Standard Chartered Regulatory News (STAN)

Standard Chartered PLC - Half Year Results 2023 - Part 1

Table of content

Page 1

Standard Chartered PLC - Results for the first half and second quarter ended30 June 2023

All figures are presented on an underlying basis and comparisons are made to 2022 on a reported currency basis, unless otherwise stated.

Bill Winters, Group Chief Executive, said:

"We have delivered a very strong set of results for the first six months of 2023. Income was up 18 per cent year-on-year and underlying profit before tax was up 29 per cent to $3.3 billion. We remain strongly profitable, highly liquid, and well capitalised. These attributes enable us to return a further $1 billion to our shareholders through a new share buy-back announced today. Also reflecting our confidence in the business, we are upgrading our 2023 guidance for income, jaws and RoTE which we now expect to be 10 per cent for the full year."

Selected information on 2Q'23 financial performance with comparisons to 2Q'22 unless otherwise stated

• Return on tangible equity ("RoTE") of 12.1%, up 4%pts year-on-year ("YoY")

• Income up 20% to $4.6bn, up 24% at constant currency ("ccy")

- Net interest income, up 33% at ccy to $2.4bn; other income, up 15% at ccy to $2.1bn

- Net interest margin ("NIM") up 8bps since 31.3.23 to 1.71%, up 6bps from rising interest rates and up 4bps from hedges rolling off, down 2bps from adverse liability and asset mix; deposit migration and betas performing as expected

- Record Financial Markets ("FM") up 15% at ccy, up 27% excluding non-repeat of $122m gain on mark-to-market ("MTM") liabilities in 2Q'22

- Wealth Management ("WM") up 10% at ccy, reversing five quarters of YoY declines

• Expenses increased 11% YoY to $2.8bn, or up 14% at ccy

- Increase due to inflation, business growth and phasing of performance related-pay accruals

- Positive 10% income-to-cost jaws

• Credit impairment charge of $146m, up $80m YoY; includes China CRE charge of $84m

• Customer loans and advances of $290bn, down $10bn or 3% since 31.3.23; stable on an underlying basis

• Customer deposits of $470bn, up $7bn or 2% since 31.03.23; up $11 billion or 2% at ccy

• Risk-weighted assets ("RWA") of $249bn, down $2bn since 31.3.23

• Underlying profit before tax of $1.6bn, up 32% at ccy

Selected information on 1H'23 financial performance with comparisons to 1H'22 unless otherwise stated

• RoTE of 12.0%, up 3%pts YoY

• Income up 14% to $9.0bn, up 18% YoY at ccy

- Net interest income, up 35% to $4.8bn; other income, up 4% to $4.2bn

- NIM up 35bps YoY to average 1.67% in 1H'23

- FM up 4%, up 13% excluding non-repeat of $216m gain on MTM liabilities in 1H'22, with record Macro and Credit Trading

- WM up 5%, supported by positive leading indicators from China reopening

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• Expenses increased 8% YoY to $5.5bn, up 12% at ccy

- Increase due to inflation, business growth and targeted investments, partially funded by productivity saves

- Positive 6% income-to-cost jaws; cost-to-income ratio improved 3% pts to 61%

• Credit impairment charge of $172m, down $92m YoY

- China CRE charge $82m; Sovereign exposures net release $21m, CPBB $108m charge

- Loan-loss rate of 11bps (1H'22: 15bps); high-risk assets of $8.9bn, down $1.0bn since 31.12.22

• Underlying profit before tax of $3.3bn, up 29% at ccy, highest level since 2015

• Tax charge of $0.9bn: underlying effective tax rate of 28% up 3%pts

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

- Customer loans and advances of $290bn, down $21bn or 7% since 31.12.22; stable on an underlying basis

- Customer deposits of $470bn, up $8bn or 2% since 31.12.22; up $11bn or 2% at ccy

- Liquidity coverage ratio 164% (31.12.22:147%)

- Advances-to-deposit ratio 53.6% (31.12.22: 57.4%)

• RWA of $249bn, up $4bn since 31.12.22

- Credit risk RWA broadly flat, decrease of $7bn from RWA optimisation and efficiency actions and $3bn from FX, offset by $8bn from asset growth and mix changes and $1bn from derivatives

- Market risk RWA up $3bn and Operational risk RWA up $1bn

• The Group remains strongly capitalised

- CET1 ratio 14.0% (31.12.22: 14.0%), at the top of the 13-14% target range

- Interim ordinary dividend increased 50% to 6c per share ($168m)

- $1bn new share buy-back, to start imminently and run concurrently with current program, expected to reduce the CET1 ratio by approximately 40bps

• Underlying earnings per share (EPS) increased 16.4 cents or 28% to 75.0 cents; statutory EPS up 22% to 75.6 cents

