Standard Chartered PLC (OTCPK:SCBFF) Q1 2021 Earnings Conference Call April 29, 2021 2:30 AM ET
William Winters - Group Chief Executive & Director
Andrew Halford - Group CFO & Director
Conference Call Participants
Yafei Tian - Citigroup
Aman Rakkar - Barclays Bank
Joseph Dickerson - Jefferies
Tom Rayner - Numis Securities Limited
Nicholas Lord - Morgan Stanley
Manus Costello - Autonomous Research
Martin Leitgeb - Goldman Sachs Group
Omar Keenan - Crédit Suisse
Guy Stebbings - Exane BNP Paribas
Welcome to Standard Chartered plc's First Quarter 2021 Results. Today's presentation is being hosted by Bill Winters, Group Chief Executive; and Andy Halford, Group Chief Financial Officer. [Operator Instructions].
At this point, I'd like to hand over to Bill to begin. Please go ahead.
Thanks very much, and thanks, everybody, for joining us. Good morning, good afternoon. I'll make a couple of comments upfront on the Page 2 of the slide deck that you probably have. Andy will take us through the package, and then we'll both be available for Q&A.
So lots going on in the first quarter, clearly. The interest rate headwinds that were well flagged have been largely offset by growth in our other key strategic areas, which is encouraging, leading to a strong quarter overall. We had a record quarter in Wealth Management, but I think it's important as the income number is the new client number. So 100,000 additional clients into our priority segment, coming about 2/3 from the -- from our Mass segment and the other is new to bank. So as we've always pointed out, growing client numbers are the best leading indicator. We think that the outlook for the strong Wealth in -- strong quarter in Wealth, that outlook should continue to be pretty strong.
Had a good strong quarter in financial markets, obviously, consistent with the market but continuing to advance on that front. Impairments were unusually low. We remain well reserved in the face of some remaining uncertainties, not least in India and the rest of South Asia. We feel comfortable with our reserve positioning and with our capital strength.
Apart from the financial numbers in the first quarter, there were a number of notables, I think, that are going the right direction. So good solid growth in loans and advances. Our mass market efforts are gathering pace and progressing well. In particular, the digitization efforts, both in the main bank, are going extremely well. And that, of course, allows us to continue to rationalize expenses in that business, including the leverages that you see in the statements to -- continuing to reduce the number of branches. And our discrete digital ventures. We have Mox crossing the 100,000-client mark. nexus is actually in production now in Indonesia, which is all very encouraging.
On the sustainability front, we made very good progress both in the business as sustainable finance and are at the early stages of preparing for a much more robust carbon market, but also in terms of forming our own policy views, which we'll be coming back on later in the year.
Finally, I'd like to just extend my extraordinary sympathies and most heartfelt thoughts to the entire population of India, Bangladesh and other parts of the world that are experiencing particularly bad pandemic outcomes right now. I'm very grateful to our own employees for holding the fort in these very difficult times. We've not had any challenges from a resiliency perspective as yet, but of course, we're watching it very closely. And I think like so many people in the markets these days, our own colleagues have been heroic [indiscernible].
With that, I'll hand over to Andy and come back later for Q&A.
Thank you, Bill, and thank you all for joining the call. So let me start on Slide 3 with the usual financial snapshot, and I'll cover the component parts shortly. So just a few comments on this page.
Starting at the top, income at constant currency and excluding the large DVA credit in the previous year was down just $130 million or 3%, with business momentum helping us to claw back nearly 2/3 of the $380 million of income lost due to lower interest rates. As Bill mentioned, the momentum that we saw building in some of our larger businesses last year continued, leading to a strong start to this year. Wealth Management had a record quarter, up 20% year-on-year. And in Financial Markets, income excluding DVA was up 7% year-on-year, which is an encouraging sign of the underlying improvement in that business given the massively elevated market volatility we saw this time last year.
And finally, on income, the net interest margin has broadly stabled as we anticipated, and the underlying momentum has continued in our fee-earning businesses, thereby supporting our view that the full year income in 2021 should be similar to last year on a constant currency basis.
Moving down the page to expenses, which were up 4% at constant currency due mainly to normalizing the level of accrual of performance-related pay. We also created the capacity through our ongoing productivity initiatives to fund the 6% increase in the amounts expensed from our various digital and other investment projects. Credit impairment at $20 million was exceptionally low and was achieved whilst broadly maintaining the overall level of the management overlay. Although global economic prospects improved and all our main risk indicators are broadly trending in the right direction, it's unlikely we will see such a low quarterly charge as this again quite some time, and I'll cover that in more detail shortly.
Altogether, and notwithstanding the DVA benefits in the prior year, this led to an 18% improvement in reported underlying profit before tax of $1.4 billion. Indeed, this was our highest quarterly profit growth for several years and actually resulted in our RoTE nudging into double digits.
And finally, on this slide, our capital and liquidity position are strong. Our CET1 is at the top of our target range despite responding to strong client demand, with loans and advances to customers up 4% in the quarter. This gives us capacity to both grow the business further and fund shareholder returns.
