Interim Results

8th Aug 2006 09:15

Standard Chartered PLC08 August 2006 8 August 2006 TO CITY EDITORSFOR IMMEDIATE RELEASE STANDARD CHARTERED PLC RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2006 HIGHLIGHTS Reported Results • Operating income up 27 per cent to $4,112 million from $3,236 million in H1 2005 (H2 2005: $3,625 million) • Operating profit before tax up 15 per cent to $1,527 million, compared with $1,333 million in H1 2005 (H2 2005: $1,348 million) • Profit attributable to ordinary shareholders up 14 per cent to $1,088 million, compared to $956 million in H1 2005 (H2 2005: $961 million) • Total assets up 16 per cent to $238 billion from $205 billion at H1 2005 (H2 2005: $215 billion) Results excluding Korea* • Operating income up 15 per cent to $3,378 million from $2,927 million (H2 2005: $2,977 million) • Operating profit before tax up 6 per cent to $1,293 million, compared with $1,225 million in H1 2005 (H2 2005: $1,192 million) • Expenses up 15 per cent to $1,765 million from $1,541 million (H2 2005: $1,638 million) • Normalised cost income ratio of 52.2 per cent (H1 2005: 52.6 per cent, H2 2005: 54.8 per cent) Performance Metrics** • Normalised earnings per share up 12 per cent at 84.1 cents (H1 2005: 75.2 cents, H2 2005: 78.7 cents) • Normalised return on ordinary shareholders' equity of 17.9 per cent (H1 2005: 18.3 per cent, H2 2005: 18.1 per cent) • Interim dividend per share increased 10 per cent to 20.83 cents • Normalised cost income ratio of 53.6 per cent (H1 2005: 52.6 per cent, H2 2005: 57.3 per cent) • Total capital ratio at 14.2 per cent (H1 2005: 12.9 per cent, H2 2005: 13.6 per cent) Significant achievements • Record operating profit before tax up 15% despite losses in Taiwan • Double-digit operating income growth in both Wholesale Banking and Consumer Banking • Operating profit before tax in Korea up 50% on H2 2005 • Standard and Poors long term credit rating for Standard Chartered raised to A+ Commenting on these results, the Chairman of Standard Chartered PLC, BryanSanderson, said: "This is another strong performance and reflects the successful implementationof our strategy. Our broader geographic spread and product portfolio haveincreased our resilience to individual market events. We are confident in ourability to continue to deliver good returns to our shareholders." * Results excluding Korea are shown because H1 2006 includes a full sixmonths of Standard Chartered First Bank Korea Limited (SCFB) compared to onlytwo and a half months in H1 2005. ** Results on a normalised basis reflect the results of Standard Chartered PLCand its subsidiaries (the Group) excluding items presented in note 4 on page37. Standard Chartered PLC - Stock Code: 2888 PageSummary of Results 3Chairman's Statement 4, 5Group Chief Executive's Review 6 - 9Financial Review Group Summary 10 Consumer Banking 11 -13 Wholesale Banking 13 -15 Risk 16 - 30 Capital 31Financial Statements Condensed Consolidated Interim Income Statement 32 Condensed Consolidated Interim Balance Sheet 33 Condensed Consolidated Interim Statement of Recognised Income and Expenses 34 Condensed Consolidated Interim Cash Flow Statement 35Notes 36 - 39Additional Information 40 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, Jordan,Pakistan and Bangladesh; and 'Other Asia Pacific' includes: China, Indonesia,Thailand, Taiwan and the Philippines. 6 months 6 months 6 months ended ended ended 30.06.06 30.06.05 31.12.05 $million $million $million RESULTS Operating income 4,112 3,236 3,625Impairment losses on loans and advances (349) (194) (125)Operating profit before taxation 1,527 1,333 1,348Profit attributable to parent company's shareholders 1,103 971 975Profit attributable to ordinary shareholders* 1,088 956 961 BALANCE SHEET Total assets 238,148 204,643 215,096 Total equity 13,850 12,534 12,333 Capital base 19,164 15,720 17,118 INFORMATION PER ORDINARY SHARE Cents Cents Cents Earnings per share - normalised basis** 84.1 75.2 78.7 - basic 82.8 74.7 74.0Dividend per share 20.83 18.94 45.06Net asset value per share 983.5 841.0 889.4 RATIOS % % % Return on ordinary shareholders' equity - normalised basis** 17.9 18.3 18.1Cost income ratio - normalised basis** 53.6 52.6 57.3Capital ratios: Tier 1 capital 8.4 7.3 7.7 Total capital 14.2 12.9 13.6 * 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 37). ** Results on a normalised basis reflect the results of the Group excludingitems presented in note 4 on page 37. 2006 first-half results I am pleased to report another strong first half performance for StandardChartered: • Income is up 27 per cent to over $4.1 billion • Operating profit before tax is up 15 per cent to $1.5 billion • Good earnings per share (EPS) growth with normalised EPS up 12 per cent at 84.1 cents per share The Board has declared an interim dividend per share of 20.83 cents, up 10percent. This is another strong performance from Standard Chartered and reflects thesuccessful implementation of our strategy. Our broader geographic spread andproduct portfolio have increased our resilience to individual market events.This approach is helping us deliver shareholder value and consistentperformance. Economic growth We have been operating in a strong global economy and in recent years theeconomies across our regions have experienced strong growth, rising trade,robust domestic demand and low inflation. However, at this stage of the economic cycle it is natural to expect increasedvolatility and uncertainty in financial markets, as growth rates appear to peak,interest rates rise and inflation increases. Uncertainty has been compounded bythe pace of oil price rises, the imbalances in the world economy and by the factthat, in recent years, some financial markets have not priced sufficiently forrisk. Recent months have seen heightened risk aversion, with emerging markets mostaffected, and a more testing time lies ahead as liquidity conditions around theworld tighten. However these factors need to be put in context. Economic growth rates across Asia, Africa and the Middle East are expected tocontinue to exceed growth rates within OECD economies. Overall, across themarkets in which Standard Chartered operates, the economic and policy climatehas improved tremendously. Compared with a decade ago, inflation across emergingmarkets has fallen from around 66 per cent on average to 8 per cent. Then, lessthan 15 per cent of emerging market economies would have been regarded asinvestment grade; now that figure is just over 40 per cent. Across Asia, currentaccount positions have improved and, in addition, Asian countries now holdtwo-thirds of global currency reserves. In the Middle East, liquidity is ample.In 2005 this region had a trade surplus of $211 billion, even higher than Asia'shuge surplus of $174 billion. Africa has benefited from high commodity pricesand has seen improved macro-economic policy-making, helped by debt relief. Economic trends Emerging markets in general are in a far better position to cope thanpreviously. Both the resilience of these markets and their ability to benefitfrom some of the underlying trends in the global economy give us confidence. Many of the changes we have made as a bank position us well to maximise theopportunities and minimise the risks presented by these economic developments.The breadth of our markets and the diversity of our earnings give us confidencethat we remain well placed to deliver consistent results against this backdrop. An infrastructure boom is underway across Asia, Africa and the Middle East, aseconomies there diversify and also seek to grow domestic demand. Asia looks setto add three-quarters of a billion jobs over the next decade as the regionwitnesses an emerging debt-free middle class and China and India emerge aspowerful economies. Financial markets are set to deepen, broaden and grow, hand in hand witheconomic growth across Asia, economic diversification across the Middle East andeconomic emergence within Africa. We also expect further currency shifts as theGulf introduces a single currency at the end of this decade and as moreeconomies across Asia seek to manage their currencies against their tradebaskets. New trade corridors continue to emerge. We are already witnessing increasedflows of commodities, goods, services, finance and capital, people andremittances. Intra-Asian trade is rising sharply, reflecting the growth of China, theemergence of regional companies and multinational firms shifting theirinvestment towards Asia. Supply chains across Asia have become interlinked,resulting in better specialisation and more efficient resource allocation,promoting regional integration and growth. Inter-regional trade has risensharply. Sino-African trade has risen from $6.5 billion in 1999 to $40 billionin 2005. New trade corridors are a clear indication of shifting economic, socialand political ties. Many economies in Asia and other emerging regions should nowbe viewed as drivers of future global growth. Governance In environments as dynamic as those in which we operate, governance is moreimportant than ever. Our Board has been further strengthened by the appointment of a new, independentNon-Executive Director. Lord Turner has rich experience in business and publiclife, including banking, consulting and his leadership of the Confederation ofBritish Industry in the 1990s. Most recently he is known for his work as theChairman of the UK's Independent Pensions Commission. We are delighted towelcome him to our Board. In addition, at the end of this year, Rudy Markhamtakes on additional Board responsibilities, bringing his great experience andinsight to his role as our new Senior Independent Director. Summary Standard Chartered continues to make excellent progress and is in good financialshape, a message endorsed by the recent upgrade to our credit ratings. It iswell positioned to maximise the opportunities and minimise the risks presentedby recent economic developments. The Group has appropriate governance in place. The breadth of our markets and the diversity of our earnings give us confidencein our ability to continue to deliver good returns to our shareholders. Bryan Sanderson CBE Chairman 8 August 2006 Performance Through the disciplined execution of our strategy and the hard work of our teamsaround the world, we have delivered another set of strong results: • We are driving strong organic growth, supported by balance between and within our businesses, and by our geographic diversity. • SC First Bank in Korea is performing well. • We are maintaining our discipline in managing expenses and risk. • We are continuing to invest for the future. Since the first half of 2001 normalised earnings per share have grown by 16 percent (compound annual growth rate) and income has grown by 14 per cent. Ourtrack record is clear and we are proud of the performance culture we have builtacross the Group. Delivering on management agenda At the beginning of the year we stated the priorities for 2006: • Accelerate growth in both businesses, focusing on priority markets - Deepen client relationships in Wholesale Banking - Enter new customer segments in Consumer Banking • Drive growth and performance in Korea • Excel in service and innovation • Lead by Example in corporate responsibility In each of these areas we are making good progress. Wholesale Banking In Wholesale Banking, growth is coming from deepening of client relationships,as a broader product array and more effective cross-selling lead to increasedclient income. The transformation of Wholesale Banking continues. These results demonstrate that our network gives us a clear competitiveadvantage. Our ability to originate and deliver complex cross bordertransactions is also driving income growth. As a result, we are becoming a leader in many geographies with a range ofinnovative products, services and transactions. We are currently in the top twofor All Asian currencies fixed income transactions and the top three forAsia-Pacific syndicated loans. Our project finance business, started in 2003, isnow in the top two across Asia (ex-Japan, Australia). We launched our Indiamergers and acquisitions (M&A) advisory group just under three years ago, and itis now the leader in cross border M&A in that market. In July, in Malaysia, weconcluded the first ever Islamic Banking cross-currency swap transaction in thecountry. We now offer a 'round the clock', 24 hour trade processing service inseveral markets - an example of our innovation in more traditional bankingservices. Consumer Banking In Consumer Banking, we have achieved widespread, double-digit growth across anincreasingly broad footprint. Our increased focus on segments such as Small andMedium Enterprises (SME) and Wealth Management is delivering good results, withSME customer assets up 15 per cent and Wealth Management income up 46 per cent. Consumer Banking's priorities continue to be product innovation, serviceexcellence and investment for the future. In product innovation, we have led the market with HIBOR-based mortgages in HongKong this year. Other product launches across our network include Express Tradefor SME clients in six markets and the launch of the Manhattan credit card inits fifth major market. We are continuing to focus on customer service. For example, in the United ArabEmirates, the Bank now offers a guaranteed one-day turnaround time for deliveryof a new Manhattan or Gold Credit card, and we are now the leading issuer inUAE. We continue to invest for the future - in new products, more branches and ATMs,in our infrastructure and in the skills of our people. Korea In Korea we said we would drive growth and performance. Korea had a good firsthalf and we continue to achieve growth with a stream of successful productlaunches. In Consumer Banking we provided products and account services for over500,000 new customers. In Wholesale Banking overall, income has grown by 28 percent over consecutive half years and we continue to see strong growth in clientincome. Service and innovation We remain determined to excel in service and innovation. Our Outserve programmehas achieved a great deal, and we are now building on our established approachand studying leading businesses in other industries to find new ways to improveour performance. The operations team plays a significant part in our Outservejourney - for example, we now offer service guarantees on a range of bankingservices in a number of markets, which is creating competitive advantage. Across