Right. So good morning to everybody, and good afternoon to those who are joining from overseas. We're going to split this into 2 sessions or 2 parts. First one looking at 2018 and results for that year, which I'll do now. And then I'll hand over to Bill who will pick up on the strategy for the next 3 years.
So with that, We will eventually get to some numbers. And so just the key sort of summary, and I've got more detail on Several of the line items here. So to go through this at a high level, overall income for the year up 5%, cost increase 2%, so slightly lower costs in the second half than the first half and clearly opening up jaws. The credit impairment charge is a little bit higher in the Q4, but only a little bit. Overall nearly halved on the previous year.
And you will recall the previous year nearly half of the year before that. So continuing very strong progress on the impairment side. Other impairment includes some charges relating to the ship leasing business, which is part of the strategy update we have today and We will be withdrawing from over time. And you put all of that together and the underlying profit is £3,900,000,000 28% increase year on year. Below the line, provision for regulatory matters, €900,000,000 which we announced last week.
We have got to a point where making a provision for that is now the appropriate thing. So not fully resolved, but that is the best estimate at this point in time. And then restructuring, €400,000,000 About half of that is the final stages of the 2015 strategy, And the other half are some costs to do with the refresh of the strategy going forwards, and hence statutory profit up 6%, notwithstanding The big charge on the regulatory side. Below the P and L, I think a really important line here, risk weighted assets were actually 8% Lower in the year, so we actually generated 5% more income off 8% less risk weighted assets, which clearly is really important as we move forward, particularly in terms of required capital levels, which we'll come back to. Underlying earnings per share at €0.61 up significantly year on year and hence the proposed dividend nearly double that of the previous year, albeit a year which didn't have an interim dividend in it.
So CET1 ratio at 14.2%. That would have been 14.5 percent, but for the regulatory provision, so capital level is still very strong. And all of that pulls together in terms of return on equity at 4.6% or on a tangible basis, which we'll use moving forwards at 5.1%. So bear in mind that was negative 3 years ago. Clearly, We need to get that up to double digit, which is a lot of what we're going to talk about later.
So those are the key elements of the numbers. This chart is just a quick reminder on the journey that we have come on income going back to 2015. So in 2015, we had £15,400,000,000 of income. We then, as you will recall, went through a period of derisking and sitting. And that took essentially rebased income down to just below €14,000,000,000 And over the last 2 years, we have built that up to the €15,000,000,000 level with an underlying growth of €400,000,000 in the 2017 year and then the €700,000,000 in the 2018 So momentum picking up as we have gone through.
If I
look then at the 2018 income relative To the 2017 income, that is an increase as shown on the previous chart of €700,000,000 And you can see from here That was pretty broad based. We had the corporate finance income slightly down, but otherwise, we had income go up across all of the product areas with, in particular, transaction banking, albeit within transaction banking cash management, which grew over 20% leading the way. But most of the other areas there, product areas grew by between 3% and 7% as you can see from that chart. So pretty broad ranging base for the income growth. This chart is then looking at Q4 compared with Q4 for the previous year.
So at a headline level, 3% improvement, albeit if we had done it on a constant FX basis, It would have been a 6% increase. So the FX conversion into dollars has worked slightly against us. General theme, I think similar, albeit Wealth Management on this chart is on the right hand side. So that, as I think you'll recall, Wealth Management was very buoyant at the early part of last year And hence, the Q4 and Q4 comparisons, slightly weaker on the Wealth Management side. And we've observed that as we go into 2019, we've made a solid But because of FX and because Wealth Management FM was so buoyant a year ago, then the Q1 will likely be a little bit lower than it was last year.
But overall, 3% increase there or reported 6% on a constant currency basis. Looking then very high level at how this comprises when looked at across the client segments. The top left, the CIB, the corporate business, a very strong year, 6% growth on the top line. But I think more importantly, we have seen the profitability increase very significantly, and the return on Tangible Equity has gone up from the mid-4s to the mid-7s during the period. So as we seek to get the overall returns up to 10% level, Clearly, having our biggest client segment make such a big step forward during the period is really encouraging, and we need to keep that momentum clearly going forwards.
On the top right, the Retail Bank is again a reasonable level of income growth, but particularly strong on profits, so 18% increase in profitability. And the return on tangible equity is already at levels exceeding the 10% overall group target, so 11.8% on the Retail Bank. Commercial Bank grew on the top line, went slightly backwards on the profit line. The year before had quite low loan impairment charges, and those who have come slightly higher in 2018. So overall, that has held it back on profitability.
And then private bank, where we are continuing to rebuild that business as we have invested more in new relationship managers and systems that has held it back to sort of breakeven, But overall momentum top line about 3% during the period. So looking at that then From a geographic perspective instead, the big region, GCNA, a very, very strong year. Double digit growth on the top line, and that was very wide ranging across the various markets in the region. And the profit before tax up 22%, so a big, big profit improvement in that region. The asset region also, On the profit front, it has moved forward considerably.
Strong performance in Singapore, particularly noteworthy. Profit before tax in the Assa region, up 97%. The region that has been more challenged has been the AME region, partly local economic conditions, partly foreign exchange and conversion. So overall there, a slight reduction in the top and the bottom line. And then Europe and Americas is the sort of powerhouse of origination or the commercial business globally.
That has seen its profit over double during the period. So changing tack then and moving on to costs, which I know got Quite a lot of focus during the course of last year. We said that we would aim to get the second half costs in line with the first half, And that is what's happened actually with a little bit of FX benefit. We have come in slightly lower in the second half, which is the first time that has happened for a while. So I think we do have good control over the costs.
Just to look at this a little bit back in perspective, in 2015, our costs these are all excluding bank levy We're €10,000,000,000 And in the intervening period, we have absorbed reasonably considerable inflation, High regulatory costs and the amortization of the increased IT investment spend. But notwithstanding that, through the cost Takeout, we said we'd take out £2,900,000,000 over 4 years. We took out £3,200,000,000 That has resulted over the 3 year period in the cost being pretty much flat, but whilst reinvesting, which I'm going to come on to immediately, a lot more into improving the IT architecture of the overall business. So Good positive jaws enabled by that. Investment front, really, really key part of we talked about in 2015 and acceptance then, we were not investing enough in the fabric of the business in IT terms.
So in the 2015 prior period, We have typically been investing below $1,000,000,000 a year. We have on the average boosted that by around half. Last year was actually €1,600,000,000 But I think more noteworthy is the proportion of that that is actually on things that are tangibly improving the businesses. So in the green on there, you can see that back in 2015, about €300,000,000 was on things that were improving the business rather than some regulatory projects. That 0.3 percent has now moved to 0.9 percent, so we have tripled that over that period of time.
The evidence of that now having a real impact in the business, I think, is strong, and we've picked out 1 or 2 data points on the right hand side just to show that. So on the Retail Banking side, the online adoption proportion of customers online has gone from about onethree to onetwo of the business over that period of time. The CIB business, the time to onboard a new client has come down from a pretty frightening 41 days to 5 days, so huge, huge improvement there. Straight to bank customers in the commercial bank, proportion of those gone up from 38% to 58%. And the private bank and productivity per head there, which is another area of big focus, now nicely picking up year by year.
And a lot of those very much enabled by improved systems and the investment that we have been making there. Turning then to loan impairment. As I said earlier, loan impairment is pretty much halved last year and they had halved the year before. In fact, They halt also the year before that, albeit off the pretty high base. So what was about £5,000,000,000 loan impairment in the 2015 year.
We are now down to €700,000,000 The proportion on the bottom left, the proportion of or the value of non performing loans in the total book over that period of time, has halved or thereabouts. And I think the other encouraging thing here is that quite a number The sort of indicators of the quality of the overall book are also on a continuing improving trend, in particular, the early alerts, which are down about 45% year on year. Higher proportion of the book is now corporate grade lending, And our cover ratios are very comfortably ahead of our recovery experience. So I think overall, good progress there. The liquidation portfolio we identified in 2015 It's now sufficiently small that we'll just wrap that back into the main business, and we'll no longer separate that out going forwards.
Turning to the balance sheet and asset growth. Top left here is the average Interest earning assets.
And you
can see, again, a good progression here, so around 6% overall growth on the asset side. The yield on that up about 35 basis points over the course of the year. On the bottom left, you can then see the average liabilities, the bottom part there being the interest paying liabilities and the top slice being the non interest bearing liabilities. So overall, 2% increase. We did not need to increase liabilities that much because We are pretty liquid.
The rate we're paying on liabilities has increased, as shown on the top right, by 43 bps. So we paid a little bit more during the year for those Then we've got back on the asset side, which is something we're very focused upon. But overall, when you take the mix and the weight of the assets versus liabilities, The consequence of all of that is the NIM has gone up by 3 basis points to 1.58 percent and the overall increase in the net interest Income 7% to €8,800,000,000 On forward looking interest rates, the 50 bps proxy that we've used Moderated that down a little bit to about $200,000,000 which is as you would expect as we move up the rate curve. Now risk weighted assets and capital. I mentioned earlier the significant reduction in risk weighted assets notwithstanding the increase in the income.
So 8% reduction 2017 to 2018. About half of that comes from the improved quality of the loan book And the other half comes from a mixture of foreign exchange, operational risk and market risk, but a big area of focus. And interestingly, if you go back 3 years, we're about $45,000,000,000 less RWAs with only slightly less income, again, I think, evidence in the improved quality of the overall book and the balance sheet. Consequence of that on the CET1 ratio is 14.2% would have been 14.5%, but for the regulatory provisions. And again, casting our minds back, back in 2015, immediately pre rights, we were at 11.5%.
So a progressive build on the CET1 ratio, and that has enabled us to announce the near doubling of The dividend, so I think good progress there. And then finally, before I hand back to Bill, just a quick sort of refresh on the progress that has been made over the last 3 years, not in the sense of applauding progress, but just actually saying we have got a much Better base off which to now grow this business going forward. So recall back in 2015, CET1 is down 12%, so we're pretty the right to 11%. The ROTE was negative at that time. We're now at 5.
Obviously, we need to go at the next 5. But some interesting factors around the edges here. Top left, CIB Profitability per unit of RWA is 5x higher now than it was only 3 years ago. Commercial Bank 3 years ago was losing money. Is now profitable.
The Retail Bank, the proportion of the income from the priority more profitable clients that Bill will talk to in a minute, up from about a third to about a half. Investing in Wealth Management, we said back in 2015 that we needed to replatform and basically put A more up to date platform in. That is now largely through. It will be completed, I think, in the major markets towards the end of this year. Investing safely in Africa, a huge change in impairment costs, €550,000,000 in the 2015 year, down to €40,000,000 in 2018.