So let's start looking in more detail at our income performance on Slide 4. This is the usual view of income by product, excluding DVA and with currency fluctuations stripped out to highlight the underlying momentum. The column third from the left shows Q1 2020 income on a constant currency basis, and we've shown the impact of net interest margin headwind that I mentioned from $380 million if you apply this year's NIM to last year's balance sheet.
Moving then to the right. Wealth Management income was very strong, as I mentioned already, a record performance that was underpinned by the continued improvement in sentiment in some of our larger markets in Asia, particularly Singapore, Korea, China and Hong Kong. Put it into context, income of $640 million was $100 million higher than a year ago and $200 million higher than our low point in Q2 last year.
Financial Markets is up again this year and over what was a strong first quarter last year. When you recall the rates business, in particular, and not surprising, they did very well in the aftermath of the announcement of the global interest rate reduction. This year, there were better conditions through our commodities business but much less volatility in rates and FX, meaning the macro trading overall was down year-on-year. On the other hand, credit trading, which posted a $25 million loss in Q1 '20, moved strongly back into profit this year, with credit markets excluding credit trading also growing, up 6%.
The columns in gray on the right-hand side represent the product that's taking the brunt of lower interest rates. In Retail Products, we see a familiar story when interest rates moved lower, positive income has fallen sharply, offset to some extent by growth in Wealth.
It's a similar picture in Transaction Banking. As Bill said, we are seeing good signs of economic recovery in our markets. And trade income, as a result, is up 7% year-on-year, back to the levels we last saw at the start of 2019 with balance sheet growth of just under 8% during the same period. The cash business, though, is at a 2-year low this quarter, with margin compression more than wiping out beneficial impact of 11% volume growth year-on-year.
Treasury & Other income was down $59 million. You may recall, we generated unusually large realization gains in Q1 last year given the market dislocation. We made some gains this year but not as much given the less conducive conditions. So all in all, as I said, income down 3%. I know it's a theoretical exercise and all other things wouldn't be equal, but if you were to simply rebase Q1 2020 income for the impact of the NIM compression in the intervening period, that income would have been up 7%.
Now turning to Slide 5 to spend a bit more time on net interest income and margin. Our first quarter net interest margin print of 122 basis points is in line with the guidance we gave in February. Q1 net interest income was slightly down on Q4 2020, but after adjusting the day-to-day -- adjusting for day count and the one-off prior period credit tax received, net interest income was actually up quarter-on-quarter by 3%, in line with the growth in average interest-earning assets.
The interest rate picture has not changed materially in the first quarter. HIBOR has continued to drift lower by about 12 basis points, which has continued to put pressure on NIM in Hong Kong, but this has been partially offset by improvements in pricing and our continued focus on the mix of our liability base.
And speaking of interest rates, although we don't expect upward hikes at anytime time soon, some investors have asked if we can [indiscernible] for the tenor of our treasury book to take advantage of the steep yield curve at the long end. And the simple answer is yes, to some extent, we can, and we will selectively do so over time.
And on volumes, we are seeing healthy client-led demand in some of our larger markets in Asia. As I mentioned, loans and advances to customers grew by $10 billion or 4% in the quarter, with lending volumes up on the back of short-term IPO growth in Hong Kong, Transaction Banking, Trade and Wealth Management growth driven by higher secured lending and retail mortgages, partially offset by a decline in the unsecured credit card and personal loans book. We expect to generate decent loan grade over the remainder of the year, albeit probably not at the rate we saw in the first quarter.
So turning to Slide 6 then. Our more capital-efficient nonfunded income, which comprises of net fees and commissions and net trading and other income, has grown 4% year-on-year. It now constitutes close 60% of our total income. Wealth Management, the largest engine of net fees and commissions, is up 23%, with our focus on driving client growth, adding new products and investing to improve our front and back office capabilities, continuing to pay off. We are adding affluent clients at a faster rate now than we were before the pandemic, 2/3 of which migrated from the Mass Retail segment, one of the many reasons why we are keen to grow that pipeline. Our product portfolio was expanded with new Wealth Management funds focused on retirement, China's new economy and sustainability.
Our other big fee-generating engine is Financial Markets. As I said, we believe improvements made by our team in recent years will underpin healthy long-term growth that is much less correlated to volatility than in the past. Net fees and commissions from cash and trade both recorded the highest quarterly print since the start of the pandemic, and though still below pre-pandemic levels, this all evidences the signs of recovery that we are seeing in our markets. I already mentioned that the treasury income is lower year-on-year primarily due to lower realization gains in treasury markets.
With that, but before I move to expenses, a few words on our income outlook. Our Q1 performance, supported by the broader macroeconomic outlook, reinforces our confidence in the previously stated income guidance. With the NIM having broadly stabilized, we expect income to start growing again in the second half of this year on a year-on-year basis, and for the year overall, be at a similar level to 2020 at constant currency. Beyond that, we have seen plenty of reasons to expect income growth to return to our medium-term range of 5% to 7% growth starting next year.
