Payments Malaysia Sdn. Bhd.	Malaysia	RM Ordinary shares	100
The following companies have the address of Trust Company Complex, Ajeltake Road, Ajeltake Island, Majuro, MH96960, Marshall Islands
Marina Alysse Shipping Limited7	Marshall Islands	$1.00 Ordinary shares	100
Marina Amandier Shipping Limited7	Marshall Islands	$1.00 Ordinary shares	100
Marina Ambroisee Shipping Limited7	Marshall Islands	$1.00 Ordinary shares	100
Marina Angelica Shipping Limited7	Marshall Islands	$1.00 Ordinary shares	100
Marina Aventurine Shipping Limited7	Marshall Islands	$1.00 Ordinary shares	100
Marina Buxus Shipping Limited7	Marshall Islands	$1.00 Ordinary shares	100
Marina Citrine Shipping Limited7	Marshall Islands	$1.00 Ordinary shares	100
Marina Dahlia Shipping Limited7	Marshall Islands	$1.00 Ordinary shares	100
Marina Dittany Shipping Limited7	Marshall Islands	$1.00 Ordinary shares	100
Marina Dorado Shipping Limited7	Marshall Islands	$1.00 Ordinary shares	100
Marina Lilac Shipping Limited7	Marshall Islands	$1.00 Ordinary shares	100
Marina Lolite Shipping Limited7	Marshall Islands	$1.00 Ordinary shares	100
Marina Obsidian Shipping Limited7	Marshall Islands	$1.00 Ordinary shares	100
Marina Protea Shipping Limited7	Marshall Islands	$1.00 Ordinary shares	100
Marina Quartz Shipping Limited7	Marshall Islands	$1.00 Ordinary shares	100
Marina Remora Shipping Limited7	Marshall Islands	$1.00 Ordinary shares	100
Marina Turquoise Shipping Limited7	Marshall Islands	$1.00 Ordinary shares	100
Marina Zircon Shipping Limited7	Marshall Islands	$1.00 Ordinary shares	100
The following company has the address of 6/F, Standard Chartered Tower, 19, Bank Street, Cybercity, Ebene, 72201, Mauritius
Standard Chartered Bank (Mauritius) Limited	Mauritius	$ Ordinary shares	100
The following companies have the address of c/o Ocorian Corporate Services (Mauritius) Ltd, 6th Floor, Tower A, 1 Cybercity, Ebene, 72201, Mauritius
Standard Chartered Financial Holdings	Mauritius	$1.00 Ordinary shares	100
Standard Chartered Private Equity (Mauritius) Limited	Mauritius	$1.00 Ordinary shares	100
Standard Chartered Private Equity (Mauritius) II Limited	Mauritius	$1.00 Ordinary shares	100
Standard Chartered Private Equity (Mauritius) lll Limited	Mauritius	$1.00 Ordinary shares	100
The following company has the address of Mondial Management Services Ltd, Unit 2L, 2nd Floor Standard Chartered Tower, 19 Cybercity, Ebene, Mauritius
Subcontinental Equities Limited	Mauritius	$1.00 Ordinary shares	100
The following company has the address of SGG Corporate Services (Mauritius) Ltd, 33, Edith Cavell Street, Port Louis, 11324, Mauritius
Actis Treit Holdings (Mauritius) Limited1	Mauritius	Class A $1.00 Ordinary shares	62.001
		Class B $1.00 Ordinary shares	62.001
The following company has the address of Standard Chartered Bank Nepal Limited, Madan Bhandari Marg, Ward No.34, Kathmandu Metropolitan City, Kathmandu District, Bagmati Zone, Kathmandu, Nepal
Standard Chartered Bank Nepal Limited	Nepal	NPR100.00 Ordinary shares	70.21