And leveraging. This is very important, I think, as we talk more about strategy going forward. In China, the income in 2016 was 22% lower than in the previous year. Whereas in 2018, we are now despite everyone's concerns about China, we are on a decided upward trend. So 16% growth in our income in China, and we see a lot of opportunities there.
So overall, I think the platform for now taking the business up to the next level is So much stronger than it was 3 years ago. With that, Bill, I'll hand over to you.
Great. Thanks very much, Andy. Good morning, good afternoon, everybody. Thanks for joining us here. Just to pick up where Andy left off, I'm extremely happy with the progress that we've made over the past 3 years.
When we looked back in 2015 at The challenges that we had. We had a reasonably clear path to where we are today and where we know we need to be over the next 2, 3 years as well. But there were a lot of unknowns. What we've demonstrated in the meantime is that we can grow the key parts of our business that we had recognized from the outset Our real competitive advantages. We've grown those businesses.
They're generating high returns. We see the opportunities for continued growth, and we will exploit those. So we're going to talk about that in some detail. I've been very happy with the progress that we've made over the past 3 years. I love where we're starting this period of refresh strategy.
I Couldn't have asked for much more. Where are we today? We're sitting here with clients that are doing more of their business with us, More of the business that we want to do with them playing to our key strengths. They're telling us that we're easier to deal with. They like dealing with us.
They stuck with us through the dark days, and we had some dark days. I mean, you saw them, and we felt them very acutely inside our bank. But we've come out of that. We're extremely well positioned today to generate real growth over the next 3 years to get to this 10% plus return on tangible equity that we're talking about. So I'm going to speak a little bit about our refreshed priorities.
Andy is going to give some more detail, and we'll then wrap it up and get to Q and A. Just a key message is and this is what we're going to take you through today. We have some core competitive advantages. Our network business is unique. It's differentiated.
We often get the question, really, I mean, can you really prove to us that you're getting a good return on this stuff? The answer is pure and simple, yes. And we'll give you some detail on that and then they can help you maybe fill in some of the blanks. 2nd is this focus on our affluent client business. This is a key differentiator for our bank.
It's obviously it's the retail part of our business together with our private bank. We operate in 26 retail markets With varying degrees of mix between our affluent and mass market business, where we've got a heavy affluent focus, We're generating faster growth, higher returns. We have a differentiated wealth management product offering. Our open architecture approach, where we're not Asking our suppliers to compete with our own product. We're distributing the best product for clients at any point in time.
It's differentiated, and we see that in our growth. We see that in our returns. We'll talk about that. But for all the progress that we've made, we're not fully there, obviously. We're not at our cost of capital plus We have much more to do.
We're going to start by obviously investing and getting our top line growth at a sustained higher level. The second is we're going to address the drags in our portfolio, and we'll talk about this in some detail. We have a number of countries or businesses that are still generating relatively low returns, And we've got action plans for every one of those. They're achievable based on the progress that we've made in transforming so many parts of the bank so far, but we clearly have more to do. 3rd is, Andy gave some key highlights on the cost savings and efficiencies that we've driven Over the past 3 years, we'll continue to be focused on efficiency.
But increasingly, our focus will shift to productivity, increasing the income per RM, Increasing the decreasing the cost per unit of transaction and various other measures of productivity. And we're doing that With the help and assistance of a new Chief Operating Officer and associated organization, reengineering our process from end to end. We are Extremely aggressive in terms of looking at this process and will shift our focus from efficiency to productivity to drive this bottom line improvement and improvement in returns. 4th is focus on digital. We are a very good digital bank today.
We're recognized by clients and by competitors in our markets as being a leading digital bank In Asia, Africa and the Middle East, we have excellent digital banking, mobile banking, online banking capabilities in retail. Our Straight to Bank platform is a benchmark in the industry for corporate clients, corporate treasury portals embedded in our corporate desktops. Now we can go from having digital as an enabling tool, which it has been and will continue to be, to a step further where we can actually address some of our structural challenges Through digital technologies, through business model innovation and through disruption. So Standard Chartered is in a position now to disrupt in some of our Key markets where we have very valuable franchises, but not very much profit and deliver that value in the form of profits In partnerships or organically, and we'll talk about that. We get this right, and we're very confident that we can.
We will generate a return on tangible equity Above 10% by 2021. We will produce incremental earnings, obviously, that will allow us to increase the dividend, Possibly doubling over this 3 year period. And we'll have material incremental capital above that, that will be available for investment, Also available for returns. Now as we look at this investment versus return question, we'll spend a little bit of time on this as well. Now we recognize that we've got A healthy investment program today.
We've made big investments for the past 3 years. And as Andy mentioned, we've got plans to maintain that high investment rate. We're taking expenses out of the system in order to further advance our investment agenda. So the things that we know we want to do, we've got planned for. The earnings and the capital that we generate above that would have to will be returned unless we have some new things that we can identify that are even more exciting than what we're doing today.
So we've got a clear focus on getting the balance right between investment and capital return. Now on Page 18, the rest of this presentation is going to be broken into Five buckets, all of which I've highlighted in the first page: delivering our network, growing our affluent client business, optimizing low returning markets, Improving productivity and transforming with digital. We've got an important circle in the middle, which is purpose and people, which it's tough to model, But it's an enormous component of what we're focusing on as a bank. We are a purpose led organization. That purpose resonates with our colleagues, with our clients, with other stakeholders.
And it guides the decisions that we take. We've invested enormously in people and we'll continue to. And I can say today, as we sit here, we've got a clear focus On our purpose, we've got a clear understanding through the organization. We made key investments in people, and that will remain a priority for us for the remainder of all of our time here. Now Page 19, just hitting the financial framework high points.
Obviously, targeting this 10% plus RoTE, Re affirming our commitment across the bank to 5% to 7% income growth, similar to guidance that we've given in the past, business by business, Mention the $700,000,000 of gross cost efficiencies, which will allow us to fund investment. We will manage aggregate costs below inflation. That obviously is the positive jaws that we will need to have to get the improved returns. Revising our capital ratio Target from 12%, 13% up to 13%, 14%. We think this better reflects the market expectations as we sit here today.
Also, reflects the fact that we still have some uncertainties to absorb, most specifically the introduction of Basel IV, the resolution of outstanding matters, etcetera. We deliver this program. We will be in a position to increase the dividend potentially by 2x. And as I mentioned, we will throw off surplus capital, which will be available for reinvestment or for return to shareholders. Now we're going to spend a few pages now, starting on Page 20, on our network business to try to shed a bit more light on why we're so excited about Why this is such an important part of our overall proposition.
We know that our corporate client business is generating well over half of our profits. It's been growing at a healthy clip and returns have improved substantially. The improvement has come overwhelmingly because of the focus on network income. This is if we look back over the past 3 years, we see a steady increase in network income as a proportion Of our overall, 10% growth in the last year, 13% return on tangible equity. So highly accretive relative to The bottom half of this chart, which is the income with our corporate clients, that's more domestic.
Typically, local lending, to one degree or other. Now we can't get out of the local lending business Altogether, it's an important part of the overall offering. But we've been reducing that steadily in favor of shifting our focus to the higher returning, faster growing Network business. And as Andy pointed out, we've been very, very successful in increasing our income while reducing our risk weighted assets. And that's captured in This bifurcation between network and other domestic income.
A little bit more color, maybe draw your attention first To the point I was just making, on the right, return on risk weighted assets for our network business is substantially higher than the return on risk weighted assets for our domestic business. That obviously is what makes this business attractive to us. That premium is across markets, across regions. All of our regions are growing nicely, although we've had Particularly rapid growth in the Greater China and North Asia region, that really is playing to the opening up of China theme, and we'll come back to that in just a moment. And we can see that the big network income drivers are Europe and Americas, so OECD clients that really value Standard Chartered's differentiated network in Asia, Africa and the Middle East and in Greater China, again, playing to the China opening up theme, but also meaningful contributions from the ASEAN South Asia and Africa Middle East region.
Moving on to Page 22, a bit more granularity on this network income and some of the exponential effects of the focus that we're getting. So as we shift from having relationships that were skewed to a single market or just a couple of markets or a couple of products into client relationships where we can help provide or provide services and products in 11 or more markets, which we have many, We get a 16x multiplier in profit. So this is truly exponential. As we broaden and deepen the relationships with clients, really leveraging the maximum of our network, We get much higher income. Looking at how this breaks down into subclient categories, about half our business is financial institutions, Which has been growing very nicely for several years.
And this financial institution business is everything from correspondent banking to Facilitating cross border trade, financial markets dealings, treasury services, custodial services, security services, right? This is a these are core Commercial Banking Businesses for Standard Chartered Bank growing very nicely. Why are we generating this kind of growth from a client segment that's very mature? Obviously, Financial Institutions client segment is mature because we focused on it, simply because we focused on it. This is the value that we've gotten from taking a great franchise that had been under invested and under focused and refocusing the team.
You look at the corporate side, it's not so impressive, right? We get 3% growth, 5% growth. But that doesn't tell the whole story because when you break that corporate Into OECD clients, which are growing very nicely. So this is a focus that we've had on delivering our outstanding network to clients in Europe, Americas, Japan, Korea, India, China, all of them have a large proportion of sophisticated global multinational companies. Good growth in the OECD market, less good growth in the OECD, non OECD client base, right?
So our emerging market Client base isn't growing as nicely. Those relationships tend to be a little bit more domestic, a little bit less network oriented, And we have a higher penetration there already. So the key message on this side is more products, more markets, more clients, more profits. And we're focusing on the client areas where we can get that growth, and we're actually delivering that. So you ask, is that network business really valuable?
It sure is. And we're demonstrating that both in returns, in growth, in market share, in client satisfaction through key differentiation. This is an example on Page 23 of a single client. It's a Chinese multinational corporation. We have dozens of these.
We would have to have dozens of these to get the aggregate growth rate in network income that I've already highlighted, right? So This is not just a one off, pick the nice example that happens to support the point. It is statistically one of many. It has to be, where With a single relationship over a 3 year period, we've got more products, more markets, more deposits, better quality income, Better capital efficiency, I. E, the risk weighted assets are growing slower than the income measures and the deposit measures, Leading to a 2.6 times improvement in return on risk weighted assets from 2015 to 2018.
We have many, many, many more of these opportunities to go. We've really barely scratched the surface in terms of clients in particular coming out of OECD markets where we have been investing. On Page 24, I'd like to dwell just for a moment on China. You've seen in the growth numbers, you've seen in the network numbers that the GCNA region is central For us, it's critical for us. And it's based on our exceptionally strong position in China, complemented by our exceptionally strong position in Hong Kong, But not to forget also the much stronger position we have in smaller markets like Taiwan and Korea, Clearly, playing into the broader Chinese trade ecosystem.
