Welcome to Standard Chartered Plc's 2020 Full Year Results. Today's presentation is being hosted by Bill Winters, Group Chief Executive and Andy Halford, Group Chief Financial Officer. Once the opening remarks have finished, There will be an opportunity for question and answers. At any point during the presentation. Alternatively, please use the question box available on your webcast page to submit your questions.
The presentation will begin with a short video followed by Bill's opening remarks. We believe the world is a better place when we exchange what we have. That's why we've been driving global trade for over a 160 years and we continue to do so even in these uncertain times because we're not here for good enough. We are standard chartered and we're here for good.
Okay. Good morning, good afternoon, everybody. I hope you're all hungry after that little bit of Singapore culture. I'm going to say a few things upfront, then I'm going to hand it off to Andy to go through the details of our 2020 results. I'll come back with a review of our strategic themes And a little bit of the way forward.
So all in all, 2020 for us has been a tale of 2 sides really. On the one hand, we know that we had We had a relatively strong finish to the year in those areas that have begun their recovery. We know along the way that we had We absorbed the transitory impacts of higher credit costs, associated economic slowdown, which clearly led to a reduction in cross border trade and investment and then to the higher credit provisioning, which was obviously very much focused in the 1st part of the year. We also had some structural and those are all transitory. We also have some structural challenges, and in particular, lower interest rates, which we think is going to be with us for some time, and then which clearly requires an ongoing recalibration of our business model, which we will be talking about in detail here.
But overall, we demonstrated strong resilience. I think we are as convinced as ever that the strategic path that we were on is one that makes sense with a good ongoing Market share increases and better penetration and better customer service in our network businesses with a network that is as relevant as ever in particular around the Broadly defined China trading ecosystem. Our affluent client population continue to grow over the period, so 10% growth in the number of clients. While we know that the earnings line itself is volatile with market sentiments and we clearly had a downdraft during the COVID time, we're back to Full strength in terms of growth in our key markets. We are going to talk a little bit about the mass market and the things that we've been doing there, digitization, data analytics and otherwise.
And I will go into some detail on our sustainability agenda, both the obligations that we feel that we have, but also the tremendous opportunities. We think that as we execute this strategy, we think there's good evidence that we're on track to execute the strategy. We can continue to grow our income at 5% to 7%. We can continue to do that with expenses running below inflation that we can do that in a disciplined way that It's conservative vis a vis our capital position and then we can get to that 10% plus return on tangible equity in medium term. We put out a 7% milestone along the way in 3 years, which is as far as I understand it, more than you guys think that we're going to make, but it's We will see steady progress from the 3% we produced this year through to 10% in the medium term and we'll give you some milestones along the way.
With that, I will hand over to Andy and I'll come back with some more comments on the strategy later.
Good. Thank you very much, Bill, and thank you all So just a few overview comments and then I'll move into a little bit more detail on the slides that follow. So As Bill said, it does feel like this story in 2 parts. We came into the year off a pretty good trend of increasing ROACE 1.5 percentage points a year. We had a strong Q1 and then as we all know COVID came in and it had 2 particular consequences for us.
1 was the impact of interest particularly in the financial products area, financial markets area, offsetting what were the significant downdrafts on interest. I'll talk about both of those in a bit. Operating expenses, we said particularly at the time that COVID We started to have an impact that we would tightly control those. We have done that. Those are slightly down year on year.
Credit impairment has doubled, but I think the testament to the actions we've Taken over the last several years to improve the quality of the balance sheet has really borne through. And the good news here is that 2 thirds of that full year charge actually was in the first half and the charges we took in the 3rd Q4 were pretty much the same. Again, a bit more detail on those in a moment. Put those together, underlying profit was €2,500,000,000 which was down 40%. We took some restructuring charges, some to do with the exit of Legacy businesses, some to do with redundancy, and we had the goodwill impairment from earlier in the year.
So the ROTE full year 3% halved from the previous year, very much impacted by COVID, obviously. The CET1 ratio however at 14.4% was the highest we've had it for a good while. And off the back of that, as you will have seen today, We've announced the recommencement of dividend and the completion of the previous buyback program. So if we move on to Slide 6, This is showing the walk on the top half between our full year 2019 and full year 2020 income and on the BOS part for the Q4 on Q4 comparisons. We have normalized it for currency and stripped out EBA, so there's a like for like comparison.
So on the full year, we were down £400,000,000 overall on income and that on the Right hand side, you can see the interest rate affected products obviously suffered. But on the left hand side, we had a good performance in Financial Markets, Wealth Management, on Financial Markets, particularly on the rate side and in the latter parts of the year on the credit and capital markets side. And Wealth Management I think is interesting. The Q2 on Q2 numbers went heavily backwards, but by the Q4, Q4 on Q4, We were about 5% up year on year. So the momentum on Wealth Management is clearly picking up quite nicely.
The Q4, which did not get the benefit of the higher interest rates at any point in that, we saw the income come down 11%. If we move on to Slide 7, just to give a little bit more insight as to what happened on the interest rate effect, So quite a lot of numbers here. But on the top left, you can see our gross yield over the year actually reduced by 100 basis points year on year. We managed to save about 70 basis points through reduction in the rates we paid, but nonetheless the average NIM full year Came down by 31 basis points, which is about 19% overall for the year. In the middle chart, you can see the progression of that By quarter, and we had indicated that we would see it coming down to roughly where we came out in the Q4, so 124.
There's about 2 basis points of 1 offs in there. But nonetheless, actually, the NIM has moved as we had predicted. And our view is that as we look forward to 2021 that we would see the full year average being marginally below at 4th quarter level. If I then move on to the other income, so not The directly balance sheet interest related income. This was 2% up year on year and is now 54% of our total income.
So particularly important in a low interest rate environment that we are driving this. It was a performance that was helped by the strong first half As you can see from the chart here and on the right, you can see a descriptor, but the green is the net fees and commissions. Those were down 10% as primarily in corporate space, but in the blue the net trading and other income was up 12% year on year or 9% excluding DPA and that was particularly benefiting from the strong financial markets performance. We move then on to Slide 9. Just looking at the business by customer segment, The semantic here unsurprisingly is that those segments that have a higher proportion of their activity in the financial market space and to some extent Wealth Management Did better and those that did not did less well.
So corporate institutional banking, dollars 7,200,000,000 of income, so pretty much half the group Had a, I think in the circumstance, a very good year, 2% up on income and at the same time, it controlled costs, which were 3% down. And also the impairment charges. Whilst we took impairment charges, 70% of those were in the first half and actually in the second half, they were much more moderated. Retail Banking is about 30% Wealth Management product, 70% retail product. So, it got benefit on the former, But largely the rate effect on the latter and hence why the top line was held back, albeit again, we took costs out Almost premature with that reduction in the income.
And it was a year when we particularly focused upon digitalization and the push the MOGS business and the push on Nexus platform, which Bill will refer to later on. Commercial Banking has a much lower financial markets mix. It's only about a quarter of its income and hence the top line there was held back as a consequence of that. And Private Banking again in the period when sort of face to face contact was more difficult during the early part of the year that made Private Banking more difficult. That having been said, Our assets under management year on year is actually up by 9%.
So on Slide 10, This is the same comparison, but now located by geographic region. You can see the biggest top line growth we got was Europe and Americas down the bottom. Again, unsurprisingly, because it is a corporate business. And the 2nd biggest growth we got was in ASEAN and South Asia, Which was up 4%. So whilst Singapore was impacted by rates, we had other countries in the region did Well, India, I think, was a particular standout, 26% increase in income and a fourfold increase in operating profit, Indonesia up 16%, etcetera.
