Good morning, everybody. Thanks for joining us, bright and early. You'll notice that in some of our tee ups for these sessions, we refer to childish themes, whether it's toys or Marvel credit cards or things like that. It's because we're young at heart, and we thought you could use a bit of that first thing in the morning. That's despite 160 years of history.
But that company, TOEASE, it's a great success, right? It's an SME client of ours in Hong Kong. They had their ups and downs, as anybody getting into that kind of business does. We stuck with them throughout. They stuck with us throughout.
They're now a major exporter of toys around the world, including these cool little model cities. So if you're interested, we can probably source you one. Sorry, I got rid of this. Somebody's going to give me a hard time. Now how are we starting the year?
We're pretty good. We're happy with the start of the year, it's a solid start, strong financial performance, as you've seen, improving steadily. We will talk a little bit about our key growth agendas, which we think are firmly on track, doing more or less what we would like it to do and what we expected. In particular, we'll focus on the progress we're making on the digital front. There's clear evidence that the risk discipline that we introduced quite strongly 3 years ago is bearing fruit in much lower loan impairments, but also improving returns.
And that will be a recurring theme that we come back to through today and in the quarters to come, capital remains very strong. Liquidity remains very strong. We think that this is appropriate given the remaining uncertainties, both geopolitical and regulatory, but we're certainly comfortable against that backdrop, reinstating the interim dividend at $0.06 per share. And as we've said at full year and we'll repeat now, we would hope and expect that, that dividend would increase as our earnings increase. And equally, obviously, we hope and expect our earnings to continue to increase.
The return on equity is making steady progress towards our medium term goal of over 8%. And as we look to the period to come, we would look to continue to manage each of the lines contributing to equity, I. E, income, cost, capital and loan impairments or other impairments, all of these things are supportive of the medium- to long term trend that we've set out, and we feel that we're very much on track. Good indicators of underlying success, so thinking about the inputs. Customer satisfaction surveys are indicating that we're steadily improving.
When we look at the fact that we've got a top Net Promoter Score in 6 of the 8 major retail markets where we operate, and that's a top. That's not the top 4 for our sub segment, these are clients saying to us that we have a fundamentally differentiated value proposition, and we're delivering it increasingly well. Likewise on the corporate side, our voice of client work, 3rd party surveys, assessments of market share, all give us the strong sense that we're on the track with clients, we are driving a hard driving performance culture. We're not fully there yet by any means, but we've taken very concrete steps in the early part of this year. We'll talk out a bit later.
And then finally, the economic backdrop is supportive. And obviously, we're in a cyclical business. We're in a good part of the cycle right now, and we feel that this is going to continue for some time. So we're investing into our growth markets with a high degree of confidence that there's value in these markets and that the growth will remain. Of course, there are uncertainties.
We're also prepared for that. So the strong capital position, the strong liquidity prepares us well for the curveballs that could come at us through time, we'll talk a little bit about that, in particular, the trade issues later. You've seen this breakout at the full year. We thought it would it's worth sticking with this format, we're broadly breaking our business into 3 types of business. First, and this is now a little bit over half of the income of the bank, is those areas where we focused on extrapolating our key competitive advantages into real growth in our markets.
This is the transaction banking business, the Wealth Management business, the mortgage and auto business, secured lending, where we have a differentiated proposition vis a vis clients, either because of our brand because of our existing position, because of the markets where we operate, that part of our business is growing very nicely, 14% year on year, 8%, half on half. These are areas that we focused on. We're generating the growth. Of course, mathematically, it will continue to be a bigger part of our bank. That's one would expect for the areas that are playing to our key competitive strengths.
We're very happy with the progress. That second bucket, the middle bucket, which we call return optimization, is that, that portion of the bank that we recognized back in 2015, we still recognize today, needs ongoing transformation. And that's the legacy lending book in our corporate business, it's parts of the mass market in our retail business. That this part of our business is being optimized. Part of optimization is sacrificing some income along the way in order to improve returns and making some investments in order to be able deliver product to deliver product more efficiently.
So we've managed to say about 0 in terms of income growth, so 1% up year on year, 4% down, half on half, but we're improving the underlying returns. And of course, that's becoming a smaller proportion of the bank mathematically. And in fact, the final bucket, another the final quarter of our income roughly is these very market sensitive areas. So financial markets and treasury in particular, where we have had but we know that the external environment is going to drive the quarter to quarter results. We intend to grow that line and grow that through the cycle, but expect to have some noise along the way.
And that's exactly what we've had with 4% year on year decrease on the back of the very strong treasury results in the early part of last year and at 23%, half on half increase on the back of resumed strength in financial markets on the road to recovery, so back up to a more normal level in that market sensitive area. We've included a measure of risk adjusted income, which is just income less total impairments, because we think we want to convey the sense that, yes, we are growing income, but we're growing higher quality income. We're growing income that has a lower expected loss. And over time, obviously, that measure of income less loan impairments will give a truer picture of the quality of the income that we're generating. Clearly, we are generating a strong growth rate, especially the 15% half on half on a risk adjusted basis is encouraging.
All that leads to the return on equity of 6 point session, we'll drill into the fact that that 7.5% return on tangible equity, which is not the measure that we use most commonly, but obviously it's one that you use for comparisons in many cases. And we think this is a strong indication that we're on the road to hitting our medium term targets as we set out at the full year. With that, I will hand over to Andy, and I'll come back at the end with some more thematic comments and then time for Q and A.
Good. Thank you very much, Bill. So as usual, just pick up 1 or 2 of the key financial numbers and then go into those in a little bit more detail. So 7.6% top line, 2.4% underlying OP and 6.7% ROE. So just in terms of high level, 7.6 percent on the top line is a 6% increase first half on first half.
