Standard Chartered PLC — Annual Report 2017

Mar 23, 2018

Standard Chartered

Stamp

Strategic Report 2017

Driving commerce and prosperity through our unique diversity

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Who we are

Standard Chartered is a leading international banking group. Our heritage and values are expressed in our brand promise, Here for good.

We operate in 63 markets worldwide, including some of the world's most dynamic. More than 80 per cent of our income and profits are derived from Asia, Africa and the Middle East. Our businesses serve four client segments in four regions, supported by seven global functions.

About this report

Sustainability reporting is embedded across our Strategic Report and our full Annual Report and Accounts. It is also available in consolidated form in our Sustainability Summary at sc.com/sustainabilitysummary

The Group uses a number of alternative performance measures in the discussion of its performance. These measures exclude certain items which management believe are not representative of the underlying performance of the business and which distort period-on-period comparison. They also provide the reader with insight into how management measures the performance of the business.

For more information please visit sc.com

Further information is available where you see these icons:

• Additional information can be found within the report

• More information is available online

• @StanChart

• linkedin.com/company/standard-chartered-bank
• facebook.com/standardchartered

Photo competition

We wanted to make this year's reporting suite as engaging and diverse as possible. As part of this, we invited all colleagues to participate in a photo competition. The top three entrants can be found on the front and back covers, and there is further information on page 47

Unless another currency is specified, the word 'dollar' or symbol '$' in this document means US dollar and the word 'cent' or symbol 'c' means one-hundredth of one US dollar.

Unless the context requires, within this document, 'China' refers to the People's Republic of China and, for the purposes of this document only, excludes Hong Kong Special Administrative Region (Hong Kong), Macau Special Administrative Region (Macau) and Taiwan. 'Korea' or 'South Korea' refers to the Republic of Korea, Greater China & North Asia (GCNA) includes China, Hong Kong, Japan, Korea, Macau and Taiwan; ASEAN & South Asia (ASA) includes Australia, Bangladesh, Brunei, Cambodia, India, Indonesia, Laos, Malaysia, Myanmar, Nepal, Philippines, Singapore, Sri Lanka, Thailand and Vietnam; and Africa & Middle East (AME) includes Bahrain, Egypt, Iraq, Jordan, Lebanon, Oman, Pakistan, Qatar, Saudi Arabia and the United Arab Emirates (UAE).

Within the tables in this report, blank spaces indicate that the number is not disclosed, dashes indicate that the number is zero and nm stands for not meaningful.

Standard Chartered PLC is headquartered in London. The Group's head office provides guidance on governance and regulatory standards. Standard Chartered PLC stock codes are: HKSE 02666; LSE STAN.LN; and BSE/NSE STAN.IN.

Standard Chartered

Strategic Report 2017

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01

OUR PURPOSE AND PROGRESS

At Standard Chartered our purpose is to drive commerce and prosperity through our unique diversity

In this report we describe our progress in realising this goal and the strategic objectives we are pursuing to strengthen our business, get closer to our clients and fulfil the Group's potential. We gauge our annual progress against a set of Group key performance indicators (KPIs), summarised below, as well as Client segment KPIs, some of which are shown on pages 18 to 21

Throughout this report, we use these icons to represent the different stakeholders groups for whom we create value.
Read more on page 13

Clients	Regulators and governments	Investors	Colleagues	Society

FINANCIAL KPIs

Return on equity	Common Equity Tier 1 ratio
3.5%
320bps
Underlying basis	13.6%
Read more on page 05
1.7%
280bps
Statutory basis	Total shareholder return
Read more on page 05	17.6%
10bps
Read more on page 05

NON FINANCIAL KPIs

Diversity and inclusion: women in senior roles
25.7%
+0.8%
Read more on page 39
Employee engagement
5.9%
146%
Read more on page 39

OTHER FINANCIAL MEASURES

Operating income	Profit before tax	Earnings per share
$14,289m^{3%}
Underlying basis	$3,010m^{175%}
Underlying basis	47.2 cents^{43.6 cents}
Underlying basis
$14,425m^{3%}
Statutory basis	$2,415m^{490%}
Statutory basis	23.5 cents^{38 cents}
Statutory basis
Read more on page 29	Read more on page 29	Read more on page 29

Contents

Strategic report
02	What we do	28 Group Chief Financial Officer's review
03	Where we do it	33 Group Chief Risk Officer's review
04	Chairman's statement	38 Stakeholders and responsibilities
06	Group Chief Executive's review	45 Viability statement
10	Market environment	48 Governance overview
12	Business model	53 Directors' remuneration report overview
14	Strategy
18	Client segment reviews
23	Regional reviews

> This document is only part of our Annual Report and Accounts. To find out more about our performance and activities in 2017, please visit sc.com/annualreport
>
> Both the auditor's report in the full Annual Report and Accounts, and the auditor's statement of consistency in that report, were unqualified.

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STRATEGIC REPORT
Our business

What we do

Serving client segments with differentiated expertise

> Read more about our client segments' performance on pages 18 to 21

Global

Corporate & Institutional Banking

Serving over 5,300 large corporations, governments, banks and investors.

Operating income
$6,496m
Underlying basis
$6,523m
Statutory basis

Private Banking

Helping 7,000 high-net-worth individuals manage, preserve and grow their wealth.

Operating income
$500m
Underlying basis
$500m
Statutory basis

Regional

Commercial Banking

Supporting over 40,000 local corporations and medium-sized enterprises across Asia, Africa and the Middle East.

Operating income
$1,333m
Underlying basis
$1,329m
Statutory basis

Retail Banking

Serving over nine million individuals and small businesses.

Operating income
$4,834m
Underlying basis
$4,903m
Statutory basis

Central & other items (segment)

Operating income
$1,126m
Underlying basis
$1,170m
Statutory basis

Total operating income

$14,289m
Underlying basis
$14,425m
Statutory basis

Global functions

Our client-facing businesses are supported by seven global functions, which work together to ensure the Group's day-to-day operations run smoothly and are compliant with banking regulations.

Human Resources

Recruits and builds talent while providing learning and development opportunities to motivate colleagues

Legal

Enables sustainable business and protects the Group from legal-related risk

IT & Operations

Responsible for the Group's operations, systems development and technology infrastructure

02
Standard Chartered Strategic Report 2017

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03

Where we do it

Building a sustainable business in dynamic economies

> Read more about our regions' performance on pages 23 to 26

Greater China & North Asia	ASEAN & South Asia
Serving clients in China, Hong Kong, Korea, Japan, Taiwan and Macau. The Group's largest region by income.	Our largest markets in ASEAN & South Asia by income are Singapore and India. We are active in all 10 ASEAN countries.
Operating income
$5,616m
Underlying basis	Operating income
$3,833m
Underlying basis
$5,613m
Statutory basis	$3,870m
Statutory basis
Africa & Middle East	Europe & Americas
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Present in 25 markets, of which the most sizeable by income are the UAE, Nigeria, Pakistan and Kenya.	Centred in London and New York with a presence across both continents. Key income originator for the Group.
Operating income
$2,764m
Underlying basis	Operating income
$1,601m
Underlying basis
$1,601m
Statutory basis	$1,596m
Statutory basis
Central & other items (region)	Total operating income
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Operating income
$475m
Underlying basis	$14,289m
Underlying basis
$582m
Statutory basis	$14,425m
Statutory basis
Risk & Compliance	Group COO
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Responsible for the sustainability of our business through good management of risk across the Group and ensuring that business is conducted in line with regulatory expectations	Provides control and governance to operating platforms and processes, ensuring operating efficiency

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STRATEGIC REPORT

Chairman's statement

Group Chairman's statement

Focused on unlocking potential while strengthening culture and resilience

In my statement last year – my first as Chairman of the Group – I committed to focus my efforts on three priorities: helping the Group to unlock its true potential; improving its resilience to shocks; and ensuring excellent governance and the highest ethical standards. This is critical to achieving sustainable, long-term growth and improving long-term value.

Unlocking the Group's potential

The Group's underlying profit before tax trebled in the last year. This is encouraging given that the extraordinary engine that sits within the Group is not yet firing on all its cylinders, but we must improve the result further.

To increase the Group's returns over the medium term, we need to grow income in a strong, safe and sustainable manner, while maintaining both cost and capital discipline. We are confident that we can do this. There are clear links between the global economy, international banks and trade that are fundamentally tied to global growth and prosperity. As one of the world's top-three trade banks, the Group is ideally positioned to benefit from the opportunities that the continuing recovery in global trade will bring.

Banking plays a crucial role at the heart of the economy and in the lives of individuals. We are privileged to be present in some of the most exciting and dynamic economies in the world, which are inhabited by two-thirds of the world's population. This unique position brings with it a tremendous responsibility. Our obligation is to carry out our business in a way which not only provides returns for our shareholders but also delivers good things for society: our clients, communities, and people. All of our extensive work in our markets to improve standards of conduct and control is aimed at helping to improve the lives of people in the communities where we work, through enabling sustainable growth. We complement this with our successful health and education programmes such as Seeing is Believing (seeingisbelieving.org) and Goal (sc.com/goalprogramme).

Improving our resilience

We have experienced a decade of lower economic growth, subdued world trade, low interest rates, stricter regulation and increasing competition, including from the technology sector. Recent political controversies about globalisation have further complicated the situation.

Yet, as Bill Winters describes in his review, many indicators are now changing in a positive direction. Economic forecasts have been upgraded again, with global growth broadening and projected to improve this year and next, and world trade continues to advance at a healthy pace. It is up to us to continue working hard to identify and seize the opportunities as they arise, becoming more competitive, embracing technological change and innovation, and continuing to develop attractive value propositions for our clients.

At the same time, we should be mindful of the risks around this favourable outlook. These range from the geopolitical situations in North Korea and the Middle East, and protectionist fears, to those stemming from the challenges of normalising monetary policy in an environment of elevated market valuations and high leverage. The realisation of some of these risks could provoke sharp market corrections, undermine the global recovery and adversely affect emerging markets that are more leveraged or exhibit weaker fundamentals. It is essential that we continue our efforts to increase the Group's resilience to such potential shocks.

I believe the completion by international standard setters of the international regulatory capital framework for banks, known as Basel III, is a positive development for the industry overall. Although banks, as well as their investors and clients, do not yet know precisely how the rules will be applied in practice, having the framework in place is an important step towards a more resilient banking system that supports the real economy.

Against this backdrop, the Group's strengthening position was evident in several respects in 2017. The quality of our balance sheet improved significantly, loan impairment reduced to around half the level it was in 2016, and we passed what was considered the toughest Bank of England stress test to date. It is critical that we maintain the focus and progress into 2018 while – as I said at this time last year – being willing to adapt and make the necessary decisions as conditions evolve.

Standard Chartered

Strategic Report 2017

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05

Financial KPIs

Underlying return on equity (RoE)

Aim Deliver sustainable improvement in the Group's profitability as a percentage of the value of shareholders' equity

3.5% 320bps

Analysis Underlying RoE of 3.5 per cent in 2017 was a substantial improvement on 0.3 per cent in 2016 but further progress is required

The underlying profit attributable to ordinary shareholders expressed as a percentage of average ordinary shareholders' equity

Capital ratio

Aim Maintain a strong capital base and a Common Equity Tier 1 (CET1) ratio of 12 to 13 per cent

13.6%

Analysis The Group's CET1 ratio remained at 13.6 per cent – above the top end of the range

The components of the Group's capital are summarised in the Capital section of the full Annual Report

Total shareholder return (TSR)

Aim Deliver a positive return on shareholders' investment through share price appreciation and dividends paid

17.6% 10bps

Analysis The Group's TSR in the full year 2017 was 17.6 per cent, compared to 17.7 per cent in 2016 and negative 35.4 per cent in 2015

Combines simple share price appreciation with dividends paid to show the total return to the shareholder and is expressed as a percentage

Ensuring excellent governance

The independent, externally facilitated Board evaluation that I commissioned shortly after becoming Chairman concluded that the Board is operating effectively and provided useful ideas on how to maximise its leadership to the Group. More details can be found in the Directors' report in the full Annual Report.

Towards the end of the year, following the departure of Dr Kurt Campbell, Dr Ngozi Okonjo-Iweala joined us as an independent non-executive director. Ngozi has significant geopolitical, economic, risk and development experience at a government level and in international organisations. She twice served as Finance Minister in Nigeria, Africa's largest economy and one of our most significant African markets, and was part of the senior leadership of the World Bank. I would like to take this opportunity to thank Kurt for his significant contributions to the Group, and welcome Ngozi to the Board.

We also recently announced the appointment of Christine Hodgson as Senior Independent Director of the Group, in addition to her current role as Chair of the Remuneration Committee. Christine takes over this role from Naguib Kheraj, who will remain as Deputy Chairman and Chair of the Audit Committee.

Embedding a culture of ethical banking

Deeply embedding a culture of ethical banking will ensure we are able to deliver for our investors, our clients, our colleagues and our communities. Good conduct – doing business in the right way – can, and will, be a powerful differentiator for our Group.

Since I wrote to you in the 2017 Half Year Report, I have continued to travel extensively across our franchise, meeting our clients, colleagues, investors, regulators and other stakeholders. This has reinforced for me what an extraordinary organisation we have, with talented and dedicated colleagues and remarkably strong client relationships.

As part of our focus on brand and culture in 2017, we engaged with our colleagues around the world to identify the essence of what we stand for, who we are and how we need to behave to deliver our full potential. This led to our invigorated purpose statement – “Driving commerce and prosperity through our unique diversity” – and a refreshed set of valued behaviours. These are designed to support the Group's desired culture, drive our transformation and increase our returns and resilience.

The Board continues to oversee far-reaching changes to transform the Group's response to financial crime. This is a critical journey, and we must remain focused on delivering this transformation to provide the foundation for a strong, sustainable business in the long term.

Dividend

In recognition of our increased confidence in the prospects for the Group, I am pleased to report that we are recommending the resumption of dividends with an 11 cent per share distribution in respect of 2017. The Board understands the importance of the ordinary dividend to shareholders and intends to increase the full year dividend per share over time taking into account the earnings outlook, group and local regulatory capital requirements and opportunities to invest to grow the business.

Conclusion

This is an exciting time to be at Standard Chartered. I remain convinced that if we work hard, with dedication, passion and creativeness to seize the opportunities ahead of us, our future will be bright. I look forward to updating you on our progress in our 2018 Half Year Report.

José Viñals

Group Chairman

27 February 2018

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STRATEGIC REPORT

Group Chief Executive's review

Group Chief Executive's review

A year of progress on a path that is now clear

In 2015, we set out a strategy designed to address our performance issues and reposition our business for success. We needed to secure our foundations, become lean and focused, and continually invest and innovate. Thanks to the outstanding efforts of our 86,000 colleagues around the world, I am proud to say we are succeeding. Financial performance in 2017 has been steady rather than spectacular but has significantly improved. The trebling of underlying profits, a strong capital position and emerging regulatory clarity allows us to resume paying dividends.

Of course, we have a long way to go. We are working hard to establish income growth momentum across all our businesses, and our return on equity continues to fall short of our cost of capital. At the time of writing we are just under halfway to our initial milestone of 8 per cent underlying return on equity. Our key investment areas are growing well and we are encouraged by our start to 2018. But we are well aware that this franchise is capable of much more. I would like to update you on the work we have done so far, and set out how we intend to build upon our successes to capture our full potential.

Securing our foundations

Our foundations have been secured. Our capital and liquidity positions are strong and our risk appetite is properly calibrated, with much greater front-line ownership. Loan impairments are at less than half the levels of recent years and we have made substantial progress on the items we set out for restructuring. Our enhanced resilience has been confirmed by our performance in the most recent Bank of England stress tests, which we passed without caveat. Despite this progress, we are not complacent and remain focused on further enhancing the risk management framework and capabilities of the Group, particularly in areas such as cyber security.

Getting lean and focused

We are ahead of our plans to remove inefficient cost from the business. This has enabled us to increase investment significantly while remaining on track to hold overall expenses flat over the initial three years of our plan to the end of 2018.

We are also working to instil a culture of excellence across our organisation. As José Whals noted in his Chairman's statement,

we recently re-set expectations for every employee of the Group, based on three new valued behaviours: Do the right thing, Never settle, and Better together. Taken together these behaviours will help us to continuously challenge the way we do things, make better decisions, and hold each other accountable for delivery. They will be ingrained into every aspect of our business as we seek to put the client experience at the centre of every plan, every process, and every product offering. They will also inform our hiring policies and how we measure individual performance. We are building a truly client-centric organisation with no tolerance for complacency or mediocrity.

Investing and innovating

We have increased the rate of investment in our business by over 50 per cent since 2015, spending close to $1.5 billion in 2017 to improve our controls and bolster our franchise capabilities. We have focused on the areas we set out in 2015: the opening of China, the digitisation of Retail Banking, the wealth management needs of the growing affluent populations across our markets, and the ongoing development of countries in Africa. We are beginning to see the pay-back in terms of client satisfaction and strong income momentum in these areas, which together with our highly relevant network offering and strong brand are the foundations for our future. We were convinced these were the areas of our competitive advantage in 2015 and we believe it even more so today.

Technology is already changing the financial services landscape, reflecting evolving client expectations. While it threatens the status quo in some respects it will also be a source of relative advantage for us. Our presence in more than 60 markets gives us an unparalleled opportunity to test and refine new concepts in single locations before rolling them out across many. We are doing this in Côte d'Ivoire currently, trialling a purely digital retail banking offering. And as one of the world's leading trade banks we are ideally placed to drive a better client experience and higher returns for our shareholders by utilising new technologies. For example, we are using blockchain technology to streamline cross-border payments as part of the first live, real-time payments corridor between Singapore and India that we initiated in 2017. We will expand this capability to five more pairs of countries in 2018.

Standard Chartered

Strategic Report 2017

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07

New valued behaviours

1. Do the right thing
2. Never settle
3. Better together

Invested in 2017

$1.5bn

2016: $1.4bn

2015: $0.9bn

Proportion of Retail Banking income generated from Priority clients

45%

2016: 39%

2015: 35%

Proportion of Retail Banking clients that are digitally active

45%

2016: 40%

2015: 36%

Business performance

Our Corporate & Institutional Banking business has been re-positioned around our core strengths as a global network bank. This focus enabled us to on-board over 90 mainly OECD-based multinational companies in 2017. They were attracted by our strength in the emerging markets where they are investing. Early incremental income gains from this cohort are encouraging.

Simon Cooper, the CEO of this business, explained at an investor seminar in November how over the coming years we will grow the top line further, while improving our efficiency through cost management, process improvement and upgrading technology. He also outlined initiatives to allocate capital more effectively within the business and further improve its funding mix. At the same seminar the new head of our Financial Markets business Roberto Hoornweg explained our plans to re-establish it as a leading risk manager in global markets and the leading provider in emerging markets.

The Retail Banking business has continued to attract more affluent clients in core commercial cities across our footprint and to improve our digital offering. We have successfully targeted Priority clients with improved wealth and advice products and a more focused service offering. As a result, the proportion of income generated from that segment grew from 39 per cent to nearly 45 per cent in 2017, constituting most of the business's 7 per cent income growth in the year, excluding the effect of exiting Thailand and the Philippines. Over the same period the proportion of Retail Banking clients that are digitally active rose from just under 40 per cent to around 45 per cent.

Ben Hung, who took over as CEO of Retail Banking in November, will host an investor seminar later in the first half of this year in which he will further explain our plans and ambitions for this business.

The ongoing transformation of our Commercial Banking business is delivering results. Enhanced frontline management and risk monitoring has translated into significantly lower loan impairment. It has returned to profitability and is now far better integrated with the other client segments, which will help it to generate higher quality and more sustainable income.