So quite broad based improvement in several of the markets in that region. Greater China and North Asia, 40% or so of total group income, GBP 6,000,000,000 Again, big market Hong Kong held back by rates, but other markets in the region did very well and consistent with the sense that North Asia is pulling through this quick cut. We had the Korea business, for instance, grow its top line 9% and is now almost approaching $300,000,000 of operating profit, a far cry from where it was a while ago. We had strong performance in China as well. So the income in China was up 6% and we're fast heading towards $1,000,000,000 of income Our business in China and hence the investments we continue to make there and into the Greater Bay Area.
Africa and Middle East was a more difficult period, so Actually, 0 on the profit before tax, the income down 8%. The 8% actually belies a lot of currency mix movements. So if you take currency out and do it on a constant We're almost stable on a constant currency basis. So on Slide 11, We have got center at other. Put simply, the story here is the vast majority of this is the treasury activity.
And because of the reduction in interest rates, it reduced the yields that we received in the treasury space. We offset some of that with cost reduction, but net net, There was a GBP 300,000,000 to GBP 500,000,000 drag on the profit depending upon the segment or the region view. In the segment view, there was also a slight impact on Bohai where Host the IPO, we have a slightly lower stake in that business and also because of the IPOs we flagged in the 3rd quarter, We've actually booked 10 months of results in the 2020 year, whereas we will resume the full 12 months in 2021. On Slide 12, costs. So costs, we said at the time that COVID came in that we would take a firm grip on those.
We referred to opportunities to reduce variable compensation, which we did. We refer to opportunities to reduce travel. Well, opportunities, those happen anyway, And travel costs came down obviously a lot. We said we would look at some elements of our investment spend. What actually happened Once we decided that we should continue to spend on investments at the same level as we had done in the previous year, That put a little bit more cost into the Q4, but that was very conscious decision to do that.
Bill will refer to a lot of the things we're doing in this space, but our strong is that as we build for the period post COVID, it is absolutely vital that we have as many of these initiatives right as we possibly can do. We said for 2021 previously, the aim is to keep costs on a constant currency basis down below €10,000,000,000 And we said that there will be some restructuring costs of about €500,000,000 over a period of time, some in 2021 to achieve that, Some of that redundancy and some of that will be about space management and property costs. On Slide 13, impairments. So I mentioned earlier that the total impairment charge had Just about double, so CHF 2,300,000,000 for the year. In the middle chart at the top, you can see profiling by quarter.
So the largest part occurred in the first half of the year and in the latter two quarters we've been fairly constant on P and L ahead. I think the encouraging thing, we're not going out of the woods yet on this, but is the lead indicator. So on the bottom right chart, The blue line there is the trend on the early alerts, the ones that we keep an eye on, not yet a problem, but could become one. And those, as you can see, are £3,000,000,000 lower than where they were at their peak. We have and I think this is included in the indices, we have focused upon the sectors The most vulnerable aviation, etcetera, and the exposures in those actually have come down again by about $3,000,000,000 just quarter on quarter.
We're tracking countries where people have been able to defer repayments, and the loan is subject to relief. That's also come down By £3,000,000,000 and we've seen the vast majority of customers recommencing with their previous payment profile And investment grade put up 20% since 2014. I think the actual numbers there something like 42 of our book was investment grade in 2014. It's now 62%. And I think that is just really good evidence of the steps we have taken over the last several years having cushioned what could otherwise be bigger flows in this space.
So looking forward, I think the indicators here are of a positive nature, but clearly some Slide 14, risk weighted assets and capital. So risk weighted assets overall were up 2% for the year, so just under €5,000,000,000 Obviously, that was helped by the This is the Pravato, which gave us a CHF9 1,000,000,000 benefit. If you separate that out, we saw asset quality Diteration, increasing the RWA is an obvious consequence of COVID, but we saw a significant offset So
that's an
asset mix.
So quite a lot of the liquidity that we've got is now in our treasury space ready to be deployed and that tends to be low risk weighted. Asset growth was good and in fact as you can see to the balance sheet, we had loans and advances increased 5% Yes, so the volume growth is clearly there and that we strongly believe will continue. CET1 ratio 14.4. That includes 0 point 2 for the software quick fix, which the PRA are having a look at. But other than that, we had the benefit from the sponsor sale of about 50 basis and then the combined effect of the increase of the risk weighted assets and the profit contribution got us to 14.4 with the consequence that the dividend recommences and the buyback recommences.
5.15, I think it's a really important chart. We had come into the 2020 year in a really good position. The strategy was paying off. You can see that the income was broadly within the range that the expenses were increasing jaws. The ROCE was progressively improving and then to the early point and as we all know COVID came along.
So that has set us back a period of time, but we really do hope that over a period going forward as more and more columns get added back here, We'll start to see Greens reappearing and look back as being look at this period as being a sort of temporary dip in an otherwise longer term strategy delivery. On Slide 16, the outlook for 2021. So First of all, we are very much in the view that the asset growth is out there and that we will continue to take that and particularly that will happen in Asia. However, the facts of the matter are that the interest rate impact rolling fully through the book will reduce the NIM year on year. When you put the volume and the NIM together, that is likely to be at a constant currency rate, a flattish year in 2021, but the underlying growth in assets we see very much continuing.
We see the expenses again constant currency at about £10,000,000,000 or just below £10,000,000,000 and we just put here a sort of indicator if you take the FX rates at the end of December, Then those would actually have increased both the income and the cost by about €400,000,000 So we're usually fairly operating profit neutral on FX. But just to be clear, that the numbers for next year, if these rates continue throughout this year, they would have that sort of consequence. We expect credit impairment pressures to be reducing, difficult to predict accurately how much, but we do see those coming down and then the reacceleration of the 30% to 14% range and the full preparedness to return capital to be within that range. So last couple of slides, Slide 17, the overall financial framework. Bill will talk about where we are putting more focus on, but broadly this is similar to the framework we've had before.
We do believe it is working, albeit with A slight COVID related delay. We do believe 5% to 7% income after 2021 year is fully achievable. We are confident we can keep growth down below the rate inflation that we intend to operate, as I said, within the CET1 range. And we're all very clear that to get the ROTE up, We need to work the E in ROTE. And finally, Slide 18 then is just the walk from where we were in 2020 on the ROCE to get
to the
10%. As you would expect, some of this is coming from income Credit break there is more detail in the appendix, but we think we have a lot of growth in the regions and the products that we have now got that we should be able to achieve that. If expenses grow below inflation, that is below the rate income, so that gives us leverage there. Impairments, we're assuming that those normalized in the 35, 40 basis point area as in a Look where they are at the moment. UK Bank then it comes off this year.
And as our profits grow, we see our effective tax rate Slightly reduced over a period of time. We will keep RWA growth below the rate of asset growth. And then finally, on equity, We are above our target range getting into the range and buybacks should give us some assistance also still around that 10% ambition. So with that, let me hand back to Bill.
Great. Thanks, Andy. You see the little schematic with the 4 pillars of our strategy to the left. Just the context, I guess, which we are linking that strategy is pretty uniformly positive, whether it's GDP growth in Asia, the affluent population, both Stock and flow growing, the revenue pool in the mass market and both the challenges around sustainability, the Challenges in our markets in particular, but also the opportunities. But the question that we get regularly is What makes you think you can do this?
You've been at this transformation for a while. Why do you think you can grow up 5% to 7% in the top left with the Expense and capital profile that Andy just went through. The short answer is because that's what we've been doing, certainly up until the point of the pandemic, as Andy indicated in the side a couple earlier. Because we've done what we said we were going to do at each stage, we said we would clean up the balance sheet, skepticism at the time, we did that very quickly. We said that we were going to reinvest and reposition our financial markets business for the current environment and we've done that.
