Ladies and gentlemen, thank you for standing by, and welcome to the Standard Chartered's update for the Q1 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 and good morning or good Depending on the time zone you're in, hopefully, you've had a brief chance to review our Q1 results statements already. So before we open the line for 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 3 years that will not only take us above a 10% return on tangible It also creates 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 1 quarter, they show that we have made a good start.
For example, shortly after the investor update, we were granted 1 of the 3 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, Nctrip 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. And I mention it because it's a great example of how we are Disrupting through digital and partnerships. And speaking of digital initiatives, we have rolled out our standalone digital bank model We originated in the Cote d'Ivoire in the further four markets in Kenya, Ghana, Tanzania and Uganda. And then 3 weeks ago, we announced the end to various investigations into our legacy sanctions compliance and financial client controls.
These matters have taken up considerable management time and effort, and resolving them removes A major area of uncertainty. These are 2 very different steps on the path of the course, But they are both important and will be hugely impactful in their own way. In terms of the 4 big markets we called out in February, Where we see significant upside potential, although it's early days, 3 of them improved profitability year on year. And the 4th, Korea, We have returned capital to the group in the Q1 and thus further improved returns there. Finally and 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 results, we can now begin that process. Given the discounts 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 $1,000,000,000 buying back our own shares, and we will start this process imminently And we'll take to complete it before the end of this year. As we said in February, our intent is to operate within the refreshed 13% to 14% CET1 range, meaning we are prepared to return further capital, 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.
So Turning to numbers. In terms of the Q1 results themselves, our underlying profit before tax improved by 10% year on year or 12% at Constant currency to $1,400,000,000 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 Q1's results did not include things like the UK bank levy that is charged at the end of the year. So looking at the numbers in a little bit more detail and starting with income. As we indicated at our full year results announcement, we benefited from unusually buoyant market conditions In the 1st 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. And on a constant currency basis, it is On the currency basis, it is worth highlighting that income was actually 2% higher. And in March, income was higher than it was last year. So down 2% on a reported basis versus a strong comparator, but up 2% on a constant currency basis. And if you exclude the swing in VVA, then income was actually up 4% with momentum in the business improving in the quarter.
Although this is only 1 quarter and despite the outlook for the global economy remaining uncertain, it feels like sentiment in our markets is showing early signs For these reasons, despite the slight contraction in this particular quarter, we are still confident That over the next 3 years, we can grow income at a compound annual growth rate of between 5% 7%, whilst keeping expenses growth below the rate of inflation. Over that period, we assume that the foreign exchange swings will likely even out. And 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. So if FX suppresses reported income this year, then it will also likely suppress expenses as it has in the Q1, Meaning that an underlying operating profit level, the effects will tend to cancel out. So Moving to expenses, the other side of Jaws' equation.
I've already mentioned the beneficial impact FX has had on our reported number, But it is also worth bearing in mind that costs are often lower for us in the Q1 of the year. Staff costs are usually higher in Q2 as the impact of Play rises flow through, and there is the usual phasing of investment projects coming online as the year progresses. Damon, 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 Q1, but this year, they were exceptionally low, less than half of the same period last year, albeit benefiting significantly from a provision release in Private Banking. This gives extra weight my usual warning at this time of the 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 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 interfering 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, but the net interest margin after adjusting for IFRS 16 remained Staple. Risk weighted assets were up $9,900,000,000 2 thirds related to underlying asset growth predominantly in Financial Markets Corporate Finance and 1 third related to seasonality in market risk RWAs and the impact of adopting IFRS 16. Finally, 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% to 14% range we gave in February.
Incidentally, the 30 basis points includes the impact of the $186,000,000 final charge As well as the foreseeable ordinary dividend, which is based on an interim dividend, but you may recall this year will be $0.07 being 1 third of the prior year Full year dividend. Buying back $1,000,000,000 worth of shares would all other things be equal, reduce the CET1 ratio by about 35 basis points, And the program will likely take several months to complete based on recent volumes. So to conclude, before we open the line to Q and A, Our Q1 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 RoTE of at least 10% by 2021. With that, I'll hand back to Callum and take your questions.
Thank you. 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? And the first one is on the Very strong revenue print within Financial Markets. And I was just wondering if you could share a little bit of comment on what happened in the Q1 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, but 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.
And 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. And 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 you're focused on in terms of where the buybacks can be executed London Stock Exchange versus Hong Kong? And is that one of the consideration why it could take longer to complete? Thank you.
