Standard Chartered PLC

LSE:STAN

Earnings Call Transcript 2021-Q2

[Operator]

Welcome to Standard Chartered PLC Half Year 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.

[William Thomas Winters, Group Chief Executive & Director]

Good morning, good afternoon, everybody. Thanks very much for joining our half year results. I am sitting here in Hong Kong. Andy is in London. I will say a couple of things upfront. Andy will go through a lot of the details on the half year report. I'll come back to a few thematic comments. And we'll try to save plenty of time for question and answers. Loans are short. We think it was a very good strong first half of the year. Clearly, the profits are up significantly on the back of a much improved loan impairment story. The -- this we think is fundamentally attributable to the high quality of our credit portfolio. The numbers are not cited by big reversals of provisions, but rather by low underlying losses. The impact of low interest rates clearly has taken a toll on our income line. That was substantially offset, not entirely, by very strong underlying business momentum. So when we look at our affluent population, that affluent client segment continuing to perform very well, very good results in the first half of the year. And the outlook for that business is very strong. The network business has continued to deliver particularly strong results in trade against the backdrop of a stronger global economy and improving trade, getting that back in June to meaningful profitability in our mass market business. And of course, sustainability, which we'll be talking about, is at the early stages of contributing to the material increase in income that we expect from that product line over time. We're very well positioned for that. In addition to building the strategic levers that we've been talking about for some time, we are continuing to work the capital very hard. So we've restored our interim dividend -- between the interim dividend and have announced a new $250 million stock buyback. The objective here is obviously to operate well within our 13% to 14% CET1 range, and we will continue to operate within that range. And that, combined with ongoing cost management, will drive the improvement in returns that we have been targeting for some time. And I will say before I hand over to Andy that our confidence that those targets are achievable has only increased, and increased, I would say, materially on the back of the operational improvements that we've seen in the early part of this year against the backdrop of an improving macroeconomic situation, notwithstanding the ongoing uncertainties. So Andy, I'll hand over to you. And then I'll come back for a few comments later.

[Andrew Nigel Halford, Group CFO & Director]

Okay. Thank you, Bill, and good day to everybody. So a few slides on the numbers. So Slide 5, to pick up the highlights. Operating income at $7.6 billion for the half year, down mid-single-digit percentage, with client momentum which was strong, but not enough to fully offset the impact of the rates pressures, particularly in the first quarter. Expenses, a little higher, but exactly as we expected, higher because of normalization of variable compensation and because of foreign exchange translation. The big change on the credit impairment of $1.6 billion charge for the first half last year has become a $50 million credit for the first half of this year, with most indicators moving in a positive direction. We have reduced slightly the management overlay, which was $350 million, now $300 million in arriving at those numbers. That put together gives us an underlying book before tax of $2.7 billion, which is up 37%. And the flow-through of that into ROTE is a ROTE print for the first half of 9.3%. In terms of the balance sheet, we have seen very, very encouraging and strong growth for loans in advance to customers, up 6% year-to-date after 6 months. The CET1 ratio at 14.1% has, as you will have seen, enabled the recommencement of the interim dividend and the announcement of another share buyback of $250 million, so our second one of the year. Let me then go into the numbers there in a little bit more detail. We move on to Slide 6. So this is a walk on the top of the first half '21 income compared with the first half 2020 income. You can see about $450 million reduction. This is on a constant currency, excluding DVA basis. The effect of interest rates is very, very clear on the right-hand side. So transaction banking cash activities and retail deposits, the 2 of them together is about the $750 million drag between periods. However, that has been cushioned in reasonable part by the strong performances of the products on the left, Wealth Management, which I'll come on to a minute, but had a record period. Retail Mortgages, strong cash -- sorry, trade in transaction banking, very strong. And lending, also strong. The bottom chart is still in the walk between the first quarter of '21 and the second quarter of '21. So about a $250 million reduction there. Part of that is Wealth Management not quite as strong as in the first quarter, still strong, but just not quite as strong. And we had some realization gains in Treasury in the first quarter that did not recur in the second quarter. I think, quite importantly, the impact of interest rate reductions on the right-hand side have reduced significantly compared with what we saw for the full period. And the areas in green, mortgages, et cetera, continue to be the ones that moved us forwards. So on Slide 7, we have got the net interest income summarized. And you can see on here, overall, we had about a 7% reduction in the net interest income first half playing first half last year. However, that was really a story in 2 parts. The first quarter, we saw the net interest margin dropped by 20%, which was clearly very difficult to cover through client growth, whereas in the second quarter, that was more in the 6%, 7% range. And in very large part, that was made up through the strong client growth. Now within the numbers here. For the first half, we have got an adjustment -- favorable adjustment of $73 million. We did not previously record income from impaired assets. We have now aligned with what the industry is doing. There will be some more to come on this so we'll expect probably a similar amount to come through in the second half, possibly more in the third quarter, a little bit in the fourth quarter. So that has given us in the first half the 470 million benefit on income, which is worth about 5 basis points. So the NIM on an adjusted basis, if you take that out, has declined from 122 to 117. Essentially, 3 reasons for that. First of all, high bar has continued to decrease slightly more than we had hoped for earlier. Secondly, we did realize some treasury gains during the first quarter. And those have been for the moment reinvested in cash, but when there are more profitable opportunities to invest that, we will move them there. And thirdly, to assist the ROTE, and bear in mind, the 9.3% ROTE print, we did do a bit more repo activity in the latter part of the period, and therefore, that has benefited RoTE. But mathematically, is slightly detrimental to the NIM calculation. However, the key point, just to reiterate, is that the customer growth remains strong. And overall, we have seen those 2 pretty much net each other out during the period. If I can move then on to Slide 8. So just to take a quick snapshot on a couple of product areas. This is Wealth Management. This is the income print going back over 10 quarters. The bars across are showing the average income in each of the first half year for the last 3 years. You can see quite clearly here that, whilst 2020 and 2019 first halves were on the average pretty similar, we have seen a big jump in 2020, an encouraging jump there. So the first quarter 2021 particularly strong belief, and actually, the second quarter is the third highest, and it has been an area that has continued to do well. The investment we have made here, I think, has been paying off. We have seen an increasing proportion of transactions going through digitally. Asset under management is at record levels, and we have been very, very enthused by the progress we're making. And this is right across quite a number of markets: Hong Kong, China, Korea, Singapore, all doing very well. Moving then on to Slide 9. The equivalent chart on financial markets was a slightly different profile, so 10 quarters again. Now you can see that the 2021 first half is fractionally lower, about 3% lower ex DVA, [ than ] was the case in 2020. But 2020, for the reasons we're all familiar with, was a very exceptional period. And actually, if you compare what we've experienced first half this year with the actual experience 2 years ago in 2019, then you can see a very, very significant increase in the performance there. In the first half, we were particularly strong in the credit space, slightly lesser on the macro space. But overall, the financial market performance has been very strong, very resilient. And we, again, are enthused by what we see a good exit to the quarter. So moving then on to the view by customer segment and by region. I'll keep this reasonably high level. We're now -- in the first half year, we've been at the 2 customer segments. so the Corporate side, which is roughly 60% of our income, and the consumer side, bottom left, which is about 40% of our income. So the corporate side went slightly backwards on income, but that is almost exclusively in the cash management part of the business, the rates affected part of the business. The rest of the products actually were pretty level. We had tight controlled expenses. We saw a huge reversal in credit impairment. And consequently, profit before tax up 42% and return on tangible equity for the corporate business now just above 11%. The consumer business, on the other hand, actually saw a slight increase in income. So Wealth Management income and mortgage income more than offsetting the pressure on the deposits side of the consumer business. Credit impairments also a lot lower, about 1/5 of the level of a year ago. And that enabled a near doubling of the profits for that segment. And the RoTE now at 14.5%, a big incremental jump from last year. In terms of the split by regions. On the right-hand side, biggest region, obviously now is Asia now we've combined the 2 Asian regions into one. I think a steady performance there. So despite everything that's been going on, particularly in interest rate effects, which have been significant, the income there actually was pretty much flat on a year ago. And we have seen a good performance in a number of markets there. I think I'll particularly call out China, second quarter there, above 20% increase in income. Korea actually also a 20% increase in the second quarter. Hong Kong has been very resilient, and Bill will talk more about that in a minute. India, despite COVID, has also been very resilient. And again, Bill will pick that up in a minute. Africa and Middle East, income essentially flat, slightly stronger in Africa, slightly less strong in Middle East. But overall, again, impairments driven, we have seen the operating profit, the pretax profit go up about fivefold to record levels going back over, I think, now 5 years. And then finally, Europe and Americas, a slight reduction on income, primarily about financial markets volatility, et cetera, but fairly stable on the profit before tax. So moving then on to expenses on Slide 11. So probably the most informed chart I think is the one at the bottom. So we printed $4.7 billion for the first half the year ago. If you normalize for foreign exchange and normalize for our performance-related pay, you explained the vast majority of the increase, up to $5.1 billion print. The small delta between those 2 is very deliberate delta. We have invested more in digital ventures. So the $60 million increase there is investments in businesses like Max, like Nexus and Indonesia, et cetera. And that is clearly an area that we are very deliberately targeting. We have reiterated our full year guidance remains as previously, low $10 billion, plus FX adjustment, possibly some increment on performance-related pay depending upon how the financial performance for the year overall ends up. So moving then on to Slide 12 on the credit front. As I said earlier, a significant reduction, in fact, a reduction in stroke reversal. And most of the indicators here, I think, are looking in a reasonably settled position. Obviously, we are keeping a close eye on them. Credit quality, you can see from the various charts, below after the peaks that we went through in the early stages of COVID, which I think are very visible on that bottom left chart. Those now settling down. And it's actually quite interesting on the early alerts. If you separate out aviation and hotels and tourism, we are very similar now to the levels that we were at pre-COVID. We have got strong cover ratios there. And we have got, I think, the vulnerable sectors as a relatively manageable part of the overall balance sheet. And the loans subject to relief has also reduced period-over-period and continues to do so. So whilst we know that there's still obviously some pressure points out there, the direction of travel looks good. And we've said for the remainder of the year that barring major events that are, that we'd expect that the impairments will remain at a low level. So moving then on to Slide 13, our normal risk-weighted asset and CET1 chart. So nothing particularly memorable. I think the RWA has grown very much in line with the growth that we've had in client demand, which, as I say, has been strong. And we are working very hard on maximizing returns on the risk-weighted assets. Still intending that the full year, we'll see about a mid-single-digit growth in RWAs overall. And the CET1, the 14.4% last year moderated very slightly to 14.1%. But essentially, the investment in pint loans, et cetera, the RWA effect, all of that, and profit after tax broadly offsetting each other. The $250 million buyback, which will decrement the 14.1% by 0.1 in the next quarter. And of course, do remember that we have got software in here, which on the 1st of Jan next year disappear, that's about 0.3. So if you take those 2 out was an underlying 13.8%, 13.7% after the buyback. So in conclusion. Looking ahead, we are enthused by what we have seen in the first half of the year. Whilst the NIM is slightly weaker, the customer growth slightly stronger. And therefore, we have continued with our guidance that we would expect the income overall for this year to be similar to last year on a constant currency basis. And that we'll get back into the 5% to 7% range from next year onwards. And the expenses, as I said, reiterating the guidance there. And the credit impairment, we would expect it to below for the remainder of this year. And on capital, we will continue to very actively manage that within the range more so going forwards, and we will manage it dynamically. And to the extent our opportunities, we will invest it, or not, we will return it. With that, I'll hand back to you, Bill.

