Final Results - Part 1

RNS Number : 5593B

Standard Chartered PLC

05 March 2014

Standard Chartered PLC - Highlights

For the year ended 31 December 2013

Reported results¹

· Profit before tax of $6,958² million in 2013 down 7 per cent from $7,518² million in 2012

· Statutory profit before taxation was $6,064 million down 11 per cent. Statutory profit attributable to ordinary shareholders³ was $3,989 million

· Operating income excluding OCA was down 1 per cent to $18,671 million (2012: $18,783 million)

· Customer advances increased 4 per cent to $296 billion from $285 billion in 2012 and customer deposits increased 2 per cent to $391 billion from $385 billion in 2012

Performance metrics⁴

· Dividend per share increased 2 per cent to 86.0 cents per share

· Normalised earnings per share declined 9 per cent at 204.0 cents from 225.2 cents in 2012

· Normalised return on ordinary shareholders' equity of 11.2 per cent (2012: 12.8 per cent)

Capital and liquidity metrics

· Tangible net asset value per share increased 5 per cent to 1,597.6 cents (2012: 1,526.5 cents)

· Core Tier 1 capital ratio of 11.8 per cent (2012: 11.7 per cent)

· Total capital ratio of 18.0 per cent (2012: 17.4 per cent)

· Advances-to-deposits ratio of 75.7 per cent (2012: 73.9 per cent)

· Liquid asset ratio of 29.8 per cent (2012: 30.5 per cent)

Significant highlights

· Broad based performance across multiple markets, with operating income of over $100 million in 25 markets

· Hong Kong, our largest market grew income 11 per cent and operating profit 16 per cent

· Strong increases in customer volumes in Transaction Banking, Financial Markets, and Corporate Finance partially offset margin and spread compression

· The Group was the No. 2 global underwriter of offshore yuan bonds in 2013 and partnered Agricultural Bank of China to provide RMB clearing services in London

· Subsidiarised our retail operations in Singapore and acquired a custody business in South Africa

· The balance sheet continues to be highly liquid, well diversified and strongly capitalised with a Basel III end point common equity tier one ratio of 11.2 per cent.

Commenting on these results, the Chairman of Standard Chartered PLC, Sir John Peace, said:

"2013 was a challenging year, for the industry and for Standard Chartered, but the bank remains an exciting growth story. We are focused on driving profitable growth, delivering further value for shareholders. The Group has an excellent balance sheet, remains well capitalised and continues to support our clients as they seek to invest and expand across Asia, Africa and the Middle East".

¹ Amounts for 2012 have been restated as explained in note 31 on page 137

²2013 profit before tax excludes own credit adjustment and goodwill impairment. 2012 profit before tax excludes the settlements with the US authorities. The US authorities comprise The New York Department of Financial Services (DFS), the Office of Foreign Assets Control (OFAC), the New York District Attorney's Office (DANY), the United States Department of Justice (DOJ) and the Federal Reserve (NYFED)

³Profit attributable to ordinary shareholders is after the deduction of dividends payable to the holders of those non-cumulative redeemable preference shares classified as equity (see note 10 on page 111)

⁴Results on a normalised basis reflect the results of Standard Chartered PLC and its subsidiaries (the 'Group') excluding items set out in note 11 on page 112

Standard Chartered PLC - Stock Code: 02888

Standard Chartered PLC - Table of contents	Page
Summary of results	3
Chairman's statement	4
Group Chief Executive's review	6
Financial review	13
Group summary	13
Consumer Banking	15
Wholesale Banking	19
Balance sheet	23
Risk review	25
Capital	87
Financial statements
Consolidated income statement	94
Consolidated statement of comprehensive income	95
Consolidated balance sheet	96
Consolidated statement of changes in equity	97
Consolidated cash flow statement	98
Notes	99
Statement of director's responsibilities	144
Additional information	145
Glossary	147
Financial calendar	152
Index	153

Unless another currency is specified, the word 'dollar', symbol '$' or reference to USD in this document means United States (US) dollar and the word 'cent' or symbol 'c' means one-hundredth of one US dollar.

Within this document, the Hong Kong Special Administrative Region of the People's Republic of China is referred to as 'Hong Kong'; The Republic of Korea is referred to as Korea or South Korea; Middle East and Other South Asia (MESA) includes: Pakistan, United Arab Emirates (UAE), Bahrain, Qatar, Jordan, Sri Lanka and Bangladesh; and 'Other Asia Pacific' includes: China, Malaysia, Indonesia, Brunei, Thailand, Taiwan, Vietnam and the Philippines.


Standard Chartered PLC - Summary of results For the year ended 31 December 2013	2013	2012⁴
	$million	$million

Results
Operating income (excluding own credit adjustment of $106 million in 2013)	18,671	18,783
Operating expenses⁵	(10,193)	(10,722)
Impairment losses on loans and advances and other credit risk provisions	(1,617)	(1,196)
Goodwill impairment	(1,000)	-
Other impairment	(129)	(196)
Profit before own credit adjustment, goodwill impairment and US settlements	6,958	7,518
Statutory profit before taxation	6,064	6,851
Statutory profit attributable to parent company shareholders	4,090	4,887
Statutory profit attributable to ordinary shareholders¹	3,989	4,786


Balance sheet
Total assets	674,380	631,208
Total equity	46,841	46,055
Total capital base	58,019	52,688


Information per ordinary share	Cents	Cents
Earnings per share - normalised²	204.0	225.2
- basic	164.4	199.7
Dividend per share³	86.0	84.0
Net asset value per share	1,872.8	1,852.3
Tangible net asset value per share	1,597.6	1,526.5


Ratios
Return on ordinary shareholders' equity - normalised basis²	11.2%	12.8%
Cost income ratio - normalised basis²	54.4%	53.7%
Capital ratios
Core Tier 1 capital	11.8%	11.7%
Tier 1 capital	13.1%	13.4%
Total capital	18.0%	17.4%

¹	Profit attributable to ordinary shareholders is after the deduction of dividends payable to the holders of those non-cumulative redeemable preference shares classified as equity (see note 10 on page 111)
²	Results on a normalised basis reflect the results of Standard Chartered PLC and its subsidiaries (the 'Group') excluding items set out in note 11 on page 112
³	For 2013 and 2012 respectively, represents the recommended final dividend per share for the year ended 31 December 2013 / 31 December 2012, together with the interim dividend per share declared and paid for the six months ended 30 June 2013 / 30 June 2012
⁴	Amounts have been restated as explained in note 31 on page 137
⁵	Includes settlements with the US authorities of $667 million in 2012

Standard Chartered PLC - Chairman's statement

2013 has been a challenging year, for the industry and for Standard Chartered. While our clients have remained very active, the overall outcome for the Group has not been as good as we would have liked.

· Profit before taxation, goodwill, own credit and the settlements with the US authorities in 2012 was down 7 per cent to $6.96 billion

· Statutory profit before taxation was down 11 per cent at $6.06 billion

· Income excluding own credit fell 1 per cent to $18.67 billion

· Normalised earnings per share declined 9 per cent to 204.0 cents

We are recommending a final dividend of 57.20 cents, bringing the total annual dividend to 86.00 cents, up 2 per cent.

Our annual strategy review in 2013 confirmed that we are in markets with good opportunities for profitable growth. The new organisation structure, which we announced in January 2014, will ensure that the Group is best placed to take advantage of these opportunities, by supporting clients and customers in a more seamless way, providing them with access to a broad range of products and services.

The Board remains intensely focused on the interests of shareholders. The business has grown substantially over the last decade, and we continue to view Standard Chartered as an exciting growth story over the medium to long term. We remain focused on delivering profitable, sustainable growth that is within our risk appetite.

The Board seeks to grow consistently over time the amount we return to shareholders. We have increased the amount of dividend paid each year for well over a decade. Ensuring that the business continues to focus on the returns generated for shareholders is a top priority for the Board.

A further priority is maintaining our well capitalised, highly liquid and diverse balance sheet. Since 2010 we have grown our balance sheet organically, increasing our loans and advances to customers by 21 per cent. Yet, we still have the same Core Tier 1 capital ratio at the end of 2013 as we had at the end of 2010. We are confident in our ability to achieve capital accretive growth, while supporting our clients and the creation of wealth across our markets.

Consistent with past practice, we reward our people - most of whom are located outside the UK - for good performance, while taking into account how individuals deliver long-term, sustainable and profitable business. Reflecting our performance in 2013, the bonus pool is down by 15 per cent on 2012, and we are returning to shareholders by way of dividends around twice as much as we are paying out in bonuses. Overall, our staff costs were broadly flat in 2013 compared to 2012.

When we announced the reorganisation of the Group in January 2014, we set out a few Board level changes. Steve Bertamini will step down from the Board at the end of March 2014, after more than five years leading Consumer Banking. I would like to thank Steve for the very considerable contribution he has made to the business over that time and wish him every success in the future. By the end of June 2014, we will also be saying farewell to Richard Meddings who has been on our Board for eleven years. Richard's contribution to the business has been immense, and he will be greatly missed. Finally, I would like to take this opportunity to congratulate Mike Rees as he takes up his new role as Deputy Group Chief Executive on 1 April 2014.

While 2013 has been a challenging year, I believe we remain in good shape to support our clients and customers, and the growth opportunities for the business remain compelling. We will continue to support the growth of trade and wealth across our markets, and drive value for our shareholders, making use of our competitive strengths and the opportunities we see in markets we know well. At the same time, we have intensified our focus on conduct. We expect the right behaviour at all times, as being Here for good is firmly embedded in our DNA.

We are therefore confident that we are well positioned to drive further value for our shareholders over the coming months.

I would like to thank our clients, customers and shareholders for their support during 2013 and, above all, our great people for their hard work and ongoing commitment to Standard Chartered.

Sir John Peace

Chairman

5 March 2014

Standard Chartered PLC - Group Chief Executive's review

In 2013 Standard Chartered faced margin pressures in a number of key businesses and markets. Regulatory requirements and the bank levy put upward pressure on costs. Various factors drove a sharp increase in unsecured loan impairment. A much more negative sentiment towards emerging markets affected valuations and transaction flows in Wholesale Banking. We also had to take a goodwill impairment on our business in Korea, given the severity of the challenges facing us and the industry as a whole in that market.

As a result, we slipped from our trajectory of record income and profits, posting lower income and profits for the first time in over a decade. Our share price fell, reflecting both our own performance and investor sentiment towards our markets.

This is not what we aspire to achieve. As the challenges have mounted, and our momentum slowed, we have been taking action to mitigate the impact and adapt to the changing environment. Some of the steps we have taken are tactical, such as putting even tighter controls on spend and headcount, and de-risking certain portfolios. However, the more fundamental changes relate to our strategy and how we are organising ourselves and deploying our resources to deliver the sustainable, profitable growth and returns that drive shareholder value.

Opportunities in our markets

Investor sentiment towards emerging markets turned sharply sour from May 2013, and remains negative. At least as far as our markets are concerned, we believe this is a short-term phenomenon, and that the longer-term attractions of Asia, Africa and the Middle East remain compelling.

In fact, we expect our markets to do rather better in 2014 than they did in 2013, with aggregate GDP growth rising from 2.8 per cent to 3.5 per cent. The underlying drivers of economic growth across the emerging world - demographics, urbanisation, rapid growth in the consuming middle class and investment in infrastructure - remain very strong. By 2030, Asia alone will add just over 2.2 billion people to the middle class, taking its share of the global total to 66 per cent.

When I talk to our clients, it is clear there is some disconnect between the dynamics of global financial markets and the drivers of the real economy. Our clients see much, if not most, of their growth coming from the emerging world and particularly from Asia. They see a robust recovery in the US and even a weak recovery in Europe as huge positives for Asia, Africa and the Middle East.

It may make perfect sense for investors to rebalance their portfolios to capture the rebound in the West, but the resulting negative impact on emerging market indices and valuations risks disguising the fundamental attractiveness of these markets.

Challenges in our markets

While we are fundamentally positive about our markets, we are not complacent, nor blind to the challenges. Some of our markets face difficult political and social transitions that could have a significant impact on business confidence. India and Indonesia face important elections this year, which will determine the pace of future reforms and GDP growth. We are also concerned about the tensions between China and Japan in the South China Sea.

However, in our view, China poses less risk than many Western analysts believe. We don't underestimate the challenges China faces in shifting its economy from a resource-intensive, export-driven growth model to a more sustainable and balanced model, in which consumption and services play a much bigger role. Nor do we underestimate the task of taming excessive credit expansion, reining in the shadow banking sector and moving to full interest rate liberalisation. However, many of these issues, not least the nature of shadow banking, are often misunderstood, and deliberate acts of policy are sometimes misinterpreted as problems. China will encounter adjustment strains as it reshapes its economy and financial markets, but these are unlikely to knock the country off a growth rate of around 7 per cent. The new leadership is firmly in charge and seems capable and determined to push ahead with ambitious reforms.

The shape of our business in China reflects our assessment of such risks. We are investing for growth, but we have no exposure to the so-called 'trust sector' or to municipal government investment vehicles. Our lending to commercial real estate and Chinese banks is highly selective.

Some of the countries in our footprint are being directly challenged by the impact of the tapering of quantitative easing on currency and bond markets. Underlying structural weaknesses have been exposed by the shift in sentiment. However, in terms of foreign exchange reserves, and the ability to finance balance of payments deficits, countries like India and Indonesia are in a far better place than they were at the time of the Asia crisis in the late 1980s.

Broader challenges

In addition to issues specific to our markets, we face some broader challenges. One is the ongoing torrent of regulatory change. The Basel III agenda is nearing completion, which is a considerable achievement, and one we welcome, but this risks being undermined by a profusion of unilateral initiatives and interpretations. What the global economy needs now is consistency and stability in the international financial framework.

A second big challenge, which affects the entire industry, is to rebuild trust and credibility. Put bluntly, society expects more of us. We must raise the bar on conduct, so that every employee looks to comply with the spirit, not just the letter, of the laws and regulations in everything we do.

In 2013 we launched a multi-pronged programme to address this challenge. We have increased substantially the resources we devote to conduct issues. We have invested in systems to enhance our controls and reduce the risk of manual errors. We have re-launched our Code of Conduct, requiring every member of staff to complete mandatory in-depth training, and personally commit to the Code. We have also sharpened the way we link performance assessment and reward to personal values and behaviours. We recognise that we haven't got everything right in the past and that we still have a lot of work to do in this area, but we are determined to make doing the right thing an imperative for everyone in the Group. That is what Here for good is all about.

A third challenge is technology. As a fundamentally digitisable industry, every aspect of banking can be transformed by technology. This is as much an opportunity as a threat. Through technology-driven innovation, we can empower our clients, cut costs and improve risk management, reinventing every aspect of the business. The trick is to make it happen to our advantage, rather than have it happen to us.

Sharpening our strategic focus

At our annual strategy Board in June 2013 we took stock of our strategy, asking tough questions about the growth potential in our markets, our ability to win market share and the impact of a more challenging regulatory and market environment. Since capital and investment spend were going to be even scarcer resources, we wanted to sharpen our focus, get clear on what we should be investing in and where we should cut back.

Our answer, which we set out in November 2013, was to go to the core of what we are all about. We bank the people and companies driving investment, trade and the creation of wealth across Asia, Africa and the Middle East. This is the essence of who we are. We are not trying to bank everybody, but we do want to bank those that are making things happen. We are focused on investment, trade and wealth, and we are sticking to the markets we know well: Asia, Africa and the Middle East.

From this core statement, we built an overarching framework that links our strategy to our performance, the way we run the bank, and our immediate priorities:

First, five strategic aspirations that flesh out how we will grow the core.

Second, five tests that we are applying to more peripheral businesses to ensure we reinforce the core.

Third, a significant reorganisation of our regions, business and functions, to ensure alignment to the strategy and streamline the way we work.

Fourth, our 'flexed' financial framework, which now comprises five metrics, including both positive jaws and capital accretion. We will use this to explain our performance and ensure that we are balancing the imperatives of near-term delivery against longer-term strategic progress.

Finally, our five priorities for 2014. These are used to set personal and team objectives across the Group, ensuring that everybody is marching to the same tune.

Client relationships

The five strategic aspirations crystallise what we want to achieve. Our strategy revolves around client relationships, not products or transactions. We believe that we have scope to deepen our client relationships further, particularly by focusing on the next 500 clients. We could also do more to build deep relationships with our smaller corporate, private banking and retail clients. This is one of the key reasons why we are reorganising our business, combining Wholesale and Consumer Banking to create three client segment groups and five product groups, under the leadership of Mike Rees, with effect from 1 April 2014.

For example, we are creating a Commercial Banking segment which will make it much easier to focus on the needs of mid-sized corporate clients. These are a huge part of the economies in which we operate - up to 60 per cent - and represent a rapidly growing component of the banking revenue pool. Yet, up to now we have failed to make the most of this opportunity: we have fragmented our efforts between Wholesale and Consumer Banking, and generate less than 10 per cent of our total income from these clients. Now we will take a much more integrated approach. Through targeting high-growth and exporting industries and being more efficient in our on-boarding, we will grow our client base. By leveraging our network and full product capability, we will make ourselves more relevant and deepen relationships with our clients. And when these clients get bigger, we will transition them up to our Corporate and Institutional client segment, which is much easier now that we are organised as one global business.

Grouping our Commercial clients with our Private Banking business will facilitate cross-referral. The new Commercial segment will start with around 50,000 clients, mainly entrepreneurial, family-owned groups. These are a perfect target market for Private Banking, yet up to now only a few have become Private Banking clients - an obvious opportunity.

Wealth

The scale of the Private Banking opportunity across our markets is enormous. Today there is some $10 trillion of assets under management (AUM) from high net worth individuals in Asia, Africa and the Middle East. By 2017, this number will more than double.

We start with a very good platform, with $58 billion in AUM, good product capabilities, experienced relationship managers and a network of advisory and booking centres. However, we can scale up and enhance our offer, making more effective use of our client franchise and network. A great example is the Africa to London corridor, which we are superbly positioned to serve, given our extensive African footprint and London advisory and booking centre.

The greater emphasis we are putting on Private Banking is just one element of the way we are stepping up our efforts in the Wealth Management arena. Given the pace of individual wealth accumulation across our markets, and the relatively early stage of market development, there is a huge opportunity to provide our Retail and Private Banking clients with wealth management products and services. Wealth Management is already a substantial business for us, generating income of $1.3 billion in 2013, but this is only the beginning.

Our aspiration is to more than double AUM by 2020 to $300 billion. We are elevating Wealth Management from being a product group within Consumer Banking to sit alongside our well-established Wholesale Banking product groups, such as Corporate Finance, Transaction Banking and Financial Markets, which are all much bigger.

Trade

We are already a top two trade bank by SWIFT data, and our goal is to be number one. We continue to win market share, with trade assets up by 21 per cent in 2013, against market growth of around 6 per cent. Of course, trade income was affected by the sharp fall in margins, but we are well placed to benefit as margins stabilise.

We are taking advantage of the shift towards companies using the renminbi (RMB) for trade and payments. From virtually nothing in 2009, some 16 per cent of China's trade, just over $731 billion, is now settled in RMB. By 2020 this will more than quadruple to over $3 trillion. Highlighting the pace at which the RMB is being internationalised, the Standard Chartered RMB Globalisation Index, which measures the different aspects of offshore activity, went up 84 per cent in 2013, and our own international RMB payment flows were up 122 per cent. In December 2013, we launched RMB clearing in London via a joint venture with Agriculture Bank of China, and in February 2014 we executed the first RMB cross-border sweeping transaction for a company based in the new Shanghai Free Trade Zone.

In order to create the capacity to achieve our strategic aspirations, we need to sharpen our focus. Therefore, we have been systematically subjecting those businesses that are underperforming, or less aligned to our core strategy, to five tests, asking tough questions about their strategic relevance, alignment with Here for good, and sustainable economics. As a result we are exiting or reconfiguring a number of smaller businesses.

It is also important to be more selective about the clients with whom we build relationships. We are exiting or reshaping relationships, both big and small, which offer no prospect of attractive returns, making clear to our clients that to be sustainable, our relationships have to be economically attractive for both sides. This has made for some tough conversations.

Korea

We are continuing to take action on our most underperforming or problematic businesses, above all Korea. Our business in Korea had an extremely challenging 2013, with profits before the goodwill deduction down $530 million to a loss of $12 million. Much of this was due to a sharp fall in Consumer Banking performance, given elevated levels of impairment, up 66 per cent, and income falling by 12 per cent, partly as a result of selective de-risking of the unsecured book and the charge we have taken on the prospective sale of two small subsidiaries. Weak underlying trading performance was exacerbated by a one-off tax related charge of $54 million, and the non-repeat of property sales which contributed $74 million in 2012. Against this, one positive factor was the continued strength of our network income relating to Korean clients, a significant and growing revenue stream of over $200 million.

We were not alone in encountering difficulties in Korea. Six of the seven major banks saw income and profits fall by double-digit rates, and average return on equity was below 3 per cent, the lowest for a decade.

As the 6th largest player, we cannot entirely escape the dynamics of the industry as a whole, but nor can we tolerate underperformance, since it creates a drag on the performance of the Group as a whole. Therefore, we are continuing to take action on multiple fronts. There is no silver bullet, but we are shrinking the businesses, while very selectively investing to support the areas of most opportunity. In 2013 we reduced risk-weighted assets (RWA) in Korea by 7 per cent, and in 2014 we will reduce RWA further. We are simplifying the structure, selling our small consumer finance and savings bank subsidiaries, and will reduce the number of legal entities from nine to three. We are reducing costs as fast as we can, with staff numbers down by nearly 400 year on year. We are consolidating the branch network, down by 24 during 2013, as we increasingly interact digitally with our clients. We are redeploying capital in Wholesale Banking from locally oriented clients towards clients that can benefit from our network. We are also selectively de-risking the unsecured book in Consumer Banking and putting greater emphasis on Wealth Management.

As a result of these actions our business in Korea will be smaller, more profitable and more focused on where we can play to our strengths. However, given the constrained context, we cannot achieve this transformation as swiftly as we would like, and Korea will continue to be very challenging during 2014.

Our financial framework

In November 2013 we set out what we described as our 'flexed' financial framework - the metrics we would aim to deliver over the next couple of years. These are aspirations, and we don't expect that we will always be able to deliver against all of them, but they provide a sense of what we are setting out to achieve.

We do not expect to deliver double-digit income growth over the next couple of years, given various pressures, not least Korea. However, we haven't abandoned double-digit growth as a longer-term aspiration. Given the scale of the opportunities in our markets, and the pace at which the demand for banking services is growing, we still believe this is a stretching, but realistic, aspiration.

Of course, we are not going to compromise our risk appetite or strategic discipline to chase rapid growth. If market circumstances only support somewhat slower growth, that is what we will deliver.

To protect earnings momentum in an environment of slower income growth, we are shifting from a stance of growing costs broadly in line with income, to ensuring that costs grow more slowly than income. In other words, shifting from neutral cost income jaws to positive jaws. This will be challenging, given inflationary and regulatory pressures, the bank levy and the measures we are taking to constrain RWA growth. We must also create the capacity to keep investing for growth. This means we must generate several hundred millions of dollars of productivity benefits every year. We did this in 2013 and intend to keep doing so.

Delivering positive jaws should help us achieve our aspiration of double-digit earnings-per-share growth, even at lower than double-digit rates of income growth. This in turn will help us continue to improve returns on equity. We already deliver returns above our cost of capital, and will continue to look to improve returns, while also paying out a good level of dividends, as we have done consistently up till now.

In November 2013 we also introduced our fifth metric, of growing profits after taxation faster than RWA. We have broadly funded our RWA growth through retained earnings, and we are in a strong position in terms of capital ratios. Yet, given the ongoing uncertainty about regulatory expectations, we think it makes sense to manage for a positive capital trajectory to give us greater flexibility and resilience.

Our 2014 Priorities

Our priorities for 2014 flow naturally from our strategic aspirations and financial framework:

First, to deliver profitable and capital accretive growth. After a disappointing performance in 2013, we are determined to get back to delivering the kind of results our investors expect from us. This won't happen automatically or overnight. Given the weakness of our performance in the fourth quarter of 2013, we anticipate that the first half of 2014 may prove challenging. However, we are confident that the actions we are taking will give us the platform to deliver sustained and profitable growth.

Second, to make tangible progress on our five strategic aspirations. The reorganisation of our business will make a difference, enabling us to put sharper focus on the key strategic priorities, optimising the deployment of capital and investment spend.

Third, to innovate, digitise and simplify in order to improve productivity and effectiveness. To deliver positive jaws and keep investing for growth, simultaneously, we have to be delivering significant productivity improvements every year. That requires constant innovation, a bias towards digitising everything we can, and a relentless focus on simplifying and streamlining the way we work. Again, the reorganisation will help, as we strip out duplication and drive greater standardisation.

Fourth, to raise the bar on conduct, demonstrating that we are Here for good. This is a strategic imperative.

Finally, to accelerate the next generation of leaders. The reorganisation gives us a real opportunity to do this.

Outlook

2013 was not a great year for Standard Chartered, and 2014 will inevitably have its own challenges, but we are very clear on what we have to do. We are making changes to adapt to the new realities. We have a strong balance sheet, great client relationships and superb capabilities.

Our outlook for 2014 is one of modest growth. Market and trading conditions are more volatile and difficult than a year ago. While current performance momentum is ahead of the second half of last year, performance in the first half of 2014 will remain challenged both at an income and profit level.

I would like to take this opportunity to thank our employees for their hard work, commitment and professionalism during 2013. I would particularly like to thank Richard Meddings, for all he has done in his 11 years as a Group Executive Director, including seven by my side as Group Finance Director. I would also like to thank Steve Bertamini for his leadership in transforming our Consumer Banking business over the last five years. Finally, I would like to thank our investors for their support through these turbulent times.

Peter Sands

Group Chief Executive

5 March 2014

Standard Chartered PLC - Financial review

The following Financial Review reflects the restatement of prior period amounts to equity account rather than proportionately consolidate PT Permata Bank Tbk, our joint venture business in Indonesia, following the adoption by the Group of IFRS 11 from 1 January 2013 (see page 137 for further details).

The Group also adopted IFRS 13 from 1 January 2013, a consequence of which was the recognition of $106 million of fair value gains relating to an own credit adjustment (OCA). The commentary throughout this Financial Review excludes the impact of OCA to better reflect the underlying performance of the Group.

Group summary

Against a backdrop of ongoing turbulence in the global economy, the Group continues to support the growth and activities of its clients and customers, and generated a diverse mix of income across businesses, markets and products.

Operating income remained resilient, down 1 per cent compared to 2012 at $18,671 million, with Hong Kong and the Africa region generating growth of 11 per cent and 10 per cent respectively, offsetting income challenges in Korea and the Other Asia Pacific region.

Profit before tax, excluding OCA and the impact of a $1 billion impairment charge relating to our Korea business (see page 131 for further details) for 2013 and the US settlements in 2012, fell 7 per cent to $6,958 million. The fall in profit is primarily due to lower levels of Transaction Banking income in Wholesale Banking and higher levels of impairment in the unsecured book in Consumer Banking.

Profit before taxation on a statutory basis fell 11 per cent to $6,064 million.

Consumer Banking (CB) income increased 2 per cent to $7,179 million although operating profit fell 11 per cent to $1,550 million, impacted by a higher impairment charge.

Wholesale Banking (WB) income fell 2 per cent to $11,492 million and operating profit was 9 per cent higher at $5,643 million. Excluding the impact of the US settlements in 2012, operating profit fell 4 per cent.

The normalised cost to income ratio was higher at 54.4 per cent compared to 53.7 per cent in 2012. Costs remain tightly controlled and, excluding the impact of the US settlements in 2012, rose 1 per cent.

Normalised earnings per share fell 9 per cent to 204.0 cents and normalised return on shareholders' equity reduced to 11.2 per cent from 12.8 per cent at 31 December 2012. Further details of basic and diluted earnings per share are provided in note 11 on page 112.

Asset quality in both businesses remains good and 73 per cent of the CB loan book is fully secured and 64 per cent of WB customer loans have a tenor of less than one year. CB loan impairment increased driven by the seasoning effects of growth in the unsecured book, increased levels of provisioning in Korea relating to the Personal Debt Rehabilitation Scheme (PDRS) and lower levels of debt sales. Impairment in WB also rose due to a smaller number of accounts in India and Africa.

The Group's balance sheet remains very strong and resilient - well diversified, conservative, with limited exposure to problem asset classes.

The Group continues to be highly liquid and our advances-to-deposits ratio remained strong at 75.7 per cent, and up from 73.9 per cent at the end of 2012. Following strong growth in the second half of 2012, the growth in deposit balances moderated slightly during 2013 with good growth in the Americas and Europe regions and Hong Kong being partly offset by lower balances in Korea and in the Other Asia Pacific region. The Group maintains a conservative funding structure with only limited levels of refinancing required over the next few years and we continue to be a significant net lender to the interbank market.

The Group remains well capitalised with a Core Tier 1 ratio of 11.8 per cent at 31 December 2013, slightly up from 11.7 per cent at the end of 2012 primarily due to equity generation.

We continue to be confident in the strong underlying growth potential in the markets in which we operate and we remain committed to our strategy - banking the people and companies driving investment, trade and the creation of wealth across Asia, Africa and the Middle East.


Operating income and profit
	2013	OCA/ Goodwill impairment	Excluding OCA/ Goodwill Impairment	2012	US settlements	Excluding US settlements	Better/ Worse
	$million	$million	$million	$million	$million	$million	%
Net interest income	11,156		11,156	10,781		10,781	3
Fees and commissions income, net	4,101		4,101	4,079		4,079	1
Net trading income	2,514	(106)	2,408	2,739		2,739	(12)
Other operating income	1,006		1,006	1,184		1,184	(15)
Non-interest income	7,621	(106)	7,515	8,002	-	8,002	(6)
Operating income	18,777	(106)	18,671	18,783	-	18,783	(1)
Operating expenses	(10,193)		(10,193)	(10,722)	667	(10,055)	(1)
Operating profit before impairment losses and taxation	8,584	(106)	8,478	8,061	667	8,728	(3)
Impairment losses on loans and advances and other credit risk provisions	(1,617)		(1,617)	(1,196)		(1,196)	(35)
Goodwill impairment	(1,000)	1,000	-	-		-	-
Other impairment	(129)		(129)	(196)		(196)	34
Profit from associates and joint ventures	226		226	182		182	24
Profit before taxation	6,064	894	6,958	6,851	667	7,518	(7)

Standard Chartered PLC - Financial review continued

Group performance

Operating income fell by $112 million, or 1 per cent, to $18,671 million. On a constant currency basis, income rose 1 per cent. The Group's income streams continue to be well diversified and we generated income of over $100 million in 25 markets.

CB income was 2 per cent higher at $7,179 million, with double digit growth in Hong Kong and in the Africa region, partly offset by lower income in Korea. Growth in Cards, Personal Loans and Unsecured Lending (CCPL) income, up 5 per cent, and Mortgages and Auto Finance income, up 10 per cent, offset the impact of lower Deposits income, which fell 7 per cent as margins remained compressed during the year. Wealth Management income rose 2 per cent as good growth in equity-linked products (particularly funds) was partly offset by lower income from foreign exchange related products.