Update on strategic actions for 1H'23 unless otherwise stated

• Drive improved returns in CCIB: Income RoRWA of 8.0%, ahead of 2024 target of 6.5%; $20bn of RWA optimised since 1.1.22

• Transform profitability in CPBB: Cost-to-income ratio of 58%, improved by 14%pts YoY, consistent with 2024 target of 60%; $0.3bn of gross expense savings since 1.1.22

• Seize China opportunity: China onshore and offshore profit before tax up >4x YoY to $0.7bn

• Create operational leverage: $0.6bn gross productivity saves since 1.1.22; Cost-to-income ratio improved by 3%pts YoY to 61%

• Deliver substantial shareholder returns: $1bn share buy-back announced today, $3.9bn of total returns announced since 1.1.22

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Other highlights for 1H'23 unless otherwise stated

• Ventures: Onboarded over 1 million customers across our two digital banks, Mox and Trust, since launch. Completed the first sale of a business incubated in Ventures, CardsPal

• Sustainability: Announced our Oil & Gas absolute emissions target in May 2023. Our Sustainable Finance franchise continues to grow with income up 37% YoY and assets up 8% since 31.12.22

• Markets exit: Following our announcement to redirect resources within the Africa and Middle East region, we have successfully signed binding sale agreements for 7 businesses

Outlook

We have made a strong start to 2023 with positive momentum being supported by progress on our Five strategic actions and the markets in our footprint are expected to continue to grow faster than those in the West.

We are therefore upgrading our 2023 guidance:

• Income to increase in the 12-14% range at ccy

• Full year average NIM of around 170bps

• Assets growth in the low single digit percentage range in 2H'23 (from 30.6.23)

• RWA growth in the low single digit percentage range

• Positive income-to-cost jaws of around 4%, excluding UK bank levy at ccy

• Full year loan loss rate to be in the range of 17-25 basis points

• Operate dynamically within the full 13-14% CET1 target range

• RoTE of 10%

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Statement of results

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

2 Underlying performance for relevant periods in 2022 has been restated for the removal of (i) exit markets and businesses in AME (ii) Aviation Finance and (iii) DVA. No change to statutory performance

3 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

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

5 Represents the underlying or statutory earnings divided by the basic weighted average number of shares. Prior period refers to 6 months ended 30.06.22

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

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

8 Not meaningful

Page 5

Group Chief Executive's review

Strong performance in a challenging external environment

We've posted a very strong set of results for the first six months of 2023. Income was up 18 per cent year-on-year on a constant currency basis with strong momentum particularly in the second quarter up 24 per cent. Financial Markets ("FM"), into which we have invested significantly in the last few years, delivered a record second quarter. And in Wealth Management ("WM") we saw a return to growth in the second quarter, after five successive quarters of year on year declines, driven by continued investment in the franchise and a rebound in customer activity in Hong Kong and China.

We continued to generate expense savings creating capacity for further investment to accelerate growth whilst helping to drive positive income-to-cost jaws of 6 per cent. Our loan portfolios remain in good shape, and credit impairment is below last year's levels. This helped drive underlying profit before tax up by 29 per cent to $3.3 billion, our highest first half profit since 2015. We have also generated a 12.0 per cent return on tangible equity ("RoTE"). This strong performance is broad based across the Group's footprint, with 19 of our markets having delivered record first half income and 17 delivered record first half profits.

We've achieved this performance without compromising our robust liquidity and capital foundations. The Group remains highly liquid with a diverse and stable deposit base and an advances-to-deposits ratio of 53.6 per cent and a liquidity coverage ratio of 164 per cent. We remain well capitalised with equity generation and continued discipline on risk weighted assets ("RWA"), having delivered a first half Common Equity Tier 1 ("CET1") ratio of 14.0 per cent at the top of our target range.

We remain committed to sharing the Group's success with its shareholders and are announcing a further share buy-back of $1 billion, to commence imminently and run concurrently with the latter stages of the current program. We have already reduced the share count by around 9 per cent over the last eighteen months.

Continued delivery of strategic priorities

Our strategy is clear and we have continued to deliver strong progress on each of the four strategic priorities that we set out at the start of 2021; growing our Network and Affluent client businesses, accelerating the growth of our Mass Retail business and advancing on all fronts of our Sustainability agenda.

Grow Network and Affluent businesses

Corporate, Commercial & Institutional Banking ("CCIB") cross-border income was up 44 per cent in the first six months of the year, with particularly strong growth in China, up 59 per cent. China to ASEAN cross-border income grew 82 per cent reflecting investment in corridor bankers and a supply chain and trade flow shifts between the two. Our Affluent client business continues to grow with increasing number of relationship managers enabling positive net new money of $13 billion in the first half of 2023, more than double that in the comparable period last year.