In Private Banking, we have continued to make significant investments in people and technology. We are encouraged by the increase in net new money driven in part by higher productivity from our new relationship managers, and in 2018 the business will target further improvements in both respects.

Group outlook

We believe these business initiatives will help the Group generate income at a compound annual growth rate of between 5 and 7 per cent in the medium term, with our personal banking businesses likely to grow at a relatively faster rate than our corporate businesses, given our focus on optimising the returns from our credit portfolios. We expect to achieve this growth while tightly managing costs, which we aim to increase below the rate of inflation across the Group. The operating leverage this creates, together with our continued focus on risks, will enable us to deliver an underlying return on equity above 8 per cent in the medium term.

Continued focus on conduct

Group-wide awareness of our collective responsibility to our clients and the communities that we serve has tangibly improved. We have developed and implemented a framework defining and identifying good conduct, and I have made it a strategic priority in 2018 for every segment and region rigorously to review, refine and strengthen our conduct environment. While incidents cannot be entirely avoided, we have no tolerance nor appetite for breaches of laws and regulations, and are determined to ensure that our employees do the right thing.

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STRATEGIC REPORT

Group Chief Executive's review

Group Chief Executive's review continued

It also remains a central part of our mission to help combat financial crime. Over the course of 2017, our work has made a real impact by identifying and preventing criminal activity in the financial system. We continue to innovate, putting into place more efficient and effective tools, practices and processes that should position us among the leaders in discovering and disrupting financial crime. We take our responsibility as a leading international bank seriously and continue to invest significantly in improving standards across our markets through our correspondent banking and new NGO academies. Significantly, in 2017, the New York State Department of Financial Services recognised that the Group has made "substantial progress" towards remediating past financial crime controls issues and noted that we remain "fully committed" to finishing the job. As described in the financial statements in the full Annual Report, we continue to cooperate with authorities in the US and the UK in their investigations of past conduct and are engaged in ongoing discussions to resolve them. Concluding these historical matters, which could have a substantial financial impact, remains a focus for us.

The external outlook

The global economic environment continues to improve. Productivity remains weak but is improving, and inflation remains low. Commodity prices have increased but are still at levels that do not threaten global growth. Geopolitical risks remain high but have not affected economic activity. We expect these conditions to persist for some time, and as such expect interest rates to continue to normalise and trade volumes to increase. We expect the Middle East region to return to growth in 2018, while many sub-Saharan Africa economies are showing signs of stabilisation and recovery.

Conclusion

We have made encouraging progress in transforming the Group, the path ahead is clear and we are now well positioned to drive sustainable profit growth across our markets. We remain focused on improving our service to our clients, generating strong returns for our investors, and contributing even more to the communities in which we operate. This will enable us to realise the Group's full potential.

Bill Winters
Group Chief Executive
27 February 2018

Management Team

1. Bill Winters, CBE
   Group Chief Executive

2. Andy Halford
   Group Chief Financial Officer

3. Tracy Clarke
   Regional CEO, Europe & Americas

4. Simon Cooper
   CEO, Corporate & Institutional Banking

5. David Fein
   Group General Counsel

6. Dr Michael Gorriz
   Group Chief Information Officer

7. Doris Honold
   Group Chief Operating Officer

8. Benjamin Hung Pi Cheng
   Regional CEO, Greater China & North Asia; and CEO, Retail Banking

9. Sunil Kaushal
   Regional CEO, Africa & Middle East

10. Anna Marrs
    Regional CEO, ASEAN & South Asia; and CEO, Commercial and Private Banking

11. Judy Hsu
    CEO, Singapore and ASEAN Markets (Malaysia, Vietnam, Thailand and Rep Offices)

12. Tracey McDermott, CBE
    Group Head of Corporate, Public and Regulatory Affairs

13. Mark Smith
    Group Chief Risk Officer

14. Pam Walkden
    Group Head, Human Resources

Standard Chartered
Strategic Report 2017

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Driving commerce and prosperity through our unique diversity

Working with NGOs to fight financial crime

Our efforts to fight financial crime can have unintended consequences for clients that deliver critical humanitarian services to people in need

Financial crime controls can prevent legitimate payments to and from development and non-profit organisations providing humanitarian programmes in countries where bribery, corruption and money laundering are prevalent.

We are helping these clients to mitigate financial crime risk through education. In October 2017, we hosted our first Financial Crime Risk Management workshop in Washington for US-headquartered clients in partnership with the World Bank Group, World Vision and the US NGO-membership group InterAction.

The event shared international best practices in financial crime compliance and showed organisations how they could strengthen their fraud, anti-money laundering and counter-terrorist financing controls. We also offer free financial crime compliance e-learning modules to our NGO clients.

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STRATEGIC REPORT

Market environment

Market environment

Macroeconomic factors affecting the financial landscape

Trends in 2017

→ The world economy enjoyed a cyclical recovery in 2017, growing at an estimated 3.8 per cent, compared to 3.2 per cent in 2016
→ Emerging markets, led by Asia, continued to be the main driver of global growth, though growth also picked up in major developed economies
→ The euro area saw an acceleration in growth in 2017 of approximately 2.3 per cent, up from 1.8 per cent in 2016, despite concerns about geopolitical risks
→ Expectations of fiscal stimulus from the US following the US Presidential election faded and monetary policy remained the main support for US growth
→ Major central banks including the US Federal Reserve (Fed), the European Central Bank (ECB) and the Bank of England signalled an end to ultra-easy monetary policy but policy still remained very accommodative

Outlook for 2018

→ Global growth is expected to remain strong at 3.9 per cent in 2018
→ Growth will remain faster in emerging markets, with Asia continuing to grow at a robust 6.1 per cent
→ Major central banks are expected to continue to tighten monetary policy very gradually, removing some of the extraordinary support for the global economy. This is expected to keep the market risk environment benign and supportive for emerging markets
→ Recovering oil prices are also expected to support the recovery of growth in commodity-dependent countries in Africa, the Middle East and Latin America

Regional trends and outlooks

Actual and projected growth by economy in 2017 and 2018

Greater China & North Asia	China	2018	5.5%
		2017	6.9%
	Hong Kong	2018	3.0%
		2017	3.7%
	Korea	2018	2.6%
		2017	3.1%
ASEAN & South Asia	India	2018	7.2%
		2017	6.5%
	Indonesia	2018	5.2%
		2017	5.1%
	Singapore	2018	2.6%
		2017	3.2%
Africa & Middle East	Nigeria	2018	3.0%
		2017	0.7%
	UAE	2018	2.6%
		2017	0.9%
Europe & Americas	UK	2018	1.2%
		2017	1.8%
	USA	2018	2.7%
		2017	2.3%

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Strategic Report 2017

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11

Medium- and long-term view

> See our long-term market trends on page 14

• Ongoing global growth recovery is cyclical in nature and therefore vulnerable; structural challenges remain. Productivity growth is weak, especially in developed countries
• Long-term growth in the developed world is constrained by high levels of indebtedness and ageing populations

• There is reason to be more optimistic on long-term growth prospects for emerging markets. Unencumbered by old infrastructure, many of these countries can adopt the latest technologies and the associated infrastructure, boosting productivity growth

• Relatively younger populations in many emerging markets, as well as adoption of digital technology, will allow emerging markets to become increasingly more important for the global growth story

• Rising nationalism, anti-globalisation and protectionism are a threat to long-term global growth prospects, including emerging markets

The market environment report has been produced by our Global Research team. The forecasts for 2018 reflect its projections, and not necessarily those of the Board.

Trends and outlook for our four regions

| Greater China & North Asia
See our regional performance on page 23 | China's economy has benefited from healthy demand for its exports, a risk-averse political backdrop and recovering industrial profits
While real activity may decelerate moderately in H1 2018, as property tightening measures and an end to inventory build limit investment growth, we expect a solid economic performance, with growth of 6.5% expected in 2018 | China's authorities are increasingly focusing on the quality of growth and addressing medium-term vulnerabilities including corporate debt
Hong Kong's expected growth of 3.0% will be moderate compared to the 3.7% growth seen in 2017 as the cyclical recovery in trade fades | Growth in Japan is likely to be at 1.2% aided by still easy monetary policy and fiscal policy, and a supportive external demand environment |
| --- | --- | --- | --- |
| ASEAN & South Asia
See our regional performance on page 24 | ASEAN is set to remain one of the fastest-growing regions in 2018
Growth in economies with proactive government investment in infrastructure projects – including Indonesia, the Philippines and Thailand – should be supported, even if external demand is softer than in 2017 | Inflation has remained low in the region, allowing central banks to keep monetary conditions loose. The possibility of further rate cuts, however, is low as inflation starts to pick up on the back of higher commodity prices | India is likely to start recovering from the slowdown accompanying reforms in 2017. At 7.2%, India's growth will be one of the strongest in the emerging market space |
| Africa & Middle East
See our regional performance on page 25 | Growth across Africa will continue to rebound in 2018 compared to 2017. The expected recovery will be driven by large economies that emerged from recession in 2017, namely oil producers Angola and Nigeria, and | by South Africa, where external demand has lifted mining and manufacturing
For oil importers, the boost to growth from lower oil prices has likely run its course | 2018 should bring a pick-up in headline growth in the Middle East
GDP related to oil production is likely to be flat, while non-oil economic growth will be constrained by geopolitical worries that will weigh on consumer and business confidence |
| Europe & Americas
See our regional performance on page 26 | Growth in the US and euro area is likely to exceed 10-year averages with growth exceeding 2.0% in both regions
Political risk will remain in Europe, led by Italy's elections. UK Brexit talks with the European Union have been | positive, with a transition deal likely beyond 2019 until a trade deal is finalised
The ECB will continue to taper its quantitative easing purchases, even though inflation is likely to take time to move back to the close-to-but-lower- | than-2% target
In the US, tax reform and increased fiscal expenditure will lend support to the growth outlook for 2018 and 2019
The US Fed rate is likely to reach 2.5% by end-2018 |

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STRATEGIC REPORT

Business model

Business model

A business model

built on long-term relationships

We have a sustainable approach to business and strive to achieve the highest standards of conduct. Our business model and strategy are built on capturing the opportunities inherent in our unique footprint by developing deep relationships with clients across our network and in local markets

Developing these relationships means using both our tangible and intangible resources in a sustainable and responsible manner, deploying them to maximum impact on our profitability and returns

Our resources

We aim to use resources in a sustainable way, to achieve our long-term strategic objectives

Human capital

Our diverse colleagues are our greatest asset. Being part of the local fabric of our markets means we understand our clients' needs and aspirations, and how these can be achieved

Strong brand

We are a leading international banking group with over 150 years of history and in many of our markets we are a household name

International network

We have an unparalleled international network, connecting companies, institutions and individuals to, and in some of the world's fastest-growing and most dynamic regions

Financial strength

With over $600 billion in assets on our balance sheet, we are a strong, trusted partner for our clients

Local expertise

We have a deep knowledge of our markets and a privileged understanding of the drivers of the real economy, offering us insights that can help our clients achieve their ambitions

Our purpose makes us different

Our purpose is what sets us apart: we drive commerce and prosperity through our unique diversity. Our strategy helps us achieve our purpose

We drive commerce and prosperity through our unique diversity

Client focus

Our clients are our business. We build long-term relationships with them

5,300 corporations, governments, banks and investors

260,000 business banking clients

40,000 commercial banking clients

9m individual clients

7,000 private banking clients

Robust risk management

We are here for the long term. Effective risk management allows us to grow a sustainable business

Distinct proposition

Our unique understanding of our markets and our extensive international network allow us to offer a truly tailored proposition to our clients, combining global expertise grounded in local knowledge

Sustainable approach to business

We promote social and economic development by contributing to sustainable economic growth through our core business of banking, by being a responsible company and by investing in our communities

For more details on how we deliver on our business model, see our Strategy section on page 14.

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13

What we deliver

We deliver an extensive set of solutions, products and services, adapted to the needs of our clients

Global

• Clients in our global businesses are supported by relationship managers with a global reach
• Corporate & Institutional Banking
• Private Banking

> See our client segment reviews on pages 18 to 21

Local

• Country-level relationship managers support clients in our regional businesses. To ensure efficiency and consistency, and to enable greater investment, we have a global oversight of our systems and products
• Retail Banking
• Commercial Banking

Products and services

Retail Products

→ Deposits
→ Savings
→ Mortgages
→ Credit cards
→ Personal loans

Wealth Management

→ Investments
→ Portfolio management
→ Insurance and advice
→ Planning services

Transaction Banking

→ Cash management
→ Payments and transactions
→ Securities services
→ Trade finance products

Corporate Finance

→ Structured and project financing
→ Strategic advice
→ Mergers and acquisitions

Financial Markets

→ Investment
→ Risk management
→ Debt capital markets

Financial performance

Income

→ Net interest income
→ Fee income
→ Trading income

Profits

Income gained from providing our products and services minus expenses and impairments

Return on equity

Profit generated relative to equity invested

The value we create

We aim to create long-term value for a broad range of stakeholders, in a sustainable manner

Clients

We enable individuals to grow and protect their wealth. We help businesses to trade, transact, invest and expand. We also help a variety of financial institutions – including banks, public sector clients and development organisations – with their banking needs

Regulators and governments

We engage with relevant authorities to play our part in supporting the effective functioning of the financial system and the broader economy

Investors

We aim to deliver robust returns and long-term sustainable value for our investors

Colleagues

We offer colleagues opportunities to learn and progress. We encourage them to improve, innovate, take ownership of their careers and succeed together

Society

We strive to operate as a responsible and sustainable company, driving prosperity through our core business, and collaborating with local partners to promote social and economic development

> More detail can be found in our stakeholders and responsibilities section on page 38

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STRATEGIC REPORT

Our strategy

Our strategy

A strategy addressing long-term trends

Our strategy was developed against the backdrop of six long-term trends, which will continue to significantly shape the economies and broader landscape in the markets in which we operate. We believe that each of these long-term trends presents opportunities that we are uniquely positioned to capture

1 Rise of urban middle class

Markets in our footprint are urbanising rapidly and becoming more consumption-led, driving rapid growth in demand for wealth and financing solutions

Our strategic response: Focus on the affluent and wealth offerings

2 Digital revolution

Digital adoption in our markets is often ahead of otherwise more developed Western markets. Digitisation offers an opportunity for us to deliver more convenient and efficient solutions to clients and thus to increase our client reach and engagement in a cost-effective manner

Our strategic response: Accelerate pace of our digitisation

3 Increasing regional connectivity

Despite a rise in anti-globalisation sentiment in several parts of the world, we are witnessing in the long term the emergence of complex supply chains, combined with new frameworks for cooperation, such as the Belt and Road initiative and the ASEAN Economic Community. With our long history in the markets that are driving these trends, we are uniquely positioned to capture the benefits they bring

Our strategic response: Leverage our network capabilities

4 Financial deepening and evolving regulation

Clients are increasingly looking for innovative cross-border funding, cash management and investment solutions, coupled with local hedging instruments to better manage risks. This, along with the growing sophistication of the financial services sector, and ongoing government-led reform, is driving the deepening and internationalisation of local capital markets in our footprint

Our strategic response: Strengthen our capital markets capabilities

5 The rise of renminbi (RMB)

The launch of the Cross-Border Interbank Payment System and the inclusion of RMB in the International Monetary Fund's Special Drawing Rights basket of currencies are major landmarks on the RMB's path to internationalisation. We expect that by 2020, 5 per cent of global international payments could be settled in RMB

Our strategic response: Maintain leadership in RMB

6 The growth of Africa

Backed by a large workforce and a growing, connected urban middle class, there are many growth opportunities across African economies. This is particularly the case in sectors such as agriculture, fast-moving consumer goods and infrastructure

Our strategic response: Focus on urban Africa

Within this context, we continue to believe in the inherent value and strength of the Standard Chartered franchise and its ability to deliver financial performance

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15

1
Secure the foundations
Ensure that we have a strong capital position, with a balanced client and product portfolio

Three strategic objectives

2
Get lean and focused
Drive the shift towards sustainable, profitable growth in returns-accretive businesses, and improve productivity

3
Invest and innovate
Invest in improvements to drive better client experience, meet clients' demands, and drive growth and cross-bank collaboration

Our strategy
is focused on capturing the existing growth opportunities in our footprint, by developing deep, long-term relationships with our clients and helping them connect across our markets

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STRATEGIC REPORT

Our strategy

Our strategy continued

Delivering against

our strategic objectives

Well positioned to capture the opportunities in our markets

We are in a strong position to capture the opportunities in our markets, while being aware of potential threats and areas where we need to improve

We take external risk factors into account as part of our strategy and ensure that we are always prepared adequately. These include macro and geopolitical changes globally and in countries where we operate, pressure on profitability, and disruption from new uses of technology. We believe that we are in a unique position to capture the growth in our markets through strengths like our cross-border proposition, comprehensive product range and high standards for the way we do business. At the same time, we are addressing areas that will further strengthen the Group, such as continuing to focus on conduct and fighting financial crime, shifting the mix in our client and product books towards our target segments and businesses, improving and digitising our processes, and strengthening our areas of competitive differentiation.

Since 2015, we have made significant progress against the Group's three strategic objectives. We have tracked progress against these through our Group scorecards, which contain a mix of quantitative performance indicators, such as return on equity, loan impairment and capital adequacy, and qualitative performance indicators, such as the shift in our portfolio mix towards different client profiles and returns-accretive businesses, as well as client sentiment metrics such as the net promoter score. Some selected indicators are highlighted below.

1 Secure the foundations

We have substantially completed this objective, putting us in a position of strength from which to drive business growth confidently

2 Get lean and focused

We have continued the restructuring of our businesses and the shift towards sustainable, profitable growth

3 Invest and innovate

We have invested to improve the way we serve our clients and the way we collaborate. Examples include significant investments in automation and a revamped learning offering for colleagues

Progress in 2017

CET1: $13.6\%$ (2016: 13.6%)

Loan impairment: $1.2bn (underlying) (2016: $2.4bn)

Focus for 2018

Maintain a strong capital position

Continue efforts to further strengthen risk controls and conduct

Profit before tax: $3.0bn (underlying) (2016: $1.1bn)

Return on equity: $3.5\%$ (underlying) (2016: 0.3%)

Driv e income within our desired risk appetite, and contain costs, leveraging technology

Focus on driving sustainable momentum in capital and returns-accretive businesses

Digitisation and analytics driving efficiency and superior client service

Retail Banking digital adoption: $44.7\%$ of clients (2016: $39.6\%$ )

Ambitious investment plan in technology to drive business

Invest in our colleagues and culture

Leverage our unique diversity to serve our clients better

For more insights on strategy-related risks see our Group Chief Risk Officer's review on pages 33 to 35

For more information on progress in 2017 and focus for 2018 see our Group Chief Financial Officer's review on pages 28 to 32

Standard Chartered

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Driving commerce and prosperity through innovation

Innovative solutions in Kenya

For over 20 years, we have provided tailored solutions and expert advice to meet the unique requirements of Africa Flight Services, a leading provider of logistical and ground handling services in Kenya

We've helped Africa Flight Services (AFS) develop its expansion programmes by utilising our global footprint and experience in the field of corporate finance. AFS, which owns and operates the largest transit hub in the East and Central Africa region, has unique requirements that are met with bespoke financial solutions by our experienced relationship managers. This, combined with our competitive product portfolio and personalised service, has allowed our partnership with AFS to span over 20 years. Standard Chartered has been the primary banker and financial services partner for the company since 1994.

