8th Aug 2005 09:00
Standard Chartered PLC08 August 2005 PART 1 8 August 2005 TO CITY EDITORSFOR IMMEDIATE RELEASE STANDARD CHARTERED PLC RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2005 HIGHLIGHTS STANDARD CHARTERED PLC RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2005 Reported Results • Profit before tax up 20 per cent to $1,333 million, compared with $1,107 million* in H1 2004 (H2 2004: $1,144 million*) • Income up 19 per cent to $3,236 million from $2,725 million* (H2 2004: $2,657 million*) • Total assets up 54 per cent to $203.9 billion from $132.6 billion (H2 2004: $147.1 billion) including $46 billion on the acquisition of Korea First Bank (KFB) Underlying Results** • Profit before tax up 15 per cent to $1,249 million, compared with $1,082 million* in H1 2004 (H2 2004: $1,143 million*) • Income up 14 per cent to $2,978 million from $2,615 million* (H2 2004: $2,628 million*) • Expenses up 12 per cent to $1,562 million from $1,392 million*; (H2 2004: $1,415 million*) • Loan impairment charge up 19 per cent to $166 million from $139 million (H2 2004: $71 million) Key Metrics • Normalised earnings per share up 32 per cent at 75.2 cents (H1 2004: 57.1 cents*; H2 2004: 67.5 cents*) • Normalised return on ordinary shareholders' equity is 18.4 per cent* (H1 2004: 18.0 per cent;* H2 2004: 18.6 per cent*) • Interim dividend per share increased 11 per cent to 18.94 cents • Cost income ratio improves to 52.6 per cent (H1 and H2 2004: 54.0 per cent). Significant achievements • Underlying income in Consumer and Wholesale Banking both grew at 14 per cent • Record profits in Consumer Banking, up 24 per cent, underlying up 14 per cent • Record profits in Wholesale Banking, up 23 per cent, underlying up 17 per cent • Completed acquisition of Korea First Bank; good progress on integration • 2004 acquisitions and alliances delivering ahead of expectations Commenting on these results, the Chairman of Standard Chartered PLC, BryanSanderson, said: "This is a strong set of results. We are making good progress. We are oncourse to achieve our strategic goals, building on our track record ofperformance." *Comparative restated in the transition to IFRS (see note 6 on page 47). ** Underlying income and costs excludes the post acquisition results of KFB andone-off items in 2004. STANDARD CHARTERED PLC - TABLE OF CONTENTS PageSummary of Results 3Chairman's Statement 4Group Chief Executive's Review 6Financial Review Group Summary 11 Consumer Banking 12 Wholesale Banking 16 Acquisition of Korea First Bank 20 Risk 22 Capital 40Financial Statements Consolidated Income Statement 41 Consolidated Balance Sheet 42 Consolidated Statement of Recognised Income and Expenses 43 Consolidated Cash Flow Statement 44Notes 45 On 1 January 2005 the Group adopted European Union (EU) endorsed InternationalFinancial Reporting Standards (IFRSs). The comparative amounts presented haveaccordingly been restated to comply with IFRSs that have been endorsed by theEU, and those that are expected to be endorsed in 2005, with the exception ofIAS 32/39. The impact of the restatement was published by the Group on 12 May2005. Copies of this announcement are available from the Group's website athttp://investors.standardchartered.com The Group has taken advantage of thetransition rules of IFRS 1, First time adoption of International FinancialReporting Standards to apply IAS 32/39 with effect from 1 January 2005. (seenote 6 on page 47). Unless another currency is specified, the word "dollar" or symbol "$" in thisdocument means United States dollar. STANDARD CHARTERED PLC - SUMMARY OF RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2005 6 months 6 months 6 months ended ended ended 30.06.05 30.06.04 31.12.04 $m $m $m RESULTS Operating income 3,236 2,725 2,657Impairment losses on loans and advances (194) (139) (75)Profit before taxation 1,333 1,107 1,144Profit attributable to shareholders 971 756 822Profit attributable to ordinary shareholders 956 727 793 BALANCE SHEET Total assets 203,927 132,648 147,078 Total equity 12,494 8,862 10,069 Capital base 15,753 12,595 13,786 INFORMATION PER ORDINARY SHARE Cents Cents Cents Earnings per share - normalised basis 75.2 57.1 67.5 - basic 74.7 62.1 67.5Dividend per share 18.94 17.06 40.44Net asset value per share 830.0 676.5 715.2 RATIOS % % % Post-tax return on equity - normalised basis 18.4 18.0 18.6Cost income ratio - normalised basis 52.6 54.0 54.0Capital ratios: Tier 1 capital 7.3 9.2 8.6 Total capital 13.0 15.6 15.0 Results on a normalised basis reflect the Group's (Standard Chartered PLC andits subsidiaries) results excluding items presented in note 4 on page 46. CHAIRMAN'S STATEMENT I am pleased to report another strong half-year performance for StandardChartered. Our performance is showing the benefits of our investments in organic growth,and the strategic alliances and acquisitions we have made. Our acquisition of Korea First Bank (KFB) was completed ahead of schedule inApril 2005, and we are making good progress on the integration. 