Company Announcements

SCPLC Half Year Results 2022 - Part 2

Source: RNS
RNS Number : 1887U
Standard Chartered PLC
29 July 2022
 

Standard Chartered PLC - Half Year Results 2022 - Part 2

Table of contents

 

Risk review

2

Capital review

58

Financial statements

65

Other supplementary information

122

Glossary

133

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

The information within this report is unaudited.

Unless the context requires, within this document, 'China' refers to the People's Republic of China and, for the purposes of this document only, excludes Hong Kong Special Administrative Region (Hong Kong), Macau Special Administrative Region (Macau) and Taiwan. 'Korea' or 'South Korea' refers to the Republic of Korea. Asia includes Australia, Bangladesh, Brunei, Cambodia, Mainland China, Hong Kong, India, Indonesia, Japan, Korea, Laos, Macau, Malaysia, Myanmar, Nepal, Philippines, Singapore, Sri Lanka, Taiwan, Thailand and Vietnam; Africa & Middle East (AME) includes Angola, Bahrain, Botswana, Cameroon, Cote d'Ivoire, Egypt, The Gambia, Ghana, Iraq, Jordan, Kenya, Lebanon, Mauritius, Nigeria, Oman, Pakistan, Qatar, Saudi Arabia, Sierra Leone, South Africa, Tanzania, the United Arab Emirates (UAE), Uganda, Zambia and Zimbabwe; and Europe & Americas (EA) includes Argentina, Brazil, Colombia, Falkland Islands, France, Germany, Ireland, Jersey, Poland, Sweden, Turkey, the UK and the US.

Within the tables in this report, blank spaces indicate that the number is not disclosed, dashes indicate that the number is zero and nm stands for not meaningful.

Standard Chartered PLC is incorporated in England and Wales with limited liability. Standard Chartered PLC is headquartered in London. The Group's head office provides guidance on governance and regulatory standards. Standard Chartered PLC stock codes are: HKSE 02888 and LSE STAN.LN.

 

Page 1

 

Risk review and Capital review

Risk Index



Risk profile

Credit Risk


Basis of preparation


Credit Risk overview


Impairment model


Staging of financial instruments


IFRS 9 principles and approaches


Maximum exposure to Credit Risk


Analysis of financial instrument by stage


Credit quality analysis


•  Credit quality by client segment


•  Credit quality by geographic region


Movement in gross exposures and credit impairment for loans and advances, debt securities, undrawn commitments and financial guarantees


Movement of debt securities, alternative Tier 1 and other eligible bills


Analysis of stage 2 balances


Credit impairment charge


COVID-19 relief measures


Problem credit management and provisioning


•  Forborne and other modified loans by client segment


•  Forborne and other modified loans by region


•  Credit-impaired (stage 3) loans and advances by client segment


•  Credit-impaired (stage 3) loans and advances by geographic region


Credit risk mitigation


•  Collateral


•  Collateral held on loans and advances


•  Collateral - Corporate, Commercial & Institutional Banking


•  Collateral - Consumer, Private & Business Banking


•  Mortgage loan-to-value ratios by geography


•  Collateral and other credit enhancements possessed or called upon


•  Other Credit Risk mitigation


Other portfolio analysis


•  Credit quality by industry


•  Industry and Retail Products analysis of loans and advances by geographic region


•  Vulnerable and cyclical sector tables


IFRS 9 expected credit loss methodology


Traded Risk


Market Risk movements


Counterparty Credit Risk


Derivative financial instruments Credit Risk mitigation


Liquidity and funding Risk


Liquidity & Funding Risk metrics


Encumbrance


Liquidity analysis of the Group's balance sheet


Interest Rate Risk in the Banking Book


Operational and Technology Risk


Operational and Technology Risk profile


Other principal risks


 

 

 

Page 2

 

Risk Index



Capital

Capital summary



•  Capital ratios



•  CRD Capital base



•  Movement in total capital



Risk-weighted asset



Group leverage ratio


The following parts of the Risk review and Capital review form part of these condensed interim financial statements and are reviewed by the external auditors:

a) Risk review: Disclosures marked as 'reviewed' from the start of Credit risk section to the end of other principal risks in the same section; and

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Page 3

 

Credit Risk (reviewed)

Basis of preparation

Unless otherwise stated, the balance sheet and income statement information presented within this section is based on the Group's management view. This is principally the location from which a client relationship is managed, which may differ from where it is financially booked and may be shared between businesses and/or regions. This view reflects how the client segments and regions are managed internally.

Loans and advances to customers and banks held at amortised cost in this Risk profile section include reverse repurchase agreement balances held at amortised cost, per Note 14 Reverse repurchase and repurchase agreements including other similar secured lending and borrowing.

Credit Risk overview

Credit Risk is the potential for loss due to the failure of a counterparty to meet its obligations to pay the Group. Credit exposures arise from both the banking and trading books

Impairment model

IFRS 9 requires an impairment model that requires the recognition of expected credit losses (ECL) on all financial debt instruments held at amortised cost, fair value through other comprehensive income (FVOCI), undrawn loan commitments and financial guarantees.

Staging of financial instruments

Financial instruments that are not already credit-impaired are originated into stage 1 and a 12-month expected credit loss provision is recognised.

Instruments will remain in stage 1 until they are repaid, unless they experience significant credit deterioration (stage 2) or they become credit-impaired (stage 3).

Instruments will transfer to stage 2 and a lifetime expected credit loss provision recognised when there has been a significant change in the Credit Risk compared to what was expected at origination.

The framework used to determine a significant increase in Credit Risk is set out below.

Stage 1

•  12-month ECL

•  Performing

Stage 2

•  Lifetime ECL

•  Performing but has exhibited Significant Increase in Credit Risk (SICR)

Stage 3

•  Credit-impaired

•  Non-performing

 

 

 

 

 

 

 

 

 

Page 4

 

IFRS 9 principles and approaches

The main methodology principles and approach adopted by the Group are set out in the following table.

Title

Description

Supplementary Information

Approach to determining expected credit losses

For material loan portfolios, the Group has adopted a statistical modelling approach for determining expected credit losses that makes extensive use of credit modelling. These models leveraged existing advanced internal ratings based (IRB) models, where these were available. Where model performance breaches model monitoring thresholds or validation standards, a post model adjustment may be required to correct for identified model issues, which will be removed once those issues have been remedied.

IFRS 9 expected credit loss methodology

Post model adjustments

Incorporation of forward-looking information

The determination of expected credit loss includes various assumptions and judgements in respect of forward-looking macroeconomic information. Refer to for incorporation of forward-looking information, forecast of key macroeconomic variables underlying the expected credit loss calculation and the impact on non-linearity and sensitivity of expected credit loss calculation to macroeconomic variables. Management overlays may also be used to capture risks not identified in the models.

Incorporation of forward-looking information and impact of non-linearity

Forecast of key macroeconomic variables underlying the expected credit loss calculation

Management overlay and sensitivity to macroeconomic variables

Significant increase in Credit Risk (SICR)

Expected credit loss for financial assets will transfer from a 12-month basis (stage 1) to a lifetime basis (stage 2) when there is a significant increase in Credit Risk relative to that which was expected at the time of origination, or when the asset becomes credit-impaired. On transfer to a lifetime basis, the expected credit loss for those assets will reflect the impact of a default event expected to occur over the remaining lifetime of the instrument rather than just over the 12 months from the reporting date.

SICR is assessed by comparing the risk of default of an exposure at the reporting date with the risk of default at origination (after considering the passage of time). 'Significant' does not mean statistically significant nor is it reflective of the extent of the impact on the Group's financial statements. Whether a change in the risk of default is significant or not is assessed using quantitative and qualitative criteria, the weight of which will depend on the type of product and counterparty.

IFRS 9 expected credit loss methodology

Assessment of credit-impaired financial assets

Credit-impaired (stage 3) financial assets comprise those assets that have experienced an observed credit event and are in default. Default represents those assets that are at least 90 days past due in respect of principal and interest payments and/or where the assets are otherwise considered unlikely to pay. This definition is consistent with internal Credit Risk management and the regulatory definition of default.

Unlikely to pay factors include objective conditions such as bankruptcy, debt restructuring, fraud or death. It also includes credit-related modifications of contractual cash flows due to significant financial difficulty (forbearance) where the Group has granted concessions that it would not ordinarily consider.

Interest income for stage 3 assets is recognised by applying the original effective interest rate to the net asset amount (that is, net of credit impairment provisions).When financial assets are transferred from stage 3 to stage 2, any contractual interest earned while the asset was in stage 3 is recognised within the credit impairment line.

Consumer, Private and Business Banking clients

Corporate, Commercial and Institutional Banking clients

Transfers between stages

Assets will transfer from stage 3 to stage 2 when they are no longer considered to be credit-impaired. Assets will not be considered credit-impaired only if the customer makes payments such that they are paid to current in line with the original contractual terms.

Assets may transfer to stage 1 if they are no longer considered to have experienced a significant increase in Credit Risk. This will be immediate when the original probability of default (PD) based transfer criteria are no longer met (and as long as none of the other transfer criteria apply). Where assets were transferred using other measures, the assets will only transfer back to stage 1 when the condition that caused the significant increase in Credit risk no longer applies (and as long as none of the other transfer criteria apply).

Movement in loan exposures and expected credit losses

 

 

 

 

Page 5

 

Modified financial assets

Where the contractual terms of a financial instrument have been modified, and this does not result in the instrument being derecognised, a modification gain or loss is recognised in the income statement representing the difference between the original cashflows and the modified cash flows, discounted at the effective interest rate. The modification gain/loss is directly applied to the gross carrying amount of the instrument.

If the modification is credit related, such as forbearance or where the Group has granted concessions that it would not ordinarily consider, then it will be considered credit-impaired. Modifications that are not credit related will be subject to an assessment of whether the asset's Credit Risk has increased significantly since origination by comparing the remaining lifetime PD based on the modified terms to the remaining lifetime PD based on the original contractual terms.

COVID-19 relief measures

Forbearance and other modified loans

Governance and application of expert credit judgement in respect of expected credit losses

The models used in determining ECL are reviewed and approved by the Group Credit Model Assessment Committee and have been validated by Group model validation, which is independent of the business.

A quarterly model monitoring process is in place that uses recent data to compare the differences between model predictions and actual outcomes against approved thresholds. Where a model's performance breaches the monitoring thresholds then an assessment of whether an ECL adjustment is required to correct for the identified model issue is completed.

The determination of expected credit losses requires a significant degree of management judgement which had an impact on governance processes, with the output of the expected credit models assessed by the IFRS 9 Impairment Committee.


Maximum exposure to Credit risk (reviewed)

The table below presents the Group's maximum exposure to Credit Risk for its on-balance sheet and off-balance sheet financial instruments as at 30 June 2022, before and after taking into account any collateral held or other Credit Risk mitigation.

The Group's on-balance sheet maximum exposure to Credit Risk increased by $10.7 billion to $806 billion (2021: $796 billion).

Derivative exposures increased by $24.2 billion and other assets increased by $11.1 billion from additional cash collateral and settlement trades. This is offset by a decrease in $5.7 billion of cash and balances at central banks, $8.2 billion in loans and advances to banks, $5.0 billion in loans and advances to customers and $7.4 billion in Fair Value through profit or loss mainly from a reduction in reverse repo positions.

Of the $5.0 billion decrease in loans and advances to customers, Corporate, Commercial and Institutional Banking decreased by $5.7 billion from reductions in Stage 2 exposures and in Stage 3 assets due to loan sales, repayments and upgrades and Consumer, Private and Business Banking decreased by $4.3 billion from reductions in Mortgages and Secured wealth products. This is offset by an increase in Government sector of $4.9 billion in Central and other items segment.

Off-balance sheet instruments increased by $4.2 billion to $221 billion, driven by higher undrawn commitments.

 

 

 

 

 

 

 

 

 

Page 6

 


30.06.22

31.12.21

Maximum exposure
$million

Credit risk management

Net Exposure
$million

Maximum exposure
$million

Credit risk management

Net exposure
$million

Collateral8
$million

Master netting agreements
$million

Collateral8
$million

Master netting agreements
$million

On-balance sheet









Cash and balances at central banks

67,005



67,005

72,663



72,663

Loans and advances to banks1

36,201

795


35,406

44,383

1,079


43,304

of which - reverse repurchase agreements and other similar secured lending7

795

795


-

1,079

1,079


-

Loans and advances to customers1

293,508

125,385


168,123

298,468

131,397


167,071

of which - reverse repurchase agreements and other similar secured lending7

7,894

7,894


-

7,331

7,331


-

Investment securities - Debt securities
and other eligible bills2

164,137



164,137

162,700



162,700

Fair value through profit or loss3, 7

115,791

74,398

-

41,393

123,234

80,009

-

43,225

Loans and advances to banks

4,562



4,562

3,847



3,847

Loans and advances to customers

8,445



8,445

9,953



9,953

Reverse repurchase agreements and
other similar lending7

74,398

74,398


-

80,009

80,009


-

Investment securities - Debt securities
and other eligible bills2

28,386



28,386

29,425



29,425

Derivative financial instruments4, 7

76,676

14,559

47,911

14,206

52,445

8,092

39,502

4,851

Accrued income

1,853



1,853

1,674



1,674

Assets held for sale

60



60

52



52

Other assets5

51,135



51,135

40,068



40,068

Total balance sheet

806,366

215,137

47,911

543,318

795,687

220,577

39,502

535,608

Off-balance sheet6









Undrawn Commitments

162,841

4,201


158,640

158,523

3,848


154,675

Financial Guarantees and other equivalents

58,415

2,529


55,886

58,535

2,240


56,295

Total off-balance sheet

221,256

6,730

-

214,526

217,058

6,088

-

210,970

Total

1,027,622

221,867

47,911

757,844

1,012,745

226,665

39,502

746,578

1 Net of credit impairment. An analysis of credit quality is set out in the credit quality analysis section. Further details of collateral held by client segment and stage are set out in the collateral analysis section

2 Excludes equity and other investments of $755 million (31 December 2021: $737 million). Further details are set out in Note 13 Financial instruments

3 Excludes equity and other investments of $2,325 million (31 December 2021: $5,861 million). Further details are set out in Note 13 Financial instruments

4 The Group enters into master netting agreements, which in the event of default result 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 transaction

5 Other assets include Hong Kong certificates of indebtedness, cash collateral, and acceptances, in addition to unsettled trades and other financial assets

6 Excludes ECL allowances which are reported under Provisions for liabilities and charges

7 Collateral capped at maximum exposure (over-collateralised)

8 Adjusted for over-collateralisation, which has been determined with reference to the drawn and undrawn component as this best reflects the effect on the amount arising from expected credit losses

Analysis of financial instrument by stage (reviewed)

This table shows financial instruments and off-balance sheet commitments by stage, along with the total credit impairment loss provision against each class of financial instrument.

The proportion of financial instruments held within stage 1 improved by 1 per cent to 96 per cent (2021: 95 per cent). Total stage 1 balances increased by $6.8 billion, of which around $8.1 billion was in undrawn commitments, $11 billion in other assets from additional cash collateral and settlement trades and $1.9 billion in debt securities. This is offset by decrease of $6.5 billion in cash and balances at central bank, $8 billion in loans and advances to banks. Loans and advances to customers remained stable as Consumer, Private and Business Banking decrease of $4 billion was offset by increase in Central and other items of $4 billion.

Stage 2 financial instruments reduced by 94 basis points to 3.2 per cent (2021: 4.1 per cent) due to exposure reductions in Energy, Transport, telecom and utilities sectors in Corporate, Commercial and Institutional Banking. As a result, the proportion of loans and advances to customers classified in stage 2 also reduced to 4 per cent (2021: 6 per cent).

Stage 3 financial instruments were stable at 1 per cent of the Group total.

Off-balance sheet instruments increased by a net $4 billion, driven by higher undrawn commitments.

 

 

Page 7

 


30.06.22

Stage 1

Stage 2

Stage 3

Total

Gross balance1
$million

Total credit impairment
$million

Net carrying value
$million

Gross balance1
$million

Total credit impairment
$million

Net carrying value
$million

Gross balance1
$million

Total credit impairment
$million

Net carrying value
$million

Gross balance1
$million

Total credit impairment
$million

Net carrying value
$million

Cash and balances at central banks

66,145

-

66,145

864

(4)

860

-

-

-

67,009

(4)

67,005

Loans and advances to banks (amortised cost)

35,779

(7)

35,772

371

(5)

366

78

(15)

63

36,228

(27)

36,201

Loans and advances to customers (amortised cost)

279,136

(502)

278,634

12,539

(385)

12,154

7,053

(4,333)

2,720

298,728

(5,220)

293,508

Debt securities and other eligible bills5

159,265

(61)


4,853

(34)


106

(70)


164,224

(165)


Amortised cost

51,527

(16)

51,511

320

(1)

319

106

(70)

36

51,953

(87)

51,866

FVOCI2

107,738

(45)


4,533

(33)


-

-


112,271

(78)

-

Accrued income (amortised cost)4

1,853

-

1,853

-

-

-

-

-

-

1,853

-

1,853

Assets held for sale4

60

-

60

-

-

-

-

-

-

60

-

60

Other assets

51,134

-

51,134

-

-

-

4

(3)

1

51,138

(3)

51,135

Undrawn commitments3

157,596

(37)


5,245

(42)


-

-


162,841

(79)


Financial guarantees,
trade credits
and irrevocable letter of credits3

54,991

(16)


2,781

(16)


643

(190)


58,415

(222)


Total

805,959

(623)


26,653

(486)


7,884

(4,611)


840,496

(5,720)


1 Gross carrying amount for off-balance sheet refers to notional values

2 These instruments are held at fair value on the balance sheet. The ECL provision in respect of debt securities measured at FVOCI is held within the OCI reserve

3 These are off-balance sheet instruments. Only the ECL is recorded on-balance sheet as a financial liability and therefore there is no 'net carrying amount'. ECL allowances on off-balance sheet instruments are held as liability provisions to the extent that the drawn and undrawn components of loan exposures can be separately identified. Otherwise they will be reported against the drawn component

4 Stage 1 ECL is not material

5 Stage 3 includes gross of $28 million and ECL $6 million originated credit-impaired debt securities.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Page 8


31.12.21

Stage 1

Stage 2

Stage 3

Total

Gross balance1
$million

Total credit impairment
$million

Net carrying value
$million

Gross balance1
$million

Total credit impairment
$million

Net carrying value
$million

Gross balance1
$million

Total credit impairment
$million

Net carrying value
$million

Gross balance1
$million

Total credit impairment
$million

Net carrying value
$million

Cash and balances at central banks

72,601

-

72,601

66

(4)

62

-

-

-

72,667

(4)

72,663

Loans and advances to banks (amortised cost)

43,776

(12)

43,764

580

(4)

576

54

(11)

43

44,410

(27)

44,383

Loans and advances to customers (amortised cost)

279,178

(473)

278,705

16,849

(524)

16,325

8,095

(4,657)

3,438

304,122

(5,654)

298,468

Debt securities and other eligible bills5

157,352

(67)


5,315

(42)


113

(66)


162,780

(175)


Amortised cost

41,092

(13)

41,079

200

(1)

199

113

(66)

47

41,405

(80)

41,325

FVOCI2

116,260

(54)


5,115

(41)


-

-


121,375

(95)


Accrued income (amortised cost)4

1,674

-

1,674

-

-

-

-

-

-

1,674

-

1,674

Assets held for sale4

52

-

52

-

-

-

-

-

-

52

-

52

Other assets

40,067

-

40,067

-

-

-

4

(3)

1

40,071

(3)

40,068

Undrawn commitments3

149,530

(42)


8,993

(60)


-

-


158,523

(102)


Financial guarantees,
trade credits
and irrevocable letter of credits3

54,923

(15)


2,813

(22)


799

(207)


58,535

(244)


Total

799,153

(609)


34,616

(656)


9,065

(4,944)


842,834

(6,209)


1 Gross carrying amount for off-balance sheet refers to notional values

2 These instruments are held at fair value on the balance sheet. The ECL provision in respect of debt securities measured at FVOCI is held within the OCI reserve

3 These are off-balance sheet instruments. Only the ECL is recorded on-balance sheet as a financial liability and therefore there is no 'net carrying amount'.
ECL allowances on off-balance sheet instruments are held as liability provisions to the extent that the drawn and undrawn components of loan exposures can
be separately identified. Otherwise they will be reported against the drawn component

4 Stage 1 ECL is not material

5 Stage 3 gross includes $33 million originated credit-impaired debt securities

Credit quality analysis (reviewed)

Credit quality by client segment

For the Corporate, Commercial and Institutional Banking portfolio, exposures are analysed by credit grade (CG), which plays a central role in the quality assessment and monitoring of risk. All loans are assigned a CG, which is reviewed periodically and amended in light of changes in the borrower's circumstances or behaviour. CGs 1 to 12 are assigned to stage 1 and stage 2 (performing) clients or accounts, while CGs 13 and 14 are assigned to stage 3 (defaulted) clients. The mapping of credit quality is as follows.

Mapping of credit quality

The Group uses the following internal risk mapping to determine the credit quality for loans.


Corporate, Commercial & Institutional Banking

Private Banking1

Consumer & Business Banking3

Credit quality description

Internal grade mapping

S&P external ratings equivalent

Regulatory PD range (%)

Internal ratings

Number of days past due

Strong

1A to 5B

AAA/AA+ to BBB-/BB+

0 to 0.425

Class I and Class IV

Current loans (no past dues nor impaired)

Satisfactory

6A to 11C

BB+/BB to B-/CCC+2

0.426 to 15.75

Class II and Class III

Loans past due till 29 days

Higher risk

 Grade 12

CCC to C

15.751 to 99.999

Stressed Assets Risk managed

Past due loans 30 days and over till 90 days

1 For Private Banking, classes of risk represent the type of collateral held. Class I represents facilities with liquid collateral, such as cash and marketable securities. Class II represents unsecured/partially secured facilities and those with illiquid collateral, such as equity in private enterprises. Class III represents facilities with residential or commercial real estate collateral. Class IV covers margin trading facilities

2 Banks' rating: BB to CCC/C

3 Medium enterprise clients within Business Banking are managed using the same internal credit grades as Corporate, Commercial and Institutional Banking

The table overleaf sets out the gross loans and advances held at amortised cost, expected credit loss provisions and expected credit loss coverage by business segment and stage. Expected credit loss coverage represents the expected credit loss reported for each segment and stage as a proportion of the gross loan balance for each segment and stage.

Page 9

Stage 1

Stage 1 gross loans and advances to customers remained flat compared with 31 December 2021 and represent an increase of 1.6 per cent at 93 per cent of loans and advances to customers (2021: 92 per cent). The stage 1 coverage ratio remained at 0.2 per cent compared with 31 December 2021.

In Corporate, Commercial and Institutional Banking, the proportion of stage 1 loans has increased to 88 per cent (2021: 85 per cent), and the percentage of stage 1 loans rated as strong is higher at 65 per cent (2021: 64 per cent) as the Group continues to focus on the origination of investment grade lending. Stage 1 loans remained stable at $122 billion which was primarily driven by decreases in Commercial real estate, Financing and Insurance sectors, and offset by increases in the Government, Transport, Telecom and Energy sectors.

Consumer, Private and Business Banking stage 1 loans decreased by $4 billion mainly due to currency depreciation in Korea and private banking portfolio decrease in Hong Kong driven by client de-leveraging and market fluctuation. The proportion rated as strong remained stable at 96 per cent.

Ventures had an increase of $258 million during the period from new lending in Mox.

Central and other items segment increased by $4 billion.

Stage 2

Stage 2 loans and advances to customers decreased by $4.3 billion to $12.5 billion (2021: $16.8 billion), primarily in Corporate, Commercial and Institutional Banking due to exposure reductions in Energy, Transport, telecom and utilities sectors, and the proportion of stage 2 loans also reduced to 4 per cent (2021: 5.5 per cent).

Consumer, Private and Business Banking stage 2 loans remained stable at $1.9 billion.

Stage 2 loans to customers classified as 'Higher risk' decreased by $0.6 billion, which was driven by lower exposures, upgrades out of 'higher risk' as well as downgrades to stage 3 primarily as a result of the downgrade of foreign currency sovereign grading of Sri Lanka in the first half of 2022.

The overall stage 2 cover ratio remained stable at 3.1 per cent. Consumer, Private and Business Banking stage 2 cover ratio decreased to 6.9 per cent (2021: 9.5 per cent), primarily driven by the release of $37 million of COVID-19 management overlays arising from the reassessment of residual risk after manifestation of such risk through individual impairments.

Stage 3

Gross stage 3 loans decreased by $1 billion to $7.1 billion (2021: $8.1 billion) as a result of loan sales, upgrades and repayments in Corporate, Commercial and Institutional Banking offset by the downgrade of foreign currency sovereign grading of Sri Lanka. Stage 3 cover ratio (excluding collateral) increased by 3 percentage points to 61 per cent.

Consumer, Private and Business Banking stage 3 loans remain stable.

 

 

 

 

 

 

 

 

 

 

 

Page 10

 

Loans and advances by client segment (reviewed)

Amortised cost

30.06.22

Banks
$million

Customers

Undrawn commitments
$million

Financial Guarantees
$million

Corporate, Commercial & Institutional Banking
$million

Consumer, Private & Business Banking
$million

Ventures
$million

Central & other items
$million

Customer Total
$million

Stage 1

35,779

121,965

130,104

340

26,727

279,136

157,596

54,991

- Strong

24,145

79,442

125,633

339

26,628

232,042

140,232

40,220

- Satisfactory

11,634

42,523

4,471

1

99

47,094

17,364

14,771

Stage 2

371

10,488

1,894

5

152

12,539

5,245

2,781

- Strong

34

1,614

1,299

3

-

2,916

1,475

347

- Satisfactory

337

8,191

278

1

-

8,470

3,213

2,146

- Higher risk

-

683

317

1

152

1,153

557

288

Of which (stage 2):









- Less than 30 days past due

-

54

278

1

-

333

-

-

- More than 30 days past due

-

8

317

1

-

326

-

-

Stage 3, credit-impaired financial assets

78

5,552

1,500

1

-

7,053

-

643

Gross balance¹

36,228

138,005

133,498

346

26,879

298,728

162,841

58,415

Stage 1

(7)

(141)

(359)

(2)

-

(502)

(37)

(16)

- Strong

(4)

(49)

(272)

(2)

-

(323)

(22)

(8)

- Satisfactory

(3)

(92)

(87)

-

-

(179)

(15)

(8)

Stage 2

(5)

(253)

(130)

-

(2)

(385)

(42)

(16)

- Strong

-

(13)

(53)

-

-

(66)

(6)

(1)

- Satisfactory

(5)

(201)

(37)

-

-

(238)

(32)

(9)

- Higher risk

-

(39)

(40)

-

(2)

(81)

(4)

(6)

Of which (stage 2):









- Less than 30 days past due

-

-

(37)

-

-

(37)

-

-

- More than 30 days past due

-

-

(40)

-

-

(40)

-

-

Stage 3, credit-impaired financial assets

(15)

(3,575)

(758)

-

-

(4,333)

-

(190)

Total credit impairment

(27)

(3,969)

(1,247)

(2)

(2)

(5,220)

(79)

(222)

Net carrying value

36,201

134,036

132,251

344

26,877

293,508



Stage 1

0.0%

0.1%

0.3%

0.6%

0.0%

0.2%

0.0%

0.0%

- Strong

0.0%

0.1%

0.2%

0.6%

0.0%

0.1%

0.0%

0.0%

- Satisfactory

0.0%

0.2%

1.9%

0.0%

0.0%

0.4%

0.1%

0.1%

Stage 2

1.3%

2.4%

6.9%

0.0%

1.3%

3.1%

0.8%

0.6%

- Strong

0.0%

0.8%

4.1%

0.0%

0.0%

2.3%

0.4%

0.3%

- Satisfactory

1.5%

2.5%

13.3%

0.0%

0.0%

2.8%

1.0%

0.4%

- Higher risk

0.0%

5.7%

12.6%

0.0%

1.3%

7.0%

0.7%

2.1%

Of which (stage 2):









- Less than 30 days past due

0.0%

0.0%

13.3%

0.0%

0.0%

11.1%

0.0%

0.0%

- More than 30 days past due

0.0%

0.0%

12.6%

0.0%

0.0%

12.3%

0.0%

0.0%

Stage 3, credit-impaired financial assets (S3)

19.2%

64.4%

50.5%

0.0%

0.0%

61.4%

0.0%

29.5%

Cover ratio

0.1%

2.9%

0.9%

0.6%

0.0%

1.7%

0.0%

0.4%

Fair value through profit or loss









Performing

26,439

58,280

42

-

2,639

60,961

-

-

- Strong

22,848

51,561

42

-

2,638

54,241

-

-

- Satisfactory

3,591

6,655

-

-

1

6,656

-

-

- Higher risk

-

64

-

-

-

64

-

-

Defaulted (CG13-14)

-

5

-

-

-

5

-

-

Gross balance (FVTPL)2

26,439

58,285

42

-

2,639

60,966

-

-

Net carrying value (incl FVTPL)

62,640

192,321

132,293

344

29,516

354,474

-

-

1 Loans and advances includes reverse repurchase agreements and other similar secured lending of $7,894 million under Customers and of $795 million under Banks,
held at amortised cost

2 Loans and advances includes reverse repurchase agreements and other similar secured lending of $52,521 million under Customers and of $21,877 million under Banks, held at fair value through profit or loss

 

 

Page 11

 

Amortised cost

31.12.21 (Restated)1

Banks
$million

Customers

Undrawn commitments
$million

Financial Guarantees
$million

Corporate, Commercial & Institutional Banking
$million

Consumer, Private & Business Banking1
$million

Ventures1
$million

Central & other items
$million

Customer Total
$million

Stage 1

43,776

122,368

134,289

82

22,439

279,178

149,530

54,923

- Strong

30,813

77,826

129,486

82

22,333

229,727

132,274

37,418

- Satisfactory

12,963

44,542

4,803

-

106

49,451

17,256

17,505

Stage 2

580

14,818

1,912

9

110

16,849

8,993

2,813

- Strong

126

2,366

1,253

-

-

3,619

2,786

714

- Satisfactory

105

11,180

308

-

-

11,488

5,235

1,546

- Higher risk

349

1,272

351

9

110

1,742

972

553

Of which (stage 2):









- Less than 30 days past due

-

77

308

-

-

385

-

-

- More than 30 days past due

-

49

351

9

-

409

-

-

Stage 3, credit-impaired financial assets

54

6,520

1,575

-

-

8,095

-

799

Gross balance2

44,410

143,706

137,776

91

22,549

304,122

158,523

58,535

Stage 1

(12)

(103)

(369)

(1)

-

(473)

(42)

(15)

- Strong

(4)

(58)

(282)

(1)

-

(341)

(23)

(5)

- Satisfactory

(8)

(45)

(87)

-

-

(132)

(19)

(10)

Stage 2

(4)

(341)

(181)

(2)

-

(524)

(60)

(22)

- Strong

(2)

(62)

(104)

-

-

(166)

(6)

(1)

- Satisfactory

(2)

(179)

(32)

-

-

(211)

(46)

(9)

- Higher risk

-

(100)

(45)

(2)

-

(147)

(8)

(12)

Of which (stage 2):









- Less than 30 days past due

-

(2)

(32)

-

-

(34)

-

-

- More than 30 days past due

-

(3)

(45)

(2)

-

(50)

-

-

Stage 3, credit-impaired financial assets

(11)

(3,861)

(796)

-

-

(4,657)

-

(207)

Total credit impairment

(27)

(4,305)

(1,346)

(3)

-

(5,654)

(102)

(244)

Net carrying value

44,383

139,401

136,430

88

22,549

298,468



Stage 1

0.0%

0.1%

0.3%

1.2%

0.0%

0.2%

0.0%

0.0%

- Strong

0.0%

0.1%

0.2%

1.2%

0.0%

0.1%

0.0%

0.0%

- Satisfactory

0.1%

0.1%

1.8%

0.0%

0.0%

0.3%

0.1%

0.1%

Stage 2

0.7%

2.3%

9.5%

22.2%

0.0%

3.1%

0.7%

0.8%

- Strong

1.6%

2.6%

8.3%

0.0%

0.0%

4.6%

0.2%

0.1%

- Satisfactory

1.9%

1.6%

10.4%

0.0%

0.0%

1.8%

0.9%

0.6%

- Higher risk

0.0%

7.9%

12.8%

22.2%

0.0%

8.4%

0.8%

2.2%

Of which (stage 2):









- Less than 30 days past due

0.0%

2.6%

10.4%

0.0%

0.0%

8.8%

0.0%

0.0%

- More than 30 days past due

0.0%

6.1%

13.1%

0.0%

0.0%

12.2%

0.0%

0.0%

Stage 3, credit-impaired financial assets (S3)

20.4%

59.2%

50.5%

0.0%

0.0%

57.5%

0.0%

25.9%

Cover ratio

0.1%

3.0%

1.0%

3.3%

0.0%

1.9%

0.1%

0.4%

Fair value through profit or loss









Performing

22,574

69,356

67

-

1,774

71,197

-

-

- Strong

20,132

53,756

67

-

1,772

55,595

-

-

- Satisfactory

2,442

15,600

-

-

2

15,602

-

-

- Higher risk

-

-

-

-

-

-

-

-

Defaulted (CG13-14)

-

38

-

-

-

38

-

-

Gross balance (FVTPL)3

22,574

69,394

67

-

1,774

71,235

-

-

Net carrying value (incl FVTPL)

66,957

208,795

136,497

88

24,323

369,703

-

-

1 Following the increased strategic importance and reporting of Ventures to management, this has been established as a separate operating segment from 1 January 2022. Prior period has been restated

2 Loans and advances includes reverse repurchase agreements and other similar secured lending of $7,331 million under Customers and of $1,079 million under Banks, held at amortised cost

3 Loans and advances includes reverse repurchase agreements and other similar secured lending of $61,282 million under Customers and of $18,727 million under Banks, held at fair value through profit or loss

 

 

Page 12



 

Loans and advances by client segment credit quality analysis

Credit grade

Regulatory 1 year
PD range (%)

S&P external ratings equivalent

Corporate, Commercial & Institutional Banking

Gross

Credit impairment

Stage 1

Stage 2

Stage 3

Total

Stage 1

Stage 2

Stage 3

Total

Strong



74,992

1,614

-

81,056

 (49)

(13)

-

62

1A-2B

0 - 0.045

AA- and above

 10,107

 166

-

 10,273

 (1)

-

-

 (1)

3A-4A

0.046 - 0.110

A+ to A-

 27,589

 383

-

 27,972

 (5)

 (1)

-

 (6)

4B-5B

0.111 - 0.425

BBB+ to BBB-/BB+

 41,746

 1,065

-

42,811

 (43)

 (12)

-

 (55)

Satisfactory



42,523

8,191

-

50,714

 (92)

(201)

-

 (293)

6A-7B

0.426 - 1.350

BB+/BB to BB-

 24,525

 2,077

-

 26,602

 (71)

 (64)

-

 (135)

8A-9B

1.351 - 4.000

BB-/B+ to B+/B

 12,998

 3,425

-

 16,423

 (13)

 (75)

-

 (88)

10A-11C

4.001 - 15.75

B to B-/CCC

 5,000

 2,689

-

 7,689

 (8)

 (62)

-

 (70)

Higher risk



-

683

-

683

-

 (39)

-

(39)

12

15.751 - 99.999

CCC/C

-

 683

-

 683

-

 (39)

-

 (39)

Defaulted



-

-

 5,552

5,552

-

-

 (3,575)

(3,575)

13-14

100

Defaulted

-

-

 5,552

 5,552

-

-

 (3,575)

 (3,575)

Total



 121,965

 10,488

 5,552

 138,005

 (141)

 (253)

 (3,575)

 (3,969)

 

Credit grade

Regulatory 1 year
PD range (%)

S&P external ratings equivalent

Gross

Credit impairment

Stage 1

Stage 2

Stage 3

Total

Stage 1

Stage 2

Stage 3

Total

Strong



77,826

2,366

-

80,192

(58)

(62)

-

(120)

1A-2B

0 - 0.045

AA- and above

14,013

216

-

14,229

(1)

-

-

(1)

3A-4A

0.046 - 0.110

A+ to A-

23,173

515

-

23,688

(3)

-

-

(3)

4B-5B

0.111 - 0.425

BBB+ to BBB-/BB+

40,640

1,635

-

42,275

(54)

(62)

-

(116)

Satisfactory



44,542

11,180

-

55,722

(45)

(179)

-

(224)

6A-7B

0.426 - 1.350

BB+/BB to BB-

27,009

2,894

-

29,903

(21)

(40)

-

(61)

8A-9B

1.351 - 4.000

BB-/B+ to B+/B

11,910

5,592

-

17,502

(13)

(90)

-

(103)

10A-11C

4.001 - 15.75

B to B-/CCC

5,623

2,694

-

8,317

(11)

(49)

-

(60)

Higher risk



-

1,272

-

1,272

-

(100)

-

(100)

12

15.751 - 99.999

CCC/C

-

1,272

-

1,272

-

(100)

-

(100)

Defaulted



-

-

6,520

6,520

-

-

(3,861)

(3,861)

13-14

100

Defaulted

-

-

6,520

6,520

-

-

(3,861)

(3,861)

Total



122,368

14,818

6,520

143,706

(103)

(341)

(3,861)

(4,305)

 

 

 

 

 

 

 

 

 

 

 

 

 

Page 13

 

Credit grade

Consumer, Private & Business Banking

30.06.22

Gross

Credit impairment

Stage 1

Stage 2

Stage 3

Total

Stage 1

Stage 2

Stage 3

Total

Strong

125,633

1,299

-

126,932

(272)

(53)

-

(325)

Secured

108,782

966

-

109,748

(54)

(8)

-

(62)

Unsecured

16,851

333

-

17,184

(218)

(45)

-

(263)

Satisfactory

4,471

278

-

4,749

(87)

(37)

-

(124)

Secured

4,152

160

-

4,312

(26)

(1)

-

(27)

Unsecured

319

118

-

437

(61)

(36)

-

(97)

Higher risk

-

317

-

317

-

(40)

-

(40)

Secured

-

210

-

210

-

(4)

-

(4)

Unsecured

-

107

-

107

-

(36)

-

(36)

Defaulted

-

-

1,500

1,500

-

-

(758)

(758)

Secured



1,040

1,040



(539)

(539)

Unsecured

-

-

460

460

-

-

(219)

(219)

Total

130,104

1,894

1,500

133,498

(359)

(130)

(758)

(1,247)

 

Credit grade

31.12.21 (Restated1)

Gross

Credit impairment

Stage 1

Stage 2

Stage 3

Total

Stage 1

Stage 2

Stage 3

Total

Strong

129,486

1,253

-

130,739

(282)

(104)

-

(386)

Secured

112,167

884

-

113,051

(48)

(19)

-

(67)

Unsecured

17,319

369

-

17,688

(234)

(85)

-

(319)

Satisfactory

4,803

308

-

5,111

(87)

(32)

-

(119)

Secured

4,524

164

-

4,688

(44)

(1)

-

(45)

Unsecured

279

144

-

423

(43)

(31)

-

(74)

Higher risk

-

351

-

351

-

(45)

-

(45)

Secured

-

250

-

250

-

(11)

-

(11)

Unsecured

-

101

-

101

-

(34)

-

(34)

Defaulted

-

-

1,575

1,575

-

-

(796)

(796)

Secured



1,107

1,107



(516)

(516)

Unsecured

-

-

468

468

-

-

(280)

(280)

Total

134,289

1,912

1,575

137,776

(369)

(181)

(796)

(1,346)

1 Following the increased strategic importance and reporting of Ventures to management, this has been established as a separate operating segment from 1 January 2022. Prior period has been restated

Credit quality by geographic region

The following table sets out the credit quality for gross loans and advances to customers and banks, held at amortised cost, by geographic region and stage.

Loans and advances to customers

Amortised cost

30.06.22

31.12.21

Asia
$million

Africa & Middle East
$million

Europe & Americas
$million

Total
$million

Asia
$million

Africa & Middle East
$million

Europe & Americas
$million

Total
$million

Gross (stage 1)

234,063

20,969

24,104

279,136

235,123

19,990

24,065

279,178

Provision (stage 1)

(400)

(74)

(28)

(502)

(371)

(86)

(16)

(473)

Gross (stage 2)

8,108

2,733

1,698

12,539

8,779

4,077

3,993

16,849

Provision (stage 2)

(261)

(73)

(51)

(385)

(318)

(137)

(69)

(524)

Gross (stage 3)2

3,961

2,758

334

7,053

4,448

2,918

729

8,095

Provision (stage 3)

(2,236)

(1,844)

(253)

(4,333)

(2,400)

(1,970)

(287)

(4,657)

Net loans1

243,235

24,469

25,804

293,508

245,261

24,792

28,415

298,468

1 Includes reverse repurchase agreements and other similar secured lending

2 Amounts do not include those purchased or originated credit-impaired financial assets

 

 

 

 

Page 14

 

Loans and advances to banks

Amortised cost

30.06.22

31.12.21

Asia
$million

Africa & Middle East
$million

Europe & Americas
$million

Total
$million

Asia
$million

Africa & Middle East
$million

Europe & Americas
$million

Total
$million

Gross (stage 1)

22,556

4,905

8,318

35,779

29,916

5,828

8,032

43,776

Provision (stage 1)

(3)

(2)

(2)

(7)

(3)

(5)

(4)

(12)

Gross (stage 2)

85

139

147

371

346

144

90

580

Provision (stage 2)

(2)

-

(3)

(5)

(1)

(1)

(2)

(4)

Gross (stage 3)

67

1

10

78

54

-

-

54

Provision (stage 3)

(15)

-

-

(15)

(11)

-

-

(11)

Gross loans1

22,688

5,043

8,470

36,201

30,301

5,966

8,116

44,383

1 Includes reverse repurchase agreements and other similar secured lending

Movement in gross exposures and credit impairment for loans and advances, debt securities, undrawn commitments and financial guarantees (reviewed)

The tables overleaf set out the movement in gross exposures and credit impairment by stage in respect of amortised cost loans to banks and customers, undrawn commitments, financial guarantees and debt securities classified at amortised cost and FVOCI. The tables are presented for the Group, debt securities and other eligible bills.

Methodology

The movement lines within the tables are an aggregation of monthly movements over the year and will therefore reflect the accumulation of multiple trades during the year. The credit impairment charge in the income statement comprises the amounts within the boxes in the table below less recoveries of amounts previously written off. Discount unwind is reported in net interest income and related to stage 3 financial instruments only.

The approach for determining the key line items in the tables is set out below.

Transfers - transfers between stages are deemed to occur at the beginning of a month based on prior month closing balances

Net remeasurement from stage changes - the remeasurement of credit impairment provisions arising from a change in stage is reported within the stage that the assets are transferred to. For example, assets transferred into stage 2 are remeasured from a 12-month to a lifetime expected credit loss, with the effect of remeasurement reported in stage 2. For stage 3, this represents the initial remeasurement from specific provisions recognised on individual assets transferred into stage 3 in the year

Net changes in exposures - new business written less repayments in the year. Within stage 1, new business written will attract up to 12 months of expected credit loss charges. Repayments of non-amortising loans (primarily within Corporate , Commercial and Institutional Banking) will have low amounts of expected credit loss provisions attributed to them, due to the release of provisions over the term to maturity. In stages 2 and 3, the amounts principally reflect repayments although stage 2 may include new business written where clients are on non-purely precautionary early alert, are credit grade 12, or when non-investment grade debt securities are acquired.

Changes in risk parameters - for stages 1 and 2, this reflects changes in the probability of default (PD), loss given default (LGD) and exposure at default (EAD) of assets during the year, which includes the impact of releasing provisions over the term to maturity. It also includes the effect of changes in forecasts of macroeconomic variables during the year and movements in judgemental overlays. In stage 3, this line represents additional specific provisions recognised on exposures held within stage 3

Interest due but not paid - change in contractual amount of interest due in stage 3 financial instruments but not paid, being the net of accruals, repayments and write-offs, together with the corresponding change in credit impairment

Changes to ECL models, which incorporates changes to model approaches and methodologies, is not reported as a separate line item as it has an impact over a number of lines and stages.

 

 

 

Page 15

 

Movements during the period

Stage 1 gross exposures increased by $2 billion to $687 billion when compared with 31 December 2021. This was largely due to an increase in debt securities of $1.9 billion which was offset by reductions in Corporate, Commercial and Institutional Banking and Consumer, Private and Business Banking. In Corporate, Commercial and Institutional Banking, loans and advances to customers remained stable but loans and advances to banks reduced by $8 billion offset by an increase of $3.4 billion in undrawn commitments. In Consumer, Private and Business Banking, loans and advances reduced by $4.3 billion due to reductions in secured portfolio from Mortgages and Secured Wealth products offset by an increase in undrawn commitments.

Total stage 1 provisions increased by $14 million, of which $31 million increase was in Corporate, Commercial and Institutional Banking from additional China Commercial real estate overlay of $33 million offset by releases. Consumer, Private and Business Banking was a net release of $10 million due to $31 million release in management overlay for the impact of COVID-19 in unsecured portfolio as the risk has manifested, offset by $14 million charge due to post model adjustment for multiple economic scenarios and delinquencies across a few markets.

Stage 2 gross exposures decreased by $8.8 billion, of which $6.7 billion is from Corporate, Commercial and Institutional Banking as clients as loans and advances reduced by $4 billion in Energy, Transport, telecom and utilities sectors and undrawn commitments reduced by $2 billion. In Consumer, Private and Business Banking, gross balances reduced by $1.7 billion largely in secured portfolio due to reduction in undrawn commitments.

Stage 2 provisions reduced by $170 million compared to 31 December 2021, $111 million of which was in Corporate, Commercial and Institutional Banking as a result of $42 million release in management overlay as non-purely precautionary early alert portfolio has reduced due to exits and exposure downgrades, with the remainder mainly from upgrades in stage 2. Consumer, Private and Business Banking stage 2 provisions also reduced by $56 million from releases in management overlay after reassessment of residual risk in certain markets, offset by delinquencies in some Asia markets due to fresh COVID-19 related lockdowns and $8 million charge from post model adjustment for multiple economic scenarios.

Across both stage 1 and 2 for all segments, the significant deterioration in macroeconomic forecasts across all markets increased provisions by $19 million.

There was a net nil impact from model changes in the first half of 2022.

Stage 3 exposures decreased by $1.2 billion to $7.9 billion (2021: $9.1 billion) primarily driven by Corporate, Commercial and Institutional Banking clients from loan sales, repayments and upgrades. Stage 3 provisions decreased by $333 million to $4.6 billion (2021: $4.9 billion)mainly in Corporate, Commercial and Institutional Banking due to exposure reductions offset by an increase in provisions on China Commercial real estate portfolio.