WB income was 2 per cent lower, at $11,492 million although client income remained resilient, rising 4 per cent. Transaction Banking income fell despite good levels of client activity due to margin compression across most of our markets. This was offset by a strong performance from Corporate Finance and Foreign Exchange. Own account income fell 25 per cent and was impacted by a significant deterioration in emerging markets sentiment in the second half of 2013 which primarily impacted our Financial Markets and Principal Finance businesses. Own account income was also impacted by lower income in Asset & Liability Management.

Net interest income increased by $375 million, or 3 per cent to $11,156 million. The Group net interest margin of 2.1 per cent was lower compared to 2012. In CB, net interest income grew $185 million, or 4 per cent, to $4,949 million. Mortgage margins improved and while margins on unsecured products declined, this was offset by good levels of growth in average balances. WB net interest income increased $190 million, or 3 per cent. Growth in loans and advances helped to offset significant margin compression particularly in Trade and Cash products.

Non-interest income, which comprises net fees and commissions, trading and other operating income, fell by $487 million to $7,515 million.

Net fees and commissions income increased by $22 million, or 1 per cent, to $4,101 million. Fee income in CB grew due to increased sales of equity-linked products in Wealth Management. Fees in WB fell primarily due to a lower levels of fee income from Corporate Finance transactions as this business generates increasing levels of annuity income.

Net trading income fell $331 million, or 12 per cent, to $2,408 million, as growth in income from FX products was more than offset by a weaker performance from Rates and lower mark to market gains in Principal Finance.

Other operating income, which primarily comprises gains arising on sale from the investment securities portfolio, aircraft and shipping lease income, fixed asset realisations and dividend income, fell $178 million, or 15 per cent, to $1,006 million. Higher operating lease rental income, up $138 million, was offset by lower realisations from the available-for-sale portfolio, down $88 million, and a fair value loss of $49 million relating to entities held for sale in Korea. 2012 also benefitted from a gain of $90 million from the repurchase of subordinated debt.

Operating expenses fell $529 million, or 5 per cent, to $10,193 million. Excluding the impact of the $667 million settlements with the US authorities in 2012, operating expenses increased 1 per cent. While we continue to manage expenses tightly, we have continued to make targeted investments in both businesses although at lower levels than in previous years. Depreciation from our transport leasing business increased by $58 million, reflecting increased levels of investment in prior years. Staff costs increased by 1 per cent compared to 2012, reflecting underlying inflation in many of our markets, lower levels of variable compensation and lower period end staff numbers. Expenses were also impacted by a non-recurring tax charge in Korea of $54 million in 2013. The cost of the UK bank levy rose $92 million to $266 million which was partly offset by a refund of $31 million relating to prior periods ($11 million of which related to 2012) to take the net charge for the year to $235 million.

Pre-provision profit (excluding the impact of the settlements with the US authorities) was lower by $250 million, or 3 per cent, at $8,478 million.

Loan impairment increased by $421 million, or 35 per cent, to $1,617 million. Impairment in CB, which has a largely secured loan book, increased by $360million, driven primarily by the expected seasoning impact of the growth in the unsecured loan book, the impact of PDRS in Korea and lower levels of loan sales, particularly impacting Other Asia Pacific. WB impairment increased by $61 million and related to a small number of large exposures in India and Africa. Asset quality across both businesses remains good, and we continue to closely monitor our portfolios for stress in line with our proactive approach to risk management.

Other impairment, excluding the $1 billion goodwill impairment charge against our Korean business, fell to $129 million reflecting lower write-downs of Private Equity investments. 2012 was also impacted by a write-down of $70 million relating to associate investments.

Profits from associates and joint ventures grew $44 million to $226 million, reflecting a strong performance from China Bohai Bank.

Profit before taxation, excluding the impact of goodwill impairment in 2013 and of the US settlements in 2012, fell $560 million, or 7 per cent, to $6,958 million. Hong Kong remained our largest profit generator, growing operating profit by 16 per cent, while MESA grew profits 35 per cent. This helped to offset the performance in Korea, which moved from a profit of $514 million in 2012 to a loss of $12 million in 2013

The Group's effective tax rate (ETR) was 30.7 per cent, up from 27.2 per cent in 2012, primarily due to the impact of non deductible goodwill impairment and change in profit mix.

Consumer Banking
The following tables provide an analysis of operating profit by geography for Consumer Banking:
	2013
	Hong Kong	Singapore	Korea	Other Asia Pacific	India	Middle East & Other S Asia	Africa		Americas UK & Europe		Consumer Banking Total
	$million	$million	$million	$million	$million	$million	$million		$million		$million
Operating income	1,561	982	1,046	1,620	466	801	529		174		7,179
Operating expenses	(795)	(546)	(835)	(1,183)	(304)	(496)	(330)		(143)		(4,632)
Loan impairment	(139)	(78)	(371)	(310)	(38)	(63)	(22)		(13)		(1,034)
Other impairment	-	-	(2)	(1)	(4)	-	-		-		(7)
Profit from associates and joint ventures	-	-	-	43	-	-	-		1		44
Operating profit/(loss)	627	358	(162)	169	120	242	177		19		1,550

	2012
	Hong Kong	Singapore	Korea	Other Asia Pacific	India	Middle East & Other S Asia	Africa		Americas UK & Europe		Consumer Banking Total
	$million	$million	$million	$million	$million	$million	$million		$million		$million
Operating income	1,410	974	1,183	1,596	440	753	482		183		7,021
Operating expenses	(771)	(553)	(795)	(1,209)	(318)	(493)	(306)		(151)		(4,596)
Loan impairment	(95)	(62)	(223)	(186)	(27)	(51)	(20)		(10)		(674)
Other impairment	-	-	(1)	(36)	-	-	-		(8)		(45)
Profit from associates and joint ventures	-	-	-	43	-	-	-		-		43
Operating profit	544	359	164	208	95	209	156		14		1,749

An analysis of Consumer Banking income by product is set out below:
								2013		2012		Better/ (worse)
Operating Income by product								$million		$million		%
Cards, Personal Loans and Unsecured Lending (CCPL)								2,802		2,668		5
Wealth Management								1,296		1,268		2
Deposits								1,414		1,526		(7)
Mortgages and Auto Finance								1,425		1,298		10
Other								242		261		(7)
Total operating income								7,179		7,021		2

Operating income in CB increased $158 million, or 2 per cent, to $7,179 million with pre-provision profit rising 5 per cent. However operating profit fell $199 million, or 11 per cent, to $1,550 million due to higher levels of impairment. Excluding Korea, which generated a loss of $162 million for the year, income rose 5 per cent and operating profit increased 8 per cent.

Income in CB remains diverse, with double-digit income growth in Hong Kong and Africa offsetting lower levels of income in Korea and Americas, UK & Europe.

Net interest income increased by $185 million, or 4 per cent, to $4,949 million. Higher average asset and liability volumes helped offset lower margins on unsecured and current and savings accounts (CASA) products. Mortgage volumes remained subdued as a result of cooling measures and regulatory restrictions in several of our markets. Mortgage margins improved, however, reflecting our ability to increase pricing in a select number of markets. CCPL margins were 26 basis points (bps) lower than 2012, although Credit Card margins improved during the second half of 2013 and while average volumes were up strongly against 2012, growth was concentrated in the first half of 2013. Liability margins remained under pressure, with CASA down 21 bps compared to 2012, partially offset by good growth in CASA balances in Hong Kong and Singapore.

Non-interest income fell $27 million, or 1 per cent, to $2,230 million. Excluding the impact of a fair value loss of $49 million on businesses held for sale and a $39 million property gain in 2012, non-interest income rose 3 per cent. The increase was primarily due to higher levels of Wealth Management income reflecting an increase in sales of equity-linked products particularly funds in the first half of the year buoyed by positive investor sentiment although income slowed in the second half of 2013 due to adverse market conditions across our footprint.

Expenses were up $36 million, or 1 per cent, to $4,632 million. While staff costs fell on the back of lower headcount and efficiency initiatives, this was more than offset by non-recurring tax charge of $41 million in Korea and continued investments in the franchise, particularly targeted in the growth markets of Hong Kong, India and Africa.

Loan impairment increased by $360 million, or 53 per cent, to $1,034 million. More than half of the increase related to Korea, due to an acceleration in the amount of filings under PDRS, and lower levels of debt sales, down $53 million compared to 2012, which predominantly impacted the Other Asia Pacific region. The remainder of the increase primarily reflected the maturation of unsecured lending acquired between 2010 and 2012 with impairment levels for the other product segments remaining relatively stable.

Product performance

Income from CCPL grew $134 million, or 5 per cent, to $2,802 million. Although period end CCPL balances fell, particularly in Korea and Taiwan, income grew reflecting the flow through impact of volume growth in the second half of 2012 and increased fee income which offset the impact of margin compression. Margins were affected by a change in product mix and the impact of regulatory reforms.

Wealth Management income rose 2 per cent to $1,296 million and income remained well diversified across equity-linked and non-equity linked products such as bancassurance. Equity-linked products grew strongly in the first half of the year but declined in the second half of the year reflecting market sentiment.

Deposits income fell by $112 million, or 7 per cent, to $1,414 million. CASA balances grew strongly, particularly in Hong Kong and Singapore. This growth was more than offset by margin compression as competition intensified and interest rates remained low across our footprint with declines in some markets such as Korea and Pakistan. The pace of compression moderated in the second half of 2013 partly aided by a gradual exit of higher cost time deposits in Korea, Singapore and Malaysia.

Mortgages and Auto Finance income rose by $127 million, or 10 per cent, to $1,425 million. While margins and balances increased in Hong Kong, a number of markets were affected by regulatory constraints. This included Singapore, which was also impacted by margin compression, and Korea, where balances declined compared to 2012. However, we originated and transferred $3 billion of fixed rate mortgages during the year under the Korea Mortgage Purchase Program.

Other income, which predominantly includes SME related trade and other transactional income, fell 7 per cent. Excluding the $49 million fair value loss on businesses held for sale in 2013 and $39 million of property gains in 2012, income increased reflecting good growth SME revenues across Hong Kong, Malaysia, MESA and India.

Geographic performance

Hong Kong

Income rose $151 million, or 11 per cent, to $1,561 million. There was strong growth in Mortgages on the back of good asset growth coupled with higher margins with a continued focus on originating new business in higher margin Prime rate based products. Wealth Management also delivered good growth as a result of increased unit trust sales and higher transaction volumes in foreign exchange and securities services. Income from SME improved benefiting from higher trade volumes. There was more moderate growth in CCPL as higher volumes from personal loans was partially offset by continued margin compression and the impact of credit card regulatory reforms. Income from Deposits declined as a result of narrower spreads but was partially offset by good volume growth, particularly in CASA. Renminbi (RMB) deposits continued to grow strongly throughout the year.

Operating expenses increased by $24 million, or 3 per cent, to $795 million. Expenses continue to be tightly managed and the increase was primarily due to the flow-through of prior year investments in the branch network and in system infrastructure.

Pre-provision profit was up $127 million, or 20 per cent, to $766 million.

Loan impairment was $44 million higher at $139 million, reflecting the seasoning impact of growth in unsecured lending, as expected, together with lower recoveries.

Operating profit rose $83 million, or 15 per cent, to $627 million.

Singapore

Income rose $8 million, or 1 per cent, to $982 million in tough market conditions. CCPL income was marginally lower as the growth in average balances was offset by lower margins reflecting a change in product mix. Mortgage income was impacted by margin compression and regulatory cooling measures. Deposits income rose largely due to volume growth for CASA, partially offset by lower margins reflecting increased competition for foreign currency deposits. Wealth Management was flat as the benefit from an increase in funds and bancassurance revenue was partially offset by lower equity sales due to less favourable market sentiment.

Operating expenses fell $7 million, or 1 per cent, to $546 million, primarily due to lower staff costs as headcount reduced.

Pre-provision profit was 4 per cent higher at $436 million.

Loan impairment rose by 26 per cent, or $16 million, to $78 million due to the maturing of the unsecured portfolio.

Operating profit fell by $1 million to $358 million.

Korea

Income was down $137 million, or 12 per cent, to $1,046 million. On a constant currency basis, income fell 14 per cent. Excluding the $49 million fair value loss for businesses classified as held for sale in 2013 and a $39 million property gain in 2012, income fell 4 per cent. CCPL income increased although volumes declined as we tightened underwriting standards. Mortgages continued to be affected by a number of headwinds and income fell as balances declined although margins saw improvement. We continued to originate and transfer fixed rate mortgages under the Mortgage Purchase Programme transferring $3 billion in the year until the quota allocated to the Group was exhausted in the first half of 2013. Deposits income was lower, due to margin compression as a result of the falling interest rate environment although this was partly offset by the benefit from exiting lower margin Time Deposits and growth in CASA balances. Wealth Management income declined impacted by poor investor sentiment and a sharp decline in insurance volume industry-wide as new tax law changes took effect. Income from SMEs fell due to margin compression and increased competition from local banks.

Operating expenses rose $40 million, or 5 per cent, to $835 million. On a constant currency basis expenses rose 2 per cent. Excluding a non-recurring tax cost of $41 million, expenses were broadly flat reflecting tight cost management despite inflation-related increases in salary costs.

Pre-provision profit fell by $177 million at $211 million.

Loan impairment was up $148 million, or 66 per cent, to $371 million due to a market-wide acceleration in the amount of filings under the PDRS and in response we have undertaken a number of further de-risking actions during 2013 to tighten underwriting criteria for unsecured products.

As a result of the above factors, Korea moved to a loss of $162 million in the current year, compared to a profit of $164 million in 2012.

Other Asia Pacific

Income in the region rose $24 million, or 2 per cent, to $1,620 million.

Income in China increased by 8 percent to $321 million, reflecting continued growth in Personal Loan and Mortgage income, improved Mortgage margins, and strong Wealth Management income from increased bancassurance. This was partially offset by lower Deposits income as margins were compressed. Income from SMEs also fell as margins were compressed across key deposit products coupled with slower asset growth.

Income in Taiwan fell 2 per cent to $414 million. Deposit income increased, benefiting from a change in mix to higher margin Time Deposits and Wealth Management income was also higher on the back of market sentiment. This was more than offset by lower income from CCPL and Mortgages which were both affected by regulatory cooling measures.

Income in Malaysia rose 5 per cent to $414 million with broad based growth across all product lines. Income from CCPL grew strongly as margins improved, although the pace of growth slowed in the second half of 2013 as regulatory restrictions affected Personal Loan volumes. Wealth Management income rose, although equity-linked products were impacted by market uncertainties in the second half of 2013.

Operating expenses for the region were $26 million, or 2 per cent, lower at $1,183 million. Expenses in China were tightly controlled and broadly flat compared to 2012.

Pre-provision profit was up $50 million, or 13 per cent, to $437 million.

Loan impairment rose $124 million, or 67 per cent, at $310 million. Impairment in Taiwan rose $47 million reflecting lower levels of portfolio sales in the current year which also impacted Malaysia. Impairment in Thailand also increased due to a specific segment to which sales have now been discontinued. Impairment in China increased $9 million to $35 million.

Operating profit was lower by $39 million, or 19 per cent, at $169 million. Operating profit in Taiwan fell $48 million, or 36 per cent, to $85 million. The operating loss in China decreased to $88 million from $103 million in 2012.

India

Income rose $26 million, or 6 per cent, to $466 million. On a constant currency basis, income increased by 16 per cent. Mortgage income was up due to higher margins and benefitted from the portfolio acquisitions in 2012. CCPL also benefitted from higher volumes on the back of portfolio acquisitions and improved margins. This benefit was partly offset by lower Deposits income as margins were impacted by the low interest rate environment. Wealth Management income fell slightly due to weak local market sentiment. Income from SMEs grew strongly on the back of wider margins and increased volumes on a constant currency basis.

Operating expenses were $14 million, or 4 per cent, lower at $304 million. On a constant currency basis, expenses increased by 5 per cent, reflecting increased investment in technology.

Pre-provision profit was up $40 million, or 33 per cent, to $162 million.

Loan impairment was higher by $11 million, or 41 per cent, at $38 million due to volume growth from acquired unsecured portfolios.

Operating profit was higher by $25 million, or 26 per cent, at $120 million. On a constant currency basis, operating profit was 37 per cent higher.

Middle East and Other South Asia (MESA)

Income across the region, over half of which relates to the UAE, was up $48 million, or 6 per cent, to $801 million. The impact of a fall in Deposits income was more than offset by higher income from CCPL, Wealth Management and Mortgages.

Income in the UAE increased by 14 per cent and was broad based. CCPL income grew reflecting good momentum in payroll-linked Personal Loan products. Mortgages income rose strongly as volumes increased on the back of an improving property market while Deposits income was slightly lower as margins narrowed. Wealth Management income also increased, reflecting improved market sentiment.

Operating expenses in MESA rose 1 per cent to $496 million. While UAE expenses were up 5 per cent, reflecting flow through of prior period investments in front line sales capacity, expenses in most other markets were well controlled reflecting tight cost discipline across the region.

Pre-provision profit for MESA was up $45 million, or 17 per cent, to $305 million.

Loan impairment rose $12 million, or 24 per cent, to $63 million as the prior period benefitted from provision releases in the UAE.

MESA operating profit increased 16 per cent, up $33 million to $242 million.

Africa

Income was up $47 million, or 10 per cent, at $529 million. On a constant currency basis, income was up 15 per cent. Income from CCPL grew strongly on the back of good volume growth in payroll-linked personal loans. Mortgages income also grew strongly as margins improved and Wealth Management benefitted from increased sales of bancassurance products. Income from SME clients benefitted from increased trade related revenues.

Kenya continues to be the largest CB income generator in the region and income grew 11 per cent. Strong income growth in CCPL was partly offset by lower Deposit margins. Ghana and Zambia grew income at 21 per cent and 19 per cent respectively. Income growth in Ghana was driven by higher Deposit and SME income, partly offset by lower income from CCPL. Zambia saw good growth in both CCPL and Deposit income. Income in Nigeria was up 7 per cent and benefitted from good growth in CCPL and Wealth Management income, partly offset by lower Deposits income as margins compressed.

Operating expenses were $24 million, or 8 per cent, higher at $330 million. On a constant currency basis, expenses were 13 per cent higher, as we continued to build out the distribution network across the region in line with our strategy.

Pre-provision profit in Africa was higher by $23 million or 13 per cent, at $199 million.

Loan impairment was up $2 million to $22 million.

Operating profit was up $21 million, or 13 per cent, to $177 million. On a constant currency basis, operating profit increased 19 per cent.

Americas, UK & Europe

The business in this region is primarily Private Banking in nature and focuses on delivering our product suite to international customers from across our network.

Income fell $9 million, or 5 per cent to $174 million. Excluding the gain of $13 million relating to the disposal of our Private Banking operations in Miami in 2012, income rose 2 per cent. The benefit from higher revenue from Private Banking mortgages, reflecting improved margins, was partly offset by lower Wealth Management income, where sales of foreign exchange related products declined. Deposits income also fell, impacted by margin compression although margins started to stabilise in the second half of the year.

Operating expenses fell $8 million, or 5 per cent, to $143 million as we continued to tightly manage costs and as a result of business disposals.

Loan impairment was higher by $3 million to $13 million.

Operating profit rose $5 million, up 36 per cent, to $19 million.

Wholesale Banking
The following tables provide an analysis of operating profit by geography for Wholesale Banking:
			2013
			Hong Kong	Singapore	Korea	Other Asia Pacific	India	Middle East & Other S Asia	Africa		Americas UK & Europe		Wholesale Banking Total
			$million	$million	$million	$million	$million	$million	$million		$million		$million
	Operating income¹		2,164	1,121	517	1,837	1,230	1,408	1,222		1,993		11,492
Operating expenses			(871)	(583)	(285)	(935)	(395)	(588)	(532)		(1,137)		(5,326)
Loan impairment			4	(10)	(56)	(105)	(157)	(4)	(248)		(7)		(583)
Other impairment			(4)	10	(27)	(2)	(101)	-	-		2		(122)
Profit from associates and joint ventures			-	-	-	181	-	-	-		1		182
Operating profit¹			1,293	538	149	976	577	816	442		852		5,643

			2012
			Hong Kong	Singapore	Korea	Other Asia Pacific	India	Middle East & Other S Asia	Africa		Americas UK & Europe		Wholesale Banking Total
			$million	$million	$million	$million	$million	$million	$million		$million		$million
Operating income			1,938	1,229	669	2,076	1,145	1,481	1,111		2,023		11,672
Operating expenses			(801)	(616)	(286)	(1,049)	(435)	(607)	(478)		(1,680)		(5,952)
Loan impairment			(14)	(4)	(26)	(35)	(138)	(265)	(18)		(22)		(522)
Other impairment			(7)	(2)	(7)	(121)	9	(32)	-		9		(151)
Profit from associates and joint ventures			-	-	-	138	-	-	-		1		139
Operating profit			1,116	607	350	1,009	581	577	615		331		5,186
¹		Operating income and operating profit excludes own credit adjustment of $106 million
Operating income by product								2013		2012		Better/
								$million		$million		(worse) %
Lending and Portfolio Management								818		837		(2)
Transaction Banking
Trade								1,845		1,915		(4)
Cash Management and Custody								1,629		1,721		(5)
								3,474		3,636		(4)
Global Markets¹
Financial Markets ²								3,650		3,657		-
Asset and Liability Management (ALM)								754		837		(10)
Corporate Finance								2,519		2,222		13
Principal Finance								277		483		(43)
								7,200		7,199		-
Total operating income								11,492		11,672		(2)

Financial Markets operating income by desk								2013		2012		Better/ (worse)
								$million		$million		%
Foreign Exchange								1,413		1,277		11
Rates								917		965		(5)
Commodities and Equities								507		521		(3)
Capital Markets								558		591		(6)
Credit and Other²								255		303		(16)
Total Financial Markets operating income								3,650		3,657		-
¹		Global Markets comprises the following businesses: Financial Markets (foreign exchange, interest rate and other derivatives, commodities and equities, debt capital markets, syndications); ALM; Corporate Finance (corporate advisory, structured trade finance, structured finance and project and export finance); and Principal Finance (corporate private equity, mezzanine, real estate infrastructure and alternative investments)
²		Excludes $106 million in respect of Own credit adjustment

Income fell $180 million, or 2 per cent, to $11,492 million while operating profit rose $457 million, or 9 per cent, to $5,643 million. Excluding the $667 million cost relating to the US settlements in 2012, operating profit fell 4 per cent.

Income remains well diversified across both products and geographies, with Hong Kong growing income by 12 per cent to exceed $2 billion for the first time. This partly offset lower levels of income across all other regions except India and Africa.

Client income, which constitutes over 80 per cent of WB income, increased by 4 per cent compared to 2012 supported by strong growth in client activity levels and volume increases across Transaction Banking and Financial Markets products. Commercial Banking, which includes Transaction Banking, Lending and flow Foreign Exchange (FX), contributes over half of client income and continues to be the core of the WB business.

Own account income fell 25 per cent compared to 2012, as challenging market conditions during the second half of the year adversely impacted Financial Markets (FM) and Principal Finance. ALM was also impacted by low reinvestment yields across the year due to the low interest rate environment.

Net interest income was up $190 million, or 3 per cent, to $6,207 million as the benefit from higher customer loans offset margin compression across Trade and Cash products.

Non-interest income fell $370 million, or 7 per cent, to $5,285 million.

Income from FM fell by $7 million to $3,650 million, with a strong performance from FX offset by lower income from Rates and Capital Markets. ALM income fell by 10 per cent reflecting lower reinvestment yields. Corporate Finance income grew strongly, up 13 per cent, supported by growth across our financing businesses. Income in Principal Finance fell by 43 per cent, primarily due to lower valuation gains.

Operating expenses fell $626 million, or 11 per cent, to $5,326 million. Excluding the impact of the $667 million settlements with the US authorities in 2012, expenses increased by 1 per cent. We maintained strong expense discipline with staff costs reflecting lower levels of variable compensation. This partly offset increased regulatory and compliance costs, higher depreciation from our leasing business and targeted investments in systems and infrastructure to better support clients.

Loan impairment increased by $61 million to $583 million, driven by a small number of clients in Africa and India. India was also impacted by several smaller-sized exposures as the economic environment deteriorated. The Group's portfolio remains predominantly short tenor with 64 per cent of loans and advances maturing in less than one year. Credit quality continues to be good.

Other impairment was lower by $29 million, or 19 per cent, at $122 million, driven by lower Private Equity charges and higher recoveries on the disposal of previously impaired investments.

Profit from associates and joint ventures increased strongly due to a good performance from Bohai Bank in China.

Product performance

Lending and Portfolio Management income fell by $19 million, or 2 per cent, to $818 million as the impact of higher margins was more than offset by lower average balances and increased portfolio management costs.

Transaction Banking income fell $162 million, or 4 per cent, at $3,474 million. Trade income fell 4 per cent despite 21 per cent growth in average assets as margins compressed, down 27 bps compared to 2012. This was due to surplus liquidity across our markets. Trade margins showed signs of stabilisation at a lower level than the prior period towards the end of the year. Cash Management and Custody income fell 5 per cent and was also impacted by margin compression, down 15 bps, due to the continuing lower interest rate environment. This was partly offset by strong growth in average liabilities and higher custody income.

Global Markets income was broadly flat at $7,200 million. Within Global Markets, the Financial Markets business, which primarily comprises sales and trading of FX and interest rate products, is the largest contributor to income and continues to have diverse income streams.

FM income was $7 million lower at $3,650 million as the second half of 2013 was impacted by a dramatic shift in market conditions driven by the uncertainty over the tapering of quantitative easing (QE) by the US Federal Reserve, negative emerging market sentiment and regulatory changes. This particularly affected own account income, which fell 25 per cent compared to 2012. Within this, Rates income was driven lower as rising bond yields impacted our inventory positions that are held for market making in emerging market bonds.

Despite the challenging market conditions, client income, which represents over 80 per cent of FM income, remained resilient and rose 7 per cent underpinned by strong growth in FX income.

FX income rose 11 per cent, with good growth in FX option volumes driven by client flows in North East Asia and South Asia together with a strong uplift from G10 currency pairs. Cash FX also grew on the back of higher volumes. This was partly offset by lower spreads compared to 2012.

Rates income fell 5 per cent largely reflecting the challenging market conditions in the second half of 2013.

Commodities and Equities income fell 3 per cent. Client hedging activity declined, as markets saw low levels of volatility across most asset classes. Equities derivatives income increased on the back of new product offerings.

Capital Markets income fell 6 per cent, as lower market issuance levels in our footprint impacted Debt Capital Markets volumes. In loan syndications, margin compression was offset by increased origination activity.

Credit and other income fell by 16per cent, impacted by challenging market conditions.

ALM income was $83 million, or 10 per cent, lower at $754 million reflecting the continued increase in asset allocation to higher quality, lower yielding liquid assets and from lower reinvestment yields.

Corporate Finance income rose $297 million, or 13 per cent, to $2,519 million with a strong performance from all financing businesses benefiting from the focus on deepening relationships with existing clients. We saw particularly strong growth in Structured Finance driven by the continued expansion of our leasing business and in Strategic Finance due to acquisition financing in our footprint. Equity Capital Markets income also increased significantly with record transaction volumes and improved market ranking in Asia.

Principal Finance income fell by $206 million, or 43 per cent, to $277 million impacted by lower mark-to-market gains on equity investments due to adverse market sentiment across our investment footprint.

Geographic performance

Hong Kong

Income was up $226 million, or 12 per cent, to $2,164 million. Client income rose strongly, up 14 per cent, as FM delivered strong broad based growth with higher RMB FX income as a result of the growing opportunities arising from RMB internationalisation. There was also strong growth in Capital Markets income with higher volumes from Syndications. Income from Corporate Finance grew strongly as a result of the continuing expansion of the transport leasing business. Transaction Banking income declined mainly due to continued compression of Trade and Cash margins although margins began to stabilise during the second half of 2013. Own account income decreased on account of weaker Equities trading results. Hong Kong continues to leverage the Group's network as a hub into and out of China and inbound revenues from China continued to grow but at a more moderate pace.

Operating expenses grew $70 million, or 9 per cent, to $871 million, primarily driven by depreciation of assets held by the transport leasing business. We continued to manage other expenses tightly.

Pre-provision profit was higher by $156 million, or 14 per cent, at $1,293 million.

Loan impairment was lower by $18 million. There was a net recovery of $4 million on loan impairments compared to a net charge of $14 million in 2012.

Operating profit was up $177 million, or 16 per cent, at $1,293 million.

Singapore

Income fell $108 million, or 9 per cent, to $1,121 million. An increase in client income of 5 per cent was more than offset by weak second half own account income. Transaction Banking and Lending income fell despite the growth in average balances as increased competition compressed margins. Corporate Finance income increased on the back of asset growth, higher recurring income and robust deal pipeline conversion. FM client income excluding Capital Markets was up driven by growth in FX volume, product diversification in Commodities and increased equity underwriting activities. Capital Markets income was reduced as the local markets contracted on QE tapering expectations. Own account income declined due to reduced risk appetite as markets reacted to QE tapering. ALM performance was also impacted by costs of investing in higher quality liabilities and more liquid assets. Our Singapore business was particularly impacted by the adverse market conditions in the second half due to its position as a regional hub.

Operating expenses fell by $33 million, or 5 per cent, to $583 million, with lower levels of variable compensation and a continued focus on cost discipline.

Pre-provision profit fell $75 million, or 12 per cent, to $538 million.

Loan impairment remained low at $10 million. Other impairment was a net gain $10 million in 2013 due to recoveries of previously written down Private Equity investments.

Operating profit fell by $69 million to $538 million.

Korea

Income fell $152 million, or 23 per cent, to $517 million. On a constant currency basis income fell 24 per cent. Client income fell 9 per cent primarily due to lower income from Lending and Transaction Banking. Transaction Banking was impacted by lower average balances in addition to margin compression as a result of increased competition and a series of interest rate reductions. Lending income fell as we reduced average balances as part of our continuing portfolio optimisation. Corporate Finance income rose driven by strategic finance. Own account income declined due to lower ALM income, which was impacted by the low interest rate environment, and a lower number of Private Equity realisations. Income generated by Korean clients across our network continued to grow and we opened a further two Korea desks across our footprint during the year.

Operating expenses were held flat at $285 million. On a constant currency expenses fell 3 per cent as we continued to tightly manage costs.

Pre-provision profit fell by $151 million, or 39 per cent, to $232 million.

Loan impairment increased by $30 million to $56 million as higher levels of provisions offset a lower levels of recoveries. Other impairment increased $20 million to $27 million reflecting impairment on a small number of Private Equity investments.

Operating profit was lower by $201 million, or 57 per cent, at $149 million.

Other Asia Pacific

Income fell $239 million, or 12 per cent, at $1,837 million. Income fell in most of the major markets in this region, reflecting margin compression and challenging market conditions.