2005 First Half Results We continue to build on our track record of performance, with broadly basedincome growth in almost all our geographies and across both businesses. Ourloan impairment performance has, once again, been strong, as the benign creditenvironment continues in many of our markets, and as we benefit from our robustrisk management processes. We continue to pace expenses growth in line with income, and have shownimprovement in our cost income ratio. Normalised earnings per share is up 32 percent. At the half year, the Board has approved an interim dividend of 18.94 cents pershare, up 11 per cent. Economic Environment In our markets of Asia, Africa and the Middle East, the overall economic outlookis good. While global rates of growth look set to slow during the second half of 2005,growth rates in our markets are forecast to remain above those of OECDcountries. There are challenges. Oil and commodity prices look set to remain high,although moderating in 2006 to match the potential slowdown in global growth. This will benefit many of our markets, although some - particularly those withlow foreign exchange reserves - may feel increased inflationary pressures. In Asia, China's recent decision to change the renminbi regime is a major policystep and is good news for the Chinese economy. We believe it is also good newsfor the global economy. This is a further sign of China's emergence as a globaleconomic player. The immediate market implications are: • Stronger Asian currencies versus dollar; • Countries whose currencies strengthen may well opt for lower interest rates; • There may be some impact on US long bond yields but this is hard to predict. Longer-term, we also expect a deepening of Asian financial markets, as centralbanks across the region gradually start to increase their holdings in otherAsian currencies. We are in growing markets, and we are executing our strategy well. Ourgeographic diversity is helping us to deliver a consistently good performance. Strategic Approach Our strategic focus is on organic growth. Where we consider acquisitions, wewill take a very disciplined approach. Any acquisition must deliver shareholdervalue and allow us to do something that we cannot do organically. So far this year, we have made a number of investments, either extending ourgeographic or customer reach, or broadening our product range: • the purchase of Thailand's Financial Institutions Development Fund's 24.97 per cent shareholding in Standard Chartered Nakornthon Bank; • the agreement to acquire a minority stake in Travelex, the world's largest non-bank foreign exchange specialist; • the purchase of an 8.56 per cent minority stake in Asia Commercial Bank in Vietnam, one of the two joint stock banks in the country; and • the agreement to acquire the commercial banking business of American Express Bank Limited in Bangladesh. And, of course, we have completed the acquisition of KFB - the largest in theGroup's history, and the largest foreign investment in Korea's financialservices sector. Our results show clearly that our strategy is delivering results. StandardChartered is growing - our businesses are growing, our presence in our marketsis growing. But size itself is not the objective. The objective is, and always will be, tocreate shareholder value. The Board is very focused on ensuring the Group achieves its strategicobjectives. Corporate Governance As Chairman, one of my most important responsibilities is to ensure propergovernance. Good governance is the assurance to our shareholders of a well-run organisation. Good governance compels clear accountabilities, ensures strong controls, instilsthe right behaviours, and reinforces good performance. The Group is committed to ensuring the integrity of governance throughout ournetwork, with particular emphasis on controls, management systems, and strategy. In Summary We are making good progress towards our performance goals for 2005. While thereare some challenges in our markets, the economic outlook remains positive, andwe are well-placed to benefit from their strength. We have a vigorous governance culture supported by strong processes and systems. This is a strong set of results. We are making good progress. We are on courseto achieve our strategic goals, building on our track record of performance. Bryan Sanderson CBE Chairman 8 August 2005 GROUP CHIEF EXECUTIVE'S REVIEW We have had another strong set of results for the first half of 2005. We now have a track record for good performance and for keeping our promises toour shareholders. We will continue to do so. In the first half of 2005, we delivered against a balanced scorecard of growthand performance. Profit before tax, including KFB, was $1,333 million, a 20 percent increase from $1,107 million. On an underlying basis, profit before tax wasup 15 per cent. On a normalised basis, cost-income ratio improved to 52.6 percent. Earnings per share saw an increase from 57.1 cents to 75.2 cents. Our Progress At the beginning of the year, we set out our top priorities for 2005: • Expand Consumer Banking customer segments and products; • Continue Wholesale Banking transformation; • Integrate Korea First Bank and deliver growth; • Accelerate growth in India and China; • Deliver further technology benefits; • Embed Outserve into our culture. We are making real progress in achieving our priorities. As a Group, we have come a long way in the past few years, doubling profits andearnings