 

 

 

 

 

 

 

 

 

 

 

 

Page 16

 

All segments (reviewed)

Amortised cost and FVOCI

Stage 1

Stage 2

Stage 35

Total

Gross balance3
$million

Total credit impair-ment
$million

Net
$million

Gross balance3
$million

Total credit impair-ment
$million

Net
$million

Gross balance3
$million

Total credit impair-ment
$million

Net
$million

Gross balance3
$million

Total credit impair-ment
$million

Net
$million

As at 1 January 2021

642,960

(663)

642,297

39,787

(881)

38,906

10,100

(5,593)

4,507

692,847

(7,137)

685,710

Transfers to stage 1

25,975

(620)

25,355

(25,924)

620

(25,304)

(51)

-

(51)

-

-

-

Transfers to stage 2

(53,994)

211

(53,783)

54,335

(220)

54,115

(341)

9

(332)

-

-

-

Transfers to stage 3

(212)

3

(209)

(2,822)

335

(2,487)

3,034

(338)

2,696

-

-

-

Net change in exposures⁵

84,288

(132)

84,156

(30,551)

169

(30,382)

(2,429)

661

(1,768)

51,308

698

52,006

Net remeasurement from stage changes

-

54

54

-

(157)

(157)

-

(212)

(212)

-

(315)

(315)

Changes in risk parameters

-

79

79

-

(89)

(89)

-

(915)

(915)

-

(925)

(925)

Write-offs

-

-

-

-

-

-

(1,215)

1,215

-

(1,215)

1,215

-

Interest due but unpaid

-

-

-

-

-

-

(189)

189

-

(189)

189

-

Discount unwind

-

-

-

-

-

-

-

227

227

-

227

227

Exchange translation differences and other movements¹

(14,258)

459

(13,799)

(275)

(429)

(704)

152

(184)

(32)

(14,381)

(154)

(14,535)

As at 31 December 2021²

684,759

(609)

684,150

34,550

(652)

33,898

9,061

(4,941)

4,120

728,370

(6,202)

722,168

Income statement ECL (charge)/release


1



(77)



(466)



(542)


Recoveries of amounts previously written off


-



-



288



288


Total credit impairment (charge)/release


1



(77)



(178)



(254)


As at 1 January 2022

684,759

(609)

684,150

34,550

(652)

33,898

9,061

(4,941)

4,120

728,370

(6,202)

722,168

Transfers to stage 1

15,825

(285)

15,540

(15,797)

285

(15,512)

(28)

-

(28)

-

-

-

Transfers to stage 2

(23,623)

109

(23,514)

24,047

(120)

23,927

(424)

11

(413)

-

-

-

Transfers to stage 3

(88)

-

(88)

(1,232)

101

(1,131)

1,320

(101)

1,219

-

-

-

Net change in exposures⁵

33,424

(47)

33,377

(14,431)

31

(14,400)

(868)

214

(654)

18,125

198

18,323

Net remeasurement from stage changes

-

31

31

-

(93)

(93)

-

(148)

(148)

-

(210)

(210)

Changes in risk parameters

-

33

33

-

59

59

-

(474)

(474)

-

(382)

(382)

Write-offs

-

-

-

-

-

-

(581)

581

-

(581)

581

-

Interest due but unpaid

-

-

-

-

-

-

(189)

189

-

(189)

189

-

Discount unwind

-

-

-

-

-

-

-

65

65

-

65

65

Exchange translation differences and other movements¹

(23,530)

145

(23,385)

(1,348)

(93)

(1,441)

(411)

(4)

(415)

(25,289)

48

(25,241)

As at 30 June 2022²

686,767

(623)

686,144

25,789

(482)

25,307

7,880

(4,608)

3,272

720,436

(5,713)

714,723

Income statement ECL (charge)/release


17



(3)



(408)



(394)


Recoveries of amounts previously written off


-



-



131



131


Total credit impairment (charge)/release4


17



(3)



(277)



(263)


1 Includes fair value adjustments and amortisation on debt securities

2 Excludes Cash and balances at central banks, Accrued income, Assets held for sale and Other assets gross balances of $120,060 million (2021: $114,464 million) and
Total credit impairment of $7 million (2021: $7 million)

3 The gross balance includes the notional amount of off -balance sheet instruments

4 Statutory basis

5 Stage 3 includes gross of $28 million (2021: $33 million) and ECL $6 million (2021: Nil) originated credit-impaired debt securities

 

 

 

 

 

Page 17

 

Of which - movement of debt securities, alternative tier one and other eligible bills (reviewed)

Amortised cost and FVOCI

Stage 1

Stage 2

Stage 3

Total

Gross balance
$million

Total credit impair-ment
$million

Net
$million

Gross balance
$million

Total credit impair-ment
$million

Net
$million

Gross balance
$million

Total credit impair-ment
$million

Net
$million

Gross balance
$million

Total credit impair-ment
$million

Net3
$million

As at 1 January 2021

149,316

(56)

149,260

3,506

(26)

3,480

114

(58)

56

152,936

(140)

152,796

Transfers to stage 1

403

(11)

392

(403)

11

(392)

-

-

-

-

-

-

Transfers to stage 2

(2,358)

16

(2,342)

2,358

(16)

2,342

-

-

-

-

-

-

Transfers to stage 3

-

-

-

-

-

-

-

-

-

-

-

-

Net change in exposures2

14,670

(39)

14,631

(155)

(11)

(166)

-

1

1

14,515

(49)

14,466

Net remeasurement from stage changes

-

13

13

-

(17)

(17)

-

-

-

-

(4)

(4)

Changes in risk parameters

-

21

21

-

8

8

-

(3)

(3)

-

26

26

Write-offs

-

-

-

-

-

-

-

-

-

-

-

-

Interest due but unpaid

-

-

-

-

-

-

-

-

-

-

-

-

Exchange translation differences and other movements1

(4,679)

(11)

(4,690)

9

9

18

(1)

(6)

(7)

(4,671)

(8)

(4,679)

As at 31 December 2021

157,352

(67)

157,285

5,315

(42)

5,273

113

(66)

47

162,780

(175)

162,605

Income statement ECL (charge)/release1


(5)



(20)



(2)



(27)


Recoveries of amounts previously written off


-



-



-



-


Total credit impairment (charge)/release


(5)



(20)



(2)



(27)


As at 1 January 2022

157,352

(67)

157,285

5,315

(42)

5,273

113

(66)

47

162,780

(175)

162,605

Transfers to stage 1

1,410

(17)

1,393

(1,410)

17

(1,393)

-

-

-

-

-

-

Transfers to stage 2

(1,470)

6

(1,464)

1,470

(6)

1,464

-

-

-

-

-

-

Transfers to stage 3

-

-

-

-

-

-

-

-

-

-

-

-

Net change in exposures2

10,054

(19)

10,035

(135)

(7)

(142)

-

1

1

9,919

(25)

9,894

Net remeasurement from stage changes

-

9

9

-

(2)

(2)

-

-

-

-

7

7

Changes in risk parameters

-

15

15

-

4

4

-

-

-

-

19

19

Write-offs

-

-

-

-

-

-

-

-

-

-

-

-

Interest due but unpaid

-

-

-

-

-

-

-

-

-

-

-

-

Exchange translation differences and other movements1

(8,081)

12

(8,069)

(387)

2

(385)

(7)

(5)

(12)

(8,475)

9

(8,466)

As at 30 June 2022

159,265

(61)

159,204

4,853

(34)

4,819

106

(70)

36

164,224

(165)

164,059

Income statement ECL (charge)/release


5



(5)



1



1


Recoveries of amounts previously written off


-



-



-



-


Total credit impairment (charge)/release


5



(5)



1



1


1 Includes fair value adjustments and amortisation on debt securities

2 Stage 3 includes gross of $28 million (2021: $33 million) and ECL $6 million (2021: Nil) originated credit-impaired debt securities

3 FVOCI instruments are not presented net of ECL . While the presentation is on a net basis for the table , the total net on-balance sheet amount to $164,137 million (31 December 2021: $162,700 million. Refer to the Analysis of financial instrument by stage table

 

 

 

 

 

 

 

Page 18

 

Corporate, Commercial & Institutional Banking (reviewed)

Amortised cost and FVOCI

Stage 1

Stage 2

Stage 3

Total

Gross balance1
$million

Total credit impair-ment
$million

Net
$million

Gross balance1
$million

Total credit impair-ment
$million

Net
$million

Gross balance1
$million

Total credit impair-ment
$million

Net
$million

Gross balance1
$million

Total credit impair-ment
$million

Net
$million

As at 1 January 2021

292,453

(154)

292,299

31,742

(599)

31,143

8,422

(4,803)

3,619

332,617

(5,556)

327,061

Transfers to stage 1

21,123

(243)

20,880

(21,123)

243

(20,880)

-

-

-

-

-

-

Transfers to stage 2

(45,354)

103

(45,251)

45,556

(112)

45,444

(202)

9

(193)

-

-

-

Transfers to stage 3

(69)

-

(69)

(1,989)

164

(1,825)

2,058

(164)

1,894

-

-

-

Net change in exposures

50,762

(62)

50,700

(28,447)

133

(28,314)

(2,082)

636

(1,446)

20,233

707

20,940

Net remeasurement from stage changes

-

1

1

-

(27)

(27)

-

(145)

(145)

-

(171)

(171)

Changes in risk parameters

-

41

41

-

(105)

(105)

-

(434)

(434)

-

(498)

(498)

Write-offs

-

-

-

-

-

-

(510)

510

-

(510)

510

-

Interest due but unpaid

-

-

-

-

-

-

(224)

224

-

(224)

224

-

Discount unwind

-

-

-

-

-

-

-

191

191

-

191

191

Exchange translation differences and other movements

(5,783)

151

(5,632)

(302)

(122)

(424)

(90)

(103)

(193)

(6,175)

(74)

(6,249)

As at 31 December 2021

313,132

(163)

312,969

25,437

(425)

25,012

7,372

(4,079)

3,293

345,941

(4,667)

341,274

Income statement ECL (charge)/release


(20)



1



57



38


Recoveries of amounts previously written off


-



-



19



19


Total credit impairment (charge)/release


(20)



1



76



57


As at 1 January 2022

313,132

(163)

312,969

25,437

(425)

25,012

7,372

(4,079)

3,293

345,941

(4,667)

341,274

Transfers to stage 1

11,236

(102)

11,134

(11,236)

102

(11,134)

-

-

-

-

-

-

Transfers to stage 2

(19,360)

59

(19,301)

19,745

(71)

19,674

(385)

12

(373)

-

-

-

Transfers to stage 3

-

-

-

(936)

28

(908)

936

(28)

908

-

-

-

Net change in exposures

10,908

(22)

10,886

(13,454)

31

(13,423)

(748)

213

(535)

(3,294)

222

(3,072)

Net remeasurement from stage changes

-

2

2

-

(45)

(45)

-

(135)

(135)

-

(178)

(178)

Changes in risk parameters

-

(8)

(8)

-

102

102

-

(324)

(324)

-

(230)

(230)

Write-offs

-

-

-

-

-

-

(318)

318

-

(318)

318

-

Interest due but unpaid

-

-

-

-

-

-

(195)

195

-

(195)

195

-

Discount unwind

-

-

-

-

-

-

-

52

52

-

52

52

Exchange translation differences and other movements

(7,498)

40

(7,458)

(806)

(36)

(842)

(390)

(4)

(394)

(8,694)

-

(8,694)

As at 30 June 2022

308,418

(194)

308,224

18,750

(314)

18,436

6,272

(3,780)

2,492

333,440

(4,288)

329,152

Income statement ECL (charge)/release


(28)



88



(246)



(186)


Recoveries of amounts previously written off


-



-



5



5


Total credit impairment (charge)/release


(28)



88



(241)



(181)


1 The gross balance includes the notional amount of off-balance sheet instruments

 

 

 

 

 

 

 

Page 19

 

Consumer, Private and Business Banking (restated1) (reviewed)

Amortised cost and FVOCI

Stage 1

Stage 2

Stage 3

Total

Gross balance2
$million

Total credit impair-ment
$million

Net
$million

Gross balance2
$million

Total credit impair-ment
$million

Net
$million

Gross balance2
$million

Total credit impair-ment
$million

Net
$million

Gross balance2
$million

Total credit impair-ment
$million

Net
$million

As at 1 January 2021

182,044

(445)

181,599

4,534

(259)

4,275

1,561

(730)

831

188,139

(1,434)

186,705

Transfers to stage 1

4,450

(365)

4,085

(4,399)

365

(4,034)

(51)

-

(51)

-

-

-

Transfers to stage 2

(6,270)

89

(6,181)

6,409

(89)

6,320

(139)

-

(139)

-

-

-

Transfers to stage 3

(144)

2

(142)

(833)

172

(661)

977

(174)

803

-

-

-

Net change in exposures

14,055

(28)

14,027

(2,060)

47

(2,013)

(347)

24

(323)

11,648

43

11,691

Net remeasurement from stage changes

-

40

40

-

(113)

(113)

-

(66)

(66)

-

(139)

(139)

Changes in risk parameters

-

17

17

-

8

8

-

(480)

(480)

-

(455)

(455)

Write-offs

-

-

-

-

-

-

(705)

705

-

(705)

705

-

Interest due but unpaid

-

-

-

-

-

-

35

(35)

-

35

(35)

-

Discount unwind

-

-

-

-

-

-

-

36

36

-

36

36

Exchange translation differences and other movements

(3,275)

313

(2,962)

24

(316)

(292)

247

(77)

170

(3,004)

(80)

(3,084)

As at 31 December 2021

190,860

(377)

190,483

3,675

(185)

3,490

1,578

(797)

781

196,113

(1,359)

194,754

Income statement ECL (charge)/release


29



(58)



(522)



(551)


Recoveries of amounts previously written off


-



-



269



269


Total credit impairment (charge)/release


29



(58)



(253)



(282)


As at 1 January 2022

190,860

(377)

190,483

3,675

(185)

3,490

1,578

(797)

781

196,113

(1,359)

194,754

Transfers to stage 1

3,175

(165)

3,010

(3,147)

165

(2,982)

(28)

-

(28)

-

-

-

Transfers to stage 2

(2,792)

43

(2,749)

2,831

(43)

2,788

(39)

-

(39)

-

-

-

Transfers to stage 3

(88)

-

(88)

(296)

73

(223)

384

(73)

311

-

-

-

Net change in exposures

5,638

(6)

5,632

(944)

7

(937)

(121)

-

(121)

4,573

1

4,574

Net remeasurement from stage changes

-

20

20

-

(46)

(46)

-

(12)

(12)

-

(38)

(38)

Changes in risk parameters

-

29

29

-

(47)

(47)

-

(150)

(150)

-

(168)

(168)

Write-offs

-

-

-

-

-

-

(262)

262

-

(262)

262

-

Interest due but unpaid

-

-

-

-

-

-

3

(3)

-

3

(3)

-

Discount unwind

-

-

-

-

-

-

-

13

13

-

13

13

Exchange translation differences and other movements

(7,396)

89

(7,307)

(101)

(53)

(154)

(12)

4

(8)

(7,509)

40

(7,469)

As at 30 June 2022

189,397

(367)

189,030

2,018

(129)

1,889

1,503

(756)

747

192,918

(1,252)

191,666

Income statement ECL (charge)/release


43



(86)



(162)



(205)


Recoveries of amounts previously written off


-



-



126



126


Total credit impairment (charge)/release


43



(86)



(36)



(79)


1 Following the increased strategic importance and reporting of Ventures to management, this has been established as a separate operating segment from 2022. Prior period has been restated

2 The gross balance includes the notional amount of off-balance sheet instruments

 

 

 

 

 

 

Page 20

 

Consumer, Private and Business Banking - Secured (restated1) (reviewed)

Amortised cost and FVOCI

Stage 1

Stage 2

Stage 3

Total

Gross balance2
$million

Total credit impair-ment
$million

Net
$million

Gross balance2
$million

Total credit impair-ment
$million

Net
$million

Gross balance2
$million

Total credit impair-ment
$million

Net
$million

Gross balance2
$million

Total credit impair-ment
$million

Net
$million

As at 1 January 2021

127,448

(72)

127,376

3,363

(52)

3,311

1,058

(418)

640

131,869

(542)

131,327

Transfers to stage 1

2,884

(37)

2,847

(2,843)

37

(2,806)

(41)

-

(41)

-

-

-

Transfers to stage 2

(3,888)

9

(3,879)

4,007

(9)

3,998

(119)

-

(119)

-

-

-

Transfers to stage 3

(107)

1

(106)

(400)

8

(392)

507

(9)

498

-

-

-

Net change in exposures

13,009

(9)

13,000

(1,452)

3

(1,449)

(224)

24

(200)

11,333

18

11,351

Net remeasurement from stage changes

-

(1)

(1)

-

(2)

(2)

-

(1)

(1)

-

(4)

(4)

Changes in risk parameters

-

4

4

-

14

14

-

(144)

(144)

-

(126)

(126)

Write-offs

-

-

-

-

-

-

(125)

125

-

(125)

125

-

Interest due but unpaid

-

-

-

-

-

-

(3)

3

-

(3)

3

-

Discount unwind

-

-

-

-

-

-

-

34

34

-

34

34

Exchange translation differences and other movements

(2,746)

9

(2,737)

10

(31)

(21)

50

(131)

(81)

(2,686)

(153)

(2,839)

As at 31 December 2021

136,600

(96)

136,504

2,685

(32)

2,653

1,103

(517)

586

140,388

(645)

139,743

Income statement ECL (charge)/release


(6)



15



(121)



(112)


Recoveries of amounts previously written off


-



-



68



68


Total credit impairment (charge)/release


(6)



15



(53)



(44)


As at 1 January 2022

136,600

(96)

136,504

2,685

(32)

2,653

1,103

(517)

586

140,388

(645)

139,743

Transfers to stage 1

2,212

(21)

2,191

(2,192)

21

(2,171)

(20)

-

(20)

-

-

-

Transfers to stage 2

(1,622)

13

(1,609)

1,655

(13)

1,642

(33)

-

(33)

-

-

-

Transfers to stage 3

(70)

-

(70)

(147)

-

(147)

217

-

217

-

-

-

Net change in exposures

2,392

(4)

2,388

(530)

-

(530)

(84)

-

(84)

1,778

(4)

1,774

Net remeasurement from stage changes

-

-

-

-

(1)

(1)

-

(2)

(2)

-

(3)

(3)

Changes in risk parameters

-

(2)

(2)

-

42

42

-

(44)

(44)

-

(4)

(4)

Write-offs

-

-

-

-

-

-

(52)

52

-

(52)

52

-

Interest due but unpaid

-

-

-

-

-

-

5

(5)

-

5

(5)

-

Discount unwind

-

-

-

-

-

-

-

6

6

-

6

6

Exchange translation differences and other movements

(5,457)

25

(5,432)

(67)

(30)

(97)

(100)

(26)

(126)

(5,624)

(31)

(5,655)

As at 30 June 2022

134,055

(85)

133,970

1,404

(13)

1,391

1,036

(536)

500

136,495

(634)

135,861

Income statement ECL (charge)/release


(6)



41



(46)



(11)


Recoveries of amounts previously written off


-



-



35



35


Total credit impairment (charge)/release


(6)



41



(11)



24


1 Following the increased strategic importance and reporting of Ventures to management, this has been established as a separate operating segment from 2022. Prior period has been restated

2 The gross balance includes the notional amount of off-balance sheet instruments

 

 

 

 

 

 

Page 21

 

Consumer, Private and Business Banking - Unsecured (restated1) (reviewed)

Amortised cost and FVOCI

Stage 1

Stage 2

Stage 3

Total

Gross balance2
$million

Total credit impair-ment
$million

Net
$million

Gross balance2
$million

Total credit impair-ment
$million

Net
$million

Gross balance2
$million

Total credit impair-ment
$million

Net
$million

Gross balance2
$million

Total credit impair-ment
$million

Net
$million

As at 1 January 2021

54,596

(373)

54,223

1,171

(207)

964

503

(312)

191

56,270

(892)

55,378

Transfers to stage 1

1,566

(328)

1,238

(1,556)

328

(1,228)

(10)

-

(10)

-

-

-

Transfers to stage 2

(2,382)

80

(2,302)

2,402

(80)

2,322

(20)

-

(20)

-

-

-

Transfers to stage 3

(37)

1

(36)

(433)

164

(269)

470

(165)

305

-

-

-

Net change in exposures

1,046

(19)

1,027

(608)

44

(564)

(123)

-

(123)

315

25

340

Net remeasurement from stage changes

-

41

41

-

(111)

(111)

-

(65)

(65)

-

(135)

(135)

Changes in risk parameters

-

13

13

-

(6)

(6)

-

(336)

(336)

-

(329)

(329)

Write-offs

-

-

-

-

-

-

(580)

580

-

(580)

580

-

Interest due but unpaid

-

-

-

-

-

-

38

(38)

-

38

(38)

-

Discount unwind

-

-

-

-

-

-

-

2

2

-

2

2

Exchange translation differences and other movements

(529)

304

(225)

14

(285)

(271)

197

54

251

(318)

73

(245)

As at 31 December 2021

54,260

(281)

53,979

990

(153)

837

475

(280)

195

55,725

(714)

55,011

Income statement ECL (charge)/release


35



(73)



(401)



(439)


Recoveries of amounts previously written off


-



-



201



201


Total credit impairment (charge)/release


35



(73)



(200)



(238)


As at 1 January 2022

54,260

(281)

53,979

990

(153)

837

475

(280)

195

55,725

(714)

55,011

Transfers to stage 1

963

(144)

819

(955)

144

(811)

(8)

-

(8)

-

-

-

Transfers to stage 2

(1,170)

30

(1,140)

1,176

(30)

1,146

(6)

-

(6)

-

-

-

Transfers to stage 3

(18)

-

(18)

(149)

73

(76)

167

(73)

94

-

-

-

Net change in exposures

3,246

(2)

3,244

(414)

7

(407)

(37)

-

(37)

2,795

5

2,800

Net remeasurement from stage changes

-

20

20

-

(45)

(45)

-

(10)

(10)

-

(35)

(35)

Changes in risk parameters

-

31

31

-

(89)

(89)

-

(106)

(106)

-

(164)

(164)

Write-offs

-

-

-

-

-

-

(210)

210

-

(210)

210

-

Interest due but unpaid

-

-

-

-

-

-

(2)

2

-

(2)

2

-

Discount unwind

-

-

-

-

-

-

-

7

7

-

7

7

Exchange translation differences and other movements

(1,939)

64

(1,875)

(34)

(23)

(57)

88

30

118

(1,885)

71

(1,814)

As at 30 June 2022

55,342

(282)

55,060

614

(116)

498

467

(220)

247

56,423

(618)

55,805

Income statement ECL (charge)/release


49



(127)



(116)



(194)


Recoveries of amounts previously written off


-



-



91



91


Total credit impairment (charge)/release


49



(127)



(25)



(103)


1 Following the increased strategic importance and reporting of Ventures to management, this has been established as a separate operating segment from 2022. Prior period has been restated

2 The gross balance includes the notional amount of off-balance sheet instruments

 

 

 

 

 

 

Page 22

 

Analysis of stage 2 balances

The table below analyses the proportion of stage 2 gross exposures and associated expected credit provisions by the key significant increase in credit risk (SICR) driver that caused the exposures to be classified as stage 2 as at 30 June 2022 for each segment. This may not be the same driver that caused the initial transfer into stage 2.

Where multiple drivers apply, the exposure is allocated based on the table order. For example, a loan may have breached the PD thresholds and could also be on non-purely precautionary early alert; in this instance, the exposure is reported under 'Increase in PD'.


30.06.22

Corporate, Commercial & Institutional banking

Consumer, Private &
Business Banking

Ventures

Central & other items

Total

Gross
$million

ECL
$million

Cove-rage
%

Gross
$million

ECL
$million

Cove-rage
%

Gross
$million

ECL
$million

Cove-rage
%

Gross
$million

ECL
$million

Cove-rage
%

Gross
$million

ECL
$million

Cove-rage
%

Increase in PD

11,363

174

1.5%

1,137

105

9.2%




3,415

20

0.6%

15,915

299

1.9%

Non-purely precautionary early alert

3,496

11

0.3%

72

-

0.5%




1,621

1

0.1%

5,189

12

0.2%

Higher risk (CG12)

474

27

5.8%

16

1

4.5%




679

19

2.8%

1,169

47

4.1%

Sub-investment grade

205

-

0.1%

-

-

0.0%




-

-

0.0%

205

-

0.1%

Top up/Sell down
(Private Banking)



0.0%

422

-

0.1%




-


0.0%

422

-

0.1%

Others

3,212

11

0.4%

210

1

0.6%

4


0.0%

166

3

1.6%

3,592

15

0.4%

30 days past due


-

0.0%

160

17

10.5%

1


0.0%

-

-

0.0%

161

17

10.5%

Management overlay


91

0.0%


5

0.0%







-

96


Total stage 2

18,750

314

1.7%

2,017

129

6.4%

5

-

0.0%

5,881

43

0.7%

26,653

486

1.8%

 


31.12.21 (Restated)1

Corporate, Commercial & Institutional banking

Consumer, Private &
Business Banking

Ventures

Central & other items

Total

Gross
$million

ECL
$million

Cove-rage
%

Gross
$million

ECL
$million

Cove-rage
%

Gross
$million

ECL
$million

Cove-rage
%

Gross
$million

ECL
$million

Cove-rage
%

Gross
$million

ECL
$million

Cove-rage
%

Increase in PD

14,737

187

1.3%

2,704

123

4.5%




4,691

22

0.5%

22,132

332

1.5%

Non-purely precautionary early alert

5,000

26

0.5%

83

-

0.0%




-

-

0.0%

5,083

26

0.5%

Higher risk (CG12)

1,075

37

3.4%

27

1

3.2%




631

20

3.1%

1,733

58

3.3%

Sub-investment grade

235

1

0.3%

-

-

0.0%




-

-

0.0%

235

1

0.3%

Top up/Sell down
(Private Banking)

-

-

0.0%

493

1

0.2%




-

-

0.0%

493

1

0.2%

Others

4,390

8

0.2%

178

2

1.2%




173

2

1.3%

4,741

12

0.3%

30 days past due

-

-

0.0%

190

16

8.7%

9

2

22.2%

-

-

0.0%

199

18

9.3%

Management overlay


166



42








-

208


Total stage 2

25,437

425

1.7%

3,675

185

5.0%

9

2

22.2%

5,495

44

0.8%

34,616

656

1.9%

1 Following the increased strategic importance and reporting of Ventures to management, this has been established as a separate operating segment from 1 January 2022. Prior period has been restated

The majority of exposures and the associated expected credit loss provisions continue to be in stage 2 due to increases in the probability of default. Overall stage 2 balances have reduced by $8.0 billion to $26.7 billion (2021: $34.6 billion) through repayments and transfers into stage 1 in Corporate, Commercial and Institutional Banking and lower undrawn commitments in Consumer, Private and Business Banking. Overall expected credit loss coverage has reduced to 1.8 per cent.

Although the amount of exposures in Corporate, Commercial and Institutional Banking placed on non-purely precautionary early alert increased compared to 31 December 2021, the proportion of stage 2 exposures driven by this category reduced as more clients were captured through the "Increase in PD" driver.

13 per cent (2021: 9 per cent) of the provisions held against stage 2 Consumer, Private and Business Banking exposures arise from the application of the 30 days past due backstop, although this represents only 8 per cent (2021: 5 per cent) of exposures.

'Others' primarily incorporates exposures where origination data is incomplete and the exposures are allocated into stage 2.

 

Page 23

 

Credit impairment charge (restated1) (reviewed)

Ongoing credit impairment was a net charge of $267 million.

Stage 3 was a charge of $277 million (H1 2021: charge of $58 million).

There was a charge of $240 million in Corporate, Commercial and Institutional Banking, compared to $59 million release in the same period last year due to significant repayments from a few clients. The $240 million charge included additional impairment on China Commercial real estate exposures of $237 million, offset by releases across a number of clients. There was also a net charge of $69 million from the downgrade of foreign currency sovereign grading of Sri Lanka in the first half of 2022, including an overlay of $42 million for recent political and economic events.

Consumer, Private and Business Banking stage 3 charge of $36 million decreased from $118 million in H1 2021, as charge-offs normalised from elevated levels following the end of moratoria relief programmes in a number of markets. The first half of 2022 also benefitted from a $14 million release of the COVID-19 management overlay.

Central and other items was a net charge of $1 million (H1 2021: release of $1 million) from the downgrade of foreign currency sovereign grading of Sri Lanka.

Stage 1 and 2 impairments was a net release of $10 million (H1 2021: release of $105 million).

Corporate, Commercial and Institutional Banking was a net release of $44 million due to upgrades and a release of $73 million from the COVID-19 element of the management overlay as clients moved out of non-purely precautionary early alert or have repaid. This was offset by an increase of $32 million in the overlay relating to China Commercial real estate exposures and $13 million increase in the post model adjustment charge for multiple economic scenarios. The same period last year was a net release of $77 million due to a number of repayments and additional collateral on a few high-risk accounts, and release of $27 million in the COVID-19 overlay.

Consumer, Private and Business Banking was a net charge of $43 million, compared to $25 million release in the same period last year due to relative improvements in macroeconomic variables. The $43 million charge was driven by revised macroeconomic outlook, relatively higher delinquencies in Hong Kong and China following COVID-19 lockdowns and a $21 million increase in the post model adjustment for multiple economic scenarios. This was offset by a release of $68 million from COVID-19 management overlay.

Ventures was a net charge of $3 million from new deals in Mox.

Central and other items was a net release of $12 million (H1 2021: release of $3 million), primarily due to upgrades.


30.06.22

30.06.21 (Restated)1

Stage 1 & 2
$million

Stage 3
$million

Total
$million

Stage 1 & 2
$million

Stage 3
$million

Total
$million

Ongoing business portfolio







Corporate, Commercial & Institutional Banking

(44)

240

196

(77)

(59)

(136)

Consumer, Private & Business Banking1

43

36

79

(25)

118

93

Ventures1

3

-

3

-

-

-

Central & other items

(12)

1

(11)

(3)

(1)

(4)

Credit impairment charge

(10)

277

267

(105)

58

(47)

Restructuring business portfolio







Others

(4)

-

(4)

(4)

-

(4)

Credit impairment charge

(4)

-

(4)

(4)

-

(4)

Total credit impairment charge

(14)

277

263

(109)

58

(51)

1 Following the increased strategic importance and reporting of Ventures to management, this has been established as a separate operating segment from 1 January 2022. Prior period has been restated

 

 

 

 

 

 

Page 24

COVID-19 relief measures

The table below sets out the extent to which payment reliefs are in place across the Group's Consumer, Private and Business Banking loan portfolio based on the amount outstanding at 30 June 2022. The accounting for temporary changes to loan contractual term is unchanged from that presented on page 220 of the 2021 Annual Report. COVID-19 payment-related relief measures in most markets have now expired. The Consumer, Private and Business Banking loans under payment relief schemes reduced to $280 million compared to $1.2 billion at the end of 2021 and a peak of $8.9 billion in the first half of 2020, with the remaining balance concentrated in Asia. This represents 0.2 per cent of Consumer, Private and Business Banking's gross loans and advances to customers, mainly in Hong Kong, China and India.

Segment¹

Total

Asia

Africa & Middle East

Outstanding
$million

% of
portfolio2

Outstanding
$million

% of
portfolio2

Outstanding
$million

% of
portfolio2

Credit card & Personal loans

18

0.1%

18

0.1%

-

-

Mortgages & Auto

90

0.1%

90

0.1%

-

-

Business Banking

172

1.7%

172

1.7%

-

-

Total Consumer, Private & Business Banking
at 30 June 2022

280

0.2%

280

0.2%

-

-

Total Consumer, Private & Business Banking
at 31 December 2021

1,182

0.9%

1,029

0.9%

153

3.1%

1 Outstanding relief balance for Corporate, Commercial and Institutional Banking are less than $100 million (31 December 2021: $1,195 million) at 30 June 2022 and $nil (31 December 2021: $nil) for Ventures³

2 Percentage of portfolio represents the outstanding amount as a percentage of the gross loans and advances to customers by product and segment

3 Following the increased strategic importance and reporting of Ventures to management, this has been established as a separate segment from 1 January 2022

Problem credit management and provisioning (reviewed)

Forborne and other modified loans by client segment

A forborne loan arises when a concession has been made to the contractual terms of a loan in response to a customer's financial difficulties.

Net forborne loans decreased by $226 million to $1.3 billion (2021: $1.5 billion) primarily driven by stage 3 loans in Corporate, Commercial and Institutional Banking in Europe and the Americas region. The table below presents loans with forbearance measures by segment.

Amortised cost

30.06.22

31.12.21 (Restated)¹

Corporate, Commercial & Institutional Banking
$million

Consumer, Private & Business Banking
$million

Ventures
$million

Total
$million

Corporate, Commercial & Institutional Banking
$million

Consumer, Private & Business Banking
$million

Ventures1
$million

Total
$million

All loans with forbearance measures

2,440

395

-

2,835

2,526

406

-

2,932

Credit impairment (stage 1 and 2)

-

-

-

-

(4)

-

-

(4)

Credit impairment (stage 3)

(1,392)

(140)

-

(1,532)

(1,237)

(162)

-

(1,399)

Net carrying value

1,048

255

-

1,303

1,285

244

-

1,529

Included within the above table









Gross performing forborne loans

304

72

-

376

272

59

-

331

Modification of terms and conditions2

246

72

-

318

257

59

-

316

Refinancing3

58

-

-

58

15

-

-

15

Impairment provisions

-

-

-

-

(4)

-

-

(4)

Modification of terms and conditions2

-

-

-

-

(4)

-

-

(4)

Refinancing3

-

-

-

-

-

-

-

-

Net performing forborne loans

304

72

-

376

268

59

-

327

Collateral

134

70

-

204

65

56

-

121

Gross non-performing forborne loans

2,136

323

-

2,459

2,253

348

-

2,601

Modification of terms and conditions2

2,028

323

-

2,351

2,095

348

-

2,443

Refinancing3

108

-

-

108

158

-

-

158

Impairment provisions

(1,392)

(140)

-

(1,532)

(1,237)

(162)

-

(1,399)

Modification of terms and conditions2

(1,290)

(140)

-

(1,430)

(1,106)

(162)

-

(1,268)

Refinancing3

(102)

-

-

(102)

(131)

-

-

(131)

Net non-performing forborne loans

744

183

-

927

1,016

186

-

1,202

Collateral

269

64

-

333

236

62

-

298

1 Following the increased strategic importance and reporting of Ventures to management, this has been established as a separate operating segment from
1 January 2022

2 Modification of terms is any contractual change apart from refinancing, as a result of credit stress of the counterparty, i.e. interest reductions, loan covenant waivers

3 Refinancing is a new contract to a lender in credit stress, such that they are refinanced and can pay other debt contracts that they were unable to honour

Page 25

Forborne and other modified loans by region

Amortised cost

30.06.22

31.12.21

Asia
$million

Africa & Middle East
$million

Europe & Americas
$million

Total
$million

Asia
$million

Africa & Middle East
$million

Europe & Americas
$million

Total
$million

Performing forborne loans

190

127

59

376

205

76

46

327

Non-performing forborne loans

575

240

112

927

572

137

493

1,202

Net forborne loans

765

367

171

1,303

777

213

539

1,529

Credit-impaired (stage 3) loans and advances by client segment (reviewed)

Gross stage 3 loans for the Group have reduced by $1 billion to $7.1 billion (2021: $8.1 billion). This is mainly driven by $1 billion from loan sales, upgrades and repayments in Corporate, Commercial and institutional Banking, offset by the downgrade of foreign currency sovereign grading of Sri Lanka.

Gross stage 3 loans in Consumer, Private and Business Banking decreased by $75 million primarily in Secured wealth products, Mortgages and Personal Loans portfolio.

Stage 3 cover ratio (reviewed)

The stage 3 cover ratio measures the proportion of stage 3 impairment provisions to gross stage 3 loans, and is a metric commonly used in considering impairment trends. This metric does not allow for variations in the composition of stage 3 loans and should be used in conjunction with other Credit Risk information provided, including the level of collateral cover.

The balance of stage 3 loans not covered by stage 3 impairment provisions represents the adjusted value of collateral held and the net outcome of any workout or recovery strategies.

Collateral provides risk mitigation to some degree in all client segments and supports the credit quality and cover ratio assessments post impairment provisions. Further information on collateral is provided in the Credit Risk mitigation section.

The Corporate, Commercial and Institutional Banking cover ratio increased by 5 per cent before collateral and 6 per cent post collateral. The increase was due to a few material accounts that were upgraded or sold during the year and additional impairment on the Commercial real estate portfolio.

Consumer, Private and Business Banking stage 3 cover ratio before and after collateral remain stable at 51 per cent and  91 per cent, respectively.


30.06.22

31.12.21 (Restated)1

Corporate, Commercial & Institutional Banking
$million

Consumer, Private & Business Banking
$million

Ventures
$million

Total
$million

Corporate, Commercial & Institutional Banking
$million

Consumer, Private & Business Banking1
$million

Ventures
$million

Total
$million

Gross credit-impaired

5,552

1,500

1

7,053

6,520

1,575

-

8,095

Credit impairment provisions

(3,575)

(758)

-

(4,333)

(3,861)

(796)

-

(4,657)

Net credit-impaired

1,977

742

1

2,720

2,659

779

-

3,438

Cover ratio

64%

51%

0%

61%

59%

51%

0%

58%

Collateral ($ million)

738

601

-

1,339

805

641

-

1,446

Cover ratio (after collateral)

78%

91%

0%

80%

72%

91%

0%

75%

1 Following the increased strategic importance and reporting of Ventures to management, this has been established as a separate operating segment from 1 January 2022. Prior period has been restated

Credit-impaired (stage 3) loans and advances by geographic region

Stage 3 gross loans decreased by $1 billion compared with 31 December 2021. The decrease was primarily driven by loan sales, repayments and upgrades in Asia and Africa and the Middle East of $647 million and a decrease in Europe and the Americas of $395 million.

Amortised cost

30.06.22

31.12.21

Asia
$million

Africa & Middle East
$million

Europe & Americas
$million

Total
$million

Asia
$million

Africa & Middle East
$million

Europe & Americas
$million

Total
$million

Gross credit-impaired

3,961

2,758

334

7,053

4,448

2,918

729

8,095

Credit impairment provisions

(2,236)

(1,844)

(253)

(4,333)

(2,401)

(1,970)

(286)

(4,657)

Net credit-impaired

1,725

914

81

2,720

2,047

948

443

3,438

Cover ratio

56%

67%

76%

61%

54%

68%

39%

58%

 

Page 26

Credit Risk mitigation

Potential credit losses from any given account, customer or portfolio are mitigated using a range of tools such as collateral, netting arrangements, credit insurance and credit derivatives, taking into account expected volatility 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.

Collateral (reviewed)

The requirement for collateral is not a substitute for the ability to repay, which is the primary consideration for any
lending decisions. The unadjusted market value of collateral across all asset types, in respect of Corporate, Commercial and Institutional Banking, without adjusting for over-collateralisation, was $315 billion (2021: $346 billion).

The collateral values in the table below (which covers loans and advances to banks and customers, excluding those held at fair value through profit or loss) are adjusted where appropriate in accordance with our risk mitigation policy and for the effect of over-collateralisation. The extent of over-collateralisation has been determined with reference to both the drawn and undrawn components of exposure, as this best reflects the effect of collateral and other credit enhancements on the amounts arising from expected credit losses. The value of collateral reflects management's best estimate and is backtested against our prior experience. On average, across all types of non-cash collateral, the value ascribed is approximately half of its current market value. In the Consumer, Private and Business Banking segment, a secured loan is one where the borrower pledges an asset as collateral of which the Group is able to take possession in the event that the borrower defaults.

Total collateral has reduced by $5.7 billion to $133 billion (2021: $139 billion), of which $3.3 billion is in Consumer, Private and Business Banking due to decrease in Mortgages and Secured wealth products exposures. Corporate, Commercial and Institutional Banking decreased by $2.8 billion to $26.6 billion, driven by reduction in collateral against stage 2 clients as stage 2 exposure balances decreased.

Collateral held on loans and advances

The table below details collateral held against exposures, separately disclosing stage 2 and stage 3 exposure and corresponding collateral.

Amortised cost

30.06.22

Net amount outstanding

Collateral

Net exposure

Total
$million

Stage 2 financial
assets
$million

Credit-impaired financial
assets (S3)
$million

Total2
$million

Stage 2 financial
assets
$million

Credit-impaired financial
assets (S3)
$million

Total
$million

Stage 2 financial
assets
$million

Credit-impaired financial
assets (S3)
$million

Corporate, Commercial & Institutional Banking1

170,237

10,601

2,040

26,596

3,363

738

143,641

7,238

1,302

Consumer, Private &
Business Banking

132,251

1,764

742

99,428

1,091

601

32,823

673

141

Ventures

344

5

-

-

-

-

344

5

-

Central & other items

26,877

150

-

6,886

-

-

19,991

150

-

Total

329,709

12,520

2,782

132,910

4,454

1,339

196,799

8,066

1,443

 

Amortised cost

31.12.21 (Restated)3

Net amount outstanding

Collateral

Net exposure

Total
$million

Stage 2 financial
assets
$million

Credit-impaired financial
assets (S3)
$million

Total2
$million

Stage 2 financial
assets
$million

Credit-impaired financial
assets (S3)
$million

Total
$million

Stage 2 financial
assets
$million

Credit-impaired financial
assets (S3)
$million

Corporate, Commercial & Institutional Banking1

183,784

15,053

2,702

29,414

5,077

805

154,370

9976

1,897

Consumer, Private &
Business Banking3

136,430

1,731

779

102,769

1,045

641

33,661

686

138

Ventures3

88

7

-

-

-

-

88

7

-

Central & other items

22,549

110

-

6,381

-

-

16,168

110

-

Total

342,851

16,901

3,481

138,564

6,122

1,446

204,287

10,779

2,035

1 Includes loans and advances to banks

2 Adjusted for over-collateralisation based on the drawn and undrawn components of exposures

3 Following the increased strategic importance and reporting of Ventures to management, this has been established as a separate operating segment in 2022.
Prior period has been restated

Page 27

 

Collateral - Corporate, Commercial & Institutional Banking (reviewed)

Collateral held against Corporate, Commercial and Institutional Banking exposures amounted to $27 billion.

Collateral taken for longer-term and sub-investment grade corporate loans remains high at 47 per cent (2021: 49 per cent). Our underwriting standards encourage taking specific charges on assets and we consistently seek high-quality, investment-grade collateral.

78 per cent of tangible collateral held comprises physical assets or is property based, with the remainder largely in cash and investment securities.

Non-tangible collateral, such as guarantees and standby letters of credit, is also held against corporate exposures, although the financial effect of this type of collateral is less significant in terms of recoveries. However, this is considered when determining the probability of default and other credit-related factors. Collateral is also held against off-balance sheet exposures, including undrawn commitments and trade-related instruments.

Corporate, Commercial & Institutional Banking

Amortised cost

30.06.22
$million

31.12.21
$million

Maximum exposure

170,237

183,784

Property

10,202

10,589

Plant, machinery and other stock

1,423

1,411

Cash

3,323

3,549

Reverse repos

1,378

2,042

A- to AA+

163

122

BBB- to BBB+

121

483

Unrated

1,094

1,437

Financial guarantees and insurance

5,664

6,616

Commodities

89

198

Ships and aircraft

4,517

5,009

Total value of collateral1

26,596

29,414

Net exposure

143,641

154,370

1 Adjusted for over-collateralisation based on the drawn and undrawn components of exposures

Collateral - Consumer, Private & Business Banking (reviewed)

In Consumer, Private and Business Banking, 86 per cent of the portfolio is fully secured (2021: 86 per cent). The secured portfolio decreased by $3.8 billion from Mortgages and Secured wealth portfolio in Asia. Collateral also reduced by $3.3 billion in line with secured portfolio exposure reduction.

The following table presents an analysis of loans to individuals by product; split between fully secured, partially secured and unsecured.

Amortised cost

30.06.22

31.12.21 (Restated)3

Fully secured
$million

Partially secured
$million

Unsecured
$million

Total¹
$million

Fully secured
$million

Partially secured
$million

Unsecured
$million

Total²
$million

Maximum exposure

113,458

1,213

17,580

132,251

117,129

1,329

17,972

136,430

Loans to individuals









Mortgages

86,967

-

-

86,967

89,222

-

-

89,222

CCPL

200

-

16,232

16,432

150

-

16,943

17,093

Auto

530

-

-

530

542

-

-

542

Secured wealth products

20,195

-

-

20,195

21,495

-

-

21,495

Other

5,566

1,213

1,348

8,127

5,720

1,329

1,029

8,078

Total collateral1




99,428




102,769

Net exposure2




32,823




33,661

Percentage of total loans

86%

1%

13%


86%

1%

13%


1 Collateral values are adjusted where appropriate in accordance with our risk mitigation policy and for the effect of over-collateralisation

2 Amounts net of ECL

3 Following the increased strategic importance and reporting of Ventures to management, this has been established as a separate operating segment in 2022. Prior period has been restated

 

 

 

Page 28

 

Mortgage loan-to-value ratios by geography (reviewed)

Loan-to-value (LTV) ratios measure the ratio of the current mortgage outstanding to the current fair value of the properties on which they are secured.

In mortgages, the value of property held as security significantly exceeds the value of mortgage loans. The average LTV of the overall mortgage portfolio is low at 41.6 per cent and remains consistent compared to 31 December 2021. Hong Kong, which represents 39 per cent of the mortgage portfolio, has an average LTV of 45.4 per cent. All of our other key markets continue to have low portfolio LTVs (Korea, Singapore and Taiwan at 35.2 per cent, 43.4 per cent and 46.1 per cent respectively).

An analysis of LTV ratios by geography for the mortgage portfolio is presented in the table below.

Amortised cost

30.06.22

Asia
%
Gross

Africa &
Middle East
%
Gross

Europe &
Americas
%
Gross

Total
%
Gross

Less than 50 per cent

67.5

38.9

20.9

66.1

50 per cent to 59 per cent

12.0

20.3

23.6

12.4

60 per cent to 69 per cent

8.2

17.1

33.3

8.8

70 per cent to 79 per cent

8.5

12.9

20.2

8.8

80 per cent to 89 per cent

2.9

6.2

1.8

3.0

90 per cent to 99 per cent

0.8

2.6

0.2

0.8

100 per cent and greater

0.1

2.0

-

0.1

Average portfolio loan-to-value

41.1

56.0

58.6

41.6

Loans to individuals - mortgages ($million)

83,753

1,542

1,671

86,966

 

Amortised cost

31.12.21

Asia
%
Gross

Africa &
Middle East
%
Gross

Europe &
Americas
%
Gross

Total
%
Gross

Less than 50 per cent

68.2

27.6

16.8

66.4

50 per cent to 59 per cent

11.6

18.6

19.9

11.9

60 per cent to 69 per cent

8.1

19.6

37.5

8.9

70 per cent to 79 per cent

9.1

16.5

17.1

9.4

80 per cent to 89 per cent

2.4

9.1

8.7

2.7

90 per cent to 99 per cent

0.5

4.8

-

0.5

100 per cent and greater

0.1

3.8

-

0.2

Average portfolio loan-to-value

40.5

61.9

60.8

41.1

Loans to individuals - mortgages ($million)

85,765

1,651

1,806

89,222

Collateral and other credit enhancements possessed or called upon (reviewed)

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, the excess is returned to the borrower.

Certain equity securities acquired may be held by the Group for investment purposes and are classified as fair value through profit or loss, and the related loan written off. The carrying value of collateral possessed and held by the Group as at 30 June 2022 is $7.0 million (2021: $11.8 million).


30.06.22
$million

31.12.21
$million

Property, plant and equipment

5.4

5.8

Guarantees

1.6

6.0

Other

-

-

Total

7.0

11.8

 

 

 

Page 29

 

Other Credit Risk mitigation (reviewed)

Other forms of credit risk mitigation are set out below.

Credit default swaps

The Group has entered into credit default swaps for portfolio management purposes, referencing loan assets with a notional value of $5.1 billion (2021: $12.1 billion). These credit default swaps are accounted for as financial guarantees as per IFRS 9, as they will only reimburse the holder for an incurred loss on an underlying debt instrument. The Group continues to hold the underlying assets referenced in the credit default swaps and it continues to be exposed to related Credit and Foreign Exchange Risk on these assets.

Credit linked notes

The Group has issued credit linked notes for portfolio management purposes, referencing loan assets with a notional value of $12.5 billion (2021: $10.0 billion). The Group continues to hold the underlying assets for which the credit linked notes provide mitigation.

Derivative financial instruments

The Group enters into master netting agreements, which in the event of default result 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. These are set out in more detail under Derivative financial instruments Credit Risk mitigation.

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 in the case of letters of credit holding legal title to the underlying assets should a default take place.

Other portfolio analysis

This section provides maturity analysis by credit quality by industry and industry and retail products analysis by region.

Credit quality by industry

Loans and advances

This section provides an analysis of the Group's amortised cost portfolio by industry on a gross, total credit impairment and net basis.