Page 136

The following company has the address of Hoogoorddreef 15, 1101 BA, Amsterdam, Netherlands
Pembroke Holland B.V.	Netherlands	€450.00 Ordinary shares	100
The following companies have the address of 1 Basinghall Avenue, London, EC2V 5DD, United Kingdom
Standard Chartered Holdings (Africa) B.V.6	Netherlands	€4.50 Ordinary shares	100
Standard Chartered Holdings (Asia Pacific) B.V.6	Netherlands	€4.50 Ordinary shares	100
Standard Chartered Holdings (International) B.V.6	Netherlands	€4.50 Ordinary shares	100
Standard Chartered MB Holdings B.V.6	Netherlands	€4.50 Ordinary shares	100
The following company has the address of 4 All good Place, Rototuna North, Hamilton, New Zealand, 3210
PromisePay Limited	New Zealand	NZD Ordinary shares	100
The following companies have the address of 142, Ahmadu Bello Way, Victoria Island, Lagos, 101241, Nigeria
Cherroots Nigeria Limited	Nigeria	NGN1.00 Ordinary Shares	100
Standard Chartered Bank Nigeria Limited	Nigeria	NGN1.00 Irredeemable Non Cumulative Preference shares	100
		NGN1.00 Ordinary shares	100
		NGN1.00 Redeemable Preference shares	100
Standard Chartered Capital & Advisory Nigeria Limited	Nigeria	NGN1.00 Ordinary shares	100
Standard Chartered Nominees (Nigeria) Limited	Nigeria	NGN1.00 Ordinary shares	100
The following company has the address of 3/F Main SCB Building, I.I Chundrigar Road, Karachi, Sindh, 74000, Pakistan
Price Solution Pakistan (Private) Limited	Pakistan	PKR10.00 Ordinary shares	100
The following company has the address of P.O. Box No. 5556I.I. Chundrigar Road, Karachi, 74000, Pakistan
Standard Chartered Bank (Pakistan) Limited	Pakistan	PKR10.00 Ordinary shares	98.99
The following company has the address of Rondo Ignacego Daszyńskiego 2B, 00-843, Warsaw, Poland
Standard Chartered Global Business Services spóka z ograniczoną odpowiedzialnością	Poland	PLN50.00 Ordinary shares	100
The following company has the address of Vistra Corporate Services Centre, Ground Floor, NPF Building, Beach Road, Apia, Samoa
Standard Chartered Nominees (Western Samoa) Limited	Samoa	$1.00 Ordinary shares	100
The following company has the address of Al Faisaliah Office Tower Floor No 7 (T07D) , King Fahad Highway, Olaya District, Riyadh P.O box 295522 , Riyadh, 11351 , Saudi Arabia
Standard Chartered Capital (Saudi Arabia)	Saudi Arabia	SAR10.00 Ordinary shares	100
The following company has the address of 9 & 11, Lightfoot Boston Street, Freetown, Sierra Leone
Standard Chartered Bank Sierra Leone Limited	Sierra Leone	SLL1.00 Ordinary shares	80.7
The following companies have the address of 9 Raffles Place, #27-00 Republic Plaza, 048619, Singapore
Actis Treit Holdings No.1 (Singapore) Private Limited¹	Singapore	SGD Ordinary	100
Actis Treit Holdings No.2 (Singapore) Private Limited¹	Singapore	SGD Ordinary	100
The following companies have the address of 8 Marina Boulevard, Marina Bay Financial Centre Tower 1,, Level 25-01, 018981, Singapore
Standard Chartered Private Equity (Singapore) Pte. Ltd	Singapore	$ Ordinary shares	100
Standard Chartered Real Estate Investment Holdings (Singapore) Private Limited	Singapore	$ Ordinary shares	100
The following companies have the address of 8 Marina Boulevard, Level 26, Marina Bay Financial Centre, Tower 1, 018981, Singapore
Marina Aquata Shipping Pte. Ltd.	Singapore	$ Ordinary shares	100
Marina Aruana Shipping Pte. Ltd.	Singapore	SGD Ordinary shares	100
Marina Cobia Shipping Pte. Ltd.	Singapore	SGD Ordinary shares	100
Marina Fatmarini Shipping Pte. Ltd.	Singapore	$ Ordinary shares	100
Marina Frabandari Shipping Pte. Ltd.	Singapore	$ Ordinary shares	100
Marina Gerbera Shipping Pte. Ltd.	Singapore	$ Ordinary shares	100
Marina Opah Shipping Pte. Ltd.	Singapore	SGD Ordinary shares	100
		$ Ordinary shares	100
Marina Partawati Shipping Pte. Ltd.	Singapore	$ Ordinary shares	100
Raffles Nominees (Pte.) Limited	Singapore	SGD Ordinary shares	100

