Ladies and gentlemen, thank you for standing by, and welcome to the Standard Chartered's update for the first quarter of 2019. Today's call is being hosted by Andy Halford, Group Chief Financial Officer. Once his opening remarks are finished, there will be an opportunity for questions and answers. At this point, I'd like to hand the call over to Andy to begin. Please go ahead.
Thank you very much. Good morning or good afternoon, depending on the time zone you're in. Hopefully, you've had a brief chance to review our first quarter results statement already. Before we open the line to questions, I'll just add a bit of color to the key headlines, then share a sense of our expectations going forward. As you know, we set out in February a set of priorities and commitments for the next three years that will not only take us above a 10% return on tangible equity, but also create a truly differentiated bank for our customers and our shareholders. We've taken a number of positive steps towards that objective already, and although this set of results only covers one quarter, they show that we have made a good start.
For example, shortly after the investor update, we were granted one of the three virtual banking licenses in the initial wave approved by the regulator in Hong Kong. We are very excited to be working with our partners on this initiative. HKT and its parent company, PCCW, are Hong Kong's leading telecom, media, and digital solutions providers, and Ctrip is one of the world's most innovative online travel agencies. The strength these strategic partners bring, combined with our own deep banking expertise in the market, means that we are in a strong position to redefine the digital banking experience for customers in Hong Kong. We will own the majority of the equity in this joint venture. I mention it because it's a great example of how we are disrupting through digital and partnerships.
Speaking of digital initiatives, we have rolled out our standalone digital bank model that we originated in the Côte d'Ivoire in a further four markets in Kenya, Ghana, Tanzania, and Uganda. Three weeks ago, we announced the end to various investigations into our legacy sanctions compliance and financial crime controls. These matters have taken up considerable management time and effort, and resolving them removes a major area of uncertainty. These are two very different steps on the path of the course, they are both important and will be hugely impactful in their own way. In terms of the four big markets we called out in February, where we see significant upside potential, although it's early days, three of them improved profitability year-on-year, and the fourth, Korea, we have returned capital to the group in the first quarter and thus further improved returns there.
Finally, not inconsequentially, another commitment we made in February, given our strong capital position, was to manage the E side of the RoTE equation more dynamically. With the material regulatory uncertainty resolved, we can now begin that process. Given the discount to book value we currently trade at and coupled with our confidence in further improving the profitability of the group, buying back our own shares is the natural best use of surplus capital currently to benefit all our shareholders. With this in mind, we have decided to spend $1 billion buying back our own shares, and we will start this process imminently and would hope to complete it before the end of this year.
As we said in February, our intention is to operate within the refreshed 13%-14% CET1 range, meaning we are prepared to return further capital that is not required in the business as and when appropriate. This will continue to be subject to the execution of targeted capital actions, opportunities to invest in the business, and of course, further regulatory approval. Turning to the numbers. In terms of first quarter results themselves, our underlying profit before tax improved by 10% year-on-year or 12% at a constant currency to $1.4 billion. This generated an annualized return on tangible equity of 9.6%, compared to 8.6% for the same period a year ago. The 100 basis points uplift is certainly encouraging, but as you know, the first quarter's results did not include things like the UK bank levy that is charged at the end of the year.
Looking at the numbers in a little bit more detail and starting with income. As we indicated at our full-year result announcement, we benefited from unusually buoyant market conditions in the first couple of months of 2018, January in particular, and predominantly in wealth management and financial markets. Partly as a result of that tough comparator that we called out, income in this first quarter was down 2% year-on-year. Foreign exchange translation also had a meaningful impact. On a constant currency basis, it is worth highlighting that income was actually 2% higher, and in March, income was higher than it was last year. Down 2% on a reported basis versus a strong comparator, but up 2% on a constant currency basis. If you exclude the swing in DVA, then income was actually up 4%, with momentum in the business improving in the quarter.
Although this is only one quarter, and despite the outlook for the global economy remaining uncertain, it feels like sentiment in our markets is showing early signs of improvement. For these reasons, despite the slight contraction in this particular quarter, we're still confident that over the next three years we can grow income at a compound annual growth rate of between 5% and 7%, whilst keeping expenses growth below the rate of inflation. Over that period, we assume that the foreign exchange swings will likely even out. Given improving returns is the primary objective, then the reported income growth on its own in any given year is slightly less important than our ability to generate operating leverage via positive jaws.