I think we saw that very clearly in terms of our We said that we were going to pursue an aggressive digitization agenda and we've done that. We've now got best in class applications In the market, whether it's our digital bank in Hong Kong or many of the efforts that we've taken internally. So these are the we said we could do this while substantially increasing But also keeping expenses relatively flat, precisely flat. We've done that. So we have a high degree of confidence that this team can execute against the things that we say that we can do.
Unfortunately, we can't control pandemics or the level of interest rates and that has clearly set us back. We acknowledge that. And That requires some fine tuning, which we'll go through as we discuss strategy. But this team remains confident that we can deliver on that medium term objective that we've set. And We think we've got pretty good evidence to support that and an extremely attractive market backdrop.
So if we move to Page 21, I'll take the strategy pillars in turn. First is our network strategy. This remains very consistent with what you've seen in the past. Now clearly there's been a change. The zero interest rate or the interest rate environment has taken a pretty healthy dose out of our cash management business and other deposits sensitive The flip side is market volatility and the quest for yield.
I mean, so it's not just the volatility that's void our financial markets is also the fact that investors are increasingly shifting to markets that 1, are growing, 2, are looking stronger and 3, in many cases still have some yield. And we're very well positioned as we grow our credit business to pick up that yield seeking in our markets where we have a clear competitive advantage. The network business is over 2 thirds of our corporate business. It continues to generate very strong returns. We've got a well diversified Portfolio of products and services and that means that through different market environments as we look over the next 3, 5, 7 years, we would expect there to be secular growth in this business, but also Rotations from one part to the other as economic conditions warrant.
Along the way, we will be investing heavily, continuing to focus on building our non financing income line, particularly important in a slow rate environment. And then very importantly focusing on establishing a best in class set of capabilities around our connectivity in terms of digital agenda vis a vis our corporate clients alone or in some cases with partners, especially as we build out our supply chain financing business. So if we move on to the affluent Strategy, Page 22. We have an excellently positioned affluent client business. We've Investing heavily in both products and customer service over the past 5 years.
We now have best in class designation in 6 of our top markets, It's out of 7 and to be precise. That is measured by Net Promoter Score, but also by separate surveys that we've done to judge our customer satisfaction with our products and services. So we know that this is a high returning business for us. We know that it's grown secularly. So independent of our efforts over the past 10 years, we know that we've matched market growth and we think that we can actually continue to match or exceed market growth against a very, very attractive Underlying, Dannak.
So we will continue to focus on this affluent client segment in everything that we do. We move to the next page, Page 23. You've not heard us talk so much about the mass market business. The mass market businesses 3 years at Center Charter has been a laggard. We haven't invested in it materially.
We had credit problems. If we went back to the early part of the last decade into the middle part of the last decade. We had a series of accidents in different markets, Which I think undermined our confidence that we could execute a credit led mass market strategy effectively. In the meantime, now what we've done is to invest heavily in 2 things. 1st is data analytics to significantly improve the quality of our credit decisioning, but also The focus nature of our marketing and second is to invest in digitization.
So we now have an operation that's getting Closer to, I will say, normal or industry benchmarks in terms of our end to end cost to serve, where we've got Completely digital operations. So for example, our digital banks in Africa or in the recently launched MoxBank in Hong Kong, We've got we're at the lower end of the cost ratio in terms of the cost of onboarding clients and the cost of ongoing services. So we have more to do in terms of creating a truly seamless end to end flow. But we're now in a position to scale that business both on the lending side as well as on the servicing side, using digital tools, leveraging these data analytics capabilities. We'll do that on our own in the core bank.
We do that through partners as we have with our digital banks in Hong Kong and Indonesia with our Nexus program, Banking as a service model in Hong Kong in Singapore as we roll out the digital bank there. And so that combination of operating alone with a gross digitization and data driven agenda and in partnership will get us some growth and that growth will be profitable. So this will be a contributor to our 10% RoTE progression in the coming years. We move on to the sustainability agenda. You've heard us talk about sustainability for years.
I think we've been a thought leader in sustainability for the very simple reason. The markets where we operate will be the most impacted, already are, the most impacted by climate change. So the risk is greatest in our markets, but also the need and the opportunity to transition to a net zero economy is the greatest in our markets. So the impact that we can have by providing Transition finance to the companies and countries in our footprint will have a more material impact than A similar number of dollars spent anywhere else in the world where the sustainability agenda is already more advanced. So there are risks on the sustainability front, I.
E. Our markets will be more impacted. There's tremendous opportunities, right, dollars 75,000,000,000,000 of financing required to meet the sustainable development goals over the next 10 years. Only 10% of that is funded in our emerging markets, right, the remainder has to be found. Our very, very strong project finance Capabilities and sustainable plans in particular put us in an excellent position to earn $1,000,000,000 of income and growing.
This will be a business line that will grow for some time. We're matching that with our own internal commitments. We've been very clear that we will achieve a net zero position for Standard Chartered Bank, including finance commissions by 2,050. We're very clear that the requirement to make significant progress against that objective It's one that we have undertaken significant progress by 2,030. The actions that we've taken over the past 3, 4, 5 years in terms of exiting any business financing coal fired power plants or coal production is I think it was market leading, continues to be market leading.
We've continued to add to that by making clear that our clients will need to have their own transition plans 2 net 0 by 2,050 and that they will need to demonstrate significant progress by 2,030 and we're there to help them do that. So there's both a bit of a stick, but much more importantly, there's a carrot, because I think what we're seeing more and more is our clients want to and feel they need to And they're leading on us to provide that help and we're in an excellent position to do that. So if we can move on to The underlying sets of skills and capabilities that will be necessary for us to deliver on those 4 strategic pillars. These are, I think, calls internally our enablers. 1st is innovation.
We have a great track record, a recent track record in innovation. It's inside the bank. So we have an entrepreneur program where we Solicit ideas from our colleagues and ask them to effectively compete for support and funding. We've had 2,300 ideas, 2,300 ideas. We've got a coaching and approval funnel that have narrowed that down to dozens now of ventures That had been funded internally, some of which are reaching the point of commercialization and real income.
But more importantly, it's changing the mindset in the organization around innovation to the point where we Look at our plans over the next 5 years or so, we think we can generate $5,000,000,000 is half of our income from things or activities or ways of doing business that are fundamentally different What we're doing today, it's a very exciting prospect for all of us. But that's also manifest itself in a number of ventures, which are discrete, Starting with Moxx, our digital bank in Hong Kong, which has been which is market leading in the Hong Kong market. We now have almost 3% of the population in Hong Kong has signed up for a Mox account. The vast majority of those have actually funded the account and are using it. The App Store ratings have Continue to be at the top of the tier and amongst the very best in the world.
So what is to say, Santa Clara knows how to build digital applications and we know how to build digital businesses. Our African digital banks are clearly leader in digital banking across the African continent. Evidences to us that it's not all about getting the latest and sexiest technology, but rather having something that's appropriate for the market and delivered in a timely way. It goes on from there. We've now announced the launch of our Nexus platform in Indonesia.
This is I think The first truly scaled banking as a service model coming out of a large bank where we will be delivering a full range of banking products to our Indonesian or to Indonesian customers via Commerce Platforms. First partner is Mukulakwat with 100,000,000 customers in Indonesia. Very, very exciting proposition as that we're advanced testing now. As that rolls out, we'll look at how we can roll that out to other markets, but it goes on and on. We are a leader in digital assets.
We've announced the launch of Zodia, which Digital asset custodian, doing this together with the Northern Trust and Northern Trust is coming to take a small stake on the back of something that we built at Standard Chartered. The opportunities to capitalize on the market at its infancy and I would say that in terms of institutional interest in digital assets, the market is at its infancy. The opportunity to take a leading position there is very exciting for all of us at Standard Chartered. The list goes on. We move to Page 26.