Okay. Thanks, Martin. Thanks for those Questions. So Financial Markets, I think there is certainly some elements 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 2 or 3 years, as you know, Upgrading the team, upgrading our capabilities, moving more digital, focusing upon broadening the number of clients Who we are offering products to. And so 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 2 together, and we've had a good quarter. And it's nice actually to see we had pretty good 4th quarter as well. So 2 good quarters there is good progress and has clearly helped the overall numbers. And second question on legal entity restructuring, that continues.
We made a number of changes in organizational structure that 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 2 or 3 other changes that will occur. There are various approvals we need to get to do those. So I'd say that is on track. The benefits of that will accrue Probably less this year, but then 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 December. So it will depend a little bit on the volumes and what proportion daily volumes we can buy without obviously influencing the share price And 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 over earning in the Q1?
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 market Line items look very good, Andy. So is this just, as you said, buoyancy and markets, blah, blah, blah? Is there anything here you want to call out, anything in the revenues at all? And 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 straight had a very strong bounce back compared to Q4. Is there any more color I think you can call out there? And my final question Is on capital and RWAs. I hear what you say about the RWA growth Q on 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 4 part, 2 part question. So on revenue, the question the issue about over earning, guess it's quite an interesting one as to what OVA 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 sort of rates and a number of things, I think, worked well in the quarter. And no doubt, some of those may or may not recur in every Forward quarter.
But there's nothing particular that I'd call out there, albeit it was a notably good quarter for us. And on the average, we'll strive to do that, but 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 3rd quarter levels and not declining from 3rd quarter levels, which is good. And cash management was A little bit flatter in the period, but nothing that I would particularly call out that was of concern in that space.
And 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 1 or 2 disposals, etcetera, we can keep the rate of RW grade growth Down below the rate of income growth over the next 3 years on the average and that we will continue to be very focused Poon, so the RWA growth, a good part of which was actually asset growth, so it was good growth in the Q1, I think is fine, And there's nothing that's happened in the Q1 that would change my views on the medium term outlook for RWAs.
Thank you, Andy. Can I just circle back to Transaction Banking, please? So 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 you'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 the margin coming through than we are seeing now. Margins are still holding up well, but sort of rate of improvement probably a little bit slower as you would expect. Volume and mandates we're winning still comes in at quite a steady run rate. So overall, I'd say there's nothing that I'll particularly call out there. 1st quarter last year, we were about €530,000,000 on cash management income.
We're now €600,000,000 Okay. The EUR 600,000,000 similar to the Q4. But generally, I think our business is still running well and there's nothing there that will concern me.
Okay. Thanks for that. And just the final one on the revenues. The 5% to 7% CAGR is obviously a cumulative 3 year run rate. And this year that given exchange rates is going to be pretty tough to get to the lower end of that, right, Andy?
It's more like a 3% to 5% if you put a number on a pretty lower end of that 3% to 5%.
Yes. Let's just talk about that Obviously after a Q1 that's lower than the question you just raised, this is very obvious one. So when we talked In February, about the 5% to 7% range. That was sort of on the average through that period of time. It was Assuming that FX would sort of normalize over that period of time and that sort of still remains our view.
And I think on that basis, are you looking at this on a sort of normalized FX basis, we would still try to get into that 5% to 7% range. Obviously, will be lower end of that range likely, given the Q1, but still our ambition is to try to get as close to the range we can this year And then over the 3 year period to be within that range.
Got it. Thank you very much.
Thank you. And our next question today is from the line of Chris Manners from Barclays. Your line is open.
Good morning, Andy. Good morning.
Yes. So just a couple of
questions, if I may. The first one was Yes. Another one just on the sort of revenue trajectory. I suppose to hit consensus the top line for the rest of the year, you need to do about 6% Revenue growth in the back end of the sort of last 9 month period. And 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? And just I suppose following up from Ronald's question there. The second question was just a sort of follow-up on that revenue growth as well. Given the cost control has been so strong and The sort of buyback that you're doing, are you trying to run a sort of maybe sort of smaller bank here? Because I guess Having less investment spend and so forth was actually going to maybe stymie your revenue growth prospect looking into next year?
Or do you actually You feel that that's okay? Thanks.
Yes. Chris, It's interesting. If you look at the Q1 and we can sort of x out various factors in here. So I referred to the fact that the reported number It's minus 2%, if you normalize for FX to plus 2%, if you ex that DBA of 4%. I could go on and say, if you look at what Hamzah Wealth Management in Q1 last year was probably around about £70,000,000 more income in that period over the long term sort of average.
That's another 2%. And actually, if I say enough of those, I've got to 6%, I've got to your number. Now I'm being a little bit selective in there because I'm picking number of factors that also had us up in one particular direction. But I think I'd go back to Rod's sort of question earlier. Clearly, FX will play a part translation of it.
