Standard Chartered : 3Q 2020 - Results (29 October 2020, PDF)

Standard Chartered PLC

3Q'20 Results

29 October 2020

Registered in England under company No. 966425

Registered Office: 1 Basinghall Avenue, London, EC2V 5DD, UK

Table of contents

Performance highlights	1
Statement of results	2
Group Chief Financial Officer's review	3
Supplementary financial information	11
Underlying versus statutory results reconciliations	28
Risk review	34
Capital review	39
Financial statements	44
Other supplementary financial information	49

Forward-looking statements

This document may contain 'forward-looking statements' that are based on current expectations or beliefs, as well as assumptions about future events. These forward-looking statements can be identified by the fact that they do not relate only to historical or current facts. Forward-looking statements often use words such as 'may', 'could', 'will', 'expect', 'intend', 'estimate', 'anticipate', 'believe', 'plan', 'seek', 'continue' or other words of similar meaning.

By their very nature, forward-looking statements are subject to known and unknown risks and uncertainties and can be affected by other factors that could cause actual results, and the Group's plans and objectives, to differ materially from those expressed or implied in the forward-looking statements. Recipients should not place reliance on, and are cautioned about relying on, any forward-looking statements. There are several factors which could cause actual results to differ materially from those expressed or implied in forward looking statements. The factors that could cause actual results to differ materially from those described in the forward-looking statements include (but are not limited to) changes in global, political, economic, business, competitive, market and regulatory forces or conditions, future exchange and interest rates, changes in tax rates, future business combinations or dispositions and other factors specific to the Group. Any forward-looking statement contained in this document is based on past or current trends and/or activities of the Group and should not be taken as a representation that such trends or activities will continue in the future.

No statement in this document is intended to be a profit forecast or to imply that the earnings of the Group for the current year or future years will necessarily match or exceed the historical or published earnings of the Group. Each forward-looking statement speaks only as of the date of the particular statement. Except as required by any applicable laws or regulations, the Group expressly disclaims any obligation to revise or update any forward-looking statement contained within this document, regardless of whether those statements are affected as a result of new information, future events or otherwise.

Please refer to the Group's 2019 Annual Report and the 2020 Half-Year Report for a discussion of certain risks and factors that could cause actual results, and the Group's plans and objectives, to differ materially from those expressed or implied in the forward-looking statements.

Nothing in this document shall constitute, in any jurisdiction, an offer or solicitation to sell or purchase any securities or other financial instruments, nor shall it constitute a recommendation or advice in respect of any securities or other financial instruments or any other matter.

Unless another currency is specified, the word 'dollar' or symbol '$' in this document means US dollar and the word 'cent' or symbol 'c' means one-hundredth of one US dollar.

The information within this report is unaudited.

Unless the context requires, within this document, 'China' refers to the People's Republic of China and, for the purposes of this document only, excludes Hong Kong Special Administrative Region (Hong Kong), Macau Special Administrative Region (Macau) and Taiwan. 'Korea' or 'South Korea' refers to the Republic of Korea. Greater China & North Asia (GCNA) includes China, Hong Kong, Japan, Korea, Macau and Taiwan; ASEAN & South Asia (ASA) includes Australia, Bangladesh, Brunei, Cambodia, India, Indonesia, Laos, Malaysia, Myanmar, Nepal, Philippines, Singapore, Sri Lanka, Thailand and Vietnam; and Africa & Middle East (AME) includes Bahrain, Egypt, Iraq, Jordan, Lebanon, Oman, Pakistan, Qatar, Saudi Arabia and the United Arab Emirates (UAE).

Within the tables in this report, blank spaces indicate that the number is not disclosed, dashes indicate that the number is zero and nm stands for not meaningful.

Standard Chartered PLC is incorporated in England and Wales with limited liability. Standard Chartered PLC is headquartered in London. The Group's head office provides guidance on governance and regulatory standards. Standard Chartered PLC stock codes are: HKSE 02888 and LSE STAN.LN.