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STRATEGIC REPORT

Client segment reviews

Corporate & Institutional Banking

Profit before taxation

$1,261m

underlying basis

$986m

statutory basis

Risk-weighted assets

$147bn

Return on risk-weighted assets

0.9%

underlying basis

LEADING DIGITAL CHANNELS

A single gateway for payments in China

In February 2017, we became the first international bank to launch a mobile wallet collection service in China. Having worked closely with national and international businesses and banking institutions in China we recognised the need for a single digital gateway to connect and consolidate multiple payment channels. Within six months, we implemented solutions for 17 corporates across China and have assisted them with more than 26,000 payment transactions. That number is growing daily.

Segment overview

Corporate & Institutional Banking supports clients with their transaction banking, corporate finance, financial markets and borrowing needs across more than 60 markets, providing solutions to over 5,300 clients in some of the world's fastest-growing economies and most active trade corridors.

Our clients include large corporations, governments, banks and investors headquartered, operating or investing in Asia, Africa and the Middle East. Our strong and deep local presence across these markets enables us to facilitate trade, capital and investment flows in and for our footprint, including across China's Belt and Road initiative.

We collaborate increasingly with other segments: introducing Commercial Banking services to our clients' ecosystems – their networks of buyers, suppliers, customers and service providers – and offering our clients employee banking services through Retail Banking.

Strategic priorities

→ Deliver sustainable growth for clients by understanding their agendas, providing trusted advice, and strengthening leadership in flow solutions
→ Manage our balance sheet to grow income and returns by driving balance sheet velocity, improving funding quality and maintaining strengthened risk controls
→ Improve our efficiency, innovate and digitise to enhance the client experience

KPIs

Proportion of low returning client risk-weighted assets

Aim Reduce the proportion of risk-weighted assets deployed in Corporate & Institutional Banking that are delivering low returns.

Analysis Proportion of low returning client risk-weighted assets has increased from 15.6 per cent in 2016 to 16.8 per cent in 2017, driven by conscious client actions, market pressures, credit migration and model changes.

Progress

→ Completed on-boarding of 91 new OECD clients, and delivered strong growth from the next generation of priority clients
→ Improved balance sheet quality, with investment-grade clients now representing 57 per cent of customer loans and advances (2016: 52 per cent) and high quality operating account balances now comprising 48 per cent of Transaction Banking customer accounts (2016: 44 per cent)
→ Launched focused workstreams to drive efficiency and innovation, and increase talent diversity

Performance highlights

→ Underlying profit before taxation of $1,261 million more than doubled year-on-year primarily driven by lower impairment. While operating expenses were higher, business efficiency improvements created capacity for increased investments
→ Underlying income of $6,496 million was stable year-on-year. However, excluding Principal Finance losses, income declined 3 per cent, impacted by a decline in market volatility and spreads in Financial Markets and margin compression in financing businesses. This more than offset the volume growth and margin improvement in Cash Management
→ Good balance sheet momentum with loans and advances to customers up 8 per cent year-on-year and customer accounts up 9 per cent
→ The difference of $275 million between statutory and underlying profit represents restructuring costs

Collaboration with other client segments

Aim Increase collaboration with other client segments to generate cross-segment business opportunities.

Analysis Increasing trend in Employee Banking account sign-ups from Corporate & Institutional Banking clients with an increase of 24 per cent year-on-year from 127,000 to 158,000.

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Retail Banking

Profit before taxation

$873m

underlying basis

$854m

statutory basis

Risk-weighted assets

$44bn

Return on risk-weighted assets

2.0%

underlying basis

UNDERSTANDING CLIENTS' BANKING NEEDS

Building relationships through technology

We are constantly enhancing our products and services to take advantage of digital advances. This includes our new voice recognition platforms and cross-border payment options on mobile and tablet devices for clients who need to bank anytime, anywhere. Every innovation is based on insights: we spend time getting to know our clients and understanding their banking needs and financial goals.

Segment overview

Retail Banking serves over nine million individuals and small businesses, with a focus on affluent and emerging affluent in many of the world's fastest-growing cities. We provide digital banking services with a human touch to our clients across deposits, payments, financing products and Wealth Management, as well as supporting their business banking needs.

Retail Banking represents approximately one-third of the Group's operating income and operating profit. We are closely integrated with the Group's other client segments, for example offering employee banking services to Corporate & Institutional Banking clients, and we are also an important source of high quality liquidity for the Group.

Increasing levels of wealth across Asia, Africa and the Middle East support our opportunity to grow the business sustainably. We aim to improve productivity and client experience through increasing digitisation, driving cost efficiencies and simplifying our processes.

Strategic priorities

→ Continue to focus on affluent and emerging affluent clients and their wealth needs in core cities and capture the significant rise of the middle class in our markets
→ Continue to build on our client ecosystem and alliances initiatives
→ Improve our clients' experience through an enhanced end-to-end digital offering, with intuitive platforms, best-in-class products and service responding to the change in digital habits of clients in our markets

KPIs

Digital adoption

Aim Align the Group's service to how clients want to interact and increase efficiency by reducing the amount of manual processing.

Analysis Online applications have continued to grow year-on-year with the proportion of Retail Banking clients that are digital-active up from 39.6 per cent in 2016 to 44.7 per cent at the end of 2017.

Progress

→ Increased share of income from Priority clients to 45 per cent, up from 29 per cent in 2014, supported by adding more than 100,000 Priority clients during 2017
→ Our major strategic alliances, with partners such as Asia Miles, Shinsegae and Disney, and our Employee Banking initiatives, have together delivered over 50 per cent of new clients in the year
→ Investment in technology is showing results, with nearly 45 per cent of clients now actively using online or mobile banking

Performance highlights

→ Underlying profit before taxation of $873 million was up 14 per cent year-on-year as income growth and lower loan impairment offset increased expenses
→ Retail Banking income in Greater China & North Asia grew 10 per cent year-on-year; income in ASEAN & South Asia grew 4 per cent excluding the impact of business exits in Thailand and the Philippines; and income in Africa & Middle East was flat
→ Strong momentum from Wealth Management and Deposits drove the improved income performance, more than offsetting continued margin compression across asset products
→ Good balance sheet momentum, with both loans and advances to customers and customer accounts up 10 per cent during the year
→ The difference of $19 million between statutory and underlying profit represents restructuring costs

Priority client focus

Aim Increase the proportion of income from Priority clients, reflecting the strategic shift in client mix towards affluent and emerging affluent clients.

Analysis The share of Retail Banking income from Priority clients increased to 44.8 per cent in 2017 from 39.0 per cent in 2016, supported by more than 100,000 new-to-bank Priority clients in the year.

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STRATEGIC REPORT

Client segment reviews

Commercial Banking

Profit before taxation

$282m

underlying basis

$269m

statutory basis

Risk-weighted assets

$33bn

Return on risk-weighted assets

0.9%

underlying basis

CROSS-BORDER RELATIONSHIPS

Helping clients grow their businesses

We are constantly increasing our global footprint and supporting clients to grow their businesses locally and internationally. In 2017, we helped more than 80 per cent of our clients engage in business outside the markets they already operated in, and almost half of them now have offices overseas. The markets we operate in and the relationships we have developed underpin the 20 per cent year-on-year growth of our network business and drives our ambition of helping small and mid-sized companies capture international opportunities.

Segment overview

Commercial Banking serves over 40,000 local corporations and medium-sized enterprises in 26 markets across Asia, Africa and the Middle East. We aim to be our clients' main international bank, providing a full range of international financial solutions in areas such as trade finance, cash management, financial markets and corporate finance.

Through our close linkages with Retail Banking and Private Banking, our clients can access additional services they value including employee banking services and personal wealth solutions. We also collaborate with Corporate & Institutional Banking to service their clients' end-to-end supply chains.

Our clients represent a large and important portion of the economies we serve and are potential future multinational corporates. Commercial Banking is at the heart of our shared purpose to drive commerce and prosperity through our unique diversity.

Strategic priorities

→ Drive quality sustainable growth by deepening relationships with our existing clients and attracting new clients that are aligned with our strategy, with a focus on rapidly growing and internationalising companies in our footprint
→ Improve client experience, through investing in frontline training, tools and analytics
→ Continue to enhance credit risk management and monitoring and maintain a high bar on operational risk

KPIs

New-to-bank ecosystem clients

Aim Bank our clients' international and domestic networks of suppliers and buyers (the ecosystem).

Analysis The number of clients on-boarded through our 'banking the ecosystem' initiative increased 28.3 per cent in 2017.

Progress

→ Improved client experience materially, with client satisfaction as measured by our annual 'client intelligence survey' having improved meaningfully year-on-year
→ On-boarded over 4,500 new-to-bank clients in the year, of which 830 came from our clients' international and domestic networks of buyers and suppliers
→ Significantly strengthened the foundations in credit risk management through a series of actions which resulted in lower loan impairments in 2017

Performance highlights

→ Returned Commercial Banking to profitability, with an underlying profit before taxation of $282 million reflecting significantly lower impairment, reduced expenses and higher income
→ Underlying income of $1,333 million was up 3 per cent year-on-year, driven by positive momentum across regions, with income up 5 per cent in ASEAN & South Asia, up 2 per cent in Africa & Middle East, and up 1 per cent in Greater China & North Asia, led by Cash Management and Financial Markets products
→ Strong balance sheet growth, with loans and advances to customers up 17 per cent year-on-year and customer accounts up 4 per cent
→ The difference of $13 million between statutory and underlying profit represents restructuring costs

Straight2Bank utilisation

Aim Improve client experience and minimise manual transactions and the reliance on branches for cash, trade and FX, thereby reducing the cost of servicing.

Analysis Straight2Bank utilisation increased 13 per cent in 2017. By the end of 2017, 44.7 per cent of active Commercial Banking clients are using the capability, up from 42.4 per cent in 2016.

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21

Private Banking

Loss before taxation

$(1)m

underlying basis

$(16)m

statutory basis

Risk-weighted assets

$6bn

Return on risk-weighted assets

0.0%

underlying basis

BUILDING SKILLS FOR THE FUTURE

Mentoring the next generation of leaders

At Standard Chartered, we believe the next generation will play a critical role in shaping the world's future. Our Future Global Leaders' Programme, part of our offering to Private Banking clients, is designed to harness the skills of tomorrow's influencers. The programme brings together future leaders aged between 20-35 to help them connect as a global community, and develop leadership, philanthropy, sustainability and entrepreneurship skills, so that they can maximise their potential and enable others to do the same. In 2017, we held the programme in London, Cape Town, Delhi and Singapore.

Segment overview

Private Banking offers a full suite of investment, credit and wealth planning solutions to grow and protect the wealth of high-net worth individuals across our footprint.

Our investment advisory capabilities and product platform are independent from research houses and product providers, allowing us to put client interests at the centre of our business. This is coupled with an extensive network across Asia, Africa and the Middle East, which provides clients with relevant market insights and cross-border investment and financing opportunities.

As part of our universal banking proposition, clients can also leverage our global Commercial Banking and Corporate & Institutional Banking capabilities to support their business needs. Private Banking services can be accessed from six leading centres: Hong Kong, Singapore, London, Jersey, Dubai and India.

Strategic priorities

→ Instil a culture of excellence by improving the expertise and enhancing the skills of senior relationship management teams
→ Improve client experience by enhancing our advisory proposition and reducing turnaround time of the investment process
→ Balance growth and controls by simplifying the business model through implementation of a rigorous controls enhancement plan

KPIs

Net new money

Aim Grow and deepen client relationships, improve investment penetration and attract new clients.

Analysis We added $2.2 billion of net new money in 2017, after seeing outflows in 2016 when investor sentiment was impacted by volatility in equity and other markets, coupled with our actions taken to improve our risk profile.

Progress

→ Strengthened relationship management teams with almost 60 new frontline hires globally. Launched Private Banking Academy in partnership with INSEAD and Fitch to deliver an industry leading frontline training programme across key markets
→ Enhanced our open architecture platform through digitisation, enabling real-time price discovery across equity derivatives and fixed income, and halving preparation time for investment proposals
→ Sharpened our client coverage model with the completion of the country coverage initiative and continuous shift to focus on the above $5 million assets under management client segment

Performance highlights

→ Private Banking generated an underlying loss before taxation of $1 million compared to a profit of $32 million in 2016, due to higher expenses as we continued to invest significantly in the business
→ Underlying income of $500 million was up 1 per cent year-on-year, impacted by the non-recurrence of an insurance recovery. Excluding this, income improved 6 per cent driven by Wealth Management, Treasury and Funds products, and improved Deposit margins
→ Assets under management increased by $10.2 billion or 18 per cent since 31 December 2016 driven by positive market movements and $2.2 billion of net new money
→ The difference of $15 million between statutory and underlying loss represents restructuring costs

Net client score for ease of doing business

Aim Holistically improve the Private Banking client experience through all touch points with the Group.

Analysis Launched in 2016, the annual Private Banking client satisfaction survey reviews multiple dimensions of client sentiment and measures our progress in putting client needs at the heart of everything we do. In 2017, significantly more clients rated us very easy to do business with than those that rated us difficult to do business with.

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Driving commerce and prosperity through our unique diversity

Developing partnerships to deliver financial inclusion

Working together with the Asian Development Bank (ADB), we are helping to drive prosperity for people traditionally excluded from the financial system

We have extended a unique risk participation deal – the first of its type for the microfinance sector in Asia when launched in 2013 – with the ADB to increase the flow of credit to microfinance institutions (MFIs) across Asia. By increasing the capital available, partner MFIs are able to reach more unbanked individuals and finance additional microenterprises.

Originally, we aimed to originate and service a $150 million portfolio of MFI loans across Asia by the end of 2018, with the ADB sharing 50 per cent of the risk on the portfolio. Due to the programme's success, the ADB increased its risk participation ceiling from $75 million to $120 million, allowing us to increase the total programme size to $240 million outstanding at any given time. The programme has now been recognised as part of the ADB's mainstream operations with no specified end date.

Together, Standard Chartered and ADB have provided approximately 125 loans totalling $325 million to 13 MFIs in Bangladesh, Indonesia and India, with the potential to expand to additional markets in Asia.

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23

Greater China & North Asia

Highlights of 2017

Profit before taxation

$1,942m

underlying basis

$1,977m

statutory basis

Risk-weighted assets

$85bn

Loans and advances to customers

Greater China & North Asia 44% of Group

Income split by key markets

Hong Kong 60%

Others 40%

Region overview

Greater China & North Asia is the Group's largest region, representing approximately 40 per cent of the Group's income, and includes our clients in Hong Kong, Korea, China, Taiwan, Japan and Macau. Of these, Hong Kong remains the Group's largest market, underpinned by a diversified franchise and deeply rooted presence.

The region is highly interconnected, with China's economy at its core. Our regional footprint, distinctive proposition and continued investment positions us strongly to capture opportunities as they arise from the continuing opening up of China's economy.

We are building on the region's ongoing economic growth, the rising wealth of its population, the increasing sophistication and internationalisation of Chinese businesses and the resulting increased usage of the renminbi internationally.

Strategic priorities

→ Leverage our network strength to serve the inbound and outbound cross-border trade and investment needs of our clients
→ Capture opportunities arising from China's opening, including the renminbi, Belt and Road initiative, onshore capital markets and mainland wealth, as well as from our digital capabilities
→ Strengthen market position in Hong Kong, and improve Retail Banking performance in China and Korea

Progress

→ Added overseas China desks across the Group's footprint, helping to grow income and increase the number of Belt and Road initiative projects we were involved in by over 25 per cent

→ Strong progress in Retail Banking in Hong Kong, adding more than 43,300 new-to-bank Priority clients through alliances such as Asia Miles and our enhanced digital on-boarding platform
→ Retail Banking in both China and Korea have seen a significant improvement in performance, driven by cost efficiencies and focused client acquisition

Performance highlights

→ Underlying profit before taxation of $1,942 million was 45 per cent higher year-on-year, reflecting income growth and lower impairment
→ Underlying income of $5,616 million was 8 per cent higher year-on-year, with all markets and client segments contributing. Retail Banking and Private Banking income both grew 10 per cent year-on-year driven by Wealth Management, improving margins and strong balance sheet growth. Corporate & Institutional Banking income rose 9 per cent year-on-year, due to Cash Management, Corporate Finance and Capital Markets. Commercial Banking income grew 1 per cent year-on-year, driven by Cash Management and Corporate Finance
→ Strong balance sheet momentum with loans and advances to customers up 15 per cent year-on-year and customer accounts up 10 per cent
→ The difference of $35 million between statutory and underlying profit represents restructuring costs

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STRATEGIC REPORT

Regional reviews

ASEAN & South Asia

Highlights of 2017

Profit before taxation

$492m

underlying basis

$350m

statutory basis

Risk-weighted assets

$97bn

Loans and advances to customers

ASEAN & South Asia

29% of Group

Income split by key markets

Singapore	India	Others
37%	26%	37%

Region overview

The Group has a long-standing and deep franchise across the ASEAN & South Asia region. We are the only international bank with a presence in all 10 ASEAN countries and we also have meaningful operations in all key South Asian markets. Our two largest markets in the region by income are Singapore and India, where we have had a deep-rooted presence for over 150 years.

The region contributes over a quarter of the Group's income. Within the region, Singapore is home to the majority of our global business leadership and our technology organisation as well as SC Ventures, our innovation hub.

The strong underlying economic growth in the ASEAN & South Asia region supports our opportunity to grow and sustainably improve returns. The region is benefiting from rising trade flows, including from the Belt and Road initiative, continued strong investment and a rising middle class which is driving consumption growth and improving digital connectivity.

Strategic priorities

→ Optimise geographic portfolio by selectively reshaping sub-scale unprofitable markets and prioritising larger or more profitable markets
→ Shift the income mix towards 'asset-light' businesses, such as network and flow opportunities in Corporate & Institutional Banking and Commercial Banking, and towards Wealth and Priority clients in Retail Banking
→ Deploy differentiating digital capabilities in key markets to improve client experience and productivity

Progress

→ Exited Retail Banking in the Philippines and Thailand in 2017, and our stake in Asia Commercial Bank in early 2018, investments in Singapore, India and Vietnam are showing early positive impact
→ The business 'mix shift' is starting: 6 per cent year-on-year cash liabilities growth, global subsidiaries up 13 per cent, new Priority clients grew 18 per cent, wealth assets under management up 25 per cent
→ Encouraging early signs of digital adoption in key markets, with a faster pace of improving digital sales penetration

Performance highlights

→ Underlying profit before taxation of $492 million declined 22 per cent year-on-year due to negative operating leverage impacted by low volatility in Financial Markets and higher costs as we invested for future growth
→ Underlying income of $3,833 million fell 5 per cent year-on-year driven by the decisions to exit Retail Banking in Thailand and the Philippines, and from the impact of low volatility on Financial Markets. Retail Banking income, excluding the impact of exits, rose 4 per cent year-on-year, and Commercial Banking income was up 5 per cent year-on-year
→ Client activity was positive with 13 per cent growth in loans and advances to customers and 8 per cent growth in customer accounts since December 2016
→ The difference of $142 million between statutory and underlying profit represents restructuring costs of $161 million, which are offset by gains on sale of business of $19 million

Standard Chartered

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25

Africa & Middle East

Highlights of 2017

Profit before taxation

$642m

underlying basis

$609m

statutory basis

Risk-weighted assets

$56bn

Loans and advances to customers

Africa & Middle East
10% of Group

Income split by key markets

UAE	Others
27%	73%

Region overview

We have a deep-rooted heritage of over 150 years in Africa & Middle East and are present in 25 markets, of which the UAE, Nigeria, Pakistan and Kenya are the largest by income. Among international banks we have the broadest presence across sub-Saharan Africa by number of markets.

A rich history, deep client relationships and a unique footprint in the region and across key origination centres in Asia, Europe and the Americas enable us to seamlessly support our clients. Africa & Middle East is an important part of global trade and investment corridors, including those on the Belt and Road initiative and we are well placed to facilitate these flows. Demand for capital remains robust, with favourable demographics, urbanisation and infrastructure investment.