We believe in China. Obviously, we note the slowing down of economic activity in China, And we are fully cognizant of the risks of increased trade tensions. But despite that, we think that the outlook for China is good. We think they're taking the steps necessary to Maintain economic growth at a really healthy robust level. Wealth is accumulating, trade is growing, and the proportion of global growth that will come from China is very high.
We are exceptionally well positioned in China. We're a leading bank in the opening up of the capital markets, number 1 cross border payments bank, Number one bank in bond connect, which is the facility to bring external capital into the Chinese market. Number 1 or certainly top tier in the internationalization of the RMB. Number 1, Belt and Road Bank, focused on not just our relationships in China, but our relationships across Belt and Road countries where we have 45 different presence in 45 different markets. So we're well positioned in China.
We think China will present us with ongoing Great opportunities. If we switch to Page 28, in Africa, it's slightly different story, right? African economies are under pressure, As we know, most of the region is in recession of one form or other right now. But despite that, our confidence that Africa has great Medium, long term prospects is undiminished. So substantial increase in expected trade volumes as the African economies themselves open up, Very rapidly drawing middle class at a demographic dividend and growth that's still above the global average.
And we're exceptionally well positioned in Africa, Both to generate profit in each of our African markets, which we are doing today, and we think we can continue to improve profits. But these are this is a good profitable region Despite the current pressures. But in addition to that, we've got a very important element of our differentiation for our Non African multinational corporate clients is our African business. 62% of our top clients in CIB deal with us in Africa. It's not the only reason they deal with us.
But when we think about the things that differentiate Standard Chartered Bank versus other banks that have networks, not our network, they have different networks, But many of them deal with us because we can solve their problems in areas where they can't find anybody else that actually has a local presence to understand the problems they have, in this case, in Africa. So good underlying profitable business for us, Good growth opportunities and very important for the overall differentiation of our network. So that was a quick run through on why we believe so passionately about the value of our network business and why we're continuing to invest in it. I'd like to switch now on Page 29 to 26. I can't see the numbers, all right.
On like to switch now to the focus on our second theme, which is our affluent client Population. Like the network business, you can see we're getting the benefits of focus there. The Wealth Management, priority clients, premium clients, private banking business was a little bit less than half of our income 3 years ago Through a focus on marketing, through a focus on technology, through a focus on the way we organize our branches, just the way we've oriented our retail bank, We've had a substantial improvement and increase in our priority client segment, growing at 8%, very high returns, 30% return on tangible equity because, of course, it's a much less capital intensive business, bulk of the income coming from wealth management products and deposits rather than personal loans or credit cards. And a clear shift in the nature of our retail business and driving the good top line growth that we've had in retail and the good ROE improvement We'll talk about that in a little bit of detail in the following pages. We'll also talk in the separate sections about the other income.
This is the mass market. Obviously, not an exciting story at all. 0% growth over the last year and over the past 3 years. Now that's better than the negative growth that we had for Most of the previous 10 years as we effectively traded our mass market business, but not good enough by a long shot. And we're going to look at how we can Improve both the growth rate in our retail business, but also the profitability, which is you can see is slightly negative, through aggressive digitization, Ongoing management of costs, ongoing management of physical infrastructure, etcetera.
So but we'll talk about that in the coming slides. For the time being, let's just focus on wealth and the affluent client segment. You've got a measure on the left just capturing a few of the benchmarks for the Profitability of this business. Obviously, it is more profitable and by any measure. And we know that we generated good growth.
We talk on the right, how are we going to focus on getting this good platform that we built into hyperdrive, which is really the objective. And we think we can do that.
First is
going to be Continuing to evolve our customer proposition. When we think about the banking world of the future, We can imagine that there's an element of that world which is going to feel a lot like buying any consumer product. You can buy your credit cards or your personal loans The same way you can buy your washing machines or your windshield wiper blades. You can go to paplodac or Amazon or jd.com, and you can get that. Our proposition is that clients will have a different segment of their lives They're not going to want to execute on a generic platform.
It's going to be that the life decisions that are important to them, how they manage their wealth, how they manage their health, Perhaps how they manage the education of their family or themselves or their family. These are life decisions. And we think that there will be a heavy human component to that business for some time to come And that people will be inclined to aggregate the kind of advice that they get on these things that are interrelated to some degree. So building out our proposition For Wealth Management Products into a broader health and eventually other important life decision type platform will be important for us. Developing personalized and contextualized investment ideas, both delivered technologically, and we've made some great progress on that, But also delivered the old fashioned way, human contact, voice to voice, face to face.
Our open architecture platform is an enormous differentiator for us. It's something that we'll continue to develop with More product services delivered through that platform. And clearly, an increased focus on analytics. And we just got a few of the measures of progress we've made in the past Couple of years, we know that we have much, much more to go. So just to summarize quickly on the affluent Product business is key for us.
It's growing fast. It's high returning. We're differentiated. We're evidencing our differentiation through market share gains and customer satisfaction gains, And it will continue to be a key area of focus for us. If I can move on to Page 29, to the optimization section of our discussion.
I'm going to spend a couple of minutes on this page because it's pretty important and there's a lot on here. The start by saying we somewhat simplistically Break the countries in which we operate into 3 buckets. The top bucket is those markets where we are a top local universal bank. So think Hong Kong or Kenya in there. These are markets where we got a good scaled retail business, Good local commercial banking business, also important network countries.
So both inbound, so the rest of the world dealing in those markets, but also Outbound, I. E. They've got multinational corporations that need servicing for the rest of their business. We get a good return on both the domestic and the network business in those markets. And we're going to invest substantially as we have to generate the incremental growth that we know we can achieve.
The 3rd bucket is countries that are pure network focused. So think the U. S. Or Europe or Japan, Where we don't have a meaningful domestic business, we don't have any retail. We've got some small domestic lending, so you can see 7% Is domestic business.
But we know that, that domestic lending is in and of itself standalone. It's unattractive. It's a means to an end. The network business It's attractive in those businesses. And it's a big chunk of our network.
It's coming from these pure network countries. So we'll do as little of the domestic business as we can. We'll focus on our sorry, as little of the domestic business as we can. We'll focus on the network business. We'll continue to grow that franchise, More clients and deeper.
The challenging bucket for optimization is the middle. This is where we have a and we are an international bank with good network capabilities, Trusted local capabilities, but typically subscale. And the trusted local capabilities are typically retail. And in many cases, we've got a market share that's very small in the context of big markets. So think India, Indonesia, Korea, the UAE, which we're going to go into detail on the following page.
We know that the we observe that the returns On our subscale, local businesses are quite poor. The red circle here doesn't mean we're losing money. We're actually making a bit of money, but it's dragging our RoTE down materially. So it's unacceptable and it's unnecessary. And it's in fact, it's necessary that we correct this In order to get the overall 10% plus return on tangible equity, the network business in these countries is good.
We wouldn't want to compromise it. It's as good as it is in the rest of the network. And in some cases, there are some synergies between the local and the network business that we wouldn't want to lose either. So we've just taken of those 17 countries on the 21 countries, sorry, on the previous page, We were doing a deep dive on 4, but there's a similar story for the rest as well. The things that these 4 markets On Page 29 have in common are, 1, we have good network business in each case, although we can do more.
2nd is, we have a meaningful local retail business, but it's subscale. It's relatively small as a percentage of the markets in each of those cases. 3rd is, we have a retail business that is skewed to the mass market Rather than this focus on affluent that we've seen elsewhere. And clearly, we need to address all three of those issues to get these markets up to adequate scale. Of course, there's a different approach in each market.
And when we look for guidance and inspiration, we often turn to Korea. So Still on this chart because while we've dramatically improved their performance over the past 4 years, it's still a low returning market. And as we think about how we can get to this 10% -plus RoTE, we're going to have to improve markets like Korea further. How have we done it? Focused on cost.
We focused on customer proposition. We focused on liberating capital that had been trapped to one degree or other in these markets. And we made really good progress On all three fronts. And we have more to do. So we will continue the trek in Korea.
Indonesia, Slightly different story. We've obviously had a dual focus with Permata and with our own local bank. We've identified Permata as non core, which will allow us to focus entirely on our local banking business with some of the same themes that we've talked about before. UAE and India have been going through a transformation. We have been shifting and pivoting towards affluent clients, but we have much more to go.
We have focused on cost. We have more to go. We've focused on capital. We have more to go. So each market is a little bit different.
We know we can do it because we've made good progress in so many markets already. We have a few other tools that we're very happy to deploy at this point, recognizing that we've got some outstanding digital capabilities, Recognizing that we've demonstrated that we're a great partner for Big Tech, for FinTech, for e commerce platforms around the world, and we've got some good experience Set up these partnerships and run these partnerships, and we can put that into overdrive and take our relatively small retail franchise that nevertheless has great value And combine that with other partners in the markets in which we operate, to achieve much greater scale, Perhaps only less than 100 percent of the operation, but that's fine from our perspective. What we want to do is to get good accretive, creative, Accretive earnings on top of the nice value franchise that we've got. Now if we execute this agenda, now we pick up 150 basis points of our OTE. So in the progression from 5 to 10 that Andy took you through, an important part of that and Andy will take you through, an important part of that is 150 basis points that come from these countries.
We're very focused on optimizing The remaining markets in our portfolio that need optimization, we've got good tools, good plans to do that, and we're prepared to be Quite creative in terms of the way that we reposition our business, innovating new business models to get there. If I could shift to Page 30 on Productivity and the shift from productivity from efficiency, excuse me, to productivity. The benefits are clear on the right side of the page. The progress that we've made in improving our cost of production and our income per capita are strong. As I mentioned earlier, we've got a very structured process now to go through each of our client journeys from end to end, 1 at a time over the course of this year and into next year, Looking for radical changes in terms of the way that we operate.
So to take the good efficiency platform that we've got and drive that through to real productivity. And finally, if I could shift to digital for just a moment. Digital obviously is part and parcel of everything that we do. And there's an element of the digital agenda, which is a set of tools to make ourselves more effective and more efficient, better customer experience and the like. And we've got a very good track record of delivering these things, and we will continue to do so.
I We're with or ahead of the market in many regards. We're behind the market in some areas as well. There's plenty of upside. But The second broad application for digital is this business model innovation. So taking things that we do today and doing them fundamentally differently, perhaps with different partners, Perhaps targeting different clients relative to the ones that we are dealing with today.
And this is relatively early stage, We've got to made some good concrete progress. I think we've demonstrated that we are prepared to disrupt in some markets where we think that's the best way for us to achieve the optimal returns. We've probably got 3 types of digital application. The circle on the top is those situations where we're deploying our own solutions. So And when we look in at the digital banks that we've rolled out to 4 countries in Africa with another 6 scheduled for the rest of this year, These are standalone digital banks.
