Standard Chartered Plc · LSE:STAN
Standard Chartered — 1H 2020 Earnings Presentation
59 slides from Standard Chartered's earnings presentation, Jul 30, 2020
Slide 1: 1H'20 / 2Q'20 Results Presentation
1H’20 / 2Q’20 Results Presentation 30 July 2020 Please see page 57 for an explanation of some of the technical and abbreviated terms used in this document
Slide 2: Contents
Contents Bill Winters 2 Group Chief Executive and 17 Andy Halford 4 Group Chief Financial Officer Appendix 28 Vulnerable sectors, macroeconomic indicators, detailed risk data and interest rate sensitivity 29 Information for fixed income investors 35 Sustainability information 48 Abbreviated terms an
Slide 3: Bill Winters, Group Chief Executive
Bill Winters Group Chief Executive 2
Slide 4: Our client franchise remains healthy and we are seeing encouraging early signs of recovery
Our client franchise remains healthy and we are seeing encouraging early signs of recovery in some of our larger markets We came through extremely challenging conditions with operational and financial resilience • The COVID crisis has reinforced the relevance of our strategic priorities: ▪ Our diffe
Slide 5: Andy Halford, Group Chief Financial Officer
Andy Halford Group Chief Financial Officer 4
Slide 6: Resilient first half performance in conditions that were increasingly challenging
Resilient first half performance in conditions that were increasingly challenging ($bn) 1H’19 1H’20 YoY1 Ccy1 Operating income ex-DVA 7.7 7.9 3% 5% • Income up 5%2 despite rapid global recession DVA (0.0) 0.1 Nm • Expenses reduced 2% ccy = 7% positive jaws2 Operating income 7.7 8.0 5% 7% Operating e
Slide 7: 1H'20 income was up 5% at constant currency and ex-DVA
1H’20 income was up 5% at constant currency and ex-DVA; 2Q’20 was up 4% YoY Income Business Costs Risk Capital/Liquidity Strong growth in Financial Markets more than offset the impact of interest rate cuts Income 1H’20 vs 1H’19 ($m) +5% 52 27 474 59 (4) (21) 7,943 7,738 (232) 7,588 (150) 28% 14% 14%
Slide 8: The net interest margin fell significantly in 2Q'20 reflecting extremely low rates
The net interest margin fell significantly in 2Q’20 reflecting extremely low rates Income Business Costs Risk Capital/Liquidity We continue to expect further NIM pressure through the remainder of 2020 Gross yield (bps) 345 265 346 237 Rate paid (bps) 200 139 201 121 • NII down 10% YoY / 13% QoQ 1.66
Slide 9: Other income up 15%, with strong trading income offsetting decline in fees
Other income up 15%1, with strong trading income offsetting decline in fees and commissions Income Business Costs Risk Capital/Liquidity We have diverse sources of income that are less sensitive to interest rates, and tend to be less capital-intensive Income, statutory basis ($m) 4,601 2,496 • Net f
Slide 10: Strong income growth in CIB, but higher impairments offset lower costs in every business
Strong income growth in CIB, but higher impairments offset lower costs in every business … Income Business Costs Risk Capital/Liquidity Standout performance from CIB, with growth in most products and good cost control 1H’20 1H’20 vs 1H’19 (inc/(dec)) YoY1 Corporate & Income2 $4.0bn 13% Institutional
Slide 11: ... and in every region. Resilient performance in GCNA
… and in every region. Resilient performance in GCNA despite early onset of COVID Income Business Costs Risk Capital/Liquidity Positive jaws in three regions; flat jaws in AME where low oil prices have exacerbated headwinds 1H’20 1H’20 vs 1H’19 (inc/(dec)) YoY1 Income $3.1bn 2% +5 Jaws Greater China
Slide 12: Contribution from Central & other items is broadly flat YoY
Contribution from Central & other items is broadly flat YoY Income Business Costs Risk Capital/Liquidity Items excluded from Items excluded from both Items excluded from Client Segments Client Segments and Regions Regions Centrally managed Treasury Markets Treasury Capital Portfolio Management Assoc
