Good morning. Good afternoon, everybody. Thanks very much for joining us. I know it's a very busy morning. So for those of you that have made it here, really appreciate that.
And then I think we probably have an unusually high number of people on the phone. But we'll try to keep our messages crisp. We always try to show an advert that's a little bit relevant to What we're doing at Standard Chartered Bank, and I think the story of the entrepreneur saying that you really basically have to stick to your guns feels appropriate for us Right now, because we have been sticking to our guns, and we're really happy, that in the first half of this year, we've seen a continuation of progress against all of the strategic objectives that we set out, Really all of them. And I'll say just a couple of things upfront and then turn it over to Andy to go through the all the details of our first half results. I'll have a few more things to say at the end, and then we'll have plenty of time for Q and A.
So good progress across the board. So income up 4%, profits up 15% on a constant currency basis. The income growth is being driven overwhelmingly by those things that we've been investing in and calling out for some time. So the focus on our unique global network and our focus on our affluent client proposition, that's something that we'll drill drill in some detail as we go through. We are on track to hit the financial targets that we set out back in February, so to exceed this 10% return on tangible equity by 2021.
The sentiments on our markets are clearly mixed right now. So we feel that we've had to navigate some challenging times and some times and some challenged situations in the markets where we operate with a changing interest rate environment. Obviously, we saw that crystalized last night with the Fed move together with the ongoing escalation or at least presence of U. S.-China trade tensions and the more recent protests in Hong Kong, all of which are clearly impacting sentiment, some of which are impacting the economic environment in which we operate and impacting our results. Despite that, we have put up a good set of numbers in the first half of this year.
We are convinced that we can navigate these the disordered tortillas in quarters to come. Obviously, we watch it very carefully. And we're confident that we can hit this financial target that we set out back in February in 2021 to exceed 10% return on tangible equity. But by the same token, there are some headwinds out there. We're going to watch them carefully.
We're going to manage our business around the environment that we are experiencing, and we're going to continue to invest for the long term in our business. And that's key, both to generate the kind of income growth with contained cost position that we've had over the past 6 months and further back, but also to give us optionality for different environments in the future as they will inevitably arise. So a quick repeat of the approach that we have taken in terms of setting out our strategic priorities, copy from our February presentation. We're going to deliver the network. I'll be talking about that.
Productivity, and we're going to transform through digital as well as engaging in ongoing digital business as usual improvement. All of this anchored in our purpose and our which as an organization we take most seriously, driving this 10% return on tangible equity by 2021 and 10% and above, by growing income at 5% to 7% compound over the 3 year period by keeping expenses below inflation, so substantial positive jaws as we posted in the first half of this year. Capital ratios between 13% 14% CET1. We're smack in the middle of that range right now. If we do all this, we will be able to continue to invest heavily in our business while having surplus capital to return to shareholders, possibly doubling the dividend if we can hit these plans as we've seen, buy back stock, if that's the right way to return capital to shareholders.
So with that, I will hand over to Andy, and I'll come back up in a few moments.
Good. Thank you very much, Bill, and good morning to everybody. I'll just start with an overview slide that will give a sense for the shape of the numbers overall, then we'll go into some of these in a little bit more detail. So CHF 7,700,000,000 of income for the period. As Bill has mentioned, that on a reported basis It's 1% up, but on a constant currency basis is a 4% increase.
So fractionally below the 5% to 7% medium term guidance range, albeit as I'll come on to actually Q2, we were within that range. Operating expenses on reported basis, 3% lower than last year. On a constant currency basis, they are flat on last year. So overall, a 4 percentage point opening on the jaws during the period. That gives a pre provision operating profit that is up 8% during the half year.
Credit impairment continues to behave extremely well. And when you put that into mix, the underlying operating profit, which we published, is up 10% reported and 13% up on a constant currency basis. Below the line, we then took the final part of the U. S. Settlement.
So risk weighted assets are 5% up since the end of December, which I'll come on to later. They are flat compared with this time last year. Underlying earnings per share up 9%. The statutory earnings per share down slightly. That's 2 things affecting that: 1, provision for regulatory matters and the second, in the tax line, We have taken a charge of GBP 179,000,000 to enable some of our legal entity restructuring that I will come on to later, which is going to give us a significant P and L boost over the next 2 or 3 years.
Dividends per share at GBP 0.07 That is formulaic, so that is 1 third of last year's full year dividend as we committed to do going forward back in February. The CET1 ratio at 13.5%. So a key thing to appreciate here is that is stated after deducting 40 basis points impact of the full share buyback program. So even though we'd only done half of it at the end of June, the regulatory requirement is that we've got the whole amount. So that is net of that 40 basis points.
And then finally and importantly, the underlying RoTE are now at 8.4%. So further increase in that, I think each successive first half since 2015, that has been on an improving track. So let me then go into a little bit more detail on a number of them, and I will start with the return on tangible equity. So 7.5% for the first half a year ago, now 8.4%, so up 0.9%. The big driver there is the net interest income, so strong performance across most of the interest related products.
The system other income is down, but this is in part that DVA moved against us. That can ebb and flow over a period of time. So that is year on year about GBP 7,000,000,000 adverse, and that is a large part of that. And also wealth management fees, obviously, Q1 last year was very buoyant, And that's made the comparisons a little bit more tricky, albeit I'll come on to what's happening more recently on that in a minute. Expenses, as I said earlier, are behaving well.
Those are well controlled, 64.5% by memory cost income ratio, the lowest that we've had since back in 2015, that enabling the funding of investments for the future, again, which I'll come on impairments, mentioned those. That is giving us benefit. Tax, slightly adverse. This is not the point I mentioned earlier. This is more that the mix of the profit have gone into slightly higher tax cost regimes rather than lower.