If FX suppresses reported income this year, it will also likely suppress expenses as it has in the first quarter, meaning that at an underlying operating profit level, the effects will tend to cancel out. Moving to expenses, the other side of the jaws equation. I have already mentioned the beneficial impact FX has had on our reported number, but it is also worth bearing in mind that costs are often lowest for us in the first quarter of the year. Staff costs are usually higher in Q2 as the impact of pay rises flow through, and there is the usual phasing of investment projects coming online as the year progresses.
When thinking about the remainder of the year, we're well aware that to reach our minimum 10% return target by 2021, we need to generate significant positive operating leverage over the period, and that absolutely remains our intent, including for 2019, whatever happens to FX in the meantime. I'll spend just a minute on credit quality, where, as you know, we have made considerable progress over the past few years. Credit impairment charges are often low in the first quarter, but this year they were exceptionally low, less than half the same period last year, albeit benefiting significantly from a provision release in private banking. This gives extra weight to my usual warning at this time of year not to think of the Q1 outcome as the run rate for the remainder of the year. There is still a long way to go.
Just a couple of observations on the balance sheet before I conclude with capital. Average interest earning assets grew 5%, driven by higher loans and advances to customers, with growth from financial markets and corporate finance in particular, and increases in trading book assets to support customer activity in financial markets. Average interest-bearing liabilities were also 5% higher, reflecting growth in customer accounts and repurchase agreements, and we continued to see some further migration from non-interest-bearing customer accounts into interest-bearing liabilities. The net interest margin, after adjusting for IFRS 16, remained stable. Risk-weighted assets were up $9.9 billion, two-thirds related to underlying asset growth, predominantly in financial markets and corporate finance, and one-third related to seasonality in market risk RWAs and the impact of adopting IFRS 16.
In terms of capital, our CET1 ratio was 13.9% at the end of the first quarter, down 30 basis points from the end of the year, but right at the top of the revised 13%-14% range we gave in February. Incidentally, the 30 basis points includes the impact of the $186 million final charge, as well as the foreseeable ordinary dividend, which is based on an interim dividend that you may recall this year will be $0.07, being one-third of the prior year full-year dividend. Buying back $1 billion worth of shares would all other things being equal, reduce the CET1 ratio by about 35 basis points, and the program will likely take several months to complete based on recent volumes.
To conclude, before we open the line to Q&A, our first quarter performance demonstrates that we are making tangible progress executing the strategic priorities laid out in February. While progress may not be linear, we remain very confident in our ability to deliver an ROAE of at least 10% by 2021. With that, I'll hand back to Callum and take your questions.
Thank you, participants. If you would like to ask a question, please press star and one on your telephone keypads and wait for your name to be announced. Our first question today is from the line of Martin Leitgeb from Goldman Sachs. Your line is open.
Yes. Good morning. Could I have three questions, please? The first one is on the very strong revenue print within financial market. I was just wondering if you could share a little bit of comment on what happened in the first quarter and to what extent this is a very strong quarter or this is essentially a result of something more fundamental undergoing the restructuring of that unit, which I think historically has led to comparatively weaker revenue print compared to the rest of the group. It seems to be that that is one of the bright spots in today's results. The second question is with regards to the legal entity restructuring, which you announced back at the full year results.
I was just wondering if you could give us an update on where you are with regards to that legal entity restructuring in Hong Kong and at what point we could expect a revenue benefit from optimized funding structure there to come through. The final point is just on your earlier comment on the buyback, which you assume to complete by the end of the year, which seems a fairly long period of time at this stage. Could you just share with us what your thoughts are in terms of where the buybacks can be executed, London Stock Exchange versus Hong Kong? Is that one of the consideration why it could take longer to complete? Thank you.
Okay. Thanks, Martin. Thanks for those questions. Financial markets, I think there is certainly some element in here of our business progressively getting into a better tempo. There's been a lot of work that we have done over the last two or three years, as you know, of upgrading the team, upgrading our capabilities, moving more digital, focusing upon broadening the number of clients who we are offering products to. I think that has clearly been one of the factors that has helped us here. Obviously, markets do move around from quarter to quarter, probably a little bit more buoyant in the Asia region than maybe elsewhere. Put the two together and we've had a good quarter and it's nice actually to see we had pretty good fourth quarter as well. Two good quarters there is good progress and has clearly helped the overall numbers.