Slide 13: Robust cost control continued in 2Q'20, and will be maintained through 2H'20 into 2021
Robust cost control continued in 2Q’20, and will be maintained through 2H’20 into 2021 Income Business Costs Risk Capital/Liquidity Initiatives are underway to deliver sustainable cost efficiencies into 2021 64 71 Cost-to-income 66 ratio1 (%) 59 63 • OpEx improved 5% YoY; or 2% ccy 60 59 ▪ 7% positi
Slide 14: The effects of the rapid spread of COVID significantly impacted credit quality in 1H'20
The effects of the rapid spread of COVID significantly impacted credit quality in 1H’20 Income Business Costs Risk Capital/Liquidity Securing our foundations in 2015-18 means we are better prepared to navigate extremely challenging conditions Credit impairment ($m) / Loan loss rate (bps) • Credit im
Slide 15: Deteriorating macroeconomic variables drove higher provisions in 1H'20, mainly in 1Q'20
Deteriorating macroeconomic variables drove higher provisions in 1H’20, mainly in 1Q’20 Income Business Costs Risk Capital/Liquidity Increased impairments driven by modelled outcomes due to deteriorating MEVs plus management overlay Stage 1 and 2 credit impairment ($m) 1Q’20 ($m) 2Q’20 ($m) 451 • St
Slide 16: Our Retail Banking lending is predominately secured and extended to affluent customers
Our Retail Banking lending is predominately secured and extended to affluent customers Income Business Costs Risk Capital/Liquidity We replaced $8bn of unsecured consumer finance with secured exposures during our 2015-2018 turnaround Retail Banking and Private Banking total loans ($bn) 118 118 • RB
Slide 17: We remain strongly capitalised, enabling us to maximise support for clients and communities
We remain strongly capitalised, enabling us to maximise support for clients and communities Income Business Costs Risk Capital/Liquidity Risk-weighted assets ($bn) -$1.5bn 2.0 7.0 • RWA down ~1% or $1.5bn from 31.12.19 264.1 2.4 3.1 (9.0) 262.6 ▪ Increase mostly due to effects of COVID, (2.2) includ
Slide 18: Bill Winters, Group Chief Executive
Bill Winters Group Chief Executive 17
Slide 19: Our purpose drives our business decisions, bold actions and ambitious commitments
Our purpose drives our business decisions, bold actions and ambitious commitments Purpose Strategic priorities Our purpose: Driving commerce and prosperity through our unique diversity We understand our We will lead sustainable We will maximise We support the responsibilities financing across return
Slide 20: We are providing relief from the impact of COVID for individual customers and small business owners
We are providing relief from the impact of COVID for individual customers and small business owners Purpose Strategic priorities A small proportion of RB customers currently require relief: most affected exposures are performing and secured Of which <1/2 sought relief Of RB clients voluntarily 4% gr
Slide 21: We are supporting corporate clients and financing credit at-cost for businesses fighting COVID
We are supporting corporate clients and financing credit at-cost for businesses that are fighting COVID Purpose Strategic priorities Extensions granted relate to a small proportion of total Our $1bn commitment to fund businesses fighting COVID CCIB1 L&A2: mostly short-term tenor is being put to good
Slide 22: Our network strength is helping us support clients to manage risk and reconfigure supply chains
Our network strength is helping us support clients to manage their risk and reconfigure supply chains Purpose Strategic priorities Clients 1H’20 YoY1 • Improving penetration of target clients; income from ‘Next + New’ income2 +14% “New” clients up 37% YoY • Income from our international network was
Slide 23: Our affluent client business showed resilience in more difficult conditions
