Standard Chartered Regulatory News (STAN)

Standard Chartered PLC - Table of contents

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, market and regulatory forces or conditions, future exchange and interest rates, 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.

Please refer to the Group's 2019 Annual Report and this Half-Year Report for a discussion of certain risks and 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.

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.

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. Greater China & North Asia (GCNA) includes China, Hong Kong, Japan, Korea, Macau and Taiwan; ASEAN & South Asia (ASA) includes Australia, Bangladesh, Brunei, Cambodia, India, Indonesia, Laos, Malaysia, Myanmar, Nepal, Philippines, Singapore, Sri Lanka, Thailand and Vietnam; and Africa & Middle East (AME) includes Bahrain, Egypt, Iraq, Jordan, Lebanon, Oman, Pakistan, Qatar, Saudi Arabia and the United Arab Emirates (UAE).

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.

Standard Chartered PLC - Results for the first half and second quarter ending 30 June 2020

All figures are presented on an underlying basis and comparisons are made to 2019 on a reported currency basis, unless otherwise stated. A reconciliation of restructuring and other items excluded from underlying results is set out on page 33.

"I am pleased we have come through the extremely challenging early stage of the COVID-19 crisis with a clean bill of operational health, higher income and lower costs. Despite having taken significantly higher impairment charges we remained profitable and enter the next phase of the crisis with our CET1 capital ratio at one of the highest levels for many years. Low interest rates and depressed oil prices continue to be headwinds and we expect new waves of COVID-19 related challenge in the coming quarters but I am confident that our resilience and client franchise will see us through. I am encouraged by how well my colleagues are coping and that many clients in some of our larger markets are recovering strongly and already operating at close to their pre-pandemic capacity."

Bill Winters, Group Chief Executive

Update on strategic priorities

• Deliver our network and grow affluent: our differentiated strengths enable us to support our clients through the crisis

• Improve productivity: cost-to-income ratio improved 5%pts to 59% excluding Debit Valuation Adjustment (DVA)

• Optimise low-returning markets: operating profit improved 7% in aggregate from four of our largest markets

• Transform and disrupt with digital: client digital engagement up 12%pts to 36%; HK virtual bank launching very soon

• Drive sustainability: stimulus measures targeting sustainable recovery play to our leading strengths in sustainable finance

Selected information concerning financial performance (1H'20 unless otherwise stated)

• Income up 5% to $8.0bn; up 7% constant currency (ccy)

- Excluding $146m positive movement in DVA, income was up 5% ccy

- 2Q'20: income down 4%; down 2% ccy and up 4% excluding $212m negative movement in DVA

• Expenses 5% lower to $4.7bn; 2% lower ccy

- Positive jaws of 7% ccy ex-DVA

• Net interest margin down 26bps from 1H'19 to 1.40%. Down 24bps in 2Q'20 to 1.28%

• Credit impairment lower QoQ but up significantly YoY, driven primarily by the impact of COVID-19

- Stage 1 and 2 impairment up $586m in the first half to $668m

- Approximately one-half due to management overlay

- Stage 3 impairment up $727m in the first half to $899m, with no significant new exposures in 2Q'20

- Net stage 3 plus credit grade 12 exposures up 22% in 2Q'20 to $5.1bn; early alerts increased $2.9bn to $14.4bn

• Return on tangible equity down 240bps to 6.0%

- Pre-provision operating profit up 22% to $3.3bn; up 17% ccy and ex-DVA

- Underlying profit before tax down 25% to $2.0bn driven by higher credit impairment; down 30% ccy and ex-DVA

- Statutory profit before tax down 33% to $1.6bn, includes $249m goodwill impairment in India in 1Q'20

• Risk-weighted assets of $263bn down $2bn since 31 December 2019

- Down $10bn QoQ in 2Q'20 including $9bn reduction from completion of Permata sale

• The Group remains strongly capitalised and highly liquid

- Common equity tier 1 ratio up 90bps in 2Q'20 to 14.3%, above the top of the 13-14% medium-term target range

- 50bps uplift from Permata sale with remainder from profits and other comprehensive income gains

- Aiming to remain highly liquid to support clients through the crisis

- Asset-to-deposit ratio 62.7% (1Q'20: 61.9%); liquidity coverage ratio 149% (1Q'20: 142%)

- Continue to target higher quality deposits: Retail CASA up 9% and TB OPAC up 20% since 31 December 2019

- $14bn or 4% of loans and advances subject to some form of relief measure

• Earnings per share down 13.2c or 27% to 35.9c; 40m shares bought back and cancelled in 1Q'20

Outlook

We continue to believe that some of our larger markets will start to drive the global economy out of recession over the coming quarters but expect economic activity across our footprint in that period to be volatile and uneven.

Income is likely to be lower both half-on-half and year-on-year in the second half of 2020. The benefits of the early stage recovery in some of our markets and our geographic and product diversity are unlikely to be enough to offset the impact of low interest rates and the probability of less buoyant conditions for our Financial Markets business.