This can only be driven by the people and by the ways that we work. So we've had a fundamental program and he's referred to it regularly around our new ways of working. This is a fundamentally client focused end to end approach. Without the productivity gains that we have already generated through our new ways of working, but more importantly will generate in the years to come, we can't maintain The high investment pace that we have been undertaking, while at the same time keeping expenses well below our income growth. So the 2 way of working, again, it's something that I think is familiar across the industry at Standard Chartered where we're actually doing it and it's making a difference and it is what's allowing us to achieve the to make the strides that we have.
Finally, if we move to the next of our key in English is people. We focus very heavily on developing our people. We've changed our incentive mechanisms to incentivize the kind of behaviors we've talked about Today, whether that's innovation or new ways of working, agile leadership skills, in addition to coping with the With the sorts of things that we've had to deal with the 2020 in terms of flexible working and like, the results of a lot of that reskilling has been a much Better qualified workforce for what we're trying to do. Obviously prepared to hire externally to fill those gaps and we continue to be an attractive Hirer, so people want to work for Standard Chartered very, very importantly. But it's also meant that as we inevitably have roles to go away as we automate, And we've been able to reposition those colleagues as a result of being reskilled inside the organization.
So I think as we look at the ongoing automation, we should be able to place Between 25% 50% of our colleagues internally. Obviously, from a financial perspective, avoiding some of the restructuring costs, but more importantly, offering career options to colleagues, which becomes a big draw for people into Standard Chartered Bank. So If I could just wrap up quickly on Page 28. We are fundamentally a purpose led organization. I think everybody will say that, especially since some large investors have been calling for every organization we've repurposed that.
We've been repurposed that for some time. Our purpose of driving commerce and prosperity through our unique diversity very much informs our strategy. It informs the way that we focus on our business. It has for certainly for my time at Standard Chartered and it will no doubt for years to come. What we've talked about though is how we can take this purpose And go beyond the 1 year budget or the 3 year, 5 year corporate plan or strategic plan and turn that into a set of aspirations that can take us outside of our comfort zone fundamentally and get us to the position where we can make material contributions Through the societies in which we operate, which will in turn improve our financial performance structurally and over the long term.
You'll hear more and more from us about the 3 broad buckets of aspirations that we are setting out. The first is in and around The agenda to reset globalization. Globalization, dirty words, everybody hates it because it had terrible economic and political consequences Over the past several years, all of which is correct. And the globalization has also lifted billions of people out of poverty and can continue to and in fact is continuing to in many of our markets, but it needs to be reset to be fair and equitable across all the stakeholders in the global economy. Standard Chartered is in a very strong position to our global network, to both on our wholesale and retail side to deliver a set of products and services and ideas That can help the world to reset globalization get the benefits while addressing some of the underlying challenges.
2nd is lifting participation in the financial economy. We recognize that the bulk of growth in many of our markets comes from small businesses, but small businesses are structurally under banked in many of our markets. The opportunity for us to step up with our very sophisticated corporate lending approach as well as our very well established retail position on the ground Should allow us to finance small businesses to a far greater degree. We will have a particular focus on lifting the participation of women in the financial economy. Why?
1, they're underrepresented today. They're underbanked today. In many markets, they are the economic driver and the most untapped resource that's available to So we will focus more and more on how we can get to 100 of millions of people with a disproportionate share of women. And third and finally is sustainability. Sustainability is I've talked about already both in terms of the obligations we have, but also the opportunities that we have.
And we will be coming back with a series Aspirational goals for how we can transform our global climate agenda into 2,050 and but obviously, it will be very important progress along the way. So can we do this as standard chartered? Can we get to this 10% plus return on tangible equity? And we have absolutely no doubt that we can. A little bit faster if we get That bump in interest rates that seems elusive right now, but otherwise we were on track.
The strategy is delivering the performance in 20 and Engineering for 2021 supports that confidence. And with that, I would like to hand it back to the moderator to take some questions.
Thank you. We will now begin the question and answer and wait for your name to be announced. Alternatively, Please use the question box available on your webcast page to submit your questions. Your first question comes from the line from Ronit Ghos from Citigroup. Your line is open.
Great. Thank you. Good morning, good afternoon, Bill and Andy.
Couple of questions, please. 1 on the financial market performance in Q1 that you call out and a second one on capital return, please. So on financial markets, you called out a good start to the year. Could you just give us a bit more color please in terms of is this Which parts of Asia is this being driven by? Is this mainly FX or is it also rates, steepening of the yield curve helping?
Any sort of color on that would be awesome. The second question is on capital return. So there's a buyback dividend split for as you've just announced, it's almost fifty-fifty and I understand why because Last year's buyback being completed. Is there any kind of I mean, thinking ahead for the next couple of years, given where
the share price is and
the price to book, Obviously, buyback is super accretive. Should we assume quite a high mix of buybacks in the coming years or should I not read too much into The current sort of buyback Debbie announcement. And just to follow on on that, how much scope do you have for sort of follow on buyback Post stress test later in the year after the U. K. Stress test.
Thanks guys.
Thanks Ronan. I'll take a stab at the FDM question and then Andy will pick up on the capital return. So the trend for our financial markets business over the past 3 years has been a strong investment in our local market capabilities. The most I would say the standout performer during that period Has been everything around China and the RMB. We are, I'll say, A or the leading bank in terms of cross border payments and associated FX flows in China.
That's been a key driver of our overall CIB income, that broad theme. It's been a key driver of our financial markets income as well. So that step up in China has been exceptional. Of course, we're very differentiated in South Asia and in Africa as well, which has also been an important contributor and that's across rates and FX and credit. The area where we were probably furthest behind historically has been on the credit side.
So we've we had a relatively undeveloped credit origination and and credit distribution set of capabilities. So we've been building that out. I would say that we've gone from being substantially subscale in terms of the credit flow to being Okay. That's a good improvement. So thumbs up to the team.
But we have much further that we can go. And as I mentioned in my opening comments, The context where global investors are getting more and more comfortable with the markets where we operate and 1st year and 1st year for yield Should position us very well to have an ever more balanced business between rates, FX and the broad capital marketcredit dimension.
Yes. So on the capital returns, as you've seen today, we've sort of gone fifty-fifty, not that we decided to be fifty-fifty, But we are completing the pre existing share buyback and then the rest of it back by way of dividend. I think it's fair to say in our minds and you imply this in your question or say in your question that with the share price being by historic standards very low, The attractions of buyback are pretty strong. And therefore, sort of the larger share price, the more I guess our minds will be focused upon having buybacks in as a reasonably significant part of the overall returns profile going forward. The dividend is set at the level it's at We know most people would like a degree of predictability about dividends going forwards.
It sets us with a sort of modest base, which we should be able to increase over time. So I think you will see some of both as we go forward, but particularly with an eye to buyback whilst the price of the shares is low. Post the stress test, let's wait and see where we get to. What we have said very clearly today is that we do not intend Sitting above the 13% to 14% range unnecessarily. If we have got profitable ways to deploy excess capital, we will go after profitable ways to use it.
To the extent we haven't, then we are very comfortable being within that 13% to 14% range, obviously subject to regulatory approval. But over a period of time, we do understand that getting the royalty up. As I said earlier, it is important we get the equity down And therefore, we will not. And I think our track record over the last 2 or 3 years has been witness to this. We are not shy of returning capital where we can sensibly afford to do so.
Thanks, Kate.
Thank you. The next question comes from the line from Nick Lord from Morgan Stanley. Your line is open.
Thanks very much and thank you for taking my question. And I just want to question Bill a little bit more on what he was saying on the mass affluent strategy. Just could you give us a little bit more on sort of what markets you're thinking or geographic markets in terms of attacking? What sort of products you'd be using? And how important are those sort of partnerships for this expansion?