It's using standard chartered technology, developed in house, rolled out in house, very impactful in these markets, and we think that there's much more to go. We'll talk about that a little bit more later. Similar platforms for SMEs in India. We are applying for a virtual bank license in Hong Kong, which while we're using many technical components from third parties and partners, the package is being pulled together by Standard Chartered Bank. And while we'll operate this as a separate entity, We would intend to be able to port our knowledge and competence back into the Main Bank as we learn from this very important Business in a very important market for us.
On the lower left, we've got our ability to work with partners. I mentioned Ant Financial, This cross border blockchain based remittance platform, which we started Philippines, Hong Kong or Hong Kong, Philippines, which we rolled out to other corridors. Now we will continue to roll that out. Ant Financial has been very generous in their praise of Standard Chartered. They've labeled us an outstanding partner.
The bank that they prefer to work with, Technically extremely capable, able to keep pace with them side by side with good strong commercial applications and pragmatism. So These are the kinds of partnerships that we've been able to form that are really differentiating for our customers and obviously also for the bank. But we could a couple of other examples that we've got here that we will go into in a little bit of detail. And finally, Fintechs. I mean, Fintechs are our friends.
They feed off us. We feed off them. They give us great ideas. They give us great products and services. We've got over 500 engagements with different fintech companies.
As I mentioned in earlier discussions from this podium, the FinTech is a great equalizer. We can go head to head with the biggest banks in the market or the biggest e commerce players in the market because we have access basically to the same technology they do, but through third parties. And these fintech providers are desperately keen to make sure that we're never behind a bank that perhaps is much bigger than us with a bigger technology budget. That's exactly what we're doing. And we've become masters at working with partners and FinTech Companies, and we'll become even more better as we continue to roll out our digital capabilities.
No bank presentation would be complete without referral to Blockchain technology, distributed ledger, artificial intelligence, machine learning platforms and ecosystems. So I've done it, okay? It's all here on one slide. You can digest it all at once. Maybe the difference between what everybody else has said about these six things and what we're saying about these six things is that we're actually doing it.
We're doing it because it's kind of existential for us. If we're going to go toe to toe with the biggest players in the market, we're going to have to be faster, nimbler, more innovative And better utilizers of 3rd party products and partnerships. And we have many examples of all three of these things. I've listed just a few of them on this page. If we move to Page 33, I thought it would be useful to give a little color About we're really answering the question, why do you have different digital strategies in different markets?
Let me just take you through a little bit of our decision tree. So the first question we ask is, is it a big market? Is the market opportunity big? Because if the market opportunity is big, we need to throw some serious resources at it to make it work. If it's not so big, so take, for example, Kenya or Ghana, we're going to go digital in those markets.
We're going to go digital hard, but we're going to do it with the stuff that's on our own shelf. And we've got good technology on the shelf. We've delivered that through our bank first rolled out in Cote D'ivoire, Now rolled out in Ghana, Uganda, Tanzania, Kenya later this quarter and the rest of Africa and then beyond over the rest of this year. We can deliver that. It's impactful.
It's differentiated relative to local offerings. It's not the cutting edge, state of the art, but that's okay, because we're starting in a market with less fewer alternatives for our clients to choose from. And of course, we will continue to improve that offering over time. So for those markets which are large markets, but where we don't have a big market share, again, thank India. Indonesia, back to the optimization slide that I went through.
And there, we're also going hard digital, but digital is going to be the answer In this case, digital is going to be the thing that gets us from subscale and under profitable to scaled and profitable. We may need to do that with partners. And we're very happy to link up through various forms of partnership to deliver our capabilities in a differentiated way, Potentially in a disruptive way into some of these big markets, where our existing profitability is quite low, right? The 3rd bucket are those things where the market is scaled and we've got a good position. So think Hong Kong.
The The opportunities there are not to hide under a rock and hope that digital doesn't take over these markets or that the virtual bank's licenses all become irrelevant, But rather to attack head on. And the fact is we've got a great business in Hong Kong, but we have a lower penetration of the mass market and a lower penetration of the Millennial market than we do of the more affluent or older people market or silver as we sometimes call it. And We'll launch our virtual bank regulatory approval pending focused on these segments where we're relatively underpenetrated. Now are we going to disrupt that market? Yes, I think we will.
Are we going to offer a better banking proposition to those customers? Yes, I think we're going to build the best digital bank in the world that we're going to deliver to this highly Sophisticated group of buyers in a very developed and sophisticated market. Customers will tell us whether we've achieved that. But it's going to be good and it's going to be differentiated. And we're going to target those segments of the market that we don't offer today.
And we're going to take the best ideas from that virtual bank and put them back into the main bank. So is there the risk of disruption of the core franchise? Yes. Yes, a bit. But we're going to get much more by targeting that 81% of the market Sorry, that 91% of the market that we don't have today, we're going to get much more from there than we're going to give up on the 9% of the market that we do have today.
So very excited about this, both for the technology that we develop, but also for the opportunities to generate profit in its own right in Hong Kong. So digital, central to our bank, critically important. We're in a really good place to start, and we'll continue to drive that hard. I'm going to wrap up here. We've covered the five points on the left side of the slide.
We've hit the key points of the financial framework. With that, I will hand back to Andy, and then we'll have some time for summing up and Q and A later.
Okay. So on to Slide 36, just to pull that together into numbers. So clearly, the objective here is how do we get 5% to become 10%. A little bit more detail on a couple of following slides on some of these, but we have reiterated our view that 5% to 7% income growth is what we should and will be aiming for. Costs growing below the rate of inflation.
We were previously saying at inflation or below. We're saying now below the rate of inflation. And although that looks like a small block on there, I think the productivity gain that is implicit in growing the revenue block substantially more than the cost block is Quite important here in productivity, a core thesis going forwards. Impairment was commendably low last year, as I talked about earlier. It would be nice to think it would stay at those low levels right the way through the period.
Maybe that would be a little optimistic. So we've put a slightly higher impairment charge in here, not because we're worried, but just being realistic that may be the average over a multiyear period. Tax and bank levy, we have tax rates just 30% at the moment. We see those going just below 30% over time. And bank levy basis of charge changes in the 2021 year, which will put our bank levy charge down below to below $100,000,000 So that will give us some benefit.
RWA optimization, I'm going to come on to in a minute, but essentially saying we think that we can actually keep the growth in the RWAs below the rate at which We are growing the top line. And then importantly, with the 13% to 14% range, to the extent that we are Generating excess capital over and above that that we need in the business, we will look to return that. And I think that is probably one of the key Between the last 3 years and the next 3 years is the last 3 years, the return on equity has been all about the R, the return bit, whereas hopefully, the next 3, it can be about E and about the R as we actually manage this to the 10% level. So if I take the income side first, split this on the left hand side into the net interest Income to Slide 37 and on the right hand side into fees and other income. Our strong belief is that volume growth It's absolutely there for the taking.
GDP growth in the markets in which we operate above global averages. And if you go back over the last 2 or 3 years, we have grown, Depends upon which time period, but 5% to 6% on volume growth, and we see every opportunity to continue that. The mix of income we will be pushing, as Bill has referred to, very decisively towards some of the more products more so even than in the past, and that should help a little bit on the margin front. And on the liability side, which, As you can see earlier, there is a slight uptick in liability costs. That is very much within our sights now.
We know we need to work on that. It's a core cost within the business, And we need to work that down, which we will do. Rates and margin. Interest rate benefit going forwards will likely be lower than that in the recent past, but not non existent. There is still some upside from the either interest rates already rolling through or some smaller levels of interest rate increase across some markets.
And then importantly, one we've not talked a lot about before, but some legal entity restructuring that we've been doing In the background, not very visible. This is well progressed now. And over the 3 year period, the ability to actually port liquidity across markets in certain markets will significantly improve and that will enable us to actually reduce some of the liability cost. On the right hand side, fees and other income. We've split that between consumer individuals and the corporate side of things.
So the big focus, as Bill has been referring to, on affluent customers, the fact that the Wealth Management platform is being replaced, The fact that over the last period, in fact since 2009, Wealth Management income has grown at a CAGR of about 8% over that period of time. Clearly, that is something which we are going to be really, really pushing very, very hard over the next 3 year period. And then on the corporate side, Several opportunity areas. You can see the CIB business and its strengthening momentum during the 2018 period. The fact that we have got a lot of opportunities still sitting out there, particularly in China, which has been going strong.
Despite everybody's concerns about China, we are doing very well there. E platforms and a lot of things we're doing on the distribution front give us a very good reason to believe that we can increase the income on the corporate side. So put that all together, 5% to 7% on the average over the next 3 years is where we are setting our sights. On costs, so £10,100,000,000 is where we ended up, as I said earlier, in 2018. Clearly, over the next 3 year period, we will Have to absorb inflationary increases.
That is a fact of life. And with the increase in the investment spend, there is a slightly higher amortization cost that She goes through the P and L. So those 2 would put upward pressure on the costs. What we are determined to do, however, is to drive efficiencies both on the regulatory front, some of the bigger regulatory programs now starting to come to an end and also outside the regulatory space, A big, big focus upon third party costs, upon locations and high cost locations and on processes. New Chief Operating Officer, David Whiting, who's come really, really driving the process for you here.
And I think it's a lens that we haven't applied as much in the past as we can do going forward, and therefore, the confidence that we can get sort of order of magnitude about £700,000,000 out of the business. There will be some further restructuring costs to do that, about £500,000,000 But our view is that we absolutely will be able to keep the cost of the business down below inflation and keep the high level of investment that we really need to drive the business forward. On RWAs, £258,000,000,000 to Slide 39, in 2018. We absolutely expect there will be growth in RWAs from the growth in business opportunities that are out there. And to the extent that those are giving us an acceptable return, we will invest the RWAs unashamedly in growing the business.
However, with some of the exits, Principal Finance to roll off fully, ship leasing, etcetera, the non core classification of Pimata, if you put that in the non core category, Then for the rest of the business, there will be a reduction from those things. And optimization initiatives, there is a lot of work going on looking at the models for risk weightings where we see further upside opportunity. So if you put those all together, We would think that something of the order of a 2% growth in risk weighted assets would be consistent with a 5% to 7% top line growth on the business overall. Now obviously in 2022, so just outside the 3 year period we're talking about, Basel IV will kick in. We previously said that will be Roughly 10% to 15% increase in RWAs pre mitigation.
We now, having spent more time looking at that, think we're more in the 5% to 10% range after some mitigation actions. But of course, by 2022, there'll be another year of profits as well to come in that period. So RWAs is going to be very, very central to the thesis going forward. And as you've seen, A lot of progress in 2018 on that front already. So finally, on capital, what does that mean?
Capital ratio for last year, 14.2%, as I said earlier. The mathematical consequence of everything we've been talking about in terms of our financial projections will be a Progressive build in the CET1 to higher levels. The exits and the reclassification of non core will give us further Potential benefit there. Ordinary dividends, obviously, we are endeavoring to grow the dividends as we go forward. And as Bill has mentioned, potentially, We could get a doubling of the dividend in the period to 2021.