Our affluent client business showed resilience in more difficult conditions Purpose Strategic priorities Clients 1H’20 YoY1 Number of Retail Banking Priority clients2 +2% 1.7 Private Banking Net New • Affluent client base continues to grow while AUM 0.0 -$1.8bn Money ($bn) negatively impacted by low
Slide 24: Encouraging progress in four large markets where we are optimising returns
We continue to see encouraging progress in four large markets where we are optimising returns Purpose Strategic priorities India Korea UAE Indonesia Income growth YoY 44% / 53% 9% / 14% (3)% / (3)% 37% / 40% Reported / constant currency Cost-to-income ratio Improved Improved Improved Improved Pre-pr
Slide 25: The crisis has accelerated some existing productivity projects, and catalysed new ones
The crisis has accelerated some existing productivity projects, and catalysed new ones Purpose Strategic priorities Clients 1H’20 YoY1 Retail Banking % 21% 24% 67% +43%pt of digital sales2 9 • Digital sales grew significantly during the pandemic 7 7 Corporate & Institutional ▪ >4x YoY including Ant
Slide 26: We are executing multiple digital initiatives to transform our business
We are executing multiple exciting digital initiatives to transform our business Purpose Strategic priorities Retail Banking 1H’20 YoY1 • HK virtual bank “Mox” launching very soon Mobile adoption² 26% 32% 37% +6%pts • Digital-only bank now available in 9 Africa markets Digital adoption³ 47% 52% 56%
Slide 27: Concluding remarks
Concluding remarks The outlook globally is extremely uncertain but some of our larger markets are recovering from COVID • Economic activity is likely to be volatile and uneven across our footprint in 2H’20 ▪ Geopolitical risks remain elevated ▪ Some of our larger markets should start to drive the gl
Slide 28: Standard Chartered
Standard Chartered &Q 27
Slide 29: Appendix
Appendix Vulnerable sectors, macroeconomic indicators, detailed risk data and interest rate sensitivity Information for fixed income investors Sustainability information Abbreviated terms and important notice 28
Slide 30: Vulnerable sectors, macroeconomic indicators, detailed risk data and interest rate sensitivity
Vulnerable sectors, macroeconomic indicators, detailed risk data and interest rate sensitivity 29
Slide 31: We continue to monitor exposures to sectors most at risk from COVID and lower oil prices
We continue to monitor exposures to sectors most at risk from COVID and lower oil prices particularly carefully Loans and advances in “Vulnerable sectors” increased by $0.6bn during 1H’20 and are now 9% of Group total 2 IFRS 9 Commodity Metals & Oil and Gas Aviation (as at 30 June 2020) Traders Mini
Slide 32: The global economy is likely to contract by 3.3% in 2020
The global economy is likely to contract by 3.3% in 2020 due to the effects of COVID-19 Economic uncertainty remains high Sharp contraction in 2020 and recovery in 2021 Real GDP growth1 (%) 2019 2020e 2021e Potential headwinds Hong Kong -1.2 -7.2 6.0 GCNA • Resurgence and spread of COVID-19 infectio
Slide 33: Stage 1 and 2 credit impairments: Changes to baseline forecast in key footprint markets
Stage 1 and 2 credit impairments: Changes to baseline forecast in key footprint markets Changes to macroeconomic forecasts for key footprint markets: 1Q’20 to 2Q’20 Baseline: change in macroeconomic forecasts 1 1Q’20 2Q’20 Crude price China Hong Kong Korea Singapore India Brent, bbl GDP (YoY): 202
Slide 34: Stage 1 and 2 credit impairments: Baseline forecast GDP trends
Stage 1 and 2 credit impairments: Baseline forecast GDP trends Shape of GDP base forecasts1 in relation to prior period actuals and long-term growth rates China GDP Forecast Hong Kong GDP Forecast Korea GDP Forecast Singapore Forecast India Forecast 1. Forecast from Standard Chartered Global Researc
