I will now hand you over to your Charters speaker today, Darren Clarke. Please go ahead.
Good morning or good afternoon, depending on the time zone you're in. My name is Darren Clark, and I'm the Regional Head of Investor Relations at Standard Chartered based here in Hong Kong. We are determined to keep this seminar to 1 hour to fit your schedule. So before I hand over to Simon, Roberto and team, just a quick note on logistics. The speakers will present for around 25 minutes, Leaving at least half an hour for Q and A.
We want to make it as interactive as possible, so you can log questions via the webinar portal on your computer or mobile device whenever you want, So we have the best chance to get through as many as possible. Please also note that questions will not be anonymous. This is Sela, if we don't get time to answer them, then we can follow-up with the author afterwards. So with that, I will now hand over to Simon Cooper, CEO of Corporate, Commercial and Institutional Banking.
Thanks, Darren. So before Robert and the team take over to deliver the webinar, I just want to spend a few minutes putting the FM business into context I'll explain why it's critical to the success of the CIB and CB businesses. So let's start on Page 4. Not happened by accident. We've made several changes both to the management team and to the strategy.
And while it's still quite early days for businesses large and complex as this, I'm pleased with the progress so far and confident in the team's ability to continue to deliver. FM's returns are already close to the group target of 10%, We still see significant upside potential. It's got a unique set of differentiators. FM combined with our leading position in global trade and payments Actually gives us a huge opportunity to cross sell flow hedging solutions to both corporate and financial institutional clients. Our global network and deep local knowledge together with the ability to originate assets and distribute them makes us a potential powerhouse for emerging market assets.
So we've got a Clear strategy in place to continue to improve returns and to grow. So, if I turn to Slide 5, As I said, I'm excited at the prospects of this business. And I hope that as a result of this seminar, you're going to share that view. FM is now a sustainably higher returning business. It's a more integral part of the group's network offering and Roberto and the team have put in place So with that, I'll hand over to you.
Thank you, Simon, and welcome, everybody. I've met some of you already. And for those that don't know me, my bio is in the pack and my picture is just now on the screen. And I look forward to meeting you all in due course. So, let's just go straight into Slide 7.
As Simon said, the FM business has been fundamentally restructured over the last 3 or 4 years. That restructuring was already taking shape when I joined at beginning of 2017. So my job was really to mold it further and then to speed up its execution. I'd say we're about halfway through process of getting the business to where it can really perform to its maximum potential. We're aiming for a higher RoTE in the medium term.
And as you'll see in these slides, The progress has been both significant and tangible. So what did I find when I joined? Pretty much what I expected with the three charts on this slide chart showing what we have done to address the more obvious financial challenges. The first chart shows the impact on FM of securing its foundations, to exit products where we were not differentiated and to stop doing business that generated insufficient returns. If you rebase our income to take account of those actions, we have grown what is left, I.
E. The higher quality business, by 8% per annum over that period. The middle chart shows how we have substantially reduced the RWA usage of the business, not just through model enhancements, But by more intelligent origination and risk management. In other words, executing the basics of banking better. And finally, the right hand chart shows how we created capacity for strategic investments by attacking our cost base, meaning total cost even after increasing investments reduced by 2% per annum since 2015.
But what these charts do not is the progress we've made addressing the challenges that were less obvious from the outside, but were just as impactful and in some ways harder to address. As Simon mentioned earlier, those related to the way we worked both internally as an SM team and with the rest of the group and with our clients. For example, we now have seamless joint account planning across products with our partners in the Commercial Bank and in Global Banking. Standard Chartered is one of the few generally global banks left and our unique network in emerging markets is what sets us apart. But there's no point in having a unique network if we can't deliver it seamlessly to our clients to help them grow and improve their own businesses.
Chart. And furthermore, there's no point in doing that if we don't actually get paid for it or we can't manage our risk appropriately to sustain returns. Addressing that takes intense collaboration. And given our relative size, we have to focus and collaborate even harder than our competition. So that's what we've been focused on, and I'll give you a specific client example on the next slide, Slide number 8 in the deck.
This slide shows how our relationship has evolved with what we've called the next set of target clients. These are multinational corporations and institutions with operations across our network covered by Global Banking. These are existing client relationships that have the potential to generate a similar level of income as our top 100 largest clients, where we're focusing on deepening our interaction So to these clients from 3 to 4 since 2015 out of 7 product groupings available in FM. We also used to deal with these clients in 6 markets on average and have now increased this to 8 markets on average. So there's still a great opportunity overall to continue to deepen these relationships.