While the economic challenges in Africa & Middle East were severe in 2015 and 2016, our business stabilised in 2017 and we remain confident that the opportunities in the region will support long-term sustainable growth for the Group. We continue to invest selectively and drive efficiencies.

Strategic priorities

→ De-risk and improve the quality of income, and maintain a stable platform for sustainable growth
→ Build income momentum in Corporate & Institutional Banking by providing best-in-class structuring and financing solutions and driving origination through client initiatives
→ Continue investing in market-leading digitisation initiatives in Retail Banking to protect and grow market share in core markets

Progress

→ The UAE, a key market, has turned around and Commercial Banking in the region has stabilised
→ Reinforced our strong market presence through a number of marquee deals from sovereigns, financial institutions and corporate clients
→ On track to deliver digital solutions across key countries in Africa during 2018

Performance highlights

→ Underlying profit before taxation of $642 million rose 49 per cent year-on-year, driven by a reduction in loan impairment
→ Despite economic challenges in the region, underlying income of $2,764 million was up 1 per cent year-on-year driven by Africa up 4 per cent while Middle East, North Africa and Pakistan were down 2 per cent. Strong Transaction Banking and Wealth Management performance was offset by the impact of lower volatility in Financial Markets and lower margins in Retail Products
→ Loans and advances to customers were up 5 per cent year-on-year and customer accounts grew 6 per cent
→ The difference of $33 million between statutory and underlying profit represents restructuring costs

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STRATEGIC REPORT

Regional reviews

Europe & Americas

Highlights of 2017

Profit before taxation

$71m

underlying basis

$46m

statutory basis

Risk-weighted assets

$45bn

Loans and advances to customers

Europe & Americas

16% of Group

Income split by key markets

UK

46%

US

42%

Others

12%

Region overview

The Group supports clients in Europe & Americas through hubs in London and New York as well as a presence in several European and Latin American markets. We offer our clients rich network and product capabilities through our knowledge of working in and between Asia, Africa and the Middle East. We also have a Private Banking business, focused on serving clients with linkages to our Asia, Africa and Middle East footprint markets.

The region is a major income origination engine for the Group's Corporate & Institutional Banking business. Clients based in Europe & Americas generate over one-third of Corporate & Institutional Banking income, with two-thirds of that income booked in the Group's other regions where the service is provided.

The region is home to the Group's two biggest payment clearing centres and the largest trading room. Over 80 per cent of the region's income derives from Financial Markets and Transaction Banking products. Given this mix, the business we do across the Group with clients based in Europe & Americas generates above average returns.

Strategic priorities

→ Continue to attract new international corporate and financial institutions clients and deepen relationships with existing clients by banking them across more markets in our network
→ Enhance capital efficiency, maintain strong risk oversight and further improve the quality of our funding base
→ Grow our Private Banking franchise and assets under management in London and Jersey

Progress

→ Good progress made in attracting new clients and broadening relationships with existing clients; 79 new multinational corporate clients on-boarded in the region in 2017
→ Underlying returns from Corporate & Institutional Banking clients continue to improve along with the improved risk profile
→ Assets under management for Private Banking clients grew by 17 per cent in 2017

Performance highlights

→ The region returned to profitability with an underlying profit for the year of $71 million, supported by a substantial reduction in loan impairment following earlier management actions. Expense growth reflects the continued investment in people and globally driven investments in systems and product capabilities
→ Underlying income of $1,601 million was 4 per cent lower year-on-year impacted by a decline in market volatility in Financial Markets which was only partly offset by an improvement in Cash Management income. Income generated by our clients that is booked in other markets grew by 17 per cent in 2017
→ Loans and advances to customers were up 6 per cent year-on-year and customer accounts grew 9 per cent
→ The difference of $25 million between statutory and underlying profit represents restructuring costs

Standard Chartered

Strategic Report 2017

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Driving commerce and prosperity through our unique diversity

Supporting expansion in Sri Lanka

MAS Intimates Unichela, one of the largest apparel organisations in South Asia, has been working with us to expand its operations and commercial footprint

We used our strong presence in South Asia, as well as our international banking experience, to help MAS Intimates Unichela grow into an industry leader in the region. From payments and settlements to trade facilities and financing, our services have helped the company expand into countries such as Indonesia and Bangladesh and trade internationally. Our Relationship Managers have been pivotal in providing expert advice to benefit not only MAS Intimates Unichela, but also other businesses across South Asia.

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STRATEGIC REPORT

Group Chief Financial Officer's review

Group Chief Financial Officer's review

Significant improvement in the Group's profitability

Performance summary

The significant improvement in the Group's profitability in 2017 was a direct consequence of the many operational and financial actions taken since 2015 and provides a solid base off which to improve return on equity further over the coming years.

→ Statutory profit before tax of $2.4 billion is stated after restructuring and other items of $595 million and was a significant improvement compared to the previous year. All commentary that follows is on an underlying basis unless otherwise stated and a reconciliation between statutory and underlying profit is provided in note 2 of the financial statements in the full Annual Report

→ Underlying profit before tax of $3.0 billion was 175 per cent higher year-on-year and 71 per cent higher excluding losses in 2016 in Principal Finance

→ Underlying operating income of $14.3 billion was up 3 per cent year-on-year with good momentum across a range of products partly offset by industry-wide low volatility that affected Financial Markets

→ Underlying operating expenses of $9.9 billion excluding the UK bank levy were 3 per cent higher year-on-year primarily resulting from the implementation of some significant regulatory programmes and higher variable pay arising from the Group's improved financial performance

→ Gross cost efficiencies were delivered ahead of plan and used to fund investments and offset inflation

→ The UK bank levy of $220 million was $163 million lower after updating estimates made in previous years. The UK bank levy in 2018 is expected to be around $310 million

→ Underlying impairment of loans and advances and other credit risk provisions of $1.2 billion was half the level it was in 2016 reflecting management actions to improve the quality of the Group's portfolios

→ Profit from associates and joint ventures of $210 million was significantly higher than in 2016

→ The Group incurred net restructuring charges of $353 million taking the total since November 2015 to $3.1 billion with the exit of Principal Finance and the remaining exposures in the liquidation portfolio left to complete

→ Other items include goodwill impairment of $320 million following an increase in the discount rate applied to the Group's subsidiary in Taiwan and a $78 million net gain on the disposal of equity investments

→ Changes to the US tax regime caused a reduction in the Group's deferred tax assets of $220 million. The underlying effective tax rate excluding the impact of these reforms and tax on other normalised items was 32.0 per cent

→ The Group is well capitalised with a Common Equity Tier 1 (CET1) ratio of 13.6 per cent and is highly liquid. Customer loans and advances grew 12 per cent in the year, and liabilities 9 per cent

→ The impact of adopting IFRS 9 on 1 January 2018 is an increase in credit provisions of $1.2 billion and, in line with the Group's previous guidance, an estimated decrease in the Group's CET1 ratio by around 15 basis points. Under transitional rules the day-one impact on the CET1 ratio is negligible

→ Based on the 2017 balance sheet the Group's early assessment of the impact of final Basel III reforms to be implemented in 2022 is an increase in the Group's risk-weighted assets (RWAs) of 10-15 per cent

→ The Board has recommended resuming a dividend given improving financial performance and strong capital starting with a full year dividend for 2017 of 11 cents per ordinary share. The intent is to increase the dividend per share over time as the Group's performance improves

Underlying profit before tax 175% higher year-on-year

$3.0bn

Standard Chartered

Strategic Report 2017

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	2017 $million	2016 $million	Better/(worse) %
Operating income	14,289	13,808	3
Other operating expenses	(8,599)	(8,465)	(2)
Regulatory costs	(1,301)	(1,127)	(15)
UK bank levy	(220)	(383)	43
Operating expenses	(10,120)	(9,975)	(1)
Operating profit before impairment losses and taxation	4,169	3,833	9
Impairment losses on loans and advances and other credit risk provisions	(1,200)	(2,382)	50
Other impairment	(169)	(383)	56
Profit from associates and joint ventures	210	25	nm
Underlying profit before taxation	3,010	1,093	175
Restructuring	(353)	(855)	nm
Other items	(242)	171	nm
Statutory profit before taxation	2,415	409	nm
Taxation	(1,147)	(600)	(91)
Profit/(loss) for the period	1,268	(191)	nm
Net interest margin (%)	1.6	1.5
Underlying return on equity (%)	3.5	0.3
Statutory return on equity (%)	1.7	(1.1)
Underlying earnings per share (cents)	47.2	3.4
Statutory earnings/(loss) per share (cents)	23.5	(14.5)
Dividend per share (cents)	11	-
Common Equity Tier 1 (%)	13.6	13.6

Underlying income

Operating income of $14.3 billion was up 3 per cent year-on-year. Good momentum in Transaction Banking, Wealth Management and Deposits, particularly across Greater China & North Asia, together with higher Treasury income more than offset the impact of industry-wide lower volatility in Financial Markets.

→ Corporate & Institutional Banking income was flat year-on-year. Excluding losses incurred in 2016 in relation to Principal Finance, income was 3 per cent lower as the impact of low volatility in Financial Markets more than offset higher income from Transaction Banking

→ Retail Banking income was 4 per cent higher year-on-year and 7 per cent higher excluding the impact of exiting Retail Banking in Thailand and the Philippines. The Group's focus on Priority clients resulted in a strong performance in Wealth Management and Deposits. This more than offset the impact of lower margins on unsecured lending to Personal clients

→ Commercial Banking income was 3 per cent higher year-on-year with broad based growth in Transaction Banking, Financial Markets and Corporate Finance offsetting lower income from Lending

→ Private Banking income was 1 per cent higher year-on-year and 6 per cent higher excluding an insurance recovery booked in the first quarter of 2016. This followed good growth in income from investment products that now account for around 65 per cent of total assets under management

→ Income from Central & other items (segment) was 29 per cent higher year-on-year benefiting from a lower interest expense than in 2016. Gains in the first half from active interest rate management and a third quarter dividend from a strategic investment were largely offset by a hedge accounting adjustment in the fourth quarter

→ Income from Greater China & North Asia was up 8 per cent year-on-year following a strong performance in Hong Kong and further improvement in Korea

→ ASEAN & South Asia income was 5 per cent lower year-on-year. Excluding the impact of Retail Banking business exits, income was 2 per cent lower with improved performances in Retail Banking and Commercial Banking offset by the impact of low volatility in Financial Markets, particularly in Singapore which is a major Financial Markets hub for the region

→ Income from Africa & Middle East was broadly stable year-on-year and up 3 per cent on a constant currency basis

→ Europe & Americas income was 4 per cent lower year-on-year. The region's status in the Group as a hub for Financial Markets activity meant it was particularly impacted by industry-wide lower volatility. The region is a significant contributor to the Group with around one-third of Corporate & Institutional Banking income originated with clients that are based there

Underlying expenses

Other operating expenses of $8.6 billion were up 2 per cent year-on-year driven primarily by higher variable pay arising from the Group's improved business performance.

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STRATEGIC REPORT

Group Chief Financial Officer's review

Group Chief Financial Officer's review continued

Performance summary continued

Regulatory costs of $1.3 billion were 15 per cent higher year-on-year, reflecting the implementation of a number of significant regulatory programmes.

The UK bank levy of $220 million included a $105 million benefit in relation to changes to estimates made in previous years and as a result was $163 million lower year-on-year. The UK bank levy in 2018 is expected to be around $310 million.

The Group had by the end of 2017 delivered over 85 per cent of its $2.9 billion three-year gross cost efficiency target set in November 2015. This is ahead of plan and has created capacity to fund investments and offset inflation.

Underlying impairment

Loan impairment of $1.2 billion was half the level seen in 2016 benefiting from past actions taken to improve the Group's risk profile. The year-on-year improvement was broad-based by client segment and region. Increases in loan impairment in the fourth quarter related to a small number of Commercial Banking clients the Group had been monitoring for some time and a one-off provision in Retail Banking following a change to regulation in Korea.

Other impairment was lower year-on-year following the Group's decision to exit Principal Finance which in 2017 was reported within restructuring and is therefore excluded from the Group's underlying performance.

Profit from associates and joint ventures

Profit from associates and joint ventures of $210 million reflected an improved performance of the Group's joint venture in Indonesia and the continuing good performance of the Group's associate investment in China.

Profit before tax

As a consequence of the many actions taken since 2015 underlying profit before tax of $3.0 billion was 175 per cent higher year-on-year and 71 per cent higher excluding the impact of Principal Finance losses in 2016. Statutory profit before tax of $2.4 billion which is stated after restructuring and other items was $2.0 billion higher.

These actions have resulted in improved operating profit across most client segments including a significant increase in Corporate & Institutional Banking and good growth in Retail Banking, while Commercial Banking returned to profit. By region, improvement across Greater China & North Asia offset the impact of lower income from the Group's Financial Markets hubs located in ASEAN & South Asia and Europe & Americas. The prior year performance in Central & other items (region) was impacted by Principal Finance losses.

	2017 $million	2016 $million	Better/(worse)%		2017 $million	2016 $million	Better/(worse)%
Corporate & Institutional Banking	1,261	435	190	Greater China & North Asia	1,942	1,340	45
Retail Banking	873	766	14	ASEAN & South Asia	492	629	(22)
Commercial Banking	282	(120)	nm	Africa & Middle East	642	431	49
Private Banking	(1)	32	nm	Europe & Americas	71	(148)	nm
Central & other items	595	(20)	nm	Central & other items	(137)	(1,159)	nm
Underlying profit before taxation	3,010	1,093	175	Underlying profit before taxation	3,010	1,093	175

Group credit quality and liquidation portfolio

The credit quality of the Group overall has improved year-on-year with the focus on better quality origination within a more granular risk appetite driving improvement across all client segments. The Group remains watchful for emerging risks in view of persistent challenging conditions as well as continued geopolitical uncertainty.

The Group's client exposures are well collateralised, well diversified, and remain predominantly short tenor.

Non-performing loans

Gross non-performing loans (NPLs) in the ongoing business were $573 million higher year-on-year driven by increases related to the downgrade in the fourth quarter of a small number of Corporate & Institutional Banking clients partly offset by write-offs and recoveries in Commercial Banking and lower NPLs in Retail Banking. New inflows into NPLs related primarily to a small number of exposures that the Group had been monitoring for some time in the oil and gas support services sector and in India.

Credit grade 12 accounts

Credit grade 12 accounts were stable year-on-year. Increases in the fourth quarter related to the downgrade of a small number of Commercial Banking exposures in Africa & Middle East to reflect the continued challenging conditions there.

Cover ratio

The cover ratio of NPLs in the ongoing portfolio reduced from 69 per cent at 31 December 2016 to 63 per cent at 31 December 2017. The cover ratio including collateral increased from 74 per cent to 79 per cent over the same period, reflecting the higher degree of collateral held against new inflows into NPLs.

Liquidation portfolio

The Group has made significant progress exiting exposures in the liquidation portfolio having reduced gross NPLs by $1.6 billion since 31 December 2016. The Group has since November 2015 reduced RWAs associated with this portfolio from $20 billion to $815 million. The exposures are 86 per cent covered with net NPLs of $653 million remaining to be exited.

Standard Chartered

Strategic Report 2017

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31

	2017			2016
	Ongoing business $million	Liquidation portfolio $million	Total $million	Ongoing business $million	Liquidation portfolio $million	Total $million
Impairment
Underlying loan impairment	1,200	-	1,200	2,382	-	2,382
Restructuring loan impairment	42	120	162	-	409	409
Statutory loan impairment	1,242	120	1,362	2,382	409	2,791
Loans and advances
Gross loans and advances	289,007	2,248	291,255	258,396	3,854	262,250
Net loans and advances	284,878	675	285,553	254,463	1,433	255,896
Credit quality
Gross non-performing loans	6,453	2,226	8,679	5,880	3,807	9,687
Individual impairment provisions	(3,607)	(1,573)	(5,180)	(3,355)	(2,421)	(5,776)
Net non-performing loans	2,846	653	3,499	2,525	1,386	3,911
Credit grade 12 accounts1	1,483	22	1,505	1,499	22	1,521
Cover ratio (%)	63	71	65	69	64	67
Cover ratio after collateral (%)	79	86	81	74	80	76
Risk-weighted assets	278,933	815	279,748	265,637	3,808	269,445

1 Includes Corporate & Institutional Banking and Commercial Banking

Restructuring and other items

The Group incurred restructuring charges in 2017 of $353 million relating primarily to the ongoing reduction of the liquidation portfolio and exit of the Principal Finance business as well as redundancy costs. Restructuring charges since November 2015 total

$3.1 billion and are in line with guidance with the exit of the Principal Finance portfolio and the remaining exposures in the liquidation portfolio left to complete.

In 2017 as part of its annual assessment the Group incurred goodwill impairment

of $320 million related to an increase in the discount rate applied to its subsidiary in Taiwan.

In 2017 the Group realised a $78 million net gain on completion of the disposal of equity investments.

	2017		2016
	Restructuring $million	Other items $million	Restructuring $million	Other items $million
Operating income	58	78	(85)	337
Operating expenses	(297)	-	(236)	-
Impairment losses on loans and advances and other credit risk provisions	(162)	-	(409)	-
Other impairment	(10)	(320)	(63)	(166)
Profit/(loss) from associates and joint ventures	58	-	(62)	-
Profit before taxation	(353)	(242)	(855)	171

Balance sheet and capital

Balance sheet

Net loans and advances to customers were up 12 per cent year-on-year to $285.6 billion with strong and broad-based growth across a range of products including in the fourth quarter. Customer deposits of $411.7 billion were up 9 per cent year-on-year as the Group continued to focus on improving the quality and mix of its liabilities. As a result,

the Group's customer advances to customer deposits ratio increased to 69.4 per cent compared to 67.6 per cent as at 31 December 2016.

CET1 ratio

The Group is well capitalised with a CET1 ratio at the end of 2017 of 13.6 per cent. The benefit of profits after a deduction for

a dividend was offset by a $10.3 billion increase in RWAs primarily relating to the application of loss given default (LGD) floors for certain exposures to financial institutions. A lower increase is expected in 2018 from the application of LGD floors for certain exposures to corporates.

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STRATEGIC REPORT

Group Chief Financial Officer's review

Group Chief Financial Officer's review continued

Balance sheet and capital continued

IFRS 9

The estimated impact of adopting IFRS 9 on 1 January 2018 is an increase in credit provisions of $1.2 billion and, in line with previous guidance, a reduction in the Group's CET1 ratio by approximately 15 basis points. Under transitional rules some components of IFRS 9 are phased in over five years resulting in a negligible day-one impact on the CET1 ratio. More detail on the impact on loan impairment as well as the classification and measurement of financial instruments is set out in note 41 in the full Annual Report. The

Group will publish a transition report ahead of the first quarter 2018 interim management statement.

Final Basel III reforms

In December 2017 the Basel Committee on Banking Supervision published final details of its Basel III reforms. First announced in 2010 as a response to the global financial crisis these reforms seek to restore credibility in the calculation of RWAs and improve the comparability of banks' capital ratios. These reforms that are expected to be implemented

in 2022 include changes to the capital calculation methodology for credit and operational risk and introduce constraints on the estimates banks make when they use their internal models for regulatory capital purposes, and, in some cases, remove the use of internal models. National discretion and how these reforms might be transposed into law make it difficult to reliably estimate the impact but based on the 31 December 2017 balance sheet the Group's early assessment is an increase in RWAs of 10-15 per cent.

