Standard Chartered PLC (STAN) Earnings Call Transcript & Summary

Good morning and good afternoon, everyone, and thank you for joining us. Before I get into the second quarter performance, I want to step back and touch on a few things we discussed at our investor event in May. It was great to host many of you in Hong Kong. I hope the energy from the presentations and the discussions resonated with you and was a reminder of the momentum in our franchise. Our message was clear. We built a bank capable of delivering durable returns by sharpening our strategy, improving the balance sheet, investing in infrastructure and focusing on areas where we have real competitive advantage. And most importantly, we're now moving from durable returns into compounding growth. Our super connector model is hard to replicate and highly valued by clients. Our strategy is aligned to long-term structural growth drivers. We have clear and measurable plans for continuous improvement in our productivity. Together, this supports exceptional growth and sustainably higher returns. Manus and I will cover these points over the course of the presentation. All of this gives us confidence to maintain clear milestones. Above 15% RoTE in 2028 and around 18% in 2030. They are the output of a strategy that is working and a franchise positioned to compound over time. Turning to the quarter, we delivered another strong performance. The business continued to perform well with momentum across areas where we have been investing, our cross-border network, wealth, CIB, financial institutions and increasingly capital-light client-led business. This resulted in a record first half performance with earnings per share up 17% year-on-year. We're upgrading our 2026 guidance for income to be around the middle of our 5% to 7% growth range year-on-year. This reflects the confidence on our strategy, the momentum we're seeing across multiple areas and the relevance of our business model in this evolving multipolar world. Our capital position remains strong. We're announcing a $1 billion share buyback and an interim dividend of $0.204 per share. We're continuing to invest to grow and returning surplus capital in a disciplined way to shareholders. Finally, we will remain watchful. The external environment is uncertain, but uncertainty reinforces the value of a bank that helps clients move money, manage risk and deploy capital across complex markets. With that, I'll hand over to Manus to walk through the numbers in more detail.

Thank you, Bill. Good morning and good afternoon, everyone. In my remarks, I will be comparing the second quarter 2026 performance year-on-year at constant currency, unless otherwise stated. The group delivered operating income of $5.7 billion, up 3% or up 8%, excluding the gain associated with the Solv transaction last year. This performance was supported by continued strong delivery in Wealth Solutions, Global Banking and flow income in Global Markets. Expenses were broadly flat or up 3%, excluding notable items. Given the continued tension in the Middle East, we took $44 million of additional management overlays in the quarter. But even including these overlays, our loan loss rate was just 20 basis points this quarter. Profit from associates was lower, mainly due to the change in our approach to recognizing the group's share of Bohai's profit since Q4 2025. Put together, we delivered a profit before tax of $2.3 billion and a return on tangible equity of 17.9%. We closed the quarter with a net tangible asset value per share of $7.55, up 4% year-on-year. Now I'll talk you through the detail on each component. Net interest income was up 1% quarter-on-quarter. We saw a benefit from volume growth as well as an improvement in mix from a lower proportion of treasury assets. These were partially offset by rate and margin headwinds as well as the previously flagged WRB portfolio actions. We are upgrading our NII guidance for 2026, and we now expect it to increase by a low single-digit percentage year-on-year at constant currency. When we compare second half of 2026 versus the first half, we expect continued volume growth in our businesses as well as continued mix benefits from a lower proportion of treasury assets. We expect these will be offset by a shift in deposit mix in WRB towards term deposits as rates rise and as we grow our affluent client franchise. Additionally, we expect to see a higher impact from WRB portfolio actions in the second half, and we continue to expect these actions to reduce NII by around 2% overall in 2026. Noninterest income remained resilient against a tough comparator in Q2 last year, where we had a $238 million gain relating to the Solv India transaction. If we exclude this, noninterest income was up 9% year-on-year. I will speak to the product drivers in more detail when I get to the business segments. Turning to operating expenses. Q2 expenses were broadly flat year-on-year but up 3%, excluding $74 million of a provision release relating to Korea equity-linked securities, which we classify as a notable item. Business growth and inflation in the quarter were largely offset by Fit for Growth savings and other efficiencies. On Fit for Growth, we booked $128 million of cost to achieve, bringing the year-to-date spend to around $250 million, and we continue to be on track with the program. Based on the upgraded income target that Bill mentioned