From an industry perspective, loans and advances decreased by $5 billion to $298.7 billion (2021: $304.1 billion), of which $1 billion is in Corporate, Commercial and Institutional Banking and Central and other items segments ("Wholesale"), and $4 billion in Consumer, Private and Business Banking.

Stage 1 loans remained stable at $279 billion. Corporate, Commercial, and Institutional Banking and Central and other items stage 1 loans increased by $3.9 billion to $148.7 billion. Increases were in the Transport, telecom and utilities sector ($1.7 billion) and Energy sector ($1.4 billion) due to new deals, which were offset by reduction in exposures in Commercial real estate and Financing and Insurance sectors. Exposure to Government sector increased by $5 billion. Consumer, Private and Business Banking stage 1 loans decreased by $4 billion from lower mortgage and secured wealth portfolio largely in Asia.

Stage 2 loans decreased by $4 billion to $12.5 billion (2021: $16.8 billion) driven by Corporate, Commercial and Institutional Banking, due to exposure reductions in Energy, Transport, telecom and utilities sectors.

Stage 3 loans decreased by $1 billion to $7.1 billion (2021: $8.1 billion) mainly from loan sales, repayments and upgrades in Corporate, Commercial and Institutional Banking.

 

 

 

 

 

 

Page 30

 

Amortised cost

30.06.22

Stage 1

Stage 2

Stage 3

Total

Gross balance
$million

Total credit impair-ment
$million

Net carrying amount
$million

Gross balance
$million

Total credit impair-ment
$million

Net carrying amount
$million

Gross balance
$million

Total credit impair-ment
$million

Net carrying amount
$million

Gross balance
$million

Total credit impair-ment
$million

Net carrying amount
$million

Industry:













Energy

11,809

(29)

11,780

828

(40)

788

952

(661)

291

13,589

(730)

12,859

Manufacturing

22,991

(10)

22,981

1,021

(14)

1,007

756

(524)

232

24,768

(548)

24,220

Financing, insurance
and non-banking

22,445

(7)

22,438

997

(13)

984

255

(208)

47

23,697

(228)

23,469

Transport, telecom
and utilities

14,512

(8)

14,504

2,597

(47)

2,550

565

(278)

287

17,674

(333)

17,341

Food and household products

8,873

(6)

8,867

472

(14)

458

374

(225)

149

9,719

(245)

9,474

Commercial real estate

14,195

(63)

14,132

2,212

(82)

2,130

841

(503)

338

17,248

(648)

16,600

Mining and quarrying

4,955

(2)

4,953

452

(15)

437

227

(140)

87

5,634

(157)

5,477

Consumer durables

8,176

(3)

8,173

292

(15)

277

421

(342)

79

8,889

(360)

8,529

Construction

2,541

(2)

2,539

425

(6)

419

537

(394)

143

3,503

(402)

3,101

Trading companies & distributors

957

(1)

956

112

(2)

110

145

(132)

13

1,214

(135)

1,079

Government

31,564

(2)

31,562

650

(5)

645

141

(8)

133

32,355

(15)

32,340

Other

5,672

(7)

5,665

583

(7)

576

343

(160)

183

6,598

(174)

6,424

Retail Products:













Mortgage

85,630

(16)

85,614

975

(6)

969

569

(186)

383

87,174

(208)

86,966

Credit Cards

5,988

(82)

5,906

335

(60)

275

69

(43)

26

6,392

(185)

6,207

Personal loans and other unsecured lending

10,470

(205)

10,265

194

(52)

142

308

(145)

163

10,972

(402)

10,570

Auto

529

(1)

528

1

-

1

-

-

-

530

(1)

529

Secured wealth products

19,867

(53)

19,814

239

(6)

233

443

(295)

148

20,549

(354)

20,195

Other

7,962

(5)

7,957

154

(1)

153

107

(89)

18

8,223

(95)

8,128

Net carrying value (customers)¹

279,136

(502)

278,634

12,539

(385)

12,154

7,053

(4,333)

2,720

298,728

(5,220)

293,508

1 Includes reverse repurchase agreements and other similar secured lending held at amortised cost of $7,894 million

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Page 31

 

Amortised cost

31.12.21

Stage 1

Stage 2

Stage 3

Total

Gross balance
$million

Total credit impair-ment
$million

Net carrying amount
$million

Gross balance
$million

Total credit impair-ment
$million

Net carrying amount
$million

Gross balance
$million

Total credit impair-ment
$million

Net carrying amount
$million

Gross balance
$million

Total credit impair-ment
$million

Net carrying amount
$million

Industry:













Energy

10,454

(19)

10,435

2,067

(76)

1,991

998

(719)

279

13,519

(814)

12,705

Manufacturing

23,792

(9)

23,783

1,181

(30)

1,151

852

(562)

290

25,825

(601)

25,224

Financing, insurance
and non-banking

24,380

(9)

24,371

1,257

(12)

1,245

268

(207)

61

25,905

(228)

25,677

Transport, telecom
and utilities

12,778

(5)

12,773

4,926

(51)

4,875

966

(289)

677

18,670

(345)

18,325

Food and household products

8,093

(2)

8,091

721

(26)

695

380

(276)

104

9,194

(304)

8,890

Commercial real estate

17,680

(43)

17,637

1,787

(75)

1,712

833

(335)

498

20,300

(453)

19,847

Mining and quarrying

4,793

(3)

4,790

480

(20)

460

272

(167)

105

5,545

(190)

5,355

Consumer durables

7,069

(3)

7,066

407

(9)

398

425

(346)

79

7,901

(358)

7,543

Construction

2,279

(3)

2,276

506

(19)

487

914

(624)

290

3,699

(646)

3,053

Trading companies & distributors

1,144

(1)

1,143

117

(8)

109

143

(135)

8

1,404

(144)

1,260

Government

26,588

(2)

26,586

678

(1)

677

154

(8)

146

27,420

(11)

27,409

Other

5,757

(4)

5,753

801

(14)

787

316

(194)

122

6,874

(212)

6,662

Retail Products:













Mortgage

87,987

(22)

87,965

862

(20)

842

599

(184)

415

89,448

(226)

89,222

Credit Cards2

5,899

(90)

5,809

388

(74)

314

61

(44)

17

6,348

(208)

6,140

Personal loans and other unsecured lending2

10,981

(188)

10,793

182

(58)

124

334

(210)

124

11,497

(456)

11,041

Equipment Leased













Auto

541

(1)

540

2

-

2

-

-

-

543

(1)

542

Secured wealth products

21,067

(61)

21,006

307

(10)

297

483

(291)

192

21,857

(362)

21,495

Other

7,896

(8)

7,888

180

(21)

159

97

(66)

31

8,173

(95)

8,078

Net carrying value (customers)¹

279,178

(473)

278,705

16,849

(524)

16,325

8,095

(4,657)

3,438

304,122

(5,654)

298,468

1 Includes reverse repurchase agreements and other similar secured lending held at amortised cost of $7,331 million

2 Prior year has been re-presented to provide product granularity

Industry and Retail Products analysis of loans and advances by geographic region

This section provides an analysis of the Group's amortised cost loan portfolio, net of provisions, by industry and region.

In the Corporate, Commercial and Institutional Banking segment, our largest industry exposures are to Government, Manufacturing, Financing, insurance and non-banking sectors for wholesale exposures.

Net loans and advances to customers decreased by $5.0 billion to $293.5 billion (2021: $298.5 billion) of which Asia decreased by $2 billion and Europe and the Americas reduced by $2.6 billion.

Financing, insurance and non-banking industry clients are mostly investment-grade institutions and this lending forms part of the liquidity management of the Group. The manufacturing sector group is spread across a diverse range of industries, including automobiles and components, capital goods, pharmaceuticals, biotech and life sciences, technology hardware and equipment, chemicals, paper products and packaging, with lending spread over 3,416 clients.

Loans and advances to the Energy sector in Corporate, Commercial and Institutional Banking was $13.6 billion and broadly stable from 2021. The Energy sector lending is spread across five sub-sectors and over 181 clients.

The Group provides loans to Commercial real estate counterparties of $17 billion. In total, $8.5 billion of this lending 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 Commercial real estate loans comprise working capital loans to real estate corporates, loans with non-property collateral, unsecured loans and loans to real estate entities of diversified conglomerates. The average LTV ratio of the Commercial real estate portfolio has decreased to 48 per cent, compared with 50 per cent in 2021 (51 per cent in 2020). The proportion of loans with an LTV greater than 80 per cent has decreased to 1 per cent, compared with 2 per cent in 2021 (4 per cent in 2020).

Consumer, Private and Business Banking net loans decreased by $3.9 billion to $132.6 billion (2021: $136.5 billion) driven by a decrease in secured products in Asia.

Page 32

 

Amortised cost

30.06.22

31.12.21

ASIA
$million

Africa & Middle East
$million

Europe & Americas
$million

Total
$million

ASIA
$million

Africa & Middle East
$million

Europe & Americas
$million

Total
$million

Industry:









Energy

9,709

1,332

1,818

12,859

6,265

2,721

3,719

12,705

Manufacturing

19,447

1,578

3,195

24,220

20,771

1,751

2,702

25,224

Financing, insurance and non-banking

12,920

796

9,753

23,469

14,184

905

10,588

25,677

Transport, telecom and utilities

11,396

4,112

1,833

17,341

11,661

4,218

2,446

18,325

Food and household products

5,836

2,482

1,156

9,474

5,497

2,360

1,033

8,890

Commercial real estate

13,971

833

1,796

16,600

17,150

1,048

1,649

19,847

Mining and quarrying

3,894

489

1,094

5,477

3,833

572

950

5,355

Consumer durables

7,498

474

557

8,529

6,742

398

403

7,543

Construction

1,873

731

497

3,101

1,839

814

400

3,053

Trading companies and distributors

869

173

37

1,079

1,047

176

37

1,260

Government

26,545

5,664

131

32,340

22,987

4,117

305

27,409

Other

4,093

920

1,411

6,424

4,681

670

1,311

6,662

Retail Products:









Mortgages

83,753

1,542

1,671

86,966

85,765

1,651

1,806

89,222

Credit Cards¹

5,904

303

-

6,207

5,849

291

-

6,140

Personal loans and other unsecured lending1

8,817

1,652

101

10,570

9,241

1,700

100

11,041

Auto

490

39

-

529

500

42

-

542

Secured wealth products

18,842

599

754

20,195

19,984

545

966

21,495

Other

7,378

750

-

8,128

7,265

813

-

8,078

Net loans and advances to customers

243,235

24,469

25,804

293,508

245,261

24,792

28,415

298,468

Net loans and advances to banks

22,688

5,043

8,470

36,201

30,301

5,966

8,116

44,383

1 Prior year has been re-presented to provide product granularity

Vulnerable and Cyclical Sector tables

Vulnerable and cyclical sectors are those that the Group considers to be most at risk from current economic stresses, including volatile energy and commodity prices, and we continue to monitor exposures to these sectors particularly carefully.

Total net on-balance sheet exposure to vulnerable sectors decreased by $2.4 billion to $31 billion compared to 31 December 2021, although the total net on and off-balance sheet exposure was unchanged at 28 per cent (2021: 28 per cent) of the total net exposure in Corporate, Commercial and Institutional Banking. The decrease is largely due to lower levels of drawn balances particularly in the Commercial real estate sector.

Stage 2 vulnerable sector loans decreased by $2.2 billion compared to 31 December 2021. This was primarily driven by a decrease in the Aviation and Oil & Gas sectors as exposure migrated to stage 1 partly offset by an increase in Commercial Real Estate.

Stage 3 vulnerable sector loans increased by $0.2 billion compared to 31 December 2021, mainly in the Commodity Traders sector from new downgrades.

The Group has net exposure of $3.7 billion (2021: $4.0 billion) to China Commercial real estate counterparties which are primarily booked in Hong Kong and China. Of this exposure, $1.6 billion (2021: $1.8 billion) is to property developers (whose cashflows have been particularly impacted by policy changes to deleverage the sector) that have been placed on purely precautionary and non-purely precautionary early alert. As a result of ongoing uncertainties affecting this sector, the Group has taken a $126 million (2021: $95 million) management overlay on credit impairment for the exposures on early alert at 30 June 2022. The Group is further indirectly exposed to China Commercial real estate through its associate investment in China Bohai Bank. Refer to Note 19 Investments in subsidiary undertakings, joint ventures and associates.

 

 

 

 

Page 33

 

Maximum exposure

Amortised Cost

30.06.22

Maximum on Balance Sheet Exposure
(net of credit impairment)
$million

Collateral
$million

Net On Balance Sheet Exposure
$million

Undrawn Commitments
(net of credit impairment)
$million

Financial Guarantees
(net of credit impairment)
$million

Net Off Balance Sheet Exposure
$million

Total On & Off Balance Sheet Net Exposure
$million

Industry:








Aviation1

3,114

1,648

1,466

1,445

735

2,180

3,646

Commodity Traders

8,575

332

8,243

3,094

8,745

11,839

20,082

Metals & Mining

4,061

385

3,676

3,271

729

4,000

7,676

Commercial Real Estate

16,601

7,118

9,483

6,618

249

6,867

16,350

Hotels & Tourism

2,087

812

1,275

1,564

137

1,701

2,976

Oil & Gas

7,379

902

6,477

8,214

7,321

15,535

22,012

Total

41,817

11,197

30,620

24,206

17,916

42,122

72,742

Total Corporate, Commercial & Institutional Banking

134,036

24,522

109,514

97,559

51,066

148,625

258,139

Total Group

329,709

132,910

196,799

162,762

58,193

220,955

417,754

 

Amortised Cost

31.12.21

Maximum
On Balance Sheet Exposure
(net of credit impairment)
$million

Collateral
$million

Net On Balance Sheet Exposure
$million

Undrawn Commitments
(net of credit impairment)
$million

Financial Guarantees
(net of credit impairment)
$million

Net Off Balance Sheet Exposure
$million

Total On & Off Balance Sheet Net Exposure
$million

Industry:








Aviation¹

3,458

2,033

1,425

1,914

431

2,345

3,770

Commodity Traders

8,732

262

8,470

2,434

6,832

9,266

17,736

Metals & Mining

3,616

450

3,166

3,387

637

4,024

7,190

Commercial Real Estate

19,847

7,290

12,557

7,192

291

7,483

20,040

Hotels & Tourism

2,390

789

1,601

1,363

121

1,484

3,085

Oil & Gas

6,826

1,029

5,797

8,842

6,013

14,855

20,652

Total

44,869

11,853

33,016

25,132

14,325

39,457

72,473

Total Corporate, Commercial & Institutional Banking

139,401

26,294

113,107

96,406

49,666

146,072

259,179

Total Group

342,851

138,564

204,287

158,421

58,291

216,712

420,999

1 In addition to the aviation sector loan exposures, the Group owns $3.4 billion (31 December 2021: $3.1 billion) of aircraft under operating leases. Refer to Operating lease assets

 

 

 

 

 

 

 

 

 

 

 

 

 

Page 34

 

Loans and advances by stage

Amortised Cost

30.06.22

Stage 1

Stage 2

Stage 3

Total

Gross balance
$million

Total credit impair-ment
$million

Net carrying amount
$million

Gross balance
$million

Total credit impair-ment
$million

Net carrying amount
$million

Gross balance
$million

Total credit impair-ment
$million

Net carrying amount
$million

Gross balance
$million

Total credit impair-ment
$million

Net carrying amount
$million

Industry:













Aviation1

2,193

(2)

2,191

758

(1)

757

213

(47)

166

3,164

(50)

3,114

Commodity Traders

8,012

(6)

8,006

254

(3)

251

866

(548)

318

9,132

(557)

8,575

Metals & Mining

3,624

(2)

3,622

353

(11)

342

212

(115)

97

4,189

(128)

4,061

Commercial Real Estate

14,196

(63)

14,133

2,212

(82)

2,130

841

(503)

338

17,249

(648)

16,601

Hotels & Tourism

1,463

(2)

1,461

430

(5)

425

262

(61)

201

2,155

(68)

2,087

Oil & Gas

6,413

(6)

6,407

718

(12)

706

506

(240)

266

7,637

(258)

7,379

Total

35,901

(81)

35,820

4,725

(114)

4,611

2,900

(1,514)

1,386

43,526

(1,709)

41,817

Total CCIB

121,965

(141)

121,824

10,488

(253)

10,235

5,552

(3,575)

1,977

138,005

(3,969)

134,036

Total Group

314,916

(511)

314,405

12,910

(387)

12,523

7,131

(4,348)

2,783

334,957

(5,246)

329,711

 

Amortised cost

31.12.21

Stage 1

Stage 2

Stage 3

Total

Gross balance
$million

Total credit impair-ment
$million

Net carrying amount
$million

Gross balance
$million

Total credit impair-ment
$million

Net carrying amount
$million

Gross balance
$million

Total credit impair-ment
$million

Net carrying amount
$million

Gross balance
$million

Total credit impair-ment
$million

Net carrying amount
$million

Industry:













Aviation1

1,120

-

1,120

2,174

(11)

2,163

239

(64)

175

3,533

(75)

3,458

Commodity Traders

8,482

(4)

8,478

195

(5)

190

713

(649)

64

9,390

(658)

8,732

Metals & Mining

3,083

(1)

3,082

450

(17)

433

219

(118)

101

3,752

(136)

3,616

Commercial Real Estate

17,680

(43)

17,637

1,787

(75)

1,712

833

(335)

498

20,300

(453)

19,847

Hotels & Tourism

1,562

(1)

1,561

722

(9)

713

182

(66)

116

2,466

(76)

2,390

Oil & Gas

4,999

(5)

4,994

1,595

(34)

1,561

486

(215)

271

7,080

(254)

6,826

Total

36,926

(54)

36,872

6,923

(151)

6,772

2,672

(1,447)

1,225

46,521

(1,652)

44,869

Total CCIB

122,368

(103)

122,265

14,818

(341)

14,477

6,520

(3,861)

2,659

143,706

(4,305)

139,401

Total Group

322,954

(485)

322,469

17,429

(528)

16,901

8,149

(4,668)

3,481

348,532

(5,681)

342,851

Loans and advances by region (net of credit impairment)


30.06.22

31.12.21

Asia
$million

Africa & Middle East
$million

Europe & Americas
$million

Total
$million

Asia
$million

Africa & Middle East
$million

Europe & Americas
$million

Total
$million

Industry:









Aviation1

1,298

1,050

766

3,114

1,356

1,214

888

3,458

Commodity traders

5,005

774

2,796

8,575

4,352

660

3,720

8,732

Metals & mining

2,904

440

717

4,061

2,736

492

388

3,616

Commercial real estate

13,972

833

1,796

16,601

17,150

1,048

1,649

19,847

Hotel & tourism

1,204

647

236

2,087

1,464

397

529

2,390

Oil & gas

3,839

2,051

1,489

7,379

2,770

2,248

1,808

6,826

Total

28,222

5,795

7,800

41,817

29,828

6,059

8,982

44,869

1 In addition to the aviation sector loan exposures, the Group owns $3.4 billion (31 December 2021: $3.1 billion) of aircraft under operating leases. Refer to Operating lease assets

 

 

 

 

 

 

Page 35

 

Credit quality - loans and advances

Amortised Cost

Credit Grade

30.06.22

Aviation
Gross
$million

Commodity traders
Gross
$million

Metals & mining
Gross
$million

Commercial real estate
Gross
$million

Hotel & tourism
Gross
$million

Oil & gas
Gross
$million

Total
Gross
$million

Strong

1,043

5,170

2,582

7,470

756

4,517

21,538

Satisfactory

1,750

3,084

1,392

8,878

1,073

2,605

18,782

Higher risk

158

12

3

60

64

9

306

Defaulted

213

866

212

841

262

506

2,900

Total Gross Balance

3,164

9,132

4,189

17,249

2,155

7,637

43,526

Strong

(1)

(3)

(3)

(11)

(1)

(1)

(20)

Satisfactory

(2)

(5)

(10)

(130)

(4)

(17)

(168)

Higher risk

-

(1)

-

(4)

(2)

-

(7)

Defaulted

(47)

(548)

(115)

(503)

(61)

(240)

(1,514)

Total Credit Impairment

(50)

(557)

(128)

(648)

(68)

(258)

(1,709)

Strong

0.1%

0.1%

0.1%

0.1%

0.1%

0.0%

0.1%

Satisfactory

0.1%

0.2%

0.7%

1.5%

0.4%

0.7%

0.9%

Higher risk

0.0%

8.3%

0.0%

6.7%

3.1%

0.0%

2.3%

Defaulted

22.1%

63.3%

54.2%

59.8%

23.3%

47.4%

52.2%

Cover Ratio

1.6%

6.1%

3.1%

3.8%

3.2%

3.4%

3.9%

 

Credit Grade

31.12.21

Aviation¹
Gross
$million

Commodity traders
Gross
$million

Metals & mining
Gross
$million

Commercial real estate
Gross
$million

Hotel &
tourism
Gross
$million

Oil & gas
Gross
$million

Total
Gross
$million

Strong

896

5,878

1,730

9,581

731

3,594

22,410

Satisfactory

2,257

2,788

1,781

9,735

1,353

2,892

20,806

Higher risk

141

11

22

151

200

108

633

Defaulted

239

713

219

833

182

486

2,672

Total Gross Balance

3,533

9,390

3,752

20,300

2,466

7,080

46,521

Strong

-

(1)

-

(92)

-

-

(93)

Satisfactory

(8)

(5)

(14)

(21)

(4)

(24)

(76)

Higher risk

(3)

(3)

(4)

(5)

(6)

(15)

(36)

Defaulted

(64)

(649)

(118)

(335)

(66)

(215)

(1,447)

Total Credit Impairment

(75)

(658)

(136)

(453)

(76)

(254)

(1,652)

Strong

0.0%

0.0%

0.0%

1.0%

0.0%

0.0%

0.4%

Satisfactory

0.4%

0.2%

0.8%

0.2%

0.3%

0.8%

0.4%

Higher risk

2.1%

27.3%

18.2%

3.3%

3.0%

13.9%

5.7%

Defaulted

26.8%

91.0%

53.9%

40.2%

36.3%

44.2%

54.2%

Cover Ratio

2.1%

7.0%

3.6%

2.2%

3.1%

3.6%

3.6%

 

 

 

 

 

 

 

 

 

 

Page 36

 

IFRS 9 expected credit loss methodology (reviewed)

Refer to pages 233 to 234 in the 2021 Annual Report for the 'Approach for determining expected credit losses', 'Application of lifetime', and pages 242 to 244 for 'Significant increase in credit risk (SICR)', 'Assessment of credit-impaired financial assets' and 'Governance and application of expert credit judgement in respect of expected credit losses'. There have been no changes to the Group's approach in determining SICR compared to 31 December 2021.

Composition of credit impairment provisions (reviewed)

The table below summarises the key components of the Group's credit impairment provision balances at 30 June 2022 and 31 December 2021.

Modelled ECL provisions, which includes post model adjustments, management overlays and the impact of multiple economic scenarios, reduced to 22 per cent (31 December 2021: 23 per cent) of total credit impairment provisions at
30 June 2022. 18 per cent of the modelled ECL provisions at 30 June 2022 related to judgemental adjustments compared with 25 per cent at 31 December 2021 primarily due to releases of the COVID-19 overlay.

30 June 2022

Corporate, Commercial & Institutional Banking
$ million

Consumer, Private & Business Banking
$ million

Ventures
$ million

Central &
other items ³
$ million

Total
$ million

Modelled ECL provisions (base forecast)

371

494

2

82

949

Impact of multiple economic scenarios1

39

36

-

21

96

Total ECL provisions before management judgements

410

530

2

103

1,045

Judgemental post model adjustments

-

17

-

-

17

Management overlays2






- COVID-19

29

61

-

-

90

- China Commercial Real Estate

126

-

-

-

126

Total modelled provisions

565

608

2

103

1,278

Of which: Stage 1

194

367

2

61

624

                      Stage 2

314

129

-

42

485

                      Stage 3

57

112

-

-

169

Stage 3 non-modelled provisions3

3,723

645

-

74

4,442

Total credit impairment provisions

4,288

1,253

2

177

5,720

 

31 December 2021

Corporate, Commercial & Institutional Banking
$ million

Consumer, Private & Business Banking3
$ million

Ventures4
$ million

Central &
other items3
$ million

Total
$ million

Modelled ECL provisions (base forecast)

365

529

3

103

1,000

Impact of multiple economic scenarios1

32

14

-

9

55

Total ECL provisions before management judgements

397

543

3

112

1,055

Judgemental post model adjustments

-

7

-

-

7

Management overlays2






- COVID-19

102

147

-

-

249

- China Commercial Real Estate

95

-

-

-

95

Total modelled provisions

594

697

3

112

1,406

Of which: Stage 1

163

377

1

68

609

                      Stage 2

425

185

2

44

656

                      Stage 3

6

135

-

-

141

Stage 3 non-modelled provisions

4,073

662

-

68

4,803

Total credit impairment provisions

4,667

1,359

3

180

6,209

1  Includes a post model adjustment (PMA) of $89 million (2021: $51 million)

2  $117 million (2021: $115 million) is in stage 1, $96 million (2021: $208 million) in stage 2 and $3million (2021: $21 million) in stage 3

3  Includes $42 million (2021: nil) overlay

4 Following the increased strategic importance and reporting of Ventures to management, this has been established as a separate operating segment from 1 January 2022. Prior period has been restated

 

 

 

 

Page 37

 

Post model adjustments

Where a model's performance breaches the monitoring thresholds or validation standards, an assessment is completed to determine whether an ECL PMA is required to correct for the identified model issue. PMAs will be removed when the models are updated to correct for the identified model issue or the estimates return to being within the monitoring thresholds.

As at 30 June 2022, PMAs have been applied for 9 models out of the total of 172 models. In aggregate, the PMAs increase the Group's impairment provisions by $54 million (0.5 per cent of modelled provisions) compared with a $17 million increase at 31 December 2021, and primarily relate to a post model adjustment for multiple economic scenarios (see below for the basis of determining this PMA under 'impact of multiple economic scenarios') and unsecured Consumer lending models. The PMAs range between a $89 million increase (the post model adjustment for multiple economic scenarios) to a $24 million decrease in ECL (for Malaysia Business Clients).

As set out below, a separate judgemental management adjustments that covers risk not captured by the models has been applied after taking into account these PMAs.


30.06.22
$ million

31.12.21
$ million

Model performance PMAs



Corporate, Commercial & Institutional Banking

45

24

Consumer, Private & Business Banking

(1)

(15)

Central & other items

10

8

Total model performance PMAs

54

17

Key assumptions and judgements in determining expected credit loss

Incorporation of forward-looking information

The evolving economic environment is a key determinant of the ability of a bank's clients to meet their obligations as they fall due. It is a fundamental principle of IFRS 9 that the provisions banks hold against potential future Credit Risk losses should depend, not just on the health of the economy today, but should also take into account potential changes to the economic environment. For example, if a bank were to anticipate a sharp slowdown in the world economy over the coming year, it should hold more provisions today to absorb the credit losses likely to occur in the near future.

To capture the effect of changes to the economic environment, the PDs and LGDs used to calculate ECL incorporate forward-looking information in the form of forecasts of the values of economic variables and asset prices that are likely to have an effect on the repayment ability of the Group's clients.

The 'base forecast' of the economic variables and asset prices is based on management's view of the five-year outlook, supported by projections from the Group's in-house research team and outputs from a third-party model that project specific economic variables and asset prices. The research team takes consensus views into consideration, and senior management review projections for some core country variables against consensus when forming their view of the outlook. For the period beyond five years, management utilises the in-house research view and third-party model outputs, which allow for a reversion to long-term growth rates or norms. All projections are updated on a quarterly basis.

 

 

 

 

 

 

 

 

 

Page 38

 

Forecast of key macroeconomic variables underlying the expected credit loss calculation and the impact on non-linearity

In the Base Forecast - management's view of the most likely outcome - the world economy is expected to grow by around 3 per cent in 2022, easing from an almost 6 per cent expansion in 2021 and compares to a 30-year average of 3.5 per cent. The impact of the Russia/Ukraine war through elevated commodity prices and cost pressures, higher inflation and lower sentiment along with tightening monetary conditions are creating headwinds for many economies. Some key markets for the Group such as China and Hong Kong are also easing out of lockdown measures that were introduced to contain new waves of COVID-19 infections.

While the quarterly Base Forecasts inform the Group's strategic plan, one key requirement of IFRS 9 is that the assessment of provisions should consider multiple future economic environments. For example, the global economy may grow more quickly or more slowly than the Base Forecast, and these variations would have different implications for the provisions that the Group should hold today. As the negative impact of an economic downturn on credit losses tends to be greater than the positive impact of an economic upturn, if the Group sets provisions only on the ECL under the Base Forecast it might maintain a level of provisions that does not appropriately capture the range of potential outcomes. To address this property of skewness (or non-linearity), IFRS 9 requires reported ECL to be a probability-weighted ECL, calculated over a range of possible outcomes.

To assess the range of possible outcomes the Group simulates a set of 50 scenarios around the Base Forecast, calculates the ECL under each of them and assigns an equal weight of 2 per cent to each scenario outcome. These scenarios are generated by a Monte Carlo simulation, which addresses the challenges of crafting many realistic alternative scenarios in the many countries in which the Group operates by means of a model, which produces these alternative scenarios while considering the degree of historical uncertainty (or volatility) observed from Q1 1990 to Q3 2020 around economic outcomes and how these outcomes have tended to move in relation to one another (or correlation). This naturally means that each of the 50 scenarios do not have a specific narrative, although collectively they explore a range of hypothetical alternative outcomes for the global economy, including scenarios that turn out better than expected and scenarios that amplify anticipated stresses.

The table below provides a summary of the Group's Base Forecast for key footprint markets, alongside the corresponding range seen across the multiple scenarios. The peak/trough amounts in the table show the highest and lowest points within the Base Forecast. The GDP graphs illustrate the shape of the Base Forecast in relation to prior periods' actuals and the long-term growth rates which is based on the pace of economic expansion expected for 2030.

China's growth is expected to ease from over 8 per cent in 2021 to 4.1 per cent in 2022. Economic activity in the first half of the year was severely limited by reimposed lockdown measures in several major cities to stem the surge in new COVID-19 cases. However, the economy is likely to regain momentum in the second half of the year as business normalises and front-loaded government stimulus takes effect. Similarly for Hong Kong, measures to contain the cities' fifth COVID-19 wave led to a sharp contraction in activity in early 2022. In the near term the recovery will continue to be supported by the unwinding of social distancing measures and travel bans. Growth is expected to slow to 0.2 per cent in 2022 from over 6 per cent in 2021. Headwinds to Singapore's growth have been rising recently including the impact from China's slowdown and the Russia/Ukraine war, persistent global supply disruptions, and tighter monetary conditions. The economy is expected to expand by 3.8 per cent this year from 7.6 percent in 2021. External factors are also likely to play a key part in limiting Korea's prospects in the near term with GDP growth expected to ease to 2.7 per cent in 2022 from 4 per cent last year. Without the government's fiscal expansion, growth would be even lower. India's uncomfortably high inflation is adversely impacting activity, but growth is expected to be relatively firm at nearly 8 per cent in 2022.

Commodity prices have remained elevated mainly from the impact of the Russia/Ukraine war. Brent crude oil is expected to average around $105 in 2022. Prices are expected to fall over the next 18 months as production rises and demand eases; that said, the ongoing need to rebuild stocks is likely to keep prices relatively high.

 

 

 

 

 

Page 39

 


30.06.22

China

Hong Kong

GDP
growth (YoY%)

Unemployment
%

3-month interest rates
%

House prices
(YoY %)

GDP
growth (YoY %)

Unemployment
%

3-month interest rates
%

House prices
(YoY %)

Base forecast1









2022

4.1

4.0

1.8

0.8

0.2

4.6

1.3

2.5

2023

5.8

4.0

1.9

2.1

4.5

3.9

2.1

6.8

2024

5.4

4.0

2.3

4.3

2.5

3.9

2.5

3.1

2025

5.1

4.0

2.6

4.4

2.2

3.9

2.4

2.8

2026

4.7

3.9

2.8

4.4

2.6

3.9

2.4

2.7

5-year average2

5.1

4.0

2.4

3.5

2.8

3.9

2.3

3.8

Peak

6.2

4.0

2.9

4.4

6.9

4.2

2.5

8.9

Trough

3.6

3.9

1.8

(0.3)

1.4

3.9

1.6

2.7

Monte Carlo









Low3

2.69

3.85

1.23

(1.69)

(1.03)

2.93

0.52

(7.55)

High4

8.01

4.09

3.82

9.55

8.75

5.11

4.54

18.93

 


30.06.22

Singapore

Korea

GDP
growth (YoY%)

Unemployment
%

3-month interest rates
%

House prices (YoY%)

GDP
growth (YoY%)

Unemployment
%

3-month interest rates
%

House prices
(YoY %)

Base forecast1









2022

3.8

3.2

1.5

5.6

2.7

3.2

1.7

7.1

2023

2.8

3.1

2.1

1.8

2.5

3.4

2.2

0.0

2024

2.5

3.0

2.1

3.0

2.5

3.2

2.4

2.2

2025

2.1

3.0

2.3

3.5

2.2

3.1

2.5

2.8

2026

1.9

3.0

2.3

3.8

1.9

3.1

2.5

2.8

5-year average2

2.4

3.0

2.1

3.2

2.2

3.2

2.3

2.2

Peak

4.3

3.1

2.3

6.1

3.1

3.4

2.5

5.1

Trough

1.8

3.0

1.7

1.2

1.7

3.0

1.9

(0.3)

Monte Carlo









Low3

(2.31)

2.15

1.31

(4.37)

(0.56)

2.63

1.22

(2.80)

High4

7.01

4.15

3.25

10.70

5.89

3.85

3.76

9.31

 


30.06.22

India

Brent Crude
$ pb

GDP growth (YoY%)

Unemployment
%

3month
interest rates
%

House prices
(YoY%)

Base forecast1






2022

7.7

N/A

4.6

7.1

104.6

2023

5.5

N/A

5.1

7.2

90.7

2024

6.0

N/A

5.6

7.2

83.3

2025

5.8

N/A

6.0

7.2

89.3

2026

5.6

N/A

6.1

7.1

108.0

5-year average2

5.6

N/A

5.6

7.2

94.3

Peak

7.3

N/A

6.1

7.2

110.3

Trough

3.3

N/A

4.5

6.9

79.0

Monte Carlo






Low3

1.80

N/A

3.49

0.14

30.25

High4

16.80

N/A

7.40

16.80

206.49

 

 

 

 

Page 40

 


31.12.21

China

Hong Kong

GDP
growth (YoY%)

Unemployment
%

3-month interest rates
%

House prices (YoY%)

GDP
growth
(YoY%)

Unemployment
%

3-month interest rates
%

House prices (YoY%)

5-year average2

5.4

3.4

2.8

4.0

2.6

3.8

1.5

3.1

Peak

6.1

3.4

3.1

4.5

3.5

4.4

2.3

5.3

Trough

4.7

3.4

2.1

1.8

1.8

3.7

0.3

2.7

Monte Carlo









Low3

2.6

3.3

1.3

(2.8)

(1.7)

2.4

(0.3)

(12.4)

High4

8.3

3.5

4.6

11.1

6.9

5.8

5.0

22.8

 


31.12.21

Singapore

Korea

GDP
growth (YoY%)

Unemployment
%

3-month interest rates
%

House prices (YoY%)

GDP
growth (YoY%)

Unemployment
%

3-month interest rates
%

House prices (YoY%)

5-year average2

2.5

3.1

1.4

3.6

2.5

3.3

1.6

2.7

Peak

4.8

3.4

2.2

4.2

2.8

3.7

2.2

10.9

Trough

1.8

3.0

0.5

3.3

2.4

3.1

1.2

(0.3)

Monte Carlo









Low3

(4.0)

2.1

0.1

(4.1)

(3.1)

2.7

0.5

(5.2)

High4

9.4

4.5

4.2

15.4

7.1

4.5

4.3

9.5

 


31.12.21

India

Brent crude
$ pb

GDP
growth
(YoY%)

Unemployment
%

3-month
interest rates
%

House prices
(YoY%)

5-year average2

6.4

N/A

5.4

7.1

63.7

Peak

16.6

N/A

6.2

7.2

73.5

Trough

4.2

N/A

4.0

5.8

60.0

Monte Carlo






Low3

2.0

N/A

3.2

(1.9)

8.9

High4

10.5

N/A

8.8

24.9

211.4

1 Annual numbers are for calendar year except for India where it covers fiscal year ending Q1 of each year. For example 2022 is Q2 2022 to Q1 2023

2 5 year averages reported for 30.06.22 cover Q3 2022 to Q2 2027. % year averages reported for 31.12.21 cover Q1 2022 to Q4 2026

3 Represents the 10th percentile in the range of economic scenarios used to determine non-linearity

4 Represents the 90th percentile in the range of economic scenarios used to determine non-linearity

Impact of multiple economic scenarios

The final probability-weighted ECL reported by the Group is a simple average of the ECL for each of the 50 scenarios simulated using a Monte Carlo model. The Monte Carlo approach has the advantage that it generates many plausible alternative scenarios that cover our global footprint; however, a recognised challenge with the Monte Carlo approach is that the range of scenarios it forecasts can be narrow.

The Monte Carlo model is being redeveloped to widen the range of the scenarios; however, prior to this new model being implemented a $89 million post model adjustment for multiple economic scenarios has been applied. The total amount of non-linearity has been estimated by assigning probability weights of 57 per cent, 22 per cent, 12 per cent and 9 per cent respectively to the ECL from the Base Forecast, Central Bank Over Reaction, Stagflation and New COVID-19 Variant scenarios which are presented and comparing this to the unweighted base forecast ECL. The post model adjustment for multiple economic scenarios represents the difference between the probability weighted ECL calculated using the three scenarios and the probability weighted ECL calculated by the Monte Carlo model.

 

 

 

Page 41

 

The impact of multiple economic scenarios (which includes the post model adjustment for multiple economic scenarios) on stage 1, stage 2 and stage 3 modelled ECL is set out in the table below together with the management overlay.


Base forecast1
$million

Multiple economic scenarios
$million

Management overlays
$million

Total
$million

Total expected credit loss at 30 June 20222

966

96

216

1,278

Total expected credit loss at 31 December 20212

1,007

55

344

1,406

1 Includes judgemental post model adjustments

2  Total modelled ECL comprises stage 1 and stage 2 balances of $1,109 million (31 December 2021: $1,265 million) and $169 million (31 December 2021: $141 million) of modelled ECL on stage 3 loans

The average expected credit loss under multiple scenarios is 10 per cent higher than the expected credit loss calculated using only the most likely scenario (the Base Forecast). Portfolios that are more sensitive to non-linearity include those with greater leverage and/or a longer tenor, such as Project and Shipping Finance and Credit Card portfolios. Other portfolios display minimal non-linearity owing to limited responsiveness to macroeconomic impacts for structural reasons such as significant collateralisation as with the Consumer, Private and Business Banking mortgage portfolios.

Judgemental adjustments

Post model adjustments

As at 30 June 2022, judgemental post model adjustments of $17 million (31 December 2021: $7 million) have been applied to certain Consumer, Private and Business Banking models primarily to hold back releases of ECL identified from model monitoring breaches because moratoria and other support schemes have suppressed observed defaults. These will be released when the observed defaults normalise.

Management overlays

As at 30 June 2022, the Group held:

A $90 million (31 December 2021: $249 million) management overlay relating to uncertainties as a result of the COVID-19 pandemic, $29 million (31 December 2021: $102 million) of which relates to Corporate, Commercial and Institutional Banking and $61 million (31 December 2021: $147 million) to Consumer, Private and Business Banking. $53 million (31 December 2021: $84 million) of the overlay is held in stage 1, $34 million (31 December 2021: $144 million) in stage 2 and $3 million (31 December 2021: $21 million) in stage 3.

A $126 million (31 December 2021: $95 million) management overlay relating to uncertainties around exposures to China Commercial Real Estate, all of which relates to Corporate, Commercial and Institutional Banking. $64 million (31 December 2021: $31 million) is held in stage 1 and $62 million (31 December 2021: $64 million) in stage 2.

A $42 million management overlay relating to uncertainties around stage 3 exposures in Sri Lanka all of which relates to Corporate, Commercial and Institutional Banking. The $42 million is held in stage 3.

The overlays have been determined after taking account of the PMAs reported and they are reassessed quarterly. They are reviewed and approved by the IFRS 9 Impairment Committee.

COVID-19 overlay

Corporate, Commercial and Institutional Banking

Although the amount of loans placed on non-purely precautionary early alert has decreased compared with 31 December 2021, balances remain higher than before the pandemic. The impact of the rapid deterioration in the economic environment in 2020 has not yet been fully observed in customers' financial performance, in part due to ongoing government support measures across the Group's markets. Accordingly, we have not yet seen a significant increase in the level of stage 3 loans relating to COVID-19 up to 30 June 2022. To take account of the heightened Credit Risk and the continuing uncertainties in the pace and timing of economic recovery, a judgemental overlay has been taken by estimating the impact of further deterioration to the non-purely precautionary early alert portfolio. The overlay is held in stage 2. The basis of determining the overlay remained unchanged compared to 2021, although the assumed level of further deterioration was reduced in 2021 in line with our experience. The overlay has steadily reduced from $102 million in 2021 to $29 million at 30 June 2022 as the level of COVID-19 related non-purely precautionary early alerts has reduced.

 

 

Page 42

 

Consumer, Private and Business Banking

COVID-19 continues to affect our markets in the first half of 2022, though many of our major markets have started opening their borders and returning to a normal way of life. In Asia, markets such as China, Hong Kong, Korea and Taiwan have experienced relatively higher COVID-19 infection rates between March and June, with some countries placed under lockdowns, causing continued disruption in some sectors. While industry wide government relief measure has ended for most markets, there has been a few markets which has only ended recently while some are available for specific segments. Accordingly, we continue to hold overlay against these exposure for potential masking of underlying risk, although the overall quantum has reduced.

China Commercial Real Estate overlay

Chinese property developers are experiencing liquidity issues, triggered by government policy changes aimed at deleveraging the property sector and ensuring property developers have the financial ability to complete residential properties under construction. The government's 'three red lines' matrix was introduced in August 2020 to tighten the funding conditions for property developers by limiting the growth rate in external debt. With additional controls on sales of properties to end buyers (e.g. mortgage lending control, pricing control, eligibility control) and on restricting developers' ability to access cash from 'escrow accounts' with cash paid by retail residential buyers, the cashflow of developers has been significantly squeezed. Also, with capital markets reacting negatively to the tightening policies, we have seen greater volatility in bond pricing and reduced access to capital markets liquidity for developers. As such, some developers have faced/are facing difficulties in servicing and repaying financing obligations.

The Group's banking book net exposure to China Commercial real estate was $3.7 billion at 30 June 2022. Client level analysis continues to be done, with the high-risk clients being placed on purely precautionary or non-purely precautionary early alert. Given the evolving nature of the risks in the China Commercial Real Estate sector, a management overlay of $126 million has been taken by estimating the impact of further deterioration to those clients placed on early alert.

Stage 3 assets

Credit-impaired assets managed by Stressed Asset Risk incorporate forward-looking economic assumptions in respect of the recovery outcomes identified, and are assigned individual probability weightings. These assumptions are not based on a Monte Carlo simulation but are informed by the Base Forecast.

Sensitivity of expected credit loss calculation to macroeconomic variables

The ECL calculation relies on multiple variables and is inherently non-linear and portfolio-dependent, which implies that no single analysis can fully demonstrate the sensitivity of the ECL to changes in the macroeconomic variables. The Group has conducted a series of analyses with the aim of identifying the macroeconomic variables which might have the greatest impact on the overall ECL. These encompassed single variable and multi-variable exercises, using simple up/down variation and extracts from actual calculation data, as well as bespoke scenario design assessments.

The primary conclusion of these exercises is that no individual macroeconomic variable is materially influential. The Group believes this is plausible as the number of variables used in the ECL calculation is large. This does not mean that macroeconomic variables are uninfluential; rather, that the Group believes that consideration of macroeconomics should involve whole scenarios, as this aligns with the multi-variable nature of the calculation.

The Group faces downside risks in the operating environment related to the uncertainties surrounding the macroeconomic outlook. To explore this, a sensitivity analysis of ECL was undertaken to explore the effect of slower economic recoveries across the Group's footprint markets. Three downside scenarios were considered. In the Central Bank Over Reaction scenario a faster monetary tightening by central banks leads to financial market volatility and a modestly weaker world growth relative to baseline. In the Stagflation scenario the intensification of the conflict between Russia and the West leads to further material spikes in commodity prices, persistently higher inflation and interest rates, lower consumer and business confidence and a material slowdown in the world economy. In the new COVID-19 virus variant scenario a new infection wave in emerging markets and developing economies, results in the re-introduction of severe lockdown measures and deep contractions in many economies. Travel restrictions significantly impact the Aviation and Hotels and tourism sectors.

 

 

 

Page 43

 


Baseline

Central Bank
over Reaction

Stagflation

New COVID-19 Variant

Five year average

Peak/Trough

Five year average

Peak/Trough

Five year average

Peak/Trough

Five year average

Peak/Trough

China GDP

5.1

6.2/3.6

4.8

5.9/2.9

4.5

7.2/0.7

5.2

13.4/(5.4)

China unemployment

4.0

4.0/3.9

4.1

4.2/3.9

5.3

6.4/3.9

4.0

5.9/3.3

China property prices

3.5

4.4/(0.3)

2.5

4.4/(3.9)

3.3

15.9/(23.1)

4.1

6.6/(1.6)

Hong Kong GDP

2.8

6.9/1.4

2.6

5.6/1.1

2.0

5.8/(0.6)

3.0

11.6/(8.3)

Hong Kong unemployment

3.9

4.2/3.9

4.0

4.2/3.9

6.0

7.9/3.9

4.5

6.8/3.8

Hong Kong property prices

3.8

8.9/2.7

2.4

6.0/(3.2)

2.5

9.5/(1.0)

4.0

25.2/(21.2)

US GDP

2.2

2.7/1.6

1.9

2.4/0.3

1.9

3.1/(0.2)

1.8

13.1/(11.6)

Singapore GDP

2.4

4.3/1.8

2.2

3.7/1.6

2.2

4.1/(0.8)

1.9

11.1/(9.3)

India GDP

5.6

7.3/3.3

5.2

6.7/2.0

4.3

6.0/(0.4)

5.9

19.3/(11.0)

Crude oil

94.3

110.3/79.0

96.0

111.3/79.0

102.3

182.2/79

50.7

59.4/32.7

Period covered from Q3 2022 to Q2 2027


Base (GDP, YoY%)

Central Bank Over Reaction (GDP, YoY%)

Difference from Base

2022

2023

2024

2025

2026

2022

2023

2024

2025

2026

2022

2023

2024

2025

2026

China

4.7

5.8

5.2

5.0

4.5

3.9

5.5

5.2

5.0

4.5

(0.8)

(0.3)

0.0

0.0

0.0

Hong Kong

4.0

3.3

1.8

2.6

2.5

3.0

3.1

1.8

2.6

2.5

(1.0)

(0.2)

0.0

0.0

0.0

US

2.0

2.1

2.3

2.4

2.3

0.8

1.8

2.3

2.4

2.3

(1.2)

(0.3)

0.0

0.0

0.0

Singapore

3.0

2.7

2.4

2.0

1.8

2.2

2.6

2.4

2.0

1.8

(0.8)

(0.1)

0.0

0.0

0.0

India

5.0

5.8

6.0

5.8

5.5

3.8

4.8

6.1

5.8

5.5

(1.2)

(0.9)

0.1

0.0

0.0

Each year is from Q3 to Q2. For example 2022 is from Q3 2022 to Q2 2023.