the Group we continue to focus on business efficiency and expensemanagement. We are creating the room to invest and we are making significantprogress in improving the infrastructure of the Bank. The upgrading of our corebanking platforms and consolidation of our data centres continues. All of theseelements ultimately add to the efficiency of our business and the quality of ourservice. Leading by Example Finally on the 2006 agenda, we continue to take steps to Lead by Example incorporate responsibility, not just by funding long-term programmes such asSeeing Is Believing and Living with HIV, but also by ensuring that we build asustainable business and take a long term view of the consequences of ouractions. Delivering a sustainable business means attracting high quality staff,offering the right products and services, contributing to a sustainableenvironment and ensuring that we have the trust of customers, shareholders,employees and other interested groups. We seek to support sustainable economicdevelopment through social inclusion, environmental protection and goodgovernance. In a world in which companies' actions are increasingly underscrutiny, these elements are becoming more interlinked. We are making good progress with our priorities and the management agenda willcontinue to drive our growth in the second half of 2006. Investing for growth The last few years have seen focused and accelerated investment, in key marketsand on targeted products, which is now paying off and generating excellentreturns. We are continuing to invest in distribution, infrastructure, productinnovation and people. Organic income growth in the first half of 2006 wasstrong and produced approximately two thirds of the Group's increase in income.We now have 16 markets producing first-half income in excess of $50 million. The Bank is increasingly well balanced. Our spread of geographies and businessactivities helps us to weather storms and ensure our continued performance; forexample, the unsecured loan impairment charge in Taiwan has been offset bystrong growth in many of our other markets. Our growth story can be highlighted by three major geographies. India In India, in the first half of 2006 our income grew by 26 per cent and operatingprofit by over 50 per cent over the same period a year before. We have opened 16of our new consumer finance centres in major Indian cities so far this year.This gives us a network of 81 branches, 185 ATMs, and 21 consumer financecentres. We now have over 14,000 employees in India, in the businesses and theGroup's shared service centre in Chennai. In Wholesale Banking in India, ourclient income in the first half of 2006 was more than the total client incomefor all of 2004. We have increased the number of locations where we offerservices to local corporates from 16 to 33 and almost doubled the number ofrelationship managers. The opportunities presented by India's young population and its dynamic businessenvironment are huge. India is an emerging economic giant, we have a majorpresence in the market and it plays a key part in our future growth plans. Africa Africa is benefiting from high commodity and energy prices. It is a diversecontinent, including several economies forecast to grow at six per cent or more- including Nigeria, Tanzania, Ghana, Zambia and Botswana. In parts of ourAfrica franchise we have significant market shares, and in others we arebuilding our presence - for example in Nigeria, where we are seeing very strongmomentum. We are uniquely positioned as the only international bank with astrong presence in both Asia and Africa and we are benefiting from emergingAfrica-Asia trade corridors, particularly involving China. MESA The MESA region continues to grow well, with income up 25 per cent, and we haveseen particularly strong income growth in the first half from Pakistan and theUAE. We are the largest international bank in growing markets such as Bahrain,Jordan, Pakistan and Bangladesh, and the region is an area of key management,investment and strategic focus for us. Standard Chartered is a leading bank in Abu Dhabi and Dubai, where the potentialis huge. The new Dubai International Financial Centre (DIFC) will be aworld-class regional capital markets centre and provide a gateway for flows intoand from the region. Standard Chartered was the first commercial bank to belicensed when DIFC opened in September 2004. We have a new building in the DIFC Gate Precinct and will locate 500 staff therelater this year. Alliances and acquisitions Alliances and acquisitions actively support our growth story, often throughniche and infill acquisitions. A recent example is the announcement in June ofour agreement to purchase a 25 per cent stake in First Africa, a leadingpan-African corporate finance advisory business, which will bring newopportunities for Wholesale Banking. Where we see that shareholder value can becreated, either through better market penetration, major synergies or extendedproduct reach, we will make major acquisitions such as Korea First Bank. Ourfirst-half results for Korea demonstrate our ability to make investmentsgenerate good returns. Investing in the Brand Our brand recognition continues to grow, not only in established markets such asHong Kong but also in our newer markets like Korea. This year we havestrengthened the brand further by investing in a new campaign that reflects theBank's values and our customers' aspirations. Diversity An important feature of the Bank is its diversity, not just of products andgeographies but of people. We now have 27 nationalities in our top managementpopulation of 400, up from 22 nationalities in 2005 and we have 22 nationalitiesrepresented in our current graduate intake. As the world becomes one market,leading businesses will increasingly distinguish themselves through theirinternational understanding and their talented workforces. We are, and willcontinue to be, one of those businesses, strengthening our management teams toensure we have the right people in place to create, and then capitalise on,opportunities. Outlook The Group has made strong progress in the first half of 2006. The outlook ispositive, and we expect continued good income momentum. We will maintain ourfocus on expense management and expense growth should be broadly in line withincome growth for the full year. We will continue to take a balanced approachto risk, whilst recognising the changes in the external environment. In summary We are confident that we can continue to build on our track record of strongperformance. Standard Chartered is well positioned in dynamic markets, makinggood strategic progress and investing for future growth. We are optimisticabout the future. E Mervyn Davies CBE Group Chief Executive 8 August 2006 GROUP SUMMARY The Group has delivered another set of strong results in the six months ended 30June 2006. Operating income increased 27 per cent, or $876 million, to $4,112million and operating profit before tax of $1,527 million was up 15 per centover the same period in 2005. Normalised earnings per share increased by 12 percent to 84.1 cents. (Refer to note 4 on page 37). The Group has owned SCFB since 15 April 2005. On 28 November 2005 the assets andbusinesses of the Standard Chartered Bank branch in Korea were transferred toSCFB. The impact of the post acquisition results of SCFB in the 2005 results,together with the transfer of the branch, affect the comparability of theresults for the six months to 30 June 2006 with the equivalent period in 2005.The 2005 results for "Korea" reflect a full six months of the Standard CharteredBank branch together with the post acquisition results of SCFB. To facilitateeffective comparison, the table below and most of the subsequent discussion,segments the results of the Korea business from the results of the rest of theGroup. 6 months ended 30.06.06 Korea Ex Korea As reported $million $million $millionNet interest income 548 1,962 2,510Fees and commissions income, net 68 826 894Net trading income 51 480 531Other operating income 67 110 177 186 1,416 1,602Operating income 734 3,378 4,112Operating expenses (460) (1,765) (2,225)Operating profit 274 1,613 1,887before impairment lossesImpairment losses on (40) (309) (349)loans and advancesOther impairment - (8) (8)Loss from associate - (3) (3)Operating profit before taxation 234 1,293 1,527 6 months ended 30.06.05* 6 months ended 31.12.05* Korea Ex Korea As reported Korea Ex Korea As reported $million $million $million $million $million $millionNet interest income 235 1,737 1,972 590 1,773 2,363Fees and commissions 29 698 727 16 752 768income, netNet trading income 34 375 409 29 331 360Other operating income 11 117 128 13 121 134 74 1,190 1,264 58 1,204 1,262Operating income 309 2,927 3,236 648 2,977 3,625Operating expenses (167) (1,541) (1,708) (465) (1,638) (2,103)Operating profit 142 1,386 1,528 183 1,339 1,522before impairment lossesImpairment losses on (34) (160) (194) (27) (98) (125)loans and advancesOther impairment - (1) (1) - (49) (49)Loss from associate - - - - - -Operating profit before 108 1,225 1,333 156 1,192 1,348taxation * Restated. See note 6 on pages 38 and 39. Operating Income and Profit Excluding Korea Operating income grew 15 per cent, or $451 million, to $3,378 million over theequivalent prior year period, Consumer Banking and Wholesale Banking eachdelivering double-digit income growth. The growth in the first half reflectedthe effects of prior year investment with good growth being achieved across anincreasingly broad range of geographies, products and customer segments. Net interest income grew $225 million, or 13 per cent, to $1,962 million. Netinterest margin was 2.5 per cent, down from 2.6 per cent in the first half oflast year reflecting continued pressure on asset margins, particularlymortgages. Fees and commissions increased by $128 million, or 18 per cent, to $826 million.This increase was driven mainly by higher volumes in wealth management, cashmanagement and global markets products across most markets. Net trading income grew by $105 million, or 28 per cent, to $480 million drivenin part due to higher volumes of foreign exchange dealing in Wholesale Banking.Other operating income decreased $7 million, or six per cent, to $110 million. Operating expenses grew $224 million, or 15 per cent, to $1,765 million, withthe normalised cost income ratio falling to 52.2 per cent compared to 52.6 percent in the first half last year. Expense growth was broadly in line withincome growth with technology production and operations expenses held flat. Thisallowed both Consumer Banking and Wholesale Banking businesses to continue toinvest in new products, infrastructure and sales capability to supportdouble-digit operating income growth. Operating profit before impairment increased $227 million, or 16 per cent, to$1,613 million. Impairment losses on loans and advances increased by $149 million, or 93 percent, to $309 million. This was primarily due to the increase in the impairmentcharge for the Consumer Banking unsecured portfolio in Taiwan. Wholesale Bankingcontinued to benefit from a benign credit environment in most markets. Operating profit before taxation grew $68 million, or six per cent, to $1,293million. Korea Operating Income and Profit The results for Korea for the first half of 2005 only include SCFB for less thanhalf of that period. It is therefore more useful to compare the current period'sresults for Korea against the second half of 2005. Operating income grew by $86million, or 13 per cent, to $734 million driven by strong income growth in boththe Consumer and Wholesale businesses. Operating expenses decreased slightly byone per cent to $460 million. Operating profit before impairment consequentlyincreased by 50 per cent, or $91 million. Loan impairment increased by 48 percent, or $13 million, with most of the increment in Consumer Banking. Operatingprofit increased by 50 per cent, or $78 million. CONSUMER BANKING To provide meaningful comparison Consumer Banking excluding Korea is comparedagainst the first half of 2005 whilst Consumer Banking in Korea is shown againstthe second half of 2005. Consumer Banking Excluding Korea Operating income was up $151 million, or 10 per cent, to $1,665 million, withgrowth spread across a broad range of markets. Hong Kong and Singapore achievedgrowth of around four per cent and these two markets now account for 41 per centof total income compared to 43 per cent in the equivalent period last year.Outside these two markets income grew 14 per cent, with particularly stronggrowth in Middle East and Other South Asia (MESA) which rose by 34 per cent. Income growth was driven primarily by wealth management products and the Smalland Medium Enterprise (SME) customer segment. Income from deposits grewsignificantly reflecting both increased volumes of customer deposits andimproved margins. Assets remained broadly flat, with a decline in mortgagesoffsetting increases in SME and unsecured lending. Expenses grew $67 million or nine per cent to $832 million. This increaseincluded expenditure to support the growth of China and Japan, and in ourprivate banking and consumer finance activities. Investment was also made toenhance product distribution capabilities. The impact on expenses of increasedproduct volumes has been largely offset by gains from operational efficiencies. Operating profit before impairment grew $84 million or 11 per cent. Impairment losses more than doubled, by $213 million to $372 million. Themajority of this rise came from the unsecured portfolio in Taiwan, where thebanking industry as a whole has been adversely affected by a sharp increase incustomer default rates. The loan impairment charge in Taiwan increased to $203million in the first half of 2006 from $75 million in the second half of 2005(and $23 million in the first half of 2005). These provisions include adiscount on the original interest rate on the restructured portfolio of $28million. Recent indications are that conditions are continuing to improve and itis expected that there will be a sharp reduction in the loan impairment chargein Taiwan in the second half of the year. However, given recent and prospectiveregulatory changes, there remains considerable uncertainty about the evolutionof the consumer credit market. Impairment losses outside Taiwan increased by$33 million or 24 per cent, reflecting changes in the mix and maturity of theportfolio, plus some deterioration in credit quality in