REG - Standard Chrtrd PLC - Interim Results 2014 Part 1 <Origin Href="QuoteRef">STAN.L</Origin> - Part 4

Standard CharteredAnnouncement

29/10/2014 10:39

- Part 4: For the preceding part double click  ID:nRSF3926Oc 

2           
 Liabilities                                                                                                                          
 Deposits by banks1                                 50,375    45,390    44,526      4,985       5,849         11          13          
 Customer accounts1                                 390,523   380,785   390,971     9,738       (448)         3           -           
 Debt securities in issue1                          80,324    65,524    71,412      14,800      8,912         23          12          
 Derivative financial instruments                   47,785    53,781    61,236      (5,996)     (13,451)      (11)        (22)        
 Subordinated liabilities and other borrowed funds  24,691    18,393    20,397      6,298       4,294         34          21          
 Other liabilities1                                 47,878    40,726    38,997      7,152       8,881         18          23          
 Total liabilities                                  641,576   604,599   627,539     36,977      14,037        6           2           
 Equity                                             48,562    45,358    46,841      3,204       1,721         7           4           
 Total liabilities and shareholders' funds          690,138   649,957   674,380     40,181      15,758        6           2           
 
 
1   Includes balances held at fair value through profit or loss 
 
Balance sheet 
 
Unless otherwise stated, the variance and analysis explanations compare the position as at 30 June 2014 with the position
as at 31 December 2013. 
 
The Group's balance sheet remains resilient and well diversified. We continue to be highly liquid and primarily deposit
funded, with an advances to deposits ratio of 78.1 per cent, up from the previous year-end position of 75.7 per cent. We
continue to be a net lender into the interbank market, particularly in Hong Kong, Singapore and within the Americas and
Europe regions. The Group's funding structure remains conservative, with limited levels of refinancing over the next few
years. 
 
The Group remains well capitalised although our Common Equity Tier 1 ratio fell to 10.5 per cent from 10.9 per cent at the
year end primarily due to the timing of dividend payments and higher risk-weighted assets. 
 
The profile of our balance sheet remains stable, with over 70 per cent of our financial assets held at amortised cost, and
58 per cent of total assets have a residual maturity of less than one year. The Group continues to have low exposure to
problem asset classes. 
 
Balance sheet footings grew by $16 billion, or 2 per cent, during this period, and we continued to see good growth in
customer lending. 
 
Cash and balances at central banks 
 
Cash balances rose by $7.6 billion reflecting higher surplus liquidity and we continue to hold substantial balances with
central banks. 
 
Loans and advances to banks and customers 
 
Loans to banks and customers, grew by $14 billion, or 4 per cent, to $396 billion. 
 
Loans to C&I and Commercial clients are well diversified by geography and client segment and the business continued to
strengthen its existing client relationships, growing customer advances by $7 billion, or 4 per cent, to $186 billion.
Lending increased in Hong Kong, up 13 per cent, and Singapore, up 6 per cent, driven by the continued ability of these
geographies to support cross border business originating across the network. 
 
Growth was also seen across a broad range of industry sectors, reflecting increased trade activity and a continued focus on
commerce, manufacturing and mining sectors which make up over 55 per cent of customer lending. 
 
Loans to banks increased 6 per cent, with balances in Korea up 24 per cent reflecting placement of surplus liquidity and
Europe up 9 per cent, reflecting its role as a bridge between the West and our footprint markets. 
 
Lending to Retail and Private Banking clients rose $1.8 billion to $119 billion. 79 per cent is fully secured and the
mortgage book continued to be conservatively placed, with an average loan to value ratio of 49.6 per cent. Mortgage
balances rose by $1.6 billion, primarily in Hong Kong, while increasing levels of regulatory restrictions and intensifying
competition impacted growth in other markets. Although we continued to see good demand for Card based products, CCPL
balances fell $2 billion as we derisked Personal Loan portfolios in a number of markets and in Korea in particular. 
 
Investment securities 
 
Investment securities rose by $3.2 billion as we re-positioned our liquid assets, reducing holdings of Treasury Bills and
increasing investments in highly rated corporate debt securities in line with the eligibility criteria for liquid asset
buffers. The maturity profile of these assets is largely consistent with prior periods, with around 43 per cent of the book
having a residual maturity of less than twelve months. Equity investments also reduced as we realised a number of Principal
Finance investments. 
 
Derivatives 
 
Customer appetite for derivative transactions has reduced reflecting low levels of volatility in the market which has
reduced client hedging needs. Notional values increased since the last year end reflecting a higher volume of short-dated
transactions with Financial Institutions as a result of lower levels of volatility. Unrealised positive mark-to-market
positions were $13.7 billion lower at $48 billion. Our risk positions continue to be largely balanced, resulting in a
corresponding reduction in negative mark to market positions. Of the $48 billion mark to market positions, $34 billion was
available for offset due to master netting agreements. 
 
Deposits 
 
Customer accounts were broadly flat to the end of 2013 while deposits by banks increased 13 per cent, or $6 billion,
largely due to higher clearing balances. Customer deposits fell across the Greater China region as we exited higher cost
Time Deposits while CASA remained broadly stable. This was offset by growth in Singapore, where we increased corporate term
deposits and built up retail CASA balances, and in the Americas region reflecting higher clearing balances. CASA continued
to be core of the customer deposit base, constituting over 50 per cent of customer deposits. 
 
Debt securities in issue, subordinated liabilities and other borrowed funds 
 
We continued to see good demand for our name across debt instruments. Subordinated liabilities rose $4.3 billion, as we
replaced maturing debt, including the issuance of a 30 year instrument. Debt securities in issue grew by $9 billion,
primarily in Short-dated certificates of deposit. 
 
Equity 
 
Total shareholders' equity was $1.7 billion higher at $48.6 billion reflecting profit accretion for the period, partly
offset by dividend payments (net of scrip) of $0.7 billion. 
 