So that is a slight drag in the period. And then equity finally makes an appearance on the RoTE walk for the bank, courtesy of the impact of the share buybacks that did occur before the end of June. We are, as of today, about 3 quarters of the way through the overall program and would expect, therefore, the remainder of the program to basically be completed over the coming weeks. So put all of that together, 8.4%, clearly a period without the bank levy, but nonetheless, 8.4%, the highest we've had in the first half for a good while. So let's move then on to income.
So this is a walk of the first half last year to the first half of this year. So we published at GBP 7,600,000,000 a year ago. If you normalize that to the exchange rates that we have seen prevailing during the first half of this year, the equivalent number is 7.4. And you can see there that essentially the story is one of most of the product groups contributing and slight downside, which I'll come on to from Treasury. So Transaction Banking, up 6% during the period And that has been a continuing sort of engine for us.
What I think is actually most noteworthy in this period is financial markets, which has had a great first half. So reported numbers are up 7%. On a constant FX basis, That is 10%. And actually, if one reverses out the DVO adjustment, we are more 15%, 16%. So very strong performance in Financial Markets.
Retail, up a little bit. And then the other 3, first half and first half, fairly flat. Treasury Markets is down. That is the increased payments the Treasury Markets are making to our liability businesses because of rating increases. And you put that all together, and you get to the €7,700,000,000 number for the whole of the first half.
If one does the same walk On the Q2 numbers, so this is Q2 of this year compared with Q2 of last year. A similar shape to this, so the FX adjustment rebasing things slightly and then most of the areas that were green on last are green on here. I think the one that I would call out as being a little bit different between the two charts is that Wealth Management, 1st quarter on 1st quarter, Our income was down £70,000,000 because of how strong the Q1 was last year, whereas actually, 2nd quarter on 2nd quarter, underlying Wealth is £20,000,000 ahead. And also because we have hit some of our bonus targets early, we have also booked a GBP 28,000,000 acceleration of our bonuses that we would normally take later in the year. So you put those 2 together, probably the biggest swing factor in terms of the 2nd quarter performance is sitting in golf management area.
So overall, that gives us the quarter shape that you can see there, our highest second quarter that we've had for a while. In fact, the highest quarter that we have had for quite a while. Now, one chart just painting a picture in terms of client segments. So the 4 client segments all have done well. Now remember, in the Centre, which will come later, Central enough, that was a little bit of a drag.
But overall, Corporate and Institutional Banking, starting on the top left, a really, really good first half to the year. So income up 5%, costs down 4%, withdrawals opening up at 9%, and that's resulted in the profit being about a quarter higher, and that has also resulted in the RoTE being in double digits. And that is the first time for quite a while we have been able to say that. Going around clockwise. Retail Banking, flatter on the top line.
Partly that's because of the Wealth Management high start to the year ago, But good cost control, so it was 2% higher. And return on tangible equity continues to be the strongest of all of our client groups at around 14.5%. Commercial Banking also has had a good half year. So their top line up 6% and their costs down 8%. So overall, 14% opening up jaws.
And that has resulted in a pretty commendable doubling of the operating profit and a near doubling of the return on tangible equity, so not quite at 10% point, but certainly at 9%, way, way higher than we were at a while ago. Private Banking also a good story, 13% up on the top line. Now the GBP 100,000,000 of profit there will be open. There is GBP 48,000,000 benefit from the release of a previous provision, which we included in our Q1 numbers. But even if you take that out, there's certain intangible liquidity there noticeably higher than we've had in that business.
I think this is really good evidence of the work that's been going on over the last 2 or 3 years to reposition, replatform that business. So good news on all of those fronts. If I now look at this in terms of which regions have contributed what, We have got here Greater China and Northern Asia on the top left. So that is a 1% reduction in year on year. That is slightly up if one takes a full year sorry, if one takes it on a constant currency basis.
The overall story here, I think Hong Kong on top line, but 5% up on profit. So that is its highest first half profit for 5 years. So very good cost control there. And we'd probably also call out our business in China, where on a constant currency local basis, income was up 12%. So we continue to do extremely well.
We were double digit growth there last year, and that continues through into this year. The ASEAN region, top right here, 3% up on a reported basis. That is 6% up On a local currency basis, profit up 29%. Now that's got the benefit of the provision release, and it's a little bit lower when one reverses that out. But nonetheless, overall, pretty strong performance here, particularly call out India, where we've got 11% growth in Current constant currency income, poor operating profit, even reversing the reserve release out, is 28% up.
So good performance in the ASEAN region. Africa and Middle East currency affected quite considerably. So top line on a U. S. Dollar basis, a quarter basis, down 3%.
Actually, locally, on a constant currency basis, that's up by 3%. And profit before tax, you can see, which is up 14% over the period, less currency impacted, Nonetheless, good double digit growth there. And particularly, call out Nigeria and Pakistan, both of whom, on a constant currency basis, have increased Both income and profits, 10% to 20%, which is good. Europe and Americas, a slight tougher period. Now quite a lot of this is about the DVA adjustment, which disproportionately hits this region and XBA as well.
So the vast majority of the income reduction is those two factors. Origination income is actually up by 5%. I think in the period, things are noteworthy. We are Hopefully, Brexit prepared. Our business in Germany is now formally established, licensed, and we have increased the staff levels in that and are fully, hope to prepare for whatever may happen next.
And we've also opened up a shared service environment center in Poland as well, which is now manned and is now starting to take activity from other parts of the world. So I'll move on then from that to Central and Other. So if you recall, the sort of central management of the balance sheet, etcetera, resides in the sector as do some of the corporate costs. I think the story here is on the left hand side on a client segment basis, we have gone backwards on income about GBP 150,000,000 And on profit, GBP 250,000,000 The largest single part of that is the higher rates that the Treasury Markets team business is paying to our businesses. We have also got a smaller effect from IFRS 16 and an India tax refund the previous year, which is not recurring.
