Standard Chartered PLC (LON:STAN) has announced its 4Q’22 and FY’22 Results.
All figures are presented on an underlying basis and comparisons are made to 2021 on a reported currency basis, unless otherwise stated. A reconciliation of restructuring and other items excluded from underlying results is set on pages 41-45.
Bill Winters, Group Chief Executive, said:
” We have delivered a strong set of results in the fourth quarter and for the full-year 2022, with both income and profit before tax up 15%, and a return on tangible equity of 8.0%, up 120bps on 2021. We are also announcing a new $1bn share buy-back, and a final dividend of 14 cents per share, taking total shareholder distributions announced since the start of 2022 to $2.8bn, more than half the three year $5bn target we set ourselves by 2024. We continue to make significant progress against the five strategic actions outlined last year, and we remain confident in the delivery of our financial targets. We are upgrading our expectations, and are now targeting a return on tangible equity approaching 10% in 2023, to exceed 11% in 2024, and to continue to grow thereafter”.
Update on strategic actions (FY’22 unless otherwise stated)
• CCIB: drive improved returns: Income RoRWA of 6.5%, up 160bps year-on-year (YoY); $14bn of RWA optimisation initiatives executed in 2022
• CPBB: transform profitability: Cost-to-income ratio improved by 5%pts to 69% in 2022; $0.2bn of gross expense savings in 2022
• Seize China opportunity: China on-shore income up 10% YoY; off-shore income up 21% YoY
• Cost discipline to create operational leverage: $0.4bn of gross structural cost savings delivered in 2022, well on-track to deliver $1.3bn by 2024; Cost-to-income ratio improved by 4%pts to 66% in 2022
• Substantial shareholder distributions: $2.8bn of total shareholder distributions announced since the start of 2022
• Ventures: >450k new accounts opened since launching Trust Bank, the Singapore digital bank, in September 2022
• Sustainability: Sustainable Finance income $0.5bn, up 41% YoY; mobilised $48bn in sustainable finance over the last 21 months
Selected information concerning FY’22 financial performance
• Return on tangible equity of 8.0%, up 120bps year-on-year
• Income up 10% to $16.3bn, up 15% excluding the debit valuation adjustment (DVA) and at constant currency (ccy)
– Net interest income up 18% at ccy, representing around half of total income growth
– Record Financial Markets up 21% excluding DVA at ccy
– Wealth Management down 17% at ccy, from risk-averse customer sentiment and the impact of COVID-19 restrictions
– Net interest margin (NIM) up 20bps YoY to 1.41%, rising interest rates partially offset by hedges and product mix change
• Expenses increased 4% YoY to $10.6bn, or up 9% at ccy
– Up 7% excluding increase in performance related pay accruals, primarily due to inflation and increased investment spend
– Positive 6% income-to-cost jaws excluding DVA and UK bank levy at ccy
• Credit impairment charge of $838m, up $575m YoY
– China commercial real estate (CRE) exposures: $582m charge
– Sovereign downgrades relating to Pakistan, Ghana and Sri Lanka: $283m charge
– Management overlay now $210m; COVID-19 overlay down $228m to $21m and China CRE overlay up $78m to $173m
– High-risk assets of $9.9bn, down $0.8bn since 31.12.21
– Loan loss rate of 21bps (FY’21: 7bps)
• Underlying profit before tax of $4.8bn, up 15% at ccy
• Restructuring and Other items includes $308m of impairment relating to the investment in China Bohai Bank (and retrospectively reclassified $300m charge taken in 2021 into Restructuring and Other Items)
• Tax charge of $1.4bn: underlying effective tax rate of 29.6% up 2.9%pts
• The Group’s balance sheet remains strong, liquid and well diversified
– Customer loans and advances up $12bn or 4% since 31.12.21; up 3% on an underlying basis
– Advances-to-deposit ratio 57.4% (31.12.21: 59.1%); liquidity coverage ratio 147% (31.12.21:143%)
• Risk-weighted assets (RWA) of $245bn, down 10% or $27bn since 31.12.21
– Credit risk RWA down $23bn, including $25bn decrease from RWA optimisation and efficiency actions, $10bn FX, offset by $7bn regulatory changes
– Market risk RWA down $4bn and no change to Operational risk RWA broadly flat
• The Group remains strongly capitalised
– CET 1 ratio 14.0%, at the top of the 13-14% target range (31.12.21: 14.1%)
– Proposed final dividend of $405m or 14c per share will result in a full-year dividend of $523m or 18c, up 50%
– $1bn share buy-back starting imminently is expected to reduce the CET1 ratio by approximately 40bps
• Underlying Earnings per share increased 15.3 cents or 18% to 101.1 cents
Selected information concerning 4Q’22 financial performance
• Income up 12% to $3.7bn, up 26% excluding DVA and at ccy
– Net interest income up 28% at ccy
– Record Financial Markets up 33% excluding DVA and at ccy
– Wealth Management down 19% at ccy
– NIM up 15bps QoQ to 1.58%, rising interest rates, trading book funding adjustments, partially offset by hedges and product mix change and deposit passthrough
• Expenses increased 4% YoY to $2.7bn, or up 14% at ccy
– Up 8% at ccy excluding increase in performance-related pay accruals, primarily due to inflation and increased investment spend
– Positive 12% income-to-cost jaws excluding DVA and UK bank levy at ccy
• Credit impairment charge of $344m, up $141m QoQ
– China CRE exposures: $163m charge; Sovereign downgrades: $109m charge
• Underlying profit before tax of $0.5bn, up 17% at ccy
Our performance has been strong, and the pace of economic recovery in many of our footprint markets is encouraging.