[William Thomas Winters, Group Chief Executive & Director]

Great. Thank you, Andy. So just picking up on Page 16. Why are we confident that we can hit the RoTE targets, including the milestones that we set out along the way, that the increasing return on hedge equity above 7% in 2023 -- by 2023, and then about 20% -- sorry, above 10% in the medium term? Well, we're pulling every lever at our disposal. So we know we've got a backdrop of good, strong business momentum, overcoming the impact of lower interest rates. Soberly, but determinedly. The portfolio appears to be in very good shape. So we're very happy with the credit performance through the cycle. And it would appear that as we return to something closer to our normal through the cycle credit cost, then that's going to take quite a bit longer than might have been the case. Otherwise, of course, we are maintaining our discipline, just see if we can reset that through the cycle of credit cost. We will operate dynamically within this 13% to 14% CET1 capital range. As Andy just said, that the dividend and the buyback will take us down after the accounting change into that 13.7%, 13.8% range. That leaves us with plenty of capacity to invest -- continue to invest organically as we have been, investing as much this year as we ever have, but also to take advantage of inorganic opportunities to the rise. But as we've always said, to the extent that we're looking at an inorganic opportunity, we want to see that both there's a very important strategic fit, but also that the returns would be in excess of the returns that we could get by our other uses of that capital, whether that's other organic uses, recognizing that we're already pretty fully invested right now organically, or obviously, returning capital to shareholders in the form of buybacks. Bottom line, we feel very comfortable with the performance in the first part of the year and comfortable that it's allowing us to move forward with confidence that we're on the right track to hit the financial targets that we have set out and continue to enforce. Now on Page 17 and Page 18, I'm going to dig in a little bit on Hong Kong and China, because in addition to being, in many ways, the earnings core of the bank, they're also some of our most exciting growth opportunities. So on Page 17, in Hong Kong. In a nutshell, what we see is return on tangible equity in the first half of 2021, despite the impact of lower interest rates and higher LIBOR compression, we're back almost to the record ROTE levels of the first half of '19. And this is driven by capital efficiency, by resumed income growth, and Andy mentioned it, very strong growth results, as well as the interplay between Hong Kong and China, and the opportunities we've been able to exploit to provide our clients with cross-border assurances, whether it's payments or financial markets or capital raising, now increasingly going both directions. So that Hong Kong-China nexus is critically important to us and driving substantial growth. That, in addition to the very aggressive digitization strategies that we've been rolling out in Hong Kong, Max will talk about a little bit when we get to the digital initiatives, give us a confidence that this earnings engine is able to not just thrive, but continue to grow. If we look at China, China has had very, very strong compound growth in income and profits over the past several years. So when we look at first half '21 profits, at a record level, we look at double-digit return on tangible equity and income up 20% year-on-year. And this is coming from good, solid banking business. This is coming from cross-border payments and trade, cross-border, obviously, financial markets and associated investment deals, significant growth in our Wealth Management business. And we're just beginning to tap into the opportunities that are created through the policy loosening around the greater area, which, as you know, is a set of policy initiatives that have been announced by the leadership of China to open up the border effectively between Hong Kong, Macau and Guangzhou province, where we have a strong position, very strong in Hong Kong, very strong in Shenzhen and Guangzhou, including setting up a new operational hub in Guangzhou for technology and operations. So this opportunity for us to exploit a very strong position, strong brand, super strong legacy positions as well as penetrating the new economy has driven a lot of our growth in China, benefiting Hong Kong as well, and we'll continue to drive that growth. So we feel very, very optimistic, and in fact, increasing optimism the opportunities in that Greater China market. If I could turn now to Page 19 to hit on these 4 markets that we called out a couple of years ago as some of the bigger drags on our aggregate returns. And I'm happy to report that we continue to make very strong progress. I'll say, in some cases against the odds. The India results have been very strong, with compound growth in income of 15% over the past 3 years, continuing strong into the first half of 2021, despite the horrors that we've all witnessed firsthand around the ravages of the pandemic. This is on the back of increasing penetration of our corporate customer base, good business banking flows and an increasing shift of our retail business to the affluent population, but also, a heavy, heavy focus on digitalization. So feeling very comfortable about the progress that we're making in India. Korea a great success story. I mean, when we think back 3, 4, 5 years ago and what a drag it was in our returns, you can see now generating record profit, with good steady income growth, excellent cost management and an improving return on tangible equity, we're very comfortable that we're on the right track in Korea. It's still a very difficult market. Make no mistake. But we've made tremendous strides in that market. And so it's an indication what this bank can accomplish when its mind to it. UAE, big turnaround. Obviously, an ugly loan impairment story last year, much improved this year. Income has been sluggish, but we managed that through reductions in expenses and improvements in the capital position to generate substantial increase in operating profits. Indonesia, a more challenging environment, a little bit more attractive on the income side. Managing the costs. It's been -- it continues to be a challenging period in -- certainly, from a macroeconomic perspective. And the pandemic consequences in Indonesia has been difficult. But we think the franchise is fundamentally in good shape and it has the ability to improve potentially. So if we move on to Page 20, I'll comment a bit on the CCIV and network business. As Andy mentioned, very good growth in trade volumes and improvement in trade income on the back of an improving macroeconomic environment. But also, as trade flows reconfigured, supply chains reconfigured, we're seeing more and more of our trade business within the Asian region, Asia, Middle East and Africa. So U.S.