And Are you mainly thinking of branding it through partnerships? Are you using MOX a bit more in the branding or is it traditional standard charter branding? And then just finally on Budd, if you could maybe talk about what sort of income levels you're thinking of targeting. Are you thinking you're moving right down the income scale or are you going to stay sort of mid in that?
Great. Thanks for the question. The markets that we'll focus on are what will be our core markets. So Obviously, MOX is targeted at Hong Kong. Interestingly, in Hong Kong, well, it's our biggest business, it's profitable, etcetera.
We only have about a 2% market share in the mass market, whereas we have a double digit market share in the affluent market. We're extremely happy with our affluent market position. We'll continue to invest and grow in that. But Maximus is targeting both the younger population where we were also underweight And that mass market and I must say the reception has been extremely positive, which means that we should be able to establish a very important toehold in that mass market segment in Hong Kong in addition to what we had in the center of charter bank itself. And that's valid for 2 reasons.
One is we think it will be profitable in its own right. And second, of course, it's Peter into the today's millennial mass market participants will be tomorrow's affluent as they accumulate savings over time. So we're building our pipeline for the future within Box and then also back in Standard Chartered Bank. We would hope to regulatory permissions forthcoming to have a similar sort of partnership based model in Singapore over the course of this year. You've noticed that we've been given a status as a significantly reduced foreign bank With that comes an entitlement to a second bank license.
So I would hope that we could get to the point where we've got a digital bank in Singapore This model is much on the MAX basis. In MAX, we're partnered with Hong Kongtel, FWD and trip.com. Perhaps a similar structure makes sense in Singapore as well. In Africa, we've gone under our own belt. So we're using existing center kind of infrastructure that was structured to be completely digital end to end.
So that the partnerships are more tactical, Very important partnerships with Telcos. We've got some really interesting arrangements with Airtel, Orange and Vodafone in different markets, The 3 big mobile carriers, but continue to build out that partnership model. Nexus in Indonesia is absolutely we had a mass market stake in Indonesia through Pramada. When we sold that, we were left with quite a small mass market business, in fact quite a small retail business in Indonesia. The opportunity to get access to 100,000,000 customers in partnership with Blue Lobat and then with other social media platforms He's very exciting.
So in those markets that the partnership dimension where we're using the partner as a fundamental distributor For our products is extremely important. So I think we're we can we will cover the spectrum in terms of the structure of Our entry into the mass market. Products obviously starts with deposit and payment products and will quickly move into credit products In each case, and clearly that's where a lot of the opportunity for growth and returns come from, it must be done safely. So we've done an extensive amount of experimenting and learning in terms of using our data, both from our own sources, but also from the reporting sources. So Obviously offering credit product in Indonesia through the bukalapag platform with the bukalapag data, e commerce data is extremely powerful, but it's also relatively new.
So we'll be cautious in terms of how we roll that out, but we think that the opportunity is very substantial. And in terms of target range, the natural place for us to be will be at the top in the middle elements of the mass market. This isn't by construct financial inclusion play. Although I will say that once we've got the digital operations up and running entirely mobile phone based and very, very accessible. And then especially as we get into the distribution through mass markets, distribution platforms like Bucalak or others in other markets.
The opportunity to get closer or into financial inclusion will be there, but we'll do that in a very prudent way.
Your next question comes from the line from Tom Reiner from Numis. Your line is open.
Yes, good morning. Two questions for me, please. Firstly, on the sort of shape of Revenue as we go through 2021, you're indicating obviously flattish on a constant currency basis for the full year, but down In the first half and recovering in the second half, I wonder if you could give us an idea of what the annualized pace of revenue growth you're expecting by The end of 2021, please. My second question is on the RoTE guidance of at least 7% by 2023. Obviously, you will have done some fairly detailed modeling of alternative outcomes here.
I wonder if you could give us an indication on at the sort of 7%, the bottom end of the RoTE range, if you like, where you're pitching revenue within the 5% to 7%, impairments within the 35% to 40% and where you're sort of modeling the equity Tier 1 ratio to be within your 13% to 14% range. So We just get a bit of an idea about sort of what is built into that 7% assumption. Thank you.
Yes. Okay, Tom. So let me take those in order. Shape of revenue and I think the important thing, which
I'm
sure most of you appreciate, is that we've sort of got 2 things going on in 20 21. One is the underlying asset growth has been strong. Loans advances dropped 5% past year. And if anything, economy is picking up, that Should be at least at that run rate going into this year. So that side of it, I think, should be running pretty strong.
What we are working against, however, is the interest rate impact upon the NIM. So the chart that I showed On interest rates, I think the Q1, particularly last year, we had the NIM at 152. And if we're talking about a number that's the shape below 124 this time around, then you can sort of work the numbers out. The Q2 becomes more normalized. We were 128% last year.
There's a little bit to give there. And then the second half of the year should be fairly close on the NIM from last year. So I think to help you sort of modeling, if you look at the volume growth that's more progressive and you just actually phase that NIM change in, you'll get fairly close The numbers that we were talking about and obviously as we have highlighted, the guidance was on a constant currency basis, but if you applied more up currency, you would put about 0.4% on the income and 0.4% on the cost. And in terms of what is implied in getting to the 7% RoTE in 2023. I'm sure that you will be modeling this And there will be various iterations around the theme, but I think if you take something around the midpoint of the 5% to 7% Income range, if you work on the basis that the expenses will be 10% in 2021 and a little bit of inflation in the couple of years thereafter, But we would see the credit impairment moderating towards that 35%, 40%, but obviously there will be a period before it can get So that, dot, dot, dot, dot, dot.
You get to sorry, I should add also an assumption that the CET1 is in The range, the middle of the range maybe rather than sitting at or above the top of the range, then you get pretty much to 7% number. And you will work out that there's implied returns number in there of, I don't know, dollars 2,500,000,000 or $3,000,000,000 or something rather. It depends on exactly how you model it over that period of time. So I think directionally that paints the shape of how that sort of 7% construct should work. And I personally think each of the component parts of that is perfectly achievable.
Growth is there in the markets. Interest rates are holding us back, but the growth is there. The cost Well, time will tell, but the indicators at the moment look pretty reasonable. And obviously, capital is to move forward. At the moment, we've got, the regulators obviously are careful on that front.
But I think as we move through COVID, that the sort of coincidence of what We as a management feel is prudent to what regulators to come with. I think those 2 should align.
Okay. Thank you very much for that. Just a very final quick follow-up, if I may. The 5% to 7% is I noticed is a HAGR, but I mean I think it that does imply that your modeling for 2022 will be a minimum of 5. It's not like it's You might be expecting much stronger revenue further out to get you there.
Yes, I think that is a fair assumption. I think Getting to it as an average, but we are going to be happy hitting it as quickly as we can do. We prefer to be hitting it in the nearer term, but For the reasons I've gone into, that will be more challenging. But yes, I think that's a reasonable assumption.
Thank you.
The next question comes from the line from Manos Costello from Autonomous.
Good morning, everyone. Just following up on the 7% point, an investor pointed out to me this morning that your 7% ROCE target is the same as that set by Commerzbank earlier this month. I think most people would agree that Commerzbank faces a Tougher domestic outlook than you should in your local markets. So the question arises from that is at a fundamental level, What is it that's constraining your returns relative to peers do you think who are also dealing with the low rate environment that you talk about? And if you haven't been able to drive it beyond this 7% level in an acceptable timeframe, Why have you decided against taking any bolder steps to improve that rating more quickly?
Thank you.
That is thanks for the question, Matt.