Now on to Slide 7 and costs. I mentioned earlier the reason for the small increase in costs in Q1. Clearly, the plan is to get back to generating significant positive jaws as soon as possible, and I expect we will do so in the second half of the year.
I spoke earlier about the productivity initiatives that we are creating capacity to continue to invest. We have accelerated some of the opportunities, particularly as we implement new ways of working to speed up the rate of innovation and process improvements. Aligned with this, many colleagues across the bank have just moved on to new contracts, which allow working from home from 1 to 5 days per week. We will monitor the success of this program and flex our office space accordingly.
Suffice it to say the benefits from our multiyear digitization program and other initiatives such as this should enable us to roughly halve the number of physical branches to around 400 and reduce our overall real estate footprint by about 1/3 over the next 5 years or so.
As we said in February, expenses are likely to increase slightly in 2021 as we invest in digital capabilities, and we continue to target full year outturn below $10 billion at constant currency, excluding the U.K. bank levy. But performance-related pay could nudge us slightly over.
Two certain points on costs before we move to the next slide. Firstly, as you may have seen, the U.K. budget confirmed their expectation that the U.K. bank levy will reduce to around $100 million this year, realizing an annual saving of $200 million. And secondly, you'll recall, we said in February that we are likely to incur restructuring costs of about $0.5 billion as we continue to transform the business to drive productivity, most of which could land this year. There was a small charge booked in Q1, but those efforts will naturally build through the remainder of the year, so you should expect the quarterly run rate to pick up.
Turning now to credit impairments and asset quality on Slide 8. Credit impairment of $20 million was exceptionally low. Although first quarter is not unusual, but $20 million is. As I said earlier, all the main indicators are broadly moving in the right direction. We saw a small net release of stage 1 and 2 charges and a small stage 3 charge and retained a management overlay of $339 million.
The stock of high-risk assets in our corporate, commercial and institutional banking portfolio across the 3 indicators in the bottom middle graph continue to trend down. Clearly, the full year impairment charge is going to be significantly lower this year. You'll probably ask me to give you very precise guidance, and as usual, I will refrain from doing so. However, the outlook is undoubtedly more positive, but the world is far from out the doors when it comes to COVID. We have seen good progress in some of the markets, whilst others are facing challenges, as Bill has referred to. What I will say based on my Q1 experience is that we may get back to or even slightly below our normalized loan loss rate of around 35 to 40 basis points possibly this year.
So to complete the financial overview on Slide 9, risk-weighted assets and capital. Starting with the chart at the top, risk-weighted assets were up $8 billion or 3% in the quarter driven mainly by strong client demand. As has often been the case before, the first quarter usually sees Financial Markets business very active as parts return after the seasonal slowdown in quarter 4. As the Financial Markets business books assets and takes on trading positions, both credit and market risk weights tend to increase at pace. However, this pace is typically not repeated later in the year.
In Q1, customer demand-led asset growth, partially offset by an improvement in asset mix, added $8 billion to RWA. Increases due to credit deterioration of about $0.6 billion and $1 billion from market RWA were offset by similar reductions from FX movement. We have consistently guided that RWA should grow below the rate of asset growth, and that very much remains our expectation, not in every quarter, obviously, but over time. I expect mid-single-digit year-on-year RWA growth for this full financial year.
As you know, our focus on returns in recent years has driven discipline around capital position, so we are confident that we can capture client opportunities without dialing up the RWA intensities during the remainder of the year.
Turning to the chart on the bottom. We remain strongly capitalized with a CET1 ratio of 14%, the top of our target range and 4 percentage points above our regulatory minimum. Profit accretion of 40 basis points allows us to reinvest into client-led asset growth. Roughly 10 basis points came off CET1 upon completion of the share buyback we announced in February and the accrual of an interim dividend and AT1 coupons. FX and others includes 9 basis points in higher regulatory exceptions and 10 basis points with FVOCI reserve movements.
Having weathered the worst of the pandemic going forward, we will be happy operating within, rather than above, our 13% to 14% target CET1 range. We believe we will see significant profitable opportunities for capital to work supporting our clients in the coming quarters, and we'll seek approval to use what surplus we have after doing so to pay dividends and buybacks.
And now on to the final slide before we open the line to questions. I won't repeat the outlook comments at the top of the slide. It summarizes how we think the rest of the year might pan out. The key point is that underlying momentum remains strong as the year-on-year interest rate drag now starts to reduce pretty quickly. The chart to the bottom shows some examples of trends we are seeing in the drivers of our underlying business momentum. Taken together, they reinforce our confidence in our outlook both for this year and for getting back to 5% to 7% top line growth next year and beyond.
So with that, I'll hand back to the operator so Bill and I can take your questions.
[Operator Instructions]. Your first question comes from the line of Yafei Tian of Citi.