Standard Chartered PLC - Risk Review 
 
The following parts of the Risk review form part of the financial statements: 'Regulatory compliance, review, requests for
information and investigations' and 'Risk of fraud and other criminal acts' on pages 30 and 31. From the start of the 'Risk
management' section on page 31 to the end of the 'Pension risk' section on page 85. Excluding: Asset Backed Securities,
page 63, Encumbered assets, page 74 and Liquidity coverage ratio and Net stable Funding ratio, page 79. 
 
Risk overview 
 
Standard Chartered has a defined risk appetite, approved by the Board, which is an expression of the amount of risk we are
prepared to take and plays a central role in the development of our strategic plans and policies. Our overall risk appetite
has not changed. We regularly assess our aggregate risk profile, conduct stress tests and monitor concentrations to ensure
that we are operating within our approved risk appetite. Further details on our approach to risk appetite and stress
testing are set out on page 33. 
 
We review and adjust our underwriting standards and limits in response to observed and anticipated changes in the external
environment and the evolving expectations of our stakeholders. During the first half of 2014, we maintained a cautious
stance overall, whilst continuing to support our core clients. We selectively reduced certain retail unsecured portfolios,
principally in Korea. Credit risk management is covered in more detail on page 34. 
 
Our balance sheet and liquidity have remained strong. Over half of total assets mature within one year and of these
approximately 70 per cent mature within three months. The balance sheet is highly diversified across a wide range of
products, industries, geographies and customer segments, which serves to mitigate risk: 
 
·  Customer loans and advances are 44 per cent of total assets, which is unchanged since December 2013 
 
·  The Manufacturing sector in Corporate and Institutional and Commercial client segments, which is 25 per cent of lending,
unchanged since December 2013, remains diversified by industry and geography 
 
·  The largest concentration to any globally correlated industry is to energy at 20 per cent of total Corporate and
Institutional and Commercial clients assets, which is slightly below 21 per cent at the year end. The exposure is well
spread across six subsectors and over 370 client groups and, reflecting the trade bias in the portfolio, 57 per cent of
exposures mature within one year 
 
·  66 per cent of loans and advances to customers in the Corporate & Institutional and Commercial client segments mature in
under one year, which is unchanged compared to December 2013. 
 
·  Our top 20 corporate exposures continue to be highly diversified, with each, on average, spread across seven markets and
six industries 
 
·  Our cross-border asset exposure is also diversified and reflects our strategic focus on our core markets and customer
segments. Further details are set out on page 66 
 
·  39 per cent of customer loans and advances are in Retail products; 79 per cent of these are fully secured and the
overall loan to value ratio on our mortgage portfolio is less than 50 per cent, compared with 78 per cent and 50 per cent
at the end of 2013 respectively 
 
·  The unsecured Retail products portfolio is spread across multiple products in over 30 markets 
 
We have low exposure to asset classes and segments outside our core markets and target customer base. We have no direct
sovereign exposure (as defined by the European Banking Authority (EBA) to Greece, Ireland, Italy, Portugal or Spain. Our
exposure in these countries is primarily in trade finance and financial markets. Further details of our eurozone exposures
are given on page 65. Our exposure to countries impacted by the political developments in the Middle East and North Africa
are also low. Exposures in Iraq, Syria, Jordan, Lebanon, Egypt, Libya, Algeria and Tunisia represent less than 0.5 per cent
of our total assets. Our exposure to Russia and Ukraine is very low. It represents less than 0.05 per cent of our total
assets. 
 
Our exposures to commercial real estate and leveraged loans account for 2 per cent and 1 per cent of our total assets
respectively. The notional value of the Asset Backed Securities (ABS) portfolio, which accounts for 1 per cent of our total
assets increased by $1.9 billion in 2014 due to investments in high quality, senior ABS and Residential Mortgage Backed
Securities (RMBS) assets held in the Group's portfolio of marketable securities. Further details are given on page 63. 
 
We have closely managed our exposures in markets and sectors which have faced downturns during the first half of 2014,
increasing collateral cover and selectively reducing exposures and limits. 
 
Market risk is tightly monitored using Value at Risk (VaR) methodologies complemented by sensitivity measures, gross
nominal limits and loss triggers at a detailed portfolio level. This is supplemented with extensive stress testing which
takes account of more extreme price movements. Our overall trading book market risk has risen during the first half of 2014
by 21 percent compared to the second half of 2013 and by 11 percent compared to the first half of 2013 in terms of value at
risk. Further details on market risk are given on page 67. 
 
We maintained a strong advances-to-deposits ratio in the first half of 2014. Liquidity continues to be deployed to support
growth opportunities in our chosen markets. We manage liquidity in our branches and operating subsidiaries in each country,
ensuring that we can meet all short-term funding and collateral requirements and that our balance sheet remains
structurally sound. Our customer deposit base is diversified by type and maturity and we are a net provider of liquidity to
the interbank money markets. We have a substantial portfolio of marketable securities that can be realised in the event of
liquidity stress. Further details on liquidity are provided on pages 72 to 83. 
 
We continue to engage actively with our regulators, including the Prudential Regulation Authority (PRA), the Financial
Conduct Authority (FCA), the Bank of England (BoE) and our 'host' regulators in each of the markets in which we operate. 
 
We have a well-established risk governance structure, which is set out on page 32, and an experienced senior team. Members
of our most senior executive body (the Court) sit on our principal risk executive committees, which ensure that risk
oversight is a strong focus for all our executive directors, while common membership between these committees helps us
address the inter-relationships between risk types. Board committees provide additional risk management oversight and
challenge. 
 
