Interim Results - Part 1 of 2

7th Aug 2007 09:15

Standard Chartered PLC07 August 2007 7 August 2007 TO CITY EDITORSFOR IMMEDIATE RELEASE STANDARD CHARTERED PLC RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2007 HIGHLIGHTS STANDARD CHARTERED PLC RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2007 Reported Results • Operating income up 28 per cent to $5,263 million from $4,112 million in H1 2006 (H2 2006: $4,508 million) • Profit before taxation up 30 per cent to $1,980 million, compared with $1,527 million in H1 2006 (H2 2006: $1,651 million) • Profit attributable to ordinary shareholders* up 26 per cent to $1,370 million, compared to $1,088 million in H1 2006 (H2 2006: $1,165 million) • Total assets up 25 per cent to $297 billion from $238 billion at H1 2006 (H2 2006: $266 billion) Performance Metrics** • Normalised earnings per share up 19.7 per cent at 100.7 cents from 84.1 cents in H1 2006 (H2 2006: 87.3 cents) • Normalised return on ordinary shareholders' equity of 16.7 per cent (H1 2006: 17.9 per cent, H2 2006: 16.2 per cent) • Interim dividend per share increased 11 per cent to 23.12 cents • Normalised cost income ratio of 54.7 per cent (H1 2006: 53.6 per cent, H2 2006: 56.6 per cent) • Total capital ratio at 15.6 per cent (H1 2006: 14.2 per cent, H2 2006: 14.3 per cent) Significant achievements • Record Profit before taxation of $1,980 million, an increase of 30 per cent on H1 2006 • Two powerful engines of growth: Consumer Banking and Wholesale Banking each contributed over $570 million incremental income in the first half • Undertaken substantial investments for future growth while delivering excellent earnings per share growth of 19.7 per cent • Incorporated our business in China • Launched The Standard Chartered Private Bank in six new markets • Integrated our new acquisitions in Taiwan and Pakistan ahead of schedule, providing substantial new engines of growth Commenting on these results, the Chairman of Standard Chartered PLC, MervynDavies, said: "Over the last few years we have consistently produced record results whilebuilding a strong foundation for growth. Today we are seeing the rewards of abalanced and diverse business, leading the way in the dynamic markets of Asia,Africa and the Middle East. We have had an excellent first half performance andare keeping up the pace." * Profit attributable to ordinary shareholders is after the deduction ofdividends payable to the holders of the non-cumulative redeemable preferenceshares (see note 3 on page 40). ** Results on a normalised basis reflect the results of Standard Chartered PLCand its subsidiaries (the "Group") excluding items presented in note 4 on page40. Standard Chartered PLC - Stock Code: 2888 STANDARD CHARTERED PLC - TABLE OF CONTENTS PageSummary of Results 3Chairman's Statement 4Group Chief Executive's Review 5 - 9Financial Review Group Summary 10 - 11 Consumer Banking 11 - 13 Wholesale Banking 14 - 16Risk Review 17 - 33Capital 34Financial Statements Condensed Consolidated Interim Income Statement 35 Condensed Consolidated Interim Balance Sheet 36 Condensed Consolidated Interim Statement of Recognised Income and Expense 37 Condensed Consolidated Interim Cash Flow Statement 38Notes 39 - 42Additional Information 43 Unless another currency is specified, the word "dollar" or symbol "$" in thisdocument means United States dollar and the word "cent" or symbol "c" meansone-hundredth of one United States dollar. Within this document, the Hong Kong Special Administrative Region of thePeople's Republic of China is referred to as 'Hong Kong'; 'Middle East and OtherSouth Asia' ("MESA") includes: United Arab Emirates ("UAE"), Bahrain, Qatar,Jordan, Pakistan and Bangladesh; and 'Other Asia Pacific' includes: China,Indonesia, Thailand, Taiwan and the Philippines. STANDARD CHARTERED PLC - SUMMARY OF RESULTSFOR THE SIX MONTHS ENDED 30 JUNE 2007 6 months 6 months 6 months ended ended ended 30.06.07 30.06.06 31.12.06 $million $million $million---------------------------- ----- -------- -------- -------- RESULTS Operating income 5,263 4,112 4,508 Impairment losses on loans and advances (361) (349) (280) Profit before taxation 1,980 1,527 1,651 Profit attributable to equity interests 1,399 1,103 1,175 Profit attributable to ordinary 1,370 1,088 1,165 shareholders* ---------------------------- ----- -------- -------- -------- BALANCE SHEET Total assets 296,826 238,148 266,049 Total equity 19,583 13,850 17,397 Capital base 24,826 19,164 21,877 ---------------------------- ----- -------- -------- -------- INFORMATION PER ORDINARY SHARE Cents Cents Cents Earnings per share - normalised basis** 100.7 84.1 87.3 - basic 98.5 82.8 86.9 Dividend per share 23.12 20.83 50.21 Net asset value per share 1,250.7 983.5 1,208.9 ---------------------------- ----- -------- -------- -------- RATIOS % % % Return on ordinary shareholders' equity - 16.7 17.9 16.2 normalised basis** Cost income ratio - normalised basis** 54.7 53.6 56.6 Capital ratios: Tier 1 capital 9.7 8.4 8.3 Total capital 15.6 14.2 14.3 ---------------------------- ----- -------- -------- -------- * Profit attributable to ordinary shareholders is after the deduction ofdividends payable to the holders of the non-cumulative redeemable preferenceshares (see note 3 on page 40). ** Results on a normalised basis reflect the results of Standard Chartered PLCand its subsidiaries (the "Group") excluding items presented in note 4 on page40. STANDARD CHARTERED PLC - CHAIRMAN'S STATEMENT I am pleased to report that Standard Chartered has had an excellent first sixmonths in 2007 driven by strong organic growth in both Consumer Banking andWholesale Banking. • Profit before taxation is up 30 per cent to $1.98 billion • Income has increased 28 per cent to $5.26 billion • Normalised earnings per share ("EPS") growth is 19.7 per cent The Board has declared an interim dividend of 23.12 cents per share, up 11 percent. Over the last few years we have consistently produced record results whilebuilding a strong foundation for growth. Today we are seeing the rewards of ourbalanced and diverse business, leading the way in the dynamic markets of Asia,Africa and the Middle East. CAPTURING THE OPPORTUNITIES These results come from the quality of our people and our disciplined approachto managing our resources over the last few years. In turn they allow us toinvest in opportunities that will produce continued strong growth in the yearsto come. I see this potential first hand on my travels and no visitor can be left in anydoubt about the huge wealth that is being generated in China, India and theMiddle East. In other words, in our markets. This is an historic time for the Group and our management must be bold enough toinvest in the growth opportunities. In China, as it opens its market. InIndia, as its companies explore overseas. In the Middle East, as its economiesdiversify and in Africa, as it benefits from a rich resource base. And we mustalso invest in the Group's core infrastructure as we expand at pace. Balancing the investment for the future with today's shareholder returns is achallenge we, as a public company, must face. I believe these results show thatwe are getting this balance right. GOVERNANCE AND RISK As I travel around and talk to experienced bankers and investment managers, itis quite clear they share our concerns over the level of asset prices, theamount of debt in leveraged deals, loose covenants and the degree to which somepeople believe this market will last forever. We know that risks can emerge quickly: the sub-prime lending issue in the US isa classic example of this. We are not exposed to that and, indeed, we areseeing no significant credit deterioration in our markets. However we need tobe vigilant and we remain extremely disciplined on our loan and creditstandards. Standard Chartered has high standards of risk management and governance. As weannounced a few months ago our Board is being bolstered by the appointments from1 August of John Peace as Deputy Chairman and Senior Independent Director andSunil Mittal as a Non-Executive Director. I am also delighted to announce thatGareth Bullock has been appointed Group Executive Director with effect from 6August. Gareth is a highly experienced banker who has been with the Group for11 years and is a great addition to the Board. All of these individuals haveoutstanding business experience and add further depth and diversity to ourBoard. I am looking forward to working with them. SUMMARY We have had an excellent first half performance and are keeping up the pace. Mervyn Davies, CBEChairman7 August 2007 STANDARD CHARTERED PLC - GROUP CHIEF EXECUTIVE'S REVIEW Over the last five years the Group has changed significantly. Then we had justover 500 branches, now we have 1,450. Then we had 28,000 staff, now we have64,000. Our income growth figure was six per cent to $2.2 billion and our EPSwas down 10 per cent to 36.1c. Today's figures are rather different with ourincome up 28 per cent to over $5 billion and EPS up 19.7 per cent to 100.7c. My predecessor as Group Chief Executive, Mervyn Davies, gave the Groupleadership, direction and a new performance edge. I am proud to have taken onthe baton to lead the Group on the next phase of the journey. My first eight months as Chief Executive have been very busy. I wanted to visitas many of our markets as possible to spend time with our customers, staff andregulators. So far this year I have made twelve country visits in Asia,including four trips to China. I have also been twice to both the Middle Eastand the US. It is clear that we are extraordinarily well positioned in some of the mostexciting markets in the world. We have wonderful relationships with ourcustomers, who both support and challenge us every day. And we have superblytalented and committed staff. Their professionalism, energy, teamwork and valuesare inspiring. At Standard Chartered, the step change in pace is really exciting. We areinvesting more and growing faster than ever before. We are launching newproducts, expanding distribution, building new businesses at a new pace. This acceleration, or change in the "metabolic rate" of the Group, means we canmake the most of the many opportunities across our markets. Of course there are challenges. But many of them are great challenges to have. How to prioritise investment across our many growth opportunities? How tobuild the infrastructure fast enough to support rapidly growing businesses? Howto attract and develop the talent to make it all happen? We have to be alert to the changes in global financial markets and the broaderglobal economy, anticipating and adapting our approach. But the turbulence inthe credit markets is not all bad news. A bit more rationality and moredifferentiation in credit spreads is a good thing. We do not believe such events should deter us from investing for growth. In ourmarkets, economic growth is strong, liquidity remains abundant, demand forfinancial services is growing extremely rapidly. The window of opportunity isnow and we are