So that is sort of the big question. And I think we're going to answer it in a few parts. I don't know Andy will have I think about this as well. When we got a similar question 3 years back, in particular around bold steps, The suggestion was that we abandoned markets. And you talked about India, Indonesia, Korea, UAE being big drags on your returns.
Why are you still there if this is such a big drag? We resisted the temptation to exit. In fact, we have done the opposite, is to focus very much on how we can improve those markets. And we had a dramatic improvement last year and we had a further dramatic improvement this year, right, 34% increase in operating profits After provisions, these are markets that had a rough run this year. As Andy mentioned, substantial income growth in India.
We could throw China in there as well, which had a stellar year in 2020. So these markets that have been big drags on our RoTE Are actually now into solidly into the profit zone and are growing very, very nicely. So that's hence the resistance of the temptation just to start hacking the strategy to pieces in order to hit financial targets that We think are much better achieved and achievable through a different route. Maybe taking the question from the other side, We know that we have a returns model that's very leveraged. We've got a relatively high expense base that's measured by our cost income ratio relative to peers and outright.
And we know that the way to get substantially improved returns is to have our income growing faster than our expenses. We were unable to do that in 2020 for obvious reasons and reasons that we've explained. We don't think we'll make tremendous progress in 2021 for the same reasons, But we think we're starting in 2022, we get back to that substantially positive jaws that has characterized, as Andy pointed out in his slides, that has characterized our business Over the last several quarters pre pandemic. And if you believe that we can deliver on the income agenda And you believe that we could deliver on the expense agenda, then that 10% comes firmly into line. I think Mathematically 7% is someplace between 3% and 10%.
So you can pick which point along the way you want to say you're going to cross 7%, but we will cross it. So that's I'm obviously not going to comment on Commerce Bank. I have no idea what their Strategy plan is relative to ours, but I do know for us, we've evidenced over the past several years that we can generate this growth. We've evidenced that we can do it in a controlled in terms of expenses and capital. We demonstrated that we can turn around big markets and do that in a fundamental and sustainable way.
And we repositioned the bank fundamentally around these strategic pillars including having a strong digital operation and repositioning our capabilities in the growth market. So it was a big question. It is a big question and I suspect it will remain a big question for
I would only add to that, that if you look back 2015, we were minus 0.5% for RoTE. We were 6.5% a year ago. We've gone up 7 percentage points in 4 years. We were on a good trend. The strategy was paying off.
If you take what happened to us in 2020, you look at the impact of the BIM on the interest line, You look at the credit impairments relative to what they might otherwise have been, I don't think it's too difficult to get to the thick end of a 4 percentage point that we have taken on the ROCE in that year as a consequence of COVID. Now some of that is credit impairment, which I do hope will unwind itself and therefore that will give us the benefit. The interest rates, I think, is the wildcard. The forecast we have given you has a very modest assumption of interest rates over a period of time. If we were to see more of a pickup over that period and 3 years out, it's obviously quite a long time To the point that Bill has made sort of leverage on our operating cost base, it will come through very quickly from top line to bottom line.
So I do think we are doing the right things. I do think the markets that were a drag for us, Korea, particularly, Korea lost $200,000,000 5 years It's now making £300,000,000 in the quadrupling of profits. The area where we have good focus on, there really has been improvement. I think we just need to give this frustrating as it is a little bit of time to work through the after effects of COVID. But I think many of the things within the business are working well.
And I would hope that in a year's time listening here with a pretty confident set of numbers and saying we are now looking at pure growth ahead of us, not an interest held back rate of growth.
Okay. Thank you very much. So just to follow-up on the comment you made there, Andy, you said you are assuming rate rises through the period. Could you give us the detail of what you're looking at there, please?
Yes. I think in the I can't remember exactly on the chart, but there's about 30 basis points over a 3, 4 year period that's factored in. It's on the very, very modest end of the range.
Got it. Thank you very much, guys.
The next question comes from the line from Guy Stebbings from Exane BNP Paribas.
Morning, afternoon, everyone. Thanks for taking the questions. The first one was on RWA. I So the $15,000,000,000 increase from asset quality duration in 2021. I'm just wondering whether you think that's part of the bulk of the negative credit migration or whether you expect to see a smaller component And as we look further ahead, I presume we should be thinking about sort of low single digit Item growth just coming from the loan book growth, perhaps a tiny bit of negative credit migration.
You've talked to the circa 5% Basel headwinds plus the currency headwind as things stand, just wondering if that sort of points to an RWA base by the end of 2023 2023, sorry, Somewhat north of €310,000,000,000 I mean that sounds reasonable or is there more optimization you can do or maybe a reversal in the negative credit migration by that point in time To bring it back down near to consensus, which I think is just a shade over $300,000,000,000 And then just a quick question on restructuring charges. I think you phrased that €500,000,000 may need to be taken in 2021. Just wondering how many years to spread that over. Is that sort of 300,000,000 yen, 400,000,000 in 2020 1 and then it drops down to 100, 200 and maybe that's a sort of sensible run rate thereafter. Any sort of guidance there would be very useful.
Thank you.
Yes. So let me take those. The RWA is the $15,000,000,000 we saw in 2020, logic would say that is a pretty high tide mark. It was the year, but a lot of things changed very dramatically. And I would think on an underlying basis that whilst we'll see Some adverse movement, I think it would be much lower than that, in 2021.
What we will also be doing is focusing clearly upon the mix Of the assets that we have got and in the knowledge that the ones that are higher rated obviously are going to be in the lower returns, we will be working very actively the lower returning risk weighted asset relationships during the course of the year. It's difficult to sort of just I mean, it's simple to say yes to your Will it be low single digit, but it does depend upon what natural growth there is out there. And if there is profitable growth on the asset side, I would hate to have the RWAs constraining it. So So I think probably a better way to look at it is probably that we would aim to try to keep the rate of growth in the RWAs down below the rate of asset growth. And then that will enable some flexing according to how much activity is out there.
So whether that gets you to or something of that order. It depends a little bit upon your growth assumptions. On the restructuring, I think of that as sort of a 3 year period, something of that So the bill with probably awaiting more towards the 1st year. We do want to press on with a number of the property related initiatives because obviously the time is right now before everybody returns back that we establish the new ways of working as being the norm going forwards. There'll be some redundancy costs, but then we've had some redundancy costs for a period of time.
And as we reskill the business, whilst we will try to redeploy as much as we can do, Inevitably, there will be some that is not achievable through redeployment per se, but I would think of it as sort of being 3 years or thereabouts with the front end loading.
Thank you.
Thank you. The next question comes from the line from Aman Wakar from Barclays. Your line is open.
Good morning, good afternoon, Bill and Andy. Thanks for taking my questions. Could I just come back to the income Guidance for 2021 and more so about non interest income. Just interested in to what extent you think what's your assumption around Financial Markets revenue in 2021? Do you see that being Down year on year.
Kind of what are the assumptions that have gone into that? To what extent have you benefited from a buoyant market backdrop versus The market share gains that you think that business can deliver. Secondly would be around Wealth Management. So I know that you say that The Wealth X Bank Assurance, I think was up 14%. I think it implies the rest of Wealth Management was actually down A decent chunk in 2020, presumably as a result of the lockdowns and the lack of face to face interaction in your key markets.
So could I ask you If you were to estimate how much kind of lost revenue Wealth Management incurred, I mean, how much revenue did you miss out on In 2020 from lockdowns and lack of face to face, just trying to think of what you might hope to reclaim as things open up this year? And I guess the final one was on your excess liquidity positions. I know your ADR is very, very low at 61. Your loan to deposit ratio is 64%, presumably you've got a lot of high quality low yielding assets. And is there a temptation or is there an opportunity for you guys to kind of invest that, deploy that and benefit from some of the steepening of the yield curve that you've seen in Some of the U.