We continue to build on the Group's culture of risk management discipline. We recognise that failures of regulatory
compliance have damaged the Group's reputation, and continue to pay close attention to this. We have continued to reinforce
our values and our brand promise, in part through continued emphasis on Group's Code of Conduct. The management of
operational risk, more broadly, continues to be  enhanced as we incrementally roll out our new approach across all areas of
the Group. We are introducing increased rigour in the process for anticipating a wide variety of operational risks and in
our assessments of risks and control effectiveness. Operational risk and reputational risk are covered in more detail on
pages 84 to 85.Impairment review 
 
Impairment review 
 
The total loan impairment charge for 2014 has increased by $116 million, or 16 per cent, to $846 million compared to H1
2013. This represents 55 basis points of total customer net loans and advances. 
 
In Retail Clients, total loan impairment provisions have remained flat as the increase in Korea Personal Debt
Rehabilitation Scheme (PDRS) filings has been offset by lower provision requirements in ASEAN. Portfolio impairment
provisions also reduced as we reduced high risk personal loans exposure. We remain disciplined in our approach to risk
management and proactive in our collection efforts to minimise account delinquencies. 
 
In Corporate and Institutional Clients, total loan impairment provisions on balance sheet have increased by $206 million,
or 11 per cent, compared to 31 December 2013.  This was concentrated in a few names in Greater China and Africa.  Loan
impairment for Corporate & Institutional Clients represents 32 basis points of customer net loans and advances and remains
in line with the range of our experience since 2009. The credit quality of the portfolio remains high in spite of the
volatility in commodity prices and currencies. 
 
Further details of credit risk in respect of the Group's loans portfolio is set out on pages 34 to 61. 
 
Other impairment has increased by $174 million to $185 million reflecting the write-down of commodity assets arising from a
fraud in Greater China and certain strategic and associate investments. 
 
Principal uncertainties 
 
We are in the business of taking selected risks to generate shareholder value, and we seek to contain and mitigate these
risks to ensure they remain within our risk appetite and are adequately compensated. 
 
The key uncertainties we face in the current year are set out below. This should not be regarded as a complete and
comprehensive statement of all potential risks and uncertainties that we may experience. 
 
Deteriorating macroeconomic conditions in footprint countries 
 
Macroeconomic conditions have an impact on personal expenditure and consumption, demand for business products and services,
the debt service burden of consumers and businesses, the general availability of credit for retail and corporate borrowers
and the availability of capital and liquidity funding for our business. All these factors may impact our performance. 
 
The world economy is coming out of a difficult period and although the rate of growth is increasing, uncertainty remains.
The unwinding of the US Federal Reserve's quantitative easing programme could lead to higher interest rates, volatility in
financial markets and capital flight from emerging markets which may threaten the growth trajectory of some vulnerable
economies. A slowdown in China's growth may depress prices and trade in a number of commodity sectors such as energy,
metals and mining sectors, and a prolonged slowdown could have wider economic repercussions. 
 
The sovereign crisis in the eurozone is not fully resolved and, although acute risks have been addressed by ongoing policy
initiatives and the prospects for many of the European economies have improved, there is still a need for substantial new
structural reform (see additional information on the risk of redenomination on page 64). 
 
Our exposure to eurozone sovereign debt is very low. However, we remain alert to the risk of secondary impacts from events
on financial institutions, other counterparties and global economic growth. 
 
Inflation and property prices appear to be under control in most of the countries in which we operate, though some central
banks are already employing macro-prudential tools to temper property price increases. Changes in monetary policy could
lead to significant increases in interest rates from their currently low historical levels, with resulting impacts on the
wider economy and on property values. 
 
We balance risk and return taking account of changing conditions through the economic cycle, and monitor economic trends in
our markets very closely. We conduct stress tests to assess the effects of extreme but plausible trading conditions on our
portfolio and also continuously review the suitability of our risk policies and controls. We manage credit exposures
following the principle of diversification across products, geographies, client and customer segments. This provides for
strong resilience against economic shocks in one or more of our portfolios. 
 
Regulatory changes 
 
Our business as an international bank will continue to be subject to an evolving and complex regulatory framework
comprising legislation, regulation and codes of practice, in each of the countries in which we operate. A key uncertainty
relates to the way in which governments and regulators adjust laws, regulations and economic policies in response to
macroeconomic and other systemic conditions. The nature and impact of such future changes are not always predictable and
could run counter to our strategic interests. Some are anticipated to have a significant impact, such as changes to capital
and liquidity regimes, changes to the calculation of risk-weighted assets, derivatives reform, remuneration reforms,
recovery and resolution plans, banking structural reforms in a number of markets, (including proposals which could result
in (i) deposit-taking entities being ring-fenced from Corporate and Institutional Clients activities and (ii) local
branches of international banking groups being subsidiarised), the UK bank levy and the US Foreign Account Tax Compliance
Act. In relation to the banking structural reforms, the European Commission has published a legislative proposal for a
regulation introducing structural reforms to the EU banking sector, including a prohibition on proprietary trading and
separation powers for supervisors relating to banks' other trading activities. Uncertainty remains regarding details of the
application of the European Union's Capital Requirements Directive and Regulation (CRD IV), the proposed Bank Recovery and
Resolution Directive (BRRD) and Over the Counter (OTC) derivative reforms across our markets which could potentially have a
material impact on the Group and its business model. Proposed changes could also adversely affect economic growth, the
volatility and liquidity of the financial markets and, consequently, the way we conduct business, structure our global
operating model and manage capital and liquidity. These effects may directly or indirectly impact our financial
performance. Despite these concerns, we remain a highly liquid and well capitalised bank under current and currently
published future regimes. 
 
It is in the wider interest to have a well run financial system, and we are supportive of a tighter regulatory regime that
enhances the resilience of the international financial system. The Group will continue to participate in the regulatory
debate through responses to consultations and working towards an improved and workable regulatory architecture. We are also
encouraging our international regulators to work together to develop co-ordinated approaches to regulating and resolving
cross border banking groups. We support changes to laws, regulations and codes of practice that will improve the overall
stability of, and the conduct within, the financial system because this provides benefits to our clients and shareholders
and the broader geographies and markets in which we operate. However, we also have concerns that certain proposals may not
achieve this desired objective and may have unintended consequences, either individually or in terms of aggregate impact. 
 