per share in three years, and achieving our target return on equity. We have changed the shape of our business: • While Hong Kong remains a key market, it is now part of a bigger, geographically balanced bank. • Eleven of our geographies now deliver over USD100 million in income. • Profits in the Middle East and South Asia region (MESA), including the United Arab Emirates (UAE), have grown sevenfold over the past 10 years. The momentum in both businesses remains strong, with income and profit growthacross almost all our markets. We have confidence that this performance will continue, as we focus on ourmarkets, our products, our service, our people, and on delivering good returnsfrom our acquisitions and alliances. Our Markets There are opportunities in nearly all of our markets. To take three examples: India We are the largest international bank, we hold top five positions in many of ourmarket segments, and we are the third most profitable multinational. Our servicecentre in Chennai is a leader in business processing. Our acquisition of Grindlays in 2000 gave us scale, and we have added to this.We now have 78 branches in 30 cities. In the first half of 2005, our operatingprofit has exceeded the profits we made for the full year of 2001. We are continuing to invest in growing our footprint to benefit from the scaleand potential in India. China In China we have a three-strand growth strategy - organic growth, selectivestrategic investment, and taking advantage of the many opportunities in thePearl River Delta, one of the world's fastest growing economic zones. Our Consumer Banking business was launched in 2003 and is already on track tobreak even this year. In the past six months, we have launched 12 new products,trebled our assets over end 2004, and doubled the number of permanent staff -from less than 200 to almost 400 this June - to meet the demand we see in themarket. We now provide Consumer Banking services in Shanghai, Shenzhen, Beijing andGuangzhou - amongst some of the most important and wealthy cities in China. Wholesale Banking has been profitable for the last two years in China. Income isup approximately 50 per cent, year on year. We are now expanding corporateadvisory and other Global Markets services. But it is not only the giant economies of India and China that are contributingto our growth. Middle East and South Asia The economies in the Middle East and South Asia region are doing very well,partly due to strong commodities and oil prices. We are very pleased with our performance in MESA. We made a decision to investin both infrastructure and talent, to strengthen our wealth management business,and to upgrade our project finance and debt capital markets capabilities. Theseinvestments are paying off. Our income in the first half this year grew 25 per cent over the same periodlast year. As countries like the UAE and Qatar look to increase their role in the world, wesee further growth opportunities. We also have opportunities in capturing the trade and investment flows betweenour markets. The pattern of trade flows is changing with rapid growth in intra-Asia and Afro-Asia trade. The Asian regional financial hubs of Hong Kong and Singapore remain core tothese opportunities. We have seen a return to growth in Hong Kong, where tight discipline on expensesand risks has delivered record growth in operating profit. Singapore is a very challenging market with a highly competitive environmentleading to strong margin compression. We are taking action to reposition our business in Singapore while taking thelead in product innovation to win market share. Our Products Product innovation has become a driver of our organic growth. So far this year, we have launched 200 new product variations across 15 marketsin Consumer Banking, ranging from Small and Medium Sized Enterprises (SME) loansin Pakistan to personal loans in South Africa. Time to market is vital and we are shortening this. Our "M wallet", launchedearlier this year in India, is the first mobile phone credit card in thecountry, and took just 90 days from concept to launch. A fresh approach to traditional products can also help give us competitiveadvantage in mature markets. Singapore's e-saver is an on-line savings product,and a first of its kind in the market. The product has no minimum balance, nomonthly fees, no fixed term, no passbook - but a very competitive interest rate.The overwhelming response from customers has enabled us to reach our 18 monthtarget in just two weeks. This is just one of 15 new products launched inSingapore in the first half. In Wholesale Banking, we have launched over 30 products in over 20 marketsincluding Fund Services, Yield Enhancing FX Solutions and Renewal EnergyFinancing. An example of a product we invested in a few years ago and is now paying off isB2BeX, our award-winning Internet platform for trade services. It was launchedat the end of 2002, when many other institutions were viewing trade banking asin decline. In the first six months of 2005, more than 80,000 purchase orders and 5,000letters of credit issuances, with a value of about USD750 million, were sentover the platform. Transaction activity is up approximately 50 per cent over thesame period a year earlier. In