Accelerate growth of Mass Retail business

We continue to grow our Mass Retail client base with around 450,000 new to bank clients onboarded this year and around a further 100,000 clients upgraded from Mass Retail to Affluent.

Advance Sustainability agenda

In Sustainable Finance, income was up 37 per cent, and we expect total income to be approaching $1 billion in 2024. On the broader sustainability agenda, building on the good progress we made in 2022, this year we have established targets for absolute emissions in the Oil and Gas sector. In addition, we are partnering with peers, investors, and leading expert bodies to build better industry standards for sustainable investment, and we have recently joined the World Bank's Private Sector Investment Lab, a group charged with developing solutions to address the barriers to private sector investment in emerging markets and sustainable projects. Throughout this process we will continue to prioritise areas where we can have the greatest material impact on our total emissions following industry best practices.

Significant progress on five strategic actions

In February 2022 we set out five strategic actions that we would take to accelerate delivery of double-digit RoTE, and we have made significant progress across all five areas .

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CCIB: drive improved returns

In CCIB we are targeting around a 160 basis point improvement in income return on risk weighted assets ("IRoRWA") to 6.5 per cent in 2024, and a RWA optimisation target of $22 billion. We have exceeded the IRoRWA target in the first six months of this year, delivering IRoRWA of 8.0 per cent. This was driven by particularly strong growth in income from Financial Institution clients, up 34 per cent, which now accounts for 48 per cent of CCIB income. In addition, the CCIB team has successfully executed $20 billion in RWA optimisation over the last 18 months.

CPBB: transform profitability

In Consumer, Private & Business Banking ("CPBB") we are making great progress, with the cost-to-income ratio for the first half of the year at 58 per cent, consistent with its 60 per cent target and the team has delivered $0.3 billion of the $0.5 billion, three-year gross expense savings target. This has been achieved without compromising on client service, with our latest client satisfaction scores improving across our markets, with best-in-class strategic net promoter scores in Priority banking in eight of our nine top markets. In the Affluent client segment we are now a top three wealth manager in Asia.

Seize China opportunity

Our third strategic action was our ambition to double China onshore and offshore profit before tax to $1.4 billion by 2024. For the first six months of the year profits were up more than 4 times, to $0.7 billion, driven by offshore income growth of 59 per cent. In May we held an Asia focused Investor and Analyst seminar in Hong Kong and Singapore where Ben Hung, our Asia CEO, together with other members of his management team, showed how we will continue to leverage our unique advantages to invest and capture the significant opportunities for growth in the region. A key focus of the discussion was China opening its financial and capital markets, and how this will drive growth for the Group. Our leading indicators this year support this optimism with new to bank affluent client onboarding being double last year's level in China and three times higher in Hong Kong.

Create operational leverage

Expense efficiency remains core to enabling us to create positive operating leverage. The Group has delivered $0.6 billion gross structural cost savings over the last 18 months, and we are well on track to deliver the $1.3 billion target by the end of 2024. Our cost-to-income ratio is down 9 per centage points since the end of 2021 to 61 per cent for the first six months of the year, so we are well advanced towards our target of around 60 per cent by 2024.

Substantial shareholder distributions

Lastly, we set ourselves a target to return in excess of $5 billion of capital to shareholders between 2022 to 2024. With the $1 billion share buy-back we have announced today, combined with our interim dividend, our total shareholder returns since the start of 2022 will reach $3.9 billion. Again, this is well on our way to achieving our three-year target.

Strong execution of management actions

As well as delivering a strong financial performance we continue to execute on a broad management agenda, reshaping the network, disposing of non-core businesses and investing in new technologies and business models. All actions that will accelerate the delivery of double-digit RoTE and position the Group for continued growth and success in the future.

In April last year we outlined plans to redirect resources within the Africa and Middle East ("AME") region to those areas which have the greatest scale and growth potential. This included the intention to exit onshore operations in seven markets, and in a further two markets focus solely on the CCIB business. We are executing well against these plans. Following the signing of the agreements for the sale of the Jordan business in March and Zimbabwe in June, we announced in early July the sale of a further five markets, Angola, Cameron, The Gambia and Sierra Leone and our CPBB business in Tanzania.

Additionally, as part of the AME announcement we also highlighted the investment we are making in both the Kingdom of Saudi Arabia and in the Arab Republic of Egypt. In Saudi Arabia, we opened our first branch in June 2021, and since then have seen strong growth in CCIB cross-border income, with 1H'23 income increasing over 140 per cent. In Egypt we are on-track to open the office in the second half of this year, subject to regulatory approval.

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We started disclosing Ventures as a separate business segment in 2022 and we are starting to see success, as we continue to build new business models and partnerships. Our two virtual banks, Mox in Hong Kong and Trust in Singapore, are going from strength to strength with over a million customers between them. Both these banks are targeting profitability over the next couple of years, Mox in 2024, and Trust in 2025.