Regulatory compliance, reviews, requests for information and investigations 
 
Since the global financial crisis, the banking industry has been subject to increased regulatory scrutiny.  There has been
an unprecedented volume of regulatory changes and requirements, as well as a more intensive approach to supervision and
oversight, resulting in an increasing number of regulatory reviews, requests for information and investigations, often with
enforcement consequences, involving banks. 
 
While the Group seeks to comply with  the letter and spirit of all applicable laws and regulations at all times, it may be
subject to regulatory actions, reviews, requests for information (including subpoenas and requests for documents)  and
investigations across our markets, the outcomes of which are generally difficult to predict and can be material to the
Group. Where laws and regulations across the geographies in which the Group operates contradict each other or create
conflicting obligations, the Group aspires to meet both local requirements and appropriate global standards. 
 
In 2012 the Group reached settlements with the US authorities regarding US sanctions compliance in the period 2001 to 2007,
involving a Consent Order by the New York Department of Financial Services (NYSDFS), a Cease and Desist Order by the
Federal Reserve Bank of New York (FRBNY), Deferred Prosecution Agreements with each of the Department of Justice and the
District Attorney of New York (each a 'DPA') and a Settlement Agreement with the Office of Foreign Assets Control. In
addition to the civil penalties totalling $667 million, the terms of these settlements (together the 'Settlements') include
a number of conditions and ongoing obligations with regard to improving sanctions, Anti-Money Laundering (AML) and Bank
Secrecy Act (BSA) controls such as remediation programmes, reporting requirements, compliance reviews and programmes,
banking transparency requirements, training measures, audit programmes, disclosure obligations  and the appointment of an
independent monitor (the "Monitor").  These obligations are managed under a programme of work referred to as the US
Supervisory Remediation Program (SRP).  The SRP comprises workstreams designed to ensure compliance with the remediation
requirements contained in all of the Settlements.  The Group has established a Financial Crime Risk Mitigation Programme
(FCRMP), which is a comprehensive, multi-year programme designed to review many aspects of the Group's existing approach to
anti-money laundering and sanctions compliance and to enhance them as appropriate.  One key component of the FCRMP is to
oversee and manage the SRP.  As part of the FCRMP the Group or its advisors may identify new issues, potential breaches or
matters requiring further review or further process improvements that could impact the scope or duration of the FCRMP. 
 
1 The US authorities comprise The New York Department of Financial Services (DFS), the Office of Foreign Assets Control
(OFAC), the New York County District Attorney's Office (DANY), the United States Department of Justice (DOJ) and the
Federal Reserve (NYFED) 
 
The Group is engaged with all relevant authorities to implement these programmes and meet the obligations under the
Settlements and is responding to further requests for information and inquiries related to its historic, current and future
compliance with the relevant sanctions and AML regimes of all jurisdictions in which it operates. 
 
As a result of its ongoing reviews and continuing engagement with US authorities, the Group believes that the term of the
DPAs is likely to be extended.  (The DPAs provide that if the Group fulfils all the requirements imposed by the DPAs, the
applicable charges against the Group will be dismissed at the end of their applicable term.) 
 
Separately, certain issues have been identified with respect to the Group's post-transaction surveillance system, which is
part of its anti-money laundering systems and controls and is separate from the Group's sanctions screening systems. The
Group is engaged in discussions with NYSDFS and the Monitor with respect to those issues and their ongoing remediation. The
Group believes that the resolution of these issues is likely to involve an enforcement action by the NYSDFS that would
include an extension of the term of the Monitor beyond the original two-year term, a monetary penalty and remedial
actions. 
 
The Group recognises that its compliance with historical, current and future sanctions, as well as AML and BSA
requirements, and customer due diligence practices, not just in the US but throughout its footprint, is and will remain a
focus of the relevant authorities. 
 
As part of their remit to oversee market conduct, regulators and other agencies in certain markets are conducting
investigations or requesting reviews into a number of areas of market conduct, including sales and trading, involving a
range of financial products, and submissions made to set various market interest rates and other financial benchmarks, such
as foreign exchange.   At relevant times, certain of the Group's branches and/or subsidiaries were (and are) participants
in some of those markets, in some cases submitting data to bodies that set such rates and other financial benchmarks. The
Group is contributing to industry proposals to strengthen financial benchmarks processes in certain markets and continues
to review its practices and processes in the light of the investigations, reviews and the industry proposals. 
 
The Group is co-operating with all relevant ongoing reviews, requests for information and investigations. While the Group
seeks to comply with the letter and spirit of all applicable laws and regulations, the outcome of these reviews, requests
for information and investigations is uncertain and could result in further actions, penalties or fines but it is not
possible to predict the extent of any liabilities or other consequences that may arise. 
 
For further details on legal and regulatory matters refer to note 31 on page150. 
 
Financial markets dislocation 
 
There is a risk that a sudden financial market dislocation, perhaps as a result of a tightening of monetary policy in the
major economies, a deterioration of the sovereign debt crisis in the eurozone, or a geopolitical event could significantly
increase general financial market volatility which could affect our performance or the availability of capital or
liquidity. In addition, reduction of monetary intervention by the US Federal Reserve, or other central banks, could disrupt
external funding for some economies leading to lower growth and financial markets volatility. These factors may have an
impact on the mark-to-market valuations of assets in our available-for-sale and trading portfolios. The potential losses
incurred by certain clients holding derivative contracts during periods of financial market volatility could also lead to
an increase in disputes and corporate defaults. At the same time, financial market instability could cause some financial
institution counterparties to experience tighter liquidity conditions or even fail. There is no certainty that Government
action to reduce the systemic risk will be successful and it may have unintended consequences. 
 