an increasingly commoditised industry, where some products are under marginpressure, you have to keep innovating. These are just three examples. Buthaving the right products in the right markets needs to be matched with theright service levels. Our Service Outserve is our initiative to improve service through the effective measurementand use of customer feedback to drive process improvements. There are over 400 process improvement initiatives completed or in progress thisyear throughout the Group, in sales, risk, finance, middle office and operationsfunctions. Over 600 staff have already been trained in our process improvement methodology,and 90 per cent of all staff worldwide have completed their introductoryOutserve training. One example of how this is adding value is in Thailand, where Consumer Bankinghas completed an Outserve project with one of our SME loan products. As a resultof this project, they have improved their processing time dramatically,increasing fivefold the percentage of loans they can process within the targettime. In the first month, loan volumes for the product increased nearly 40 percent. Outserve is becoming a part of our culture and is already contributing to thebottom line today, but we still have more to do. Our People You can only create innovative products and give the right service, if you havethe right people. We spend a huge amount of time on developing people. Any growing company needs arelentless focus on talent management, whether it is recruitment, development,or succession planning. The Group is a very diverse organisation. We are in 56 countries andterritories, have 80 nationalities among our staff and 45 nationalities in oursenior management team, giving us a multi-lingual, multi-national, multi-cultural mix that is a huge advantage. Having strong general managers, able to move across businesses and acrosscountries, is critical. Last year we made 200 cross border moves around thegroup at senior manager level, and so far this year we have already moved over170 people. We not only have a wealth of talent in the company. We are also able to attractstrong people from the marketplace, and at all levels. We spend at least a day each quarter on succession planning for the top 100 jobsin the company. The next generation of this Group's top management has beenidentified, and they are very strong. We have great talent across theorganisation - that's what really gives us confidence in our continuedperformance. Our Investments In the last 12 months, we have supplemented organic growth with selectiveacquisitions and alliances that extend our customer or geographic reach, orbroaden our product range. Let me update you on how three of these - PT BankPermata Tbk (Bank Permata), Standard Chartered Nakornthon Bank, and AsiaCommercial Bank - are performing. Bank Permata As part of a consortium with PT Astra International Tbk, we took a controllinginterest in Bank Permata to extend our market penetration in Indonesia. Bank Permata is a key investment because it is astrong consumer bank with over one million customers, more than 300 branches, aswell as other distribution channels including mobile, internet and call centres.Bank Permata's first half results for this year are very encouraging - it hascontributed $35 million of income and $11 million of operating profit to ourGroup's results. It is a well-managed bank, and we have now appointed a new Chief Executive whois one of our very senior international bankers with experience in Indonesia. Wewill be introducing further products and our own management infrastructure toallow us to grow assets and returns. Standard Chartered Nakornthon Bank It has been six years now since we bought a majority stake in Nakornthon Bank inThailand. In May this year we purchased the 24.97 per cent owned by Thailand'sFinancial Institutions Development Fund, taking our total ownership to over 99per cent. We have recently announced our plan to integrate our branch into StandardChartered Nakornthon Bank. With the integration, we will have a strong competitive advantage as one of onlytwo international banks with a meaningful domestic branch network. It is encouraging to see income growth of over 40 per cent and profits growingover 20 per cent across a range of products already in Thailand. We have ambitious plans for the future. Asia Commercial Bank In June, we purchased a minority stake in Asia Commercial Bank (ACB), one of thetwo joint stock banks in Vietnam. With a population of over 80 million people,Vietnam is one of the fastest growing economies in Asia, enjoying GDP growth ofover seven per cent. It is an attractive consumer market, fast-growing albeit from a small base. ACBgives us a foothold, and a great opportunity to learn and grow with themarketplace. Korea First Bank Our most important strategic step this year has been the acquisition of KoreaFirst Bank (KFB). We have said KFB will be EPS accretive in 2006, and we willdeliver on this. Since completing the acquisition ahead of schedule in April 2005, we have made agood start on integration. We are clear on the areas we must address: • We are aligning both management and governance; • We are integrating two cultures - and this includes building productive