earlier, we expect 2026 expenses, excluding notable items, to be around $13.3 billion at constant currency. As a reminder, the phasing of our costs was uneven in 2025, with Q3 costs unusually low due to certain expenses being delayed into Q4. This year, we would expect a more even phasing of costs between Q3 and Q4. And as I said at our May investor event, we are moving into a process of continuous improvement, growing the top line each year, improving efficiency and returns as we become simpler, faster and more connected. Credit impairment for the quarter was $150 million. This includes an additional $44 million of management overlays in respect to the Middle East conflict, mainly for the petrochemical sector and potential sovereign downgrades. This brings the total management overlays in relation to the Middle East conflict to $234 million. CIB impairment was $39 million, reflecting incremental overlays partly offset by net recoveries in the rest of the portfolio. WRB recorded lower impairment in the quarter, benefiting from continued portfolio optimization actions. Our annualized loan loss rate for the first half of the year was 26 basis points. And as we laid out in May, we expected through-the-cycle loan loss rate of 30 to 35 basis points. There was around an $800 million increase in the Early Alerts portfolio in the quarter, largely from some sovereign-related names as a result of the Middle East conflict. While Credit Grade 12 and Net Stage 3 assets remained broadly stable. As we mentioned last quarter, our exposure to the Middle East remains around 6% of the group's exposures. With over 90% in CIB weighted to sovereigns and financial institutions, while WRB exposures are mostly secured. Our overall credit quality has remained resilient in a volatile environment and we will continue to monitor for potential impacts. Moving on to the balance sheet. We saw 2% underlying growth in customer loans and advances in the quarter, primarily driven by the strong momentum in Global Banking while we also saw some increase from secured wealth lending and mortgages. On a year-to-date basis, underlying growth in customer loans and advances was 5.7%. Note, this was higher than the growth in average interest-earning assets, which was up around 1%, reflecting the continuing optimization of treasury assets, which we discussed at our May investor event. In customer deposits, we saw underlying growth of 2% in the quarter with increases across WRB and CIB. Risk-weighted assets were down $4.7 billion or 2% quarter-on-quarter, which we expect to largely reverse in the second half of the year. The quarter-on-quarter reduction was due to a decrease in credit risk RWAs towards the end of the quarter, where asset growth was offset by lower counterparty credit risk and the impact of optimization. Market risk-weighted assets were also down $1.4 billion in the quarter. In the second half of 2026, we expect RWAs to include business growth and the annual increase in operational risk-weighted assets. As a reminder, we expect the day 1 Basel 3.1 impact to be broadly neutral post management actions. Our CET1 ratio was 14.2%, driven by the robust amount of capital we generated in the quarter. And as Bill mentioned earlier, we are announcing a $1 billion share buyback and an interim dividend of $0.204 per share. Now let's take a look at our business segments. WRB Q2 income was up 18% to $2.5 billion, Wealth Solutions delivered another record quarter with income of $1.1 billion, up 43% year-on-year. This was driven by a broad-based performance across geographies and products. We raised $15 billion of net new money with $9 billion coming from wealth. Our first half new money is equivalent to a 15% annualized growth in assets under management. Momentum in client acquisition also continued as we onboarded 76,000 new-to-bank affluent clients in the second quarter. We have not seen any material change in client behavior throughout the quarter. Overall, the first half Wealth Solutions income was exceptionally strong and in buoyant equity market conditions. Whilst we remain very confident in the outlook for our wealth business, we would caution against annualizing the pace of growth seen in the first half of 2026. Turning to CIB. Q2 income was $3.3 billion, up 2% year-on-year. Transaction services income was up 5%, benefiting from higher volumes and fees with broad-based growth across payments and liquidity, security services and trade. We saw continued momentum in Global Banking in Q2 with income up 18% on the back of increased origination volumes and distribution activity. In Global Markets, flow income remained strong at 16% growth, benefiting from the continued investments in technology and electronic platforms, which drove improved FX performance. Episodic income was lower against a strong comparator in Q2 last year. Given the strong performance we've delivered in the first half of the year, we are upgrading our 2026 income guidance to be around the middle of the 5% to 7% growth range. Within that, we expect NII to be up by a low single-digit percentage. Based on the upgraded income outlook, we expect expenses, excluding notable items, to be around $13.3 billion. We are maintaining our guidance for return on tangible equity to be greater than 12% in 2026. With that, I will hand you back to Bill to take you through some of our strategic highlights. Thank you.