Thailand and Indonesiadue to the economic environment. Consumer Banking operating profit fell $129 million, or 22 per cent, to $461million compared to the first half of 2005. This fall was primarily due to theloan impairment charges taken in Taiwan which more than offset the increase inoperating profit before impairment. Hong Kong delivered an increase in operating profit of nine per cent to $280million. Income growth was four per cent whilst expenses rose by one per cent.Operating profit before impairment profit grew six per cent. New products suchas the Marathon Savings Account, and increased marketing activity, together withbetter margins, drove double-digit operating income growth in wealth managementand deposit balances. The SME segment also recorded double-digit income growthwith good prospects for the future. The loan impairment charge decreased 21 percent or $6 million compared to the prior period. In Singapore, income was up four per cent on the first half of 2005, driven bystrong growth in wealth management products and the SME segment. There wascontinued product innovation through the period including, for example, thelaunch of foreign currency and SME saver accounts. In an intensely competitivemarket, mortgage margins remained under pressure. Expenses grew six per cent to$66 million driven by investment in new products. Loan impairment decreased sixper cent reflecting a broadly benign consumer credit environment. Operatingprofit increased five per cent to $88 million. Assets were down seven per centwith increases in SME lending offset by a decline in mortgage assets. In Malaysia income increased 11 per cent to $112 million. Strong income growthin wealth management and the SME segment, underpinned by the success of newproduct launches, including Islamic SME products, more than offset a lowerperformance in mortgages, where income fell due to margin compression.Operating expenses increased $3 million or seven per cent to $49 million. Loanimpairment reduced six per cent reflecting the benefit of provision releases.Operating profit increased 24 per cent to $47 million. In Other Asia Pacific, income growth of nine per cent was driven by strongbalance sheet growth in all products. In China income more than doubled withgood growth in the SME segment. Indonesia and Thailand also delivereddouble-digit income growth. These performances were offset by subdued incomeperformance in Taiwan. Operating expenses increased by 15 per cent reflectinginvestment for future growth. Loan impairment increased due primarily to Taiwan,but also reflecting slightly more difficult credit conditions in Thailand andIndonesia. India's income increased 10 per cent over the equivalent period driven by growthin wealth management products and the SME segment. This was partially offset bya decline in mortgage income. Investment in new product and sales capabilitieswas achieved within expense growth of five per cent due to redeployment ofresources and other efficiency initiatives. Operating income in MESA increased by 34 per cent to $238 million. This strongperformance was led by wealth management, credit cards and the SME segment.Investments targeted at infrastructure and distribution channels to sustain goodincome growth increased expenses by 38 per cent to $116 million. Loan impairmentincreased 14 per cent to $16 million. Assets grew nine per cent. In Africa, operating profit grew 19 per cent to $25 million as a result ofincome growth of three per cent and a reduction in expenses of six per cent;wealth management income grew rapidly driven by new product launches and a newsales model, whilst expenses were reduced as a result of productivity gains anddisciplined cost control. Loan impairment increased to $9 million. Assets grewby 30 per cent driven by unsecured lending. The Americas, UK and Group Head Office saw an increase in operating profit from$5 million to $11 million, driven primarily by higher income from the Jerseybusiness. Korea Consumer Banking Consumer Banking's results in Korea are compared to the second half of 2005. Onthis basis operating income increased nine per cent to $530 million driven bywealth management products and the SME segment. Product innovation in wealthmanagement attracted new accounts and fresh funds, with the new e-Click productattracting over 250,000 new accounts. There was a decline in mortgage margins due to a combination of the interestrate environment and competitive activity. Expenses were held broadly flatcompared to the previous period. Operating profit before impairment increasedby $46 million or 43 per cent. Loan impairment increased $11 million to $33million. Assets have grown five per cent driven by mortgages and unsecuredlending. The following tables provide an analysis of operating profit by geographicsegment for Consumer Banking: 6 months ended 30.06.06 Asia Pacific Other Hong Asia Kong Singapore Malaysia Korea Pacific $million $million $million $million $millionOperating Income 505 170 112 530 317Expenses (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 Middle Americas UK & Consumer East & Group Banking Consumer Other Head Total Ex Banking India S Asia Africa Office Korea Total $million $million $million $million $million $millionOperating Income 158 238 128 37 1,665 2,195Expenses (90) (116) (94) (28) (832) (1,210)Loan impairment (20) (16) (9) 2 (372) (405)Operating profit 48 106 25 11 461 580 6 months ended 30.06.05 Asia Pacific Other Hong Asia Kong Singapore Malaysia Korea Pacific $million $million $million $million $millionOperating Income 485 163 101 209 292Expenses (201) (62) (46) (123) (162)Loan impairment (28) (17) (17) (34) (53)Operating profit 256 84 38 52 77 6 months ended 30.06.05 Middle Americas UK & Consumer East & Group Banking Consumer Other Head Total Ex Banking India S Asia Africa Office Korea Total $million $million $million $million $million $millionOperating Income 143 177 124 29 1,514 1,723Expenses (86) (84) (100) (24) (765) (888)Loan impairment (27) (14) (3) - (159) (193)Operating profit 30 79 21 5 590 642 6 months ended 31.12.05 Asia Pacific Other Hong Asia Kong Singapore Malaysia Korea Pacific $million $million $million $million $millionOperating Income* 491 161 109 488 319Expenses (214) (64) (49) (382) (180)Loan impairment (6) (13) (20) (22) (113)Other impairment - - - - -Operating profit 271 84 40 84 26 6 months ended 31.12.05 Middle Americas UK & Consumer East & Group Banking Consumer Other Head Total Ex Banking India S Asia Africa Office Korea Total $million $million $million $million $million $millionOperating Income* 143 202 134 32 1,591 2,079Expenses (93) (98) (105) (28) (831) (1,213)Loan impairment (29) (19) (10) - (210) (232)Other impairment - - (3) - (3) (3)Operating profit 21 85 16 4 547 631 * As more fully explained in note 6 on pages 38 and 39, internal income hasbeen restated. The impact is to reduce Consumer Banking total operating incomeby $5 million in the second half of 2005 with a corresponding increase inWholesale Banking. CONSUMER BANKING CONTINUED An analysis of Consumer Banking income by product is set out below: 6 months ended 30.06.06 Total Korea Ex KoreaOperating Income by Product $million $million $millionCards and Loans 824 180 644Wealth Management and Deposits 926 179 747Mortgages and Auto Finance 388 157 231Other 57 14 43 2,195 530 1,665 6 months ended 30.06.05* 6 months ended 31.12.05* Total Korea Ex Korea Total Korea Ex KoreaOperating Income by Product $million $million $million $million $million $millionCards and Loans 706 88 618 822 186 636Wealth Management and Deposits 634 53 581 808 159 649Mortgages and Auto Finance 350 66 284 408 141 267Other 33 2 31 41 2 39 1,723 209 1,514 2,079 488 1,591 * Restated. See note 6 on pages 38 and 39. Product Performance Excluding Korea Credit cards and personal loans delivered a $26 million, or four per cent,increase in operating income to $644 million. In Hong Kong new credit cardlaunches, including co-branded, helped increase customer balances over theequivalent period last year. Good asset growth was also seen in Pakistan, Indiaand Thailand, all of whom recorded double-digit growth in unsecuredoutstandings. In wealth management, deposit growth and improved margins have been the primarydrivers of a $166 million, or 29 per cent, growth in income to $747 million.This improvement was seen in most countries, with strong contributors being HongKong, Singapore, India and the MESA region. Deposit product innovation, such asan Islamic savings account in MESA, has helped attract new customers and fundsin a number of markets. Mortgage margins continued to be under pressure in a number of markets, drivenby the rising interest rate environment and competitor pricing. Mortgageoutstandings fell $1,412 million or six per cent to $20,799 million. Theseeffects served to reduce mortgage and auto finance income by $53 million or 19per cent to $231 million. In several markets, such as Hong Kong and Singapore,product innovation and repricing actions have helped mitigate the effects ofmargin compression, although the near term outlook continues to be challenging. Korea Product Performance Comparisons are against the second half of 2005. Wealth management and deposits income grew 13 per cent or $20 million to $179million on the back of new product launches. Overall credit card operatingincome fell three per cent from the previous period. Mortgage income grew 11per cent or $16 million, with growth in outstandings more than offsetting theimpact of margin pressure. WHOLESALE BANKING As with Consumer Banking, the performance of Wholesale Banking excluding Koreais compared to the first half of 2005, whilst Wholesale Banking in Korea iscompared to the second half of 2005. Wholesale Banking Excluding Korea Wholesale Banking had a very strong first half with the client focused strategyagain delivering significant income growth across multiple geographies, productsand segments. Income grew $300 million, or 21 per cent, to $1,713 million underpinned byclient income growth of 21 per cent. Client income continues to comprise aroundfour fifths of total income and is the key driver of sustained growth. The paceof income growth in products such as foreign exchange, debt capital marketssyndications, derivatives and options, reflects the significant investments inprevious years. Operating expense growth was 20 per cent or $157 million. Investment spend wastargeted at expanding product reach and capability, upgrading systemsinfrastructure, expanding client coverage and reinforcing compliance andcontrol. Operating profit before impairment losses grew 22 per cent or $143 million. The net loan impairment release was $63 million compared to a net charge of $1million in the equivalent period last year. This net release reflected thecontinued benign credit environment, with new provisions of only $31 million,and continued success in achieving recoveries. WHOLESALE BANKING CONTINUED The following tables provide an analysis of operating profit by geographicsegment for Wholesale Banking: 6 months ended 30.06.06 Asia Pacific Other Hong Asia Kong Singapore Malaysia Korea Pacific $million $million $million $million $millionOperating Income 289 120 76 204 265Expenses (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 Middle Americas UK & Wholesale East & Group Banking Wholesale Other Head Total Ex Banking India S Asia Africa Office Korea Total $million $million $million $million $million $millionOperating Income 222 244 187 310 1,713 1,917Expenses (70) (109) (107) (255) (933) (1,015)Loan impairment 13 2 (8) 27 63 56Other impairment - - (6) (2) (8) (8)Operating profit 165 137 66 80 835 950 6 months ended 30.06.05 Asia Pacific Other Hong Asia Kong Singapore Malaysia Korea Pacific $million $million $million $million $millionOperating Income* 265 98 55 100 232Expenses (116) (61) (27) (44) (134)Loan impairment (41) (17) 3 - 64Other impairment (1) - - - -Operating profit 107 20 31 56 162 6 months ended 30.06.05 Middle Americas UK & Wholesale East & Group Banking Wholesale Other Head Total Ex Banking India S Asia Africa Office Korea Total $million $million $million $million $million $millionOperating Income* 159 210 131 263 1,413 1,513Expenses (57) (74) (95) (212) (776) (820)Loan impairment 4 (1) (27) 14 (1) (1)Other impairment 1 - - (1) (1) (1)Operating profit 107 135 9 64 635 691 6 months ended 31.12.05 Asia Pacific Other Hong Asia Kong Singapore Malaysia Korea Pacific $million $million $million $million $millionOperating Income* 243 92 70 160 214Expenses (118) (59) (28) (83) (134)Loan impairment (42) 4 4 (5) 53Other impairment - - - - -Operating profit 83 37 46 72 133 6 months ended 31.12.05 Middle Americas UK & Wholesale East & Group Banking Wholesale Other Head Total Ex Banking India S Asia Africa Office Korea Total $million $million $million $million $million $millionOperating Income* 148 223 164 232 1,386 1,546Expenses (70) (83) (99) (216) (807) (890)Loan impairment 2 43 (3) 51 112 107Other impairment - - (8) (2) (10) (10)Operating profit 80 183 54 65 681 753 * As more fully explained in note 6 on pages 38 and 39, internal income hasbeen restated. The impact is to increase Wholesale Banking total operatingincome by $5 million in the second half of 2005 with a corresponding decrease inConsumer Banking. When looking at the performance of Wholesale Banking on a geographic basis it isimportant to note that it is a network business. This means the geographicsegmentation can give a somewhat imperfect view of the relative performance ofdifferent parts of the business. In Hong Kong, income grew $24 million, or nine per cent, to $289 million, with asharp 47 per cent increase in global markets' sales, particularly in derivativesand foreign exchange. Cash management benefited from the favourable interestrate environment and custody from active equity markets. Expenses grew 22 percent to $141 million with most of this increase directed towards building thesales force, product capabilities, and deepening income generation from existingclient relationships. Recoveries drove a sharp improvement in the loanimpairment charge with a net release of $30 million. WHOLESALE BANKING CONTINUED Income in Singapore was up 22 per cent to $120 million. Cash managementbenefited from the interest rate environment and helped to deliver 25 per centclient income growth. Global markets' sales were up 37 per cent driven byderivatives and foreign exchange products together with strong contributionsfrom corporate