Income in China fell 13 per cent to $613 million primarily due to margin compression offsetting strong client activity. Client income fell 5 per cent as strong growth in Cash, Trade and FM transaction volumes were more than offset by lower margins following interest rate cuts in 2012 and spread compression in FM products Income in Taiwan fell 13 per cent to $125 million although client income rose 8 per cent. Own account declined, particularly impacted by market movements in the second half of the year. Transaction Banking income was adversely impacted by margin compression. This was offset by a good performance from FM, where increased FX income, driven by RMB products, offset a lower Rates performance.

Income in Indonesia fell 24 per cent to $265 million. Client income fell 9 per cent, with Transaction Banking income impacted by margin compression in Trade and Cash and FM income affected by the shift in sentiment on emerging markets. Income in Malaysia fell 19 per cent to $282 million. Client income remained resilient and was flat to 2012 but own account income fell sharply, particularly in ALM.

Operating expenses in the region fell $114 million, or 11 per cent, to $935 million. Expenses in 2012 were impacted by a net charge of $86 million as a result of a legacy commercial legal provision. Excluding this, expenses fell 3 per cent. China operating expenses fell 3 per cent to $364 million as we continue to control costs tightly whilst also investing and developing our franchise footprints.

Pre-provision profit in Other APR was lower by 12 per cent at $902 million.

Loan impairment increased by $70 million to $105 million. Impairment in China increased to $23 million although asset quality remains stable. Impairment in Indonesia increased $46 million in respect of a very small number of exposures.

Profit from associates and joint ventures grew $43 million reflecting a strong performance from Bohai Bank in China. Operating profit was 3 per cent lower at $976 million. China contributed $361 million of operating profit, with Indonesia and Malaysia as the other major profit contributors in this region.

India

Income rose $85 million, or 7 per cent, to $1,230 million. On a constant currency basis, income rose 17 per cent. Despite a deteriorating credit environment and intense pricing pressures, client income increased 2 per cent (up 12 per cent on a constant currency basis) driven by Corporate Finance, FX and Lending. Flow FX continues to grow strongly, leveraging Transaction Banking relationships, and FX Options income also rose with increased levels of client hedging reflecting the volatility in exchange rates seen in the second half of 2013. Transaction Banking income was impacted by lower margins although this was partly offset as average balances increased. Own account income rose benefiting from the de-risking of the portfolio. Cross border activity from our Indian clients remained strong, with income booked across our network growing at a double digit rate.

Operating expenses were lower by $40 million, or 9 per cent, at $395 million. On a constant currency basis, expenses fell 1 per cent, primarily driven by lower staff costs due to lower levels of variable compensation.

Pre-provision profit was up $125 million, or 18 per cent, at $835 million.

Loan impairment increased by $19 million to $157 million. The charge reflects a very small number of large exposures together with a higher number of small provisions across the portfolio as economic pressures drove impairment to elevated levels,

Other impairment increased to a charge of $101 million from a recovery of $9 million, due to a charge relating to a specific bond exposure and a write down of certain Private Equity investments.

Operating profit was down $4 million, or 1 per cent, to $577 million. On a constant currency basis, operating profit rose 6 per cent.

MESA

Income was lower by $73 million, or 5 per cent, to $1,408 million. Client income fell 4 per cent. Growth in Transaction Banking income, where lower income in the UAE and Pakistan was more than offset by higher income from Bangladesh and a number of smaller markets in the region, was more than offset by lower FM income. Own account income also fell, impacted by the run-off of higher yielding assets and lower levels of volatility.

Income in the UAE, which generates over 50 per cent of the income in this region, was down 7 per cent overall. Client income fell due to lower Transaction Banking income as margin compression more than offset growth in average balances. FX flow income was also impacted by tighter spreads despite an increase in volumes. Own account income also fell as an improved performance in Rates was offset by lower FX income. Income in Bangladesh grew 24 per cent primarily driven by Cash. Income fell in Pakistan, down 27 per cent primarily due to lower levels of Rates and Transaction Banking income, and Qatar, down 37 per cent as a result of lower Commodities income.

Operating expenses in MESA fell $19 million, or 3 per cent, to $588 million, as we managed costs tightly across the region.

Pre-provision profit in MESA was down $54 million, or 6 per cent, to $820 million. Loan impairment fell $261 million to $4 million, primarily in the UAE as 2012 was impacted by provisions on a small number of accounts.

Operating profit in MESA rose 41 per cent to $816 million.

Africa

Income rose $111 million, or 10 per cent, to $1,222 million. On a constant currency basis, income was up 16 per cent. This region continues to be diversified across products, client groups and countries and income growth was driven by higher FM income from increased FX and Rates volumes and an increase in Corporate Finance income as we closed a greater number of transactions. This was partly offset by lower income from Transaction Banking which was impacted by lower Cash margins.

Nigeria continues to be the largest WB market in the region with income up by 19 per cent, as income grew across all product lines except Cash and Rates. Income in Ghana rose 20 per cent from an improved FM performance and income in Kenya rose 19 per cent on the back of Transaction Banking and Corporate Finance. This was partly offset by lower income in South Africa, down 37 per cent, primarily due to lower Corporate Finance income and Uganda, down 17 per cent primarily due to lower Transaction Banking and FM income.

Operating expenses were up $54 million, or 11 per cent, to $532 million. On a constant currency basis, expenses were 18 per cent higher, reflecting investments in staff and technology to build capability.

Pre-provision profit was up $57 million, or 9 per cent, to $690 million. Loan impairment increased to $248 million driven by new provisions on a small number of accounts.

Operating profit was $173 million lower at $442 million, down 28 per cent. On a constant currency basis, operating profit fell 25 per cent.

Americas, UK & Europe

This region acts as a two way bridge, linking the Americas, UK & Europe with our markets in Asia, Africa and the Middle East.

Income was down 1 per cent to $1,993 million, although client income remained resilient, growing 4 per cent compared to 2012. Transaction Banking income increased as average balances grew strongly although margins were compressed reflecting increased levels of competition. Corporate Finance income also grew strongly as we re-financed existing deals at higher rates. FM income, however, fell as good growth in FX and FX options was more than offset by lower income from Rates and money market funds. Own account income fell sharply as market conditions impacted FX and Commodities income.

Operating expenses fell by $543 million, or 32 per cent. Excluding the impact of the settlements with the US authorities in 2012, expenses rose 12 per cent, reflecting increased regulatory and compliance costs.

Pre-provision profit rose $513 million, or 150 per cent to $856 million.

Loan impairment decreased by $15 million to a charge of $7 million whilst other impairment increased by $7 million to a net recovery of $2 million.

Operating profit rose $521 million to $852 million. Excluding the impact of the settlements with the US authorities in 2012, operating profit fell 15 per cent.

Group Summary Consolidated Balance Sheet
	2013	2012¹	Increase/ (Decrease)	Increase/ (Decrease)
	$million	$million	$million	%
Assets
Advances and investments
Cash and balances at central banks	54,534	60,537	(6,003)	(10)
Loans and advances to banks	83,702	67,797	15,905	23
Loans and advances to customers	290,708	279,638	11,070	4
Investment securities held at amortised cost	2,828	3,851	(1,023)	(27)
	431,772	411,823	19,949	5
Assets held at fair value
Investment securities held available-for-sale	99,888	95,374	4,514	5
Financial assets held at fair value through profit or loss	29,335	27,076	2,259	8
Derivative financial instruments	61,802	49,495	12,307	25
	191,025	171,945	19,080	11
Other assets	51,583	47,440	4,143	9
Total assets	674,380	631,208	43,172	7
Liabilities
Deposits and debt securities in issue
Deposits by banks	43,517	36,427	7,090	19
Customer accounts	381,066	372,874	8,192	2
Debt securities in issue	64,589	55,979	8,610	15
	489,172	465,280	23,892	5
Liabilities held at fair value
Financial liabilities held at fair value through profit or loss	23,030	23,064	(34)	(0)
Derivative financial instruments	61,236	47,192	14,044	30
	84,266	70,256	14,010	20
Subordinated liabilities and other borrowed funds	20,397	18,588	1,809	10
Other liabilities	33,704	31,029	2,675	9
Total liabilities	627,539	585,153	42,386	7
Equity	46,841	46,055	786	2
Total liabilities and shareholders' funds	674,380	631,208	43,172	7
¹Amounts have been restated as explained in note 31

Balance sheet

The Group remains disciplined in its focus on sustaining a strong balance sheet, which continues to be highly liquid, diversified and conservatively positioned. Growth has been robust on both sides of the balance sheet and we continued to focus on the principle of 'funding before lending'. The Group is predominantly deposit funded and our advances to deposits ratio remains low at 75.7 per cent, up from 73.9 per cent in 2012. We continue to be a net lender into the interbank market, particularly in Hong Kong and in the Other Asia Pacific and, Americas, UK & Europe regions. We continue to see good demand for our paper and our funding structure remains conservative, with limited levels of refinancing required over the next few years.

The Group remains well capitalised and our Core Tier 1 ratio of 11.8 per cent was slightly higher than 2012, due to equity generation.

The profile of our balance sheet remains stable, with 71 per cent of our financial assets held on amortised cost basis, which reduces the risk of short term distress shocks, and 58 per cent of total assets have a residual maturity of less than one year. The Group has low exposure to problem asset classes, no direct sovereign exposure (as defined by the European Banking Authority (EBA)) to Greece, Ireland, Italy, Portugal and Spain and immaterial direct exposure to the remainder of the eurozone. Further details of our eurozone exposures are set out on page 67.

Total assets/liabilities grew by $43.2 billion, or 7 per cent, during the year. On a constant currency basis, growth was 6 per cent as some of the Asian currencies depreciated in the second half of 2013 against the US dollar particularly the Indian rupee and the Korean won. Balance sheet growth was largely driven by an increase in lending to banks and customers. Surplus liquidity was held with central banks, deployed in net interbank funding, or held in liquid investment securities that meet the more stringent regulatory liquidity requirements. Derivative mark to market increased, largely reflecting increased levels of activity but lower levels of market volatility.

Cash and balances at central banks

Cash balances decreased by $6.0 billion, or 10 per cent, compared to 2012. During the year, we have deployed some of our surplus liquidity into the interbank market although we continue to hold substantial balances at central banks.

Loans and advances

Loans and advances to banks and customers, which include those held at fair value, grew by $29 billion, or 8 per cent, to $382 billion.

Consumer Banking portfolios, which represents 44 per cent of the Group's customer advances at 31 December 2013, fell by $0.6 billion to $129.8 billion. The decline was primarily due to lower balances in Korea, down $5.4 billion, where Mortgages fell as the market continues to be impacted by regulatory restriction and CCPL products also reduced as we tightened underwriting criteria and de-risked the portfolio. We did however originate and distribute $3 billion of fixed rate mortgages under the Korea Mortgage Purchase Program. Excluding Korea, lending increased by $4.8 billion, reflecting higher Mortgages in Hong Kong and good growth in Private Banking lending in Singapore and payroll-linked personal lending in the MESA and Africa regions.

The Wholesale Banking portfolio remains well diversified by geography and client segment and the business continues to strengthen and deepen relationships across a broader base. Customer advances grew by $12.0 billion, or 8 per cent, to $166.9 billion. Lending increased strongly in Singapore, up 18 per cent, Hong Kong, up 17 per cent, and Americas, UK and Europe, up 7 per cent, driven by the continued ability of these geographies to support cross border business originating across the network. Growth was seen across a broad range of industry sectors, reflecting increased trade activity and continued focus on commerce, manufacturing and financing sectors which make up 64 per cent of the Wholesale Banking customer lending. Loans to banks increased by 26 per cent mainly as a result of trade-related growth within China and in Americas, UK & Europe.

Treasury bills, debt and equity securities

Treasury bills, debt and equity securities, including those held at fair value, grew by $3.7 billion to $124.3 billion, largely due to more stringent liquidity requirements, especially in the UK, which have necessitated higher holdings. The maturity profile of our investment book is largely consistent with 2012, with around 45 per cent (2012: 49 per cent) of the book having a residual maturity of less than twelve months.

Derivatives

Unrealised mark to market asset positions were $12 billion higher compared to 2012, reflecting higher levels of client activity but lower levels of volatility across interest rate, commodity and foreign exchange contracts. Our risk position continues to be largely balanced, resulting in a corresponding increase in negative mark to market positions of $14 billion. Of the $62 billion asset mark to market positions, $46 billion is available to offset through master netting agreements.

Deposits

The Group has continued to see good deposit growth in both businesses. Deposits by banks and customers, including those held at fair value, increased by $13 billion, of which the increase in deposits by banks was $7 billion. Customer deposit growth was primarily driven by Hong Kong, and in the Americas, UK & Europe and Africa regions which more than offset lower deposits in a number of other regions. CASA continues to be the core of the customer deposit base, growing 5 per cent compared to 2012 and constituting over 50 per cent of customer deposits.

Debt securities in issue, subordinated liabilities and other borrowed funds

Debt securities in issue, together with those held at fair value, grew 17 per cent to $71.4 billion as we continued see strong demand for our paper. This included the issue of 30 year subordinated notes in the first half of the year. Subordinated debt increased by $1.8 billion, or 10 per cent, on the back of primarily US dollar denominated issuances during the year.

Equity

Total shareholders' equity increased by $0.8 billion to $46.8 billion due to profit accretion and gains on available-for-sale securities, which were partly offset by foreign exchange translation losses and dividends paid to shareholders.

Standard Chartered PLC - Risk review

Risk overview

Standard Chartered has a defined risk appetite, approved by the Board, which is an expression of the amount of risk we are prepared to take and plays a central role in the development of our strategic plans and policies. Our overall risk appetite has not changed. We regularly assess our aggregate risk profile, conduct stress tests and monitor concentrations to ensure that we are operating within our approved risk appetite. Further details on our approach to risk appetite and stress testing are set out on page 30.

We review and adjust our underwriting standards and limits in response to observed and anticipated changes in the external environment and the evolving expectations of our stakeholders. During the course of 2013, we maintained a cautious stance overall whilst continuing to support our core clients. Credit risk management is covered in more detail on page 30.

Our balance sheet and liquidity have remained strong. Over half of total assets mature within one year and of these approximately 70 per cent mature within three months. The balance sheet is highly diversified across a wide range of products, industries, geographies and customer segments, which serves to mitigate risk:

· Customer loans and advances are 44 per cent of total assets

· The Manufacturing sector in Wholesale Banking, which is 25 per cent of lending, is diversified by industry and geography

· The largest concentration to any globally correlated industry is to energy at 9 per cent of total Wholesale Banking assets. The exposure is well spread across eight subsectors and over 350 client groups and, reflecting the trade bias in the portfolio, 64 per cent of exposures mature within one year

· Our top 20 corporate exposures are stable as a proportion of group capital resources and highly diversified, with each, on average, spread across seven markets and five industries

· Our cross-border asset exposure is also diversified and reflects our strategic focus on our core markets and customer segments. Further details are set out on page 70

· 44 per cent of customer loans and advances are in Consumer Banking; 73 per cent of these are secured and the overall loan to value ratio on our mortgage portfolio is less than 48 per cent

· The unsecured Consumer portfolio is spread across multiple products in over 30 markets

We have low exposure to asset classes and segments outside our core markets and target customer base. We have no direct sovereign exposure (as defined by the European Banking Authority (EBA)) to Greece, Ireland, Italy, Portugal or Spain. Our exposure in these countries is primarily in trade finance and financial markets. Further details of our eurozone exposures are given on page 67. Our exposure to countries impacted by the political developments in the Middle East and North Africa are also low. Exposures in Syria, Lebanon, Egypt, Libya, Algeria and Tunisia represent less than 0.5 per cent of our total assets.

Our exposures to commercial real estate and leveraged loans account for 2 per cent and 1 per cent of our total assets respectively. The notional value of the Asset Backed Securities (ABS) portfolio, which accounts for 1 per cent of our total assets increased by $2.0 billion in 2013 due to investments in high quality, senior ABS and Residential Mortgage Backed Securities (RMBS) assets in the Group's portfolio of marketable securities. Further details are given on page 66.

We have closely managed our exposures in markets and sectors which have faced downturns during 2013, increasing collateral cover and selectively reducing exposures and limits.

Market risk is tightly monitored using Value at Risk (VaR) methodologies complemented by sensitivity measures, gross nominal limits and loss triggers at a detailed portfolio level. This is supplemented with extensive stress testing which takes account of more extreme price movements. Our overall trading book risk exposure has not changed significantly during the course of 2013. Further details on market risk are given on page 71.

We maintained a strong advances-to-deposits ratio in 2013. Liquidity will continue to be deployed to support growth opportunities in our chosen markets. We manage liquidity in each of our branches and operating subsidiaries in each country, ensuring that we can meet all short-term funding and collateral requirements and that our balance sheet remains structurally sound. Our customer deposit base is diversified by type and maturity and we are a net provider of liquidity to the interbank money markets. We have a substantial portfolio of marketable securities that can be realised in the event of liquidity stress. Further details on liquidity are provided on pages 75 to 83.

We continue to engage actively with our regulators, including the Prudential Regulation Authority (PRA), the Financial Conduct Authority (FCA), the Bank of England (BoE) and our 'host' regulators in each of the markets in which we operate

We have a well-established risk governance structure, which is set out on page 29, and an experienced senior team. Members of our most senior executive body (the Court) sit on our principal risk executive committees, which ensures that risk oversight is a strong focus for all our executive directors, while common membership between these committees helps us address the inter-relationships between risk types. Board committees provide additional risk management oversight and challenge.

We continue to build on the Group's culture of risk management discipline. During 2013 we refreshed and re-communicated the Group's Code of Conduct, reinforcing our values and our brand promise. We recognise that failures of regulatory compliance have damaged the Group's reputation, and continue to pay close attention to this. The management of operational risk, more broadly, continues to be enhanced as we incrementally roll out our new approach across all areas of the Group. We are introducing increased rigour in the process for anticipating a wide variety of operational risks and in our assessments of risks and control effectiveness. Operational risk and reputational risk are covered in more detail on pages 84 to 86.

Standard Chartered PLC - Risk review continued

Impairment review

The total impairment charge (excluding goodwill impairment) for 2013 has increased by $354 million compared to 2012. The increase has primarily been in Consumer Banking, partly offset by lower other impairment charges.

In Consumer Banking, total loan impairment provisions have increased year on year, primarily reflecting the growth and seasoning of loans booked between 2010 and 2012, the ongoing impact of Korea Personal Debt Rehabilitation Scheme (PDRS) filings and effects of reduced loan sales compared to previous years. The increase is otherwise in line with our portfolio growth and growth in unsecured products in selected markets in prior years. Portfolio impairment provisions also reduced as a result of reclassification of consumer finance businesses in Korea as held for sale. We remain disciplined in our approach to risk management and proactive in our collection efforts to minimise account delinquencies.

In Wholesale Banking, total loan impairment provisions have increased by $61 million compared to 2012. This was concentrated in a few names in India and Africa and was partially offset by a release of an overlay portfolio impairment provision (PIP) in MESA as economic conditions improved. The credit quality of the portfolio quality remains high in spite of the volatility in commodity prices and currencies.

Further details of credit risk in respect of the Group's loans portfolio is set out on pages 30 to 64.

Other impairment, excluding goodwill impairment, is lower compared to prior periods, as 2012 was impacted by provision against certain investments in associates. Further details are set out in note 8 on page 109.

Principal uncertainties

We are in the business of taking selected risks to generate shareholder value, and we seek to contain and mitigate these risks to ensure they remain within our risk appetite and are adequately compensated.

The key uncertainties we face in the coming year are set out below. This should not be regarded as a complete and comprehensive statement of all potential risks and uncertainties that we may experience.

Deteriorating macroeconomic conditions in footprint countries

Macroeconomic conditions have an impact on personal expenditure and consumption, demand for business products and services, the debt service burden of consumers and businesses, the general availability of credit for retail and corporate borrowers and the availability of capital and liquidity funding for our business. All these factors may impact our performance.

The world economy is coming out of a difficult period and uncertainty remains. The unwinding of the US Federal Reserve's quantitative easing programme could lead to higher interest rates, volatility in financial markets and capital flight from emerging markets which may threaten the growth trajectory of some vulnerable economies. A slowdown in China's growth may depress prices and trade in a number of commodity sectors such as energy, metals and mining sectors, and a prolonged slowdown could have wider economic repercussions.

The sovereign crisis in the eurozone is not fully resolved and, although acute risks have been addressed by ongoing policy initiatives, there is still a need for substantial new structural reform (see additional information on the risk of redenomination on page 67).

Our exposure to eurozone sovereign debt is very low. However, we remain alert to the risk of secondary impacts from events in the West on financial institutions, other counterparties and global economic growth.

Inflation and property prices appear to be under control in most of the countries in which we operate. Changes in monetary policy could lead to significant increases in interest rates from their currently low historical levels, with resulting impacts on the wider economy and on property values.

We balance risk and return taking account of changing conditions through the economic cycle, and monitor economic trends in our markets very closely. We conduct stress tests to assess the effects of extreme but plausible trading conditions on our portfolio and also continuously review the suitability of our risk policies and controls. We manage credit exposures following the principle of diversification across products, geographies, client and customer segments. This provides for strong resilience against economic shocks in one or more of our portfolios.

Regulatory changes

Our business as an international bank will continue to be subject to an evolving and complex regulatory framework comprising legislation, regulation and codes of practice, in each of the countries in which we operate. A key uncertainty relates to the way in which governments and regulators adjust laws, regulations and economic policies in response to macroeconomic and other systemic conditions. The nature and impact of such future changes are not always predictable and could run counter to our strategic interests. Some are anticipated to have a significant impact, such as changes to capital and liquidity regimes, changes to the calculation of risk-weighted assets, derivatives reform, remuneration reforms, recovery and resolution plans, banking structural reforms in a number of markets, (including proposals which could result in (i) deposit-taking entities being ring-fenced from wholesale banking activities and (ii) local branches of international banking groups being subsidiarised), the UK bank levy and the US Foreign Account Tax Compliance Act. In relation to the banking structural reforms, the European Commission has published a legislative proposal for a regulation introducing structural reforms to the EU banking sector, including a prohibition on proprietary trading and separation powers for supervisors relating to banks' other trading activities. Uncertainty remains regarding details of the application of the European Union's Capital Requirements Directive and Regulation (CRD IV), the proposed Bank Recovery and Resolution Directive (BRRD) and Over the Counter (OTC) derivative reforms across our markets which could potentially have a material impact on the Group and its business model. Proposed changes could also adversely affect economic growth, the volatility and liquidity of the financial markets and, consequently, the way we conduct business, structure our global operating model and manage capital and liquidity. These effects may directly or indirectly impact our financial performance. Despite these concerns, we remain a highly liquid and well capitalised bank under current and currently published future regimes.

It is in the wider interest to have a well run financial system, and we are supportive of a tighter regulatory regime that enhances the resilience of the international financial system. The Group will continue to participate in the regulatory debate through responses to consultations and working towards an improved and workable regulatory architecture. We are also encouraging our international regulators to work together to develop co-ordinated approaches to regulating and resolving cross border banking groups. We support changes to laws, regulations and codes of practice that will improve the overall stability of, and the conduct within, the financial system because this provides benefits to our clients and shareholders and the broader geographies and markets in which we operate. However, we also have concerns that certain proposals may not achieve this desired objective and may have unintended consequences, either individually or in terms of aggregate impact.

Regulatory compliance, reviews, requests for information and investigations

Since the global financial crisis, the banking industry has been subject to increased regulatory scrutiny. There has been an unprecedented volume of regulatory changes and requirements, as well as a more intensive approach to supervision and oversight, resulting in an increasing number of regulatory reviews, requests for information and investigations, often with enforcement consequences, involving banks.

While the Group seeks to comply with the letter and spirit of all applicable laws and regulations at all times, it may be subject to regulatory actions and investigations across our markets, the outcomes of which are generally difficult to predict and can be material to the Group. Where laws and regulations across the geographies in which the Group operates contradict each other or create conflicting obligations, the Group aspires to meet both local requirements and appropriate global standards.

From time to time the Group is the subject of various regulatory reviews, requests for information (including subpoenas and requests for documents) and investigations by various governmental and regulatory bodies arising from the Group's business operations.

In 2012 the Group reached settlements with the US authorities regarding US sanctions compliance in the period 2001 to 2007, involving a Consent Order by the New York Department of Financial Services (NYDFS), a Cease and Desist Order by the Federal Reserve Bank of New York (FRBNY), Deferred Prosecution Agreements with each of the Department of Justice and with the District Attorney of New York (each a 'DPA') and a Settlement Agreement with the Office of Foreign Assets Control. In addition to the civil penalties totalling $667million, the terms of these settlements (together the 'Settlements') include a number of conditions and ongoing obligations with regard to improving sanctions and Anti-Money Laundering (AML) and Banking Secrecy Act (BSA) controls such as remediation programmes, reporting requirements, compliance reviews and programmes, banking transparency requirements, training measures, audit programmes, disclosure obligations and the appointment of an independent monitor. These obligations are managed under a programme of work referred to as the US Supervisory Remediation Program (SRP). The SRP comprises workstreams designed to ensure compliance with the remediation requirements contained in all of the Settlements. Provided the Group fulfils all the requirements imposed by the DPAs, the applicable charges against the Group will be dismissed at the end of the two year term of those agreements.

The Group has established a Financial Crime Risk Mitigation Programme (FCRMP), which is a comprehensive, multi-year, programme designed to review many aspects of the Group's existing approach to anti-money laundering and sanctions compliance and to enhance them as appropriate. One key component of the FCRMP is to oversee and manage the SRP. As part of the FCRMP the Group or its advisors may identify new issues, potential breaches or matters requiring further review or further process improvements that could impact the scope or duration of the FCRMP.

The Group is engaged with all relevant authorities to implement these programmes, meet the obligations under the Settlements and respond to further requests for information and inquiries related to its historic, current and future compliance with the relevant sanctions regimes of all jurisdictions in which it operates.

The Group recognises that its compliance with historic, current and future sanctions, as well as AML and BSA requirements, and customer due diligence practices, not just in the US but throughout its footprint, is and will remain a focus of the relevant authorities.

As part of their remit to oversee market conduct, regulators and other agencies in certain markets are conducting investigations or requesting reviews into a number of areas of market conduct, including sales and trading, involving a range of financial products, and submissions made to set various market interest rates and other financial benchmarks, such as foreign exchange. At relevant times, certain of the Group's branches and/or subsidiaries were (and are) participants in some of those markets, in some cases submitting data to bodies that set such rates and other financial benchmarks.

The Group is contributing to industry proposals to strengthen financial benchmarks processes in certain markets and continues to review its practices and processes in the light of the investigations, reviews and the industry proposals.

The Group is co-operating with all such ongoing reviews, requests for information and investigations. While the Group seeks to comply with the letter and spirit of all applicable laws and regulations, the outcome of these reviews, requests for information and investigations is uncertain and it may not be possible to predict the extent of any liabilities or other consequences that may arise.

For further details on legal and regulatory matters refer to note 33 on page 142.

Financial markets dislocation

There is a risk that a sudden financial market dislocation, perhaps as a result of a tightening of monetary policy in the major economies or a deterioration of the sovereign debt crisis in the eurozone, could significantly increase general financial market volatility which could affect our performance or the availability of capital or liquidity. In addition, reduction of monetary intervention by the US Federal Reserve, or other central banks, could disrupt external funding for some economies leading to lower growth and financial markets volatility. These factors may have an impact on the mark-to-market valuations of assets in our available-for-sale and trading portfolios. The potential losses incurred by certain clients holding derivative contracts during periods of financial market volatility could also lead to an increase in disputes and corporate defaults. At the same time, financial market instability could cause some financial institution counterparties to experience tighter liquidity conditions or even fail. There is no certainty that Government action to reduce the systemic risk will be successful and it may have unintended consequences

We stress test our market risk exposures to highlight the potential impact of extreme market events on those exposures and to confirm that they are within authorised stress triggers. Stress scenarios are regularly updated to reflect changes in risk profile and economic events. Where necessary, overall reductions in market risk exposure are enforced. We closely monitor the performance of our financial institution counterparties and adjust our exposure to these counterparties as necessary. We maintain robust processes to assess the appropriateness and suitability of products and services we provide to clients and customers to mitigate the risk of disputes.

Geopolitical events

We operate in a large number of markets around the world, and our performance is in part reliant on the openness of cross-border trade and capital flows. We face a risk that geopolitical tensions or conflicts in our footprint could impact trade flows, our customers' ability to pay, and our ability to manage capital or operations across borders.

We actively monitor the political situation in all our principal markets, such as the development of events in the Middle East and territorial disputes in North East Asia. We conduct stress tests of the impact of extreme but plausible geopolitical events on our performance and the potential for such events to jeopardise our ability to operate within our stated risk appetite. Further details on stress testing are given on page 30.

Risk of fraud and other criminal acts

The banking industry has long been a target for third parties seeking to defraud, to disrupt legitimate economic activity, or to facilitate other illegal activities. The risk posed by such criminal activity is growing as criminals become more sophisticated and as they take advantage of the increasing use of technology and the internet. The incidence of cyber crime is rising, becoming more globally coordinated, and is a challenge for all organisations.

We seek to be vigilant to the risk of internal and external crime in our management of people, processes, systems and in our dealings with customers and other stakeholders. We have a broad range of measures in place to monitor and mitigate this risk. Controls are embedded in our policies and procedures across a wide range of the Group's activities, such as origination, recruitment, physical and information security.

We have a set of techniques, tools and activities to detect and respond to cyber crime, in its many forms. We actively collaborate with our peers, regulators and other expert bodies as part of our response to this risk.

The Group's controls to address money laundering risks are under review as part of the Group's Financial Crime Risk Mitigation Programme, referred to in the section headed "Regulatory compliance, reviews, requests for information and investigations" above.

Fraud and criminal activity may also give rise to litigation impacting the Group. In December 2008 Bernard Madoff confessed to running a Ponzi scheme through Bernard L. Madoff Investment Securities, LLC ('BMIS'). American Express Bank ('AEB'), acquired by the Group in February 2008, had provided clients with access to funds that invested in BMIS. BMIS and the funds are in liquidation. Certain clients have brought actions against the Group in various jurisdictions seeking to recover losses based principally on the assertion that inadequate due diligence was undertaken on the funds. In addition, the BMIS bankruptcy trustee and the funds' liquidator have commenced proceedings against the Group, seeking to recover sums paid to clients when they redeemed their investments prior to BMIS' bankruptcy. There is a range of possible outcomes in the litigation described above, with the result that it is not possible for the Group to estimate reliably the liability that might arise. However, the Group considers that it has good defences to the asserted claims and continues to defend them vigorously.

For further details on legal and regulatory matters refer to note 33 on page 142.

Exchange rate movements

Changes in exchange rates affect, among other things, the value of our assets and liabilities denominated in foreign currencies, as well as the earnings reported by our non-US dollar denominated branches and subsidiaries. Sharp currency movements can also impact trade flows and the wealth of clients both of which could have an impact on our performance.