Operating costs up 7%, 5% on the constant FX, some acceleration of investment spend very deliberately into the first half, which I'll come back to. Big change, I guess, on the numbers really in the credit impairment line. So a €300,000,000 charge for the half year, evidentially, are lowest for quite a long period of time and massively lower than where we were 2 or 3 years ago. Again, I'll talk about that in a minute, but that has contributed to the 2.4 percent of underlying operating profit, which itself is a 23% increase year on year, restructuring and other items broadly net neutral and hence statutory profit of 2.3 below the line, dividend per share, 6%, as Bill has referred to, so the reinstatement of the interim. The CET1 at 14.2 percent strong, up 60 basis points in the 6 month period.
Return on equity, 6.7% on the pure return on equity measure. If you do it on a tangible equity basis, the equivalent number is 7 point 5%, both of those up about 1.5% year on year. So just a little bit more detail then on the income. A year ago, dollars 7,200,000,000 in the first half of this year, dollars 7,600,000,000 so about $400,000,000 increase in income. You can see in the green blocks on the left hand side here the things that have contributed to that and on the right hand side the things that have detracted from it.
So the biggest contributors have been transaction banking and wealth management, both of those up 15%, 15% year on year, particularly within transaction banking, the cash side of transaction banking, up about 25% year on year. And then other contributions from retail, financial markets, etcetera. On the right hand side, treasury down a little bit, and that was primarily the non recurrence of the big boost we got in January of the previous year. Otherwise, we are fairly similar to prior year. In terms of the Q2, that was about 100 lower than in the Q1 of this year, primarily Wealth Management, very buoyant Q1, slightly less buoyant but at more normalized levels in the Q2 and a little bit Financial Markets.
But broadly speaking, those aside fairly similar levels of activity. So two charts, one of them just doing the breakdown of the key numbers between the main plant segments and then the following one on the major geographic regions. So on here, I think actually probably focus particularly on the top line here, the corporate institutional banking business. So 7% income growth, but actually this percentage isn't on here. Profit growth 70%, so very significant improvement, particularly loan impairments, etcetera, and now seeing the ROE print at 6.9%, the highest that we have had in that business for quite some period of time.
Retail bank, 13% ROE on the right hand side there. So by far, the most high returning of our businesses, very consistent with the session that Ben and the team did at the Investor Day recently, but good growth there, 9% on the top line and a high ROE. Commercial banking, 7% growth from top line went slightly back on the bottom line, primarily because a year ago, we had an exceptionally or exceptionally low for the commercial business, low loan impairment, and that normalized more in the period. And then Private Banking is still not a significant profit contributor, but at least seeing some top line growth there at 12%. So that's the sort of broad composition of where we're at with the overall business, about half the profit coming from corporate and half coming from consumer and the center.
So equivalent numbers this time done on the regional basis. So Greater China and North Asia, as we all know, about 40% of the group by way of income has had a very, very strong first half of the year across really all countries. The region up 11% on income Hong Kong itself, the biggest business, up 11%, profits up 25% and I think the highest operating profit we've had in Hong Kong in a half year since 2013, so very strong there. But also really across the piece, China, 24% increase in income, some of that FX related, but nonetheless, a very strong performance there. Korea, 6% increase in income and now actually regulate making a profit, which is really good, after the challenges there a while ago.
So I think really across that whole region, a good performance and across pretty much all client segments as well. ASEAN there, 6% up. We had a very strong performance, particularly in Singapore, so 15% up on income, 10% up on profit, but the whole region has performed nicely. Africa and Middle East, a little bit more muted. Africa, probably a little bit more so than the Middle East, so fairly flat on profits.
And then Europe and Americas continues to be the big hub for the corporate activity in the CIB business. So, change topic on to expenses. November 15, we said that one of the strands of the strategy then was to take $2,900,000,000 out of the gross cost over the 4 year period to the end of 2018, we have achieved that 6 months header schedule at the end of June. So good focus there. And I think a big change in the sort of culture and the mindset towards costs.
On the bottom left, we have got the costs for the first half. And you can see at 5.1%, we are up 7%, as I said earlier, 2% of that is FX. So 5.1% is up on the first half of last this year, but it's very similar to the second half of last year. Within that, very important to note, we have very deliberately accelerated some of the investment spend and therefore expense that in the first half, whereas normally it would go into the second half, and I'll come on to that on the next slide, that really being an endeavor to get some of the systems upgraded more quickly so we can improve the client experience. So overall, we're saying we'd anticipate the second half expenses to be similar to the first half ex bank levy, and that's assuming the FX stays sort of roughly where it is at the moment.
So on the investment spend, the chart here on the left has got the first half investment spend for each of the last 4 years. And you can see, hopefully, fairly clearly that we have been increasing that progressively throughout that throughout that period. So two observations. 1, it is very much increasing. The second, which I think is also really important, is the top slides there, strategic, as you can see, is just under half the total spend.
In the past, we were spending almost everything on and obsolescence and had very, very little to spend on actually improving the fabric of the business. So a significant shift in terms of what we're doing to actually improve the physical infrastructure of the IT, etcetera, going forwards. Right hand side of the chart gives 1 or 2 proof points as to what we are now seeing and particularly what customers are seeing as a consequence of that. So the retail banking there, the number of digitally active clients has increased now to pretty much 1 in 2 of our clients, whereas it was 1 in 3 a while ago. Commercial bank number of clients were actually just going straight through, as in right through electronic processing, 57%, that was 50%.
And possibly most significantly, Corporate and Institutional Banking average time to onboard a client, which used to be 40 days plus, now down to 8. So really, really helping. And the customer feedback on many fronts is really, really positive here. So very determined to continue to spend and unashamedly accelerating some of that into the first half. Now credit impairment, so there's a good chart.