The increase in product cross sell and proportion of network income And the managing down of RWAs has translated into doubling of revenue from these clients and a more than trebling on the return on risk weighted assets. This success highlights the opportunity that exists when we engage our clients better and build deeper relationships together with our partners in Global Banking and Commercial Banking. The figures on this slide cover around 60% of our current stock of the next priority clients, each of whom have been with us since 2015. We will continue to deepen the relationships with these clients while applying the same rigor and discipline to the rest as you will hear from Jeff later. This also allows the business to be more diverse and balanced, which is the focus of the next slide.
As you can see here, the FM business have become overly reliant from an income perspective on FX and on our largest region, Greater China and North Asia. FX is a naturally high returning business, But if you become too dependent upon a single product within a single region, this may lead to higher than desired volatility of earnings. And we saw that in 2015 when the RMB weakened significantly. Since 2015, we focused on building a more balanced business from both a product and regional perspective. So the first chart on the left shows we have reduced our reliance upon our GCNA franchise, Growing revenues in ASA in particular.
You can see from the middle chart that rates and FX have reduced as a proportion of our income with credit Capital Markets activity is making up almost all the difference. And the latter tends to be a more predictable source of income being somewhat less dependent on Volatility and Emerging Markets Beta. It also represents a more natural source of organic growth for us with our FX volumes in the period Expanding significantly, but the associated income slightly declining due to margin compression. We're also much more balanced than many of our peers when it comes to the split between corporate and institutional clients. If you can Focus on an area of differentiation and deliver excellent service, then corporate business tends to be higher returning, higher touch and therefore cost, but better returns.
You can see here on the right hand chart, we achieved a 1.3x factor on return on tangible equity chart. The corporate versus institutional business. We're continuing to invest in growing and deepening our institutional client base, And we are a highly credible counterparty for corporate clients operating in our markets. So what does that mean for our returns? And as you can see here on Slide 10, as a result of all the actions and difficult decisions taken since 2015, We have significantly improved our returns.
Not only has the return on tangible equity almost doubled, but the quality of the earnings has improved substantially. We're now more efficient both from a cost and an RWA perspective and our income is less risky, which considering we're essentially an emerging markets business shows how far we have come. As I said earlier, we still have a long way to go, but I'm very optimistic about how much potential remains for us to go after. So that's the first key message covered. Moving on to Slide 11, I will explain how we become an integral part of the group's network offering.
So why do clients choose us? The answer always nearly lies in the combination of capabilities set out in the chart on the left hand side. There are some banks that can offer some of these characteristics, very few can offer all of them, and no one really has trading capabilities on the ground in as many markets across our footprint of Asia, Africa and the Middle East. The evidence of our success in leveraging these differentiated features is set out on the right hand side. As Simon mentioned earlier, we're strong in the products in the markets where our clients need us to be strong.
And whilst we're not at the top of the G3 league tables, where we do stand out is structuring and facilitating both flow and complex risk management solutions And finding interest investment opportunities for our clients in emerging markets, particularly in the more challenging ones. That is what we are known for, And it's what we focus on and it's what sets us apart. Further evidence of this differentiation is set out on the next Slide number 12. We have outperformed what most commentators consider to be our peers both last year and Q1 of 2019 And this shows two things. Firstly, that we are different.
We are exposed to different drivers for the reasons I just gave. Sometimes as a result, we will outperform relatively over a given period and sometimes we will underperform. However, given our client model and our strong position in the dynamic high growth markets we are in, we believe the former will outweigh the latter over time. Secondly, it shows that we've been acting differently. The fundamental improvements we've made to the business need us to be able to take advantage of relatively favorable conditions much more effectively than before by executing better on risk management And better on client flows.
On this next slide, As you may have read back in February, our network is unique and the income we generate from it is strategically important for the group as a whole. Our long standing physical footprint across 60 of the world's most dynamic markets cannot be replicated. This and our Expertise in managing risk in those markets is what most obviously defines us. Following a concerted effort to lean into that differentiation across the chart. Across the whole of CIB, network related income overall is now growing more quickly and generating premium returns.
As you can see in the charts on the slide, FM generates about a quarter of CIB's network income. That network income now makes up a larger proportion of FM's Total income and its significantly higher returning. It's a really good story and it's one that we're very happy to keep investing in. So before I summarize the major initiatives we're focused on to improve and grow the business and then I hand over to Thomas, Henrik and Jeff To describe them, I want to spend a minute on the macro drivers listed on Slide 14. Of course, headwinds exist for all markets businesses.
And frankly, they're unlikely to lessen or change direction much in the foreseeable future. And that's okay as long as you're big enough to be relevant yet nimble enough to adapt, And we are both. There are offsetting reasons to be optimistic. If you believe as we do that the medium term macroeconomic trends affecting our footprint are healthy chart. What are the key initiatives we're investing in?
Chart. 1, reorienting sales to further deepen client relationships 2, strengthening our credit and key geographical corridor offerings And lastly, investing in data analytics and process reengineering. And with that, I'll hand over to Thomas who can pick up on the first one on Slide 16.