We have also launched the Nexus 'Banking-as-a-service' offering in partnership with Bukalapak in Indonesia and have already onboarded over 220,000 clients, and we have now received regulatory approval to launch our Buy Now Pay Later product. We are also targeting to take Nexus to other markets.

In June 2023 we announced the sale of CardsPal after successfully incubating the business through our SC Ventures' Intrapreneurship Programme. This is the first sale of a start-up business from our SC Ventures segment.

Uniquely positioned to turbo-charge growth

These management actions serve to enhance the unique position the Group already occupies. We generate most of our earnings in the fast-growing markets of Asia, Africa and the Middle East whilst being strongly connected to the economies of the West. Our business reflects our connections to the world's most dynamic markets, for example we are the leading offshore Chinese Renminbi bank whilst at the same time being one of the major US dollar clearing banks in New York.

The economic attractiveness of Asia is as strong as ever. Our recent 'Future of Trade' report, which analysed trade flows and projections from 13 key markets, forecasts that Asia will keep dominating global trade for the rest of this decade, with exports from the region set to rise more than any other economic area through 2030.

For 2023 and 2024 we expect the rate of GDP growth in Asia, where our footprint is unparalleled, to be more than double that in the US and Europe. We have a presence in 21 markets, including all 10 ASEAN markets, as well as being one of the largest international bank in South Asia. Our two financial hubs in Hong Kong and Singapore are well positioned as super- connectors driving cross-border growth. In Singapore we are the first enhanced Significantly Rooted Foreign Bank and in Hong Kong we are one of only three note issuing banks.

Complementing the Asia footprint, we have a deep-rooted heritage in the AME region. We are one of the largest international banks on the continent of Africa and have a significant presence across seven markets in the Middle East. As a top two global network trade bank for Financial Institutions, we connect the dynamic markets in which we operate to each other as well as to the economies beyond.

With our unique positioning we are confident that we will deliver our 2024 targets on the way to sustainably higher RoTE.

Concluding remarks

We have navigated the market turbulence of the last few years well and have delivered another very strong financial performance in the first half of the year. We are making excellent progress against the five strategic actions we laid out in February 2022 and are delivering strongly on a broad front of management actions.

We are mindful of the external macroeconomic headwinds and recent challenges in the banking sector; however, our balance sheet is robust, and we have the right strategy, business model and ambition to deliver our targets. Reflecting the strong start to the year and the positive outlook we are upgrading our 2023 expectations and are now targeting to deliver 10 per cent RoTE in 2023 and in excess of 11 per cent in 2024, and continuing to grow thereafter.

The Management Team and I remain focused on delivering our 2024 targets, seizing the growth opportunities we have and creating exceptional long-term value for the Group and its shareholders.

Bill Winters

Group Chief Executive

28th July 2023

Page 8

Group Chief Financial Officer's review

The Group delivered a very strong performance in the first six months of 2023

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

3 Underlying performance for relevant periods in 2022 has been restated for the removal of (i) exit markets and businesses in AME (ii) Aviation Finance and (iii) DVA. No change to statutory performance

4 To be consistent with how we the compute Net Interest Margin (NIM), and to align with the way we manage our business, we have changed our definition of Underlying Net Interest Income (NII) and Underlying Other Income (OI). The adjustments made to NIM, including interest expense relating to funding our trading book, will now be shown against Underlying Other Income rather than Underlying NII. Prior periods have been restated . There is no impact on total income

5 Not meaningful

Statutory financial performance summary

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

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

3 Not meaningful

Page 9

The Group delivered a very strong performance in the first half of 2023 with its best half-year profit since 2015. Underlying profit before tax increased 29 per cent on a constant currency basis to $3.3 billion. Income grew 18 per cent on a constant currency basis with a 35 per cent increase in underlying net interest income and a 4 per cent increase in underlying other income. Rising interest rates supported a strong expansion in the net interest margin and Macro Trading within Financial Markets delivered a record half-year performance. The Wealth Management business also showed early signs of recovery. The Group generated 6 per cent positive income-to-cost jaws at constant currency as expenses grew 12 per cent. Credit impairment charges were equivalent to an annualised loan loss rate of 11 basis points, well below the historic through the cycle loan-loss rate range of 30 to 35 basis points. The Group remains well capitalised and highly liquid. In response to recent volatility in liquidity conditions in certain markets the liquidity coverage ratio has been maintained at an elevated level of 164 per cent, well above minimum regulatory requirements. The CET1 ratio of 14.0 per cent is at the top of the Group's target range, with profit accretion offsetting both the $1 billion share buy-back programme announced in February 2023 and a 2 per cent increase in risk-weighted assets since 31 December 2022. This capital strength has enabled the Board to announce an interim ordinary dividend of 6 cents a share, up 2 cents or 50 per cent and announce a further $1 billion share buy-back program to commence imminently and run concurrently with the latter stages of the existing program.