Probably 3 years ago, we wouldn't have envisaged seeing one looking like dollars 300,000,000 of charge in the first half, which is roughly half where we were in the immediate two preceding half years, two reasons for that. 1, the gross provisioning is lower than we have had before. And secondly, the level of recovery that we're actually getting is higher than we've had before. Now that can move around between periods, But nonetheless, roughly of that halving, as it relates to lower gross provisioning and 2 thirds relates to higher recoveries. Although we're on IFRS nine, that really hasn't influenced, I don't think, the general shape of this at all.
Importantly, some of the underlying metrics in the text on the right, so the ongoing Stage 3 is a new sort of euphemism for non performing loans. Those have reduced half on half by 6%. The early alerts are the ones where we're sort of watching more broad indicators, 21% lower. And the category 12, which is the one below nonperforming loans, is 30% lower. So really significant improvement in the quality of the book and hence why we're getting that through.
I know everybody wants to know where we're going to end up at the full year on loan impairments. It's always a very difficult one. I think we have consensus of about GBP 1,000,000,000. It'd be nice to think we might break that, but we will see. So anyway, good progress on the credit side of the business.
Moving then on to balance sheet and margins. So encouragingly, we saw net interest margin continue to move ahead a little bit. So we've had quite a number of quarters where that's been the case, 1.59%. Obviously, some of that benefiting from interest rate increases with, again, high margins on liability products offsetting some reduction on the asset side. Net interest income has risen over the first half to first half by 10%.
It's pretty much the whole of the increase in the income, but that is, I think, strong performance there. Bottom left, you can see the customer accounts, so deposits from customers, etcetera, 412,435, So up 6% since the end of last year. And the loans advances to customers up about 4% since the end of last year as well. So just gently taking forwards on both fronts. Quality of book on the top right hand side.
So in the solid bars, the proportion of the book that is investment grade is just progressively rising, so 54%, 57%, 51% and the proportion of our total Tier 1 capital that is relating to our top 20 corporate exposures around the 50% level. We are, put at the bottom right, very liquid, and we have got a good loan advanced deposit ratio, let me show 1 or 2 stats there. The focus we've had on the operating accounts within the corporate business to make sure we're getting as many of those, which has been very key to the 25% growth in the cash transaction banking income. So that has nudged up during the period, surplus liquidity being generated by the Retail Bank also up quite nicely in the period. Slight reduction on CASA in the retail side, slight move to term deposits in 1 or 2 markets, but not hugely.
And despite that, the overall NIM, as I said, up by 4 basis points. CET1 and risk weighted assets. So CET1, as I said, up by 60 basis points to 14.2 percent, that is primarily driven by profits that's helped to have more of those offset on dividends and then the RWAs being a small extra there. The RWAs on the bottom is partly FX that has helped 1 or 2 model Changes, operational risk, which is formulaic on a 3 year trailing basis, but you put all of those together and we're down at 272 €1,000,000,000 on the RWAs. So relative to the increase in volume exposures, more RWA efficiency, which is again something we've been very focused upon.
So in summary, bang in the middle of the medium term guidance range on the top line. Where we have been investing money, we are seeing growth, which is very encouraging and hence why we have accelerated some of the spend, we continue to target keeping the annual expense growth below the rate of inflation. The credit book behaving well is also another plus, dividend being resumed and more confidence, I think, as each quarter goes on that the 8%, hopefully more later, is perfectly achievable on the ROE. With that,
back to you, Bill. Thanks, Andy. Just a couple more comments from me. Dig in a little bit on the ROE guidance that we've given and the progress that we're making, some of the things that we're looking at to give give us confidence that we will exceed our 8% target, so hit that 8% plus ROE target in the medium term and obviously continue beyond then to cover cost of capital and generate some incremental value for our shareholders. Just quickly running through the indicators that are encouraging for us.
The on the C and IB business, as Andy said, the network income as a percentage of the total has continued to increase, so up to 67%. Non financing income, similar but somewhat separate, up to 52%. So clearly focusing on those value added services for our clients, corporate clients, in this case, leveraging our core strengths. On the retail side with the ROE at 13%, the wealth and deposit income as a percentage of the total up to 60%. This is clearly the capital light version of the retail business playing to our core strength with affluent customers.
As Andy mentioned, again, digitally active clients up to 47% of our total, and we would expect that to continue to grow as we roll out the digital initiatives that we mentioned earlier and that I'll spend just a moment on in a couple of minutes. Commercial Banking, new to bank clients are growing healthily. This is an area where we contracted substantially on the back of earlier credit losses. So seeing new clients come in who themselves are doing a higher and higher proportion of their business with us in non financing income are good positive indicators. On the private banking side, we'll be watching ongoing net new money flows and AUM.
We've had a significant period of consolidation in that business, including an element of derisking. We're fully ready to start growing that business, and we are growing the top line. We should see that flowing through in terms of net new money in AUM in the periods that follow. Just a couple of comments on the digital side. The objectives, I think, are relatively straightforward and familiar to you.
Likewise, the impact being a combination of better customer service and lower cost for us, a more efficient process, worth calling out the degree to which we're balancing our investment portfolio between things that we're developing in house and things that we're developing with partners. We've had some great successes in that have manifest themselves in the early part of this year that are purely in house. So our digital bank in Ivory Coast, Cote D'ivoire, which we will roll out across Africa over the next 18 months through the Middle East and South Asia, is entirely developed in house. This is 100% center chartered technology, so it's our mobile banking app, it's our core banking systems, it's everything in between those, and it works. It's highly effective, it's cost efficient, and it's being extremely well received in the Ivory Coast, we don't have a retail business in the Ivory Coast.
So this is it for Standard Chartered. It's a pure stand alone digital bank. When we roll out in other markets, Ghana, Nigeria, Kenya, etcetera, we do have a retail business, and this will be a digital offering side by side. In India, we rolled out a real time onboarding, so purely digital account suite, full banking services, layering in those services over the course of this year. Everything that you can do in a branch other than money, you can do on your mobile phone.