Slide 35: The (50)bps downside scenario now implies negative interest rates
The (50)bps downside scenario now implies negative interest rates, which increases the earnings sensitivity Estimate of banking book NII sensitivity to instantaneous +/(-) 50bps change in interest rates across all currencies1 Annualised benefit ($m) +50bps -50bps • Interest rates globally have been
Slide 36: Information for fixed income investors
Information for fixed income investors 35
Slide 37: Standard Chartered overview: resilient performance founded on a diverse franchise
Standard Chartered overview: resilient performance founded on a diverse franchise Over 160 years in some of the world's most dynamic markets 1H’20 Performance highlights 60 >80% 4 $8.0bn $2.0bn (1H’19: $7.7bn) (1H’19: $2.6bn) markets income from Asia, 4 client segments & Operating income Profit befo
Slide 38: Foundations strengthened amid a difficult operating environment
Foundations strengthened amid a difficult operating environment CET1% 14.3% 13.8% 13.5% • Strong and liquid balance sheet positions the Group well to Min req 10% support its clients through current volatile and uncertain times 1H’20 FY'19 1H’19 MREL% 30.7% • CET1 above target range as profits, Perma
Slide 39: Risk profile: well prepared for more challenging times
Risk profile: well prepared for more challenging times 1H’20 FY’14 1H’20-14 Key risk indicators • Key portfolio indicators improved since FY’14 (IFRS 9) (IAS 39) Movement reflecting: Investment grade as a % of corporate exposure 57% 42% ▪ Focus on investment grade clients for new CIB Top 20 corporat
Slide 40: Some of the Group's larger markets in Asia are expected to lead the global COVID recovery
Some of the Group’s larger markets in Asia are expected to lead the way in the global COVID recovery China GDP Base interest rate1: 3.85%3 Korea GDP UK GDP Base interest rate1: 0.5% Base interest rate1: 0.1% 7.5% 6.5% 2.5% India GDP 10% 2.2% Base interest rate1: 4.25%2 -8.0% 2020 2021 -0.6% 2020 202
Slide 41: Balance sheet diversity underpins resilience
Balance sheet diversity underpins resilience 1H’20 Balance sheet assets 1H’20 Customer loans & advances1 by market and segment Hong Kong CIB 7% 17% Singapore RB Loans & advances to customers1 24% 7% 5% 4% UK CB Investment securities 4% 9% 9% Korea C&OI 44% Loans & advances to banks 5% $742bn $328bn
Slide 42: Liquidity position strengthened despite market stress
Liquidity position strengthened despite market stress Total customer deposits1 ($bn) • LCR and ADR strengthened to 149% and 63% respectively 56% 54% 58% 64% • Liquidity levels maintained at pre-crisis levels despite challenging 1Q’20 173 155 175 189 • Funding quality improved with CASA balances (inc
Slide 43: CET1 position strong: absolutely and relative to requirements
CET1 position strong: absolutely and relative to requirements CET1 minimum requirement reduced in the period 10.2% 10.0% 2.5% 2.5% CCB • Minimum CET1 requirement reduced by ~23bps largely 0.35% 0.14% CCyB due to a decrease in the Group’s countercyclical buffer 1.0% 1.0% G-SII by ~21bps, mainly in Ho
Slide 44: Increasing resilience to stress demonstrated in BoE tests
Increasing resilience to stress demonstrated in BoE tests Timelines 2020 stress tests CET1 ratio – BoE Stress Test results (transitional) 2020 Review of European O&G Portfolio 14.2% • Passed 2019 BoE stress test with CET1 well 13.6% 13.6% above the 6.9% hurdle rate in stress: Review of Aviation 9.0%
Slide 45: Good progress on funding programme despite stressed markets
Good progress on funding programme despite stressed markets Existing stock - Currency mix ($bn)1 YTD 2020 funding progress USD USD EUR GBP Other Total 7.7 7.4 0.6 Senior 15.4 4.2 0.8 2.7 23.1 1.0 1.0 5.0 1.1 Tier 2 9.7 4.4 0.9 0.5 15.5 0.5 6.1 5.3 AT1 5.5 - 0.3 0.6 6.4 4.5 Total 30.6 8.6 2.0 3.8 45.