working relationships with our key stakeholders; • We are expanding the product range at KFB, and moving quickly and effectively to bring new products to the market. Management and governance We have implemented our management model for Consumer and Wholesale Banking, andfilled most key roles. We have put in place our assessment processes forperformance management, and Korea is now part of our Group-wide monthlyperformance tracking reviews. The Asset and Liability Committee is reshaping the balance sheet, focusing onintegrating policies, and reviewing capital and liquidity structures. The RiskCommittee has already finalised the risk governance framework for KFB. This is a good beginning. Culture After extensive consultation with our staff and customers, we have announced ournew brand name, and in September (subject to regulatory approvals), KFB willbecome SC First Bank and we will rebrand our 400 branches. We integrated both communications networks on Day One, and all KFB staff nowreceive the same communications as all our Standard Chartered staff. We have begun a staff engagement programme around the Group's brand and sharedvalues, with a number of joint events for Standard Chartered and Korea FirstBank staff such as celebrating Korea Day around our network, and holding aFamily Day in Korea for staff and families. We are clear about the challenges of integration and it will take time to embedour processes and standards and to get the culture right. So far, our engagementof key stakeholders is going well. Our regulatory relationships are in goodshape. Our relationship with the union is important to us. I have had theopportunity to meet many staff and many of our key customers, and we arereceiving very positive response from both. Products There are gaps in product offerings, and we have moved quickly to address themost immediate of these. In Wholesale Banking, the new dealing room - the largest in Korea - has gonelive with our international standard risk controls and processes in place. Wehave extended new FX limits, we are launching a full suite of Global Marketsproducts by year-end, and we are linking KFB's domestic cash management channelswith Standard Chartered's international transaction banking network. In Consumer Banking, we launched KFB's first Personal Loan product on 18 July.It is the first of its kind in Korea to provide immediate approval by mobilephone and has been very well received. We have identified offshore mutual funds,foreign currency deposits, and Bancassurance as immediate opportunities toexpand our presence in Wealth Management. And, we are building on KFB's excellent reputation in mortgages with our newestproduct that combines a mortgage loan with insurance. All of these actions arealready having a positive impact on KFB results. We have made a good start, with staff and customers engaged. KFB is a strongbank with great potential. Outlook Standard Chartered is performing well and we are taking advantage of themomentum in our businesses. We are confident in our ability to continue to drive forward performance despitechallenges to global business from terrorism, high liquidity affecting margins,oil price uncertainty, and asset bubbles, mainly in real estate, in certainparts of the world. There is cause to remain cautious on the outlook for risk. However, theeconomic environment in our markets is good. Overall: • We are well-placed in growing markets; • The balance of our businesses and products has never been better; and • Our acquisitions and alliances are doing well. In particular, we are already seeing progress with KFB. We are showing we have the ability to consistently deliver performance across arange of market conditions. We look forward to continuing this in the secondhalf. Mervyn Davies CBE Group Chief Executive 8 August 2005 STANDARD CHARTERED PLC - FINANCIAL REVIEW GROUP SUMMARY The Group has delivered another strong performance in the six months ended 30June 2005. Operating profit before tax of $1,333 million was up 20 per cent onthe equivalent period last year. Normalised earnings per share has grown by 32per cent to 75.2 cents. (Refer to note 4 on page 46 for the details of basic anddiluted earnings per share). On 15 April 2005 the Group acquired 100 per cent of Korea First Bank (KFB). The impact of including the post acquisition results of KFB in 2005 togetherwith significant one-off items in the first half of 2004, make the comparabilityof the results for the six months to June 2005 with the equivalent period in2004 complex. The underlying results are analysed in the table below to assistwith an understanding of the underlying trends excluding these two components. 