Page 137

The following companies have the address of 8 Marina Boulevard, #27-01 Marina Bay Financial Centre Tower 1, 018981, Singapore
SCTS Capital Pte. Ltd	Singapore	SGD Ordinary shares	100
SCTS Management Pte. Ltd.	Singapore	SGD Ordinary shares	100
Standard Chartered Bank (Singapore) Limited	Singapore	SGD Ordinary shares	100
		SGD Non-cumulative Preference shares	100
		SGD Non-cumulative Class C Preference shares	100
		$ Ordinary shares	100
		$ Preference shares	100
Standard Chartered Trust (Singapore) Limited	Singapore	SGD Ordinary shares	100
Standard Chartered Holdings (Singapore) Private Limited	Singapore	SGD Ordinary shares	100
		$ Ordinary shares	100
Standard Chartered Nominees (Singapore) Pte Ltd	Singapore	SGD Ordinary shares	100
The following companies have the address of 80 Robinson Road, #02-00, 068898, Singapore
Autumn Life Pte. Ltd.	Singapore	$ Ordinary shares	100
Cardspal Pte. Ltd.	Singapore	$ Ordinary shares	100
Nexco Pte. Ltd.	Singapore	$ Ordinary shares	100
Discovery Technology Services Pte. Ltd.	Singapore	$ Ordinary shares	100
SCV Research and Development Pte. Ltd.	Singapore	$ Ordinary shares	100
Power2SME Pte. Ltd.	Singapore	$ Ordinary shares	100
SCV Master Holding Company Pte. Ltd.	Singapore	$ Ordinary shares	100
Pegasus Dealmaking Pte. Ltd.	Singapore	$ Ordinary shares	100
Solv-India Pte. Ltd.	Singapore	$ Ordinary shares	100
The following companies have the address of 140 Robinson Road, #17-01, Crown At Robinson, 068907, Singapore
Trust Bank Singapore Limited	Singapore	SGD Ordinary shares	60
CurrencyFair (Singapore) Pte.Ltd	Singapore	SGD Ordinary shares	100
The following companies have the address of 38 Beach Road, #29-11 South Beach Tower, 189767, Singapore
Assembly Payments SGP Pte. Ltd.	Singapore	SGD Ordinary shares	100
Assembly Payments Pte. Ltd.	Singapore	$ Ordinary shares	100
		$ Preference shares	100
The following company has the address of Abogado Pte Ltd, No. 8 Marina Boulevard, #05-02 MBFC Tower 1, 018981, Singapore
Standard Chartered IL&FS Management (Singapore) Pte. Limited	Singapore	$ Ordinary	50
The following companies have the address of 2nd Floor, 115 West Street, Sandton, Johannesburg, 2196, South Africa
CMB Nominees (RF) PTY Limited	South Africa	ZAR1.00 Ordinary shares	100
Standard Chartered Nominees South Africa Proprietary Limited (RF)	South Africa	ZAR Ordinary shares	100
The following company has the address of 6 Fort Street, PO 785848, , Birnam, Sandton, 2196 2146, South Africa
Promisepay (PTY) Ltd	South Africa	ZAR1.00 Ordinary	100
The following company has the address of 1F, No.177 & 3F-6F, 17F-19F, No.179, Liaoning Street, Zhongshan Dist., Taipei, 104, Taiwan
Standard Chartered Bank (Taiwan) Limited	Taiwan	TWD10.00 Ordinary shares	100
The following companies have the address of 1 Floor, International House, Shaaban Robert Street / Garden Avenue, PO Box 9011, Dar Es Salaam, Tanzania, United Republic of
Standard Chartered Bank Tanzania Limited	Tanzania, United Republic of	TZS1,000.00 Ordinary shares	100
		TZS1,000.00 Preference shares	100
Standard Chartered Tanzania Nominees Limited	Tanzania, United Republic of	TZS1,000.00 Ordinary shares	100
The following company has the address of 100 North Sathorn Road, Silom, Bangrak Bangkok , 10500, Thailand
Standard Chartered Bank (Thai) Public Company Limited	Thailand	THB10.00 Ordinary shares	99.90
The following company has the address of Buyukdere Cad. Yapi Kredi Plaza C Blok, Kat 15, Levent, Istanbul, 34330, Turkey
Standard Chartered Yatirim Bankasi Turk Anonim Sirketi	Turkey	TRL0.10 Ordinary shares	100