At the end of the day, most important thing for us is the end 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 like, but we must be, I think, more and more Guided by what we're doing actually underlying of the businesses. As I say, after a Q1 when you have to ask a few numbers to get to the averages, we will do what we can do to try to get into the 5% to 7% range in the quarter this year, obviously, current trends are subject to be lower end of that rather than anywhere else, But that remains the case that over a 3 year period, we're still absolutely be aiming to be in the 5% to 7% range on the average.
And second question, are we aiming to run a smaller bank? Well, we're probably the 1st smaller bank to have a 5% to 7% top line growth for 3 consecutive years. So 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 the capital we employ. And as we said in February, 13% to 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 previous to the case, and I think the evidence you're seeing today that we're prepared to now do things. So 13 point 9 percent. The €1,000,000,000 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 Q2. And 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 buyback points? Because I think it's obviously, it's very material because So it's pro form a that's taking you down to €1355,000,000 If you were to do another €1,000,000,000 Spend another 35 basis points, take yourself down to 13.2%. Is that something that yourselves and the Board will be comfortable with?
Well, 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. So from the Board's point of view, being in the 13% to 14% range is absolutely where we want to be. The evidence of this billion is that we can return the billion Constantly 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 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. Yes, just following up on that question from Chris really. Can I check if there's any update on the sale of Pimata? And if you Were to sell permato, I reckon, and 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. So First question is, is that a correct estimate?
And 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.
Yes. Thanks, Manus. So end of last year, obviously, we communicated that we were putting the investment in Partha 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 our 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.
But as of now, there is nothing further to update. And then 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, you basically say you don't want to answer whether it's a 30 basis point, 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 Fahad Kenwa from Redburn. Your line is open.
Hi, good morning Andy. Thanks for taking the Just looking at costs and loan losses, I'm away from revenues for a second. If I look at both of them, the question is reasonably similar. So if you look at costs, I know you've said That 1Q is normally lower and investments we face. If I look at the next 9 months of the year and look at the run rate you will have in for 2019, it looks like a kind of 10% pick From the 1Q 2019 run rate, so I appreciate costs are going to pick up and investment is phased.
But is that the kind of pickup we should expect? Dror, is that kind of is that number is that 10% increase in kind of quarterly cost run rate a bit too high? And a similar On the loan loss number as well, if you look at if you ex out the writeback that you had, you're still tracking, I think, for about EUR 500,000,000 total Loan loss in other impairments and total impairments and consensus has EUR 1,000,000,000 as well. So I mean, is there something in the loan loss number that you're seeing that It would be higher or is that kind of is a €500,000,000 odd number for this year realistic? I appreciate how hard it is to forecast Loan losses going forward.
And I just wanted to on capital, just to understand, let's be clear one thing. So the risk weight density was pretty much flat, so I think you've said in this call and obviously earlier as well in the strategy that you expect that to keep coming down. So We should still model that risk weight density of, I think it was 37% in the core in this quarter should carry on tracking down Even after the Promoter sale? Thanks.
Okay. So costs, Loan losses and capital intensity. So on the costs, the Q1, 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. 1 is Salary increases as they come through, perfectly normal. And secondly, that the progress on spending on new investment areas Does tend to build a slight momentum over the course of the year. So you can normalize the 2.4% for the quarter at 9.6%. 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 Q1 that makes me veer away from that. And 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 Q1, we've called out the fact that even by our standards, the Q1 was incredibly low. And in part, that was because of a reversal of a previous provision of about $48,000,000 So As I know you picked up in your question, one sort of needs to reverse that out. But even so, one gets to quite low numbers.
I think the Q1 historically tends to be a little bit lower. So I would again not take the adjusted number and just multiply it by 4. 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. And 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 and I said just a while ago, our belief is over the 3 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, and 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.
Good morning, Andy.
Good morning.
Hello. I think we've done RWAs and revenue to death a little bit already. Just on the costs, I mean, 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, a cool 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?
Yes. Rick was slightly better Q1 on Q1 And that's very consistent with what I've said previously with the source of getting to a peak of that about sort of Q2 last year, so 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 all the work being done looking at interim 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. So as ever with cost, there's a constancy of new ideas, new things we're looking at. And at the heart of it is the intent to continue to make sure that we can invest without 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 Do that without disturbing the flow of our P and L in the process.
Okay. Thank you. And just I mean, I just can't read just 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 Farhad'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 obviously important for your revenue number. So is there anything that you can add that you haven't said already that 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 3 year period remains our view. It is only 8 weeks since we did that update. And not all of the things that will give us some upside benefit They have come through in the 1st 8 weeks, but that doesn't deter us from our belief that actually that growth should be more moderated than the underlying income growth.
Okay. Lovely. Thank you.