Expenses excluding the UK bank levy are usually higher in the second half, but we continue to target being below $10bn in 2020. Given the more challenging external environment we have started to implement new sustainable efficiency initiatives with the intent to stay below $10bn in 2021 as well.

Given the extreme economic pressures relating to the persistence of COVID-19, partially addressed through the efficacy of government support measures, it is not possible to reliably predict the quantum or timing of future impairments. However, if economic conditions in our markets do not materially deteriorate in the coming months then, given the substantial provisions we have taken already, we anticipate that impairments in the second half will be lower than those recorded in the first half.

Standard Chartered PLC - Statement of results

For the six months ended 30 June 2020

1 Variance is better/(worse) other than assets, liabilities and risk weighted assets

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

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

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

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

Standard Chartered PLC - Group Chairman's statement

"Staying the course with resilience, agility and humanity"

In the most recent Annual Report, I said that instability and rapid change are becoming the new normal. That observation was made in February when the COVID-19 outbreak was impacting only a few of our markets. Since then, the pandemic has spread to affect all our markets and cause massive disruption to the global economy leading to a deep recession.

I could not be prouder of the tremendous efforts of my colleagues who have shown extraordinary agility and resilience during this crisis. What has really stood out for me is how their actions have been tempered with humanity - truly embodying our brand promise of being Here for good.

At one stage in April we had three-quarters of our people working from home. Despite this unprecedented level of extended disruption, our transaction processing capabilities and risk controls held up remarkably well, a testament to the agility of our people in adapting to the crisis and a tribute to the operational and technological resilience of the franchise.

Financial resilience

We made solid progress on our strategic priorities in the first half, which together with the benefits of our product and geographic diversity and firm cost control meant pre-provision operating profit improved significantly. Impairments increased in the period as the pandemic took hold and we have taken substantial provisions against possible future loan losses resulting from the crisis, which meant underlying profit was lower in the first half. Our capital position remains strong, bolstered by completion of the sale of our equity interest in Permata in Indonesia, and we have ensured that our balance sheet is very liquid. Overall, our franchise remains fundamentally healthy, which underpins my belief that we can endure the crisis caused by COVID-19 and come out on the other side stronger, with our financial resilience to external shocks tested like it has never been before.

We can't reliably predict how long the effects of the pandemic will last, nor quantify the resulting impact on our future financial performance. We are therefore focusing intently on the things we can control. The management team is taking action to manage expenses very carefully to preserve our key long-term investment projects and continue the transformation to take advantage of future opportunities.

Our response to the COVID-19 crisis

We have prioritised the wellbeing, safety and security of our colleagues, supporting our clients and showing solidarity with our communities. We believe this approach protects and advances the interests of our shareholders.

For personal customers, our response has included the following actions:

• Our retail banking branches had to be retrofitted at speed to adhere to social distancing guidelines. In some cases, they were closed entirely as part of lockdown measures meaning customers migrated to online platforms, many for the first time, while staff had to be set up to work from home in large numbers

• We have put in place a comprehensive support scheme for individuals and smaller businesses including loan repayment holidays, fee waivers or cancellations and loan extension facilities. We have approved nearly 300,000 applications already, over half of which arose from mandatory schemes in some of our markets. The approval percentage of applications received under voluntary schemes is close to 98 per cent, demonstrating our determination to support customers within this particularly vulnerable segment of our communities that are seeking help

On the corporate and institutional side:

• We helped our clients navigate an extremely volatile period, with strong demand for our currency, commodities and interest rate risk management capabilities. While some larger 'new economy' clients have flourished in recent months, most businesses - particularly the smaller ones - are being negatively impacted by the economic situation and will need our support for some time to come

• We launched a $1 billion financing programme that is being offered on favourable terms for companies providing critical goods and services in the fight against COVID-19, and those planning to switch to making products that are in high demand. We have approved applications for nearly half the commitment so far, and have already started disbursing funds to several corporate clients. Most of those clients are in the Commercial Banking segment and they are evenly split across our three largest regions in Asia, Africa andthe Middle East

To support the communities that we operate in, we launched a $50 million global charitable fund to provide immediate relief to those affected by COVID-19 and to contribute to localised long-term economic rebuilding efforts. I'm delighted to say that around half of this has already been distributed in 52 markets across our network, with the rest expected to be allocated within a matter of months.

Looking ahead

Before the crisis it had become clear that greater international cooperation is needed to reap the full benefits of globalisation and make markets more inclusive both within and across nations. The hard road ahead may prove a temptation to governments and regulators to retreat within their borders. But we believe that would be taking exactly the wrong lesson from the astonishing accomplishments of recent months, which to my mind provide concrete evidence of how much we stand to gain by staying agile, resilient and humane - together.