Second question on legal entity restructuring, that continues. We made a number of changes in organizational structure that impacted our business in Singapore. We have now changed internally some of the ownership relating to our Hong Kong business, and we hope over the balance of this year, that we will have two or three other changes that will occur. There are various approvals we need to get to do those. I'd say that is on track. The benefits of that will accrue probably less this year, over the next couple of years, we'll start to see those benefits coming through in the income line as we reduce essentially some of our interest costs. In terms of the buyback, the time duration will depend very much on the volumes in the market.
I said by the end of the year, I was not meaning precisely on the 31st of December. It will depend a little bit on the volumes and what proportion of daily volumes we can buy without obviously influencing the share price. The exact terms of which markets we'll be buying back on will be published imminently.
Thank you very much.
Thank you. Our next question today is from the line of Ronit Ghose from Citigroup. Your line is now open.
Great. Thank you. I have a couple of questions, please. First of all, on the revenue side, two questions. Just following up on the previous question, is there any element of your markets business that you consider that you're overearning in the first quarter? I know the total revenues are down year-on-year on a reported basis, but your rates and your FX revenues and some of the markets line items look very good, Andy. Is this just, as you said, buoyancy in markets, blah, blah? Is there anything here you want to call out? Anything in the revenues at all? The second revenue question is on transaction banking, and it looks like there's been a bit of a change in trend after many quarters of the cash management and custody business doing better on revenues driven by margin expansion and volume growth.
That's kind of gone sideways in Q1 on a linked quarter basis, whereas trades had a very strong bounce back compared to Q4. Is there any more color or anything you can call out there? My final question is on capital and RWAs. I hear what you say about the RWA growth Q and Q. Looking ahead, is there any further RWA optimization due to risk reduction that you've already done that's going to come through? Or should we, when we're thinking of modeling out RWA growth in the future, should we just look at balance sheet growth and loan growth? Because one of the success in the last few years has been quite significant RWA optimization. Is that basically done now?
Right. I will try to answer your four-part, two-part question. On revenue, the issue about overearning, I guess, is quite an interesting one as to what over is opined against. As you know, the nature of that business does tend to be slightly lumpy in terms of volumes and in terms of rates. A number of things I think went well in the quarter, and no doubt, some of those may or may not recur in every forward quarter. There's nothing particular that I'd call out there, albeit it was a noticeably good quarter for us, and on the average, we'll strive to do that. There are no guarantees. Transaction banking, nothing sort of particular in there to call out. I think trade was probably a little bit stronger than maybe we have seen, over certainly the previous quarter.
It was back at third quarter levels, not declining from third quarter levels, which is good. Cash management was a little bit flatter in the period, but no, nothing that I would particularly call out that was of concern in that space. On the RWAs, I think the journey for most banks to optimize is a fairly never-ending journey, and there are always things that we will be looking at to optimize. As we said back in February, our belief is that through management of balance sheets and assets, maybe one or two disposals, et cetera, we can keep the rate of RWA growth down below the rate of income growth over the next three years on the average, and that we will continue to be very focused upon.
The RWA growth, a good part of which was actually asset growth, it was good growth in the first quarter, I think is fine, and there's nothing that's happened in the first quarter that would change my views on the medium-term outlook for RWAs.
Thank you, Andy. Can I just circle back to transaction banking, please? On the cash management, is there any change in trend on margin that you can see either in Q1 or you can see in the pipeline taking place? Is that margin expansion we've seen because of rising rates and also volume growth, you've been winning custody mandates, has there been a change in trend there?
If you go back a year, then there probably was a little bit more uplift in margin coming through than we are seeing now. Margins are still holding up well, Rate of improvement probably a little bit slower, as you would expect. Volume of mandates we're winning still comes in at quite a steady run rate. Overall, I'd say there's nothing that I'd particularly call out there. A first quarter last year, we were, what, $530 on cash management income. We're now at $600. Okay, the $600 is similar to the fourth quarter, Generally, I think that business is still running well, and there's nothing there that would concern me.
Okay, thanks for that. Just a final one on the revenues. The 5%-7% CAGR is obviously a cumulative, a three-year run rate. This year, given exchange rates, it's got to be pretty tough to get to the lower end of that, right, Andy? It's more like a 3%-5%, if you had to put a number on, or probably lower end of that 3%-5%?