• Operating income of $9 billion, is the highest half-yearly income since the second half of 2014 and increased 14 per cent in the first half, up 18 per cent on a constant currency basis. This was due to strong growth in net interest income driven by an expansion in the net interest margin together with a strong Financial Markets performance. These were partially offset by losses from hedges

• Underlying net interest income (which excludes the interest expense related to funding our trading book) increased 29 per cent, or 35 per cent on a constant currency basis, as the net interest margin increased 27 per cent or 35 basis points. This was despite a year-on-year incremental 23 basis points drag from hedges. The Group increased its pricing on assets and its yield on its Treasury portfolio more quickly than it repriced its liability base, reflecting strong pricing discipline and passthrough rate management

• Underlying other income (which includes the interest expense related to funding our trading book) was stable, or up 4 per cent on a constant currency basis. This was due to a strong Financial Markets performance, which was up 4 per cent, or 13 per cent excluding $216 million of non-repeated gains on mark-to-market liabilities in the prior year

• Operating expenses excluding the UK bank levy increased 8 per cent or 12 per cent on a constant currency basis, as the Group continued to invest into strategic investments and growing businesses which includes Wealth Management, Financial Markets and Sustainable Finance. This increased investment, alongside the impact of inflation was in part funded by gross productivity savings of $200 million in the first half. The Group generated 6 per cent positive income-to-cost jaws while the cost-to-income ratio improved 3 percentage points to 61 per cent

• Credit impairment was a charge of $172 million, a reduction of $92 million year-on-year, representing an annualised loan loss rate of 11 basis points. Impairment charges relating to the ongoing CPBB portfolio and a further $82 million charge in relation to the China Commercial Real Estate sector were partly offset by a net $21 million release relating to prior sovereign ratings downgrades

• Other impairment of $63 million, primarily relate to the write-down of software assets

• Profit from associates and joint ventures decreased 39 per cent to $94 million reflect lower profits at China Bohai Bank

• The Group's underlying operating profit before taxation no longer includes movements in the debit valuation adjustment (DVA), the markets and businesses it is exiting in the Africa & Middle East region and the Aviation Finance business and now reports them within restructuring and other items. Restructuring profits of $56 million primarily reflect the operating profit from the exit markets and Aviation Finance. DVA was a $39 million charge in the first half

• Taxation was $938 million on a statutory basis with an underlying year-to-date effective tax rate of 28.4 per cent up from the 1H'22 rate of 25.3 per cent. This increase reflects a change in the geographic mix of profits and a higher impact from non-deductible expenses

• Underlying return on tangible equity (RoTE) increased by 270 basis points to 12.0 per cent driven by higher profits and lower tangible equity. The reduction in tangible equity was driven by shareholder distributions and adverse movements in reserves during the course of 2022 due to changes in interest rates and FX

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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 Underlying Income for relevant periods in 2022 has been restated for the removal of (i) exit markets and businesses in AME (ii) Aviation Finance and (iii) DVA. No change to statutory performance

3 Shipping Finance is now reported under "Financing Solutions & Issuance" which was reported under "Financing & Securities Services" in Q1

The operating income by product commentary that follows is on an underlying basis and comparisons are made to the equivalent period in 2022 on a constant currency basis, unless otherwise stated.

Transaction Banking income increased 92 per cent with Cash Management income up 166 per cent reflecting strong pricing discipline and passthrough rate management to take advantage of a rising interest rate environment. Trade & Working Capital income was stable, reflecting reduced fee income and lower balance sheet and contingent volumes offset by higher margins as the Group focused on higher-returning trade products.

Financial Markets income increased 4 per cent and was up 13 per cent excluding the non-repeat of $216 million of gains on mark-to-market liabilities in the first half of 2022. Flow income, which is over two-thirds of Financial Markets income, increased 10 per cent whilst episodic income was up 4 per cent. Macro Trading had a record first half, up 8 per cent, with strong double-digit growth in Rates and high single-digit growth in FX leading to record performances partly offsetting a non-repeat of last year's record performance in Commodities. Credit Markets income was up 10 per cent with strong growth and a record half in Credit Trading income offset by lower Financing Solutions & Issuance income which was impacted by lower capital market issuances in a volatile interest rate environment. Excluding the non-repeat of the mark-to-market gains, Financing & Securities Services income nearly doubled as Securities Services income benefited from rising interest rates.

Lending and Portfolio Management income was flat with lower volumes as a result of risk-weighted asset optimisation actions offset by increased fee income.