We stress test our market risk exposures to highlight the potential impact of extreme market events on those exposures and
to confirm that they are within authorised stress loss triggers. Stress scenarios are regularly updated to reflect changes
in risk profile and economic events. Where necessary, overall reductions in market risk exposure are enforced. We closely
monitor the performance of our financial institution counterparties and adjust our exposure to these counterparties as
necessary. We maintain robust processes to assess the appropriateness and suitability of products and services we provide
to clients and customers to mitigate the risk of disputes. 
 
Geopolitical events 
 
We operate in a large number of markets around the world, and our performance is in part reliant on the openness of
cross-border trade and capital flows. We face a risk that geopolitical tensions or conflicts in our footprint could impact
trade flows, our customers' ability to pay, and our ability to manage capital or operations across borders. 
 
We actively monitor the political situation in all our principal markets. We also monitor the development of broader
geopolitical events such as in Ukraine, the Middle East and territorial disputes in North East Asia. We conduct stress loss
tests of the impact of extreme but plausible geopolitical events on our performance and the potential for such events to
jeopardise our ability to operate within our stated risk appetite. Further details on stress testing are given on page 33. 
 
Risk of fraud and other criminal acts 
 
The banking industry has long been a target for third parties seeking to defraud, to disrupt legitimate economic activity,
or to facilitate other illegal activities. Concerns about cyber risk have risen significantly, driven in part by
geopolitical events. Cyber crime risks include fraud, vandalism and damage to critical infrastructure. 
 
While the internet and networked technologies have provided major opportunities for digitising business, they have also
given rise to significant risks as well-equipped and motivated attackers become more sophisticated. The incidence of cyber
crime is rising, becoming more globally coordinated, and is a challenge for all organisations. 
 
We seek to be vigilant to the risk of internal and external crime in our management of people, processes, systems and in
our dealings with customers and other stakeholders. The Group has implemented a range of cyber defences to protect from
hacking, misuse, malware, errors, social engineering and physical threats. Controls are embedded in our policies and
procedures across a wide range of the Group's activities, such as origination, recruitment, physical and information
security. We use third parties where appropriate to further protect, test, validate and strengthen our defences. 
 
We actively collaborate with our peers, regulators and other expert bodies as part of our response to this risk. 
 
The Group's controls to address money laundering risks are under review as part of the Group's Financial Crime Risk
Mitigation Programme, referred to in the section headed "Regulatory compliance, reviews, requests for information and
investigations" above. 
 
Fraud and criminal activity may also give rise to litigation impacting the Group. In December 2008 Bernard Madoff confessed
to running a Ponzi scheme through Bernard L. Madoff Investment Securities, LLC ('BMIS'). American Express Bank ('AEB'),
acquired by the Group in February 2008, had provided clients with access to funds that invested in BMIS. BMIS and the funds
are in liquidation. Certain clients have brought actions against the Group in various jurisdictions seeking to recover
losses based principally on the assertion that inadequate due diligence was undertaken on the funds. In addition, the BMIS
bankruptcy trustee and the funds' liquidator have commenced proceedings against the Group, seeking to recover sums paid to
clients when they redeemed their investments prior to BMIS' bankruptcy. There is a range of possible outcomes in the
litigation described above, with the result that it is not possible for the Group to estimate reliably the liability that
might arise. However, the Group considers that it has good defences to the asserted claims and continues to defend them
vigorously. 
 
For further details on legal and regulatory matters refer to note 31 on page 150. 
 
Exchange rate movements 
 
Changes in exchange rates affect, among other things, the value of our assets and liabilities denominated in foreign
currencies, as well as the earnings reported by our non-US dollar denominated branches and subsidiaries. Sharp currency
movements can also impact trade flows and the wealth of clients both of which could have an impact on our performance. 
 
We monitor exchange rate movements closely and adjust our exposures accordingly. Under certain circumstances, we may take
the decision to hedge our foreign exchange exposures in order to protect our capital ratios from the effects of changes in
exchange rates. The effect of exchange rate movements on the capital adequacy ratio is mitigated to the extent there are
proportionate movements in risk weighted assets. 
 
The table below sets out the period end and average currency exchange rates per US dollar for India, Korea, Indonesia and
Taiwan for the first half of 2014 and the half year periods ending 30 June 2013 and 31 December 2013. These are the markets
for which currency exchange rate movements have had the greatest translation impact on the Group's results in the first
half of 2014. 
 
                    6 months Ended30.06.2014  6 monthsEnded30.06.2013  6 monthsEnded31.12.2013  
 Indian rupee                                                                                   
 Average            60.77                     54.95                    62.35                    
 Period end         60.16                     59.35                    61.77                    
 Korean won                                                                                     
 Average            1,049.48                  1,103.21                 1,080.16                 
 Period end         1,011.73                  1,141.76                 1,055.08                 
 Indonesian rupiah                                                                              
 Average            11,689.54                 9,771.52                 11,286.33                
 Period end         11,855.50                 9,925.00                 12,164.29                
 Taiwan dollar                                                                                  
 Average            30.23                     29.65                    29.75                    
 Period end         29.89                     30.01                    29.84                    
 
 
As a result of our normal business operations, Standard Chartered is exposed to a broader range of risks than those
principal uncertainties mentioned above and our approach to managing risk is detailed on the following pages. 
 
Risk management 
 
The management of risk lies at the heart of Standard Chartered's business. One of the main risks we incur arises from
extending credit to customers through our trading and lending operations. Beyond credit risk, we are also exposed to a
range of other risk types such as country cross-border, market, liquidity, operational, pension, reputational and other
risks that are inherent to our strategy, product range and geographical coverage. 
 
Risk management framework 
 
Effective risk management is fundamental to being able to generate profits consistently and sustainably and is thus a
central part of the financial and operational management of the Group. 
 
