Standard Chartered's (SCBFF) Management on Q3 2017 Results - Earnings Call Transcript

Standard Chartered PLC (OTCPK:SCBFF) Q3 2017 Earnings Conference Call November 1, 2017 5:30 AM ET

Executives

Andy Halford – Group Chief Financial Officer

Analysts

Ronit Ghose – Citigroup

Manus Costello – Autonomous

David Lock – Deutsche Bank

Martin Leitgeb – Goldman Sachs

Edward Firth – KBW

Tom Rayner – Exane

Joseph Dickerson – Jefferies

Rohith Chandra-Rajan – Barclays

Robert Noble – RBC

Operator

Welcome to Standard Chartered’s Update for the Third Quarter of 2017. Today’s call is being hosted by Andy Halford, group Chief Financial Officer. [Operator Instructions] At this point, I’d like to hand over to Andy to begin.

Andy Halford

Thank you, Jody, and good morning or good afternoon, depending upon where you dialed in from. Hopefully, you’ve by now had a chance to read our third quarter statement. I’ll spend a few minutes setting the context and drawing out some of the key highlights before taking your questions.

So overall, we have continued to make steady progress. Third quarter income of $3.6 billion was up 4% compared with the same quarter last year or up 5% on a cumulative 9-month basis, with growth in all four of client segments off the back of good momentum in both client assets and liabilities. Underlying operating profit before tax was up nearly 80% compared to last year, and our CET1 ratio of 13.6% was 15 basis points lower than the prior quarter, for reasons I’ll explain later, remains comfortably above our target range of 12% to 13%.

We continue to focus on securing higher-quality income to further improve returns and are investing to support that objective. Hopefully, those headlines explain why we are encouraged by the progress so far. Looking at the numbers in a little bit more detail, starting with income. At a group level, as I said, income in the quarter was up 4% year-on-year or 5% on a cumulative basis, which is broadly reflective of the range we’d expect to see in the current environment.

Whilst income was broadly flat on a sequential quarter basis, it is worth noting that all 4 client segments grew around 2% in successive quarters, with the primary offset being in Treasury, which returned to a level, in the third quarter, that was more consistent with that seen last year.

I’ll just draw out a couple of comments on our 2 largest regions and our largest client segments. So in Greater China and North Asia, we continue to see good momentum across all countries, led by Hong Kong, Korea and China, contributing to the delivery of a very healthy 9% growth in the first 9 months of this year compared to last year.

In ASEAN & South Asia, conditions in some parts of the region were more challenging. Asset margin compression continued to offset volume growth, which masked some of the good progress we’re making in shifting towards more affluent and non-financing sources of revenue. Both Singapore and India have delivered income growth in Retail and Commercial Banking, supported by client acquisition initiatives. But the lack of volatility and client activity in our Financial Markets business impacted results in Singapore, in particular.

In Retail Banking, we continue to attract more affluent customers and are rolling out upgraded technology platforms whilst selectively reducing the size of the branch network and migrating more business to online and mobile channels. We announced yesterday that Karen Fawcett will be retiring from the bank, having most recently successfully taken the transformation of Retail Banking from its initial design through to implementation.

Ben Hung, who’s a proven operator in the segment, having run our largest and most complex regional operation in Hong Kong, will add responsibility for Retail Banking to his regional mandate. There is no other consequent change to the retail strategy or structure. Our other big client segment, Corporate & Institutional Banking, is making steady progress, focusing on improving the quality of its income and balance sheet whilst driving operational efficiencies.

We’ve also been adding new clients. For example, we have already on-boarded 80 of the 90 multinational companies that we’ve been targeting across our OECD markets, what you may have heard of referred to as our new 90 initiative previously.

From a product perspective, we have seen good momentum year-to-date in Transaction Banking and Wealth Management, evidencing the differentiated nature of our proposition to clients in those areas. Volumes continue to build steadily in trade, whilst in Cash Management, we are benefiting from improved margins and volumes as we accelerate our focus on high-quality client operating account balances.

In Wealth Management, where we have been investing heavily, momentum has remained strong and broadly based. Consequently, we achieved our full year bancassurance performance bonus by the end of the third quarter for the first time, thereby accelerating around $40 million of income into the third quarter, which, whilst most welcome, will not therefore recur in the fourth quarter.

The only other point I’d call out from a product perspective relates to Financial Markets, where income during the quarter rose slightly on a sequential basis. This is despite challenging conditions for our FX business that are largely an industry-wide phenomenon, with lower market volatility impacting spreads and client activity generally.

Moving to expenses, which were up 5% on a cumulative 9-month basis, the same rate of income growth over period, largely due to accelerated investments then relative to last year. Looking at the remainder of the year, the full year outlook, I’d expect non-regulatory expenses to be very similar to the level of last year. Regulatory costs may be a little high year-on-year, but our sense is that they should start to moderate going forward as several big regulatory projects such as IFRS 9 go live.

We’re on track to deliver over 90% of our $2.9 billion, 2018 gross cost efficiency target that we setback in 2015 by the end of this year, which has created the capacity for investment and to absorb inflation.

Rather than investing simply to catch up, which has been the priority over the past couple of years, we are increasingly able to focus on investments that will make us a simpler, faster and better organization and reinforce our competitive advantages. The benefits of those investments are starting to be felt, both internally and by our clients in a number of areas, and I’ll highlight 1 or 2.