Base (GDP, YoY%)

Stagflation GDP, YoY%)

Difference from Base

2022

2023

2024

2025

2026

2022

2023

2024

2025

2026

2022

2023

2024

2025

2026

China

4.7

5.8

5.2

5.0

4.5

1.5

2.9

5.7

6.8

5.5

(3.3)

(2.9)

0.5

1.8

1.0

Hong Kong

4.0

3.3

1.8

2.6

2.5

0.3

(0.3)

1.9

5.2

2.8

(3.7)

(3.6)

0.1

2.6

0.3

US

2.0

2.1

2.3

2.4

2.3

0.5

0.8

2.2

3.1

2.8

(1.5)

(1.3)

0.0

0.7

0.5

Singapore

3.0

2.7

2.4

2.0

1.8

0.7

0.3

2.8

3.9

3.1

(2.3)

(2.4)

0.4

1.9

1.3

India

5.0

5.8

6.0

5.8

5.5

1.7

4.1

5.2

5.9

4.6

(3.4)

(1.6)

(0.8)

0.1

(0.9)

Each year is from Q3 to Q2. For example 2022 is from Q3 2022 to Q2 2023.


Base (GDP, YoY%)

New COVID-19 variant (GDP, YoY%)

Difference from Base

2022

2023

2024

2025

2026

2022

2023

2024

2025

2026

2022

2023

2024

2025

2026

China

4.7

5.8

5.2

5.0

4.5

(3.3)

12.0

6.9

5.3

5.1

(8.1)

6.2

1.7

0.3

0.6

Hong Kong

4.0

3.3

1.8

2.6

2.5

(4.5)

9.9

4.2

2.6

2.5

(8.5)

6.6

2.4

(0.0)

0.0

US

2.0

2.1

2.3

2.4

2.3

(9.4)

11.0

3.8

1.8

1.8

(11.4)

8.9

1.5

(0.5)

(0.5)

Singapore

3.0

2.7

2.4

2.0

1.8

(7.5)

9.4

3.5

1.9

2.3

(10.5)

6.6

1.1

(0.0)

0.4

India

5.0

5.8

6.0

5.8

5.5

(8.9)

16.9

8.5

6.2

6.6

(13.9)

11.1

2.5

0.4

1.0

Each year is from Q3 to Q2. For example 2022 is from Q3 2022 to Q2 2023.

The total reported stage 1 and 2 ECL provisions (including both on and off-balance sheet instruments) would be approximately $59 million higher under the Central Bank Over Reaction scenario, $325 million higher under the global stagflation scenario and $488 million higher under the new COVID-19 variant scenario than the baseline ECL provisions (which excluded the impact of multiple economic scenarios and management overlays which may already capture some of the risks in these scenarios). The proportion of stage 2 assets would increase from 3.1 per cent to 3.3 per cent, 4.1 per cent and 7.4 per cent respectively under the three scenarios. This includes the impact of exposures transferring to stage 2 from stage 1 but does not consider an increase in stage 3 defaults.

Most of the increase under the new COVID-19 variant scenario was in Corporate, Commercial and Institutional Banking, whereas under the stagflation scenario most of the increase was in Consumer, Private and Business Banking. Under the Central Bank Over Reaction scenario the impact was more evenly split across portfolios. For Corporate, Commercial and Institutional Banking, most of the increases under all three scenarios came from the main corporate portfolios in the United Kingdom, Hong Kong and the United Arab Emirates, whereas the large unsecured retail portfolios accounted for most of the increases for Consumer, Private and Business Banking (Taiwan and Korea Personal Loans portfolios were impacted under both the Stagflation and Central Bank Over Reaction scenarios, whereas the Malaysia and Singapore Credit Card portfolios were impacted under the new COVID-19 variant scenario).

Page 44

 

There was no material change in modelled stage 3 provisions as these primarily relate to unsecured Consumer, Private and Business Banking exposures for which the LGD is not sensitive to changes in the macroeconomic forecasts. There is also no material change for non-modelled stage 3 exposures as these are more sensitive to client specific factors than to alternative macroeconomic scenarios.

The actual outcome of any scenario may be materially different due to, among other factors, the effect of management actions to mitigate potential increases in risk and changes in the underlying portfolio.

Modelled provisions


Base forecast ECL
$m

Central Bank over reaction ECL
$m

Stagflation
ECL
$m

New COVID-19 variant ECL
$m

Corporate, Commercial & Institutional Banking

314

344

420

684

Consumer, Private & Business Banking

402

430

614

505

Ventures2

2

2

2

2

Central & other items

82

83

89

97

Total stage 1 and 2 before overlays and multiple scenarios

800

859

1,125

1,288

Stage 1 and 2 management overlays

213




Impact of multiple economic scenarios

96




Total reported stage 1 and 2 ECL

1,109




Stage 3 ECL1

4,611




Total reported ECL

5,720




1 Includes $45 million of management overlays

2 Following the increased strategic importance and reporting of Ventures to management, this has been established as a separate operating segment from 1 January 2022.

Proportion of assets in stage 21


Base forecast scenario
%

Central bank over reaction scenario
%

Stagflation scenario
%

New COVID-19 variant
scenario
%

Corporate, Consumer & Institutional Banking

5.5

5.9

7.4

15.5

Consumer, Private & Business Banking

1.8

1.9

2.9

2.7

Ventures2

1.4

1.4

1.4

1.4

Central & other items

1.3

1.3

1.4

1.5

Total

3.1

3.3

4.1

7.4

1 Excludes cash and balances at central banks, accrued income, assets held for sale and other assets

2 Following the increased strategic importance and reporting of Ventures to management, this has been established as a separate operating segment from 1 January 2022.

 

 

 

 

 

 

 

 

 

 

 

 

Page 45

 

Traded Risk

Traded Risk is the potential for loss resulting from activities undertaken by the Group in financial markets. Under the Enterprise Risk Management Framework, the Traded Risk Framework brings together Market Risk, Counterparty Credit Risk and Algorithmic Trading. Traded Risk Management is the core risk management function supporting market-facing businesses, predominantly Financial Markets and Treasury Markets.

Market Risk (reviewed)

Market Risk is the potential for loss of economic value due to adverse changes in financial market rates or prices. The Group's exposure to Market Risk arises predominantly from the following sources:

Trading book:

- The Group provides clients access to financial markets, facilitation of which entails the Group taking moderate Market Risk positions. All trading teams support client activity. There are no proprietary trading teams. Hence, income earned from Market Risk-related activities is primarily driven by the volume of client activity rather than risk-taking

Non-trading book:

- The Treasury Markets desk is required to hold a liquid assets buffer, much of which is held in high-quality marketable debt securities

- The Group has capital invested and related income streams denominated in currencies other than US dollars. To the extent that these are not hedged, the Group is subject to Structural Foreign Exchange Risk which is reflected in reserves

A summary of our current policies and practices regarding Market Risk management is provided in the Principal Risks section of our 2021 Annual Report.

The primary categories of Market Risk for the Group are:

Interest Rate Risk: arising from changes in yield curves and implied volatilities on interest rate options

Foreign Exchange Rate Risk: arising from changes in currency exchange rates and implied volatilities on foreign
exchange options

Commodity Risk: arising from changes in commodity prices and implied volatilities on commodity options; covering energy, precious metals, base metals and agriculture as well as commodity baskets

Credit Spread Risk: arising from changes in the price of debt instruments and credit-linked derivatives, driven by factors other than the level of risk-free interest rates

Equity Risk: arising from changes in the prices of equities, equity indices, equity baskets and implied volatilities on
related options

Market Risk movements (reviewed)

Value at Risk (VaR) allows the Group to manage Market Risk across the trading book and most of the fair valued non-trading books. The scope of instruments included in the VaR was changed in 2021 to exclude instruments held at amortised cost. The 2021 VaR numbers presented reflect the revised scope.

The average level of total trading and non-trading VaR in the first half of 2022 was $50.5 million, 33.6 per cent higher than the second half of 2021 ($37.8 million) and 30.2 per cent lower than the first half of 2021 ($72.4 million). The actual level of total trading and non-trading VaR as at the end of the first half of 2022 was $59.2 million, 36.4 per cent higher than in the second half of 2021 ($43.4 million) and 76.7 per cent higher than the first half of 2021 ($33.5 million). The increase in total average VaR was driven by extreme market volatility following the Russia/Ukraine war which impacted Commodity prices and in particular, energy markets.

For the trading book, the average level of VaR in the first half of 2022 was $17.2 million, 15.4 per cent higher than in the second half of 2021 ($14.9 million) and 11.8 per cent lower than in the first half of 2021 ($19.5 million). Trading activities have remained relatively unchanged, and client driven.

 

 

Page 46

 

Daily value at risk (VaR at 97.5%, one day) (reviewed)

Trading1 and non-trading2

6 months ended 30.06.22

6 months ended 31.12.21

6 months ended 30.06.21

Average
$million

High3
$million

Low3
$million

Half Year
$million

Average
$million

High3
$million

Low3
$million

Year End
$million

Average
$million

High3
$million

Low3
$million

Half Year
$million

Interest Rate Risk6

30.8

42.1

23.3

24.0

24.2

29.7

16.4

26.0

38.6

68.3

20.8

20.8

Credit Spread Risk6

32.5

45.1

20.3

44.9

19.1

29.3

14.8

21.5

49.4

97.6

17.2

21.3

Foreign Exchange Risk

6.5

8.0

5.4

5.7

6.4

8.3

4.2

7.0

8.2

19.0

4.8

5.7

Commodity Risk

6.3

11.9

3.5

6.6

3.6

8.6

2.5

3.6

5.9

10.4

2.9

3.3

Equity Risk

0.1

0.2

-

0.2

1.2

1.5

1.1

1.4

1.4

1.7

1.0

1.3

Total4

50.5

61.1

40.3

59.2

37.8

46.2

30.7

43.4

72.4

140.7

33.3

33.5

 

Trading1

6 months ended 30.06.22

6 months ended 31.12.21

6 months ended 30.06.21

Average
$million

High3
$million

Low3
$million

Half Year
$million

Average
$million

High3
$million

Low3
$million

Year End
$million

Average
$million

High3
$million

Low3
$million

Half Year
$million

Interest Rate Risk5

7.9

10.5

5.8

9.0

7.1

9.6

5.2

7.2

8.1

10.2

6.1

8.0

Credit Spread Risk5

9.3

14.9

5.0

13.1

6.0

9.3

4.1

6.2

11.1

19.2

5.7

6.2

Foreign Exchange Risk

6.5

8.0

5.4

5.7

6.4

8.3

4.2

7.0

8.2

19.0

4.8

5.7

Commodity Risk

6.3

11.9

3.5

6.6

3.6

8.6

2.5

3.6

5.9

10.4

2.9

3.3

Equity Risk

-

-

-

-

-

-

-

-

-

-

-

-

Total4

17.2

24.4

12.6

19.2

14.9

18.1

12.3

15.3

19.5

28.4

13.5

14.0

 

Non-trading2

6 months ended 30.06.22

6 months ended 31.12.21

6 months ended 30.06.21

Average
$million

High3
$million

Low3
$million

Half Year
$million

Average
$million

High3
$million

Low3
$million

Year End
$million

Average
$million

High3
$million

Low3
$million

Half Year
$million

Interest Rate Risk

30.9

44.5

22.9

22.9

24.3

29.3

18.2

24.3

40.7

68.2

21.3

22.2

Credit Spread Risk

27.5

36.8

18.7

36.4

17.3

26.1

14.4

20.2

41.5

80.0

16.8

19.2

Equity Risk6

0.1

0.2

-

0.2

1.2

1.5

1.1

1.4

1.4

1.7

1.0

1.3

Total4

45.9

52.5

36.3

48.1

33.0

41.0

25.3

38.3

61.7

106.3

28.4

30.3

1 Trading book for Market Risk is defined in accordance with the UK onshored Capital Requirements Regulation Part 3 Title I Chapter 3, which restricts the positions permitted in the trading book

2 The non-trading book VaR does not include syndicated loans

3 Highest and lowest VaR for each risk factor are independent and usually occur on different days

4 The Total VaR shown in the tables above is not equal to the sum of the component risks due to offsets between them

5  Comparative information for 2021 has been represented to reflect the split between Interest Rate Risk and Credit Spread Risk

6  Non-trading Equity Risk VaR includes only listed equities

Risks not in VaR

In the first half of 2022, the main market risks not reflected in VaR were:

Basis risks for which the historical market price data is limited and is therefore proxied, giving rise to potential proxy basis risk that is not captured in VaR

Deal contingent risk where a client is granted the right to cancel a hedging trade contingent on conditions not being met within a time window

Potential depeg risk from currencies currently pegged or managed, as the historical one-year VaR observation period does not reflect the possibility of a change in the currency regime such as sudden depegging

Volatility skew risk due to movements in options volatilities at different strikes while VaR reflects only movements in at-the-money volatilities

Additional capital is set aside to cover such 'risks not in VaR'. For further details on Market Risk capital, see the Market Risk section in the Standard Chartered PLC Pillar 3 Disclosures for 30 June 2022.

Backtesting

In the first half of 2022, there were three regulatory backtesting negative exceptions at Group level (in the second half of 2021, there were three regulatory backtesting negative exceptions at Group level). Group exceptions occurred on:

9 March: When risk assets rallied on hope of a truce agreement between Russia and Ukraine

29 March: When oil and base metal prices fell on the prospect of further ceasefire talks between Russia and Ukraine, and following a resurgence of COVID-19 cases in China

25 April: When risk assets fell following an announcement by Chinese authorities of expanded COVID-19 testing requirements amidst rising cases

Page 47

 

In total, there have been six Group exceptions in the previous 250 business days which is within the 'amber zone' applied internationally to internal models by bank supervisors (Basel Committee on Banking Supervision, Supervisory framework for the use of backtesting in conjunction with the internal models approach to market risk capital requirements, January 1996).

The graph below illustrates the performance of the VaR model used in capital calculations. It compares the 99 percentile loss confidence level given by the VaR model with the hypothetical profit and loss of each day given the actual market movement without taking into account any intra-day trading activity.

Average daily income earned from Market Risk-related activities¹ (reviewed)

The average level of total trading daily income in the first half of 2022 was $15.6 million, 45.8 per cent higher than in 2021 ($10.7 million), due to higher trading income driven by an increase in interest rates, commodity prices and higher levels of market volatility.

Trading2

6 months ended 30.06.22
$million

6 months ended 31.12.21
$million

6 months ended 30.06.21
$million

Interest Rate Risk

6.4

2.9

3.7

Credit Spread Risk

0.7

0.8

1.0

Foreign Exchange Risk

6.8

4.4

5.0

Commodity Risk

1.8

0.8

1.0

Equity Risk

-

-

-

Total

15.7

8.9

10.7

 

Non-trading2

6 months ended 30.06.22
$million

6 months ended 31.12.21
$million

6 months ended 30.06.21
$million

Interest Rate Risk

0.4

0.1

0.8

Credit Spread Risk

1.1

0.1

0.3

Equity Risk

-

-

-

Total

1.5

0.2

1.1

1  Reflects 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. Rates, XVA and Treasury income are included under Interest Rate Risk whilst Credit Trading income is included under Credit Spread Risk

2  2021 figures have been restated to exclude income from non fair value positions

Counterparty Credit Risk

Counterparty Credit Risk is the potential for loss in the event of the default of a derivative counterparty, after taking into account the value of eligible collaterals and risk mitigation techniques. The Group's counterparty credit exposures are included in the Credit Risk section.

Derivative financial instruments Credit Risk mitigation

The Group enters into master netting agreements, which in the event of default result 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.

In addition, the Group enters into credit support annexes (CSAs) with counterparties where collateral is deemed a necessary or desirable mitigant to the exposure. 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 are in the counterparty's favour and exceed an agreed threshold.

 

 

 

 

Page 48

 

Liquidity and Funding Risk

Liquidity and Funding Risk is the risk that we may not have sufficient stable or diverse sources of funding to meet our obligations as they fall due.

The Group's Liquidity and Funding Risk framework requires each country to ensure that it operates within predefined liquidity limits and remains in compliance with Group liquidity policies and practices, as well as local regulatory requirements.

The Group achieves this through a combination of setting Risk Appetite and associated limits, policy formation, risk measurement and monitoring, prudential and internal stress testing, governance and review.

Despite the challenging environment, the Group has been resilient and kept a strong liquidity position. The Group continues to focus on improving the quality of its funding mix and remains committed to supporting its clients.

Liquidity and Funding Risk metrics

We monitor key liquidity metrics regularly, both on a country basis and in aggregate across the Group.

The following liquidity and funding Board Risk Appetite metrics define the maximum amount and type of risk that the Group is willing to assume in pursuit of its strategy: liquidity coverage ratio (LCR), liquidity stress survival horizons, external wholesale borrowing, and advances-to-deposits ratio. The Net Stable Funding Ratio was also included within Board Risk Appetite in January 2022.

Liquidity coverage ratio (LCR)

The LCR is a regulatory requirement set to ensure that the Group has sufficient unencumbered high-quality liquid assets to meet its liquidity needs in a 30-calendar-day liquidity stress scenario.

The Group monitors and reports its liquidity positions under UK onshored Commission Delegated Regulation 2015/61 and has maintained its LCR above the prudential requirement. The Group maintained strong liquidity ratios despite the continued impacts of the COVID-19 stress. For further detail see the Liquidity section in the Standard Chartered PLC Pillar 3 Disclosures for HY 2022.

At the reporting date, the Group LCR was 142 per cent (2021: 143 per cent), with a surplus to both Board-approved Risk Appetite and regulatory requirements.

Adequate liquidity was held across our footprint to meet all local prudential LCR requirements where applicable.


30.06.22
$million

31.12.21
$million

Liquidity buffer

180,348

172,178

Total net cash outflows

127,205

120,788

Liquidity coverage ratio

142%

143%

Stressed coverage

The Group intends to maintain a prudent and sustainable funding and liquidity position, in all countries and currencies, such that it can withstand a severe but plausible liquidity stress.

Our approach to managing liquidity and funding is reflected in the Board-level Risk Appetite Statement which includes the following:

"The Group should have sufficient stable or diverse sources of funding to meet its contractual and contingent obligations as they fall due."

 

 

 

 

 

 

 

Page 49

 

The Group's internal liquidity stress testing framework covers the following stress scenarios:

Standard Chartered-specific - Captures the liquidity impact from an idiosyncratic event affecting Standard Chartered only with the rest of the market assumed to be operating normally.

Market wide - Captures the liquidity impact from a market-wide crisis affecting all participants in a country, region or globally.

Combined - Assumes both Standard Chartered-specific and Market-wide events affecting the Group simultaneously and hence is the most severe scenario.

All scenarios include, but are not limited to, modelled outflows for retail and wholesale funding, Off-Balance Sheet
Funding Risk, Cross-currency Funding Risk, Intraday Risk, Franchise Risk and risks associated with a deterioration of a
firm's credit rating.

Stress testing results show that a positive surplus was maintained under all scenarios at 30 June 2022, and respective countries were able to survive for a period of time as defined under each scenario. The results take into account currency convertibility and portability constraints while calculating the liquidity surplus at Group level.

Standard Chartered Bank's credit ratings as at 30 June 2022 were A+ with negative outlook (Fitch), A+ with stable outlook (S&P) and A1 with stable outlook (Moody's). On 6 July 2022, Fitch revised the negative outlook to stable. As of 30 June 2022, the estimated contractual outflow of a three-notch long-term ratings downgrade is $1.3 billion.

External wholesale borrowing

The Board sets a risk limit to prevent excessive reliance on wholesale borrowing. Within the definition of Wholesale Borrowing, limits are applied to all branches and operating subsidiaries in the Group and as at the reporting date, the Group remained within Board Risk Appetite.

Advances-to-deposits ratio

This is defined as the ratio of total loans and advances to customers relative to total customer accounts. An advances-to-deposits ratio of below 100 per cent demonstrates that customer deposits exceed customer loans as a result of the emphasis placed on generating a high level of funding from customers.

The Group's advances-to-deposits ratio has increased by 0.5 per cent to 59.6 per cent, mainly driven by a reduction of
4 per cent in customer deposits and 3 per cent in customer loans and advances.


30.06.22
$million

31.12.21
$million

Total loans and advances to customers1,2

277,141

285,922

Total customer accounts3

464,777

483,861

Advances-to-deposits ratio

59.6%

59.1%

1 Excludes reverse repurchase agreement and other similar secured lending of $7,894 million and includes loans and advances to customers held at fair value through profit and loss of $8,445million

2 Loans and advances to customers for the purpose of the advances-to-deposits ratio excludes $16,918 million of approved balances held with central banks, confirmed as repayable at the point of stress (31 December 2021: $15,168 million)

3 Includes customer accounts held at fair value through profit or loss of $11,035 million (31 December 2021: $9,291 million)

Net stable funding ratio (NSFR)

The NSFR is a balance sheet metric which requires institutions to maintain a stable funding profile in relation to an assumed duration of their assets and off-balance sheet activities over a one-year horizon. It is the ratio between the amount of available stable funding (ASF) and the amount of required stable funding (RSF). ASF factors are applied to balance sheet liabilities and capital, based on their perceived stability and the amount of stable funding they provide. Likewise, RSF factors are applied to assets and off-balance sheet exposures according to the amount of stable funding they require. The NSFR became a regulatory requirement in January 2022 with a minimum of 100 per cent, though the Group has maintained an average ratio of above 125%.

 

 

 

 

Page 50

 

Liquidity pool

The liquidity value of the Group's LCR eligible liquidity pool at the reporting date was $180 billion. The figures in the table below account for haircuts, currency convertibility and portability constraints, and therefore are not directly comparable with the consolidated balance sheet. Liquidity pool is held to offset stress outflows as defined in UK onshored Commission Delegated Regulation 2015/61.


30.06.22

Asia
$million

Africa &
Middle East
$million

Europe &
Americas
$million

Total
$million

Level 1 securities





Cash and balances at central banks

30,307

1,685

43,140

75,132

Central banks, governments /public sector entities

43,756

1,952

26,038

71,746

Multilateral development banks and international organisations

7,013

788

12,055

19,856

Other

18

21

1,511

1,550

Total Level 1 securities

81,094

4,446

82,744

168,284

Level 2A securities

5,556

173

5,481

11,210

Level 2B securities

89

21

744

854

Total LCR eligible assets

86,739

4,640

88,969

180,348

 


31.12.21

Asia
$million

Africa &
Middle East
$million

Europe &
Americas
$million

Total
$million

Level 1 securities





Cash and balances at central banks

28,076

890

46,973

75,939

Central banks, governments /public sector entities

40,328

2,096

27,389

69,813

Multilateral development banks and international organisations

7,812

356

7,366

15,534

Other

-

-

478

478

Total Level 1 securities

76,216

3,342

82,206

161,764

Level 2A securities

3,447

186

5,047

8,680

Level 2B securities

114

-

1,620

1,734

Total LCR eligible assets

79,777

3,528

88,873

172,178

Encumbrance

Encumbered assets

Encumbered assets represent on-balance sheet assets pledged or subject to any form of arrangement to secure, collateralise or credit enhance a transaction from which it cannot be freely withdrawn. Cash collateral pledged against derivatives and Hong Kong Government certificates of indebtedness, which secure the equivalent amount of Hong Kong currency notes in circulation, are included within Other assets.

Unencumbered - readily available for encumbrance

Unencumbered assets that are considered by the Group to be readily available in the normal course of business to secure funding, meet collateral needs, or be sold to reduce potential future funding requirements and are not subject to any restrictions on their use for these purposes.

Unencumbered - other assets capable of being encumbered

Unencumbered assets that, in their current form, are not considered by the Group to be readily realisable in the normal course of business to secure funding, meet collateral needs, or be sold to reduce potential future funding requirements and are not subject to any restrictions on their use for these purposes. Included within this category are loans and advances which could be suitable for use in secured funding structures such as securitisations.

Unencumbered - cannot be encumbered

Unencumbered assets that have not been pledged and cannot be used to secure funding, meet collateral needs, or be sold to reduce potential future funding requirements, as assessed by the Group.

 

 

 

Page 51

 

Derivatives, reverse repurchase assets and stock lending

These assets are shown separately as these on-balance sheet amounts cannot be pledged. However, these assets can give rise to off-balance sheet collateral which can be used to raise secured funding or meet additional funding requirements.

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


30.06.22

Assets
$million

Assets encumbered as a
result of transactions with counterparties other than central banks

Other assets (comprising assets encumbered at the central bank
and unencumbered assets)

As a result of securiti-sations
$million

Other
$million

Total
$million

Assets positioned at the central bank
(ie pre-positioned plus encumbered)
$million

Assets not positioned at the central bank

Total
$million

Readily available for encumbrance
$million

Other assets that are capable of being encumbered
$million

Derivatives and reverse repo/stock lending
$million

Cannot be encumbered
$million

Cash and balances at
central banks

67,005

-

-

-

11,269

55,736

-

-

-

67,005

Derivative financial instruments

76,676

-

-

-

-

-

-

76,676

-

76,676

Loans and advances
to banks1

62,640

-

82

82

-

29,234

9,049

22,672

1,603

62,558

Loans and advances
to customers1

354,474

-

4,471

4,471

-

-

276,556

60,415

13,032

350,003

Investment securities2

195,603

-

16,368

16,368

113

142,340

32,180

-

4,602

179,235

Other assets

62,136

-

18,691

18,691

-

-

12,994

-

30,451

43,445

Current tax assets

586

-

-

-

-

-

-

-

586

586

Prepayments and
accrued income

2,354

-

-

-

-

-

1,111

-

1,243

2,354

Interests in associates
and joint ventures

2,105

-

-

-

-

-

-

-

2,105

2,105

Goodwill and
intangible assets

5,537

-

-

-

-

-

-

-

5,537

5,537

Property, plant
and equipment

5,671

-

-

-

-

-

448

-

5,223

5,671

Deferred tax assets

909

-

-

-

-

-

-

-

909

909

Assets classified as
held for sale

221

-

-

-

-

-

-

-

221

221

Total

835,917

-

39,612

39,612

11,382

227,310

332,338

159,763

65,512

796,305

1 Includes held at fair value through profit or loss and amortised cost balances

2 Includes held at fair value through profit or loss, fair value through other comprehensive income and amortised cost balances

 

 

 

 

 

 

 

 

 

 

Page 52

 


31.12.21

Assets
$million

Assets encumbered as a
result of transactions with counterpartiesother than central banks

Other assets (comprising assets encumbered at the central bank
and unencumbered assets)

As a result of securiti-sations
$million

Other
$million

Total
$million

Assets positioned at the central bank
(ie pre-positioned plus encumbered)
$million

Assets not positioned at the central bank

Total
$million

Readily available for encumbrance
$million

Other assets that are capable of being encumbered
$million

Derivatives
and reverse repo/stock lending
$million

Cannot be encumbered
$million

Cash and balances at
central banks

72,663

-

-

-

8,147

64,516

-

-

-

72,663

Derivative financial instruments

52,445

-

-

-

-

-

-

52,445

-

52,445

Loans and advances
to banks1

66,957

-

89

89

-

34,834

9,931

19,806

2,297

66,868

Loans and advances
to customers1

369,703

-

4,539

4,539

-

-

282,761

68,612

13,791

365,164

Investment securities2

198,723

-

13,940

13,940

96

142,965

35,637

-

6,085

184,783

Other assets

49,958

-

16,501

16,501

-

-

13,140

-

20,317

33,457

Current tax assets

766

-

-

-

-

-

-

-

766

766

Prepayments and
accrued income

2,176

-

-

-

-

-

937

-

1,239

2,176

Interests in associates
and joint ventures

2,147

-

-

-

-

-

-

-

2,147

2,147

Goodwill and
intangible assets

5,471

-

-

-

-

-

-

-

5,471

5,471

Property, plant
and equipment

5,616

-

-

-

-

-

448

-

5,168

5,616

Deferred tax assets

859

-

-

-

-

-

-

-

859

859

Assets classified as
held for sale

334

-

-

-

-

-

-

-

334

334

Total

827,818

-

35,069

35,069

8,243

242,315

342,854

140,863

58,474

792,749

1 Includes held at fair value through profit or loss and amortised cost balances

2 Includes held at fair value through profit or loss, fair value through other comprehensive income and amortised cost balances

The Group received $108,816 million (31 December 2021: $117,408 million) as collateral under reverse repurchase agreements that was eligible for repledging; of this, the Group sold or repledged $48,520 million (31 December 2021: $57,879 million) under repurchase agreements.

Liquidity analysis of the Group's balance sheet (reviewed)

Contractual maturity of assets and liabilities

The following table presents assets and liabilities by maturity groupings based on the remaining period to the contractual maturity date as at the balance sheet date on a discounted basis. Contractual maturities do not necessarily reflect actual repayments or cashflows.

Within the tables below, cash and balances with central banks, interbank placements and investment securities that are fair value through other comprehensive income are used by the Group principally for liquidity management purposes.

As at the reporting date, assets remain predominantly short-dated, with 60 per cent maturing in under one year. Our less than three-month cumulative net funding gap decreased slightly from the previous year.

 

 

 

 

 

 

 

Page 53

 


30.06.22

One month
or less
$million

Between one month and three months
$million

Between three months and six months
$million

Between
six months and nine months
$million

Between nine
months
and one year
$million

Between one year and two years
$million

Between two years and five years
$million

More than five years and undated
$million

Total
$million

Assets










Cash and balances at
central banks

55,736

-

-

-

-

-

-

11,269

67,005

Derivative financial instruments

14,989

15,018

12,715

8,649

4,120

6,114

9,990

5,081

76,676

Loans and advances to banks1,2

24,335

14,642

12,952

3,911

2,668

2,202

1,409

521

62,640

Loans and advances
to customers1,2

99,400

47,410

28,694

15,891

14,280

19,558

34,600

94,641

354,474

Investment securities

12,700

19,859

15,505

12,393

11,433

23,769

46,196

53,748

195,603

Other assets

33,761

22,316

1,022

165

799

40

46

21,370

79,519

Total assets

240,921

119,245

70,888

41,009

33,300

51,683

92,241

186,630

835,917











Liabilities










Deposits by banks1,3

39,619

3,497

2,060

803

922

642

26

3

47,572

Customer accounts1,4

408,477

42,531

23,076

10,017

11,141

7,286

2,825

1,658

507,011

Derivative financial instruments

14,947

15,427

12,062

8,515

3,920

7,102

9,205

4,919

76,097

Senior debt5

262

655

180

545

785

5,673

17,278

12,116

37,494

Other debt securities in issue1

2,981

6,881

9,103

2,863

2,075

2,048

1,145

260

27,356

Other liabilities

28,136

31,243

1,973

691

1,195

562

1,327

10,635

75,762

Subordinated liabilities and
other borrowed funds

7

72

802

2,172

40

1,359

2,382

8,099

14,933

Total liabilities

494,429

100,306

49,256

25,606

20,078

24,672

34,188

37,690

786,225

Net liquidity gap

(253,508)

18,939

21,632

15,403

13,222

27,011

58,033

148,940

49,692

1 Loans and advances, investment securities, deposits by banks, customer accounts and debt securities in issue include financial instruments held at fair value through profit or loss, see Note 13 Financial instruments

2 Loans and advances include reverse repurchase agreements and other similar secured lending of $83.1 billion

3 Deposits by banks include repurchase agreements and other similar secured borrowing of $14.8 billion

4 Customer accounts include repurchase agreements and other similar secured borrowing of $42.2 billion

5 Senior debt maturity profiles are based upon contractual maturity, which may be later than call options over the debt held by the Group

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Page 54

 


31.12.21

One month
or less
$million

Between one month and three months
$million

Between three months and
six months
$million

Between
six months and nine months
$million

Between
nine months
and one year
$million

Between
one year and two years
$million

Between
two years and five years
$million

More than
five years and undated
$million

Total
$million

Assets










Cash and balances at
central banks

64,516

-

-

-

-

-

-

8,147

72,663

Derivative financial instruments

11,695

10,489

7,332

3,583

2,731

4,738

6,493

5,384

52,445

Loans and advances to banks1,2

25,486

17,987

11,347

4,415

4,506

1,455

1,466

295

66,957

Loans and advances
to customers1,2

92,181

68,361

26,276

13,255

14,992

21,391

36,299

96,948

369,703

Investment securities

11,813

13,590

12,070

13,266

13,407

26,424

53,189

54,964

198,723

Other assets

24,283

19,776

989

67

491

35

32

21,654

67,327

Total assets

229,974

130,203

58,014

34,586

36,127

54,043

97,479

187,392

827,818











Liabilities










Deposits by banks1,3

34,858

1,134

1,244

408

477

116

206

4

38,447

Customer accounts1,4

430,071

52,051

27,436

11,738

12,023

4,857

2,152

2,127

542,455

Derivative financial instruments

11,715

11,573

7,254

4,061

2,788

5,042

7,117

3,849

53,399

Senior debt5

190

642

1,036

320

397

5,336

15,225

11,845

34,991

Other debt securities in issue1

2,233

12,968

7,786

3,118

3,281

782

1,411

320

31,899

Other liabilities

14,545

22,582

2,044

1,148

1,180

797

990

14,059

57,345

Subordinated liabilities and
other borrowed funds

1,007

64

24

240

894

2,430

2,493

9,494

16,646

Total liabilities

494,619

101,014

46,824

21,033

21,040

19,360

29,594

41,698

775,182

Net liquidity gap

(264,645)

29,189

11,190

13,553

15,087

34,683

67,885

145,694

52,636

1 Loans and advances, investment securities, deposits by banks, customer accounts and debt securities in issue include financial instruments held at fair value through profit or loss, see Note 13 Financial instruments

2 Loans and advances include reverse repurchase agreements and other similar secured lending of $88.4 billion

3 Deposits by banks include repurchase agreements and other similar secured borrowing of $7.1 billion

4 Customer accounts include repurchase agreements and other similar secured borrowing of $58.6 billion

5 Senior debt maturity profiles are based upon contractual maturity, which may be later than call options over the debt held by the Group

Behavioural maturity of financial assets and liabilities

The cashflows presented in the previous section reflect the cashflows that will be contractually payable over the residual maturity of the instruments. However, contractual maturities do not necessarily reflect the timing of actual repayments or cashflow. In practice, certain assets and liabilities behave differently from their contractual terms, especially for short-term customer accounts, credit card balances and overdrafts, which extend to a longer period than their contractual maturity. On the other hand, mortgage balances tend to have a shorter repayment period than their contractual maturity date. Expected customer behaviour is assessed and managed on a country basis using qualitative and quantitative techniques, including analysis of observed customer behaviour over time.

Maturity of financial liabilities on an undiscounted basis (reviewed)

The following table analyses the contractual cashflows payable for the Group's financial liabilities by remaining contractual maturities on an undiscounted basis. The financial liability balances in the table below will not agree with the balances reported in the consolidated balance sheet as the table incorporates all contractual cashflows, on an undiscounted basis, relating to both principal and interest payments. Derivatives not treated as hedging derivatives are included in the 'On demand' time bucket and not by contractual maturity.

Within the 'More than five years and undated' maturity band are undated financial liabilities, the majority of which relate to subordinated debt, on which interest payments are not included as this information would not be meaningful, given the instruments are undated. Interest payments on these instruments are included within the relevant maturities up to five years.

 

 

 

 

 

Page 55

 


30.06.22

One month
or less
$million

Between
one month and three months
$million

Between
three months and six
months
$million

Between
six months
and nine months
$million

Between
nine months
and one year
$million

Between
one year and two years
$million

Between
two years and five years
$million

More than
five years
and undated
$million

Total
$million

Deposits by banks

39,390

3,446

2,063

804

931

643

23

7

47,307

Customer accounts

408,607

42,669

23,280

10,166

11,397

7,408

2,974

2,137

508,638

Derivative financial instruments1

73,199

8

169

164

4

513

938

1,102

76,097

Debt securities in issue

3,334

7,606

9,520

3,614

3,070

8,525

20,070

23,796

79,535

Subordinated liabilities and
other borrowed funds

99

173

848

2,222

49

1,506

3,159

15,025

23,081

Other liabilities

26,054

31,008

1,872

686

1,192

562

1,332

10,274

72,980

Total liabilities

550,683

84,910

37,752

17,656

16,643

19,157

28,496

52,341

807,638

 


31.12.21

One month
or less
$million

Between
one month and three months
$million

Between
three months and six
months
$million

Between
six months
and nine months
$million

Between
nine months
and one year
$million

Between
one year and two years
$million

Between
two years and five years
$million

More than
five years
and undated
$million

Total
$million

Deposits by banks

34,866

1,140

1,246

409

481

117

208

3

38,470

Customer accounts

430,190

52,112

27,510

11,813

12,120

4,930

2,212

2,495

543,382

Derivative financial instruments1

52,783

9

22

12

106

76

212

179

53,399

Debt securities in issue

2,526

13,618

9,015

3,586

3,891

6,743

17,966

17,659

75,004

Subordinated liabilities and
other borrowed funds

1,114

134

48

261

928

2,546

3,030

16,044

24,105

Other liabilities

17,759

22,460

1,952

1,133

1,170

797

990

9,955

56,216

Total liabilities

539,238

89,473

39,793

17,214

18,696

15,209

24,618

46,335

790,576

1  Derivatives are on a discounted basis

Interest Rate Risk in the Banking Book

The following table provides the estimated impact to a hypothetical base case projection of the Group's earnings under the following scenarios:

A 50 basis point parallel interest rate shock (up and down) to the current market-implied path of rates, across all yield curves

A 100 basis point parallel interest rate shock (up) to the current market-implied path of rates, across all yield curves

These interest rate shock scenarios assume all other economic variables remain constant. The sensitivities shown represent the estimated change to a hypothetical base case projected net interest income (NII), plus the change in interest rate implied income and expense from FX swaps used to manage banking book currency positions, under the different interest rate shock scenarios.

The base case projected NII is based on the current market-implied path of rates and forward rate expectations. The NII sensitivities below stress this base case by a further 50 or 100bps. Actual observed interest rate changes will lag behind market expectation. Accordingly, the shocked NII sensitivity does not represent a forecast of the Group's net interest income.

The interest rate sensitivities are indicative stress tests and based on simplified scenarios, estimating the aggregate
impact of an unanticipated, instantaneous parallel shock across all yield curves over a one-year horizon, including the
time taken to implement changes to pricing before becoming effective. The assessment assumes that the size and mix of the balance sheet remain constant and that there are no specific management actions in response to the change in rates. No assumptions are made in relation to the impact on credit spreads in a changing rate environment.

Significant modelling and behavioural assumptions are made regarding scenario simplification, market competition, pass-through rates, asset and liability re-pricing tenors, and price flooring. In particular, the assumption that interest rates of all currencies and maturities shift by the same amount concurrently, and that no actions are taken to mitigate the impacts arising from this are considered unlikely. Reported sensitivities will vary over time due to a number of factors including changes in balance sheet composition, market conditions, customer behaviour and risk management strategy. Therefore, while the NII sensitivities are a relevant measure of the Group's interest rate exposure, they should not be considered an income or profit forecast.

Page 56

 

Estimated one-year impact to earnings from a parallel shift
in yield curves at the beginning of the period of:

30.06.22

USD bloc
$million

HKD bloc
$million

SGD bloc
$million

KRW bloc
$million

CNY bloc
$million

Other currency bloc
$million

Total
$million

+ 50 basis points

40

40

70

40

10

190

390

- 50 basis points

(40)

(40)

(70)

(30)

(10)

(190)

(380)

+ 100 basis points

80

80

140

70

20

360

750

 

Estimated one-year impact to earnings from a parallel shift
in yield curves at the beginning of the period of:

31.12.21

USD bloc
$million

HKD bloc
$million

SGD bloc
$million

KRW bloc
$million

CNY bloc
$million

Other currency bloc
$million

Total
$million

+ 50 basis points

200

150

70

50

50

140

660

- 50 basis points

(210)

(170)

(70)

(40)

(50)

(130)

(670)

+ 100 basis points

380

280

130

80

90

300

1,260

As at 30 June 2022, the Group estimates the one-year impact of an instantaneous, parallel increase across all yield curves of 50 basis points to increase projected NII by $390 million. The equivalent impact from a parallel decrease of 50 basis points would result in a reduction in projected NII of $380 million. The Group estimates the one-year impact of an instantaneous, parallel increase across all yield curves of 100 basis points to increase projected NII by $750 million.

The benefit from rising interest rates is primarily from reinvesting at higher yields and from assets re-pricing faster and to a greater extent than deposits. NII sensitivity in all scenarios has decreased versus 31 December 2021. The change in NII sensitivity reflects updates to the Group's base case scenario to factor in higher interest rates as at 30 June 2022. In addition, NII sensitivities have reduced due to the migration of the HKD mortgage book from HIBOR to Prime rate, and the dampening effect of USD hedging strategies intended to provide short term income certainty and smooth longer term NII volatility.

Operational and Technology Risk

Operational and Technology Risk is defined as the "Potential for loss from inadequate or failed internal processes, technology events, human error, or from the impact of external events (including legal risks)". It is inherent in the Group carrying out business.

Operational and Technology Risk profile

Risk management practices help the business grow safely and ensures governance and management of Operational and Technology Risk through the delivery and embedding of effective frameworks and policies, together with continuous oversight and assurance.

The Group continues to ensure the operational and technology risk framework supports the business and functions in effectively managing risk and controls within risk appetite to meet their strategic objectives.

Overall, the Group's risk profile has remained stable with the quality of risk understanding and identification improving. Operational and Technology Risks remain heightened in areas such as Fraud, Data Management, and Information and Cyber Security. Other focus risk areas are Third Party Risk, Technology risk, People Risk and Change Management. We continue to enhance our operational resilience and defences against these risks, as well as continue to monitor impacts of the ongoing pandemic, through vigorous improvement programmes.

Digitalisation and wider technological improvements remain a key focus for the Group, to keep pace with new business developments whilst ensuring control frameworks and Risk Appetite evolve accordingly.

Other principal risks

Losses arising from operational failures for other principal risks are reported as operational losses. Operational losses do not include Operational Risk-related credit impairments.

 

 

 

 

Page 57

 

Capital review

The Capital review provides an analysis of the Group's capital and leverage position and requirements.

Capital summary

The Group's capital and leverage position is managed within the Board-approved risk appetite. The Group is well capitalised with high levels of loss-absorbing capacity.