Relations between the US and China remain highly charged, driven by both economic and political considerations. We have seen some markets including the US introduce laws or policies relating to Hong Kong and China, the full implications of which are not yet known. We are convinced that more collaboration - not less - is the best way to find a sustainable equilibrium in these complex situations, but we do not expect an easy or quick resolution. We do believe, however, that Hong Kong will continue to play a key role as an international financial hub and we are fully committed to contributing to its continued success.

Governance matters and the dividend

I am delighted to welcome Phil Rivett to the Board. His more than 40 years of professional accountancy and audit experience in the financial services sector across many of our markets will, I am sure, prove valuable in the years ahead. Louis Cheung stepped down as a director in March after seven years on the Board. I would like to thank Louis for his important contributions to the Group.

We announced on 31 March that in response to a request from the Prudential Regulation Authority, the Board had decided after careful consideration that no interim dividend on ordinary shares will be accrued, recommended or paid in 2020. This difficult decision is allowing us to provide the support for individuals, businesses and the communities in which we operate that I described above, while at the same time strengthening further our capital ratios and enabling us to invest to transform the business for the long term.

The Board fully recognises the importance of dividends to its owners and we hope to reinstate them as soon as prudently possible.

Conclusion

In my first Annual Report as Chairman of the Group in 2017, I said that the requirements for success in previous crises impacting the financial services sector were to have a clear strategy, a sensible business plan and exceptionally talented people who are determined to execute that plan with discipline and pace. I believe we have shown in recent years and most recently during this crisis that we have all those ingredients.

We are monitoring the situation very carefully and are committed to deploying our strong capital and liquidity to support our clients and the communities we operate in through this exceptionally challenging period.

I would like to again thank all my colleagues across our footprint for their tremendous efforts to maintain our operational resilience, and ensure that we continue to deliver on our promise to be Here for good.

José Viñals

Group Chairman

30 July 2020

Standard Chartered PLC - Group Chief Executive's review

"Strong operating performance in severe conditions"

We are feeling the acute impact of the COVID-19 pandemic across our markets and in our business. This and the related fall in both interest rates and oil prices created extremely challenging operating conditions in the first half of the year. We, like nearly all businesses, have had to cope with those conditions with most of our people working remotely to ensure their safety and that of our customers.

I am pleased we came through that period with a clean bill of operational health and with higher income, lower costs and therefore significantly better pre-provision operating profit compared with last year. We remained profitable despite higher impairments, which together with our strengthened capital position enabled us to build substantial reserves in the face of the heightened uncertainty and tougher conditions. I am encouraged by how well my colleagues are coping in the crisis and that many clients in some of our larger markets are recovering strongly and already operating at close to their pre-pandemic capacity.

Strategic progress

The COVID-19 crisis has reinforced the relevance of our strategic priorities:

• The sharp global economic contraction has had an inevitable impact on income that we generate from our international network. But our unique geographic diversity means that we are ideally placed to help our clients manage their risks across borders in volatile conditions

• Heightened geopolitical tensions add to the pressure on our network business. We are focused on staying close to our clients as any re-configuration of their trade and investment flows often plays to our strengths: we are the only global bank present in every ASEAN market and across South Asia, the Middle East and Africa

• Social isolation meant that we could not interact face-to-face with most of our affluent customers, leading to lower commissions from that segment. Our substantially improved digital channels, though, have helped us stay close and will enable us to address their needs through every stage of the crisis

• The crisis has put our existing focus on productivity into a whole new light. We are accelerating some elements of existing projects targeted at creating a leaner and more agile organisation. We are also developing new expense reduction initiatives to ensure that whatever cost savings we realise in 2020 as a direct result of the crisis are reinforced by more enduring efficiencies into 2021 and beyond

• Our significantly higher investment into our core digital capabilities in recent years has borne fruit during this initial phase of the pandemic, with up to three-quarters of my colleagues operating remotely across 60 markets and many more corporate, institutional and personal clients now engaging with us through digital channels. All of this was achieved with no interruption to data or transaction processing. Meanwhile, we continue to develop exciting new initiatives such as Mox, our majority-owned virtual bank in Hong Kong, which is in advanced testing and is due to launch shortly

• We continue to make good progress, despite the crisis, in our businesses in India, Korea, the UAE and Indonesia, where we are focused on optimising returns. Our team in the UAE is also having to cope with the impact of suppressed oil prices, but solid profit growth in the three other markets fuelled by strong demand for our Financial Markets risk management capabilities led to a 7 per cent improvement in operating profit overall

Capital and liquidity allocation

We remain financially strong and very liquid. Our immediate priority is to use the resulting funding capacity to support our clients through the crisis. We have approved over 90 per cent of relief applications that we have received so far under a combination of mandatory and voluntary schemes. Only around 4 per cent of our total loans and advances has been subjected to relief. Most of this is secured and some has been repaid already, likely reflecting our strategic focus on multinational businesses and affluent personal customers.

Our long-term priorities for deployment of surplus capital, however, have not changed: first support growth, then fund dividends and finally return what's left to shareholders. We were the only large UK bank to have an active stock buy-back programme at the time of the PRA's request to suspend distributions, but our equity story is grounded in the ability to offer long-term and sustainable growth. I believe that we will find many such opportunities as markets in our footprint drive the global economic recovery.