-China trade continues strong despite the geopolitical tensions. But an increasing share of our business is coming from the regions and the markets that we actually know very well. And that combined with very strong financial markets results are driving the higher return on tangible equity in the CCIB -- in the network business relative to the rest of CCIB. And we expect that to be, especially recognizing that the overall impact of the interest rate reduction in CCIB has been material, including on the network business. Turning to retail on Page 21, the 2 blocks of our business. As Andy has mentioned, I mentioned record results on the affluent client side. 162,000 new affluent colleagues -- clients. Importantly, 2/3 of those have come from our mass market client base. These are just redesignations of clients from one bucket to the other. These are clients that have increased their assets under management with us to cross our priority threshold and are actually actively dealing. That, of course, is driving the Wealth Management results. Why is this working? Well, first off, we're offering a much higher level of service to our mass market clients through basically better digital offerings and better customer service. This obviously increases the brand affiliation of those clients. We're exposing them to our wealth management capabilities, which are excellent. Net Promoter Scores just coming out this week reinforce a very, very strong position we've got in terms of relative positioning with that priority client segment, leading in many of our markets, the top tier in virtually all of them. These are encouraging signs, both around the upgrade growth of our affluent business, but also around the ability to migrate our mass customers to affluent as we increase our mass base further and further. The mass retail business itself is seeing some pretty exciting rollouts and digital initiatives. NEXUS, which is our banking user service offering in Indonesia, offering the full range of banking products through the Bucala initially e-commerce platforms. Technically, going very well. Obviously, we're still in testing. We'll have the full public launch later in the year, with a layering in of important credit products over the early part of next year. But that, combined with what we've done with MAX and the early stages or actually maybe advance stages of planning for our Singapore digital bank, the Atibaigital banks, and the ongoing digitization of all of our businesses end to end, combined with the specific focus on improving the profitability of our credit card and personal loan business, are taking that mass business and reintroducing growth and also giving us a clear prospect of getting to returns that can be accretive to the group rather than a drag that they have been in recent years. If we move to Page 22 on sustainability. Our objective has been -- objective has been dual. First is to be a thought leader in the space. There are some incredibly challenging situations for our clients, and therefore, for ourselves in terms of transitioning to net 0. Our MNC customers are requiring their suppliers to have their own transition plans. So even if some of our markets haven't articulated sovereign objectives, your government objectives around condition to net 0, we know that the pressure is on our supply chain clients, nevertheless. We're helping them to understand their closures, but also to finance the transition to net 0. [ Double ] sustainable finance income year-on-year, have evident thought leadership in terms of the transition pathway to net 0 for a bank. And for a number of the industries that are most important to us, including oil and gas, metals and mining, shipping, aviation, where we put out very, very specific thought pieces on the transition to net 0, identifying what the financing gaps are and then seeking all the possible means to close them. Page 23 and 24 is a quick summary of the various digital initiatives that we have undertaken so far. I'm not going to go into a lot of detail on these. You can read the slides, but we're also going to do a deep dive in September. What I would say though is these ventures break down into basically 3 things, together with the digital initiatives inside the main bank. The first are things that we just need to do because our customers demand them. You call it Table 6. And to some degree, what we've done with the African digital banks and some of our other ventures have been table sake. These are things that we need to do to just keep base to the market. But what we've done is, in many cases, including the African digital banks, is to do them sooner and better, which gives us actually the ability to create initially many platforms, and then, ultimately, much more substantial platforms, often which treatment grow substantially. The second bucket of things to consider are platforms that we're building from scratch. And when we look at MAX or we look at Solve in India, is it marks our digital bank in Hong Kong, is an SMB platform in India where Standard Chartered is a participant, but frankly, not a material participant. But it's a platform for SMEs to identify and connect with their suppliers, their customers, their financial services providers, their professional services providers. We're still in testing there, but we've got 60,000 customers on that platform, right? We've got a -- now up to 3.5% of the population of Hong Kong signed up to Max, with leading customer satisfaction scores. These are opportunities for us with our partners to create platforms that could become the sort of ubiquitous usage tools in some of these markets. And then the third are outright new business models that we developed. And when we look at things like Zoia, which is our digital asset custodian, or Assembly, which we recently merged with Currency Pair, which is a new approach to cross-border payments, primarily for the digital economy, these are new business models that will disrupt existing business models. It could disrupt parts of Standard Chartered business model. And of course, the objective in each of these cases is to create these valuable platforms or valuable business models ourselves rather than to have somebody else do it to us and also giving us a tremendous opportunity to reconfigure our own businesses in anticipation of the competitive threats that are coming because we're developing some of those competitive threats ourselves. If I can move to Page 25 and talk about something that we initially called our bold stance. I'll just call them short now. These are a set of aspirations that go beyond our conventional budgeting or planning process. These are aspirations that are an extension of our strategy, but we think could have a meaningful impact on the communities in which we operate. And to the extent that we can lift ourselves out of our own day-to-day routines can get us to a different place in terms of our own impact on our own financials. In short, accelerating to 0 is a way to go even faster to get to that net 0 economy through identifying the transition financing tools, the metrics that we can use, bringing together different pools of capital and partnerships in order to advance the pace at which we can progress to net 0. The team participation is our attempt to take the extension network that we've got through micro lenders, through our own business banking and partnerships that we can set up, through our retail and affluent banking propositions. In particular, the emphasis that we've placed over the past several years on promoting female-led businesses, be that single entrepreneurs or women in tech, we've made tremendous advances in terms of empowering that relatively underrepresented group of clients and potential clients of ours, where we know there's a substantial multiplier effect in terms of the creation of jobs and wealth and mobile communities. And finally, globalization, recognizing that globalization itself has been the greatest contributor to the remediation of poverty, but it also created a quite severe hardship on the part of some of the people that were left behind. And it was characterized, in many cases, by elements of inequality or unfairness in terms of trading patterns or the distribution of the gains of globalization. So we've taken a step back and are developing a set of thought pieces in the Ag program to understand how can we as Standard Chartered bank, promote good, clean, fair trade, balanced, equitable, in a way that allows globalization benefits to be realized without setting back into many of the negatives that have generated consequences for us, which we're living with today. If I could just conclude on Page 26. We're absolutely committed to hitting our current targets and very confident that we could do so by managing -- by taking advantage of the business momentum that we got, pulling every strategic lever at our disposal, managing our capital hard, continuing to manage our expenses extremely well, and not hesitating to innovate and to disrupt. More all of these things are down in Q&A, but also in our sessions with investors to come over the coming months. So thanks for -- again for tuning in and listening, and look forward to a good, robust set of questions and answers. So can we turn back to the moderator for some questions, please?