In Wealth Management, our proprietary research is now available online and by mobile devices in 12 countries, which has improved the client’s experience and will lead to tens of millions of dollars of incremental revenue over the coming years. In Private Banking, our new automated trading platform for equity-structured products is already generating nearly $10 million of incremental revenue, and our credit process transformation projects has halved the credit approval turnaround time.

And speaking of turnaround time, the client on-boarding process in C&IB has gone from 31 days in 2016 to around 12 today. So an encouraging story is emerging, and we are focusing on maximizing the returns on these investments across the board. Finally on the topic of the costs, the U.K. bank levy will be paid as usual in the fourth quarter and is expected to be around $390 million.

Moving now to credit quality, where we have made considerable progress over the last 2 years, loan impairment charges in the period were significantly lower year-on-year and down 10% quarter-on-quarter. While stresses remain in parts of the portfolio and we remain vigilant, the improved light performance is an encouraging reflection of a lot of hard work done across the group.

Credit quality, overall, has improved both year-on-year and in the quarter, with gross NPLs in the ongoing business falling 3% quarter-on-quarter and the cover ratio improving to 71%, excluding collateral. We continue to make progress in exiting the remaining assets in the liquidation portfolio, which now represent under 1% of groups overall risk-weighted assets.

Looking at the balance sheet, we started to regain our balance sheet momentum around this time last year. Since then, customer loans and advances have grown by 4% year-on-year, broadly comparable to the income growth in the period, while margins have been stable with positive momentum on liability side, offsetting continued pressure on the asset side. It’s also worth calling out a few trends in the third quarter itself. Customer loans were up 3%, around half of which relate to Corporate Finance, with the remainder broad based by client segment, region and product, while credit RWAs were down slightly in the same period. Customer deposits were up 5% or $19 billion quarter-on-quarter, around half relates to our continued focus on generating high- quality client operating accounts, including Cash Management and Custody in C&IB and Retail Banking deposits.

The other half relates to repurchase agreements as we help clients manage their liquidity positions. In terms of capital, the capital CET1 ratio is 13.6% at the end of the quarter, above our stated range, but 15 basis points lower than at the end of the first half. This is really a story in 2 parts. In the third quarter, we generated about 20 basis points of CET1 through profits and reduced credit risk-weighted assets by over $2 billion equivalent to a further 12 basis points of CET1 benefit.

But as some of you will recall, we have been waiting for quite a while for the PRA’s approval on our models regarding the proposed application of LGD floors. This was granted during the third quarter and was applied first to certain portfolios of financial institution exposures that resulted in an increase in risk-weighted assets of $7.6 billion, which equates to just over 35 basis point reduction in the CET1 ratio. We’ll take a similar approach with respect to some of our corporate non-financial institution exposures in 2018.

Whilst it’s too early to say exactly what the CET1 impacts of that will be, we are hopeful that it will be lower than that for the financial institution’s component. In terms of IFRS 9, whilst the actual outcome on the 1st of January will obviously depend on a number of factors prevailing at the time, we expect a reduction of 10 to 20 basis points to CET1, which will be phased in over 5 years. I’ll be able to give you more information on that in the full year results in February next year.

So in aggregate, some positives and some negative movements on capital in the quarter, but running above our target range means that we are well-placed to cope with regulatory headwinds. It is good that we are steadily clearing away from the regulatory uncertainties and moving closer to getting a better view on our longer-term requirements. But it is not yet fully clear. The biggest potential issue in that regard, of course, remains the outcome of the current Basel committee deliberations.

So to summarize then before we go and open the line for questions, it was very pleasing to see the early results of the actions that we have taken over the last couple of years, resulting in a near doubling of profit so far this year. Whilst competition for the high-quality income we’re targeting remains strong and top line growth in client segment income was moderate quarter-on-quarter, this is net against the single quarter journey. Year-to-date, we are up 5%. With similar balance sheet progression, the focus is now on further driving that into next year and beyond. With that, I will hand back to Jody and take your questions.

Question-and-Answer Session

Operator

Thank you very much, sir. [Operator Instructions] Our first question today is from the line of Ronit Ghose from Citigroup. Please go ahead.

Ronit Ghose

Hi thanks. It’s Ronit from Citi. Just a few questions, please, Andy, if I may. First of all, on capital, the model change on FI exposures, the – I think it’s 35 basis points you called out. Can you give us a more color on that, please? Are these – I mean, how many FIs are these? Are they mainly Asian FIs or Chinese FI exposures? Any more color on that would be great.

My second question is on our costs. These – you called out that you think we’re going to be up a fair bit in reg costs this year, but you can see light at the end of this tunnel. What gives you that confidence? And where – at what point do you think you’d can get to the point where you think reg costs – the run rate hits a steady state and actually maybe starts falling? Because all we see in continual further reg costs cash pressure across the board.

And my final question on costs is, you’ve talked about non- reg costs going up due to selective investments to boost competitiveness. Is this more on the wholesale side? Is this from the market side? We’ve seen a few high-profile hires you made. Or is it also on things like digital and retail that everyone’s talking about? Thank you.