Those are lesser issues in that, and there is an offset with hedge ineffectiveness being better year on year. On the right hand side is the same but done on a regional basis, a slightly different mix of what is in there. And the simple there is we are about 100 bps better on both the top and the bottom line, and that is primarily the hedge ineffectiveness improvement. So let us move then on to costs and investment. So as I mentioned earlier, costs well controlled.
Think the culture of business on the cost side is now markedly changed. GBP 5,000,000,000 for the first half, that is on a constant basis flat year on year, at the same time as the income growing 4% on the same basis. We would expect costs to be slightly higher in the second half, which is the usual pattern, but nonetheless would be confident that the full year costs will be below the rate of inflation, which is what we committed doing. And then on the bottom left, you can see the cash investment. So we're continuing absolutely to spend On digitizing the business and I think some of the benefits of things we've been doing last 2 or 3 years, Bill is going to talk about in a minute, but definitely helping to now really move forward some of the productivity metrics within the business.
So 0.7 percent spend there year to date, and expectation will be around the 1.6 percent level for the full year, as was the case last year and broadly as was the test the year before. Credit quality. So 2 years ago, some of us may remember, credit quality was a bit of a problem. P and L charge on the top was near on €600,000,000 2 years ago first half, €300,000,000 last year and now €254,000,000 Now we the benefit of the reversal of provision in that, but nonetheless, we're running at, in the first half, about a €300,000,000 level for a half year. You can see on the bottom left the various indicators of the more difficult accounts, the Stage 3 nonperformers, the early alerts, etcetera.
And pretty much across the board, those are on an improving trend. That having been said, clearly, we are very watchful of what is going on in the macro environment at this stage. So we do not sit around. This is going to be something we'll keep a close eye on. But at this point in time, the credit book is behaving well, And hence, that is giving us a pretty low P and L charge by historic standards.
Balance sheet. So top part here is the asset side of the balance sheet. In the dark blue, you can see the customer lending and in the middle blue, the other lending to other institutions. So overall, it's already here on the balance sheet side. Volume turns is 5% to 6% of volume growth over the last 12 months.
So that is good. What you can see on the very top right is the yield that we're getting on those assets. On the average, it's up 40 basis points compared with the same half year a year ago. There's a lot on left. We've got the liabilities.
So sort of 2 part story here. The accounts we have customers that are not interest paying have reduced slightly in the period, so it's down 4%. And the accounts that we are paying interest on are up 5%. So when you put those 2 together and go to the chart on the top right, we are, on the average, 47 basis points more for liabilities than we were this time last year, and that obviously is a larger number than the 40 basis points on the asset side. However, because the assets are bigger than liabilities, the overall NIM is static at the 1.59 level.
So an area we're very focused upon and a lot of things are underway and particularly The legal entity restructuring that we are now a large way through, that should be giving us about a $300,000,000 benefit in 2021 or thereabouts. So things that we are actively doing to make sure that we can move this forward. We've done an update on interest rate sensitivity. So that's in the back, but plus or minus $200,000,000 for every 50 basis points for the banking book, and that sort of remains fairly similar to where we saw the picture when we last reported it out. So capital risk weighted assets.
As I mentioned earlier, Capital still strong. So just to walk on this chart, 14.2% is where we're at the end of December. We have then taken off the 40 basis points for the full buyback program, as I mentioned earlier. There's then the cost of the final U. S.
Resolution and the one off tax charge, which takes it down by 20 basis points to 13.6%. And essentially, in the first half, what we have seen is underlying profit boosting it by 0.7% and the RWAs and the dividends coming off by 0.7%, 0.8%. So hence, the 13.5% that were there. And on the bottom part, we've got the risk weighted assets. So as I mentioned earlier, if you take December end as the point of comparison, which is what this chart is showing, we're up by €12,000,000,000 or thereabouts.
If you go back to this time last year, we're actually flat. In the first half, the 12 that's on the chart is very much about the first column on credit. So we have got the balance sheet growing, which is good, business momentum. And overall, the others net out to not a lot. And this is something we're very focused upon.
There are a number of efficiencies that are in the first half. There are some that are still to come in the second half. And hence, we're very comfortable with the previous statement that we would expect over time to see the risk weighted asset growth being below that of the rate of income growth. So final slide, just back to the framework that Bill had earlier on in terms of the put of the 10% On tangible equity, we are another 90 basis points heading in that direction. Income at 4%, constant currency against 5 7%, so fractionally lower.
I mean, interest in the DBA adjustment, which does swing around, if we hadn't had that, we would have been at 5% sort of the bottom of the range. And I think in the second half, it will be very FX dependent. We may be a fraction below the 5% to 7%, depending upon the FX, but not too far away. Expenses, as I said, behaving well. Those will be slightly higher in the second half, but overall for the year, below inflation, as we had indicated previously.
And capital at the €13,500,000,000 midpoint of the range after the €1,000,000,000 buyback impact has been deducted I think, a very good place to be as we go into the second half of the year. With that, back to Bill.
Great. Thanks very much, Andy. I'm going to canter through just a selection of our observations about the key strategic priorities that we Called out in February, again, consistent with those that we have been harping on since 2015. The punch line is we've made very good progress on all of them. That's obviously driving the financial results, but some of these are leading indicators, so it's good to get in front of a few of them.
First, digging into some detail on That key objective of ours, which is to grow our network business within our corporate and commercial and institutional banking business. So we've got a measure of clients, new clients, that speaks for itself. Next clients are those clients that we identified for targeted deepening, so people that we corporate, so we thought we could be doing much more with because we had some relevance to them. Steady increase over 3 years, 24% in this period. Network income as overall increasing 9% year on year.
That's clearly what's driving the overall strength of the CIB income line. The network income is now 69% of our total CIB income, so again, further improvement. A slightly different measure of a similar trend, which is capital light income, so that the percentage of income that is coming from services and fees and things of that nature that are much less consumptive of capital, up to 60% of the total. This trend these trends are clearly what's driving the improvement in RoTE for the corporate and institutional bank at 10% overall, given that the network income portion of that is generating much higher returns at closer to 18%. And we're being recognized for some of the things that we have focused on, like the ongoing opening up of China.
