KARACHI: The transformation of the Group continued in 2017 with the significant improvement in underlying profits, a strong capital position and emerging clarity on regulatory capital requirements allowing us to resume paying dividends. We are encouraged by our start to 2018 and remain focused on realising the Group’s full potential,” said Bill Winters, Group Chief Executive.
Significant improvement in profitability and returns was a direct consequence of the many actions taken since 2015. Profit before tax of $3.0 bn was up 175 % and up 71% excluding Principal Finance. Statutory profit before tax of $2.4 bn is stated after restructuring and other items and was $2.0 bn higher. RoE improved from 0.3% to 3.5 %; just under half-way towards the Group’s initial milestone of 8%. The bank’s operating income of $14.3 bn was up 3% despite a 4 % drag from financial markets
The bank recorded 13% income growth from key areas of investment (half of total), with particular strength in liability-led products. Industry-wide low volatility during 2017 impacted performance in financial markets. Income was 3% lower quarter-on-quarter due partly to the early achievement of a bonus in Wealth Management. Net interest income increased 5% and the net interest margin increased slightly to 1.55%
Other operating expenses of $8.6bn were well controlled rising 2% due primarily to variable pay. Over 85%of the four-year $2.9bn gross cost efficiencies target has been achieved with a year to go. Gross savings funded investment of $1.5 bn (2016: $1.4bn), 50 % over the 2015 level. Anticipate operating expenses excluding the UK bank levy in 2018 to be below 2015. Regulatory costs rose 15%, with several large programmes including MiFID II and IFRS 9 being implemented
Further significant progress in implementing financial crime prevention capabilities also recorded. Continuing cooperation and ongoing discussions was ensured with US and UK authorities to resolve historical matters. After updating prior-year estimates, the UK bank levy was $220m; the estimate for 2018 is around $310m. Asset quality overall has improved with the focus on better quality origination within a more granular risk appetite. Loan impairment of $1.2bn halved as management actions resulted in improvement across all client segments. Profit from associates and joint ventures rose $185m following better performances in China and Indonesia.
The Board has recommended resuming a dividend given improving financial performance and strong capital. Full year dividend of 11 cents per ordinary share proposed for 2017.