[Operator]

[Operator Instructions] And the first question comes from the line of Omar Keenan from Credit Suisse. Sorry, Omar just disconnected. First question comes from the line of Nick Lord from Morgan Stanley.

[Nicholas Lord]

It's just a question about those income targets for the second half of the year, I guess, for the full year. 2 points. Any indication as to what the size of the catch up would be in the second half, which you mentioned? And probably more substantially, I just wonder if you could talk a little bit about your assumptions on financial markets revenues for the second half. Clearly, second half last year obviously fell off from a very strong first half. So I just wonder if you could talk about seasonality. And what sort of -- I think, Andy, you mentioned that there were indications of very strong end into Q2. So what sort of indications are you looking at that give you confidence on second half financial markets revenues?

[William Thomas Winters, Group Chief Executive & Director]

Maybe I can start off with your second question, Nick, on financial markets. And I'll let Andy answer the tougher question, the bigger question around the aggregates impact in the second half. Our Financial Markets business has been steadily improving. It's been steadily improving both in quality and quantity. Andy showed the quarter-by-quarter size. It's -- of course, it's also volatile. We recognize that. And the first quarter was exceptionally strong. Second quarter results was strong, although not compared to the second quarter last year, which was a record quarter for us. But when we can draw a line through the underlying trends, and then, of course, this is something that we are able to do with all the information that we have inside the sits, hard to communicate outside. We see a much broader range of businesses. So we're firing on several cylinders now: our spot FX, our forward and options FX, our credit trading, credit origination and distribution, commodities business has done well. So these -- we've got a range of strong businesses in financial markets now that go beyond what we had historically, which was very concentrated in spite effects in a biter forwards. So that's the first thing to know. But there's been a structural improvement in quality. Second is the -- while we don't have a huge U.S. capital market franchise, which makes it a little bit hard to compare us side by side to either the Americans or others who have a meaningful U.S. presence, we do have a very substantial local markets, emerging markets set of capabilities, which are very strong. Usually #1, in almost every case, top 3 in our markets. And as investors continue to hunt for yield, that's a very good place for us to be, both in the currency and the credit market. So while it's very difficult to forecast quarter-to-quarter what the financial market certainly look like, we are encouraged by the strong finish in Q2. Q3 has started off fine. And there's always an element of seasonality, which we will factor in. And August typically is low, and September begins to pick up, and then the fourth quarter picks up a little bit further seasonally. But this year could be different. And that all said, I think we're impressed by the quality of the business. And we think that there are structural growth opportunities in that product line. And we've seen all the evidence of that in the first half of the year.

[Andrew Nigel Halford, Group CFO & Director]

Yes. Nick, on your first question, I guess a number of moving parts clearly here. We have got the margin a little bit lighter than we would have envisaged 3 months ago. We have got the customer growth, which I think has been at the higher end of the range of our expectations. And at this point in time, it shows no signs of abating. And we have got the sort of catch-up on the interest recognition, which, as I said, we should have probably something similar to the $70-odd million that we took in the first half coming through in the second half. So put all of that together, we're saying similar to 2020 levels on a constant FX basis, that's still where our minds are at. FX at the half year, I mean, projecting full year is sort of $300 million or thereabouts. FX, now obviously, that will move around as we go through the balance of the year. But I think last year's number plus that $300 million in that sort of range is where our minds still are.

[Nicholas Lord]

Are you -- I guess, are you assuming some seasonal slowdown in financial markets within that? Or are you not sort of thinking about a level of granularity? You think it will come in on awash?

[Andrew Nigel Halford, Group CFO & Director]

Well, it's a difficult one, isn't it? I mean, December, obviously, it's normally a quiet a month for us for any bank, I guess. If you look at the second quarter, we were slightly quieter for the first 2 months. We were slightly busier in the third month, the month of June. So trying to draw a trend line of that is not the easiest of things. But I think if you project forwards, then roughly the levels of income that we saw in that second quarter projected forwards get you to broadly that sort of stable number during the course of the year. So if you think that April and May are sort of empathetic with the December experience, then I think we have implicitly put some seasonality into it. But as we all know, it's not the most easy of businesses to accurately project to that extent.

[Operator]

Next question comes from the line of Omar Keenan from Credit Suisse.

[Omar Keenan, Research Analyst]

I just wanted to discuss the outlook for net interest income, and the shift from securities to cash and the guidance that NIM would be stable at 117 basis points for the remainder of the year. Can I firstly ask, would you be able to talk about the capacity to redeploy cash into securities or to extend treasury asset duration further? And if possible, if you could give us some insights on the size that, will be great. And just the second part of the question is, does the stable NIM guidance reflect an expectation that the redeployment might not necessarily happen in the rest of this year, perhaps because where yields have come down to today? And if not, what are the various triggers for that to happen? And just finally, on loan growth. So the 6% growth in the first half is obviously very good. Can you help us think about the outlook for the second half? Are there any temporary loans or IPO loans that we should consider? Or is the 30th of June base a good base to grow off?

[William Thomas Winters, Group Chief Executive & Director]

Andy?