Yeah. Let's just talk about that, because obviously after a first quarter that's lower, the question you just raised is this very obvious one. When we talked in February about the 5%-7% range, that was sort of on the average through that period of time. It was assuming that FX would normalize over that period of time, and that still remains our view. I think on that basis, i.e., looking at this on a sort of normalized FX basis, we would still try to get into that 5%-7% range. Obviously, it will be lower end of that range, likely, given the first quarter. Still our ambition is to try to get as close to the range we can this year, and then over the three-year period, to be within that range.
Got it. Thank you very much.
Thank you. Our next question today is from the line of Chris Manners from Barclays. Your line is open.
Good morning, Andy.
Good morning.
Yeah. Just a couple of questions, if I may. The first one was another one just on the sort of revenue trajectory. I suppose, to hit consensus for the top line for the rest of the year, you need to do about 6% revenue growth in the back end of the last nine-month period. I take your point that adjusting for FX, adjusting for DVA, you're running at about a 4% revenue growth rate at the moment. Given we're probably not likely to have any more rate hikes for the rest of the year, do you think that that sort of 6% revenue growth rate is achievable? Just, I suppose following up from Ronit's question there, the second question was just a follow-up on that revenue growth as well.
Given the cost controls being so strong and the buyback that you're doing, are you trying to run a maybe smaller bank here? I guess that having less investment spend and so forth was actually going to maybe stymie your revenue growth prospect looking into next year. Do you actually feel that that's okay? Thanks.
Yeah, Chris. It's interesting. If you look at the first quarter, we can sort of X out various factors in here. I referred to the fact that the reported number is -2%. If you normalize for FX, we're +2%. If you X out DVA, you're 4%. I could go on and say, if you look at what happened in wealth management in the first quarter last year, we're probably around about $70 million more income in that period over the long term average. That's another 2%. Actually, if I X out enough of those, I've got to 6%, I've got to your number. I'm being a little bit selective in there because I'm picking a number of factors that all sort of head us up in one particular direction. I think I go back to Ronit's question earlier.
Clearly, FX will play a translation of it. At the end of the day, most important thing for us is that in markets we're performing on a constant currency basis, and we need to look at it that way. FX translation will move around over a period of time. That is life. We must be, I think, more sort of guided by what we're doing actually underlying in the businesses. As I say, after a first quarter, when you have to X out a few numbers to get to the averages, we will do what we can do to try to get into the 5%-7% range in the course of this year. Obviously, current trends would suggest it'd be lower end of that rather than anywhere else.
It remains the case that over a three-year period, we'd still absolutely be aiming to be in the 5%-7% range on the average. Second question, are we aiming to run a smaller bank? Well, we're probably the first smaller bank to have a 5%-7% top line growth for three consecutive years. I would argue that we are not trying to run a smaller bank. We are trying to thoughtfully grow the bank, whilst at the same time we are trying to get more returns back to shareholders so that we can improve the return on capital we employ. As we said in February, 13%-14% as a range of capital we feel entirely comfortable with. It's a range we feel comfortable operating within rather than above, as was previously the case.
I think the evidence you're seeing today that we're prepared to now do things. 13.9%, the billion will cost us about 35 basis points. In reality, that will take place over a number of months, although we will essentially book it, if you like, in the second quarter. Needless to say, we would not have got the buyback happening unless our regulators were happy with it, and we are not going to be cutting back on investment at all in order to continue to grow the business and develop it as we want to do for the future.
Thanks, Andy. Could I just follow up on that buyback point? I think obviously it's very material. Pro forma, it's taking you down to 13.55. If you were to do another $1 billion, spend another 35 basis points, take yourself down to 13.2, is that something that yourselves and the board would be comfortable with?
I think maybe there's a missing ingredient there that we might have actually been trading for a period longer and generating some more underlying capital in the intervening period. From the board's point of view, being in the 13%-14% range is absolutely where we want to be. The evidence of this $1 billion is that we can return the $1 billion and comfortably be in that range. As we generate future capital going forward, the board will no doubt look at this from time to time and will decide what is the appropriate thing to do at various points in time in the future.
Perfect. That's clear. Thanks, Andy.
Thank you. Our next question today is from the line of Manus Costello from Autonomous. Your line is open.
Thank you. Just following up on that question from Chris, really. Can I check if there's any update on the sale of Permata? If you were to sell Permata, I reckon perhaps you could comment on whether this is right. It's about a 30 to 40 basis point uptick in your Core Tier 1 ratio. First question is that a correct estimate? Secondly, if you do generate that incremental capital in the second half of this year, would you be committed to returning that back to shareholders to bring yourself back to the midpoint of your range? Thank you.
