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• Published on 27 October 2023
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Standard Chartered pre-tax profit drops to $633 million in 3Q 2023

The group delivered a solid performance in the third quarter of 2023, supported by strong progress on the five strategic actions. The group's underlying profit before tax of $1.3 billion was 2% lower than in the prior year. Income grew 7% on a constant currency basis with a 20% increase in net interest income partly offset by a 5% reduction in other income. Expenses increased 8% at constant currency but were down 1% compared to the previous quarter. The credit impairment charges in the quarter of $294 million included further charges relating to the China commercial real estate sector. The group reduced the carrying value of its investment in China Bohai Bank by $697 million resulting in reported profit before tax declining by half to $633 million, with an 18 basis points impact to the CET1 ratio. The group remains well capitalised and highly liquid with a CET1 ratio of 13.9%, an advances-to-deposits ratio of 55%, and a liquidity coverage ratio of 156%.

All commentary that follows is on an underlying basis and comparisons are made to the equivalent period in 2022 on a reported currency basis, unless otherwise stated.

• Operating income of $4.4 billion was up 6% in the third quarter and increased 7% on a constant currency basis, as the group benefitted from a year-on-year increase in the net interest margin and a strong recovery in Wealth Management income
• Underlying net interest income increased 18%, or 20% on a constant currency basis as the net interest margin increased 14 per cent or 20 basis points. This was despite a year-on-year incremental 12 basis points drag from hedges. Over the past year, the group increased its pricing on assets and the yield on its Treasury portfolio more quickly than it repriced its liability base, reflecting strong pricing discipline and passthrough rate management albeit the rate paid increased more quickly than the gross yield on assets during the quarter
• Underlying other income decreased 5% as Financial Markets income was lower on the back of reduced market volatility and the non-repeat of $28 million of gains on mark-to-market liabilities in the third quarter of 2022. This was partly offset by strong growth in Wealth Management income, which continues to benefit from strong Affluent client onboarding and positive net new money
• Operating expenses increased 8% reflecting the impact of the group's continuing investment into business growth initiatives and strategic investments, and higher inflation partly offset by cost efficiency actions. The group generated 1% negative income-to-cost jaws while the cost-to-income ratio increased 1 percentage point to 63%
• Credit impairment was a $294 million charge in the quarter, a $62 million increase on the third quarter of 2022, and double the amount booked in the prior quarter. Impairment charges in the quarter include $186 million in relation to the China commercial real estate sector and $115m in relation to the Consumer, Private and Business Banking portfolio. The year-to-date loan loss rate annualises to 20 basis points
• Profit from associates and joint ventures decreased $13 million to $3 million due to lower profits at China Bohai Bank (Bohai)
• Restructuring and other items totalled $683 million in the quarter. The largest item was an impairment charge of $697 million reflecting a reduction in the carrying value of the Group's investment in Bohai following a refresh of the value-in-use calculation. Restructuring charges of $7 million primarily reflect redundancy and property optimisation charges partly offset by the profit from Aviation Finance and Principal Finance while movements in Debit Valuation Adjustment (DVA) were a positive $21 million
• Taxation was $494 million on a reported basis, with an underlying year-to-date effective tax rate of 31 per cent compared to the prior year rate of 25 per cent reflecting a change in the geographic mix of profits and increased losses in the United Kingdom where we cannot recognise a tax benefit
• Underlying return on tangible equity (RoTE) decreased by 240 basis points to 7.0 per cent primarily due to a higher effective tax rate partly offset by lower tangible equity benefitting from distributions to shareholders. On a reported basis, return on tangible equity was a negative 40 basis points

Bill Winters, Group Chief Executive, said:
"We have continued to make strong progress in the third quarter against the five strategic actions outlined last year, delivering a solid set of results. Wealth management has continued its recovery with double-digit income growth and the financial markets performance has been resilient against a strong comparator period. We remain highly liquid, and well capitalised, with a CET1 ratio towards the top of our target range and confident in the delivery of our 2023 financial targets, including a return on tangible equity of 10%."

Selected information on 3Q'23 financial performance with comparisons to 3Q'22 unless otherwise stated

• Return on tangible equity ("RoTE") of 7.0%, down 2%pts year-on-year ("YoY"), primarily due to a higher tax charge in 3Q'23
• Income up 6% to $4.4 billion, up 7% YoY at constant currency ("ccy")
• Net interest income ("NII") up 20% at ccy to $2.4billion; Other income down 5% at ccy to $2 billion
• Normalised net interest margin ("NIM") 1.67%, a transient reduction of 4bps since 2Q'23; reported NIM 1.63%, including 4bps from one-offs

Standard Chartered PLC - results for the third quarter ended 30 September 2023

• Expenses up 8%, 11% at ccy; increase due to inflation, business growth and targeted investments partially funded by gross productivity saves
• Positive 4% income-to-cost jaws YTD, with cost-to-income ratio improving 2% pts to 62%
• Credit impairment charge of $466 million, down $30m YoY
• Annualised loan-loss loss rate of 20bps, down 2bps YoY
• China CRE portfolio Expected Credit Loss provisions $1.1 billion on Stage 3 exposures of $1.4 billion; cover ratio including collateral 88%
• Underlying profit before tax of $4.6 billion, up 19% at ccy
• Underlying earnings per share (EPS) increased from 89.6 cents or 10% to 98.4 cents; Reported EPS down 21% to 74.9 cents

Update on strategic actions for YTD'23 unless otherwise stated

• Drive improved returns in CCIB: Income RoRWA of 7.9%, ahead of 2024 target of 6.5%; ~ $22billion RWA optimised since 1.1.22, nearly achieved $22 billion target over a year ahead of plan
• Transform profitability in CPBB: Cost-to-income ratio of 58%, improved by 11%pts YoY, ahead of 2024 target of 60%; $0.3 billion of gross expense savings since 1.1.22
• Seize China opportunity: China onshore and offshore profit before tax up ~3x YoY to $1.0 billion
• Create operational leverage: $0.7 billion gross productivity saves since 1.1.22; Cost-to-income ratio improved by 2%pts YoY to 62%
• Deliver substantial shareholder returns: $3.9 billion of total returns announced since January of 2022

Other highlights

• Aviation exit: announced the sale of our global aviation business in August, with the transaction expected to be completed by the end of the year and increase CET1 ratio by 19bps in the fourth quarter

Outlook
We remain confident in the delivery of our RoTE targets, supported by continued strong progress on our five strategic actions. For 2023 our guidance is as follows:

• Income to increase in the 12-14% range at ccy
• Full year average NIM to approach 170bps
• Underlying asset growth in the low single digit percentage range in 2H'23
• RWA to be similar to 31.12.22
• Positive income-to-cost jaws of around 4%, excluding the UK bank levy at ccy
• Full year loan loss rate to be in the range of 17-25 bps
• Underlying effective tax rate expected to be around 30%
• Operate dynamically within the full 13-14% CET1 target range
• RoTE of 10%

Re-disseminated by The Asian Banker