[Andrew Nigel Halford, Group CFO & Director]

Yes. Okay. So we had in the first quarter the opportunity to realize some of the treasury investments and make a profit on those and lock into those gains. The question then is, okay, we've now got the cash, what are we going to do with it? We have had good client growth. So some of it has been invested there, but we've still got the sort of sitting in the treasury space. I think as we plan forwards, 1 or 2 or 3 things will happen. One is we will see some pick up again on yields. There's obviously receded a little bit. Bond yields have receded a little bit just recently. But if we see those perking up again, then we will redeploy that into that space. Or if there is more client growth, we can redeploy it there or we look at the balance of liabilities [ at ] raising and take out some of the higher cost liabilities. So we're sort of sitting there, I think, in a good position in many respects that actually there are several choices available to us as we move forward. We don't need to rush on it. But if we do see a pickup, for instance, in longer-term rates, then we can make a move on that as and when we feel it is appropriate to do so. On the loan growth itself, we are 6% up year-to-date. I think we were 2% up in the second quarter alone. And obviously, we are encouraged by that. It is a little bit lumpy by market. But on the other hand, across 60 markets, we tend to get the sort of law of averages applying. Some people were concerned that we were going to with India. And overall, actually, the Indian business has done remarkably well through a very, very difficult COVID period. Countries like Bangladesh, Indonesia, et cetera, obviously, taking some of the brunt of COVID at this point in time. Not significant to our overall numbers, but one which we are closely monitoring. So we will keep the focus upon the loan growth as much as we can do. And as I said several times, we are very focused upon the RWA implications of the loan growth. We want the RWAs as best we can do to come out in the sort of mid-single-digit range -- increased range for the full year overall, and hence, the constant monitoring of the returns we're making on the RWAs and looking to improve to lower returns or exit those, in some instances, put those together. And that's sort of where you get to in terms of the underpinning for our similar income number projection for the full year on a constant FX basis.

[Omar Keenan, Research Analyst]

Okay. That's brilliant. So I can just check the 117 bps underlying. That doesn't assume that there will be a redeployment in the second half. So if there is opportunity, then there might be some upside to that number?

[Andrew Nigel Halford, Group CFO & Director]

Yes. I think it would be fair to say that we've not put a lot of upside. That it could be a bit more from it. But we will see how the next few months progress.

[Operator]

Next question comes from the line of Yafei Tian from Citi.

[Yafei Tian, Vice President]

Let me ask the questions. The first one is around the Wealth Management business. We've seen very strong growth in first half and last couple of quarters. Want to understand a bit more granularity around the Wealth Management business. Can you give us a bit of a split how much of the revenue is coming from private bank, how much is from last market customers, for example? And if you can give us an AUM split in that, that will be appreciated. And furthermore, maybe by products. How much coming from insurance, mutual fund distribution and other more volatile items like the brokerage? Second question is around the capital return. I think you sounded very positive in the capital return, particularly through buyback. You also flagged that there will be potentially more buyback after this $250 million number. So just wondering, from a timing of returning that surplus capital and also the split of buyback versus cash, how are you thinking about that? One of your peers mentioned about a potential M&A. And I think you mentioned M&A is also in your consideration. So how is that going to impact the surplus capital return?

[William Thomas Winters, Group Chief Executive & Director]

Andy, do you want to take a first stab, and I'll add any color?

[Andrew Nigel Halford, Group CFO & Director]

Yes, sure. So the Wealth Management performance has actually been driven across most product areas. We derive a lot of the Wealth Management income from our affluent priority clients and a lesser amount from the sort of private bank and clients, but nonetheless, not inconsequential amounts from there. The asset under management, as I said, have grown. I think it was about 10% by memory, and that has been clearly a huge underpinning of it. I think if you recall, we've had about an 8% CAGR on our Wealth Management income now going back over several years. So this is sort of not a new phenomena. In fact, it goes back over about 12 years. But I think the focus we have had recently on digitizing the business, on making it more accessible for customers. And a big area of focus now is to actually sort of normalize the penetration we've got across different markets. As I said earlier, this is not all about Hong Kong or all about Hong Kong and Singapore. China has done well. We see huge potential sitting there. Korea has also done very well. So it's really been quite multiple in its effect and in its drivers. I wouldn't call any particular element out. On your second question, on capital returns. We continue with our previous mindset and saying, if there are profitable opportunities to invest capital, whether that be organic or inorganic, we will absolutely look at those first. If there is still surplus left over after doing that, then we will look to return it. We have been [ above ] the 13% to 14% range for particular reasons over the last year and a bit. Those reasons are receding, and therefore, we intend to be operating within that range as we go forward over several quarters. We will operate dynamically within that range. We will assess probably more so at each half year, but we will certainly assess where we think we have got surplus. And witnessed the fact, we've done 2 buybacks [ all here ] now [ second of ] 2 buybacks, I should say, for this year. We absolutely are prepared to do buybacks, but only if there are not more valuable ways to deploy that money. We are very, very clear that the end of the ROCE up is the big target here, and we've either got to get the value, all we've got to get the E in ROTE down, and we will do 1 of those 2 to maximize the time that it takes or improve the time it takes to get to that double-digit RoTE.

[William Thomas Winters, Group Chief Executive & Director]

Maybe I'll just add a little bit of color on the Wealth Management side. I think implicit in the question is the competitive environment. Lots of people have been talking about making big investments in wealth management or pivoting to Asia or things like that. Thankfully, we don't need to pivot Asia because we never pivoted away from Asia. And thankfully, we don't need to reinvest massively in wealth management because we never under-invested. So I would say that we -- of course, we've lost some people, although more of a junior variety than a senior variety. There's been small adjustments to pay. Probably big in the context of the individuals, but small in the context of the group, to address the competitive threats. But much more important than that is that we are evidenced as a very attractive destination for very strong relationship managers to come to work. So we've got -- we've been able to attract outstanding talent, including a new head of our affluent client franchise, including the private bank, who's coming from a first-rate private bank and who has -- who brings with him extensive affluent market experience. But the beyond an individual, we've hired dozens and dozens of people who have come to Standard Chartered, of the full range of products that we offer, the consistent excellence that we've evidenced, the #1 Net Promoter Score in many of our key markets and very high customer satisfaction. The fact that we're unconflicted. So we manufacture very little of our own product. We don't have an asset management business. And for the most part, we're sourcing structured products from The Street. And while we are deprived of the manufacturing margin in those cases, we have, I think we've more than offset that by having an extremely attractive platform for forte RMs to come and operate. We're seeing that play out now in China. And obviously, it's an earlier stage in the evolution of the wealth market. But we don't think we can be better positioned in terms of the ability to step in and serve Chinese clients who are increasingly able to invest their funds in a diversified portfolio of international assets. So really, really happy with the progress that we've made on the wealth side and even happier with the positioning from here absolutely and competitively.

[Operator]

Next question comes from the line of Robin Down from HSBC.

[Robin Down, Co]

One sort of small technical question and one question on the wealth management. On the technical side, I haven't seen you call out the IPO linked lending within the numbers. I don't know if that's something you could quantify. How much of the kind of 6% growth in the first half has come from that? Because I guess that's kind of volatile from one quarter to the next. And then second broader question, really just on wealth -- coming back to the wealth management side again. Just wondering if you could give us any kind of color of expectations in the second half. Whether things like the closing of the Chinese border, and a lot of the news flow that's been coming out of China, whether that's going to have an impact on the business in the next few months, and whether you see much potential from the Wealth Connect when that goes live. Just any kind of color you can give us on the outlook for H2 would be appreciated.

[William Thomas Winters, Group Chief Executive & Director]

Good. Andy, why don't you take the lending question, and I'll take the wealth management question -- or you can both and I can add probably.