I have a couple of questions, if I may. The first one is looking at the asset quality for this quarter. It's a very good quarter, but compared to some of your peers, the amount of the reversal seems to be much more modest, particularly taking into account that the NPL stage 3 loans are actually falling. Does that mean there is a very long runway for Standard Chartered to deliver very low loan losses, not just for this year but also for future years? So that's the first one.
And second one, you mentioned about half the number of branch network going forward and the restructuring costs related to that. Just wanted to have a bit of understanding in what markets are you looking to optimize the branch network.
Okay. So let me take those, Yafei. So on asset quality, I would point to a few things, and we've got this, I think, on Slide 8. We saw a significant increase in early alerts, the ones that we are watching very carefully. That peaked at over $14 billion. And that has been coming down progressively quarter-by-quarter. So we're now about 1/3 less than that, and we're actually back below the levels that we had at March 2020 at the very start of the pandemic. That tends to be the best indicator as to what is happening over a forward period.
We have got our stage 1 and 2 and stage 3 sort of credit items -- sorry, the stage 3 and the credit grade 12 are staying fairly constant at the $6 billion level. I think the $6 billion needs to be seen in the context of an overall portfolio of nearly $300 billion, but it is a relatively small part of the overall portfolio. It is stable, we are monitoring it, and quite a lot of the activity there is actually better collateralized now than we have had in the past. So we are not worried about that from the perspective of the overall of the business. Clearly, there could yet be unforeseen events, but we think that the portfolio is behaving well.
And then finally, I've observed that last year was a $2 billion charge, it was, what, about $1 billion higher than might otherwise have been the case. So far, this year, we seem to be now normalizing back to the long-term averages. I think if we take about $1 billion of excess charge on a $300 billion book through the whole of the course of COVID, I do not think that will be a bad outcome.
On the branches, we have been investing in digitalization and mobile applications regularly for the last several years. We have been readily reducing the number of branches over that period of time as customer moves, behavior moves from attending the physical branch to actually doing more and more things on mobile devices. I think 4 or 5 years ago, we had about 1,200 branches. We're about 800 today. What we're saying today is that we continue to expect that trend to occur, and over a period of time, we think we'll settle it somewhere around the 400-branch level. So the combination of digital, combination of mobile access to customers is what it's concluding, but we think that, that will be a sensible target to go forward.
I just had one short comment on the branch side. The -- within the 800 branches, we've been steadily reconfiguring a number of those branches from main transaction branches into wealth and advisory branches, so typically upgrading the facilities and making them more suitable for absolutely customers who are looking for advice and transaction processing rather than day-to-day banking. So the branch isn't going away by any means but will be substantially reconfigured as we already have in a number of cases.
Your next question comes from the line of Aman Rakkar of Barclays.
Just wanted -- a quick question on Wealth Management. Obviously, good print in Q1. Interested in kind of what kind of reach do we take for the full year in regards to Wealth Management. And I guess, I know you're kind of calling out again the difference in performance between the bancassurance component of Wealth Management. I mean, can you help us understand the kind of moving parts behind that bancassurance component versus the non-bancassurance component? And to what extent is activity subdued? And can we expect some kind of rebound potentially as the Hong Kong-China border reopens later this year?
Yes. So we've been very focused upon Wealth Management for a number of years now. And whilst it is really good to see such a strong start to this year, it is sort of a build on what has been progressively happening over the period of time. As we all know, a lot of Wealth has moved into the Asia region. And I think we have availed ourselves of that over a period of time well. We've invested in new systems. We've got better insights. We're supporting clients better. The team is stronger. And it's just really good to see that having come through.
And as we observed today, we have got a smaller increase on the bancassurance and the bigger increase in the rest of the product sets. That will vary from period to period. But remember, a lot of the bancassurance product is sold face-to-face, so in a period when it's been slightly more difficult to get so much face-to-face contact is not entirely a surprise. But that has slightly been hampered.
So we come into this year feeling pretty good about Wealth Management. And obviously, how it plays out over the remainder of this year will depend a lot upon sentiments and how various markets around the whole year move, but it's clearly a bedrock to the business and something that we are proud of.
If I could just follow up quickly then. I mean you're demonstrating some really strong growth in that product line as things are, but you've got a decent chunk of that business not firing in all cylinders. I mean, is there any reason to think that next year, Wealth Management total doesn't kind of take off? I mean, is that something we should be thinking about in terms of either you've overrun in Q1 or some other thing?
Well, 20% overall, I think, is reasonable takeoff as far as we're concerned. But listen, within any product range, you're always going to have some that's slightly stronger, some that's slightly lighter in any period. We're not at all worried about the bancassurance [indiscernible], not at all. We see a lot of potential there. We are doing a lot now that we have got CPBB business area to look more cohesively at our service for affluent customers, including the Wealth Management product, and we hope that, actually, as we start to get a more consistent approach across markets that, that also will provide us with opportunity.