Through our risk management framework we manage enterprise-wide risks, with the objective of maximising risk-adjusted
returns while remaining within our risk appetite. 
 
As part of this framework, we use a set of principles that describe the risk management culture we wish to sustain: 
 
•   Balancing risk and return: risk is taken in support of the requirements of our stakeholders, in line with our strategy
and within our risk appetite 
 
•   Responsibility: it is the responsibility of all employees to ensure that risk-taking is disciplined and focused. We
take account of our social responsibilities and our commitments to customers in taking risk to produce a return 
 
•  Accountability: risk is taken only within agreed authorities      and where there is appropriate infrastructure and
resource. All risk-taking must be transparent, controlled and reported 
 
•   Anticipation: we seek to anticipate future risks and ensure awareness of all known risks 
 
•   Competitive advantage: we seek to achieve competitive advantage through efficient and effective risk management and
control 
 
Risk governance 
 
Ultimate responsibility for setting our risk appetite and for the effective management of risk rests with the Board. 
 
Acting within an authority delegated by the Board, the Board Risk Committee (BRC), whose membership is comprised
exclusively of non-executive directors of the Group, has responsibility for oversight and review of prudential risks
including but not limited to credit, market, capital, liquidity and operational risks. It reviews the Group's overall risk
appetite and makes recommendations thereon to the Board. Its responsibilities also include reviewing the appropriateness
and effectiveness of the Group's risk management systems and controls, considering the implications of material regulatory
change proposals, ensuring effective due diligence on material acquisitions and disposals, and monitoring the activities of
the Group Risk Committee (GRC) and Group Asset and Liability Committee (GALCO). 
 
The BRC receives regular reports on risk management, including our portfolio trends, policies and standards, stress
testing, liquidity and capital adequacy, and is authorised to investigate or seek any information relating to an activity
within its terms of reference. The BRC also conducts "deep dive" reviews on a rolling basis of different sections of the
consolidated group risk information report. 
 
The Brand and Values Committee (BVC) oversees the brand, culture, values and good reputation of the Group. It seeks to
ensure that the management of reputational risk is consistent with the risk appetite approved by the Board and with the
creation of long term shareholder value. 
 
The role of the Audit Committee is to have oversight and review of financial, audit and internal control issues. Further
details on the role of the Board and its committees in matters of risk governance are covered in the Corporate Governance
section in the Group's Annual Report. 
 
Overall accountability for risk management is held by the Standard Chartered Bank Court (the Court) which comprises the
group executive directors and other senior executives of Standard Chartered Bank. 
 
The Court is the highest executive body of the Group and its terms of reference are approved by the Board of Standard
Chartered PLC. The Court delegates authority for the management of risk to the GRC and the GALCO. 
 
The GRC is responsible for the management of all risks other than those delegated by the Court to the GALCO. The GRC is
responsible for the establishment of, and compliance with, policies relating to credit risk, country cross-border risk,
market risk, operational risk, pension risk and reputational risk. The GRC also defines our overall risk management
framework. 
 
The GALCO is responsible for the management of capital and the establishment of, and compliance with, policies relating to
balance sheet management, including management of our liquidity, capital adequacy and structural foreign exchange and
interest rate risk. 
 
GRC and GALCO are essentially unchanged following the changes to the Group's organisation structure, although the committee
structures below them have changed significantly in some areas. The previous divisional risk committee structures have been
combined to achieve better integration and alignment to the new organisational model. 
 
Members of the GRC and the GALCO are both drawn from the Court. The GRC is chaired by the Group Chief Risk Officer (GCRO).
The GALCO is chaired by the Group Finance Director. Risk limits and risk exposure approval authority frameworks are set by
the GRC in respect of credit risk, country cross-border risk, market risk and operational risk. The GALCO sets the approval
authority framework in respect of liquidity risk. Risk approval authorities may be exercised by risk committees or
authorised individuals. 
 
The committee governance structure ensures that risk-taking authority and risk management policies are cascaded down from
the Board through to the appropriate functional, business and country-level committees. Information regarding material risk
issues and compliance with policies and standards is communicated to the country, business, functional and Group-level
committees. 
 
Roles and responsibilities for risk management are defined under a Three Lines of Defence model. Each line of defence
describes a specific set of responsibilities for risk management and control. 
 
·  First line of defence: All employees are required to ensure the effective management of risks within the scope of their
direct organisational responsibilities. Business, function and geographic heads are accountable for risk management in
their respective businesses and functions, and for countries where they have governance responsibilities 
 
·  Second line of defence: This comprises the risk control owners, supported by their respective control functions. Risk
control owners are responsible for ensuring that the risks within the scope of their responsibilities remain within
appetite. The scope of a risk control owner's responsibilities is defined by a given risk type and the risk management
processes that relate to that risk type. These responsibilities cut across the Group and are not constrained by functional,
business and geographic boundaries. The major risk types are described individually in the following sections 
 
·  Third line of defence: The independent assurance provided by the Group Internal Audit (GIA) function. Its role is
defined and overseen by the Audit Committee 
 
The findings from the GIA's audits are reported to all relevant management and governance bodies - accountable line
managers, relevant oversight function or committee and committees of the Board. 
 
The GIA provides independent assurance of the effectiveness of management's control of its own business activities (the
first line) and of the processes maintained by the Risk Control Functions (the second line). As a result, the GIA provides
assurance that the overall system of control effectiveness is working as required within the Risk Management Framework. 
 
The Risk function 
 
The GCRO directly manages a Risk function that is separate from the origination, trading and sales functions of the
businesses. The GCRO also chairs the GRC and is a member of the Court. 
 