determined to seize it. This does not mean we will ignore what's going on, or fail to watch out for newproblems. But we are convinced that investing for growth in the world's mostexciting markets will create huge value for our shareholders. PERFORMANCE HIGHLIGHTS In the first half of 2007 we have made rapid progress against our strategicagenda. We incorporated our business in China and launched Renminbi ConsumerBanking; and we integrated our two new acquisitions - in Pakistan and Taiwan -creating new engines of growth; we launched The Standard Chartered Private Bankin six new markets; and we launched our new Islamic Banking brand, Saadiq. In short, we have done what we said we would do and we have made good progresson every part of the agenda for 2007 that I presented in February. Let me give a bit more detail on three of these agenda items: acceleratingorganic growth, delivering on acquisitions and building leadership. ORGANIC GROWTH Nothing demonstrates the change in pace of the Group as powerfully as the paceof underlying income growth. Stripping out the impact of acquisitions,underlying income grew by 13 per cent in 2004, 14 per cent in 2005, and 18 percent in 2006. The pace has increased to 21 per cent in the first half of 2007compared to 15 per cent in the first half of 2006. We accelerated investment in order to boost organic growth, and that ishappening. The acceleration is not from just one business, or one geography; wehave built multiple engines of growth and we are driving them harder. CONSUMER BANKING - SME Five years ago our presence in Small and Medium Enterprise ("SME") banking wasvery limited - we only offered two SME specific products in three countries.Since then we have rapidly built the business into a new engine of growth forConsumer Banking, expanding our geographic coverage and offering a completesuite of SME specific products and services. We are constantly innovating and introducing new products and we have builtspecialist risk capabilities and infrastructure. Our business is now well positioned to benefit from the growing SME segment andwe offer SME banking at over 1,000 of our branches to over half a millioncustomers in 24 markets. In the first half of this year, income grew by 45 percent. WHOLESALE BANKING - CLIENT RELATIONSHIPS In Wholesale Banking it is the increasing depth of our client relationships thatdrives our income growth. We have enhanced our client relationship model and invested in broadening ourproduct capabilities. We are deepening our client relationships, cross-sellingmore, focusing more on strategic and value-added solutions. All of our clientsegments and products are performing extremely well. It is always tempting, when talking about Wholesale Banking, to talk about thebig, well-known clients and the biggest deals and we have some great stories totell here. But we are also having great success in the Local Corporatessegment. By this we mean local and regional companies, typically with turnoverbetween $25 million and $500 million. In the first half of 2007, we grew income in this segment by 42 per cent, withan increase of more than 20 per cent in the number of clients. Our performancewas particularly strong in India, up 85 per cent, China, up 92 per cent andKorea, up 36 per cent. We have developed a relationship management model, product set and riskmanagement approach specifically for this segment. It is not lending driven:lending income accounts for only 15 per cent of total income for the segment. A good example of how we are innovating to build non-lending income streams isStraight2Bank, our integrated electronic delivery channel system. Launched inMay, Straight2Bank has already won numerous industry awards and attractedthousands of clients. Another benefit from our success with Local Corporates is that these clients arealso potential customers for our new Private Bank. We are already seeing a goodflow of referrals. It is a great example of how well our businesses can worktogether. THE PRIVATE BANK The launch of The Private Bank was a key milestone in the first half of 2007. We are now operating in 10 locations across seven markets: Singapore, Hong Kong,Shanghai, Beijing, Seoul, Mumbai, New Delhi, Dubai, London and Jersey. It isvery early days yet - most of our offices have been open only a matter of weeks- but we already have 150 relationship managers and we are attracting newcustomers and up-tiering existing relationships. To start from scratch andlaunch a sophisticated Private Bank in this many markets simultaneously is anachievement we are proud of. Whilst we do not underestimate the strength of competition in this space, wehave some powerful advantages. Our history and scale in these markets provides astrong foundation. We can offer a distinctive combination of onshore andoffshore wealth management services. And we can provide an extremely broad rangeof products through a truly open architecture approach. In the second half of 2007 and into 2008 we will continue to expand ourgeographic coverage, relationship manager team and product capabilities. But thereal focus will be on attracting customers and their assets. The Private Bankhas the potential to be yet another powerful engine of organic growth. ISLAMIC BANKING Another source of organic growth is Islamic Banking which we launched in Aprilunder the sub-brand "Saadiq", which means "truthful". We are already very active in Islamic Banking across many of our markets. Butwith the launch of Saadiq we are making clear the depth of our commitment toIslamic Banking and our determination to be a real leader in this space. Our dedicated Islamic Banking teams have stepped up the pace in building thebusiness and in product innovation. In the first half of 2007, for example: welaunched Islamic credit cards in the UAE, Pakistan and Bangladesh; we openeddedicated Islamic Banking centres in a number of markets; and by the end of June2007 we were lead arranger for four out of the five local currency sukuk bondissues in Pakistan. This business is growing extremely rapidly - in both Wholesale and ConsumerBanking - and has huge potential for further growth. For example, we do not yetoffer such products in India and Africa. CHINA In April, we were one of the first foreign banks to incorporate our business inChina and later that month we launched Renminbi services for Chinese citizens. Responding to the demand for a broader array of savings and investmentsolutions, we have launched 38 new Wealth Management products. We are on track with our branch expansion, with 30 locations in 15 cities, andstill plan to have about 40 locations by year end, subject to the regulatoryapprovals. Income and profits are growing rapidly. In the first half of 2007 our Chinabusiness more than doubled income. To support such growth we are investing in people and infrastructure. We beganthe year with about 2,100 staff in China, and expect to end the year with morethan 3,500. Two weeks ago I attended the opening of our operations hub inTianjin. We want to ensure that right from the start we build a scaleable,efficient systems and operations infrastructure to support our business as itgrows. We are also making the most of our international network. Helping China'sleading corporates as they seek to expand internationally - for example, inAfrica - and working with companies from other parts of Asia - such as Korea andTaiwan - as they build their businesses in China. Standard Chartered is now distinctively placed across Greater China, beingstrongly positioned in Hong Kong and Taiwan as well as China itself. We aresuperbly positioned to take advantage of the trade and investment dynamicsacross the region such as the accelerating convergence of Hong Kong with therest of the Pearl River Delta and the massive investment flows between Taiwanand the mainland. TAIWAN We are still at the early stages of realising the opportunity from HsinchuInternational Bank in Taiwan. We are making great progress on the integration;we are roughly three months ahead of schedule. On 30 June, with theamalgamation of Hsinchu and our branch, Standard Chartered became the firstinternational bank to gain an island-wide presence, with a network of 86branches and 377 ATMs. I was there for the occasion; and the scale of the opportunity and theexcitement of our staff, was inspiring. There is still much to do. We have already renovated four flagship branches andwill renovate over 50 more by the end of the year, injecting some $50 million inbranch renovation and new ATMs to bring a world class consumer bankingexperience to Taiwan. We will also add some 250 frontline sales staff to drivenew customer acquisition and income growth. There is a huge opportunity in Taiwan to win market share and grow; and there isa massive opportunity to support Taiwan's trade and investment flows across therest of our network. KOREA Korea's performance in the first half of 2007 is disappointing. However, if youlook beyond the noise of central cost allocations and fair value adjustmentwrite-backs, the businesses are making good progress. In Wholesale Banking wehave built out the product range and are now getting good traction in developingthe client franchise. In Consumer Banking, the regulatory and competitivepressures on the mortgage market - by far the largest part of SC First Bank'sbusiness - continue to represent a significant challenge, but the WealthManagement and SME businesses continue to grow rapidly. This is a very good business. A large platform in a big, growing market. Westill have work to do to realise the full potential of SC First Bank and I amconfident it will be a powerful engine of sustainable profit growth for theGroup. BUILDING LEADERSHIP To sustain our accelerated organic growth and to ensure we can continue todeliver on our acquisitions, we need to continue to build more and moreleadership capacity across the Group. This means making more and better leadersfaster and turning managers into true leaders. To achieve this objective we are doing a lot of different things: increasinginternational graduate recruitment this year by 27 per cent; more than doublingMBA recruitment; revamping our leadership development programmes; hiringexceptional talent from outside; and ensuring we have a diverse pipeline ofleaders that reflect the markets we operate in and the customers we serve. Standard Chartered is a great place to work. It is incredibly diverse and fullof opportunity. It is friendly and supportive but with a real performance edge.It is confident not arrogant and committed to a shared set of values. Our culture represents a real competitive advantage. It attracts staff, itattracts customers and it enables us to work together across business andgeographic boundaries. One of my big challenges as CEO is to make sure that aswe grow and develop we do not lose what makes us special. CONTINUED INVESTMENT FOR GROWTH In the second half of 2007 we will continue to deliver against the prioritieslaid out at the beginning of the year. To sustain