We monitor exchange rate movements closely and adjust our exposures accordingly. Under certain circumstances, we may take the decision to hedge our foreign exchange exposures in order to protect our capital ratios from the effects of changes in exchange rates. The effect of exchange rate movements on the capital adequacy ratio is mitigated to the extent there are proportionate movements in risk weighted assets.

The table below sets out the year end and average currency exchange rates per US dollar for India, Korea, Indonesia and Taiwan for the year ended 31 December 2013 and 31 December 2012. These are the markets for which currency exchange rate movements have had the greatest translation impact on the Group's results in 2013.

	2013	2012
Indian rupee
Average	58.51	53.43
Period end	61.77	54.96
Korean won
Average	1,094.52	1,126.23
Period end	1,055.08	1,070.34
Indonesian rupiah
Average	10,414.66	9,394.70
Period end	12,164.29	9,799.42
Taiwan dollar
Average	29.70	29.57
Period end	29.84	29.07

As a result of our normal business operations, Standard Chartered is exposed to a broader range of risks than those principal uncertainties mentioned above and our approach to managing risk is detailed on the following pages.

Risk management

The management of risk lies at the heart of Standard Chartered's business. One of the main risks we incur arises from extending credit to customers through our trading and lending operations. Beyond credit risk, we are also exposed to a range of other risk types such as country cross-border, market, liquidity, operational, pension, reputational and other risks that are inherent to our strategy, product range and geographical coverage.

Risk management framework

Effective risk management is fundamental to being able to generate profits consistently and sustainably and is thus a central part of the financial and operational management of the Group.

Through our risk management framework we manage enterprise-wide risks, with the objective of maximising risk-adjusted returns while remaining within our risk appetite.

As part of this framework, we use a set of principles that describe the risk management culture we wish to sustain:

· Balancing risk and return: risk is taken in support of the requirements of our stakeholders, in line with our strategy and within our risk appetite

· Responsibility: it is the responsibility of all employees to ensure that risk-taking is disciplined and focused. We take account of our social responsibilities and our commitments to customers in taking risk to produce a return

· Accountability: risk is taken only within agreed authorities and where there is appropriate infrastructure and resource. All risk-taking must be transparent, controlled and reported

· Anticipation: we seek to anticipate future risks and ensure awareness of all known risks

· Competitive advantage: we seek to achieve competitive advantage through efficient and effective risk management and control.

Risk governance

Ultimate responsibility for setting our risk appetite and for the effective management of risk rests with the Board.

Acting within an authority delegated by the Board, the Board Risk Committee (BRC), whose membership is comprised exclusively of non-executive directors of the Group, has responsibility for oversight and review of prudential risks including but not limited to credit, market, capital, liquidity and operational. It reviews the Group's overall risk appetite and makes recommendations thereon to the Board. Its responsibilities also include reviewing the appropriateness and effectiveness of the Group's risk management systems and controls, considering the implications of material regulatory change proposals, ensuring effective due diligence on material acquisitions and disposals, and monitoring the activities of the Group Risk Committee (GRC) and Group Asset and Liability Committee (GALCO).

The BRC receives regular reports on risk management, including our portfolio trends, policies and standards, stress testing, liquidity and capital adequacy, and is authorised to investigate or seek any information relating to an activity within its terms of reference. The BRC also conducts "deep dive" reviews on a rolling basis of different sections of the consolidated group risk information report.

The Brand and Values Committee (BVC) oversees the brand, culture, values and good reputation of the Group. It seeks to ensure that the management of reputational risk is consistent with the risk appetite approved by the Board and with the creation of long term shareholder value.

The role of the Audit Committee is to have oversight and review of financial, audit and internal control issues. Further details on the role of the Board and its committees in matters of risk governance are covered in the Corporate Governance section in the Group's Annual Report.

Overall accountability for risk management is held by the Standard Chartered Bank Court (the Court) which comprises the group executive directors and other senior executives of Standard Chartered Bank.

The Court is the highest executive body of the Group and its terms of reference are approved by the Board of Standard Chartered PLC. The Court delegates authority for the management of risk to the GRC and the GALCO.

The GRC is responsible for the management of all risks other than those delegated by the Court to the GALCO. The GRC is responsible for the establishment of, and compliance with, policies relating to credit risk, country cross-border risk, market risk, operational risk, pension risk and reputational risk. The GRC also defines our overall risk management framework.

The GALCO is responsible for the management of capital and the establishment of, and compliance with, policies relating to balance sheet management, including management of our liquidity, capital adequacy and structural foreign exchange and interest rate risk.

Members of the GRC and the GALCO are both drawn from the Court. The GRC is chaired by the Group Chief Risk Officer (GCRO). The GALCO is chaired by the Group Finance Director. Risk limits and risk exposure approval authority frameworks are set by the GRC in respect of credit risk, country cross-border risk, market risk and operational risk. The GALCO sets the approval authority framework in respect of liquidity risk. Risk approval authorities may be exercised by risk committees or authorised individuals.

The committee governance structure ensures that risk-taking authority and risk management policies are cascaded down from the Board through to the appropriate functional, divisional and country-level committees. Information regarding material risk issues and compliance with policies and standards is communicated to the country, business, functional and Group-level committees.

Roles and responsibilities for risk management are defined under a Three Lines of Defence model. Each line of defence describes a specific set of responsibilities for risk management and control.

· First line of defence: All employees are required to ensure the effective management of risks within the scope of their direct organisational responsibilities. Business, function and geographic heads are accountable for risk management in their respective businesses and functions, and for countries where they have governance responsibilities.

· Second line of defence: This comprises the risk control owners, supported by their respective control functions. Risk control owners are responsible for ensuring that the risks within the scope of their responsibilities remain within appetite. The scope of a risk control owner's responsibilities is defined by a given risk type and the risk management processes that relate to that risk type. These responsibilities cut across the Group and are not constrained by functional, business and geographic boundaries. The major risk types are described individually in the following sections.

· Third line of defence: The independent assurance provided by the Group Internal Audit (GIA) function. Its role is defined and overseen by the Audit Committee

The findings from the GIA's audits are reported to all relevant management and governance bodies - accountable line managers, relevant oversight function or committee and committees of the Board.

The GIA provides independent assurance of the effectiveness of management's control of its own business activities (the first line) and of the processes maintained by the Risk Control Functions (the second line). As a result, the GIA provides assurance that the overall system of control effectiveness is working as required within the Risk Management Framework.

The Risk function

The GCRO directly manages a Risk function that is separate from the origination, trading and sales functions of the businesses. The GCRO also chairs the GRC and is a member of the Court.

The role of the Risk function is:

· To maintain the Risk Management Framework, ensuring it remains appropriate to the Group's activities, is effectively communicated and implemented across the Group and for administering related governance and reporting processes

· To uphold the overall integrity of the Group's risk/return decisions, and in particular for ensuring that risks are properly assessed, that risk/return decisions are made transparently on the basis of this proper assessment, and are controlled in accordance with the Group's standards and risk appetite

· To exercise direct Risk Control Ownership for Credit, Market, Country Cross-Border, Short-term Liquidity and Operational risk types.

The independence of the Risk function is to ensure that the necessary balance in risk/return decisions is not compromised by short-term pressures to generate revenues. This is particularly important given that revenues are recognised from the point of sale while losses arising from risk positions typically manifest themselves over time.

In addition, the Risk function is a centre of excellence that provides specialist capabilities of relevance to risk management processes in the wider organisation.

Risk appetite

We manage our risks to build a sustainable franchise in the interests of all our stakeholders.

Risk appetite is an expression of the amount of risk we are willing to take in pursuit of our strategic objectives, reflecting our capacity to sustain losses and continue to meet our obligations arising from a range of different stress trading conditions.

We define our risk appetite in terms of both volatility of earnings and the maintenance of adequate regulatory capital under stress scenarios. We also define a risk appetite with respect to liquidity risk, operational risk and reputational risk.

Our quantitative risk profile is assessed through a bottom-up analytical approach covering all of our major businesses, countries and products. It is also assessed against a range of exposure concentration thresholds.

The Group's risk appetite statement is approved by the Board and forms the basis for establishing the risk parameters within which the businesses must operate, including policies, concentration limits and business mix.

The Group will not compromise adherence to its risk appetite in order to pursue revenue growth or higher returns.

The GRC and GALCO are responsible for ensuring that our risk profile is managed in compliance with the risk appetite set by the Board. The BRC advises the Board on the risk appetite statement and oversees that the Group remains within it.

Stress testing

Stress testing and scenario analysis are used to assess the financial and management capability of Standard Chartered to continue operating effectively under extreme but plausible trading conditions. Such conditions may arise from economic, regulatory, legal, political, environmental and social factors.

Our stress testing framework is designed to:

· Contribute to the setting and monitoring of risk appetite

· Identify key risks to our strategy, financial position, and reputation

· Support the development of mitigating actions and contingency plans

· Ensure effective governance, processes and systems are in place to co-ordinate and integrate stress testing

· Adhere to regulatory requirements.

Our stress testing activity focuses on the potential impact of macroeconomic, geopolitical and physical events on relevant geographies, customer segments and asset classes. Stress tests are also performed at country and business level.

A Stress Testing Committee, led by the Risk function with members drawn from the business, Finance, Global Research and Group Treasury, aims to ensure that the implications of specific stress scenarios are fully understood allowing informed mitigation actions and construction of contingency plans. The Stress Testing Committee generates and considers pertinent and plausible scenarios that have the potential to adversely affect our business and considers impact across different risk types and countries.

Stress testing is carried out at multiple levels within the Group to analyse the potential impact of possible stress scenarios at country and business line level and on the Group. During the year, Group level stress testing covered a considerable range of macroeconomic scenarios. These included the effects of a major downturn in world trade, severe economic stress in emerging markets, a slump in emerging markets exports sharp appreciation and depreciation in currencies, and the tapering of quantitative easing. Stress testing at business level covered a range of scenarios including the impact of foreign exchange depreciation or appreciation, sustained falls in base metals and energy prices, significant changes in interest rates and drops in counterparty credit quality.

At country level, a number of portfolio reviews were also undertaken, covering the effects of stress on a range of industry sectors, including the shipbuilding, banking, real estate, telecoms, mining and renewable energy sectors.

Market risk and liquidity stress tests are also carried out regularly as described in the sections on market risk on page 71 and liquidity risk on page 75.

Credit risk management

Credit risk is the potential for loss due to the failure of a counterparty to meet its obligations to pay the Group in accordance with agreed terms. Credit exposures arise from both the banking and trading books.

Credit risk is managed through a framework that sets out policies and procedures covering the measurement and management of credit risk. There is a clear segregation of duties between transaction originators in the businesses and approvers in the Risk function. All credit exposure limits are approved within a defined credit approval authority framework. The Group manages its credit exposures following the principle of diversification across products, geographies, client and customer segments.

Credit policies

Group-wide credit policies and standards are considered and approved by the GRC, which also oversees the delegation of credit approval and loan impairment provisioning authorities.

Policies and procedures specific to each business are established by authorised risk committees. These are consistent with our Group-wide credit policies, but are more detailed and adapted to reflect the different risk environments and portfolio characteristics.

Credit rating and measurement

Risk measurement plays a central role, along with judgment and experience, in informing risk taking and portfolio management decisions. It is a primary area for sustained investment and senior management attention.

Since 1 January 2008, Standard Chartered has used the advanced Internal Ratings Based (IRB) approach under the Basel II regulatory framework to calculate credit risk capital requirements.

For IRB portfolios, a standard alphanumeric credit risk grade (CG) system is used across our businesses. The grading is based on our internal estimate of probability of default over a one year horizon, with customers or portfolios assessed against a range of quantitative and qualitative factors. The numeric grades run from 1 to 14 and some of the grades are further sub-classified A, B or C. Lower credit grades are indicative of a lower likelihood of default. Credit grades 1A to 12C are assigned to performing customers or accounts, while credit grades 13 and 14 are assigned to non-performing or defaulted customers. An analysis by credit grade of those loans that are neither past due nor impaired is set out on page 39.

Our credit grades are not intended to replicate external credit grades (where these are available), and ratings assigned by external ratings agencies are not used in determining our internal credit grades. Nonetheless, as the factors used to grade a borrower may be similar, a borrower rated poorly by an external rating agency is typically assigned a worse internal credit grade.

Advanced IRB models cover a substantial majority of our exposures and are used extensively in assessing risks at a customer and portfolio level, setting strategy and optimising our risk-return decisions.

IRB risk measurement models are approved by the responsible risk committee, on the recommendation of the Group Model Assessment Committee (MAC). The MAC supports risk committees in ensuring risk identification and measurement capabilities are objective and consistent, so that risk control and risk origination decisions are properly informed. Prior to review by the MAC, all IRB models are validated in detail by a model validation team, which is separate from the teams that develop and maintain the models. Models undergo annual periodic review. Reviews are also triggered if the performance of a model deteriorates materially against predetermined thresholds during the ongoing model performance monitoring process.

Credit approval

Major credit exposures to individual counterparties, groups of connected counterparties and portfolios of retail exposures are reviewed and approved by the Group Credit Committee (GCC). The GCC derives its authority from the GRC.

All other credit approval authorities are delegated by the GRC to individuals based both on their judgment and experience and a risk-adjusted scale that takes account of the estimated maximum potential loss from a given customer or portfolio. Credit origination and approval roles are segregated in all but a very few authorised cases. In those very few exceptions where they are not, originators can only approve limited exposures within defined risk parameters. An analysis of the loan portfolio by product and counterparty is set out on page 48 for Consumer Banking and 54 for Wholesale Banking.

Credit concentration risk

Credit concentration risk may arise from a single large exposure or from multiple exposures that are closely correlated. This is managed within concentration caps set by counterparty or groups of connected counterparties, and having regard for correlation, by country, industry and product, as applicable. Additional concentration thresholds are set and monitored, where appropriate, by tenor profile, collateralisation levels and credit risk profile.

Credit concentrations are monitored by the responsible risk committees in each of the businesses and concentration limits that are material to the Group are reviewed and approved at least annually by the GCC.

Credit monitoring

We regularly monitor credit exposures, portfolio performance, and external trends that may impact risk management outcomes.

Internal risk management reports are presented to risk committees, containing information on key environmental, political and economic trends across major portfolios and countries; portfolio delinquency and loan impairment performance; and IRB portfolio metrics including credit grade migration.

Credit governance committees meet regularly to assess the impact of external events and trends on the Group's credit risk portfolios and to define and implement our response in terms of appropriate changes to portfolio shape, portfolio and underwriting standards, risk policy and procedures.

Clients or portfolios are placed on early alert when they display signs of actual or potential weakness. For example, where there is a decline in the client's position within the industry, financial deterioration, a breach of covenants, non-performance of an obligation within the stipulated period, or there are concerns relating to ownership or management.

Such accounts and portfolios are subjected to a dedicated process overseen by Early Alert Committees in countries. Client account plans and credit grades are re-evaluated. In addition, remedial actions are agreed and monitored. Remedial actions include, but are not limited to, exposure reduction, security enhancement, exiting the account or immediate movement of the account into the control of Group Special Assets Management (GSAM), our specialist recovery unit.

For retail exposures, portfolio delinquency trends are monitored continuously at a detailed level. Individual customer behaviour is also tracked and is considered for lending decisions. Accounts that are past due are subject to a collections process, managed independently by the Risk function. Charged-off accounts are managed by specialist recovery teams. In some countries, aspects of collections and recovery functions are outsourced.

The small and medium-sized enterprise (SME) business is managed in two distinct customer sub-segments: small businesses and medium enterprises, differentiated by the annual turnover of the counterparty. The credit processes are further refined based on exposure at risk. Larger exposures are managed through the Discretionary Lending approach, in line with corporate credit procedures, and smaller exposures are managed through Programmed Lending, in line with retail credit procedures. Discretionary Lending and Private Banking past due accounts are managed by GSAM.

Credit risk mitigation

Potential credit losses from any given account, customer or portfolio are mitigated using a range of tools such as collateral, netting agreements, credit insurance, credit derivatives and guarantees. The reliance that can be placed on these mitigants is carefully assessed in light of issues such as legal certainty and enforceability, market valuation correlation and counterparty risk of the guarantor.

Where appropriate, credit derivatives are used to reduce credit risks in the portfolio. Due to their potential impact on income volatility, such derivatives are used in a controlled manner with reference to their expected volatility.

Collateral is held to mitigate credit risk exposures and risk mitigation policies determine the eligibility of collateral types.

For Wholesale Banking, these policies set out the clear criteria that must be satisfied if the mitigation is to be considered effective:

· excessive exposure to any particular risk mitigants or counterparties should be avoided. Collateral concentration mitigation standards are maintained at both the portfolio and counterparty level;

· risk mitigants should not be correlated with the underlying assets such that default would coincide with a lowering of the forced sale value of the collateral;

· where there is a currency mismatch, haircuts should be applied to protect against currency fluctuations;

· legal opinions and documentation must be in place; and

· ongoing review and controls exist where there is a maturity mismatch between the collateral and exposure.

For all credit risk mitigants that meet the policy criteria, a clear set of procedures are applied to ensure that the value of the underlying collateral is appropriately recorded and updated regularly.

Collateral types that are eligible for risk mitigation include: cash; residential, commercial and industrial property; fixed assets such as motor vehicles, aircraft, plant and machinery; marketable securities; commodities; bank guarantees; and letters of credit. Standard Chartered also enters into collateralised reverse repurchase agreements.

All eligible collateral accepted by SME and Private Bank is covered by a product proposal approved by senior credit officers with the relevant delegated authority. New collateral types have to be vetted through a stringent 'New Business Approval' process and approved by the Consumer Banking Risk Committee.

In order to be recognised as security and for the loan to be classified as secured, all items pledged must be valued and an active secondary resale market must exist for the collateral. Documentation must be held to enable Consumer Banking to realise the asset without the cooperation of the asset owner in the event that this is necessary.

For certain types of lending - typically mortgages, asset financing - the right to take charge over physical assets is significant in terms of determining appropriate pricing and recoverability in the event of default. The requirement for collateral is however not a substitute for the ability to pay, which is the primary consideration for any lending decisions.

Regular valuation of collateral is required in accordance with the Group's risk mitigation policy, which prescribes both the process of valuation and the frequency of valuation for different collateral types. The valuation frequency is driven by the level of price volatility of each type of collateral and the nature of the underlying product or risk exposure. Stress tests are performed on changes in collateral values for key portfolios to assist senior management in managing the risks in those portfolios. Physical collateral is required to be insured at all times and against all risks, with the Group as the loss payee under the insurance policy. Detailed procedures over collateral management must be in place for each business at the country level.

Where appropriate, collateral values are adjusted to reflect current market conditions, the probability of recovery and the period of time to realise the collateral in the event of possession.

Where guarantees or credit derivatives are used as credit risk mitigation the creditworthiness of the guarantor is assessed and established using the credit approval process in addition to that of the obligor or main counterparty. The main types of guarantors include bank guarantees, insurance companies, parent companies, shareholders and export credit agencies.

The Group uses bilateral and multilateral netting to reduce presettlement and settlement counterparty risk. Pre-settlement risk exposures are normally netted using bilateral netting documentation in legally approved jurisdictions. Settlement exposures are generally netted using Delivery versus Payments or Payment versus Payments systems.

Traded products

Credit risk from traded products is managed within the overall credit risk appetite for corporates and financial institutions.

The credit risk exposure from traded products is derived from the positive mark-to-market value of the underlying instruments, and an additional component to cater for potential market movements.

For derivative contracts, we limit our exposure to credit losses in the event of default by entering into master netting agreements with certain counterparties. As required by IAS 32, exposures are only presented net in the financial statement if there is a legal right to offset and there is an intent to settle on a net basis or realise the assets and liabilities simultaneously. As master netting agreements are generally enforced only in the event of default, they cannot be netted on the balance sheet.

In addition, we enter into Credit Support Annexes (CSAs) with counterparties where collateral is deemed a necessary or desirable mitigant to the exposure. Further details on CSAs are set out on page 34.

Securities

The portfolio limits and parameters for the underwriting and purchase of all pre-defined securities assets to be held for sale are approved by the Underwriting Committee. The Underwriting Committee is established under the authority of the GRC. The business operates within set limits, which include country, single issuer, holding period and credit grade limits.

Day to day credit risk management activities for traded securities are carried out by a specialist team within the Risk function whose activities include oversight and approval within the levels delegated by the Underwriting Committee. Issuer credit risk, including settlement and pre-settlement risk, and price risk are controlled by the Risk function.

The Underwriting Committee approves individual proposals to underwrite new security issues for our clients. Where an underwritten security is held for a period longer than the target sell-down period, the final decision on whether to sell the position rests with the Risk function.

Restatement of prior year

The tables on pages 33 to 84 and related analysis reflect the restatement of balances at 31 December 2012 for the impact of equity accounting Permata, the Group's joint venture business in Indonesia (within the Other Asia Pacific geographic region) rather than the previous treatment of proportionate consolidation.

Credit portfolio

Maximum exposure to credit risk

The table below presents the Group's maximum exposure to credit risk for its on-balance sheet and off-balance sheet financial instruments at 31 December 2013, before and after taking into account any collateral held or other credit risk mitigation. For on-balance sheet instruments, the maximum exposure to credit risk is the carrying amount reported on the balance sheet. For off-balance sheet instruments, the maximum exposure to credit risk generally represents the contractual notional amounts.

The Group's exposure to credit risk is spread across our markets and is affected by the general economic conditions in the territories in which it operates. The Group sets limits on the exposure to any counterparty and credit risk is spread over a variety of different personal and commercial customers.

The Group's maximum exposure to credit risk has increased by $51.5 billion when compared to 2012. Exposure to loans and advances to banks and customers has increased by $29.0 billion since 2012 due to growth in the secured lending to Banks and broad based growth across several industry sectors in Wholesale Banking. Further details of the loan portfolio are set out on page 35. The Group's credit risk exposure before risk mitigation arising from derivatives has increased by $12.3 billion when compared to 2012 with increase in volumes in several markets.

		2013				2012
			Credit risk management				Credit risk management
		Maximum exposure	Collateral	Master netting agreements	Net Exposure	Maximum exposure	Collateral	Master netting agreements	Net Exposure
		$million	$million	$million	$million	$million	$million	$million	$million
On balance sheet
Total Loans and advances¹
As per balance sheet		374,410	-	-	-	347,435	-	-	-
Included within fair value through profit and loss		7,774	-	-	-	5,752	-	-	-
		382,184	152,926	-	229,258	353,187	139,713	-	213,474
Investment securities²
As per balance sheet		102,716	-	-	102,716	99,225	-	-	99,225
Included within fair value through profit and loss		21,561	-	-	21,561	21,324	-	-	21,324
Less: Equity securities		(6,800)	-	-	(6,800)	(6,432)	-	-	(6,432)
		117,477	-	-	117,477	114,117	-	-	114,117
Derivative financial instruments³		61,802	5,147	46,242	10,413	49,495	3,245	35,073	11,177
Total balance sheet		561,463	158,073	46,242	357,148	516,799	142,958	35,073	338,768

Off balance sheet
Contingent liabilities		46,938	-	-	46,938	44,293	-	-	44,293
Undrawn irrevocable standby facilities, credit lines and other commitments to lend⁴		61,277	-	-	61,277	56,647	-	-	56,647
Documentary credits and short term trade-related transactions		7,409	-	-	7,409	7,610	-	-	7,610
Forward asset purchases and forward deposits		459	-	-	459	711	-	-	711
Total off balance sheet		116,083	-	-	116,083	109,261	-	-	109,261
Total		677,546	158,073	46,242	473,231	626,060	142,958	35,073	448,029
¹	An analysis of credit quality is set out on page 38. Further details of collateral held by businesses and held for past due and individually impaired loans are set on page 40
²	Equity shares are excluded as they are not subject to credit risk
³	The Group enters into master netting agreements which in the event of default, results in a single amount owed by or to the counterparty through netting the sum of the positive and negative mark-to-market values of applicable derivative transactions
⁴	Excludes unconditionally cancellable facilities

Credit risk mitigation

Loans and advances

The Group has transferred to third parties by way of securitisation the rights to any collection of principal and interest on customer loan assets with a face value of $779 million (2012: $1,321 million). The Group continues to recognise these assets in addition to the proceeds and related liability of $502 million (2012: $1,093 million) arising from the securitisations. The Group considers the above customer loan assets to be encumbered. Further details of encumbered assets are provided on page 77.

The Group has entered into credit default swaps for portfolio management purposes, referencing loan assets with a notional value of $21.4 billion (2012: $22.1 billion). These credit default swaps are accounted for as guarantees as they meet the accounting requirements set out in IAS 39. The Group continues to hold the underlying assets referenced in the credit default swaps as it continues to be exposed to related credit and foreign exchange risk on these assets.

Derivatives financial instruments

Cash collateral includes collateral called under a variation margin process from counterparties if total uncollateralised mark-to-market exposure exceeds the threshold and minimum transfer amount specified in the CSA. With certain counterparties, the CSA is reciprocal and requires us to post collateral if the overall mark-to-market values of positions is in the counterparty's favour and exceeds an agreed threshold. The Group holds $3,068 million (2012: $2,700 million) under CSAs.

Off-balance sheet exposures

For certain types of exposures such as letters of credit and guarantees, the Group obtains collateral such as cash depending on internal credit risk assessments as well as the case of letters of credit holding legal title to the underlying assets should a default take place

Loan portfolio

This section provides qualitative and quantitative information on the Group's exposure to credit risk for loans and advances to banks and customers, including the impact of credit risk mitigation and problem credit management.

Wholesale Banking (WB) exposures are typically managed on an individual basis and consequently credit grade migration is a key component of credit risk management (as discussed on page 42). In Consumer Baking, where loans are typically managed on a portfolio basis, delinquency trends are monitored consistently as part of risk management (as discussed on page 42). In both businesses, credit risk is mitigated to some degree through collateral, further details of which are set out on page 40.

Pages 36-39 set out a high level overview of the Group's loans to banks and customers, segmented by business and by credit quality type (neither past due not impaired; past due; and impaired). The Group manages its loan portfolio between those assets that are performing in line with their contractual terms (whether original or renegotiated) and those that are non-performing.

Review of key credit risk tables

	Group	Consumer Banking	Wholesale Banking
	Page reference	Page reference	Page reference
Overview	36	48	54
Geographic analysis	36	48	54
Maturity analysis
· By business	36	-	-
· By category of borrower	-	49	56
Credit quality analysis	38
· By business, internal credit grades and days past due	39	-	-
· By product and geography	-	50	57-59
Credit risk mitigation
· Collateral by business and credit quality	40	-	-
· Analysis of secured / unsecured loans by category of business	-	51	-
· Collateral held by type	-	-	60
· Geographic analysis of mortgage and commercial real estate loan to value ratios	-	51	61
Problem credit management and provisioning
· Policies on credit management and provisioning	41	41	41
· Non-performing loans
o Definition
o By business	41	-	-
o By geography	-	53	64
o Movement in non-performing loans and total impaired loans by business	41,43	41,43	41,43
· Loan impairment
o Movement in total impairment provisions	44	-	-
o Movement in individual impairment provision by geography	44	-	-
o Loan impairment charge - by geography	-	52	62
o Loan impairment movement - by category of borrower	-	52	64
Renegotiated and forborne loans
o Definition	46	-	-
o By business	-	47	47

Group overview

This section covers a summary of the Group's loan portfolio broadly analysed by business and geography, along with an analysis of the maturity profile, credit quality and provisioning of the loan book. A more detailed analysis is set out for Consumer Banking on pages 48 to 53 and Wholesale Banking on pages 54 to 64.

Geographic analysis

Loans and advances to customers grew by $11.4 billion since 31 December 2012 to $296.0 billion. The Consumer Banking portfolio in 2013 has reduced by $0.6 billion, or 0.5 per cent since 2012 as strong growth in Hong Kong, Singapore and the Middle East region was offset by lower levels of Mortgages in Korea (down $4 billion). The Wholesale Banking portfolio has continued to grow in 2013, increasing by $12.0 billion, or 8 per cent compared to December 2012. The increase was noted primarily in Singapore and Hong Kong across a number of sectors. Loans and advances to banks have increased by $17.6 billion since 31 December 2012 to $86.1 billion mainly in the Americas, UK and Europe and Other Asia Pacific regions with an increase in reverse repurchase trades and negotiated credit bills.

	2013
	Hong Kong	Singapore	Korea	Other Asia Pacific	India	Middle East & Other S Asia	Africa	Americas UK & Europe	Total
	$million	$million	$million	$million	$million	$million	$million	$million	$million
Consumer Banking	34,105	28,762	23,178	25,149	5,085	6,456	2,083	4,984	129,802
Wholesale Banking	25,154	33,451	6,688	24,248	6,768	14,271	6,077	50,252	166,909
Portfolio impairment provision	(86)	(59)	(106)	(156)	(38)	(100)	(67)	(84)	(696)
Total loans and advances to customers^1,2	59,173	62,154	29,760	49,241	11,815	20,627	8,093	55,152	296,015
Total loans and advances to banks^1,2	17,658	4,501	4,192	14,891	399	2,273	742	41,513	86,169

	2012
	Hong Kong	Singapore	Korea	Other Asia Pacific	India	Middle East & Other S Asia	Africa	Americas UK & Europe	Total
	$million	$million	$million	$million	$million	$million	$million	$million	$million
Consumer Banking	31,324	27,567	28,587	26,702	5,190	5,418	1,710	3,919	130,417
Wholesale Banking	21,515	28,321	7,710	22,526	6,827	14,672	6,327	47,023	154,921
Portfolio impairment provision	(74)	(47)	(132)	(166)	(39)	(138)	(63)	(63)	(722)
Total loans and advances to customers^1,2	52,765	55,841	36,165	49,062	11,978	19,952	7,974	50,879	284,616
Total loans and advances to banks^1,2	19,356	6,205	4,633	8,133	571	3,172	378	26,123	68,571

¹ Amounts net of impairment provision and include financial instruments held at fair value through profit or loss (see note 12 on page 113)

² Loans and advances to customers in the above table are presented on the basis of booking location of the loan. The analysis of loans and advances by geography presented on page 103 in note 2 to the financial statements present loans based on the location of the customers

Maturity analysis

Approximately half of our loans and advances to customers are short-term having a contractual maturity of one year or less. The Wholesale Banking portfolio remains predominantly short-term, with 64 per cent (2012: 62 per cent) of loans and advances having a contractual maturity of one year or less. In Consumer Banking, 54 per cent (2012: 56 per cent) of the portfolio is in the mortgage book, which is traditionally longer term in nature and well secured. Whilst the "Other" and "SME loans" in Consumer Banking have short contractual maturities, typically they may be renewed and repaid over longer terms in the normal course of business.