30.06.22

31.12.21

CET1 capital

13.9%

14.1%

Tier 1 capital

15.9%

16.6%

Total capital

21.0%

21.3%

Leverage ratio

4.5%

4.9%

MREL ratio

31.0%

31.7%

Risk-weighted assets (RWA) $million

255,082

271,233

The Group's CET1 capital and Tier 1 leverage position are above current requirements. For further detail see the Capital section in the Standard Chartered PLC Pillar 3 Disclosures for HY 2022

The Group's CET1 ratio decreased 28 basis points to 13.9 per cent as profits for the period and lower RWA driven largely by optimisation initiatives, were more than offset by regulatory changes, foreign exchange movements, FVOCI reserve movements, and distributions (including completion of the FY 21 share buy-back)

The PRA sets the Group's current Pillar 2A requirement as a nominal value instead of a percentage of RWA. At the half year this equated to 3.6 per cent of RWA, of which at least 2.0 per cent must be held in CET1. As the Pillar 2A requirement is a nominal value, the decrease in RWA in the period caused the CET1 requirement expressed in ratio terms to increase by 12 basis points. As a result, the Group's minimum CET1 requirement including the combined buffer (comprising the capital conservation buffer, the GSII buffer and the countercyclical buffer) was 10.2 per cent at 30 June 2022

The Group's minimum requirement for own funds and eligible liabilities (MREL) is set as the higher of an RWA or leverage requirement. The Group's MREL requirement including buffers was 7.8 per cent of leverage exposure at 30 June 2022, equivalent to 27.4 per cent of RWA. The Group's MREL position was 8.9 per cent of leverage exposure and 31.0 per cent of RWA at 30 June 2022

In the first half of the year the Group made good progress on its MREL issuance plan, successfully raising around $4 billion of MREL eligible debt from its holding company. Issuance was across the capital structure including, $0.8 billion of Tier 2 and around $3.2 billion of callable senior debt

The Group CET1 ratio at 30 June includes the share buy-back of $754 million completed in the first half of 2022 and an accrual for a 2022 interim dividend. The Board has recommended an interim dividend for HY 2022 of $119 million or 4 cents per share representing a third of the total 2021 dividend in line with the prior year

In addition, the Board has announced a further share buy-back of $500 million, which will impact the Group's CET1 position in the third quarter of 2022 by around 20bps

The Group is a G-SII, with a 1.0 per cent G-SII CET1 buffer. The Standard Chartered PLC G-SII disclosure is published at:
sc.com/en/investors/financial-results

 

 

 

 

 

 

 

Page 58

 

CRD Capital base1 (reviewed)


30.06.22
$million

31.12.21
$million

CET1 instruments and reserves



Capital instruments and the related share premium accounts

5,472

5,528

Of which: share premium accounts

3,989

3,989

Retained earnings2

26,266

24,968

Accumulated other comprehensive income (and other reserves)

8,837

11,805

Non-controlling interests (amount allowed in consolidated CET1)

188

201

Independently reviewed interim and year-end profits

2,092

2,346

Foreseeable dividends

(303)

(493)

CET1 capital before regulatory adjustments

42,552

44,355

CET1 regulatory adjustments



Additional value adjustments (prudential valuation adjustments)

(766)

(665)

Intangible assets (net of related tax liability)

(5,468)

(4,392)

Deferred tax assets that rely on future profitability (excludes those arising from temporary differences)

(120)

(150)

Fair value reserves related to net losses on cash flow hedges

475

34

Deduction of amounts resulting from the calculation of excess expected loss

(702)

(580)

Net gains on liabilities at fair value resulting from changes in own credit risk

(100)

15

Defined-benefit pension fund assets

(184)

(159)

Fair value gains arising from the institution's own credit risk related to derivative liabilities

(165)

(60)

Exposure amounts which could qualify for risk weighting of 1,250%

(138)

(36)

Other regulatory adjustments to CET1 capital³

(11)

-

Total regulatory adjustments to CET1

(7,179)

(5,993)

CET1 capital

35,373

38,362

Additional Tier 1 capital (AT1) instruments

5,264

6,811

AT1 regulatory adjustments

(20)

(20)

Tier 1 capital

40,617

45,153




Tier 2 capital instruments

13,050

12,521

Tier 2 regulatory adjustments

(30)

(30)

Tier 2 capital

13,020

12,491

Total capital

53,637

57,644

Total risk-weighted assets (unreviewed)

255,082

271,233

1 CRD capital is prepared on the regulatory scope of consolidation

2     Retained earnings includes IFRS 9 capital relief (transitional) of $164 million, including dynamic relief of $58 million

3 Other regulatory adjustments to CET1 capital includes Insufficient coverage for non-performing exposures of -$11 million

 

 

 

 

 

 

 

 

 

 

 

 

Page 59

 

Movement in total capital (reviewed)


6 months ended
30.06.22
$million

6 months ended
31.12.21
$million

CET1 at 1 January/1 July

38,362

39,589

Ordinary shares issued in the period and share premium

-

-

Share buy-back

(754)

(251)

Profit for the period

2,092

422

Foreseeable dividends net of scrip deducted from CET1

(303)

(493)

Difference between dividends paid and foreseeable dividends

3

9

Movement in goodwill and other intangible assets

(1,076)

(320)

Foreign currency translation differences

(1,394)

(350)

Non-controlling interests

(13)

10

Movement in eligible other comprehensive income

(1,020)

(281)

Deferred tax assets that rely on future profitability

30

(41)

Decrease/(increase) in excess expected loss

(122)

284

Additional value adjustments (prudential valuation adjustment)

(101)

(33)

IFRS 9 transitional impact on regulatory reserves including day one

(88)

(17)

Exposure amounts which could qualify for risk weighting

(102)

4

Fair value gains arising from the institution's own Credit Risk related to derivative liabilities

(105)

(14)

Other

(36)

(156)

CET1 at 30 June/31 December

35,373

38,362




AT1 at 1 January/1 July

6,791

6,293

Net issuances (redemptions)

(990)

497

Foreign currency translation difference

-

(5)

Excess on AT1 grandfathered limit (ineligible)

(557)

6

AT1 at 30 June/31 December

5,244

6,791




Tier 2 capital at 1 January/1 July

12,491

13,279

Regulatory amortisation

546

(512)

Net issuances (redemptions)

(298)

(72)

Foreign currency translation difference

(307)

(120)

Tier 2 ineligible minority interest

27

(83)

Recognition of ineligible AT1

557

(6)

Other

4

5

Tier 2 capital at 30 June/31 December

13,020

12,491

Total capital at 30 June/31 December

53,637

57,644

The main movements in capital in the period were:

CET1 decreased by $3.0 billion as retained profits of $2.0 billion were more than offset by removal of the software benefit of $1.0 billion, the completion of the FY 21 share buy-back of $0.8 billion, foreseeable dividends of $0.3 billion, foreign exchange translation losses of $1.4 billion, FVOCI movements (on higher yields and wider credit spreads) of $1.3 billion and an increase in other regulatory deductions of $0.3 billion

Additional Tier 1 capital decreased by $1.5 billion following the redemption of $1.0 billion of 7.5 per cent securities, and the final $0.5 billion derecognition of legacy Tier 1 securities

Tier 2 capital increased by $0.5 billion as issuance of $0.8 billion new Tier 2 instruments and the recognition of ineligible Additional Tier 1 as Tier 2 were partly offset by regulatory amortisation and the redemption of $1.0 billion of Tier 2 securities during the period

 

 

 

 

 

Page 60

 

Risk-weighted assets by business


30.06.22

Credit risk
$million

Operational risk
$million

Market risk
$million

Total risk
$million

Corporate, Commercial & Institutional Banking

117,789

17,038

19,350

154,177

Consumer, Private & Business Banking

43,879

8,639

-

52,518

Ventures

1,034

6

3

1,043

Central & Other items

42,477

1,494

3,373

47,344

Total risk-weighted assets

205,179

27,177

22,726

255,082

 


31.12.211

Credit risk
$million

Operational risk
$million

Market risk
$million

Total risk
$million

Corporate, Commercial & Institutional Banking2

125,813

16,595

20,789

163,197

Consumer, Private & Business Banking2

42,731

8,501

-

51,232

Ventures

756

5

-

761

Central & Other items

50,288

2,015

3,740

56,043

Total risk-weighted assets

219,588

27,116

24,529

271,233

1 Following the increased strategic importance and reporting of Ventures to management, this has been established as a separate operating segment from 1 January 2022. Prior period has been restated

2 Following Group's change in organisational structure in 2021, certain clients have been moved between the two new client segments, Corporate, Commercial & Institutional Banking and Consumer, Private & Business Banking. Prior period has been restated

Risk-weighted assets by geographic region


30.06.22
$million

31.12.21
$million

Asia

160,345

170,381

Africa & Middle East

43,613

48,852

Europe & Americas

50,038

50,283

Central & Other items

1,086

1,717

Total risk-weighted assets

255,082

271,233

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Page 61

 

Movement in risk-weighted assets


Credit Risk

Operational Risk
$million

Market
 Risk
$million

Total
 Risk
$million

Commercial, Corporate & Institutional Banking
$million

Consumer, Private & Business Banking
$million

Ventures1
$million

Central & Other items
$million

Total
$million

At 31 December 2020

127,663

44,755


48,023

220,441

26,800

21,593

268,834

At 1 January 2021

127,581

44,755

289

47,816

220,441

26,800

21,593

268,834

Assets growth & mix

5,445

3,827

224

384

9,880

-

-

9,880

Asset quality

1,956

(292)

-

(382)

1,282

-

-

1,282

Risk-weighted assets efficiencies

-

-

-

(657)

(657)

-

-

(657)

Model updates

-

(27)

-

-

(27)

-

-

(27)

Methodology and policy changes

-

-

-

-

-

-

-

-

Acquisitions and disposals

-

-

-

-

-

-

-

-

Foreign currency translation

(873)

(603)

-

(412)

(1,888)

-

-

(1,888)

Other, including non-credit risk movements

-

-

-

317

317

316

2,170

2,803

At 30 June 2021

134,109

47,660

513

47,066

229,348

27,116

23,763

280,227

Assets growth & mix

(3,175)

(216)

243

3,510

362

-

-

362

Asset quality

(3,493)

(370)

-

395

(3,468)

-

-

(3,468)

Risk-weighted assets efficiencies

(415)

(30)

-

-

(445)

-

-

(445)

Model updates

-

(3,674)

-

-

(3,674)

-

-

(3,674)

Methodology and policy changes

-

-

-

-

-

-

2,065

2,065

Acquisitions and disposals

-

-

-

-

-

-

-

-

Foreign currency translation

(1,213)

(639)

-

(694)

(2,546)

-

-

(2,546)

Other, including non-credit risk movements

-

-

-

11

11

-

(1,299)

(1,288)

At 31 December 2021

125,813

42,731

756

50,288

219,588

27,116

24,529

271,233

Assets growth & mix

(2,392)

58

278

(4,289)

(6,345)

-

-

(6,345)

Asset quality

(5,648)

(32)

-

(163)

(5,843)

-

-

(5,843)

Risk-weighted assets efficiencies

-

-

-

-

-

-

-

-

Model updates

2,073

2,628

-

-

4,701

-

(1,000)

3,701

Methodology and policy changes

2,024

85

-

38

2,147

-

1,100

3,247

Acquisitions and disposals

-

-

-

-

-

-

-

-

Foreign currency translation

(4,081)

(1,591)

-

(2,392)

(8,064)

-

-

(8,064)

Other, including non-credit risk movements

-

-

-

(1,005)

(1,005)

61

(1,903)

(2,847)

At 30 June 2022

117,789

43,879

1,034

42,477

205,179

27,177

22,726

255,082

1  Following the increased strategic importance and reporting of Ventures to management, this has been established as a separate operating segment from 1 January 2022. Prior period has been restated

Movements in risk-weighted assets

RWA decreased by $16.2 billion, or 6.0 per cent from 31 December 2021 to $255.1 billion. This was mainly due to decreases in Credit Risk RWA of $14.4 billion and Market Risk RWA of $1.8 billion offset by marginal increase in Operational Risk RWA of $0.1 billion

Corporate, Commercial & Institutional Banking

Credit Risk RWA decreased by $8.0 billion to $117.8 billion mainly due to:

$6.9 billion decrease from optimisation actions including reduction in lower returning portfolios

$6.2 billion decrease from other business efficiency actions

$5.6 billion decrease mainly due to improvement in asset quality reflecting client upgrades

$4.1 billion decrease from foreign currency translation

$10.7 billion increase from asset balance growth

$2.1 billion increase from industry-wide regulatory changes to align IRB model performance

$2.0 billion increase from revised rules on capital requirements

 

 

Page 62

 

Consumer, Private & Business Banking

Credit Risk RWA increased by $1.1 billion to $43.9 billion mainly due to:

$2.6 billion increase from industry-wide regulatory changes to align IRB model performance

$1.5 billion decrease from foreign currency translation

Ventures

Ventures comprised of Mox Bank Limited, Trust Bank and SC Ventures. Credit Risk RWA increased by $0.2 billion to $1 billion from asset balance growth.

Central & Other items

Central & Other items mainly relate to the Treasury Markets liquidity portfolio, equity investments and current and deferred tax assets.

Credit Risk RWA decreased by $7.8 billion to $42.5 billion mainly due to:

$2.9 billion decrease in asset balance

$2.4 billion decrease from foreign currency translation

$1.3 billion decrease from credit protection on certain products

$1.0 billion decrease due to cessation of software relief

Market risk

Market Risk RWA decreased by $1.8 billion, or 7 per cent from 31 December 2021 to $22.7 billion mainly due to:

$1.7 billion decrease in Standardised Approach (SA) Specific Interest Rate Risk RWA due to reduced positions

$1.0 billion decrease with enhanced Internal Models Approach (IMA) VaR and stressed VaR methodology

$0.4 billion decrease in SA Structural FX risk with increased SFX hedging

$1.1 billion increase due to higher IMA RWA multiplier from back-testing exceptions

$0.2 billion increase of other individually smaller movements

Operational risk

Operational risk RWA increased by $0.1 billion mainly due to marginal increase in average income as measured over a rolling three-year time horizon for certain products.

 

 

 

 

 

 

 

 

 

 

 

 

Page 63

 

Leverage ratio

The Group's leverage ratio, which excludes qualifying claims on central banks, was 4.5 per cent, which is above the current minimum requirement of 3.7 per cent. The leverage ratio decreased by approximately 35 basis points in the period following a $4.0 billion decrease in Tier 1 capital due to a decrease in CET1 by $3.0 billion and the redemption of $1 billion of Additional Tier 1. This was partially offset by a reduction in leverage exposures by $17 billion primarily due to derivatives and central bank netting.

Leverage ratio


30.06.22
$million

31.12.21
$million

Tier 1 capital (transitional)

40,617

45,153

Additional Tier 1 capital subject to phase out

-

(557)

Tier 1 capital (end point)

40,617

44,596

Derivative financial instruments

76,676

52,445

Derivative cash collateral

11,459

9,217

Securities financing transactions (SFTs)

83,087

88,418

Loans and advances and other assets

664,695

677,738

Total on-balance sheet assets

835,917

827,818

Regulatory consolidation adjustments¹

(70,350)

(63,704)

Derivatives adjustments



Derivatives netting

(56,040)

(34,819)

Adjustments to cash collateral

(9,831)

(17,867)

Net written credit protection

128

1,534

Potential future exposure on derivatives

41,103

50,857

Total derivatives adjustments

(24,640)

(295)

Counterparty risk leverage exposure measure for SFTs

13,318

13,724

Off-balance sheet items

146,745

139,505

Regulatory deductions from Tier 1 capital

(6,856)

(5,908)

Total exposure measure excluding claims on central banks

894,134

911,140

Leverage ratio excluding claims on central banks (%)

4.5%

4.9%

Average leverage exposure measure excluding claims on central banks

918,391

897,992

Average leverage ratio excluding claims on central banks (%)

4.4%

5.0%

Countercyclical leverage ratio buffer

0.1%

0.1%

G-SII additional leverage ratio buffer

0.4%

0.4%

1     Includes adjustment for qualifying central bank claims $70.9 billion and unsettled regular way trades $1.5 billion

 

 

 

 

 

 

 

 

 

 

 

 

 

Page 64

 

Statement of directors' responsibilities

We confirm that to the best of our knowledge:

The condensed consolidated interim financial statements have been prepared in accordance with UK-adopted IAS 34 Interim Financial Reporting.

The interim management report includes a fair review of the information required by:

(a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the six months ended 30 June 2022 and their impact on the condensed consolidated interim financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year

(b) DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place during the six months ended 30 June 2022 that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could have materially affected the financial position or performance of the entity during that period

 

 

By order of the Board

 

 

Andy Halford

Group Chief Financial Officer

29 July 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Page 65

 

Independent review report to Standard Chartered PLC

Conclusion

We have been engaged by Standard Chartered PLC (the 'Company' or the 'Group') to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2022 which comprises the condensed consolidated interim income statement, the condensed consolidated interim statement of comprehensive income, the condensed consolidated interim balance sheet, the condensed consolidated interim statement of changes in equity, the condensed consolidated interim cash flow statement, the related notes 1 to 31 and the risk and capital disclosures marked as 'reviewed' from page 48 to 111 (together 'the condensed consolidated interim financial statements'). We have read the other information contained in the half yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

Based on our review, nothing has come to our attention that causes us to believe that the condensed consolidated interim financial statements in the half-yearly financial report for the six months ended 30 June 2022 are not prepared, in all material respects, in accordance with United Kingdom (UK) adopted International Accounting Standard 34, 'Interim Financial Reporting' (IAS 34), IAS 34 as adopted by the European Union (EU) and the Disclosure Guidance and Transparency Rules of the UK's Financial Conduct Authority (FCA).

Basis for Conclusion

We conducted our review in accordance with International Standard on Review Engagements (ISRE) 2410 (UK) 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Financial Reporting Council. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

As disclosed in note 1, the annual financial statements of the Group are prepared in accordance with UK adopted international accounting standards and International Financial Reporting Standards as adopted by the EU. The condensed consolidated interim financial statements included in this half-yearly financial report has been prepared in accordance with UK adopted IAS 34 and IAS 34 as adopted by the EU.

Conclusions Relating to Going Concern

Based on our review procedures, which are less extensive than those performed in an audit as described in the Basis of Conclusion section of this report, nothing has come to our attention to suggest that management have inappropriately adopted the going concern basis of accounting or that management have identified material uncertainties relating to going concern that are not appropriately disclosed.

This conclusion is based on the review procedures performed in accordance with ISRE 2410 (UK) 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity', however future events or conditions may cause the entity to cease to continue as a going concern.

Responsibilities of the directors

The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure Guidance and Transparency Rules of the UK's FCA.

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

Auditor's Responsibilities for the review of the financial information

In reviewing the half-yearly report, we are responsible for expressing to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report. Our conclusion, including our Conclusions Relating to Going Concern, are based on procedures that are less extensive than audit procedures, as described in the Basis for Conclusion paragraph of this report.

Use of our report

This report is made solely to the company in accordance with guidance contained in ISRE 2410 (UK) 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Financial Reporting Council. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our work, for this report, or for the conclusions we have formed.

Ernst & Young LLP

London

29 July 2022

Page 66

 

 

Condensed consolidated interim income statement

For the six months ended 30 June 2022


Notes

6 months ended 30.06.22
$million

6 months ended 30.06.21
$million

Interest income


5,785

5,122

Interest expense


(2,147)

(1,752)

Net interest income

3

3,638

3,370

Fees and commission income


2,023

2,300

Fees and commission expense


(359)

(361)

Net fee and commission income

4

1,664

1,939

Net trading income

5

2,679

1,870

Other operating income

6

244

449

Operating income


8,225

7,628

Staff costs


(3,853)

(3,786)

Premises costs


(197)

(184)

General administrative expenses


(686)

(655)

Depreciation and amortisation


(592)

(596)

Operating expenses

7

(5,328)

(5,221)

Operating profit before impairment losses and taxation


2,897

2,407

Credit impairment

8

(263)

51

Goodwill, property, plant and equipment and other impairment

9

(15)

(40)

Profit from associates and joint ventures


153

141

Profit before taxation


2,772

2,559

Taxation

10

(684)

(631)

Profit for the period


2,088

1,928





Profit attributable to:




Non-controlling interests


(1)

14

Parent company shareholders


2,089

1,914

Profit for the period


2,088

1,928

 



cents

cents

Earnings per share:




Basic earnings per ordinary share

12

62.1

54.8

Diluted earnings per ordinary share

12

61.0

53.9

The notes form an integral part of these financial statements.

 

 

 

 

 

 

 

 

 

 

 

Page 67

Condensed consolidated interim statement of comprehensive income

For the six months ended 30 June 2022


Notes

6 months ended 30.06.22
$million

6 months ended 30.06.21
$million

Profit for the year


2,088

1,928

Other comprehensive (loss)/income




Items that will not be reclassified to income statement:


135

244

Own credit gains/(losses) on financial liabilities designated at fair value through profit or loss


138

(2)

Equity instruments at fair value through other comprehensive income


(70)

184

Actuarial gains on retirement benefit obligations

26

84

107

Taxation relating to components of other comprehensive income


(17)

(45)

Items that may be reclassified subsequently to income statement:


(3,106)

(565)

Exchange differences on translation of foreign operations:




Net losses taken to equity


(1,885)

(367)

Net gains on net investment hedges


482

64

Share of other comprehensive (loss)/income from associates and joint ventures


(82)

5

Debt instruments at fair value through other comprehensive income:




Net valuation losses taken to equity


(1,279)

(186)

Reclassified to income statement


(12)

(153)

Net impact of expected credit losses


(9)

4

Cash flow hedges:




Net (losses)/gains taken to equity


(529)

10

Reclassified to income statement


4

7

Taxation relating to components of other comprehensive income


204

51

Other comprehensive loss for the year, net of taxation


(2,971)

(321)

Total comprehensive (loss)/income for the period


(883)

1,607





Total comprehensive income attributable to:




Non-controlling interests


(32)

16

Parent company shareholders


(851)

1,591

Total comprehensive (loss)/income for the period


(883)

1,607

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Page 68

 

Condensed consolidated interim balance sheet

As at 30 June 2022


Notes

30.06.22
$million

31.12.21
$million

Assets




Cash and balances at central banks


67,005

72,663

Financial assets held at fair value through profit or loss

13

118,141

129,121

Derivative financial instruments

13, 14

76,676

52,445

Loans and advances to banks

13

36,201

44,383

Loans and advances to customers

13

293,508

298,468

Investment securities

13

164,892

163,437

Other assets

18

62,111

49,932

Current tax assets


586

766

Prepayments and accrued income


2,354

2,176

Interests in associates and joint ventures

19

2,105

2,147

Goodwill and intangible assets

16

5,537

5,471

Property, plant and equipment

17

5,671

5,616

Deferred tax assets

10

909

859

Assets classified as held for sale

20

221

334

Total assets


835,917

827,818

Liabilities




Deposits by banks

13

31,173

30,041

Customer accounts

13

453,742

474,570

Repurchase agreements and other similar secured borrowing

13, 15

1,723

3,260

Financial liabilities held at fair value through profit or loss

13

82,983

85,197

Derivative financial instruments

13, 14

76,097

53,399

Debt securities in issue

13

58,043

61,293

Other liabilities

21

61,515

44,314

Current tax liabilities


506

348

Accruals and deferred income


4,168

4,651

Subordinated liabilities and other borrowed funds

13, 24

14,933

16,646

Deferred tax liabilities

10

797

800

Provisions for liabilities and charges


404

453

Retirement benefit obligations

26

141

210

Total liabilities


786,225

775,182

Equity




Share capital and share premium account

25

6,966

7,022

Other reserves


8,837

11,805

Retained earnings


28,251

27,184

Total parent company shareholders' equity


44,054

46,011

Other equity instruments

25

5,264

6,254

Total equity excluding non-controlling interests


49,318

52,265

Non-controlling interests


374

371

Total equity


49,692

52,636

Total equity and liabilities


835,917

827,818

The notes form an integral part of these financial statements.

These financial statements were approved by the Board of Directors and authorised for issue on 29 July 2022 and signed on its behalf by:

 

 

Andy Halford

Group Chief Financial Officer

 

 

Page 69

Condensed consolidated interim statement of changes in equity

For the six months ended 30 June 2022


Ordinary share capital and share premium account
$million

Preference share capital and share premium account
$million

Capital and merger reserves¹
$million

Own credit adjustment reserve
$million

Fair value through other compre-hensive income reserve - debt
$million

Fair value through other compre-hensive income reserve - equity
$million

Cash flow hedge reserve
$million

Translation reserve
$million

Retained earnings
$million

Parent company share-holders' equity
$million

Other equity instru-ments
$million

Non-controlling interests
$million

Total
$million

As at 1 January 2021

5,564

1,494

17,207

(52)

529

148

(52)

(5,092)

26,140

45,886

4,518

325

50,729

Profit for the period

-

-

-

-

-

-

-

-

1,914

1,914

-

14

1,928

Other comprehensive (loss)/income

-

-

-

(1)

(282)

142

14

(302)

106²

(323)

-

2

(321)

Distributions

-

-

-

-

-

-

-

-

-

-

-

(12)

(12)

Other equity instruments issued,
net of expenses

-

-

-

-

-

-

-

-

-

-

1,239

-

1,239

Treasury shares net movement

-

-

-

-

-

-

-

-

(80)

(80)

-

-

(80)

Share option expenses

-

-

-

-

-

-

-

-

88

88

-

-

88

Dividends on ordinary shares

-

-

-

-

-

-

-

-

(282)

(282)

-

-

(282)

Dividends on preference shares and
AT1 securities

-

-

-

-

-

-

-

-

(196)

(196)

-

-

(196)

Share buy-back3

(19)

-

19

-

-

-

-

-

(255)

(255)

-

-

(255)

Other movements

3

-

-

-

-

-

-

-

(3)

-

-

19⁴

19

As at 30 June 2021

5,548

1,494

17,226

(53)

247

290

(38)

(5,394)

27,432

46,752

5,757

348

52,857

Profit/(loss) for the period

-

-

-

-

-

-

-

-

401

401

-

(16)

385

Other comprehensive income/(loss)

-

-

-

38

(144)

(41)

4

(360)

69²

(434)

-

(17)

(451)

Distributions

-

-

-

-

-

-

-

-

-

-

-

(19)

(19)

Other equity instruments issued,
net of expenses

-

-

-

-

-

-

-

-

-

-

1,489

-

1,489

Redemption of other equity instruments

-

-

-

-

-

-

-

-

(51)

(51)

(992)

-

(1,043)

Treasury shares net movement

-

-

-

-

-

-

-

-

(155)

(155)

-

-

(155)

Share option expenses

-

-

-

-

-

-

-

-

59

59

-

-

59

Dividends on ordinary shares

-

-

-

-

-

-

-

-

(92)

(92)

-

-

(92)

Dividends on preference shares and
AT1 securities

-

-

-

-

-

-

-

-

(214)

(214)

-

-

(214)

Share buy-back5

(20)

-

20

-

-

-

-

-

(251)

(251)

-

-

(251)

Other movements

-

-

-

-

-

-

-

10

(14)⁶

(4)

-

75⁷

71

As at 31 December 2021

5,528

1,494

17,246

(15)

103

249

(34)

(5,744)

27,184

46,011

6,254

371

52,636

Profit/(loss) for the period

-

-

-

-

-

-

-

-

2,089

2,089

-

(1)

2,088

Other comprehensive income/(loss)

-

-

-

115

(1,261)

(43)

(441)

(1,382)

72²

(2,940)

-

(31)

(2,971)

Distributions

-

-

-

-

-

-

-

-

-

-

-

(26)

(26)

Redemption of other equity instruments

-

-

-

-

-

-

-

-

-

-

(990)

-

(990)

Treasury shares net movement

-

-

-

-

-

-

-

-

11

11

-

-

11

Share option expenses

-

-

-

-

-

-

-

-

104

104

-

-

104

Dividends on ordinary shares

-

-

-

-

-

-

-

-

(274)

(274)

-

-

(274)

Dividends on preference shares and
AT1 securities

-

-

-

-

-

-

-

-

(216)

(216)

-

-

(216)

Share buy-back8

(56)

-

56

-

-

-

-

-

(754)

(754)

-

-

(754)

Other movements

-

-

-

-

-

-

-

(12)

35⁹

23

-

61¹⁰

84

As at 30 June 2022

5,472

1,494

17,302

100

(1,158)

206

(475)

(7,138)

28,251

44,054

5,264

374

49,692

1  Includes capital reserve of $5 million, capital redemption reserve of $186 million and merger reserve of $17,111 million

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

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

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

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

6  Movement related to Translation adjustment and AT1 securities charges

7  Movements related to non-controlling interest from Mox Bank Limited ($2 million), Trust Bank Singapore Limited ($70 million) and Zodia Markets Holdings Limited
($3 million)

8  On 18 February 2022, the Group announced the buy-back programme for a share buy-back of its ordinary shares of $0.50 each. Nominal value of share purchases was $56 million, and the total consideration paid was $754 million (including $4 million of fees and stamp duty), the buy-back completed on 19 May 2022. The total number of shares purchased was 111,295,408, representing 3.61 per cent of the ordinary shares in issue. The nominal value of the shares was transferred from the share capital to the capital redemption reserve account.

9  Movements related to $21 million NCI on Power2SME Pte Limited and $12 million translation adjustment

10   Movements related to non-controlling interest from Mox Bank Limited ($29 million), Trust Bank Singapore Limited ($23 million) and Power2SME Pte Limited ($9 million)

Note 25 includes a description of each reserve.

The notes form an integral part of these financial statements.

 Page 70

Condensed consolidated interim cash flow statement

For the six months ended 30 June 2022


Notes

6 months ended 30.06.22
$million

6 months ended 30.06.21
$million

Cash flows from operating activities:




Profit before taxation


2,772

2,559

Adjustments for non-cash items and other adjustments included within income statement

31

700

593

Change in operating assets

31

(24,285)

(7,031)

Change in operating liabilities

31

26,042

5,403

Contributions to defined benefit schemes


(15)

(20)

UK and overseas taxes paid


(252)

(534)

Net cash from /(used in) operating activities


4,962

970

Cash flows from investing activities:




Internally generated capitalised software

16

(486)

(416)

Purchase of property, plant and equipment

17

(553)

(185)

Disposal of property, plant and equipment

17

139

355

Disposal of held for sale property, plant and equipment

20

79

140

Acquisition of investment in subsidiaries, associates, and joint ventures, net of cash acquired

19

(4)

(4)

Dividends received from associates and joint ventures

19

58

38

Purchase of investment securities


(145,272)

(157,290)

Disposal and maturity of investment securities


135,373

159,859

Net cash (used in)/from investing activities


(10,666)

2,497

Cash flows from financing activities:




Exercise of share options


11

5

Purchase of own shares


-

(85)

Cancellation of shares including share buy-back


(754)

(255)

Premises and equipment lease liability principal payment


(164)

(253)

Issue of Additional Tier 1 capital, net of expenses

25

-

1,239

Redemption of Tier 1 capital

25

(990)

-

Gross proceeds from issue of subordinated liabilities

31

750

1,186

Interest paid on subordinated liabilities

31

(310)

(293)

Repayment of subordinated liabilities

31

(1,048)

(530)

Proceeds from issue of senior debts

31

6,511

8,276

Repayment of senior debts

31

(3,618)

(4,865)

Interest paid on senior debts

31

(487)

(366)

Net cash inflow due to non-controlling interest


82

19

Dividends paid to non-controlling interests, preference shareholders and AT1 securities


(242)

(208)

Dividends paid to ordinary shareholders


(274)

(282)

Net cash (used in)/from financing activities


(533)

3,588

Net (decrease) /increase in cash and cash equivalents


(6,237)

7,055

Cash and cash equivalents at beginning of the period


99,605

97,874

Effect of exchange rate movements on cash and cash equivalents


(2,553)

(769)

Cash and cash equivalents at end of the period¹


90,815

104,160

1  Comprises cash and balances at central banks $67,005 million (30 June 2021: $72,985 million), treasury bills and other eligible bills $12,826 million (30 June 2021: $11,085 million), loans and advances to banks $21,195 million (30 June 2021: $27,600 million), trading securities $1,062 million (30 June 2021: $2,265 million) less restricted balances $11,273 million (30 June 2021: $9,775 million)

Interest received was $6,043 million (30 June 2021: $5,343 million), interest paid was $1,878 million (30 June 2021: $1,762 million).

 

 

 

 

 

 

Page 71

Contents - Notes to the financial statements

Section

Note

Name of Notes

Basis of preparation

1

Accounting policies

Performance/return

2

Segmental information


3

Net interest income


4

Net fees and commission


5

Net trading income


6

Other operating income


7

Operating expenses


8

Credit impairment


9

Goodwill, property, plant and equipment and other impairment


10

Taxation


11

Dividends


12

Earnings per ordinary share

Assets and liabilities held at fair value

13

Financial instruments


14

Derivative financial instruments

Financial instruments held at amortised cost

15

Reverse repurchase and repurchase agreements including other similar lending and borrowing

Other assets and investments

16

Goodwill and intangible assets


17

Property, plant and equipment


18

Other assets


19

Investment in associates and joint ventures


20

Assets held for sale and associated liabilities

Funding, accruals, provisions, contingent liabilities and legal proceedings

21

Other liabilities

22

Contingent liabilities and commitments

23

Legal and regulatory matters

Capital instruments, equity and reserves

24

Subordinated liabilities and other borrowed funds


25

Share capital, other equity instruments and reserves

Employee benefits

26

Retirement benefit obligations

Other disclosure matters

27

Related party transactions


28

Post balance sheet events


29

Corporate governance


30

Statutory accounts


31

Cash flow statement

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Page 72

Notes to the financial statements

1. Accounting policies

Statement of compliance

The Group's condensed consolidated interim financial statements consolidate those of Standard Chartered PLC (the Company) and its subsidiaries (together referred to as the Group) and equity account the Group's interest in associates and jointly controlled entities.

These interim financial statements have been prepared in accordance with the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority (FCA), with UK-adopted IAS 34 Interim Financial Reporting and with IAS 34 Interim Financial Reporting as adopted by the EU. They should be read in conjunction the 2021 Annual Report, which was prepared in accordance with UK-adopted international accounting standards and International Financial Reporting Standards (IFRS) as adopted by the European Union (EU IFRS).

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

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

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

Basis of preparation

The consolidated financial statements have been prepared on a going concern basis and under the historical cost convention, as modified by the revaluation of cash-settled share-based payments, assets held for sale, fair value through other comprehensive income, and financial assets and liabilities (including derivatives) at fair value through profit or loss. The consolidated financial statements are presented in United States dollars ($), and all values are rounded to the nearest million dollars, except when otherwise indicated. The considerations of the impact of climate risk on the Groups financial report are the same as those applied to the consolidated financial statements as at, and for the year ended 31 December 2021.

Significant accounting estimates and judgements

In determining the carrying amounts of certain assets and liabilities, the Group makes assumptions of the effects of uncertain future events on those assets and liabilities at the balance sheet date. The Group's estimates and assumptions are based on historical experience and expectation of future events and are reviewed periodically. The significant judgements made by management in applying the Group's accounting policies and key sources of uncertainty were the same as those applied to the consolidated financial statements as at, and for the year ended 31 December 2021 , except for revenue recognition within Net fees and commissions for bancassurance contracts as detailed below. Summaries of the Group's significant accounting policies are included throughout the 2021 Annual Report.

Note 4 Net fees and commission

IFRS and Hong Kong accounting requirements

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

Comparatives

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

Note 2 Segmental information

Note 4 Net fees and commission

Note 13 Financial instruments

Risk review: Tables marked as 'reviewed' disaggregating Credit Risk information by client segment have been restated following the Group's change in organisational structure that came into effect on 1 January 2022

Risk review: Credit quality by industry

Page 73

 

New accounting standards in issue but not yet effective

IFRS 17 Insurance Contracts

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

Going concern

These interim financial statements were approved by the Board of Directors on 29 July 2022. The directors have made an assessment of the Group's ability to continue as a going concern. This assessment has been made having considered the impact of COVID-19, macroeconomic and geopolitical headwinds, including:

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

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

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

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

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

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

A detailed review of all principal and emerging risks

Based on the analysis performed, the directors confirm they are satisfied that the Group has adequate resources to continue in business for the period from 29 July 2022 to 29 July 2023. For this reason, the Group continues to adopt the going concern basis of accounting for preparing the financial statements.

2. Segmental information

Basis of preparation

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

 

 

 

 

Page 74

 

Segments and regions

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

As part of the ongoing execution of its refreshed strategy, the Group has expanded and reorganised its reporting structure with the creation of a third client segment, Ventures, effective on 1st January 2022. Ventures is a consolidation of SC Ventures and its related entities as well as the Group's two majority-owned digital banks Mox in Hong Kong and Trust in Singapore.

SC Ventures is the platform and catalyst for the Group to promote innovation, invest in disruptive financial technology and explore alternative business models and was previously reported in Central & other items (segment)

Mox, a cloud-native, mobile only digital bank, was launched in Hong Kong as a joint venture with HKT, PCCW and Trip.com in September 2020

Trust in Singapore, in partnership with NTUC Enterprise, is the Group's second separately licensed digital bank in Asia, after Mox, with go-live planned for later this year

The changes above require comparative periods to be restated.

Restructuring items excluded from underlying results

The Group's statutory IFRS performance is adjusted for certain items to arrive at alternative performance measures. These items include profits or losses of a capital nature, amounts consequent to investment transactions driven by strategic intent, other infrequent and/or exceptional transactions that are significant or material in the context of the Group's normal business earnings for the period and items which management and investors would ordinarily identify separately when assessing consistent performance period by period. The alternative performance measures are not within the scope of IFRS and not a substitute for IFRS measures. These adjustments are set out below.

Restructuring charges of $45 million primarily relate to redundancies partly offset by income from the Principal Finance and Ship Leasing portfolios.

The Group has announced the exit of seven markets in the AME region and will focus solely on the CCIB segment in two more. It is expected that the results from the markets and businesses being exited will be reported in restructuring by the end of 2022

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

Profit before taxation (PBT)


6 months ended 30.06.22

Underlying
$million

Restructuring
$million

Statutory
$million

Operating income

8,200

25

8,225

Operating expenses

(5,267)

(61)

(5,328)

Operating profit/(loss) before impairment losses and taxation

2,933

(36)

2,897

Credit impairment

(267)

4

(263)

Other impairment

(2)

(13)

(15)

Profit from associates and joint ventures

153

-

153

Profit/(loss) before taxation

2,817

(45)

2,772

 


6 months ended  30.06.21

Underlying
$million

Restructuring
$million

Statutory
$million

Operating income

7,618

10

7,628

Operating expenses

(5,092)

(129)

(5,221)

Operating profit/(loss) before impairment losses and taxation

2,526

(119)

2,407

Credit impairment

47

4

51

Other impairment

(25)

(15)

(40)

Profit from associates and joint ventures

134

7

141

Profit/(loss) before taxation

2,682

(123)

2,559

 

 

 

Page 75

 

Underlying performance by client segment


6 months ended 30.06.22

Corporate, Commercial & Institutional Banking
$million

Consumer, Private & Business Banking
$million

Ventures
$million

Central &
other items
$million

Total
$million

Operating income

4,877

2,871

5

447

8,200

External

4,581

2,612

5

1,002

8,200

Inter-segment

296

259

-

(555)

-

Operating expenses

(2,714)

(2,071)

(146)

(336)

(5,267)

Operating profit/(loss) before impairment losses and taxation

2,163

800

(141)

111

2,933

Credit impairment

(196)

(79)

(3)

11

(267)

Other impairment

-

(1)

-

(1)

(2)

Profit/(loss) from associates and joint ventures

-

-

(7)

160

153

Underlying profit/(loss) before taxation

1,967

720

(151)

281

2,817

Restructuring

(4)

(21)

(1)

(19)

(45)

Statutory profit/(loss) before taxation

1,963

699

(152)

262

2,772

Total assets

427,483

134,979

1,371

272,084

835,917

Of which: loans and advances to customers2

192,439

132,275

342

29,418

354,474

loans and advances to customers

134,154

132,233

342

26,779

293,508

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

58,285

42

-

2,639

60,966

Total liabilities

500,400

179,637

770

105,418

786,225

Of which: customer accounts2

321,517

175,747

689

9,058

507,011

 


6 months ended 30.06.21 (Restated)¹

Corporate, Commercial & Institutional Banking¹
$million

Consumer, Private & Business Banking¹
$million

Ventures¹
$million

Central &
other items¹
$million

Total
$million

Operating income

4,292

2,971

(3)

358

7,618

External

4,087

2,775

(3)

759

7,618

Inter-segment

205

196

-

(401)

-

Operating expenses

(2,582)

(2,025)

(118)

(367)

(5,092)

Operating profit/(loss) before impairment losses and taxation

1,710

946

(121)

(9)

2,526

Credit impairment

136

(93)

-

4

47

Other impairment

(25)

-

-

-

(25)

Profit/(loss) from associates and joint ventures

-

-

(2)

136

134

Underlying profit/(loss) before taxation

1,821

853

(123)

131

2,682

Restructuring

(38)

(22)

-

(63)

(123)

Statutory profit/(loss) before taxation

1,783

831

(123)

68

2,559

Total assets

387,542

137,190

624

270,554

795,910

Of which: loans and advances to customers2

197,732

134,281

10

23,153

355,176

loans and advances to customers

141,205

134,182

10

22,606

298,003

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

56,527

99

-

547

57,173

Total liabilities

452,449

179,249

757

110,598

743,053

Of which: customer accounts2

307,619

174,862

695

8,416

491,592

1 Following the increased strategic importance and reporting of Ventures to management, this has been established as a separate operating segment from 1 January 2022. Prior period has been restated

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

 

 

 

 

 

 

Page 76

Operating income by client segment


6 months ended 30.06.22

Corporate, Commercial & Institutional Banking
$million

Consumer Private & Business Banking
$million

Ventures
$million

Central &
other items (segment)
$million

Total
$million

Underlying operating income

4,877

2,871

5

447

8,200

Restructuring

25

-

-

-

25

Statutory operating income

4,902

2,871

5

447

8,225

 


6 months ended 30.06.21 (Restated)¹

Corporate, Commercial & Institutional Banking1
$million

Consumer Private & Business Banking1
$million

Ventures
$million

Central &
other items (segment)
$million

Total
$million

Underlying operating income

4,292

2,971

(3)

358

7,618

Restructuring

12

-

-

(2)

10

Statutory operating income

4,304

2,971

(3)

356

7,628

1 Following the increased strategic importance and reporting of Ventures to management, this has been established as a separate operating segment from 1 January 2022. Prior period has been restated

Underlying performance by region


6 months ended 30.06.22

Asia
$million

 Africa &
Middle East
$million

Europe &
Americas
$million

Central &
other items
$million

Total
$million

Operating income

5,522

1,291

1,445

(58)

8,200

Operating expenses

(3,417)

(808)

(771)

(271)

(5,267)

Operating profit/(loss) before impairment losses
and taxation

2,105

483

674

(329)

2,933

Credit impairment

(398)

99

29

3

(267)

Other impairment

(2)

(1)

1

-

(2)

Profit/(loss) from associates and joint ventures

157

-

-

(4)

153

Underlying profit/(loss) before taxation

1,862

581

704

(330)

2,817

Restructuring

(19)

(7)

(6)

(13)

(45)

Statutory profit/(loss) before taxation

1,843

574

698

(343)

2,772

Total assets

477,485

57,859

291,264

9,309

835,917

Of which: loans and advances to customers1

259,484

28,003

66,987

-

354,474

loans and advances to customers

243,169

26,656

23,683

-

293,508

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

16,315

1,347

43,304

-

60,966

Total liabilities

431,424

42,672

243,877

68,252

786,225

Of which: customer accounts1

332,705

33,480

140,826

-

507,011

 


6 months ended 30.06.21

Asia
$million

 Africa &
Middle East
$million

Europe &
Americas
$million

Central &
other items
$million

Total
$million

Operating income

5,463

1,250

993

(88)

7,618

Operating expenses

(3,298)

(815)

(725)

(254)

(5,092)

Operating profit/(loss) before impairment losses
and taxation

2,165

435

268

(342)

2,526

Credit impairment

(47)

40

62

(8)

47

Other impairment

(15)

-

7

(17)

(25)

Profit/(loss) from associates and joint ventures

136

-

-

(2)

134

Underlying profit/(loss) before taxation

2,239

475

337

(369)

2,682

Restructuring

(27)

(3)

(20)

(73)

(123)

Statutory profit/(loss) before taxation

2,212

472

317

(442)

2,559

Total assets

467,933

57,797

261,041

9,139

795,910

Of which: loans and advances to customers1

255,630

29,825

69,721

-

355,176

loans and advances to customers

240,297

27,256

30,450

-

298,003

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

15,333

2,569

39,271

-

57,173

Total liabilities

418,583

39,464

213,713

71,293

743,053

Of which: customer accounts1

334,639

32,847

124,106

-

491,592

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

Page 77

Operating income by region


6 months ended 30.06.22

Asia
$million

 Africa &
Middle East
$million

Europe &
Americas
$million

Central &
other items
$million

Total
$million

Underlying operating income

5,522

1,291

1,445

(58)

8,200

Restructuring

10

1

(1)

15

25

Statutory operating income

5,532

1,292

1,444

(43)

8,225

 


6 months ended 30.06.21

Asia1
$million

 Africa &
Middle East
$million

Europe &
Americas
$million

Central &
other items
$million

Total
$million

Underlying operating income

5,463

1,250

993

(88)

7,618

Restructuring

25

2

-

(17)

10

Statutory operating income

5,488

1,252

993

(105)

7,628

Additional segmental information (statutory)


6 months ended 30.06.22

Corporate, Commercial & Institutional Banking
$million

Consumer Private & Business Banking
$million

Ventures
$million

Central &
other items (segment)
$million

Total
$million

Net interest income

1,579

1,735

4

320

3,638

Net fees and commission income

788

868

3

5

1,664

Net trading and other income

2,535

268

(2)

122

2,923

Operating income

4,902

2,871

5

447

8,225

 


6 months ended 30.06.21 (Restated)¹

Corporate, Commercial & Institutional Banking1
$million

Consumer Private & Business Banking1
$million

Ventures1
$million

Central &
other items (segment)
$million

Total
$million

Net interest income

1,596

1,611

(2)

165

3,370

Net fees and commission income

882

1,078

-

(21)

1,939

Net trading and other income

1,826

282

(1)

212

2,319

Operating income

4,304

2,971

(3)

356

7,628

1 Following the increased strategic importance and reporting of Ventures to management, this has been established as a separate operating segment from 1 January 2022. Prior period has been restated


6 months ended 30.06.22

Asia
$million

Africa &
Middle East
$million

Europe &
Americas
$million

Central &
other items
$million

Total
$million

Net interest income

2,668

577

357

36

3,638

Net fees and commission income

1,167

271

301

(75)

1,664

Net trading and other income

1,697

444

786

(4)

2,923

Operating income

5,532

1,292

1,444

(43)

8,225

 


6 months ended 30.06.21

Asia
$million

Africa &
Middle East
$million

Europe &
Americas
$million

Central &
other items
$million

Total
$million

Net interest income

2,549

585

233

3

3,370

Net fees and commission income

1,464

310

256

(91)

1,939

Net trading and other income

1,475

357

504

(17)

2,319

Operating income

5,488

1,252

993

(105)

7,628

 

 

 

 

Page 78

 


6 months ended 30.06.22

Hong Kong
$million

Korea
$million

China
$million

Taiwan
$million

Singapore
$million

India
$million

Indonesia
$million

UAE
$million

UK
$million

US
$million

Net interest income

819

384

273

92

407

315

43

109

122

189

Net fees and commission income

307

89

75

86

307

135

30

53

42

198

Net trading and
other income

620

138

251

58

161

227

38

143

609

145

Operating income

1,746

611

599

236

875

677

111

305

773

532

 


6 months ended 30.06.21

Hong Kong
$million

Korea
$million

China
$million

Taiwan
$million

Singapore
$million

India
$million

Indonesia
$million

UAE
$million

UK
$million

US
$million

Net interest income

702

365

305

88

369

317

45

109

101

89

Net fees and commission income

465

124

111

113

353

128

26

45

28

170

Net trading and
other income

696

99

153

57

94

168

38

122

355

130

Operating income

1,863

588

569

258

816

613

109

276

484

389

3. Net interest income


6 months ended 30.06.22
$million

6 months ended 30.06.21
$million

Balances at central banks

146

42

Loans and advances to banks

326

247

Loans and advances to customers

3,962

3,665¹

Debt securities

1,080

904

Other eligible bills

206

149

Accrued on impaired assets (discount unwind)

65

115

Interest income

5,785

5,122

Of which: financial instruments held at fair value through other comprehensive income

833

783




Deposits by banks

92

74

Customer accounts

1,438

1,121

Debt securities in issue

347

284

Subordinated liabilities and other borrowed funds

247

246

Interest expense on IFRS 16 lease liabilities

23

27

Interest expense

2,147

1,752

Net interest income

3,638

3,370

1 Includes a $73 million adjustment in relation to interest earned on impaired assets as required by IFRS9 Financial Instruments: Recognition and Measurement

 

 

 

 

 

 

 

 

Page 79

 

4. Net fees and commission

Significant accounting estimates and judgements

Included within one of our bancassurance contracts is an annual performance bonus that is only received if an annual performance sales target is met.  In applying the accounting policy on revenue recognition, management have made the judgement that it is highly probable that the annual target will be met.

This judgement is based on management's forecast analysis of performance against the bonus targets. This analysis is a significant estimate which includes assumptions based on historical actual performance and projected future sales initiatives expected to increase sales volumes over time.


6 months ended 30.06.22
$million

6 months ended 30.06.21
$million

Fees and commissions income

2,023

2,300

Of which:



Financial instruments that are not fair valued through profit or loss

650

660

Trust and other fiduciary activities

284

385




Fees and commissions expense

(359)

(361)

Of which:



Financial instruments that are not fair valued through profit or loss

(114)

(104)

Trust and other fiduciary activities

(24)

(23)

Net fees and commission

1,664

1,939

 


6 months ended 30.06.22

Corporate, Commercial & Institutional Banking
$million

Consumer Private & Business Banking
$million

Ventures
$million

Central &
other Items (Segment)
$million

Total
$million

Transaction Banking

558

16

-

-

574

Trade & Working Capital2

299

13

-

-

312

Cash Management

259

3

-

-

262

Financial Markets

178

-

-

-

178

Lending & Portfolio Management2

52

3

-

-

55

Wealth Management

-

658

-

-

658

Retail Products

-

191

2

-

193

Treasury

-

-

-

(20)

(20)

Others

-

-

1

25

26

Net fees and commission

788

868

3

5

1,664

 


6 months ended 30.06.21 (Restated)¹

Corporate, Commercial & Institutional Banking
$million

Consumer Private & Business Banking1
$million

Ventures1
$million

Central &
other Items (Segment)
$million

Total
$million

Transaction Banking

547

20

-

-

567

Trade & Working Capital2

298

14

-

-

312

Cash Management

249

6

-

-

255

Financial Markets

268

-

-

-

268

Lending & Portfolio Management2

66

1

-

-

67

Wealth Management

1

849

-

-

850

Retail Products

-

208

(1)

-

207

Treasury

-

-

-

(19)

(19)

Others

-

-

1

(2)

(1)

Net fees and commission

882

1,078

-

(21)

1,939

1 Following the increased strategic importance and reporting of Ventures to management, this has been established as a separate operating segment from 1 January 2022. Prior period has been restated

2 Following a reorganisation, there has been a reclassification of balances from Lending & Portfolio Management into Trade & Working Capital including prior period numbers. Prior periods have been re-presented and there is no change in the total income

 

 

Page 80

 

Upfront bancassurance consideration amounts are amortised on a straight-line basis over the contractual period to which the consideration relates. Deferred income on the balance sheet in respect of these activities is $592 million (30 June 2021: $676 million). The income will be earned evenly over the next 7 years (30 June 2021: 8 years). For the six months ended 30 June 2022, $42 million of fee income was released from deferred income (30 June 2021: $42 million).

For the bancassurance contract with the annual performance bonus, based on progress so far and expectation of meeting the performance targets by year-end with a high probability, a pro-rata portion of the total performance fee, equal to $84 million of the fee has been recognised as fee income in the period.

5. Net trading income


6 months ended 30.06.22
$million

6 months ended 30.06.21
$million

Net trading income

2,679

1,870

Significant items within net trading income include:



Gains on instruments held for trading¹

2,480

1,865

Gains on financial assets mandatorily at fair value through profit or loss

157

81

Losses on financial assets designated at fair value through profit or loss

(6)

(9)

Gains/(losses) on financial liabilities designated at fair value through profit or loss

178

(25)

1 Includes $666 million gain (30 June 2021: $250 million gain) from the translation of foreign currency monetary assets and liabilities

6. Other operating income


6 months ended 30.06.22
$million

6 months ended 30.06.21
$million

Other operating income includes:



Rental income from operating lease assets

203

229

Gains less losses on disposal of fair value through other comprehensive income debt instruments

12

153

Gains less losses on amortised cost financial assets

2

8

Dividend income

6

7

Gain on sale of aircrafts

6

23

Other

15

29

Other operating income

244

449

7. Operating expenses


6 months ended 30.06.22
$million

6 months ended 30.06.21
$million

Staff costs:



Wages and salaries

2,963

2,914

Social security costs

115

103

Other pension costs (Note 26)

195

199

Share-based payment costs

122

99

Other staff costs

458

471


3,853

3,786

Other staff costs include redundancy expenses of $24 million (30 June 2021: $43 million). Further costs in this category include training, travel costs and other staff-related costs.

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


Business

Support
services

Total

At 30 June 2022

31,436

51,797

83,233

At 31 December 2021¹

30,940

51,017

81,957

The Company employed nil staff at 30 June 2022 (30 June 2021: nil) and it incurred costs of nil (30 June 2021: nil).