Whilst recessionary and inflationary pressures will continue to impact many parts of the world, particularly in the first half of 2023, we expect most of the markets in which we operate to continue their recent momentum with GDP growth in the Asian economies at above 5% over the next two years being pivotal to progressive global recovery.
The recent opening-up of China and the generally receding impacts of COVID-19 should help in that regard albeit we will continue to monitor closely the sovereign risks in markets that are most exposed to tightening liquidity.
Overall, the markets in which we operate, the further benefits of rising interest rates and the evidential improvement in many of our operating metrics cause us to be optimistic about the period ahead. For 2023 and 2024 our expectations are now:
• Income to grow in the 8-10% range excluding DVA and at ccy
• Full year average NIM of around 175bps in 2023 and above 180bps in 2024
• Asset and RWA growth in the low single digit percentage range
• Around 3% positive income-to-cost jaws in 2023 and in 2024, excluding DVA and UK bank levy at ccy
• Credit impairment to continue to normalise towards the historic through the cycle loan-loss rate range of 30-35bps
• To operate dynamically within the full 13-14% CET1 target range
• RoTE to be approaching 10% in 2023
• RoTE to exceed 11% in 2024, with further growth thereafter
Group Chairman’s statement
Delivering growth opportunities in our dynamic markets
In 2022, Standard Chartered continued to make good progress executing its strategy and delivered a strong financial performance. The external environment we faced was mixed. The war in Ukraine created significant uncertainty in Europe and other key markets. However, the global economy remained resilient, with the recent relaxation of COVID-19 restrictions in China providing more grounds for optimism in 2023.
As these events unfold, it is clear that Standard Chartered’s role – connecting high-growth and emerging markets in Asia, Africa and the Middle East with each other, and with Europe and the Americas – is more vital than ever. Our financial performance, and the resiliency of our unique geographic footprint, mean that we are well-positioned to capitalise on opportunities for growth in the years ahead.
Our performance in 2022 is due in large part to the incredible work of over 83,000 people across the world, supported by the Management Team, and led by Group Chief Executive Bill Winters. Every day, Standard Chartered colleagues deliver first-rate results for our clients, providing tailored products and services to help them grasp the opportunities ahead.
Anchored in our Purpose, we continue to drive commerce and prosperity in markets across the world through our unique diversity. I am extremely proud of what we have achieved together in 2022, and I look forward to the opportunities that 2023 will bring.
Continued financial momentum
We continue to deliver an improving financial performance. Bill Winters, and Andy Halford, our Group Chief Financial Officer, will provide more detail on our financial results in the following pages.
Last year, our income grew by 15 per cent to $16.3 billion, our highest since 2014, and underlying profit before tax increased by 15 per cent to $4.8 billion. It is clear that our strategy to drive improved levels of return on tangible equity (RoTE) is working. RoTE for the year increased to 8 per cent, 120 basis points higher year-on-year. We have revised our target RoTE for 2024 from 10 per cent to exceed 11 per cent, with further growth thereafter.
The Group maintained a robust liquidity position and our capital levels remain strong, with a Common Equity Tier 1 (CET1) ratio of 14 per cent at year end, at the top of our target range of 13-14 per cent. Our asset quality and earnings trajectories are strong, which gives us confidence that we can deliver substantial shareholder returns of at least $5 billion by the end of 2024, as set out last year.
The Board is very clear that any capital not required for growth will be distributed to shareholders. We have increased the total dividend by 50 per cent to 18 cents per share and have announced a new share buy-back of $1 billion, starting imminently. This will take total capital, including dividends, announced since the start of 2022, to $2.8 billion, which is well over halfway towards our target.
Ambition and progress on our strategic priorities
Our strategy, outlined in 2021, aligns us with the major engines of global growth and we see strong progress across our four strategic priorities: Network, Affluent, Mass Retail and Sustainability.
Our Network business continues to facilitate investment, trade and capital flows across our geographic footprint, where we are one of the leading international wholesale banks. Our Affluent business is setting the standard for wealth management across Asia, Africa and the Middle East. We are providing new digital solutions, strategic partnerships and advanced analytics to our Mass Retail clients, lifting participation and generating Affluent clients of the future. And we continue to focus on our Sustainability agenda that supports a just transition ensuring that we are making a difference where it matters most. The additional strategic actions we are targeting to accelerate our performance are outlined in Bill’s report and I am pleased to say that we are executing against these at pace.