Group overview continued

	2013
	One year or less	One to five years	Over five years	Total
	$million	$million	$million	$million
Consumer Banking	42,240	22,397	65,165	129,802
Wholesale Banking	106,951	48,449	11,509	166,909
Portfolio impairment provision				(696)
Total loans and advances to customers				296,015
	2012
	One year or less	One to five years	Over five years	Total
	$million	$million	$million	$million
Consumer Banking	38,475	23,592	68,350	130,417
Wholesale Banking	96,194	46,195	12,532	154,921
Portfolio impairment provision				(722)
Total loans and advances to customers				284,616

Credit quality

The following table illustrates the basis on which the Group's loans and advances to customers are analysed, both in terms of credit quality and in terms of risk management, together with how impairment provisions are determined.

			Impairment provisioning
Loan status	Analysis	Risk management	CB specific	CB PIP³ collective	WB Specific	CB and WB PIP³
Neither past due nor impaired	Credit grade	Performing	X	X	X	ü
Up to 90 days past due, with no other evidence of impairment	Past due	Performing	X	ü	X	ü
Renegotiated loans where there has been no loss or principal haircut ¹	Business	Performing	X	X	X	ü
Forborne loans where there has been no loss of principal, and which have performed under new terms for more than 180 days ¹	Business	Performing	ü	X	ü	ü
Forborne loans where there has been no loss of principal, but which have performed under new terms for less than 180 days ¹	Business	Non-performing	ü	X	ü	X
Evidence of impairment on a specific loan		Non-performing	ü	X	ü	X
	Business/geography within non-performing disclosure
Over 90 days past due ²		Non-performing	ü	ü	ü	X
Over 150 days past due²		Non-performing	ü	X	ü	X

¹Renegotiated loans are primarily those where extended tenure is granted to a client or customer who is facing some difficulties but who we do not believe is impaired. Forborne loans represents those loans that are renegotiated on terms that are not consistent with those readily available in the market and/or where we have granted a concession compared with the original terms of the loan, resulting in impairment.

²For CB, unsecured products are generally written off by 150 days past due. Individual impairment provisions (IIP) for mortgage loans are raised at 150 days past due and secured Wealth Management loans at 90 days past due. For WB, IIP is raised for all loans more than 90 days past due, unless there is sufficient collateral.

³For CB, portfolio impairment provisions (PIP) comprises provisions to cover losses inherent in the neither past due/impaired portfolios and also a collective portfolio provision for the past due portfolio based on the number of days past due. WB PIP only represents losses inherent in the neither past due nor impaired portfolio.

Group overview continued

Analysis of credit quality

The table on the following page sets out an analysis of the Group's loan portfolio between those loans that are: (i) neither past due nor impaired; (ii) past due but not individually impaired; and (iii) individually impaired. Within each category we have also highlighted those loans that have been renegotiated or are considered forborne.

A loan is considered to be past due when a client or customer has failed to make a payment of principal or interest when contractually due. The amount reported in this category relates to the entire loan amount and not just the amount that is past due.

Further disclosures in respect of forborne and renegotiated loans, including the definitions applied to those categories, are set out on page 46.

Loans to banks

Loans to banks form part of the Wholesale Banking loan portfolio. Most of the Group's loans to banks are in the credit grade 1-5 category as we lend in the interbank market to highly rated counterparties. Exposure in the credit grade 6-8 category predominantly relates to trade finance business with financial institutions in our core markets.

Loans and advances to customers

Wholesale Banking

As at 31 December 2013, 96 per cent (2012: 95 per cent) of loans to customers are classified as neither past due nor impaired. Within this, lending to clients within credit grades 9-11 increased by $6.6 billion compared to 2012, approximately half of which relates to lending to a connected group of companies that were reported as past due in 2012 (within the 61-90 days category) and which were renegotiated, without loss, in 2013.

Past due but not individually impaired loans decreased by $1.2 billion compared to 2012. Loans within the 61-90 days past due category decreased by $2.5 billion, primarily reflecting the renegotiated loan exposure within the neither past due nor impaired category referred to above. Loans past due up to 30 days increased by $1.1 billion compared to 2012, largely due to a small number of exposures (part of which are held at fair value) where principal had been renegotiated but where a small amount of interest remained past due. Over 85 per cent of the loans reported in the up to 30 days past due category, including those relating to renegotiated loans, had been cured by the end of January 2014.

Net impaired loans have increased by $743 million, primarily relating to a small number of exposures in Africa and India. Within this, forborne loans remained low at less than 1 per cent of total Wholesale Banking loans. Forborne loans increased by $583 million, over half of which relates to loans held at fair value.

Consumer Banking

At 31 December 2013, 97 per cent (2012: 96 per cent) on CB loans are neither past due nor impaired and the spread across credit grades remains consistent with 2012.

Loans past due but not individually impaired fell by $0.6 billion, primarily in the up to 30 days category, which predominantly relates to loans where there is a temporary timing difference in payments.

Net individually impaired loans fell by $29 million, despite the increase in the impairment charge in the income statement as impaired unsecured loans (such as those impacted by the PDRS in Korea) are written off after 150 days. Forborne loans remained low, at around 0.5 per cent of CB lending.

Group overview continued
	2013				2012
		Loans to customers				Loans to customers
	Loans to banks	Wholesale Banking	Consumer Banking	Total	Loans to banks	Wholesale Banking	Consumer Banking	Total
	$million	$million	$million	$million	$million	$million	$million	$million
Neither past due nor individually impaired loans
Grades 1-5	73,862	61,741	58,860	120,601	59,118	63,216	59,280	122,496
Grades 6-8	10,325	68,706	42,458	111,164	7,757	61,739	41,696	103,435
Grades 9-11	1,825	27,964	21,321	49,285	1,457	21,324	21,596	42,920
Grade 12	35	1,738	2,629	4,367	32	1,400	2,689	4,089

	86,047	160,149	125,268	285,417	68,364	147,679	125,261	272,940
Of which:
Renegotiated loans	-	4,233	389	4,622	-	773	319	1,092

Past due but not individually impaired loans
Up to 30 days past due	17	2,507	2,968	5,475	3	1,434	3,559	4,993
31 - 60 days past due	-	276	511	787	-	114	493	607
61 - 90 days past due	-	598	220	818	-	3,058	230	3,288
91 - 150 days past due	-	-	198	198	-	-	208	208

	17	3,381	3,897	7,278	3	4,606	4,490	9,096
Of which:
Renegotiated loans	-	583	-	583	-	-	-	-

Individually impaired loans	207	5,486	1,279	6,765	309	4,400	1,232	5,632
Individual impairment provisions	(100)	(2,107)	(642)	(2,749)	(103)	(1,764)	(566)	(2,330)
Net individually impaired loans	107	3,379	637	4,016	206	2,636	666	3,302

Of which:
Forborne loans	-	1,317	631	1,948	-	779	673	1,452

Total loans and advances	86,171	166,909	129,802	296,711	68,573	154,921	130,417	285,338
Portfolio impairment provision	(2)	(300)	(396)	(696)	`(2)	(300)	(422)	(722)
Total net loans and advances	86,169	166,609	129,406	296,015	68,571	154,621	129,995	284,616

The following table sets out loans and advances held at fair value through profit and loss which are included within the table above.

Neither past due nor individually impaired
Grades 1-5	2,271	1,026	-	1,026	555	1,237	-	1,237
Grades 6-8	196	3,321	-	3,321	219	3,048	-	3,048
Grades 9-11	-	211	-	211	-	692	-	692
Grade 12	-	25	-	25	-	1	-	1

	2,467	4,583	-	4,583	774	4,978	-	4,978
Past due but not individually impaired loans
Up to 30 days past due	-	405	-	405	-	-	-	-

Individually impaired loans (including forborne loans)	-	319	-	319	-	-	-	-


The following table sets out how total loans and advances are analysed by performing and non-performing:

Performing loans:
Neither past due nor individually impaired	86,047	160,149	125,268	285,417	68,364	147,679	125,261	272,940
Past due less than 90 days	17	3,381	3,699	7,080	3	4,606	4,282	8,888
Performing forborne loans, net of provision	-	474	151	625	-	436	133	569
	86,064	164,004	129,118	293,122	68,367	152,721	129,676	282,397
Non-performing loans:
Non-performing forborne loans	-	843	480	1,323	-	343	540	883
Other individually impaired loans, net of provisions	107	2,062	204	2,266	206	1,857	201	2,058
	107	2,905	684	3,589	206	2,200	741	2,941
Total loans and advances	86,171	166,909	129,802	296,711	68,573	154,921	130,417	285,338
Portfolio impairment provision	(2)	(300)	(396)	(696)	`(2)	(300)	(422)	(722)
Total net loans and advances	86,169	166,609	129,406	296,015	68,571	154,621	129,995	284,616

Group overview continued

Collateral

The requirement for collateral is not a substitute for the ability to pay, which is the primary consideration for any lending decisions. In determining the financial effect of collateral held against loans neither past due nor impaired, we have assessed the significance of the collateral held in relation to the type of lending.

For loans and advances to banks and customers (including those held at fair value through profit or loss), the table below sets out the fair value of collateral held by the Group adjusted where appropriate in accordance with the risk mitigation policy as outlined on page 31 and for the effect of over-collateralisation.

In Consumer Banking, collateral levels have remained stable compared to 31 December 2012. The proportion of collateral held over impaired loans has declined compared to 2012 as the increase in impaired loan primarily relates to the unsecured portfolio. 73 per cent of the loans to customers are fully secured and around 86 per cent of collateral across the portfolio is property based.

Collateral held against Wholesale Banking loans also covers off-balance sheet exposures including undrawn commitments and trade related instruments. At 31 December 2013, collateral coverage increased from 23 per cent to 25 per cent reflecting shift in mix with higher levels of reverse repurchase collateral as a proportion of total lending in Wholesale Banking compared to 31 December 2012. The unadjusted market value of collateral, which does not take into consideration over-collateralisation or adjustments outlined on page 60, was $197 billion (2012: $186 billion).

Further details on collateral are explained in the Consumer Banking and Wholesale Banking sections on page 51 and 60 respectively.


		Consumer Banking			Wholesale Banking			Total
		Total	Past due but not individually impaired loans	Individually impaired loans	Total	Past due but not individually impaired loans	Individually impaired loans	Total	Past due but not individually impaired loans	Individually impaired loans
		$million	$million	$million	$million	$million	$million	$million	$million	$million
As at 31 December 2013
Collateral		89,536	2,889	564	63,390	642	695	152,926	3,531	1,259
Amount outstanding¹		129,802	3,897	1,279	253,080	3,398	5,693	382,882	7,295	6,972
Of which:
Loans to customers		129,802	3,897	1,279	166,909	3,381	5,486	296,711	7,278	6,765
Loans to banks		-	-	-	86,171	17	207	86,171	17	207

As at 31 December 2012
Collateral		88,119	2,799	563	51,594	1,823	573	139,713	4,622	1,136
Amount outstanding¹		130,417	4,490	1,232	223,494	4,609	4,709	353,911	9,099	5,941
Of which:
Loans to customers		130,417	4,490	1,232	154,921	4,606	4,400	285,338	9,096	5,632
Loans to banks		-	-	-	68,573	3	309	68,573	3	309
¹	Includes loans held at fair value through profit or loss

Collateral and other credit enhancements possessed or called upon

The Group obtains assets by taking possession of collateral or calling upon other credit enhancements (such as guarantees). Repossessed properties are sold in an orderly fashion. Where the proceeds are in excess of the outstanding loan balance they are returned to the borrower. Certain equity securities acquired may be held by the Group for investment purposes and are classified as available-for-sale, and the related loan written off.

The table below details the carrying value of collateral possessed and held by the Group at 31 December 2013 and 31 December 2012:


	2013			2012
	Consumer Banking	Wholesale Banking	Total	Consumer Banking	Wholesale Banking	Total
	$million	$million	$million	$million	$million	$million
Property	44	-	44	62	9	71
Other	-	-	-	3	-	3
	44	-	44	65	9	74

Group overview continued

Problem credit management and provisioning

Non-performing loans

A non-performing loan is any loan that is more than 90 days past due or is otherwise individually Impaired. This excludes loans renegotiated at or after 90 days past due, but on which there has been no default in interest or principal payments for more than 180 days since renegotiation, and against which no loss of principal is expected. These loans may have a provision reflecting the time value of money and if so, are reported as part of forborne loans on page 46.

The gross non-performing loans in Consumer Banking have increased by 1 per cent since 31 December 2012 mainly reflecting the impact of the Personal Debt Rehabilitation Scheme (PDRS) in Korea and seasoning of the unsecured loan portfolio. In Wholesale Banking, non-performing loans have increased by $0.9 billion mainly due to a small number of large exposures in India and Africa.

The cover ratio is a common metric used in considering trends in provisioning and non-performing loans. It should be noted, a significant proportion of the PIP is intended to reflect losses inherent in the loan portfolio that is less than 90 days delinquent and hence recorded as performing. This metric should be considered in conjunction with other credit risk information including that is contained in page 42.

The cover ratio for Consumer Banking remained broadly stable compared to 2012 while the cover ratio for Wholesale Banking was 48 per cent at 31 December 2013, down from 51 per cent at 31 December 2012. The balance of non-performing loans not covered by individual impairment provisions represents the adjusted value of collateral held and the Group's estimate of the net outcome of any workout strategy. The cover ratio after taking into account collateral is 61 per cent (2012: 64 per cent).

The table below presents a movement of the gross non-performing loans to banks and customers, together with the provisions held, for Consumer Banking and Wholesale Banking and the respective cover ratios.

Further details by geography are set out in pages 53 and 64 for Consumer Banking and Wholesale Banking respectively.

		2013			2012
		Consumer Banking	Wholesale Banking	Total	Consumer Banking	Wholesale Banking	Total
		$million	$million	$million	$million	$million	$million
Gross non-performing loans at 1 January		1,266	4,272	5,538	1,069	3,043	4,112
Exchange translation differences		(29)	(141)	(170)	4	(43)	(39)
Transfer to assets held for sale		(111)	-	(111)
	Classified as non-performing during the year	1,024	1,912	2,936	659	1,533	2,192
	Recoveries on loans and advances previously written off	29	-	29	27	148	175
Additions		1,053	1,912	2,965	686	1,681	2,367
	Transferred to performing during the year	(130)	(86)	(216)	(88)	(175)	(263)
	Net repayments	(108)	(614)	(722)	(86)	(163)	(249)
	Amounts written off	(578)	(44)	(622)	(265)	(66)	(331)
	Disposals of loans	(89)	(94)	(183)	(54)	(5)	(59)
Reductions		(905)	(838)	(1,743)	(493)	(409)	(902)

Gross non-performing loans at 31 December		1,274	5,205	6,479	1,266	4,272	5,538
	Individual impairment provisions¹	(590)	(2,193)	(2,783)	(525)	(1,866)	(2,391)
Net non-performing loans		684	3,012	3,696	741	2,406	3,147
	Portfolio impairment provision	(396)	(302)	(698)	(422)	(302)	(724)
	Total	288	2,710	2,998	319	2,104	2,423
	Cover ratio	77%	48%	54%	75%	51%	56%
¹	The difference to total individual impairment provision reflects provisions against performing forborne loans that are not included within non-performing loans as they have been performing for more than 180 days. Details on renegotiated and forborne loans are set on page 47.

Group overview continued

Loan impairment

The Group's loan loss provisions are established to recognise incurred impairment losses either on specific loan assets or within a portfolio of loans and advances. Individually impaired loans are those loans against which individual impairment provisions have been raised.

Estimating the amount and timing of future recoveries involves significant judgement, and considers the level of arrears as well as the assessment of matters such as future economic conditions and the value of collateral, for which there may not be a readily accessible market.

Loan losses that have been incurred but have not been separately identified at the balance sheet date are determined on a portfolio basis, which takes into account past loss experience as a result of uncertainties arising from the economic environment, and defaults based on portfolio trends. Actual losses identified could differ significantly from the impairment provisions reported as a result of uncertainties arising from the economic environment.

The total amount of the Group's impairment allowances is inherently uncertain being sensitive to changes in economic and credit conditions across the geographies in which the Group operates. Economic and credit conditions are interdependent within each geography and as a result there is no single factor to which the Group's loan impairment allowances as a whole are sensitive. It is possible that actual events over the next year differ from the assumptions built into the model resulting in material adjustments to the carrying amount of loans and advances.

Consumer Banking

Medium sized entities among SME customers and Private Banking customers are assessed for impairment in the same way as WB loans, based on the individual circumstances of each borrower (see WB below).

All other CB product portfolios consist of a large number of comparatively small exposures, where it is impractical to monitor each loan on an individual basis for impairment. The primary indicator of potential impairment in these portfolios is therefore delinquency. A loan is considered delinquent (or 'past due'), when the customer has failed to make a principal or interest payment in accordance with the loan contract. For delinquency reporting purposes we follow industry standards measuring delinquency as of one, 30, 60, 90, 120 and 150 days past due. Impairment is measured against these buckets in two stages:

· In the first stage we raise 'portfolio impairment provisions' (PIP). These are calculated by applying expected loss rates to delinquency buckets. These are based on past experience of loss supplemented by an assessment of specific factors that affect each portfolio and that in particular aim to adjust historic data for current market conditions. Loss rates are generally calculated separately for each product in each country (either through the use of historical data or using proxies) and separate loss rates are used for renegotiated and forborne loans to reflect their increased risk. PIPs take into account the fact that, while delinquency is an indication of impairment, not all delinquent loans (particularly those in the early stages of delinquency) will in fact be impaired. This will only become apparent with the passage of time and as we investigate the causes of delinquency on a case by case basis. (Accounts that are overdue by more than 30 days are more closely monitored and subject to specific collections processes for this purpose). At the outset of delinquency therefore it is not possible to determine whether a loan is impaired; it is only possible to estimate the likelihood that it is. This is taken account of in the PIP method, which estimates loss by extrapolating past experience over whole portfolios, rather than analysing individual loans on a case by case basis.

· In the second stage we are able to replace PIP with individual impairment provisions (IIP) as we develop more knowledge about each individual account. We apply IIP after the following number of days' delinquency:

o For mortgages after 150 days

o For secured wealth management products after 90 days

o For unsecured consumer finance loans after 90 days

o For all other unsecured loans and loans secured on automobiles, after 150 days

IIP provisions are based on the estimated present values of future cashflows, in particular those resulting from the realisation of security. The days past due used to trigger IIP are driven by past experience, which shows that once an account reaches the relevant number of days past due, the probability of recovery (other than by raising security as appropriate) is low. For all products there are certain situations where the IIP process is accelerated, such as in cases involving bankruptcy, customer fraud and death. IIP is also accelerated for all restructured accounts to 90 days past due (unsecured and automobile finance) and 120 days past due (secured loans) respectively.

Loan write off is again broadly driven by past experience of the point at which further recovery is unlikely. Write off occurs at the same time that IIP is established for all products except mortgage loans, which have not been restructured. The latter is fully impaired after 720 days past due.

The fact that it is not possible to be certain that a loan is impaired until several months after it becomes delinquent means that it is also not possible to be certain which delinquent loans are fully non-performing. The Group has determined that it is more likely than not that a loan is non-performing after 90 days and therefore uses 90 days delinquency as the distinguishing feature between performing and non-performing CB loans. This is however, only an approximate measure and it also means that, for CB, impaired loans do not equate to non-performing loans, because impairment cannot be generally determined on an individual basis until a later date.

It is inevitable that at the balance sheet date, the non-delinquent portfolio will include a few impaired loans that have not manifested themselves as delinquent. These are known as 'incurred, but not reported' losses. A PIP is raised against these in the same way as PIP is raised for delinquent loans by applying past experience adjusted for current conditions to non-delinquent loans on a portfolio basis.

Wholesale Banking

Loans are classified as impaired where analysis and review indicates that full payment of either interest or principal is questionable, or as soon as payment of interest or principal is 90 days overdue. Impaired accounts are managed by our specialist recovery unit, GSAM, which is separate from our main businesses. Where any amount is considered irrecoverable, an individual impairment provision is raised. This provision is the difference between the loan carrying amount and the present value of estimated future cash flows.

The individual circumstances of each customer are taken into account when GSAM estimates future cash flow. All available sources, such as cash flow arising from operations, selling assets or subsidiaries, realising collateral or payments under guarantees, are considered. In any decision relating to the raising of provisions, we attempt to balance economic conditions, local knowledge and experience, and the results of independent asset reviews.

Where it is considered that there is no realistic prospect of recovering a portion of an exposure against which an impairment provision has been raised, that amount will be written off.

As with Consumer Banking, a PIP is held to cover the inherent risk of losses which, although not identified, are known through experience to be present in any loan portfolio. In Wholesale Banking, this is set with reference to historic loss rates and subjective factors such as the economic environment and the trends in key portfolio indicators. The PIP methodology provides for accounts for which an individual impairment provision has not been raised.

Impaired loans
In Consumer Banking, individual impaired loans broadly remained stable compared to 2012 at $1.5 billion. Wholesale Banking individually impaired loans increased by $1 billion during the year primarily due to a small number of large exposures in India and Africa.

The following table sets out the movement in individually impaired loans for banks and customers by business.
		2013			2012
		Consumer Banking	Wholesale Banking	Total	Consumer Banking	Wholesale Banking	Total
		$million	$million	$million	$million	$million	$million
Gross impaired loans at 1 January		1,440	4,709	6,149	1,223	3,450	4,673
Exchange translation differences		(32)	(140)	(172)	12	(40)	(28)
Transferred to assets held for sale		(111)	-	(111)	-	-	-
Classified as impaired during the year		1,104	1,967	3,071	682	1,561	2,243
Transferred to performing during the year		(118)	(87)	(205)	(47)	(175)	(222)
Other movements¹		(806)	(756)	(1,562)	(430)	(87)	(517)
Gross impaired loans at 31 December		1,477	5,693	7,170	1,440	4,709	6,149
¹	Other movement includes repayments, amounts written off and disposals of loans

Group overview continued

Individual and portfolio impairment provisions

Individual impairment provisions increased by $416 million as compared to 31 December 2012. This was primarily in India ($83 million increase) and Africa ($223 million increase) as a result of a small number of Wholesale Banking exposures and within Consumer Banking in Korea ($44 million increase) due to higher levels of filings under the PDRS. Portfolio impairment provision remained at similar levels as 2012 with the reduction due to the transfer of certain businesses in Korea as held for sale. The amounts written off primarily related to Consumer Banking relating to higher levels of write-offs in unsecured lending which are written off after 150 days past due.

The following tables sets out the movements in total individual and portfolio impairment provisions:

	2013			2012
	Individual Impairment Provisions	Portfolio Impairment Provision	Total	Individual Impairment Provisions	Portfolio Impairment Provision	Total
	$million	$million	$million	$million	$million	$million
Provisions held at 1 January	2,433	724	3,157	1,926	746	2,672
Exchange translation differences	(81)	(16)	(97)	4	13	17
Amounts written off	(1,173)	-	(1,173)	(935)	-	(935)
Releases of acquisition fair values	(3)	-	(3)	(3)	-	(3)
Recoveries of amounts previously written off	211	-	211	288	-	288
Discount unwind	(93)	-	(93)	(77)	-	(77)
Transferred to assets held for sale	(42)	(25)	(67)	-	-	-
New provisions	2,007	170	2,177	1,678	116	1,794
Recoveries/provisions no longer required	(410)	(155)	(565)	(448)	(151)	(599)
Net impairment charge/(release) against profit	1,597	15	1,612	1,230	(35)	1,195
Provisions held at 31 December	2,849	698	3,547	2,433	724	3,157

The table below sets out the movement in individual impairment provisions by geography:

	2013
	Hong Kong	Singapore	Korea	Other Asia Pacific	India	Middle East & Other S Asia	Africa	Americas UK & Europe	Total
	$million	$million	$million	$million	$million	$million	$million	$million	$million
Provisions held at 1 January	74	89	246	437	270	1,173	49	95	2,433
Exchange translation differences	-	-	6	(36)	(37)	(11)	(3)	-	(81)
Amounts written off	(161)	(154)	(339)	(364)	(46)	(59)	(28)	(22)	(1,173)
Releases of acquisition fair values	-	-	-	(1)	-	(2)	-	-	(3)
Recoveries of amounts previously written off	31	21	30	80	7	26	8	8	211
Discount unwind	(3)	(5)	(10)	(21)	(22)	(26)	(3)	(3)	(93)
Transfer to asset held for sale	-	-	(42)	-	-	-	-	-	(42)
New provisions	169	106	522	544	205	173	265	23	2,007
Recoveries/provisions no longer required	(48)	(29)	(92)	(130)	(21)	(68)	(14)	(8)	(410)
Net impairment charge against profit	121	77	430	414	184	105	251	15	1,597
Provisions held at 31 December	62	28	321	509	356	1,206	274	93	2,849

Group overview continued

Individual and portfolio impairment provisions

	2012
	Hong Kong	Singapore	Korea	Other Asia Pacific	India	Middle East & Other S Asia	Africa	Americas UK & Europe	Total
	$million	$million	$million	$million	$million	$million	$million	$million	$million
Provisions held at 1 January	78	38	136	425	112	972	61	104	1,926
Exchange translation differences	-	5	17	1	(7)	(9)	(4)	1	4
Amounts written off	(155)	(57)	(175)	(319)	(42)	(123)	(29)	(35)	(935)
Releases of acquisition fair values	-	-	-	(2)	-	(2)	-	1	(3)
Recoveries of amounts previously written off	44	44	28	124	11	29	5	3	288
Discount unwind	(2)	(3)	(13)	(17)	(13)	(28)	(1)	-	(77)
New provisions	158	111	334	390	235	387	31	32	1,678
Recoveries/provisions no longer required	(49)	(49)	(81)	(165)	(26)	(53)	(14)	(11)	(448)
Net impairment charge against profit	109	62	253	225	209	334	17	21	1,230
Provisions held at 31 December	74	89	246	437	270	1,173	49	95	2,433

Group overview continued

Renegotiated and forborne loans

In certain circumstances, the Group may renegotiate client and customer loans.

Loans that are renegotiated for commercial reasons, which may occur, for example, if a client had a credit rating upgrade, are not included within this disclosure because they are not indicative of any credit stress.

Loans that are renegotiated primarily to grant extended tenor to a client or customer who is facing some difficulties but who we do not believe is impaired are reported in 'other renegotiated loans' in the disclosures below.

Loans that are renegotiated 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 to be subject to forbearance strategies and are disclosed as "Loans subject to forbearance" in the disclosures below, which is a subset of impaired loans.

Forbearance strategies assist customers who are temporarily in financial distress and are unable to meet their original contractual repayment terms. Forbearance can be initiated by the customer, the bank or a third party (including Government sponsored programmes or a conglomerate of credit institutions) and includes debt restructuring, such as a new repayment schedule, payment deferrals, tenor extensions and interest only payments.

Once a loan is subject to forbearance or is renegotiated, the loan continues to be reported as such, until the loan matures or is otherwise derecognised.

Loans subject to forbearance are initially managed as part of the group's non-performing portfolio. If a forborne loan meets the criteria (past due more than 90 days or otherwise impaired), it is no longer managed as a non-performing loan although it remains impaired.

Consumer Banking

In Consumer Banking, excluding Medium Enterprises and Private Banking, all loans subject to forbearance (in addition to other renegotiated loans) are managed within a separate portfolio. If such loans subsequently become past due, write off and IIP is accelerated to 90 days past due (unsecured loans and automobile finance) or 120 days past due (secured loans). The accelerated loss rates applied to this portfolio are derived from experience with other renegotiated loans, rather than the Consumer Banking portfolio as a whole, to recognise the greater degree of inherent risk.

At 31 December 2013, $728 million (2012: $769 million) of Consumer Banking loans were subject to forbearance programmes which required impairment provisions to be recognised. This represents 0.5 per cent of total loans and advances to Consumer Banking customers. These loans were largely concentrated in countries that have active government sponsored forbearance programmes and arises from unsecured lending including credit cards and Consumer Finance.

Provision coverage against these loans was 13 per cent (2012: 12 per cent), reflecting collateral held and expected recovery rates.

Wholesale Banking

For Wholesale Banking including Medium Enterprises and Private Banking accounts, forbearance and other renegotiations are applied on a case-by-case basis and are not subject to business wide programmes. In some cases, a new loan is granted as part of the restructure and in others, the contractual terms and repayment of the existing loans are changed or extended (for example, interest only for a period).

Loans classified as subject to forbearance are managed by GSAM and are kept under constant close review to assess and confirm the client's ability to adhere to the restructured repayment strategy. Accounts are reviewed if there is a significant event that could result in deterioration in their ability to repay.

If the terms of the renegotiation are such that, where the present value of the new cash flows is lower than the present value of the original cash flows, the loan would be considered to be impaired and at a minimum a discount provision would be raised and shown under Loans subject to Forbearance. These accounts are monitored as described on page 31.

Loans subject to renegotiated and forbearance loans increased by $4,581 million compared to 2012, of which $4,043 million was in other renegotiated loans.

The increase in other renegotiated loans primarily relates to a connected group of companies where the amounts outstanding were subject to renegotiation in 2013. We recognised no impairment at the time of renegotiation and we continue to be comfortable from an impairment perspective. At 31 December 2012, these amounts were reported within the past due 61-90 days category. As these counterparties have complied with the revised terms for more than 180 days, the renegotiated lending is deemed to be performing and is classified within "Neither past due nor impaired".

The remainder of the increase includes loans on which the payment dates for principal payments have been extended pending a more wide-ranging renegotiation of the exposure. A small number of these loans are reported as past due within the up to 30 days category as an amount of interest remained outstanding at the year end which has since been paid.

Forborne loans increased by $538 million compared to 2012. Over half of the increase relates to loans that are held at fair value, which consequently do not have an individual impairment provision.

Group overview continued

The table below shows an analysis of renegotiated and forborne loans by business:

		2013			2012
	Consumer Banking	Wholesale Banking	Total	Consumer Banking	Wholesale Banking	Total
	$million	$million	$million	$million	$million	$million
Managed as performing
Neither past due nor impaired	389	4,233	4,622	319	773	1,092
Past due but not impaired	-	583	583	-	-	-
Other renegotiated loans	389	4,816	5,205	319	773	1,092

Impaired loans :
Performing forborne loans (gross)	203	488	691	174	437	611
Individual impairment provisions	(52)	(14)	(66)	(41)	(1)	(42)
Net performing forborne loans	151	474	625	133	436	569

Total performing renegotiated and forborne loans	540	5,290	5,830	452	1,209	1,661

Managed as non-performing
Impaired:
Forborne loans (gross)	525	1,228	1,753	595	574	1,169
Individual impairment provisions	(45)	(385)	(430)	(55)	(231)	(286)
Net non-performing forborne loans	480	843	1,323	540	343	883

Total non-performing forborne loans	480	843	1,323	540	343	883

Total renegotiated and forborne loans	1,020	6,133	7,153	992	1,552	2,544

Other renegotiated loans	389	4,816	5,205	319	773	1,092
Loans subject to forbearance	631	1,317	1,948	673	779	1,452

Total renegotiated and forborne loans	1,020	6,133	7,153	992	1,552	2,544

Consumer Banking loan portfolio

The Consumer Banking portfolio in 2013 was marginally down compared to 2012. Loan mortgages declined by $2.8 billion compared to 2012 as regulatory restrictions continued to impact growth in a number of markets, particularly in Korea and Singapore. We did, however, continue to originate and sell $3 billion of fixed rate mortgages in Korea under the Mortgage Purchase Program to the Korea Housing Finance Corporation. Other loans, which include credit cards and personal loans, (including those related to Private Banking), increased by $1.6 billion since 2012 mainly due to higher level of Private Banking particularly in Singapore and America UK & Europe. Africa also saw strong growth in unsecured products, up 22 per cent compared to 2012. SME lending rose 3 per cent mainly in Hong Kong.