 

 

Page 81

 


6 months ended 30.06.22
$million

6 months ended 30.06.21
$million

Premises and equipment expenses:

197

184




General administrative expenses:



Other general administrative expenses

686

655


686

655




Depreciation and amortisation:



Property, plant and equipment:



Premises

161

188

Equipment

64

60

Operating lease assets

105

112


330

360

Intangibles:



Software

260

233

Acquired on business combinations

2

3


592

596

Total operating expenses

5,328

5,221

Operating expenses include research expenditure of $408 million (30 June 2021: $376 million), which was recognised as an expense in the period.

8. Credit impairment


6 months ended 30.06.22
$million

6 months ended 30.06.21
$million

Net credit impairment on loans and advances to banks and customers

278

(6)

Net credit impairment on debt securities

(1)

6

Net credit impairment relating to financial guarantees and loan commitments

(14)

(51)

Credit impairment1

263

(51)

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

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


6 months ended 30.06.22
$million

6 months ended 30.06.21
$million

Impairment of goodwill (Note 16)

-

-




Impairment of property, plant and equipment (Note 17)

(1)

47

Impairment of other intangible assets (Note 16)

1

-

Other

15

(7)

Property, plant and equipment and other impairment

15

40

Goodwill, property, plant and equipment and other impairment

15

40

 

 

 

 

 

 

 

 

Page 82

 

10. Taxation

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


6 months ended 30.06.22
$million

6 months ended 30.06.21
$million

The charge for taxation based upon the profit for the period comprises:



Current tax:



United Kingdom corporation tax at 19 per cent (2021:19 per cent):



Current tax charge on income for the period

-

-

Adjustments in respect of prior periods (including double tax relief)

-

2

Foreign tax:



Current tax charge on income for the period

578

497

Adjustments in respect of prior periods

(6)

(34)


572

465

Deferred tax:



Origination/reversal of temporary differences

113

167

Adjustments in respect of prior periods

(1)

(1)


112

166

Tax on profits on ordinary activities

684

631

Effective tax rate

24.7%

24.7%

The tax charge for the period has been calculated by applying the effective rate of tax which is expected to apply for the year ending 31 December 2022 using rates substantively enacted at 30 June 2022. The rate has been calculated by estimating and applying an average annual effective income tax rate to each tax jurisdiction individually.

The tax charge for the period of $684 million (30 June 2021: $631 million) on a profit before tax of $2,772 million (30 June 2021: $2,559 million) reflects the impact of countries with tax rates higher or lower than the UK, the most significant of which is India, non-deductible expenses and non-creditable withholding taxes.

Foreign tax includes current tax of $4 million (30 June 2021: $60 million) on the profits assessable in Hong Kong. Deferred tax includes origination or reversal of temporary differences of $36 million (30 June 2021: $35 million) provided at a rate of 16.5 per cent (30 June 2021: 16.5 per cent) on the profits assessable in Hong Kong.

Deferred tax comprises assets and liabilities as follows:


30.06.22

31.12.21

Total
$million

Asset
$million

Liability
$million

Total
$million

Asset
$million

Liability
$million

Deferred tax comprises:







Accelerated tax depreciation

(566)

13

(579)

(515)

18

(533)

Impairment provisions on loans and advances

334

350

(16)

351

389

(38)

Tax losses carried forward

274

138

136

263

172

91

Fair value through other comprehensive income

24

49

(25)

(126)

(22)

(104)

Cash flow hedges

84

65

19

-

(3)

3

Own credit adjustment

(26)

(10)

(16)

(3)

(1)

(2)

Retirement benefit obligations

(1)

13

(14)

27

16

11

Share-based payments

30

2

28

32

-

32

Other temporary differences

(41)

289

(330)

30

290

(260)


112

909

(797)

59

859

(800)

 

 

 

 

 

 

 

Page 83

 

11. Dividends

Ordinary equity shares


6 months ended 30.06.22

6 months ended 31.12.21

6 months ended 30.06.21

Cents per share

$million

Cents per share

$million

Cents per share

$million

2021 / 2020 final dividend declared and
paid during the year

9

274

-

-

9

282

2022 / 2021 interim dividend declared and paid during the year

-

-

3

92

-

-

The 2021 final dividend per share of 9 cents per ordinary share ($274 million) was paid to eligible shareholders on 12 May 2022, and is recognised in these interim accounts.

Interim dividends on ordinary equity shares are recorded in the period in which they are declared and, in respect of the final dividend, have been approved by the shareholders.

2022 recommended interim dividend

The 2022 interim dividend of 4 cents per ordinary share will be paid in pounds sterling, Hong Kong dollars or US dollars on 14 October 2022 to shareholders on the UK register of members at the close of business in the UK on 12 August 2022.

Preference shares and Additional Tier 1 securities

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



6 months ended 30.06.22
$million

6 months ended 31.12.21
$million

6 months ended 30.06.21
$million

Non-cumulative redeemable preference shares:

7.014 per cent preference shares of $5 each

26

27

26


6.409 per cent preference shares of $5 each

6

6

7



32

33

33

Additional Tier 1 securities: fixed rate resetting perpetual subordinated contingent convertible securities

184

181

163



216

214

196

12. Earnings per ordinary share


6 months ended 30.06.22
$million

6 months ended 30.06.21
$million

Profit for the period attributable to equity holders

2,088

1,928

Non-controlling interest

1

(14)

Dividend payable on preference shares and AT1 classified as equity

(216)

(196)

Profit for the period attributable to ordinary shareholders

1,873

1,718




Items normalised:



Restructuring

45

123

Tax on normalised items

(8)

(15)

Underlying profit

1,910

1,826




Basic - Weighted average number of shares (millions)

3,014

3,133

Diluted - Weighted average number of shares (millions)

3,069

3,185




Basic earnings per ordinary share (cents)

62.1

54.8

Diluted earnings per ordinary share (cents)

61.0

53.9

Underlying basic earnings per ordinary share (cents)

63.4

58.3

Underlying diluted earnings per ordinary share (cents)

62.2

57.3

 

 

 

 

Page 84

 

13. Financial instruments

Classification and measurement

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

Assets

Notes

Assets at fair value

Assets
held at amortised cost
$million

Total
$million

Trading
$million

Derivatives held for hedging
$million

Non-trading mandatorily
at fair value through
profit or loss
$million

Designated at fair value through profit or loss
$million

Fair value through other compre-hensive income
$million

Total financial assets at fair value
$million

Cash and balances at central banks


-

-

-

-

-

-

67,005

67,005

Financial assets held at fair value through profit or loss










Loans and advances to banks¹


1,884

-

2,678

-

-

4,562

-

4,562

Loans and advances to customers¹


5,223

-

3,222

-

-

8,445

-

8,445

Reverse repurchase agreements and other similar secured lending

15

528

-

73,870

-

-

74,398

-

74,398

Debt securities, alternative tier one and other eligible bills


27,665

-

646

75

-

28,386

-

28,386

Equity shares


2,105

-

220

-

-

2,325

-

2,325

Other assets

18

-

-

25

-

-

25

-

25



37,405

-

80,661

75

-

118,141

-

118,141

Derivative financial instruments

14

73,448

3,228

-

-

-

76,676

-

76,676

Loans and advances to banks¹


-

-

-

-

-

-

36,201

36,201

Of which: reverse repurchase agreements and other similar secured lending

15

-

-

-

-

-

-

795

795

Loans and advances to customers¹


-

-

-

-

-

-

293,508

293,508

Of which: reverse repurchase agreements and other similar secured lending

15

-

-

-

-

-

-

7,894

7,894

Investment securities










Debt securities, alternative tier one and other eligible bills


-

-

-

-

112,271

112,271

51,866

164,137

Equity shares


-

-

-

-

755

755

-

755



-

-

-

-

113,026

113,026

51,866

164,892

Other assets

18

-

-

-

-

-

-

51,135

51,135

Assets held for sale

20

-

-

-

1

-

1

60

61

Total at 30 June 2022


110,853

3,228

80,661

76

113,026

307,844

499,775

807,619

1 Further analysed in Risk review and Capital review

 

 

 

 

 

 

 

 

 

 

 

 

Page 85

 

Assets

Notes

Assets at fair value

Assets
held at amortised cost
$million

Total
$million

Trading
$million

Derivatives held for hedging
$million

Non-trading mandatorily at fair value through profit or loss
$million

Designated at fair value through profit or loss
$million

Fair value through other compre-hensive income
$million

Total financial assets at fair value
$million

Cash and balances at central banks


-

-

-

-

-

-

72,663

72,663

Financial assets held at fair value through profit or loss










Loans and advances to banks¹


1,491

-

2,356

-

-

3,847

-

3,847

Loans and advances to customers¹


5,813

-

4,140

-

-

9,953

-

9,953

Reverse repurchase agreements and other similar secured lending

15

-

-

80,009

-

-

80,009

-

80,009

Debt securities, alternative tier one and other eligible bills


28,801

-

463

161

-

29,425

-

29,425

Equity shares


5,653

-

208

-

-

5,861

-

5,861

Other assets

18

-

-

26

-

-

26

-

26



41,758

-

87,202

161

-

129,121

-

129,121

Derivative financial instruments

14

51,002

1,443

-

-

-

52,445

-

52,445

Loans and advances to banks¹


-

-

-

-

-

-

44,383

44,383

Of which: reverse repurchase agreements and other similar secured lending

15

-

-

-

-

-

-

1,079

1,079

Loans and advances to customers¹


-

-

-

-

-

-

298,468

298,468

Of which: reverse repurchase agreements and other similar secured lending

15

-

-

-

-

-

-

7,331

7,331

Investment securities










Debt securities, alternative tier one and other eligible bills


-

-

-

-

121,375

121,375

41,325

162,700

Equity shares


-

-

-

-

737

737

-

737



-

-

-

-

122,112

122,112

41,325

163,437

Other assets

18

-

-

-

-

-

-

40,068

40,068

Assets held for sale

20

-

-

-

43

-

43

52

95

Total at 31 December 2021


92,760

1,443

87,202

204

122,112

303,721

496,959

800,680

1 Further analysed in Risk review and Capital review

 

 

 

 

 

 

 

 

 

 

 

 

 

Page 86

 

Liabilities

Notes

Liabilities at fair value

Amortised cost
$million

Total
$million

Trading
$million

Derivatives held for hedging
$million

Designated at fair value through profit or loss
$million

Total financial liabilities at fair value
$million

Financial liabilities held at fair value through profit or loss








Deposits by banks


63

-

1,527

1,590

-

1,590

Customer accounts


98

-

10,937

11,035

-

11,035

Repurchase agreements and other similar
secured borrowing

15

-

-

55,320

55,320

-

55,320

Debt securities in issue


-

-

6,807

6,807

-

6,807

Short positions


8,218

-

-

8,218

-

8,218

Other liabilities


9

-

4

13

-

13



8,388

-

74,595

82,983

-

82,983

Derivative financial instruments

14

73,196

2,901

-

76,097

-

76,097

Deposits by banks


-

-

-

-

31,173

31,173

Customer accounts


-

-

-

-

453,742

453,742

Repurchase agreements and other similar
secured borrowing

15

-

-

-

-

1,723

1,723

Debt securities in issue


-

-

-

-

58,043

58,043

Other liabilities

21

-

-

-

-

60,102

60,102

Subordinated liabilities and other borrowed funds

24

-

-

-

-

14,933

14,933

Total at 30 June 2022


81,584

2,901

74,595

159,080

619,716

778,796

 

Liabilities

Notes

Liabilities at fair value

Amortised cost
$million

Total
$million

Trading
$million

Derivatives held for hedging
$million

Designated at fair value through profit or loss
$million

Total financial liabilities at fair value
$million

Financial liabilities held at fair value through profit or loss








Deposits by banks


-

-

1,352

1,352

-

1,352

Customer accounts


198

-

9,093

9,291

-

9,291

Repurchase agreements and other similar
secured borrowing

15

-

-

62,388

62,388

-

62,388

Debt securities in issue


-

-

5,597

5,597

-

5,597

Short positions


6,562

-

-

6,562

-

6,562

Other liabilities


6

-

1

7

-

7



6,766

-

78,431

85,197

-

85,197

Derivative financial instruments

14

52,706

693

-

53,399

-

53,399

Deposits by banks


-

-

-

-

30,041

30,041

Customer accounts


-

-

-

-

474,570

474,570

Repurchase agreements and other similar
secured borrowing

15

-

-

-

-

3,260

3,260

Debt securities in issue


-

-

-

-

61,293

61,293

Other liabilities

21

-

-

-

-

43,432

43,432

Subordinated liabilities and other borrowed funds

24

-

-

-

-

16,646

16,646

Total at 31 December 2021


59,472

693

78,431

138,596

629,242

767,838

Financial liabilities designated at fair value through profit or loss


30.06.22
$million

31.12.21
$million

Carrying balance aggregate fair value

74,595

78,431

Amount contractually obliged to repay at maturity

75,495

78,691

Difference between aggregate fair value and contractually obliged to repay at maturity

(900)

(260)

Cumulative change in fair value accredited to Credit Risk difference

140

3

The net fair value gain on financial liabilities designated at fair value through profit or loss was $178 million for the half year ended 30 June 2022 (31 December 2021: net loss of $133 million). Further details of the Group's own credit adjustment (OCA) valuation technique is described later in this Note.

 

 

Page 87

Interest rate benchmark reform

The Group previously disclosed its exposures to IBOR benchmarks as of 31 December 2021 (refer to page 348 of the 2021 Annual Report). In the Group's view the change in exposure since this date has not been significant, with USD LIBOR continuing to be the Group's largest exposure for both cash products and derivatives. In the second half of 2022 the Group will continue its efforts to actively transition financial contracts referencing USD LIBOR that mature after 30 June 2023 to the Secured Overnight Financing Rate (SOFR). For bilateral lending products, the plan is to achieve such remediation through bilateral negotiation with clients or, where that is not possible, amending the loan contract by adding a clause agreeing to a robust contractual fallback in advance of the cessation of LIBOR. For syndicated lending products, the remediation approach will largely be determined by the lender syndicate in consultation with the client. The Group will also be looking to achieve remediation of trade assets through bilateral negotiation with clients.

The Group's approach to managing the transition to alternative benchmark rates and risks to which the Group is exposed to due to IBOR transition are substantially the same as they were at 31 December 2021, except that the Group is no longer exposed to GBP, JPY, EUR and CHF LIBORs - please refer to pages 347-348 of the 2021 Annual Report.

Valuation of financial instruments

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

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

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

Significant accounting estimates and judgements

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

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

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

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

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

 

Page 88

 

Valuation techniques

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

Financial instruments held at fair value

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

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

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

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

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

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

 

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Financial instruments held at amortised cost

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

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

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

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

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

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

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

 

 

 

 

 

 

 

 

 

 

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Fair value adjustments

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


01.01.22
$million

Movement during the period
$million

30.06.22
$million

01.01.21
$million

Movement during the period
$million

31.12.21
$million

Bid-offer valuation adjustment

101

16

117

103

(2)

101

Credit valuation adjustment

165

82

247

189

(24)

165

Debit valuation adjustment

(70)

(115)

(185)

(55)

(15)

(70)

Model valuation adjustment

5

(1)

4

5

-

5

Funding valuation adjustment

-

33

33

5

(5)

-

Other fair value adjustments

20

10

30

32

(12)

20

Total

221

25

246

279

(58)

221








Income deferrals







Day 1 and other deferrals

147

(36)

111

138

9

147

Total

147

(36)

111

138

9

147

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

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

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

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

 

 

 

 

 

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

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

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

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

In addition, the Group calculates own credit adjustment (OCA) on its issued debt designated at fair value, including structured notes, in order to reflect changes in its own credit standing. Own issued note liabilities are discounted utilising spreads as at the measurement date. These spreads consist of a market level of funding component and an idiosyncratic own credit component. Under IFRS 9 the change in the OCA component is reported under other comprehensive income. The Group's OCA reserve will increase if its credit standing worsens and, conversely, decrease if its credit standing improves. The Group's OCA reserve will reverse over time as its liabilities mature. The OCA at 30 June 2022 is a gain of $140 million (31 December 2021: $3 million gain).

Fair value hierarchy - financial instruments held at fair value

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

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

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

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

 

 

 

 

 

 

 

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

Assets

Level 1
$million

Level 2
$million

Level 3
$million

Total
$million

Financial instruments held at fair value through profit or loss





Loans and advances to banks

-

4,476

86

4,562

Loans and advances to customers

4

7,456

985

8,445

Reverse repurchase agreements and other similar secured lending

-

72,784

1,614

74,398

Debt securities and other eligible bills

12,714

15,135

537

28,386

Of which:





Issued by central banks & governments

12,254

5,283

-

17,537

Issued by corporates other than financial institutions¹

52

4,087

504

4,643

Issued by financial institutions¹

408

5,765

33

6,206






Equity shares

2,069

11

245

2,325

Derivative financial instruments

1,681

74,891

104

76,676

Of which:





Foreign exchange

130

62,947

62

63,139

Interest rate

24

7,356

20

7,400

Credit

-

2,115

1

2,116

Equity and stock index options

-

210

1

211

Commodity

1,527

2,263

20

3,810






Investment securities





Debt securities and other eligible bills

50,959

61,298

14

112,271

Of which:





Issued by central banks & governments

38,265

23,727

14

62,006

Issued by corporates other than financial institutions¹

1,544

4,164

-

5,708

Issued by financial institutions¹

11,150

33,407

-

44,557






Equity shares

182

6

567

755

Other assets

-

-

25

25

Total financial instruments at 30 June 2022²

67,609

236,057

4,177

307,843






Liabilities





Financial instruments held at fair value through profit or loss





Deposits by banks

-

1,271

319

1,590

Customer accounts

-

10,350

685

11,035

Repurchase agreements and other similar secured borrowing

-

55,320

-

55,320

Debt securities in issue

-

6,162

645

6,807

Short positions

5,154

2,967

97

8,218






Derivative financial instruments

1,636

74,265

196

76,097

Of which:





Foreign exchange

139

59,525

16

59,680

Interest rate

22

9,031

53

9,106

Credit

-

2,695

5

2,700

Equity and stock index options

-

126

122

248

Commodity

1,475

2,888

-

4,363

Other liabilities

-

9

4

13






Total financial instruments at 30 June 2022²

6,790

150,344

1,946

159,080

1 Includes covered bonds of $9,347 million, securities issued by Multilateral Development Banks/International Organisations of $12,830 million and State-owned agencies and development banks of $11,950 million

2  The above table does not include held for sale assets of $1 million and liabilities of $ nil

There were no significant changes to valuation or levelling approaches during the period ended 30 June 2022.

There were no significant transfers of financial assets and liabilities measured at fair value between Level 1 and Level 2 during the period ended 30 June 2022.

 

Page 93

 

Assets

Level 1
$million

Level 2
$million

Level 3
$million

Total
$million

Financial instruments held at fair value through profit or loss





Loans and advances to banks

-

3,838

9

3,847

Loans and advances to customers

-

8,596

1,357

9,953

Reverse repurchase agreements and other similar secured lending

-

78,443

1,566

80,009

Debt securities and other eligible bills

12,057

17,019

349

29,425

Of which:





Issued by central banks & governments

10,731

7,201

-

17,932

Issued by corporates other than financial institutions¹

1

3,750

111

3,862

Issued by financial institutions¹

1,325

6,068

238

7,631






Equity shares

5,637

38

186

5,861

Derivative financial instruments

1,066

51,289

90

52,445

Of which:





Foreign exchange

161

41,577

10

41,748

Interest rate

9

6,314

53

6,376

Credit

-

2,265

24

2,289

Equity and stock index options

-

133

3

136

Commodity

896

1,000

-

1,896






Investment securities





Debt securities and other eligible bills

51,298

70,037

40

121,375

Of which:





Issued by central banks & governments

39,590

24,651

40

64,281

Issued by corporates other than financial institutions¹

-

1,963

-

1,963

Issued by financial institutions¹

11,708

43,423

-

55,131






Equity shares

227

17

493

737

Other Assets

-

-

26

26

Total financial instruments at 31 December 2021²

70,285

229,277

4,116

303,678






Liabilities





Financial instruments held at fair value through profit or loss





Deposits by banks

-

1,069

283

1,352

Customer accounts

-

8,837

454

9,291

Repurchase agreements and other similar secured borrowing

-

62,388

-

62,388

Debt securities in issue

-

4,776

821

5,597

Short positions

4,187

2,375

-

6,562






Derivative financial instruments

949

52,356

94

53,399

Of which:





Foreign exchange

169

41,555

3

41,727

Interest rate

7

6,448

16

6,471

Credit

-

3,084

41

3,125

Equity and stock index options

-

126

34

160

Commodity

773

1,143

-

1,916

Other Liabilities

-

6

1

7






Total financial instruments at 31 December 2021²

5,136

131,807

1,653

138,596

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

2   The above table does not include held for sale assets of $43 million and liabilities of $ nil

 

 

 

 

 

Page 94

Fair value hierarchy - financial instruments measured at amortised cost

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


Carrying value
$million

Fair value

Level 1
$million

Level 2
$million

Level 3
$million

Total
$million

Assets






Cash and balances at central banks¹

67,005

-

67,005

-

67,005

Loans and advances to banks

36,201

-

36,146

32

36,178

Of which: reverse repurchase agreements and other
similar secured lending

795

-

795

-

795

Loans and advances to customers

293,508

-

53,961

239,075

293,036

Of which: reverse repurchase agreements and other
similar secured lending

7,894

-

3,189

4,705

7,894

Investment securities²

51,866

-

50,627

25

50,652

Other assets¹

51,135

-

51,135

-

51,135

Assets held for sale

60

-

-

60

60

At 30 June 2022

499,775

-

258,874

239,192

498,066

Liabilities






Deposits by banks

31,173

-

31,248

-

31,248

Customer accounts

453,742

-

453,691

-

453,691

Repurchase agreements and other similar secured borrowing

1,723

-

1,723

-

1,723

Debt securities in issue

58,043

25,231

32,400

-

57,631

Subordinated liabilities and other borrowed funds

14,933

14,143

68

-

14,211

Other liabilities¹

60,102

-

60,101

1

60,102

At 30 June 2022

619,716

39,374

579,231

1

618,606

 


Carrying value
$million

Fair value

Level 1
$million

Level 2
$million

Level 3
$million

Total
$million

Assets






Cash and balances at central banks¹

72,663

-

72,663

-

72,663

Loans and advances to banks

44,383

-

44,383

-

44,383

Of which: reverse repurchase agreements and other
similar secured lending

1,079

-

1,079

-

1,079

Loans and advances to customers

298,468

-

42,136

256,289

298,425

Of which: reverse repurchase agreements and other
similar secured lending

7,331

-

3,764

3,567

7,331

Investment securities²

41,325

-

41,864

-

41,864

Other assets¹

40,068

-

40,067

1

40,068

Assets held for sale

52

-

-

52

52

At 31 December 2021

496,959

-

241,113

256,342

497,455

Liabilities






Deposits by banks

30,041

-

30,041

-

30,041

Customer accounts

474,570

-

474,645

-

474,645

Repurchase agreements and other similar secured borrowing

3,260

-

3,260

-

3,260

Debt securities in issue

61,293

26,073

35,503

-

61,576

Subordinated liabilities and other borrowed funds

16,646

16,811

519

-

17,330

Other liabilities¹

43,432

-

43,431

1

43,432

At 31 December 2021

629,242

42,884

587,399

1

630,284

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

2 Includes Government bonds and Treasury bills of $17,570 million at 30 June 2022 and $17,153 million at 31 December 2021

 

Page 95



 

Fair value of financial instruments

Level 3 Summary and significant unobservable inputs

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

Instrument

Value as at 30 June 2022


Principal valuation technique

Significant unobservable inputs

Range1

Weighted average2

Assets
$million

Liabilities
$million

Loans and advances to banks

86

-


Discounted cash flows

Price/yield

1.5% - 10.2%

8.4%


Credit spreads

1.0%

Loans and advances to customers

985

-


Discounted cash flows

Price/yield

1.3% - 16.3%

4.6%


Recovery rates

89.8%

Reverse repurchase agreements and other similar secured lending

1,614

-


Discounted cash flows

Repo curve

0.4% - 4.9%

3.1%

Debt securities, alternative tier one and other eligible securities

536

-


Discounted cash flows

Price/yield

3.3% - 12.4%

8.3%


Recovery rates

0.01% - 1.0%

0.2%

Government bonds and treasury bills

14

-


Discounted cash flows

Price/yield

2.7% - 5.5%

3.7%

Asset-backed securities

1

-


Discounted cash flows

Price/yield

5.0%

5.0%

Equity shares (includes private equity investments)

812

-


Comparable pricing/yield

EV/EBITDA multiples

6.1x - 13.3x

7.5x

EV/Revenue multiples

8.7x - 57.6x

24.1x

P/E multiples

12.2x - 21.2x

13.7x

P/B multiples

0.4x - 3.2x

1.2x

P/S multiples

1.8x

1.8x

Liquidity discount

9.3% - 29.5%

14.6%

Discounted cash flows

Discount rates

6.9% - 18.1%

8.7%

Option pricing model

Equity value based on EV/Revenue multiples

1.3x - 87.0x

15.8x

Equity value based on volatility

60.0% - 70.0%

66.8%

Internal pricing model

Equity correlation

15.0%-99.0%

69.0%


Equity-FX correlation

(70.0%)-85.0%

(21.0)%

Other Assets

25

-


NAV

N/A

N/A

N/A

Derivative financial instruments of which:








Foreign exchange

62

16


Option pricing model

Foreign exchange option implied volatility

5.9% - 15.4%

7.2%

Discounted cash flows

Foreign exchange curves

(15.8%) - 39.3%

0.9%

Interest rate

20

53


Discounted cash flows

Interest rate curves

(15.8%) - 15.3%

0.1%

Option pricing model

Bond option implied volatility

20.0%

20.0%

Credit

1

5


Discounted cash flows

Credit spreads

0.1% - 4.5%

1.4%

Price/yield

5.1% - 14.6%

8.9%

Commodities

20



Internal pricing model

CM-CM correlation

92.7%

92.7%

Equity and stock index

1

122


Internal pricing model

Equity correlation

15.0% - 99.0%

69.0%

Equity-FX correlation

(70.0)% - 85.0%

(21.0)%

Deposits by banks

-

319


Discounted cash flows

Credit spreads

0.3% - 3.7%

2.0%

Price/yield

N/A

N/A

Customer accounts

-

685


Discounted cash flows

Credit spreads

1.0% - 2.4%

1.0%

Interest rate curves

27.8% - 39.3%

31.0%

Price/yield

6.7% - 18.1%

14.8%

Internal pricing model

Equity correlation

15.0% - 99.0%

69.0%

Equity-FX correlation

(70.0)% - 85.0%

(21.0)%

Debt securities in issue

-

645


Discounted cash flows

Credit spreads

0.5% - 2.4%

1.1%

Price/yield

6.9% - 13.7%

10.5%

Internal pricing model

Equity correlation

15.0% - 99.0%

69.0%

Equity-Fx correlation

(70.0)% - 85.0%

(21.0)%

Short positions

-

97


Discounted cash flows

Price/yield

7.7% - 7.7%

7.7%

Other Liabilities

-

4


Comparable pricing/yield

EV/EBITDA multiples

3.14x - 9.41x

6.32x

Total

4,177

1,946






1 The ranges of values shown in the above table represent the highest and lowest levels used in the valuation of the Group's Level 3 financial instruments as at
30 June 2022. The ranges of values used are reflective of the underlying characteristics of these Level 3 financial instruments based on the market conditions at the balance sheet date. However, these ranges of values may not represent the uncertainty in fair value measurements of the Group's Level 3 financial instruments

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

Page 96

Instrument

Value as at
31 December 2021


Principal valuation technique

Significant unobservable inputs

Range1

Weighted average²

Assets
$million

Liabilities
$million

Loans and advances to banks

9

-


Discounted cash flows

Recovery rates

87.3%-100%

93.6%

Loans and advances to customers

1,357

-


Discounted cash flows

Price/yield

0.2% - 11.8%

3.1%

Recovery rates

10.6% - 100%

87.8%

Reverse repurchase agreements and other similar secured lending

1,566

-


Discounted cash flows

Repo curve

0.3%-3.0%

2.4%

Debt securities, alternative tier one and other eligible securities

349

-


Discounted cash flows

Price/yield

5.1% - 12.4%

7.5%

Recovery rates

0.01% - 1.0%

0.2%

Government bonds and treasury bills

40

-


Discounted cash flows

Price/yield

2.7% - 5.5%

3.7%

Asset-backed securities

-

-


Discounted cash flows

Price/yield

N/A

N/A

Equity shares (includes private equity investments)

679

-


Comparable pricing/yield

EV/EBITDA multiples

6.1x-15.3x

8.6x

EV/Revenue multiples

10.1x

10.1x

P/E multiples

12.6x-25.3x

14.9x

P/B multiples

0.4x-3.3x

1.4x

P/S multiples

1.8x-2.6x

1.8x

Liquidity discount

7.9%-29.2%

16.5%

Discounted cash flows

Discount rates

6.0%-17.4%

8.6%

Option pricing model

EV/Revenue multiples

4.0x-85.5x

12.1x

Volatility

55.0%-65.0%

60.3%

Other Assets

26

-


NAV

N/A

N/A

N/A

Derivative financial instruments of which:








Foreign exchange

10

3


Option pricing model

Foreign exchange option implied volatility

3.1% - 6.1%

5.1%

Discounted cash flows

Foreign exchange curves

(16.4)% - 57.3%

9.0%

Interest rate

53

16


Discounted cash flows

Interest rate curves

(16.4)%-18.8%

5.0%


Option pricing model

Bond option implied volatility

N/A

N/A

Credit

24

41


Discounted cash flows

Credit spreads

0.1%-11.5%

1.0%

Price/yield

5.9% -7.3%

6.6%

Equity and stock index

3

34


Internal pricing model

Equity correlation

8.0% - 96.0%

70.0%

Equity-FX correlation

(70.0)%-85.0%

(33.0)%

Deposits by banks

-

283


Discounted cash flows

Credit spreads

0.4% - 3.0%

1.4%

Price/yield

6.8%-8.3%

7.5%

Customer accounts

-

454


Discounted cash flows

Credit spreads

1.0% - 2.0%

1.2%

Interest rate curves

0.9%-5.6%

4.7%

Price/yield

8.9%-12.1%

10.1%

Debt securities in issue

-

821


Discounted cash flows

Credit spreads

0.9%-2.2%

1.0%

Interest rate curves

0.9% - 5.6%

4.9%

Internal pricing model

Equity correlation

8.0% - 96.0%

70.0%

Equity-FX correlation

(70.0)%-85.0%

(33.0)%

Short positions

-

-


N/A

N/A

N/A

N/A

Other Liabilities

-

1


Comparable pricing/yield

EV/EBITDA multiples

3.07x-9.95x

6.84x

Total

4,116

1,653






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

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

 

 

 

 

 

Page 97

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

 

Page 98

Level 3 movement tables - financial assets

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


30.06.22

Held at fair value through profit or loss

Derivative financial instruments
$million

Investment securities

Total
$million

Loans and advances to banks
$million

Loans and advances to customers
$million

Reverse repurchase agreements and other similar secured lending
$million

Debt securities, alternative
tier one
and other eligible bills
$million

Equity shares
$million

Other Assets
$million

Debt securities, alternative
tier one
and other eligible bills
$million

Equity shares
$million

At 1 January 2022

9

1,357

1,566

349

186

26

90

40

493

4,116

Total (losses)/gains recognised in
income statement

(4)

(76)

2

(129)

4

-

13

-

-

(190)

Net trading income

(4)

(76)

2

(129)

4

-

13

-

-

(190)

Other operating income

-

-

-

-

-

-

-

-

-

-

Total (losses)/gains recognised in other comprehensive income (OCI)

-

-

-

-

-

-

-

-

(40)

(40)

Fair value through OCI reserve

-

-

-

-

-

-

-

-

(32)

(32)

Exchange difference

-

-

-

-

-

-

-

-

(8)

(8)

Purchases

90

326

2,764

347

58

-

44

(1)

115

3,743

Issues











Sales

(9)

(255)

(2,497)

(104)

(3)

(1)

(46)

-

(1)

(2,916)

Settlements

-

(321)

(221)

(2)

-

-

(4)

(25)

-

(573)

Transfers out1

-

(65)

-

-

-

-

(4)

-

-

(69)

Transfers in2

-

19

-

76

-

-

11

-

-

106

At 30 June 2022

86

985

1,614

537

245

25

104

14

567

4,177

Total unrealised (losses)/gains recognised in the income statement, within net trading income, relating to change in fair value
of assets held at
30 June 2022

-

(40)

-

(2)

8

-

3

-

-

(31)

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

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

 

 

 

 

 

 

 

 

 

 

 

Page 99

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

Assets

30.06.21

Held at fair value through profit or loss

Derivative financial instruments
$million

Investment securities

Total
$million

Loans and advances to banks
$million

Loans and advances to customers
$million

Reverse repurchase agreements and other similar secured lending
$million

Debt securities, alternative
tier one
and other eligible bills
$million

Equity shares
$million

Other Assets
$million

Debt securities, alternative
tier one
and other eligible bills
$million

Equity shares
$million

At 1 January 2021

200

718

1,064

258

279

-

8

40

381

2,948

Total gains/(losses) recognised in
income statement

1

(42)

-

-

(21)

-

-

-

-

(62)

Net trading income

1

(42)

-

-

(21)

-

-

-

-

(62)

Other operating income

-

-

-

-

-

-

-

-

-

-

Total gains recognised in other comprehensive income (OCI)

-

-

-

-

-

-

-

1

42

43

Fair value through OCI reserve

-

-

-

-

-

-

-

1

42

43

Exchange difference

-

-

-

-

-

-

-

-

-

-

Purchases

-

495

2,454

184

8

-

43

-

28

3,212

Issues











Sales

-

(316)

(2,196)

(115)

(44)

-

(2)

-

(3)

(2,676)

Settlements

(201)

(153)

-

-

-

-

(3)

(10)

-

(367)

Transfers out1

-

(46)

-

-

(6)

-

(4)

-

(60)

(116)

Transfers in2

-

558

-

-

-

17

4

10

-

589

At 30 June 2021

-

1,214

1,322

327

216

17

46

41

388

3,571

Total unrealised (losses) recognised
in the income statement, within
net trading income, relating to change
in fair value of assets held at 30 June 2021

-

(1)

-

(7)

(2)

-

(3)

-

-

(13)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Page 100

Assets

31.12.21

Held at fair value through profit or loss

Derivative financial instruments
$million

Investment securities

Total
$million

Loans and advances to banks
$million

Loans and advances to customers
$million

Reverse repurchase agreements and other similar secured lending
$million

Debt securities, alternative
tier one
and other eligible bills
$million

Equity shares
$million

Other Assets
$million

Debt securities, alternative
tier one
and other eligible bills
$million

Equity shares
$million

At 1 July 2021

-

1,214

1,322

327

216

17

46

41

388

3,571

Total (losses)/gains recognised in
income statement

-

(55)

2

(24)

(9)

-

34

-

-

(52)

Net trading income

-

(55)

2

(23)

(9)

-

34

-

-

(51)

Other operating income

-

-

-

(1)

-

-

-

-

-

(1)

Impairment charge

-

-

-

-

-

-

-

-

-

-

Total gains /(losses) recognised in other comprehensive income (OCI)

-

-

-

-

-

-

-

2

19

21

Fair value through OCI reserve

-

-

-

-

-

-

-

5

21

26

Cash flow
hedge reserve

-

-

-

-

-

-

-

-

-

-

Exchange difference

-

-

-

-

-

-

-

(3)

(2)

(5)

Purchases

9

786

2,519

203

-

-

48

-

95

3,660

Issues











Sales

-

(371)

(2,196)

(111)

(11)

-

(30)

-

(6)

(2,725)

Settlements

-

(149)

(81)

(70)

-

-

(2)

(3)

-

(305)

Transfers out1

-

(14)

-

-

(10)

-

(7)

-

(3)

(34)

Transfers in2

-

(54)

-

24

-

9

1

-

-

(20)

At 31 December 2021

9

1,357

1,566

349

186

26

90

40

493

4,116

Total unrealised gains/(losses) recognised in the income statement, within net trading income, relating to change in fair value
of assets held at
31 December 2021

-

1

-

15

(13)

-

22

-

-

25

1 Transfers out includes loans and advances, derivative financial instruments, debt securities, alternative tier one and other eligible bills and equity shares where the valuation parameters became observable during the year and were transferred to Level 1 and Level 2.

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

 

 

 

 

 

 

 

 

 

 

 

Page 101

Level 3 movement tables - financial liabilities


30.06.22

Deposits
by banks
$million

Customer accounts
$million

Debt securities
in issue
$million

Derivative financial instruments
$million

Short
 positions
$million

Other
Liabilities
$million

Total
$million

At 1 January 2022

283

454

821

94

-

1

1,653

Total (gains)/losses recognised in income statement -
net trading income

(15)

(56)

(142)

104

(3)

3

(109)

Issues

223

934

387

89

100

-

1,733

Settlements

(172)

(647)

(473)

(89)

-

-

(1,381)

Transfers out1

-

-

(24)

(3)

-

-

(27)

Transfers in2

-

-

76

1

-

-

77

At 30 June 2022

319

685

645

196

97

4

1,946

Total unrealised (gains) recognised in the income statement, within net trading income, relating to change in fair value of liabilities held at 30 June 2022

-

(2)

(7)

(2)

-

-

(11)

 


30.06.21

Deposits
by banks
$million

Customer Accounts
$million

Debt securities
in issue
$million

Derivative financial instruments
$million

Short
positions
$million

Other
Liabilities
$million

Total
$million

At 1 January 2021

146

21

160

119

-

-

446

Total losses/(gains) recognised in income statement -
net trading income

8

11

-

(3)

-

-

16

Issues

268

228

734

100

-

-

1,330

Settlements

(146)

(52)

(361)

(107)

-

-

(666)

Transfers out1

-

-

(22)

(1)

-

-

(23)

Transfers in2

-

-

92

3

-

-

95

At 30 June 2021

276

208

603

111

-

-

1,198

Total unrealised losses/(gains) recognised in the income statement, within net trading income, relating to change in fair value of liabilities held at 30 June 2021

-

12

(7)

-

-

-

5

 


31.12.21

Deposits
by banks
$million

Customer Accounts
$million

Debt securities
in issue
$million

Derivative financial instruments
$million

Short
positions
$million

Other
Liabilities
$million

Total
$million

At 1 July 2021

276

208

603

111

-

-

1,198

Total (gains) recognised in income statement -
net trading income

-

(16)

(12)

(20)

-

-

(48)

Issues

1

575

881

66

-

-

1,523

Settlements

1

(313)

(625)

(74)

-

-

(1,011)

Transfers out1

-

-

(26)

(5)

-

-

(31)

Transfers in2

5

-

-

16

-

1

22

At 31 December 2021

283

454

821

94

-

1

1,653

Total unrealised (gains)/losses recognised in the income statement, within net trading income, relating to change in fair value of liabilities held at 31 December 2021

-

(12)

7

(14)

-

-

(19)

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

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

 

 

 

 

 

 

Page 102

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

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


Held at fair value through profit or loss

Fair value through other comprehensive income

Net exposure
$million

Favourable
changes
$million

Unfavourable
changes
$million

Net exposure
$million

Favourable
changes
$million

Unfavourable
changes
$million

Financial instruments held at fair value







Loans and advances

1,071

1,096

1,030

-

-

-

Reverse Repurchase agreements and other similar secured lending

1,614

1,624

1,604

-

-

-

Asset backed securities

1

1

1

-

-

-

Debt securities, alternative tier one and other eligible bills

536

554

519

14

14

14

Equity shares

245

270

220

567

614

514

Other Assets

25

28

23

-

-

-

Derivative financial instruments

(92)

(57)

(127)

-

-

-

Customers accounts

(685)

(654)

(716)

-

-

-

Deposits by banks

(319)

(319)

(319)

-

-

-

Debt securities in issue

(645)

(594)

(696)

-

-

-

Short positions

(97)

(95)

(99)

-

-

-

Other Liabilities

(4)

(4)

(4)

-

-

-

At 30 June 2022

1,650

1,850

1,436

581

628

528








Financial instruments held at fair value







Loans and advances

1,366

1,398

1,328

-

-

-

Reverse Repurchase agreements and other similar secured lending

1,566

1,579

1,550

-

-

-

Asset backed securities

-

-

-

-

-

-

Debt securities, alternative tier one and other eligible bills

349

366

332

40

41

38

Equity shares

186

205

168

493

541

442

Other Assets

26

29

24

-

-

-

Derivative financial instruments

(4)

10

(16)

-

-

-

Customers accounts

(454)

(447)

(461)

-

-

-

Deposits by banks

(283)

(278)

(287)

-

-

-

Debt securities in issue

(821)

(764)

(879)

-

-

-

Short positions

-

-

-

-

-

-

Other Liabilities

(1)

(1)

(1)

-

-

-

At 31 December 2021

1,930

2,097

1,758

533

582

480

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

Financial instruments

Fair value changes

30.06.22
$million

31.12.21
$million

Held at fair value through profit or loss

Possible increase

200

167

Possible decrease

(214)

(172)

Fair value through other comprehensive income

Possible increase

47

49

Possible decrease

(53)

(53)

 

 

Page 103

14. Derivative financial instruments

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

Derivatives

Derivatives

30.06.22

31.12.21

Notional principal amounts
$million

Assets
$million

Liabilities
$million

Notional principal amounts
$million

Assets
$million

Liabilities
$million

Foreign exchange derivative contracts:







Forward foreign exchange contracts

3,519,329

43,417

39,988

3,750,151

30,256

30,068

Currency swaps and options

1,405,464

19,722

19,692

1,412,055

11,492

11,659


4,924,793

63,139

59,680

5,162,206

41,748

41,727

Interest rate derivative contracts:







Swaps

3,925,932

48,516

49,707

3,609,625

31,490

31,078

Forward rate agreements and options

105,819

1,742

2,290

127,287

1,328

1,859

Exchange traded futures and options

409,195

355

322

295,192

156

132


4,440,946

50,613

52,319

4,032,104

32,974

33,069

Credit derivative contracts

229,152

2,116

2,700

184,953

2,289

3,125

Equity and stock index options

5,907

211

248

8,714

136

160

Commodity derivative contracts

154,156

3,810

4,363

113,807

1,896

1,916

Gross total derivatives

9,754,954

119,889

119,310

9,501,784

79,043

79,997

Offset

-

(43,213)

(43,213)

-

(26,598)

(26,598)

Net total derivatives

9,754,954

76,676

76,097

9,501,784

52,445

53,399

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

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

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

Derivatives held for hedging


30.06.22

31.12.21

Notional principal amounts
$million

Assets
$million

Liabilities
$million

Notional principal amounts
$million

Assets
$million

Liabilities
$million

Derivatives designated as fair value hedges:







Interest rate swaps

78,903

1,704

2,034

78,666

957

338

Currency swaps

2,280

33

274

2,262

43

151


81,183

1,737

2,308

80,928

1,000

489

Derivatives designated as cash flow hedges:







Interest rate swaps

38,698

139

498

10,381

60

74

Forward foreign exchange contracts

5,353

275

-

72

2

-

Currency swaps

10,434

610

94

12,214

293

51


54,485

1,024

592

22,667

355

125

Derivatives designated as net investment hedges:







Forward foreign exchange contracts

17,096

467

1

13,198

88

79

Total derivatives held for hedging

152,764

3,228

2,901

116,793

1,443

693

 

 

 

 

 

 

Page 104

Interest rate benchmark reform

As at 30 June 2022, the following populations of derivative instruments designated in fair value or cash flow hedge accounting relationships were linked to IBOR reference rates:


Fair value hedges
$million

Cash flow hedges
$million

Total
$million

Weighted average exposure
Years

Interest rate swaps





USD LIBOR

35,906

29,743

65,649

2.6

GBP LIBOR

-

-

-

-

JPY LIBOR

-

-

-

-

SGD SOR

-

-

-

-


35,906

29,743

65,649

2.6

Cross-currency swaps





USD LIBOR vs Fixed rate foreign currency

1,646

3,079

4,725

0.7

Total notional of hedging instruments in scope of IFRS amendments as at
30 June 2022

37,552

32,822

70,374

2.5

 


Fair value hedges
$million

Cash flow hedges
$million

Total
$million

Weighted average exposure
Years

Interest rate swaps





USD LIBOR

46,615

2,636

49,251

3.6

GBP LIBOR

1,444

-

1,444

0.1

JPY LIBOR

637

-

637

0.2

SGD SOR

-

-

-

-


48,696

2,636

51,332

3.5

Cross-currency swaps





USD LIBOR vs Fixed rate foreign currency

2,262

3,681

5,943

0.9

Total notional of hedging instruments in scope of IFRS amendments as at
31 December 2021

50,958

6,317

57,275

3.2

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

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

Reverse repurchase agreements and other similar secured lending


30.06.22
$million

31.12.21
$million

Banks

22,672

19,806

Customers

60,415

68,613


83,087

88,419

Of which:



Fair value through profit or loss

74,398

80,009

Banks

21,877

18,727

Customers

52,521

61,282

Held at amortised cost

8,689

8,410

Banks

795

1,079

Customers

7,894

7,331




 

 

 

 

 

Page 105

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


30.06.22
$million

31.12.21
$million

Securities and collateral received (at fair value)

109,863

118,636

Securities and collateral which can be repledged or sold (at fair value)

108,816

117,408

Amounts repledged/transferred to others for financing activities, to satisfy liabilities under sale and repurchase agreements (at fair value)

48,520

57,879

Repurchase agreements and other similar secured borrowing


30.06.22
$million

31.12.21
$million

Banks

14,809

7,054

Customers

42,234

58,594


57,043

65,648

Of which:



Fair value through profit or loss

55,320

62,388

Banks

13,086

5,107

Customers

42,234

57,281

Held at amortised cost

1,723

3,260

Banks

1,723

1,947

Customers

-

1,313




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

Collateral pledged against repurchase agreements

30.06.22

Fair value
through profit
or loss
$million

Fair value 
through other comprehensive income
$million

Amortised cost
$million

Off-balance sheet
$million

Total
$million

On-balance sheet






Debt securities and other eligible bills

4,368

2,014

3,492

-

9,874

Off-balance sheet






Repledged collateral received

-

-

-

48,520

48,520

At 30 June 2022

4,368

2,014

3,492

48,520

58,394

 

Collateral pledged against repurchase agreements

31.12.21

Fair value
through profit
or loss
$million

Fair value 
through other comprehensive income
$million

Amortised cost
$million

Off-balance sheet
$million

Total
$million

On-balance sheet






Debt securities and other eligible bills

3,427

2,655

2,601

-

8,683

Off-balance sheet






Repledged collateral received

-

-

-

57,879

57,879

At 31 December 2021

3,427

2,655

2,601

57,879

66,562

 

 

 

 

 

 

 

Page 106

16. Goodwill and intangible assets


30.06.22

31.12.21

Goodwill
$million

Acquired intangibles
$million

Computer software
$million

Total
$million

Goodwill
$million

Acquired intangibles
$million

Computer software
$million

Total
$million

Cost









At 1 January

2,595

457

4,464

7,516

2,617

473

3,682

6,772

Exchange translation differences

(82)

(50)

(119)

(251)

(22)

(14)

(73)

(109)

Additions

-

-

486

486

-

-

989

989

Amounts written off

-

-

(26)

(26)

-

(2)

(134)

(136)

At 30 June/31 December

2,513

407

4,805

7,725

2,595

457

4,464

7,516

Provision for amortisation









At 1 January

-

437

1,608

2,045

-

451

1,258

1,709

Exchange translation differences

-

(52)

(49)

(101)

-

(22)

(20)

(42)

Amortisation

-

2

260

262

-

8

461

469

Impairment charge

-

-

1

1

-

-

4

4

Amounts written off

-

-

(19)

(19)

-

-

(95)

(95)

At 30 June/31 December

-

387

1,801

2,188

-

437

1,608

2,045

Net book value

2,513

20

3,004

5,537

2,595

20

2,856

5,471

At 30 June 2022, accumulated goodwill impairment losses incurred from 1 January 2005 amounted to $3,317 million (31 December 2021: $3,317 million), of which nil was recognised in 2022 (31 December 2021: nil million).