We will invest where we can make acceptable levels of return above our cost of capital. We are currently carrying capital in excess of the amount we will require in more normal times, reflecting the uncertainty in our earnings outlook as the global economy adjusts to the crisis, and starts to recover. As we develop confidence in the macro environment, we expect to return to our stated target CET1 capital range of 13-14 per cent and will return capital to shareholders to the extent we have exhausted attractive investment opportunities. While the current external conditions mean it will take longer to achieve a return on tangible equity above 10 per cent, we believe our franchise can deliver these returns and remain committed to delivering them.

Sustainability

Although the priority of most governments currently is quite rightly on minimising the damage to health and the economies in their markets caused by COVID-19, I am delighted to see how many are thinking ahead to consider pathways to delivering a more sustainable and resilient future. Stimulus measures will be vital; we hope priority will be given to those that more tangibly promote the many facets of the UN's Sustainable Development Goals, which we support wholeheartedly. That is why we will continue to deliver on the $75 billion commitment we announced earlier this year to finance sustainable infrastructure, renewables and clean technology to support the transition to a low-carbon economy, and why we are aiming to achieve net zero emissions from our own operations by 2030.

This focus on sustainability is particularly relevant in the markets across Asia, Africa and the Middle East that have been our home for 160 years, where the opportunity to drive positive fundamental change is arguably greatest. They are among the most dynamic economies in the world and the rate of progress on climate action, human rights, diversity and inclusion varies considerably.

We are faced every day with difficult decisions operating in those markets, but I am convinced that sticking resolutely to our purpose and showing through our actions that we are Here for good will help bring about positive change. We aim to contribute to their growth and prosperity when they thrive, but we also stay to assist when they are challenged - for example, through providing $1 billion of financing to support businesses who are tackling the pandemic and our $50 million COVID-19 Charitable Fund.

Concluding remarks

Governments and policymakers around the world are facing an extremely complex set of economic and societal challenges. Navigating the resulting geopolitical tensions and assessing the possible impact on our business will be challenging at times. It is vital that we remain calm in this environment and continue to focus on what we can control, on supporting our colleagues as they return to the workplace and on developing differentiated capabilities to serve the needs of our clients and the communities in which we operate.

Bill Winters

Group Chief Executive

30 July 2020

Standard Chartered PLC - Group Chief Financial Officer's review

The Group delivered a resilient performance overall in the first half in conditions that became extremely challenging

Summary of financial performance

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

2 Not meaningful

The Group delivered a resilient performance in the first half in conditions that became extremely challenging. Strong and broad-based growth in the initial months of the year was followed by lower income in the second quarter driven by negative movements in the debit valuation adjustment (DVA) and the effects of COVID-19 which led to severe global economic contraction and substantially reduced interest rates. Pre-provision operating profit improved significantly with income growing at a faster rate than expenses. Underlying profit fell due to substantially higher credit impairments booked particularly in the first quarter driven by the deterioration in the macroeconomic outlook.

The Group is committed to deploying its strong capital and surplus liquidity to support its clients and the communities it operates in through the crisis. The Group's CET1 ratio has risen to 14.3 per cent - above the top end of its medium-term target range - while its assets-to-deposits ratio has reduced to 62.7 per cent and its liquidity coverage ratio has increased to 149 per cent.

All commentary that follows is on an underlying basis and comparisons are made to the equivalent period in 2019 on a reported currency basis, unless otherwise stated.

• Operating income grew 5 per cent in the first half including a $146 million positive movement in the debit valuation adjustment (DVA). Income was also up 5 per cent on a constant currency basis and excluding DVA as the impact of lower interest rates was more than offset by a double-digit increase in Financial Markets income

• Net interest income decreased 9 per cent with increased volumes more than offset by the compressive impact of a significantly lower interest rate environment on net interest margin

• Other income increased 19 per cent, or 15 per cent excluding the positive impact of movements in DVA, with a particularly strong underlying performance in Financial Markets and realisation gains in Treasury

• Operating expenses were 5 per cent lower and 2 per cent lower on a constant currency basis, with tight control of costs generating positive income-to-cost jaws of 10 per cent on a reported basis, or 7 per cent on a constant currency basis excluding DVA. The cost-to-income ratio improved 5 percentage points to 59 per cent excluding DVA

• Credit impairment increased by $1.3 billion to $1.6 billion. Stage 1 and 2 impairments increased by $586 million, of which around one-half was attributable to a management overlay to reflect deterioration in the macroeconomic outlook not captured in the modelled outcome and the estimated impact of payment relief measures on delinquencies and flow rates. Impairments of Stage 3 assets increased $727 million, the majority of which were recorded in the first quarter

• Other impairment was a $112 million credit, primarily driven by a reversal of previously impaired assets partially offset by impairment charges relating to aircraft