Andy Halford

Yes. Okay, let me try to take those in order. So on the capital front, the loss given default topic has been around for some time. We flagged a while ago that it was something – it was still under discussion. And essentially, the harder this would get is situations where there isn’t a huge history empirically of losses and what to do in those circumstances. And as with all banks, there are discussions then with regulators about how to treat those when modeling.

The discussion on the FI side of it, which has been ongoing through quite a while now, that finally came to fruition in the third quarter. And there was – and it’s a very, very detailed and sort of complex area. There was basically an alignment on what would be the appropriate treatment in certain situations like that. Those we have now flowed through the models. That is what gives the $7.5 billion increase in the RWA, and that is what is mathematically caused the 35 basis point reduction.

We have got equivalent reviews going through latter stages now on corporate, so the same concept but applied to corporate clients. I’d hope that the numbers on that will not be as big. But nonetheless, just the fact that, that is also in progress. So certainly, that has taken a little bit of a bite out of the CET1. On the other hand, I’d observed, unrelated, that the IFRS 9 impacts are probably a little bit lower than maybe I thought they would have been a while ago.

So anyway, that’s sort of what that is. It’s an industry- wide phenomena, but the specifics aren’t specific to any one bank. And that came to fruition in the quarter. On the Ronit Ghose - Citigroup Inc, Research.

Ronit Ghose

Can I just jump in – apologies to interrupt. But just to clarify on the LGD floors, is there any kind of color you can give us on the size of these portfolios that were being looked at? We don’t have data. And just to clarify on the corporate book that’s still underway, you’re reviewing, you’re saying that’s going to be a smaller impact than the FI book?

Andy Halford

Yes. I mean, it’s a difficult one to sort of put specific numbers on because it is a very, very complex review of all sorts of models and all sorts of data points that we have gone through. So it’s a difficult one to actually put a meaningful sort of number on it, other than the fact it is about 35 basis points of impact during the period. The corporate’s – the concept is similar, as in have we got as much evidence as to what happens when there are defaults, and what to do where there is lower level of evidence.

So generally, we have got good evidence in large parts of the business. In other parts of the business, slightly less so, and this has been about what to do in those parts where the level of evidence is a little bit lower. On the corporate front, as I say, I would hope that the numbers will be a bit lower than they were on the financial institutions. If I move then on to the second part of your question on regulatory costs.

We have, as you well know, have regulatory costs. And I think we’re not alone in this. That has seemed to sort to rise a little bit by a little bit over multiple years. We were just below $1 billion annualized a while ago, we’re running at over $1 billion now. Part of that, what we have got in the regulatory costs, is compliance costs. And obviously, in any bank, those are going to be a significant part of the cost of the business going forward, albeit efforts made to seek to automate as much as we can do in that space.

But there has been a lot of spend recently on particular sort of programs – IFRS 9, anti-money-laundering, things like that. And 1 or 2 of those programs are now, I think, has a point. And IFRS 9 is a very good example where, when we get to the end of this year, we will largely have been delivered that project and move much more into sort of business as usual sort of stage. And hence, I think we are a little bit more confident now, and probably I’d been for a while, that we are at or around a few points on the regulatory costs as we currently see it.

In terms of the non-regulatory costs, that really – so I’ve said for the non-regulatory, I think, overall, the numbers there will be serving similar to last year. So that story in two parts: One, we are continuing to take costs out of the underlying; but secondly, we are consciously investing in, to your question, some new areas. But the aggregate of those two is going to be flat costs pretty much comparing this year with last year.

And that is courtesy of the huge focus we have had on the cost side in the business for quite a period of time. The areas where the investments are going are very, very similar to what we talked about back at the end of 2015. So not in a particular order, but retail, we had a very fragmented IT environment there, and we know that we need to make that more integrated and we know we need to make it more digitalized. And we have made a lot of progress over the last two years under Karen’s leadership to actually decide which platforms to standardize on, and the rollout of both platforms are now actively happening in many of our businesses.

So a big spend in the retail area. Secondly, on Wealth Management, we’ve said a while ago that we didn’t feel our platform there was up to date as it needs to be. And we decided to go with a prudent platform from outside, and the process of actually implementing that is something which is now playing out. So over a period of time, that should move us onto a much more consistent platform for the Wealth Management product, with both the retail business and the private business, bank business, will benefit from.

We have been spending more selectively rather than thematically, I’d say, in the Corporate & Institutional business. So where we have got areas where we know the level of automation is not what it should be, where we have got client feedback but it’s not good as it should be, where we have got product capabilities that we’d like to enhance the spend going on, on selective areas in that space. And then finally – and a long list, Africa, we have deliberately put more money in there into the rollout of the mobile payment platform and things like that as they were feeling, a while ago, that it was taking too long for them avail themselves of those sorts of investments.

So quite a wide range of initiatives. I think the good thing is that the proportion of the spend on the investments that it’s now truly business enhancing rather than things we just needed break through reasons, is much higher, and therefore, they genuinely are improving the business. And I gave a couple of examples on sort of turnaround times for credit applications. Those are noticeably improving around the banking now. So it is really good to see some of the benefits starting to come through.

Ronit Ghose

Great, thank you.

Operator

Our next question is up from the line of Manus Costello from Autonomous. Please go ahead.