And we've also been very encouraged by the growth in the affluent customer segment, 100,000 more customers. A lot of those, 2/3 of them, actually coming from our Mass Market segment, hence, reinforcing our belief. But actually, having a bigger presence in the mass market as a feeder to our affluent, fueled by Wealth Management products, is a very potent combination for us as we move forward.
And maybe I could just add. I think we see a tremendous amount of runway in this product line. So when we look at Q1 but also over the past few quarters, we've seen some of the markets that are smaller contributors to our overall Wealth business, but nevertheless, large businesses, China, Korea, in addition to the businesses that have been the bulk of our Wealth business, Hong Kong, Singapore, Taiwan, et cetera. The new markets are really fired. And when we look prospectively at the Chinese market opening up, we do specific things like Wealth Connect area in China then perhaps expanding to the rest of the country over time.
Building on some really good strength in our Wealth business in China over the past quarter and over the past couple of years, we're very encouraged by the ability to sustain these relatively high-growth rates and perhaps not a 20% every quarter. But as you know, that business line has been growing at high single digits, low double digits for many years for us. And we think that the runway goes for quite a long time, and we're investing in that. So I've called out specifically Korea, China, India and other markets that will move up and down from quarter-to-quarter, but they are establishing a very nice trend for long-term growth in this key strategic area of focus for us.
And your next question comes from the line of Joseph Dickerson of Jefferies.
I just had a quick one really. One of your competitors -- I don't know if it's a competitor, a large global bank is looking to sell off some of its consumer businesses in your footprint. Just wondering if you think any of those portfolios would be a good use of excess capital. Or a comment on portfolio acquisitions more generally would also be helpful.
I think we're always looking for opportunities to fill out in our network, and obviously, only looking for things that play to our core strengths or where we think we have some value to add. If there could be -- easily be parts of the Citibank portfolio that did nicely with our business, we'll look at them. And I think we know the businesses reasonably well. None of it is without complication, but -- early stage of the process, but we'll look and we'll determine whether it's the best use of the shareholder capital that we've got relative to the other uses, always recognizing that we have the opportunity -- or hope to have the opportunity before we want to buy back shares at a discounted book value. So we'll look at those acquisitions in the context of our whole portfolio.
Your next question comes from the line of Tom Rayner of Numis.
Just wanted to stick, firstly, just on the sort of revenue sustainability question. You've spoken about Wealth Management. I just realized that the first quarter was very strong in Hong Kong, particularly in terms of stock market turnover, which I think drives mutual fund sales and retail sort of equities trading. I just wonder how much of your Q1 performance was driven by that rather than some of the other things you mentioned because I think in April, that has dropped off quite notably. So just a question there about the sustainability of that aspect of the Wealth Management performance.
And also, just on revenue, can I just sort of check that the expected currency impact this year is still around $400 million? Because, obviously, the currency impact is quite small in Q1 relative to that full year guidance. That's the first question. I have a second one on costs, please.
As you know that the Wealth Management business line is quite volatile, and it's very driven by market sentiment, exactly as you call it. So the outperformance in Q1 was clearly driven in part by the extremely favorable conditions in the equity markets, not unfavorable in fixed income markets as well and in addition to the resumption of activity in the banca line. So we'll see that bump around from quarter-to-quarter for sure, as we have, I think, for every year in the past decade.
Our business is relatively less market sensitive than some other businesses because we've got a relatively higher proportion in banca and other savings products that are a bit less market sensitive, but it doesn't render us harmless to market volatility. So that's -- but the -- maybe the thing you call out specifically in terms of sustainability is the consistent growth in client numbers, which -- and it's not an accident that we have a growth in client numbers. We focused on this quite a bit, and we've been focusing on reorienting our mass market to identify those clients that can elevate themselves in terms of their status inside Standard Chartered to premium and then priority.
The premium segment that we've added in most of our markets over the past couple of years is going very well. And we made big investments in customer service and -- which has led to -- as I called out at the full year results, led to a #1 net promoter score in sort of 6 of our top 9 markets and top tier and the other 3. So that's -- and again, none of that's an accident. These have been very, very deliberate investments in improving customer service, including digital marketing, improving our digital offering, improving the quality of branches that are ever more suitable for that priority client segment. And those are translating through to growth in customer numbers, consistent growth in customer numbers, which we think bodes very well for the sustainability of earnings down the road. But none of that is to take away from that observation that in a 20% year-over-year growth quarter, we're not going to sustain that every quarter in every market environment.
And then, Tom, on your second question, currency impact. In February, with the rates as we saw them then, we put about a $400 million uplift. And remember, this is both to income and to cost, net neutral on profit. If you took today's rates, it might be nearer to $300 million than $400 million, but it obviously does move around over time. And rather than give you sort of a blow-by-blow account on that $300 million to $400 million, somewhere in that range, is where we would see it as of today.