our rapid growth, we will continue to invest in new products, newmarkets and expanded distribution. Amongst other things we will: extend ourGlobal Markets product range by launching equity derivatives; expand ourPrincipal Finance business; expand our network to about 40 locations in Chinaand add at least 70 branches and over 300 ATMs across other markets; andincorporate our business in Vietnam to enable us to expand and grow thererapidly. We see Vietnam as a market of enormous potential for both businesses. As we have demonstrated before, we can and will flex the pace of investment toensure we strike the right balance between delivering performance today andinvestment for future growth. We will also continue to ensure we deliver on our acquisitions, realizing thepotential of Taiwan and Korea, sustaining the growth momentum in Pakistan andPermata. We will continue to look for new acquisition opportunities, newplatforms for growth, new capabilities. But, as always, we will remain verydisciplined. We have to be convinced that any potential acquisition is bothstrategically and financially compelling. OUTLOOK Let me give you a sense of the outlook for the Group for 2007. We enter thesecond six months of 2007 in good shape with great momentum. The businesses areperforming strongly and we are clear about our strategy and priorities. Income Whilst we remain mindful of the changes in the external environment in the pastfew weeks, we have a high degree of confidence in our ability to continue todeliver high levels of income growth. • Consumer Banking has a good level of income momentum as the business continues to broaden its income streams. • In Wholesale Banking, we have strong income momentum across virtually all client segments and product groups, albeit that as in previous years, we expect some impact of seasonality in the second half. Expenses • We will continue to accelerate our investment as we seek to capture the opportunities seen in our franchise and to support our growth. For the full year, and for the Group as a whole, we expect the growth in expenses to be broadly in line with the growth in income. Risk Management • In Wholesale Banking, we are not as yet seeing any deterioration in our portfolio, but do anticipate a further reduction in recoveries as the stock of impaired assets falls. • In Consumer Banking, we expect the impairment charge for the full year to reflect the improved environment in Taiwan although this will be balanced by the inclusion of our most recent acquisitions and the effects of the change in the mix and maturity of the portfolio. In summary, we are doing what we said we would do. SUMMARY We have had an excellent first half in 2007 and we have great momentum as webegin the second half. Our investments are delivering and there are manyexciting opportunities across our markets. The world is an uncertain place. There is a lot of volatility in the markets.That makes it all the more important for us to be very clear on our strategy andpriorities, to always be looking ahead to what might happen and to know exactlywhat levers we can pull if we have to respond to changing circumstances. This combination of strategic clarity and management flexibility is critical tobeing able to continue to grow at pace, whilst navigating the risks. The Group is in great shape and we are excited and confident about the future. Peter SandsGroup Chief Executive7 August 2007 STANDARD CHARTERED PLC - FINANCIAL REVIEW GROUP SUMMARY The Group has delivered a very strong performance for the six months ended 30June 2007. Profit before taxation of $1,980 million was up 30 per cent over theequivalent period in 2006, with operating income up 28 per cent. The normalisedcost income ratio was 54.7 per cent compared to 53.6 per cent in 2006 reflectingcontinued investment in the franchise. Normalised earnings per share increasedby 19.7 per cent to 100.7 cents. Refer to note 4 on page 40 for details ofbasic and diluted earnings per share. The underlying results of the Group exclude the results of the following:Standard Chartered Bank (Pakistan) Limited, comprising the Standard CharteredBank branches in Pakistan and Union Bank Limited ("Union"), HsinchuInternational Bank ("HIB") and the incremental stake in PT Bank Permata Tbk ("Permata"). Operating income and profit 6 months ended 6 months ended 6 months ended 30.06.07 30.06.06 31.12.06 ------------ ------------ ------------ $million $million $million----------------- ------- ------- ------- ------- ------- -------Net interest income 2,952 2,510 2,818 ------- ------- ------- ------- ------- -------Fees and commissions 1,228 894 987 income, net Net trading income 649 531 389 Other operating income 434 177 314 ------- ------- ------- ------- ------- ------- 2,311 1,602 1,690 ----------------- ------- ------- ------- ------- ------- -------Operating income 5,263 4,112 4,508 Operating expenses (2,918) (2,225) (2,571) ----------------- ------- ------- ------- ------- ------- -------Operating profit before 2,345 1,887 1,937 impairment losses and taxation Impairment losses on (361) (349) (280) loans and advances and other credit risk provisions Other impairment (3) (8) (7) (Loss)/profit from (1) (3) 1 associates ----------------- ------- ------- ------- ------- ------- ------- Profit before taxation 1,980 1,527 1,651 ----------------- ------- ------- ------- ------- ------- ------- Operating income growth was well balanced across client segments, products andgeographies. Operating income grew $1,151 million, or 28 per cent, to $5,263million. Underlying operating income grew 21 per cent. Net interest income grew $442 million, or 18 per cent, to $2,952 million. On anunderlying basis, net interest income grew nine per cent. Net interest marginwas 2.5 per cent, in line with the first half of last year. Non interest income grew $709 million, or 44 per cent, to $2,311 million. On anunderlying basis, non interest income grew 38 per cent. Fees and commissionsincreased by $334 million, or 37 per cent, to $1,228 million. This increase canbe attributed to higher transaction volumes in investment services and insuranceproducts, in cash management, securities services and trade, as well as fromsignificantly higher fees earned from increased activities in loan syndications,debt capital markets and from corporate advisory transactions. Net tradingincome increased by $118 million, or 22 per cent, to $649 million. Clientincome from interest rates and foreign exchange derivatives sales grew as aresult of improved product cross-selling efforts, offset, in part, by lower ownaccount trading income. Other operating income increased $257 million, or 145per cent, to $434 million, arising from income on structured financetransactions, and gains realised from the sale of private equity investments andother investment securities. Other operating income also included $55 millionof recoveries in respect of assets in Korea that had been fair valued atacquisition, compared to $42 million in the first half of 2006 and $64 millionin the second half of 2006. Operating expenses increased $693 million, or 31 per cent, to $2,918 million.Underlying expenses grew 23 per cent. Expenses rose as additional investmentswere made to improve and extend distribution channels, launch The Private Bankin six new markets, add product capabilities such as commodity derivatives,improve transaction banking infrastructure and enhance regulatory compliance andcontrol systems. Expenses also increased because of higher incentivecompensation and personnel costs. Operating profit before impairment increased $458 million, or 24 per cent, to$2,345 million. The credit environment remained generally favourable during the period.Impairment losses on loans and advances increased $12 million to $361 million.The underlying impairment losses decreased by $94 million, or 27 per cent, to$253 million. This reflected the improved consumer credit environment in Taiwanwhere the loan impairment in the branch fell by $179 million. Overalldelinquency indicators for the Consumer Banking loan portfolio were in line withexpectations. The fall in the loan impairment in Taiwan was partly offset bythe recent acquisitions and there was a small increase in Thailand and the UAEas a result of the change in the mix and maturity of the portfolio. InWholesale Banking, new impairments remained low and recoveries and releasescontinued to be achieved, albeit at lower levels than last year. The Group made a number of acquisitions in the second half of 2006. It hasowned Union since 5 September 2006 and HIB since 19 October 2006. On 30December 2006, the assets and business of Union and the Standard Chartered Bankbranches as in Pakistan were amalgamated into Standard Chartered Bank (Pakistan)Limited. On 30 June 2007, the assets and business of the Standard CharteredBank branch in Taiwan were amalgamated into HIB, and the combined entity wasrenamed Standard Chartered Bank (Taiwan) Limited. On 5 September 2006, theGroup acquired an additional stake of 12.96 per cent in Permata. To facilitate effective review of the Group's results, the table below shows theunderlying results of the Group. 6 months H1 2007 v H1 6 months H1 2007 v H2 6 months ended 2006 ended 2006 ended 30.06.07 --------- 30.06.06 --------- 31.12.06 --------- --------- --------- Underlying Increase/ Underlying Increase/ Underlying $million (decrease) $million (decrease) $million % % ---------------- --------- --------- --------- --------- ---------Net interest income 2,684 9 2,452 1 2,658 --------- --------- --------- --------- ---------Fees and commissions 1,134 29 880 22 926 income, net Net trading income 630 20 523 68 376 Other operating income 419 137 177 37 306 --------- --------- --------- --------- --------- 2,183 38 1,580 36 1,608 ---------------- --------- --------- --------- --------- ---------Operating income 4,867 21 4,032 14 4,266 Operating expenses (2,692) 23 (2,188) 10 (2,439) ---------------- --------- --------- --------- --------- ---------Operating profit 2,175 18 1,844 19 1,827 before impairment losses and taxation Impairment losses on (253) (27) (347) 3 (245) loans and advances and other credit risk provisions Other impairment (3) (63) (8) (57) (7) (Loss)/profit from (1) (67) (3) (200) 1 associates ---------------- --------- --------- --------- --------- --------- Profit before taxation 1,918 29 1,486 22 1,576 ---------------- --------- --------- --------- --------- --------- CONSUMER BANKING The following tables provide an analysis of operating profit by geographicsegment for Consumer Banking: 6 months ended 30.06.07 ------------------------------------------------------------------ Asia Pacific ------------------------------------------------------------------ Hong Singapore Malaysia Korea Other Kong $million $million $million Asia $million Pacific $million --------------- --------- ---------- --------- --------- ---------Operating income 545 206 129 607 564 Operating expenses (232) (88) (54) (444) (360) Loan impairment (30) (8) (23) (46) (172) --------------- --------- ---------- --------- --------- ---------Operating profit 283 110 52 117 32 --------------- --------- ---------- --------- --------- --------- 6 months ended 30.06.07 ------------------------------------------------------------------ India Middle Africa Americas Underlying Consumer $million East & $million UK & Group $million Banking Other Head Total S Asia Office $million $million $million ------------- -------- -------- -------- -------- --------- ---------Operating income 184 352 140 45 2,439 2,772 Operating expenses (115) (189) (103) (27) (1,426) (1,612) Loan impairment (29) (56) (8) - (270) (372) ------------- -------- -------- -------- -------- --------- ---------Operating profit 40 107 29 18 743 788 ------------- -------- -------- -------- -------- --------- --------- 6 months ended 30.06.06 ------------------------------------------------------------------ Asia Pacific ------------------------------------------------------------------ Hong Singapore Malaysia Korea Other Kong $million $million $million Asia $million Pacific $million --------------- --------- ---------- --------- --------- --------- Operating income 505 170 112 530 317 Operating expenses (203) (66) (49) (378) (186) Loan impairment (22) (16) (16) (33) (275) --------------- --------- --------- --------- --------- ---------Operating profit 280 88 47 119 (144) --------------- --------- --------- --------- --------- --------- 6 months ended 30.06.06 ------------------------------------------------------------------ India Middle Africa Americas Underlying Consumer $million East & $million UK & Group $million Banking Other Head Total S Asia Office $million $million $million ------------- -------- -------- -------- -------- --------- ---------Operating income 158 238 128 37 2,146 2,195 Operating expenses (90) (116) (94) (28) (1,186) (1,210) Loan impairment (20) (16) (9) 2 (402) (405) ------------- -------- -------- -------- -------- --------- ---------Operating profit 48 106 25 11 558 580 ------------- -------- -------- -------- -------- --------- --------- 6 months ended 31.12.06 ------------------------------------------------------------------ Asia Pacific ------------------------------------------------------------------ Hong Singapore Malaysia Korea Other Kong $million $million $million Asia $million Pacific $million --------------- --------- ---------- --------- --------- ---------Operating income 514 197 109 616 412 Operating expenses (225) (76) (52) (421) (259) Loan impairment (31) (20) (20) (55) (115) --------------- --------- --------- --------- --------- ---------Operating profit 258 101 37 140 38 --------------- --------- --------- --------- --------- --------- 6 months ended 31.12.06 ------------------------------------------------------------------ India Middle Africa Americas Underlying Consumer $million East & $million UK & Group $million Banking Other Head Total S Asia Office $million $million $million ------------- -------- -------- -------- -------- --------- ---------Operating income 165 307 129 40 2,308 2,489 Operating expenses (111) (164) (100) (23) (1,321) (1,431) Loan impairment (26) (45) (3) (1) (284) (316) ------------- -------- -------- -------- -------- --------- ---------Operating profit 28 98 26 16 703 742 ------------- -------- -------- -------- -------- --------- --------- An analysis of Consumer Banking income by product is set out below: 6 months ended 6 months ended 6 months ended 30.06.07 30.06.06 31.12.06 -------------- -------------- -------------- Operating income by Total Total Total product $million $million $million ---------------- -------------- -------------- -------------- Cards, Personal Loans 967 824 975 and Unsecured Lending Wealth Management and 1,222 926 1,012 Deposits Mortgages and Auto 473 388 392 Finance Other 110 57 110 ---------------- -------------- -------------- --------------Total operating income 2,772 2,195 2,489 ---------------- -------------- -------------- -------------- Operating income increased $577 million, or 26 per cent, to $2,772 million.Income growth is well diversified with eight markets now contributing $100million or more in income. Underlying income grew $293 million, or 14 per cent,with strong performances in Singapore, Malaysia and MESA. In Hong Kong, theincome growth has gained momentum with an eight per cent growth compared withfour per cent in the first half of last year. Wealth Management and the SME segment achieved excellent income growth withparticularly strong performances in MESA, India, Hong Kong, Singapore andMalaysia. Mortgages and Auto Finance income grew despite strong competition in anumber of key markets and rising interest rates. Operating expenses grew $402 million or 33 per cent to $1,612 million.Underlying expenses were up $240 million, or 20 per cent, as further investmentswere made to expand sales and distribution platforms geographically, to developnew business segments, to develop and launch new products and to strengthen thesystems and control infrastructure. The Private Bank was launched in Singapore,Hong Kong, Shanghai, Beijing, Mumbai, New Delhi, Dubai, London and Jersey duringthe period. The Group's business in China was incorporated and additionallicences to conduct various Renminbi businesses were awarded. Loan impairment fell $33 million, or eight per cent, to $372 million. Underlyingloan impairment losses improved significantly by $132 million to $270 million.The consumer credit environment in Taiwan has improved and impairment trends arenow near normal levels. The loan impairment charge in the Taiwan branchdecreased by $179 million in the first half. Underlying impairment lossesoutside Taiwan increased by $47 million, reflecting changes in the mix andmaturity of the portfolio as well as a slight deterioration in loan impairmentin Thailand and the UAE. In Pakistan, loan impairment was $26 million higher dueto the acquisition of Union, while, in Taiwan, the acquisition of HIB added $70million to the loan impairment charge. Operating profit improved $208 million, or 36 per cent, to $788 million.Underlying operating profits grew $185 million or 33 per cent, to $743 million. In Hong Kong, income growth was $40 million, or eight per cent, whilst expensesrose by $29 million, or 14 per cent. Buoyant sales of investment and insuranceproducts, coupled with strong growth in current and savings accounts balances,drove income growth. Income from Wealth Management grew 11 per cent,predominantly in fee income. In the SME segment, the increased sales andmarketing activities drove customer acquisition and improved productpenetration. The number of new customers grew significantly and volumes in tradeand commercial financing grew income in the SME segment by 37 per cent. Mortgageincome was marginally lower against a backdrop of intense competition and risinginterest rates although market share in mortgages was maintained. Additionalinvestments were made in private banking, adding new branches, marketingcampaigns and increasing the sales force during the period. The loan impairmentcharge increased $8 million as recoveries were lower in this period. Operatingprofit was up one per cent to $283 million. In Singapore, income was up 21 per cent to $206 million. Mortgage marginbenefited from active re-pricing and the lower interest rate environment in thefirst half of this year. Deposit balances grew significantly, particularly incurrent and savings accounts. Higher investment services fees and treasuryproducts contributed to income growth. Expenses grew $22 million, or 33 percent, to $88 million. Investments were made to expand the sales force,particularly in the SME segment and in private banking. Two new priority bankingcentres were opened and a customer service centre upgraded. Loan impairment fell50 per cent to $8 million, as provisions were reduced in line with improvedcredit experience. Operating profit increased 25 per cent to $110 million. In Malaysia, income increased 15 per cent to $129 million. Higher averagedeposit balances drove income growth with strong volume growth achieved incurrent and savings accounts, time deposits and structured deposits. Operatingexpenses increased $5 million or 10 per cent to $54 million. Loan impairmentincreased by $7 million reflecting a higher portfolio impairment charge.Operating profit increased 11 per cent to $52 million. In Korea, income grew $77 million, or 15 per cent, to $607 million. WealthManagement and the SME segment achieved over 10 per cent and 40 per cent incomegrowth respectively. Investment and insurance fees were higher. During theperiod, unprofitable bulk deposit accounts were reduced resulting in lowerliability balances. Mortgage income was marginally lower as a result of lendingconstraints, intense competition and rising interest rates affecting bothvolumes and margins. Mortgage margins have halved in the last couple of years.The successful exiting of certain accounts in the SME segment and therealisation of collateral resulted in a further $42 million (30 June 2006: $11million) of recoveries in respect of assets that had been fair valued atacquisition. Expenses grew $66 million, or 17 per cent, to $444 million.Investments have been increased with four additional new branches opened, twobranches relocated, 24 branches upgraded, and over 400 ATMs upgraded. During theperiod, a charge for a voluntary retirement programme was also incurred as partof the productivity improvement plan and there was an increased allocation ofcorporate overheads. Loan impairment was $13 million higher. Operating profitfell $2 million, or two per cent, to $117 million. In Other Asia Pacific, income grew $247 million, or 78 per cent, to $564million. Expenses grew $174 million, or 94 per cent, to $360 million. Underlyingincome grew $39 million, or 12 per cent with particularly strong income growthin China and Indonesia. Underlying expenses grew $52 million, or 28 per cent. InChina, income more than doubled, with the SME seg+ment growing the number ofcustomers, driving asset growth in commercial loans and average depositbalances. Income in the SME segment grew in total by over 80 per cent. Mortgageincome grew over 50 per cent, benefiting from wider spreads as well as highervolumes, with growth in mortgage assets of over 30 per cent. Investments wereaccelerated, in customising retail banking products and services for the localmarket, in extending branch and ATM distribution infra-structure, in hiringadditional sales, and in marketing and support staff. In Taiwan, higher expenseswere incurred to integrate HIB and for the amalgamation of the branches. Loanimpairment for the period was $103 million lower. Underlying loan impairmentfell by $176 million due primarily to the improving credit environment inTaiwan, and lower impairment in the Philippines and Indonesia. Loan impairmentin Thailand, however, increased as a result of political uncertainty andincreasing consumer debt. Operating profit improved to $32 million. India's income increased $26 million, or 16 per cent, to $184 million, driven bygrowth in Wealth Management products and the SME segment. Investment in newproducts, premises, private banking and hiring of additional sales staffincreased expenses by $25 million or 28 per cent. Loan impairment increased $9million, in part due to volume growth. Operating profit fell $8 million, to $40million. Operating income in the MESA region increased by $114 million, or 48 per cent to$352 million. Underlying income grew $38 million or 20 per cent, driven bystrong sales performance in the SME segment, with significant growth in tradefinance, business instalment loans and cash management balances. Investmentservices and deposit accounts continued to drive income growth in WealthManagement. Expenses grew by $73 million, or 63 per cent to $189 million.Underlying expenses grew $32 million, or 34 per cent. Investments were targetedat improving infrastructure, expanding distribution channels and increasing thesales force. Higher expenses were also incurred for the integration of the Unionacquisition and the amalgamation of the businesses in Pakistan. Loan impairmentincreased $40 million to $56 million, reflecting higher charge offs in Pakistanfollowing the acquisition, and in the UAE in relation to the credit cards andunsecured lending portfolios. Operating profit increased slightly to $107million. In Africa, operating profit grew $4 million, or 16 per cent to $29 million,predominantly due to lower loan impairment. Income growth of nine per cent wasnegatively impacted by foreign exchange movements in Zambia and Botswana. Doubledigit income growth was achieved in Kenya, Ghana and Nigeria. Wealth Managementincome grew driven by increased product launches and more effective salespenetration, whilst expenses grew 10 per cent with further investments made inincreasing staff strength. The Americas, UK and Group Head Office saw an increase in operating profit of $7million to $18 million. Income grew $8 million, or 22 per cent, to $45 million,driven primarily by higher deposits balances at better margin. Product Performance Credit Cards, Personal Loans and Unsecured Lending grew operating income by $143million, or 17 per cent, to $967 million. Underlying income grew eight per cent.Asset growth was controlled with stricter credit underwriting and approvalpolicies to ensure the balance between good growth and credit quality wasmaintained. Wealth Management grew operating income by $296 million, or 32 per cent, to$1,222 million. Underlying income grew 18 per cent. An improved product rangegenerated higher fee income and the product portfolio mix during the periodimproved profitability. Current and savings accounts now represent almost halfof the deposit base. Consequently, net interest margins improved slightly in theperiod. Mortgages and Auto income grew by $85 million, or 22 per cent, to $473 million.Underlying income grew nine per cent. Mortgage outstanding balances weremarginally lower as lending constraints in Korea hindered growth. Competitivepricing pressure resulting in high attrition levels posed challenges to growthin other key markets. WHOLESALE BANKING The following tables provide an analysis of operating profit by geographicsegment for Wholesale Banking: 6 months ended 30.06.07 ------------------------------------------------------------------ Asia Pacific ------------------------------------------------------------------ Hong Singapore Malaysia Korea Other Kong $million $million $million Asia $million Pacific $million --------------- --------- ---------- --------- --------- ---------Operating income 383 194 80 190 464 Operating expenses (166) (99) (35) (116) (199) Loan impairment 14 - - - (7) Other impairment - - - - - --------------- --------- ---------- --------- --------- ---------Operating profit 231 95 45 74 258 --------------- --------- ---------- --------- --------- --------- 6 months ended 30.06.07 ------------------------------------------------------------------ India Middle Africa Americas Underlying Wholesale $million East & $million UK & Group $million Banking Other Head Total S Asia Office $million $million $million ------------- -------- -------- -------- -------- --------- ---------Operating income 379 323 201 273 2,424 2,487 Operating expenses (96) (139) (115) (333) (1,258) (1,298) Loan impairment (3) (2) (3) 12 17 11 Other impairment - - (1) (2) (3) (3) ------------- -------- -------- -------- -------- --------- ---------Operating profit 280 182 82 (50) 1,180 1,197 ------------- -------- -------- -------- -------- --------- --------- 6 months ended 30.06.06 ------------------------------------------------------------------ Asia Pacific ------------------------------------------------------------------ Hong Singapore Malaysia Korea Other Kong $million $million $million Asia $million Pacific $million --------------- --------- ---------- --------- --------- --------- Operating Income 289 120 76 204 265 Operating expenses (141) (71) (30) (82) (150) Loan impairment 30 (3) 4 (7) (2) Other impairment - - - - - --------------- --------- ---------- --------- --------- ---------Operating profit 178 46 50 115 113 --------------- --------- ---------- --------- --------- --------- 6 months ended 30.06.06 ------------------------------------------------------------------ India Middle Africa Americas Underlying Wholesale $million East & $million UK & Group $million Banking Other Head Total S Asia Office $million $million $million ------------- -------- -------- -------- -------- --------- ---------Operating Income 222 244 187 310 1,886 1,917 Operating expenses (70) (109) (107) (255) (1,002) (1,015) Loan impairment 13 2 (8) 27 55 56 Other impairment - - (6) (2) (8) (8) ------------- -------- -------- -------- -------- --------- ---------Operating profit 165 137 66 80 931 950 ------------- -------- -------- -------- -------- --------- --------- 6 months ended 31.12.06 ------------------------------------------------------------------ Asia Pacific ------------------------------------------------------------------ Hong Singapore Malaysia Korea Other Kong $million $million $million Asia $million Pacific $million --------------- --------- ---------- --------- --------- --------- Operating income 307 135 74 176 390 Operating expenses (151) (81) (33) (91) (186) Loan impairment 16 - 3 (1) 8 Other impairment - - - - (3) --------------- --------- ---------- --------- --------- --------- Operating profit 172 54 44 84 209 --------------- --------- ---------- --------- --------- --------- 6 months ended 31.12.06 ------------------------------------------------------------------ India Middle Africa Americas Underlying Wholesale $million East & $million UK & Group $million Banking Other Head Total S Asia Office $million $million $million ------------- -------- -------- -------- -------- --------- ---------Operating income 272 281 196 175 1,945 2,006 Operating expenses (104) (125) (112) (253) (1,114) (1,136) Loan impairment (6) 6 (6) 16 39 36 Other impairment - - (3) (1) (7) (7) ------------- -------- -------- -------- -------- --------- ---------Operating profit 162 162 75 (63) 863 899 ------------- -------- -------- -------- -------- --------- --------- An analysis of Wholesale Banking operating income by product is set out below: 6 months ended 6 months ended 6 months ended 30.06.07 30.06.06 31.12.06 -------------- -------------- --------------Operating income by Total Total Totalproduct $million $million $million--------------- -------------- -------------- --------------Trade and Lending 532 511 495 Global Markets* 1,346 925 970 Cash Management and 609 481 541 Custody --------------- -------------- -------------- --------------Total operating 2,487 1,917 2,006 income --------------- -------------- -------------- -------------- * Global markets comprises the following businesses: derivatives and foreignexchange, debt capital markets, corporate finance and Asset and LiabilityManagement ("ALM"). Wholesale Banking had a very strong first half with significantly higherbusiness volumes and income momentum. The investments made in a number ofbusinesses and products have driven growth across key geographies. The externalenvironment remained favourable, with new trade flows emerging, a good operatingenvironment and benign credit conditions. Income grew $570 million, or 30 percent, to $2,487 million. Underlying income grew 29 per cent. Client revenues grew 30 per cent. Client income represents around four fifths oftotal income and remains the key driver of growth. The focus in nurturing keyclient relationships, attracting new clients, improving product cross-sell andinvesting in higher-value and strategic products have resulted in a very broadbased income momentum across all client segments. Operating expenses grew $283 million, or 28 per cent, to $1,298 million.Underlying expenses grew 26 per cent. Investment was targeted at expandingproduct capability, upgrading systems infrastructure in transaction banking,expanding client coverage, improving sales incentives, and reinforcingcompliance and control. Operating profit before impairment grew 32 per cent to $1,189 million. Loanimpairment net of recoveries were $45 million lower at $11 million, reflecting adeclining stock of distressed assets. Operating profit grew $247 million, or 26per cent, to $1,197 million. Underlying profit grew $249 or 27 per cent, to$1,180 million. In Hong Kong, income grew $94 million, or 33 per cent, to $383 million. Clientrevenues grew strongly in the Local Corporates and Financial Institutionssegments. Global Markets revenue contributed significantly to income growth,with higher foreign exchange and derivatives sales and corporate finance fees,while improved ALM performance drove own account income growth. Income from CashManagement benefited from higher volumes in securities services and the higheraverage cash balances, marginally offset by a decline in margins. Trade andLending income was marginally higher. Expenses grew $25 million or 18 per cent,to $166 million with this increase primarily directed towards building the salesforce, improving sales incentives and enhancing product capabilities. Loanimpairment recoveries were 53 per cent lower at $14 million. Operating profitgrew 30 per cent to $231 million. Income in Singapore grew $74 million, or 62 per cent to $194 million. Operatingprofit grew $49 million, or 107 per cent, to $95 million. Commodity Corporatesand Financial Institution segments led the growth in client revenues. GlobalMarkets revenues were driven by derivatives and foreign exchange productstogether with strong contributions from debt capital markets and corporatefinance. Expenses grew $28 million, or 39 per cent, to $99 million reflectingincreased recruitment, higher salary and performance related incentives andcontinued investments in product capabilities. In Malaysia, income increased $4 million, or five per cent, to $80 million withgood growth in Cash Management, corporate finance and foreign exchange sales.Expenses