Outcome of impairment assessment

At 30 June 2022, the Group performed a review of the goodwill that has been assigned to the Group's CGUs for indicators of impairment, considering whether there were any reduced expectations for future cashflows and/or fluctuations in the discount rate or the assumptions. Due to the ongoing global pandemic and global economic environment, it was decided to perform a full impairment analysis. The results of this review indicated that at 30 June 2022 there are no goodwill impairments to be recognised in the first half of 2022.

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

Cash-generating unit

30.06.22

31.12.21

Goodwill
$million

Pre-tax
discount rates
per cent

Long-term forecast GDP growth rates
per cent

Goodwill
$million

Pre-tax
discount rates
per cent

Long-term forecast GDP growth rates
per cent

Country CGUs







Asia

1,046



1,073



Hong Kong

355

10.9

2.2

357

10.6

2.5

Taiwan

342

10.9

1.2

361

10.4

2.0

Singapore

335

11.7

1.6

341

11.6

2.4

Bangladesh

14

18.7

6.5

14

15.0

7.3

Africa & Middle East

88



92



Pakistan

39

25.4

5.1

43

22.2

6.0

Bahrain

49

13.3

2.1

49

13.1

3.0

Global CGUs

1,379



1,430



Global Private Banking

84

12.6

1.8

84

12.4

2.5

Corporate, Commercial & Institutional Banking

1,295

12.7

2.5

1,346

12.5

3.0









2,513



2,595



In the current period there are no CGUs that are sensitive to any individual movement on key estimates (cashflow, discount rate and GDP growth rate).

 

 

 

 

Page 107

17. Property, plant and equipment


30.06.22

Premises
$million

Equipment
$million

Operating lease assets
$million

Leased premises assets
$million

Leased equipment assets
$million

Total
$million

Cost or valuation







At 1 January

1,980

901

4,248

1,854

33

9,016

Exchange translation differences

(92)

(59)

-

(66)

(3)

(220)

Additions1

36

39

478

54

1

608

Disposals and fully depreciated assets written off2

(36)

(15)

(258)

(25)

(1)

(335)

Transfers to assets held for sale

-

-

-

-

-

-

As at 30 June

1,888

866

4,468

1,817

30

9,069

Depreciation







Accumulated at 1 January

795

611

1,155

819

20

3,400

Exchange translation differences

(35)

(31)

-

(33)

(4)

(103)

Charge for the period

35

60

105

126

4

330

Impairment charge

-

-

(1)

-

-

(1)

Attributable to assets sold, transferred or written off2

(19)

(15)

(177)

(17)

-

(228)

Transfers to assets held for sale

-

-

-

-

-

-

Accumulated at 30 June

776

625

1,082

895

20

3,398

Net book amount at 30 June

1,112

241

3,386

922

10

5,671

1 Refer to the cash flow statement under cash flows from investing activities section for the purchase of property, plant and equipment during the year of $553 million, primarily on aircraft purchases for the Group's aircraft operating leasing business

2 Disposals for property, plant and equipment during the year of $139 million in the cash flow statement would include the gains and losses incurred as part of other operating income (Note 6) on disposal of assets during the period and the net book value disposed


31.12.21

Premises
$million

Equipment
$million

Operating
lease
assets
$million

Leased
premises
assets
$million

Leased equipment assets3
$million

Total
$million

Cost or valuation







At 1 January

2,048

874

5,233

1,577

31

9,763

Exchange translation differences

(63)

(13)

-

(38)

(1)

(115)

Additions1

107

135

110

373

4

729

Disposals and fully depreciated assets
written off2

(100)

(95)

(1,095)

(58)

(1)

(1,349)

Transfers to assets held for sale

(12)

-

-

-

-

(12)

As at 31 December

1,980

901

4,248

1,854

33

9,016

Depreciation







Accumulated at 1 January

770

594

1,336

536

12

3,248

Exchange translation differences

(15)

(14)

-

(15)

-

(44)

Charge for the period

74

121

213

296

8

712

Impairment charge

-

-

64

42

-

106

Attributable to assets sold, transferred or written off2

(31)

(90)

(458)

(40)

-

(619)

Transfers to assets held for sale

(3)

-

-

-

-

(3)

Accumulated at 31 December

795

611

1,155

819

20

3,400

Net book amount at 31 December

1,185

290

3,092

1,036

13

5,616

1 Refer to the cash flow statement (FY'21) under cash flows from investing activities section for the purchase of property, plant and equipment during the year of $352 million, primarily on aircrafts purchase for the Group's aircraft operating leasing business

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

 

 

 

 

 

 

Page 108

Operating lease assets

The operating lease assets subsection of property, plant and equipment is the Group's aircraft leasing business, consisting of 100 commercial aircraft at 30 June 2022, of which 98 are narrow-bodies and 2 wide-bodies. The leases are classified as operating leases as they do not transfer substantially all the risks and rewards incidental to the ownership of the assets, and rental income from operating lease assets is disclosed in Note 6. At 30 June 2022, these assets had a net book value of $3,386 million (31 December 2021: $3,092 million).

Under these leases the lessee is responsible for the maintenance and servicing of the aircraft during the lease term while the Group receives rental income and assumes the risks of the residual value of the aircraft at the end of the lease. Initial lease terms range in length up to 12 years, while the average remaining lease term at 30 June 2022 is approximately five years. By varying the lease terms the effects of changes in cyclical market conditions at the time aircraft become eligible for re-lease are mitigated. The Group will look at entering into a lease extension with existing lessees well in advance of lease expiry in order to minimise the risk of aircraft downtime and aircraft transition costs. Aircraft may also be sold from time to time to manage the composition and average age of the fleet.

A series of stress sensitivities conducted on the narrow-body portfolio highlight that the two biggest risks remain either an increase in the discount rate, as the majority of the leased portfolio is valued on a VIU basis, or a substantial number of airline clients defaulting. A sensitivity test was performed on the narrow-body portfolio assuming a discount rate increase of 50 basis points which resulted in a possible increase in impairment of $47 million.

A further sensitivity test considered that the lessees with lower credit ratings defaulted on their current leases. This scenario would result in a possible increase in impairment of $47 million.

18. Other assets


30.06.22
$million

31.12.21
$million

Financial assets held at amortised cost (Note 13):



Hong Kong SAR Government certificates of indebtedness (Note 21)¹

7,232

7,284

Cash collateral

11,459

9,217

Acceptances and endorsements

6,037

4,930

Unsettled trades and other financial assets

26,407

18,637


51,135

40,068

Non-financial assets:



Commodities and emissions certificates²

10,506

9,265

Other assets

470

599


62,111

49,932

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

2 Commodities and emissions certificates are carried at fair value less costs to sell, $5.0 billion are classified as Level 1 and $5.5 million are classified as Level 2

19. Investment in associates and joint ventures

Share of profit from investment in associates and joint ventures comprises:


30.06.22
$million

31.12.21
$million

Loss from investment in joint ventures

(3)

(2)

Profit from investment in associates

156

198

Total

153

196

 

Interests in associates and joint ventures

30.06.22
$million

31.12.21
$million

As at 1 January

2,147

2,162

Exchange translation difference

(58)

43

Additions

4

90

Share of profits

153

196

Dividend received

(58)

(38)

Disposals

(1)

(16)

Impairment

-

(300)

Share of FVOCI and Other reserves

(82)

10

As at 30 June/ 31 December

2,105

2,147

 

Page 109

The Group's principal associate are:

Associate

Nature of activities

Main areas of operation

Group interest in ordinary share capital
%

China Bohai Bank

Banking

China

16.26

CurrencyFair Limited

Banking

Ireland

43.42

The Group's investment in China Bohai Bank is less than 20 per cent but it is considered to be an associate because of the significant influence the Group exercises over the financial and operating policy decisions. This influence is through board representation and the provision of technical expertise to Bohai. The Group applies the equity method of accounting for investments in associates.

The Group's ownership percentage in China Bohai Bank is 16.26 per cent.

For the period ended 30 June 2022, the Group recognised Bohai's results from 1 October 2021 through 31 March 2022 (six months of earnings). Bohai publishes their results after the Group. The Group will therefore continue on a three-month lag in recognising its share of Bohai's earnings going forward.

If the Group did not have significant influence in Bohai, the investment would be carried at fair value rather than the current carrying value.

Impairment testing

At 30 June 2022, the listed equity value, which is considered the fair value of Bohai is below the carrying amount of the investment in associate. As a result, the Group has performed an impairment test on the carrying amount, which confirmed that there was no impairment at 30 June 2022.

Bohai

30.06.22
$million

31.12.21
$million

VIU

1,881

1,917

Carrying amount¹

1,881

2,217

Fair value

491

1,114

1  The above represents the Group's 16.26 per cent share of net assets less other equity instruments the Group does not hold (for 2022 this is net of a $300m impairment taken in 2021)

Basis of recoverable amount

The impairment test was performed by comparing the recoverable amount of Bohai, determined by a VIU calculation, with its carrying amount. The VIU calculation uses the following primary inputs:

short to medium term projections based on management's best estimates of future profits available to ordinary shareholders. These projections have been determined with reference to the latest published financial results and
historical performance. We have adjusted these cash flows as a result of continued market uncertainty in China;

a discount rate based upon a capital asset pricing model (CAPM) calculation for Bohai representing the risk-free rate and company risk premium. Management compares this CAPM against external sources and the cost of equity used for transactions in the China market;

a long-term growth rate, for China, which is used to extrapolate in perpetuity those expected short to medium term earnings to derive a terminal value, and;

an estimation of RWAs and RWA growth to determine a capital maintenance haircut to forecast profits. This haircut is taken in order for Bohai to meet its target regulatory capital requirements over the forecast period. This haircut takes into account movements in risk weighted assets and the total capital required, including required retained earnings over time to meet the target capital ratios.

 

 

 

 

 

 

Page 110

The key assumptions used in the VIU calculation:


30.06.22
per cent

31.12.21
per cent

Pre-tax discount rate

14.90

14.83

Forecast profit long-term growth rate

4.00

4.75

Long-term RWA growth rate

4.00

4.75

Capital requirement adequacy ratio

7.50

7.50

 

Carrying amount $millions

Base case

Sensitivities - 30.06.22

 VIU $million

 Headroom $million

Pre-tax discount rate

GDP









Combined

Combined

GDP

Discount rate

Forecast profit

RWA

RWA -10%

RWA +10%

+1%

-1%

+1%

-1%

+10%

-10%

+10%

-10%

CF -10%

CF +10%

Headroom $million

Headroom $million

Headroom $million

Headroom $million

Headroom $million

Headroom $million

Headroom $million

Headroom $million

Headroom $million

Headroom $million

1,881

1,881

-

14.90%

4.00%

1

(5)

(197)

263

265

(265)

(180)

180

(85)

85

The movement in RWAs is correlated to forecast profit growth. This can be seen above in the combined RWA and cashflow scenarios in the sensitivity table.

The following table sets out the summarised financial statements of China Bohai Bank prior to the Group's share of the associates being applied:


31.03.22
$million

31.03.2021
$million

Total assets

240,876

 225,705

Total liabilities

224,212

 209,356




Operating income1

1,954

 2,545

Profit after tax1

963

 834

Other comprehensive income1

(483)

(29)

1  This represents six months of earnings (1 October to 31 March)

20. Assets held for sale and associated liabilities

Assets held for sale


30.06.22
$million

31.12.21
$million

Financial assets held at fair value through profit or loss

1

43

Loans and advances to customers

-

20

Equity shares

1

23




Financial assets held at amortised cost

60

52

Loans and advances to customers

60

52




Property, plant and equipment

160

239

Vessels

156

230

Others

4

9


221

334

Disposal of Property, Plant and equipment classified under assets held for sale during 30 June 2022 was $79 million (31 December 2021: $149 million).

As at 30 June 2022, there were no liabilities included in disposal groups held for sale (31 December 2021: nil).

 

 

 

 

 

Page 111

21. Other liabilities


30.06.22
$million

31.12.21
$million

Financial liabilities held at amortised cost (Note 13)



Notes in circulation1

7,232

7,284

Acceptances and endorsements

6,037

4,930

Cash collateral

14,559

8,092

Property leases2

1,045

1,170

Equipment leases2

13

17

Unsettled trades and other financial liabilities

31,216

21,940


60,102

43,433

Non-financial liabilities



Cash-settled share-based payments

61

55

Other liabilities

1,352

826


61,515

44,314

1 Hong Kong currency notes in circulation of $7,232 million (31 December 2021: $7,284 million) that are secured by the Government of Hong Kong SAR certificates of indebtedness of the same amount included in Other assets (Note 18)

2 Other financial liabilities include the present value of lease liabilities, as required by IFRS 16 from 1 January 2019.

22. Contingent liabilities and commitments

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


30.06.22
$million

31.12.21
$million

Financial guarantees and trade credits



Financial guarantees, trade credits and irrevocable letters of credit

58,415

58,535


58,415

58,535

Commitments



Undrawn formal standby facilities, credit lines and other commitments to lend



One year and over

72,055

69,542

Less than one year

28,341

27,306

Unconditionally cancellable

62,445

61,675


162,841

158,523

Capital Commitments



Contracted capital expenditure approved by the directors but not provided for in these accounts¹

120

124

1 Of which the Group has commitments totalling $96 million to purchase aircraft for delivery in 2022 (31 December 2021: $96 million). Pre-delivery payments of $26 million (2021: $26 million) have been made in respect of these commitments

As set out in Note 23, the Group has contingent liabilities in respect of certain legal and regulatory matters for which it is not practicable to estimate the financial impact as there are many factors that may affect the range of possible outcomes.

23. Legal and regulatory matters

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

 

 

 

 

 

Page 112

Since 2014, the Group has been named as a defendant in a series of lawsuits that have been filed in the United States District Courts for the Southern and Eastern Districts of New York against a number of banks (including Standard Chartered Bank or its affiliates) on behalf of plaintiffs who are, or are relatives of, victims of various terrorist attacks in Iraq and Afghanistan. The most recent lawsuit was filed in April 2022 and concerns terrorist attacks that occurred in Afghanistan between 2013 and 2016. The plaintiffs in each of these lawsuits have alleged that the defendant banks aided and abetted the unlawful conduct of parties with connections to terrorist organisations in breach of the U.S. Anti-Terrorism Act. While the courts have ruled in favour of the banks' motions to dismiss in five of these lawsuits, plaintiffs have appealed or are expected to appeal against certain of these judgements. The remaining cases are at an early procedural stage and, except for the lawsuit filed in April 2022 and a similar lawsuit filed in August 2021, have been stayed pending the outcomes of the appeals in the dismissed cases. None of these lawsuits have specified the amount of damages claimed.

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

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

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

The Group has concluded that the threshold for recording provisions pursuant to IAS 37 Provisions, Contingent Liabilities and Contingent Assets is not met with respect to the above matters; however, the outcomes of these lawsuits are inherently uncertain and difficult to predict.

 

 

 

 

 

Page 113

24. Subordinated liabilities and other borrowed funds


30.06.22

USD
$million

GBP
$million

EUR
$million

Total
$million

Fixed rate subordinated debt

10,662

903

3,207

14,772

Floating rate subordinated debt

161

-

-

161

Total

10,823

903

3,207

14,933

 


31.12.21

USD
$million

GBP
$million

EUR
$million

Total
$million

Fixed rate subordinated debt

11,636

1,160

3,689

16,485

Floating rate subordinated debt

161

-

-

161

Total

11,797

1,160

3,689

16,646

Redemption during the year

On 25 January 2022, Standard Chartered PLC exercised its right to redeem USD 1 billion 5.7 per cent subordinated notes 2022.

Issuance during the year

On 12 January 2022, Standard Chartered PLC issued USD 750 million 3.603 per cent Fixed Rate Reset Dated Subordinated Notes due 2033.

25. Share capital, other equity instruments and reserves

Group and Company


Number of ordinary shares
millions

Ordinary
share capital1
$million

Ordinary
share premium
$million

Preference share premium2
$million

Total share capital and share premium
$million

Other equity instruments
$million

At 1 January 2021

3,156

1,578

3,986

1,494

7,058

4,518

Cancellation of shares including share buy-back

(37)

(19)

-

-

(19)

-

Additional Tier 1 equity issuance

-

-

-

-

-

1,239

Other movements

-

-

3

-

3

-

At 30 June 2021

3,119

1,559

3,989

1,494

7,042

5,757

Cancellation of shares including share buy-back

(40)

(20)

-

-

(20)

-

Additional Tier 1 equity issuance

-

-

-

-

-

1,489

Additional Tier 1 redemption

-

-

-

-

-

(992)

At 31 December 2021

3,079

1,539

3,989

1,494

7,022

6,254

Cancellation of shares including share buy-back

(111)

(56)

-

-

(56)

-

Additional Tier 1 redemption

-

-

-

-

-

(990)

At 30 June 2022

2,968

1,483

3,989

1,494

6,966

5,264

1 Issued and fully paid ordinary shares of 50 cents each

2 Includes preference share capital of $75,000

Share buy-back

On 18 February 2022, the Group announced the buy-back programme for a share buy-back of its ordinary shares of
$0.50 each. Nominal value of share purchases was $56 million, and the total consideration paid was $754 million (including $4 million of fees and stamp duty), The buy-back completed on 19 May 2022. The total number of shares purchased was 111,295,408, representing 3.61% per cent of the ordinary shares in issue. The nominal value of the shares was transferred from the share capital to the capital redemption reserve account. The shares were purchased by Standard Chartered PLC on various exchanges not including the Hong Kong Stock Exchange.


Number of ordinary shares

Highest
price paid
£

Lowest
price paid
£

Average
price paid
per share
£

Aggregate
price paid
£

Aggregate
price paid
$

February 2022

14,397,852

5.85

5.15

5.55486

79,978,036

107,767,620

March 2022

49,510,420

5.45

4.31

4.94563

244,860,409

322,288,357

April 2022

29,085,345

5.27

4.79

5.05874

147,135,270

190,912,883

May 2022

18,301,791

5.99

5.45

5.71978

104,682,211

129,028,610

 

 

 

Page 114

Ordinary share capital

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

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

Preference share capital

At 30 June 2022, the Company has 15,000 $5 non-cumulative redeemable preference shares in issue, with a premium of $99,995 making a paid up amount per preference share of $100,000. The preference shares are redeemable at the option
of the Company and are classified in equity.

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

Other equity instruments

The table provides details of outstanding Fixed Rate Resetting Perpetual Subordinated Contingent Convertible AT1 securities issued by Standard Chartered PLC. All issuances are made for general business purposes and to increase the regulatory capital base of the Group.

Issuance date

Nominal value

Proceeds net
of issue costs

Interest rate1

Coupon payment dates2

First reset dates3

Conversion price per ordinary share

18 January 2017

USD 1,000 million

USD 992 million

7.75%

2 April, 2 October each year

2 April 2023

USD 7.732

3 July 2019

SGD 750 million

USD 552 million

5.375%

3 April, 3 October each year

3 October 2024

SGD 10.909

26 June 2020

USD 1,000 million

USD 992 million

6%

26 January, 26 July each year

26 January 2026

USD 5.331

14 January 2021

USD 1,250 million

USD 1,239 million

4.75%

14 January, 14 July each year

14 July 2031

USD 6.353

19 August 2021

USD 1,500 million

USD 1,489 million

4.30%

19 February, 19 August each year

19 August 2028

USD 6.382

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

2 Interest payable semi-annually in arrears

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

Standard Chartered PLC redeemed $999m Fixed Rate Resetting Perpetual Contingent Convertible Securities on its first optional redemption date of 2 April 2022.

The AT1 issuances above are primarily purchased by institutional investors.

 

 

 

 

 

 

 

 

 

 

 

Page 115

The principal terms of the AT1 securities are described below:

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

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

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

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

The securities convert into ordinary shares of Standard Chartered PLC, at a pre-determined price detailed in the table above, should the fully loaded Common Equity Tier 1 ratio of the Group fall below 7.0 per cent. Approximately 817 million ordinary shares would be required to satisfy the conversion of all the securities mentioned above

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

Reserves

The constituents of the reserves are summarised as follows:

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

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

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

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

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

 

 

 

Page 116

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

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

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

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

As at 30 June 2022, the distributable reserves of Standard Chartered PLC (the Company) were $13.8 billion (31 December 2021: $15.0 billion). These comprised retained earnings and $12.6 billion of the merger reserve account. Distribution of reserves is subject to maintaining minimum capital requirements.

Own shares

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

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


1995 Trust

2004 Trust1

Total

30.06.22

31.12.21

30.06.21

30.06.22

31.12.21

30.06.21

30.06.22

31.12.21

30.06.21

Shares purchased during
the period

-

-

-

-

36,487,747

12,243,256

-

36,487,747

12,243,256

Market price of shares purchased ($million)

-

-

-

-

237

82

-

237

82

Shares transferred between trusts

-

-

-

-

-

-

-

-

-

Shares held at the end of
the period

-

-

-

479,591

22,461,243

82,213

479,591

22,461,243

82,213

Maximum number of shares held during the period







22,459,399

23,076,993

17,560,740

1 Note that in 2021, 35,768 shares were purchased by the trustee of the 2004 Trust using $0.2 million participant savings as part of Sharesave exercises

Dividend waivers

The trustees of the 2004 Trust, which holds ordinary shares in Standard Chartered PLC in connection with the operation of its employee share plans, have lodged standing instructions in relation to shares held by them that have not been allocated to employees, whereby any dividend is waived on the balance of ordinary shares and recalculated and paid at the rate of 0.01p per share.

 

 

 

 

Page 117

26. Retirement benefit obligations

Retirement benefit obligations comprise:


30.06.22
$million

31.12.21
$million

30.06.21
$million

Total market value of assets

2,242

2,942

2,889

Present value of the plans liabilities

(2,362)

(3,134)

(3,228)

Defined benefit plans obligation

(120)

(192)

(339)

Defined contribution plans obligation

(21)

(18)

(17)

Net obligation

(141)

(210)

(356)

Retirement benefit charge comprises:


6 months ended 30.06.22

$mIllion

6 months ended 31.12.21

$million

6 months ended 30.06.21

$million

The pension cost for defined benefit plans was:




Current service cost

28

33

31

Past service cost and curtailments

(1)

(5)

-

Settlement cost

-

(4)

-

Interest income on pension plan assets

(32)

(28)

(25)

Interest on pension plan liabilities

34

31

29

Total charge to profit before deduction of tax

29

27

35

Losses /(returns) on plan assets excluding interest income

429

(110)

39

(Gains) /losses on liabilities

(513)

38

(146)

Total (gains) /losses recognised directly in statement of comprehensive income before tax

(84)

(72)

(107)

Deferred taxation

23

3

14

Total (gains) /losses after tax

(61)

(69)

(93)

Defined benefit liability values have decreased since 31 December 2021 due to rising bond yields, which lead to the liabilities being discounted at a higher rate. Asset values have fallen since 31 December due to the effect of rising yields on bond assets, in addition to poor equity performance over the 6 months to 30 June 2022.

Liabilities have decreased to a greater extent than assets, and as a result there is a reduction in the net balance sheet liability compared to 31 December 2021.

The defined benefit income statement charge for the six months to 30 June 2022 is lower than the corresponding income statement charge for the six months to 30 June 2021, driven by increase in the yields used to calculate current service cost at December 2021 (compared to 31 December 2020 yields used for FY21 service cost), a reduction in the finance cost due to improvement in funding levels from 31 Dec 2020 to 31 Dec 2021, and currency depreciation against the US dollar which has led to a reduction in the DB service cost in USD terms in most countries.

27. Related party transactions

Directors and officers

As at 30 June 2022, Standard Chartered Bank had in place a charge over $89 million (31 December 2021: $100 million) of cash assets in favour of the independent trustee of its employer financed retirement benefit scheme.

There were no changes in the related party transactions described in the Annual Report 2021 that could have or have had a material effect on the financial position or performance of the Group in the period ended 30 June 2022. All related party transactions have taken place in the period were similar in nature to those disclosed in the Annual Report 2021.

 

 

 

 

 

 

 

Page 118

Associate and joint ventures

The following transactions with related parties are on an arm's length basis:


30.06.22
$million

31.12.21
$million

Assets



Loans and advances

-

-

Debt securities

-

-

Total assets

-

-




Liabilities



Deposits

702

984

Derivative liabilities

-

1

Total liabilities

702

985

Loan commitments and other guarantees¹

52

80

1 The maximum loan commitments and other guarantees during the period were $52 million (31 December 2021: $80 million)

28. Post balance sheet events

The Board has recommended an interim ordinary dividend for the half year 2022 of 4 cents a share or $119 million.

The Board has also decided to carry out a share buy-back for up to a maximum consideration of $500 million to further reduce the number of ordinary shares in issue by cancelling the repurchased shares.

29. Corporate governance

The directors confirm that, throughout the period, the Company has complied with the code provisions set out in the Corporate Governance Code contained in Appendix 14 of the Hong Kong Listing Rules. The directors also confirm that the announcement of these results has been reviewed by the Company's Audit Committee. The Company confirms that it has adopted a code of conduct regarding securities transactions by directors on terms no less exacting than the required standard set out in Appendix 10 of the Hong Kong Listing Rules and that, having made specific enquiry of all directors, the directors of the Company have complied with the required standards of the adopted code of conduct throughout the period.

As previously announced, the following changes to the composition of the Board have taken place since 31 December
2021. On 30 April 2022, Naguib Kheraj, Deputy Chairman, Chair of the Board Risk Committee (BRC) and member of the Governance and Nomination Committee, retired from the Board. Phil Rivett was appointed as interim Chair of the BRC with effect from 1 May 2022, pending the appointment of Maria Ramos as Chair of the BRC receiving regulatory approval. Shirish Apte was appointed to the Board as an Independent Non-Executive Director (INED) and a member of each of the Audit Committee and BRC on 4 May 2022. Robin Lawther was appointed to the Board as an INED and a member of each of the BRC and Remuneration Committee on 1 July 2022. Biographies for each of the directors and a list of the committees' membership can be found at sc.com.

Given the progress made on the Board Financial Crime Risk Committee's (BFCRC) purpose with respect to financial crime risk management, the BFCRC ceased to be a standalone Board Committee with effect from 1 April 2022. Its remit was reallocated to a combination of the BRC, the Audit Committee and the Board. This enables a more holistic and efficient examination and discussion of risk as fraud, information and cyber security and financial crime are closely linked, as these areas are currently discussed in different meetings of the Board and its Committees. Gay Huey Evans, CBE; David Conner; Christine Hodgson, CBE; Naguib Kheraj and Carlson Tong stepped down from their respective roles on the BFCRC. With the exception of Naguib Kheraj, who retired from the Group on 30 April 2022, all former BFCRC members have continued to perform their other Board and Board Committee roles. The two BFCRC external advisors, Sir Iain Lobban and Boon Hui Khoo, have agreed to remain at the disposal of the Board Risk Committee and Audit Committee for a further year.

In compliance with Rule 13.51B(1) of the Hong Kong Listing Rules, the Company confirms that, Gay Huey Evans, CBE, INED, was appointed to the board of S&P Global as a non-executive director and member of its Audit Committee on 28 February 2022, and resigned as an independent director of IHS Markit on the same date. On 25 May 2022, Carlson Tong, INED, was appointed to the board of MTR Corporation Limited, a company listed on the Hong Kong Stock Exchange, as an INED, Chairman of its Audit & Risk Committee and a member of its Finance and Investment Committee. Byron Grote, INED, retired from Anglo American plc on 19 April 2022 and was appointed to the board of InterContinental Hotels Group PLC as a non-executive director and member of its Audit and Remuneration Committees, with effect from 1 July 2022.

Page 119

30. Statutory accounts

The information in this Half Year Report is unaudited and does not constitute statutory accounts within the meaning of section 434 of the Companies Act 2006. This document was approved by the Board on 29 July 2022. The statutory accounts for the year ended 31 December 2021 have been audited and delivered to the Registrar of Companies in England and Wales. The report of the auditors was (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under sections 498(2)
and 498(3) of the Companies Act 2006.

31. Cash flow note

Adjustment for non-cash items and other adjustments included within income statement


30.06.22
$million

30.06.21
$million

Amortisation of discounts and premium of investment securities

195

46

Interest expense on subordinated liabilities

247

246

Interest expense on senior debt securities in issue

283

259

Other non-cash items

16

(84)

Pension costs for defined benefit schemes

29

35

Share-based payment costs

122

99

Impairment losses on loans and advances and other Credit Risk provisions

263

(51)

Other impairment

15

40

Gain on disposal of property, plant and equipment

(32)

(34)

Gain on disposal of FVOCI and AMCST financial assets

(14)

(161)

Depreciation and amortisation

592

596

Fair value changes taken to income statement

(199)

(7)

Foreign currency revaluation

(666)

(250)

Loss on derecognition of investment in associate

2

-

Profit from associates and joint ventures

(153)

(141)

Total

700

593

Change in operating assets


30.06.22
$million

30.06.21
$million

(Increase)/decrease in derivative financial instruments

(25,182)

16,982

Net decrease/(increase) in debt securities, treasury bills and equity shares held at fair value through profit or loss

7,861

(17)

Decrease/(increase) in loans and advances to banks and customers

5,139

(20,881)

Net (increase) in prepayments and accrued income

(244)

(118)

Net (increase) in other assets

(11,859)

(2,997)

Total

(24,285)

(7,031)

Change in operating liabilities


30.06.22
$million

30.06.21
$million

Increase/(decrease) in derivative financial instruments

23,620

(19,161)

Net (decrease)/increase in deposits from banks, customer accounts, debt securities in issue, Hong Kong notes in circulation and short positions

(14,783)

13,528

Net decrease in accruals and deferred income

(353)

(381)

Net increase in other liabilities

17,558

11,417

Total

26,042

5,403

In H1 2021, $416 million of additions to internally generated capitalised software were included in the cash flows from operating activities section of the cash flow statement within change in operating assets. In H1 2022, $486 million of additions to internally generated capitalised software are included in cash flows from investing activities as a separate line item. The H1 2021 comparative cash flow statement has been adjusted for this change in classification.

 

 

 

 

Page 120

Disclosures


30.06.22
$million

30.06.21
$million

Subordinated debt (including accrued interest):



Opening balance

16,885

16,892

Proceeds from the issue

750

1,186

Interest paid

(310)

(293)

Repayment

(1,048)

(530)

Foreign exchange movements

(401)

(69)

Fair value changes

(1,018)

(282)

Accrued Interest and Others

320

313

Closing balance

15,178

17,217




Senior debt (including accrued interest):



Opening balance

29,904

29,989

Proceeds from the issue

6,511

8,276

Interest paid

(487)

(366)

Repayment

(3,618)

(4,865)

Foreign exchange movements

(881)

(316)

Fair value changes

(804)

(248)

Accrued Interest and Others

521

369

Closing balance

31,146

32,839

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Page 121

Other supplementary financial information

Supplementary financial information

1. Average balance sheets and yields

The following tables set out the average balances and yields for the Group's assets and liabilities for the periods ended 30 June 2022, 31 December 2021 and 30 June 2021. For the purpose of these tables, average balances have been determined on the basis of daily balances, except for certain categories, for which balances have been determined less frequently. The Group does not believe that the information presented in these tables would be significantly different had such balances been determined on a daily basis.

Average assets


6 months ended  30.06.22

Average non-interest earning
balance
$million

Average
interest
earning
balance
$million

Interest
income
$million

Gross yield interest
earning
balance
%

Gross yield
total balance
%

Cash and balances at central banks

23,650

55,603

146

0.53

0.37

Gross loans and advances to banks

28,854

41,945

326

1.57

0.93

Gross loans and advances to customers

62,985

305,280

4,027

2.66

2.21

Impairment provisions against loans and advances to banks and customers

-

(5,496)

-

-

-

Investment securities

32,943

168,003

1,286

1.54

1.29

Property, plant and equipment and intangible assets

8,727

-

-

-

-

Prepayments, accrued income and other assets

130,842

-

-

-

-

Investment associates and joint ventures

2,196

-

-

-

-

Total average assets

290,197

565,335

5,785

2.06

1.36

 


6 months ended 31.12.21

Average non-interest earning
balance
$million

Average
interest
earning
balance
$million

Interest
income
$million

Gross yield interest
earning
balance
%

Gross yield
total balance
%

Cash and balances at central banks

24,043

55,517

50

0.18

0.12

Gross loans and advances to banks

21,869

45,294

243

1.06

0.72

Gross loans and advances to customers

59,776

309,765

3,796

2.43

2.04

Impairment provisions against loans and advances to banks and customers

-

(5,582)

-

-

-

Investment securities

32,884

156,571

1,037

1.31

1.09

Property, plant and equipment and intangible assets

8,779

-

-

-

-

Prepayments, accrued income and other assets

109,490

-

-

-

-

Investment associates and joint ventures

2,392

-

-

-

-

Total average assets

259,234

561,565

5,126

1.81

1.24

 


6 months ended 30.06.21

Average non-interest earning
balance
$million

Average
interest
earning
balance
$million

Interest
income
$million

Gross yield interest
earning
balance
%

Gross yield
total balance
%

Cash and balances at central banks

23,174

56,473

42

0.15

0.11

Gross loans and advances to banks

22,809

46,623

247

1.07

0.72

Gross loans and advances to customers

53,335

305,302

3,780

2.50

2.13

Impairment provisions against loans and advances to banks and customers

-

(6,451)

-

-

-

Investment securities

31,605

155,268

1,053

1.37

1.14

Property, plant and equipment and intangible assets

8,960

-

-

-

-

Prepayments, accrued income and other assets

113,672

-

-

-

-

Investment associates and joint ventures

2,267

-

-

-

-

Total average assets

255,822

557,215

5,122

1.85

1.27

 

 

Page 122

Average liabilities


6 months ended 30.06.22

Average
non-interest
bearing
balance
$million

Average
interest
bearing
balance
$million

Interest
expense
$million

Rate paid
interest
bearing
balance
%

Rate paid
total balance
%

Deposits by banks

18,293

29,193

92

0.64

0.39

Customer accounts:






Current accounts and savings deposits

54,567

270,071

584

0.44

0.36

Time and other deposits

63,898

149,866

854

1.15

0.81

Debt securities in issue

6,228

61,288

347

1.14

1.04

Accruals, deferred income and other liabilities

132,958

1,127

23

4.12

0.03

Subordinated liabilities and other borrowed funds

-

15,559

247

3.20

3.20

Non-controlling interests

340

-

-

-

-

Shareholders' funds

49,493

-

-

-

-


325,777

527,104

2,147

0.82

0.51







Adjustment for Financial Markets funding costs



(106)



Financial guarantee fees on interest earning assets



47



Total average liabilities and shareholders' funds

325,777

527,104

2,088

0.80

0.49

 


6 months ended 31.12.21

Average
non-interest
|bearing
balance
$million

Average
interest
bearing
balance
$million

Interest
expense
$million

Rate paid
interest
bearing
balance
%

Rate paid
total balance
%

Deposits by banks

19,731

28,218

62

0.44

0.26

Customer accounts:






Current accounts and savings deposits

53,310

267,231

460

0.34

0.28

Time and other deposits

55,727

147,441

615

0.83

0.60

Debt securities in issue

6,450

57,003

282

0.98

0.88

Accruals, deferred income and other liabilities

112,614

1,206

26

4.28

0.05

Subordinated liabilities and other borrowed funds

-

16,666

251

2.99

2.99

Non-controlling interests

356

-

-

-

-

Shareholders' funds

51,533

-

-

-

-


299,722

517,766

1,696

0.65

0.41







Adjustment for Financial Markets funding costs



(97)



Financial guarantee fees on interest earning assets



156



Total average liabilities and shareholders' funds

299,722

517,766

1,755

0.67

0.43

 


6 months ended 30.06.21

Average
non-interest
bearing
balance
$million

Average
interest
bearing
balance
$million

Interest
expense
$million

Rate paid
interest
bearing
balance
%

Rate paid
total balance
%

Deposits by banks

17,261

26,599

74

0.56

0.34

Customer accounts:






Current accounts and savings deposits

48,934

257,233

388

0.30

0.26

Time and other deposits

53,606

151,262

733

0.98

0.72

Debt securities in issue

6,129

61,232

284

0.94

0.85

Accruals, deferred income and other liabilities

118,293

1,093

27

4.98

0.05

Subordinated liabilities and other borrowed funds

-

16,386

246

3.03

3.03

Non-controlling interests1

328

-

-

-

-

Shareholders' funds

51,088

-

-

-

-


295,639

513,805

1,752

0.69

0.44







Adjustment for Financial Markets funding costs



(52)



Financial guarantee fees on interest earning assets



47



Total average liabilities and shareholders' funds

295,639

513,805

1,747

0.69

0.44

Page 123



 

Additional items

A. Our Fair Pay Charter

Our Fair Pay Charter, introduced in 2018, sets out the principles we use to make remuneration decisions across the Group that are fair, transparent and competitive in order to support us in embedding a performance oriented, inclusive and innovative culture and in delivering a differentiated employee experience. Our Fair Pay Charter principles are set out in the Group's 2021 Annual Report together with a summary of our progress in implementing these across the Group, and our third external Fair Pay Report, published in February 2022, is available on our Group website.

B. Group share plans

Discretionary share plans

The Group has two discretionary share plans: the 2011 Standard Chartered Share Plan, approved by shareholders in May 2011, and the 2021 Standard Chartered Share Plan, approved by shareholders in May 2021.  Awards made in 2022 were granted under the 2021 Standard Chartered Share Plan.  The discretionary share plans are used to deliver various types of share awards:

Long-term incentive plan (LTIP) awards: granted with vesting subject to performance measures. Performance measures attached to awards granted previously include: total shareholder return (TSR); return on equity (RoE) with a common equity tier 1 (CET1) underpin; strategic measures; earnings per share (EPS) growth; and return on risk-weighted assets (RoRWA). Each measure is assessed independently over a three-year period. Awards granted from 2016 have an individual conduct gateway requirement that results in the award lapsing if not met

Deferred awards are used to deliver the deferred portion of variable remuneration, in line with both market practice and regulatory requirements. These awards vest in instalments on anniversaries of the award date specified at the time of grant. Deferred awards are not subject to any plan limit. This enables the Group to meet regulatory requirements relating to deferral levels, and is in line with market practice

Restricted share awards, made outside of the annual performance process as replacement buy-out awards to new joiners who forfeit awards on leaving their previous employers, vest in instalments on the anniversaries of the award date specified at the time of grant.

This enables the Group to meet regulatory requirements relating to buy-outs, and is in line with market practice. In line with similar plans operated by our competitors, restricted share awards are not subject to an annual limit and do not have any performance measures

Under the discretionary share plans, no grant price is payable to receive an award. New awards cannot be made under the 2011 Standard Chartered Share Plan.  The remaining life of the 2021 Standard Chartered Share Plan during which new awards can be made is nine years.

All Employee 2013 Sharesave Plan

The 2013 Sharesave Plan was approved by shareholders in May 2013. Under the 2013 Sharesave Plan, employees may open a savings contract. Within a maturity period of six months after the third anniversary, employees may purchase ordinary shares in the Company at a discount of up to 20 per cent on the share price at the date of invitation (this is known as the 'option exercise price'). There are no performance measures attached to options granted under the 2013 Sharesave Plan and no grant price is payable to receive an option.

In some countries in which the Group operates, it is not possible to deliver shares under the 2013 Sharesave Plan, typically due to securities laws and regulatory restrictions. In these countries, where possible, the Group offers an equivalent cash-based plan to its employees. The 2013 Sharesave Plan was approved by shareholders in May 2013 and all future Sharesave invitations are made under this plan. The remaining life of the 2013 Sharesave Plan is less than one year since it expires in May 2023.

 

 

 

 

Page 124

Valuation of share awards

Details of the valuation models used in determining the fair values of share awards granted under the Group's share plans are detailed in the Group's 2021 Annual Report.

Reconciliation of share award movements for the period to 30 June 2022


LTIP1

Deferred/Restricted shares1

Sharesave

Weighted average Sharesave exercise price (£)

Outstanding at 1 January 2022

11,627,751

39,718,654

16,897,075

3.95

Granted2

3,063,815

24,095,928

-

-

Lapsed

(2,418,663)

(322,775)

(1,866,289)

4.42

Exercised

(405,209)

(15,507,237)

(1,383,500)

5.11

Outstanding at 30 June 2022

11,867,694

47,984,570

13,647,286

3.77

Exercisable as at 30 June 2022

-

1,446,976

57,966

3.94

Range of exercise prices (£)3,4

-

-

3.14 - 5.13


Intrinsic value of vested but not exercised options ($ million)

0.00

10.88

0.16


Weighted average contractual remaining life (years)

8.31

8.64

1.96


Weighted average closing price of shares immediately before the dates
on which options were exercised

N/A

5.43

4.63


1  Employees do not contribute towards the cost of these awards, which are covered under the rules of the 2011 Standard Chartered Share Plan for grants prior to May 2021, and under the rules of the 2021 Standard Chartered Share Plan for grants from June 2021

2 23,434,127 (DRSA/RSA) granted on 14 March 2022, 77,479 (deferred / restricted shares) granted as notional dividend on 01 March 2022, 3,048,826 (LTIP) granted on 14 March 2022, 14,989 (LTIP) granted as notional dividend on 01 March 2022, 584,322 (deferred / restricted shares) granted on 20 June 2022

3 No discretionary awards (LTIP or deferred / restricted shares) have been granted in the form of options since June 2015.  For historic awards granted as options and exercised in the period to 30 June 2022, the exercise price of deferred / restricted shares options was nil

4  All Sharesave awards are in the form of options.  The exercise price of Sharesave options exercised was £3.67 for options granted in 2021, £3.14 for options granted in 2020, £4.98 for options granted in 2019 and £5.13 for options granted in 2018

5 No options were cancelled in the period

C. Group Chairman and independent non-executive directors' interests in ordinary shares as at 30 June 20221,2


Shares beneficially
held as at
31 December
2021

Shares beneficially
held as at
30 June
2022

Group Chairman



J Viñals

30,000

30,000

Independent non-executive directors



S M Apte3

-

2,000

D P Conner

10,000

10,000

B E Grote

90,041

90,041

C Hodgson, CBE

2,571

2,571

G Huey Evans, CBE

2,615

2,615

N Kheraj4

150,571

-

M Ramos

2,000

2,000

P G Rivett

2,128

2,128

D Tang

2,000

2,000

C Tong

2,000

2,000

J M Whitbread

3,615

3,615

1. Directors are required to hold shares with a nominal value of $1,000. All the directors have met this requirement

2. The beneficial interests of directors and their related parties in the ordinary shares of the Company are set out above. The directors do not have any non-beneficial interests in the Company's shares. None of the directors used ordinary shares as collateral for any loans. No director had either i) an interest in the Company's preference shares or loan stocks of any subsidiary or associated undertaking of the Group or ii) any corporate interests in the Company's ordinary shares. All figures
as at 30 June 2022

3. Shirish Apte was appointed to the Board on 4 May 2022

4. Naguib Kheraj retired from the Board on 30 April 2022

 

 

 

 

 

Page 125

D. Executive directors' interests in ordinary shares as at 30 June 2022

Scheme interests awarded, exercised and lapsed during the period

Employees, including executive directors, are not permitted to engage in any personal investment strategies with regards to their Company shares, including hedging against the share price of Company shares. The main features of the outstanding shares and awards are summarised below:

Award

Performance measures

Accrues notional dividends?1

No. of tranches

Tranche splits

Post-vest regulatory retention period2

Performance outcome

2016-18

33% - RoE

33% - TSR

33% - Strategic

Yes

5

50% tranche 1

12.5% tranches 2-5

6 months on 50% of the award

27%

2017-19

Yes

5

5 equal tranches

6 months on 50% of the award

38%

2018-20

No

5

12 months

26%

2019-21

33% - RoTE

33% - TSR

33% - Strategic

No

5

12 months

23%

2020-22

No

5

12 months

To be assessed at end of 2022

2021-23

30% - RoTE

30% - TSR

15% - Sustainability

25% - Strategic

No

5

12 months

To be assessed at end of 2023

2022-24

30% - RoTE

30% - TSR

15% - Sustainability

25% - Strategic

No

5

12 months

To be assessed at end of 2024

5. 2016-18 and 2017-19 LTIP awards may receive dividend equivalent shares based on dividends declared between grant and vest. From 1 January 2017 remuneration regulations for European banks prohibited the award of dividend equivalent shares. Therefore, the number of shares awarded in respect of the 2018-20, 2019-21, 2020-22 and 2021-23 LTIP awards took into account the lack of dividend equivalents (calculated by reference to market consensus dividend yield) such that the
overall value of the award was maintained

6. As executive directors are material risk takers, regulatory retention periods apply to net shares delivered. The requirements changed over the years. Where the retention was not required on the entire award this was because the total share-linked remuneration for the executive directors in the relevant performance years exceeded the regulatory requirement for share-linked remuneration.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Page 126

The following table shows the changes in share interests.


Share award price (£)

As of
1 January

Changes in interests during the period 1 January to 30 June 2022

Awarded1

Dividends awarded2

Vested3

Lapsed

As of
30 June

Performance
period end

Vesting date

 

B Winters










 

2016-18 LTIP

5.560

33,506

-

2,517

36,023

-

-

11 Mar 2019

4 May 2022

 

33,507

-

-

-

-

33,507


4 May 2023

 

2017-19 LTIP

7.450

45,049

-

3,380

48,428

-

-

13 Mar 2020

13 Mar 2022

 

45,049

-

-

-

-

45,049


13 Mar 2023

 

45,049

-

-

-

-

45,049


13 Mar 2024

 

2018-20 LTIP

7.782

28,178

-

-

28,178

-

-

9 Mar 2021

9 Mar 2022

 

28,178

-

-

-

-

28,178


9 Mar 2023

 

28,178

-

-

-

-

28,178


9 Mar 2024

 

28,179

-

-

-

-

28,179


9 Mar 2025

 

2019-21 LTIP

6.105

133,065

-

-

30,604

102,461

-

11 Mar 2022

11 Mar 2022

 

133,065

-

-

-

102,461

30,604


11 Mar 2023

 

133,065

-

-

-

102,461

30,604


11 Mar 2024

 

133,065

-

-

-

102,461

30,604


11 Mar 2025

 

133,067

-

-

-

102,462

30,605


11 Mar 2026

 

2020-22 LTIP

5.196

161,095

-

-

-

-

161,095

9 Mar 2023

9 Mar 2023

 

161,095

-

-

-

-

161,095


9 Mar 2024

 

161,095

-

-

-

-

161,095


9 Mar 2025

 

161,095

-

-

-

-

161,095


9 Mar 2026

 

161,095

-

-

-

-

161,095


9 Mar 2027

 

2021-23 LTIP

4.901

150,621

-

-

-

-

150,621

15 Mar 2024

15 Mar 2024

 

150,621

-

-

-

-

150,621


15 Mar 2025

 

150,621

-

-

-

-

150,621


15 Mar 2026

 

150,621

-

-

-

-

150,621


15 Mar 2027

 

150,621

-

-

-

-

150,621


15 Mar 2028

 

2022-24 LTIP

4.876

-

151,386

-

-

-

151,386

14 Mar 2025

14 Mar 2026

 

-

151,386

-

-

-

151,386


14 Mar 2027

 

-

151,386

-

-

-

151,386


14 Mar 2028

 

-

151,386

-

-

-

151,386


14 Mar 2029

 

-

151,388

-

-

-

151,388


14 Mar 2030

 

A Halford










 

2016-18 LTIP

5.560

20,008

-

1,502

21,510

-

-

11 Mar 2019

4 May 2022

 

20,009

-

-

-

-

20,009


4 May 2023

 

2017-19 LTIP

7.450

27,888

-

2,094

29,982

-

-

13 Mar 2020

13 Mar 2022

 

27,888

-

-

-

-

27,888


13 Mar 2023

 

27,890

-

-

-

-

27,890


13 Mar 2024

 

2018-20 LTIP

7.782

17,448

-

-

17,448

-

-

9 Mar 2021

9 Mar 2022

 

17,448

-

-

-

-

17,448


9 Mar 2023

 

17,448

-

-

-

-

17,448


9 Mar 2024

 

17,448

-

-

-

-

17,448


9 Mar 2025

 

2019-21 LTIP

6.105

85,094

-

-

19,571

65,523

-

11 Mar 2022

11 Mar 2022

 

85,094

-

-

-

65,523

19,571


11 Mar 2023

 

85,094

-

-

-

65,523

19,571


11 Mar 2024

 

85,094

-

-

-

65,523

19,571


11 Mar 2025

 

85,096

-

-

-

65,524

19,572


11 Mar 2026

 

2020-22 LTIP

5.196

99,976

-

-

-

-

99,976

9 Mar 2023

9 Mar 2023

 

99,976

-

-

-

-

99,976


9 Mar 2024

 

99,976

-

-

-

-

99,976


9 Mar 2025

 

99,976

-

-

-

-

99,976


9 Mar 2026

 

99,977

-

-

-

-

99,977


9 Mar 2027

 

2021-23 LTIP

4.901

96,283

-

-

-

-

96,283

15 Mar 2024

15 Mar 2024

 

96,283

-

-

-

-

96,283


15 Mar 2025

 

96,283

-

-

-

-

96,283


15 Mar 2026

 

96,283

-

-

-

-

96,283


15 Mar 2027

 

96,283

-

-

-

-

96,283


15 Mar 2028

 

2022-24 LTIP

4.876

-

96,772

-

-

-

96,772

14 Mar 2025

14 Mar 2026

 

-

96,772

-

-

-

96,772


14 Mar 2027

 

-

96,772

-

-

-

96,772


14 Mar 2028

 

-

96,772

-

-

-

96,772


14 Mar 2029

 

-

96,773

-

-

-

96,773


14 Mar 2030

 

Sharesave

4.980

1,807

-

-

-

-

1,807

-

1 Dec 2022

 

 

 

Page 127

 

1. For the 2022-24 LTIP awards granted to Bill Winters and Andy Halford on 14 March 2022, the values granted were: Bill Winters: £3.1 million; Andy Halford £2.0 million.
The number of shares awarded in respect of the LTIP took into account the lack of dividend equivalents (calculated by reference to market consensus dividend yield) such that the overall value of the award was maintained. Performance measures apply to 2022-24 LTIP awards. The closing price on the day before grant was £4.876.

