An Annual Report statement from Group Chief Executive Bill Winters
This time last year I set out what we needed to deliver in order for Standard Chartered to fulfil its true potential. We have made good progress. We have cleaned up our balance sheet and fortified our capital position. We are attacking our cost base, reinvesting significantly to strengthen the Group’s competitive advantages, and continuing to enhance our financial crime controls. 2016 proved to be a stern test of our strategy and our business plans and has shown them to be the right ones for the environment in which we are operating. If those conditions change and require us to adapt, we will. We have many challenges still, but we have the resources, the capability and the will to overcome them.
Our financial returns are not yet where they need to be and do not reflect the earnings capability we believe we possess. Having worked hard to secure our foundations, we are now focused on realising this earnings potential. We will do this by fully re-engaging with our clients, improving productivity and investing in our people and culture.
I am delighted that we are joined on this journey by our new Chairman, José Viñals, who brings deep and extensive experience of the economic, political and regulatory environment in our markets and an exceptional grasp and understanding of the international financial system. José is a proven leader, truly global in his perspective and I am very glad that we are working together.
Securing our foundations
Among the many positive steps taken in the past year to secure our foundations:
- We made substantial progress in exiting exposures beyond our tightened risk appetite, reducing risk-weighted assets in our liquidation portfolio by over 80 per cent
- Our business in Korea returned to a small underlying profit for the year as a result of some tough decisions and a lot of hard work
- As part of our commitment to divest peripheral businesses we have signedor completed 12 transactions since November 2015
- We have taken steps to address the very poor performance of our Principal Finance business, putting the right team in place to reduce our exposure over the course of 2017
- We are addressing credit issues in PT Bank Permata, a joint venture in Indonesia in which we hold a 44.6 per cent stake, bolstering its management team and risk discipline. This will allow us to progress strategic options in the coming year
We will approach the remaining restructuring issues with a view to getting the best value for the Group’s investors, on the shortest timeframe necessary.
Getting lean and focused
The Group delivered its commitment to generate over $1 billion of gross cost efficiencies in the year – producing the second successive year-on-year reduction in net expenses – and we remain on track to bring total costs in 2018 below the level incurred in 2015.
We have implemented significant improvements to our client coverage model in Corporate & Institutional Banking and are transforming our Retail Banking business to a more digital delivery model. Both sets of initiatives make us more efficient and easier to deal with. We have made good progress repositioning our Commercial Banking business for longer-term sustainable growth and better returns.
The refreshed organisational structure of the Group is now firmly embedded, with local management now better able to influence the delivery of the Group’s products and services while leveraging our strong central capabilities.
Investing and innovating
The cost efficiencies we achieved in 2016 created capacity for us to invest significantly to reinforce the Group’s competitive advantages. These investments will enhance the quality of service that we can provide to clients, improve our ability to capture profitable and safe growth opportunities and differentiate us from our competitors.
We are increasingly recognised as an innovator and are confident we can leverage this to generate higher returns over the coming years:
- In Private Banking we have made significant investments in people and technology. It is still early days but we are encouraged that our capabilities and potential are attracting first rate talent
- We see significant opportunities in Africa for safe and profitable growth as other international banks pull back. Conditions remain volatile but we are strengthening our position on the ground and delivering the benefits of our network to our clients in the region
- We have made good progress positioning ourselves as a leader in the internationalisation of the renminbi and the opening up of capital markets in China. We believe the medium- to long-term trend towards internationalisation remains and we are committed to providing cutting-edge services to our clients.
You can read more about how we are getting more lean and focused and are investing and innovating in the Client segment and Regional review sections of this report, starting on page 30 of our annual report.
Continuing to focus on conduct
We are passionate about advancing the Group’s conduct agenda. We have made a lot of progress in 2016 and invested heavily to build effective and sustainable systems and infrastructure to ensure we can play a leading role in discovering and disrupting financial crime. We have created a new platform at sc.com/fightingfinancialcrime to demonstrate the contribution that we and others are making.
We have sharpened our focus on all aspects of conduct, not simply on combating financial crime, and have taken appropriate action where we find conduct inconsistent with our standards. We are focusing on the behaviours, values and principles that we follow as individuals to enable us each to make the right decisions and exercise good judgement. We do this because it is the right thing to do, and because it makes us stronger and more sustainable, as well as reinforcing stakeholder confidence.
We announced recently that Tracey McDermott will be joining the Group, having previously held a number of senior roles at the Financial Conduct Authority with responsibility for the conduct regulation of the UK’s financial services sector. Tracey brings a wealth of leadership experience, huge knowledge of the industry and in-depth bank supervision, regulatory and policy expertise to our Management Team.
Clients at the heart of our business
Most clients I meet have enormous affection for Standard Chartered and value our product capability and our presence in the markets we serve. Some have been clear though that we have become more difficult to deal with. We have restructured our organisation to address this, putting clients rather than products at the core of our coverage and they are responding well to our renewed focus.
The quality of the Group’s client base enabled us to attract an impressive array of senior talent in the year. Out of the many examples I would highlight Simon Cooper, who has already made a big difference to how the Corporate & Institutional Banking business operates; Zarin Daruwala and Torry Berntsen, who took over as CEO in India and the Americas, respectively; Paul Skelton, our new Global Head of Banking for Corporate & Institutional Banking; and Vivian Chan, who joined as Head of Private Banking in Greater China & North Asia, each of whom brings over 25 years’ experience and will enhance our ability to capture growth opportunities.
We expect operating conditions in and between the markets in which the Group operates to remain challenging. There have been some improvements: growth in China has stabilised at a lower level, interest rates are at the early stage of normalisation and commodity prices have increased moderately. There are some new uncertainties ahead, including threats to open trade and globalisation, the impact of regulation and loose monetary policy. We are now better positioned to weather these challenges.
While the intensity of some headwinds has eased it will take time to fully capitalise on the opportunities that a better environment will present. Having worked quickly last year to secure our foundations we are now building deliberately and patiently to deliver safe business growth.
When I look back at the Group’s long history it is clear that periods of heightened uncertainty can create opportunities for our clients and for the Group. The actions we have taken in 2016 are making us fitter, nimbler and better able to find and execute those opportunities.
I am proud of the efforts made by the Group’s employees in 2016 to secure our foundations. The pace and scale of those changes – many of which were done in parallel and required intense periods of adjustment for employees – undoubtedly impacted some elements of the Group’s financial performance in the period. But they were the right things to do.
2017 needs to be the year we demonstrate we have the capacity to grow safely and sustainably. We are using a number of measures to track progress in that regard, some of which are included on pages 18 to 20.
We operate in economies that are growing and we serve clients whose wealth and businesses are growing. While 2017 will undoubtedly have its share of challenges and uncertainty, we are determined to deliver on our promises.
Bill Winters, Group Chief Executive
24 February 2017
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