Yeah, thanks, Manus. End of last year, obviously, we communicated that we were putting the investment in Permata in the non-core category. It is a business, as I think most of you know, where we have quite a high number of risk-weighted assets on our own balance sheet because of the structure and responsibilities that go with that investment. If we were not to be an owner of the business at a point in time, it does actually disproportionately release risk-weighted assets. If there are any developments in that regard at any future point in time, then we will update you. As of now, there is nothing further to update.
Finally, to your question, hypothetically, if you come back to the 13% to 14% level, if we do anything that is likely one-off or continuing to be putting us above the range, then obviously that would be a point that would cause us to have a look at whether we are in the right place. If we're too high, then we can do the appropriate thing as we have demonstrated that we are prepared to do today.
Okay. I think I followed that. Just on the first bit, are you basically saying you don't want to answer whether it's a 30 to 40 basis point uplift?
It will be somewhere in that sort of zone. It could be a fraction higher than that, somewhere in that zone.
Thank you very much. Thank you.
Thank you. Our next question is from Fahed Kunwar from Redburn. Your line is open.
Just looking at costs and loan losses, kind of away from revenues for a second. If I look at both of them, the question is reasonably similar. If you look at costs, I know you've said that one Q is normally lower and investments should be phased. If I look at the next nine months of the year and look at the run rate people have in for 2019, it looks like a kind of 10% pickup from the one Q 2019 run rate. I appreciate costs are going to pick up and investment is phased, but is that the kind of pickup we should expect? Is that 10% increase in kind of quarterly cost run rate a bit too high? A similar question on the loan loss number as well.
If you X out the write-back that you had, you're still tracking, I think, for about $500 million total loan loss in other impairments and total impairments, and contingency has in $1 billion as well. Is there something in the loan loss number that you're seeing that suggests that it would be higher? Or is a $500 million odd number for this year realistic? I appreciate how hard it is to forecast loan losses going forward. I just wonder on capital, just understand, just be clear on one thing. The risk weight density was pretty much flat, so RWA is over assets. I think you've said in this call and obviously earlier as well in the strategy day that you expect that to keep coming down.
We should still model that risk weight density of I think it was 37% in this quarter should carry on tracking down even after the Permata sale. Thanks.
Okay. Costs, loan losses, and capital intensity. On the costs, first quarter, I think has been good. Controls that we have increasingly had in place I think are working. We are managing to invest in the business and keep control of the costs. As I said in my script a short while ago, there will naturally be a couple of things that will put the cost slightly higher, as is usual in the back end of the year. One is salary increases as they come through, perfectly normal. Secondly, that the progress on spending on new investment areas does tend to build a slight momentum over the course of the year. You can normalize the 2.4 for the quarter at 9.6. I think that would take you to a lower number than is likely to be the outcome.
Our intent is still, particularly if you look at this on a constant FX basis, that we would see costs for the full year being slightly below the rate of inflation. There's nothing that's happened in the first quarter that makes me veer away from that. Indeed, we will absolutely keep the pressure on investing because we see a number of areas there which will enhance our future by so doing. Loan losses are always a little bit difficult to draw linear extrapolations from. In the first quarter, we've called out the fact that even by our standards, the first quarter was incredibly low, and in part that was because of a reversal of a previous provision of about $48 million. As I know you picked up in your question, one sort of needs to reverse that out. Even so, one gets to quite low numbers.
I think the first quarter historically tends to be a little bit lower. I would, again, not take the adjusted number and just multiply it by four. We will do obviously what we can to make sure that that cost is well controlled over the balance of the year. The lead indicators are still stable to marginally positive, which is good. You will take your own view as to what you put in your models, which also links me to your third question about what you put in the models for risk-weighted assets and the sort of capital intensity.
As we've said, I said just a while ago, our belief is over the three-year period, that we should, with a number of other actions as well collectively, be able to keep the rate of the RWA growth below that of the income growth. That remains our view.
Thank you very much.
Thank you. Our next question is from the line of Tom Rayner from Numis. Your line is open.
Morning, Andy.
Good morning.