S. Markets. Is there any reason why you wouldn't do that? And is any of that kind of captured in your income guidance?
Okay. Let me try to pick those up. So Financial Markets clearly did have Good year last year. We are sincerely hoping and we're targeting the team that they will replicate that performance overall again this year. The exact shape of it may change a bit.
The events that lead up to it may change a bit, but we do believe there will still be volatility there. We do believe, as Bill has said, that the engine is running more strongly now and that actually the sort of product range that we have got, the capability we've got there It's as good as we have had that certainly in the last several years. So we would very much be hoping that financial markets income overall will be up with what happened in 2020. Wealth Management, you can sort of cut it in different directions. We Found the Q2 very tough.
And as you say, face to face contact was very difficult during that period of time. What I think has happened since then, 2 or 3 things. 1, Confidence has come back, particularly equity markets rising, therefore, clients being more prepared to get back into Wealth Products. Secondly, we have availed ourselves far more of normal face to face contact and we have improved the digital Okay, Bill. And I think people are progressively getting more used to that and are actually more comfortable with that.
As I said earlier, I think the overall Wealth Management was down probably about 15% or so in the Q2, but by the Q4, actually, we were up 5% on the Q4 a year ago. So I do think the trend there is looking good. And in January, certainly, on both actually Financial Markets and Wealth Management, We had a strong performance. On the excess liquidity, the story last year really, and I'm sure we were not the only ones to say this, was there was a lot of liquidity out there. We managed to improve the mix of the liabilities that we have got quite significantly during the year.
We have deployed some of those commercially, but some of those are sitting with the Treasury book and those are fully capable of being deployed. So The encouragement to the commercial teams actually to find opportunities out there. Obviously, we make more money when we are lending it commercially than having it sitting in the center. And therefore, I think the shape of the balance sheet within the overall numbers will be interesting to watch as we go through the course of this year.
Just a quick follow-up
on that then. Do you have any exposure to the kind of 5, 10 year part of the U. S. Curve Where you've seen the steepening in recent weeks, is that something we should think about being a positive or is it not?
It is a small part of the portfolio and obviously we are monitoring it very closely as we go through and that may give us a little bit of
I just want to note the obvious, we monetized quite a bit of the gain last year. So That's evident. There was still some gain left in the portfolio and some of that was duration, but much, much later than it was a year ago.
Okay. Thank you.
Thank you. The next question comes from the line from Faiad Gudwar from Redburn. Your line is open.
Hi, morning, afternoon, everyone. Thanks for taking my questions. Just a couple. Just one was on the confidence for NIM stability for the Q4 levels, I know we're talking about the shape of it being a bit different, but one of your peers was talking about commercial asset repricing. Are you seeing anything similar into the free pricing activity in the commercial book in Asia Pacific region?
And my second question was just kind of back on 7% RoTE versus peers. I guess one of the things that's confusing is you've got a very low loan to deposit ratio, but a very high funding cost versus Yes. And there was an optimization program, which it feels like it's on its course. Is there not more you can do on the liquidity management side to drive returns higher. I would have thought as rates fell that higher funding costs would have been an advantage, but in the end I guess That didn't really help too much.
And the reason I asked the question is one of the things that gets pushed back a lot really is that it's evident that You've got too thin a franchise across too many countries. How are you thinking about that liquidity management and that high funding cost?
Maybe on the corporate repricing, I think the short answer is no. We're not seeing wholesale repricing. We saw a very sort of consistent margin compression going into the pandemic. We saw a certainly a bit of an improvement in liability margins as we got into the pandemic period And coming out at the very high quality end of the spectrum, we're seeing repricing, but that's not the bulk of our book. We should be able to offset the underlying margin compression in the corporate book due to an ongoing mix shift.
So clearly we're in a position to distribute much more of the lower margin or higher quality credit risk in our portfolio. And our balance sheet will be focused on things where we can add some of the value, which should add a little bit of incremental returns. So We don't see a structural challenge coming from ongoing corporate pricing when we look at volume times margin.
Yes. And on the 7% sort of number, I guess for part of last year, we were very happy to gather Liabilities just because of the unpredictability of what was happening out in the market. As we got to the back end of the year, clearly, we have built up So there is no lack of volume appetite out there. And indeed, with many markets We're operating there clearly coming through COVID earlier than some other markets in the world. So I hope we will be able to shift some of that from The lower return part of the balance sheet is a higher returning amount will be part of the income story for the year and indeed thereafter.
So just clarify that's included though in the 7% RoTE after 2023.
Yes, it is. Yes, it is. Absolutely. There are many component parts, but yes.
Perfect. Thank you.
Thank you. The next question comes from the line from Ed Firth from KBW. Your line is open. Good morning, everybody. Can I just bring
you back to a sort of slightly broader question, not so much This year, but more out to sort of 2023 and beyond because when I look at your key dynamics at the moment, mean, your capital ratios are towards the low end of peers? Your growth prospects, you're signaling at Really high end of peers, probably off the top end of the high end of peers. And then your profitability is at the low end. And yet we try to square all that at the same time as talking about buybacks. And I really don't understand why this obsession with buying back shares when you If you really believe you can deliver 5% to 7% growth, and I accept we can play around with the risk weighted assets and stuff.
But If we are coming out of a pandemic and there's massive growth opportunities and you're right in the center of it, why would you risk missing that In order to buy back $150,000,000 of shares or whatever.
Thanks for the question. I think, first of all, our capital is not at the low end. I think if you look at our capital relative to our regulatory minima, we are sort of middle of the pack, Very well capitalized. We certainly think we're very well capitalized. And when we look at the certainly the stress tests that were done pre pandemic, our PT drop drawdown It's extremely manageable relative to either our right or relative to peers.
So we're not low capital. And second, yes, our profitability is low. We talked to about the reasons for that being our relatively leveraged business model with a significant challenge that we had in income and obviously loan impairments We're losing provisioning during 2020. We think we can grow our way out of this as we have In the past and we are selling from a lower level. We're not obsessed with buybacks, maybe some people are.
We're not. We have excess capital right now. We've got a very we have maintained a very healthy investment program up to through and including the Q4 of 2020. We did that because we do believe in our business, but we believe that the investments that we are the investment program that we're executing right now is the appropriately sized program Hopefully, we can absorb, also what we need to do and what we want to do. We've always said that if we have investment opportunities that are that present themselves That would require an increase and they are truly attractive, then we'll do that and that would come at the expense of buybacks for other distributions.
We deeply said that once we've satisfied the need to fund the growth in our business that the surplus will return to shareholders. We're absolutely committed to that. We demonstrated that and we reaffirmed that both in action in terms of our proposals for the final dividend in 2020 And in terms of our statements, so you've heard both from me and Eddie. So that's there's nothing that's really changed in that regard. But I think overall, We're very comfortable with our capital position.
We're comfortable. We've got a good plan to deal with our profit challenges. But I guess you also mentioned that we've got growth that's ahead of peers plus because we're in Much more attractive markets than I think the people that you are thinking about when you talk about peers. Obviously, if you look at our peers in our markets, Asia, Africa and the Middle East, Then the growth forecast that we're showing are probably consistent with what you're seeing from others in those markets. And we think that we have what it takes to deliver that kind of growth rate.
It just seems to me that
if you're going to deliver 5% to 7% Growth in a sustainable manner. It's absolutely imperative to you. It's not like an option to get to 10%. If you can't, then you're not going to be able to generate enough
Yes, that's right. That's right. And yes, as Andy pointed out a couple of times, thankfully, Up until the point of the pandemic, we were growing 5% to 7%. And that's having come off of a pretty Fundamental transformation, where sometimes it's a little harder to grow when you come to the position we went through. That transformation is very well embedded at this point.
