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Standard Chartered Standard Annual Report and Accounts 2006 Leading the way in Asia, Africa and the Middle East Annual Report and Accounts 2006 Standard Chartered is built on teamwork, partnership and the diversity of our people. Standard Chartered employs almost 60,000 people worldwide, representing over 100 nationalities. Today, our top management is made up of over 50 nationalities. Diversity and Inclusion lies at the heart of our values and is integral to our journey to become the world’s best international bank. Our diverse teams help to fuel creativity and innovation, supporting the development of innovative products and services for our customers. Diversity and Inclusion is a fundamental part of the Group’s culture and remains a long-term priority for Standard Chartered. What we stand for Strategic intent The world’s best international bank Leading the way in Asia, Africa and the Middle East Brand promise The Right Partner – Leading by Example Values Responsive Trustworthy Creative International Courageous Approach Participation Competitive Positioning Management Discipline Focusing on attractive, growing markets Combining global capability, deep local Continuously improving the way we work, where we can leverage our relationships knowledge and creativity to outperform balancing the pursuit of growth with firm and expertise our competitors control of costs and risks Commitment Customers Our People Communities Investors Regulators to stakeholders Passionate about our Helping our people to Trusted and caring, A distinctive investment Exemplary governance customers’ success, grow, enabling individuals dedicated to making delivering outstanding and ethics wherever delighting them with the to make a difference and a difference performance and we are quality of our service teams to win superior returns For more information visit www.standardchartered.com Contents 1 Performance Highlights 26 Financial Review 77 Consolidated Balance 2 Group at a Glance: 34 Risk Review Sheet Our Business 49 Capital 78 Statement of Recognised 4 Group at a Glance: 50 Board of Directors Income and Expense Regions of Operation 52 Senior Management 79 Cash Flow Statement 6 Chairman’s Statement 53 Report of the Directors 80 Company Balance 16 Driving performance 8 Group Chief Executive’s 56 Corporate Governance Sheet forward Review 61 Directors’ Remuneration 81 Notes to the Accounts 12 Business Review: Report 143 Supplementary Financial Performance 74 Statement of Directors’ Information 18 Business Review: People Responsibilities 148 Shareholder Information 22 Business Review: 75 Independent Auditor’s 150 Principal Group Sustainability Report Addresses 76 Consolidated Income 152 Index Statement IBC Major Awards in 2006 20 People on the move 24 Sustainability in action © Standard Chartered PLC. All rights reserved. The STANDARD CHARTERED word mark, its logo device and associated product brand names are owned by Standard Chartered PLC and centrally licensed to its operating entities. Registered Office: 1 Aldermanbury Square, London EC2V 7SB. Telephone +44 (0) 20 7280 7500. Principal place of business in Hong Kong: 32nd Floor, 4-4a Des Voeux Road, Central, Hong Kong. Registered in England No. 966425. Emerging Trade Corridors Global trade flows Asia Pacific Intra-Asia trade is double the size of Asia-US trade China is the single most important driver of intra-Asia trade The outlook for trade within Asia is favourable, with the Association of Southeast Asian Nations (ASEAN) having committed to a Hong Kong European-style free trade agreement by 2015 accounted for Asia is also playing a leading role in the globalisation of capital markets 17% In 2006, Hong Kong was the single largest of global IPO global centre for initial public offering (IPO) activity in 2006 activity, accounting for 17% of IPO capital raised worldwide, followed by London and New York Two out of the three largest IPOs in 2006 were raised on the Hong Kong Stock Exchange Growth of intra-Asian trade outstrips global trade (% growth) 27 22 20 19 19 16 14 11 10 5 02 03 04 05 06 * Global trade growth Intra-Asian trade growth *Estimated Africa Middle East Asia and Africa are forging a mutually High oil prices have allowed the Middle East to beneficial relationship. There is strong demand overtake Asia as the largest trade surplus region from Asia for a range of commodities in the world, estimated at $216 billion in 2005 exported from Africa. Africa’s growing demand The migration of expatriates into the Gulf for manufactured goods makes Asia a natural Cooperation Council states from elsewhere in the trading partner Middle East, South Asia and South East Asia is The World Bank estimates that China also driving activity – remittances generated by Africa-China trade spent more than $10 billion on infrastructure Largest trade surplus these expatriates reached $59 billion in 2005, soared nearly tenfold projects in Africa in 2006 in the world of accounting for almost 25% of world remittances in seven