Andy mentioned the strength in underlying China income. It's because we focused on being the best RMB bank, the best cross border payments bank, the best bank at bringing international money into China And of course, moving Chinese milk out to the extent that that's what's happening. And we're being recognized, in awards like the best global RMB bank, something that is not an accident, something we've been very, very focused on and will continue to focus on. Our affluent client business has continued to be strong. Now as I mentioned, The wealth management income has been subdued certainly relative to a very strong first half of last year.
But the underlying drivers of the value of this business how many clients you have, how much of their money are they leaving with us. And by that metric, we've made very good progress, so 14% increase in the number of our priority clients year on year. The subset of our overall affluent population, which is private banking, as Andy said, repositioned that business, made some investments, and those investments are paying off. We saw the financial results. They come through in the measure of net new money as well.
When we look at the high returning business lines for us, wealth management and deposits as a percentage of overall retail, up to 65%, steady improvement. The income coming from our affluent client base and the AUM for that affluent client base continuing to improve. Overall percentages are increasing. And again, just calling out what we mentioned in February, the return for this affluent client segment is much higher for us, in part because it's much capital consumptive, in part because we've got a real competitive advantage there. And that's driving the overall improvement in Retail and Private Banking return on tangible equity at 15%.
Next strategic objective that we set out was improving these four markets that have been underperforming and have been material drags on our return on tangible equity. What we said back in the story was that if we get all 4 of these markets right, I. E. Bring them up to the level of the rest of the bank, that's 150 basis points improvement in ROTE. After the first half of this year, we are on track with that progress, and we're on track in all four countries.
So slightly different stories, as you'd expect in each case. India, it's clearly a strong growth in operating profit coming from good income growth, very substantial cost management activities and a real leveraging of the value of our network. So we've had a big focus on subsidiaries of international corporations operating in India, And that's been a key driver of the value of our Indian franchise. Not all of that shows up in the Indian numbers, but certainly, that's the way we're looking at that business. Korea, as Andy mentioned, is a little bit more challenged on the income line, some ongoing focus on expenses, But real focus on capital management.
And we were able to return about $600,000,000 of capital from our Korean subsidiary back to the group. That's driving an improvement in RoTE despite the small drag on profits. UAE, phone C and IB business, substantial and ongoing focus on productivity and efficiency. This is combined with some good underlying on growth in our markets, a good focus on our priority client segment, driving an overall 34% increase in operating profit there. Indonesia, it's a C and IB driven story, although we've had good improvement in our priority client segment there and driving a 26% increase in operating profit and a substantial increase in RoTE.
The focus that we mentioned back in February around better penetration of the mass market In the context of having identified Pramada as a non core investment for us, using partnerships or digital is progressing apace. We're very excited about the prospects and look forward to sharing more of those details with you as time goes by. Next strategic priority that we mentioned was the focus on productivity and efficiency. Just a few metrics here. When we look at our percentage of our retail marketing that's going through digital channels now, we're up to 25%.
The on boarding time, both across our Retail and Corporate and Institutional Banking business, down to some days from 16. This is just chipping away at the underlying operational inefficiencies that we've had, there's more that we can do, but we're making good progress. Look at a couple of productivity measures, income per full time equivalent employee or risk adjusted income per full time equivalent. Now the both are going in the right direction, 4% 13%, respectively. We actually prefer the risk adjusted measure because that's giving us a real niche in how productive our frontline RMs are, but we also recognize that, that measure will be volatile from period to period as loan impairments swing from period to period.
So we'll look at both. But clearly, with the constrained loan impairments, we're seeing good improvement in both those measures. And that's driving the improvement in costincome ratio down to 65%. And we are we remain convinced that there's further to go, and it's a key area of focus for us. Next strategic priority that we called out was On digital, what we said and what we'll continue to say is that there's really 2 types of digital investment.
There's ongoing improvements in our business as usual. So just doing what we're doing today a little bit better customer experience, better cost, etcetera, etcetera. Plenty of initiatives in that regard, and that's part of what's driving the productivity improvements that we've seen. And second is the focus on business model innovation. So targeting new client segments or new markets or fundamentally different market shares or different products and based on brand new offerings.
And we've got some made and we'll continue to make good progress on that front as well. Just a couple of the metrics that we look at. Mobile adoption rates going up, digital adoption going up, financial markets straight through volume going up, our straight to utilization, which is our proprietary treasury portal. In our commercial banking business, now over twothree of our clients are accessing our proprietary portal to execute their financial needs. But on the more business model innovation side, one of the first banks to get the digital virtual banking license in Hong Kong, building that out paced and looking forward to launching something that's really differentiated in the Hong Kong market when that comes out over the next couple of quarters.
The an SME platform in India that's giving our SME clients and other SMEs access to an open platform to connect to Our larger CIA clients, other product services connect to each other. And we're now up to 8 markets where we launched our digital bank in Africa with a couple more to go between now and the end of the year. This is very exciting, and it's exceeding our expectations in terms of customer acquisition and average deposit size, that we can continue to grow on for years to come. When we talk about our purpose and I'm on Page 24 Our purpose and our focus on both our contributions to society, the way that we want to live our own lives Within the Charter Bank, these four areas that I've outlined across the top continue to remain key areas of focus for us. But I want to drill down for just a moment On the second, which is our focus on sustainability.
We're early adopters of the UN Sustainable Development Goals. We were early sponsors. We have developed our sustainability framework across all of the SDGs and will continue to. We try to be thought leaders and we try to take concrete actions that make a difference. Thought leadership come in the form of things like the sustainability white paper that that we launched earlier this year, where we talked about the ways that we could usefully measure, monitor and then ultimately reduce the greenhouse gas emissions, not just at Standard Chartered Bank, but of all of our clients.