Manus Costello

Hi, good morning, thank you. I had a couple of questions, please. Just to follow up on Ronit’s questions on costs. Are you speaking to 2018 guidance on costs? Are you arguing that costs will fall next year and that some of your investment is just a phasing issue, so you’re still happy with the 2018 guidance. And secondly, I wanted to ask on Treasury income and on exposure to interest rates. You’ve obviously seen HIBOR spike recently. Can you talk us through how that’s going to benefit you, if it is? And why we don’t seem to be seeing any benefit coming through in your Treasury line as it’s reported this quarter. Thank you.

Andy Halford

Yes, Manus. So absolutely standing by the cost guidance to 2018. As I say, the underlying for this year is remaining flat, and the focus is on making sure that continues going forward. Regulatory is a little bit higher this year. But as I said, I would hope that we’re sort of at the peak point. So absolutely standing by the cost guidance. On the interest rate side, we have – I mean, the sort of Hong Kong pickup was late-ish in quarter.

So it has a small impact, but it was later in the quarter. And obviously, by definition, it was more of the sort of Hong Kong-related part of the portfolio, which is a significant part. But overall, in percentage terms, it’s not a huge part of it. So if we actually – when we’ll actually get a benefit to that, some of it come through in Treasury. It doesn’t mean some of that come through the retail line and things like that. It’s not something you’d necessarily just look at the Treasury line to see the benefit of.

Manus Costello

Why was Treasury down quarter-on-quarter?

Andy Halford

Small movements, nothing particular to pull out there. It kind of moves around over a period of time. We have quite significant amounts of money that are on the deposit. At points in time, it does move around. So there’s nothing in particular to draw out there. But it was slightly lumpy, with sort of AFS gains and things like that in the previous quarters didn’t recur in the current quarter.

Manus Costello

Okay. That was really my question then. So there were gains in the first half in that Treasury area, which – this is more of a run rate now?

Andy Halford

Correct, correct. That’s right.

Manus Costello

Thank you.

Operator

Our next question is from David Lock from Deutsche Bank. Please go ahead.

David Lock

Good morning. I had another one on revenue, please. When I look down the new disclosures that you’ve given, I’m wondering – what find a little bit surprising is that the deposit income didn’t reach any real improvements, in fact went backwards Q-on-Q. And I just thought given where we are with rate rises, I can see the improvement coming through in Wealth Management, I could see it coming through in Cash Management, but it’s been limited improvement in the deposit lines. Just wondered if you could talk through that.

And then I had a second one, which is on asset margins. I was wondering if you’d seen really any change in asset margin pressure during Q3 or perhaps at the start of the fourth quarter. And then a final one, just on costs again. We’re noticing, obviously, a few banks that are now starting to look at investing more and spending more to investing growth. Given that you’re committing to your 2018 cost target, I just wondered how you’re thinking about how your business and your franchise is facing inflation pressures in the particular regions you’re operating. And do you feel that you need to keep investing or perhaps spend more than what you’re currently planning to perhaps hit what you previously were expecting in terms of revenue targets? Thank you, very much.

Andy Halford

Yes, okay, David. So deposits, there is a small one-off in there, which is negative, which is $15 million, $20 million. And actually, if you ex that out, the overall level of income on deposits line was strong and actually was sort of continuing genuinely – generally the sort of direction of travel that we’ve seen over the last seven or eight quarters. So I wouldn’t read too much into the fact that there’s a slight dip on that line. We do, from time to time, have bits and pieces that will go through. Asset margins, I don’t think a huge change there. We’ve seen, as we talked about at the half year, a little bit of pressure continuing on the asset margin, but we’ve been making it up on the liability margin.

So overall, we are very, very similar in margin terms third quarter to third quarter. And in fact, cumulative nine months to cumulative nine months, actually fairly flat on margins also there, which, compared with the last few years, is good. In terms of investment and investments to get growth, we said a while ago that – I mean, we invested sort of cash investment about $800 million a year up until 2015. We significantly increased that in 2016 to about $1.4 billion. That’s roughly the run rate in 2017. And I think it will be similar to that in 2018. So the aggregate amount is up a lot. It has slightly changed its shape in the sense that the regulatory is, I think, starting not this year, but start next year, to be a slightly reducing proportion of that. A good $600 million of that was regulatory or is regulatory. When the total is $800 million, that did not leave much depending on the rest of the business. When the total is $1.4 billion, the 600 still remains the same, it’s obviously a disproportionate increase in what we’re spending to actually improve the business.

And then within the business improvements, I think we’ve spent a lot of time on internally, trying to get the right balance, if there’s such thing as right balance, and between the proportion of that is spent on things that are trying to improve the sort of costs and efficiency side of the business versus the revenue and income-generating side of the business. It’s probably fairly balanced at this point in time. I’d suspect the balance will move slightly more to the growth over a period as we work through some of the system complexities and the cost inefficiencies over time. The focus, clearly, is moving to what we need to do most, which is get the top line moving quicker.

David Lock

And I guess just as a follow-up, in terms of inflationary pressures, you’re not seeing any change in inflationary outlook for – particularly staff costs in your regions at the moment, its all of that kind of in line with what you were expecting?

Andy Halford

Yes – no, that is a fair summary. There’s nothing that’s particularly sort of unusual or out of the range of expectations on inflation or inflation on wage costs.