Thanks, Roberto. Hi, everyone. My name is Thomas Kiques, and I run Global Corporate Sales for Financial Markets. As the title of Slide 16 states, One of our key initiatives in Financial Markets has been to deepen our target client relationships. Referring to the left hand column, We started on this client journey when Simon introduced the TOP NEXT and new framework.
This gave us clear prioritization for corporations and financial institutions alike, Based both on the size of the opportunity and the alignment of our product and network capabilities to the client wallet, what became clear was that we're behind with OECD clients and needed to increase penetration by upskilling our sales teams with key hires Across Asia, Europe and the U. S. Moving on to the middle column. Simon and Roberto have both spoken about how we needed to improve the way we work with our internal partners and develop our product adjacencies. I'm going to tell you a few ways we are doing that.
In partnership with Henrik Graber and his team, We are driving product cross sell, having created a private side sales team that joins capital markets at the very onset of financing conversations, giving us a better chance of winning the swaps business. Together with structuring, we are creating products for liability management and tools for enhanced client analytics, Migrating what our innovative solutions for corporate and financial institutions across our footprint. With our partners in Transaction Banking, Our top priority is developing an integrated foreign exchange offering on our flagship Straight to Bank platform. Together, We are also meeting the needs of clients who want payments related foreign exchange execution through our simple to onboard transaction banking FX solution. With my trading colleague, Jeff Cott, who I spend quite a bit of time on the road with visiting clients, we continue advancing scale, Standard Chartered's aggregated liquidity engine and API powering multi currency pricing for consumer websites.
We We are also constantly improving our FX algo offering as well as introducing Flowbanker, a product I'm pretty excited about 1st to network maximization and personally one of the great joys you get from working in a bank with a footprint in over 60 markets. Our China opening and accelerating Africa business plans are in full swing, and Henrik will speak about that shortly. I want to give you two cases of how the world's largest corporations are growing in geographic complexity and how Standard Chartered's emerging market FX offering is an anchor to these key relationships. The first example is a client who took an introductory meeting, yet commented that they were already well covered and would need another bank relationship. We described our differentiated presence across Asia, Africa and the Middle East and promised that we would be ready when they needed us in markets that their existing banks could not assist them.
Not long after this conversation, the clients encountered such a situation, needing advice on how to manage exposure to Ethiopian BRRR, where the incumbent banks had no knowledge. Although the client ultimately never traded in Ethiopia, they were so impressed with our deep market insights that we wanted to establish a relationship and today are a significant client in both G10 and emerging market currencies
across all of our products.
Another example is a corporation who asked us to help them understand local currency regulations in Thailand and Vietnam as their business was rapidly expanding in these countries. After our detailed analysis, they recognized our distinct value, rewarding us by inclusion as one of the handful of banks in their G10 FX hedging program. We have since also begun trading restricted markets in the aforementioned Thailand and Vietnam, but also in Korea and China with India in the pipeline. These are 2 of our most significant relationships built upon the top next NU mandate. In closing, our sales business has evolved to focus on deep client penetration, maximizing product cross sell and leveraging our unique network.
I will now hand you off to Henrik.
Thank you, Thomas. I'm Henrik Graber, the Global Head of Credit Markets. I joined SUB in 2009, so I have seen some highs and lows. Since 2015, the strategy has changed to a returns focused model The distribution being central to driving higher quality revenues. As Roberto highlighted earlier, the credit trading and capital markets businesses have grown substantially from contributing 5% of FM revenues in 2015 to 24% in 2018.
This outcome was sought deliberately to diversify FM's revenues as we pivot away from lower quality businesses. Referring to Slide 17, please. One of the key initiatives was the introduction of the originate and distribute strategy in June 20 17, aiming to increase the proportion of non financing income and to reduce our hold positions, thereby increasing our return on RWA and balance sheet velocity. Central to this strategy was the creation of a capital structuring and distribution group, for short, which consolidates our distribution network for lending assets across CIB and CB. The focus on distribution has enabled us to participate in new opportunities, leveraging on the growing demand for our network assets.
For example, as part of a financing opportunity with an Indonesian sponsor in their acquisition of an Australian asset, The CSG team structured and placed a mezzanine tranche to a Korean investor. This sets The distribution of our own balance sheet has also improved, with trade asset distribution up 32% since 2016, doubling With a focus on distribution, CACG has improved RoTE across FM, CIB continues to be highly valued by our clients. Now moving to the middle column on the slide, please. In terms of geographies, China and Africa are 2 of the Bank's key markets. We have been present in China for over 160 years.