	2017 $million	2016 $million	Increase / (decrease) $million	Increase / (decrease) %
Loans and advances to banks	81,325	74,669	6,656	9
Loans and advances to customers	285,553	255,896	29,657	12
Other assets	296,623	316,127	(19,504)	(6)
Total assets	663,501	646,692	16,809	3
Deposits by banks	35,486	37,612	(2,126)	(6)
Customer accounts	411,724	378,302	33,422	9
Other liabilities	164,484	182,120	(17,636)	(7)
Total liabilities	611,694	598,034	13,660	2
Total equity	51,807	48,658	3,149	6
Total equity and liabilities	663,501	646,692	16,809	3
Advances to deposits ratio (%)	69.4	67.6	-	-
Common equity tier 1 ratio (%)	13.6	13.6	-	-
Risk-weighted assets	279,748	269,445	10,303	4

Summary

We have made encouraging progress transforming the Group with good momentum in key investment areas contributing to significant improvements in both underlying and statutory profits.

Competition remains strong and certain geopolitical tensions are elevated but economic conditions are improving and emerging regulatory clarity has allowed us to resume paying dividends.

It is encouraging to see the improvement in profitability and the increased balance sheet momentum but there is still a long way to go before returns are at acceptable levels. Transitioning to a higher quality income and more sustainable business takes time but we are evidentially heading in the right direction.

We are investing to enhance controls and improve productivity to make us safer and simpler to do business with. Cost efficiencies are funding the investments in systems and processes that will enable us to engage more confidently and effectively with our clients.

The focus now is on ensuring that we share in the natural sectoral growth in our markets through maintaining and developing ever-closer relationships with our clients, further reducing our costs of funds and realising the benefits of our continuing technology investments.

Andy Halford
Group Chief Financial Officer
27 February 2018

Standard Chartered

Strategic Report 2017

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33

Group Chief Risk Officer's review

A refreshed approach to managing risk

2017 was a year of continued progress for the management of risk in the Group. With stronger origination discipline and targeted growth, the Group has seen improved asset quality across our businesses. Loan impairment was lower, and diversification across industry sectors and geographies increased as the Group continued to add new clients selectively. Our focus on embedding a sustainable risk culture and an effective enterprise risk management approach is helping to build a more resilient bank for the benefit of our colleagues, clients and investors.

We have made significant progress in our work to combat financial crime and have increased focus on our cyber risk management capabilities. We recognise that these are continually evolving threats and we cannot stand still in our fight to protect our business and society more generally. In addition we have developed a framework to refine and strengthen our conduct environment, and this will be a key priority in 2018. Risk is a shared responsibility of everyone in the Group, and is an intrinsic part of every decision that we make.

An update on our key risk priorities

Risk management is a dynamic process. Market-wide and company-specific

factors constantly reshape our business environment. We have a number of ongoing initiatives that will further enhance the risk management framework and capability of the Group. Here is an update of the progress against our key priorities in 2017.

→ Strengthen the Group's risk culture – We have made good progress on embedding a strong risk culture and increased focus on frontline ownership of risk, alongside further development of our Enterprise Risk Management Framework. This facilitates more dynamic risk identification and enables us to establish a clear linkage between strategic decision-making and risk management, as well as identifying and managing correlations across risk types

→ Manage and improve information and cyber security – High-profile security breaches have been a recurring focus in the media headlines and among regulators throughout 2017. We are placing even greater emphasis on improving our defences, creating stronger control frameworks, and expanding intelligence sharing efforts to keep pace with the evolving threats in cyberspace. The Group's deepening network of external partnerships strengthen our own intelligence efforts as well as those across the broader financial services sector. The Group is a founding

member of the Cyber Defence Alliance, an external organisation which facilitates information sharing with UK banks and law enforcement; a board member of the Financial Services – Information Sharing & Analysis Center; and a member of the National Cyber-Forensics & Training Alliance, for real-time information sharing and analysis. The Group also operates a Collective Intelligence & Command Centre to coordinate physical and cyber security responses to incidents

→ Enhance the compliance management framework – We have enhanced our compliance systems and controls, and improved the capability of our compliance resources. We have embedded ownership and responsibility for conduct across our geographic footprint, businesses and functions in a systematic and sustainable manner. We have strengthened our efforts to promote awareness of, and confidence in the Speaking Up Programme including extending our Speaking Up channels to the public

> Further details on the Group's Speaking Up Programme can be found in the Directors' report in the full Annual Report

→ Manage financial crime risks – We are committed to playing our part in the fight against financial crime. We continued to enhance our controls, systems and processes in 2017 as well as continuing to educate and engage all of our people on financial crime risk and the human and social harm of such crimes. The financial crime landscape continues to evolve, and we recognise the need to be vigilant against new and transforming threats as well as adapting to changes in relevant regulation and sanctions regimes. In 2017 we built a dedicated Cyber Financial Intelligence team in the US, and continued our Correspondent Banking Academy initiative across all of the regions in which we operate. This programme seeks to support our clients in enhancing their financial crime controls, and share international best practices and learning materials. In October 2017 we also held our first Financial Crime Risk Management Academy for non-government organisations as part of our 'De-risking through education' initiative. Our collaborative approach enables us

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STRATEGIC REPORT

Group Chief Risk Officer's review

to continue providing services which are vital to the world economy in a safe and sound way

• More information about the Group's commitment to fighting financial crime can be found at sc.com/fightingfinancialcrime

→ Improve the risk and compliance infrastructure – The Group has multiple initiatives underway to improve infrastructure for compliance risk management, exposure management, data quality, stress testing, operational risk management and reporting. We have also worked to streamline and simplify our processes to serve clients better and drive internal efficiencies

Our risk profile and performance in 2017

The quality of our loan book has improved in 2017, with a focus on better quality new origination driving a stronger portfolio across all business segments, although we remain watchful for any emerging risks. This is aligned to a more granular risk appetite and enterprise-wide risk management approach. Our capital and liquidity positions remain strong, with all metrics above regulatory thresholds. The Group's client exposures remain predominantly short tenor and our portfolio is well diversified across various dimensions.

We have seen a significant decrease in loan impairment across all businesses, with overall loan impairment down 51 per cent to $1.4 billion in the last 12 months.

Overall gross non-performing loans (NPLs) for the Group have reduced as increases in the ongoing book were more than offset by planned reductions in the liquidation portfolio. Gross non-performing loans (NPLs) for the ongoing business increased from $5.9 billion to $6.5 billion in 2017, driven by a small number of exposures in Corporate & Institutional Banking from oil and gas support services and India. The majority of these counterparties were on early alert for an extended period prior to transferring to NPL and do not indicate any new areas of stress for the overall portfolio.

We continue to focus on early identification of emerging risks so that we can manage any areas of weakness on a proactive basis.

The cover ratio of NPLs in the ongoing business reduced from 69 per cent to 63 per cent, and including collateral improved to 79 per cent from 74 per cent.

Global financial markets experienced low volatility and average Group VaR was 19 per cent lower than the previous year at $26 million (2016: $32 million). The largest operational risk loss recognised as at 31 December 2017 relates to the Group's $17.2 million settlement of a United States class action brought against a number of banks concerning foreign exchange benchmark rates.

> Further details of the 2017 risk performance are set out in the Risk update and Risk profile sections in the full Annual Report

An update to our risk management approach

It is critical that our risk management approach continues to evolve and develop to meet the ever-changing risk landscape facing our business, to ensure it remains relevant and effective in generating safe and sustainable performance and growth for the Group. In 2017 we embarked on a key initiative to build out the Enterprise Risk Management function. This allows the Group to identify and manage risks holistically, ensuring the appropriate governance, oversight and information is in place to run a safe, secure and well-controlled organisation.

It also strengthens the Group's capabilities to understand, articulate and control the nature and level of risks we take while still effectively serving our clients.

As part of this initiative, a revised Enterprise Risk Management Framework was approved in December 2017, for implementation in 2018. We are continuing to develop a well-defined, healthy risk culture that is understood across the Group, as well as a clear control framework with sharper delineation of responsibilities between the three lines of defence. Further details on the Group's three lines of defence model are set out in the Enterprise Risk Management Framework section in the full Annual Report. We are also formalising the links between our strategy, risk appetite and stress testing to facilitate more dynamic risk identification and develop management processes which clearly integrate risk considerations into strategic decision making.

As part of these changes we have made a number of amendments to our Principal Risk Types. Specifically we have elevated Compliance, Information and Cyber security, Financial crime, and Conduct risk to Principal Risk Types. These were previously incorporated within the risk sub-types under Operational risk. Principal Risk Types are risks that are inherent in our strategy and business model and have been formally defined in the Group's Enterprise Risk Management Framework. The framework provides a structure for the monitoring and control of these risks through the Board-approved Risk Appetite. The Group will not compromise adherence to its Risk Appetite in order to pursue revenue growth or higher returns. The table below shows the Group's Principal Risk Types and how they are managed.

> Further details on Principal Risks are set out in the Risk management approach in the full Annual Report

Principal Risk Types	How these are managed
Credit risk	The Group manages its credit exposures following the principle of diversification across products, geographies, client segments and industry sectors
Country risk	The Group manages its country cross-border exposures following the principle of diversification across geographies and controls business activities in line with the level of jurisdiction risk
Market risk	The Group controls its trading portfolio and activities to ensure that market risk losses (financial or reputational) do not cause material damage to the Group's franchise
Capital and liquidity risk	The Group maintains a strong capital position including the maintenance of management buffers sufficient to support its strategic aims and holds an adequate buffer of high quality liquid assets to survive extreme but plausible liquidity stress scenarios for at least 60 days without recourse to extraordinary central bank support
Operational risk	The Group controls operational risks to ensure that operational losses (financial or reputational), including any related to conduct of business matters, do not cause material damage to the Group's franchise
Reputational risk	The Group protects the franchise from material damage to its reputation by ensuring that any business activity is satisfactorily assessed and managed by the appropriate level of management and governance oversight
Compliance	The Group has no appetite for breaches in laws and regulations, recognising that whilst regulatory breaches or non-compliance are unwanted, they cannot be entirely avoided
Conduct	The Group strives to maintain the standards in our Code of Conduct and outcomes of our Conduct Framework, by continuously demonstrating that we "Do The Right Thing" in the way we do business
Information and cyber security	The Group seeks to avoid risk and uncertainty for our critical information assets and systems and has a low appetite for material incidents affecting these or the wider operations and reputation of the bank
Financial crime	The Group has no appetite for breaches in laws and regulations related to Financial crime, recognising that whilst incidents are unwanted, they cannot be entirely avoided

1 Pension risk is now a risk sub-type of Market risk and Strategic risk has been integrated as part of the overall Enterprise Risk Management Framework. Further details of updates to our Principal Risk Types are discussed in the Principal Risks section in the full Annual Report

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Principal uncertainties

The revised Enterprise Risk Management Framework will provide a consolidated way of managing risk, and result in more proactive conversations about strategic risk. We have continued to roll out a more granular and well-defined risk appetite which enables our business to grow in a strong and sustainable manner, but we are aware of principal uncertainties on the horizon that are not fully clear and measurable.

Here is a summary of the principal uncertainties that the Group faces, and the steps that we are taking to manage them.

Principal uncertainties¹	Risk trend since 2016	How these are mitigated/next steps
Geopolitical events, in particular: increase in trade protectionism, Korean peninsula geopolitical tensions, the Middle East political situation and post-Brexit implications	↑	→ We continuously monitor and assess geopolitical events and, where appropriate, manage the impact to the Group and our clients.
→ We conduct stress tests and portfolio reviews at a Group, country and business level to assess the impact of extreme but plausible geopolitical events.
Macroeconomic conditions, in particular: moderation of growth in key footprint markets led by China and sharp interest rate rises and asset corrections	↓	→ We have a Business Risk Horizon framework that provides a 12- to 18-month forward view of the economic, business and credit conditions across our key markets, enabling us to take proactive action.
→ We monitor economic trends and conduct stress tests and portfolio reviews at a Group, country and business level to assess the impact of extreme but plausible events.
Climate-related physical risks and transition risks²	NEW	→ We are developing an approach for assessing energy utilities clients' power generation assets against a range of physical and transition risks, under multiple climate scenarios and a range of time horizons. We are considering how we extend this to other sectors in 2018.
→ We have made a public commitment to fund and facilitate $4 billion toward clean technology between 2016 and 2020.
Regulatory reviews and investigations, legal proceedings	↓	→ We have invested in improving compliance controls, including increasing the capacity and capability of compliance resources, enhancing systems and controls, and implementing remediation programmes (where relevant).
→ We are cooperating with all relevant ongoing reviews, requests for information and investigations and we actively manage legal proceedings, including in respect of legacy issues.
Regulatory changes and tax reforms	↓	→ We monitor regulatory initiatives across our footprint to identify any potential impact and change to our business model.
→ We have established specific regulatory programmes to ensure effective and efficient implementation of changes required by new, or changes in existing, regulations.
New technologies and digitisation	NEW	→ We continuously monitor developments in the technology space affecting the banking sector and the Group Management Team is exploring in more depth our approach to innovation.
→ We are engaged in a series of initiatives with the aim of building our capabilities to ensure we remain relevant in a position to capitalise rapidly on technology trends.

↑ Risk heightened in 2017
↓ Risk remained consistent with 2016 levels

1. Principal uncertainties refer to unpredictable and uncontrollable outcomes from certain events and circumstances which may have the potential to impact our business materially
2. Physical risks refer to the risk of increased extreme weather events while transition risks refer to the risk of changes to market dynamics due to governments' response to climate change

Cyber risk now forms part of our Principal Risk Types which we control and mitigate through distinct risk type frameworks, policies and risk appetite.

> Further details on Principal uncertainties, including key changes in respect of 2016, are set out in the Risk Management Approach in the full Annual Report

Conclusion

We continue to make strides in building a sustainable franchise in the interests of all our stakeholders. In order to drive commerce and prosperity, our organisation must take a long-term view by putting the needs of our clients first, supported by the right culture, people and practices. Though there will be headwinds along the way, we will continue with our mission to be an industry leader championing trust, integrity and quality.

Mark Smith
Group Chief Risk Officer
27 February 2018

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OUR COLLEAGUES

Improving practices in ship recycling

Roger Charles | Director, Environment Social Risk Management | Singapore

Having spent over 15 years working with oil and gas tankers as an engineer, Roger Charles, now a colleague at Standard Chartered, is working to improve practices in one of the world's most hazardous industries: ship recycling.

"The easy thing would be for Standard Chartered to walk away, but we want to improve conditions."

Ship recycling employs an estimated 200,000 workers in Bangladesh, with around a million people directly or indirectly related to the industry. While it's an important economic growth driver in emerging markets, we recognise that there are environmental and social challenges associated with the industry, including hazardous environments for workers. As a large international bank, we want to do what we can to help improve the industry.

"The easy thing would be for Standard Chartered to walk away, but we want to improve conditions, and we understand that, with industries such as this, it's not going to happen overnight," says Roger.

In return for our lending, the shipyards we work with have agreed to follow internationally recognised environmental, health and safe working practices. This includes providing safety training programmes, protective clothing, fair working hours and regular health checks.

So that we can monitor progress, an independent environmental consultancy audits clients annually, and Roger visits clients at least twice a year. His industry experience means he knows what safety and environmental aspects to look out for and, having once forged a career in building ships, he knows his way around one.

One of our clients, PHP, has just achieved compliance with the Hong Kong Convention, a set of internationally recognised ship recycling standards. It's the first step for Bangladesh to become compliant and Roger sees this as a game changer. "I'm proud to be a part of this team of industry experts. The fact that Standard Chartered employs people like me shows it understands that environmental social management underpins good business."

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STRATEGIC REPORT

Stakeholders and responsibilities

Stakeholders and responsibilities

Our stakeholders

To drive commerce and prosperity across our footprint, we need to take a long-term view. Listening and responding to stakeholder issues or concerns is critical to achieving this. We strive to maintain open and constructive relationships with a wide range of stakeholders to help us operate as a responsible and sustainable business

We engage in regular dialogue with stakeholders, and track and assess long- and short-term issues based on their impact on our business and level of stakeholder concern. Stakeholder feedback is shared with the senior leaders within the Group and progress is communicated annually through channels such as this report. This helps inform our business strategy and build sound relationships in the markets where we operate.

COMMUNITY ENGAGEMENT

Empowering girls and young women

More than 130 delegates from the public, private and not-for-profit sectors attended our first Beyond Girls' Education Summit in South Africa in 2017. The event provided insights from advocacy, technology and education programmes including Goal, our programme to empower girls through sports and life-skills training, and generated 45 new commitments to help young women move from education to employment.

Our stakeholders

Clients

How we serve and engage

We enable individuals to grow and protect their wealth. We help businesses to trade, transact, invest and expand. We also help a variety of financial institutions – including banks, public sector and development organisations – with their banking needs

Our strategy is dependent on our ability to develop deep, long-term relationships with our clients. We aim to deliver fair outcomes for clients by designing products and delivering services that meet their needs and are appropriate to their circumstances. Where issues arise, we aim to deal with complaints in a fast, fair and efficient way. We have sector-specific procedures and processes in place to handle client complaints in each business segment.

Engagement with clients in 2016, through surveys, client experience forums and third-party studies, identified a need to simplify our processes. As a result, in 2017, we improved the customer experience across our businesses through continued investment in technology innovation and streamlined processes. Client feedback on this indicates we are moving in the right direction.

> For more information about our clients, read the Client segment reviews on pages 18 to 21

Regulators and governments

How we serve and engage

We engage with relevant authorities to play our part in supporting the effective functioning of the financial system and the broader economy

We are committed to complying with all legislation, rules and other regulatory requirements applicable to our businesses and operations in the jurisdictions within which we operate. Our compliance with legal and regulatory frameworks across our markets ensures that the Group meets its obligations. In turn, this supports the resilience and effective functioning of the Group and the broader financial system and economy. On a day-to-day basis, our Compliance and Public Affairs functions are responsible for identifying changes to financial services regulation, ensuring that we comply with all requirements, and help to manage relationships.

We actively engage with governments, regulators and policymakers at a global, regional and national level to share insights and technical expertise on key policy issues. This engagement supports the development of best practice and the adoption of consistent approaches across our markets. We comply with all relevant transparency requirements and engage with governments and regulators in many ways, including through ongoing dialogue, submission of responses to formal consultations and by joining and participating in industry working groups.

In 2017, we engaged with policymakers at all levels to exchange information on topics such as prudential rules, Brexit and trade promotion, Fintech, cyber security and fighting financial crime.

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Investors

How we serve and engage

We aim to deliver robust returns and long-term sustainable value for our investors

The Group receives capital from equity and debt investors. This supports the execution of our business model. Our investor base includes active traders and long-term stakeholders, those interested solely in financial returns and those who are also concerned with environmental and social issues. As such, we engage with investors about all aspects of our financial, environmental and social performance. Whatever the nature of the investor, we treat them equally and aim to balance their diverse interests and expectations.

We communicate with investors in several ways, including presenting scheduled results and via ad hoc media releases. We also meet investors at the Annual General Meeting and at investor meetings and conferences, while our inclusion in sustainability indices, such as the Dow Jones Sustainability Index and the FTSE4Good, provides investors with independent benchmarking data on our performance in these areas.

During 2017, acting on investor feedback for more access to the people running our businesses, we hosted two investor seminars at our London office. These seminars presented an opportunity to understand better the strategy for our largest geographic region, Greater China & North Asia, and our largest client segment, Corporate & Institutional Banking, and to hear directly from the teams managing them.

> For more information about Board engagement with shareholders in 2017, see the Corporate governance section in the full Annual Report

Colleagues

How we serve and engage

We offer colleagues opportunities to learn and progress. We encourage them to improve and innovate, to take ownership of their careers and succeed together

• employee networks and three Global Networks (Women, Disability and LGBT & Allies). These networks raise awareness and offer professional development, mentoring, networking and connections to our communities.