Okay. Just moving on to costs. Can you add a bit of color around this sort of normalizing of the performance-related pay? Because we heard the same thing from HSBC a couple of days ago that -- I don't know if there's been a directive that sort of determines how you have to accrue now your performance-related pay. But I'd just like to get a sort of better understanding. You are signaling as well that it might have an impact on the full year. Again, I suspect if that's going to be higher, does that mean that revenue will also be higher than current sort of expectations? But just to sort of to try to get my head around this PRP issue a little bit better.
And also, on the restructuring charge, most of that will be taken in 2021. I mean, what's the likelihood that we get another restructuring charge top-up, say, for 2022? Because we don't want to move into a situation where we have rolling restructuring charges sort of going on and on. So I just wondered, again, your thoughts around the restructuring charge as well, please.
Yes, sure. So this time the last year when we were doing the Q1 numbers, which, clearly, the very, very start of COVID, we said quite explicitly that the business performance was likely to be adversely impacted, that we will be looking at what levers we could pull to flex the cost base accordingly. And as we did at the end of the year, that's most back to the end of the year, clearly, we had a lower level of payout for performance-related pay as a consequence of what happened last year.
What we've said this year is we've had a good start to the year, but we would see that situation being unlikely to prevail through this year as well. And so if we continue the momentum we have got -- and remember, the performance-related pay is a mixture of factors. Some of it are income related, some are profit related, some are digitization related. And then it is possible that we may see a little bit of an extra cost in the current year, not being in the overall scheme of things, but we just want to put the market down at this point in the year, but that could be the possible outcome.
On the restructuring, we said about $0.5 billion mainly this year, so February is sort of repeating today. I think the majority of that will be current year. I don't think we will have a significant element of that sort of flowing through 2 years subsequent to this. So I don't think about that being majority this year or thereafter.
Yes. Sorry, Andy, it was more about whether there's likely to be another one of similar size when we get to sort of end of this year looking into next year. Just how specific the restructuring is to specific things you're doing rather than becoming a sort of general restructuring of banks going on and on. That was the focus of the question.
Yes, yes. I mean, listen, we are going to continue to evolve the bank. We're going to continue to refashion it, reshape it, as you would expect. I mean, as I see it at the moment, I think the bigger charge will be this year -- don't take me -- not excluding next year totally as being a sign of the high next year, but I don't think we'd ever been -- we've been seeing going on at the moment. It is most likely that the big charge will be this year.
Your next question comes from the line of Nick Lord, Morgan Stanley.
Two questions actually for me. First is just to push you a little bit more on this revenue point. So I mean, if I look at what you've just delivered in terms of revenue relative to sort of consensus, you're just about 25% of the consensus expectation. It doesn't sound that you're changing your full year target, but then you're saying second half will be higher than first half. So I'm just trying to marry that. I mean, are you actually saying, look, actually, the outcome is we're probably going to beat the target, and we're just going to hold back because, obviously, there's some market and wealth revenues in that. So I'm just trying to get a feel for what you're actually trying to say there and what some of the drivers or what some of the uncertainties might be in that revenue line.
And then the second is just on tax. It seemed to be quite low in the first quarter. I just wonder if you could tell us what happened there.
Yes. So the revenue print for the first quarter, I think, is just slightly ahead of the consensus, sort of whether you said $25 billion -- 25%, but we are just slightly ahead.
Clearly, as we move forward over the balance of the year, 2 or 3 things to take into account. The Q1 had some treasury realization gains, not necessarily that we'll have those every single quarter. Secondly, the normalization of the NIM, it starts to normalize much more in the second quarter, but it still has got some way to travel, and then we are much closer to like-for-like comps for the latter 2 quarters of the year. So hence, why I was saying that in the second half, the volume side of this plus the fee income should be essentially what is driving the growth. It should not to be held back by the NIM effects, and the NIM effects will work up over that prudent side.
So you put all those together and you get on a constant currency basis, notwithstanding the $300 million, $400 million commented earlier, something that is similar to where we're at. Now have we probably at the margin had a slightly better start to where we had hoped to be? Yes, I think the margin we have been because it changed the word, similar for the full year, not materially so. And we clearly have still got 3 quarters to go. The growth in some markets is good. The India situation, obviously, less good. So I think we're just being sort of thoughtful about where we are in terms of balance of year. But overall, I'd say we are comfortable with where we have started the year, and we look forward to continuing as much as we can at underlying momentum through the balance of the year.
On the tax, yes, it is a lower print. The underlying rate is about 8 percentage points lower than in the equivalent period last year. There are a number of moving parts there, but the single biggest is -- well, probably the 2 single biggest. One, with increased profitability, the proportion of our non-allowable tax expenses is a lesser drag than is the case when we are at the low profitability curve. And secondly, it is a question of mix of profits between different countries, and we have got a slightly higher proportion of the first year result that is in lower tax rate countries than was the case a year ago. So those 2 together.
And I think the full year, we've said over a medium-term period, we would expect to see the tax rate full year basis to be sort of progressively moving to slightly below the 30% level. I think we'll probably be somewhere around the 30% level on a full year basis this year.