With the Chinese markets meaningfully opening up, SEB is one of the best positioned international banks, providing comprehensive access to our clients in both the onshore and offshore markets. We're the most active bank to promote Bond Connect, helping over 80 funds set up thus far. Another key opportunity is the Belt and Road Initiative. We have an unrivaled network spanning Asia, Africa and the Middle East across 45 belt and road markets. Recently, a client needed financing in Pakistan against U.
S. Dollar letters of credit, but the U. S. Dollar supply onshore was restricted. Thus, we structured a solution combining An RMB denominated LC and hedged the FX risk by PKR and RMB Forward.
Deals like this highlight the value of our local knowledge, Our RMB expertise and our promise to be here for good. And finally, the right hand column, please. 1 of our fastest growing markets today is Africa. FM intends to double our African linked revenues over the next 5 years. We are already the largest international bank in Sub Saharan Africa, and our footprint addresses over 70% of the region's GDP.
This, combined with our network, provides access into and out of Africa for the FM product range. Both our Africa and China offerings are distinct versus the majority of our competitors. The combination of markets creates our network. Going forward, a key driver of scale will be our e platforms. And with that, I hand over to Jeff.
Thank you, Henrik. And I invite you to turn to Slide 18. My name is Jeff Kos, and I head the Global FX Business. Over the course of the last 3 years, we have been rooting out cost savings to create the capacity to invest in, Among other things, our data analytics and quant capabilities. Along with our e platform developments, these investments underpin our efforts Let me speak a bit more about data analytics.
The investment we have made means we now more accurately understand our client's behavior across CIB and CV, ensuring we can match high touch coverage with the clients that offer us the highest marginal and potential returns chart. And moving low touch clients who only deal commoditized products onto our e platform. Embracing data is also making the FM business more agile. As Roberto mentioned earlier, our clients know that we cannot be great at everything. They want us to be strong in the products and markets where they would otherwise struggle to find Shop.
So we are now more systematic and disciplined around wallet sizing, identifying the most relevant market opportunities which leverage chart. And knowing quickly whether the changes we make are effective or not. Taken together, it allows us to be more targeted and effective with our investment spend. A case in point is the investment we've made in our quant team. We've been instrumental in driving improvements to our algorithmic execution and automated risk management capabilities.
Over the last 3 years, we have more than doubled the flow being executed electronically, And we expect that to grow to almost 3 quarters of all our FX flows in the coming years. We've also just gone live with a suite of execution algos for our clients. And we're excited about the opportunity this new line of fee based income opens up for FM. Now let me speak a bit more about our e platform development. I've already highlighted some of the progress we've made in FX.
So there is progress across FM. For example, in the rate space, We are now number 1 on market access for ASEAN government bonds. And to touch on Henrik's growth plans for credit, we continue to grow our market share in EM Credit, Currently ranking number 1 on electronic venues for Sing and CNH credit. Looking ahead, our investment in e platforms is being carefully coordinated with transaction Banking to offer clients a single point of entry to our digital capabilities across FM, cash management and custody. As Thomas mentioned earlier, this partnership with TB and the ability to leverage our network is a key differentiator in driving profitable growth.
Over
Enabling our clients to make FX payments seamlessly. Given the adjacency with TB and our unique network, The payment space will continue to be a significant area of focus for FM. Our scale solution enables us to drive new revenues across multiple client segments, Especially FinTech and New Payment Method clients. For example, this solution supports the partnership we have with AMP Financial, Providing instant remittance solutions by mobile phone between Hong Kong and the Philippines. We already have 42 clients live on scale, another 30 mandates and are actively prospecting over 200 more as clients are drawn to our ability to automate payment workflows for them in our restricted footprint markets.
Finally, let me speak a little on how we will drive profitability through process reengineering. Migration of client flow from voice to e naturally enables us to reduce the number of manual touch points internally, increasing the amount of straight through processing. This reduces the cost through the entire trade lifecycle, reduces operational risk and improves the client experience. In FM, we have looked at our end to end processes And we are actively working to exploit the potential efficiencies we have identified, either through simplification, Tech enhancement all in partnership with FinTech firms. One such example is in FX post trade costs.
At the end of 2018, We embarked on a successful proof of concept with the FinTech, and we are now working on fully implementing the solution, which we expect to almost halve Our FX trade processing costs. So in summary, the FM business has been and will continue to make disciplined and targeted investments in data analytics and platforms to leverage our natural strengths and to allow us to scale up at lower marginal cost. And with that, let me hand back to Roberto.
Thank you very much, Jeff. So to wrap up, our intent was to give you enough data points to support the 3 key messages on the top of the Slide number 19. And while we may not deliver the targeted metrics at the bottom of this slide in every single quarter over the next 3 years, we're making and will continue to make a significantly positive and growing contribution to the group's strategic and financial objectives over the coming years. So with that, I'll hand back to Darren, who will manage the Q and A session for us.