The role of the Risk function is: 
 
·  To maintain the Risk Management Framework, ensuring it remains appropriate to the Group's activities, is effectively
communicated and implemented across the Group and for administering related governance and reporting processes 
 
·  To uphold the overall integrity of the Group's risk/return decisions, and in particular for ensuring that risks are
properly assessed, that risk/return decisions are made transparently on the basis of this proper assessment, and are
controlled in accordance with the Group's standards and risk appetite 
 
·  To exercise direct Risk Control Ownership for Credit, Market, Country Cross-Border, Short-term Liquidity and Operational
risk types 
 
The independence of the Risk function is to ensure that the necessary balance in risk/return decisions is not compromised
by short-term pressures to generate revenues. This is particularly important given that revenues are recognised from the
point of sale while losses arising from risk positions typically manifest themselves over time. 
 
In addition, the Risk function is a centre of excellence that provides specialist capabilities of relevance to risk
management processes in the wider organisation. 
 
Risk appetite 
 
We manage our risks to build a sustainable franchise in the interests of all our stakeholders. 
 
Risk appetite is an expression of the amount of risk we are willing to take in pursuit of our strategic objectives,
reflecting our capacity to sustain losses and continue to meet our obligations arising from a range of different stress
trading conditions. 
 
We define our risk appetite in terms of both volatility of earnings and the maintenance of adequate regulatory capital
under stress scenarios. We also define a risk appetite with respect to liquidity risk, operational risk and reputational
risk. 
 
Our quantitative risk profile is assessed through a bottom-up analytical approach covering all of our major businesses,
countries and products. It is also assessed against a range of exposure concentration thresholds. 
 
The Group's risk appetite statement is approved by the Board and forms the basis for establishing the risk parameters
within which the businesses must operate, including policies, concentration limits and business mix. 
 
The Group will not compromise adherence to its risk appetite in order to pursue revenue growth or higher returns. 
 
The GRC and GALCO are responsible for ensuring that our risk profile is managed in compliance with the risk appetite set by
the Board. The BRC advises the Board on the risk appetite statement and oversees that the Group remains within it. 
 
Stress testing 
 
Stress testing and scenario analysis are used to assess the financial and management capability of Standard Chartered to
continue operating effectively under extreme but plausible trading conditions. Such conditions may arise from economic,
regulatory, legal, political, environmental and social factors. 
 
Our stress testing framework is designed to: 
 
·  Contribute to the setting and monitoring of risk appetite 
 
·  Identify key risks to our strategy, financial position, and reputation 
 
·  Establish the adequacy of capital and liquidity resources 
 
·  Support the development of mitigating actions and contingency plans including business continuity 
 
·  Meet regulatory requirements. 
 
Our stress testing activity focuses on the potential impact of market, macroeconomic, geopolitical and physical events on
relevant geographies, customer segments and asset classes. Stress tests are performed at Group, country and business level
and bespoke scenarios are applied to our market risk positions. 
 
Group level stress testing has covered a considerable range of macroeconomic scenarios. These included the effects of a
major downturn in world trade, severe economic stress in emerging markets including a slump in emerging markets exports,
sharp appreciation and depreciation in currencies, and the tapering of quantitative easing. Stress testing at business
level covered a range of scenarios including the impact of foreign exchange depreciation or appreciation, sustained falls
in base metals and energy prices and significant changes in interest rates. 
 
At country level, a number of portfolio reviews were also undertaken, covering the effects of stress on a range of industry
sectors, including the shipbuilding, banking, real estate, telecoms, mining and renewable energy sectors. 
 
Market risk and liquidity stress tests are also carried out regularly as described in the sections on market risk on page
67 and liquidity risk on page 72. 
 
In addition, the Financial Policy Committee of the Bank of England has introduced a new stress test of the banking system,
focused on the eight largest UK banks, which includes the Group. Banks have been asked to project their performance under a
three-year common stress scenario which has been designed by the European Banking Authority. The Group expects that the
results of the BoE stress test will be used by the PRA to inform the setting of a bank's revised Capital Planning Buffer
(CPB). See Capital management section on page 87.

Credit risk management 
 
Credit risk is the potential for loss due to the failure of a counterparty to meet its obligations to pay the Group in
accordance with agreed terms. Credit exposures arise from both the banking and trading books. 
 
Credit risk is managed through a framework that sets out policies and procedures covering the measurement and management of
credit risk. There is a clear segregation of duties between transaction originators in the businesses and approvers in the
Risk function. All credit exposure limits are approved within a defined credit approval authority framework. The Group
manages its credit exposures following the principle of diversification across products, geographies, industries,
collateral types and client segments. 
 
Credit risk committee 
 
The Credit Risk Committee (CRC), which receives its ultimate authority from the GRC, is the primary senior management
committee to ensure the effective management of credit risk throughout the Group in line with risk appetite and in support
of Group strategy. The CRC regularly meets to monitor all material credit risk exposures, key internal developments and
external trends and ensure that appropriate action is taken. It is chaired by the Group Chief Credit Officer. 
 
Credit policies 
 
Group-wide credit policies and standards are considered and approved by the GRC, which also oversees the delegation of
credit approval and loan impairment provisioning authorities. These policies set key control standards on credit
origination and credit risk assessment, concentration risk and large exposures, credit risk mitigation, credit monitoring,
collection and recovery management. In addition, there are other group-wide policies integral to the credit risk management
such as those relating to stress testing, risk measurement and impairment provisioning. 
 
Policies and procedures specific to each client or product segment are established by authorised bodies. These are
consistent with our Group-wide credit policies, but are more detailed and adapted to reflect the different risk
characteristics across client and product segments. Policies are regularly reviewed and monitored to ensure these remain
effective and consistent with the risk environment and risk appetite. 
 
Credit rating and measurement 
 
Risk measurement plays a central role, along with judgment and experience, in informing risk taking and portfolio
management decisions. 
 
Since 1 January 2008, Standard Chartered has used the advanced Internal Ratings Based (IRB) approach under the Basel II
regulatory framework to calculate credit risk capital requirements. 
 