Portfolio impairment provisions fell $26 million, largely due to the transfer of the Consumer Finance business in Korea to held for sale. Excluding this, the portfolio impairment provision was broadly flat compared to 2012.


Geographic analysis
	2013
	Hong Kong	Singapore	Korea	Other Asia Pacific	India	Middle East & Other S Asia	Africa	Americas UK & Europe	Total
	$million	$million	$million	$million	$million	$million	$million	$million	$million
Loans to individuals
Mortgages	23,252	13,983	12,641	14,224	2,176	1,868	290	1,355	69,789
Other	7,468	11,471	5,663	5,590	854	3,397	1,367	3,559	39,369
Small and medium enterprises	3,385	3,308	4,874	5,335	2,055	1,191	426	70	20,644
	34,105	28,762	23,178	25,149	5,085	6,456	2,083	4,984	129,802
Portfolio impairment provision	(57)	(28)	(93)	(124)	(21)	(45)	(25)	(3)	(396)
Total loans and advances to customers	34,048	28,734	23,085	25,025	5,064	6,411	2,058	4,981	129,406

	2012
	Hong Kong	Singapore	Korea	Other Asia Pacific	India	Middle East & Other S Asia	Africa	Americas UK & Europe	Total
	$million	$million	$million	$million	$million	$million	$million	$million	$million
Loans to individuals
Mortgages	21,441	14,278	16,686	14,832	2,284	1,629	256	1,221	72,627
Other	6,843	10,038	6,936	6,387	806	2,902	1,152	2,696	37,760
Small and medium enterprises	3,040	3,251	4,965	5,483	2,100	887	302	2	20,030
	31,324	27,567	28,587	26,702	5,190	5,418	1,710	3,919	130,417
Portfolio impairment provision	(50)	(26)	(116)	(140)	(20)	(44)	(22)	(4)	(422)
Total loans and advances to customers	31,274	27,541	28,471	26,562	5,170	5,374	1,688	3,915	129,995

Consumer Banking loan portfolio continued

Maturity analysis

The proportion of Consumer Banking loans maturing in less than one year increased by $3.8 billion compared to 31 December 2012, reflecting higher levels of lending to SME and Private Banking clients are typically of short tenor.

The following tables show the contractual maturity of loans and advances to customers by each principal category of borrower.

	2013
	One year or less	One to five years	Over five years	Total
	$million	$million	$million	$million
Loans to individuals
Mortgages	4,273	8,640	56,876	69,789
Other	26,709	10,346	2,314	39,369
Small and medium enterprises	11,258	3,411	5,975	20,644
	42,240	22,397	65,165	129,802
Portfolio impairment provision				(396)
Total loans and advances to customers				129,406

	2012
	One year or less	One to five years	Over five years	Total
	$million	$million	$million	$million
Loans to individuals
Mortgages	3,612	9,140	59,875	72,627
Other	24,082	10,923	2,755	37,760
Small and medium enterprises	10,781	3,529	5,720	20,030
	38,475	23,592	68,350	130,417
Portfolio impairment provision				(422)
Total loans and advances to customers				129,995

Consumer Banking loan portfolio continued

Credit quality analysis

The tables below set out the loan portfolio for Consumer Banking by product and by geography between those loans that are neither past due nor impaired, those that are past due but not individually impaired and those that are individually impaired.

The overall credit quality of the portfolio remains good with over 95 per cent of the portfolio neither past due nor impaired. The mortgage portfolio is well collateralised and has an average loan to value ratio of 47.7 per cent.

The proportion of the past due but not individually impaired loans decreased to $3.9 billion or 3 per cent of the loan portfolio. Three quarters of the decrease of $0.6 billion arose in the less than 30 days past due category, primarily due to variation in timing differences in payments in Korea, Malaysia and Singapore.

Individually impaired loans increased by $47 million primarily in Singapore and Hong Kong due to the seasoning of the unsecured loan portfolio and the majority of the $76 million increase in individual impairment provision was due to increased levels of PDRS filings in Korea. The portfolio impairment provision was flat with an increase in Hong Kong offset by reduced provisions in the other regions.

The portfolio impairment provision declined marginally due to the impact of exchange rates.

	2013				2012
	Neither past due nor individually impaired loans	Past due but not individually impaired	Individually impaired loans	Total	Neither past due nor individually impaired loans	Past due but not individually impaired	Individually impaired loans	Total
	$million	$million	$million	$million	$million	$million	$million	$million
Loans to individuals
Mortgages	67,844	1,766	295	69,905	70,313	2,104	347	72,764
Other	37,742	1,366	565	39,673	35,810	1,709	469	37,988
Small and medium enterprises	19,682	765	419	20,866	19,138	677	416	20,231
	125,268	3,897	1,279	130,444	125,261	4,490	1,232	130,983
Individual impairment provision				(642)				(566)
Portfolio impairment provision				(396)				(422)
Total loans and advances to customers				129,406				129,995

	2013
	Hong Kong	Singapore	Korea	Other Asia Pacific	India	Middle East & Other S Asia	Africa	Americas UK & Europe	Total
	$million	$million	$million	$million	$million	$million	$million	$million	$million
Neither past due nor individually impaired loans	33,622	28,245	22,263	23,636	4,587	6,025	2,006	4,884	125,268
Past due but not individually impaired loans	419	454	778	1,251	472	386	52	85	3,897
Individually impaired loans	88	82	322	416	58	209	39	65	1,279
Individual impairment provisions	(24)	(19)	(185)	(154)	(32)	(164)	(14)	(50)	(642)
Portfolio impairment provision	(57)	(28)	(93)	(124)	(21)	(45)	(25)	(3)	(396)
Total loans and advances to customers	34,048	28,734	23,085	25,025	5,064	6,411	2,058	4,981	129,406

	2012
	Hong Kong	Singapore	Korea	Other Asia Pacific	India	Middle East & Other S Asia	Africa	Americas UK & Europe	Total
	$million	$million	$million	$million	$million	$million	$million	$million	$million
Neither past due nor individually impaired loans	30,878	26,956	27,340	25,142	4,825	4,772	1,629	3,719	125,261
Past due but not individually impaired loans	404	569	1,059	1,283	342	587	69	177	4,490
Individually impaired loans	66	57	329	417	52	224	24	63	1,232
Individual impairment provisions	(24)	(15)	(141)	(140)	(29)	(165)	(12)	(40)	(566)
Portfolio impairment provision	(50)	(26)	(116)	(140)	(20)	(44)	(22)	(4)	(422)
Total loans and advances to customers	31,274	27,541	28,471	26,562	5,170	5,374	1,688	3,915	129,995

Consumer Banking loan portfolio continued
Credit risk mitigation
A secured loan is one where the borrower pledges an asset as collateral which the Group is able to take possession in the event that the borrower defaults. All secured loans are considered fully secured if the fair value of the collateral is equal to or greater than the loan at the time of origination. Other secured loans are considered to be partially secured. Within Consumer Banking, 73 per cent of lending is fully secured and 9 per cent was partially secured. The following tables present an analysis of Consumer Banking loans by product split between fully secured, partially secured and unsecured.
		2013				2012
		Fully secured	Partially secured	Unsecured	Total¹	Fully secured	Partially secured	Unsecured	Total¹
		$million	$million	$million	$million	$million	$million	$million	$million
Loans to individuals
Mortgages		69,789	-	-	69,789	72,627	-	-	72,627
Other		17,737	-	21,632	39,369	15,509	-	22,251	37,760
Small and medium enterprises		6,540	11,756	2,348	20,644	5,985	11,634	2,411	20,030
		94,066	11,756	23,980	129,802	94,121	11,634	24,662	130,417
Percentage of total loans		73%	9%	18%		72%	9%	19%
¹	Amounts net of individual impairment provisions

Mortgage loan to value ratios by geography
The following table provides an analysis of loan to value (LTV) ratios by geography for the mortgages portfolio. LTV ratios are determined based on the ratio of the current mortgage outstanding to the current fair value of the properties on which they are secured. Overall the average LTV ratio for the portfolio is 47.7 per cent compared to 47.8 per cent in 2012. Our major mortgage markets of Hong Kong, Singapore and Korea have an average LTV of less than 50 per cent. The proportion of the portfolio with average LTVs in excess of 100 per cent has declined from 0.5 per cent to 0.3 per cent, primarily within the MESA region due to improving economic conditions, particularly in the UAE, in the current year. In Hong Kong, average LTV increased reflecting an increased focus on first time buyers in 2013.
	2013
	Hong Kong	Singapore	Korea	Other Asia Pacific	India	Middle East & Other S Asia	Africa	Americas UK & Europe	Total
	%	%	%	%	%	%	%	%	%
Less than 50 per cent	66.3	55.4	48.8	46.9	65.8	35.4	27.0	21.6	54.9
50 per cent to 59 per cent	13.0	17.6	22.7	18.6	12.9	16.7	13.6	38.3	17.6
60 per cent to 69 per cent	7.5	13.5	19.1	16.9	10.5	18.4	21.3	25.6	13.7
70 per cent to 79 per cent	5.4	11.8	5.6	10.3	7.7	14.3	22.4	14.5	8.2
80 per cent to 89 per cent	4.5	1.6	2.2	5.9	2.7	6.6	15.1	-	3.7
90 per cent to 99 per cent	3.2	-	1.1	1.1	0.2	3.0	0.2	-	1.6
100 per cent and greater	-	-	0.5	0.1	0.2	5.6	0.4	-	0.3
Average Portfolio loan to value	44.8	44.5	49.3	51.3	40.6	59.8	64.3	52.3	47.7
Loans to individuals - Mortgages ($million)	23,252	13,983	12,641	14,224	2,176	1,868	290	1,355	69,789

	2012
	Hong Kong	Singapore	Korea	Other Asia Pacific	India	Middle East & Other S Asia	Africa	Americas UK & Europe	Total
	%	%	%	%	%	%	%	%	%
Less than 50 per cent	75.4	52.5	49.0	37.9	55.8	24.1	28.2	25.4	54.3
50 per cent to 59 per cent	11.4	18.4	24.6	19.1	15.4	15.9	13.9	32.8	18.2
60 per cent to 69 per cent	6.1	13.8	18.5	21.0	12.7	17.3	20.1	21.1	14.3
70 per cent to 79 per cent	3.2	12.7	5.0	14.5	10.5	13.3	18.8	20.7	8.5
80 per cent to 89 per cent	3.2	2.6	2.0	5.9	4.7	8.0	17.0	-	3.5
90 per cent to 99 per cent	0.7	-	0.7	1.3	0.9	5.2	1.2	-	0.8
100 per cent and greater	-	-	0.2	0.3	-	16.2	0.8	-	0.5
Average Portfolio loan to value	41.2	46.1	48.9	54.1	45.6	72.1	63.9	50.9	47.8
Loans to individuals - Mortgages ($million)	21,441	14,278	16,686	14,832	2,284	1,629	256	1,221	72,627

Consumer Banking loan portfolio continued

Loan impairment

Consumer Banking

The total net impairment charge in Consumer Banking in 2013 increased by $360 million, or 53 per cent, over 2012. The increase is mainly driven by the ongoing impact of PDRS in Korea, the growth and maturity of unsecured business acquired in previous years, lower loan sales compared to prior periods in Taiwan and increased levels of provisioning in Thailand relating to a specific segment for which sales have been discontinued. There was a portfolio impairment increase of $19 million in 2013 (2012: $nil) due to the release in the prior period in the MESA region.

	2013
	Hong Kong	Singapore	Korea	Other Asia Pacific		India	Middle East & Other S Asia	Africa		Americas UK & Europe		Total
	$million	$million	$million	$million		$million	$million	$million		$million		$million
Gross impairment charge	162	104	457	447		53	115	30		16		1,384
Recoveries/provisions no longer required	(30)	(27)	(87)	(127)		(18)	(54)	(12)		(4)		(359)
Net individual impairment charge	132	77	370	320		35	61	18		12		1,025
Portfolio impairment provision charge/ (release)	7	1	1	(10)		3	2	4		1		9
Net impairment charge	139	78	371	310		38	63	22		13		1,034

	2012
	Hong Kong	Singapore	Korea	Other Asia Pacific		India	Middle East & Other S Asia	Africa		Americas UK & Europe		Total
	$million	$million	$million	$million		$million	$million	$million		$million		$million
Gross impairment charge	135	109	289	352		43	122	29		13		1,092
Recoveries/provisions no longer required	(44)	(49)	(72)	(157)		(19)	(52)	(12)		(3)		(408)
Net individual impairment charge	91	60	217	195		24	70	17		10		684
Portfolio impairment provision charge/(release)	4	2	6	(9)		3	(19)	3		-		(10)
Net impairment charge	95	62	223	186		27	51	20		10		674

The following table sets out the movement in total impairment provisions for Consumer Banking loans and advances as at 31 December by each principal category of borrower:
					Impairment provision held as at 1 January 2013		Net impairment charge/ (release) 2013		Amounts written off/ other movements 2013		Impairment provision held as at 31 December 2013
					$million		$million		$million		$million
Loans to individuals
Mortgages					137		12		(33)		116
Other					228		889		(813)		304
Small and medium enterprises					201		124		(103)		222
					566		1,025		(949)		642
Portfolio impairment provision					422		9		(35)		396
					988		1,034		(984)		1,038

					Impairment provision held as at 1 January 2012		Net impairment charge 2012		Amounts written off/ other movements 2012		Impairment provision held as at 31 December 2012
					$million		$million		$million		$million
Loans to individuals
Mortgages					135		10		(8)		137
Other					149		565		(486)		228
Small and medium enterprises					197		109		(105)		201
					481		684		(599)		566
Portfolio impairment provision					424		(10)		8		422
					905		674		(591)		988

Consumer Banking loan portfolio continued

Non-performing loans

Gross non-performing loans have marginally increased, up $8 million compared to 2012, largely due to the seasoning of the unsecured portfolio, particularly in Hong Kong and Singapore. This was partly offset by a decline in the UAE where credit quality has improved due to economic recovery.

The following tables set out the total non-performing loans and related provisions for Consumer Banking by geography :
		2013
		Hong Kong	Singapore	Korea	Other Asia Pacific	India	Middle East & Other S Asia	Africa	Americas UK & Europe	Total
		$million	$million	$million	$million	$million	$million	$million	$million	$million
Loans and advances
Gross non-performing loans		84	86	360	333	69	237	39	66	1,274
Individual impairment provision¹		(24)	(14)	(185)	(107)	(32)	(164)	(14)	(50)	(590)
Non-performing loans net of individual impairment provision		60	72	175	226	37	73	25	16	684
Portfolio impairment provision										(396)
Net non-performing loans and advances										288
Cover ratio										77%
¹	The difference to total individual impairment provision at 31 December 2013 reflects provisions against restructured loans that are not included within non-performing loans as they have been performing for 180 days in line with the definition provided on page 41

		2012
		Hong Kong	Singapore	Korea	Other Asia Pacific	India	Middle East & Other S Asia	Africa	Americas UK & Europe	Total
		$million	$million	$million	$million	$million	$million	$million	$million	$million
Loans and advances
Gross non-performing loans		67	70	376	344	65	253	26	65	1,266
Individual impairment provision¹		(24)	(14)	(141)	(100)	(29)	(165)	(12)	(40)	(525)
Non-performing loans net of individual impairment provision		43	56	235	244	36	88	14	25	741
Portfolio impairment provision										(422)
Net non-performing loans and advances										319
Cover ratio										75%
¹	The difference to total individual impairment provision at 31 December 2012 reflects provisions against restructured loans that are not included within non-performing loans as they have been performing for 180 days in line with the definition provided on page 41

Wholesale Banking loan portfolio

The Wholesale Banking loan portfolio has increased by $12 billion, or 8 per cent, compared to December 2012. Over two-thirds of the growth is due to Trade Finance and Corporate Finance as Wholesale Banking continues to deepen relationships with clients in core markets.

Growth in the loan portfolio has been broadly spread, with growth in Hong Kong, Singapore and Americas, UK & Europe regions partly offset by a decline in Korea. Growth in Hong Kong and Singapore is mainly in trade loans and is concentrated in the Commerce and Manufacturing industry segments. Korea loans fell in the Manufacturing segment as we continue to optimise the portfolio. The growth in the Americas, UK & Europe region is as a result of a certain number of large ticket leveraged finance deals primarily relating to clients across our network.

Single borrower concentration risk has been mitigated by active distribution of assets to banks and institutional investors.

The Wholesale Banking loan portfolio remains diversified across both geography and industry. There are no significant concentrations within the broad industry classifications of Manufacturing; Financing, insurance and business services; Commerce; or Transport, storage and communication. The largest sector exposure is to Manufacturing which is spread across many sub-industries.

The industry classification below only represents loans and advances to customers. As such, the transport, storage and communication sector does not include the Group's transport leasing business. This business leases aircraft and ships to clients under operating leases. These assets are held on the Group's balance sheet as part of 'Property, plant and equipment' and comprises of gross assets of $5.4 billion (2012: $4.8 billion) and net assets of $4.9 billion (2012: $4.4 billion). Income generated is recognised with other income.

Exposure to bank counterparties at $86.1 billion increased by $17.6 billion compared to 31 December 2012 mainly due to higher reverse repurchase activities in Americas, UK & Europe. The Group continues to be a net lender in the interbank money markets.

Geographic analysis
	2013
	Hong Kong	Singapore	Korea	Other Asia Pacific	India	Middle East & Other S Asia	Africa	Americas UK & Europe	Total
	$million	$million	$million	$million	$million	$million	$million	$million	$million
Agriculture, forestry and fishing	23	755	-	362	31	221	559	783	2,734
Construction	271	171	408	403	627	1,520	133	434	3,967
Commerce	5,948	16,693	475	3,978	881	4,776	779	9,679	43,209
Electricity, gas and water	503	711	41	897	31	438	308	2,481	5,410
Financing, insurance and business services	3,778	854	567	4,355	392	1,744	331	9,918	21,939
Governments	-	339	-	776	22	313	-	249	1,699
Mining and quarrying	1,217	2,605	-	1,018	13	562	870	9,819	16,104
Manufacturing	6,891	4,136	3,700	9,399	2,939	2,604	2,086	10,311	42,066
Commercial real estate	4,023	2,959	1,181	1,813	1,311	1,006	10	1,327	13,630
Transport, storage and communication	2,312	3,260	230	1,181	502	995	721	4,952	14,153
Other	188	968	86	66	19	92	280	299	1,998
	25,154	33,451	6,688	24,248	6,768	14,271	6,077	50,252	166,909
Portfolio impairment provision	(29)	(31)	(13)	(32)	(17)	(55)	(42)	(81)	(300)
Total loans and advances to customers	25,125	33,420	6,675	24,216	6,751	14,216	6,035	50,171	166,609
Total loans and advances to banks	17,658	4,501	4,192	14,891	399	2,273	742	41,513	86,169

Wholesale Banking loan portfolio continued
Geographic analysis	2012
	Hong Kong	Singapore	Korea	Other Asia Pacific	India	Middle East & Other S Asia	Africa	Americas UK & Europe	Total
	$million	$million	$million	$million	$million	$million	$million	$million	$million
Agriculture, forestry and fishing	54	806	4	392	13	261	785	2,079	4,394
Construction	374	484	487	508	629	1,183	259	659	4,583
Commerce	4,983	11,773	665	3,937	815	4,428	768	6,229	33,598
Electricity, gas and water	510	407	-	552	7	366	251	2,723	4,816
Financing, insurance and business services	2,702	2,184	52	4,272	378	2,295	455	10,149	22,487
Governments	50	790	651	765	2	319	47	630	3,254
Mining and quarrying	700	1,938	-	928	394	778	602	9,495	14,835
Manufacturing	6,018	3,845	4,182	8,690	2,864	2,893	2,208	8,941	39,641
Commercial real estate	3,524	2,296	1,354	1,413	1,270	1,082	64	540	11,543
Transport, storage and communication	2,400	3,330	194	920	447	965	809	5,411	14,476
Other	200	468	121	149	8	102	79	167	1,294
	21,515	28,321	7,710	22,526	6,827	14,672	6,327	47,023	154,921
Portfolio impairment provision	(24)	(21)	(16)	(26)	(19)	(94)	(41)	(59)	(300)
Total loans and advances to customers	21,491	28,300	7,694	22,500	6,808	14,578	6,286	46,964	154,621
Total loans and advances to banks	19,356	6,205	4,633	8,133	571	3,172	378	26,123	68,571

Wholesale Banking loan portfolio continued

Maturity analysis

The Wholesale Banking portfolio remains predominantly short-term, with 64 per cent (2012: 62 per cent) of loans and advances having a remaining contractual maturity of one year or less driven by short-dated loans and trade finance transactions primarily within commerce, manufacturing and Mining and quarrying.

The following tables show the contractual maturity of loans and advances to customers by each principal category of borrowers' business or industry.

	2013
	One year or less	One to five years	Over five years	Total
	$million	$million	$million	$million
Agriculture, forestry and fishing	1,788	839	107	2,734
Construction	2,883	938	146	3,967
Commerce	38,348	4,359	502	43,209
Electricity, gas and water	1,587	1,690	2,133	5,410
Financing, insurance and business services	13,343	8,128	468	21,939
Governments	1,342	272	85	1,699
Mining and quarrying	8,210	5,993	1,901	16,104
Manufacturing	29,343	10,761	1,962	42,066
Commercial real estate	4,062	8,943	625	13,630
Transport, storage and communication	5,077	5,599	3,477	14,153
Other	968	927	103	1,998
	106,951	48,449	11,509	166,909
Portfolio impairment provision				(300)
Total loans and advances to customers				166,609

	2012
	One year or less	One to five years	Over five years	Total
	$million	$million	$million	$million
Agriculture, forestry and fishing	3,274	965	155	4,394
Construction	3,159	1,256	168	4,583
Commerce	28,941	4,239	418	33,598
Electricity, gas and water	1,863	1,043	1,910	4,816
Financing, insurance and business services	13,839	7,581	1,067	22,487
Governments	2,873	303	78	3,254
Mining and quarrying	6,873	5,275	2,687	14,835
Manufacturing	26,629	11,187	1,825	39,641
Commercial real estate	4,180	6,842	521	11,543
Transport, storage and communication	3,852	6,951	3,673	14,476
Other	711	553	30	1,294
	96,194	46,195	12,532	154,921
Portfolio impairment provision				(300)
Total loans and advances to customers				154,621

Wholesale Banking loan portfolio continued

Credit quality analysis

The tables below set out an analysis of the loans to customers and banks between those loans that are neither past due nor impaired, those that are past due but not individually impaired and those that are individually impaired by industry type and by geography.

In Wholesale Banking, the overall portfolio quality remains good and 95 per cent of the portfolio is neither past due nor individually impaired.

Neither past due nor impaired loans have increased by $12.5 billion in line with portfolio growth, and the growth is primarily concentrated within the Commerce and Manufacturing sectors and within credit grades 1-5.

Loans past due but not individually impaired decreased by $1.2 billion compared to 2012. This was primarily due to the renegotiation in 2013 of a small number of exposures which were reported with the 60-90 days past due category in 2012 within Financing, insurance and business services sectors in Hong Kong, Americas, UK & Europe. No impairment was recognised following these negotiations. Past due exposure in the mining and quarrying sector increased $0.5 billion compared to 2012, the majority of which was in Singapore and concentrated in the 0-30 days past due category. Over 85 per cent of the loans reported in the up to 30 days past due category, including those relating to renegotiated loans, had been cured by the end of January 2014.

Individually impaired loans increased by $1.1 billion, mainly due to an increase in a small number of exposures in India and Africa and this flowed into higher individual impairment provisions of $0.3 billion. Portfolio impairment provision remained flat as a release in MESA of provisions created in 2009 in respect of market uncertainties was offset by increases in Africa, Singapore and Other Asia Pacific regions.

Loans to banks remain predominantly high quality with more than 99 per cent of the portfolio is neither past due nor individually impaired.

	2013				2012
	Neither past due nor individually impaired	Past due but not individually impaired	Individually impaired loans	Total	Neither past due nor individually impaired	Past due but not individually impaired	Individually impaired loans	Total
	$million	$million	$million	$million	$million	$million	$million	$million
Agriculture, forestry and fishing	2,410	87	420	2,917	4,286	54	83	4,423
Construction	3,502	238	295	4,035	4,121	301	233	4,655
Commerce	42,413	544	940	43,897	33,027	306	933	34,266
Electricity, gas and water	5,272	113	35	5,420	4,735	4	85	4,824
Financing, insurance and business services	20,670	256	1,259	22,185	18,897	2,616	1,139	22,652
Governments	1,645	54	-	1,699	3,254	-	-	3,254
Mining and quarrying	14,918	1,074	158	16,150	14,253	574	17	14,844
Manufacturing	40,249	686	1,731	42,666	38,342	684	1,176	40,202
Commercial real estate	13,580	14	67	13,661	11,379	30	158	11,567
Transport, storage and communication	13,534	297	518	14,349	14,105	25	543	14,673
Other	1,956	18	63	2,037	1,280	12	33	1,325
	160,149	3,381	5,486	169,016	147,679	4,606	4,400	156,685
Individual impairment provision				(2,107)				(1,764)
Portfolio impairment provision				(300)				(300)
Total loans and advances to customers				166,609				154,621


Loans and advances to banks	86,047	17	207	86,271	68,364	3	309	68,676
Individual impairment provision				(100)				(103)
Portfolio impairment provision				(2)				(2)
Total loans and advances to banks				86,169				68,571

Wholesale Banking loan portfolio continued
The tables below set out an analysis of the loan to customers and banks between those loans that are neither past due nor impaired, those that are past due but not individually impaired and those that are individually impaired by geography.
Loans to customers
	2013
	Hong Kong	Singapore	Korea	Other Asia Pacific	India	Middle East & Other S Asia	Africa	Americas UK & Europe	Total
	$million	$million	$million	$million	$million	$million	$million	$million	$million
Neither past due nor individually impaired	24,982	32,586	6,606	23,798	5,923	12,607	5,614	48,033	160,149
Past due but not individually impaired loans	37	826	5	68	239	442	167	1,597	3,381
Individually impaired loans	173	48	213	659	930	2,264	556	643	5,486
Individual impairment provisions	(38)	(9)	(136)	(277)	(324)	(1,042)	(260)	(21)	(2,107)
Portfolio impairment provision	(29)	(31)	(13)	(32)	(17)	(55)	(42)	(81)	(300)
Total loans and advances to customers	25,125	33,420	6,675	24,216	6,751	14,216	6,035	50,171	166,609

	2012
	Hong Kong	Singapore	Korea	Other Asia Pacific	India	Middle East & Other S Asia	Africa	Americas UK & Europe	Total
	$million	$million	$million	$million	$million	$million	$million	$million	$million
Neither past due nor individually impaired	20,674	28,036	7,554	22,171	6,186	12,697	6,212	44,149	147,679
Past due but not individually impaired loans	769	160	-	87	134	657	20	2,779	4,606
Individually impaired loans	122	199	261	487	748	2,326	132	125	4,400
Individual impairment provisions	(50)	(74)	(105)	(219)	(241)	(1,008)	(37)	(30)	(1,764)
Portfolio impairment provision	(24)	(21)	(16)	(26)	(19)	(94)	(41)	(59)	(300)
Total loans and advances to customers	21,491	28,300	7,694	22,500	6,808	14,578	6,286	46,964	154,621

Wholesale Banking loan portfolio continued
Loans to banks
	2013
	Hong Kong	Singapore	Korea	Other Asia Pacific	India	Middle East & Other S Asia	Africa	Americas UK & Europe	Total
	$million	$million	$million	$million	$million	$million	$million	$million	$million
Neither past due nor individually impaired loans	17,648	4,488	4,192	14,805	399	2,274	742	41,499	86,047
Past due but not individually impaired loans	4	13	-	-	-	-	-	-	17
Individually impaired loans	6	-	-	165	-	-	-	36	207
Individual impairment provisions	-	-	-	(78)	-	-	-	(22)	(100)
Portfolio impairment provision	-	-	-	(1)	-	(1)	-	-	(2)
Total loans and advances to banks	17,658	4,501	4,192	14,891	399	2,273	742	41,513	86,169

	2012
	Hong Kong	Singapore	Korea	Other Asia Pacific	India	Middle East & Other S Asia	Africa	Americas UK & Europe	Total
	$million	$million	$million	$million	$million	$million	$million	$million	$million
Neither past due nor individually impaired loans	19,349	6,205	4,633	8,048	570	3,076	378	26,105	68,364
Past due but not individually impaired loans	2	-	-	-	1	-	-	-	3
Individually impaired loans	5	-	-	164	-	97	-	43	309
Individual impairment provisions	-	-	-	(78)	-	-	-	(25)	(103)
Portfolio impairment provision	-	-	-	(1)	-	(1)	-	-	(2)
Total loans and advances to banks	19,356	6,205	4,633	8,133	571	3,172	378	26,123	68,571

Wholesale Banking loan portfolio continued

Credit risk mitigation

Collateral held against Wholesale Banking exposures amounted to $63.4 billion (December 2012: $51.6 billion). This represents the fair value of collateral adjusted in accordance with our risk mitigation policy (page 32) and for the effects of over collateralisation. The unadjusted current market value of collateral without over collateralisation is $197 billion at 31 December 2013 (2012: $186 billion).

Our underwriting standards encourage taking specific charges on assets and we consistently seek high quality, investment grade secured collateral. 49 per cent of collateral held is comprised of physical assets or is property based, with the remainder held largely in investment securities.

Non-tangible collateral - such as guarantees and letters of credit - may also be held against corporate exposures although the financial effect of this type of collateral is less significant in terms of recoveries. However this type of collateral is considered when determining probability of default and other credit related factors.

The increase in collateral compared to 2012 is broadly in line with growth in the loan portfolio. The proportion of highly rated debt securities of 15.3 per cent on collateral increased compared to 2012 due to higher levels of reverse repo transactions.

The following table provides an analysis of the types of collateral held against wholesale Banking loan exposures.