Obviously, based in India, off the national identification system, the Aadhaar number, which has been highly effective and very impactful in terms of generating new accounts for us in India, we expect that to accelerate. Again, entirely standard charter technology. The robo advisor that we built in Singapore, which is award winning in many regards, entirely developed by Standard Chartered. Andy mentioned that the straight to bank system that is our treasury portal for corporate clients developed by Standard Chartered years ago, updated new release in the early part of this year, super high impact with our corporate clients and driving our leading market share we've corporate clients in Transaction Banking and Financial Markets in our markets. Likewise, the EQ and FI Connect are online trading platforms that we've rolled out for our private bank clients, which we will roll out across the world, developed by Standard Chartered.
But it's not all about Standard session. We're a midsized bank. We can't do everything ourselves. We don't have the tech budget of the largest banks in the world. We do have access to the best technology in the world through our FinTech partners.
We've got over 50 partners around the world. That number will grow as we continue to expand. We've become very good at managing these partnerships, whether they're partnerships with giants like Ant Financial, who chose us over anybody that they might have worked with to build a remittance service between as a pilot, obviously, between Hong Kong and Philippines, it's working. Highly effective, short term, low cost remittance platform to allow expatriate workers in Philippines in Hong Kong to return their money to their families or whatever in the Philippines. Obviously, completely financial crime compliant, etcetera, etcetera, which is a critical part of any remittance platform.
So on maybe the other end of the spectrum, Ripple, which is a company that we've partnered with for several years now, we have built a leading cross border payment system that's actually functioning with blockchain based payments initially between Singapore and India. But similar to the Ant Financial Remittance platform, this is something that we developed in partnership with a world leader. And in fact, our participation with them has helped make them a world leader. So Cash is developing a way for us to expand our physical footprint in Singapore into 400 retail and other consumer outlets to offset the fact that we're restricted in the number of branches that we can have or even the number of ATMs that we can have in Singapore and so on. So we're very happy working with partners.
We're very happy working on our own. The combination of these two things is positioning Standard Chartered as a leading digital bank in the world. And of our aspiration is to be the leading digital bank with our customers. This is all part of a much broader the cultural agenda that we're driving very hard, listed on the left bottom left here, the three valued behaviors in Standard Chartered. This is an internal thing.
This is we use this internally it's on the back of our ID cards. But importantly, it came from within the organization. We spent a couple of years now refocusing our organization on what it means to have a strong performance culture, what it means to recognize that we can be best in class at the things that we set out to achieve, not in everything, but the things that we know we can do well. So we never settle, continuous improvement. We will leverage the capabilities of our bank across borders and across divisions better together.
And Do the right thing obviously speaks to conduct, but it also speaks to the way that we engage with our clients and the way that we engage with each other. These value behaviors are making a big difference in Standard Chartered. It's part and parcel of a much broader program, but one that is transforming our culture into what we will need to be to operate successfully in the digital economy, in the fastest growing markets in the world in a disciplined way. Talking a little bit about our foundations of risk, control and conduct, just mentioned that the focus on culture, drilling a bit on cyber, very, very focused on managing our financial crime risks. We've made good progress that's been recognized by regulators, prosecutors.
You will have seen that we did extend or the prosecutors extended our DPA until the end of this year, while they complete their investigation of the historical issues related to sanctions and other financial crime controls pre-twenty 12, the good news is that they continue to recognize the progress Standard Chartered made, and we'll continue to work openly and cooperatively with them in the until they're finished with their investigation. But the encouraging signs along the way are the progress that we recognize, but also the progress that they recognize on our behalf. Cyber is an issue that will become it has become and will continue to become increasingly important. We have a program to make Extremely important. We have a program to make sure that we stay either close any gaps that we identify or get to the best practice in the market focus on protecting, enabling, engaging and responding.
This is something that you'll be asking about and something you should expect to hear from us about because it's a big area of focus for us. We don't take this lightly in any way. It is taking an increasing proportion of our investment and operating budget. We think that our program is on track. We recognize that there's more that we can do.
I think you'll probably hear that from everybody. The macro environment in which we're operating is broadly strong. The economic growth is good. The slight tempering of growth in China is not particularly concerning to us. We think it's the natural consequence of the Chinese focus on cleaning up the financial system and streamlining the way that finance is delivered in China, although, of course, it's something that we watch and would watch in particular the extent to which trade fears or trade war fears impact the pace of investment in or around China.
No concerning signs of any materiality at this point, but clearly people are watching carefully. So when we talk about uncertainties in the future, trade is an important consideration for us. We're not ringing any alarm bells at this point. Otherwise, the backdrop is broadly supportive. Just call out on the upper right of this chart, our exposure to direct trade between China and the United States, dates, which obviously is at the epicenter of these concerns about trade wars, our trade income directly related to China U.
S. Trade as a proportion our total income is around 1%. If we look at the companies whose and countries whose supply chains, who are in the Chinese supply chain that would be affected by a significant ratcheting of tariffs or other trade restrictions, you get to another 1% or 2%. So 2% to 3% in total, not material in the overall scheme of things. Of course, that trade, even with 25% tariffs, isn't going to 0, but it could be impacted on the margin.
The bigger concern, of course, would be outright disruptions in trade. So outright limitations on exports of particular technology or in parts of particular goods, which could have a more dramatic impact on supply chains, it could reach further beyond China into the rest of Asia, South Asia, other clients of ours that are dependent on Chinese intermediate manufacturing or ultimate exports, there's no sign of that in the short term, although we can't ignore the possibility that the trade war could escalate to the point where that could become a material impact, I think that the bigger impact would be on global GDP because that would likely trigger a much broader range of fears, the markets would be quite unhappy about that eventuality, and we could expect to see that reflected, which which would then have second order effects on things like our wealth management business. But as we we are very focused on this trade question. I don't think we have any blinding insights relative to what you might have, but we do know our own business. And I think that barring a really exceptional escalation, we should be fine.