increased $5 million, to $35 million reflecting higher performancerelated incentives. Income in Korea fell $14 million, or seven per cent, to $190 million. Expensesgrew $34 million, or 41 per cent, to $116 million. During the period, there were$13 million (30 June 2006: $31 million) of recoveries on assets that had beenfair valued at acquisition. Expenses have been affected by the increasedallocation of corporate centre overheads as well as a voluntary retirementcharge. Other Asia Pacific delivered strong income growth of $199 million, or 75 percent, to $464 million, with expenses rising 33 per cent, to $199 million.Underlying income grew $184 million, or 69 per cent, to $449 million. Strongincome growth was achieved in China across all client segments and most productcategories. In Indonesia, income grew over 70 per cent. Underlying expenses grew$32 million, or 21 per cent, primarily in China, reflecting the continuedinvestments in more staff, higher performance related incentives, productdevelopment and systems infrastructure. Loan impairment was $5 million higher,mainly due to the absence of the loan impairment releases and recoveries seen inthe first half of last year. Operating profit grew $145 million, or 128 percent, to $258 million. In India, income grew $157 million, or 71 per cent to $379 million. Operatingincome was driven by strong foreign exchange income and transaction bankingrevenues which benefited from increased volumes and better margins in cashmanagement, and higher trade volumes. Increased fee income was also generatedfrom corporate finance and debt capital markets transactions, and private equitygains realised, partly offset by weaker own account trading income. Expensesincreased by $26 million, or 37 per cent, with investment in new productspecialists and sales staff, improving premises and systems infrastructure.Operating profit increased 70 per cent to $280 million. Operating income in the MESA region rose $79 million, or 32 per cent, to $323million. Income grew over 30 per cent in the UAE, Bahrain, Qatar and Jordan.Client revenues increased across most products, notably in interest rate andforeign exchange derivatives sales, debt capital markets and transactionbanking. In Bangladesh, income grew over 15 per cent while income in Pakistangrew 55 per cent, reflecting good underlying growth as well as the impact of theUnion acquisition. Expenses grew $30 million, or 28 per cent, to $139 milliondue to higher recruitment levels, premises and infrastructure costs as well asintegration costs in Pakistan. Loan impairment was marginally higher. Operatingprofit grew $45 million, or 33 per cent, to $182 million. In Africa, income grew $14 million, or seven per cent, to $201 million.Operating income improvements were driven by growth in transaction bankingrevenues, with average wholesale deposit balances increasing significantly, morethan offsetting a small decline in margins. Higher fees were earned on corporateadvisory and debt financing transactions. Expenses increased seven per cent to$115 million. Operating profit increased $16 million, or 24 per cent, to $82million. Operating income in the Americas, UK and Group Head Office decreased by $37million, or 12 per cent, to $273 million, primarily due to lower own accounttrading income. There were no private equity gains realised in the region forthis period compared to the first half of last year. Expenses grew by $78million, or 31 per cent, reflecting continued investment in products and salesstaff. Product Performance Trade and Lending income increased four per cent to $532 million, withunderlying income growing one per cent. Trade income grew as volumes increased,driven in part by supply-chain financing and receivables services, partiallyoffsetting the impact of tightening margins. While higher loan originationactivities grew lending assets, this asset growth was offset by active loansales and structured credit transactions to optimise capital deployment. Lendingrevenues were down three per cent. Global Markets' income grew 46 per cent to $1,346 million. Underlying incomegrew 45 per cent. Derivatives and foreign exchange sales and trading grew incomeby 43 per cent. Client revenues grew 40 per cent on the back of improved productcross-selling efforts and higher client penetration. Own account trading waslower due to subdued market volatility and trading losses in certain markets.Debt capital markets income doubled, on the back of strong loan syndicationvolumes and higher bond issuance activities. Corporate finance income grew over60 per cent with several landmark cross-border corporate advisory and projectfinance transactions completed in the first half. Private equity investmentshave delivered high return on investments, with a number of realisations duringthe first half of the year. ALM and fund management income improved 17 per centover the equivalent period with better trading opportunities present in thelocal currency markets. Cash Management and Custody income was up 27 per cent at $609 million.Underlying income grew 25 per cent, as higher transaction volumes drove feeincome growth, and higher cash balances in a positive margin environment,increased net interest income. Securities assets under administration grewsignificantly as higher transaction volumes drove increased income in securitiesservices. STANDARD CHARTERED PLC - RISK REVIEW RISK Risk Management Review The Group has not experienced evidence of deterioration in the creditenvironment within its key economies. The structure and management of the Group's portfolio has been such that theprevious low level of provisions has been maintained. Ongoing risk managementdisciplines are aimed at maintaining the Group's desired portfolio whilsttargeting specific customers and markets. Wholesale Banking continues to operate in a stable credit environment, with highlevels of recoveries and low provisions due to proactive management. Theportfolio remains well diversified with no material concentrations in keybusiness segments. A strong risk distribution capability has been developedwhich provides capacity for greater origination and continued growth. Consumer Banking is achieving the desired asset mix and the debt charge is inline with that planned for the portfolio. Asset growth has been controlled withstricter credit underwriting and approval policies to ensure the balance betweengood growth and credit quality is maintained. Work to fully integrate risk controls and processes into recent acquisitions isongoing and progressing well. Under Basel II the Group has received approval to adopt the advanced approachesto credit risk management from 1 January 2008. This approach builds on theBank's sophisticated risk management practices and is the result of asignificant Group-wide regulatory exercise. Risk Governance Through its risk management structure the Group seeks to manage efficiently thecore risks: credit, market, country and liquidity risk. These arise directlythrough the Group's commercial activities whilst compliance and regulatory risk,operational risk and reputational risks are normal consequences of any businessundertaking. The basic principles of risk management followed by the Group include: • Balancing risk and reward: risk is taken in support of the requirements of the Group's stakeholders. Risk should be taken in support of the Group strategy and within its risk appetite. • Responsibility: given the Group is in the business of taking risk, it is everyone's responsibility to ensure that risk taking is both disciplined and focused. The Group takes account of its social, environmental and ethical responsibilities in taking risk to produce a return. • Accountability: risk is taken only within agreed authorities and where there is appropriate infrastructure and resource. All risk taking must be transparent, controlled and reported. • Anticipation: the Group looks to anticipate future risks and to maximise awareness of all risk. • Risk management: the Group aims to have a world class specialist risk function, with strength in depth, experience across risk types and economic scenarios. Ultimate responsibility for the effective management of risk rests with theCompany's Board. Acting within an authority delegated by the Board, the Auditand Risk Committee ("ARC"), whose members are all Non-Executive Directors of theCompany, reviews specific risk areas and monitors the activities of the GroupRisk Committee ("GRC") and the Group Asset and Liability Committee ("GALCO"). GRC, through authority delegated by the Board, is responsible for credit risk,market risk, operational risk, compliance and regulatory risk, legal risk andreputational risk. GALCO, through authority delegated by the Board, isresponsible for liquidity risk, for structural interest rate and foreignexchange exposures, and for capital ratios. All the Group Executive Directors ("GEDs") of Standard Chartered PLC, members ofthe Standard Chartered Bank Court and the Group Chief Risk Officer are membersof the GRC. This Committee is chaired by the Group Chief Risk Officer. The GRCis responsible for agreeing Group standards for risk measurement and management,and also delegating authorities and responsibilities to risk committees and tothe Group and Regional Credit Committees and Risk Officers. GALCO membership consists of all the GEDs of Standard Chartered PLC and membersof the Standard Chartered Bank Court. The committee is chaired by the GroupFinance Director. GALCO is responsible for the establishment of, and compliancewith, policies relating to balance sheet management including management of theGroup's liquidity, capital adequacy and structural foreign exchange risk. The committee process ensures that standards and policy are cascaded downthrough the organisation from the Board through the GRC and the GALCO to thefunctional, regional and country level committees. Key information iscommunicated through the country, regional and functional committees to Group soas to provide assurance that standards and policies are being followed. The Group Executive Director with responsibility for Risk ("GED Risk") and theGroup Chief Risk Officer manage a risk function which is independent of thebusinesses, which: • recommends Group standards and policies for risk measurement and management; • monitors and reports Group risk exposures for country, credit, market and operational risk; • approves market risk limits and monitors exposure; • sets country risk limits and monitors exposure; • chairs the credit committee and delegates credit authorities; • validates risk models; and • recommends risk appetite and strategy. Individual GEDs and members of the Standard Chartered Bank Court are accountablefor risk management in their businesses and support functions, and for countrieswhere they have governance responsibilities. This includes: • implementing the policies and standards as agreed by the GRC across all business activity; • managing risk in line with appetite levels agreed by the GRC; and • developing and maintaining appropriate risk management infrastructure and systems to facilitate compliance with risk policy. The Group's Risk Management Framework ("RMF") identifies 18 risk types, whichare managed by designated Risk Type Owners ("RTOs"), who are all approvedpersons under the FSA regulatory framework, and who have responsibility forsetting minimum standards and governance and implementing governance andassurance processes. The RTOs report up through specialist risk committees tothe GRC, or in the case of liquidity risk, to the GALCO. In support of the RMF the Group uses a set of risk principles, which aresanctioned by the GRC. These comprise a set of statements of intent thatdescribe the risk culture that the Group wishes to sustain. All risk decisionsand risk management activity should be in line with, and in the spirit of, theoverall risk principles of the Group. The governance process is designed toensure: • business activities are controlled on the basis of risk adjusted return; • risk is managed within agreed parameters with risk quantified wherever possible; • risk is assessed at the outset and throughout the time that the Group continues to be exposed to it; • applicable laws, regulations and governance standards in every country in which the Group does business are abided by; • high and consistent ethical standards are applied to the Group's relationships with its customers, employees and other stakeholders; and • activities are undertaken in accordance with fundamental control standards. These controls include the disciplines of planning, monitoring, segregation, authorisation and approval, recording, safeguarding, reconciliation and valuation. The GED Risk and the Group Chief Risk Officer, together with Group InternalAudit, provide assurance, independent from the businesses, that risk is beingmeasured and managed in accordance with the Group's standards and policies. Stress Testing Objectives and purpose of stress testing Stress testing and scenario analysis are important components of the Group'srisk assessment processes, and are used to assess the financial and managementcapability of the Group to continue operating effectively under extreme butplausible trading conditions. Such conditions may arise from economic, legal,political, environmental, and social factors which define the context withinwhich the Group operates. It is intended that stress testing and scenarioanalysis will help to inform senior and middle management with respect to: • the nature and dynamics of the risk profile; • the identification of potential future risks; • the setting of the Group's risk appetite; • the robustness of risk management systems and controls; • the adequacy of contingency planning; and • the effectiveness of risk mitigants. Stress testing framework The framework has been designed to satisfy the following requirements: • identify key risks to the Group's strategy, financial position, and reputation; • ensure effective governance, processes and systems are in place to coordinate stress testing; • integrate current stress testing and scenario analysis procedures; • engage and inform senior management; • assess the impact on the Group's profitability and business plans; • enable the Group to set and monitor its risk appetite; and • satisfy regulatory requirements. Key to the framework is the formation of a Stress Testing Forum that is aformally constituted body deriving its powers from the GRC. The primaryobjective of this forum is to identify and assess the extreme but plausiblerisks to which the Group may be subjected, and to make recommendations to seniormanagement for suitable scenarios. Group-wide scenario analysis represents a wide ranging assessment of potentialimpact. Therefore it is coordinated through a Group risk function, which isresponsible for consolidating the analysis and highlighting existing mitigants,controls, plans, and procedures to manage the identified risk, as well as anyadditional management action required. Risk appetite Risk appetite is the amount of risk the Group wants to take pursuant to itsstrategic objectives. The RMF summarises the Group's risk appetite for each of the identified risktypes, as well as the related management standards. Risk appetite setting is the Group's chosen method of balancing risk and return,recognising a range of possible outcomes, as business plans are implemented. TheGroup adopts quantitative risk appetite statements where applicable, andaggregates risk appetite across businesses where appropriate. For example, a formal quantitative statement from the Board communicates theGroup's overall credit risk appetite and ensures this is in line with thestrategy and the desired risk-reward trade off for the Group. Where risk appetite statements are qualitative, these are supported withmeasures that allow business units to judge whether existing and new businessand processes fall within the risk appetite. The annual business planning and performance management process and associatedactivities ensure the expression of risk appetite remains appropriate, and theGRC supports this work. Credit Risk Credit Risk Management Credit risk is the risk that a counterparty will not settle its obligations inaccordance with agreed terms. Credit exposures include both individual borrowers and groups of connectedcounterparties, and portfolios in the banking and trading books. The GRC has clear responsibility for credit risk. Standards are approved by theGRC, which oversees the delegation of credit authorities. Procedures for managing credit risk are determined at the business levels, withspecific policies and procedures being adapted to different risk environment andbusiness goals. Risk officers are located in the businesses to maximise theefficiency of decision making, but have a reporting line which is separate fromthe business lines into the Group Chief Risk Officer. The businesses working with the Risk Officer take responsibility for managingpricing for risk, portfolio diversification and overall asset quality within therequirements of Group standards, policies and business strategy. Where appropriate, derivatives are used to reduce credit risks in the portfolio.Due to the income statement volatility which can result, derivatives are onlyused in a controlled manner and within a pre-defined volatility expectation. Wholesale Banking Within the Wholesale Banking business, a numerical grading system is used forquantifying the risk associated with a counterparty. The grading is based on aprobability of default measure, with customers analysed against a range ofquantitative and qualitative measures. Expected Loss is used for the furtherassessment of individual exposures and portfolio analysis. There is a clearsegregation of duties with loan applications being prepared separately from theapproval chain. Significant exposures are reviewed and approved centrallythrough a Group or regional level credit committee. These committees areresponsible to the GRC. Consumer Banking For Consumer Banking, standard credit application forms are generally used,which are processed in central units using largely automated approval processes.Where appropriate to the customer, the product or the market, a manual approvalprocess is in place. As with Wholesale Banking, origination and approval rolesare segregated. Loan Portfolio Loans and advances to customers have grown by $32.6 billion since 30 June 2006to $152.8 billion. Excluding the effect of the HIB and Union acquisitions, growth in the ConsumerBanking portfolio has been constrained over the period as growth in securedproducts has been muted by regulatory and competitive challenges in the mortgagemarket. Growth in the Wholesale Banking portfolio was $22.3 billion, or 43 per centsince 30 June 2006. Growth was seen across all industry sectors and geographies,with particularly strong increases in the portfolios in Singapore, Other AsiaPacific, India, and Americas, UK and Head Office. Financing, insurance andbusiness services saw an increase of $7.0 billion, driven by large increases inHong Kong and Americas, UK and Head Office. The use of derivatives has partially offset the risks arising from the growth inthe balance sheet during the period. The Wholesale Banking portfolio remains well diversified across both geographyand industry, with no significant concentration within the industryclassifications of Manufacturing, Financing, insurance and business services, orCommerce. 30.06.07 -------------------------------------------------------------- Asia Pacific -------------------------------------------------------------- Hong Singapore Malaysia Korea Other Kong $million $million $million Asia $million Pacific $million --------------- --------- ---------- --------- --------- ---------Loans to individuals Mortgages 11,303 3,570 2,524 23,743 6,030 Other 2,132 1,109 807 4,719 4,050 Small and medium 1,019 1,537 909 5,437 1,918 enterprises ----------------- --------- --------- --------- -------- --------- Consumer Banking 14,454 6,216 4,240 33,899 11,998 ----------------- --------- --------- --------- -------- ---------Agriculture, forestry 193 22 90 20 115 and fishing Construction 75 29 23 268 238 Commerce 1,647 1,519 395 352 1,921 Electricity, gas and 196 1 70 95 325 water Financing, insurance and 4,451 1,227 531 1,182 2,474 business services Governments - 4,131 4,012 11 18 Mining and quarrying 9 28 - 46 183 Manufacturing 1,881 579 188 3,757 5,476 Commercial real estate 1,163 681 6 1,015 739 Transport, storage 424 315 145 136 490 and communication Other 116 335 7 424 524 ----------------- --------- --------- --------- -------- ---------Wholesale Banking 10,155 8,867 5,467 7,306 12,503 ----------------- --------- --------- --------- -------- ---------Portfolio impairment (48) (28) (28) (93) (194) provision ----------------- --------- --------- --------- -------- --------- Total loans and advances 24,561 15,055 9,679 41,112 24,307 to customers ----------------- --------- --------- --------- -------- --------- Total loans and advances 7,046 1,736 1,178 1,597 4,743 to banks ----------------- --------- --------- --------- -------- --------- 30.06.07 ------------------------------------------------------------ India Middle Africa Americas Total $million East & $million UK & Group $million Other Head S Asia Office $million $million ------------- -------- -------- -------- -------- ----------Loans to individuals Mortgages 1,584 537 217 113 49,621 Other 1,108 2,721 593 563 17,802 Small and medium 637 466 125 - 12,048 enterprises ---------------- --------- --------- --------- --------- ----------Consumer Banking 3,329 3,724 935 676 79,471 ---------------- --------- --------- --------- --------- ----------Agriculture, forestry 51 34 204 422 1,151 and fishing Construction 248 395 68 20 1,364 Commerce 792 2,150 640 1,581 10,997 Electricity, gas and 22 323 103 866 2,001 water Financing, insurance 461 1,490 189 5,393 17,398 and business services Governments - 20 10 249 8,451 Mining and quarrying 45 253 61 1,779 2,404 Manufacturing 1,754 1,757 381 3,752 19,525 Commercial real estate 461 2 14 - 4,081 Transport, storage 155 889 124 1,671 4,349 and communication Other 6 573 10 84 2,079 ---------------- --------- --------- --------- --------- ----------Wholesale Banking 3,995 7,886 1,804 15,817 73,800 ---------------- --------- --------- --------- --------- ----------Portfolio impairment (36) (65) (13) (7) (512) provision ---------------- --------- --------- --------- --------- ---------- Total loans and 7,288 11,545 2,726 16,486 152,759 advances to customers ---------------- --------- --------- --------- --------- ---------- Total loans and 484 993 288 5,143 23,208 advances to banks ---------------- --------- --------- --------- --------- ---------- Total loans and advances to customers include $806 million held at fair valuethrough profit or loss. Total loans and advances to banks include $2,100 millionheld at fair value through profit or loss account. 