Thank you, Roberto. So that concludes the presentation part of the seminar. So our first question is from Tom Raynoff of Newman Securities. Does the 8% CAGR that we saw from 2015 to 2018 on the rebase Revenue represent the type of revenue growth we would expect to see from 2018 to 2021.
Thanks, Tom. Let me Take a stab at that and then I'll ask Roberto to add to it. So, I think back to November 'seventeen, I said that CIB will grow between 5% 7% On average over a 3 year period. If you look at what we did in 2018, we grew at 6%. If you look at this deck On Page 19, we've said that financial markets will grow on average more than CIB.
Chart. Highlight again, that's on average over the next 3 years. I think the important point is the slide that you put up, Reverso, on Page 14, in terms of chart. The tailwinds, how we maximize those and how we navigate the headwinds ahead?
Yes. To take it from Simon's CIB perspective, obviously, FM is a significant contributor to that CIB 5% to 7% target. And the reason We feel good about the business, overall is because of the tailwinds. And the tailwinds, I think, are quite interesting for us Given the footprint we operate in, whether it's the GDP growth in our markets, the continuing global trade growth in the region we're in and the continued China opening. So pointing to that, that's what gets us to the answer you've just heard.
Maybe just to build on it a little bit further. If you think about the strategy of generating capital light income, FM is critical in terms of
Okay. Our second question comes from Rajesh Chandra Rajan of Bank of America Merrill Lynch. Are you comfortable with the business mix shown on Slide 9? Or will this continue evolving? Chart.
Thank you.
Yes, thank you for the question. I think what's relevant in that slide is the change, particularly on the left and center graph. Chart. So I'm comfortable that it's changed to being more balanced. And to me, the definition of evolution is that we are agile enough to follow our clients So when I look at the geographical perspective, it's difficult to say exactly Which clients from which regions want to operate where, and to me the definition of success will be an ability to service them seamlessly Across that.
And given how we are placed both in terms of the effort distribution of our client facing resources and our risk taking abilities, I'm very comfortable that we'll be there for them along that journey.
Okay. The next question chart. Comes from Kieran Abbehoosin from JPMorgan. Can you talk about the competitive environment you see against global IBs and locals? And in this context, is funding cost important?
So thank you for that, Kian. For the second part, yes, Funding cost for any financial institution is a critical ingredient in the overall generation of returns. In terms of the competitive environment, what we've seen in the last 10 years since the crisis with the balkanization of capital and the chart. It's created, as I'm sure you know, as well as anyone else, some non level playing fields around the world. I would say that right now the competitive environment of the global IBs is one that they are Quite deep in risk and in product and the locals are quite strong, obviously with clients that are domestic, in offering domestic solutions, Domestic Solutions, often capital led.
What I like about our position, again, going back to the tailwind is Trade is growing. The corridor business is important. And where we are really competing is in the fact that we can do the cross border solutions, as you've heard from my colleagues in the past by being with our clients in various territories and having products onshore in them that allows them to use us for their solutions.
Okay. The next question is from Manus Kinsello of Autonomous. You say you are delivering 10% RoTE and that you are halfway through your process of investments. Are you therefore targeting 20% RoTE?
Magnus, that's a great idea for Roberto's scorecard. I think I'll take you back to my earlier comment about what I've said about CIB's target over the growth. The fact that we're aiming for 10% RoTE and the fact that The FM business is clearly important and will grow faster than CIB overall in terms of generating measured terms. Roberto, you can take the 20% target if you like,
Chart. Thanks for that.
My halfway there phrase was Not to be read with mathematical precision on any kind of financial metric, but more in terms of when I think Culturally and moving team dynamics forward and the way we all collaborate, I think that probably Was a bit mean on our progress. Maybe it's a bit more than that. But certainly, what I wanted to convey is that Internally, the way we all work together, understanding what the group's objectives are through Bill and Simon's communication, I think the FM business is in a far better place right now as part of the overall CIB and overall group than it's been in the past, and we'll continue chart.
The next question comes from Ed Firth of KBW. How are you finding the broader economic environment in Q2?
I think that Q2, obviously, you've seen the headlines of what's going on in the world. They're dominated Right now by one particular trade issue. And for our business, I would say that what matters is that We are there to engage with our clients and help them where they need solutions. We don't have a business that is particularly Tied to massive risk as you have seen. So in terms of the broader economic environment, I do not expect a radical change in what we will be able to do for our clients in this quarter and going forward.
Yes. I mean, if you look at what we've seen here, I think Andy and Bill have said in the past that the direct U. S.-China trade corridor It isn't a significant part of our revenues. We are seeing the odd clients stand back and delay investment decisions based on what's happening and the uncertainty, We're not seeing a massive change in investor sentiment.