Just to sum it up quickly, we have had a solid start to the year. We set out a plan 3 years ago. We're broadly on track. We said that we described the things we were going to focus on. We focus on those things.
They're working. The pipeline is growing. It's growing in the areas that we called out, growing consistently, some of that is cyclical. Of course, the wealth management business is cyclical. We know that.
We've been in relatively benign markets. But stripping out the cyclicality, the structural improvement and the quality of our business and the quality of our growth is undeniable. We feel like we're on the right track and we're going for that track, we are making great strides to establish ourselves as a leading digital player in our markets and also globally. We're going to retain a strong capital position, as Andy mentioned. It's the right thing to do as we come out the back end of our period of transition and as we look forward to a period where there are some potential bumps in the road, we always want to be sure that we can weather a storm relatively well, and that will be the time when we can take advantage of most opportunities.
The ROE, the migration is in line with our hopes and expectations. Clients are increasingly recognizing the value of Standard Chartered, and we are driving a strong underlying culture at the bank, which will accrue benefits for years to come. So with that, I will be joined by Andy up here, and we'll take any questions that you'd like you to throw at us.
Yes. Good morning. It's Matti Lache from Goldman Sachs. Two questions, please. And the first one is Just to come back to your comments earlier on capital and then also to extend that to dividends.
I was wondering if you could shed a bit of light on what kind of Core To one level, we should think of standard chartered running going forward. I think in the comments earlier, you recharacterized the current status Yes, given a number of risks out there. So should we think about 14% as the kind of the threshold going forward? And the second question as with regards to dividend and obviously looking at a significant increase in profitability, you have shown, How should we think about prospects for capital return going forward? Will there be an update or when do you think you can give us an update with regards Potential payout ratio or dividend policy from here.
Thank you.
Our public statements around capital have been that we would expect to operate in a 12% to 13% range. We're obviously well above that at this point. And we've reintroduced the dividend at the full year and then obviously reintroduced an interim dividend now. And that's a clear indication that we think that we have an ability to sustain that dividend through earnings currently and then prospectively. We've also said that we expect to increase the dividend as our earnings increase.
I see as much guidance as I think we're going to give on the dividend specifically. As to capital, I think as the uncertainties that we face recede and some have receded already,
we'll be
able to provide some greater clarity as to what we think the appropriate end state is for capital. But the most obvious the remaining uncertainty from a regulatory perspective is the national discretion that may or may not be applied to various areas of the Basel III framework that was rolled out last year, that could be a little while and coming before that's perfectly clear. Of course, we still have the open investigations in the U. S, which we would hope and expect will close out at some point in our lifetime as well.
Thanks for taking the question. Just a couple of questions. The first one is on revenue. Just looking at the quarter on quarter progression, if I kind of strip out the obviously liquidity sensitive balances like deposits and cash management custody where things were quite good, I think on the whole, Q on Qs are down pretty much across the board. I guess I'm trying to square that with the fact that loan growth was decent.
What caused those revenues to be weak? And I guess, Specifically, Wealth Management, did you see effects of kind of Chinese deleveraging coming through there? And on the retail side of things, you talk about asset price competition. Was that from local regional players or was that from Western banks? Thanks.
Well, if you strip out all the positives, I suppose ultimately what's left will be quite negative. But I mean across the piece, we had 130 reduction, I think, in income overall between the quarters. About 80 of that was Wealth Management, about 40 or so was in Financial Markets. Wealth Management, I think I'd probably look at as being particularly strong Q1. The markets generally were very strong.
And where we're at in the second quarter was actually good compared with many quarters prior to that. So it was not as if the Q2 was a big problem. Financial markets, it moves around. We have some quarters a bit stronger, some are less so. So I wouldn't really read too much into the 1 quarter.
We had balance sheet growth on the half year of sort of 4% or thereabouts. So I just think each quarter will have slightly different dynamics. It is evidentially slightly weaker. I think wealth is the primary reason for that. But I don't think it does anything to deter us from the view that the full year should be in that 5% to 7% range.
And the second question was on How to think about jaws, obviously, so year on year, 1.8.18 and 1.8.17, I think it was about minus 1% jaws. But if I look consensus, they're expecting around 4% jaws or we're expecting around 4% jaws. Your income range is 5% to 7%. You're below cost inflation suggests a range of anywhere between 3% and 7%. Considering how much investment has been increasing, which I guess is a positive thing, I mean, how should we think about that jaws going forward?
Thanks.
Well, I think to your simple math, we should be thinking about those improving over a period of time, evidentially, unless inflation was a lot higher than we've got at the moment, which hopefully it won't be, then that 5% topline inflation or below on the cost side, it should be starting to improve the jaws over a period of time. Just to make one point, I know it's got some comment. We have spent a bit more in the first half on expenses, and some of that is decidedly moving some investment Going forward from what would have last year been in the second half, we've tended to be a bit second half loaded on investment spend and actually questioning why that would be. If we know these programs need to take place. Why should there not be a more even distribution through the year?
So that will take a little bit of cost that would have been in the second half of the year out. But I think to your question, the intent would certainly be that over the next 2, 3, 4 years, we do need to get the jaws moving in a positive direction.
Guy Stebbings, Exane, BB Paribas. On impairments, it's clearly very low in the first half
of the year, a lot
of write backs and very difficult to forecast, I'm sure. But CG12 exposure is down, Early indicators down. And you've highlighted risk adjusted revenues for the first time. Presumably, you wouldn't want to see that come down, I mean, just highlighted it. So does that give us a sign of conviction that these gross impairment shouldn't be jumping up significantly from here, albeit from a low base?
I think the loan impairment line is one of the more unpredictable lines in the P and L because it can be lumpy. And we can tomorrow find there is an issue with the client that we didn't know about. Yes, it would be lovely to think it will stay at those levels. I suspect we pretty much had everything aligning. The recoveries have been really strong, have been really strong, I mean unusually so.