[Andrew Nigel Halford, Group CFO & Director]

Okay. Well, on the lending question, so there has been some IPO activity within period, but nothing that actually struggles in the period. So the balance is you've got loans and advances, is not inflated or distorted by IPO activity. And therefore, the answer, I think, to your question 6% is 0. In terms of wealth management, I think that we have had a good momentum. And there is no reason to believe that good momentum will not be continuing with us as we go forwards. It is obviously, to some extent, sentiment based. And we do need to accept that in a period when some countries are still impacted by COVID, that there could be some impact from that. But generally speaking, I think the momentum there has been good. And it's obviously very early stages as we move to the second half of the year, but the second quarter slightly moderated from previous, but still, as I said in one of the earlier slides, operating at pretty robust levels. It is spread now across more markets. So that is also encouraging. So -- and I hope we'll be able to keep the sort of second quarter momentum going through the balance of the year.

[William Thomas Winters, Group Chief Executive & Director]

Yes. I would just underscore what Andy said. One, the wealth business, like financial markets, but in different ways, is sentiment driven. So the equity market correction in China is, I would say, in the short term, unhelpful. But in the -- I'd say in the very short term, unhelpful. But when you get into the longer short term or the medium term, it may actually be helpful because Chinese savers are ever more focused on finding ways to diversify their portfolio so that they're not too concentrated into either one asset class or one sector. And with Wealth Connect, I think your question is quite a perfect one. With Wealth Connect, there's the early stages of an opportunity for investors, savers in China, to diversify their portfolios. Now we can't over -- it would be a mistake to overstate or to overestimate what the impact could be because the way the Wealth Connect will roll out is -- and by the way, we're extremely well prepared for Wealth Connect when it rolls out in terms of setups and partnerships and the like. We expect to be a first adopter and move very quickly. But the -- there's still quite strict limits on the type of investments that local savers can make. So typically, in lower risk fixed income type products. And there's obviously still a limit of the quantity. But the policy intention is to relax each of those through time. So over a number of years, we'd expect to see a very substantial opening up, not just in the greater area, but beyond, obviously, greater area is a bit of a pilot for the country as a whole. And the opportunities to extend, obviously, to the much larger population in China, but also to a broader range of products is a very good value proposition over the years. But we're not going to see the missing kicks in over the next few months. We're not going to see an explosion of activity on day 1. It will phase in. But we do think it will be meaningfully in the back. And as Andy and I have both pointed out, we generated very strong growth in the wealth business without the GBA Wealth Connection. So as before, the Wealth Connect platform has kicked in. So we're very optimistic that there's great growth there, and that will just be accelerated by the GBA Wealth Connect.

[Operator]

Next question comes from the line of Joseph Dickerson from Jefferies.

[Joseph Dickerson, Head of European Banks Research & Equity Analyst]

Most of my questions have been answered. But -- and when I look at the portfolio that you've outlined on Slide 24, and you look at things like the climate impact, the MAX, the soda custody, which is quite quite interesting. I guess this portfolio gives you quite a bit of gearing into secular trends. I mean how do you expect to monetize this over time? Because I think we can probably agree that it's not reflected in the current share price multiples if you look at where some of the, certainly, the private sector comps are for these type of businesses elsewhere. So any thoughts on how over a, I don't know, an end year view, you expect to monetize these and realize value for shareholders would be great because they're very interesting businesses? And then I guess coming back to the capital distribution question and asking in a different way, which is how much of the excess capital would you be willing to use on acquisitions? I mean would you consume down the 13% common equity Tier 1 on a potential deal if it could lift your ROE up? I mean how do you think about that?

[William Thomas Winters, Group Chief Executive & Director]

Okay. Yes. Thanks for the questions. I think the first part of your question is really 2 parts. One is how do we create value? And second is how do we monetize it? And we're going -- we are creating value by offering customers something that they can't get somewhere else. Whether that's in the digital banks in Africa, Hong Kong Singapore. Obviously, each great distinct operations, Singapore perspective. What we're offering is excellent customer service. And that's what our customers are telling us. So to the extent that we've got good underlying platforms that we can layer on more profitable products, the most obvious ones are various forms of credit, secured and unsecured, and then eventually wealth management products, that's where the money will come. Now in a higher rate environment, we'll make money on deposits and payments, but not in a 0 rate environment. We all know that. So we're the first of the digital banks in Hong Kong to launch a credit product with credit cards. Quite cool in my MaxCard is both the debit and a credit card. I can -- I might mobile on that. I can decide which mean I want to use for a particular purchase, and I can -- or I can split it as I wish. So these are things that customers want. They're reacting to it extremely positively. We've got a very good turnaround time on new credit customers and a high but not very high approval rate. So all in all, as we take these platforms that have got quite a bit of traction and ownership and sponsorship, we can layer in products, obviously, that customers want, that are profitable in and of themselves. And we expect these things to be profitable and accretively to our returns profitable in their own right. For the new business models, as they take something like salt, so doesn't need to be owned by Standard Chartered. I think our ability to set a bot to create it was absolutely informed by the challenges that we saw our small business clients experiencing in their operations. We've clearly retooled it a bit during COVID times because the needs are different. There's actually been a fantastic both learning experience and customer acquisition experience. But will that be a profitable venture over time? Absolutely. I have no doubt about that. Do we need to own it? No. Can we combine with other platforms so that we have a bigger stake -- sorry, a smaller stake in a bigger platform at creating market value and capital value? Possibly. Should we sell it at some point? Possibly. Do we become a big service provider into that platform given our knowledge of it and generate accretive earnings that way? Yes, possibly. So we'll be talking a lot about this in September. So I don't want to take too much time now. But it's -- we can create value by offering customers something that they value. And we've done that in each of the ventures that are listed on this page. And we can monetize that value through profits and -- or through sales or partnerships or mergers. And all the -- we done some of that already. I mean, the merger of Assembly and Currency Pair, which was at as far as a win-win in these things, but it was quite an attractive valuation for the thing that we built in Assembly relative to the private market value of Currency Pair is because we had something that was a value, and we will continue to look for those opportunities. I'll just take a first step at the, how much can we spend on acquisitions in it? Because I think Andy's kind of covered this. But if we're sitting -- once the accounting changes is passed through and we've completed this $250 million buyback, and obviously, the interim dividend, and we're sitting at 13.7% or 13.8%, that leaves just meaningful capacity to execute, either an increase in investment organically, inorganically, or a return to shareholders. And where we settle out in our 13% to 14% range is to say we're going to manage that dynamically. And the -- where we settle at any point in time is going to be a function of our own confidence in our -- in the quality of our earnings. I can tell you that we think the quality of our earnings is very high right now. It's a function of our own confidence in the quality of our credit portfolio. I can tell you that our credit portfolio quality is very high right now. Obviously, our outlook in the economic and political environment still some meaningful uncertainties. I mean, we'd be naive to think that the fact that we navigated as well as we have so far means that we couldn't hit some bumps in the road, especially given the markets where we operate. So -- but we'll look at those 3 things and decide where we want to be in the range. And obviously, compare that to the opportunities that we've got through either return of capital or investment. Do you want to add anything to that, Andy? That's kind of a big question.