• Profit from associates and joint ventures was down 52 per cent to $76 million. The Group could only recognise its share of the profits of its associate China Bohai Bank for four rather than six months due to the timing of its recently completed initial public offering in July 2020, which has resulted in the requisite financial information not yet being publicly available

• Underlying profit before tax decreased 25 per cent. Charges relating to restructuring, provisions for regulatory matters and other items increased $133 million to $328 million, primarily relating to $249 million of goodwill impairment in India due to a lower GDP growth outlook

• Taxation was $561 million on a statutory basis with an underlying effective tax rate of 29.0 per cent broadly in-line with the prior year rate of 28.6 per cent

• Underlying return on tangible equity declined by 240 basis points to 6.0 per cent, with the impact of reduced profits partly offset by lower tangible equity reflecting the dividends paid and share buy-back programmes completed since 1H'19

Operating income by product

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

2 Following a reorganisation, there has been a reclassification of balances relating to Securities services from Transaction Banking to Financial Markets including prior period numbers. There is no change in the total income

3 Not meaningful

Transaction Banking income was down 14 per cent. Cash Management declined 15 per cent with strong liability growth being more than offset by declining margins given the lower interest rate environment. Trade declined 12 per cent from lower balances.

Financial Markets income grew 35 per cent or 26 per cent excluding DVA. The business benefited from heightened market volatility, wider spreads and increased hedging and investment activity by clients. Income from Rates doubled and there was strong double-digit growth in Foreign Exchange and Commodities. Credit and Capital Markets recovered momentum in the second quarter but was down 3 per cent in the first half. Income from Securities Services, which is now managed within Financial Markets having previously been reported as part of Transaction Banking, declined 4 per cent.

Corporate Finance income was up 2 per cent due to increased balances from drawdowns on revolving credit facilities.

Lending and Portfolio Management income increased 11 per cent with improved margins and increased volumes in Corporate Lending.

Wealth Management income was down 1 per cent, despite significantly more challenging market conditions, with lower bancassurance sales resulting from reduced branch walk-ins due to COVID-19, partially offset by clients increasingly using digital channels. There was a particularly strong sales performance in FX, fixed income and equities.

Retail Products income reduced 4 per cent on a reported basis and was down 1 per cent on a constant currency basis. A lower interest rate environment has compressed Deposit margins but boosted margins across asset products by reducing funding costs. Deposits income declined 11 per cent as margin compression more than offset increased volumes. Increases in volumes and margins led to double-digit income growth across Mortgages & Auto and Business Banking within Other Retail Products. Credit Cards & Personal Loans income was down 4 per cent as COVID-19 impacted new sales.

Treasury income declined 10 per cent with reduced interest income on deployed assets within Treasury Markets and a $25 million unfavourable movement in hedge ineffectiveness partly offset by a $280 million increase in realisation gains from the sale of longer-dated securities as bond yields declined.

Profit before tax by client segment and geographic region

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

2 Not meaningful

Corporate & Institutional Banking income grew 13 per cent with a 41 per cent increase in Financial Markets including a $146 million positive movement in DVA. This was more than offset by increased impairments resulting in profits down 13 per cent or 23 per cent excluding DVA. It remains the largest contributor to the overall Group's profit before tax from a client segment perspective. Retail Banking income declined 3 per cent but was flat on a constant currency basis. Higher impairments were the primary driver of a 48 per cent reduction in profit. Commercial Banking experienced a 9 per cent reduction in income, higher impairments and profit declining 46 per cent. A non-repeat of a prior-year impairment release meant Private Banking profit was down 44 per cent. Central & other items income increased 9 per cent with one-off gains in income offsetting lower Treasury income. Profit increased 3 per cent as the higher income was partly offset by a reduction in the Group's share of Bohai profits due to a change in timing of profit recognition.

Greater China & North Asia income grew 2 per cent despite the disruption caused by the early imposition of lockdowns. An increase in impairments meant profits were down 15 per cent but it remains the largest regional contributor to the overall Group's profit before tax. ASEAN & South Asia achieved double-digit income growth and lower expenses, but this was offset by increased impairments resulting in a 40 per cent reduction in profits. Africa & Middle East experienced difficult conditions that included the effect of sharply lower oil prices in the period, which led to a 6 per cent reduction in income, higher impairments and profit declining 80 per cent. Europe & Americas income increased 38 per cent with strong Financial Markets performance including a $80 million positive movement in DVA. Lower costs offset increased impairments and profits increased to $356 million, up from a $13 million profit in the same period last year. Central & other items income halved mainly due to lower returns paid to Treasury on the equity provided to the regions from a falling interest rate environment partly offset by lower expenses resulting in a $81 million operating loss in the first half.

Adjusted net interest income and margin

1 The Group in 2019 changed its accounting policy for net interest income and the basis of preparation of its net interest margin to better reflect the underlying performance of its banking book. See notes to the financial statements in the 2019 Annual Report for further details.