Wealth Management income was 5 per cent higher reflecting a gradual recovery following the easing of COVID-19 restrictions in key footprint markets. There was strong double-digit growth in FX, fixed income and structured products which was partly offset by lower managed investment income as transactional volumes were impacted by subdued equity markets across the footprint. Bancassurance income increased 9 per cent on the back of strong customer onboarding while Wealth Management secured lending income decreased by a third on the back of customer deleveraging and higher cost of funding.

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Retail Products income increased 43 per cent. Deposit income increased 185 per cent due to low passthrough rates in a rising interest rate environment partly offset by migration from CASA into time deposits. Mortgages & Auto income decreased 60 per cent as the Best Lending Rate cap in Hong Kong restricted the ability to reprice mortgages despite an increase in funding costs from higher interest rates. Credit Cards & Personal Loans income decreased 2 per cent with double-digit growth in credit card balances on the back of increased customer numbers from Mox and Trust bank offset by lower fee income.

Treasury income was a $393 million loss in the half with losses from structural and short-term hedges in a rising interest rate environment. These losses reduced in the second quarter as short-term hedges matured and the remaining short term hedges mature in February 2024.

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 Underlying performance for relevant periods in 2022 has been restated for the removal of (i) exit markets and businesses in AME (ii) Aviation Finance and (iii) DVA. No change to statutory performance

3 Not meaningful

The client segment and geographic region commentary that follows is on an underlying basis and comparisons are made to the equivalent period in 2022 on a constant currency basis, unless otherwise stated.

Corporate, Commercial & Institutional Banking (CCIB) profit increased 71 per cent. Income grew 33 per cent with Cash Management benefiting from disciplined pricing initiatives in a rising interest rate environment and record Macro and Credit Trading performance within Financial Markets. Expenses were 13 per cent higher reflecting further investment in the business partly offset by a net $125 million reduction in credit impairment.

Consumer, Private & Business Banking (CPBB) profit doubled, with income up 30 per cent as the benefit from higher interest rates on Retail Deposit income was partly offset by lower Mortgage income negatively impacted by the Best Lending Rate cap in Hong Kong. Expenses increased 5 per cent while credit impairment was $28 million higher.

Ventures losses increased by $7 million to $158 million, reflecting the Group's continued investment in transformational digital initiatives with expenses increasing $65 million which was more than offset by an $84 million increase in income reflecting the growth in customer numbers within Mox and Trust Bank. The impairment charge increased $20 million to $23 million reflecting the build of expected credit loss provisions as the credit portfolios grow.

Central & other items (segment) recorded a loss of $824 million with negative income of $517 million primarily due to the loss from hedges. Expenses increased by $65 million while a net release in credit impairment was more than offset by other impairment relating to software assets. Associates profit share reduced by $53 million .

Asia profits increased 59 per cent as income grew 23 per cent. Strong growth in Cash Management, Retail Deposits and Financial Markets income was offset by lower Mortgage income and a loss in Treasury Markets. Expenses increased 9 per cent with the credit impairment charge reducing by half. The profit share from China Bohai Bank reduced by $51 million.

Africa & Middle East (AME) profits increased 39 per cent as income increased 34 per cent with strong growth in Cash Management, Financial Markets and Retail Deposit income. This was partly offset by expenses increasing 13 per cent reflecting inflationary pressures in the region. Impairment charges were a net release of $9 million, a $90 million lower release compared to the prior year.

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Europe & Americas recorded a loss of $11 million as income declined 38 per cent, reflecting the increased cost of hedges within Treasury whilst strong growth in Transaction Banking income was partly offset by lower Financial Markets income. Expenses increased 15 per cent and there was a $35 million increase in credit impairment as last year's net release was not replicated.

Central & other items (region) recorded a loss of $85 million compared to a $322 million loss in the first half of 2022. Income increased to $305 million mainly due to higher returns paid to Treasury on the equity provided to the regions in a rising interest rate environment. This was partly offset by other impairment charges of $69 million.

Adjusted net interest income and margin

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

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

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

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

5 Not meaningful

Adjusted net interest income increased 29 per cent. This was driven by a 27 per cent increase in the net interest margin which averaged 167 basis points in the first half, increasing 35 basis points year-on-year. The net interest margin increased 8 basis points quarter-on-quarter from the first quarter to 171 basis points benefiting from the roll-off of hedges slightly offset by an adverse change in asset mix reflecting the shift from higher-yielding customers loans into cash and balances at central banks:

• Average interest-earning assets declined 2 per cent in the quarter and were broadly flat excluding the impact of currency translation and RWA optimisation actions. Gross yields increased 24 basis points compared with the first quarter due to the impact of rising interest rates on customer loan pricing and on Treasury portfolio yields

• Average interest-bearing liabilities decreased 1 per cent in the quarter impacted by currency translation. Whilst the rate paid on liabilities increased 11 basis points reflecting the impact of rising interest rates and migration from lower rate paid CASA accounts into higher rate paid term deposits