That should still leave us with extra capital. If we can find good places to invest that to grow the business further, we will do that. To the extent that we cannot find those opportunities, we will be quite happy to look at returns back to shareholders. So hopefully, that paints the framework there. With that, Bill, I'll hand back to you to close.
Good. Just a couple of comments by way of wrap up, and then we'll have time for Q and A. The priorities that we set out today are really guided, as I mentioned, of the asset by our purpose and delivered by our people. That's not so visible to you from the outside. I can only tell you that it's been an enormous area of focus for us.
Where this translates through to confidence ourselves is that we have instilled and will continue to instill a culture of excellence in our bank. We weren't uniformly demonstrating a culture of excellence when you went back 3, 4, 5 years. And we're not Uniformly demonstrating a culture of excellence today either, but it's a lot better. And we'll continue to improve as we focus on the investment in our people. We understand our responsibilities to our societies and our communities.
It's a big part of what attracts people, clients, to Standard Chartered Bank. We have a clear focus on our emerging markets, but also bridging the 3rd emerging markets to the rest of the world, doing so in a sustainable way. We have made a big investment in our people. We will continue to. And we made a big investment in our communities, which we will continue to.
This is a soft stuff that is tough to put into a model, but it's critical for our value proposition to our own colleagues, also to our colleagues, To our clients and to other external stakeholders. To just by way of wrap up, I know we haven't answered all of your questions today, and we won't Even in through the hour of Q and A that we'll have starting now. But what we have done is put a framework out on the table with really Key indicators of progress that we've made over the past 3 years. It's that progress that gives us the confidence that we can deliver the next Phase of our corporate development and our march towards a good, strong, sustainable level of profitability in the bank. We have a number of things that are in the works that we haven't given you detail on, which we will.
And each time we have a new Important initiative to call out. We'll reflect back to this presentation today exactly in the way that we did in November 2015 when we set out A list of about 50 things that we were going to get done, that was met with a relatively high level of skepticism. I'll tell you that we made great progress or ticked the box On 50 of those 50 things that we said we were going to do. And what we've done each time that we came back to you in every 3 months or 6 months afterwards is to say, this is what we said we were going to do, This is what we've done. Mark the progress.
And we'll do the same thing here, right? So the confidence that I had today is vastly greater than the confidence that I had in November of 2015 When we stood up and gave our first strategy refresh, because we've gotten the validation from our clients, we've gotten the validation from our colleagues. We've been able to attract some outstanding talent. We've been able to develop some great talent within. Market share is up, income is growing, Profits are improving, loan impairments are down, regulatory issues are grindingly being set aside as the progress that we made with the New York State Department of Financial Services, Obviously, the provision that we took last week are indications that we're making progress on these fronts as we are on so many Other things.
So I feel great about the progress we've made. I feel great about our prospects. I hope we've shared a little bit of that enthusiasm with you, Fully recognize that we're going to have to prove it. And that's exactly what we intend to do. So with that, Andy will rejoin me.
We've got an hour or so for questions. David? Okay. We can start here and then we'll go to David.
Okay. Thank you. It's Robert Sage from Macquarie. I've just got to answer if I had a couple of questions, because sort of one of the things that strikes me is that you've not changed Your revenue growth sort of expectations, 5% to 7%. And I think that's sort of broadly in people's numbers.
But I think if you look at consensus, You're only expected to make less than 8% or something ROTE in sort of 2021. So I was sort of wondering where the delta was arising. I've got 2 specific questions on this. The first one is on the loan losses, which I think you sort of say is about 28 basis points last year. And I see from one of the slides that there is an Expectation that will rise between now and sort of our 2021.
But I think when you sort of look back to 2015, the guidance was more around sort of mid-50s. And I was wondering whether there's been a sort of a significant reduction in terms of expected credit losses as a sort of a loan loss provisions moving forward. And I guess the second question is that You're still sort of actually, you've improved your cost guidance from at or below the rate of inflation to below the rate of inflation. Should we be thinking quite significantly below the rate of inflation in terms of where the consensus might be too pessimistic, do you think?
Yes. Let me take that. Loan impairments and forecasting it, as you well know, is not an easy and precise science. As you say, we are sub-thirty basis points at the moment. We were for 2018.
We had in previous forecasts nearer 50. What is implicit, if you microscopically examine the height of the bar on there, is we probably worked on something around 40 basis points There's a sort of 3 year average now. Whether that will be right or not, then we will know in 3 years' time. What I would say is certainly at the moment, the loan book is behaving very well. The early alerts, which are usually the sort of forward indicators as to what's going on, are still improving.
And therefore, given a fair wind, hopefully, we can stay at the lower levels for a period of time. However, we're trying to take a sort of 3 year out view and hence just being a little bit more sort of thoughtful about that. If we are too cautious, clearly, it will help that leg of the numbers. The cost side, I think, is Sort of more nuanced, we are both clearly wanting to keep the costs down, but we are not wanting to start the business of investment to do the things that we have talked about going forward. A lot of the things Bill referred to will need an element of IT enablement behind them.
And to the extent that we can afford to do that, we would far prefer to be continuing to invest to improve the fabric of the business to do it. If we wanted to, for sure, we could cut it down. We could get lower costs. Whether that in the medium term would be the best thing for the business, I'm not quite so sure. So I think for the moment, I'd be more thinking that inflation just below was sort of where we'd be at rather than thinking about significant cuts below that.
David Lock from Deutsche. I've got 2, please. Firstly, on capital. You're running at 14.2%, and you're saying you can you think you can run between 13% 14%. Very simple math, but if you grow the risk weighted assets by 2% CAGR, it looks to me like you don't actually need much more Dollar billions of capital.
So actually, you're at the right number from a dollar billions perspective today. So in which case, how should we be thinking about The earnings, frankly, over the next 3 years and what they're going to be used for because it doesn't strike that you need to retain very much over the next 3 years. What are the headwinds that we should be thinking about The need to be consumed. Obviously, there's this outstanding fine, which I know you won't be able to talk on. But are there any other items where that capital might be used?
Or is that the best way to be thinking about that capital and how it could be distributed to shareholders? And the second one is on costs. If I look at Slide 38, Where you give the cost walk. Always conscious with plans like this where we're hoping for lots of income growth over the coming years. But what is the plan B?
And I noticed that the kind of cost flex, the amount of investment spend you've got, it looks relatively small on the chart. So if the income disappoints, how much can you actually flex down the investment spend to help kind of hit that ROCE target? Thank you.
Why don't I just start on the capital question, Andy will elaborate, no doubt, and cover costs. We've got a pretty healthy investment budget built in anyway. So as Andy said, we've stepped up our investments, and we intend to maintain that pace. And in fact, we intend to increase that, funded in part by or entirely, but then in part more by the cost savings that we'll continue to generate. So if the earnings progression is as we hope and expect, then there will be substantial incremental capital, Even factoring in a dividend that we would also expect to increase over this time.
And we'll see at the time whether we have some really compelling Incremental investment opportunities, so beyond what we see today. If they're there, then we won't hesitate to continue to grow our business. But if they're not there, then we won't hesitate to return that to shareholders.
Yes. I mean, I think if you take the maths of the guidance we've given on the top line and costs and Sure. You work out there is a reasonable level of capital return that is expected during the period, and that could be at a level that may be a slight difference between sort of where the consensus At the moment, and hence, why there's that slight difference to the previous question. But you'll do your own maths on that. But at least we are in the position now where we can be Talking about that, whereas the last 3 years, clearly, that has been really sort of off limits.
The cost front, I'll come back to previous point. I mean, we can take the cost of the amount we are investing in improving the business down if we want to do that. That is completely within our grasp. It's Totally controllable. The balance, I think, is this point about what is the better thing for the medium term of the business.
So in the short term, for sure, we can take some of that expense If we want to do, our preference would be to continue to build the business and do the things we're talking about. The growth is out there to be taken in these markets. We would rather avail So of that, we think that is the better way to build value in this business than to just be sort of taking the costs down progressively over time.
Thank you. It's Tom Rayner from Numis. Good morning. Could I have 2, please? The first, on the sort of normalizing To 40 basis points of impairment charge.
The sort of underlying conditions which drive that possibly would also drive some Positive pro cyclicality in RWAs might also require you to build coverage against your Stage 1 and Stage 2 performing assets. I wonder, have you factored Those things to any extent into the overall financial targets. And I've got a second question just on The U. S. Provision in terms of what new information did you have allowed you to take that provision?
And is there anything else you can add about Potential non financial penalties or is that something you just can't talk about at the moment? Thank you.
Yes. As I said earlier, the accuracy of forecasting of 40 bps This is 35 of 30 is clearly quite a tricky one. What I think we're doing is saying last year, the overall macro environment was reasonably benign, And the credit book behaved very well. As we look out, there may be there's a little bit more stress in the system, and therefore, we should slightly on the side of caution. I suspect if we had put the credit impairments in on that chart at exactly the same levels as last year, we'd be getting the opposite question.
It wasn't at all being a bit too optimistic. So what we're hoping is that, that allows for some expansion of the business. It reflects the fact that we have got Good control over the credit book. But as I say, whether it is accurate to the last 2 or 3 basis points, I'm not quite sure. On the U.
S. Provisioning, there are various accounting rules about where you have to be within the process to decide on provisioning And the accounting rules and where we've got to with that discussion got us to the point where it was appropriate that we should provision. It is a best estimate of an outcome. It is not the outcome itself, but it is a best estimate and hence why we have reflected it in the 2018 numbers.
Yes. Good morning. It's Martin Leithead from Goldman Sachs. Could I have, first of all, a clarification just on your earlier comments on capital? And I was just wondering in terms of time line of that capital target range, thinking back obviously a couple of years ago, the 12% to 13% target range with Standard charter then being significantly above that level, I think immediately 3 or 4 quarters thereafter for the remainder of the period.
Would you expect the banks to run within that 13% to 14% throughout the bulk of that kind of 3 year period. And Do you need to wait for the annual stress testing cycle in order before you could make any consideration about the return of excess capital? Or is that could that The second question is on Korea. And here, I think Korea accounts for around 10% of Capital consumption to date, and I think we're aware of the difficulties in taking out costs. So I just wondered if you could Comment a little bit more on the levels you have to improve profitability.
And I think would you consider the optionality you could have with the business If the opportunity arises or going forward. And third question, very short, just in terms of the legal entity optimization in Asia, I think we have seen fairly I was just wondering if you could elaborate a little bit more how big that entity is and what kind of funding benefits could arise from that. Thank you.
Shall I pick those up? Or do you want to
Why don't you take a run through? I'll add any color I've got.