The investments that we're making in productivity, investments in digital tools, digital capabilities are very well established at this point. So we feel more comfortable about our ability to hit sort of market norms in terms of growth than we have at any time in the past. You have to have some sort of macroeconomic support, I. E. Hopefully, we can avoid it.
We can get out of this pandemic and not go into the next one. Hopefully, we can avoid the kind of geopolitical tensions that we were afraid of last year that looked like it might derail our business growth. As it turns out, it didn't, But it might have. So we'll need an avoidance of headwinds, if we could put it that way. We don't actually need a big tailwind.
Those are just what we've got right now.
Okay. Thanks so much. Thank you. The next question comes from the line from Joseph Dickerson from Jefferies. Your line is open.
Hi, guys. Thank you
for taking my question. Most has been addressed already, but I guess if you're looking for growth in the financial markets and it sounds like Possibly growth in Wealth Management, particularly if bank insurance can pick up. And if I'm not mistaken, a large factor there is the border between Hong Kong and China being closed presumably. I guess are you more cautious on the transaction banking outlook to get you back to the flat Revenue growth given that the NII looks like based on your guidance for the full year that we can get you to kind of flat 6,900,000,000 without assuming any higher margin on the incremental growth. So that's I guess the first question.
And then The 13% to 14% range on targeted common equity Tier 1 versus your base Requirement of 10%. I guess why couldn't that be 100 basis points lower, particularly given you're sitting here with a 31% MREL. And it sounds like you've got a bit more visibility on where Basel III lands. Are we waiting for the Basel III refinements or is this going to be A longer run target or do you kind of need that level to prior question to absorb The growth you're putting through, why the ROE is still subpar. Thanks.
Maybe I just have a quick comment on the growth And then you'll have more on the growth as well as the capital. If we look back through the years, The Wealth Management product line has been able to deliver growth in the high single digits or double digits levels. It's been quite volatile around that, Including for the reason the convention, Bank Insurance took a big step back really for two reasons. One is that the Hong Kong China physical order being closed and second, the need even within Hong Kong or within Singapore or Taiwan for medical checks and people who are for all the obvious reasons were reluctant to get medical checks during the COVID period. That's beginning to return.
So we're seeing something up in bank insurance equity. The Hong Kong China border remains closed, although We haven't talked much about the Greater Bay Area and the opportunities there, but the opportunities that are presented to us Take our strong position in Guangdong province, Shenzhen in particular and our strong position in Hong Kong and to capitalize on It seems to be a pretty well established trend now in China, opening up the capital down, opening up the border for cross border investments And then eventually, obviously, opening up the border for physical travel is extremely encouraging and particularly encouraging for our wealth business where we just are in an excellent on both sides of the border, especially as Chinese savers are able to perfectly legitimately invest more in international assets or international funds, Which is our sweet spot. Frankly, we've been preparing for this for the better part of 6, 7 years in terms of having a very strong brand in China for international investment product, which has largely been unsatisfied for the reasons of the currency controls that are replaced. The extent that those will snub over the coming years, that's an underlying very strong source of growth.
Financial Markets, I want to try I got what your question was really. Maybe you don't want to take a stab at that. Certainly, we have opportunities to structurally grow our FM business, but it's going
to be volatile from quarter to quarter with an element of seasonality as well. Yes. I think you were circling around if Financial Markets Wealth Management looks strong, but the overall is going to be sort of flat, Just like implied transaction banking etcetera are going to be lower. I think the reality is that's right. Because not least, as I said earlier, in Q1, we have this huge NIM organization still going on.
And particularly in the Q1, so going from low 150s to low 120s. It's a near 20% reduction And therefore, the interest rate sensitive products will be the ones that have yet to come some way down the curve. When we're through that, Particularly by the half year, but hopefully we are more normalized on year on year comparisons, but that is the reason for that. On your question on the sort of capital levels, it's sort of an interesting one. The 13% to 14% is range we've had for a period of time, we're obviously at the top end of it at the moment.
If you compare us with UK banks, which isn't necessarily the best point of comparison, but if you do, We are around 4 percentage points above the declared regulatory minimum. That is very much in the pack. Most of the other UK banks are in that Right, so it's not abnormal. The reason that everybody does sit that much above it is because there's a variety of factors going to decision as to where One should target to be on the capital front. Some of it is what the regulators are requiring.
Some of it is what rating agencies are requiring. Some of it is what we feel comfortable with stress test and solar taking the external environment into account that we are comfortable with. And I think at this point in time, clearly, COVID has worked its way through in a sort of substantial way, but not yet a complete way. We've said that being back in the 30% to 14% range is where we want to be rather than sitting above it. So I think that gives you a pretty strong indication.
We are very mindful of the fact that we can work to the lower end of that range or even below it. It would be great for the ROTE and that point is not lost upon us. So that's sort of how we look at it, but 13% to 14% range at the moment. And at some point in time, if you get to the lower end of that range, that would be great.
Bill, moving on to questions on the webcast then. There are actually questions on similar sustainability themes. So let me try and condense them into 1. The climate crisis is devastating hundreds of communities around the world. So what steps are you taking on climate change generally and in particular in relation to financing fossil fuel activities?
Yes. It's a huge question and one that I'm very happy and very, very proud of our answer. We have been clear that we will We are on a transition path to get to net 0 by 2,050. The work that we've done in terms of our scope 12 and So for example, flights has already had substantial improvement, even independent of the COVID effect. We've made tremendous progress and we will almost certainly be acquiring carbon offsets to get to net 0 for our Scope 1, 2 and controllable Scope 3 emissions in the not too distant future.
The big one is financed emissions and that really gets to the point Of the question, which is climate change is in some cases already devastating at the communities in which we operate and certainly build out the state of the planet if we don't Right, over the next 20 to 30 years, I mean, we need to begin now and make real progress by 2,030 to have any hope of getting to an As I mentioned earlier, we've got a we have been on the path to net zero and we've been on the path to complete alignment with Paris Several years now, started with our cessation of oil financing of coal fired power plants or the coal industry itself. Goes on to the very clear statements we made and discussions we're having with our clients, They will need to basically straight line reduce their dependence on coal between now and 2,030 in order to continue banking with us. There was some question when we began that process whether there'd be a big income hit. We can end up exiting a lot of clients who just are unwilling or unable to Accommodation. I think the possibility that some of our clients will be unwilling or unable of course is there, but the vast majority of our clients have responded by saying, yes, we know we have to Release our dependence on coal and we know we're going to have to release our dependence completely over time and we know that fossil fuels will be the next other fossil fuels will be the next to come.
Can you work with us on developing our alternative business models or manufacturing processes or sources of power that will allow us to meet our own net share position plans. And that's there's a challenge in there. It's also a great opportunity because every one of those transitions for every one of our clients is a financing opportunity in an area where we have a real competitive advantage globally, I would say, but in particular in emerging markets. So we share the objective of the questioners to get to a net zero planet by 2,050. We're absolutely committed to that.
We're committed to delivering a very detailed Roadmap for how we're going to get there between now and 2,050 with clear milestones along the way. We will be sharing that over the course of this year and the later part of the year. And we're talking now with our shareholders about how we could put that plan to a shareholder advisory vote at the 2022 AGM, So that we can both hold ourselves, but also hold our owners to account for holding us to account to deliver on our commitments.
Thank you, Bill.
So if there are no more questions, thank you everybody for joining us First thing in the morning on a Thursday in London, Andy and I are sitting in the boardroom of 1 Basement Avenue. Happy to be back. Looking forward to be back here a little bit more regularly with our colleagues and looking forward to having a chance to meet with all of you face to face in the time to come. Please stay safe and healthy. Bye.
That concludes the presentation for today. Thank you all for participating. You may now disconnect.