years to China’s oil suppliers Global trade surpluses by region (million tonnes) $216bn ($ billion) bn in 2005 $55.5 216 in 2006 180 169 32.4 164 152 22 123 116 92 65 64 20 2.7 14 1.9 48 3 5 9.4 Asia Latin Central Africa Middle 01 02 03 04 05 America Asia East Middle East Asia Africa emerging wsNew global trade flows are emerging. This extends beyond The Americas This is the best of times for some Latin the flow of traditional merchandise American markets, resulting from important goods to commodities, services, structural changes within the region and the benign global environment investment, people and remittances. New opportunities are emerging, one of which Importantly, these flows are is the rapid increase in trade with Asia – and the trade is in both directions emerging between the Group’s Trade grew by footprint regions. Through the 300% China’s trade with Latin America diversity of its business, products, over five years ($ billion, 12 month rolling sum) geography and people, Standard 50 Chartered is well positioned to 40 30 capitalise on the emerging trade 20 corridors of Asia, Africa and the 10 0 Middle East. 95 96 97 98 99 00 01 02 03 04 05 Imports from Latin America Exports to Latin America South Asia South Asia’s demographic profile is one of its many assets – 40% of the population is under 15 years old It is not just the size and age of the population that is attractive: the rise of the middle class will boost growth in consumerism Migration has become a global phenomenon. The outflow of migrant workers from South Asia, and the corresponding inflow of overseas remittances, has had an enormous impact on the region’s economy South Asia has India is the single largest recipient of remittance flows, accounting 1/5th for more than 10% of the global market of the world’s Demographic profile favours South Asia (high proportion of young people) population 6 8 6 6 11 0 – 14 yrs 59 60 55 56 65 15 – 59 yrs 60+ yrs For more information visit www.standardchartered.com/global/ 39 35 32 38 home/research_index 24 Bangladesh India Nepal Pakistan Sri Lanka Source: Standard Chartered Global Research 2006 Performance highlights Operating income Profit before taxation Total assets ▲ ▲ ▲ ▲ 26% ▲19% ▲24% $8,620m $3,178m $266bn 2005: $6,861m 2005: $2,681m 2005: $215bn Normalised earnings Normalised return on Dividends per share per share ordinary shareholders’ equity ▲ ▲ ▲11% ▲11% 170.7cents 16.9% 71.04 cents 2005: 153.7 cents 2005: 18.0% 2005: 64.00 cents Employees Countries and territories Nationalities 59,205 56 105 2005: 43,899 2005: 56 2005: 89 Five-year review Total assets Operating income Profit before Dividends per $ billion $ million taxation $ million share cents 177 4,684 3,178 71.04 64.00 3,923 140 2,681 3,802 57.50 52.00 2,251 109 3,059 47.00 89 86 2,700 81 2,574 2,488 74 2,416 2,252 1,550 2,123 1,262 38 34 32 02 03 04* 05 06 02 03 04* 05 06 02 03 04* 05 06 02 03 04* 05 06 Wholesale Banking Wholesale Banking Consumer Banking Consumer Banking Throughout this document unless another currency is specified the word ‘dollar’ or symbol ‘$’ means United States dollar and the word ‘cents’ or symbol ‘c’ means one-hundredth of one United States dollar. * Figures for 2004 have been restated under IFRS, excluding IAS32 and IAS39. www.standardchartered.com 1 Group at a Glance Our Business Balanced growth driving performance Our performance is well balanced between the twin engines of Consumer and Wholesale Banking. Both businesses are innovating and diversifying to meet the changing needs of customers and clients in some of the world’s most exciting and dynamic markets Description Priorities Consumer Banking serves over 14 Innovation in products and services, million customers across Asia, Africa drawing on our international network and the Middle East where we have Diversifying product range to gain new the competitive advantage to build customers and meet the changing significant market positions over needs of existing customers time while delivering strong financial performance. We provide a wide range Investing in new businesses to of innovative products and services accelerate momentum such as credit cards, personal loans, “Our focus on diversification Strengthening distribution infrastructure and innovation drove income mortgages, deposit taking and wealth growth across our markets.” management services to individuals Simplifying processes for and small and medium enterprises employees so they can spend (SMEs). Innovative products and more time serving customers channels set us apart from the competition in many of our markets. Consumer Banking Mike DeNoma Group Executive Director responsible for Consumer Banking Description Priorities Wholesale Banking provides corporate Client-led strategy based on and institutional clients with services in deepening client relationships trade finance, cash management, to become their core bank lending, securities services, foreign Enhancing product range to add exchange, debt capital markets and strategic and higher-value products corporate finance.