Our next question comes from the line of Manus Costello of Autonomous.
I just wanted to -- question on NII, please. Andy, you made some comments about increasing the tenor of hedges. I wondered if you could give us some more color on that. And in addition, you've got a new slide, 15, which gives some more information about why you think you're actually more rate sensitive than you told us last quarter. Can you just elaborate a bit on that as well, please?
Yes. So net interest income, we have said that we see the overall margin sort of continuing to sort of stabilize broadly where we're at. A little bit of downward pressure because of the HIBOR, but we think we can work through that through sort of mix and other effects.
One of the things we have obviously been focused on, and there's been a number of questions on, is whether we can benefit more from the long end of the interest rate curve. Now clearly, the majority of our activity is on the shorter end of the curve, the time duration, but a lot of our lending is more in the 18-month period than in the 5-year period. But we do believe that there are some things we can do with hedging, which will be appropriate in terms of balancing the sort of reward/risk side of things. So I think that there will be some upside over a period of time and -- as we avail ourselves of that.
Secondly, Slide 15, to which you have referred, Manus, we have shown in there that the sort of mathematical calculation of the interest rate sensitivity comes to about $480 million uplift per 100 basis points of increase. What we've also observed there, I think we sort of put this in words but we didn't put it in chart in February, is actually, there are other things which on an upward movement would actually benefit them. Some of those relate to management actions that we can take. Some of it relates to the risk sensitivity of trading book assets that are funded by the banking book. But if you put those 2 together, you sort of get numbers that are roughly double that $480 million number. So not far off $1 billion.
Now I think that makes sense in the context of what we actually saw last year with the reduction in rates, and this is essentially saying that we think actually on the upside, it would broadly marry what happened on the downside. And therefore, obviously, if we can keep the costs in the business low, increase in costs low, then this should give us good operational leverage as and when we do see those rate increases starting to happen.
And just on the change in hedging policy, when was that started? And how quickly will it flow through to NII? And how much of a benefit are we talking about if you're putting stuff further down the curve?
We've been looking at it in recent weeks. We will be starting it sort of pretty imminently. I think it will be -- on a full year basis, it will be high tens of millions rather something significantly bigger than that, and we will obviously phase it in over a period of time.
Your next question comes from the line of Martin Leitgeb of Goldman Sachs.
I just wanted to follow up on revenue guidance. I'm not trying to revise your guidance here or comment on consensus, but I was just wondering how conservative it is just given what we have seen in the first quarter. So loan balance is up 4%, and I think the notion that margins might be close to have stabilized. So 4% absolute growth in a single quarter rather than annualized, and consensus foreseeing revenues going up by roughly 4% in 2022.
In that scenario where we have a fairly strong recovery in Asia globally after the pandemic and snapback in activity, is there meaningful upside risk to that number so that loan growth could be over and above the 5% to 7% kind of goalpost you have said earlier? Is that a fair assumption? Or are there other elements which would make us more cautious?
And the second question related to the USB announcement in terms of retrenchment on its Asian footprint. I was just wondering, is there a similar exercise of thinking being undertaken by Standard Chartered just to evaluate some of the smaller retail footprints where the group might lack scale? Or is your way to addressing this essentially to reduce and thin out the branch footprint that would essentially address some of the issues of the lack of scale?
Yes. So Martin, on the revenue guidance, so 2, 3 things. One, the NIM and the adjusted NIM sort of numbers, clearly -- well, we got this on, I think, Slide 5. We've got a 1.28% quarter as a comp for Q2, and there is obviously some drag relative to what we've indicated where we think the balance of year will be. And then Q3, Q4, it's lesser, about 1.22%, 1.24%, gap 2% or whatever. So there is still some drag to come through on the NIM, but it's mainly in the second quarter.
The volume growth we have seen so far has been strong. Now I did observe that it's often stronger in the first quarter, so -- and then people can just sort of take that number and times by 4 going forward. But nonetheless, it is a good start. We have got, as we all know, an increased sort of nervousness about what is happening in India and 1 or 2 adjacent markets, but I guess particularly India at this point in time, which is slightly difficult to call on a full year basis.
So you put that all together, I would say, as I said earlier, to sort of come out similar to last year overall. At the margin, I would say, we've come out the quarter probably a little bit stronger than 2 months ago we might have liked. I would say it's not so significant. We've changed the wording, but let's just sort of see where we go as we get into the second quarter and beyond.
Your second question, I think, was on retail and sort of market shares -- low market shares in some countries. Listen, I think that the way we are approaching that is to say many of those countries can through digital reach, through mobile payments, we can reach more customers than we have had to avail ourselves of. We believe that we don't need such a large number of branches, and hence, we can moderate the cost base accordingly. And through a focus upon digital marketing, potentially using platforms like the Mox platform in Hong Kong. If we wanted to take that into other markets, we have now got that as a proven capability. We have actually had already in Africa for the last 2 years a very, very significant drive to digital. All new customers are now signed up digitally only, and we will continue to push on that front.