In 2017, the Board Remuneration Committee agreed a Fair Pay Charter, which sets out the principles that guide all of our reward and performance decision making. One of these principles is our ongoing commitment to rewarding colleagues in a way that is free from discrimination on the basis of diversity, including gender. Full details of our Fair Pay Charter are set out in the Directors' remuneration report in the full Annual Report.

The strength of our diversity

With more than 86,000 colleagues in 63 markets, we are proud to represent the broad range of cultures across the communities we serve. Harnessing the inherent diversity of thoughts, views and experiences across the Group is critical to our business success and fundamental to our purpose. We are committed to creating a work environment that enables our colleagues' diverse strengths to impact our clients and communities.

Our vision is to create a culture of inclusion where talents and individuality are valued and respected, and we are working hard to realise this. Our global Diversity and Inclusion Council ensures we continue our collective focus on creating an organisation where everyone feels supported and empowered.

In 2017, we introduced a standard flexible working practice to ensure all colleagues have the opportunity to choose how they work, whether that is part-time, flexible time, or working from home.

We increased the benefits we offer new parents globally, fully paid maternity leave from a minimum of 40 days to a minimum of 20 weeks, and increasing fully paid parental leave for the spouse or partner increasing from a minimum of two days to two weeks. We also support over 50 country-based

Gender pay gap

We have analysed our gender pay gap for the UK and for four of our major markets. The gender pay gap compares the average pay of men and women, without taking into account some of the key factors which influence pay, including different roles, skills, seniority and market pay rates. Our gender pay gap is caused by the lower number of women in senior roles and in business areas where market rates of pay (both fixed and variable) are highest.

When adjusting the hourly pay gap for men and women carrying out roles at the same level in the same business area across the same markets, the gender pay gap is significantly smaller – ranging from no discernible gap to three per cent.

Equal pay is a more detailed measure of pay equality than the gender pay gap. We also analyse equal pay as part of the annual performance and pay review process globally.

• Download our gender pay gap report at sc.com/genderpaygap

	UK	Hong Kong	Singapore	UAE	US
Mean hourly pay gap	30%	33%	39%	31%	24%
Mean bonus pay gap	57%	56%	55%	64%	53%
	UK	Hong Kong	Singapore	UAE	US
Jobs at same level and business area	3%	-1%	2%	0%	3%

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STRATEGIC REPORT

Stakeholders and responsibilities

Stakeholders and responsibilities continued

Our stakeholders

Colleagues continued

The Group does not discriminate based on gender and we have made progress in addressing the gender pay gap, but we are clear that we have more to do. We have a range of actions in place.

We have signed the UK HM Treasury Women in Finance Charter and are committed to women occupying 30 per cent of our senior leadership roles by 2020. Since signing the Charter, we have seen an increase in female representation in our senior management from 25.5 per cent to 25.7 per cent during 2017. At Board level, 30.8 per cent of members are women and our Management Team is comprised of 42.9 per cent women. Two of our four regions and five of our largest markets – Hong Kong, Singapore, India, China and Nigeria – are run by female CEOs.

Alongside improving our flexible working practices and parental leave, we have built requirements into our policies and processes to ensure that managers are making objective and fair decisions, including gender balanced candidate lists for hiring. We review promotion lists and succession plans to ensure we have adequate diverse representation.

We have also introduced training for managers with the objective of minimising unconscious bias. Beyond gender, we are also committed to ensuring our colleagues are reflective of the communities we serve, including nationality, ethnicity, disability, generations and sexual orientation.

All our diversity and inclusion initiatives, including the management focus on increasing the number of women in senior roles in line with our Women in Finance Charter commitment, implementing flexible working practices globally, providing leadership development and mentoring, and extending our parental leave benefits will help us to improve our diversity in senior management roles and across all our business areas.

Transforming our culture

In 2016, we began the process of transforming our culture – ensuring we become truly focused on our clients, more innovative and efficient in a sector undergoing profound change, as well as being an employer of choice across our markets. In 2017, we engaged with over 70,000 colleagues to determine the valued behaviours that clearly set out how we achieve these goals, and ultimately our purpose to drive commerce and prosperity through our unique diversity. In 2018, we will fully embed these valued behaviours in how we select, on-board, recognise and reward people, beginning with integrating them into our performance management process.

Our aim is to create a truly differentiated working environment and we are committed to measuring progress against this goal. We aim to increase the engagement and retention of our colleagues and mitigate against our key people risk of attrition. We have developed a culture dashboard to track progress against these measures.

Developing colleagues

We continue to focus on the development, engagement and wellbeing of our colleagues and we have maintained a strong focus on talent and succession management.

In 2017, we introduced a talent evaluation tool which was completed for over 22,000 of our colleagues and used as an input to mid-year performance and career conversations. At senior levels, we completed succession plans for 16 roles at Management Team level and their direct reports, and development plans are in place for all individuals appearing on these plans. We successfully completed a regional talent development programme for our Africa & Middle East region, which will act as a blueprint for our development of country, region and global business talent pools.

In 2018, our focus is on building line manager capabilities and developing role-based learning curricula, as well as developing our assessment tools to hire more people internally, with an internal target of filling 70 per cent of Band 4 – Grade 7 roles with internal candidates.

Our efforts to increase the development and career opportunities of our colleagues are reflected in an improvement in our employee Net Promoter Score, which is four percentage points higher year-on-year. We have also started to track satisfaction with development opportunities through our engagement survey and realise there is potential to make more improvements this year.

In 2018, as part of the commitments in our Fair Pay Charter, we will be rolling out a new benefits platform which will empower our colleagues to choose the benefits which most suit their needs. This will accompany our Wellbeing programme, which supports the physical, mental, social and financial health of our colleagues. We have a strong belief that if we treat our colleagues well by looking after all aspects of their wellbeing, they will be happier and more productive at work.

Female representation

Board

Management Team

Senior management (Bands 1-4)

All employees

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Society

Employee engagement KPI

Employee Net Promoter Score (eNPS)

Aim Increase engagement across the Group by creating a better working environment for our colleagues, that should translate into an improved client experience.

5.9% +146%

The proportion of participating colleagues that are promoters (would recommend the Group as a great place to work) compared to detractors

Analysis In 2017, the first year that the Group introduced this measure, the eNPS was 5.9 per cent, meaning that more participating colleagues would promote the Group than would not.

Diversity and inclusion KPI

Gender diversity in senior roles

Aim Improve gender diversity in the Group's top levels of management by supporting, developing, promoting and retaining senior women colleagues.

25.7% +0.8%

The total number of women in the most senior (band 1-4) roles expressed as a percentage of total band 1-4 roles

Analysis In 2016, we signed the UK HM Treasury Women in Finance Charter and announced an overall target of having women occupy 30 per cent of our top four levels of management by December 2020. The 25.7 per cent result in 2017 was an improvement on 2016 and takes us closer to our target.

How we serve and engage

We strive to operate as a responsible and sustainable business, collaborating with local partners to promote social and economic development

Responsible and sustainable business

This section outlines our response to reporting requirements on environmental and social matters, human rights, and anti-bribery and corruption. We will continue to enhance our reporting on these issues over time.

Our sustainability priorities – contributing to sustainable economic growth, being a responsible company and investing in communities – provide a framework for how we respond to the social and environmental concerns of our stakeholders, and create opportunities to improve livelihoods.

These are supported by 11 Sustainability Aspirations, which set out measurable actions to achieve sustainable outcomes. Aligned to the UN Sustainable Development Goals, the Aspirations were launched in 2017 to help address environmental and social matters identified by stakeholders and colleagues in our key markets. We report progress against the Aspirations in our separate Sustainability Summary.

Download our Sustainability Aspirations at sc.com/sustainabilityaspirations

Contributing to sustainable economic growth

We use our core business of banking to promote sustainable development in our markets. This means managing environmental and social risks associated with our lending, and financing key sectors that drive sustainable economic growth.

Our approach to managing environmental and social risks is set out below. Additional information on how we finance the

opportunities associated with sustainable development are captured in our Aspirations. They include targets to expand digital and financial inclusion, support infrastructure and clean technology development, and support microfinance institutions.

Managing environmental and social risks

Our most significant environmental and social (E&S) impact comes from the businesses we finance. We have E&S risk management procedures that guide how we identify, assess and manage the risks impacting our clients' operations. We apply sector-specific standards, which draw on the IFC Performance Standards, Equator Principles and global best practice, to the financial services we provide to clients. These are set out in 17 sectoral and three thematic Position Statements that are embedded through our core banking processes.

Mechanisms in our origination and credit processes enable us to identify and assess environmental and social risks in accordance with our Position Statements. In 2017, our dedicated Environmental and Social Risk Management team reviewed 487 transactions that presented potential specific risks against our Position Statements. For all risks identified, we seek to develop effective mitigating measures. Where this is not possible, transactions have been, and will continue to be, turned down.

We work collaboratively with clients, other financial institutions, industry bodies, and civil society groups, to promote, develop and encourage leading E&S standards. In 2017, we engaged with these stakeholders primarily on palm oil and climate change. This dialogue contributed to the update of our Palm Oil Position Statement in 2017.

We continued to advance the commitments set out in 2016 in our Climate Change Position Statement. This includes work with the University of Oxford to develop and implement a framework for assessing energy utilities clients' power generation assets against a range of physical and transition risks, under different climate scenarios and time horizons.

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STRATEGIC REPORT

Stakeholders and responsibilities

Stakeholders and responsibilities continued

Our stakeholders

Society continued

Additionally, we welcomed the recommendations by the Financial Stability Board's Taskforce on Climate-related Financial Disclosures. We joined a United Nations Environment Programme for Financial Institutions' initiative to develop analytical tools and indicators to strengthen assessment and disclosure of climate-related risks and opportunities.

In 2017, we started a review of all our Position Statements, with updated and revised statements due to be published during 2018.

• Read our Position Statements at sc.com/positionstatements

Being a responsible company

Being a responsible company is about how we manage our business and promote the behaviours, values and principles that enable us to make the right decisions.

Good conduct management practices are embedded across the Group through our conduct management framework, which sets out our approach to identifying, controlling and governing conduct-related risks. The framework aims to ensure we have appropriate governance in place with a transparent business model, robust infrastructure and exemplary business practices. This creates an environment that supports ethical behaviour. Governance measures support leaders in hiring and recognising colleagues with good conduct, while performance objectives and reward mechanisms for colleagues are directly linked to behaviours and values. Managing the business in this way helps us to achieve fair outcomes for clients, and to operate effective markets.

Colleagues participate in mandatory training on the Group Code of Conduct and in 2017, 99.4 per cent reconfirmed their commitment to the Code as part of our annual process. Failure to adhere to the Code can result in disciplinary action and potentially dismissal.

Our whistleblowing channels are available to anyone – colleagues, contractors, suppliers and members of the public – to raise concerns confidentially and anonymously. Following the re-launch of our Speaking Up programme in late 2016, we have seen an increase in the number of concerns raised, which were investigated accordingly. In 2017, we also introduced Speaking Up Advocates in three pilot countries to help raise awareness and ensure Speaking Up is culturally relevant across our diverse geographic footprint.

• Download our Group Code of Conduct at sc.com/codeofconduct

Fighting financial crime

Financial crime hinders economic progress and harms communities. We are committed to building and maintaining robust defences to combat money-laundering, terrorist financing, sanctions compliance breaches, bribery, and other forms of corruption.

Our financial crime risk management activities, which include adherence to anti-money laundering and sanctions policies and the application of core controls such as client due-diligence screening and monitoring, are led by a dedicated Financial Crime Compliance (FCC) team. Our anti-bribery and corruption (ABC) policies aim to prevent colleagues, or third parties working on our behalf, from participating in active or passive bribery or corruption, or from making facilitation payments.

In 2017, we strengthened our ABC policies around employing referred candidates, screening suppliers, third-party payments, gifts and entertainment, sponsorship and donations, and risk management of intermediaries. We also extended training for FCC country heads to equip them with better knowledge, skills and tools to manage and oversee ABC risk mitigation activities.

In 2017, 99.3 per cent of colleagues completed ABC training and 99.2 per cent completed anti-money laundering training.

• For more, visit sc.com/fightingfinancialcrime

Respecting human rights

We are committed to respecting human rights and seek to ensure they are not adversely impacted in our role as an employer, financial services provider and procurer of goods and services. We recognise that our footprint and supply chain give us the opportunity to raise awareness of human rights and modern slavery in a wide range of markets and industries.

Our Position Statement outlines our approach to human rights, reflecting international standards including the International Bill of Human Rights, the UN Guiding Principles, and the UK Modern Slavery Act. This is then embedded across a range of policies and risk management frameworks, including our Group Code of Conduct and Supplier Charter.

In 2017, we reviewed our exposure to modern slavery risks via a cross-function working group, and assessed how these are addressed by our existing controls for colleagues, suppliers and clients. Our 2017 Modern Slavery Statement details the actions we are taking as a result. These include updating contractual language to strengthen supplier obligations to address modern slavery, and incorporating modern slavery awareness into our Correspondent Banking Academy training programme.

• Read our Supplier Charter at sc.com/suppliercharter and our 2017 Modern Slavery Statement at sc.com/modernslavery

Colleagues who committed to the Group Code of Conduct in 2017
99.4%

Employees who completed anti-money laundering training in 2017
99.2%

Employees who completed anti-bribery training in 2017
99.3%

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ENVIRONMENTAL PERFORMANCE

Managing our footprint

Our office in Nairobi, Kenya, is trialling a carbon-neutral biofuel for its on-site diesel generators that is made from the abundant, but inedible croton nut. It is one of several initiatives to boost the building's environmental efficiency, others include LED lights and solar photo-voltaic panels to offset power usage, and a water-recycling plant to reduce resource use.

Annual energy use of our property (kWh/m²/year)

Tropical climate¹

28% since 2008

Temperate climate¹

30% since 2008

1. Tropical energy usage relates to cooling; temperate energy usage relates to both heating and cooling

Managing our environmental footprint

We aim to minimise the environmental impact of our operations. Our major impact comes from the resources we consume in serving clients – energy, water and paper – to allow our offices and branches to function, and as such we measure our energy, water, paper and (non-hazardous) waste performance.

We have targets against which we measure and manage our greenhouse gas emissions, and reduction targets for water and energy use. Our reporting criteria sets out the principles and methodology, and our Scope 1 and 2 emissions are independently audited by The Carbon Trust.

Between 2008 and 2017, we reduced energy consumption by 34 per cent by introducing LED lighting, more efficient plant, and by increasing on-site solar generation across our properties. In 2017, greenhouse gas emissions for fuel combustion fell by 42 per cent as we reduced our reliance on diesel generators in those countries with limited access to mains electricity.

We take a responsible approach to sourcing and using water, especially given that its availability is a growing challenge facing our markets. Across the Group, between 2008 and 2017, we reduced water use by 36 per cent by installing low-flow water devices and where appropriate, boreholes and water recycling plants.

We are committed to reducing waste and in 2017 a 'reusable cup' initiative in the Singapore and London offices cut single-use plastic cup use by 100,000 in six months. We avoid sending non-recyclable waste to landfill, instead composting it or using it in energy generation, where possible.

Investing in communities

We seek to promote sustainable economic and social development in our communities. Our programmes focus on health and education. In 2017, we invested $49.8 million in the communities in which we operate. All of our donations are guided by our Sponsorship and Donations Policy.

Seeing is Believing, our flagship global programme to treat avoidable blindness and visual impairment, raised $5.6 million in 2017 through employee fundraising and matching by the Bank. Between 2003 and 2017, Seeing is Believing raised $98.4 million and reached 163.5 million people through medical intervention, screening, training and education.

Goal, our programme to empower girls and young women through sport and life-skills training, reflects our belief that education is the foundation for economic opportunity. In 2017, more than 95,000 girls and young women participated in Goal, and the programme reached more than 381,000 girls between 2006 and 2017.

We encourage colleagues to effect positive change in their communities by providing three volunteering days per year, and in 2017, colleagues contributed more than 66,000 days. Through our financial education programmes, we trained more than 117,000 young people and just over 1,500 entrepreneurs in 2017, of whom 90 per cent were women.

Our community expenditure 2017 (%)

1. Leverage¹	10.0%
2. Management costs	9.0%
3. Gifts in kind (non-cash item)	0.2%
4. Cash contributions	44.5%
5. Employee time (non-cash item)	36.3%

¹. Leverage data relates to the proceeds from staff and other fundraising activity

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Driving commerce and prosperity through our unique diversity

Building long-lasting relationships in Brazil

One of our biggest success stories in Brazil is our long-standing relationship with LGEBR Treasury Management. They specialise in financial services including: international payments, digital banking, import financing, market trading and legal expertise

How our local market knowledge has helped us build our partnership with LGEBR

We have always used our knowledge of local markets to support LGEBR in developing their brand and grow their customer base in an increasingly competitive market. Over the past 10 years our relationship has strengthened into a strategic partnership built on trust, understanding and an appreciation of local and international economies. Our competitively priced products and services, experienced employees and commitment to a seamless banking experience are just a few of the reasons why LGEBR remain one of our most loyal and valued clients.

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Viability statement

Viability

The directors are required to issue a viability statement regarding the Group, explaining their assessment of the prospects of the Group over an appropriate period of time and state whether they have reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due.

The directors are to also disclose the period of time for which they have made the assessment and the reason they consider that period to be appropriate.

In considering the viability of the Group, the directors have assessed the key factors likely to affect the Group's business model and strategic plan, future performance, solvency and liquidity taking into account the principal uncertainties as well as the principal risks.

The assessment has been made over a period of three years, which the directors consider adequate as it is within both the Group's strategic planning horizon and the basis upon which its regulatory capital stress tests are undertaken. The directors will continue to monitor and consider the appropriateness of this period.

The directors have reviewed the corporate plan, the output of the Group's formalised process of budgeting and strategic planning. The corporate plan is evaluated and approved each year by the Board with confirmation from the Group Chief Risk Officer that the Plan is aligned with the Enterprise Risk Management Framework and Group Risk Appetite Statement and considers the Group's future projections of profitability, cash flows, capital requirements and resources, liquidity ratios and other key financial and regulatory ratios over the period, where projections allow. The corporate plan details the Group's key performance measures, of forecast profit, CET1 capital ratio forecast, return on equity forecasts, cost to income ratio forecasts and cash investment projections. The Board has reviewed the ongoing performance management process of the Group by comparing the statutory results to the budgets and corporate plan.

The Group performs enterprise-wide stress tests using a range of bespoke hypothetical scenarios that explore the resilience of the Group to shocks to its balance sheet and business model.

To assess the Group's balance sheet vulnerabilities and so capital and liquidity adequacy, severe but plausible macro-financial scenarios explore shocks that trigger one or more of:

→ Global slowdowns, including a China hard landing
→ Sharp falls in world trade volumes
→ Material and persistent declines in commodity prices
→ Financial market turbulence

Under this range of scenarios, the results of these stress tests demonstrate that the Group has sufficient capital and liquidity to continue as a going concern and meet regulatory minimum capital and liquidity requirements.

To assess the Group's business model vulnerabilities, extreme and unlikely scenarios are explored that, by design, result in the Group's business model no longer being viable. Insights from these reverse stress tests can inform strategy, risk management and capital and liquidity planning.

> Further information on stress testing is provided in the Risk management approach section in the full Annual Report.

The Board Risk Committee (BRC) exercises oversight of prudential risks on behalf of the Board, including amongst others credit, market, capital, liquidity and funding and operational risks.

It reviews the Group's overall risk appetite and makes recommendations thereon to the Board.