David Lock

Thank you very much.

Operator

Thank you. Our next question is from Martin Leitgeb from Goldman Sachs. Please go ahead.

Martin Leitgeb

Yes, good morning. I have 2 questions, please, and the first one is on capital and dividend. I mean, just trying to square up what we learned today – or I mean, for the dividend outlook. And if I recall right, back in the second quarter results, you called out regulatory uncertainties as one of the reasons which will influence capital and dividend decisions going forward. I’m just trying to understand it appears that regulatory clarity you have now in IFRS 9.

And from what I understand, you have also regulatory clarity at least on the corporate and financial institutions side in terms of the risk weights. Is it right then to assume the only clarity you essentially have been missing is the Basel III finalization from here and the stress test? Or is there anything else which could [indiscernible]?

And I’m not sure if it’s too early to comment, now being the third quarter not the fourth quarter, has anything changed or deteriorated in your outlook for the dividend capacity of the business? Because in a way, profitability is still there, asset quality has improved looking at the coverage and payout ratio. The second question is on revenues – and I think, again, that’s probably a bit confusing or mixed data we’re picking up from the third quarter results.

Because if I purely look at loan balances, third quarter versus end 2016, they seem to be up around 9%. And I was just wondering, whilst revenues are broadly flat on a roughly $3.6 billion level for the quarter, are you able to call out what portion of that loan growth essentially is attributable to Retail, Transaction Banking, the more underlying businesses compared to Corporate Finance?

And within revenues, how should we think going forward about that revenue progression? And sorry here for the complexity, but looking – obviously, looking at the headline number, the PF’s revenues are roughly flattish, $3.5 billion to $3.6 billion. Looking at transaction, retail and wealth, revenues are up 10% over the last essentially 3 or 4 quarters, while Financial Markets and Corporate Finance down roughly 10%. I just wonder if you could give us a little bit of steer there?

Andy Halford

Well, thank you, Martin, in the richness of your questions. I think you probably covered a lot of the data points. So on the capital and dividend, I agree with your broad outline. We have said, particularly on the dividend front, we’ve sort of said earnings and confidence in the management there, trust and confidence in capital adequacy are the real 2 sort of the key things that we need to be comfortable with on the dividend front. I think the earnings momentum continues to be in the right direction, and obviously, significantly higher than where it was last year.

So on that front, sort of things, I think, heading the right way. Capital, we did say at the half year, but there were still a few uncertainties out there. And I would agree with your summary that we have got IFRS 9 now – well, certainly isn’t quite the right word. But I think in the range, we’re pretty confident on that range, and that’s probably in a slightly better space than maybe we had thought it might have been a while ago.

We’ll be that so far in over 5 years, so I think that is good. The last given results is sort of good and the bad. I mean, it’s good that we’ve actually got more definition now to it. It’s bad that it’s obviously hitting the numbers a little bit. But to your point about things that we’re working our way through, with just the sort of corporate split to go, and I’d take the numbers will be lower, then that is another thing that is getting closer to being resolved. And I think, therefore – I mean, stress test, yes. We’ve got the results of those coming, and not sort of unduly fazed by those.

So I think the primary one that sits out there now is the Basel IV issue. And it would be good to get clarity as to what it is so that everybody can actually get on and make plans around it, albeit whether it does come to clarity, kind of what form clearly is an interesting discussion. But I think as we get to the end of the year with the board and we think about the dividend, I think your sort of synopsis would be right, that several things that we were less than clear about a while ago are now clearer, and the primary one that is still a little difficult to read is the Basel IV one.

On the revenue in the loan impairment, I mean, as ever with a business that publishes all sorts of numbers for all sorts of periods of time, it is difficult to know quite which percentages one should go with. We’ve got loans and advances growth in a 3% if you do it sequentially, 8% if you do it since the start of the year, 4% if you do it year-on-year as in a 12-month comparison. And so, I suppose, there are different points of comparison there. I would observe that the sort of 4% or so that we’ve got on a 12-month basis is not dissimilar for the 5 percentage of the growth we’ve got in the income.

So I think maybe the slightly longer time period, that should even out humps and bumps in the intervening periods. And that, therefore, I’d be slightly more guided by those rather than necessarily the things that have moved within an individual quarter, albeit – and I understand why the question’s being asked, we have had Corporate Finance loans and advances balances sort of gone up, gone down, depending a little bit when we close certain deals.

But overall – I mean, this time last year, we were probably talking about income in each quarter in the sort of $3.4 billion range; whereas, we’re now talking about it being in the $3.6 billion range. Obviously, we won’t get it the next notch up, but I think that is sort of comforting. The fact that we’ve got loans and advances up over that period of time by sort of 4% deposit growth is a little bit higher than that.

So there’s certainly no shortage of available deposits there that is much more down to sort of pricing. But overall, the 4% to 5% is probably where I would come away. And overall, actually quarter-on-quarter, about half that increase is Corporate Finance and about half is spread fairly evenly across the rest of the business to be honest.

Martin Leitgeb

Could I just have one follow-up? On the $40 million, you called out, one-off benefit within Wealth Management as part of the insurance bonus, obviously, that’s not going to be a repeat for the fourth quarter. But given how the distribution works, would you expect it to repeat over a similar level – at a similar level roughly next year and the years going forward? Or how should we think about that number?