Credit risk summary

Income Statement

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

2 Underlying credit impairment for relevant periods in 2022 has been restated for the removal of (i) exit markets and businesses in AME and (ii) Aviation Finance. No change to statutory credit impairment

3 Not meaningful

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Balance sheet

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

2 Includes reverse repurchase agreements and other similar secured lending held at amortised cost of $10,950 million at 30 June 2023, $14,398 million at 31 March 2023, $24,498 million at 31 December 2022 and $7,894 million at 30 June 2022

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

Asset quality remained resilient in the first half which was reflected in lower credit impairment charges and an improvement in several underlying credit metrics. However, the Group continues to remain alert to a volatile and challenging external environment which has seen idiosyncratic stress in a select number of markets and industry sectors.

Credit impairment was a $172 million charge in the half, down 35 per cent year-on-year. There was an ongoing $108 million charge relating to CPBB net of a $34 million release relating to non-linearity post-model adjustments and $21 million release from the COVID-19 management overlay. There was a net release of $21 million relating to sovereign downgrades, as additional charges relating to Sri Lanka was more than offset by a net release relating to Ghana sovereign exposures. There was also a $82 million net charge relating to the China commercial real estate sector, with further Stage 3 impairments partly offset by a $37million decrease in the management overlay. The remaining China commercial real estate sector management overlay is now $136 million, and the COVID-19 overlay has been fully released.

The credit impairment charge represents an annualised loan loss rate of 11 basis points, this is higher than what would be implied by the low credit impairment charge alone as it excludes the impairment releases on debt securities of $37 million.

Gross stage 3 loans and advances to customers of $7.7 billion were down 2 per cent compared with 31 December 2022. This reflects repayments, client upgrades, reduction in exposures and write-offs more than offsetting new inflows. Credit-impaired loans represented 2.6 per cent of gross loans and advances, an increase of 12 basis points in the half. This reflects the fact that total loans and advances to customers shrank more quickly than gross stage 3 loans.

The stage 3 cover ratio of 59 per cent increased 2 percentage points compared with the position as at 31 December 2022. The cover ratio post collateral also increased 2 percentage points to 78 per cent, with both ratios increasing due to new and incremental provisions taken in the first half.

Credit grade 12 balances have decreased by 16 per cent since 31 December 2022 to $1.3 billion reflecting both improvements into stronger credit grades and downgrades to Stage 3.

Early Alert accounts of $4.4 billion have decreased by $0.5 billion since 31 December 2022 and have reduced by $3.1 billion since 30 June 2022. The half-on-half decline primarily relates to upgrades in the Aviation sector and repayments in the China commercial real estate sector. The Group is continuing to carefully monitor its exposures in vulnerable sectors and select markets, given the unusual stresses caused by the challenging macro-economic environment.

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The proportion of investment-grade corporate exposures fell by 2 percentage points since 31 December 2022 to 74 per cent reflecting the decrease in reverse repurchase agreements.

Restructuring and other items

1 Restructuring, DVA and other items for relevant periods in 2022 has been restated for the removal of (i) exit markets and businesses in AME (ii) Aviation Finance and (iii) DVA from underlying operating Performance

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.

The Group has signed sale agreements to exit seven markets in the AME region and will focus solely on the CCIB segment in two more "exit markets". Additionally, the Group announced that it intends to explore alternatives for the future ownership of its Aviation Finance business. As a result of these announcements, effective 1st January 2023, the Group no longer includes the exit markets and the Aviation Finance business within the Group's underlying operating profit before taxation but will report them within restructuring.

The Group is also reclassifying movements in the debit valuation adjustment (DVA) out of its underlying operating profit before taxation and into other items.

To aid comparisons with prior periods the Group has removed the exit markets, Aviation Finance business and DVA from its underlying operating profit before taxation for 2022.

Restructuring profits of $56 million primarily reflect the profit from the exit markets and Aviation Finance businesses partly offset by losses on the remaining Principal Finance portfolio and redundancy charges.

DVA was a negative $39 million movement driven by the narrowing of the Group's asset swap spreads on derivative liability exposures. The size of the portfolio subject to DVA did not change materially.