The BRC receives regular reports that inform them of the Group's key risks, as well as updates on the macroeconomic environment, geo-political outlook, market developments, and regulatory updates in relation to capital, liquidity and risk. In 2017, the Committee had deeper discussions on a number of key topics including Principal Finance, Aviation Finance, Funds Transfer Pricing, Credit Risk and Control Mitigants, Financial Markets Strategy Risk Management and Controls and Information and Cyber Security.

Based on the information received, the directors considered the principal uncertainties as well as the principal risks in their assessment of the Group's viability, how these impact the risk profile, performance and viability of the Group and any specific mitigating or remedial actions necessary.

For further details of information relevant to the directors, assessment can be found in the following sections of this report, and in the full Annual Report:

→ The Group's Business model (pages 12 to 13) and Strategy (pages 14 to 16)
→ The Group's current position and prospects including factors likely to affect future results and development, together with a description of financial and funding positions are described in the client segment reviews and regional reviews (pages 18 to 26)
→ An update on the key risk themes of the Group is discussed in the Group Chief Risk Officer's review (pages 33 to 35)
→ The BRC section of the Directors' report (pages 69 to 72 in the full Annual Report)
→ The Group's Principal uncertainties, sets out the key external factors that could impact the Group in the coming year can be found in the full Annual Report). Note 26, which can be found in the full Annual Report, sets out information relating to legal and regulatory matters
→ The Group's Enterprise Risk Management Framework details how the Group identifies, manages and governs risk. It can be found in the full Annual Report
→ The Group's Risk profile provides an analysis of our risk exposures across all major risk types. It can be found in the full Annual Report
→ The capital position of the Group, regulatory development and the approach to management and allocation of capital are set out in the Capital Review in the full Annual Report

Having considered all the factors outlined above, the directors confirm that they have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the period of the assessment up to 31 December 2020.

Our Strategic report from pages 01 to 45 has been reviewed and approved by the Board

Bill Winters
Group Chief Executive
27 February 2018

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STRATEGIC REPORT

Standard Chartered Strategic Report 2010

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47

ANNUAL REPORT 2017 PHOTO COMPETITION

Purpose in pictures

Recently, we launched our new purpose statement: Driving commerce and prosperity through our unique diversity. We held a photography competition to encourage our colleagues around the globe to interpret this in their own creative ways, and to celebrate that diversity.

We received over 800 high-quality submissions. After an extremely difficult selection process, six outstanding photographs were selected for the final shortlist. Those six images appear on this page.

The winner of the competition is Wil Thimister, with his entry Fisherman in Banyuwangi, which can be found on the front/back cover of this report along with entries from Jitesh Vijay Bulani and Lama Yammine.

Thank you to everybody who took part in the photography competition. The full list of shortlisted photographers is: Vijay Anand, Jitesh Vijay Bulani, Ahmed Nizar, Abhijit Sinha, Wil Thimister, Lama Yammine

On how his entry relates to our purpose, Wil says:

During the years I have been living in Southeast Asia, I have travelled to many places photographing human interest. The region has a fascinating mix of diverse cultures, religions and people. In my photography, I try to portray their daily lives, their labour, their communities and their beliefs.

Many people from our markets participate in small-scale economic activities, right at the foundation of their societies. My photo, of fishermen at a beach near Banyuwangi in East Java, Indonesia, is an example of this. Once the catch is pulled ashore, it will find its way to the local fish market where middlemen will take care of distribution to other businesses and customers. The money they earn will allow the workers to save for a new fishing net, their children's education or maybe even to invest in a boat.

To me, our purpose statement refers to the fact that we can make a difference to those communities by providing them with a finance infrastructure to support their trade. By doing that, we can help them to build a better life.

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STRATEGIC REPORT

Governance overview

Governance overview

"It is incumbent on the Board to ensure that the Group's unique culture and values are further strengthened"

This year we have made positive steps on our journey to improve our financial strength, culture and conduct agenda and ensure these remain on a sustainable footing for the future. This work is ongoing as the external trends impacting the banking sector continue to evolve. The Board has maintained its oversight of the execution of the Group's strategy throughout the year and we remain confident that it will deliver sustainable shareholder value and a stronger organisation for our clients, colleagues, regulators and the communities in which we operate. As part of those discussions the Group's purpose and values were considered and further shaped which has led to our invigorated purpose statement 'Driving commerce and prosperity through our unique diversity'. I believe this typifies the essence of what we stand for and who we are. I remain convinced that Standard Chartered is a force for good in the countries and regions in which we operate and it is therefore incumbent on the Board to ensure that the Group's unique culture and values are further strengthened.

Along with other members of the Board I have continued to travel extensively across our markets during the year, visiting many parts of the network, listening to the views and aspirations of our clients and other stakeholders and seeing first-hand the extent to which

the Group is so deeply rooted in the real economy, supporting trade and finance across our many dynamic markets. The opportunities which exist across these markets are substantial and we remain well placed to deliver for our clients, and wider stakeholders. We held four of our Board meetings this year in our markets, Hong Kong, New York, Singapore and Dubai, providing an opportunity for the Board to see how the strategy is translating on the ground and engage directly with our employees, shareholders, clients, regulators and others.

Code Compliance

During 2017 Standard Chartered PLC complied with all of the provisions set out in the UK Corporate Governance Code 2016 and the Hong Kong Corporate Governance Code contained in Appendix 14 of the Hong Kong Listing Rules.

Copies of the UK and Hong Kong Codes can be found at frc.org.uk and hkex.com.hk respectively

BOARD COMPOSITION

Gender diversity

Standard Chartered

Strategic Report 2017

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Governance in action

Maintaining the highest standards of corporate governance supports effective decision making and delivery of the strategy.

Full details on the work of the Board and its committees as well as the activities and decisions which they took during the year, can be found in the full Annual Report. These included:

→ Undertaking a tender for the Group's statutory auditor. Led by the Audit Committee and in compliance with statutory requirements and guidance issued by the Financial Reporting Council, the tender resulted in the Board's intention to appoint Ernst & Young LLP (EY) as the Group's statutory auditor for the year ending 31 December 2020, subject shareholder approval at the AGM in 2020

→ Commissioning an independent externally facilitated review of the Board and its committees, providing an external input into their functioning and identifying areas to enhance their overall effectiveness. The evaluation of the Board and

committee effectiveness was conducted in accordance with the UK Corporate Governance Code and the PRA's expectations. It was facilitated by Ffion Hague of Independent Board Evaluation (IBE). Neither Ffion Hague nor IBE has any other connection with Standard Chartered

→ Hosting the Group's first Global Chairmen's Conference, creating an opportunity for the Board and the Management Team to hear directly from the Group's subsidiary Chairmen and independent directors on a range of issues important to them, with the aim of jointly developing initiatives that will lead to the strengthening of linkages between the Board and its subsidiaries

→ A continued focus on succession planning at a Board and senior management level. The Board's composition was strengthened further with Ngozi Okonjo-Iwesla's appointment as an independent non-executive director.

Ngozi is an internationally renowned economist and a prominent African leader with experience and expertise at a national governmental level and within international organisations

→ Discussions on the structure of the Board led to the decision to separate the roles of Deputy Chairman and Senior Independent Director and the subsequent appointment of Christine Hodgson as Senior Independent Director on 1 February 2018, in addition to her role as Chair of the Remuneration Committee. She took over the role from Naguib Kheraj, who remains as Deputy Chairman and Chair of the Audit Committee

José Viñals
Group Chairman

Board of Directors

José Viñals (63)
Group Chairman

Appointed: October 2016 and Group Chairman in December 2016

Experience: José has substantive experience in the international regulatory arena and has exceptional understanding of the economic and political dynamics of our markets and of global trade, and a deep and broad network of decision-makers in the jurisdictions in our footprint.

Career: José began his career as an economist and as a member of the faculty at Stanford University, before spending 25 years at the Central Bank of Spain, where he rose to be the Deputy Governor. José has held many other board and advisory positions including Chair of Spain's Deposit Guarantee Fund, Chair of the International Relations Committee at the European Central Bank, member of the Economic and Financial Committee of the European Union, and Chair of the Working Group on Institutional Investors at the Bank for International Settlements. José joined the International Monetary Fund (IMF) in 2009 and stepped down in

Committee Key
Committee Chair shown in green
Audit Committee
Board Risk Committee
Brand, Values and Conduct Committee
Governance and Nomination Committee
Board Financial Crime Risk Committee
Remuneration Committee

September 2016 to join Standard Chartered PLC. He was the Financial Counsellor and the Director of the Monetary and Capital Markets Department and was responsible for the oversight and direction of the IMF's monetary and financial sector work. He was the IMF's chief spokesman on financial matters, including global financial stability. During his tenure at the IMF, José was a member of the Plenary and Steering Committee of the Financial Stability Board, playing a key role in the reform of international financial regulation.

Committees:

Bill Winters, CBE (56)
Group Chief Executive

Appointed: June 2015

Experience: Bill is a career banker with significant frontline global banking experience and a proven track record of leadership and financial success. He has extensive experience of working in emerging markets and a proven record in spotting and nurturing talent.

External appointments: Bill is an independent non-executive director of Novartis International AG.

Bill Winters also sits on the Management Team

Career: Bill began his career with JP Morgan, where he went on to become one of its top five most senior executives and later co-chief executive officer at the investment bank from 2004 until he stepped down in 2009. Bill was invited to be a committee member of the Independent Commission on Banking, established in 2010, to recommend ways to improve competition and financial stability in banking. Subsequently, he served as an advisor to the Parliamentary Commission on Banking Standards and was asked by the Court of the

Bank of England to complete an independent review of the bank's liquidity operations. In 2011, Bill founded Renshaw Bay, an alternative asset management firm, where he was chairman and CEO. He stepped down on appointment to the Standard Chartered PLC Board. Bill was previously a non-executive director of Pension Insurance Corporation plc and RIT Capital Partners plc. He received a CBE in 2013.

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STRATEGIC REPORT

Governance overview

Andy Halford (58)
Group Chief Financial Officer

Appointed: July 2014

Experience: Andy has a strong finance background and deep experience of managing complex international businesses across dynamic and changing markets.

External appointments: Andy is a non-executive director at Marks and Spencer Group plc and a member of the Business Forum on Tax and Competitiveness.

Andy Halford also sits on the Management Team

Career: Andy was finance director at East Midlands Electricity plc prior to joining Vodafone in 1999 as financial director for Vodafone Limited, the UK operating company. Andy was later appointed financial director for Vodafone's Northern Europe, Middle East and Africa region, and later the chief financial officer of Verizon Wireless in the US. He was a member of the board of representatives of the Verizon Wireless Partnership. Andy was appointed chief financial officer of Vodafone Group plc in 2005,

a position he held for nine years. As Group Chief Financial Officer at Standard Chartered, Andy is responsible for Finance, Corporate Treasury, Group Corporate Development, Group Investor Relations, Property and Supply Chain Management functions.

Naguib Kheraj (53)
Deputy Chairman

Appointed: January 2014 and Deputy Chairman in December 2016

Experience: Naguib has significant banking and finance experience.

External appointments: Naguib is Chairman of Rothesay Life, a specialist pensions insurer, a member of the investment committee of the Wellcome Trust and a member of the Finance Committee of the Oxford University Press. Naguib spends a substantial amount of his time as a senior advisor to the Aga Khan Development Network and

serves on the boards of various entities within its network.

Career: Naguib began his career at Salomon Brothers in 1986 and went on to hold senior positions at Robert Fleming, Barclays, JP Morgan Cazenove and Lazard. Over the course of 12 years at Barclays, Naguib served as group finance director and vice-chairman and in various business leadership positions in wealth management, institutional asset management and investment banking. Naguib was also a Barclays' nominated non-executive director of

ABSA Group in South Africa and of First Caribbean International Bank. He also served as chief executive officer of JP Morgan Cazenove. Naguib is a former non-executive director of NHS England and served as a senior advisor to Her Majesty's Revenue and Customs and to the Financial Services Authority in the UK.

Committees:

David Conner (69)
Independent Non-Executive Director

Appointed: January 2016

Experience: David has significant global and corporate, investment and retail banking experience, strong risk management credentials and an in-depth knowledge of Asian markets.

External appointments: David is a non-executive director of GasLog Ltd.

Career: David spent his career in the financial services industry, living and working across Asia for 37 years, for both Citibank and OCBC Bank. He joined Citibank in 1976 as a management trainee and went on to hold a number of Asia-based senior management roles, including chief executive officer of Citibank India and managing director and marketing manager at Citibank Japan, before leaving Citibank in 2002. David joined OCBC Bank in Singapore as chief

executive officer and director in 2002. He implemented a strategy of growth and led the bank through a period of significant turbulence. David stepped down as chief executive officer in 2012 but remained as a non-executive director on the board of OCBC Bank, before leaving the group in 2014.

Committees:

David is also a member of the Combined US Operations Risk Committee of Standard Chartered Bank

Christine Hodgson (53)
Senior Independent Director

Appointed: September 2013 and Senior Independent Director in February 2018

Experience: Christine has strong business leadership, finance, accounting and technology experience.

External appointments: Christine is chair of Capgemini UK plc, sits on the board of The Prince of Wales' Business in the Community and is chair of The Careers &

Enterprise Company Ltd, a government-backed company established to help inspire and prepare young people for the world of work.

Career: Christine held a number of senior positions at Coopers & Lybrand and was corporate development director of Ronson plc before joining Capgemini in 1997, where she held a variety of roles including chief financial officer for

Capgemini UK plc and chief executive officer of technology services for North West Europe. Christine was previously a trustee of MacIntyre Care and was a non-executive director of Ladbrokes Coral Group plc before stepping down in May 2017.

Committees:

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Strategic Report 2017

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51

Jasmine Whitbread (54)
Independent Non-Executive Director

Appointed: April 2015

Experience: Jasmine has significant business leadership experience as well as first-hand experience of operating across our markets.

External appointments: Jasmine is chief executive of London First and a non-executive director of BT Group plc.

Career: Jasmine began her career in international marketing in the technology sector and joined

Thomson Financial in 1994, becoming managing director of the Electronic Settlements Group. After completing the Stanford Executive Program, Jasmine set up one of Oxfam's first regional offices, managing nine country operations in West Africa, later becoming international director responsible for Oxfam's programmes worldwide. Jasmine joined Save the Children in 2005, where she was responsible for revitalising one of the UK's most

established charities. In 2010, she was appointed as Save the Children's first international chief executive officer, where she led the merger of 14 separate organisations into one management line of 15,000 people across seven regions and 60 countries, while aligning the federation behind a single mission and strategy. Jasmine stepped down from Save the Children in December 2015.

Committees:
R N

Gay Huey Evans, OBE (63)
Independent Non-Executive Director

Appointed: April 2015

Experience: Gay has extensive banking and financial services experience with significant commercial and UK regulatory and governance experience.

External appointments: Gay is a non-executive director of ConscoPhillips and Bank Itau BBA International plc and is deputy chair of the Financial Reporting Council.

Career: Gay spent over 30 years working within the financial services industry, the international capital markets and with the financial regulator. Gay spent seven years with the Financial Services Authority from 1998 to 2005, where she was director of markets division, capital markets sector leader, with responsibility for establishing a market-facing division for the supervision of market infrastructure, oversight of market conduct and developing markets policy. From

2005 to 2008, Gay held a number of roles at Citibank, including head of governance, Citi Alternative Investments, EMEA, before joining Barclays Capital where she was vice chair of investment banking and investment management. She was previously a non-executive director at Aviva plc and the London Stock Exchange Group plc. She received an OBE for services to financial services and diversity in 2016.

Committees:
R

Om Bhatt (66)
Independent Non-Executive Director

Appointed: January 2013

Experience: Om has extensive commercial and retail banking experience, financial services and leadership acumen, with deep knowledge and experience of India, one of our largest markets.

External appointments: Om is an independent non-executive director of Hindustan Unilever Ltd, Tata Consultancy Services, Tata Steel Ltd, Tata Motors and Chairman of Greenko Energy Holdings.

Career: Om had a career spanning 38 years with the State Bank of India (SBI), India's largest commercial bank, where he held a number of roles beginning with the lead bank department, which pioneered financial inclusion. He led the project team that pioneered SBI's technology initiative in the 1990s, undertook assignments at SBI's Washington and London offices and held general management roles between 2004 and 2006, becoming managing director of SBI in 2006, culminating

in his appointment as chairman of the State Bank Group until he stepped down in 2011. Om was chairman of the Indian Banks' Association and was previously an independent non-executive director of Oil and Natural Gas Corporation.

Committees:
R

Dr Louis Cheung (54)
Independent Non-Executive Director

Appointed: January 2013

Experience: Louis has a wide breadth of knowledge and experience of financial services, particularly in a Greater China context.

External appointments: Louis is managing partner of Boyu Capital Advisory Co, a China-focused private equity investment firm, independent non-executive director of Fubon Financial Holding Company and a

Fellow and Council Member of the Hong Kong Management Association.

Career: Louis was a global partner of McKinsey & Company and a leader in its Asia Pacific financial institutions practice prior to joining Ping An Insurance Group in 2000. Louis worked in several senior roles at Ping An, including chief financial officer, before becoming group president in 2003 and executive director from 2006 to 2011.

Committees:
R

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Governance overview

Dr Byron Grote (69)
Independent Non-Executive Director

Appointed: July 2014

Experience: Byron has broad and deep commercial, financial and international experience.

External appointments: Byron is a non-executive director of Anglo American plc, Tesco PLC and is deputy chairman of the supervisory board at Akzo Nobel NV. He is also a member of the European Audit Committee Leadership Network.

Career: From 1988 to 2000, Byron worked across BP in a variety of commercial, operational and executive roles. He was appointed as chief executive of BP Chemicals and a managing director of BP plc in 2000 and had regional group-level accountability for BP's activities in Asia from 2001 to 2006. Byron was chief financial officer of BP plc from 2002 until 2011, subsequently serving as BP's executive vice president,

corporate business activities, from 2012 to 2013 with responsibility for the group's integrated supply and trading activities, alternative energy, shipping and technology. Byron was a non-executive director at Unilever plc and Unilever NV before stepping down in 2015.

Committees:

Dr Han Seung-soo, KBE (81)
Independent Non-Executive Director

Appointed: January 2010

Experience: Dr Han is a distinguished economist and has a strong geopolitical background, with valuable knowledge of Asia and its economies.

External appointments: Dr Han sits on a number of advisory boards and is currently the UN Secretary-General's special envoy for Disaster Risk Reduction and Water, special advisor to the High Level Panel on Water co-convened by the UN and World Bank, chair of the High-Level

Experts/Leaders Panel on Water and Disaster, chair of the Water Advisory Group at the Asian Development Bank and co-chair of the International Finance Forum of China. Dr Han is non-executive director at Doosan Infracore Co Ltd and Senior Advisor with the Kim & Chang law firm in Korea.

Career: Dr Han is a former Prime Minister of the Republic of Korea. He has a distinguished political, diplomatic and administrative career, serving as deputy prime minister and

minister of finance, foreign affairs and industry and trade before serving as prime minister from 2008 to 2009. He also served as Korean ambassador to the US, chief of staff to the president, president of the 56th Session of the United Nations (UN) General Assembly, special envoy of the UN Secretary-General on Climate Change and chairman of the 2009 Organisation for Economic Cooperation and Development Ministerial Council Meeting.

Committees:

Dr Ngozi Okonjo-Iweala (63)
Independent Non-Executive Director

Appointed: November 2017

Experience: Ngozi has significant geopolitical, economic, risk and development experience and expertise at a governmental and intergovernmental level.