Yes. I mean, obviously, the more certainty we can get on sort of big ticket items, the more confident we get on making sort of returns of capital. I would hope through the majority of the next 3 year period, we would sit within that 13% to 14% range. We're not sitting here with an endeavor to be constantly above it. And I know since the 2015 update, we have sat constantly above it, but that was one period, and we're now in a slightly different period.
So Hopefully, through the majority of the period, we'd be sort of in range rather than demonstrably outside of it. Korea, I suppose, 2 things on Korea. I think The returns on Korea are dependent upon 2 things. 1 is the operational performance, and the other is the level of capital invested in the business. And clearly, the operational performance certainly compared with 2015 has changed markedly.
We lost $200,000,000 or $300,000,000 in 2015, And we made a $200,000,000 of profit last year, so the operational performance has improved a lot. We have started to get capital out of the business. And earlier this year, we actually got quite a big chunk more out of the business. It takes time to do that, but over the next 3 years, we would hope that we can further improve on the capital front as well. Legal entities, well, it's sort of one of those subjects where one either goes very shallow or one goes very, very deep.
But Surprised to say, what we're seeking to do essentially is to get the legal entities more aligned around the regions We are running the business through, so sort of Northern Asia, Southern Asia and the sort of Rest of the World hub. Our historic structure There has not been along those lines. And by doing that, those businesses, those legal entities which are in sort of subgroups, The ability to look at liquidity and things like that on a collective basis rather than on an individual basis is bigger. The opportunity is not in the tens of millions. It is bigger than that.
I mean, low 100s, but it's not inconsequential in terms of our Journey to get the RoTE up and the profits up, it's quite significant.
I'll just add a
little bit of color on maybe on each one. On the capital, the we're certainly not waiting for specific incremental approvals from regulators or Validation from the stress test, we passed the stress test very handily in a scenario that was pretty focused on the markets where we operate. So we're not constrained in terms of coming up with the optimal capital level by specific things like breast testing. And as Andy said, we would intend to operate within the range, not at the top of the range, not above the range, but within the range. That's why we have a range.
I've said this and he also said, we've been in a different place the last 3 years, and we'll be in a different place for most of the next 3 years. We're going through an interesting transition right now. The Korea, as I commented in my comments earlier, it's outstanding progress. And there's some real lessons For how we operationally improved our least well performing, our most underperforming market 3 years ago and gotten that into the bucket of it needs some more work. But it's been pulling every single lever that we could pull.
Short of the strategic alternatives that you set out, would we consider other things? Well, We can maintain this, the progress that we've achieved in Korea, then we don't need to consider other things. Other things are not going to create value for our shareholders today. So we think we have many levers that we can pull operational and then obviously using some of the digital capabilities that we are also in a better position to deliver now than we were any time over the past 3 years, is a further catalyst for growth. And then finally, on the legal entities, At the core of this is a recognition that the regulators in our markets, in particular, the HKMA or the MAS or In different ways, the Dubai International Financial Center Regulators are more comfortable with their with the markets in their neighborhood Than they are with markets outside their neighborhood or then somebody sitting in London would be with markets that are very, very far away and sometimes feel quite scary.
So obviously, looking at the way the stress test has played itself out over the past couple of years with a very heavy focus on a China hard landing, That's been a central feature of the stress test. When we and of course, we're a U. K. Domiciled bank. We'll always have to operate under the rubric of the Bank of England and that stress That's all there.
But in terms of our ability to be a little bit more fungible with capital and liquidity within a neighborhood by reorganizing legal entities in a more hubbed way, We'll be very additive to, as Andy says, materially additive in terms of our ability to manage capital and cash.
Hi, good morning. It's James Invine here from SocGen. I've got 2, please, one on capital and then one on revenues. The first on capital, Bill, you mentioned that the reason for pushing up your Target range for the 13, 14 was Basel III and the conduct issue still to be resolved. So should we think that When we get around to 2022, that range is probably going to drop back down to reflect those things disappearing.
That's the first one. And then the second one on revenue, specifically CIB, I guess over the past few years, you've been shedding less profitable customers and deepening the wallet share with existing customers. Are you now assuming growth in customer numbers for CIB going forwards? And how much of that is going to drive your 5% to 7% growth, please?
Thanks. Yes. So our range is 13% to 14%. We think that's the right range for now. As situations change, either as market expectations change, as some of the uncertainties that we continue to experience reduce, We may consider an adjustment one way or the other in that capital ratio, but that's not something that we're planning on or factoring into any of our thinking today.
So The 13% to 14% is and then operating within that range. It's a big range. So I mean, there's a lot of flex between 13% and 14% already. And we would expect to operate well within that range and then drift to either side of the middle of that range As appropriate for the circumstances. If that requires a wholesale change in the target, we'll consider that at the time.
CIB, yes, we're absolutely growing the number of clients. So when Simon stood up here in the space 1.5 years ago, Simon Cooper, heading CIB, He identified a few initiatives that had to do with deepening our relationships with existing clients. He called it the next 100. So Very good penetration of our top 100 clients, much less good penetration of the next 100, which should say we were too concentrated, too concentrated in In terms of credit exposures, but too concentrated in terms of income as well. So we said that the next 100, they're not new clients.
I mean, they're on the books today, but we've seen substantial growth And that group of next 100 clients. So we maintain the top 100 at the same time. But we had a second initiative around what you call the new ninety. So these were 90 OECD customers with whom we had no banking relationship at all. I think some of the biggest names in technology are some of the biggest cross border trading companies, some financial institutions where we had no relationship at all.
And we looked at the company's profile and the areas in which operators and looked at what we had to offer and said these companies should be banking with Standard Chartered. We onboarded every one of those 90 clients and Most of the next 90 and most of the next 90 after that, to they're onboarded and they're producing profits at a faster rate than we thought. So Absolutely. A source of key growth for us is new clients, in particular, coming out of the developed markets, But also new clients coming out of the emerging markets who have increasing network operations, right? These are our keys.
And that's what's driving that financial institution growth That I mentioned in the context of our network side, it's what's driving the OECD client growth. It's both the deepening, but also new clients.
Thank you. And also, sorry, just to add to that, in the commercial business, we've added 6,000 just over 6,000 new clients There as well. So compared with 3 years ago, where I think we were very much sticking with the clients who were sort of tried and tested, Actually say no, we should push the boundaries out. There are a lot of clients who have got international service needs that fit very much what we do, many of whom don't actually know what we offer and now really actually focusing upon that, evidentially bringing in quite a lot more clients.
Thanks. Ian Gordon, Investec.
Can I
have 2, please? Bill, on Slide 26, I was surprised when you expressed mild disappointment at the 0% growth In non Priority revenues, given that these are currently loss making, wouldn't minus 10 be a better number? Or do you regard that as inconsistent with your Growth aspirations within priority. And then secondly, just a point of clarification on your revenue target. Have you dropped the words over time?
Or is your 5% to 7% unrealistic for 2019 given the Q1 on Q1 headwinds you called out, except in that Q1 2018 is a tough comp?
So on the personal growth, The personal business serves a number of purposes for us. One is it's a feeder for our priority and eventually private banking customers. So We want to have a big catchment area in order to drive that premium and priority income. 2nd, it's a big absorber of fixed cost. So yes, sure, we could just throw clients out left, right and center, but the fixed costs wouldn't come out at the same pace without Structural change.
So just taking a business that's subscale and assuming that you can attract your way down to decent profitability by grinding the income number lower, It's not a good strategy. With the benefit of hindsight, that's what we did for 10 years, which is why the profitability of our retail business went from Okay to poor to bad to really unacceptable over a period. So we have turned that around. What we know though is that we're not going to get the real growth In the personal segment, the old fashioned way. So the idea of just putting lots of feet on the street or using third party sales agents to offer a A product which is not particularly differentiated to the mass market, narrow list of things that they really want, It's not a strategy that we think we can win.
So we have to take some different approaches. And those different approaches would involve Different customer propositions, different types of partnership, which will allow us to access different customers through different channels, Obviously, using analytics to refine the offering, but the use of analytics, the use of digital marketing and things of that nature, we think we're very good at that. We have a long way to go. We're not best in class, for sure, certainly not at the mass market. So we will continue to develop those capabilities.
We're not in the mass market, we're not going to be differentiated in a substantial way all by ourselves in some of these markets. So we'll look at ways that we can partner with other people to achieve what we would be more challenged to achieve ourselves. And then against that backdrop, 0% growth isn't so good.
And to your second question, I'm sure somewhere in the glossary it says, on average over a 3 year period, but not necessarily daily.
Have you mentioned that we've had a solid start to the year, Andy? We have. We have.
Thanks. It's Magnus Costello from Can I just follow-up on that point on retail? Because last year, at your seminar, you showed us that onethree of the retail business was loss making. And I'm a bit surprised that you haven't come out with a more aggressive strategy to deal with the retail business, particularly in some of those markets where your share It's not big and you're facing digital challenges. So why didn't you take a more aggressive approach?
And can you elaborate a bit more On a comment you made, it makes it sound as if you're going to enter into some JVs or you might even consider merging those some of those local businesses with partners and taking minority stakes. What are you Talking about
that. So the disappointed that you're disappointed about our plans. I think we've been very clear that in those very clear about our intent, which is in those 21 markets where we're a local We're an international bank with trusted local operations that we intend to get those businesses to a level of profitability that's accretive to the group and accretive against our 10% overall return target. And the way to get there in each market will be different. We could obviously spend a lot of time going through Market by market and giving a bit more detail, we picked 4, which were indicative of the sorts of things that we would do.
One of the so we have many levers to pull in terms of the business as usual. We have significantly digitized our operations. So In India, for example, where we have a digital banking suite that we offer to existing and new clients, that is 0 human touch. We're close to the point of getting 80% of applicants through on a no human touch basis, which is an industry benchmark for More or less the best you're going to do, at least with the current technology. We've reduced the turnaround time from days Two seconds, and we've reduced the cost of acquiring new clients from about $70 a client to about $7 a client.
Obviously, enabled by The Aadhaar system, which is the national identification system in India, biometrically verified, which is where we have that, which we have in a number of our markets now. Nigeria, interestingly, was one of the first to have a national, biometrically verified identification system. These the opportunities for 1st step change in terms of productivity are real. But of course, the market has access to that as well. So we have to find some differentiated ways to get to scale.
We have seen in markets like Singapore, where we've turned around and are trading market share in the mass market segment into the early signs of some good growth through very targeted product offerings. There are business as usual approaches to improve the Profitability of these businesses and we'll be rolling those out as well, if we already have, in Korea, in Indonesia, India, UAE, etcetera. But it may not be enough. And it may be right for us to either leverage 3rd party distribution channels, so effectively putting our products onto 3rd party platforms for distribution much more broadly than we can today, leveraging at the same time the data and the associated analytics Come from those 3rd party platforms. Just having a new sales channel isn't particularly helpful.