If there are opportunities to bulk up on scale in some of those markets, as per one of the previous questions, obviously, we will look at that and look at the economics of doing that, but our sense is that, actually, with the ability to look at these markets more digitally with a good brand reputation in many of these markets, there is still an interesting future in them. We are very minded to returns. And every one of our markets obviously needs to achieve our returns criteria. But we're working that hard. The creation of the CPPB business unit globally is very much aligned with this and making sure we have a consistent approach across the world.
Our next question comes from the line of Omar Keenan of Crédit Suisse.
I wanted to ask how you felt activity was so far following the first quarter. Do you think that there's been some carry-through momentum in the good activity levels in the third quarter?
So your question, sorry, was on momentum from the first quarter and how we think that will carry forward?
Yes, that's right, especially in Financial Markets and Wealth Management.
Financial Markets and Wealth Management. Okay. I mean, let me start on that. I think that the Financial Markets activity, clearly, we have seen a slightly different set of products to be strong this year to last year. But overall, as I said in the report, [indiscernible] over the last period of time is to rebalance our activity, make it a little less volatility dependent. And our view is that the sort of momentum that we have seen in the recent quarters, we do see continuing. [indiscernible] will vary from quarter-to-quarter, but we are feeling good about the performance of that business unit. And I think [indiscernible] now over a number of quarters to actually see this has now been progressively building up. And the first quarter this year is just further evidence of it.
Wealth Management, obviously, we've had a very strong quarter. I don't think we're going to see necessarily as percentage growth rates through the whole of this year, but nonetheless, it is good to have that start with no reason to believe that we won't continue to have that momentum. Sentiment will play a part in this. The India situation was to expand other countries and sentiment changes [indiscernible] the situation, hopefully, sort of self-balances without a major ripple effect, then I think that should be conducive to continuing progress in the wealth management space.
Your final question comes from the line of Guy Stebbings of Exane BNP Paribas.
I joined the call a little bit late, so hopefully I'm not repeating the questions I would ask. But firstly, can you give a bit more color on what you're seeing in India and perhaps beyond asset quality, if it's having any impact on -- operationally there and any sort of associated cost implications?
And also, can I just check on Slide 14 the macro assumptions? Am I interpreting correctly, you've improved the assumptions for India and, therefore, some sort of reassurance? Or is that just a timing and we need to wait for H1 for any sort of updates on macro assumptions?
And then the second question was just on RWAs, sort of came in a little bit higher than consensus in Q1, but I note the guidance for the full year is broadly consistent with consensus. But you're obviously having good volume indicators in Q1 and beyond. So I just want to check you are happy with market expectations both this year and beyond for risk-weighted assets.
And then just a final point of clarification on the new rate sensitivity disclosure you've given. Are you able to give any sense on which currency that would be in the additional uplift that you think you might be able to benefit from?
Let me start with the India question. I did comment that from a resilience perspective, we are seeing no signs of stress as yet. But we have material case counts amongst our population, both in our service center and in the bank itself, I think, consistent with what we're seeing across the country. It's -- we've kept most of our branches open. Banks are considered essential services, so we've had a disproportionate share of the cases in the branch staff, very unfortunately. But we've had everybody working at home in Chennai and Bangalore for most of the last year. That has continued to pace. We've not seen any signs of stress on the back of the increased case count, but we're watching it extremely carefully. We're looking also carefully at how we can rebalance loads. In fact, we have rebalanced loads between our service centers in Chennai and Bangalore but then through to Kuala Lumpur, Tianjin and Warsaw, where there are -- in particular, Kuala Lumpur, there are also problems, but nothing like the scale of India.
So overall, looks good. The economic activity will certainly be subdued if state-by-state restrictions are reimposed, they have been or are reimposed. But we don't see it taking the underlying wind out of the sails of economic recovery in India. So while we expect that there will be an impact, we are quite hopeful that the Indian economy will recover quickly once they're through this very difficult phase. In any case, we think we're very well provided for a reserve against the possibility of extended moratoria or consumer and small business defaults. But again, it's something that we're watching quite carefully given the very dynamic situation on the ground.
And on your second question, risk-weighted assets, yes, we had good growth in the first quarter. That is quite normal. We've guided to keeping the rate of RWA growth down below the rate of asset growth. And we've said that we sort of see about mid-single-digit growth on the RWAs. I think consensus is there or thereabouts on that. So to your question on consensus, I hope that our comments have been interpreted -- I think have been interpreted in that spirit.
And in terms of rate sensitivity, those numbers are based upon parallel shifts in the curve across all currencies. So we try to -- especially can do balances across all of our markets and then to express that in dollars being what we obviously report out in.
I think that's it for the [indiscernible], and we are out of time. So thank you all for the attention and [indiscernible], and look forward to seeing you at the half year.
Thank you. That concludes the presentation for today. Thank you all for participating. You may all disconnect.