[Andrew Nigel Halford, Group CFO & Director]

Just to add to your first one, rather than the second one. Given, as we all know, the very differential multiples that are being applied to the sorts of businesses that we've gotten, this slide versus the diners historic banks, we are giving some thought to how we can make the visibility of some of these ventures a bit clearer. Merely telling you that $60 million of our cost increase has gone into these sorts of areas probably doesn't actually do very much to show what the, we believe, real value creation is. So the investor session we'll do in September will be a sort of first step in terms of how can we give more visibility to this. And the -- beyond this year, we'll certainly look at what we can do to enhance the visibility of the expenditures. They may be relatively nascent now, but we do think they're genuinely very exciting. And valuation-wise, they should not be underestimated.

[Operator]

Next question comes from the line of Guy Stebbings from Exane BNP Paribas.

[Guy Stebbings, Analyst of Banks]

Just one on revenue and then one on costs. So on revenue and really on guidance for 2022. So you're guiding for the 5% to 7% growth next year, from a base, which it sounds like it could be $140 million or so, flattered by the IFRS 9 benefit to NII. So I just want to check, implicitly, are you assuming that you'll be delivering growth sort of above 7% in 2022 from that kind of rebased level? I appreciate there's some lines you're delivering that, like wealth, and there could be some [ high ] tailwinds if rates come through. But at group level, that does sound quite demanding. So I just wanted to check that's true in terms of the guidance. And any product lines that you would point to where you're very confident in delivering that sort of level of growth perhaps outside of wealth? And then on costs, just on performance-related pay. Firstly, how would you view the second half 2020 performance pay versus normalized levels, given it was just kind of normalization which drove the step-up in the first half? And in terms of how should we think about that, I think you said in reference to the full year cost target and consideration around pay, that will be dependent on your own performance. But I just wondered whether it was primarily driven by your own performance or whether it is market driven. And if income was slightly softer than you currently anticipate, whether you would still potentially have some pressure on the cost line.

[Andrew Nigel Halford, Group CFO & Director]

Okay. Let me pick those part. So first point, the adjustment on the IFRS 9, that is $140 million or so for this year, that is a sort of catch-up for 2 or 3 years. So there's probably maybe 1/3 of that in the underlying going forwards. So that definitely would be sort of incremental, if you like, but 1/3 of it rather than the whole of it. Secondly, we've said 5% to 7% is our medium-term sort of goal, including 2022. Of course, you referred in your question immediately to above 7%. I did -- I think we did actually pay 5% to 7%. Anyway, we remain of the view, 5% to 7% is where we should be. We're not going to go and adjust that just because there's a particular accounting adjustment in here. We are obviously going to do what we can do to get that growth as high as we can. That 5% to 7% sort of remains the target for the -- for 2022 and beyond. On the performance-related pay, I think there are 2 or 3 sort of aspects to it. One is that, 2020, we did have a lower P&L charge, as I think many banks because the returns from the business were lower, et cetera. And obviously, step 1 is we hope we will return to a normal situation. At a minimum in the current year, our variable compensation costs are about $1 billion, just fraction over $1 billion. It is possible that we might see a little bit of outperformance against that if we can get the returns up. We have a scorecard of which it's assessed. And maybe against that $1 billion, there could be, I know, 10% more this year if the returns warranted at the end of the year. So that is why we're just sort of saying $10 billion plus the FX, which at current levels is about $0.3 billion, sort of forecast for the full year. And then order of magnitude, something in that sort of range possibly on the performance related pay. We are mindful of market conditions, which I think is the way your question was going. There are 1 or 2 sort of pressure points, particularly in the wealth management space. I don't think I'd say in the monetary sense that those are so big that they impact the overall numbers I've talked about on their own. But obviously, we are alert to those, and we are doing what is appropriate. But our overall guidance remains the $10 billion plus the FX plus possibly a small amount on that extra remuneration payment.

[Operator]

Next question comes from the line of Tom Rayner from Numis.

[Thomas Andrew John Rayner, Analyst]

I got a question for Andy and then one for Bill, please. Andy, can I just start, given your sort of overall business model, your internal systems, et cetera, I mean how much visibility do you have on net interest margins looking forward? I mean I asked this because at the time of Q1 results, there was only a couple of months left really of Q2. And I don't recall there being much indication of the type of NIM pressure coming through that we've now seen, sort of down 4% Q2 on Q1. It's the accounting adjustment which could turn into a sort of potential drag of about $300 million, I think, in terms of revenue. So I just wondered if you could maybe talk about that, please. And then for Bill, stock's trading still at less than 0.5x tangible book. And I guess my question is, is it going to be possible to justify any inorganic acquisitions -- inorganic growth compared to a share buyback when your stock is trading at the current weighting?

[Andrew Nigel Halford, Group CFO & Director]

Yes, Tom. I think your first question is fair. We have, I think, got pretty sophisticated information inside the business forward-looking. But it is always going to be only as good as market conditions, and it will only be as good as how events unfold. HIBOR, for instance, the forward view on HIBOR is nothing about management information systems. It is about a view as to how low HIBOR will go. And obviously, that has dropped a little bit further than we thought. Back in February, we could not envisage accurately just how much of our treasury asset realizations it would be appropriate to make by the end of that quarter, because, in particular, the interest rates and just what profit was in built as a consequence of rate, and we did decide that we would realize a little bit more subsequent to them. And we knew that, that would create a bit of a drag on the NIM if we didn't have the ability to reinvest it. Now yields have then fallen off a little bit just recently on the long term. And so we haven't done that reinvestment. We're going to wait until we get there. So I don't think this is one of inaccuracy of information internally within the systems. But it is one where just small differences on small fronts do add up. And I absolutely take your point, we would like to be more accurate on the forward forecasting of NIM, and we'll do as much as we possibly can do to make that happen.

[William Thomas Winters, Group Chief Executive & Director]

Good. Just more color on that one. As Andy has mentioned, and I think it's clear. Part of the NIM compression was HIBOR related, which you can see we misjudged. But that's what happens, not much we could have done about that had we judged it differently. The bulk of the rest is decisions that we took to emphasize return on tangible equity improvement over NIM improvement. So when we look at our charter activities, we realized gains in Q1 at the right time. We generated good gains. We did not extend the duration of our assets at the optimal time. It would have been wonderful if we snuck into that window when [ 10-year ] rates were at 170 basis points, but we didn't. And they -- yields have fallen significantly, and we'd rather sit on the cash for a while longer. So that's -- those are the decisions that we're taking. But the result of that about in and out has been to improve and also the repo transactions that Andy mentioned earlier, had been to improve our return on tangible equity, but reduce our NIM. I'm pretty sure that that's the right call to make. And I'm pretty sure that we're all more focused on getting that 10% plus return on tangible equity than we are on protecting a particular NIM number, especially when we've got some good underlying asset growth that's protecting our NII. So just a little bit more color on that. And Tom, obviously, you can point on the cheapness of our stock price and buybacks versus an inorganic opportunity. You're 100% right, and we will not make an inorganic investment that is inferior financially to buying back our own stock. Obviously, there's a lot of work that would have to be done on any particular acquisition to conclude that the combination of outright straight-up financial value that comes from income less expenses and associated capital, together with whatever strategic value you attribute to a transaction, there are judgment calls in there. And there's very judgment call about the impact of returning money shareholders via buyback. But we said it several times, we'll say it again. We're not intending to use our surplus capital to do something that is financially inferior to the certain options that we have on the table, which is returning to cash -- returning the cash to shareholders. If that means that there's no organic opportunities, so be it.

[Operator]

Next question comes from the line of Aman Rakkar from Barclays.