2. Dividend equivalent shares may be awarded on vesting for awards granted prior to 1 January 2018. On 31 March 2020 Standard Chartered announced that in response to the request from the PRA and as a consequence of the unprecedented challenges facing the world due to the COVID-19 pandemic, the Board decided to withdraw the recommendation to pay a final dividend for 2019. Dividend equivalent shares allocated to the 2016-18 LTIP and 2017-19 awards vesting in 2022 did not include any shares relating to the cancelled dividend.

3. On 10 March 2022, 28,178 shares (before tax) were delivered to Bill Winters from the vesting element of the 2018-20 LTIP award and 17,448 shares (before tax) were delivered to Andy Halford from the vesting element of the 2018-20 LTIP award. The closing share price on the day before the shares were delivered was £4.931. On 14 March 2022, 48,428 shares (before tax) were delivered to Bill Winters from the vesting element of the 2017-19 LTIP award and 29,982 shares (before tax) were delivered to Andy Halford from the vesting element of the 2017-19 LTIP award. The closing share price on the day before the shares were delivered was £4.876. On 21 March 2022, 30,604 shares (before tax) were delivered to Bill Winters from the vesting element of the 2019-21 LTIP award and 19,571 shares (before tax) were delivered to Andy Halford from the vesting element of the 2019-21 LTIP award. The closing share price on the day before the delivery was £5.064. On 6 May 2022, Bill Winters 36,023 shares (before tax) were delivered to Bill Winters from the vesting element of the 2016-18 LTIP award and 21,510 shares (before tax) were delivered to Andy Halford from the vesting element of the 2016-18 LTIP award. The closing share price on the day before the delivery was £5.65.

4. The unvested LTIP awards held by Bill Winters and Andy Halford are conditional rights. They do not have to pay towards these awards. Under these awards, shares are delivered on vesting or as soon as practicable thereafter.

5. The unvested Sharesave option held by Andy Halford is an option granted on 1 October 2019 under the 2013 Plan - to exercise this option, Andy has to pay an exercise price of £4.98 per share, which has been discounted by 20 per cent

As at 30 June 2022, none of the directors had registered an interest or short position in the shares, underlying shares or debentures of the Company or any of its associated corporations that was required to be recorded pursuant to section 352 of the Securities and Futures Ordinance, or as otherwise notified to the Company and the Hong Kong Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers.

Shareholdings and share interests

The following table summarises the executive directors' shareholdings and share interests.


Shares held beneficially1,2,3

Unvested share awards not subject to performance measures
(net of tax)4

Total shares counting towards shareholding requirement

Shareholding requirement

Salary2

Value of shares counting towards shareholding requirement as a percentage
of salary1

Unvested share awards subject to performance measures (before tax)

B Winters

 2,309,799

171,064

2,480,863

250% salary

£2,434,000

631%

2,315,512

A Halford

985,216

108,627

1,093,843

200% salary

£1,556,000

435%

1,465,157

1. All figures are as of 30 June 2022 unless stated otherwise. The closing share price on 30 June 2022 was £6.186. No director had either: (i) an interest in Standard
Chartered PLC's preference shares or loan stocks of any subsidiary or associated undertaking of the Group; or (ii) any corporate interested in Standard Chartered PLC's ordinary shares

2. The beneficial interests of directors and connected persons in the ordinary shares of the Company are set out above. The executive directors so not have any non-beneficial interest in the Company's shares. Neither of the executive directors used ordinary shares as collateral for any loans

3. The salary and shares held beneficially include shares awarded to deliver the executive directors' salary shares

4. 23 per cent of the 2019-21 LTIP award is no longer subject to performance measures due to achievement against 2019-21 strategic measures

5. As Bill and Andy are both UK taxpayers: zero per cent tax is assumed to apply to Sharesave (as Sharesave is a UK tax qualified share plan) and 48.25 per cent tax
is assumed to apply to other unvested share awards (marginal combined PAYE rate of income tax at 45 per cent and employee social security contributions at
3.25 per cent) - rates may change

E. Share price information

The middle market price of an ordinary share at the close of business on 30 June 2022 was 618.6 pence. The share price range during the first half of 2022 was 450.4 pence to 638.6 pence (based on the closing middle market prices).

F. Substantial shareholders

The Company and its shareholders have been granted partial exemption from the disclosure requirements under Part XV of the Securities and Futures Ordinance (SFO). As a result of this exemption, shareholders no longer have an obligation under Part XV of the SFO (other than Divisions 5, 11 and 12 thereof) to notify the Company of substantial shareholding interests, and the Company is no longer required to maintain a register of interests of substantial shareholders under section 336 of the SFO. The Company is, however, required to file with The Stock Exchange of Hong Kong Limited any disclosure of interests made in the UK.

G. Code for Financial Reporting Disclosure

The UK Finance Code for Financial Reporting Disclosure sets out five disclosure principles together with supporting guidance. The principles are that UK banks will: provide high-quality, meaningful and decision useful disclosures; review and enhance their financial instrument disclosures for key areas of interest; assess the applicability and relevance of good practice recommendations to their disclosures, acknowledging the importance of such guidance; seek to enhance the comparability of financial statement disclosures across the UK banking sector; and clearly differentiate in their annual reports between information that is audited and information that is unaudited.

The Group's interim financial statements for the six months ended 30 June 2022 have been prepared in accordance with the Code's principles.

H. Employees

The details regarding our remuneration policies, bonus schemes and training schemes have not materially changed from our 2021 Annual Report and Accounts and we will be updating on these in our 2022 Annual Report.

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Shareholder information

Dividend and interest payment dates

Ordinary shares

2022 interim dividend (cash only)

Results and dividend announced

29 July 2022

Ex-dividend date

11 (UK) 10 (HK) August 2022

Record date

12 August 2022

Last date to amend currency election instructions for cash dividend*

19 September 2022

Dividend payment date

14 October 2022

*in either US dollars, sterling, or Hong Kong dollars


 2022 final dividend (provisional only)

Results and dividend announcement date

 16 February 2023

 

Preference shares

Second half-yearly dividend

7 3/8 per cent Non-Cumulative Irredeemable preference shares of £1 each

1 October 2022

8 ¼ per cent Non-Cumulative Irredeemable preference shares of £1 each

1 October 2022

6.409 per cent Non-Cumulative preference shares of $5 each

30 July 2022, 30 October 2022

7.014 per cent Non-Cumulative preference shares of $5 each

30 July 2022

Previous dividend payments (unadjusted for the impact of the 2015/2010/2008 rights issues)

Dividend and financial year

Payment date

Dividend per ordinary share

Cost of one new ordinary share under share dividend scheme

Interim 2008

9 October 2008

25.67c/13.96133p/HK$1.995046

£14.00/$26.0148

Final 2008

15 May 2009

42.32c/28.4693p/HK$3.279597

£8.342/$11.7405

Interim 2009

8 October 2009

21.23c/13.25177p/HK$1.645304

£13.876/$22.799

Final 2009

13 May 2010

44.80c/29.54233p/HK$3.478306

£17.351/$26.252

Interim 2010

5 October 2010

23.35c/14.71618p/HK$1.811274/INR0.9841241

£17.394/$27.190

Final 2010

11 May 2011

46.65c/28.272513p/HK$3.623404/INR1.99751701

£15.994/$25.649

Interim 2011

7 October 2011

24.75c/15.81958125p/HK$1.928909813/INR1.137971251

£14.127/$23.140

Final 2011

15 May 2012

51.25c/31.63032125p/HK$3.9776083375/INR2.66670151

£15.723/$24.634

Interim 2012

11 October 2012

27.23c/16.799630190p/HK$2.111362463/INR1.3498039501

£13.417/$21.041

Final 2012

14 May 2013

56.77c/36.5649893p/HK$4.4048756997/INR2.9762835751

£17.40/$26.28792

Interim 2013

17 October 2013

28.80c/17.8880256p/HK$2.233204992/INR1.68131

£15.362/$24.07379

Final 2013

14 May 2014

57.20c/33.9211444p/HK$4.43464736/INR3.3546261

£11.949/$19.815

Interim 2014

20 October 2014

28.80c/17.891107200p/HK$2.2340016000/INR1.6718425601

£12.151/$20.207

Final 2014

14 May 2015

57.20c/37.16485p/HK$4.43329/INR3.5140591

£9.797/$14.374

Interim 2015

19 October 2015

14.40c/9.3979152p/HK$1.115985456/INR0.861393721

£8.5226/$13.34383

Final 2015

No dividend declared

N/A

N/A

Interim 2016

No dividend declared

N/A

N/A

Final 2016

No dividend declared

N/A

N/A

Interim 2017

No dividend declared

N/A

N/A

Final 2017

17 May 2018

11.00c/7.88046p/HK$0.86293/INR0.6536433401

£7.7600/$10.83451

Interim 2018

22 October 2018

6.00c/4.59747p/HK$0.46978/INR0.36961751

£6.7104/$8.51952

Final 2018

16 May 2019

15.00c/11.569905p/HK$1.176260/INR0.9576916501

N/A

Interim 2019

21 October 2019

7.00c/5.676776p/HK$0.548723/INR0.4250286001

N/A

Final 2019

Dividend withdrawn

N/A

N/A

Interim 2020

No dividend declared

N/A

N/A

Final 2020

25 February 2021

9.00c/6.472413p/HK$0.698501

N/A

Interim 2021

22 October 2021

3.00c/2.204877p/HK$0.233592

N/A

Final 2021

12 May 2022

9.00c/6.894144p/HK$0.705772

N/A

1 The INR dividend was per Indian Depository Receipt. In March 2020, the Group announced the termination of the IDR programme. The IDR programme was formally delisted from the BSE Limited (formerly the Bombay Stock Exchange) and National Stock Exchange of India Limited with effect from 22 July 2020.

Further details regarding dividends can be found on our website at sc.com/shareholders

 

 

 

Page 129

ShareCare

ShareCare is available to shareholders on the Company's UK register who have a UK address and bank account. It allows you to hold your Standard Chartered PLC shares in a nominee account. Your shares will be held in electronic form so you will no longer have to worry about keeping your share certificates safe. If you join ShareCare, you will still be invited to attend the Company's AGM and you will receive any dividend paid at the same time as everyone else. ShareCare is free to join and there are no annual fees to pay. If you would like to receive more information, please contact the shareholder helpline on 0370 702 0138.

Donating shares to ShareGift

Shareholders who have a small number of shares often find it uneconomical to sell them. An alternative is to consider donating them to the charity ShareGift (registered charity 1052686), which collects donations of unwanted shares until there are enough to sell and uses the proceeds to support UK charities. There is no implication for capital gains tax (no gain or loss) when you donate shares to charity, and UK taxpayers may be able to claim income tax relief on the value of their donation. Further information can be obtained from the Company's registrars or from ShareGift on 020 7930 3737 or from sharegift.org.

Bankers' Automated Clearing System (BACS)

Dividends can be paid straight into your bank or building society account. Please register online at investorcentre.co.uk or contact our registrar for a mandate form.

Registrars and shareholder enquiries

If you have any enquiries relating to your shareholding and you hold your shares on the UK register, please contact our registrar Computershare Investor Services PLC, The Pavilions, Bridgwater Road, Bristol, BS99 6ZZ or call the shareholder helpline number on 0370 702 0138.

If you hold your shares on the Hong Kong branch register and you have enquiries, please contact Computershare Hong Kong Investor Services Limited, 17M Floor, Hopewell Centre, 183 Queen's Road East, Wan Chai, Hong Kong. You can check your shareholding at: computershare.com/hk/en.

Chinese translation

If you would like a Chinese version of this Half Year Report, please contact: Computershare Hong Kong Investor Services Limited at 17M Floor, Hopewell Centre, 183 Queen's Road East, Wan Chai, Hong Kong.

本半年報告之中文譯本可向香港中央證券登記有限公司索取,地址:香港灣仔皇后大道東183號合和中心17M樓。

Shareholders on the Hong Kong branch register who have asked to receive corporate communications in either Chinese or English can change this election by contacting Computershare. If there is a dispute between any translation and the English version of this Half Year Report, the English text shall prevail.

Electronic communications

If you hold your shares on the UK register and in future you would like to receive the Half Year Report electronically rather than by post, please register online at: investorcentre.co.uk. Then click on 'register' and follow the instructions. You will need to have your Shareholder or ShareCare reference number when you log on. You can find this on your share certificate or ShareCare statement. Once registered, you can also submit your proxy vote and dividend election electronically and change your bank mandate or address information.

 

 

 

 

 

 

 

Page 130

Important notices

Forward-looking statements

This document may contain 'forward-looking statements' that are based on current expectations or beliefs, as well as assumptions about future events. These forward-looking statements can be identified by the fact that they do not relate only to historical or current facts. Forward-looking statements often use words such as 'may', 'could', 'will', 'expect', 'intend', 'estimate', 'anticipate', 'believe', 'plan', 'seek', 'continue' or other words of similar meaning.

By their very nature, forward-looking statements are subject to known and unknown risks and uncertainties and can be affected by other factors that could cause actual results, and the Group's plans and objectives, to differ materially from those expressed or implied in the forward-looking statements. Recipients should not place reliance on, and are cautioned about relying on, any forward-looking statements. There are several factors which could cause actual results to differ materially from those expressed or implied in forward-looking statements. The factors that could cause actual results to differ materially from those described in the forward-looking statements include (but are not limited to): changes in global, political, economic, business, competitive and market forces or conditions; future exchange and interest rates; changes in environmental, social or physical risks; legislative, regulatory and policy developments; the development of standards and interpretations; the ability of the Group to mitigate the impact of climate change effectively; risks arising out of health crisis and pandemics; changes in tax rates, future business combinations or dispositions; and other factors specific to the Group. Any forward-looking statement contained in this document is based on past or current trends and/or activities of the Group and should not be taken as a representation that such trends or activities will continue in the future.

No statement in this document is intended to be a profit forecast or to imply that the earnings of the Group for the current year or future years will necessarily match or exceed the historical or published earnings of the Group. Each forward-looking statement speaks only as of the date of the particular statement. Except as required by any applicable laws or regulations, the Group expressly disclaims any obligation to revise or update any forward-looking statement contained within this document, regardless of whether those statements are affected as a result of new information, future events or otherwise.

Financial instruments

Nothing in this document shall constitute, in any jurisdiction, an offer or solicitation to sell or purchase any securities or other financial instruments, nor shall it constitute a recommendation or advice in respect of any securities or other financial instruments or any other matter.

Caution regarding climate and environment related information

Some of the climate and environment related information in this document is subject to certain limitations, and therefore the reader should treat the information provided, as well as conclusions, projections and assumptions drawn from such information, with caution. The information may be limited due to a number of factors, which include (but are not limited to): a lack of reliable data; a lack of standardisation of data; and future uncertainty. The information includes externally sourced data that may not have been verified. Furthermore, some of the data, models and methodologies used to create the information is subject to adjustment which is beyond our control, and the information is subject to change without notice. This disclaimer does not apply to the Group's condensed consolidated interim financial statements and notes as set out in Note 1 - Statement of compliance.

 

 

 

 

 

 

 

 

 

Page 131

Glossary

Absolute financed emissions

A measurement of our attributed share of our clients' greenhouse gas emissions.

AT1 or Additional Tier 1 capital

Additional Tier 1 capital consists of instruments other than Common Equity Tier 1 that meet the Capital Requirements Regulation (as it forms part of UK domestic law) criteria for inclusion in Tier 1 capital.

Additional value adjustment

See 'Prudent valuation adjustment'.

Advanced Internal Rating Based (AIRB) approach

The AIRB approach under the Basel framework is used to calculate credit risk capital based on the Group's own estimates of prudential parameters.

Alternative performance measures

A financial measure of historical or future financial performance, financial position, or cash flows, other than a financial measure defined or specified in the applicable financial reporting framework.

ASEAN

Association of South East Asian Nations (ASEAN) which includes the Group's operations in Brunei, Indonesia, Malaysia, Philippines, Singapore, Thailand and Vietnam.

AUM or Assets under management

Total market value of assets such as deposits, securities and funds held by the Group on behalf of the clients.

Basel II

The capital adequacy framework issued by the Basel Committee on Banking Supervision (BCBS) in June 2006 in the form of the International Convergence of Capital Measurement and Capital Standards.

Basel III

The global regulatory standards on bank capital adequacy and liquidity, originally issued in December 2010 and updated in June 2011. In December 2017, the BCBS published a document setting out the finalisation of the Basel III framework. The latest requirements issued in December 2017 will be implemented from 2022.

BCBS or Basel Committee on Banking Supervision

A forum on banking supervisory matters which develops global supervisory standards for the banking industry. Its members are officials from 45 central banks or prudential supervisors from 28 countries and territories.

Basic earnings per share (EPS)

Represents earnings divided by the basic weighted average number of shares.

Basis point (bps)

One hundredth of a per cent (0.01 per cent); 100 basis points is 1 per cent.

Capital-lite income

Income derived from products with low RWA consumption or products which are non-funding in nature.

 

 

 

Page 132

CRD or Capital Requirements Directive

A capital adequacy legislative package adopted by the PRA. CRD comprises the Capital Requirements Directive and the UK onshored Capital Requirements Regulation (CRR). The package implements the Basel III framework together with transitional arrangements for some of its requirements. CRD IV came into force on 1 January 2014. The EU CRR II and CRD V amending the existing package came into force in June 2019 with most changes starting to apply from 28 June 2021. Only those parts of the EU CRR II that applied on or before 31 December 2020, when the UK was a member of the EU, have been implemented. The PRA recently finalised the UK's version of the CRR II for implementation into the PRA Rulebook on 1 January 2022.

Capital resources

Sum of Tier 1 and Tier 2 capital after regulatory adjustments.

CGU or Cash-generating unit

The smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets.

Cash shortfall

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

Clawback

An amount an individual is required to pay back to the Group, which has to be returned to the Group under certain circumstances.

Commercial real estate

Includes office buildings, industrial property, medical centres, hotels, malls, retail stores, shopping centres, farm land, multi-family housing buildings, warehouses, garages, and industrial properties. Commercial real estate loans are those backed by a package of commercial real estate assets.

CET1 or Common Equity Tier 1 capital

Common Equity Tier 1 capital consists of the common shares issued by the Group and related share premium, retained earnings, accumulated other comprehensive income and other disclosed reserves, eligible non-controlling interests and regulatory adjustments required in the calculation of Common Equity Tier 1.

CET1 ratio

A measure of the Group's CET1 capital as a percentage of risk-weighted assets.

Contractual maturity

Contractual maturity refers to the final payment date of a loan or other financial instrument, at which point all the remaining outstanding principal and interest is due to be paid.

Countercyclical capital buffer

The countercyclical capital buffer (CCyB) is part of a set of macroprudential instruments, designed to help counter procyclicality in the financial system. CCyB as defined in the Basel III standard provides for an additional capital requirement of up to 2.5 per cent of risk-weighted assets in a given jurisdiction. The Bank of England's Financial Policy Committee has the power to set the CCyB rate for the United Kingdom. Each bank must calculate its 'institution-specific' CCyB rate, defined as the weighted average of the CCyB rates in effect across the jurisdictions in which it has credit exposures. The institution-specific CCyB rate is then applied to a bank's total risk-weighted assets.

Counterparty credit risk

The risk that a counterparty defaults before satisfying its obligations under a derivative, a securities financing transaction (SFT) or a similar contract.

 

 

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CCF or Credit conversion factor

An estimate of the amount the Group expects a customer to have drawn further on a facility limit at the point of default. This is either prescribed by CRR or modelled by the bank.

CDS or Credit default swaps

A credit derivative is an arrangement whereby the credit risk of an asset (the reference asset) is transferred from the buyer to the seller of protection. A credit default swap is a contract where the protection seller receives premium or interest-related payments in return for contracting to make payments to the protection buyer upon a defined credit event. Credit events normally include bankruptcy, payment default on a reference asset or assets, or downgrades by a rating agency.

Credit institutions

An institution whose business is to receive deposits or other repayable funds from the public and to grant credits for its
own account.

Credit risk mitigation

Credit risk mitigation is a process to mitigate potential credit losses from any given account, customer or portfolio by using a range of tools such as collateral, netting agreements, credit insurance, credit derivatives and guarantees.

CVA or Credit valuation adjustments

An adjustment to the fair value of derivative contracts that reflects the possibility that the counterparty may default such that the Group would not receive the full market value of the contracts.

Customer accounts

Money deposited by all individuals and companies which are not credit institutions including securities sold under
repurchase agreement (see repo/reverse repo). Such funds are recorded as liabilities in the Group's balance sheet under customer accounts.

Days past due

One or more days that interest and/or principal payments are overdue based on the contractual terms.

DVA or Debit valuation adjustment

An adjustment to the fair value of derivative contracts that reflects the possibility that the Group may default and not pay the full market value of contracts.

Debt securities

Debt securities are assets on the Group's balance sheet and represent certificates of indebtedness of credit institutions, public bodies or other undertakings excluding those issued by central banks.

Debt securities in issue

Debt securities in issue are transferable certificates of indebtedness of the Group to the bearer of the certificate. These are liabilities of the Group and include certificates of deposits.

Default

Financial assets in default represent those that are at least 90 days past due in respect of principal or interest and/or where the assets are otherwise considered to be unlikely to pay, including those that are credit-impaired.

Deferred tax asset

Income taxes recoverable in future periods in respect of deductible temporary differences between the accounting and tax base of an asset or liability that will result in tax deductible amounts in future periods, the carry-forward of tax losses or the carry-forward of unused tax credits.

Deferred tax liability

Income taxes payable in future periods in respect of taxable temporary differences between the accounting and tax base of an asset or liability that will result in taxable amounts in future periods.

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Defined benefit obligation

The present value of expected future payments required to settle the obligations of a defined benefit scheme resulting from employee service.

Defined benefit scheme

Pension or other post-retirement benefit scheme other than a defined contribution scheme.

Defined contribution scheme

A pension or other post-retirement benefit scheme where the employer's obligation is limited to its contributions to the fund.

Delinquency

A debt or other financial obligation is considered to be in a state of delinquency when payments are overdue. Loans and advances are considered to be delinquent when consecutive payments are missed. Also known as arrears.

Deposits by banks

Deposits by banks comprise amounts owed to other domestic or foreign credit institutions by the Group including securities sold under repo.

Diluted earnings per share (EPS)

Represents earnings divided by the weighted average number of shares that would have been outstanding assuming the conversion of all dilutive potential ordinary shares.

Dividend per share

Represents the entitlement of each shareholder in the share of the profits of the Company. Calculated in the lowest unit of currency in which the shares are quoted.

Early alert, purely and non-purely precautionary

A borrower's account which exhibits risks or potential weaknesses of a material nature requiring closer monitoring, supervision, or attention by management. Weaknesses in such a borrower's account, if left uncorrected, could result in deterioration of repayment prospects and the likelihood of being downgraded to credit grade 12 or worse. When an account is on early alert, it is classified as either purely precautionary or non-purely precautionary. A purely precautionary account is one that exhibits early alert characteristics, but these do not present any imminent credit concern. If the symptoms present an imminent credit concern, an account will be considered for classification as non-purely precautionary.

Effective tax rate

The tax on profit/(losses) on ordinary activities as a percentage of profit/ (loss) on ordinary activities before taxation.

Encumbered assets

On-balance sheet assets pledged or used as collateral in respect of certain of the Group's liabilities.

EU or European Union

The European Union (EU) is a political and economic union of 27 member states that are located primarily in Europe.

Eurozone

Represents the 19 EU countries that have adopted the euro as their common currency.

ECL or Expected credit loss

Represents the present value of expected cash shortfalls over the residual term of a financial asset, undrawn commitment or financial guarantee.

 

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Expected loss

The Group measure of anticipated loss for exposures captured under an internal ratings-based credit risk approach for capital adequacy calculations. It is measured as the Group-modelled view of anticipated loss based on probability of default, loss given default and exposure at default, with a one-year time horizon.

EAD or Exposure at default

The estimation of the extent to which the Group may be exposed to a customer or counterparty in the event of, and at the time of, that counterparty's default. At default, the customer may not have drawn the loan fully or may already have repaid some of the principal, so that exposure is typically less than the approved loan limit.

Exposures

Credit exposures represent the amount lent to a customer, together with any undrawn commitments.

ECAI or External Credit Assessment Institution

External credit ratings are used to assign risk-weights under the standardised approach for sovereigns, corporates and institutions. The external ratings are from credit rating agencies that are registered or certified in accordance with the credit rating agencies regulation or from a central bank issuing credit ratings which is exempt from the application of this regulation.

ESG

Environmental, Social and Governance.

FCA or Financial Conduct Authority

The Financial Conduct Authority regulates the conduct of financial firms and, for certain firms, prudential standards in the UK. It has a strategic objective to ensure that the relevant markets function well.

Forbearance

Forbearance takes place when a concession is made to the contractual terms of a loan in response to an obligor's financial difficulties. The Group classifies such modified loans as either 'Forborne - not impaired loans' or 'Loans subject to forbearance - impaired'. Once a loan is categorised as either of these, it will remain in one of these two categories until the loan matures or satisfies the 'curing' conditions described in Note 8 to the financial statements.

Forborne - not impaired loans

Loans where the contractual terms have been modified due to financial difficulties of the borrower, but the loan is not considered to be impaired. See 'Forbearance'.

Funded/unfunded exposures

Exposures where the notional amount of the transaction is funded or unfunded. Represents exposures where a commitment to provide future funding is made but funds have been released/ not released.

FVA or Funding valuation adjustments

FVA reflects an adjustment to fair value in respect of derivative contracts that reflects the funding costs that the market participant would incorporate when determining an exit price.

G-SIBs or Global Systemically Important Banks

Global banking financial institutions whose size, complexity and systemic interconnectedness mean that their distress or failure would cause significant disruption to the wider financial system and economic activity. The list of G-SIBs is assessed under a framework established by the Financial Stability Board (FSB) and the BCBS. In the UK, the G-SIB framework is implemented via the CRD and G-SIBs are referred to as Global Systemically Important Institutions (G-SIIs).

G-SIB buffer

A CET1 capital buffer which results from designation as a G-SIB. The G-SIB buffer is between 1 per cent and 3.5 per cent, depending on the allocation to one of five buckets based on the annual scoring. In the UK, the G-SIB buffer is implemented via the CRD as Global Systemically Important Institutions (G-SII) buffer requirement.

Page 136

Green and Sustainable Product Framework

Sets out underlying eligible qualifying themes and activities that may be considered ESG. This has been developed with the support of external experts, has been informed by industry and supervisory principles and standards such as the Green Bond Principles and EU Taxonomy for sustainable activities.

Hong Kong regional hub

Standard Chartered Bank (Hong Kong) Limited and its subsidiaries including the primary operating entities in China, Korea and Taiwan. Standard Chartered PLC is the ultimate parent company of Standard Chartered Bank (Hong Kong) Limited.

Interest rate risk

The risk of an adverse impact on the Group's income statement due to changes in interest rates.

Internal model approach

The approach used to calculate market risk capital and RWA with an internal market risk model approved by the PRA under the terms of CRD/CRR.

IRB or internal ratings-based approach

Risk-weighting methodology in accordance with the Basel Capital Accord where capital requirements are based on a firm's own estimates of prudential parameters.

IAS or International Accounting Standard

A standard that forms part of the International Financial Reporting Standards framework.

IASB or International Accounting Standards Board

An independent standard-setting body responsible for the development and publication of IFRS, and approving interpretations of IFRS standards that are recommended by the IFRS Interpretations Committee (IFRIC).

IFRS or International Financial Reporting Standards

A set of international accounting standards developed and issued by the International Accounting Standards Board, consisting of principles-based guidance contained within IFRSs and IASs. All companies that have issued publicly traded securities in the EU are required to prepare annual and interim reports under IFRS and IAS standards that have been endorsed by the EU.

IFRIC

The IFRS Interpretations Committee supports the IASB in providing authoritative guidance on the accounting treatment of issues not specifically dealt with by existing IFRSs and IASs.

Investment grade

A debt security, treasury bill or similar instrument with a credit rating measured by external agencies of AAA to BBB.

Leverage ratio

A ratio that compares Tier 1 capital to total exposures, including certain exposures held off-balance sheet as adjusted by stipulated credit conversion factors. Intended to be a simple, non-risk-based backstop measure.

Liquidation portfolio

A portfolio of assets which is beyond our current risk appetite metrics and is held for liquidation.

LCR or Liquidity coverage ratio

The ratio of the stock of high-quality liquid assets to expected net cash outflows over the following 30 days. High-quality liquid assets should be unencumbered, liquid in markets during a time of stress and, ideally, be central bank eligible.

Loan exposure

Loans and advances to customers reported on the balance sheet held at amortised cost or FVOCI, non-cancellable credit commitments and cancellable credit commitments for credit cards and overdraft facilities.

Page 137

Loans and advances to customers

This represents lending made under bilateral agreements with customers entered into in the normal course of business and is based on the legal form of the instrument.

Loans and advances to banks

Amounts loaned to credit institutions including securities bought under Reverse repo.

LTV or loan-to-value ratio

A calculation which expresses the amount of a first mortgage lien as a percentage of the total appraised value of real property. The loan-to-value ratio is used in determining the appropriate level of risk for the loan and therefore the correct price of the loan to the borrower.

Loans past due

Loans on which payments have been due for up to a maximum of 90 days including those on which partial payments are being made.

Loans subject to forbearance - impaired

Loans where the terms have been renegotiated on terms not consistent with current market levels due to financial difficulties of the borrower. Loans in this category are necessarily impaired. See 'Forbearance'.

LGD or Loss given default

The percentage of an exposure that a lender expects to lose in the event of obligor default.

Loss rate

Uses an adjusted gross charge-off rate, developed using monthly write-off and recoveries over the preceding 12 months and total outstanding balances.

Low returning clients

See 'Perennial sub-optimal clients'.

Malus

An arrangement that permits the Group to prevent vesting of all or part of the amount of an unvested variable remuneration award, due to a specific crystallised risk, behaviour, conduct or adverse performance outcome.

Master netting agreement

An agreement between two counterparties that have multiple derivative contracts with each other that provides for the net settlement of all contracts through a single payment, in a single currency, in the event of default on, or termination of, any one contract.

Mezzanine capital

Financing that combines debt and equity characteristics. For example, a loan that also confers some profit participation to the lender.

MREL or minimum requirement for own funds and eligible liabilities

A requirement under the Bank Recovery and Resolution Directive for EU resolution authorities to set a minimum requirement for own funds and eligible liabilities for banks, implementing the FSB's Total Loss Absorbing Capacity (TLAC) standard. MREL is intended to ensure that there is sufficient equity and specific types of liabilities to facilitate an orderly resolution that minimises any impact on financial stability and ensures the continuity of critical functions and avoids exposing taxpayers to loss.

Net asset value (NAV) per share

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

 

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Net exposure

The aggregate of loans and advances to customers/loans and advances to banks after impairment provisions, restricted balances with central banks, derivatives (net of master netting agreements), investment debt and equity securities, and letters of credit and guarantees.

Net zero

The commitment to reaching net zero carbon emissions from our operations by 2025 and from our financing by 2050.

NII or Net interest income

The difference between interest received on assets and interest paid on liabilities.

NSFR or Net stable funding ratio

The ratio of available stable funding to required stable funding over a one-year time horizon, assuming a stressed scenario. It is a longer-term liquidity measure designed to restrain the amount of wholesale borrowing and encourage stable funding over a one-year time horizon.

NPLs or non-performing loans

An NPL is any loan that is more than 90 days past due or is otherwise individually impaired. This excludes Retail 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.

Non-linearity

Non-linearity of expected credit loss occurs when the average of expected credit loss for a portfolio is higher than the base case (median) due to the fact that a bad economic environment could have a larger impact on ECL calculation than a good economic environment.

Normalised items

See 'Underlying/Normalised'.

Operating expenses

Staff and premises costs, general and administrative expenses, depreciation and amortisation. Underlying operating expenses exclude expenses as described in 'Underlying earnings'. A reconciliation between underlying and statutory earnings is contained in Note 2 to the financial statements.

Operating income or operating profit

Net interest, net fee and net trading income, as well as other operating income. Underlying operating income represents the income line items above, on an underlying basis. See 'Underlying earnings'.

OTC or Over-the-counter derivatives

A bilateral transaction (e.g. derivatives) that is not exchange traded and that is valued using valuation models.

OCA or Own credit adjustment

An adjustment to the Group's issued debt designated at fair value through profit or loss that reflects the possibility that the Group may default and not pay the full market value of the contracts.

Perennial sub-optimal clients

Clients that have returned below 3 per cent return on risk-weighted assets for the last three years.

Physical risks

The risk of increased extreme weather events including flood, drought and sea level rise.

 

 

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Pillar 1

The first pillar of the three pillars of the Basel framework which provides the approach to calculation of the minimum
capital requirements for credit, market and operational risk. Minimum capital requirements are 8 per cent of the Group's risk-weighted assets.

Pillar 2

The second pillar of the three pillars of the Basel framework which requires banks to undertake a comprehensive assessment of their risks that are not already covered by Pillar 1 and to determine the appropriate amounts of capital to be held against these risks where other suitable mitigants are not available.

Pillar 3

The third pillar of the three pillars of the Basel framework which aims to provide a consistent and comprehensive disclosure framework that enhances comparability between banks and further promotes improvements in risk practices.

Priority Banking

Priority Banking customers are individuals who have met certain criteria for deposits, AUM, mortgage loans or monthly payroll. Criteria varies by country.

Private equity investments

Equity securities in operating companies generally not quoted on a public exchange. Investment in private equity often involves the investment of capital in private companies. Capital for private equity investment is raised by retail or institutional investors and used to fund investment strategies such as leveraged buyouts, venture capital, growth capital, distressed investments and mezzanine capital.

PD or Probability of default

PD is an internal estimate for each borrower grade of the likelihood that an obligor will default on an obligation over a given time horizon.

Probability weighted

Obtained by considering the values the metric can assume, weighted by the probability of each value occurring.

Profit (loss) attributable to ordinary shareholders

Profit (loss) for the year after non-controlling interests and dividends declared in respect of preference shares classified as equity.

PVA or Prudent valuation adjustment

An adjustment to CET1 capital to reflect the difference between fair value and prudent value positions, where the application of prudence results in a lower absolute carrying value than recognised in the financial statements.

PRA or Prudential Regulation Authority

The Prudential Regulation Authority is the statutory body responsible for the prudential supervision of banks, building societies, credit unions, insurers and a small number of significant investment firms in the UK. The PRA is a part of the
Bank of England.

Regulatory or Prudential consolidation

The regulatory consolidation of Standard Chartered PLC differs from the statutory consolidation in that it only includes undertakings that are credit institutions, investment firms, other financial institutions, and ancillary service undertakings. Subsidiaries continue to be fully consolidated, whilst participations in undertakings that principally engage in these financial services activities are proportionally consolidated. These participations are considered associates for statutory accounting purposes. Insurance or corporate entities are excluded from the scope of prudential consolidation and recognised on an equity accounted basis.

 

 

140

Repo/reverse repo

A repurchase agreement or repo is a short-term funding agreement, which allows a borrower to sell a financial asset, such as asset-backed securities or government bonds as collateral for cash. As part of the agreement the borrower agrees to repurchase the security at some later date, usually less than 30 days, repaying the proceeds of the loan. For the party on the other end of the transaction (buying the security and agreeing to sell in the future), it is a reverse repurchase agreement or reverse repo.

Residential mortgage

A loan to purchase a residential property which is then used as collateral to guarantee repayment of the loan. The borrower gives the lender a lien against the property, and the lender can foreclose on the property if the borrower does not repay the loan per the agreed terms. Also known as a home loan.

RoRWA or Return on risk-weighted assets

Profit before tax for year as a percentage of RWA. Profit may be statutory or underlying and is specified where used. See 'RWA' and 'Underlying earnings'.

Revenue-based carbon intensity

A measurement of the quantity of greenhouse gases emitted by our clients per USD of their revenue.

RWA or Risk-weighted assets

A measure of a bank's assets adjusted for their associated risks, expressed as a percentage of an exposure value in accordance with the applicable standardised or IRB approach provisions.

Risks-not-in-VaR (RNIV)

A framework for identifying and quantifying marginal types of market risk that are not captured in the Value at Risk (VaR) measure for any reason, such as being a far-tail risk or the necessary historical market data not being available.

Roll rate

Uses a matrix that gives average loan migration rate from delinquency states from period to period. A matrix multiplication is then performed to generate the final PDs by delinquency bucket over different time horizons.

Scope 1 emissions

Arise from the consumption of energy from direct sources during the use of property occupied by the Group. On-site combustion of fuels such as diesel, liquefied petroleum gas and natural gas is recorded using meters or, where metering is not available, collated from fuel vendor invoices. Emissions from the combustion of fuel in Group-operated transportation devices, as well as fugitive emissions, are excluded as being immaterial.

Scope 2 emissions

Arise from the consumption of indirect sources of energy during the use of property occupied by the Group. Energy generated off-site in the form of purchased electricity, heat, steam or cooling is collected as kilowatt hours consumed using meters or, where metering is not available, collated from vendor invoices. For leased properties we include all indirect and direct sources of energy consumed by building services (amongst other activities) within the space occupied by the Group. This can include base building services under landlord control but over which we typically hold a reasonable degree of influence. All data centre facilities with conditioning systems and hardware remaining under the operational control of the Group are included in the reporting. This does not include energy used at outsourced data centre facilities which are captured under Scope 3.

Scope 3 emissions

Occur as a consequence of the Group's activities but arising from sources not controlled by the Group. Business air travel data is collected as person kilometres travelled by seating class by employees of the Group. Data are drawn from country operations that have processes in place to gather accurate employee air travel data from travel management companies. Flights are categorised as short, medium or long haul trips. Emissions from other potential Scope 3 sources such as electricity transmission and distribution line losses are not currently accounted for on the basis that they cannot be calculated with an acceptable level of reliability or consistency. The Group does, however, capture Scope 3 emissions from outsourced data centres managed by third parties.

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Secured (fully and partially)

A secured loan is a loan in which the borrower pledges an asset as collateral for a loan which, in the event that the borrower defaults, the Group is able to take possession of. 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. All other secured loans are considered to be partly secured.

Securitisation

Securitisation is a process by which credit exposures are aggregated into a pool, which is used to back new securities. Under traditional securitisation transactions, assets are sold to a structured entity which then issues new securities to investors at different levels of seniority (credit tranching). This allows the credit quality of the assets to be separated from the credit rating of the originating institution and transfers risk to external investors in a way that meets their risk appetite. Under synthetic securitisation transactions, the transfer of risk is achieved by the use of credit derivatives or guarantees, and the exposures being securitised remain exposures of the originating institution.

Senior debt

Debt that takes priority over other unsecured or otherwise more 'junior' debt owed by the issuer. Senior debt has greater seniority in the issuer's capital structure than subordinated debt. In the event the issuer goes bankrupt, senior debt theoretically must be repaid before other creditors receive any payment.

SICR or Significant increase in credit risk

Assessed by comparing the risk of default of an exposure at the reporting date to the risk of default at origination (after considering the passage of time).

Solo

The solo regulatory group as defined in the Prudential Regulation Authority waiver letter dated 10 August 2020 differs from Standard Chartered Bank Company in that it includes the full consolidation of nine subsidiaries, namely Standard Chartered Holdings (International) B.V., Standard Chartered MB Holdings B.V., Standard Chartered UK Holdings Limited, Standard Chartered Grindlays PTY Limited, SCMB Overseas Limited, Standard Chartered Capital Management (Jersey) LLC, Cerulean Investments L.P., SC Ventures Innovation Investment L.P. and SC Ventures G.P. Limited.

Sovereign exposures

Exposures to central governments and central government departments, central banks and entities owned or guaranteed by the aforementioned. Sovereign exposures, as defined by the European Banking Authority, include only exposures to central governments.

Stage 1

Assets have not experienced a significant increase in credit risk since origination and impairment recognised on the basis of 12 months expected credit losses.

Stage 2

Assets have experienced a significant increase in credit risk since origination and impairment is recognised on the basis of lifetime expected credit losses.

Stage 3

Assets that are in default and considered credit-impaired (non-performing loans).

Standardised approach

In relation to credit risk, a method for calculating credit risk capital requirements using External Credit Assessment
Institutions (ECAI) ratings and supervisory risk weights. In relation to operational risk, a method of calculating the
operational capital requirement by the application of a supervisory defined percentage charge to the gross income
of eight specified business lines.

 

 

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Structured note

An investment tool which pays a return linked to the value or level of a specified asset or index and sometimes offers
capital protection if the value declines. Structured notes can be linked to equities, interest rates, funds, commodities
and foreign currency.

Subordinated liabilities

Liabilities which, in the event of insolvency or liquidation of the issuer, are subordinated to the claims of depositors and other creditors of the issuer.

Sustainability Aspirations

A series of targets and metrics by which we aim to promote social and economic development, and deliver sustainable outcomes in the areas in which we can make the most material contribution to the delivery of the UN Sustainable Development Goals.

Sustainable Finance assets

Assets from clients whose activities are aligned with the Green and Sustainable Product Framework and/or from transactions for which the use of proceeds will be utilised directly to contribute towards eligible themes and activities set out within the Green and Sustainable Product Framework.

Sustainable Finance revenue

Revenue from clients whose activities are aligned with the Green and Sustainable Product Framework and/or from transactions for which proceeds will be utilised directly to contribute towards eligible themes and activities set out within the Green and Sustainable Product Framework and/or from approved 'labelled' transactions such as any transaction referred to as "green", "social", "sustainable", "SDG (sustainable development goal) aligned", "ESG", "transition", "COVID-19 facility" or "COVID-19 response" which have been approved by the Sustainable Finance Governance Committee.

Tier 1 capital

The sum of Common Equity Tier 1 capital and Additional Tier 1 capital.

Tier 1 capital ratio

Tier 1 capital as a percentage of risk-weighted assets.

Tier 2 capital

Tier 2 capital comprises qualifying subordinated liabilities and related share premium accounts.

TLAC or Total loss absorbing capacity

An international standard for TLAC issued by the FSB, which requires G-SIBs to have sufficient loss-absorbing and recapitalisation capacity available in resolution, to minimise impacts on financial stability, maintain the continuity of
critical functions and avoid exposing public funds to loss.

Transition risks

The risk of changes to market dynamics or sectoral economics due to governments' response to climate change.

UK bank levy

A levy that applies to certain UK banks and the UK operations of foreign banks. The levy is payable each year based on a percentage of the chargeable equities and liabilities on the Group's UK tax resident entities' balance sheets. Key exclusions from chargeable equities and liabilities include Tier 1 capital, insured or guaranteed retail deposits, repos secured on certain sovereign debt and liabilities subject to netting.

Unbiased

Not overly optimistic or pessimistic, represents information that is not slanted, weighted, emphasised, de-emphasised or otherwise manipulated to increase the probability that the financial information will be received favourably or unfavourably by users.

 

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Unlikely to pay

Indications of unlikeliness to pay shall include placing the credit obligation on non-accrued status; the recognition of a specific credit adjustment resulting from a significant perceived decline in credit quality subsequent to the Group taking on the exposure; selling the credit obligation at a material credit-related economic loss; the Group consenting to a distressed restructuring of the credit obligation where this is likely to result in a diminished financial obligation caused by the material forgiveness, or postponement, of principal, interest or, where relevant fees; filing for the obligor's bankruptcy or a similar order in respect of an obligor's credit obligation to the Group; the obligor has sought or has been placed in bankruptcy or similar protection where this would avoid or delay repayment of a credit obligation to the Group.

VaR or Value at Risk

A quantitative measure of market risk estimating the potential loss that will not be exceeded in a set time period at a set statistical confidence level.

ViU or Value-in-Use

The present value of the future expected cash flows expected to be derived from an asset or CGU.

Write-downs

After an advance has been identified as impaired and is subject to an impairment provision, the stage may be reached whereby it is concluded that there is no realistic prospect of further recovery. Write-downs will occur when, and to the extent that, the whole or part of a debt is considered irrecoverable.

XVA

The term used to incorporate credit, debit and funding valuation adjustments to the fair value of derivative financial instruments. See 'CVA', 'DVA' and 'FVA'.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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CONTACT INFORMATION

 

Global headquarters

Standard Chartered Group

1 Basinghall Avenue

London, EC2V 5DD

United Kingdom

telephone: +44 (0)20 7885 8888

facsimile: +44 (0)20 7885 9999

 

Shareholder enquiries

ShareCare information

website: sc.com/shareholders

helpline: 0370 702 0138

ShareGift information

website: ShareGift.org

helpline: +44 (0)20 7930 3737

 

Registrar information

 

UK

Computershare Investor Services PLC

The Pavilions

Bridgwater Road

Bristol, BS99 6ZZ

Helpline: 0370 702 0138

 

Hong Kong

Computershare Hong Kong Investor Services Limited

17M Floor, Hopewell Centre

183 Queen's Road East

Wan Chai

Hong Kong

website: computershare.com/hk/investors

 

Chinese translation

Computershare Hong Kong Investor Services Limited

17M Floor, Hopewell Centre

183 Queen's Road East

Wan Chai

Hong Kong

 

Register for electronic communications

website: investorcentre.co.uk

 

For further information, please contact:

Gregg Powell, Head of Investor Relations

+852 2820 3050

 

LSE Stock code: STAN.LN

HKSE Stock code: 02888

 

 

 

 

 

 

 

 

 

 

 

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