And so we put a thoughtful exposition up. Well received by NGOs, by our colleague banks, pure banks, where we've had extensive consultations with each other and with governments and with the clients and with our own staff, so high level of engagement that we think will advance all of our ability to hit the various agreements that most countries in the world are for right now, and we want to make sure we play our part in that. But we're doing concrete things as well. We have the 1st sustainable deposits that have been launched. We're raising quite a bit of money Into this, basically, you get deposits in only beyond lent for sustainable underlying projects, properly audited, etcetera, etcetera.
Sustainability bonds where the interest rate or the yield fluctuates as a function of the degree to which the has met its sustainability objectives that they've set out. These are the kinds of things that we will do on an ongoing basis: green bonds, blue bonds to protect the maritime waters around the Seychelles, those sorts of things. I dwell on it because it's exciting and it's a core part of our purpose. And I tell you, to generate the kind of financial results that we are consistently generating now, this steady improvement, yes, I know we have further to go, You need to have employees and clients that really want you to win. And this kind of thing makes me and our colleagues really want to win, which is why I take your time this morning to go through something like that.
So just to wrap it up, really happy with the start to the year. We are Steadily accomplishing the strategic objectives and taking off the strategic objectives that we set out. It's showing through in the financial world. We're fully aware that we're operating in a tricky environment right now. Our first half results were despite of some challenging market environments, not because of or accidental.
And we know that things could get choppy for sure. We're keeping a close eye on the evolution of interest rates, The rate cut last night and then the prospect of future rate cuts is an incremental headwind, but we think we can navigate around that and continue to hit the financial targets that we set. The ongoing tension between U. S. And China, both trade and security, presents the prospective headwinds already having an impact on economic sentiment.
Keep a very close eye on that. And to the extent that bits or pieces of our business model need to adjust, we will be most comfortable doing that. And of course, we're thinking about it a lot. But in some of this volatility or some of also comes some opportunity. To the extent that supply chains are being reconfigured, they are reconfiguring into the markets where we have a very strong presence.
And we would expect to get some benefit from that sort of activity as is ongoing as we have. So all in all, we feel good about where we are today. We feel comfortable maintaining this strong pace of investment, and we look forward to continuing to produce the progress that we have in the first half this year. So thanks very much. And Andy and I will now take some questions.
At high cost and costs, we have one microphone this time. So I will definitely get around to all of you. Martin, start with you.
Okay.
Good morning. Martin Lache from Goldman Sachs. If I could ask maybe 3 and the first one on Hong Kong and just what's happening there. So how would you assume that I mean, the GDP growth was a touch lower? And also just in terms of wealth management confidence, business confidence, what would you The impact to be on the Hong Kong business if the situation as of now were to continue unchanged, how big Our concern is that.
The second question, just in terms of revenue progression, to understand better revenue progression from here, the $300,000,000 Impact arising from legal entity restructuring, which I think you mentioned is largely complete now. How is that phased over the next year, would you expect a material contribution already for the second half of this year? Or is this more to come through in a gradual way? And the question is a bit more broader just in terms of the digital bank rollout you have in Africa. If you were to compare the capabilities The digital bank to the capability of 1 of your branch based representations, how similar are the products and platform you Is this broadly comparable or does the digital bank offer a significantly reduced product offering?
Thank you.
Okay. I'll take a stab at the And third, Andy will add color and deal with a second. So we're watching the events in Hong Kong very closely. It's turning, for sure. I was there last week.
Hong Kong is a tremendously resilient place, but this is clearly preoccupying the population because it's material. I think what's going on is material, and it's uncertain how it's going to be resolved. The direct impact on our business has been very limited so far. So we've had some branch closures Around the site of protests, not material in terms of impact on our business. Say that there's a subdued sentiment in the market, which is which could have contributed to this slowdown in growth and wealth management, As we've seen in times of uncertainty, be it market or, in this case, specific to Hong Kong, so we're watching it closely.
It's not material as yet, Nor do we think that the protests are done as yet. And I think that this will carry on for some time. So we're obviously standing behind our clients and our colleagues in Hong Kong very firmly. And I think this is carrying on for sure. But there's an element of heaviness in the market, which is inevitable, I think, given the magnitude of what's going
on. But if
you just look through history at the obstacles that Hong Kong as an economy and as a society have overcome pretty much every 5 years, If you get financial crisis, ours, etcetera. Hong Kong copes well with stress and recovers well after stress. So we have absolutely no concern about the way that Hong Kong will recover, but we watch with concern as we see the events unfolding day to day. The digital banking question, I mean, the short story is, Once fully rolled out, we've been rolling this out over 18 months. I started in Cote D'ivoire, most recent was in Zambia and Botswana.
We'll have Nigeria between now and the end of the year. Once fully rolled out, the functionality is everything you could do in a branch other than the physical movement of cash, physical handling of cash. So it's a full service bank on your mobile phone. The handling of cash. So it's a full service bank on your mobile phone.
The, there are some incremental products and services, lifestyle options or connections through to reward programs or sort of travel opportunities or entertainment opportunities that you wouldn't normally do in a branch. So it's sort of the branch plus. And I say that there's a phasing period. So things like the full range of wealth management products will be available on the mobile banking app over time. It's well flagged, and we've got clear plans in each case, But it's not all there on day 1.
But the intention is to be able to do anything you can do in a branch on the phone and to do most of it self directed rather than getting on the phone and then accessing a contact center or something like that. The virtual bank that we're building in Hong Kong is intended to be all that plus a lot more. So it's because we've got 2 very strong partners, Hong Kong Telecom and TCW and Ctrip, which is the largest online travel service in the world, We want to make sure that we're not just leveraging our banking services and the banking services that we're building, but also the products and services available from our partners in an integrated way. So it becomes much more of a platform for consumers than a mobile banking app. Obviously, we have to build it and roll it out, and then we can declare victory.