Thank you. Our next question is from Robert Sage from Macquarie. Your line is
Yes. Thanks very much. A lot of my questions have been answered, but I do have a couple actually. First of
all, I see that you're sort
of talking about Sentiment's improving a little bit within your markets. And 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 sort of uplift might come from that. And also explicitly, I see no reference here to retail banking loans. And I was just wondering what they've 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.
Yes. Robert, so 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 U. S.-China issues with a degree of sort of where is all this sort of heading. I think we've sent a little bit more moderation of people feeling that there will be some sort of resolution there and that life will continue thereafter.
So it's more just at the edges a little bit of improving. I wouldn't it was a comment made sort of more generally rather than specific So individual product areas, Wealth Management clearly has been doing well in The Q1, albeit, as I said earlier, the comparison a year ago was difficult. But just generally, I think a sense So things are sort of settling down and people are sort of getting on with their lives and our businesses feeling that It's not too bad a place to be. Retail Banking, if you take the P and L side of it, the headline number was down year on year. However, the whole of that was explained by Wealth Management.
And 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. And bearing in mind that the loans tend To be mainly local currency and retail, that we are we're sort of seeing balance sheet fairly similar to last year, Sort of plus or minus 1%. So not a lot of change in that space, but a good loan book, loans advance to customers sort of Doing well and overall credit quality also is still high.
And so did you have a comment on Korea
as well? Sorry, it's great. Yes. Yes. So if you look at local filings in the earlier part of the year, and these are on the public record, we didn't Take a big thing of it.
There has been a sort of restack of the capital in country that has released Not for $500,000,000 back to us as a group. Obviously, that's been done with full local approvals, etcetera. And the business is very focused upon continuing to generate the profitability such that we can, over time, Get further capital returns back from our investments in that market.
Thank you. Our next question is from Jenny Cook from Exane. Your line is now open.
Good morning and thanks for taking my questions. Firstly, on the Hong Kong digital banking license, I wanted to get a feel for where we are on the cost trajectory Will the investment going into this be captured within your current cost outlook? And I suppose on that, will you be fully consolidating this venture given your majority stake? Secondly, just coming back to RWAs, I'm sorry to kind of come back to this given the number of questions we've had in that regard, but they did come in quite a bit higher than the market was expecting in Q1. And importantly, Ex IFRS 16 and market seasonality, the underlying seems to consume 30 bps of capital in Q1.
If I look at consensus, they've got 2% RWA Growth into 2019, including IFRS 16, which then 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 POMATO were not to come off the books this year? Thank you.
Yes, Jenny. So Hong Kong Digital, we are incurring costs. And as we've been building platform over the last few weeks months, We have been incurring those costs and those are incorporated within our reported numbers and within our thinking going forwards. And 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 Q1 that are unique to accounting standards. There are elements that are unique to market risk that impact sort of ended last year, early start of this year. And what is left in the credit space It's actually, I think, sort of encouragingly in line with the fact that we have got asset growth in the balance sheet, which I'd say was a good thing. And we remain to repeat of the view that Over a period of time, we should be able to manage the RWA growth below the rate of the income growth, and that remains our view.
Okay. Thank you.
Thank you. Your next question is from James Invine 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. And then 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 cost And freeing up enough space to be able to invest in the business as we move forward.
And 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 Q1 that I would call out and as I said earlier to be in the 5% to 7% range on income And below inflation on costs, does it imply across the piece that we will see jaws opening up progressively over the 3 year period.
Fine. Okay. But I mean is it
I mean I know you
did say you didn't want to give too much color, but I mean is it fair to say that you've Retail Banking has got negative jaws still?
Retail Banking, I think, was fairly similar to last year. I mean, each of the business areas has got its own things that it's working upon. All of 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. And if we can get good growth at Wealth Management products even if the cost is Hi, or vice versa.
We will do that. We will do whatever is best for the bottom line for the business. And It's something that moves over time. Wealth Management income being lower than it was a year ago. Cost based Wealth Management is slightly more fixed.
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. Okay. 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. Good morning, Andy. Can I ask whether the buyback Would be that for the Hong Kong listing side or only for the legacy?
Yes. We will issue more Details either during the course of today or tomorrow, I can't remember which of the 2, which we'll give you more details on which markets and how we're going about this. But overall, we will be pressing on with this ASAP. And depending upon the market volumes, we will I'll work our way through the billion over the next 5 or 6 months or thereabouts.
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 long standing legacy conduct issues out of the way is a big step forward.
Starting 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 forward And our firmly positioning ourselves through a more digital world involving more partners, I think, is a good start to the year. And we will update you in another 3 months on the first half. Thank you all very much.
Thank you. That does conclude the conference for today. Thank you all for participating and you may now disconnect.