Balance sheet and liquidity

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

2 The Group now excludes $24,749 million held with central banks (31.03.23: $24,173 million, 31.12.22: $20,798 million, 30.06.22: $16,918 million) that has been confirmed as repayable at the point of stress. Advances exclude repurchase agreement and other similar secured lending of $10,950 million and include loans and advances to customers held at fair value through profit or loss of $5,368 million. Deposits include customer accounts held at fair value through profit or loss of $14,935 million

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

• Loans and advances to banks were 13 per cent or $5 billion higher from 31 December 2022 to $45 billion

• Loans and advances to customers decreased 7 per cent, or $21 billion, from 31 December 2022 to $290 billion. These items include the impact of $20 billion reduction from Treasury and securities backed loans, primarily reverse repurchase agreements, held to collect, risk-weighted asset optimisation actions in CCIB and adverse currency translation and a reclassification of Aviation Finance loans amounting to $1 billion into Held for Sale assets. Excluding these adjustments, loans and advances were broadly stable in the half

• Customer accounts increased 2 per cent, or $8 billion, from 31 December 2022 to $470 billion. An increase in Cash Management balances and retail time deposits was partly offset by an outflow of retail current account balances

• Other assets increased 7 per cent, or $34 billion from 31 December 2022 to $504 billion. A $28 billion increase in cash and balances at central banks was partially offset by a $10 billion reduction in investment securities and a $3 billion reduction in derivative balances

• Other liabilities increased 4 per cent, or $12 billion, from 31 December 2022 to $291 billion with an increase in repurchase agreements being partly offset by reduced derivative liabilities

The advances-to-deposits ratio decreased to 53.6 per cent from 57.4 per cent at 31 December 2022. The liquidity coverage ratio increased 17 percentage point to 164 per cent and remains well above the minimum regulatory requirement.

Risk-weighted assets

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

Total risk-weighted assets (RWA) increased 2 per cent or $4.4 billion since 31 December 2022 to $249.1 billion:

• Credit risk RWA was broadly flat in the first half at $197.2 billion. There was a $6.9 billion reduction from optimisation actions, primarily in the CCIB low-returning portfolio and a $2.9 billion reduction from currency translation. This was offset by a $8.2 billion increase from asset growth & mix and a $1.3 billion increase from derivatives

• Operational risk RWA increased $0.7 billion primarily due to an increase in average income as measured over a rolling three-year time horizon, with higher 2022 income replacing lower 2019 income

• Market risk RWA increased by $3.4 billion to $24.1 billion reflecting an increased level of Financial Markets activity and an increase in Internal Models Approach add-ons for risks not captured by VaR

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

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The Group's CET1 ratio of 14.0 per cent was 5 basis points higher than the ratio as at 31 December 2022. An increase in RWAs and the reduction in CET1 from shareholder distributions was offset by profit accretion. The CET1 ratio remains 3.6 percentage points above the Group's latest regulatory minimum of 10.4 per cent and at the top of the 13-14 per cent target range.

The Group is part way through the $1 billion share buyback programme which it announced on 16 February 2023, and by 30 June 2023 had spent $736 million purchasing and cancelling 94 million ordinary shares, reducing the share count by approximately 3 per cent. Even though the share buyback was still ongoing on 30 June 2023, the entire $1 billion is deducted from CET1 in the period, reducing the CET1 ratio by 41 basis points.

The Board has decided to carry out an additional share buy-back commencing imminently for up to a maximum consideration of $1 billion to further reduce the number of ordinary shares in issue by cancelling the repurchased shares. The terms of the buy-back will be announced and the program will run concurrently with the current program and is expected to reduce the Group's CET1 ratio in the third quarter of 2023 by approximately 40 basis points.

The Board has recommended an interim 2023 ordinary dividend of 6 cents a share, an increase of 50 per cent, one third of the ordinary full-year dividend paid in 2022.

The $4.4 billion increase in RWAs in the first half accounted for a 25 basis points reduction in the CET1 ratio. The above reductions to the CET1 ratio were offset by 97 basis points uplift from profit accretion in the half.

The Group's leverage ratio of 4.8 per cent is in-line with the ratio as at 31 December 2022. This is primarily driven by profit accretion offset by a call of $1.0 billion Additional Tier 1 securities, effective 2 April 2023 and shareholder distributions. The Group's leverage ratio remains significantly above its minimum requirement of 3.7 per cent.

Outlook

We have made a strong start to 2023 with positive momentum being supported by progress on our five strategic actions and the markets in our footprint are expected to continue to grow faster than those in the West.

We are therefore upgrading our 2023 guidance:

• Income to increase by 12 to 14 per cent at constant currency

• Full year average net interest margin of around 170 basis points

• Assets growth in the low single digit percentage range in the second half of the year from 30 June 2023

• RWA growth in the low single digit percentage range

• Positive income-to-cost jaws of around 4 percentage points, excluding UK bank levy at constant currency

• Full year loan loss rate to be in the range of 17-25 basis points

• Operate dynamically within the full 13 to 14 per cent CET1 target range

• Return on Tangible Equity of 10 per cent

Andy Halford

Group Chief Financial Officer

28 July 2023

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Supplementary financial information

Underlying performance by client segment

1 Underlying performance for relevant periods in 2022 has been restated for the removal of (i) exit markets and businesses in AME (ii) Aviation Finance and (iii) DVA. No change to statutory performance

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

3 Not meaningful

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Corporate, Commercial & Institutional Banking