But we're very excited about what we're doing right now.
On the legal entity stuff, I mean, it sort of sounds a bit boring, but it's quite profound. I think our legal structure has been very U. Correct, over multiple decades. And yet our liquidity pools are clearly based in Northern Asia and Southern Asia and in the U. K.
So what we have been doing is starting to reorientate our legal structures around where the major trading activities are. The 3rd major impact of that is our Singapore business, which used to operate in part out of that Singaporean legal entity and in part as a branch of our U. K. Business, is now wholly operating as one legal entity in Singapore. That means we don't have to comply with 2 different sets liquidity rules.
We can now look at things in the aggregate, and that gives us a liquidity flexibility. Secondly, our Hong Kong business, we've It and our China business say that the 2 are sort of subsets of each other. That has only just happened. But again, over a period of time, that gives us considerable We're optimistic to look at liquidity in a more flexible way. And we would intend that, particularly, I think, next year and going into 21, we would see the benefits of that GBP 300,000,000 a year of interest cost reduction happening.
So small amount this year, but this will be much more next year and the year after.
Jenny Cushing, Sam. Can I just first ask on income trajectory and the kind of balancing act you're playing between the benefit you're expecting from previous interest rate rises and your sensitivity going forward? Because if I look at your sensitivity, it's come down a little bit. So how are you expecting that to kind of play through now? And then secondly, if I look at consensus on costs, they've got H2 up on H1 by around 7%.
Is that consistent with your view of costs up slightly H on H?
It's always difficult to go and sort of ex out pre existing interest rate in the system and the roll on effect from new changes across 60 markets and so on, it's complicated. Our estimate of the approximate impact 50 basis point movement in either direction is not too dissimilar to where we've been before. So we said about 180 basis points on reductions and 210,000,000, I think, on increases. So as we move forward now, back in February, clearly, there was more expectation of interest rates to be slightly up over a period of time. Clearly, the view at the moment is that that probably is slightly optimistic and that we would more to see interest rate reduction over a period of time.
But I think what we've seen in the first half is a steady NIM. What we've seen in the first half is volumes going up 5%, 6% blend. And given that the business, I think, for the reasons we've just shown, is now starting to get back together, our market shares are quite low in many of the markets which we're in. I think we should be able to see that NIM staying reasonably sort of constant. The $300,000,000 we just talked about should be helpful in that regard and actually making sure we keep the balance sheet momentum going as we move forwards.
On the cost front, I won't comment on whether it's 6 7% or 5% or whatever. I think that we have had a good first half on costs. The control there is good. It is effective. What we're saying is second half typically will be a little bit higher, partly because the investment spend, approximately half of which we expense through the P and L, the half we capitalized, is second half higher than first half.
That has been the pattern for many years. And therefore, we'd expect a little bit more cost there. 2nd half has got the full year impact of payroll changes, which happened at the end of the Q1. So that also is a reason why the second half would understandably be a little bit higher. But overall, we'd be comfortable sitting here today, standing here today that the full year, the cost increase would be below the rate of inflation, which is what we said back in February, is our intent over the next several years.
And I think it's important to understand, even within that, there's a considerable amount of investing for the future and The absorbing of the cost of that, that is going on. That is not new. We've been doing that last 2 or 3 years. But we have been eking out a lot of underlying cost in order to be able to fund that future investment for the digital things that Bill was talking about.
It's Tom Roe from Numis. Sort of a couple, please. First on RWAs, Andy, I've noticed you tend to mention now RWA growth below revenue growth. But I just wanted to sort of ask you about the commitment to the 2% per annum Over time, because clearly we're running a little bit ahead of that in the first half. I just wondered if you could reconcile us to how we go from the last 6 months to that sort of average growth over the next year or 2.
The second is just on the NIM, the obviously stable half year on half year. If you look at the Q1, Q2 breakdown, There's quite a bit of volatility in there. I think it's 1.6, jumped up to 1.6,200,000 because of the trading related stuff, which I think other banks might actually strip out of their NIM. So I just wondered, is your comments about the stability on the half on half, I mean, is that taking any such sort of market related volatility into account as well? So that is a genuine stable trend that we're seeing thinking?
Yes. So, two good questions. So, in February, on the RWAs, we said sort of think of the story in 2 parts. We do believe that we can grow the balance sheet, and that will produce a level of increase in RWAs over a period time. But secondly, there are some things that we can do which will help to take some of the pressure off that.
So a specific example. Yesterday, we've announced the Prince Finance business that we have been negotiating for a long period of time is finally completed, and that takes a chunk of RWAs off the books in the second half. We said that we have put the Pomarta business in noncore. And over a period of time, we'll see where we go with that, but that's a significant amount of RWAs. I think the way I look at it at the moment is that the growth in line roughly with the income is what we've seen in the first half, but there are efficiency opportunities, the exact The timing of which may not have been the first half, but we do still see happening over the next several quarters going forward.
So hence, that sort of 2% number is one that we are definitely comfortable with. NIM story, you are quite right. It's a little bit more complicated. So in the period, the trading book assets had a good return. We had some cross currency swap costs actually are in our other income line, not in our net interest income line.
If you take that into account, Then the overall NIM stayed in the 1.59% type range. We are going to have a look at it, as your question says. Other banks might have x ed that out. So it's something we'll have a look at over a period of time. But I think it is right to exit out because it is associated with what has given us a little bit of a kicker.
We need to look at the 2 on a net basis. And on a net basis, I'm sort of saying that, that sort of 1.58, 1.59, which we've had now for a number quarter seems to be a reasonably settled pattern.
Robert Sage from Macquarie. Two questions quite differently. The first one of which I was very impressed by the Jolt's performance over a slightly weaker revenue print In the first half, my question really is just one in principle, which is that if you were to actually find that your revenue growth is say below 5, a little bit below 5 over the next 3 years on average. Do you still think that the RRP goal of 10% to 20 would be still deliverable potentially under that scenario. The second very minor question you mentioned permato is being not.