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

3 Adjusted net interest income is statutory net interest income less funding costs for the trading book

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

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

Adjusted net interest income was down 10 per cent with a 26 basis points reduction in net interest margin which averaged 140 basis points for the half. The net interest margin in the second quarter of 2020 averaged 128 basis points and was down 24 basis points versus the prior quarter:

• Average interest-earning assets increased 4 per cent in the quarter, driven by an increase in Treasury Market assets. Gross yields declined 58 basis points compared with the average in the prior quarter and predominantly reflected the flow-through of declining interest rates in the second half of 2019 and those that occurred in the first quarter of 2020

• Average interest-bearing liabilities increased 3 per cent in the quarter, driven by growth in customer accounts. The rate paid on liabilities decreased 36 basis points compared with the average in the prior quarter reflecting interest rate movements

Credit Risk summary

Income statement

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

Balance sheet

1 Stage 3 Gross Loans and Advances to Banks of $13 million is not included in the table above

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

3 2Q 2019 Stage 3 balances, provisions and cover ratios have been restated to include interest due but unpaid together with equivalent credit impairment charge

4 Includes reverse repurchase agreements and other similar secured lending held at amortised cost of $4,383 million at 30 June 2020, $2,903 million at 31 March 2020, $1,469 million at 31 December 2019 and $2,704 million at 30 June 2019

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

There was a significant impact from the economic environment on the Group's loan portfolio in the first half of 2020, primarily reflecting the impact of COVID-19. There is a weaker outlook in many of the markets in which the Group operates, with negative global growth expected for 2020 and what is likely to be a volatile and uneven economic recovery. In the second quarter of 2020 the credit quality of the portfolio remained under stress with a further deterioration in short-term macroeconomic forecasts, albeit the pace of deterioration slowed compared to the first quarter.

The Group has taken a number of steps to mitigate the effect on its portfolios and risk profile, informed by stress-testing of various COVID-19 related scenarios, voice of the customer surveys and deep-dives on specific portfolios, and it remains vigilant in the light of the developing situation.

Credit impairment increased by $1,313 million to $1,567 million compared to 1H'19 but was $345 million lower in 2Q'20 than in 1Q'20.

Stage 1 and 2 impairments increased by $586 million, of which around one-half was attributable to modelled outcomes split broadly equally between the impact of deteriorating macroeconomic variables and the net change in exposures and portfolio movements. The remaining half is due to a management overlay, to reflect the deterioration in the macroeconomic outlook not captured in the modelled outcome and the impact of lockdowns and payment relief measures on delinquencies and flow rates within Retail Banking.

Stage 3 impairments increased $727 million across all client segments with over half of the increase due to impairments relating to three unconnected Corporate & Institutional Banking client exposures that were highlighted in 1Q'20.

Gross Stage 3 loans and advances to customers of $8.8 billion were up 19 per cent compared with 31 December 2019 primarily due to increased inflows in Corporate & Institutional Banking. These credit-impaired loans represented 3.1 per cent of gross loans and advances, an increase of 40 basis points compared with 31 December 2019.

The Stage 3 cover ratio reduced to 60 per cent from 68 per cent as at 31 December 2019 due to write-offs of fully-provided balances as well as new downgrades which incurred lower levels of provisions but were partially covered by tangible collateral. The cover ratio after collateral declined to 80 per cent from 85 per cent as some of the new inflows are also covered by non-tangible collateral such as guarantees and insurance, which are not captured in the cover ratio after collateral metric.

Credit grade 12 balances have decreased 5 per cent since 31 December 2019 with new inflows from Early Alert accounts including the impact of sovereign downgrades more than offset by outflows to stage 3 and repayments.

Early Alert accounts more than doubled to $14.4 billion with just under half of the increase driven by the Aviation sector. Early alerts increased $2.9 billion in the second quarter of 2020, as detailed reviews continued on a wide range of sectors and clients but declined in June. The Group is monitoring its exposures in the Aviation, Metals & Mining and Oil & Gas sectors particularly carefully, given the unusual stresses caused by the effects of COVID-19 including low oil prices.

The proportion of investment grade corporate exposures has reduced since 31 December 2019 by 4 percentage points to 57 per cent reflecting a reduction in repo balances and downgrades in the Aviation and Oil & Gas sectors.

Restructuring and others

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

Restructuring charges of $90 million primarily reflect impairments from the Group's discontinued ship leasing and principal finance businesses. Other items of $252 million relates mainly to a goodwill impairment on the Group's branch in India that was taken in 1Q'20 due to a lower economic growth forecast and increases to the discount rate.