Next question comes from Rahul Sinha of JPMorgan. On Slide 10, you highlight significant upside potential to The current 10% RoTE in FM. Can you discuss the sources of this upside given most of the improvement so far has come from RWAs and impairments?
Thank you. I think that continued improvement in financial metrics going having increased market share positions with clients who need our services to work for them. And as you've heard from Thomas On a couple of examples, you see what the multiplier effect when we bring our network to our clients. I think that the single most significant provider of success, if you will, going forward for us That client angle in the business, and maybe Thomas wants to expand a couple of words.
Yes, sure. As we spoke about it in the presentation, We have a distinct advantage in touching on the network business, and we are by no means done with our evolution and our broadening out our client scope. Chart. Under the TOPNEXT new framework, we are still expanding in this area. We have a clear strategy for how we can increase penetration amongst clients.
And as we increase penetration amongst clients, we touch upon the network and that is a much higher returning business, as has been clearly So that is something that we can replicate and repeat again and again across our product sets, not only in the OECD client sector, but also in The emerging market and frontier markets as those clients expand globally, we are at the ready to help them. I'll also pass on to Henrik as he has a number of examples as well.
In our markets, many of our markets are obviously growing above the world's growth rates. If you look at markets that grow economically more than 7% a year, they double in size over 10 years. And a couple of those key markets, India, Bangladesh, Philippines are absolutely core to our businesses. If we look at the credit business, for example, 17% of the clients that were significant clients for the credit business were actually new clients in 2018. So it's about adding new clients and penetrating our existing client base.
We continue to see very good volume growth across the network. And if you look in the capital markets, for example, in Q1, it was a very robust period relative to global growth. So we continue to see our markets grow, chart. Our
Our next question is from Ed Firth for KBW. How do margins compare on FX businesses conducted digitally versus voice? I'll let Jeff answer that.
Thanks, Roberto. Margins for dealing FX On electronic venues is definitely much, much tighter. Typically, we see margins being only about 30% chart of voice margins. However, though, that's just purely looking at margins sometimes can be a little bit misleading. Certainly, I can say for sure that our volumes have grown sufficiently to be able to offset margin pressure.
And that shouldn't dissuade us from our investment in our digital capabilities. The nature chart. The market structure, sorry, of those markets which are digital naturally have lower margins. But our business mix and our network We actually have a very, very healthy mix of voice business versus e business, and it's My intention is
to grow both, and I think we can grow both given our current market position. Just to add to that, it's also not correct to look at it in isolation because obviously the client relationships As we are a trusted advisor of theirs. So it's really the overall client business that one needs to look at to track the progress.
Our next question is from Chris Manners at Barclays. As you have cut RWA by 40%, Can you give a sense of how much RWA you have in FM now and the CAGR you expect over the next few years?
So let me just take A stab at our statement. We clearly don't disclose the RWA that we allocate by business. I think there was a presentation a few years ago that had a number slightly less than $1,000,000,000 allocated to FM, and we've indicated the percentage by which we've reduced RWA. That will give you a handle on the chart. Sort of numbers we're talking about in terms of the RWA allocation of the business.
In terms of the growth that you've just heard about from all the different Presenters. Clearly, most of that growth is seeking to be much quicker than any growth in RWA. We're looking at capital light growth. That's the attraction of the business. So you should assume that RWA growth lags any growth in revenues.
Our next question is from Robert Sage of Macquarie. Slide 7 shows cost efficiencies offsetting investment. Beyond 2018, is it correct to expect continuing investment, but a slowdown in cost efficiency?
Challenges have had to do in the past few years. I think what is clear to me in the last few years under Simon's leadership is that chart. I am very comfortable that this will keep contributing to positive jaws for us, the path of costs.
The next question comes from Manos Costello of Autonomous. How did the change in the approach to CVA reintroduced in 2015, 17 and 16 impact the nature of your business. Did you have to shut down some sources of business as they were no longer profitable?
So this happened before I joined. And Clearly, we can assume that we were winning business in this firm a few years ago that maybe was too I would say that our introduction of that and the way we're pricing CVA now, Given the obvious GAAP risk in emerging markets, so when you look at the technical pricing of CVA and cross gammas, etcetera, It's a very welcome and very well executed introduction that was done, as I said before I joined, because A, it abates RWAs, so far more effectively, it cuts off mispriced tail risks in the book. So I think overall, the CVA story is a very positive one for SCB. Obviously, having introduced it was the right thing. We are able to do business in parts of the world which are complex and illiquid, And we're only able to do that because we have a strong XBA team that runs all the hedges.
The pricing of it is something we will continue to optimize in order to be able to service our clients as best we can, whilst Always engaging and prudent risk management.
The next question is from Rohit Chandra Rajan of Bank of America Merrill Lynch. How do your returns vary by region and products?