I was just wondering whether you could give any update all in terms of what may or may not be happening on that situation?
Yes. Let me pick those up. There are several moving parts, as you know, to the ROTE income, cost and RWAs being probably the third one, not in your question. So I think if we were to find the top line was tougher, then it isn't all about costs. There is quite a lot that we can and are doing on the RWA front as well.
Bill gave some examples of the proportion of what we call Capital light activity, it's a big focus in the CIB business to be doing more that is not so capital intensive. Our history has been one of being relatively It tends to compare with other banks, and that is something we're trying to move away from. So I think there are different levers that we And move. Within the cost, there is a degree of investment, which to some extent is discretionary. And as ever, that is a short term, long term sort of balance sheet as to What is the right thing to do there?
We are spending much more on investment now than was the case 4 years ago and prior. We'd To be able to keep that pace up because we believe that is the right thing to do to position the bank. And therefore, the more that we can do, sensibly, the balance sheet growth to make sure the top line is moving as we would intend it to be, we will do that. But we can pull RWA levers as well. Pilmatis, there is no news.
We will update if there was a change in that status.
We on the line. So I'm just going to hand it to my colleague who's going to read one of them out.
Hello. So these are people that have so they're the few that sell side of TRYBAN. Plus we've got Barclays announced today as well. So some people have taken the opportunity to joined by the website. There's a question from it's been asked by
a number of people, but I'll attribute it to
Ronit because you've been very active on this. So Ronit goes to Citi. 13.5%, middle of your 13% to 14% CET1 range. You're most of the way through your $1,000,000,000 buyback. What are the plans for further buybacks?
Is that now a next year event? And are they now more dependent on inorganic things like disposals?
We've said 13% to 14% is where we want I'd like to see it over the medium term. And I think it's important to know that actually, we do mean that being in that range is where we want to be. Prior to February, we had actually sat above our target range for the previous 3 years consistently, and that isn't what we're saying now. We're saying 13% to 14% seems good, and being in that range is fine. So at the end of the half, evidentially, we have landed spot on the button in the middle of that range, and that is after we have done the buyback.
Now as we move forward, this will be very much about 3 things. 1, what is the natural profit progression of the business and how much that moves forwards and creates capacity. Secondly, is what business opportunities there are out there that we would actually prefer to invest that in so that we can grow the business. And thirdly, to the extent that both of those have been satisfied and we are still potentially outside of that range, Then we would look at that point in time at doing further buybacks at points in time. So won't be pinned down on particular dates, whatever, but we're aware, well aware, The part of getting the RoTE is going to be pulling the E lever as well as the returns lever, and we'll do that thoughtfully for a period of time when we see it is appropriate.
It's Fahad Khan from Redburn. Just one quick factual question. The 6 percent Q on Q constant currency. If I strip out the DVA, is the DVA all in
the 2nd quarter? So would
that be higher, quite materially higher? BBVA got that wrong. Then on the funding cost side, I always find it strange if funding costs high considering your loan to deposit ratio is particularly versus your peers. When your funding costs I assume your funding costs now come down to £300,000,000 Does that mean you can optimize your risk weights organically more as well because you can go after lower risk weighted balance sheet kind of assets? Does that allow you to go after more balance sheet light assets, is that the right way of thinking about it?
I think it's a double benefit to that reduction in your funding costs. And then just falling U. S. Rate, I think in your appendix, you mentioned double digit central banks as a tailwind. You talked about it as a headwind.
I always slightly struggle with it. It's a negative or positive for you guys because, obviously, dollar liquidity doesn't get sucked out Of Asia, if rates are rising in the U. S, but you do get a margin hit. So kind of taking both things into consideration, Is it more double spread positive or negative for you guys in the rounds? Thanks.
Let me take The first two maybe. So the DVA was a slight hit in the 1st quarter and a slight benefit in the second quarter. So it is part of the reason why the Q1 to 2nd quarter improvement happen. However, that having been said, as I mentioned earlier, we're about £70,000,000 higher, I think, on Q1 income in Q1, if you actually look at it by product line, the biggest increase is in wealth management, which is about 50. $30,000,000 of the $50,000,000 is the bonus that we had taken early, which is good.
We've hit the targets there. And then the rest is sort of GBP 20,000,000 of underlying improvement in Wealth Management. And then you can see sort of GBP 20,000,000 improvements in retail and transaction Banking. So it's fairly well spread across the piece. So I'd say you're right that DVA has had an impact in there, but it's sort of one of several moving parts between the two quarters.
It includes the year on year benefit to the PGA.
Yes. Yes, it does. Your second point, clearly, the lower the cost of our funds, The more competitive we can be on pricing. And so long as we've got a given level of risk, it does enable us to be more competitive on pricing. So there is a double benefit.
And that is, in part, clearly why we are doing what we are doing, try to get the cost of funds down to levels that actually will enable us to be more competitive with margin. And to the extent we can do that, hopefully, there's a bit of marginal business that we can get without affecting the riskiness of the book, which we will not show and produce. But yes, it should give us a little bit of opportunity.
This question is, is a dovish trend a good or a bad thing for us? On balance, it's a headwind. It's a negative. Our margins and economics are directly affected by lower rates. Obviously, that's U.
S. Dollars. And amongst other things, it's very important to see how Hong Kong rates are responding to U. S. Rates.
As we've seen the past couple of years, they don't move in lockstep. So that's a separate variable. And then we have a number of other currencies that we're exposed to that aren't directly related to dollars at all to varying degrees. So, yes, and the sensitivities we gave are for a 50 basis point across the board change in rates, not a specific change just in U. S.