Page 138

The following company has the address of Standard Chartered Bank Bldg, 5 Speke Road, PO Box 7111, Kampala, Uganda
Standard Chartered Bank Uganda Limited	Uganda	UGS1,000.00 Ordinary shares	100
The following company has the address of 251 Little Falls Drive, Wilmington DE 19808, United States
CurrencyFair (USA) Inc.	United States	US$1.00 Uncertificated Shares	100
The following company has the address of 505 Howard St. #201, San Francisco, CA 94105, United States
SC Studios, LLC	United States	Membership Interest	100
The following company has the address of Standard Chartered Bank, 37F, 1095 Avenue of the Americas, New York 10036, United States
Standard Chartered Bank International (Americas) Limited	United States	$1,000.00 Ordinary shares	100
The following companies have the address of Corporation Trust Centre, 1209 Orange Street, Wilmington DE 19801, United States
Standard Chartered Holdings Inc.	United States	$100.00 Common shares	100
Standard Chartered Securities (North America) LLC	United States	Membership Interest	100
The following company has the address of 50 Fremont Street, San Francisco CA 94105, United States
Standard Chartered Overseas Investment, Inc.	United States	$10.00 Ordinary shares	100
The following company has the address of C/O Corporation Service Company, 251 Little Falls Drive, Wilmington DE 19808, United States
Standard Chartered Trade Services Corporation	United States	$0.01 Common shares	100
The following company has the address of 25 Taylor St, San Francisco, CA, 94102-3916
Assembly Escrow Inc	United States	$0.0001 Ordinary	100
The following company has the address of 555 Washington Av, St Louis, MO, United States of America, 63101
Assembly Payments, Inc	United States	$0.0001 Ordinary	100
The following company has the address of Room 1810-1815, Level 18, Building 72, Keangnam Hanoi Landmark Tower, Pham Hung Road, Cau Giay New Urban Area, Me Tri Ward, Nam Tu Liem District, Hanoi10000, Vietnam
Standard Chartered Bank (Vietnam) Limited	Vietnam	VND Charter Capital shares	100
The following companies have the address of Vistra Corporate Services Centre, Wickhams Cay II, Road Town, Tortola, VG1110, Virgin Islands, British
Sky Favour Investments Limited7	Virgin Islands, British	$1.00 Ordinary shares	100
Sky Harmony Holdings Limited7	Virgin Islands, British	$1.00 Ordinary shares	100
The following companies have the address of Stand No. 4642, Corner of Mwaimwena Road and Addis Ababa Dri, Lusaka, Zambia, 10101, Zambia
Standard Chartered Bank Zambia Plc	Zambia	ZMW0.25 Ordinary shares	90
Standard Chartered Zambia Securities Services Nominees Limited	Zambia	ZMW1.00 Ordinary shares	100
The following companies have the address of Africa Unity Square Building, 68 Nelson Mandela Avenue, Harare, Zimbabwe
Africa Enterprise Network Trust2	Zimbabwe	Interest in Trust	100
Standard Chartered Bank Zimbabwe Limited	Zimbabwe	$1.00 Ordinary shares	100
Standard Chartered Nominees Zimbabwe (Private) Limited	Zimbabwe	$2.00 Ordinary shares	100

1  The Group has determined that these undertakings are excluded from being consolidated into the Groups accounts, and do not meet the definition of a Subsidiary under IFRS. See notes 31 and 32 for the consolidation policy and disclosure of the undertaking.