Balance sheet and liquidity

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

2 The Group now excludes $13,595 million held with central banks (31.03.20: $9,947 million, 31.12.19: $9,109 million, 30.06.19: $6,835 million) that has been confirmed as repayable at the point of stress

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

• Loans and advances to customers increased 3 per cent since 31 December 2019 to $276 billion driven mainly by growth in Financial Markets, Corporate Lending and Corporate Finance. The increase in Corporate Lending and Corporate Finance reflects increased draw-downs on revolving credit facilities that coincided with the global spread of COVID-19 in March and April

• Customer accounts of $421 billion increased 4 per cent since 31 December 2019 with an increase in operating account balances within Cash Management and Retail Banking current accounts partly offset by a reduction in Corporate and Retail Banking time deposits

• Other assets increased 4 per cent since 31 December 2019 driven by increased derivative assets and reverse repurchase agreements to support the strong growth in Financial Markets. Other liabilities increased 2 per cent from increased trading book liabilities and derivative liabilities

The advances-to-deposits ratio reduced slightly to 62.7 per cent from 64.2 per cent at 31 December 2019. The liquidity coverage ratio strengthened, increasing from 144 per cent to 149 per cent due to improved funding mix and supported by the Group's term debt issuance activity notwithstanding challenging market conditions and remains well above the minimum regulatory requirement of 100 per cent.

Risk-weighted assets

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

Total risk-weighted assets (RWA) decreased 1 per cent or $2 billion since 31 December 2019 to $263 billion and have reduced by $10 billion since 31 March 2020, reflecting the completion of the sale of the Group's interest in PT Bank Permata Tbk (Permata) in Indonesia which reduced RWAs by $9 billion in total:

• Credit Risk RWA reduced by $3 billion in the first half to $213 billion with a $8 billion reduction from Permata partly offset by the impact of economic disruption related to COVID-19 on asset growth and credit migration. Negative credit migration totalled $7 billion in the first half and was partly mitigated by $4 billion of favourable FX movements. Asset growth increased RWAs by $1 billion with increased balance sheet volumes broadly offset by improvements in RWA density

• Operational Risk RWA declined 3 per cent reflecting a $1 billion reduction relating to Permata

• Market Risk RWA increased by $2 billion to $23 billion due to higher levels of Financial Markets activity with increased value-at-risk from elevated market volatility partly offset by regulatory mitigation for back-testing exceptions

Capital base and ratios

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

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

The Group is well capitalised with low leverage and high levels of loss-absorbing capacity. Its capital and liquidity metrics remain well above regulatory thresholds.

The Group announced on 31 March 2020 that in response to a request from the Prudential Regulation Authority and as a consequence of the unprecedented challenges facing the world due to the COVID-19 pandemic, its board had decided after careful consideration to withdraw the recommendation to pay a final dividend for 2019 of 20 cents per ordinary share and to suspend the buy-back programme announced on 28 February 2020. Furthermore, no interim dividend on ordinary shares will be accrued, recommended or paid in 2020.

The board fully recognises the importance of dividends to the Group's owners. However, suspending ordinary shareholder distributions is allowing the Group to maximise its support for individuals, businesses and the communities in which it operates whilst at the same time preserving strong capital ratios and investing to transform the business for the long term.

The Group had purchased 40 million ordinary shares for $242 million through the buy-back programme announced on 28 February 2020. These shares were subsequently cancelled reducing total issued share capital by 1.3 per cent.

The Group's minimum Common Equity Tier 1 (CET1) requirement has reduced from 10.2 per cent to 10.0 per cent reflecting the reductions in counter-cyclical buffer rates in the UK and Hong Kong.

The Group's CET1 ratio of 14.3 per cent was 50 basis points higher than as at 31 December 2019, over four percentage points above the Group's latest regulatory minimum of 10.0 per cent and above the top of the 13-14 per cent medium-term target range.

The Group on 20 May 2020 announced the completion of the sale of its stake in PT Bank Permata Tbk, which generated an increase in the Group's CET1 ratio of approximately 50 basis points.

The impact on credit RWAs from asset growth and negative credit migration was a 50 basis point reduction in the CET1 ratio. The $242 million share buy-back also reduced the CET1 ratio by 10 basis points. This was partly offset by an aggregate 60 basis point impact from profit accretion and the cancellation of the 2019 final dividend.

The Group's UK leverage ratio of 5.2 per cent was in line with the ratio at 31 December 2019. The Group's leverage ratio remains significantly above its minimum requirement of 3.6 per cent.

The Group continues to target a CET1 ratio of 13-14 per cent in the medium-term.

Outlook

We continue to believe that some of our larger markets will start to drive the global economy out of recession over the coming quarters but expect economic activity across our footprint in that period to be volatile and uneven.

Income is likely to be lower both half-on-half and year-on-year in the second half of 2020. The benefits of the early stage recovery in some of our markets and our geographic and product diversity are unlikely to be enough to offset the impact of low interest rates and the probability of less buoyant conditions for our Financial Markets business.

Expenses excluding the UK bank levy are usually higher in the second half, but we continue to target being below $10 billion in 2020. Given the more challenging external environment we have started to implement new sustainable efficiency initiatives with the intent to stay below $10 billion in 2021 as well.