Andy Halford

Yes, it’s – again, this is quite a curious one. I think it’s sort of good news overall that actually the volumes we’ve had for 3 quarters have been sufficiently strong here. But that has given us the confidence that we’ll hit the full year bonus number, and therefore, we have books that sort of – what otherwise might have been a fourth quarter benefit into the third quarter because we have done well. That will have the effect that we have a good third quarter.

But obviously, by definition, it won’t recur in the fourth quarter. The bar that we have to climb is reset each year, and therefore, I think it will be sort of premature to say that this would be sort of in the bag for next year. But I do think overall performance that we have had in this area has been good and it’s been a big area of focus. And I think with things like the new platform going in over time, that should also give us the encouragement that this is something we should be able to have a good shot at each year.

Martin Leitgeb

Thank you very much.

Operator

Our next question today comes from the line of Edward Firth from KBW. Please go ahead.

Edward Firth

Good morning all. I guess my question was just back on revenue and your comments at the beginning of the call. I think you highlighted 4% year-on-year growth or quarter-on-quarter based on last year, and you felt that, that was a good performance and indicative of what the franchise might be expected to deliver going forward. And I guess I just had a couple observations or questions there. I mean, firstly, I guess you had a lot of tailwind. I mean, if I look at what’s happening in Asia in terms of economies, in terms of interest rate rises, in terms of Hong Kong mortgages growing like a train, it feels to me that what we – perhaps pre-crisis we’d have expected Standard to be delivering something more in terms of revenue growth of 4%. So – and if you include the fact you got a $40 million one–off, the underlying is probably only 2%. So am I reading what you said correctly or am I mishearing? I mean, is 4% really the best we can hope for? Or would you expect that, actually, once you get the costs in line, we would expect something slightly more going forward?

Andy Halford

Edward, we will obviously strive to get it as high as we reasonably can do, and that’s sort of the – and goes without saying. With 4%, if you take third quarter on third quarter; with 5%, if can take 9 months on 9 months, that has been the sort of range we have been in. I think the economic outlook in many of the countries in which we operate still remains pretty good.

And certainly, countries with above average GDP growth rates, we are in a number of those countries. And therefore, I think we sort of remain confident that we’re in the right countries and the growth rates there. We clearly could see a little bit more benefit from interest rates, either the full impact of previously announced interest rate increases or possibly some level of increase going forward. But against that, it is still quite a liquid market. There is still quite a lot of money chasing good homes.

And therefore, we’re just being sort of thoughtful about how we move forward. The $40 million, I wouldn’t – you’re completely right to call it out. But as I said, there was a sort of $20 million that went the other way in the deposit side. I don’t think it’s caused a hugely influence in a sort of misrepresentative way of the future.

And particularly if you do it on a sort of 9 months rather than just a 3-month basis. It’s a line movement from that [indiscernible] I don’t think I would sort of call out particular items to try to call a different trend. 4% to 5%, if we can exceed that, that would be good. And we are, obviously, spending a lot of money trying to make sure that we are ever improving parts of the business in order to give ourselves the best shot of being able to do that.

Edward Firth

But say, just coming back on that. So I mean, if – has something – I suppose my question is, has something fundamentally changed within the Standard franchise which million means that, going forward, we should now expect the growth trajectory in a whatever we say is a normal world, but I guess, if we say today that it’s normal as ever, that the growth trajectory in revenue should be somewhat lower than we’ve seen in history? Or I mean, it’s actually what you’re saying, I guess, that’s my question?

Andy Halford

Well, I think it depends which point in our history you take. I mean, we reported some quite reported some quite high numbers for quite a period of time, and then we took all the loan impairments a while ago which might sort of question whether that was the ongoing trend to be basing the future of. I think I’d go back to my point in the markets we’re in are growing, the GDP growth is good there. We are being very focused on quality, and I think that is the other thing that I would highlight. We do not want to have the peaks and the troughs that we had over the last sort of 2, 3, 4 years.

We want to get a more consistent flow of profitability, and therefore, we have got much of an [indiscernible] I think in the big Corporate Business to make sure that the sort of income risk loan impairment quality is something that we are very focused on in the business. It isn’t all about the top line if we can actually do it in such that we are moderating the loan impairment line. And loan impairments, just to let you remember, we had, what, 300 first quarter, 400 now, more 300-200 first quarter; 400, 300 third quarter.

We have seen a significant reduction in the loan impairment costs as we go forward. And as ever, we continue to explore the boundaries on that. We got 2 types of loan impairments that we’re giving away good income away good income, but nonetheless, there has been a lot of focus on making sure that some of the problems we had in the past are not going to be repeating.

Edward Firth

Okay, thanks very much.

Operator

Our next question is a from the line of Tom Rayner from Exane. Please go ahead.

Tom Rayner

So a couple, please. Firstly, can we just push you again, following on from Martin’s question on the dividend. Because obviously, at the half year results, there seems to be some disappointment that you didn’t announce the dividend resumption there and then. You’ve announced today that your Pillar 2 A requirement is going up, I think, 10 basis points. 35 basis points hit for model changes this year, something similar next year, probably a bit lower.