And the gross provisions have been low. So as I said earlier, if we can break the billion barrier, that would be fantastic. We were $2,500,000,000 any 2 years previous to that. So it's just genuinely quite a difficult one to forecast, but it is certainly an encouraging start to the year, evidentially.
And I would just add, I know you're looking for guidance on the next 3 large single name defaults. But more broadly, we've fundamentally changed our underwriting standards. We've significantly upgraded the overall quality of the portfolio. So while, of course, the answer is completely correct, there's going to be lumpiness in that number. Through the cycle, expected credit loss is substantially lower now than any time in the bank's recent history by design, just note that, that comes at a cost.
There's an income cost to that, both because of the way that we're managing the portfolio and because of the lower returning assets that we're putting on the books, but it has an opposite effect on returns, which is we're doing higher quality, higher returning business that should smooth out our loan impairments over time. So I know you're going in a different direction, but couldn't resist the opportunity to give the editorial on the broader trend here.
Just a quick one on capital and RWA movements. Clearly, in the first half, come down quite significantly, but some one off things going through there in terms of op risk, market related FX. How should we think about that going into the second half, excluding model changes which could have a negative impact? Does the underlying trajectory should start to increase from there? Well,
you'll form your own views on the FX movement, obviously. I think that the focus we have got and have had for a period of time of improving the productivity of the RWAs, taking the lower returners out should be directionally heading us in a more efficient direction. The real issue, I think, given that we have a lot of liquidity, is, are there opportunities to lend more? And if there are, with the right returns, we will be very happy to go and grab them. So I wouldn't be so focused upon guiding to an RWA number.
So long as it is conducive to getting that ROE up, we'll be doing it.
It's Robert Sage from Macquarie. I've got 2 questions, please, if I may. The first one is on the margin, which seems to be up about 4 basis points. And I think instead of the second quarter was up It's at a couple of basis points or a handful of basis points. So it seems a sort of a fairly progressive moved up.
And I know that the high ball has gone up, and you've had another U. Interest rate rise in June or whenever. So is this the sort of the sort of a fairly steady build in margin that we should look forward to, do you think? And the second question was on the associates line, which stepped up very smartly in the second quarter. And I know you've been talking about Panmata sort of moving around.
And I was wondering whether that was the primary driver here. But I would also note that you're calling out China.
Okay. So it's probably a
slightly naive question. Is that Boehite that's sort of particularly doing that? And should we see the sort of the second quarter numbers being something that sort of provides a basis for our sort of future extrapolation.
Okay. Let's take the second one first. So the predominantly increase in the associate slightly is so high. And if you look at the regional splits, you can see that split out. I would say they probably had a Quite unusually good Q2.
So I'd probably not quite extrapolate that going forwards, but somewhere between the 1st and second quarters probably would be a proxy for that. On the NIM, we have had a number of quarters now where we have seen the NIM nudge pause a little bit by a little bit. And that is good because after several years prior to that, when we have seen the opposite happening. 2nd quarter, Q1, fairly similar, so not a huge amount of difference. So we did have movements in sort of HIBOR and other rates actually in the Q2, which will have influenced it a little bit, but notwithstanding that a very strong Florence from Hong Kong.
So I'd say if we can sort of flatten up a little bit, that is clearly where we are focused. But there are many moving parts that contribute to that. Generally, the same theme as before, the liability margin slightly improving, offsetting a little bit of weakness on some of the
It's David Loke from Deutsche. I've just got one ready, which is on Slide 10 on your scale of investment pickup. Obviously, completely understand the rationale behind the step up in systems enhancements and strategic spend. But the regulatory spend sort of continues to be this slug of investment that is continuing to step up. I I just wanted to give any more color on when you expect that investment paces have slowed down.
I imagine a lot of
it must be building systems to track things And taking out manual processes. But could you just give any color on where you expect that to trend? And if that mix between the kind of cash investments actually can become more strategic and less regulatory.
Well, the good news is it's the first half year we have been here and it has actually come down slightly. So we are on a slightly we better track than previously. We said in February that we closed some quite big program deliveries at the back end of last year. And therefore, we were hopeful that we were sort of at or around the peak. And that in the first half would suggest that's probably the case.
I mean, I hope over a 4 or 5 year period that we'd see a little bit of moderation in that. But bearing in mind, there is quite a lot of sort of compliance and other almost business as usual sort of type cost in it, and that clearly is going to be part of the fabric to the business going forward. It should decline a little bit, but I wouldn't Huge declines in there.
Jenny Curran from Mediobanca. Just one which kind of a bit of a follow-up on your investment spend and specifically kind of the strategic spend. I was just wondering in the context of a close competitor of yours recently announcing that they're going to invest up to for about twothree of your market cap in technology and growth initiatives over the next few years. To what extent could that create upwards pressure on your investment spend? I'm just going to kind of try to get a sense of where that investment spend could need to go to And to what extent that strategic investment spend is more perhaps defensive driven?
Thank you.
So maybe a little bit the point that I tried to make in my earlier comments, the existence of the, you call it, the fintech universe, broadly defined, it effectively gives us an option of making investments that show up on Page 10 or investments that show up in OpEx through partnerships of one form or other, and we've done both. We've done both to good effect. The things that we're investing in ourselves are things that we think are either mission critical, where we need to have our own capability or where we have some particular differentiated position or structural advantage, that means we're a better investor in that particular area. So when it comes to building digital banking applications for relatively underdeveloped or underpenetrated emerging markets, we think that's a core strength of ours. And we want to make sure that we have that capability ourselves.
That said, we've also launched that we're intending to build a digital bank in Hong Kong, not an underdeveloped emerging market by any means. And on the assumption that the Hong Kong process led by the HKMA ultimately culminates and are getting the license that we are applying for, we would expect to use a healthy combination of our own technology and third parties with a bias to third parties. Why? Because we think that in a market that's as developed as Hong Kong, you've got to make sure that you have the best in class for each step of the value chain for customers. Our job will be to pull that together into a single offering.