finance and syndications. Much of this growth came from globalcorporates. Expenses grew 16 per cent to $71 million reflecting increasedinvestments in product and sales capabilities to sustain the strong clientincome momentum. In Malaysia, income increased 38 per cent to $76 million with strong growth incash management and foreign exchange, particularly in the local corporatesegment. Expenses increased 11 per cent to $30 million. Other Asia Pacific delivered strong income growth of 14 per cent to $265million, with expenses rising 12 per cent, to $150 million. Operating profitbefore impairment increased 17 per cent or $17 million. Loan impairment was only$2 million but in the absence of the significant loan impairment releases andrecoveries seen last year, operating profit was lower by 30 per cent at $113million. India delivered operating income growth of $63 million or 40 per cent to $222million. Operating income was driven by cash management, trade finance,derivatives and foreign exchange, and corporate finance, and also benefited fromlegal recoveries. Expenses increased 23 per cent with investment in newproducts, infrastructure and sales. Loan impairment benefited from the benigncredit environment, with recoveries and releases contributing to a net credit of$13 million. Operating profit increased 54 per cent. Operating income in MESA rose 16 per cent to $244 million. Client income grew 23per cent driven by a strong performance in cash management. Corporate financeand strong interest rate derivatives performance also contributed to incomegrowth. Investments in staff and in infrastructure to support the double-digitincome growth increased expenses 47 per cent to $109 million. Operating profitin MESA grew by one per cent to $137 million. In Africa, income at $187 million was up 43 per cent on the prior period.Operating income improvements were driven by product sales and strong tradingresults from asset and liability management (ALM). Client income growth wasparticularly strong in Kenya, Ghana and Nigeria. Expenses increased 13 percent. Operating profit increased $57 million to $66 million. Africa alsobenefited from the absence of the hyperinflationary charge of $44 million takenin the first half of 2005. Operating income in the Americas, UK and Group Head Office increased by 18 percent to $310 million. Expenses grew by 20 per cent reflecting investment inproducts and sales. Strong loan recoveries helped drive operating profit up 25per cent. Korea Wholesale Banking Wholesale Banking's results in Korea are compared to the second half of 2005.Operating income increased by 28 per cent and operating profit increased by 60per cent to $115 million. The increase in operating income was primarily drivenby trade and lending and by global markets' products, particularly derivativesand foreign exchange. An analysis of Wholesale Banking income by product is set out below: 6 months ended 30.06.06 Total Korea Ex KoreaOperating Income by Product $million $million $millionTrade and Lending 511 77 434Global Markets** 925 86 839Cash Management and Custody 481 41 440 1,917 204 1,713 6 months ended 30.06.05* 6 months ended 31.12.05* Total Korea Ex Korea Total Korea Ex KoreaOperating Income by Product $million $million $million $million $million $millionTrade and Lending 438 33 405 442 45 397Global Markets** 756 58 698 681 65 616Cash Management and Custody 319 9 310 423 50 373 1,513 100 1,413 1,546 160 1,386 * Restated. See note 6 on pages 38 and 39. ** Global markets comprises the following businesses: derivatives and foreignexchange, debt capital markets, corporate finance and ALM. Product Performance Excluding Korea Trade and lending income increased seven per cent to $434 million. Tradebalances grew, with a double-digit increase in volumes, more than offsetting theimpact of tightening margins whilst lending income was broadly flat due tomargin compression and tight discipline on asset growth. Global markets' income grew strongly by $141 million or 20 per cent to $839million. Rates and foreign exchange sales benefited from a more sophisticatedsuite of products aided by market volatility resulting in increased penetrationamongst local corporates. The debt capital markets business grew significantlyas both product and distribution capability was expanded. In addition corporatefinance achieved good growth. ALM income was down over the equivalent period. Cash management and custody income was up 42 per cent at $440 million. Thedrivers of this increase were both increased balances, up almost 25 per centyear on year, as well as improved margins in a higher rate environment. RISK 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: • ensuring that business activities are controlled on the basis of risk adjusted return; • managing risk within agreed parameters with risk quantified wherever possible; • assessing risk at the outset and throughout the time that the Group continues to be exposed to it; • abiding by all applicable laws and regulations and good governance standards in every country in which the Group does business; • applying high and consistent ethical standards to the Group's relationships with all customers, employees and other stakeholders; and • undertaking activities in accordance with fundamental control standards. These controls include the disciplines of planning, monitoring, segregation, authorisation and approval, recording, safeguarding, reconciliation and valuation. Risk Management Framework Ultimate responsibility for the effective management of risk rests with theCompany's Board. Acting with authority delegated by the Board, the Audit andRisk Committee (ARC), whose members are all independent Non-Executive Directorsof the Company, reviews specific risk areas and monitors the activities of theGroup Risk Committee (GRC) and the Group Asset and Liability Committee (GALCO). GRC is responsible for credit risk, market risk, operational risk, complianceand regulatory risk, legal risk and reputational risk. GALCO is responsible forliquidity risk, structural interest rate and foreign exchange exposures, and forcapital ratios. All the Group Executive Directors (GEDs) of Standard Chartered PLC, directors ofStandard Chartered Bank and the Group Head of Risk and Group Special AssetManagement (Group Head of Risk) are members of the GRC. This Committee ischaired by the Group Head of Risk. The GRC is responsible for agreeing Groupstandards for risk measurement and management, and also delegating authoritiesand responsibilities to risk committees and the Group and Regional CreditCommittees and Risk Officers. The committee process is designed to ensure that standards and policies arecascaded down through the organisation from the Board through the GRC and theGALCO to the functional, regional and country level committees. Key informationis communicated through the country, regional and functional committees to Groupso as to provide assurance that standards and policies are being followed. The Group Finance Director and the Group Head of Risk manage a risk functionthat is separate from the business line 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 are accountable for risk management in their businesses andsupport functions, and for countries where they have governanceresponsibilities. 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 identifies 18 risk types, which aremanaged by designated Risk Type Owners (RTOs), who are all approved personsunder the FSA regulatory framework and who have responsibility for settingminimum standards and governance and assurance processes. The RTOs report upthrough specialist risk committees to the GRC, or in the case of Liquidity Risk,to the GALCO. The Group Finance Director and the Group Head of Risk, together with GroupInternal Audit, provide assurance that risk is being measured and managed inaccordance with the Group's standards and policies. RISK continued Credit Risk Management Credit risk is the risk that a counterparty will not settle its obligations inaccordance with agreed terms. Credit exposures include individual borrowers and connected groups ofcounterparties 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 through the GroupFinance Director to the Group Head of Risk, the Group and Regional CreditCommittees and independent Risk Officers at Group and at the Wholesale Bankingand Consumer Banking business levels. Procedures for managing credit risk are determined at the business levels withspecific policies and procedures being adapted to different risk environment andbusiness goals. The 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 Head of Risk. 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. 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. There is a clear segregation of dutieswith loan applications being prepared separately from the approval chain.Significant exposures are reviewed and approved centrally through a Group orRegional level Credit Committee. These Committees are responsible to the GRC. Consumer Banking For Consumer Banking, standard credit application forms are generally used,which are processed in central units using manual or automated approvalprocesses as appropriate to the customer, the product or the market. As withWholesale Banking, origination and approval roles are segregated. Loan Portfolio Total loans and advances to customers have increased by 12 per cent to $120billion over the equivalent period last year. The Wholesale Banking portfolio is well diversified across both geography andindustry, with no significant concentration to sub-industry classificationlevels under manufacturing, financing, insurance and business services, commerceor transport, storage and communication. RISK continued 30.06.06 Other Hong Asia Kong Singapore Malaysia Korea Pacific $million $million $million $million $millionLoans to individuals Mortgages 11,281 3,903 2,562 23,240 1,096 Other 2,132 1,044 725 4,727 3,114Small and medium enterprises 861 1,651 840 4,754 908Consumer Banking 14,274 6,598 4,127 32,721 5,118Agriculture, forestry 22 24 43 9 96and fishingConstruction 72 33 23 141 85Commerce 1,291 1,132 328 278 826Electricity, gas and water 347 16 61 50 257Financing, insurance and 2,535 1,460 687 1,748 1,178business servicesGovernments - 2,625 3,199 15 155Mining and quarrying - - 8 64 244Manufacturing 1,773 360 402 2,865 3,053Commercial real estate 1,249 589 7 737 549Transport, storage 567 243 106 170 231and communicationOther 112 115 39 - 13Wholesale Banking 7,968 6,597 4,903 6,077 6,687Portfolio impairment provision (54) (26) (23) (74) (198)Total loans and advances 22,188 13,169 9,007 38,724 11,607to customersTotal loans and advances 3,131 1,155 153 1,835 3,433to banks 30.06.06 Middle Americas East & UK & Group Other Head India S Asia Africa Office Total $million $million $million $million $millionLoans to individuals Mortgages 1,440 159 214 144 44,039 Other 924 2,160 442 148 15,416Small and medium enterprises 389 90 116 - 9,609Consumer Banking 2,753 2,409 772 292 69,064Agriculture, forestry 83 71 150 378 876and fishingConstruction 248 290 48 18 958Commerce 469 1,530 359 1,343 7,556Electricity, gas and water 26 228 54 684 1,723Financing, insurance and 466 1,048 119 1,589 10,830business servicesGovernments - 84 - 282 6,360Mining and quarrying 28 207 104 863 1,518Manufacturing 1,310 1,392 491 2,191 13,837Commercial real estate 238 3 7 7 3,386Transport, storage 101 647 138 1,661 3,864and communicationOther 3 266 24 55 627Wholesale Banking 2,972 5,766 1,494 9,071 51,535Portfolio impairment provision (30) (32) (10) (7) (454)Total loans and advances 5,695 8,143 2,256 9,356 120,145to customersTotal loans and advances 285 1,501 563 5,586 17,642to 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. RISK CONTINUED 30.06.05 Other Hong Asia Kong Singapore Malaysia Korea Pacific $million $million $million $million $millionLoans to individuals Mortgages 12,599 4,416 2,559 18,792 895 Other 1,967 1,087 538 3,691 2,943Small and medium enterprises 761 1,618 705 4,475 315Consumer Banking 15,327 7,121 3,802 26,958 4,153Agriculture, forestry and fishing - 19 54 - 78Construction 64 240 10 14 78Commerce 1,765 948 189 347 805Electricity, gas and water 507 21 90 76 233Financing, insurance and 1,450 909 628 2,467 980business servicesGovernments - 1,520 1,270 51 228Mining and quarrying - 31 30 5 226Manufacturing 1,531 288 273 1,382 2,577Commercial real estate 1,181 629 1 1,116 474Transport, storage and 296 299 75 211 269communicationOther 18 68 52 441 111Wholesale Banking 6,812 4,972 2,672 6,110 6,059Portfolio impairment (37) (29) (23) (61) (70) ProvisionTotal loans and advances 22,102 12,064 6,451 33,007 10,142to customersTotal loans and advances 3,667 2,956 474 2,804 1,596to banks 30.06.05 #Middle Americas East & UK & Group Other Head India S Asia Africa Office #Total $million $million $million $million $millionLoans to individuals Mortgages 1,390 81 85 186 41,003 Other 1,269 2,052 413 216 14,176Small and medium enterprises 281 84 92 - 8,331Consumer Banking 2,940 2,217 590 402 63,510Agriculture, forestry and fishing 15 20 146 283 615Construction 99 202 47 31 785Commerce 270 1,373 339 894 6,930Electricity, gas and water 108 185 31 636 1,887Financing, insurance and 605 1,555 170 1,956 10,720business servicesGovernments - 72 - 506 3,647Mining and quarrying 9 133 106 729 1,269Manufacturing 837 1,427 423 2,220 10,958Commercial real estate 9 1 33 1 3,445Transport, storage and 220 349 127 1,051 2,897communicationOther 59 201 12 70 1,032Wholesale Banking 2,231 5,518 1,434 8,377 44,185Portfolio impairment (33) (29) (10) (22) (314) ProvisionTotal loans and advances 5,138 7,706 2,014 8,757 107,381to customersTotal loans and advances 195 1,166 199 7,898 20,955to banks # A reclassification of $997 million from Other to Small and medium enterprisesthat was made at 30 June 2005 has been reversed. Total loans and advances to customers include $871 million held at fair valuethrough profit or loss. Total loans and advances to banks include $1,081million held at fair value through profit or loss account. RISK CONTINUED 31.12.05 Asia Pacific Other Hong Asia Kong Singapore Malaysia Korea Pacific $million $million $million $million $millionLoans to individuals Mortgages 12,051 4,129 2,532 22,522 996 Other 2,154 1,043 663 3,954 3,145Small and medium enterprises 791 1,673 794 4,727 989Consumer Banking 14,996 6,845 3,989 31,203 5,130Agriculture, forestry and fishing 24 - 44 9 110Construction 91 48 11 90 64Commerce 2,004 958 325 237 598Electricity, gas and water 290 1 65 17 284Financing, insurance and 1,425 925 589 1,135 1,065business servicesGovernments - 2,323 1,976 66 101Mining and quarrying 24 11 8 19 140Manufacturing 1,223 302 344 1,702 2,955Commercial real estate 1,194 834 3 797 555Transport, storage and 320 235 240 80 304communicationOther 50 85 49 750 11Wholesale Banking 6,645 5,722 3,654 4,902 6,187Portfolio impairment (57) (26) (30) (68) (107)provisionTotal loans and advances 21,584 12,541 7,613 36,037 11,210to customersTotal loans and advances 5,688 2,431 173 3,222 2,213to banks 31.12.05 Middle Americas East & UK & Group Other Head India S Asia Africa Office Total $million $million $million $million $millionLoans to individuals Mortgages 1,469 132 88 152 44,071 Other 947 2,001 525 158 14,590Small and medium enterprises 332 78 107 - 9,491Consumer Banking 2,748 2,211 720 310 68,152Agriculture, forestry and fishing 17 25 183 234 646Construction 139 223 41 6 713Commerce 392 1,324 420 819 7,077Electricity, gas and water 49 180 12 664 1,562Financing, insurance and 502 1,235 168 1,842 8,886business services Governments - 70 7 331 4,874Mining and quarrying 10 185 75 656 1,128Manufacturing 1,019 1,210 402 2,186 11,343Commercial real estate 61 5 13 18 3,480Transport, storage and 108 452 174 1,477 3,390communicationOther 5 257 46 40 1,293Wholesale Banking 2,302 5,166 1,541 8,273 44,392Portfolio impairment (33) (29) (10) (7) (367)provisionTotal loans and advances 5,017 7,348 2,251 8,576 112,177to customersTotal loans and advances 238 1,255 313 7,426 22,959to banks Total loans and advances to customers include $386 million held at fair valuethrough profit or loss. Total loans and advances to banks include $1,258million held at fair value through profit or loss account. RISK CONTINUED Maturity analysis Approximately 49 per cent of the Group's loans and advances are short termhaving a contractual maturity of one year or less. The Wholesale Bankingportfolio is predominately short term, with 79 per cent of loans and advanceshaving a contractual maturity of one year or less. In Consumer Banking, 64 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. 