Dollars. So on balance, we have to think of it as a headwind that we will incrementally have to overcome at this point. Always important to ask the question, why is the Fed dovish? Is it because economic growth is slowing? That's clearly an incremental negative, if that's the case.
Not so much evidence of that. Obviously, there's been some slowing, but that's not the what seems to be preoccupying the Fed. What's preoccupying the Fed is that inflation is stubbornly low. And that the low inflation in and of itself doesn't have an impact on us, certainly not to the same extent as slower economic growth So on balance, we see this as a manageable headwind, but a bit of headwind.
Good morning. It's Chris Liners from Barclays. Just a couple of questions, if I may. The first one was on your Great. And 10% RoTE target.
As I remember, when you constructed that, that was actually based on a 40 basis points cost of risk. 25 bps cost of risk in the quarter is pretty low. And if we do have more dovish central banks, maybe that's going to help your customers in their Debt servicing. So is there any chance or any sensitivity you could give us if you were to have a lower cost risk. And you've done a lot of work restructuring how you lend and taking the risk down.
Maybe we're getting more fruit of that as well. The second question was just on Basel 3.1. And I guess you're still expecting 5% to 10% RWA inflation fully loaded. Will that actually allow you to bring down your capital range once that ordinary inflation comes through, the 13% to 14%
I'll take the first one. We didn't we weren't explicit about 40 basis points. That's the guys that we can get. We don't know what the through the cycle credit cost is going to be for Center Charter, but it felt lower than the guidance that the bank has given in the past and much lower than our experience in the past for the reasons that you mentioned, which is we've got A fundamentally different approach to underwriting credit risk and managing that risk. Of course, we're encouraged by the increasingly low or lower and lower credit cost.
But there's nothing that we've seen and certainly not directly the result of 25 or 50 or 100 basis points of U. S. Dollar rates that makes us think, Yes, we're structurally lower in terms of credit impairments. Now it may turn out that that's the case, and we're happy if it is. I think we've been cautious in terms of assessing the sensitivity to interest rates on the part of our clients.
But we wouldn't change our guidance in terms of what we think feels like inappropriate through the cycle credit costs.
Sorry. As I say, for the rest of this year and how we think about the phasing. I remember in the past, Standard Chartered, you used to talk about sort of long quarters and short quarters and things like this. So, obviously, Q1 was a short quarter and had a 10 basis point charge. Should we be expecting sort of a longer quarter in Q4 or?
Yes. I'm not sure about the long quarter. If what you're talking about is that we have more time to review the book for the full year results. Yes.
I mean, we typically have had, because of the longer period of review before we close books, a slightly higher charge in the 4th quarter. And a flip of that tends to be the Q1 tends to be a bit lower. It's not, as you know, because of course it's longer. It's just because the period of review is a bit longer, just to be clear. Basel, is it 3.1% or is it 4% or is it 3.5% I don't know.
So our estimate remains 5% to 10% uplift, as you That said, that will be effective 2022. So it is just outside of the sort of core period that we are guiding to, albeit, obviously, we will manage our capital to make sure that we are in the to make sure that we are in the right space at that point in time. Assuming that there isn't Basel 3,300,000,000 3,700,000 and 4,200,000,000 in the making at that point in time, Then once we have got to the higher level, then obviously, we will be working from that. And as we generate more returns, then hopefully, we can work it down. But I think we have our guidance takes into account that the expectation for that is the sort of uplift that we would see in that time period.
Hi, good morning. It's James Envign here from Rothgen. Can I ask a question about your 4 target markets, please? You've already mentioned some of the capital you've taken out of Korea. But where how much capital Can you take out of those markets?
Because if I look at the local legal entity accounts, they've all got pretty generous core Tier 1s. And does the amount of capital that you can take out of those markets reflect where you may choose to land within your group 13% to 14% target?
The short answer on the second part of the question is not so much. But there's an element of excess, call it, capital requirements in a local market that contributes to the buffer that we need above what we'd otherwise land for our CET1, but it's not enormously material. And look, what we would love to be able to do is to deploy that capital that we've got in each of the markets. And there certainly in markets like Indonesia or India, There are opportunities to flow that capital. We have been, and we want to continue to.
Korea was substantially excessively capitalized, and returning a substantial amount was a real step in the direction in terms of getting that right size. I would say the UAE is someplace in between. But Broadly, we'd like to use the capital that we've got in these markets and then not have any impact through to our group ratios. It will take some time to be able to get there.
Okay. Last question, I think, unless anyone has a burning desire afterwards.
Okay. So this is the final question. This is from Manus Costello at Autonomous. You said markets had a great first half. Obviously, we've heard from Humberto about that business in May.
But do you think this is a run rate that you can maintain? Or are there any exceptional conditions that you want to call out?
I don't think there's anything exceptional in the first half, but we know it's a volatile business. And it's of our business lines, it's it will remain volatile. It's been volatile to the upside. But what's important is the structural improvements that we've made to that business over the past 2 or 3 years. So substantial new team, a Clear focus on those things that differentiate Senator Bank, which is our extraordinary local market access, in markets around the world, where in some cases, we are enjoying a very substantial market share.
But at the same time, we've invested heavily in G10 currencies for automation, digitization, algorithmic trading, things of that nature. So we were able to hold our own vis a vis any of the bigger financial markets or FICC shops in G10 markets, and we absolutely excel in local markets. We've clearly shifted our focus into those areas where we can make a big difference. We've also fundamentally repositioned the credit trading business to be consistent with our much more substantial focus on originating and distributing credit risk more broadly. So that's seen an improvement in financial results, also strategically much more valuable for us and for our clients because we're accessed in credit markets and credit products that they would find difficult to access So yes, I think there is some structural improvement, but we can't be blinded to the fact that there's an element of market sentiment and risk management, but that will be volatile.
Okay. That's it from the room. I think that's it for those questions.
Thank you very much.
Thank you.
Thank you. That does conclude the conference for today. Thanks for participating. You may all disconnect.