So that would likely be a mix of things that show up on Page 10, I. E, strategic investments and things that show up in OpEx as a practical matter because we're either in a partnership or we're acquiring a service under license from somebody So I'm not sure if I'm getting straight to your question. But I think in aggregate, the investment spend that we're making independent of the accounting line that it happens to show up we'll continue to grow. It will continue to grow because we're in fast growth markets with earnings that are growing, with customer preferences that are changing and and with opportunities that are great. So we're not at all shy about continuing to step up our investment spend.
What we're What I'm comforted by is that the investments that we've made over the past 3 years, which were a substantial increase on previous years, are paying off, paying off evidenced by the income growth that we're getting and the market share gains that we're getting in our key focus areas.
Thanks. It's Costello from Autonomous. Can I ask about the corporate finance income line, please, which I find particularly hard to forecast? You've called out some Asset margin pressure there. But you also you put it in your slides on the optimized returns.
So can you give us some idea of what we should be expecting out of growth Underlying in terms of the assets, but also in terms of revenue if margins are coming under pressure there. Yes.
Corporate finance does move around. It obviously depends upon a little bit the timing of the closing of deals. And what we have seen is, I think, year to date, the volume of transactions we've done are slightly higher, 5% or so, I think, higher than a year ago. But the margin per deal has been a little bit lower. And consequently, we've seen slightly lower corporate finance income now than in the previous half year.
The order book is strong, and it remains at and above levels we have seen recently. So obviously, it depends upon conversion and it depends upon timing. But overall, I think the health of that business is good, but it does move around a little bit between quarters.
You had a very strong second half last year. Do you think that's something you can cycle successfully? Or should we expect the second half last year to be an aberration?
It's quite event driven. I mean, it just depends upon how much client activity we have got. And we did have a buoyant second half last year with declines, the fact the order book is looking good at the moment should bode well, but we'll have to see how much of that does come through.
Maybe you could just comment, Manus, on the why we put it in the optimization bucket. There's clearly 2 components of a single deal in Corporate Finance, part is the money that we make for arranging a deal, fees on and advising various parties and any skim we're able to take in terms of our underwriting price versus where we distribute it, that's upfront for the most part. And it's in and of itself, it's a capital light part of the business. With that often comes a retained position, which in the past, the way we reported corporate finance, the vast majority of the income has actually been NII on retained positions. We shifted a big chunk of the lending book out of the corporate finance business line and into the lending business 1.5 years ago, I guess, so that's addressed substantially.
But there's still a meaningful component of the Corporate Finance business, which is NII and which is specifically relating to those deals where we played an active role in structuring and distributing. As we build up our distribution capabilities, which we are, I think successfully, although we're we started from way behind, I think best in class certainly. We've caught up very quickly, much more actively securitizing. So it has undertaken several securitization transactions in the early part of this year designed to optimize the portfolio. Some of those have been corporate finance deal packages that we bundled and sold to investors, which themselves are just getting up to speed with the kind of assets that a bank like Standard Chartered originates.
So as we optimize the portfolio with much more active portfolio management, we should shift the balance increasingly from NII to fee income effectively or spreads on buy versus sell. And that will that business will graduate out of the optimization bucket into the high growth because the underlying opportunities for Corporate Finance deal origination remain robust. Our pipeline is good. Our market share is strong. Our technical skills are good and differentiated relative to other people in the market.
And it's not an area where we face anywhere near the same amount of local competition for the kinds of deals that we do because they're cross border by their nature. So we are optimizing that business. And it's actually it's a good opportunity to make clear that optimization doesn't mean exit. Optimization means reposition, business model and underlying portfolio. And we're pretty advanced in that regard in Corporate Finance.
It's Claire Keane from Credit Suisse. Two questions, please. The first on the treasury income. That line has come back up to the CH1, 2017 run rate. And I think in Q3 last year, you said CH1.50 was a more normal level.
So can Can you just maybe explain what gains are in the Q2 number or what you see as the ongoing run rate for that line, please? And then my second question is on the DPA. Given the investigations continuing, what do you see as the range of outcomes at the conclusion of that? And can you confirm There's no balance sheet provision for any financial penalty there. Thanks.
So on latter, confirmed. On the former the treasury area, I mean, it does move around. So we've got various component parts in there, the performance of the treasury markets business. We've got the charges we make to our businesses for the equity that is provided by the group. And as interest rates rise, we increase the charge there, so that is slightly higher now than it was before.
We offset against that the external debt costs. We've retired some debt at the back end of period. So there's nothing particularly abnormal in there, but I'd say slightly higher interest rates and the charges into the businesses for the equity they're tying up It's the primary contributor.
And you reconfirming the DPA question or were you confirming something else? I was
confirming the back end of the question.
Which is the DPI part? Which is
the DPI U. S. Rollout, yes.
So no balance sheet provision, but could you give us a sense of the outcomes you're expecting?
I wish we could.
Good morning. It's Chris Manners from Barclays. Just two questions, if I may. The first one was just maybe you could give us a little bit of an update on what's happening in India. I I see the revenue is down 14% year on year, assuming there might be some FX in there.
But PBT of only $100,000,000 in in the first half, I mean, we used to do $1,000,000,000 of PBT there. Just maybe a little bit of update. And
the second one
was just to bring it back to capital and capital management. Yes, you are running 200 basis points above your sort of 12% to 13% guidance range. When we look at the dividend, assuming you do a Is it fair to assume a onethree, twothree split of the dividend like in all UK PLC now? Is that what you're trying to indicate? And if so, you'll probably end up with surplus capital.
So will we be talking about buybacks to manage that or maybe just a bit more clarity on the thinking?