Slide 46: MREL transition: well positioned for future growth and requirements
MREL transition: well positioned for future growth and requirements External MREL position ahead of known 2022 requirement 30.7% • At 1H’20, the Group’s expected 2022 MREL is 26.3% of RWA PLC Senior 26.3% including the Combined Buffer1 ~$21.5bn Combined Buffer 3.6% • Loss absorption Recapitalisation
Slide 47: Strong credit ratings maintained through COVID pressures
Strong credit ratings maintained through COVID pressures Focus on continued delivery of Group strategy to defend and, over time, improve credit ratings • The Group has strengthened its foundations in recent years and is focused on sustainable growth to achieve Senior long and short term ratings targ
Slide 48: Standard Chartered Group – simplified legal structure
Standard Chartered Group – simplified legal structure Medium Term Senior notes Standard Chartered PLC Tier 2 securities BBB+/A2/A Tier 1 securities (S&P/Moody’s/Fitch) Equity Standard Chartered Bank CP / CDs Standard Chartered Bank CP / CDs Hong Kong Medium Term Notes A/A1/A+ Medium Term Notes A+/A1
Slide 49: Sustainability information
Sustainability information 48
Slide 50: Our sustainable finance philosophy
Our sustainable finance philosophy Social Impact Responsible Banking Impact Driven Financing Collaboration with Development Corporate Governance, Finance Anti‐Corruption Institutions Funding Defined linked to taxonomy desired Climate linking finance social Labour impact, to SDGs outcomes standards,
Slide 51: Standard Chartered: a unique opportunity
Standard Chartered: a unique opportunity Financing impact in some of the world’s least developed countries through a UK regulated institution… OECD Development Footprint Markets in Markets in Assistance Committee markets Markets in Markets in countries in our footprint Greater China & ASEAN & South
Slide 52: Sustainability is being embedded across our business
Sustainability is being embedded across our business Over 19,000 Over 1,100 Over 1,000 bank-wide client clients and transactions reviewed frontline and risk staff trained in assessments against by Environmental and Social Risk environmental and social risk and position statements in 2019 Management
Slide 53: Our refreshed commitments on climate change
Our refreshed commitments on climate change “ There is still much work to be done to ultimately reduce the emissions generated by our financing activities, but we are making good progress toward doing so and are determined to continue to leverage our strong position across our markets to bring the r
Slide 54: Leading private sector catalyser of finance for the UN's Sustainable Development Goals
Leading private sector catalyser of finance for the UN’s Sustainable Development Goals in our footprint Green & Sustainable Product Framework Green and Sustainable Product Framework launched in 2019 governs Green and Sustainable Products, developed with Sustainalytics Sustainable Deposits… Sustainab
Slide 55: Financing the UN's Sustainable Development Goals where it matters the most
Financing the UN’s Sustainable Development Goals where it matters the most Leadership in Sustainable Finance Committed to Sustainability Environmental and Social Risk Management policy created in 1997 Green Finance Deal of the World’s Best for Africa’s Best Bank for Year (Middle East) 2019 Sustainab
Slide 56: Sustainable finance governance
Sustainable finance governance We have overhauled our sustainable finance, climate and sustainability governance this year with dedicated forums reporting to management and the Board • This gives greater board oversight over sustainability matters, including climate risk and sustainable finance • Ti
Slide 57: Abbreviated terms and important notice
Abbreviated terms and important notice 56
Slide 58: Selected technical and abbreviated terms used in this document
Selected technical and abbreviated terms used in this document Term Definition Term Definition Affluent activities Personal banking services offered to affluent and emerging affluent customers GBA Greater Bay Area consisting of nine cities and two special administrative regions in south China AME Th
Slide 59: Important notice
Important notice This document contains or incorporates by reference “forward-looking statements” regarding the belief or current expectations of Standard Chartered PLC (the “Company”), the board of the Company (the “Directors”) and other members of its senior management about the strategy, business