2   No share capital by virtue of being a trust

3   Limited liability company

4   The Group has determined the principal place of operation to be Singapore

5   The Group has determined the principal place of operation to be Ireland

6   The Group has determined the principal place of operation to be United Kingdom

7  The Group has determined the principal place of operation to be Hong Kong

Page 139

Joint ventures

Name	Country of Incorporation	Description of shares	Proportion of shares held (%)
The following company has the address of Tricor WP Corporate Services Pte Ltd, 80 Robinson Road #02-00, 068898, Singapore
Olea Global Pte. Ltd.	Singapore	$ Ordinary shares	50
		$ Preference shares	100

Associates

Name	Country of Incorporation	Description of shares	Proportion of shares held (%)
The following company has the address of Work.Life , 33 Foley Street , London, W1W 7TL, United Kingdom
Fintech for International Development Ltd	United Kingdom	$0.0001 Ordinary-A	58.901
The following company has the address of 3 More London Riverside,London, England, SE1 2AQ, United Kingdom
Trade Information Network Limited	United Kingdom	$1.00 Ordinary shares	16.667
The following company has the address of Bohai Bank Building, No.218 Hai He Dong Lu, Hedong District, Tianjin, China, 300012, China
China Bohai Bank Co., Ltd.	China	CNY Ordinary shares	16.263
The following company has the address of 17/F, 100, Gongpyeong-dong, Jongno-gu, Seoul, Korea, Republic of
Ascenta IV	Korea, Republic of	KRW1.00 Partnership Interest	39.1
The following company has the address of 1 Raffles Quay, #23-01, One Raffles Quay, 048583, Singapore
Clifford Capital Holdings Pte. Ltd.	Singapore	$1.00 Ordinary shares	9.9
The following company has the address of 10 Marina Boulevard #08-08, Marina Bay, Financial Centre, 018983, Singapore
Verified Impact Exchange Holdings Pte. Ltd	Singapore	$ Ordinary shares	15
		$ Redeemable Convertible Preference shares	28.571
The following company has the address of Victoria House, State House Avenue, Victoria, MAHE, Seychelles
Seychelles International Mercantile Banking Corporation Limited.	Seychelles	SCR1,000.00 Ordinary shares	22
The following company has the address of Avenue de Tivoli 2, 1007, Lausanne, Switzerland
Metaco SA	Switzerland	CHF 0.01 Preference A Shares	29.505

Page 140

Significant investment holdings and other related undertakings

Name	Country of Incorporation	Description of shares	Proportion of shares held (%)
The following company has the address of 1 Bartholomew Lane, London, EC2N 2AX, United Kingdom
Corrasi Covered Bonds (LM) Limited	United Kingdom	£1.00 Ordinary	20
The following company has the address of Intertrust Corporate Services (Cayman) Limited, 190 Elgin Avenue, George Town, Grand Cayman , KY1-9005, Cayman Islands
ATSC Cayman Holdco Limited	Cayman Islands	$0.01 Ordinary-A shares	5.272
		$0.01 Ordinary-B shares	100
The following company has the address of 3, Floor 1, No.1, Shiner Wuxingcaiyuan, West Er Huan Rd, , Xi Shan District, Kunming, Yunnan Province, PRC , China
Yunnan Golden Shiner Property Development Co., Ltd.	China	CNY1.00 Ordinary shares	42.5
The following companies have the address of Unit 605-08, 6/F Wing On Centre, 111 Connaught Road, Central, Sheung Wan, Hong Kong
Actis Carrock Holdings (HK) Limited	Hong Kong	$ Class A Ordinary shares	39.689
		$ Class B Ordinary shares	39.689
Actis Temple Stay Holdings (HK) Limited	Hong Kong	$ Class A Ordinary shares	39.689
		$ Class B Ordinary shares	39.689
Actis Jack Holdings (HK) Limited	Hong Kong	$ Class A Ordinary shares	39.689
		$ Class B Ordinary shares	39.689
Actis Rivendell Holdings (HK) Limited	Hong Kong	$ Class A Ordinary shares	39.689
		$ Class B Ordinary shares	39.689
Actis Young City Holdings (HK) Limited	Hong Kong	$ Class A Ordinary shares	39.689
		$ Class B Ordinary shares	39.689
The following company has the address of 1221 A, Devika Tower, 12th Floor, , 6 Nehru Place, New Delhi 110019, New Delhi, 110019, India
Mikado Realtors Private Limited	India	INR10.00 Ordinary shares	26
The following company has the address of 4thFloor, 274, Chitalia House, Dr. Cawasji Hormusji Road, Dhobi Talao, Mumbai City, Maharashtra, India 400 002, Mumbai, 400 002, India
Industrial Minerals and Chemical Co. Pvt. Ltd	India	INR100.00 Ordinary shares	26
The following company has the address of 17F, 100, Gongpyeong-dong, Jongno-gu, Seoul, Korea, Republic of Korea
Ascenta III	Korea	KRW Class B Equity Interest	31
The following company has the address of 3 Jalan Pisang, c/o Watiga Trust Ltd, 199070 Singapore
SCIAIGF Liquidating Trust1	Singapore	Interest in trust	43.96
The following company has the address of 49, Sungei Kadut Avenue, #03-01 S729673, Singapore
Omni Centre Pte. Ltd.	Singapore	SGD Redeemable Convertible Preference shares	99.998
The following company has the address of 251 Little Falls Drive, Wilmington, New Castle DE 19808, United States
Paxata, Inc.	United States	US$0.0001 Series C2 Preferred Stock	40.741
		US$0.0001 Series C2 Preferred Stock	10.11%