6 months ended 30.06.05 6 months ended 30.06.04 6 months ended 31.12.04 *One *One off off Under-lying As items Under-lying As items Under-lying As reported reported reported KFB $m $m $m Acquisitions $m $m $m $m $m $m $m Net interest 214 1,758 1,972 - 1,551 1,551 27 - 1,604 1,631incomeFees and 22 705 727 - 663 663 1 - 668 669commissions income, netNet trading 12 397 409 - 333 333 2 - 316 318incomeOther operating 10 118 128 110 68 178 1 (2) 40 39income 44 1,220 1,264 110 1,064 1,174 4 (2) 1,024 1,026 258 2,978 3,236 110 2,615 2,725 31 (2) 2,628 2,657 Operating income (146) (1,562) (1,708) (18) (1,392) (1,410) (19) (5) (1,415) (1,439) OperatingexpensesOperating profit 112 1,416 1,528 92 1,223 1,315 12 (7) 1,213 1,218 beforeprovisionsImpairment (28) (166) (194) - (139) (139) (4) - (71) (75)losses on loans andadvancesOther impairment - (1) (1) (67) (2) (69) - - 1 1Operating profit 84 1,249 1,333 25 1,082 1,107 8 (7) 1,143 1,144before taxation * See note 4 on page 46 Operating Income and Profit Underlying profit before tax was $1,249 million, up 15 per cent. Operating income including the acquisition of KFB increased by 19 per cent to$3,236 million compared to the first half of last year. Of this increase, $258marose from the inclusion of KFB. The underlying income growth, excluding KFB and2004 one-off items was 14 per cent to $2,978 million. On an underlying basisConsumer Banking and Wholesale Banking continued to deliver double-digit incomegrowth. Business momentum is strong. Net interest income grew by 27 per cent to $1,972 million. Underlying growth was13 per cent. Interest margins have remained broadly stable at 2.6 per cent withthe growth driven by an increase in average earning assets. Fees and commissions increased by 10 per cent from $663 million to $727 million.Underlying growth of six per cent was driven by wealth management, mortgages,trade and corporate advisory services. STANDARD CHARTERED PLC - FINANCIAL REVIEW (continued) GROUP SUMMARY (continued) Net trading income grew by 23 per cent from $333 million to $409 million.Underlying growth was 19 per cent largely driven by customer led foreignexchange dealing. Other operating income at $128 million compares to $178 million for the sameperiod last year. This reduction is primarily due to inclusion of income fromthe sale of shares in KorAm and Bank of China (Hong Kong) in the first half of2004. On an underlying basis there has been strong growth driven by asset andliability management. Operating expenses increased from $1,410 million to $1,708 million. Of thisincrease, $146 million arose from the inclusion of KFB. The underlying expense increase was 12 per cent, which was lower than theunderlying income growth. As such the normalised cost income ratio has fallenfrom 54.0 per cent in the first half of 2004 to 52.6 per cent. The Group'sinvestments in market expansion, new products, distribution outlets and salescapabilities have been paying off in good double-digit income growth. Thisinvestment continued in 2005 together with increased expenditure on the Group'stechnology and operations platforms and support infrastructure. Impairment losses on loans and advances rose by 40 per cent from $139 million to$194 million an increase of $55 million, of which KFB accounted for $28 million.The underlying increase in impairment losses was 19 per cent reflecting mainlyasset growth in Consumer Banking and changes in provisioning due to IAS 39.Wholesale Banking continued to benefit from a benign credit environment andstrong recoveries. The investments made in Travelex, Asia Commercial Bank Vietnam and thecommercial banking business of American Express Limited in Bangladesh have hadno impact on the first half results. CONSUMER BANKING Including the acquisition of KFB, Consumer Banking grew operating profit by 24per cent to $642 million compared to the first half of 2004. Of the $123 millionincremental profit, KFB accounted for $52 million. Underlying growth was 14 percent. Consumer Banking has maintained its strong revenue momentum with income up 29per cent to $1,723 million. Underlying growth was up 14 per cent to $1,525million. The accelerated investment in growth opportunities in the second halfof 2004 is delivering sustained results. Excluding KFB, assets grew 31 per centoutside Hong Kong and Singapore. Businesses acquired in 2004, including PrimeCredit and Bank Permata, contributed to income growth. Bank Permata accountedfor $35 million of income and $11 million of profit before tax in the first halfof 2005. Over 200 new products and variants were launched in the last sixmonths. Reflecting the rising interest rate environment, the revenue mix has changedwith narrower margins in asset products offset by strong growth in fee andinterest income in Wealth Management. Excluding KFB, total expense growth to sustain income momentum was 14 per cent,broadly in line with income growth for the period. Efficiencies in support andoperational functions have allowed Consumer Banking to invest in new businessessuch as Bank Permata and Prime Credit, launch new products and extenddistribution in fast growing markets like India, MESA and China. KFB accountedfor $117 million, or just over half of the $209 million first half expensegrowth. Overall, Consumer Banking impairment losses on loans and advances rose to $193million from $137 million reflecting the impact of asset growth, KFB and IAS 39. On the back of this asset growth, impairment losses on loans and advances grewby 20 per cent to $164 million excluding KFB. The charge in Hong Kong fell byhalf due to the improving economic environment. Bankruptcy charges in Hong Kongreduced from $40 million in 2004 to $21 million in 2004. Hong Kong delivered an increase in operating profit of nine per cent to $254million. This was largely driven by a lower