30.06.06 -------------------------------------------------------------- Asia Pacific -------------------------------------------------------------- Hong Singapore Malaysia Korea Other Kong $million $million $million Asia $million Pacific $million --------------- --------- --------- --------- --------- ---------Loans to individuals Mortgages 11,281 3,903 2,562 23,240 1,096 Other 2,132 1,044 725 4,727 3,114 Small and medium 861 1,651 840 4,754 908 enterprises ------------------- --------- --------- --------- --------- --------- Consumer Banking 14,274 6,598 4,127 32,721 5,118 ------------------- --------- --------- --------- --------- ---------Agriculture, forestry and 22 24 43 9 96 fishing Construction 72 33 23 141 85 Commerce 1,291 1,132 328 278 826 Electricity, gas and water 347 16 61 50 257 Financing, insurance and 2,535 1,460 687 1,748 1,178 business services Governments - 2,625 3,199 15 155 Mining and quarrying - - 8 64 244 Manufacturing 1,773 360 402 2,865 3,053 Commercial real estate 1,249 589 7 737 549 Transport, storage and 567 243 106 170 231 communication Other 112 115 39 - 13 ------------------- --------- --------- --------- --------- ---------Wholesale Banking 7,968 6,597 4,903 6,077 6,687 ------------------- --------- --------- --------- --------- ---------Portfolio impairment (54) (26) (23) (74) (198) --------- --------- --------- --------- ---------Provision ------------------- Total loans and advances 22,188 13,169 9,007 38,724 11,607 to customers ------------------- --------- --------- --------- --------- --------- Total loans and advances 3,131 1,155 153 1,835 3,433 to banks ------------------- --------- --------- --------- --------- --------- 30.06.06 ------------------------------------------------------------ India Middle Africa Americas Total $million East & $million UK & Group $million Other Head S Asia Office $million $million ------------------- --------- --------- --------- --------- ---------Loans to individuals Mortgages 1,440 159 214 144 44,039 Other 924 2,160 442 148 15,416 Small and medium 389 90 116 - 9,609 enterprises ------------------- --------- --------- --------- --------- --------- Consumer Banking 2,753 2,409 772 292 69,064 ------------------- --------- --------- --------- --------- ---------Agriculture, forestry and 83 71 150 378 876 fishing Construction 248 290 48 18 958 Commerce 469 1,530 359 1,343 7,556 Electricity, gas and water 26 228 54 684 1,723 Financing, insurance and 466 1,048 119 1,589 10,830 business services Governments - 84 - 282 6,360 Mining and quarrying 28 207 104 863 1,518 Manufacturing 1,310 1,392 491 2,191 13,837 Commercial real estate 238 3 7 7 3,386 Transport, storage and 101 647 138 1,661 3,864 communication Other 3 266 24 55 627 ------------------- --------- --------- --------- --------- ---------Wholesale Banking 2,972 5,766 1,494 9,071 51,535 ------------------- --------- --------- --------- --------- ---------Portfolio impairment (30) (32) (10) (7) (454) --------- --------- --------- --------- ---------Provision ------------------- Total loans and advances 5,695 8,143 2,256 9,356 120,145 to customers ------------------- --------- --------- --------- --------- --------- Total loans and advances 285 1,501 563 5,586 17,642 to banks ------------------- --------- --------- --------- --------- --------- Total loans and advances to customers include $595 million held at fair valuethrough profit or loss. Total loans and advances to banks include $892 millionheld at fair value through profit or loss account. 31.12.06* -------------------------------------------------------------- Asia Pacific -------------------------------------------------------------- Hong Singapore Malaysia Korea **Other Kong $million $million $million Asia $million Pacific $million ------------------- --------- --------- --------- --------- ---------Loans to individuals Mortgages 11,245 3,551 2,593 23,954 5,968 Other 2,235 1,028 771 4,612 4,523 Small and medium 919 1,548 883 4,907 2,023 enterprises ------------------- --------- --------- --------- --------- ---------Consumer Banking 14,399 6,127 4,247 33,473 12,514 ------------------- --------- --------- --------- --------- ---------Agriculture, forestry and 53 13 53 20 108 fishing Construction 57 29 26 262 181 Commerce 1,986 1,320 331 348 1,407 Electricity, gas and water 176 17 56 31 314 Financing, insurance and 1,817 1,664 724 1,176 1,901 business services Governments - 3,328 3,397 13 20 Mining and quarrying - 3 - 50 324 Manufacturing 2,282 701 228 3,208 4,745 Commercial real estate 819 708 5 849 720 Transport, storage and 277 338 149 189 495 communication Other 220 406 9 496 357 ------------------- --------- --------- --------- --------- ---------Wholesale Banking 7,687 8,527 4,978 6,642 10,572 ------------------- --------- --------- --------- --------- ---------Portfolio impairment (49) (28) (26) (86) (228) --------- --------- --------- --------- ---------Provision ------------------- Total loans and advances 22,037 14,626 9,199 40,029 22,858 to customers ------------------- --------- --------- --------- --------- --------- Total loans and advances 6,474 939 161 1,753 4,462 to banks ------------------- --------- --------- --------- --------- --------- 31.12.06* ------------------------------------------------------------ India Middle Africa Americas Total $million East & $million UK & Group $million Other Head S Asia Office $million $million ------------------- --------- --------- --------- --------- ---------Loans to individuals Mortgages 1,492 416 239 155 49,613 Other 928 2,650 483 537 17,767 Small and medium 567 323 133 - 11,303 enterprises ------------------- --------- --------- --------- --------- ---------Consumer Banking 2,987 3,389 855 692 78,683 ------------------- --------- --------- --------- --------- ---------Agriculture, forestry and 25 65 159 297 793 fishing Construction 198 332 78 2 1,165 Commerce 608 1,995 457 1,269 9,721 Electricity, gas and water 26 193 80 815 1,708 Financing, insurance and 479 1,245 182 3,264 12,452 business services Governments - 4 - 235 6,997 Mining and quarrying 32 352 110 1,624 2,495 Manufacturing 1,435 1,848 406 2,504 17,357 Commercial real estate 231 27 7 - 3,366 Transport, storage and 249 810 173 1,647 4,327 communication Other 5 314 39 115 1,961 ------------------- --------- --------- --------- --------- ---------Wholesale Banking 3,288 7,185 1,691 11,772 62,342 ------------------- --------- --------- --------- --------- ---------Portfolio impairment (33) (58) (10) (6) (524) --------- --------- --------- --------- ---------Provision ------------------- Total loans and advances 6,242 10,516 2,536 12,458 140,501 to customers ------------------- --------- --------- --------- --------- --------- Total loans and advances 477 1,058 387 5,353 21,064 to banks ------------------- --------- --------- --------- --------- --------- * Amounts have been restated as explained in note 6 on page 41. ** Restated to present on a consistent basis. Total loans and advances to customers include $1,194 million held at fair valuethrough profit or loss. Total loans and advances to banks include $1,340 millionheld at fair value through profit or loss account. Maturity analysis Approximately 50 per cent of the Group's loans and advances are short termhaving a contractual maturity of one year or less. The Wholesale Bankingportfolio is predominantly short term, with 77 per cent of loans and advanceshaving a contractual maturity of one year or less. In Consumer Banking, 63 percent of the portfolio is in the mortgage book, traditionally longer term innature. Whilst the Other and SME loans in Consumer Banking have shortcontractual maturities, in the normal course of business they may be renewed andrepaid over longer terms. 30.06.07 ----------------------------------- One year One to Over Total or less five five $million $million years years $million $million ---------------------------------- ------ ------ ------ ------Consumer Banking Mortgages 3,212 8,396 38,013 49,621 Other 9,087 6,867 1,848 17,802 SME 6,944 3,059 2,045 12,048 ---------------------------------- ------ ------ ------ ------Total 19,243 18,322 41,906 79,471 ---------------------------------- ------ ------ ------ ------Wholesale Banking 57,080 11,319 5,401 73,800 Portfolio impairment provision (512) ---------------------------------- ------ ------ ------ ------Loans and advances to customers 76,323 29,641 47,307 152,759 ---------------------------------- ------ ------ ------ ------ 30.06.06 ----------------------------------- One year One to Over Total or less five five $million $million years years $million $million ---------------------------------- ------ ------ ------ ------Consumer Banking Mortgages 3,513 9,201 31,325 44,039 Other 8,527 5,882 1,007 15,416 SME 5,827 2,038 1,744 9,609 ---------------------------------- ------ ------ ------ ------Total 17,867 17,121 34,076 69,064 ---------------------------------- ------ ------ ------ ------Wholesale Banking 40,942 7,443 3,150 51,535 Portfolio impairment provision (454) ---------------------------------- ------ ------ ------ ------Loans and advances to customers 58,809 24,564 37,226 120,145 ---------------------------------- ------ ------ ------ ------ 31.12.06* ----------------------------------- One year One to Over Total or less five five $million $million years years $million $million ---------------------------------- ------ ------ ------ ------Consumer Banking Mortgages 4,378 8,729 36,506 49,613 Other 9,141 6,393 2,233 17,767 SME 6,299 2,812 2,192 11,303 ---------------------------------- ------ ------ ------ ------Total 19,818 17,934 40,931 78,683 ---------------------------------- ------ ------ ------ ------Wholesale Banking 48,569 9,211 4,562 62,342 Portfolio impairment provision (524) ---------------------------------- ------ ------ ------ ------Loans and advances to customers 68,387 27,145 45,493 140,501 ---------------------------------- ------ ------ ------ ------ * Amounts have been restated as explained in note 6 on page 41. 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