		2013	2012
		$million	$million
Cash		12,278	9,039
Property		15,125	13,141
Debt securities
	AAA	45	4
	AA- to AA+	9,652	3,390
	BBB- to BBB+	2,785	713
	Lower than BBB-	865	1,313
	Unrated	5,004	6,151
		18,351	11,571
Other (asset based)		17,636	17,843
Total value of collateral		63,390	51,594

Wholesale Banking loan portfolio continued Commercial real estate (CRE)
The Group has lending to CRE counterparties of $13,630 million (31 December 2012: $11,543 million). Of this exposure, $6,758 million is to counterparties where the source of repayment is substantially derived from rental or sale of real estate and is secured by real estate collateral. The remaining CRE exposure comprises working capital loans to real estate corporates, exposure with non-property collateral, unsecured exposure and exposure to real estate entity of diversified conglomerate. The following table presents a geographical analysis of the loan to value ratios for such loans. The average loan to value of the exposure remains low.
	2013
	Hong Kong	Singapore	Korea	Other Asia Pacific	India	Middle East & Other S Asia	Africa	Americas UK & Europe	Total
	%	%	%	%	%	%	%	%	%
Less than 50 per cent	94.2	45.9	97.8	82.7	57.5	40.4	59.6	93.0	71.3
50 per cent to 59 per cent	5.8	48.0	2.2	13.3	22.2	51.0	-	-	20.8
60 per cent to 69 per cent	-	6.1	-	3.9	20.3	4.8	40.4	7.0	7.5
70 per cent to 79 per cent	-	-	-	-	-	-	-	-	-
80 per cent to 89 per cent	-	-	-	-	-	-	-	-	-
90 per cent to 99 per cent	-	-	-	-	-	-	-	-	-
100 per cent and greater	-	-	-	-	-	3.8	-	-	0.4
Average Portfolio loan to value	38.2	45.8	27.6	38.6	40.9	59.0	46.8	35.1	41.1
Loans ($million)	1,165	1,154	440	1,072	1,338	728	10	851	6,758

	2012
	Hong Kong	Singapore	Korea	Other Asia Pacific	India	Middle East & Other S Asia	Africa	Americas UK & Europe	Total
	%	%	%	%	%	%	%	%	%
Less than 50 per cent	77.5	62.5	37.7	69.9	48.6	59.5	68.8	97.3	62.7
50 per cent to 59 per cent	18.8	24.1	34.4	15.1	25.5	34.2	0.7	2.7	23.3
60 per cent to 69 per cent	3.8	13.5	9.1	14.9	25.9	4.2	30.5	-	12.5
70 per cent to 79 per cent	-	-	18.7	-	-	-	-	-	1.1
80 per cent to 89 per cent	-	-	-	-	-	-	-	-	-
90 per cent to 99 per cent	-	-	-	-	-	-	-	-	-
100 per cent and greater	-	-	-	-	-	2.1	-	-	0.4
Average Portfolio loan to value	40.8	44.3	53.0	43.4	48.9	48.5	48.0	40.1	45.7
Loans ($million)	779	1,560	384	927	1,263	1,267	40	364	6,584

Wholesale Banking loan portfolio continued

Loan impairment

The individual impairment charge increased by $26 million, or 5 per cent, compared with 31 December 2012, primarily due to higher provisions in India and Africa, relating to a small number of exposures. Increase in portfolio impairment provision was offset by release in MESA, due to an improvement in the credit environment.

The table below sets out the net impairment charge for Wholesale Banking loans and advances and other credit risk provisions by geography.

	2013
	Hong Kong	Singapore	Korea	Other Asia Pacific	India	Middle East & Other S Asia	Africa	Americas UK & Europe	Total
	$million	$million	$million	$million	$million	$million	$million	$million	$million
Gross impairment charge	7	2	65	97	152	58	235	7	623
Recoveries/provisions no longer required	(18)	(2)	(5)	(3)	(3)	(14)	(2)	(4)	(51)
Net individual impairment charge	(11)	-	60	94	149	44	233	3	572
Portfolio impairment provision charge/ (release)	6	10	(4)	10	7	(40)	15	2	6
Net loan impairment charge	(5)	10	56	104	156	4	248	5	578
Other credit risk provisions	1	-	-	1	1	-	-	2	5
Net impairment charge	(4)	10	56	105	157	4	248	7	583

	2012
	Hong Kong	Singapore	Korea	Other Asia Pacific	India	Middle East & Other S Asia	Africa	Americas UK & Europe	Total
	$million	$million	$million	$million	$million	$million	$million	$million	$million
Gross impairment charge	23	2	45	38	192	265	2	19	586
Recoveries/provisions no longer required	(5)	-	(9)	(8)	(7)	(1)	(2)	(8)	(40)
Net individual impairment charge/(credit)	18	2	36	30	185	264	-	11	546
Portfolio impairment provision charge/(release)	(3)	2	(10)	5	(45)	(3)	18	11	(25)
Net loan impairment charge	15	4	26	35	140	261	18	22	521
Other credit risk provisions	(1)	-	-	-	(2)	4	-	-	1
Net impairment charge	14	4	26	35	138	265	18	22	522

Wholesale Banking loan portfolio continued
Impairment provisions on loans and advances
The following table sets out the impairment provision on loans and advances by each principal category of borrowers business or industry:
	Impairment provision held as at 1 January 2013	Net impairment charge 2013	Amounts written off/ other movements 2013	Impairment provision held as at 31 December 2013
	$million	$million	$million	$million
Agriculture, forestry and fishing	29	178	(24)	183
Construction	72	13	(17)	68
Commerce	668	20	-	688
Electricity, gas and water	8	8	(6)	10
Financing, insurance and business services	165	25	56	246
Mining and quarrying	9	35	2	46
Manufacturing	561	248	(209)	600
Commercial real estate	24	9	(2)	31
Transport, storage and communication	197	24	(25)	196
Other	31	13	(5)	39
Individual impairment provision against loans and advances to customers	1,764	573	(230)	2,107
Portfolio impairment provision against loans and advances to customers	300	6	(6)	300
Total impairment provisions on loans and advances to customers	2,064	579	(236)	2,407

Individual impairment provision against loans and advances to banks	103	(1)	(2)	100
Portfolio impairment provision against loans and advances to banks	2	-	-	2
Total impairment provisions on loans and advances to banks	105	(1)	(2)	102

	Impairment provision held as at 1 January 2012	Net impairment charge 2012	Amounts written off/ other movements 2012	Impairment provision held as at 31 December 2012
	$million	$million	$million	$million
Agriculture, forestry and fishing	24	-	5	29
Construction	65	19	(12)	72
Commerce	464	136	68	668
Electricity, gas and water	6	-	2	8
Financing, insurance and business services	167	118	(120)	165
Mining and quarrying	1	-	8	9
Manufacturing	542	101	(82)	561
Commercial real estate	24	-	-	24
Transport, storage and communication	40	162	(5)	197
Other	29	4	(2)	31
Individual impairment provision against loans and advances to customers	1,362	540	(138)	1,764
Portfolio impairment provision against loans and advances to customers	321	(23)	2	300
Total impairment provisions on loans and advances to customers	1,683	517	(136)	2,064
Individual impairment provision against loans and advances to banks	82	6	15	103
Portfolio impairment provision against loans and advances to banks	2	(2)	2	2
Total impairment provisions on loans and advances to banks	84	4	17	105

Wholesale Banking loan portfolio continued

Non-performing loans

Gross non-performing loans in Wholesale Banking, the definition of which is set out on page 41, increased by $933 million, or 22 per cent, since December 2012. These increases were primarily driven by a small number of large exposures in India and in Africa and Americas UK & Europe regions.

The following tables set out the total non-performing loans to banks and customers for Wholesale Banking on the basis of the geographic regions to which the exposure relates to rather than the booking location:

		2013
		Hong Kong	Singapore	Korea	Other Asia Pacific	India	Middle East & Other S Asia	Africa	Americas UK & Europe	Total
		$million	$million	$million	$million	$million	$million	$million	$million	$million
Loans and advances
Gross non-performing		179	20	213	824	928	1,793	570	678	5,205
Individual impairment provision¹		(38)	(9)	(136)	(355)	(324)	(1,028)	(260)	(43)	(2,193)
Non-performing loans net of individual impairment provision		141	11	77	469	604	765	310	635	3,012
Portfolio impairment provision										(302)
Net non-performing loans and advances										2,710
Cover ratio										48%
¹	The difference to total individual impairment provision at 31 December 2013 reflects provisions against restructured loans that are not included within non-performing loans as they have been performing for 180 days in line with the definition provided on page 41

		2012
		Hong Kong	Singapore	Korea	Other Asia Pacific	India	Middle East & Other S Asia	Africa	Americas UK & Europe	Total
		$million	$million	$million	$million	$million	$million	$million	$million	$million
Loans and advances
Gross non-performing		128	21	261	707	754	2,089	147	165	4,272
Individual impairment provision¹		(50)	(14)	(105)	(304)	(240)	(1,061)	(37)	(55)	(1,866)
Non-performing loans net of individual impairment provision		78	7	156	403	514	1,028	110	110	2,406
Portfolio impairment provision										(302)
Net non-performing loans and advances										2,104
Cover ratio										51%
¹	The difference to total individual impairment provision at 31 December 2012 reflects provisions against restructured loans that are not included within non-performing loans as they have been performing for 180 days in line with the definition provided on page 41

Debt securities and treasury bills
Debt securities and treasury bills are analysed as follows:
		2013			2012
		Debt securities	Treasury bills	Total	Debt securities	Treasury bills	Total
		$million	$million	$million	$million	$million	$million
Net impaired securities:
Impaired securities		389	-	389	404	-	404
Impairment		(204)	-	(204)	(159)	-	(159)
		185	-	185	245	-	245
Securities neither past due nor impaired:
AAA		23,772	4,455	28,227	20,755	6,516	27,271
AA- to AA+		23,274	19,226	42,500	20,232	6,594	26,826
A- to A+		21,392	1,087	22,479	23,570	10,694	34,264
BBB- to BBB+		5,913	4,238	10,151	10,122	3,818	13,940
Lower than BBB-		3,293	898	4,191	3,027	502	3,529
Unrated		8,244	1,500	9,744	6,471	1,571	8,042
		85,888	31,404	117,292	84,177	29,695	113,872

		86,073	31,404	117,477	84,422	29,695	114,117
Of which:
Assets at fair value¹
Trading		12,407	5,161	17,568	14,882	2,955	17,837
Designated at fair value		292	-	292	333	-	333
Available-for-sale		70,546	26,243	96,789	65,356	26,740	92,096
		83,245	31,404	114,649	80,571	29,695	110,266
Assets at amortised cost¹
Loans and receivables		2,828	-	2,828	3,851	-	3,851

		86,073	31,404	117,477	84,422	29,695	114,117
¹	See note 12, 13 and 17 of the financial statements for further details

Net impaired securities reduced by $60 million compared to 2012 primarily due to increased provisions against a bond exposure in India arising from credit concerns around the issuer.

The above table analyses debt securities and treasury bills that are neither past due nor impaired by external credit rating. The standard credit ratings used by the Group are those used by Standard & Poor's or their equivalent. Debt securities held that have a short-term rating are reported against the long-term rating of the issuer. For securities that are unrated, the Group applies an internal credit rating as described under credit rating and measurements on page 31.

Debt securities in the AAA rating category increased by $3.0 billion to $23.8 billion in 2013 mainly due to an increase higher quality corporate bonds in Hong Kong and Singapore. This was offset by low level of AAA trading business as funds were deployed into higher quality assets in Singapore and as part of the restructuring of the balance sheet in Korea.

Unrated securities primarily relate to corporate issuers. Using internal credit ratings $9,275 million (2012: $7,208 million) of these securities are considered to be equivalent to investment grade.

Asset backed securities
Total exposures to asset backed securities
		2013				2012
		Percentage of notional value of	Notional	Carrying value	Fair value¹	Percentage of notional value of	Notional	Carrying value	Fair value¹
		portfolio	$million	$million	$million	portfolio	$million	$million	$million
Residential Mortgage Backed Securities (RMBS)		46%	3,059	3,052	3,045	46%	2,160	2,114	2,120
Collateralised Debt Obligations (CDOs)		3%	223	181	190	5%	260	203	219
Commercial Mortgage Backed Securities (CMBS)		5%	321	242	235	10%	478	355	351
Other asset backed securities (Other ABS)		46%	3,126	3,081	3,124	39%	1,869	1,847	1,861
		100%	6,729	6,556	6,594	100%	4,767	4,519	4,551
Of which included within:
Financial assets held at fair value through profit or loss		2%	158	158	158	4%	190	191	191
Investment securities - available-for-sale		79%	5,295	5,202	5,202	61%	2,905	2,786	2,786
Investment securities - loans and receivables		19%	1,276	1,196	1,234	35%	1,672	1,542	1,574
		100%	6,729	6,556	6,594	100%	4,767	4,519	4,551
¹	Fair value reflects the value of the entire portfolio, including assets redesignated to loans and receivables

The carrying value of Asset Backed Securities (ABS) represents 1 per cent (2012: 0.7 per cent) of our total assets.

The Group has an existing portfolio of ABS which it reclassified from trading and available-for-sale to loans and receivables with effect from 1 July 2008. No assets have been reclassified since 2008.This portfolio has been gradually managed down since 2010. The carrying value and fair value for this part of the portfolio were $614 million and $647 million respectively as at the end of 2013. Note 12 to the financial statements provide details of the remaining balance of those assets reclassified in 2008.

The Group has also extended its investment to a limited amount of trading in ABS and has also acquired an additional $4.8 billion of ABS during 2013 for liquidity reasons. This is classified as

available-for-sale and primarily related to high quality RMBS assets with an average credit grade of AAA. The credit quality of the asset backed securities portfolio remains strong. With the exception of those securities subject to an impairment charge, over 95 per cent of the overall portfolio is rated A- or better, and 80 per cent of the overall portfolio is rated as AAA. The portfolio is broadly diversified across asset classes and geographies, with an average credit grade of AA.

The decline in the bank's legacy portfolios and significant increase in asset purchases for liquidity reasons in the available-for-sale book makes the fair value of the entire portfolio similar to the carrying value.

Financial statement impact of asset backed securities
	Available- for-sale	Loans and receivables	Total
	$million	$million	$million
31 December 2013
Credit to available-for-sale reserves	26	-	26
Credit to the profit and loss account	(1)	-	(1)
31 December 2012
Charge to available-for-sale reserves	(3)	-	(3)
Charge to the profit and loss account	5	-	5

Selected European country exposures

The following tables summarise the Group's direct exposure (both on and off balance sheet) to certain specific countries within the eurozone that have been identified on the basis of their higher bond yields, higher sovereign debt to GDP ratio and external credit ratings compared with the rest of the eurozone.

Total gross exposure represents the amount outstanding on the balance sheet (including any accrued interest but before provisions) and positive mark-to-market amounts on derivatives before netting. To the extent gross exposure does not represent the maximum exposure to loss this is disclosed separately. Exposures are assigned to a country based on the country of incorporation of the counterparty as at 31 December 2013.

The Group has no direct sovereign exposure (as defined by the European Banking Authority) to the eurozone countries of Greece, Ireland, Italy, Portugal and Spain (GIIPS) and only $0.5 billion direct sovereign exposure to other eurozone countries. The Group's non-sovereign exposure to GIIPS is $2.4 billion ($2.0 billion after collateral and netting) and $37.7 billion ($22 billion after collateral and netting) to the remainder of the eurozone. This exposure primarily consists of balances with corporates. The substantial majority of the Group's total gross GIIPS exposure has a tenor of less than five years, with approximately 32 per cent having a tenor of less than one year. The Group has no direct sovereign exposure and $260 million (2012: $263 million) of non-sovereign exposure (after collateral and netting) to Cyprus.

The exit of one or more countries from the eurozone or ultimately its dissolution could potentially lead to significant market dislocation, the extent of which is difficult to predict. Any such exit or dissolution, and the redenomination of formerly euro-denominated rights and obligations in replacement national currencies would cause significant uncertainty in any exiting country, whether sovereign or otherwise. Such events are also likely to be accompanied by the imposition of capital, exchange and similar controls. While the Group has limited eurozone exposure as disclosed above, the Group's earnings could be impacted by the general market disruption if such events should occur. We monitor the situation closely and we have prepared contingency plans to respond to a range of potential scenarios, including the possibility of currency redenomination. Local assets and liability positions are carefully monitored by in-country asset and liability and risk committees with appropriate oversight by GALCO and GRC at the Group level.

Country		Greece	Ireland	Italy	Portugal	Spain	Total
At 31 December 2013		$million	$million	$million	$million	$million	$million
Direct sovereign exposure		-	-	-	-	-	-
Banks		-	-	719	-	402	1,121
Other financial institutions		-	951	5	-	-	956
Other corporate		15	207	93	-	52	367
Total gross exposure		15	1,158	817	-	454	2,444
Direct sovereign exposure		-	-	-	-	-	-
Banks		-	-	(70)	-	(167)	(237)
Other financial institutions		-	(192)	(5)	-	-	(197)
Other corporate		(1)	(16)	(1)	-	(3)	(21)
Total collateral/netting		(1)	(208)	(76)	-	(170)	(455)
Direct sovereign exposure		-	-	-	-	-	-
Banks		-	-	649	-	235	884
Other financial institutions		-	759¹	-	-	-	759
Other corporate		14	191	92	-	49	346
Total net exposure at 31 December 2013		14	950	741	-	284	1,989
Total net exposure at 31 December 2012		29	1,391	610	21	221	2,272
¹	This represents a single exposure which is part of a wider structured finance transaction and is unaffected by Irish economic risk

Selected European country exposures continued

The Group's exposure to GIIPS at 31 December 2013 is analysed by financial asset as follows:
		Greece	Ireland	Italy	Portugal	Spain	Total
At 31 December 2013		$million	$million	$million	$million	$million	$million
Loans and advances
Loans and receivables		9	143	265	-	11	428
Held at fair value through profit or loss		-	-	11	-	-	11
Total gross loans and advances		9	143	276	-	11	439
Collateral held against loans and advances		(1)	(4)	(53)	-	(2)	(60)
Total net loans and advances		8	139	223	-	9	379
Debt securities
Trading
Designated at fair value		-	-	-	-	36	36
Available-for-sale		-	51	-	-	-	51
Loans and receivables		-	-	-	-	6	6
Total gross debt securities		-	51	-	-	42	93
Collateral held against debt securities		-	-	-	-	-	-
Total net debt securities		-	51	-	-	42	93
Derivatives
Gross exposure		-	212	24	-	168	404
Collateral/netting¹		-	(204)	(23)	-	(168)	(395)
Total derivatives		-	8	1	-	-	9
Contingent liabilities and commitments		6	752	517	-	233	1,508
Total net exposure (on and off balance sheet)¹		14	950	741	-	284	1,989
Total balance sheet exposure		9	406	300	-	221	936

At 31 December 2012
Net loans and advances		18	53	294	20	22	407
Net debt securities		-	51	-	-	119	170
Net derivatives		2	33	5	-	5	45
Contingent liabilities and commitments		9	1,254	311	1	75	1,650
Total net exposure (on and off balance sheet)¹		29	1,391	610	21	221	2,272
¹	Based on ISDA (International Swaps and Derivatives Association) netting

Selected European country exposures continued

Other selected eurozone countries

A summary analysis of the Group's exposure to France, Germany, the Netherlands and Luxembourg is also provided as these countries are considered to have significant sovereign debt exposure to GIIPS.


	France	Germany	Netherlands	Luxembourg	Total
	$million	$million	$million	$million	$million
Direct sovereign exposure	-	305	-	-	305
Banks	2,911	4,303	1,695	1,122	10,031
Other financial institutions	79	72	105	148	404
Other corporate	1,526	710	5,935	646	8,817
Total net exposure at 31 December 2013	4,516	5,390	7,735	1,916	19,557
Total net exposure at 31 December 2012	3,738	12,809	12,114	2,594	31,255

The Group's lending to these selected eurozone countries primarily takes the form of repurchase agreements, inter-bank loans and bonds. The substantial majority of the Group's total gross exposures to these selected countries have a tenor of less than three years, with over 57 per cent having a tenor of less than one year. The Group's exposure in Germany is primarily with the central bank.

Other than all these specifically identified countries, the Group's residual net exposure to the eurozone is $3 billion, which primarily comprises bonds and export structured financing to banks and corporates.

Country cross-border risk

Country cross-border risk is the risk that we will be unable to obtain payment from our customers or third parties on their contractual obligations as a result of certain actions taken by foreign governments, chiefly relating to convertibility and transferability of foreign currency.

The GRC is responsible for our country cross-border risk limits and delegates the setting and management of country limits to the Group Country Risk function.

The business and country chief executive officers manage exposures within these limits and policies. Countries designated as higher risk are subject to increased central monitoring.

Cross-border assets comprise loans and advances, interest-bearing deposits with other banks, trade and other bills, acceptances, amounts receivable under finance leases, derivatives, certificates of deposit and other negotiable paper, investment securities and formal commitments where the counterparty is resident in a country other than where the assets are recorded. Cross-border assets also include exposures to local residents denominated in currencies other than the local currency. Cross-border exposure also includes the value of commodity, aircraft and shipping assets owned by the Group that are held in a given country.

The profile of our country cross-border exposures greater than one per cent of total assets as at 31 December 2013 remained consistent with our strategic focus on core franchise countries, and with the scale of the larger markets that we operate in. Changes in the pace of economic activity had an impact on growth of cross-border exposure for certain territories.

Steady progress in the internationalisation of the renminbi continues to present opportunities, and contributed to the growth in cross-border exposure to China. Increased country cross-border exposure to China and Hong Kong also reflected an expansion of our corporate client base, increased trade finance activity and transactions with local and foreign banks in these markets. India remains a core territory for the Group where our competitive advantage positions us to offer US dollar facilities in the domestic market, and to facilitate overseas investment and trade flows supported by parent companies in India.

Reported cross-border exposure to Korea and Singapore reflects an emphasis on trade finance and short-term lending.

Cross-border exposure to the United Arab Emirates decreased slightly during 2013, due to a decrease in trade financing transactions and longer term exposures arising from financial markets activity.

Malaysia benefited from an increase in trade finance activities amidst rising intra-region trade flows with ASEAN member countries, China, India and Africa. Higher exposures in this market are also representative of an expanded corporate customer base and interbank money market positions booked in the United Kingdom and Singapore. Growth in underlying cross-border business activity in Indonesia was attributable to an expansion of the corporate client base in Indonesia and continued growth in corporate finance assets. Since 30 June 2013, in line with a change in accounting treatment, the country cross-border exposure to Indonesia arising from Permata, a joint venture in which the Group holds 44.56 per cent, is now counted at the value of the Group's equity in the joint venture.

The increase in exposure to Brazil is attributable to trade and investment flows with our core markets. Cross-border exposure to countries in which we do not have a major presence predominantly relates to short-dated money market treasury activities, which can change significantly from period to period. Exposure also represents global corporate business for customers with interests in our footprint. This explains our significant exposure in the US, Switzerland and Australia.

The table below, which is based on our internal cross-border country risk reporting requirements, shows cross-border exposures that exceed one per cent of total assets.

		2013			2012
		Less than one year	More than one year	Total	Less than One year	More than one year	Total
		$million	$million	$million	$million	$million	$million
China		32,220	14,449	46,669	23,809	11,783	35,592
India		12,566	18,295	30,861	12,230	18,200	30,430
US		19,001	7,287	26,288	22,485	6,730	29,215
Hong Kong		21,164	8,210	29,374	18,096	8,458	26,554
Singapore		19,328	5,749	25,077	16,561	5,508	22,069
United Arab Emirates		6,281	10,997	17,278	6,580	11,293	17,873
Korea		9,093	7,415	16,508	9,696	6,693	16,389
Switzerland		5,770	3,006	8,776	5,050	4,983	10,033
Indonesia¹		3,959	4,958	8,917	4,094	4,410	8,504
Australia		1,943	5,919	7,862	1,456	4,189	5,645
Brazil		6,175	2,002	8,177	4,157	1,613	5,770
Malaysia		3,878	3,396	7,274	2,255	2,111	4,366

¹	Prior year has been restated to reflect the change in accounting treatment of cross-border exposure to Indonesia arising from Permata

Market risk

We recognise market risk as the potential for loss of earnings or economic value due to adverse changes in financial market rates or prices. Our exposure to market risk arises principally from customer-driven transactions. The objective of our market risk policies and processes is to obtain the best balance of risk and return whilst meeting customers' requirements.

The primary categories of market risk for Standard Chartered are:

· interest rate risk: arising from changes in yield curves, credit spreads and implied volatilities on interest rate options;

· currency exchange rate risk: arising from changes in exchange rates and implied volatilities on foreign exchange options;

· commodity price risk: arising from changes in commodity prices and commodity option implied volatilities; covering energy, precious metals, base metals and agriculture;

· equity price risk: arising from changes in the prices of equities, equity indices, equity baskets and implied volatilities on related options.

Market risk governance

The GRC approves our market risk appetite taking account of market volatility, the range of products and asset classes, business volumes and transaction sizes.

The Group Market Risk Committee (GMRC), under authority delegated by the GRC, is responsible for setting VaR and stress loss triggers for market risk within our risk appetite. The GMRC is also responsible for policies and other standards for the control of market risk and overseeing their effective implementation. These policies cover both trading and non-trading books of the Group.

Group Market Risk (GMR) approves the limits within delegated authorities and monitors exposures against these limits. Additional limits are placed on specific instruments and position concentrations where appropriate. Sensitivity measures are used in addition to VaR as risk management tools. For example, interest rate sensitivity is measured in terms of exposure to a one basis point increase in yields, whereas foreign exchange, commodity and equity sensitivities are measured in terms of the underlying values or amounts involved. Option risks are controlled through revaluation limits on underlying price and volatility shifts, limits on volatility risk and other variables that determine the option's value.

Value at Risk

We measure the risk of losses arising from future potential adverse movements in market rates, prices and volatilities using a VaR methodology. VaR, in general, is a quantitative measure of market risk that applies recent historical market conditions to estimate the potential future loss in market value that will not be exceeded in a set time period at a set statistical confidence level. VaR provides a consistent measure that can be applied across trading businesses and products over time and can be set against actual daily trading profit and loss outcome.

VaR is calculated for expected movements over a minimum of one business day and to a confidence level of 97.5 per cent. This confidence level suggests that potential daily losses, in excess of the VaR measure, are likely to be experienced six times per year.

We apply two VaR methodologies:

· Historical simulation: involves the revaluation of all existing positions to reflect the effect of historically observed changes in market risk factors on the valuation of the current portfolio. This approach is applied for general market risk factors and from the fourth quarter of 2012 has been extended to cover also the majority of specific (credit spread) risk VaR.

· Monte Carlo simulation: this methodology is similar to historical simulation but with considerably more input risk factor observations. These are generated by random sampling techniques, but the results retain the essential variability and correlations of historically observed risk factor changes. This approach is now applied for some of the specific (credit spread) risk VaR in relation to idiosyncratic exposures in credit markets.

In both methods an historical observation period of one year is chosen and applied.

VaR is calculated as our exposure as at the close of business, generally UK time. Intra-day risk levels may vary from those reported at the end of the day.

A small proportion of market risk generated by trading positions is not included in VaR or cannot be appropriately captured by VaR. This is recognised through a Risks-not-in-VaR framework which conservatively estimates and then capitalises these risks where material.

Back testing

To assess their predictive power, VaR models are back tested against actual results. In 2013 there was one exception in the regulatory back testing (none in 2012). This is within the 'green zone' applied internationally to internal models by bank supervisors. The daily loss associated with the single 2013 back testing exception was 3 per cent in excess of the corresponding VaR, and came from a combination of unexceptional losses across interest rates, FX and commodities.

Stress testing

Losses beyond the 97.5 per cent confidence interval are not captured by a VaR calculation, which therefore gives no indication of the size of unexpected losses in these situations.

GMR complements the VaR measurement by weekly stress testing of market risk exposures to highlight the potential risk that may arise from extreme market events that are rare but plausible.

Stress testing is an integral part of the market risk management framework and considers both historical market events and forward-looking scenarios. A consistent stress testing methodology is applied to trading and non-trading books. The stress testing methodology assumes that scope for management action would be limited during a stress event, reflecting the decrease in market liquidity that often occurs.

Stress scenarios are regularly updated to reflect changes in risk profile and economic events. The GMRC has responsibility for reviewing stress exposures and, where necessary, enforcing reductions in overall market risk exposure. The GRC considers the results of stress tests as part of its supervision of risk appetite.

Regular stress test scenarios are applied to interest rates, credit spreads, exchange rates, commodity prices and equity prices. This covers all asset classes in the Financial Markets banking and trading books.

Ad hoc scenarios are also prepared reflecting specific market conditions and for particular concentrations of risk that arise within the businesses.

Market risk changes

The average levels of total VaR and non-trading VaR were higher in 2013 than 2012 by 14 per cent and 8 percent respectively. This was primarily due to increased market volatility following comments by the US Federal Reserve chairman on 22 May 2013 that the US Federal Reserve was considering tapering its quantitative easing programme.

The average level of trading VaR in 2013 was 23 per cent lower than 2012, with reduction in both interest rate and foreign exchange risk.