With kind of no Basel IV looking at sort of 72.5% floor, although there’s uncertainty over changes to standardize and how that floor is going to be applied. But I guess my question is, do you expect or do you think the board is going to have enough clarity at the year-end to restart or to announce a resumption of dividends or not? I mean, can you be a bit more specific on your thoughts there? And I have a second one on costs, please.

Andy Halford

Well, let’s just – might want to comment. I hope it’s not going to be the headline today, but on the third quarter results, we weren’t more forthcoming on the dividend because, clearly, that’s some things that we will look at much more at the end of the year and at the half year points on the year. I know there were some who were hoping that there might be a dividend at half year. And clearly, for those, the fact that we said, "No, we’ll look at it at the end of the year," that was a disappointment. But I do think, and I hope that this is just [indiscernible] as what I said before, profitability in the business is running strong. That is good.

The number of issues that are uncertain is reducing, and that is good. I hope you words that we know what Basel IV is prove to be right. I’m not quite sure that we do as a percentage alone, not knowing quite what it attaches to. The minutia that goes into it is, I think, a little bit more fickle. But I think by the time we get to sort of February and the board having that discussion, stress test will also be known.

I would hope that the corporate sort of LGD stuff will be the window and it’ll be becoming clear. I think there is only one sort of topic left on the table, and that is it. And I think the board is very aware that shareholders would like the resumption of dividend, and that is not lost upon anybody. So I hope there’ll be a sensible and pragmatic discussion at that time.

Tom Rayner

Okay. I mean, I guess you may have enough clarity by then, but the actual answer will be the capital position is not sort of adequate to begin it as early as year–end? Or do you think that it’s really just about having the visibility that the actual capital position itself is not likely to be a factor?

Andy Halford

Well, I think there are other factors in those as well. I mean, one of them is, is Basel IV going to come in with quite a long transition period? If it does do that, are people going to give it the benefit of a transition period? Because if it is more confidential, maybe it is more deserving of it. So again, Tom, I’d love to be more helpful. I’d love to give you definitive answers. I think some of my board probably might be a little bit concerned if I got too far ahead of myself. I think the number of uncertain issues will reduce. I think the board is well aware the profitability has been rising. The board is well aware that shareholders would like to see something happening on this front. And I’m sure they’ll put that in the melting pot and come to whatever is the right answer.

Tom Rayner

Okay. Okay, I’d pushed you enough on that. Can I just ask you quickly on the regulatory costs? A little bit surprised to hear you say you’re only just sort of confident that you reached the peak. My sort of sense was that we might are sort of passed the peak a little while ago. And I’m just trying to get a sense, obviously, if we call it $1 billion a year, and maybe a little bit more at the moment, what sort of percentage of that $1 billion do you think will become sort of ongoing parts of BAU costs for Standard Chartered? So I think in the past, you’ve talked about maybe 1/3 of things which will be there may be forever, and the other 2/3 are a mixture of investments and one– off projects that have to be put in place. Is that still your thinking around that?

Andy Halford

I would – probably the numbers would be slightly different. I can’t remember where the 1/3 came from. But I mean, within that what we call regulatory, we’ve got all the compliance sort of legal costs for the group in there. And yes, we will do stuff towards making it and we’ll improve on that. But I think it is given. But roughly half of the number is on that sort of compliance front. That is going to be broadly sort of here to stay. I think the other half is partly things that sort of look back in time and partly things like – and money laundering, which are things looking forwards, where we do a lot investment and a lot of banks to address that area.

So I think it is that sort of middle quarter, the third quarter, if you like, which is the things that are sort of – a little looking back in time, doing thing’s that are – IFRS 9 is an example, but are sort of one-off programs we need to put in place. And it’s that sort of area that I think has the potential to start to moderate as we look forward.

Operator

Our next question today is from the line of Joseph Dickerson from Jefferies. Please go ahead.

Joseph Dickerson

Good morning. Can you discuss – I’m just trying to think through the LGD floor issue, the IRB changes in addition to IFRS 9, or probably less so IFRS 9, but more idiosyncratic to Standard Chartered, and how these headwinds to capital may interplay with this year’s stress test or the following year’s stress test, in your view, whether this impacts, for example, results before management action and after management action? I guess, what is the interaction of these headwinds with the stress test, in other words? Thanks

Andy Halford

Well, first of all, obviously, no impact upon the stress test that is going to be applied upon very shortly. Because clearly, this sort of is subsequent to that. I think secondly, with the clarity now on the risk weights that we need to apply, we will not only be applying those, but we also will – within the business and are within business, just thinking about whether that in any way changes any of the business decisions that we take, if it’s is slightly high-weighted on some things or the economics of those start to change a little bit. But we have yet to – and it’s really very current, we have yet to really work through from a stress test point of view what will be the impact of that. My gut reaction is I don’t think it will be particularly significant. But to be honest, we haven’t worked that through. We have only just landed on what are the core numbers.

Joseph Dickerson

Thanks.

Operator

Our next question today is from the line of Rohith Chandra-Rajan from Barclays. Please go ahead.