Standard Chartered PLC

3Q'20 Results

Standard Chartered PLC - 3Q'20 Results

All figures are presented on an underlying basis and comparisons are made to 2019 on a reported currency basis, unless otherwise stated. A reconciliation of restructuring and other items excluded from underlying results is set out on page 28.

Bill Winters, Group Chief Executive, said:

"Our transformation is allowing us to weather the macroeconomic storm in good shape. Our Wealth Management and Financial Markets businesses have good momentum, we are controlling costs to fund innovation, and we believe we are well provided against credit impairment. Lower interest rates continue to impact income but we remain well-positioned to meet our financial targets, albeit with some delay. We are further streamlining our organisation to sharpen focus on our retail business, more effectively leverage our unique network, and drive efficiencies."

Update on strategic priorities

• We are creating a single pan-Asia region to more effectively deliver our network there
• We will combine our operations that serve individuals to grow our affluent business …
• … and sharpen the focus on transforming and disrupting with digital. Our virtual bank Mox is now live in Hong Kong
• These organisation changes will also support initiatives to improve productivity
• Profit in our four large optimisation markets has improved 16% on a constant currency basis year-to-date
• We are driving sustainability where it matters most: 86% of our sustainable finance assets are in some of the least developed markets

Selected information concerning financial performance (3Q'20 unless otherwise stated)

• Income lower as previously guided due to interest rates: down 12% to $3.5bn; down 11% constant currency (ccy)
• • Income down 10% on a like-for-like basis: at ccy and excluding $36m negative movement in DVA
  • Continued recovery in Wealth Management and momentum in Financial Markets offset by interest rate headwinds
• Net interest margin (NIM) down 38bps to 1.23%; 5bps lower compared to 2Q'20
• • Impact of lower rates in the quarter mostly offset by improvement in liability mix and pricing
  • Average NIM expected to stabilise slightly below the current level over the next two quarters
• Expenses of $2.5bn improved 1% YoY; broadly flat ccy
• Credit impairment of $353m up $74m YoY but lower for second consecutive quarter
• • Stage 1 and 2 impairment of $109m (2Q'20: $217m)
  • Stage 3 impairment up 9% YoY to $244m (2Q'20: $394m)
  • Net stage 3 plus credit grade 12 exposures up $0.8bn since 30.06.20; early alerts reduced $1.0bn to $13.4bn
• Return on tangible equity down 450bps to 4.4%
• • Pre-provisionoperating profit down 30% to $1.0bn due to lower income; down 28% ccy and ex-DVA
  • Underlying profit before tax down 40% to $0.7bn driven by lower income; down 39% ccy and ex-DVA
  • Statutory profit before tax down 61% to $0.4bn, includes $231m goodwill impairment in UAE and Indonesia
• Risk-weightedassets of $267bn up $4bn since 30.06.20
• • Negative credit migration and FX movements partly offset by RCF repayments and lower counterparty credit risk
• The Group remains strongly capitalised and highly liquid
• • Common equity tier 1 ratio 14.4% above the top of the 13-14% target range (30.06.20: 14.3%)
  • Asset-to-depositratio 63.8% (30.06.20: 62.7%); liquidity coverage ratio 142% (30.06.20: 149%)
  • Continue to target higher quality deposits: individual CASA up 8% since 30.06.20
• Earnings per share down 13.0c or 49% to 13.6c

Outlook

We expect similar fourth quarter seasonality to last year, and anticipate client demand to increase over the course of 2021 as more of the markets in which we operate start to come out of recession. The impact of the significant reduction in interest rates that occurred earlier this year should be fully reflected over the next two quarters with the net interest margin stabilising slightly below the current level in that timeframe.

In this protracted low interest rate environment, we will continue to optimise the drivers of our net interest income and are increasingly focusing on generating more fee-based income, particularly from our Financial Markets and Wealth Management businesses that have good momentum. We will continue to reduce operating expenses wherever possible so that we can maximise our investment in digital capabilities; as previously guided we expect expenses to be below $10 billion in both 2020 and 2021.