Having a new sales channel where we're leveraging our partners' Access to customers' data and associated analytics, combining with our data analytics, risk management competence, risk management experience It's an exciting proposition. Why haven't we done this yet? Why haven't we announced 5 joint ventures across 5 markets? Because we had to get our own house in order before we could be confident that we are the desirable partner that we need to be in order to generate really good profitable But having invested enormously in our foundations, digital and otherwise, over the past 3 years, we're ready to do that. And we started to roll these things out.
Some of them we've been public about, partnerships with Ant, the consortia that we set up in trade finance, The digital bank that we rolled out in Africa, which is not with partners, although we've got many partners that are providing products and services into the platform that we built in Cote d'Ivoire, in Kenya, etcetera, and Kenya when we launch. So we've got early stages of a good track record. We put it out there really to make 2 points very clearly. One is, Andy and I stood up in front of our group internally last year And said that we're not going to accept plans for this next round of our corporate planning period. They don't have every business and every country Generating positive EVA.
So generating operating profits, less cost of capital that were positive. We had many that were not Positive EBA, we have accepted no plans, from our own internal process that don't generate positive EBA by 2021. That doesn't mean that we're Going to succeed in every one of those plans, but every one of those plans is credible. And it's amazing how sharply the mind focuses when the instruction to the team is, You have no choice but to come up with a plan that gets us to positive EVA and the alternatives are less attractive. So we're committed to doing this.
We'll continue to report out on this. We've got a number of levers that we can pull organic and through partnership. And we intend to do that. And I hope as we call out our progress that we can deal with your disappointment. We've exited 8 retail markets in the past 4 years.
No, we I said we look at every one of our businesses and ask the question, 1, do we have a good route to adequate profitability? And 2, and if the answer to that is no, then 2, is it important for some other part of our business, so typically important to our network business Somehow. And on the back of that, we decided to exit markets like Thailand, Philippines, other markets in or other business lines in times going by. There are no incremental markets that satisfy that screening that we've gone through right now. Does that mean that, that will be the case for the next 3 years?
Of course not. As we continue to review operations, progress against the plans that we've got, Reassessments of the strategic importance of different markets. But for the most part, you're talking about smaller markets. And the smaller markets, Turn Andy, but these smaller markets are not our problem.
Yes. I'd just add a couple of things. There is no Inherent rejection of withdrawing from the smaller markets, but the facts are if you took the 20 lowest income markets We had in 2015 and added them up. They were loss making. If today you take 20 smaller markets, they are profitable.
So there has actually been quite a lot going on behind the scenes. This is not a retail only comment. It is a small country comment. Secondly, roughly, the amount of income that we generate In those 20 smallest markets and record in country, for every dollar recorded in country, there is another dollar that is contributed elsewhere in the network. So to the point about what is unique about the franchise, could we chop the smaller markets, we should not underestimate The ability of them and demonstrable ability to actually contribute elsewhere.
I think the retail bit, to the extent that the ones that are a bit marginal, What we're doing in places like the Cote d'ivoire, where we actually say, is there a lower cost digital approach to market? Let us give that a go and see whether That on top of the physical presence, the 2 together, could actually change the 102 that are more marginal. Our sense is we should do that first and see where we get to with that.
Hi. It's Fahad coming from Redburn. Just I had a question on your targets overall and the kind of reliance on revenue growth. Obviously, I think you talked about hitting 50 of your targets Before, but the one that was missed was the ROE ultimately, and that was probably the case on revenue growth. It looks like if you look at that period, the macro kind of Tailwinds from the U.
S. And China estimates were better than they are now. So I guess what's different this time? Why do you believe in those revenue growth targets this time versus last time when it seems like we fell a bit shy on the returns? Is there more self help here, The kind of capital is at the main point.
And just to get some color on that question, because I think that probably is the biggest reason why the shares probably are down right now because there's another revenue growth target plan. And just think about the revenues as well. The 6% constant currency Q on Q, the year on year, year for Q4 was very strong versus peers. Was there anything funny in that, that kind of won't roll forward? Or was that just outperformance and market share gains for the Q4?
And then the last question I had was on The core Tier 1, if you do 3% or 4% RWA growth, so over the 2%, should we be thinking that will then generate revenues greater than 7%? Or could we be in a situation where you're doing 3% RWA growth and the revenue is going to 6% to 7%, so within the range? Thanks.
Maybe a bit on revenue growth. So when we reflect back to the scenario that we laid out in 2015, We imagined and we were quite clear about the economic environment that we imagined. And we got a few things wrong. We didn't imagine that China was going to devalue about 11 seconds after we Made our presentation, but it did. And that took a lot of the wind out of the sails, in particular of our Wealth Management business at that time.
We imagined a much more robust level of global economic growth, reminding ourselves we were viewed as being too cautious At the time, it turned out we weren't cautious enough in terms of our assessment. GDP growth was about half over the 1st 18 months of what we had indicated in our presentation. And as a result, interest rate increases have been even slower. And that's how there's further reasons for that, which inflation has been more subdued than we imagined at that point. So we got a few things wrong in terms of the economic forecast, acknowledging that we weren't trying to we didn't expect it to be perfect in that regard.
That's a big explanation for the relatively subdued growth in the early period. In the later period, we have hit the growth targets, but as the economy got Back on track as China recovered, etcetera. The second thing is that we probably underestimated the amount of derisking we were going to need to do. And As Andy showed in his income walk forward, in 2015 2016, we had a really dramatic decrease in RWAs, decrease in income, And most of that came from our own derisking or not just derisking, but also recognizing that we had big chunks of our capital that were deployed to value Trying things that weren't necessarily risky, but just weren't going to generate a good return. So we probably underestimated a bit how much we needed to retrench before we could grow.
You can't normalize everything away and say, hey, if you just take all the bad stuff out, we nailed it. But we can say that those are a couple of things that we gave very transparent estimates At the outset, it turned out that we were a bit wrong on each front. We have subsequently, as we've sort of overcome those initial gaps, Some external, some internal. We have generated that growth. We particularly generated that growth in these areas that we called out from day 1 that we were going to focus on.
When I sit up here and talked about the focus on network income 3 years ago, the typical response was, 1, we don't know what that is. And 2, there's no evidence that it generates any value For your bank, so we're going to discount it completely. And you did discount it completely. And what we've subsequently demonstrated and what we tried to explain today, hopefully in a more satisfactory way, is that it's actually a fantastic business. It is growing very fast.
Likewise, the focus on the affluent part of So this good stuff that was well less than half of our bank is now well more than half of our bank is growing at a faster rate, is generating a high return. So We see no reason not to have the confidence that we can hit the 5% to 7% growth rate when we don't have these Balls and chains around us that we had in the early period. And we've evidenced that we can actually grow these areas. Now are there more tailwinds Are more headwinds and tailwinds right now? Yes, possibly.
Global economies are slowing. I mean, one of the advantages of being a midsized bank operating in this environment is If we can leverage this differentiation that we've demonstrated, we can offset a lot of Not every possible economic headwind. We're not naive, but we can offset a lot of the headwinds that are coming or the reduced tailwinds that are coming. We believe fundamentally that the big tailwind that we've got is that we operate in the most exciting markets in the world that are volatile. They'll go up and down.
China will go up and down as well. But we think that structurally, this is a growth opportunity for us. Structurally, we're going to acquire a greater share of a rapidly growing market. You want to take the quarter on quarter comments?
Yes. I mean nothing that I'd particularly call out On the Q4, I guess the Financial Markets business may be unlike some banks actually had a good quarter. And to be fair, maybe we've underperformed in that area in prior quarters. So that was quite encouraging to see that come through. But no, there's nothing I'd particularly call out.
Your other one was on I've lost in our RWA growth versus income growth. I mean, directionally, we're saying 5% to 7% and 2% RWAs. Think of that sort of relationship as being a broad proxy for what we'll be targeting going forward.
It's Andrew Coombs from Citi.
If I could have
a couple of follow-up questions, please. Firstly, on Slide 37, Going back to the previous question, you're talking about 2% RWA growth per annum, 4% asset growth per annum, 5% to 7% revenue growth per annum. You've been at lengths to talk about network income, affluent customers, but you also do flag you're still assuming some benefit from higher rates. So How much for tailwind is still to flow through from the previous hikes? Plus, I think going forward, you said minimal future hikes, but could you just spell out exactly what's in your assumptions there?
So that would be my first question. And then Slide 39. The RWA growth of 2%. You've identified €22,000,000,000 Cumulative RWA reduction plans within that, which divestments, model changes. Can you just give us an idea of the timing When that €22,000,000,000 drops out because it does have implications for your capital ratio and therefore, the timing of any buybacks you can do.
So clearly, interest rate rises do take a while to We've worked through fully into the system, and we've got the number that have happened over the last 6 or so months that will flow through. We've reassessed the rough estimate of what a 50 basis point increase globally would be. Previously, we'd had that about £300,000,000 now about £200,000,000 But as you rise up the interest rate curve, then you would sort of expect that. I guess, again, if you look at the heights of the columns very carefully, You'd probably say we have taken the roll forward and what's already out there plus, I don't know, 25, 30 bps I'll assume further increase, but hopefully, we've not sort of over egged that one. On the RWAs, I mean, part of that is putting the noncore activity sort of to one side, And therefore, that is sort of mathematical as of sort of today, albeit obviously that's still within the published numbers.
And the rest of the RWA reduction. I think the ship leasing is something we will roll off over a couple of year period. It's not something we're going to go and rush to do a sort of fire sale on. And the Principal Finance business, again, over the next 18 months, To the extent we have retained a small interest in that over that period of time, one would expect to see that progressively roll off the books.
Hello. Good morning, Bill. Good morning, Andy. It's Chris Manners from Barclays. Two questions, if I may.
The first one was just on the dividend. So it's quite eye catching to say you're going to double the dividend to roughly, what, €0.42 By 2021, if all goes to plan, could we ask could I ask you a little bit about the sort of pathway of the dividend? Are Are you thinking about a payout ratio? Are you thinking about, yes, a certain capital level and then you top it up Because most of the other U. K.
Banks are now saying they'll do a progressive dividend and everything else gets supplemented with specials and buybacks. So that would be the first one. And the second question is on the 2021 RoTE target. I assume that's just a stat RoTE target Yes, rather than an underlying, correct me if I'm wrong on that. But when we look at your incentivization and So comp and payouts and things like that, is that actually linked to beating 10% RoTE?
Or could you explain a little bit about that? I couldn't Don't have time to see it in the annual report this morning.
Thanks. Okay. So let's just take those in order. So on the dividends, We have not tied this to a payout ratio per se, just reflecting the fact The progression on profit will move around a little bit and being too tight arithmetic, we think, is a little bit tight. What we are saying is that as the profitability of the business improves, would definitely see the dividend increasing with that and observing there is the potential for us to double over that period of time, I.