Thank you, Manus. In the next few slides, I want to cover a few key elements of the strategic update we gave in May. As a reminder, we see structural trends that are playing to our strengths. While they hide some risks, they are also creating exciting opportunities. Trends are coming through in our 2 major client businesses, WRB and CIB. I'd like also to touch on the digitization of money and what we're doing in that critical space. Let me start with the structural trends. We set these out at the full year and at the investor event because it remains central to how we think about the business. Emergence of a multi-polar and multi-aligned world is increasing cross-border complexity. Digital transformation and the digitization of money, changing financial infrastructure and client expectations. The role of banks is evolving as capital increasingly moves between banks and nonbanks. Wealth participation is rising, particularly in our footprint, and the transition economy continues to reshape capital allocation. For many situations, these trends are disruptive. For us, they are also opportunities because they play directly to what we've been building for years. We have a network across dynamic markets and corridors that is hard to replicate. We originate, structure and distribute assets combining local insight and cross-border expertise. We're also building market-leading capabilities in digital finance. The world is getting more complex. Our job is to make that complexity easier for clients to navigate and generate attractive and sustainable returns by doing so. Turning now to Wealth and Retail Banking. WRB continues to be underpinned by structural wealth flows we're seeing sustained growth in affluent net new money with around $84 billion achieved over the last 6 quarters against our $200 billion 2025 to 2028 target. This net new money is diversified with around 2/3 coming from international clients. Our Wealth Solutions income is also diversified. The 38% year-on-year growth in the first half was broad-based across clients, products and markets. We saw double-digit income growth in high net worth international and domestic client groups as well as across investment funds, capital markets and bancassurance products. And reflective of our geographic diversity, we recorded double-digit Wealth Solutions income growth in 13 markets. We're also benefiting from deeper collaboration across group, bringing together our wealth banking and markets capabilities to serve clients more holistically. This is helping us capture a greater share of client wallet and further improve the quality and resilience of our earnings. We developed a recognized platform that's coveted by the world's most successful asset managers. This helps us attract, retain and develop the best relationship managers in the market. Together with our ongoing investments in cutting-edge technology, we believe we're building the basis for continued strong momentum in our business. Turning now to Corporate and Investment Banking. Our Transaction Services, Global Banking and Global Markets businesses continue to benefit from the same structural trends that underpin our broader strategy. As supply chains evolve, capital flows shift and clients navigate a more complex and increasingly multipolar world, the value of our network continues to increase. Clients are looking for a partner that can connect markets, provide local expertise and support increasingly sophisticated cross-border activity that plays directly to Standard Chartered's strengths. We're seeing that reflected in the continued growth in network income, which is up 8% year-on-year in the first half, and our financial institutions business has generated higher returns on risk-weighted assets in the first half than the CIB average as we continue to focus on this client segment. More importantly, we're seeing strong client engagement across a growing number of corridors and products as clients adapt their supply chains, investment decisions and operating models. We're also seeing how geopolitical and market shifts are creating new opportunities for our network. In the Middle East, for example, issuers have increasingly turned to private capital solutions as public markets have become more challenging. Our ability to connect liquidity across regions and investor bases has allowed us to remain at the forefront of that activity, including maintaining our leadership in Sukuk and supporting clients as funding needs evolve. In 2026, banking has grown at a supernormal rate, again, with the first half income up 19% year-on-year as we support corporate and FI clients. Our originate-to-distribute model continues to grow with origination and distribution volumes up 37% and 15%, respectively, and the pipeline continues to be very robust. As a result, we're not just growing. We're continuing to improve the quality of the franchise with a greater proportion of income coming from network led and higher-returning activities where we have a clear competitive advantage. Turning to our digital asset capabilities. This is an area you've heard me talk about in previous quarters, and we continue to see significant growth in activity and client engagement. When we talk about digital assets, we're not talking about a separate business. We're talking about the next