Thank you. So obviously, we will not we do not disclose the specifics of returns by region. And the reality of it, it is not also that relevant to have that with a High degree of precision because the network aspect of the region means that we are covering clients, global clients across regions And we might end up doing business with them, which is tilted in one region or one product because that happens to be their needs. So if you were to look at it just on a very purely strictly regional financial basis. It would not give you an accurate depiction either of the effort put in or the true value generated by the different regions.
Clearly, from us, we look at our footprint where we're very comfortable taking risk and servicing local clients as The primary way to add value to global clients as they enter it, as they need to service their trade flows, their supplier chains or their risk management needs. So I am far more interested in maximizing the service we give to our Where there's a definite need in a particular corridor rather than solving for a geographical formulaic split of any kind.
I'm in the U. S. Next week, as you know, seeing some investors and some clients. One of the key things that always comes up when talking to U. S.
Clients is their interest in our network. Ibittered talked to them about what we're doing in Africa. Ibittered talked about what we're doing here in Asia. And if you look at The U. S.
Business is a standalone base. And on the reported U. S. Returns, you wouldn't have a business in the U. S.
So your point is right. You've got to look at it in the aggregate What we're doing in terms of overall network returns and where that's brought. And I think the what we've Talked about focusing on network, focusing on that differentiator to drive capital light returns accretive business chart. It's going to be important for the rest of the strategy.
Our next question is from Gurpreet Sahi of Goldman Sachs. Can you give some examples of share gains, especially in the Assa region, which seems to have shown good performance over the last 3 years As reflected on Slide 9.
APHA is a very interesting region. It has some quite illiquid sort of nonstandard products that we need to compete in and have some fiercely competitive flow products like the Singapore and government bond market in them. But clearly, we've had significant share gains If we look at our network income from European and American clients that operate in the region, it's a growing corridor Show. And it's evident to us that not only have we been with them in that growing journey, but I think that we've also So that would be an example of how we look at ASF, and that is the way we then To my previous point about not being too focused on sub regional revenues, those same clients operate also in other corridors, and obviously Providing value to them in one corridor opens the door for us for the dialogue in another corridor where we might not have been present with them so far.
Our next question is from Jennifer Cook of Exane BNP Paribas. Origination efficiencies looks to be one of the most significant drivers in reducing FM WA since 2015. Please could you detail what actions you have taken here and whether we could expect this to continue going forward?
Thank you. On the origination side, we've done multiple things to change and be different from the way we operated in the past. So firstly, we created the CSDG group, which I spoke to earlier. We also changed the mindset around the There's a very rigorous account planning in terms of looking at the overall relationship of an account. Within that, we look at the wallet And obviously, we're using our balance sheet a lot more efficiently than before.
So we're distributing a lot more of the balance sheet than we have done historically. We may have been previously slightly more considered as a take and hold bank, but whilst now we do, as I mentioned earlier, We've instituted a process called RCAP and GCAF, which evaluate transactions from an origination perspective, look at the returns And also make decisions around what part of the transaction should be on the balance sheet and which ones we should look to partner with investors to distribute. Included in that process are RWA and ROE hurdles. What's been interesting is also the macro backdrop Investors increasingly are looking to buy our network assets. So we have a lot of incoming increase from investors, And that's across a range of products, both bonds and loans.
But also very interesting has been the expansion of the distribution of our TB assets. So trade assets and demand for trade assets from investors, including insurance companies, has risen quite considerably. I touched upon the distribution we've done the last few years. But even if we look at Q1, we had a strong process around distribution of trade assets. And the whole organization is looking much more at a distribution lens.
So we have introduced a private side sales force. And as Thomas hinted alluded to earlier, We've also added to the public side sales force, and that's been a global expansion within the sales team. We've onboarded number of credit investors, and we think there's a significant opportunity as investors look to access emerging market credit, both in the G3 format and also in the local currency format. And obviously, with our network, Our ability to access local currency product is unrivaled and unique.
Our next question is from Andrew Coons of Citigroup. The fixed share ex Japan and Australia has Reduced from 10% in 2015 to 8% in 2017. Has this now stabilized? Chart. FX margins have reduced from 1.8 bps in 2015 to 1.4 bps in 2017.
Has this reduced further since then?
I'll take the first part of the question and then Jeff can answer the FX margin one. In terms of the fixed share, The numbers you're quoting, we discussed them in our end of, I think, November or December 2017 Investor Day. And that 10% in 2015 Was inclusive of this waterfall of products we've exited. It was at a time with no XVA pricing and a variety of other Product that I mentioned back then that we felt might have given a market share advantage, but Share advantage, but actually was destructive to return. So that was a voluntary exit of businesses that created that.
I cannot comment on current market share, and you'll see that in public service coming out, but we are comfortable with our competitive positioning in FIC ex Japan and Australia. Jeff, maybe you can touch on the FX margin. Sure.