30.06.06 One to Over One year five five or less years years Total $million $million $million $millionConsumer BankingMortgages 3,513 9,201 31,325 44,039Other 8,527 5,882 1,007 15,416SME 5,827 2,038 1,744 9,609Total 17,867 17,121 34,076 69,064Wholesale Banking 40,942 7,443 3,150 51,535Portfolio impairment provision (454)Loans and advances to customers 58,809 24,564 37,226 120,145 30.06.05 One to Over One year five five or less years years Total $million $million $million $millionConsumer BankingMortgages 5,016 10,432 25,555 41,003Other 7,259 5,079 1,838 14,176SME 6,117 415 1,799 8,331Total 18,392 15,926 29,192 63,510Wholesale Banking 32,898 7,572 3,715 44,185Portfolio impairment provision (314)Loans and advances to customers 51,290 23,498 32,907 107,381 31.12.05 One to Over One year five five or less years years Total $million $million $million $millionConsumer BankingMortgages 4,756 9,598 29,717 44,071Other 8,352 4,666 1,572 14,590SME 5,883 1,687 1,921 9,491Total 18,991 15,951 33,210 68,152Wholesale Banking 33,450 7,246 3,696 44,392Portfolio impairment provision (367)Loans and advances to customers 52,441 23,197 36,906 112,177 RISK continued Problem Credit Management and Provisioning Consumer Banking An account is considered to be in default when payment is not received on thedue date. Accounts that are overdue by more than 30 days (60 days for mortgages)are considered delinquent. These accounts are closely monitored and subject to aspecial collections process. Accounts that are overdue by more than 90 days areconsidered non-performing. For mortgages those accounts more than 150 days pastdue are considered non-performing. The process used for raising provisions is dependant on the product. Formortgages, individual provisions are generally raised at 150 days past due, andfor other secured products at 90 days past due, based on the difference betweenthe outstanding amount of the loan and the present value of the estimated futurecash flows. For unsecured products individual provisions are raised, and loansare charged off at 150 days past due. A portfolio impairment provision is held to cover the inherent risk of losses,which, although not identified individually, are known by experience to bepresent in the loan portfolio including performing loans and loans overdue. Theprovision is set with reference to past experience using flow rate methodologyas well as taking account of judgemental factors such as the economic andbusiness environment in our core markets, and the trends in a range of portfolioindicators. The cover ratio reflects the extent that the gross non-performing loans arecovered by the individual and portfolio impairment provisions. The balance ofnon-performing loans not covered by impairment provisions reflects the level ofcollateral held and/or the estimated net value of any recoveries. The following tables set out the total non-performing portfolio in ConsumerBanking: 30.06.06 Asia Pacific Other Hong Asia Kong Singapore Malaysia Korea Pacific $million $million $million $million $millionLoans and advances 102 113 186 683 157Gross non-performing Individual impairment provision (27) (33) (67) (287) (94)Non-performing loans net of 75 80 119 396 63individual impairment provisionPortfolio impairment provisionNet non-performing loansand advancesCover ratio 30.06.06 Middle Americas East & UK & Group Other Head India S Asia Africa Office Total $million $million $million $million $millionLoans and advances 48 26 17 20 1,352Gross non-performingIndividual impairment provision (14) (18) (11) - (551)Non-performing loans net of 34 8 6 20 801individual impairment provisionPortfolio impairment provision (362)Net non-performing loans 439and advancesCover ratio 68% 30.06.05* Asia Pacific Other Hong Asia Kong Singapore Malaysia Korea Pacific $million $million $million $million $millionLoans and advances 69 124 162 868 63Gross non-performingIndividual impairment provision (28) (29) (61) (302) (24)Non-performing loans net of 41 95 101 566 39individual impairment provisionPortfolio impairment provisionNet non-performing loansand advancesCover ratio 30.06.05* Middle Americas East & UK & Group Other Head India S Asia Africa Office Total $million $million $million $million $millionLoans and advances 42 37 16 31 1,412Gross non-performingIndividual impairment provision (12) (29) (7) (5) (497)Non-performing loans net of 30 8 9 26 915individual impairment provisionPortfolio impairment provision (222)Net non-performing loans 693and advancesCover ratio 51% * The balance sheet as at 30 June 2005 has been restated to reflect therevised fair values of assets and liabilities acquired on the acquisition ofSCFB. RISK CONTINUED 31.12.05* Asia Pacific Other Hong Asia Kong Singapore Malaysia Korea Pacific $million $million $million $million $millionLoans and advances 81 117 171 856 101Gross non-performingIndividual impairment provision (22) (31) (63) (310) (61)Non-performing loans net of 59 86 108 546 40individual impairment provisionPortfolio impairment provisionNet non-performing loansand advancesCover ratio 31.12.05* Middle Americas East & UK & Group Other Head India S Asia Africa Office Total $million $million $million $million $millionLoans and advances 53 22 17 29 1,447Gross non-performingIndividual impairment provision (13) (16) (9) (3) (528)Non-performing loans net of 40 6 8 26 919individual impairment provisionPortfolio impairment provision (278)Net non-performing loans 641and advancesCover ratio 56% * The balance sheet as at 30 June 2005 has been restated to reflect the revisedfair values of assets and liabilities acquired on the acquisition of SCFB Wholesale Banking In Wholesale Banking, accounts or portfolios are placed on Early Alert when theydisplay signs of weakness. Such accounts and portfolios are subject to adedicated process with oversight involving senior Risk Officers and GroupSpecial Assets Management (GSAM). Account plans are re-evaluated and remedialactions are agreed and monitored until complete. Remedial actions include, butare not limited to, exposure reduction, security enhancement, exit of theaccount or immediate movement of the account into the control of GSAM, thespecialist recovery unit. Loans are designated as impaired and considered non-performing as soon aspayment of interest or principal is 90 days or more overdue or where recognisedweakness implies that full payment of either interest or principal isquestionable. Impaired accounts are managed by GSAM, which is independent of themain businesses of the Group. Where the principal, or a portion thereof, isconsidered uncollectible, an individual impairment provision is raised being thedifference between the loan carrying amount and the present value of estimatedfuture cash flows arising from the loan, including the value of any realisablecollateral. In any decision relating to the raising of provisions, the Groupattempts to balance economic conditions, local knowledge and experience, and theresults of independent asset reviews. Where it is considered that there is no realistic prospect of recovering anelement of an account against which an impairment provision has been raised,then that amount will be written off. A portfolio impairment provision is held to cover the inherent risk of losses,which, although not identified, are known by experience to be present in anyloan portfolio. The provision is not held to cover losses arising from futureevents. In Wholesale Banking, the portfolio impairment provision is set withreference to past experience using expected loss and judgemental factors such asthe economic environment and the trends in key portfolio indicators. The cover ratio reflects the extent to which the gross non-performing loans arecovered by the individual and portfolio impairment provisions. At 79 per cent,the Wholesale Banking non-performing portfolio is well covered. The balanceuncovered by impairment provision represents the value of collateral held and/orthe Group's estimate of the net value of any work-out strategy. The following tables set out the total non-performing portfolio in WholesaleBanking: 30.06.06 Asia Pacific Other Hong Asia Kong Singapore Malaysia Korea Pacific $million $million $million $million $millionLoans and advances 295 113 32 125 117Gross non-performingIndividual Impairment provision (176) (85) (31) (45) (104)Non-performing loans and 119 28 1 80 13advances net of individual impairmentprovisionPortfolio impairment provisionNet non-performing loans and advancesCover ratio 30.06.06 Middle Americas East & UK & Group Other Head India S Asia Africa Office Total $million $million $million $million $millionLoans and advances 28 45 97 219 1,071Gross non-performingIndividual Impairment provision (23) (30) (57) (204) (755)Non-performing loans and 5 15 40 15 316advances net of individual impairmentprovisionPortfolio impairment provision (93)Net non-performing loans and advances 223Cover ratio 79% RISK CONTINUED 30.06.05 Asia Pacific Other Hong Asia Kong Singapore Malaysia Korea Pacific $million $million $million $million $millionLoans and advances 356 135 50 150 165Gross non-performingIndividual Impairment provision (300) (116) (47) (50) (148)Non-performing loans and 56 19 3 100 17advances net of individual impairmentprovisionPortfolio impairment provisionNet non-performing loans and advancesCover ratio 30.06.05 Middle Americas East & UK & Group Other Head India S Asia Africa Office Total $million $million $million $million $millionLoans and advances 79 96 85 489 1,605Gross non-performingIndividual Impairment provision (32) (84) (50) (407) (1,234)Non-performing loans and 47 12 35 82 371advances net of individual impairmentprovisionPortfolio impairment provision (92)Net non-performing loans and advances 279Cover ratio 83% 31.12.05 Asia Pacific Other Hong Asia Kong Singapore Malaysia Korea Pacific $million $million $million $million $millionLoans and advances 355 125 36 156 133Gross non-performingIndividual Impairment provision (257) (109) (33) (51) (118)Non-performing loans and 98 16 3 105 15advances net of individual impairmentprovisionPortfolio impairment provisionNet non-performing loans and advancesCover ratio 31.12.05 Middle Americas East & UK & Group Other Head India S Asia Africa Office Total $million $million $million $million $millionLoans and advances 83 60 89 210 1,247Gross non-performingIndividual Impairment provision (27) (48) (51) (164) (858)Non-performing loans and 56 12 38 46 389advances net of individual impairmentprovisionPortfolio impairment provision (90)Net non-performing loans and advances 299Cover ratio 76% RISK CONTINUED Movement in Group Individual Impairment Provision The following tables set out the movements in the Group's total individualimpairment provisions against loans and advances: 30.06.06 Asia Pacific Other Hong Asia Kong Singapore Malaysia Korea Pacific $million $million $million $million $millionProvisions held at 279 140 96 361 1791 January 2006Exchange translation differences - 5 3 23 6Amounts written off (37) (51) (24) (63) (185)Recoveries of amounts previously 30 4 6 - 9written offDiscount unwind (2) (1) (2) (18) -Other (63) - - - -New provisions 59 36 49 48 203Recoveries/provisions (63) (15) (30) (19) (14)no longer requiredNet charge against/(credit) to profit (4) 21 19 29 189Provisions held at 203 118 98 332 19830 June 2006 30.06.06 Middle Americas East & UK & Group Other Head India S Asia Africa Office Total $million $million $million $million $millionProvisions held at 40 64 60 167 1,3861 January 2006Exchange translation differences (1) (1) (1) 6 40Amounts written off (33) (33) (6) (4) (436)Recoveries of amounts previously 9 6 - 1 65written offDiscount unwind - - (1) (1) (25)Other 1 - - 65 3New provisions 37 27 25 2 486Recoveries/provisions (16) (15) (9) (32) (213)no longer requiredNet charge against/(credit) to profit 21 12 16 (30) 273Provisions held at 37 48 68 204 1,30630 June 2006 30.06.05 Asia Pacific Other Hong Asia Kong Singapore Malaysia Korea Pacific $million $million $million $million $millionProvisions held at 294 119 127 1 3191 January 2005Exchange translation differences 2 (4) - (3) (7)Amounts written off (48) (9) (36) (17) (134)Recoveries of amounts previously 17 3 5 - 16written offAcquisitions - - - 352 -Discount unwind (3) (2) (2) (9) (2)Other - - 4 - (4)New provisions 92 56 26 31 72Recoveries/provisions (26) (18) (16) (3) (88)no longer requiredNet charge against/(credit) to profit 66 38 10 28 (16)Provisions held at 328 145 108 352 17230 June 2005 30.06.05 Middle Americas East & UK & Group Other Head India S Asia Africa Office Total $million $million $million $million $millionProvisions held at 43 125 64 457 1,5491 January 2005Exchange translation differences - (2) (4) (6) (24)Amounts written off (30) (27) (21) (30) (352)Recoveries of amounts previously 11 6 2 5 65written offAcquisitions - - - - 352Discount unwind - 1 (3) (3) (23)Other - - - - -New provisions 57 25 28 2 389Recoveries/provisions (37) (15) (9) (13) (225)no longer requiredNet charge against/(credit) to profit 20 10 19 (11) 164Provisions held at 44 113 57 412 1,73130 June 2005 RISK CONTINUED 31.12.05 Asia Pacific Other Hong Asia Kong Singapore Malaysia Korea Pacific $million $million $million $million $millionProvisions held at 328 145 108 352 1721 July 2005 Exchange translation differences (9) 2 1 7 (1)Amounts written off (108) (21) (22) (4) (70)Recoveries of amounts previously 32 3 6 5 20written offDiscount unwind - (1) (2) (19) -Other 1 - (4) - 23New provisions 73 36 36 26 81Recoveries/provisions (38) (24) (27) (6) (46)no longer requiredNet charge against/(credit) to profit 35 12 9 20 35Provisions held at 279 140 96 361 17931 December 2005 31.12.05 Middle Americas East & UK & Group Other Head India S Asia Africa Office Total $million $million $million $million $millionProvisions held at 44 113 57 412 1,7311 July 2005Exchange translation differences (1) 7 - (7) (1)Amounts written off (36) (43) (22) (193) (519)Recoveries of amounts previously 10 8 2 2 88written offDiscount unwind (1) (1) 1 (2) (25)Other (1) 1 (2) 3 21New provisions 48 23 32 10 365Recoveries/provisions (23) (44) (8) (58) (274)no longer requiredNet charge against/(credit) to profit 25 (21) 24 (48) 91Provisions held at 40 64 60 167 1,38631 December 2005 Country Risk Country Risk is the risk that a counterparty is unable to meet its contractualobligations as a result of adverse economic conditions or actions taken bygovernments in the relevant country. The GRC approves country risk. The setting and management of country limits isdelegated to the Group Head, Credit and Country Risk. The business and Country Chief Executive Officers manage exposures within theselimits and policies. Countries designated as higher risk are subject toincreased central monitoring. Cross border assets comprise loans and advances,interest bearing deposits with other banks, trade and other bills, acceptances,amounts receivable under finance leases, certificates of deposit, and othernegotiable paper and investment securities, where the counterparty is residentin a country other than that where the cross border assets are recorded. Crossborder assets also include exposures to local residents denominated incurrencies other than the local currency. RISK continued The following table, based on the Bank of England Cross Border Reporting (CE)guidelines, shows the Group's cross border assets including acceptances wherethey exceed one per cent of the Group's total assets. 30.06.06 30.06.05 Public Public sector Banks Other Total sector Banks Other Total $million $million $million $million $million $million $million $million Korea 14 1,500 2,854 4,368 15 1,644 2,228 3,887Hong Kong 1 480 3,846 4,327 2 218 2,731 2,951USA 881 540 2,673 4,094 1,676 830 2,637 5,143Australia - 2,667 259 2,926 1 1,806 129 1,936France 137 2,530 214 2,881 164 2,032 194 2,390Singapore - 716 2,132 2,848 1 173 2,075 2,249India 2 1,028 1,652 2,682 49 885 1,252 2,186China 57 1,073 1,322 2,452 41 903 1,233 2,177 31.12.05 Public sector Banks Other Total $million $million $million $million Korea 13 1,476 2,006 3,495Hong Kong 1 311 2,776 3,088USA 1,227 555 2,505 4,287Australia - 1,587 242 1,829France 159 2,550 155 2,864Singapore - 326 1,945 2,271India 1 949 1,456 2,406China 63 982 1,405 2,450 RISK CONTINUED Market Risk The Group recognises market risk as the exposure created by potential changes inmarket prices and rates. The Group is exposed to market risk arising principallyfrom customer driven transactions. Market Risk is governed by the GRC, which agrees policies and levels of riskappetite in terms of Value at Risk (VaR). The Group Market Risk Committee (GMRC)provides market risk oversight and guidance on policy setting. Policies coverthe trading book of the Group and also market risks within the banking book.Trading and banking books are defined as per the Financial Services Authority(FSA) Handbook IPRU (Bank). Limits by location and portfolio are proposed by thebusinesses within the terms of agreed policy. Group Market Risk (GMR) approvesthe limits within delegated authorities and monitors exposures against theselimits. GMR complements the VaR measurement by regularly stress testing market riskexposures to highlight potential risk that may arise from extreme market eventsthat are rare but plausible. Stress testing is an integral part of the market risk management framework andconsiders both historical market events and forward looking scenarios. Ad hocscenarios are also prepared in response to particular market conditions. Aconsistent stress testing approach is applied to trading and banking books. Stress scenarios are regularly updated to reflect changes in risk profile andeconomic events. GMRC has responsibility for reviewing stress exposures and,where necessary, enforcing reductions in overall market risk exposure. GRCconsiders stress testing as part of its oversight of risk appetite. The stress test methodology assumes that management action would be limitedduring a stress event, reflecting the decrease in liquidity that often occurs. VaR models are back tested against actual results to ensure pre-determinedlevels of accuracy are maintained. Additional limits are placed on specific instruments and currency concentrationswhere appropriate. Sensitivity measures are used in addition to VaR as riskmanagement tools. Option risks are controlled through revaluation limits oncurrency and volatility shifts, limits on volatility risk by currency pair andother underlying variables that determine the options' value. Value at Risk The Group uses historical simulation to measure VaR on all market risk relatedactivities. The total VaR for trading and banking books combined at 30 June 2006 was $9.7million (30 June 2005: $12.9 million, 31 December 2005: $10.8 million). Interest rate related VaR for trading and banking books was $9.2 million (30June 2005: $14.0 million, 31 December 2005: $10.3 million) and foreign exchangerelated VaR was $2.9 million (30 June 2005: $1.4 million, 31 December 2005: $1.1million). The average total VaR for trading and banking books during the period to 30 June2006 was $10.7 million (30 June 2005: $14.3 million, 31 December 2005: $12.4million) with a maximum exposure of $12.7 million. VaR for interest rate risk in the banking books of the Group totalled $8.4million at 30 June 2006 (30 June 2005: $10.8 million, 31 December 2005: $9.2million). The Group has no significant trading exposure to equity or commodity price risk. The average daily income earned from market risk related activities was $5.5million, compared with $4.1 million during the period to 30 June 2005 and $4.5million in the period to 31 December 2005. FOREIGN EXCHANGE EXPOSURE The Group's foreign exchange exposures comprise trading and banking foreigncurrency translation exposures and structural currency exposures in netinvestments in non-US dollar units. Foreign exchange trading exposures are principally derived from customer driventransactions. The average daily income from foreign exchange trading businessesduring the period was $2.6 million (30 June 2005: $2.1 million, 31 December $2.0million). INTEREST RATE EXPOSURE The Group's interest rate exposures comprise trading exposures and non-tradinginterest rate exposures. Structural interest rate risk arises from the differingre-pricing characteristics of commercial banking assets and liabilities. Theaverage daily income from interest rate trading businesses during the period was$2.9 million (30 June 2005: $2.4 million, 31 December 2005: $2.1 million). DERIVATIVES Derivatives are contracts whose characteristics and value derive from underlyingfinancial instruments, interest and exchange rates or indices. They includefutures, forwards, swaps and options transactions in the foreign exchange,credit and interest rate markets. Derivatives are an important risk managementtool for banks and their customers because they can be used to manage the riskof price, interest rate and exchange rate movements. The Group's derivative transactions are principally in instruments where themark-to-market values are readily determinable by reference to independentprices and valuation quotes or by using standard industry pricing models. The Group enters into derivative contracts in the normal course of business tomeet customer requirements and to manage its own exposure to fluctuations ininterest, credit and exchange rates. Derivatives are carried at fair value and shown in the balance sheet as separatetotals of assets and liabilities. Recognition of fair value gains and lossesdepends on whether the derivatives are classified as trading or for hedgingpurposes. The Group applies a future exposure methodology to manage counterparty creditexposure associated with derivative transactions. RISK CONTINUED Hedging In accounting terms, hedges are classified into three typical types: fair valuehedges, where fixed rates of interest or foreign exchange are exchanged forfloating rates; cash flow hedges, where variable rates of interest or foreignexchange are exchanged for fixed rates, and hedges of net investments inoverseas operations translated to the parent company's functional currency, USdollars. The Group uses futures, forwards, swaps and options transactions in theforeign exchange and interest rate markets to hedge risk. The Group may hedge the value of its foreign currency denominated investments insubsidiaries and branches where it considers there is a risk of a significantexchange rate movement. In general, however, management believes that theGroup's reserves are sufficient to absorb any foreseeable adverse currencydepreciation. The effect of exchange rate movements on the capital risk asset ratio ismitigated by the fact that both the net asset value of these investments and therisk weighted value of assets and contingent liabilities follow substantiallythe same exchange rate movements. Liquidity Risk The Group defines liquidity risk as the risk that the bank either does not havesufficient financial resources available to meet all its obligations andcommitments as they fall due, or can access them only at excessive cost. It is the policy of the Group to maintain adequate liquidity at all times, inall geographical locations and for all currencies. Hence the Group aims to be ina position to meet all obligations, to repay depositors, to fulfil commitmentsto lend and to meet any other commitments made as they fall due. Liquidity risk management is governed by GALCO, which is chaired by the GroupFinance Director. GALCO is responsible for both statutory and prudentialliquidity. These responsibilities are managed through the provision ofauthorities, policies and procedures that are co-ordinated by the LiquidityManagement Committee with regional and country Asset and Liability Committees(ALCOs). Due to the diversified nature of the Group's business, the Group's policy isthat liquidity is more effectively managed in-country. Each Country ALCO isresponsible for ensuring that the country is self-sufficient and is able to meetall its obligations to make payments as they fall due. The Country ALCO hasprimary responsibility for compliance with regulations and Group policy, and formaintaining a Country Liquidity Crisis Contingency Plan. A substantial portion of the Group's assets are funded by customer deposits madeup of current and savings accounts and other deposits. These customer deposits,which are widely diversified by type and maturity, represent a stable source offunds. Lending is normally funded by liabilities in the same currency. The Group also maintains significant levels of marketable securities, either forcompliance with local statutory requirements or as prudential investments ofsurplus funds. The GALCO also oversees the structural foreign exchange and interest rateexposures that arise within the Group. These responsibilities are managedthrough the provision of authorities, policies and procedures that areco-ordinated by the Capital Management Committee. Policies and guidelines forthe maintenance of capital ratio levels are approved by GALCO. Compliance withGroup ratios is monitored centrally by Group Corporate Treasury, while localrequirements are monitored by the local ALCO. Policies and guidelines for the setting and maintenance of capital ratio levelsare also delegated by GALCO. Group ratios are monitored centrally by GroupCorporate Treasury, while local requirements are monitored by the local ALCO. Operational Risk Operational risk is the risk of direct or indirect loss due to an event oraction resulting from the failure of technology, processes, infrastructure,personnel and other risks having an operational impact. The Group seeks toensure that key operational risks are managed in a timely and effective mannerthrough a framework of policies, procedures and tools to identify, assess,monitor, control, and report such risks. The Group Operational Risk Committee (GORC) has been established to superviseand direct the management of operational risks across the Group. GORC is alsoresponsible for ensuring adequate and appropriate policies and procedures are inplace for the identification, assessment, monitoring, control and reporting ofoperational risks. A separate Group operational risk function is responsible for establishing andmaintaining the overall operational risk framework, and for monitoring theGroup's key operational risk exposures. This unit is supported by WholesaleBanking and Consumer Banking Operational Risk units. These units are responsiblefor ensuring compliance with policies and procedures in the business, monitoringkey operational risk exposures, and for the provision of guidance to therespective business areas on operational risk. Compliance with operational risk policies and procedures is the responsibilityof all managers. Every country operates a Country Operational Risk Group (CORG).The CORG has in-country governance responsibility for ensuring that anappropriate and robust risk management framework is in place to monitor andmanage operational risk. Compliance and Regulatory Risk Compliance and Regulatory risk includes the risk of non-compliance withregulatory requirements in a country in which the Group operates. The GroupCompliance and Regulatory Risk function is responsible for establishing andmaintaining an appropriate framework of Group compliance policies andprocedures. Compliance with such policies and procedures is the responsibilityof all managers. Legal Risk Legal risk is the risk of unexpected loss, including reputational loss, arisingfrom defective transactions or contracts, claims being made or some other eventresulting in a liability or other loss for the Group, failure to protect thetitle to and ability to control the rights to assets of the Group (includingintellectual property rights), changes in the law, or jurisdictional risk. TheGroup manages legal risk through the Group Legal Risk Committee, Legal Riskpolicies and procedures and effective use of its internal and external lawyers. RISK CONTINUED Reputational Risk Reputational Risk is the risk of failing to meet the standards of performance orbehaviour required or expected by stakeholders in commercial activities or theway in which business is conducted. Reputational Risks arise as a result of poormanagement of issues occurring in one or more of the primary banking risk areas(Credit, Market, Operational risk areas) and/or from Social, Ethical orEnvironmental Risk issues. All members of staff have a responsibility formaintaining the Group's reputation. From an organisational perspective, the Group manages reputational risk througha combination of Country Management Committees and the Group Reputational RiskCommittee. Wholesale Banking has a specialised Reputational Risk Committee whichreviews individual transactions. In Consumer Banking, potential reputationalrisks resulting from transactions or products are reviewed by the Product andReputational Risk Committee. A critical element of the role of the Group Reputational Risk Committee is toact as a radar for the Group in relation to the identification of emerging orthematic risks. At a country level, the Country Chief Executive Officer (CEO) is responsible forthe Group's reputation in their market. The Country CEO and their ManagementCommittee must actively: • Promote awareness and application of the Group's policy and procedures regarding Reputational Risk; • Encourage business and functions to take account of the Group's reputation in all decision-making, including dealings with customers and suppliers; • Implement effective functioning of the in-country reporting system to ensure their management committee is alerted of all potential issues; and • Promote effective, proactive stakeholder management. Independent Monitoring Group Internal Audit is a separate Group function that reports to the ARC andthe Group Chief Executive. Group Internal Audit provides independentconfirmation that Group and business standards, policies and procedures arebeing complied with. Where necessary, corrective action is recommended. CAPITAL The Group Asset and Liability Committee targets Tier 1 and Total capital ratiosof 7-9 per cent and 12-14 per cent respectively. 30.06.06 *30.06.05 31.12.05 $million $million $million Tier 1 capital:Called up ordinary share capital and preference shares 6,067 5,964 5,982Eligible reserves 7,510 5,466 6,151Minority interests 165 84 115Innovative Tier 1 securities 2,186 1,458 1,542Less: Restriction on innovative Tier 1 securities (492) (125) (83)Goodwill and other intangible assets (4,459) (4,233) (4,321)Unconsolidated associated companies 226 180 186Other regulatory adjustments 90 95 153Total Tier 1 capital 11,293 8,889 9,725Tier 2 capital:Eligible revaluation reserves 191 94 195Portfolio impairment provision 455 314 368Qualifying subordinated liabilities: Perpetual subordinated debt 3,260 2,618 3,128 Other eligible subordinated debt 4,325 4,027 4,169Less: Amortisation of qualifying subordinated liabilities (496) (237) (229)Restricted innovative Tier 1 securities 492 125 83Total Tier 2 capital 8,227 6,941 7,714Investments in other banks (149) (24) (148)Other deductions (207) (86) (173)Total capital base 19,164 15,720 17,118Banking book:Risk weighted assets 104,466 95,856 99,378Risk weighted contingents 21,477 16,576 16,274 125,943 112,432 115,652Trading book:Market risk 4,249 6,091 6,701Counterparty/settlement risk 4,906 3,008 3,571Total risk weighted assets and contingents 135,098 121,531 125,924Capital ratios:Tier 1 capital 8.4% 7.3% 7.7%Total capital 14.2% 12.9% 13.6% * The balance sheet as at 30 June 2005 has been restated to reflect therevised fair values of assets and liabilities acquired on the acquisition ofSCFB. Notes 6 months 6 months 6 months ended ended ended 30.06.06 30.06.05 31.12.05 $million $million $millionInterest income 5,970 3,678 5,072Interest expense (3,460) (1,706) (2,709)Net interest income 2,510 1,972 2,363Fees and commission income 1,103 868 972Fees and commission expense (209) (141) (204)Net trading income 531 409 360Other operating income 177 128 134 1,602 1,264 1,262Operating income 4,112 3,236 3,625Staff costs (1,381) (990) (1,155)Premises costs (206) (181) (182)General administrative expenses (519) (417) (603)Depreciation and amortisation (119) (120) (163)Operating expenses (2,225) (1,708) (2,103)Operating profit before impairment losses and taxation 1,887 1,528 1,522Impairment losses on loans and advances and (349) (194) (125)other credit risk provisionsOther impairment (8) (1) (49)Loss from associates (3) - -Profit before taxation 1,527 1,333 1,348Taxation 2 (395) (367) (343)Profit for the period 1,132 966 1,005 Profit attributable to:Minority interests 29 (5) 30Parent company's shareholders 1,103 971 975Profit for the period 1,132 966 1,005 Earnings per share:Basic earnings per ordinary share 4 82.8c 74.7c 74.0cDiluted earnings per ordinary share 4 82.2c 73.2c 73.5c Dividends per ordinary share:Interim dividend declared 3 20.83c - -Interim dividend paid - 18.94c -Final dividend paid - - 45.06cTotal interim dividend payable $274m - -Total interim dividend paid - $248m -Total final dividend paid - - $595m 30.06.06 *30.06.05 31.12.05 $million $million $millionAssetsCash and balances at central banks 11,813 5,667 8,012Financial assets held at fair value through profit or loss 13,082 8,459 10,333Derivative financial instruments 12,721 10,704 9,370Loans and advances to banks 16,750 19,874 21,701Loans and advances to customers 119,550 106,510 111,791Investment securities 46,037 38,334 37,863Interests in associates 206 - 128Goodwill and intangible assets 4,459 4,359 4,321Property, plant and equipment 1,767 1,615 1,644Deferred tax assets 492 392 498Other assets 7,653 6,820 7,163Prepayments and accrued income 3,618 1,909 2,272Total assets 238,148 204,643 215,096 LiabilitiesDeposits by banks 21,994 20,958 18,834Customer accounts 130,176 107,056 119,931Financial liabilities at fair value through profit or loss 8,420 5,820 6,293Derivative financial instruments 13,390 10,388 9,864Debt securities in issue 24,953 26,761 25,913Current tax liabilities 410 275 283Other liabilities 11,198 9,844 8,446Accruals and deferred income 2,430 1,854 2,319Provisions for liabilities and charges 56 81 55Retirement benefit obligations 466 535 476Subordinated liabilities and other borrowed funds 10,805 8,537 10,349Total liabilities 224,298 192,109 202,763 EquityShare capital and share premium 5,720 5,614 5,638Reserves and retained earnings 7,630 5,609 6,244Total parent company shareholders' equity 13,350 11,223 11,882Minority interests 500 1,311 451Total equity 13,850 12,534 12,333Total equity and liabilities 238,148 204,643 215,096 * The balance sheet as at 30 June 2005 has been restated to reflect therevised fair values of assets and liabilities acquired on the acquisition ofSCFB and the re-presentation of balances to conform with that used as at 31December 2005; specifically, financial assets and liabilities held at fairvalue, other than derivatives, have been presented in single lines under assetsand liabilities (see note 6). 6 months 6 months 6 months ended ended ended 30.06.06 30.06.05 31.12.05 $million $million $millionExchange differences on translation of foreign operations 364 (71) (19)Actuarial gains/(losses) on retirement benefits 68 (36) (114)Available-for-sale investments: Valuation gains/(losses) taken to equity 134 12 (5) Transferred to income on disposal/redemption (52) (74) (33)Cash flow hedges: Gains/(losses) taken to equity 45 (28) (37) Losses/(gains) transferred to income for the period 6 (19) (1)Deferred tax on items recognised directly in equity (56) 37 104Other 3 (37) 38 512 (216) (67)Profit for the period 1,132 966 1,005Total recognised income and expenses for the period 1,644 750 938 Effect of change in accounting policyEffect of adopting IAS 32 and 39 on 1 January 2005: Available-for-sale reserve 73 Cash flow hedge reserve 42 Retained earnings 36 151 901 Attributable to:Parent company shareholders 1,615 906 908Minority interests 29 (5) 30 1,644 901 938 6 months 6 months 6 months ended ended ended 30.06.06 *30.06.05 31.12.05 $million $million $millionCash flow from operating activitiesProfit before taxation 1,527 1,333 1,348 Adjustment for items not involving cash flow or shown separately Depreciation and amortisation of property, plant and equipment, and 119 120 163intangibles Gain on disposal of property plant and equipment (2) (1) 2 Gain on disposal of investment securities (52) (74) (33) Amortisation of investments (21) 55 (38) Impairment losses 349 194 125 Other impairment 8 1 49 Assets written off, net of recoveries (371) (287) (431) Increase in accruals and deferred income 47 577 375 Increase in prepayments and accrued income (1,282) (918) (330) Net increase in mark-to-market adjustment 152 341 598 Interest paid on subordinated loan capital 285 165 223 UK and overseas taxes paid (369) (278) (333) Net increase in treasury bills and other eligible bills (460) (170) (516) Net increase in loans and advances to banks and customers (4,328) (3,944) (1,786) Net increase in deposits from banks, customer accounts and debt securities 10,019 8,633 10,363in issue Net increase in trading securities (2,127) (361) (1,133) Net decrease in other accounts (254) (2,486) (1,496)Net cash from operating activities 3,240 2,900 7,150Net cash flows from investing activities Purchase of property plant and equipment (112) (37) (98) Acquisition of investment in subsidiaries, net of cash acquired - (1,093) - Acquisition of treasury bills and other eligible bills (12,201) (7,552) (5,891) Acquisition of debt securities (24,471) (16,573) (17,082) Acquisition of equity shares (109) (450) (208) Disposal of property plant and equipment 1 - 8 Disposal and maturity of treasury bills 10,853 5,625 6,974 Disposal and maturity of debt securities 18,872 19,497 16,251 Disposal of equity shares 46 95 256Net cash (used in)/from investing activities (7,121) (488) 210Net cash (outflow)/inflow from financing activities Issue of ordinary share capital 3 1,975 25 Purchase of own shares, net of exercise, for share option awards 96 (167) 94 Interest paid on subordinated loan capital (374) (206) (91) Gross proceeds from issue of subordinated loan capital 550 3,362 512 Repayment of subordinated liabilities (340) (731) (295) Dividends and payments to minority interests and preference shareholders (43) (104) (69) Dividends paid to ordinary shareholders (343) (474) (211)Net cash (used in)/from financing activities (451) 3,655 (35)Net (decrease)/increase in cash and cash equivalents (4,332) 6,067 7,325 Cash and cash equivalents at beginning of period 35,226 22,112 27,810 Effect of exchange rate changes on cash and cash equivalents 493 (369) 91Cash and cash equivalents at end of period (note 5) 31,387 27,810 35,226 * Restated to reflect the revised fair values of assets and liabilitiesacquired on the acquisition of SCFB and the re-presentation of balances toconform with that used as at 31 December 2005 (see note 6). 1. BASIS OF PREPARATION The Group condensed interim financial statements consolidate those of theCompany and its subsidiaries (together referred to as the "Group"), equityaccount the Group's interest in associates and proportionately consolidateinterests in jointly controlled entities. These condensed consolidated interim financial statements have been prepared inaccordance with IAS 34 Interim Financial Reporting as adopted by the EU. They donot include all of the information required for full annual financialstatements, and should be read in conjunction with the consolidated financialstatements of the Group as at and for the year ended 31 December 2005. These condensed consolidated interim financial statements were approved by theBoard of Directors on 8 August 2006. Except as noted below, the accounting polices applied by the Group in thesecondensed consolidated interim financial statements are the same as thoseapplied by the Group in its consolidated financial statements as at and for theyear ended 31 December 2005. On 1 January 2006 the Group retrospectively adopted: Amendments to IAS 39 and IFRS 4 - Financial Guarantee Contracts; and IFRIC Interpretation 4, 'Determining whether an arrangement contains a lease'neither of which had a material impact on the Group's consolidated financialstatements. The preparation of interim financial statements requires management to makejudgements, estimates and assumptions that affect the application of accountingpolicies and the reported amounts of assets and liabilities, income and expense.Actual results may differ from these estimates. The significant judgements made by management in applying the Group's accountingpolices and key sources of uncertainty were the same as those that applied tothe consolidated financial statements as at and for the year ended 31 December2005. The balance sheet as at 30 June 2005 has been restated as explained in note 6,to reflect the revised fair values of assets and liabilities acquired on theacquisition of SCFB and the re-presentation of balances to conform with thatused as at 31 December 2005. 