Page 141

In liquidation

Subsidiary Undertakings

Name	Country of Incorporation	Description of shares	Proportion of shares held (%)
The following companies have the address of C/O Teneo Restructuring Limited 156 Great Charles Street Queensway Birmingham West Midlands B3 3HN
Compass Estates Limited	United Kingdom	£1.00 Ordinary shares	100
Standard Chartered Masterbrand Licensing Limited	United Kingdom	$1.00 Ordinary Shares	100
The following companies have the address of Bucktrout House, Glategny Esplanade, St Peter Port, GY1 3HQ, Guernsey
Birdsong Limited	Guernsey	£1.00 Ordinary shares	100
Nominees One Limited	Guernsey	£1.00 Ordinary shares	100
Nominees Two Limited	Guernsey	£1.00 Ordinary shares	100
Songbird Limited	Guernsey	£1.00 Ordinary shares	100
Standard Chartered Secretaries (Guernsey) Limited	Guernsey	£1.00 Ordinary shares	100
Standard Chartered Trust (Guernsey) Limited	Guernsey	£1.00 Ordinary shares	100
The following company has the address of 8/Floor, Gloucester Tower , The Landmark, 15 Queen's Road Central, Hong Kong
Leopard Hong Kong Limited	Hong Kong	$ Ordinary shares	100
The following company has the address of 32 Molesworth Street, Dublin 2, D02Y512, Ireland
Inishlynch Leasing Limited	Ireland	€1.00 Ordinary shares	100
The following company has the address of Menara Standard Chartered, 3rd Floor, Jl. Prof.Dr. Satrio no. 164, Setiabudi, Jarkarta Selatan, Indonesia
PT Solusi Cakra Indonesia (dalam likuidasi)	Indonesia	IDR23,809,600.00 Ordinary shares	99
The following company has the address of No. 157 - 157 A, Jakarta Barat, 11130, Indonesia.
PT. Price Solutions Indonesia (dalam likuidasi)	Indonesia	$100.00 Ordinary shares	100
The following company has the address of Standard Chartered@Chiromo, Number 48, Westlands Road, P. O. Box 30003 - 00100, Nairobi, Kenya
Standard Chartered Management Services Limited	Kenya	KES20.00 Ordinary shares	100
The following company has the address of 30 Rue Schrobilgen, 2526, Luxembourg
Standard Chartered Financial Services (Luxembourg) S.A.	Luxembourg	€25.00 Ordinary shares	100
The following company has the address of Level 26, Equatorial Plaza, Jalan Sultan Ismail, 50250 Kuala Lumpur, Malaysia
Popular Ambience Sdn Bhd	Malaysia	RM Ordinary shares	100
The following company has the address of C/o IQ EQ Corporate Services (Mauritius) Ltd, 33 Edith Cavell Street, Port Louis, 11324, Mauritius
FAI Limited	Mauritius	US$1.00 Ordinary shares	76.598
The following company has the address of Jiron Huascar 2055, Jesus Maria, Lima 15072, Peru
Banco Standard Chartered en Liquidacion	Peru	$75.133 Ordinary shares	100
The following company has the address of 8 Marina Boulevard, Level 27, Marina Bay Financial Centre, Tower 1, 018981, Singapore
Standard Chartered (2000) Limited	Singapore	SGD1.00 Ordinary shares	100
The following company has the address of Luis Alberto de Herrera 1248, Torre II, Piso 11, Esc. 1111, Uruguay
Standard Chartered Uruguay Representacion S.A.	Uruguay	UYU1.00 Ordinary shares	100