Rohith Chandra-Rajan

Good morning. I Have got a few, please, if you wouldn’t mind, hopefully fairly quick ones. Just on the cost, I mean, the regulatory spend last year I think was $1.1 billion. So it’s only kind of 10% of the cost base. So even if it’s a bit higher, it probably doesn’t have a huge impact on the full year cost. So I was just wondering, why you felt the need to call out in particular? I mean, obviously, it’s a slight change to previous guidance, but it doesn’t look that material.

The second one was on the margin. I think you said flat on the first half, which is 1.55%; and flat year-to-date, which I guess was 1.55% last year given the step-down in the second half. Just wanted to clarify that. And then the last area, which is sort of on competition and then ASEAN, I suppose, as well. Your outlook statement highlights as a competition. You talked about liquidity, which, I guess, is still impacting Trade Finance and perhaps some of the lending products. But if there’s any more color there and if things have evolved at all over the third quarter.

And ASEAN, you highlighted CIB, I guess, is the area of weakness. And that is the one region, one significant region where, I guess, there is an ongoing challenge. So if you could talk a little bit more about that, please, that will be very helpful.

Andy Halford

Yes, okay. So why do I call that reg cost? Well, I’ve said before that I saw the overall costs being pretty much flat compared with last year. And in the spirit of full disclosure, I still see the non- regulatory costs as being very flat compared with last year. But I do think reg costs may be a little bit higher, and that was just in the spirit of the being open. So – but you’ve had full disclosure on that. That was the reason for calling that out. Margin, you talked about the 1.50%, mid-50s number, that is very similar to what we’ve seen in the third quarter as well.

So yes, we are tracking very much in that sort of space. In terms of competition and sort of products, we are running strong on wealth products. We are running strong on the Trade, particularly Cash Management side, the Transaction Banking. I think that Financial Markets, which obviously moves around a bit more relative to the read-out from – some of the banks actually has done better this time, which is good. It’s not always been the case in the past. Corporate Finance is also one that topples around a bit, and [indiscernible] when deals get closed, et cetera.

That was a little bit around in this quarter, it was a bit higher the previous quarter. So that moves around. Competition-wise, I think broadly, you’re right, I think some of the competition in some of the sort of Asia market is a little bit tougher, and that sort of had some impact upon margins. Whereas in the greater China sort of region – Hong Kong, China, Korea, et cetera, I think we have been doing pretty well actually in the market there, and the overall high levels of growth on that front are showing through.

So as ever, some of it’s a bit stronger, some of it’s a little bit less strong. But certainly, encouraging. But the performance in the biggest geographic region is continuing to power ahead quite strongly. And that in the retail space, we are also, I think, making good progress. And that being a more sort of stable part of the business also plays through to the – trying to get a bit more predictability into the result of the business.

Rohith Chandra-Rajan

Thank you. And you called about – you called out CIB, I guess, in ASEAN. South Asia is the area of weakness with – we’re showing Commercial doing better. Let’s talk about that a little bit more. I mean, that particular product segments or places where you’re not properly represented at the moment that might change.

Andy Halford

No, I mean, we’ve been a little bit weaker in Singapore than the major ones in the CIB space. But there’s nothing that I’d particularly call out. It has just been a little bit more competitive, a little bit more pressure on margins. And that part of the business, at this point in time, is a little bit more challenged. Other parts of that I mentioned have been going strong.

Rohith Chandra-Rajan

Okay. Thanks.

Operator

Thank you very much. And our final question today comes from the line of Robert Noble from RBC. Please go ahead.

Robert Noble

Good morning. I was just – I think most of them have been answered really. But just to follow-up on the loan growth by region. Is there any way that you’re particularly taking market share in loan growth term within retail and commercial? Or is – are you growing kind of in line and that one’s doing a lot better in general? And then, are you still seeing this kind of trend that you’ve highlighted in the past between growth and current accounts offsetting decline in deposits, and therefore, sort of supporting the margin? Is that still ongoing in Q3? Has it accelerated or anything like that? Thank you.

Andy Halford

Yes, Robert. I think that we have – certainly, in a market like Hong Kong, we have been growing ever bit with the market. I think in Korea, we’re probably growing a little bit ahead of the market, but then we sort of needed to catch up a little bit than what we’ve done in the past. I think Singapore will be probably a little bit weaker in the market in the CIB space, which I mentioned earlier. Africa, I think, broadly, we have been at or slightly ahead of market.

So I think things have been going well there. On the sort of deposit side, we have continued the focus on the quality of deposits. Obviously, some are lower costs for us, some are more sticky. And some have got the better regulatory treatment and was slightly revised structure to our Treasury theme. That is something which we are giving more focus to, and seeking to improve the sort of cost of the funding and also the resilience of the funding, particularly from a regulatory point of view. So the simple answer to your question is, yes, we continue to have that focus.

Robert Noble

Thanks very much.

Andy Halford

So I think that we have come to the end of our time. Thank you very much for joining. I think just to reiterate that we are continuing to make progress. Profitability clearly is rising strongly. We know all eyes are still on the income. We are doing a lot of things to get the income momentum there. I think the investments we’re making are in the early stages, but are the right things to do and are starting to show through.

The capital side is a little bit back, but on the other hand, a little bit clearer at the same time. The dividend issue we’re well aware of and we’ll get full and appropriate discussions at the end of the year. And we will obviously debrief you on that as when we know where that discussion hits to. Thank you very much, indeed.