Our strategy is underpinned by our Stands, the areas where we have set long-term ambitions for impact in the markets we call home: Accelerating Zero, Resetting Globalisation and Lifting Participation.
Through Accelerating Zero, we are progressing on our commitment to be net zero in our financed emissions by 2050, supporting a just transition – one where climate objectives are met without depriving emerging markets of their opportunity to grow and prosper – which will underpin future social and economic prosperity. Our 2050 Net Zero roadmap was endorsed by our shareholders at our 2022 Annual General Meeting, following extensive engagement with shareholders, clients and NGOs. During 2022 we facilitated $23.4 billion of sustainable finance, as we make progress towards our 2030 target of mobilising $300 billion in sustainable finance.
Through Resetting Globalisation we are leveraging our network and role as one of the world’s largest trade banks, to create a fairer and more inclusive model of global growth, and building more resiliency in global supply chains through international diversification and digital technologies. We are also helping to address funding gaps for businesses across Asia, Africa and the Middle East, particularly for small and micro enterprises.
Through Lifting Participation, we continue to broaden access to financial services and create specialised programmes to support disadvantaged communities across our footprint. We remain hugely proud of our Futuremakers programme, which was set up in 2019 to improve economic inclusion in our markets, with a focus on women and girls, and in 2022 worked with over 335,000 young people. In India and Kenya, we have set up Solv, an e-commerce marketplace for small and medium-sized enterprises, which served over 230,000 customers in 2022.
Elsewhere, we worked in partnership with FairPrice Group to successfully launch the fully digital Trust Bank in Singapore, gaining 450,000 customers in our first five months.
SC Ventures continues to invest in potentially transformational business models and ecosystems, connecting more and more clients with economic opportunity. This is just one example of our collaborative approach to innovation and financial inclusion.
Enhancing governance and culture
During the year, we continued to drive diversity in our Board, recognising the benefits of diverse mix of gender, social and ethnic backgrounds, skills, knowledge, experience and adequate reflection of our key markets to support our strategy.
The Board was heartened by the results of the externally facilitated effectiveness review of the Board and its committees. It assessed the Board’s progress since the last external review in 2019 and concluded that the Board continues to operate effectively while also identifying some areas for improvement. More detail on process, outcomes and actions can be found on page 156 in the Annual Report.
In 2022, we welcomed four new independent non-executive directors to the Board. Shirish Apte was appointed in May 2022 and joins the Remuneration, Audit and Board Risk Committees. Robin Lawther was appointed in July 2022 and joins the Remuneration and Board Risk Committees. Jackie Hunt was appointed in October 2022 and joins the Audit and Culture and Sustainability Committees. Dr. Linda Yueh was appointed in January 2023 and joins the Remuneration and Culture and Sustainability Committees. I am delighted to welcome them and I am sure that we will greatly benefit from their broad experience and contributions.
Last year also saw the retirement of several long-standing and valued directors from our Board. I would like to thank Naguib Kheraj, former Deputy Chairman and Chair of the Board Risk Committee who retired from the Board in April for his unwavering dedication and most significant and impactful contributions to the Board and Committee discussions. My thanks also go to Byron Grote who retired from the Board in November for his many contributions to the Board and its Committees. In addition, I would like to thank Christine Hodgson, former Senior Independent Director and Chair of the Remuneration Committee, for her many insightful contributions and great dedication as well as for agreeing to remain on the Board until January 2023 to ensure a smooth transition to a new Remuneration Committee Chair.
We also announced that Jasmine Whitbread, Chair of the Culture and Sustainability Committee, and a long-standing and much valued board member, would not be seeking re-election at the 2023 AGM and will retire from the Board at that time.
We are well positioned to take advantage of considerable growth opportunities in our footprint as we navigate an uncertain external environment in 2023. Global growth, while slower, should remain resilient. But, with central banks focusing on controlling inflation against a backdrop of trade and geopolitical tensions, significant uncertainties remain.
Our markets are some of the world’s most dynamic places, with a growth potential that significantly outstrips more established economies. Asia is likely to be the fastest-growing region in the world, and the significant re-opening of the Chinese economy from COVID-19 restrictions is likely to materially boost demand and growth. This, together with India and ASEAN’s high rates of economic expansion and continued dynamism in commodity-exporting countries in our footprint, gives us plenty of reasons for optimism as we continue to help customers build growth, prosperity and a stronger future.
The Board will continue to ensure an appropriate balance of opportunity and risk, acting in your interests as shareholders. We are grateful to you for the trust you place in us and for your ongoing support of the Group. I am confident that we will continue to create long-term, sustainable value for all stakeholders in 2023 and beyond.
Dr José Viñals
Group Chairman, Standard Chartered
16 February 2023