impairment charge and tight expensecontrol. Income growth was broadly flat year on year but up four per cent on thesecond half of 2004 reflecting a good performance in Wealth Management and SME,offset by lower asset margins across the market. Customer assets grew by two percent. Costs were kept flat as investment for growth was funded from the actionstaken to reconfigure the cost base towards the end of 2004. In Singapore, income was slightly down on the first half of 2004, but up on thesecond half. Singapore is an intensively competitive environment, primarily inMortgage lending. Income from other products showed good growth driven bybetter margins and volumes in Wealth Management and SME. Operating profit in Malaysia was up nine per cent to $38 million with strongperformance across all products. Income grew by 15 per cent. Continued marginpressure in the Mortgage portfolio was offset by higher volume. WealthManagement income increased significantly, driven by investment product sales.Cards and Loans enjoyed good growth in both volume and income through theintroduction of new products. In Other Asia Pacific excluding KFB, operating profit grew 117 per cent to $78million. Income grew at 69 per cent, expense growth was 49 per cent,underpinned by asset growth of 45 per cent. There was good income and profit growth in Taiwan fuelled by Cards and Loans.Wealth Management, business and personal loans helped contribute to incomegrowth of 49 per cent and 40 per cent respectively in Indonesia and Thailand.Income in China grew by 70 per cent. The Consumer Banking division of KFB earned $52 million of operating profit onan operating income of $198 million. This is a broadly based business withincome from Wealth Management showing steady growth, a high quality Mortgageportfolio growing strongly but facing margin pressure and a significant butstable Cards and Loans portfolio. The product range will be expanded by theGroup in the remainder of 2005. In India, 15 per cent income growth was achieved through excellent WealthManagement growth offset by significant compression in asset margins. Mortgagelending assets grew 54 per cent. Expenses increased by $16 million to $86million as a result of continued investment to support rapid business growthcoupled with an enhanced risk management and control infrastructure. Operating profit in the UAE increased by $5 million to $35 million with incomeup by 25 per cent, driven by credit cards and personal loans, SME and WealthManagement. Expenses were higher by $6 million, reflecting continued investmentin distribution and technology. Elsewhere MESA operating profit grew by 38 percent to $44 million with strong performance in Pakistan. In Africa, operating profit nearly doubled to $21 million with income up by 16per cent to $124 million, largely fuelled by 42 per cent asset growth. This wasparticularly strong in Botswana, Kenya and Uganda in SME, credit cards andpersonal loans. Wealth Management revenue also grew strongly as marginsimproved. The Americas, UK and Group Head Office saw a decrease in operating profit from$10 million to $6 million, largely driven by continued reconfiguration of theJersey business. STANDARD CHARTERED PLC - FINANCIAL REVIEW (continued) CONSUMER BANKING (continued) The following tables provide an analysis of operating profit by geographicsegment for Consumer Banking: 6 months ended 30.06.05 Asia Pacific *Other Hong Asia Kong Singapore Malaysia Pacific India $m $m $m $m $mIncome 483 163 101 502 143Expenses (201) (62) (46) (285) (86)Loan impairment (28) (17) (17) (87) (27)Operating profit 254 84 38 130 30 6 months ended 30.06.05 Other Americas Middle UK & East & Group Consumer Other Head Banking UAE S Asia Africa Office Total $m $m $m $m $m Income 74 103 124 30 1,723Expenses (31) (53) (100) (24) (888)Loan impairment (8) (6) (3) - (193)Operating profit 35 44 21 6 642 6 months ended 30.06.04 Asia Pacific Other Hong Asia Kong Singapore Malaysia Pacific India $m $m $m $m $m Income 489 168 88 180 124Expenses (201) (59) (45) (113) (70) Specific (55) (20) (8) (31) (11) General - - - - -Loan impairment (55) (20) (8) (31) (11)Operating Profit 233 89 35 36 43 6 months ended 30.06.04 Other Americas Middle UK & East & Group Consumer Other Head Banking UAE S Asia Africa Office Total $m $m $m $m $m Income 59 81 107 39 1,335Expenses (25) (44) (93) (29) (679) Specific (4) (5) (3) - (137) General - - - - -Loan impairment (4) (5) (3) - (137)Operating Profit 30 32 11 10 519 6 months ended 31.12.04 Asia Pacific Other Hong Asia Kong Singapore Malaysia Pacific India $m $m $m $m $m Income 465 162 87 220 134Expenses (215) (58) (41) (124) (83) Specific (33) (20) (10) (38) (18) General 11 6 4 3 2Loan impairment (22) (14) (6) (35) (16)Operating Profit 228 90 40 61 35 6 months ended 31.12.04 Other Americas Middle UK & East & Group Consumer Other Head Banking UAE S Asia Africa Office Total $m $m $m $m $m Income 65 91 111 30 1,365Expenses (26) (49) (103) (22) (721) Specific (6) (6) (3) - (134) General 1 1 - 1 29Loan impairment (5) (5) (3) 1 (105)Operating Profit 34 37 5 9 539 * Includes post acquisition results of KFB (income $198 million, expenses $117million, loan impairment $29 million and operating profit of $52 million). Seepage 20. STANDARD