Hello. I think we've done RWAs and revenue to death a little bit already. Just on the costs. I know it's only a quarter. Can you give us any sort of color on what's been going on within that cost number, maybe on reg costs, accrual, headcount, any phasing of investment so far? Just to give us a little better feel for what was driving that sort of better Q1 number.
Yeah. The reg costs are slightly better first quarter on first quarter, and that's very consistent with what was said previously. We saw ourselves getting to a peak of that about sort of first, second quarter last year. It's nice to see eventually those starting to come down a little bit. Headcount today is slightly lower than where it was at this time last year, albeit there's a bit of a mix change between directly employed and contract workers. A lot of focus on our shared service centers and locations of where our people are, and a lot of work being done looking at end-to-end processes, particularly from the eye of customers, to see what we can do in terms of improving the experience customers have, taking out wrinkles, and hopefully not only improving customer satisfaction, but also taking some cost out there.
As ever with cost, there's a constancy of new ideas, new things we're looking at. At the heart of it is the intent to continue to make sure that we can invest, squeeze out enough money to continue to invest in digitizing, in moving the business forward so that things like the Hong Kong joint venture we can do, and we've got the appropriate investment funds to be able to do that without disturbing the flow of our P&L in the process.
Okay. Thank you. Just, I mean, I just can't resist this one on the RWA. Obviously, it was quite a big annualized growth in Q1, and you've explained the drivers quite well around the accounting change and the sort of market risk. But back to Fahed's point, I mean, the credit risk RWAs do seem to be tracking loans quite closely, and I think that's something that we're hoping over the medium term that we're going to see a divergence in that your optimization will drive a slower pace of RWA growth versus the loan book, which is obviously important for your revenue number. Is there anything that you can add that you haven't said already on that issue?
The only thing I can add is that what we said in February that we believe will be the case on the average over a three-year period remains our view. It is only eight weeks since we did that update, and not all of the things that will give us some upside benefit there have come through in the first eight weeks. That doesn't deter us from our belief that actually, that growth should be more moderated than the underlying income growth.
Yeah. Okay. Lovely. Thank you.
Thank you. Our next question is from Robert Sage from Macquarie. Your line is open.
Yes, thanks very much. A lot of my question's been answered, but I do have a couple actually. First of all, I see that you're sort of talking about sentiment improving a little bit within your markets. In terms of interpreting this, should we be thinking in terms of wealth management, financial markets, corporate finance, in terms of whether sort of the primary uplift might come from that? Also explicitly, I see no reference here to retail banking loans, and I was just wondering what they'd done in the quarter, whether there was any upward movement or not.
The second question I'd have is that you made reference in your introductory remarks to Korea saying that you'd made some capital returns to the group level, and I was just wondering whether you could comment on whether this is actually a small amount, the materiality of it, and whether there's much more to come.
Yeah. Robert, sentiment, it's very difficult to sort of capture across a number of markets just sort of where people's minds are at. I think over a lot of last year, people were particularly looking at the sort of US-China issues with a degree of sort of where is all this heading. I think we sense a little bit more moderation of people feeling that there will be some sort of resolution there and that life will continue thereafter. It's more just at the edges, a little bit of improving. It was a comment made sort of more generally rather than specific to individual product areas. Wealth management clearly has been doing well in the first quarter, albeit I said earlier the comparison of a year ago was difficult.
Just generally, I think a sense that things are sort of settling down and people are sort of getting on with their lives and our business is feeling that is not too bad a place to be. Retail banking, if you take the P&L side of it, the headline number was down year-over-year. However, the whole of that was explained by wealth management. If you sort of X out the wealth management side of it, the rest of the retail business was performing very much in line with what we expected, in line with the previous year. Bearing in mind that the loans tend to be mainly local currency and retail, that we're sort of seeing a balance sheet fairly similar to last year, sort of ±1%. Not a lot of change in that space.
A good loan book, loans advances to customers sort of doing well and overall credit quality also still high.
Did you have a comment on Korea as well?
Sorry, Korea. Yep. Yeah. If you look at local filings in the earlier part of the year, and these are on the public record, we didn't make a big thing of it. There has been a sort of restack of the capital in country, and that has released knock for half a billion dollars back to us as a group. Obviously, that's been done with all the local approvals, et cetera. The business is very focused upon continuing to generate the profitability such that we can, over time, get further capital returns back from our investment in that market.
Thank you very much.
Hello? Yeah.
Thank you. Our next question is from Jennifer Cook at Exane. Your line is now open.