E, we are very prepared be returning money to shareholders. On the RoTE, we'll continue to calculate that the way that we have done in the past. You will see when you get far enough into the annual report that certain members of the senior team, some of whom are standing here, have an incentive around an 8% to 11% range over that 3 year period.
Thank you.
Good morning. It's Guy Stebbings from Exane BNP Paribas. Two questions. The first was on deposit costs, which grew quite a bit in 2018. I'm just interested in terms of the phasing of that and how much came through in the Q4.
And perhaps you can confirm what the Q4 NIM was versus the 1.58 for the full year. And the second question was on regulatory costs, which you've called out as coming down in the future. They've proved incredibly stubborn in the past, And there's always new initiatives that are coming along that surprise us. Are there specific chunky items you can point to that are likely to come out and gives you considerable confidence Around the trajectory there? Thanks.
Yes. So on deposit costs, the Middle of the year, we saw a little bit of switching out to term deposits from current accounts. By the end of the year, actually, that had normalized Again, so we saw the sort of slight peak of that in the middle of the year. The 4th quarter NIM was within one basis point of the year average NIM, so there was not a lot of difference there. Regulatory costs, you're absolutely right.
They seem to have been nudging up bit by bit by bit. I think within the regulatory costs, we've got compliance costs, we've got And some of those programs are now basically running the sort of course. So those we can see coming off. Hopefully, with the U. S.
Investigations and so on nearing a conclusion, then hopefully a little bit of that will come out as well. So that's why we're A little bit more optimistic that we might actually be seeing the peak of the hump for a period of time, hopefully.
Hi. Ben Thoms from RBC. Can you talk a little bit about potential for FinTech disruption in Hong Kong and a little bit more detail about what Standard Chartered are doing in order to protect itself against the disruption. Thank you. Yes.
Well, I commented on the Virtual bank license process. So there are no standalone digital banks in Hong Kong today. The HKMA has put out an invitation For banks to apply or for companies to apply to get a new virtual bank license. A lot of criteria, but the key one is you can't have any branches. So these need to be stand alone separate entities that are purely digital.
And we don't know who else is supplied and we can speculate. And we don't know where the HKUMA is in their approval process, although they've suggested that the first Successful applicants will be announced in the not too distant future, the next few months. So we've worked very We're building this bank in anticipation of getting regulatory approval. We will use the capabilities that we're building in our main business in any case. I guess other people are taking different kinds of approaches.
Some will focus on sub segments of the market, credit cards specifically, Perhaps wealth management products in other cases. Some will focus on extensions to e commerce platforms where they We'll look primarily to finance goods that are otherwise purchased through those platforms, and we'll see what creativity the market comes up with and how the HKMA decides to direct that. We feel very good about the position that we've got with, in particular, our affluent client segment, which is the driving force of our earnings High rate earnings and also earnings growth in Hong Kong. We think that's relatively well protected with the range of product offerings that we've got, the client relationships that we've got, The level of customer service and we'll continue to augment that with the digital investments that we're making, some of which we will learn from and develop in the context of our virtual bank Yes, that we are developing separately. So the possibility for some disruption in the mass part of the market?
Yes, absolutely. That's we intend to be a disruptor in that regard. So I think we will see changes for sure. But for our core franchise, we feel pretty well protected, both of the quality of the product that we are delivering today and intend to deliver in the future. And because it's not obvious that that's
A question from Ronit Ghosn, the web. Can you define what size of market opportunities that has in Retail Banking via digital in markets such as India, Africa or Greater Bay Area.
Yes. I mean, Greater Barrias, which we didn't talk about in many details, is one extremely exciting Incremental development. We know that the Chief Executive of Hong Kong, the Mayor of Party Secretaries of Guangdong Province And Macau, I got together last week. They offered some policy guidelines on what this integrated market area will look like. We're talking about close to 100,000,000 people And growing much more rapidly than the average in China with embedded free enterprise zones and the like with the intention to effectively One way or the other, reduce the barriers of people, capital, intellectual property between Hong Kong, Macau and the rest of the Greater Bay Area in Mainland China.
We're extremely well positioned for this. Our Hong Kong business together with a very substantial business that we have both in Guangzhou and Shenzhen as well as several of the other smaller I say smaller cities in the Greater Bay Area. We've got new cities like Namsa, which don't exist today, which are going to house 10,000,000 people in So just to put a little bit of context into that. We're extremely well placed to provide banking services and leverage the core strength that we've got on both sides of the border. Is that a digital opportunity per se?
Yes, sure, absolutely. But it's a lot more than digital, I think, from that perspective. The size of the opportunity in India and Indonesia, other markets, I think you only have to look at the The profitability of the local banks that have acquired scale, the HCFCs, ICICIs, Axis Bank, CS Bank, Mandiri, etcetera, Our very high returning banks, they've got market shares that are above 10%, in some cases, substantially above 10%. That's the wallet That we can go after. Now are we going to displace ICICI in India?
Of course not. They've got their own offerings. They've got something like 4,000 branches that are still relevant for big parts of that operation. But can we have a targeted offering that's zeroing in on 50,000,000 or 100,000,000 Indians that will be in the sweet spot of what we can develop, ideally In partnership with others, so that we've got a differentiated proposition from the outset. Yes, absolutely.
Hi. It's Alice Timblee from Morgan Stanley. If we come back to Slide 29, where you call out the 4 key markets And the 150 bps ROTE benefit. Could you perhaps just give us a bit more detail on the contribution of each of these markets more specifically? And then secondly, on asset quality.
The credit grade 12 balances seem to have ticked up quarter on quarter. They were at £1,400,000,000 in Q4 versus 900 in Q3. Is there anything to call out there?
So we're not going to give a lot more detail on the 4 countries. You can see from our country reporting, the magnitude of the challenge in terms of the aggregate Returns from each of these markets. And I've tried to be specific that our network income from these markets and the network The returns on network income are broadly similar to our overall CIB network income, which is it's the network income is higher returning, And it's drawing quickly in each of these four markets. We have a higher proportion of the income in each of these markets that comes from Domestic corporate banking, which is ongoing optimizations, has been a big part of what Simon and team have done over the past 3 years and will continue to do. And then in each of these cases, we've got a retail business that's on one side or the other of 0 in terms of operating profit, Not by huge amounts, but Azure obviously is a big drag on our overall returns.
And the objective in each one of those cases is to have a retail franchise at the end of the day This generating a cost of a return above cost of capital.
And I'd just add, I mean, those four markets, 2015 lost $1,000,000,000 between them. They made £400,000,000 between them last year. They're not yet where we need them to be, but definitely direction of travel is good. Your CG 12 question, no, there's nothing particular I'd call out in that. It was slightly higher in the Q4.
But if you take the year as a whole, it Pretty much flat, so it just moves around.
Thanks so much. It's Ed Firth from KBW. First, just to clarify your answer to Chris' question. So that the 10% is an underlying ROTE, is that right? It's not an all in ROTE?
Firstly, great. And secondly, if we do see revenue growth, say, coming at, I don't know, 3% a year, something like that, like half what you're expecting, can you still make the 10%?
Well, it will depend upon some factors externally, impairment, etcetera. If that is benign, then that will Offset that in part. As I said earlier, we can pull levers on the investment of the cost front. It's not our preference to do it. We can do that.
We can look at the capital returns. So I think there's a variety of other things. I mean, clearly, the lower we go, the more tricky it makes it. But If we can get somewhere around the bottom of the range, I think we can achieve it. If we go below that, then we'll have to look at more actions on the cost front.
But is there a sort of level we should be thinking of at the sense that you're not going to achieve it? I mean, clearly, I guess, if revenue is falling, you're not going to achieve the 10%.
No, I would focus upon the 5% to 7% is what we are determined to achieve. Is there anyone who hasn't had a question who would like to before I hand out seconds?
Sorry for being greedy. Tom again. Can I just ask you about how you see the phasing of your move from 5% 10%, because some of those items look like they should come through as profits recover? Others look like they might be a bit back loaded. Some of the RWA optimization maybe is back loaded.
I mean, what sort of interim targets have you set yourselves to try and Gauge whether you're actually on track to hitting your 10% by the time that you've set. Can you add some color around that first, please? Thank you.
If you look at the walk, things that will be sort of choppy in terms of timing, bank levy will be back end loaded. Evidentially, it's 2021. It's 2021. The timing of capital returns will be dependent upon sort of other factors. So that is one which will not have necessarily a sort of straight line continuum on it.
The business exits, obviously, that depends a little bit in terms of how fast they go, but Probably slightly more back end loaded. On the other ones, costs will be progressive. Income, okay, it's not going to be Exactly linear, but I think we should see that over a period of time. So we haven't got a If it's Greg sort of in mind, but we are determined to get to the 10% by the end of the period.
Just a few of the other of the metrics That you're asking about is some of the things that we called out in terms of our areas of focus. In our CIB business, we need more clients, and It's been a good area of growth for us. We've got continued robust aspirations for adding clients that are Intending to use and in fact, then do use our network. We have a client deepening metrics that we're looking at. So there's this progression From one time to 16 times profitability as we get clients with more products and more markets.
So we've got a very steady stream of and consistent stream of Metrics around clients. On the retail side of the business, one of the big areas of focus for us has been customer satisfaction. Our customer service and customer satisfaction were somewhere between okay and mediocre 3 years ago. We've invested heavily And it's obviously shown up on the expense line. We invested heavily in customer satisfaction.
We believe that that's a leading indicator of profitability. It has been so far. So the big increase in our profits in Singapore and Taiwan, for example, coincided and we followed a major focus on unapproved customer satisfaction measured by Net Promoter Score and other things to measure our desirability to customers. So We have a whole we have a scorecard, as you'd imagine. A scorecard has a couple of dozen high level things and Many dozens as you go through business by business of key metrics that we're looking at that for the most part are leading indicators.
Some are lagging. I mean, financial results obviously are a lagging indicator. It's on the scorecard, you'll be happy to know. But the focus on improving our business is very granular. And we're tracking literally thousands of things down through the organization very, very rigorously.
Andy and team have put in a system of both MIS, but also regular reviews that are allowing us to track the leading indicators as well as lagging indicators. And to the extent that some of those key indicators go off track, Then we'll course adjust. Now we'll either deploy different tactics or we'll reallocate capital in a different way.
Thank you.
So I think we've just about exhausted everybody. I'd say thanks again for making this investment in us, And your time and your attention, so some great questions and plenty for us to keep on working on. As I think Andy and I both said, we've set out a framework today. Didn't expect to answer every question you've got, but do expect to come back to what we said today and explain as we move our way from 5% to 10% Plus in the term intangible equity, how we are tracking against the targets we have, the progress that we're making, and we'll continue to try to be as transparent as we can.