1  The Group has determined the prinicpal place of operation to be Singapore

Page 142

Significant investment holdings and other related undertakings

Name	Country of Incorporation	Description of shares	Proportion of shares held (%)
The following company has the address of Lot 6.05, Level 6, KPMG Tower, 8 First Avenue, Bandar Utama, 47800 Petaling Jaya, Selangor, Malaysia
House Network SDN BHD	Malaysia	RM1.00 Ordinary shares	25

Liquidated/dissolved/sold

Subsidiary Undertakings

Name	Country of Incorporation	Description of shares	Proportion of shares held (%)
SC Leaseco Limited	United Kingdom	$1.00 Ordinary shares	100
Standard Chartered APR Limited	United Kingdom	$1.00 Ordinary shares	100
Standard Chartered Finance (Brunei) Bhd	Brunei Darussalam	BND1.00 Ordinary shares	100
Standard Chartered Principal Finance (Cayman) Limited¹	Cayman Islands	$0.0001 Ordinary shares	100
Sunflower Cayman SPC	Cayman Islands	$1.00 Management shares	100
Marina Amaryllis Shipping Limited	Hong Kong	$ Ordinary shares	100
Marina Ametrine Shipping Limited	Hong Kong	$ Ordinary shares	100
Marina Apollo Shipping Limited	Hong Kong	$ Ordinary shares	100
Marina Carnelian Shipping Limited	Hong Kong	$ Ordinary shares	100
Marina Honor Shipping Limited	Hong Kong	HKD Ordinary shares	100
		$ Ordinary shares	100
Marina Kunzite Shipping Limited	Hong Kong	$ Ordinary shares	100
Marina Splendor Shipping Limited	Hong Kong	HKD Ordinary shares	100
		$ Ordinary shares	100
Ori Private Limited	Hong Kong	$ Ordinary shares	100
		$ A Ordinary shares	90.7
S C Learning Limited	Hong Kong	HKD Ordinary shares	100
Standard Chartered Sherwood (HK) Limited	Hong Kong	HKD Ordinary shares	100
Resolution Alliance Korea Ltd2	Korea, Republic of	KRW5,000.00 Ordinary shares	100
Pembroke Leasing (Labuan) 2 Berhad	Malaysia	$ Ordinary shares	100
Pembroke Leasing (Labuan) Pte Limited	Malaysia	$ Ordinary shares	100
Marina Pissenlet Shipping Limited	Marshall Islands	$1.00 Ordinary shares	100
Actis Asia Real Estate (Mauritius) Limited	Mauritius	Class A $1.00 Ordinary shares	100
		Class B $1.00 Ordinary shares	100
Kwang Hua Mocatta Company Ltd.	Taiwan	TWD1,000.00 Ordinary shares	97.92
Actis RE Investment 1 Private Limited	Singapore	SGD Ordinary shares	100
Actis RE Investment 2 Private Limited	Singapore	SGD Ordinary shares	100
Actis RE Investment 3 Private Limited	Singapore	SGD Ordinary shares	100
Actis RE Investment 4 Private Limited	Singapore	SGD Ordinary shares	100
Marina Aster Shipping Pte. Ltd.	Singapore	$ Ordinary shares	100
Marina Poise Shipping Pte. Ltd.	Singapore	$ Ordinary shares	100
Marina Mars Shipping Pte. Ltd.	Singapore	$ Ordinary shares	100
Marina Mercury Shipping Pte. Ltd.	Singapore	$ Ordinary shares	100
Marina Daffodil Shipping Pte. Ltd.	Singapore	$ Ordinary shares	100
Marina Freesia Shipping Pte. Ltd.	Singapore	$ Ordinary shares	100
Standard Chartered Capital Management (Jersey), LLC	United States	$ Ordinary shares	100
Standard Chartered International (USA) LLC	United States	Membership Interest	100
StanChart Securities International LLC	United States	Membership Interest	100

1  The Group has determined the prinicpal place of operation to be Singapore

Page 143

41. Dealings in Standard Chartered PLC listed securities

This is also disclosed as part of Note 28 Share capital, other equity and reserves.