Good morning. Thanks for taking my questions. Firstly, on the Hong Kong virtual banking license, I wanted to get a feel for where we are on the cost trajectory of this program. Will the investment going into this be captured within your current cost outlook? I suppose on that, will you be fully consolidating this venture given your majority stake? Secondly, just coming back to RWAs, and sorry to kind of come back to this, given the number of questions we've had on it so far. They did come in quite a bit higher than the market was expecting in Q1. Importantly, ex IFRS 16 and market seasonality, the underlying seemed to consume 30 basis points of capital in Q1. If I look at consensus, they've got 2% RWA growth into 2019, including IFRS 16, which puts your full year number below the Q1 RWA print.
Just wondering if you see that as realistic that the full year will end below Q1, particularly if Permata were not to come off the books this year. Thank you.
Jenny. Hong Kong Digital, we are incurring costs, as we've been building the platform over the last few weeks and months, we have been incurring those costs. Those are incorporated within our reported numbers and within our thinking going forwards. Yes, we will consolidate that as we're the major shareholder in the business, when it is fully up and running. RWAs, which seems to be the topic of the day. I can only reiterate that there are elements within the first quarter that are unique to accounting standards. There are elements that are unique to market risk that impact sort of end of last year, early start this year.
What is left in the credit space is actually, I think, sort of encouragingly in line with the fact that we have got asset growth on the balance sheet, which I'd say was a good thing. We remain to repeat of the view that over a period of time, we should be able to manage the RWA growth below the rates of the income growth, and that remains our view.
Okay, thank you.
Thank you. Next question is from James Irvine from Societe Generale. Your line is open.
Hi, good morning. I was just wondering if you could tell us if there's been any deliberate cost flex this quarter, just to kind of offset the fact that the revenue is running below your target. I guess linked to that, if you could just talk about the jaws. Give us a bit of divisional color on the jaws, just because you've got some quite different income performances between the different business units. Thanks.
Well, deliberate cost flex. Have there been deliberate cost actions? Yes. As flex implying something is transient? No. We have been consistently working on the cost base with the primary objective of taking out inefficient costs and freeing up enough space to be able to invest in the business as we move forward. That remains our view and remains the objective. I won't go into jaws by product or by whatever. There is nothing particular in the cost in the first quarter that I would call out. As I said earlier, to be in the 5%-7% range on income and below inflation on costs, does imply across the piece that we will see jaws opening up progressively over the three-year period.
Fine. Okay. Is it, I know you said you didn't want to give too much color, but is it fair to say that retail banking has got negative jaws still?
Retail banking I think was fairly similar to last year. Each of the business areas has got its own things that it's working upon on the cost side of it. No part of the business is immune from that. Wealth management and the product set within retail has got different cost components to it. If we can get good growth out of wealth management products, even if the cost is higher or vice versa, we will do that. We will do whatever is best for the bottom line for the business. It's something that moves over time. Wealth management income being lower than it was a year ago. Cost base wealth management is slightly more sticky. Those sorts of things have an impact in this, but I wouldn't say there's anything particular that I would draw out on the cost front.
Fine. Okay, lovely. Thanks.
Thank you, participant. As a final reminder, if you wish to ask a question, please press star and one on your telephone keypads. We've just had another question. It's from the line of Gurpreet Sahi from Goldman Sachs. Your line is open.
Thanks for taking my question. Morning, Andy. Can I ask whether the buyback would be done for the Hong Kong listing side or only for the London listing?
Yeah. We will issue more details either during the course of today or tomorrow, I can't remember which of the two, which will give you more details on which markets and how we're going about this. Overall, we will be pressing on with this ASAP, and depending upon the market volumes, we will work our way through the $1 billion over the next five or six months or thereabout.
Okay. Thank you.
There are no further questions. I'll now hand back to Andy for closing remarks.
Good. Thank you, and thank you all for your questions. I think this quarter has actually been quite an important quarter. Getting the longstanding legacy conduct issues out of the way is a big step forward. Starting the return of capital, something we have not done for a long time, is another big step forward. Momentum in the business, as I think you can see, is continuing the investments in things like the virtual bank license in Hong Kong, evidencing that we are prepared to do things differently going forwards and are firmly positioning ourselves for a more digital world involving more partners. I think is a good start to the year. We will update you in another three months on the first half. Thank you all very much.
Thank you. That does conclude the conference for today. Thank you all for participating. You may now disconnect.