External appointments: Ngozi holds a number of prestigious international advisory positions including Lazard and the Asian Infrastructure Investment Bank. She is Chair of GAVI, the Global Alliance for Vaccines and Immunisations. In addition she holds advisory panel

and chair positions at a range of global institutions, including charitable foundations, non-governmental organisations and inter-governmental organisations. Ngozi is a member of the G20 Eminent Persons Group reviewing Global Financial Governance and is an ambassador of the Open Government Partnership.

Career: A development economist, Ngozi spent 25 years working at the World Bank in various positions. After leaving in 2003, she served as the Finance Minister of Nigeria from 2003

to 2006. She returned to the World Bank in 2007, serving as a Managing Director until 2011, when she was appointed to the role of Minister of Finance and Coordinating Minister of Economy in the Nigerian government, a position she held until 2015. During her time in government she spearheaded Nigeria's successful programme to obtain debt relief and is credited with developing reforms that helped improve governmental transparency to stabilise and grow the Nigerian economy.

Committees:

Liz Lloyd, CBE (46)
Group Company Secretary

Appointed: Liz was appointed Group Company Secretary in January 2016.

Liz joined Standard Chartered in 2008, initially within Group Compliance, focused on regulatory risk and regulatory relationships, before being appointed as Group Head of Public Affairs, responsible for coordinating the Group's policies and positioning on all political and regulatory matters. In 2013, she was appointed Chief Executive Officer of

Standard Chartered Bank Tanzania, a position she held until October 2015. She received a CBE in 2008.

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Strategic Report 2017

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Directors' remuneration report overview

"Recognising continued progress on the execution of our strategy and enhancing fair pay for all of our colleagues"

Key highlights

→ Financial and strategic performance in 2017 delivered a Group scorecard outcome of 66 per cent of the maximum
→ Executive directors' annual incentives were 61 per cent of fixed remuneration
→ 2017 Group discretionary incentives were $1,146 million
→ We have developed a Fair Pay Charter to support our objective of delivering fair and competitive remuneration to all colleagues globally

We are making good progress against our strategy, securing the foundations to reposition the Group and improve our financial performance. Capital and liquidity are strong and the Group has delivered an increase of $1,917 million in underlying Profit Before Tax. Overall, the Group scorecard was assessed at 66 per cent of the maximum and is set out in detail in the full Annual Report.

When determining the 2017 remuneration outcomes, the Committee has continued to recognise both the importance of rewarding and incentivising employees to execute the long-term goals and of taking a global approach to remuneration. We are an international employer with wage inflation pressures in many of the emerging markets in which the Group operates.

Group-wide remuneration in 2017

The Committee determined that total discretionary incentives in 2017 should be $1,146 million. This includes annual incentives, long-term incentives and incentives paid to eligible leavers, representing an increase of 10 per cent on 2016. The increase reflects improved financial performance and progress against the Group's strategic objectives as set out in the scorecard. Incentive awards are based on Group and business area performance, assessed using balanced scorecards, and individual performance, which is determined based on each employee's individual achievement, conduct, values and behaviour. The total incentives of the Group are 5 per cent lower than in 2013.

Directors' remuneration in 2017

In May 2016 shareholders approved a new directors' remuneration policy, which is aligned to the Group strategy. Under the policy, executive directors were eligible in 2017 for a maximum annual incentive of 80 per cent of fixed remuneration and a maximum long-term incentive award of 120 per cent of fixed remuneration. The Committee determined that Bill Winters and Andy Halford should receive total annual and long-term incentives of 181 per cent of fixed remuneration (178 per cent in 2016).

The annual incentive outcome for both Bill and Andy was 61 per cent of fixed remuneration based on an assessment of the scorecard and personal performance against their objectives. Long-term incentive plan (LTIP) awards will be granted in March 2018 to Bill and Andy, delivered in ordinary shares with a value of 120 per cent of fixed remuneration at the time of award. These awards will be subject to the satisfaction of long-term performance measures, which are assessed after three years.

During the year, feedback was received from shareholders on the targets in the 2017-19 LTIP. The Committee recognises that the return on equity (RoE) target range in the 2017-19 LTIP is not an acceptable end goal but a staging point in the planned improvement. Target setting is thoroughly reviewed every year. The performance measures for 2018-20 LTIP awards will remain one-third RoE (plus Common Equity Tier 1 (CET1) underpin), one-third relative total shareholder return (TSR) and one-third strategic measures. The targets for the 2018-20 LTIP awards were considered carefully, to ensure they are realistic, challenging and relevant to the Group's strategy over the three-year performance period. The RoE target range for the 2018-20 LTIP is 6 per cent to 9 per cent. More detail on the 2018-20 LTIP awards can be found on page 89 of the full Annual Report.

LTIP awards and underpin shares granted to Andy Halford in March 2015 will not pay out in March 2018 as the performance measures have not been met. Bill Winters did not participate in the March 2015 LTIP.

Directors' remuneration in 2018

After a review of fixed remuneration for 2018, it was determined that there will be no change for Bill Winters. For Andy Halford it was noted there had been no change to his fixed remuneration since his appointment in June 2014. Taking into account his development in the role over that time and benchmarking data for global peers, the Committee awarded a salary increase to Andy of just under 5 per cent, from £850,000 to £890,000 with effect from 1 April. No change was made to his fixed pay allowance (FPA). There is therefore an increase to his fixed remuneration of 3 per cent. In making the decision, the Committee also took into account the average salary increase made to the broader employee population since 2014, which was, on average, 4 per cent each year. The Committee will continue to review fixed remuneration annually.

The structure of directors' remuneration will remain unchanged in 2018. We will propose a new remuneration policy to shareholders at the 2019 AGM. I look forward to meeting with shareholders during 2018 and hearing your views.

Christine Hodgson
Chair of the Remuneration Committee

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STRATEGIC REPORT

Director's remuneration report overview

Our Fair Pay Charter

Attracting, retaining and incentivising high-quality employees is essential to delivering on our purpose and executing the strategy. In support of this the Committee has overseen the development of a Fair Pay Charter during 2017. The Charter sets out the principles we will use to determine and deliver pay for all employees globally, including senior management and executive directors.

1. We commit to pay a living wage in all our markets by 2020 and seek to go beyond compliance with minimum wage requirements
2. We provide an appropriate mix of fixed and variable pay and a core level of benefits to ensure a minimum level of earnings and security to colleagues and to reflect the Group's commitment to wellbeing
3. We support colleagues in working flexibly, in ways that balance both business needs and their personal circumstances, and provide colleagues with the opportunity to select the combination and level of benefits that is right for them
4. Pay is well administered with colleagues paid accurately, on time and in a way that is convenient
5. We provide a competitive total fixed and variable pay opportunity that enables us to attract, motivate and retain colleagues based on market rates for their role, location, performance, skills and experience
6. The structure of pay and benefits is consistent for colleagues based on their location and role, with a clear rationale for exceptions
7. We are committed to rewarding colleagues in a way that is free from discrimination on the basis of diversity, as set out in our Group Code of Conduct
8. We ensure pay decisions reflect the performance of the individual, the business they work in and the Group, and recognise the potential, conduct, behaviours and values demonstrated by each individual
9. We set clear expectations for how colleagues are rewarded and the principles guiding decisions, including clear personal objectives and feedback
10. We provide clear communication of pay and performance decisions, and seek feedback and input from colleagues on our pay structures and outcomes

In developing the Charter the Committee has sought to create a framework which supports our objective of delivering fair and competitive remuneration to all colleagues globally. The Charter reflects our existing remuneration approach in many areas, but also sets some new, stretching goals which will take a number of years to reach. The Group has already started work to implement these new objectives and more is planned for 2018:

→ During 2017 we introduced a global flexible working policy to support our colleagues in managing the boundaries between home and work life, supporting individuals who sometimes need to work remotely, vary the time of their working day, or consider part-time hours or job shares. We also increased our minimum standards of parental leave globally. These changes have already had an impact in increasing employee engagement and boosting productivity
→ In support of our commitment to reward colleagues in a way that is free from discrimination, equal pay assurance is part of our annual performance management and remuneration review. During 2017, we implemented a globally consistent process for conducting equal pay assurance, supported by improved analytics. Outcomes from our 2017 equal pay review by gender were reviewed by the Management Team and the Committee
→ Our current approach is to pay colleagues' salaries at a market competitive level for their individual role, skills and experience. In our Charter we commit to ensure that all colleagues receive salaries at or above the living wage in each of our respective markets by 2020. 96 per cent of colleagues are based outside of Europe & Americas, in many locations where living wages are not currently clearly defined. During 2018 we will review our approach to setting living wages in each of our markets to support this Charter commitment
→ We currently provide all colleagues with benefits, based on the practice in each local market. In 2018, we will start a four-year programme to redesign our benefits offering in each country. Treating everyone fairly (regardless of seniority, age or personal circumstances) is one of the key aims, as is giving employees more choice on a wide range of benefits to suit their individual needs

Variable remuneration awarded to executive directors in respect of 2017

The annual incentive for 2017 is based on the Group scorecard outcome of 66 per cent of the maximum and the executive directors' personal performance in their respective areas of responsibility. Executive directors will also receive an LTIP award of 120 per cent of fixed remuneration, subject to an RoE target (with CET1 underpin), a relative TSR target and a combination of strategic measures focused on the delivery of the strategy.

	W T Winters		A N Halford
	2017	2016	2017	2016
Annual incentive (£000)	1,678	497	1,039	308
Annual incentive as a percentage of fixed remuneration	61%	18%	61%	18%
LTIP award (value of shares subject to performance conditions) (£000)	3,312	4,416	2,051	2,734
LTIP award as a percentage of fixed remuneration	120%	160%	120%	160%
Total variable remuneration as a percentage of fixed remuneration	181%	178%	181%	178%

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55

Executive directors' annual incentive awarded in respect of 2017

The Committee followed a three-step process for determining annual incentive awards. More detail can be found in the Directors' remuneration report in the full Annual Report.

1. Consider eligibility

The Committee considered each executive director's values, behaviour and conduct during 2017. Each director had exhibited an appropriate level of conduct and was deemed to have met the gateway requirement to be eligible for an incentive.

2. Evaluate performance against the Group's scorecard

At the end of 2017, the Committee reviewed both financial performance and achievement against the Group's strategic priorities, as outlined at the start of the year in the 2017 annual incentive scorecard. The Group's performance compares favourably to last year and the Committee noted that significant progress was made in financial returns and in executing the strategy to stabilise and reposition the Group. The scorecard outcome was assessed at 66 per cent, as summarised below.

Performance measures	Weighting	Scorecard outcome
Total income¹	10%	5%
Operating profit¹	10%	10%
RoE² plus CET1 underpin	20%	20%
Improve customer deposits	10%	5%
Strengthen foundations in risk and control	10%	6%
Focus on clients and growth, and drive cross-bank collaboration	12.5%	4%
Improve efficiency, productivity and service quality	10%	6%
Embed innovation, digitisation and analytics	7.5%	4%
Invest in people, strengthen culture and conduct	10%	6%
Total	100%	66%

1 Total income and operating profit were based on an underlying basis. Income, costs and impairment and resulting operating profit relating to identifiable business units, products or portfolios from the date that have been approved for restructuring, disposal, wind down or redundancy as a consequence of the Strategy Review announced 3 November 2015 are presented as restructuring and excluded from the underlying results of the Group. This includes realised and unrealised gains and losses from management's decisions to dispose of assets as well as residual income, direct costs and impairment of related legacy assets of those identifiable business units, products or portfolios
2 RoE was based on profit attributed to ordinary shareholders, adjusted, on a tax-effected basis, for profits or losses of a capital nature, restructuring charges, amounts consequent to investment transactions driven by strategic intent and infrequent/exceptional transactions that are significant or material in the context of the Group's normal business earnings for the period. CET1 underpin was set at the higher of 12 per cent or the regulatory minimum

3. Assess personal performance and finalise awards

As outlined in the policy, the Committee has the ability to make an upwards or downwards adjustment to the scorecard outcome for personal performance, consistent with the approach for employees participating in the Group Total Variable Compensation plan. When considering whether such an adjustment is appropriate, the Committee considers the particular areas of responsibility of the executive director together with the specific objectives that they were asked to prioritise for the year and their personal contribution to the scorecard outcome. The adjustment will usually be in the range of +/- 10 percentage points to the scorecard outcome.

The Committee assessed Bill as having outstanding personal performance during 2017 against his objectives and in role modelling the values and behaviour expected by the Board.

Through his leadership the Group has further secured the foundations with significantly improved financial performance and progress on the Group's strategic priorities. Taking this into account alongside the scorecard outcome, the Committee considered an adjustment of 10 percentage points to be appropriate and decided to award an annual incentive of 76 per cent of the maximum, equating to 61 per cent of fixed remuneration.

Key achievements for Bill Winters

• Bill has role modelled the values and behaviour expected, setting a strong tone from the top which has been critical in setting the right culture across the organisation
• Bill personally contributed to the culture refresh, specifically the launch of the new purpose and refresh of the Group's valued behaviours
• Significant progress was made on improving operational excellence, delivering agreed plans to simplify decision making, improve accountability and client centricity in internal processes
• Succession plans in place for the top two tiers of management, and 750 leaders enrolled in the first phase of new leadership development programmes
• Maintained effective and constructive working relationships with our regulators and their representative bodies

The Committee assessed Andy as having excellent personal performance as measured against his objectives and in demonstrating the values and behaviour expected by the Board. His energy and focus have driven a number of operational efficiencies which have positively impacted results. Taking this into account alongside the scorecard outcome, the Committee considered an adjustment of 10 percentage points to be appropriate and decided to award an annual incentive of 76 per cent of the maximum, equating to 61 per cent of fixed remuneration.

Key achievements for Andy Halford

• Andy demonstrated high standards of values and behaviour, which has supported the culture refresh and made a significant contribution to the quality of Board and the Management Team discussions and decision making
• Efficiency targets were exceeded, and excellent progress made in delivering agreed Finance programmes
• Andy integrated the Group's balance sheet, liquidity and capital management activities and delivered Group and business strategy plans in line with the targets set
• Andy has built a strong talent pipeline in 2017 and delivered agreed people targets, with succession plans in place across the top two tiers of management for functions within his portfolio
• Maintained effective and constructive working relationships with our regulators and their representative bodies

Long-term incentive plan awards to be granted in March 2018

LTIP awards for the 2017 performance year will be granted to Bill Winters and Andy Halford in 2018 with a value of 120 per cent of fixed remuneration (£3.3 million and £2.1 million respectively). Recent changes to remuneration regulations for banks mean that dividend equivalent shares are not permitted to be awarded on vesting. The number of shares awarded in respect of the LTIP will take into account the lack of dividend equivalents (calculated by reference to market consensus dividend yield) such that the overall value of the award is maintained. These awards will vest in five annual tranches beginning after the third anniversary of the grant, (i.e. March 2021 to March 2025) subject to meeting the performance measures set out on page 56 at the end of 2020. All vested shares are subject to a 12-month retention period.

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STRATEGIC REPORT

Director's remuneration report overview

Performance measures for the 2018-20 executive director long-term incentive plan

Conduct gateway requirement to be met in order for awards to vest

Appropriate level of individual values and conduct exhibited

Measure	Weighting	Amount vesting (as a % of total award)	Threshold performance target	Maximum performance target
1. RoE^{1,2} in 2020 plus CET1 underpin of the higher of 12% or the minimum regulatory requirement	One-third	→ Maximum – 33.3%	6%	9%
		→ Threshold – 8.3%
		→ Below threshold – 0%
2. Relative TSR^{3} against peer group	One-third	→ Maximum – 33.3%	Median	Upper quartile
		→ Threshold – 8.3%
		→ Below threshold – 0%
3. Strategic measures	One-third	→ Maximum – 33.3%
→ Minimum – 0%
→ Performance against each component of the scorecard will be assessed by the Committee using proof points to determine the percentage of the award that may vest	→ Maintain effective and sustainable anti-money laundering (AML) and sanctions controls
→ Successfully deliver cyber risk management plan
→ Improve client satisfaction rating
→ Deliver client growth in target segments
→ Improve productivity
→ Deliver growth in digital volumes
→ Drive innovation through new products, solutions and services for clients
→ Improve scores against employee engagement and culture of inclusion metrics
→ Improve management diversity
a) Strengthen foundations in risk and control
b) Focus on clients and growth, and drive cross-bank collaboration
c) Improve efficiency, productivity, and service quality
d) Embed innovation, digitisation, and analytics
e) Invest in people, strengthen culture and conduct

1 RoE will be based on profit attributed to ordinary shareholders, adjusted, on a tax-effected basis, for any fair value changes relating to gains/losses on disposals, exceptional transactions and restructuring gains and losses, expenses, impairments that are significant or material in the context of the Group's normal business for the period. Normalised RoE normally excludes regulatory fines but, for remuneration purposes, this would be subject to review by the Committee
2 If RoE reaches 6 per cent, then 8.3 per cent of the award vests. If RoE reaches 9 per cent then 33.3 per cent of the award vests. If RoE is between the threshold and maximum, vesting is calculated on a straight-line basis between these two points
3 Relative TSR is measured against a comparator group. If the Group's TSR performance is at least equivalent to the median ranked company then 8.3 per cent of the award vests. If the Group's performance is at least equal to the upper quartile ranked company then 33.3 per cent of the award vests. Between these points, the Group's TSR is compared to that of the comparators positioned immediately above and below it and straight-line vesting applies for TSR performance between these set points

Single total figure of remuneration for the executive directors

This table sets out salary, fixed pay allowances (FPA), benefits and pensions received in 2017, annual incentives receivable in respect of 2017 and LTIP awards vesting based on performance periods ending in 2017. All figures are in £000s.

	W T Winters		A N Halford
	2017	2016	2017	2016
Salary	1,150	1,150	850	850
Fixed pay allowances	1,150	1,150	519	519
Pension	460	460	340	340
Benefits	245	135	109	111
Annual incentive award	1,678	497	1,039	308
Vesting of LTIP awards	-	-	0	-
Total	4,683	3,392	2,857	2,128

Under the terms of his contract and the directors' remuneration policy, Bill Winters is entitled to the use of a car and driver and support with the preparation of his annual tax returns, alongside other benefits stated below. The material increase in Bill Winters' benefits year-on-year is due to the inclusion of the full year benefit of the car and driver and his 2015/16 tax return preparation fees in the 2017 figure. Bill Winters joined the Group on 1 May 2015 so his 2016 benefits figure included part-year use of a car and driver during the 2015/16 tax year and no tax return preparation fees (these fees are a taxable benefit in the tax year following the preparation of the returns).

The year-on-year change in the annual incentive figure is in part due to the change to the mix of incentives as set out in the policy. The annual incentive opportunity in 2017 was 80 per cent of fixed remuneration, compared to 40 per cent in 2016. The remainder of the increase was due to the improvement in the Group's performance and the executive directors' personal performance.

Additional information on the elements of remuneration in the single total figure table

→ FPAs are paid in shares, subject to a retention period and released over five years. The number of shares allocated is determined by the monetary value of the allowance and the prevailing market price of the Group's shares on the date of allocation. FPAs are not variable remuneration
→ Executive directors receive benefits, such as private medical cover, life assurance, permanent health insurance, a cash benefits allowance and the use of a company vehicle and driver for business purposes. Executive directors occasionally use a Group car service for travelling and their partners may travel to attend Board or other similar events. The Group covers any tax liability that arises on these benefits. The 2017 benefits figures shown are in respect of the 2016/17 tax year. This is consistent with the reporting of similar benefits in previous years
→ Executive directors' annual incentive awards in respect of 2017 will be delivered 50 per cent in cash paid in March and 50 per cent paid in shares subject to a minimum 12-month retention period. Any award will be subject to malus and clawback for up to 10 years

Standard Chartered

Strategic Report 2017

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