Except as disclosed, neither the Company nor any of its subsidiaries has bought, sold or redeemed any securities of the company listed on The Stock Exchange of Hong Kong Limited during the period. Details of the shares purchased and held by the trusts are set out below.

	1995 Trust			2004 Trust1			Total
	2021	2020		2021	2020		2021	2020
Shares purchased during the period	‐	2,999,210		36,487,747	14,359,481		36,487,747	17,358,691
Market price of shares purchased ($million)	‐	22		237	86		237	108
Shares transferred between trusts	‐	(2,999,210)		‐	2,999,210		‐	‐
Shares held at the end of the period	‐	‐		22,461,243	6,119,666		22,461,243	6,119,666
Maximum number of shares held during the period							23,076,993	11,262,818

42. Corporate governance

The directors confirm that Standard Chartered PLC (the Company) has complied with all of the provisions set out in the UK Corporate Governance Code 2014 during the year ended 31 December 2021. The directors also confirm that, throughout the year, the Company has complied with the code provisions set out in the Hong Kong Corporate Governance Code contained in Appendix 14 of the Hong Kong Listing Rules. The Group confirms that it has adopted a code of conduct regarding directors' securities transactions on terms no less exacting than required by Appendix 10 of the Hong Kong Listing Rules and that the directors of the Company have complied with the required standards of the adopted code of conduct. The directors also confirm that the announcement of these results has been reviewed by the Company's Audit Committee.

Page 144

Shareholder information

Important notices

Forward-looking statements

This document may contain 'forward-looking statements' that are based on current expectations or beliefs, as well as assumptions about future events. These forward-looking statements can be identified by the fact that they do not relate only to historical or current facts. Forward-looking statements often use words such as 'may', 'could', 'will', 'expect', 'intend', 'estimate', 'anticipate', 'believe', 'plan', 'seek', 'continue' or other words of similar meaning.

By their very nature, forward-looking statements are subject to known and unknown risks and uncertainties and can be affected by other factors that could cause actual results, and the Group's plans and objectives, to differ materially from those expressed or implied in the forward-looking statements. Recipients should not place reliance on, and are cautioned about relying on, any forward-looking statements. There are several factors which could cause actual results to differ materially from those expressed or implied in forward-looking statements. The factors that could cause actual results to differ materially from those described in the forward-looking statements include (but are not limited to): changes in global, political, economic, business, competitive and market forces or conditions; future exchange and interest rates; changes in environmental, social or physical risks; legislative, regulatory and policy developments; the development of standards and interpretations; the ability of the Group to mitigate the impact of climate change effectively; risks arising out of health crisis and pandemics; changes in tax rates, future business combinations or dispositions; and other factors specific to the Group. Any forward-looking statement contained in this document is based on past or current trends and/or activities of the Group and should not be taken as a representation that such trends or activities will continue in the future.

No statement in this document is intended to be a profit forecast or to imply that the earnings of the Group for the current year or future years will necessarily match or exceed the historical or published earnings of the Group. Each forward-looking statement speaks only as of the date of the particular statement. Except as required by any applicable laws or regulations, the Group expressly disclaims any obligation to revise or update any forward-looking statement contained within this document, regardless of whether those statements are affected as a result of new information, future events or otherwise.

Financial instruments

Nothing in this document shall constitute, in any jurisdiction, an offer or solicitation to sell or purchase any securities or other financial instruments, nor shall it constitute a recommendation or advice in respect of any securities or other financial instruments or any other matter.

Caution regarding climate and environment related information

Some of the climate and environment related information in this document is subject to certain limitations, and therefore the reader should treat the information provided, as well as conclusions, projections and assumptions drawn from such information, with caution. The information may be limited due to a number of factors, which include (but are not limited to): a lack of reliable data; a lack of standardisation of data; and future uncertainty. The information includes externally sourced data that may not have been verified. Furthermore, some of the data, models and methodologies used to create the information is subject to adjustment which is beyond our control, and the information is subject to change without notice.

Page 145

 

END

 

 

FR TRMJTMTABMBT