A standard alphanumeric credit risk grade (CG) system for Corporate, Institutional and Commercial clients is used. The
numeric grades run from 1 to 14 and some of the grades are further sub-classified. Lower credit grades are indicative of a
lower likelihood of default. Credit grades 1 to 12 are assigned to performing customers or accounts, while credit grades 13
and 14 are assigned to non-performing or defaulted customers. An analysis by credit grade of those loans that are neither
past due nor impaired is set out on page 46. 
 
For Retail client IRB portfolios, we use application and behaviour credit scores which are calibrated to generate a
probability of default and then mapped to the standard alphanumeric credit risk grade system. 
 
Our credit grades are not intended to replicate external credit grades (where these are available), and ratings assigned by
external ratings agencies or credit bureaus are not used in determining our internal credit grades. Nonetheless, as the
factors used to grade a borrower may be similar, a borrower rated poorly by an external rating agency or credit bureau is
typically assigned a worse internal credit grade. 
 
Advanced IRB models cover a substantial majority of our exposures and are used in assessing risks at a customer and
portfolio level, setting strategy and optimising our risk-return decisions. 
 
IRB risk measurement models are approved by the Credit Risk Committee, on the recommendation of the Credit Model Assessment
Committee (MAC). The Credit MAC supports the Credit Risk Committee in ensuring risk identification and measurement
capabilities are objective and consistent, so that risk control and risk origination decisions are properly informed. Prior
to review by the Credit MAC, all IRB models are validated in detail by a model validation team, which is separate from the
teams that develop and maintain the models. Models undergo annual periodic review. Reviews are also triggered if the
performance of a model deteriorates materially against predetermined thresholds during the ongoing model performance
monitoring process. 
 
Credit approval and credit risk assessment 
 
Major credit exposures to individual counterparties, groups of connected counterparties and portfolios of retail exposures
are reviewed and approved by the Credit Approval Committee (CAC). The CAC is appointed by the CRC and derives its credit
approving authority from the GRC. 
 
All other credit approval authorities are delegated by the GRC to individuals based both on their judgment and experience
and a risk-adjusted scale that takes account of the estimated maximum potential loss from a given customer or portfolio.
Credit origination and approval roles are segregated in all but a very few authorised cases. In those very few exceptions
where they are not, originators can only approve limited exposures within defined risk parameters. 
 
All credit proposals are subject to a robust credit risk assessment. It includes a comprehensive evaluation of the client's
credit quality including willingness, ability, and capacity to repay. The primary lending consideration is usually based on
the client's credit quality and the repayment capacity from operating cash flows for counterparties; and personal income or
wealth for individual borrowers. The risk assessment gives due consideration to client's liquidity and leverage position.
Where applicable, the assessment includes a detailed analysis of the credit risk mitigation arrangements to determine the
level of reliance on such arrangements as the secondary source of repayment in the event of a significant deterioration in
a client's credit quality leading to default. Lending activities that are considered as higher risk or non-standard are
subjected to stricter minimum requirements and require escalation to senior credit officer or authorised bodies. An
analysis of the loan portfolio is set out on pages 41 to 61. 
 
Credit concentration risk 
 
Credit concentration risk may arise from a single large exposure to a counterparty or a group of connected counterparties,
or from multiple exposures across the portfolio that are closely correlated. 
 
Large exposure concentration risk is managed through concentration limits set by counterparty or group of connected
counterparties. 
 
At the portfolio level, credit concentration thresholds are set and monitored to control for concentrations, where
appropriate, by country, industry, product, tenor, collateral type, collateralisation level and credit risk profile. 
 
For concentrations that are material at a Group level, thresholds are set and monitored by the CRC and reported to GRC and
BRC. 
 
Credit monitoring 
 
We regularly monitor credit exposures, portfolio performance, and external trends that may impact risk management
outcomes. 
 
Internal risk management reports are presented to risk committees, containing information on key environmental, political
and economic trends across major portfolios and countries; portfolio delinquency and loan impairment performance; and IRB
portfolio metrics including credit grade migration. 
 
Credit risk committees meet regularly to assess the impact of external events and trends on the Group's credit risk
portfolios and to define and implement our response in terms of appropriate changes to portfolio shape, portfolio and
underwriting standards, risk policy and procedures. 
 
Clients or portfolios are placed on early alert when they display signs of actual or potential weakness. For example, where
there is a decline in the client's position within the industry, financial deterioration, a breach of covenants,
non-performance of an obligation within the stipulated period, or there are concerns relating to ownership or management. 
 
Such accounts and portfolios are subjected to a dedicated process overseen by Credit Issues Committees in countries. Client
account plans and credit grades are re-evaluated. In addition, remedial actions are agreed and monitored. Remedial actions
include, but are not limited to, exposure reduction, security enhancement, exiting the account or immediate movement of the
account into the control of Group Special Assets Management (GSAM), our specialist recovery unit. Typically, all Corporate,
Institutional, Commercial and Private Banking past due accounts are managed by GSAM. 
 
For retail and small business client exposures, portfolio delinquency trends are monitored continuously at a detailed
level. Individual customer behaviour is also tracked and is considered for lending decisions. Accounts that are past due
are subject to a collections process, managed independently by the Risk function. Charged-off accounts are managed by
specialist recovery teams. In some countries, aspects of collections and recovery functions are outsourced. 
 
Credit risk mitigation 
 
Potential credit losses from any given account, customer or portfolio are mitigated using a range of tools such as
collateral, netting agreements, credit insurance, credit derivatives and guarantees. The reliance that can be placed on
these mitigants is carefully assessed in light of issues such as legal certainty and enforceability, market valuation
correlation and counterparty risk of the guarantor. 
 
Where appropriate, credit derivatives are used to reduce credit risks in the portfolio. Due to their potential impact on
income volatility, such derivatives are used in a controlled manner with reference to their expected 

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