So I'll take the first part about India. The you're right that in years gone by, the bank earned a lot more money in India. You skipped the period in between where we lost the boatload. And they're not unrelated. So what we're building in India is a really healthy business, we've invested heavily in automating the retail business and invested in building our share back up, but we lost share pretty steadily during those go go days of the $1,000,000,000 of pretax, we allowed the core business to deteriorate.
And we've been investing to build that back up, both with technology and with tea down the street, it is paying off in terms of share, and we're beginning to get the traction see the traction on retail income. Commercial Banking business remains strong. The large corporate business has been pretty subdued on the back of the Indian bank rehabilitation process. We took our pain a couple years ago in India, it's not to say we won't take any more pain ever, but we are thoroughly cleaned up, I would say, in India. The Indian banking system is not.
And that bankruptcyliquidation process is underway and it has put a some serious grist in the mill for large corporate activity in India. But our share is of good healthy business is increasing. We're comfortable that we're making steady progress. We clearly have a long way to go with these current return numbers relative to the capital that we've committed to that country, but we're very focused on that.
On the capital front, Well, first thing is it's quite nice to have questions on excess capital. That hasn't always been the case in the past. As Bill said, I mean, we are running a little bit higher. We've got some Basel III things yet to become clear, U. S, etcetera.
So our sense is it's probably better to be a little bit higher just at the moment. The $0.06 interim dividend, we haven't formally gone through a is it 1 third, is it 2 thirds, whatever, at the end of the year, obviously, we'll have the more substantive discussion on what we should do with the final dividend. But Yes, eventually, the more we can get that profit growth going up, then the better it's got to be for the dividend. So we are very, very well aware of the issue, and it's a nice to have on
the table.
Thanks.
It's Jason Napier from UBS. The first one on the straight sensitivity slide, Slide 27. Just note that there's a fairly modest fall in implied sensitivity. And I just wondered whether you could talk specifically about the competitive dynamics in Hong Kong and the extent to which the lower measured rate sensitivity is driven by competition as opposed to just the level of rates and how that's performing. And then secondly, on the private bank, obviously, modestly loss making at the moment.
What are the sort of yardsticks that you're using other than sort of assets under management to to tell whether you're on track because I know the revenue per customer is nearly $70,000 The average AUM on the number you disclosed is already 8,000,000 dollars, I just wonder how much money should this thing make in the near term? Was it really a longer term strategic bid?
Thank you.
So interest rate sensitivity, the 330,000,000 revised to 300,000,000. This is not an exact science. We are having to make a lot of assumptions about competitive pricing, about customer behavior, etcetera. Our core in the numbers, the primary reason for the change is just that as the interest rates do get higher, there is slightly more predisposition of clients to be a bit more choosy about where they're going to put the money and what sort of interest rates they're expecting from it. Obviously, a reasonable proportion of our book is in Hong Kong, and we have seen HIBOR rise through the period of the first half of the year, and therefore, that is factored into those equations.
But we have done this across quite a number of countries, and it is not just one thematic assumption. So we have tried to take a view as to what's going to happen market by market, and the consequence of that is just a slightly lower number.
On the private bank, our intention is to build a healthy business from a period of pretty significant retrenchment. So we dropped in aggregate close to onethree of our client base as we went through a combination of compliance related reviews, but also looking at those clients and the types of activities they wanted to engage with Standard Chartered. We were a little bit over concentrated with clients that were borrowing against single stocks, typically stocks in their own company where we were a banker to the company. And we're shifting that to, obviously, a completely compliant client base that is we're also focused on managing a portfolio of wealth, which can be provided by us. We manufacture very little.
Basically, we manufacture deposits, and the rest we source from 3rd parties, that's an advantage for us. We're a preferred distributor for the world's great investment product providers, including obviously Prudential on the insurance side, a little bit less relevant for Private Banking than for our broader wealth category. So we've completed that transition at this point. I think we've got a client base that we're broadly comfortable with. We're demonstrating that clients wanted to participate in this platform.
So we are adding clients. We are generating some good top line growth. We still have an active margining capability, but against a different nature of portfolio than has been the case in the past. And we're hovering around breakeven at this inflection point. We're quite comfortable that as we grow this business that and of course, there is an element of cyclicality as well, which we just as a health warning, we have to note, but the structurally, we're building a business that should generate strong growth for the foreseeable future with relatively modest expense increases in a relatively capital light version that should be accretive to the bank's earnings and accretive to our ROE materially over time.
And that's beginning to pay off now.
Tom Reeder from Exane. Obviously, it's very clear, Bill, you can't really say anything about the U. S. Settlement or certainly not much. Is it possible, though, you can give us any color on sort of what aspects of the program needs improving, which has kind of led to the DPA extension?
And can we read anything into the fact that the dividend has been resumed. So the PRA, I guess, are fairly relaxed about the potential outcome. Is that again reading too much?
Well, I couldn't I wouldn't comment on the PRA thinking on anything. We obviously feel comfortable that our bank can sustain a dividend that we would expect to increase as earnings increase. And on the DPA, the only thing I can say is that we've had a program that was set out with regulators and prosecutors back in 2012 2014, we've made good progress. We think that we're on track. As I've called out each time I've set up here, it's a long term play.
And we will never be completely done. There will always be more that we can do. But we feel that we have a very good of where our gaps are, we've got a very good program for closing those gaps. We're absolutely encouraged that the prosecutors, when they extend the DPA, we make the observation that we made steady progress, and they've now made that observation a second time. Of course, that's not normal.
They have the opportunity not to say that or to say worse, to say that things simply aren't up to snuff. That's as much as we can say, we're encouraged. It it will close out eventually. We're confident. I wish I could call the timing or the particular implications.
Okay. Thank you.
We have a
few more questions.
Okay. Thank you very much. No more questions. Thanks. Thank you, Bill.
Thank you, Andy. Thank you.