CHARTERED PLC - FINANCIAL REVIEW (continued) CONSUMER BANKING (continued) An analysis of Consumer Banking income by product is set out below: 6 months ended 30.06.05 6 months 6 months ended endedIncome by product Total KFB Underlying 30.06.04 31.12.04 $m $m $m $m $m Cards and Loans 677 77 600 538 579Wealth Management / Deposits 634 53 581 425 466Mortgages and Auto Finance 350 66 284 351 287Other 62 2 60 21 33 1,723 198 1,525 1,335 1,365 Including KFB, Cards and Loans have delivered a solid performance with 26 percent growth in income to $677 million in an increasingly competitiveenvironment. Underlying assets have grown by 22 per cent outside of Hong Kong.Loans now contribute nearly half of total underlying Cards and Loansoutstandings with a 27 per cent growth in assets. This is a result of continuedinvestment in products and sales channels. Despite a seven per cent decline inCard outstandings Hong Kong has had strong growth in profitability. Overall Wealth Management income has increased by 49 per cent to $634 milliondriven by strong fee income growth in investment products and improved depositmargins. Innovation in core and structured products has boosted sales inSingapore, India, MESA and China. Fee income in KFB is growing. Total Mortgages and Auto Finance income including KFB is flat at $350 million.Underlying growth was affected by significant margin compression in Hong Kong,Singapore and India, in spite of record new sales. Proactive repricing by theGroup has helped to offset margin compression. However, margins are down as muchas half on the same period in 2004. STANDARD CHARTERED PLC - FINANCIAL REVIEW (continued) WHOLESALE BANKING Wholesale Banking's performance continued to reflect the successful execution ofits strategy, delivering strong client driven growth across multiplegeographies, products and customer segments. Including KFB, operating profit was up 23 per cent to $691 million. Underlyinggrowth was 17 per cent to $659 million. This was achieved through targeteddevelopment of new businesses such as project finance, local corporates, and bydeepening core banking relationships whilst keeping a tight hold on expenses.Total income increased by 18 per cent to $1,513 million. Underlying growth wasup 14 per cent to $1,453 million. Client revenues grew at 16 per cent. The strong performance in the first half of 2005 was driven by Global Marketsand Cash Management. Expenses in Wholesale Banking increased by 15 per cent to $820 million.Underlying expense growth was 11 per cent. Expense growth was focused onincreased investment in corporate finance, local corporates and geographicexpansion, with increased spend on credit risk infrastructure and controlstogether with an increase in performance driven compensation. The loan impairment charge in the first half of 2005 was $1 million, compared toa charge of $2 million in 2004. New provisions were up by 28 per cent andrecoveries up by 36 per cent. This reflected continued enhancement of riskmanagement processes, success in recoveries, together with a favourable creditenvironment. It also includes the successful resolution of the Loan ManagementAgreement (LMA) in Thailand. STANDARD CHARTERED PLC - FINANCIAL REVIEW (continued) WHOLESALE BANKING (continued) The following tables provide an analysis of operating profit by geographicsegment for Wholesale Banking: 6 months ended 30.06.05 Asia Pacific *Other Hong Asia Kong Singapore Malaysia Pacific India $m $m $m $m $m Income 264 98 56 330 159Expenses (116) (61) (27) (178) (57)Loan impairment (41) (17) 3 64 4Other impairment (1) - - - 1Operating profit 106 20 32 216 107 6 months ended 30.06.05 Other Americas Middle UK & East & Group Wholesale Other Head Banking UAE S Asia Africa Office Total $m $m $m $m $m Income 87 124 131 264 1,513Expenses (32) (42) (95) (212) (820)Loan impairment 1 (2) (27) 14 (1)Other impairment - - - (1) (1)Operating profit 56 80 9 65 691 6 months ended 30.06.04 Asia Pacific Other Hong Asia Kong Singapore Malaysia Pacific India $m $m $m $m $m Income 201 97 51 222 136Expenses (114) (60) (30) (136) (47) Specific (37) 3 7 17 - General - - - - -Loan impairment (37) 3 7 17 -Other impairment - - - - -Operating profit 50 40 28 103 89 6 months ended 30.06.04 Other Americas Middle UK & East & Group Wholesale Other Head Banking UAE S Asia Africa Office Total $m $m $m $m $m Income 75 95 163 240 1,280Expenses (26) (37) (75) (188) (713) Specific 4 7 4 (7) (2) General - - - - -Loan impairment 4 7 4 (7) (2)Other impairment - - - (2) (2)Operating profit 53 65 92 43 563 6 months ended 31.12.04 Asia Pacific Other Hong Asia Kong Singapore Malaysia Pacific India $m $m $m $m $m Income 215 86 44 203 95Expenses (112) (51) (28) (145) (51) Specific (17) (5) 4 5 3 General 6 3 1 4 2Loan impairment (11) (2) 5 9 5Other impairment - - - - 2Operating profit 92 33 21 67 51 6 months ended 31.12.04 Other Americas Middle UK & East & Group Wholesale Other Head Banking UAE S Asia Africa Office Total $m $m $m $m $m Income 72 110 203 266 1,294Expenses (23) (39) (89) (175) (713) Specific 2 - (10) 22 4 General 2 2 - 6 26Loan impairment 4 2 (10) 28 30Other impairment - - - (1) 1Operating profit 53 73 104 118 612Related Shares:
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