Our third quarter credit impairment outcome reinforces our previous view that our impairment costs should be lower in the second half of 2020 than in the first half. The expected economic recovery next year would support asset quality improvement, although we anticipate some sectors and markets will face continuing challenges.

On 25 February 2021 we will release our full-year 2020 results and will provide an update on the progress we are making on our strategic priorities in the context of the prevailing macroeconomic outlook. Given our strong capital position the Board will consider at that time resuming shareholder returns, subject to consultation with our regulators.

Standard Chartered PLC	1
3Q'20 Results

Statement of results

For the three months ended 30 September 2020

	3 months ended	3 months ended
	30.09.20	30.09.19	Change¹
	$million	$million	%
Underlying performance
Operating income	3,519	3,978	(12)
Operating expenses (including UK bank levy)	(2,480)	(2,501)	1
Credit impairment	(353)	(279)	(27)
Other impairment	(15)	(5)	(200)
Profit from associates and joint ventures	74	45	64
Profit before taxation	745	1,238	(40)
Profit/(loss) attributable to ordinary shareholders²	428	857	(50)
Return on ordinary shareholders' tangible equity (%)	4.4	8.9	(450)bps
Cost to income ratio (%)	70.5	62.9	(760)bps
Statutory performance
Operating income	3,506	3,959	(11)
Operating expenses	(2,515)	(2,567)	2
Credit impairment	(358)	(280)	(28)
Goodwill impairment	(231)	-	nm
Other impairment	(33)	(60)	45
Profit from associates and joint ventures	66	53	25
Profit before taxation	435	1,105	(61)
Taxation	(274)	(333)	18
Profit for the period	161	772	(79)
Profit/(loss) attributable to parent company shareholders	154	761	(80)
Profit/(loss) attributable to ordinary shareholders2	123	725	(83)
Return on ordinary shareholders' tangible equity (%)	1.3	7.5	(620)bps
Cost to income ratio (%)	71.7	64.8	(690)bps
Balance sheet and capital
Total assets	754,429	734,800	3
Total equity	50,570	50,696	-
Average tangible equity attributable to ordinary shareholders2	38,934	38,379	1
Loans and advances to customers	281,380	269,703	4
Customer accounts	417,517	387,857	8
Risk-weighted assets	266,664	268,668	(1)
Total capital	57,051	54,940	4
Total capital (%)	21.4	20.4	100bps
Common Equity Tier 1	38,449	36,386	6
Common Equity Tier 1 ratio (%)	14.4	13.5	90bps
Net Interest Margin (%) (adjusted)	1.23	1.61	(38)bps
Advances-to-deposits ratio (%)3	63.8	65.6	(1.8)
Liquidity coverage ratio (%)	142	133	9
UK leverage ratio (%)	5.2	5.1	10bps
Information per ordinary share	Cents	Cents	Cents
Earnings per share - underlying4	13.6	26.6	(13.0)
- statutory4	3.9	22.5	(18.6)
Net asset value per share5	1,405	1,358	47
Tangible net asset value per share5	1,249	1,199	50
Number of ordinary shares at period end (millions)	3,149	3,195	(1)

1. Variance is better/(worse) other than assets, liabilities and risk-weighted assets
2. Profit/(loss) attributable to ordinary shareholders is after the deduction of dividends payable to the holders of non-cumulative redeemable preference shares and Additional Tier 1 securities classified as equity
3. When calculating this ratio, total loans and advances to customers excludes reverse repurchase agreements and other similar secured lending, excludes approved balances held with central banks, confirmed as repayable at the point of stress and includes loans and advances to customers held at fair value through profit and loss. Total customer accounts includes customer accounts held at fair value through profit or loss.
4. Represents the underlying or statutory earnings divided by the basic weighted average number of shares
5. Calculated on period end net asset value, tangible net asset value and number of shares

Standard Chartered PLC	2
3Q'20 Results