Show. On FX margins, without commenting on specific numbers for margins, I can say that margins Stabilizing, in fact, I'll show you some improvement. And part of that is just a function of business mix. Obviously, we've been through an extended period of very low Market volatility for developed market FX, where margins are typically lower. And in conjunction with some of the initiatives that Thomas has mentioned and some of what we've been doing on data analytics, We're getting much more efficient in our spread capture holistically, and we're getting much better distributing our EM FX capabilities globally, and we tend to see higher margins with restricted market currency.
So our margins in FX have stabilized and have
chart. Our next question is from Jason Napier, UBS Securities. If CIB made a 7.4% RoTE last year and FM has made 10%, what are the returns on TB and Corporate Finance?
So I think the way we've got to think about it, it's quite dangerous to start thinking about returns purely by product Because what we've described here is an overall strategy for CIB, which is built around the client. So if you take transaction banking, What's transaction banking? It's cash, it's trade, it's security services. There's clearly a financial markets element to all of those So what we need to do is to secure the entirety of the relationship from Corporate Finance. Clearly, That's a more typically asset heavy business, but coming from that is the asset generating capability that allows Henrik To distribute those assets, it allows us to then create an asset class that our institutional investors want to participate in.
So yes, I mean, Clearly, if FM has made 10%, some of the other businesses are making less than 10%. But I think it's dangerous to think about them in isolation. You've got to think about the component parts you need to have in driving a relationship business and how they integrate. So chart. When our relationship managers are putting together their client plans, they are looking at, so how do I maximize returns for my clients by integrating the product suite
Yes. And an example of that would be that in our Corporate Finance business led by Sumit Dayal. We have a lot of collaboration with FM on that where The resulting trades might not be in his business, but might be NFM, such as interest rate derivatives driven by project finance loans and other such So I just wanted to emphasize Simon's point that the relevance is the overall client proposition and client returns as opposed to the byproduct
charter. I think to highlight what we do differently now, for example, was the Bayfront transaction, which was a project finance CLO, which was very received numerous awards where we took several As one team, and we have a completely different mindset in approaching how we originate and distribute the balance sheet than we have done before. Previously, a transaction like that is not something that SCB would have done. I think if you speak to our investors, the type of Innovative products that we're coming out with are quite different from previous years. We also have a very strong push And you will have seen that we're strong in the green bond and green loan space and a pioneer, for example, launching 1 of the first green deposits And also doing the world's first blue bond.
So in conjunction with our clients, we're building out our product, our content and innovation,
chart. Our next question is from Kumit Jain. Most of our competitor banks are very high on digitization. What is our progress in this space considering there is cost pressure?
Sure. Thanks, Kewmit. Sure. Look, some banks have extremely high digitization rates. That is appropriate for the markets that they're in for the clients they service.
We are very We are more EM centric as an FM business. It would be unreasonable chart. For us to be best in class in terms of digitization rates, looking at that as a naive ratio of the business that we do. That being said, we understand that the competition is evolving. The space is evolving not only from our competitive banks, but also from non bank players.
And we are very much on top of those And indeed, if I look at the progress we've made over the last 3 years and the investments we've made in our digital platform, Chart. Yes, that's really beginning to reap rewards, and the momentum is really now extremely positive. Our spread retention rates have more than doubled. Our volumes have more than doubled, as I mentioned earlier, for the FX business. And the progress we're making on rates and credit Chart is now beginning to bear fruit.
And sometimes investment in technology and being first mover is not always essential chart in this space. I mean, for example, we've just gone live with Cliongos, as I mentioned earlier. Those are not necessarily
tremendously differentiated. However,
We have managed to go to market on that much quicker than Many banks that were first movers in this space through partnerships with external companies Because this technology now is relatively commoditized, and we're not scared about not being the 1st mover. What is most important to us is being able to deliver our capabilities to our clients When they want to access them digitally. And so it's easy It's easy to say that this is purely a kind of A race to spend the most money. I think that's quite a foolish way of thinking about digitization. And chart.
The number of developments we have in the pipeline coupled with the number of emerging technologies that we're looking at, A number of external companies that want to partner with us in various markets across various different products in FM. I think it's tremendously exciting. And that's not only going to drive our revenue, but also help us reduce our costs and increase our efficiency in the long run.
Thank you. And so just to hand over to Simon for some closing remarks. So
I guess just to reiterate what I said at the beginning, this is now a fundamentally different business to that that we had 3 years ago. And it is going to be a significant contributor to the group's overall RoTE target as it develops over the years to come.
So thank you, Simon, Roberto and team. That's all we have time for in this session to keep to our promise to stick to an hour. There There were just a few questions that were logged in the system that were overlapping. We know who you are and we will follow-up with you directly. So thank you very much for joining.
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