[Amandeep Singh Rakkar, European Banks Analyst]

I was -- most of my questions have actually been asked. I guess I had 2 more follow-ups. Actually, so one on the ECL, if I could. What do you think the chance for a net write-back is this year? I know you're talking about it being low for the remainder of the year. And I mean, when you look into 2022, do you think there's a period of sub normally low charges here as things get released? Or yes, kind of your medium-term view on that impairment charge would be helpful. I guess I also note the interest rate sensitivity disclosure. It looks like it's kind of stepped up quite meaningfully half-on-half. I had a chance to kind of interrogate that in the report. But I wonder if you could kind of help us understand the moving parts about that higher rate sensitivity.

[Andrew Nigel Halford, Group CFO & Director]

Okay. Let me pick those up. So we've had 2 quarters of near 0 credit impairments, which I think a year ago, if you said that would be how we would enter this year, we've been extremely happy with. Forecasting over the balance of this year into next year, clearly, one has got to be more optimistic. I mean that goes without saying, and hence, why we've changed language to low over the balance of this year barring major unforeseen events. I think the thing which I'd reflect upon is we've got this through the cycle, 35 to 40 basis points. But through the cycle, on the average, those cycles have higher interest rates that we're experiencing now and are probably likely to experience for the next couple of years. And therefore, my sense is that, actually, we will not revert as quickly back into that 35 to [ 40% ] basis points range as we might have thought a while ago. And that therefore, there will be a more gradual sort of pickup over a period of time, which should clearly be helpful for impairment charges for next year as well as for this year. On the rate sensitivity, the slides we've got in there, I think they've got sort of hard numbers on. The direction of the shape of what we put in there actually is what we put in at the end of the first quarter. And compared with what we did last year, we have put some of the behavioral changes and some of the trading book benefits we're getting from the surplus that is being invested through them. And that sort of $1 billion or so benefit per 100 basis points, I think it's more logical in that it does tie in much more with what we experienced when we came down [ break of ] last year. We are saying, we do actually think the vast majority of that would be coming through as we go up the size of that curve. Put another way, we don't think the cost base of this business is going to change very much if rates are higher. And therefore, as and when we get into periods when the rates do become sustainably higher, we will see a very high level of operational gearing coming through within the business.

[Amandeep Singh Rakkar, European Banks Analyst]

Can I ask you? Do you think that sensitivity is underpinned by some quite conservative assumptions around deposit pass-through? I guess you're awash with liquidity on the balance sheet. And I mean do you see scope for things like deposit betas to come in lower and there being a bit more upside to things like interest rate sensitivity?

[Andrew Nigel Halford, Group CFO & Director]

It's a difficult one to know because there are so many moving parts. And we are trying to estimate across a lot of different geographies, a lot of different currencies. In part, it also depends on what competitors do with their own deposit pricing and things like that. So I would say it's a reasonable sort of middle case view. One thing I'm sure is it won't be precisely accurate, but it is a directional sort of steer. I would say it's not skewed massively towards the cautious, but it's not the opposite.

[Operator]

And the last question comes from the line of Gurpreet Sahi from Goldman Sachs.

[Gurpreet Singh Sahi, Equity Analyst]

I have 2 small bits of follow-up on previously asked questions. First is on Wealth Management. Very good outcome. Congratulations on that. Can we just check as to how much of the wealth -- ballpark wealth income is kind of gathered by digital transactions? And how do you see that unfold going forward? Some rough estimate would be good. And if there are any efforts to kind of move towards that direction. We note all the partnership initiatives, et cetera. And then the second question is more around MAX in Hong Kong. Is there a thought process around introducing new kinds of products with MOX experimenting and then kind of looking at the wider group of clients that StanChart has, let's say, payday loans or buy now pay later, to be experimented in Hong Kong with MOX?

[Andrew Nigel Halford, Group CFO & Director]

Yes. Let me take the first. I don't think we have got a split, and indeed, are not quite sure one could do a split of digital wealth management because some clients will transact for the digitally some of the time and in person some of the rest of the time. What has definitely happened is the systems that we are operating are presenting information in a much more customer-friendly way. You may have made it recall, probably 5 years ago now, we started -- upgraded those systems, sort of replacement of those systems. And that is certainly enabling many more people to digitally track. And I think this time last year also, when people realized that face to face meetings were no longer possible at that time because the COVID actually shifted quite a lot of people more into the digital space. So the increase in digital transactions is definitely continuing, and we expect it to continue as we go forwards. But I don't think a split of the income is actually going to be hugely helpful.

[William Thomas Winters, Group Chief Executive & Director]

No. That's right. But we -- the number is escaping me right now, but we do look at the number of transactions that are digitally initiated. And for both the -- for all parts of our business. But for affluent mass and corporate, there's been a significant increase from quarter to quarter to quarter to quarter, so consistent. And I'm not going to guess because I don't remember out right what the percentage of transactions that are digitally initiated. On the affluent side, it's high and growing. And we'll prepare that and share that. Probably the right time to do that would be when we're talking about our innovation agenda in September. But on MAX, absolutely, we're looking at net new products. So as I said, we've introduced a credit card product. I mentioned how cool it was that I can use my M card both for our credit and debit transaction. We will also soon launch an initial personal lending product and then other personal lending products. I'm not sure that Hong Kong is an actual base for buy now, pay later, especially off of type platform. But that as an opportunity could be there. But other -- especially, travel-related obviously, on the assumption that we are all in the travel again, a little bit different than the way I traveled to Hong Kong from [indiscernible], which I mean telling you it's not straightforward. But in a world where we're travel these, that Max proposition with underlying multicurrency account capabilities, and obviously, the strong partnership with Trip.com as a large travel agent in the world presents all sorts of opportunities for travel-related, both currency and borrowing source of products. But in other markets, NEXUS will have buy now, pay later as an initial credit product. Quite natural, off an e-commerce platform. So from day 1, we will be offering a product to finance and purchase made on the loop platform. It will be completely seamless. It is today completely seamless between the Bukalapak and the Nexus platform. Credit is a product that we'll be rolling out in the early part of next year on Nexus. But -- so in Africa, different types of -- pay lending has credit card competition, but I think relatively short-term working capital type financing for people who may be new to credit markets, it's the natural starter credit product for many of our clients in the digital banks in Africa and South Asia. So yes, always looking at opportunities to extend the product range. And as I mentioned, that will be the route to profitability for these ventures because in a zero-rate environment, we're not making money on deposits.

[Andrew Nigel Halford, Group CFO & Director]

Just actually coming back to the first question. Sorry, this is not the wealth management number. But just to give you an indication for the CPBB business in total. The proportion of customers are dealing with us on mobile devices up from below 40% to 46%. Proportion of them who are digitally transacting with us up from 56% to 62% over the last 12 months. So that's not quite the question you asked, but it's a sort of a proxy for it.

[William Thomas Winters, Group Chief Executive & Director]

Well, if there are no further questions, I think I heard that, that was the last question. If there are no further questions, and thank you very much for an excellent set of questions and for being here to listen to us. And we look forward to following up with the innovation and venture section -- session in September and continuing the bilateral engagements along the way. Thank you very much.

[Andrew Nigel Halford, Group CFO & Director]

Thank you.

[Operator]

That concludes the presentation for today. Thank you all for participating. You may now disconnect.