2. TAXATION Analysis of taxation charge in the period: 6 months 6 months 6 months ended ended ended 30.06.06 30.06.05 31.12.05 $million $million $millionThe charge for taxation based upon the profits for the period comprises:United Kingdom corporation tax at 30% (30 June 2005, 31 December 2005: 30%): Current tax on income for the period 93 158 168 Adjustments in respect of prior periods (114) - 4 Double taxation relief (88) (150) (158)Foreign tax: Current tax on income for the period 505 314 357 Adjustments in respect of prior periods 41 (8) (10)Total current tax 437 314 361Deferred tax: Origination/reversal of temporary differences (42) 53 (18)Tax on profits on ordinary activities 395 367 343Effective tax rate 25.9% 27.5% 25.5% Overseas taxation includes taxation on Hong Kong profits of $115 million (30June 2005: $78 million, 31 December 2005: $131 million) provided at a rate of17.5 per cent (30 June 2005: 17.5 per cent, 31 December 2005: 17.5 per cent) onthe profits assessable in Hong Kong. 3. DIVIDENDS Ordinary equity shares Dividends are recorded in the period in which they are declared. The 2005interim dividend of 18.94 cents per ordinary was paid to eligible shareholderson 14 October 2005 and the final dividend of 45.06 cents per ordinary share waspaid to eligible shareholders on 12 May 2006. The 2006 interim dividend of 20.83 cents per share will be paid in eithersterling, Hong Kong dollars or US dollars on 11 October 2006 to shareholders onthe UK register of members at the close of business on 18 August 2006 and toshareholders on the Hong Kong branch register of members at the opening ofbusiness in Hong Kong (9:00am Hong Kong time) on 18 August 2006. It is intended that shareholders will be able to elect to receive sharescredited as fully paid instead of all or part of the interim cash dividend.Details of the dividend arrangements will be sent to shareholders on or around 1September 2006. Preference Shares 6 months 6 months 6 months ended ended ended 30.06.06 30.06.05 31.12.05 $million $million $millionNon-cumulative irredeemable preference shares:7 3/8 per cent preference shares of £1 each* 7 7 78 1/4 per cent preference shares of £1 each* 7 7 8Non-cumulative redeemable preference shares:8.9 per cent preference shares of $5 each 15 15 14 * Instruments classified as liabilities with dividends recorded as interestexpense 4. EARNINGS PER ORDINARY SHARE 30.06.06 Profit Weighted Per $million average number share of shares amount ('000) centsBasic earnings per ordinary share 1,088 1,314,467 82.8Effect of dilutive potential ordinary shares: Convertible bonds - - Options - 9,666Diluted earnings per share 1,088 1,324,133 82.2 30.06.05 31.12.05 Profit Weighted Per Profit Weighted Per $million average number share $million average number share of shares amount of shares amount ('000) cents ('000) centsBasic earnings per 956 1,279,432 74.7 961 1,297,821 74.0ordinary shareEffect of dilutivepotential ordinary shares: Convertible bonds 7 20,578 - - Options - 15,366 - 9,418Diluted earnings per share 963 1,315,376 73.2 961 1,307,239 73.5 Normalised earnings per ordinary share The Group measures earnings per share on a normalised basis. This differs fromearnings defined in IAS 33, Earnings per share. The table below provides areconciliation. 30.06.06 30.06.05 31.12.05 $million $million $millionProfit attributable to ordinary shareholders 1,088 956 961Amortisation of intangible assets arising on business combinations 20 5 27Other impairment - 1 41Premium and costs paid on repurchase of subordinated debt 4 - -Tax on normalised items (7) - (7)Normalised earnings 1,105 962 1,022Normalised earnings per ordinary share (cents) 84.1 75.2 78.7 No ordinary shares were issued after the balance sheet date that would havesignificantly affected the number of ordinary shares used in the abovecalculations had they been issued prior to the end of the balance sheet period. 5. CASH AND CASH EQUIVALENTS For the purposes of the cash flow statement, cash and cash equivalents comprisesof the following balances with less than three months maturity from the date ofacquisition: 30.06.06 30.06.05 31.12.05 $million $million $millionCash and balances with central banks 11,813 5,667 8,012Less restricted balances (7,194) (2,769) (4,269)Treasury bills and other eligible bills 6,222 4,686 4,049Loans and advances to banks 12,627 13,719 17,590Trading securities 7,919 6,507 9,844Total 31,387 27,810 35,226 6. RESTATEMENT OF PRIOR PERIODS Acquisition of SCFB The fair values of assets and liabilities acquired on the acquisition of SCFBand presented in the 30 June 2005 interim report were provisional. The fairvalues were revised in the 2005 annual report and accounts as at 31 December2005, as required under IFRS 3 Business Combinations. The effect of thereassessed fair values was to increase goodwill by $126 million. This, togetherwith reclassifications, has been included in the 30 June 2005 balance sheet. Theeffect of the restatement is set out in the table below. Re-presentation of financial assets and liabilities held at fair value As at 30 June 2005 financial assets and liabilities held at fair value werepresented in separate balance sheet lines. In the 2005 annual report andaccounts as at 31 December 2005, these financial assets and liabilities werere-presented in separate financial asset and liability lines. Treasury bill,debt securities and equity securities were aggregated into a single line calledinvestment securities (after reclassifying those held at fair value). The effectof this re-presentation is set out in the table below. As reported at Adjustment Restated at 30.06.05 Re-presentation to SCFB 30.06.05 $million $million $million $millionCash and balances at central banks 5,667 - - 5,667Financial assets held at fair value through profit or loss - 8,459 - 8,459Treasury bills and other eligible bills 13,011 (13,011) - -Derivative financial instruments 10,704 - - 10,704Loans and advances to banks 20,955 (1,081) - 19,874Loans and advances to customers 107,929 (871) (548) 106,510Debt securities 30,877 (30,877) - -Equity shares 945 (945) - -Investment securities - 38,326 8 38,334Goodwill and intangible assets 4,233 - 126 4,359Property, plant and equipment 1,614 - 1 1,615Deferred tax assets 320 - 72 392Other assets 5,763 1,060 (3) 6,820Prepayments and accrued income 1,909 - - 1,909Total assets 203,927 1,060 (344) 204,643Deposits by banks 21,653 (695) - 20,958Customer accounts 108,770 (1,304) (410) 107,056Financial liabilities held at fair value through profit or - 5,699 121 5,820lossDerivative financial instruments 10,388 - - 10,388Debt securities in issue 27,955 (1,073) (121) 26,761Current tax liabilities 275 - - 275Other liabilities 11,222 (1,607) 229 9,844Accruals and deferred income 1,854 - - 1,854Provisions for liabilities and charges 81 - - 81Retirement benefit obligations 397 - 138 535Subordinated liabilities and other borrowed funds 8,838 - (301) 8,537Total liabilities 191,433 1,020 (344) 192,109Total equity 12,494 40 - 12,534Total equity and liabilities 203,927 1,060 (344) 204,643 Segmental analysis The Group has refined its method of charging for and allocating capital and as aconsequence the segmental results for the periods ended 30 June 2005 and 31December 2005 have been restated. There has been no effect on the Group's totalreported numbers but the effect on the business and geographic segments is setout below. 31.12.05 Consumer Wholesale Corporate Total Banking Banking items not $million $million $million allocated $millionOperating income as previously reported 2,084 1,541 - 3,625Restatement (5) 5 - -Operating income as restated 2,079 1,546 - 3,625 7. INTERIM REPORT AND STATUTORY ACCOUNTS The information in this interim statement is unaudited and does not constitutestatutory accounts within the meaning of Section 240 of the Companies Act 1985.This document was approved by the Board on 8 August 2006. The comparativefigures for the financial year end 31 December 2005 are not the Company'sstatutory accounts for that financial period. These statutory accounts havebeen reported on by the Company's auditors and delivered to the Registrar ofCompanies. The report of the auditors was unqualified and did not contain astatement under Section 237 (2) or (3) of the Companies Act 1985. This news release does not constitute the unaudited Interim financialinformation which is contained in the interim report. The unaudited Interimfinancial information has been reviewed by the Company's auditor, KPMG AuditPlc, in accordance with the guidance contained in Bulletin 1999/4: Review ofinterim financial information issued by the Auditing Practices Board. On thebasis of its review, KPMG Audit Plc is not aware of any material modificationsthat should be made to the unaudited interim financial information as presentedfor the six months ended 30 June 2006 in the interim report. The fullindependent review report is included in the interim report. 8. CORPORATE GOVERNANCE The directors confirm that, throughout the period, the Company has complied withthe provisions of Appendix 14 of the Listing Rules of the Hong Kong StockExchange. The directors also confirm that the announcement of these results hasbeen reviewed by the Company's Audit and Risk Committee 9. PURCHASE OF LISTED SECURITIES Bedell Cristin Trustees Limited is trustee of both the 1995 Employees' ShareOwnership Plan Trust (1995 trust), which is an employee benefit trust used inconjunction with some of the Group's employee share schemes, and the StandardChartered 2004 Employee Benefit Trust (2004 trust) which is an employee benefittrust used in conjunction with the Group's Deferred Bonus Plan. The trustee hasagreed to satisfy a number of awards made under the employee share schemes andthe deferred bonus plan through the relevant employee benefit trust. As part ofthese arrangements Group companies fund, from time to time, the trusts to enablethe trustee to acquire shares to satisfy these awards. For the period ended 30 June 2006, the 1995 trust has acquired, at market value,nil (30 June 2005: 11,700,000, 31 December 2005: nil) Standard Chartered PLCshares for an aggregate price of $nil million (30 June 2005: $211 million, 31December 2005: $nil million). These shares are held in a pool for the benefit ofparticipants under the Group's Restricted Share Scheme, Performance Share Planand Executive Shares Option Schemes. The purchase of these shares has been fullyfunded by the Group. At 30 June 2006, the 1995 trust held 5,104,262 (30 June2005: 19,503,732, 31 December 2005: 13,631,745) Standard Chartered PLC shares,of which 5,104,262 (30 June 2005: 16,793,958, 31 December 2005 11,521,682) havevested unconditionally. For the period ended 30 June 2006, the 2004 trust has acquired, at market value,321,242 (30 June 2005: 422,659, 31 December 2005: nil) Standard Chartered PLCshares for an aggregate price of $9 million (30 June 2005: $8 million, 31December 2005: $nil million). These shares are held in a pool for the benefitof participants under the Group's Deferred Bonus Plan. The purchase of theseshares has been fully funded by the Group. At 30 June 2006, the 2004 trust held311,575 (30 June 2005: 429,012, 31 December 2005: 409,160) Standard CharteredPLC shares, of which nil (30 June 2005: 7,333, 31 December 2005: 7,333) havevested unconditionally. None of the shares held by the 1995 trust or the 2004 trust were purchased onThe Stock Exchange of Hong Kong Limited. Financial Calendar Ex-dividend date 16 August 2006 Record date 18 August 2006 Expected posting to shareholders of 2006 Interim Report 1 September 2006 Payment date - interim dividend on ordinary shares 11 October 2006 Copies of the interim report are available from: Investor Relations, Standard Chartered PLC, 1 Aldermanbury Square, London, EC2V7SB or from our website on http://investors.standardchartered.com For further information please contact: Annemarie Durbin, Group Head of Corporate Affairs+44 20 7280 6438 Romy Murray, Head of Investor Relations+44 20 7280 7245 Ruth Naderer, Head of Investor Relations, Asia Pacific+852 2820 3075 Sean Farrell, Head of Media Relations+44 20 7280 7163 The following information will be available on our website • A live webcast of the interim results analyst presentation (available from 10.45 am UK time) • The archived webcast and Q/A session of analyst presentation in London (available 1.00 pm UK time) • Interviews with Mervyn Davies, Group Chief Executive and Peter Sands, Group Finance Director (available from 9.15 am UK time) • Slides for the Group's presentations (available after 10.45 am UK time) Images of Standard Chartered are available for the media at http://www.standardchartered.com/global/mc/plib/directors_p01.html Information regarding the Group's commitment to Corporate Responsibility isavailable at http://www.standardchartered.com/corporateresponsibility The 2006 Interim Report will be made available on the website of the StockExchange of Hong Kong Limited and on our website http://investors.standardchartered.com as soon as is practicable. Forward looking statements It is possible that this document could or may contain forward-lookingstatements that are based on current expectations or beliefs, as well asassumptions about future events. These forward-looking statements can beidentified by the fact that they do not relate only to historical or currentfacts. Forward-looking statements often use words such as anticipate, target,expect, estimate, intend, plan, goal, believe, will, may, should, would, couldor other words of similar meaning. Undue reliance should not be placed on anysuch statements because, by their very nature, they are subject to known andunknown risks and uncertainties and can be affected by other factors that couldcause actual results, and the Group's plans and objectives, to differ materiallyfrom those expressed or implied in the forward-looking statements. There are several factors which could cause actual results to differ materiallyfrom those expressed or implied in forward looking statements. Among thefactors that could cause actual results to differ materially from thosedescribed in the forward looking statements are changes in the global,political, economic, business, competitive, market and regulatory forces, futureexchange and interest rates, changes in tax rates and future businesscombinations or dispositions. The Group undertakes no obligation to revise or update any forward lookingstatement contained within this document, regardless of whether those statementsare affected as a result of new information, future events or otherwise. This information is provided by RNS The company news service from the London Stock Exchange

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