As of 31 December, 2013, the Total VaR, non-trading VaR and trading VaR were up 31 per cent, 37 per cent and 14 per cent respectively as compared to at end of 2012. This again was primarily due to the increase in market volatility observed after 22 May 2013 rather than increases in positions. Daily value at risk (VaR at 97.5%, one day)
By risk type		2013				2012
Trading and Non-trading		Average	High⁴	Low⁴	Actual⁵	Average	High⁴	Low⁴	Actual⁵
Trading and Non-trading		$million	$million	$million	$million	$million	$million	$million	$million
Interest rate risk²		25.0	37.4	18.2	23.3	25.8	31.1	20.7	24.4
Foreign exchange risk		4.2	7.6	2.3	7.0	4.8	7.7	2.3	4.2
Commodity risk		1.5	2.6	0.9	1.5	1.7	3.0	1.0	1.0
Equity risk		15.4	18.4	13.0	18.3	15.9	18.5	13.9	16.4
Total³		32.8	44.8	22.1	38.5	28.8	38.5	22.6	29.5
Trading
Trading
Interest rate risk²		9.1	15.0	6.5	8.1	10.4	15.7	6.1	8.2
Foreign exchange risk		4.2	7.6	2.3	7.0	4.8	7.7	2.3	4.2
Commodity risk		1.5	2.6	0.9	1.5	1.7	3.0	1.0	1.0
Equity risk		1.5	2.1	1.1	1.8	1.5	2.8	0.6	1.9
Total³		9.8	14.9	7.3	9.1	12.8	20.8	6.8	8.0
Non-trading
Non-trading
Interest rate risk²		22.6	34.3	16.9	22.1	22.2	26.7	17.8	21.4
Equity risk		14.9	17.6	12.4	17.4	16.7	18.0	14.4	16.9
Total³		29.2	34.9	19.6	32.7	27.1	33.5	21.9	23.9
The following table sets out how trading and non-trading VaR is distributed across the Group's products:
		2013				2012
		Average	High⁴	Low⁴	Actual⁵	Average	High³	Low⁴	Actual⁵
		$million	$million	$million	$million	$million	$million	$million	$million
Trading and Non-trading		32.8	44.8	22.1	38.5	28.8	38.5	22.6	29.5
Trading¹
Rates		6.4	12.2	3.5	5.5	7.9	12.0	4.6	7.1
Global Foreign Exchange		4.2	7.6	2.3	7.0	4.8	7.7	2.3	4.2
Credit & Capital Markets		3.1	4.3	2.2	3.4	4.2	7.0	2.7	3.7
Commodities		1.5	2.6	0.9	1.5	1.7	3.0	1.0	1.0
Equities		1.5	2.1	1.1	1.8	1.5	2.8	0.6	1.9
Total³		9.8	14.9	7.3	9.1	12.8	20.8	6.8	8.0
Non-trading
Non-trading
Asset & Liability Management		22.2	33.9	17.1	21.2	20.9	25.8	16.3	20.2
Other Financial Markets		1.6	2.4	1.0	1.3	1.9	4.9	0.4	2.0
Listed Private Equity		14.9	17.6	12.4	17.4	16.7	18.0	14.4	16.9
Total³		29.2	34.9	19.6	32.7	27.1	33.5	21.9	23.9

¹	Trading book for market risk is defined in accordance with the relevant section of the PRA Handbook's Prudential Sourcebook for Banks, Building Societies and Investment Firms (BIPRU). On 1 January 2014 this regulation will be superseded by the EU Capital Requirements Regulation (CRDIV/CRR). The PRA permits only certain types of financial instruments or arrangements to be included within the trading book, so this regulatory definition is narrower than the accounting definition of the trading book within IAS39 'Financial Instruments: Recognition and Measurement'
²	Interest rate risk VaR includes credit spread risk arising from securities held for trading or available-for-sale
³	The total VaR shown in the tables above is not a sum of the component risks due to offsets between them
⁴	Highest and lowest VaR for each risk factor are independent and usually occur on different days
⁵	Actual one day VaR at year end date

Average daily income earned from market risk related activities¹
Trading		2013	2012²
Trading		$million	$million
Interest rate risk²		4.7	5.2
Foreign exchange risk		5.5	5.1
Commodity risk		1.5	1.6
Equity risk		0.5	0.4
Total		12.2	12.3

Non-Trading
Non-Trading
Interest rate risk		2.8	3.8
Equity risk		0.5	0.1
Total		3.3	3.9
	¹Reflects total product income which is the sum of Client Income and Own Account Income. Includes elements of Trading Income, Interest Income and Other Income which are generated from market risk related activities.
	²Comparatives have been restated to exclude certain items of fee income.

Market risk VaR coverage

Interest rate risk from non-trading book portfolios is transferred to Financial Markets where it is managed by local ALM desks under the supervision of local Asset and Liability Committees (ALCO). ALM deals in the market in approved financial instruments in order to manage the net interest rate risk, subject to approved VaR and risk limits.

VaR and stress tests are therefore applied to these non-trading book exposures (except Group Treasury, see below) in the same way as for the trading book, including available-for-sale securities. Securities classed as Loans and receivables or Held to maturity are not reflected in VaR or stress tests since they are accounted on an amortised cost basis, so market price movements have limited effect on either profit and loss or reserves.

Structural foreign exchange currency risks are managed by Group Treasury, as described below, and are not included within Group VaR. Otherwise, the non-trading book does not run open foreign exchange positions.

Equity risk relating to non-listed Private Equity and strategic investments is not included within the VaR. It is separately managed through delegated limits for both investment and divestment, and is also subject to regular review by an investment committee. These are included as Level 3 assets as disclosed in note 12 to the financial statements.

Group Treasury market risk

Group Treasury raises debt and equity capital and the proceeds are invested within the Group as capital or placed with ALM. Interest rate risk arises due to the investment of equity and reserves into rate-sensitive assets, as well as some tenor mismatches between debt issuance and placements. This risk is measured as the impact on net interest income (NII) of an unexpected and instantaneous adverse parallel shift in rates and is monitored over a rolling one-year time horizon (see table below).

This risk is monitored and controlled by the Group's Capital Management Committee (CMC).

Group Treasury NII sensitivity to parallel shifts in yield curves

	2013	2012
	$million	$million
+25 basis points	33.9	33.1
-25 basis points	(33.9)	(33.1)

Group Treasury also manages the structural foreign exchange risk that arises from non-US dollar currency net investments in branches and subsidiaries. The impact of foreign exchange movements is taken to reserves which form part of the capital base. The effect of exchange rate movements on the capital ratio is partially mitigated by the fact that both the value of these investments and the risk weighted assets in those currencies follow broadly the same exchange rate movements. With the approval of CMC, Group Treasury may hedge the net investments if it is anticipated that the capital ratio will be materially affected by exchange rate movements. At 31 December 2013, the Group had taken net investment hedges (using a combination of derivative and non-derivative financial investments) of $1,280 million (2012: $971 million) to partly cover its exposure to Korean won.

The table below sets out the principal structural foreign exchange exposures (net of investment hedges) of the Group:

	2013	2012
	$million	$million
Hong Kong dollar	7,079	6,619
Korean won	5,194	6,301
Indian rupee	3,793	4,025
Taiwanese dollar	2,853	2,946
Chinese renminbi	3,084	2,245
Singapore dollar	2,925	1,195
Thai baht	1,640	1,662
UAE dirham	1,766	1,598
Malaysian ringgit	1,650	1,360
Indonesian rupiah	993	1,164
Pakistani rupee	530	586
Other	4,010	3,648
	35,517	33,349

An analysis has been performed on these exposures to assess the impact of a one per cent change in the US dollar exchange rates adjusted to incorporate the impacts of correlations of these currencies to the US dollar. The impact on the positions above would be an increase or decrease in value of $247 million (2012: $255 million). Changes in the valuation of these positions are taken to reserves.

Derivatives

Derivatives are contracts with characteristics and value derived from underlying financial instruments, interest and exchange rates or indices. They include futures, forwards, swaps and options transactions. Derivatives are an important risk management tool for banks and their customers because they can be used to manage market price risk. The market risk of derivatives is managed in essentially the same way as other traded products.

Our derivative transactions are principally in instruments where the mark-to-market values are readily determinable by reference to independent prices and valuation quotes.

We enter into derivative contracts in the normal course of business to meet customer requirements and to manage our exposure to fluctuations in market price movements.

Derivatives are carried at fair value and shown in the balance sheet as separate totals of assets and liabilities. Recognition of fair value gains and losses depends on whether the derivatives are classified as trading or held for hedging purposes.

The credit risk arising from all financial derivatives is managed as part of the overall lending limits to financial institutions and corporate customers. This is covered in more detail in the Credit risk section.

Hedging

Countries within the Group use futures, forwards, swaps and options transactions primarily to mitigate interest and foreign exchange risk arising from their in-country exposures. The Group also uses futures, forwards and options to hedge foreign exchange and interest rate risk.

In accounting terms under IAS 39, hedges are classified into three types: fair value hedges, predominantly where fixed rates of interest or foreign exchange are exchanged for floating rates; cash flow hedges, predominantly where variable rates of interest or foreign exchange are exchanged for fixed rates; and hedges of net investments in overseas operations translated to the parent company's functional currency, US dollars.

The notional value of interest rate swaps for the purpose of fair value hedging increased by $6billion at 31 December 2013 compared to 31 December 2012. Fair value hedges largely hedge the interest-rate risk on our sub-debt and debt securities in the UK which form part of the Group's liquidity buffers and are used to manage fixed rate securities and loan portfolios in our key markets. Currency and interest rate swaps used for cash flow hedging have increased by $2 billion at 31 December 2013 compared to 31 December 2012. The increase of cash flow hedges is attributable to floating rate loans, bonds and deposits mainly in Korea and Singapore.

We may also, under certain individually approved circumstances, enter into economic hedges that do not qualify for IAS 39 hedge accounting treatment, and which are accordingly marked to market through the profit and loss account, thereby creating an accounting asymmetry. These are entered into primarily to ensure that residual interest rate and foreign exchange risks are being effectively managed. Current economic hedge relationships include hedging the foreign exchange risk on certain debt issuances and on other monetary instruments held in currencies other than US dollars.

Liquidity risk

Liquidity risk is the risk that we either do not have sufficient financial resources available to meet our obligations as they fall due, or can only access these financial resources at excessive cost.

It is our policy to maintain adequate liquidity at all times, in all geographic locations and for all currencies, and hence to be in a position to meet obligations as they fall due. We manage liquidity risk both on a short-term and structural basis. In the short-term, our focus is on ensuring that the cash flow demands can be met where required. In the medium-term, the focus is on ensuring that the balance sheet remains structurally sound and is aligned to our strategy.

The Group Asset and Liability Committee (GALCO) is the responsible governing body that approves our liquidity management policies. The Liquidity Management Committee (LMC) receives authority from the GALCO and is responsible for setting or delegating authority to set liquidity limits and proposing liquidity risk policies. Liquidity in each country is managed by the country ALCO within pre-defined liquidity limits and in compliance with Group liquidity policies and practices, as well as local regulatory requirements. GMR and Group Treasury propose and oversee the implementation of policies and other controls relating to the above risks.

We seek to manage our liquidity prudently in all geographical locations and for all currencies. Exceptional market events could impact us adversely, thereby potentially affecting our ability to fulfill our obligations as they fall due. The principal uncertainties for liquidity risk are that customers withdraw their deposits at a substantially faster rate than expected, or that asset repayments are not received on the expected maturity date. To mitigate these uncertainties, our funding base is diverse and largely customer-driven, while customer assets are of short tenor (50 per cent of assets have a contractual maturity of less than 1 year). In addition we have contingency funding plans including a portfolio of liquid assets that can be realised if a liquidity stress occurs, as well as ready access to wholesale funds under normal market conditions.

Policies and procedures

Our liquidity risk management framework requires limits to be set and monitored. There are limits on:

· The local and foreign currency cash flow gaps

· The level of external wholesale borrowing to ensure that the size of this funding is proportionate to the local market and our local operations

· The level of borrowing from other countries within the Group to contain the risk of contagion from one country to another

· Commitments and contingents to ensure that sufficient funds are available in the event of drawdown

The advances to deposits ratio to ensure that commercial advances are funded by stable sources and that customer lending is funded by customer deposits

· The amount of assets that may be funded from other currencies

· The amount of medium term assets that have to be funded by medium term funding

In addition, we prescribe a liquidity stress scenario that includes accelerated withdrawal of deposits over a period of time. Each country has to ensure on a daily basis that cash inflows would exceed outflows under such a scenario.

All limits are reviewed at least annually, and more frequently if required, to ensure that they remain relevant given market conditions and business strategy. Compliance with limits is monitored independently on a regular basis by GMR and Finance. Limit excesses are escalated and approved under a delegated authority structure and reported to the ALCO. Excesses are also reported monthly to the LMC which provide further oversight.

We have significant levels of marketable securities, including government securities that can be monetised or pledged as collateral in the event of a liquidity stress. In addition, a Funding Crisis Response and Recovery Plan (FCRRP), reviewed and approved annually, is maintained by Group Treasury. The FCRRP strengthens existing governance processes by providing a broad set of Early Warning Indicators (EWIs), an escalation framework and a set of management actions that could be effectively implemented by the appropriate level of senior management in the event of a liquidity stress. A similar plan is maintained within each country.

Primary sources of funding

A substantial portion of our assets are funded by customer deposits, largely made up of current and savings accounts. Of total customer deposits, 42.5 per cent are retail deposits and 57.5 per cent wholesale customer deposits (31 December 2012: retail 43.1 per cent, wholesale customer deposits 56.9 per cent). Wholesale customer deposits are widely diversified by type and maturity and represent a stable source of funds for the Group. In addition, the short term nature of our wholesale assets results in a balance sheet that is funded conservatively (64 per cent of wholesale banking loans and advances have a contractual maturity of less than one year).

The ALCO in each country monitors trends in the balance sheet and ensures that any concerns that might impact the stability of these customer deposits are addressed effectively. The ALCO also reviews balance sheet plans to ensure that projected asset growth is matched by growth in customer deposits.

Customer assets are as far as possible funded in the same currency. Where mismatches arise, they are controlled by limits in each country on the amount of foreign currency that can be swapped to local currency and vice versa. Such limits are therefore a means of controlling reliance on foreign exchange markets, which minimises the risk that obligations could not be met in the required currency in the event that access to foreign exchange markets becomes restricted. In sizing the limits we consider a range of factors including:

· The size and depth of local FX markets; and

· The local regulatory environment, particularly the presence or risk of imposition of foreign exchange controls.

We maintain access to wholesale funding markets in all major financial centres and countries in which we operate. This seeks to ensure that we have market intelligence, maintain stable funding lines and can obtain optimal pricing when we perform our interest rate risk management activities.

Debt refinancing levels are low. In the next 12 months approximately $6.7 billion of the Group's senior and subordinated debt is falling due for repayment either contractually or callable by the Group. Further details of the Group's senior and subordinated debt by geography are provided in note 2 to the financial statements on page 104.

The table below shows the diversity of funding by type and by geography. Customer deposits make up 58 per cent of total liabilities as at 31 December 2013, the majority of which are current accounts, savings accounts and time deposits. Our largest customer deposit base by geography is Hong Kong, which holds 27.1 per cent of Group customer accounts

	31.12.13
Group's composition of Liabilities	%
Customer accounts	58.0
Deposits by banks	6.6
Derivative financial instruments	9.1
Other liabilities	5.8
Debt securities in issue	10.6
Subordinated liabilities and other borrowed funds	3.0
Total equity	6.9
Total	100.0
31.12.13
Geographic distribution of customer accounts	%
Hong Kong	27.1
Singapore	19.0
Korea	7.8
Other Asia Pacific	16.5
India	3.3
MESA	6.7
Africa	2.9
Americas, UK & Europe	16.7
Total	100.0

Encumbered assets

Encumbered assets represent those on balance sheet assets pledged or used as collateral in respect of certain Group liabilities. Hong Kong government certificates of indebtedness which secure the equivalent amount of Hong Kong currency notes in circulation, and cash collateral pledged against derivatives are classified as encumbered and included within other assets. Taken together these encumbered assets represent 3.1 per cent (2012: 2.2 per cent) of total assets, continuing the Group's historical low level of encumbrance.

The following table provides a reconciliation of the Group's encumbered assets to total assets.


		2013			2012
	Unencumbered assets				Unencumbered assets
	Not readily available to secure funding	Readily available to secure funding	Encumbered assets	Total assets	Not readily available to secure funding	Readily available to secure funding	Encumbered assets	Total assets
	$million	$million	$million	$million	$million	$million	$million	$million
Cash and balances at central banks	9,946	44,588	-	54,534	9,336	51,201	-	60,537
Derivative financial instruments	61,802	-	-	61,802	49,495	-	-	49,495
Loans and advances to banks	46,917	36,890	2,362	86,169	37,456	30,392	723	68,571
Loans and advances to customers	294,884	-	1,131	296,015	282,238	-	2,378	284,616
Investment securities	48,699	72,062	3,516	124,277	48,910	70,041	1,598	120,549
Other assets	19,870	-	13,700	33,570	19,289	-	9,259	28,548
Current tax assets	234	-	-	234	215	-	-	215
Prepayments and accrued income	2,510	-	-	2,510	2,552	-	-	2,552
Interests in associates	1,767	-	-	1,767	1,684	-	-	1,684
Goodwill and intangible assets	6,070	-	-	6,070	7,145	-	-	7,145
Property, plant and equipment	6,903	-	-	6,903	6,620	-	-	6,620
Deferred tax assets	529	-	-	529	676	-	-	676
Total	500,131	153,540	20,709	674,380	465,616	151,634	13,958	631,208

In addition to the above the Group received $17,835 million (2012: $10,949 million) as collateral under reverse repurchase agreements that was eligible for repledging. Of this the Group repledged $1,804 million (2012: $1,378 million) under repurchase agreements.

Readily available to secure funding

Readily available to secure funding includes unencumbered assets that can be sold outright or under repo within a few days, in line with regulatory definitions. The Group's readily available assets comprises cash and balances at central banks, loans and advances to banks and investment securities.

Assets classified as not readily available to secure funding include:

· Assets which have no restrictions for funding and collateral purposes, such as loans and advances to customers, which are not acquired or originated with the intent of generating liquidity value; and

· Assets that cannot be encumbered, such as derivatives, goodwill and intangible and deferred tax assets.

Liquidity metrics

Key liquidity metrics are monitored on a regular basis, both on a country basis and in aggregate across the Group. These include:

Advances to deposits ratio

This is defined as the ratio of total loans and advances to customers relative to total customer deposits. A low advances to deposits ratio demonstrates that customer deposits exceed customer loans resulting from emphasis placed on generating a high level of stable funding from customers.

	2013 $million	2012 $million
Loans and advances to customers¹	296,015	284,616
Customer accounts²	390,971	385,117
	%	%
Advances to deposits ratio	75.7	73.9

¹ see note 16 to the financial statements on page 127

² see note 22 to the financial statements on page 132

Liquid asset ratio (LAR)

The Liquid Asset Ratio ("LAR") ensures that a proportion of the Group's total assets are held in liquid assets, on a consolidated currency basis.

Liquid assets are the total cash (less restricted balances), treasury bills, loans and advances to banks (including net unsecured interbank and trade finance) and debt securities (less illiquid securities). Illiquid securities are debt securities that cannot be sold or exchanged easily for cash without substantial loss in value.

The Group LAR remained at similar levels as in the previous year, reflecting an increase in liquid assets holdings to match balance sheet growth.

The following table sets an analysis of the Group's liquid assets by geographic region:

		2013
		Hong Kong	Singapore	Korea	Other Asia Pacific	India	Middle East & Other S Asia	Africa	Americas UK & Europe	Group
		$million	$million	$million	$million	$million	$million	$million	$million	$million
Cash and balances at central banks		2,099	2,074	887	12,716	700	2,439	1,621	31,998	54,534
Restricted balances		(6)	(2,028)	(542)	(4,361)	(478)	(1,591)	(644)	(296)	(9,946)
Loans and advances to banks - net of non-performing loans		17,652	4,501	4,192	14,804	399	2,273	742	41,499	86,062
Deposits by banks		(2,091)	(4,792)	(1,479)	(6,926)	(459)	(1,574)	(566)	(26,639)	(44,526)
Treasury bills		10,244	3,627	6,794	1,618	2,167	1,620	2,777	2,557	31,404
Debt securities		20,273	11,391	5,271	15,179	2,495	4,387	2,803	24,274	86,073
of which :
	Issued by governments	4,257	2,989	3,664	12,591	1,760	3,784	1,307	3,525	33,874
	Issued by banks	11,206	3,749	935	1,559	327	265	267	13,860	32,171
	Issued by corporate and other entities	4,810	4,653	672	1,029	408	338	1,229	6,889	20,028
Illiquid securities and other assets		(170)	(348)	-	-	(769)	(43)	-	(1,051)	(2,381)
Liquid assets		48,001	14,425	15,123	33,030	4,055	7,511	6,733	72,342	201,220
Total assets		141,261	117,296	62,018	110,753	22,747	41,914	19,346	159,045	674,380
Liquid assets to total asset ratio (%)		34.0	12.3	24.4	29.8	17.8	17.9	34.8	45.5	29.8

Liquid asset ratio (LAR) continued

		2012
		Hong Kong	Singapore	Korea	Other Asia Pacific	India	Middle East & Other S Asia	Africa	Americas UK & Europe	Group
		$million	$million	$million	$million	$million	$million	$million	$million	$million
Cash and balances at central banks		1,880	1,932	494	11,783	845	2,138	1,463	40,002	60,537
Restricted balances		(4)	(1,759)	(182)	(4,477)	(571)	(1,483)	(508)	(352)	(9,336)
Loans and advances to banks - net of non-performing loans		19,351	6,205	4,633	8,047	571	3,075	378	26,105	68,365
Deposits by banks		(1,585)	(2,005)	(1,769)	(5,628)	(441)	(1,934)	(540)	(23,493)	(37,395)
Treasury bills		5,454	4,102	9,119	2,737	1,996	1,928	2,260	2,099	29,695
Debt securities		21,207	11,352	4,299	14,303	3,617	4,472	2,810	22,362	84,422
of which :
	Issued by governments	4,916	3,152	2,194	11,961	2,651	3,721	1,134	3,959	33,688
	Issued by banks	12,537	4,453	1,083	1,499	366	561	319	11,441	32,258
	Issued by corporate and other entities	3,754	3,747	1,023	845	600	190	1,357	6,962	18,476

Illiquid securities and other assets		(357)	(655)	-	(320)	(828)	(27)	-	(1,353)	(3,540)
Liquid assets		45,946	19,172	16,594	26,445	5,189	8,169	5,863	65,370	192,748
Total assets		129,821	111,997	69,173	106,406	23,812	40,779	17,495	131,725	631,208
Liquid assets to total asset ratio (%)		35.4	17.1	24.0	24.9	21.8	20.0	33.5	49.6	30.5

Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR)

The Group monitors the LCR and NFSR in line with the Bank of International Settlements' BCBS238 guidelines. The Group already meets the Basel III requirements for both the NSFR and LCR, well ahead of the required implementation date. As at 31 December 2013 both the Group LCR and NSFR were between 110 and 120 per cent.

Liquidity management - stress scenarios

The Group conducts a range of liquidity related stress analyses, both for internal and regulatory purposes.

Internally, three stress tests are run routinely: an acute 8-day name specific stress, a 30-day market wide stress and a more chronic 90-day combined name specific and market wide stress. Liquidity and funding risks are also considered as part of the Group's wider periodic scenario analysis, including reverse stress testing. In addition, the Group runs a range of stress tests to meet regulatory requirements, as defined by the PRA and local regulators.

The 8-day stress is specifically designed to determine a minimum quantity of marketable securities that must be held at all times in all countries. This stress is computed daily, and the minimum marketable securities requirement is observed daily. This is intended to ensure that, in the unlikely event of an acute loss of confidence in the Group or any individual entity within it, there is sufficient time to take corrective action. Every country must pass, on a stand-alone basis, with no presumption of Group support. As at 31 December 2013 all countries passed the stress test.

The Group's resilience to market-wide disruption, such as loss of interbank money or foreign exchange markets, is tested using the 30-day market wide stress scenario, and is monitored by country ALCOs .

Finally, the 90-day stress test considers more prolonged stresses that affect markets across a number of the Group's main footprint countries and in which the Group itself may come under some sustained pressure. This pressure may be unwarranted or may be because the Group is inextricably linked with those markets/countries. This stress is managed at a Group rather than individual country level. It tests the adequacy of contingency funding arrangements beyond the marketable securities held to cover the 8-day stress, including the ability to support countries from elsewhere in the Group.

Our country stress testing considers potential currency mismatches between outflows and inflows. Particular focus is paid to mismatches in less liquid currencies and those which are not freely convertible. Mismatches are controlled by management action triggers set by GMR. Group-wide stress tests also consider the portability of liquidity surpluses between Group entities, taking account of regulatory restrictions on large and intra-group exposures.

Standard Chartered Bank's credit ratings as at end of December 2013 were AA- (Fitch), A+ (S&P) and A1 (Moody's). A downgrade in credit rating would increase derivative collateral requirements and outflows due to conditional liabilities. The impact of a 2-notch downgrade results in an estimated outflow of $1.2 billion.

Liquidity analysis of the Group's balance sheet

Contractual maturity of assets and liabilities

The tables below analyses assets and liabilities into relevant maturity groupings based on the remaining period to the contractual maturity date as at the balance sheet date. The Group seeks to manage its liabilities both on a contractual and behavioural basis primarily by matching the maturity profile of assets and liabilities.

The tables indicate the relatively short-term nature of our asset book; over half of total assets mature within one year, and of these approximately 70 per cent mature within three months. The net funding surplus evident in the one month or less bucket is largely reflective of on demand customer liabilities. The net mismatch between assets and liabilities (or net gap) with a contractual maturity greater than one month is managed conservatively with internal limits.

	2013
	One month or less	Between one month and three months	Between three months and six months	Between six months and nine months	Between nine months and one year	Between one year and two years	Between two years and five years	More than five years and undated	Total
	$million	$million	$million	$million	$million	$million	$million	$million	$million
Assets
Cash and balances at central banks	44,309	264	-	-	-	-	-	9,961	54,534
Derivative financial instruments	6,820	7,376	8,403	4,514	3,612	9,085	13,453	8,539	61,802
Loans and advances to banks¹	36,890	21,705	13,349	5,543	5,153	1,647	1,798	84	86,169
Loans and advances to customers¹	73,036	29,469	23,541	10,772	11,677	22,549	48,297	76,674	296,015
Investment securities	11,496	13,948	12,567	7,252	11,241	21,052	30,844	15,877	124,277
Other assets	14,677	10,964	2,316	44	318	35	201	23,028	51,583
Total assets	187,228	83,726	60,176	28,125	32,001	54,368	94,593	134,163	674,380

	2013
	One month or less	Between one month and three months	Between three months and six months	Between six months and nine months	Between nine months and one year	Between one year and two years	Between two years and five years	More than five years and undated	Total
	$million	$million	$million	$million	$million	$million	$million	$million	$million
Liabilities
Deposits by banks¹	36,084	4,873	1,489	394	276	173	521	716	44,526
Customer accounts¹	279,638	48,630	26,473	12,864	10,793	2,574	6,310	3,689	390,971
Derivative financial instruments	6,922	7,306	9,405	4,195	3,418	8,480	12,802	8,708	61,236
Senior debt	478	291	3,485	430	19	7,020	10,121	3,334	25,178
Other debt securities in issue¹	10,114	13,252	11,516	1,422	1,938	1,141	1,992	4,859	46,234
Other liabilities	12,759	8,665	3,260	962	432	544	1,117	11,258	38,997
Subordinated liabilities and other borrowed funds	-	-	-	-	-	6	4,785	15,606	20,397
Total liabilities	345,995	83,017	55,628	20,267	16,876	19,938	37,648	48,170	627,539
Net liquidity gap	(158,767)	709	4,548	7,858	15,125	34,430	56,945	85,993	46,841
¹Amounts include financial instruments held at fair value through profit or loss (see note 12 on page 113)

Liquidity risk continued

Liquidity analysis of the Group's balance sheet continued
Contractual maturity of assets and liabilities continued
	2012
	One month or less	Between one month and three months	Between three months and six months	Between six months and nine months	Between nine months and one year	Between one year and two years	Between two years and five years	More than five years and undated	Total
	$million	$million	$million	$million	$million	$million	$million	$million	$million
Assets
Cash and balances at central banks	51,201	-	-	-	-	-	-	9,336	60,537
Derivative financial instruments	4,787	5,705	4,365	3,079	2,079	6,762	12,272	10,446	49,495
Loans and advances to banks¹	30,392	16,313	6,275	3,514	9,127	1,635	1,125	190	68,571
Loans and advances to customers¹	61,261	28,393	21,819	12,678	9,796	20,566	49,221	80,882	284,616
Investment securities¹	8,205	16,578	13,609	7,520	12,912	15,695	31,575	14,455	120,549
Other assets	9,663	12,529	1,901	602	277	82	207	22,179	47,440
Total assets	165,509	79,518	47,969	27,393	34,191	44,740	94,400	137,488	631,208

	2012
	One month or less	Between one month and three months	Between three months and six months	Between six months and nine months	Between nine months and one year	Between one year and two years	Between two years and five years	More than five years and undated	Total
	$million	$million	$million	$million	$million	$million	$million	$million	$million
Liabilities
Deposits by banks¹	32,869	2,541	1,023	114	157	159	438	94	37,395
Customer accounts¹	264,949	49,271	29,693	10,605	12,674	6,045	4,828	7,052	385,117
Derivative financial instruments	4,887	5,190	4,685	3,355	2,110	6,149	11,418	9,398	47,192
Senior debt¹	279	1,339	1,732	768	213	5,173	10,366	1,786	21,656
Other debt securities in issue¹	7,961	15,862	4,889	2,278	2,723	1,693	1,454	2,724	39,584
Other liabilities	9,671	7,273	3,500	1,360	528	715	889	11,685	35,621
Subordinated liabilities and other borrowed funds	488	129	-	-	944	-	3,496	13,531	18,588
Total liabilities	321,104	81,605	45,522	18,480	19,349	19,934	32,889	46,270	585,153
Net liquidity gap	(155,595)	(2,087)	2,447	8,913	14,842	24,806	61,511	91,218	46,055
¹Amounts include financial instruments held at fair value through profit or loss (see note 12 on page 113)

Liquidity risk continued

Behavioural maturity of financial assets and liabilities

The cash flows presented on page 98 reflect the cash flows which will be contractually payable over the residual maturity of the instruments. However, contractual maturities do not necessarily reflect the timing of actual repayments or cash flow. In practice, certain asset and liability instruments behave differently from their

contractual terms and, especially for short term customer accounts, extend to a longer period than their contractual maturity. Such behavioural adjustments are identified in each country through analysis of the historic behaviour of balances. The Group's expectation of when assets and liabilities are likely to become due is provided in the table below:

	2013
	One month or less	Between one month and three months	Between three months and six months	Between six months and nine months	Between nine months and one year	Between one year and two years	Between two years and five years	More than five years and undated	Total
	$million	$million	$million	$million	$million	$million	$million	$million	$million
Assets
Loans and advances to banks¹	36,990	21,856	13,342	5,532	5,072	1,554	1,665	158	86,169
Loans and advances to customers¹	55,193	27,724	18,204	8,491	17,991	21,239	88,092	59,081	296,015
Total loans and advances	92,183	49,580	31,546	14,023	23,063	22,793	89,757	59,239	382,184

Liabilities
Deposits by banks¹	35,804	5,063	1,472	427	318	138	597	707	44,526
Customer accounts¹	131,684	28,574	16,700	11,055	23,572	115,686	58,868	4,832	390,971
Total deposits	167,488	33,637	18,172	11,482	23,890	115,824	59,465	5,539	435,497
Net gap	(75,305)	15,943	13,374	2,541	(827)	(93,031)	30,292	53,700	(53,313)

	2012
	One month or less	Between one month and three months	Between three months and six months	Between six months and nine months	Between nine months and one year	Between one year and two years	Between two years and five years	More than five years and undated	Total
	$million	$million	$million	$million	$million	$million	$million	$million	$million
Assets
Loans and advances to banks¹	36,152	13,239	9,299	3,245	3,359	1,196	1,910	171	68,571
Loans and advances to customers¹	56,217	25,101	21,296	16,201	12,409	2,093	86,169	65,130	284,616
Total loans and advances	92,369	38,340	30,595	19,446	15,768	3,289	88,079	65,301	353,187

Liabilities
Deposits by banks¹	32,543	2,722	1,139	125	187	304	303	72	37,395
Customer accounts¹	123,574	37,998	26,839	11,732	26,521	106,071	43,885	8,497	385,117
Total deposits	156,117	40,720	27,978	11,857	26,708	106,375	44,188	8,569	422,512
Net gap	(63,748)	(2,380)	2,617	7,589	(10,940)	(103,086)	43,891	56,732	(69,325)
¹Amounts include financial instruments held at fair value through profit or loss (see note 12 on page 113)

This information is provided by RNS

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