Given the extreme economic pressures relating to the persistence of COVID-19, partially addressed through the efficacy of government support measures, it is not possible to reliably predict the quantum or timing of future impairments. However, if economic conditions in our markets do not materially deteriorate in the coming months then, given the substantial provisions we have taken already, we anticipate that impairments in the second half will be lower than those recorded in the first half.

Andy Halford

Group Chief Financial Officer

30 July 2020

Standard Chartered PLC - Supplementary financial information

Underlying performance by client segment

1 Following a reorganisation of certain clients, there has been a reclassification of balances across client segments. Prior periods have been restated

Corporate & Institutional Banking

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

2 Following a reorganisation of certain clients, there has been a reclassification of balances across client segments. Prior periods have been restated

3 Following a reorganisation, there has been a reclassification of balances relating to Securities Services from Transaction Banking to Financial Markets including prior-period numbers. There is no change in the total income

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

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

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

7 Not meaningful

Performance highlights

• Underlying operating profit before taxation of $1,132 million was down 13 per cent (12 per cent on a constant currency basis) driven by increased credit impairments relating to three unconnected Corporate & Institutional Banking client exposures that were highlighted in 1Q'20, despite higher income and lower costs

• Underlying operating income of $3,987 million was up 13 per cent (9 per cent excluding a positive movement in the debit valuation adjustment) primarily driven by Financial Markets income off the back of heightened volatility and increased client demand, partially offset by Cash Management income due to the margin impact of rate cuts

• Good balance sheet momentum with loans and advances to customers up 7 per cent since 31 December 2019

• Risk-weighted assets up $8 billion year-to-date mainly as a result of increased Credit RWA

• RoTE reduced from 9.8 per cent to 8.3 per cent

Retail Banking

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

2 Following a reorganisation of certain clients, there has been a reclassification of balances across client segments. Prior periods have been restated

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

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

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

6 Not meaningful

Performance highlights

• Underlying operating profit before taxation of $326 million was down year-on-year due to lower income and increased credit impairment due to a worsening credit environment with the impact of COVID-19

• Underlying operating income of $2,537 million was down 3 per cent (flat on a constant currency basis), predominantly driven by a 8 per cent decline (down 2 per cent on a constant currency basis) in Africa & Middle East, a 4 per cent decline (down 1 per cent on a constant currency basis) in ASEAN & South Asia and a 1 per cent decline (flat on a constant currency basis) in Greater China & North Asia

• All regions have been impacted by the more challenging current environment with lower income and higher loan impairment, but Greater China & North Asia is showing early signs of recovery

• RoTE decreased from 14.8 per cent to 7.3 per cent

Commercial Banking

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

2 Following a reorganisation of certain clients, there has been a reclassification of balances across client segments. Prior periods have been restated

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

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

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

6 Not meaningful

Performance highlights

• Underlying operating profit before taxation of $182 million was down 46 per cent mainly due to higher impairments and lower income, partially offset by lower costs

• Underlying operating income of $740 million was down 9 per cent predominantly driven by Transaction Banking which was negatively impacted by interest rate cuts and a slowdown in Trade. Income was down 13 per cent in Greater China & North Asia, down 5 per cent in ASEAN & South Asia and down 9 per cent in Africa & Middle East

• RoTE decreased from 9.7 per cent to 5.8 per cent

Private Banking

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

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

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

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

5 Not meaningful

Performance highlights

• Underlying operating profit of $56 million was down 44 per cent, as lower expenses were more than offset by a non-repeat of an impairment release in the prior year

• Underlying operating income of $300 million was down 2 per cent, primarily due to a decline in Retail Products (mainly Deposits), mitigated by continued resilient performance from Wealth Management

• Assets under management at $63 billion was down 4 per cent mainly from negative market valuation of $1.4 billion

• RoTE decreased from 15.7 per cent to 8.5 per cent mainly due to a one-off credit impairment release included in theprevious year

Central & other items (segment)

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

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

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

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

5 Not meaningful

Performance highlights

• Underlying operating profit negatively impacted from a change in timing of revenue recognition (from a 1-month to 3-month lag) of profit from associates (Bohai)

• Lower Treasury net interest income as rates declined offset by realisation gains on sale of securities

Underlying performance by region

Greater China & North Asia

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

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

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

4 Not meaningful

Performance highlights

• Underlying operating profit before taxation of $1,134 million was down 15 per cent, driven by increased impairment levels and a decline in profits from associates (Bohai) income due to recognition timing changes (change from a 1-month to 3-month lag)

• Underlying operating income of $3,144 million was up 2 per cent (up 3 per cent on a constant currency basis), with strong Financial Markets growth offsetting a weaker performance in Cash Management and Retail Deposits, which were negatively impacted by interest rate cuts

• Loans and advances to customers were up 3 per cent year-to-date and customer accounts grew 5 per cent, which was predominantly driven by Cash Management and Retail current and savings accounts, partly offset by a decline in Retail Time Deposits

• Risk-weighted assets were up $3 billion year-to-date, driven by Credit RWA (predominantly CIB) and Market RWA

ASEAN & South Asia