evolution, the financial infrastructure. And now Standard Chartered remains at the center of global trade, payments and capital flows. Our approach is built around 3 areas: first, the blockchain as infrastructure. Helping clients connect to new rails for issuance settlement and payments alongside existing systems; second, banking the digital ecosystem, providing regulated banking, payments, liquidity and risk management services as digital asset firms mature; and third, with digital assets as an asset class, enabling clients to access, transact and custody assets in a safe, regulated institutional grade environment. What ties this together is our role as a super connector clients come to us to move money, assets and risk efficiently across markets, jurisdictions and time zones. A good example is the first digitally traded intraday FX swap completed in the first half. The transaction was small, but the significance goes beyond a single trade. This demonstrated a pathway to faster settlement and a more efficient 24/7 financial system, practical innovation that can improve client outcomes and our own infrastructure. We've also seen material tokenized deposit growth in 2026 with around $11 billion monthly run rate, primarily from the e-CNY cross-border settlements on Enbridge and our multicurrency work with various clients. The message is straightforward. We're investing in the infrastructure that will support the next generation of our cross-border trade, payments and investment flows, which we believe will allow us to consolidate our leading position in our markets. Bringing this together, we unveiled a new set of targets for 2028 at our investor event day. We're targeting 5% to 7% income CAGR between 2025 and 2028 with a cost income ratio of around 57% in 2028. We expect loan loss rates through the cycle of 30 to 35 basis points and will continue to operate within our 13% to 14% CET1 range. This will lead to a high-teens EPS CAGR through to 2028 alongside a greater than 15% RoTE in 2028 and around 18% RoTE in 2030. We remain committed to at least a 30% dividend payout ratio with a progressive dividend per share. They're not isolated metrics. They are the output of a better bank, more client led, more productive, more capital efficient and more capable of compounding over time. And we have made a great start on this plan. So to conclude, we delivered a strong performance in the first half. We're upgrading our 2026 income guidance. We're announcing a $1 billion share buyback and an interim dividend of $0.204 per share. Now the bigger message. The strategy is working. The structural trends we've highlighted are resonating within our business. Our network is more valuable as the world becomes more complex, Wealth is benefiting from affluent flows. CIB is increasingly focused on higher returning network-led and FI led activity, digital assets position us for changing financial infrastructure and continuous improvement gives us a path to operating leverage and compounding growth. Of course, we remain alert to the more fragmented geopolitical environment, shifts in client activity and the pace of technological change. Our task is to say, close to clients, adapt quickly, continue executing against the opportunities where our network capabilities and international footprint give us a clear advantage. Lastly, I want to note that building on our Hong Kong event, we plan to host over the course of the next 18 months or so, a series of network spotlight seminars, showcasing how our regional strength underpins our network advantage and creates value for our clients and shareholders. With that, I'll hand over to the operator for Q&A.

[Operator Instructions] We will now take our first question from the line of Joseph Dickerson from Jefferies.

Congratulations on a very robust set of numbers for Q2. Bill, you were in the media earlier talking about the China crackdown on compliance. Clearly, it looks like your business, at least for Q2, actually saw a modest step-up in the run rate of new-to-bank customers. I guess, are you -- how does this play in the Standard Chartered? And are you seeing any spillover in the legitimate banking and insurance channels? Or does this play to your hand, that's the first question. And then the second question is just on the gross movement into stage 2, the $2.6 billion quarter-on-quarter. I guess a question for Manus. Could you just discuss what you mean by transfers of exposures impacted by the Middle East conflict. Is this being prudent in moving them into Stage 2?

Well, thanks very much for the questions, Joe. I'll take a stab at the first one, and as you said, Manus can pick up on the credit reclassification. Look, for a long time, we've had the sense that being an extremely compliant sort of institutional trust level player, that we would gain some competitive advantage at a point. And that's -- I'm talking about financial crime -- nonfinancial crime compliance and obviously, more recently, a lot of the news around China tracking down on various types of noncompliant activity as noncompliance with the rules that China has set up. As you would expect, number one, we're compliant by orientation and by nature. That's just -- that's the way we approach all our businesses. Number two, we're particularly focused on making sure that we're complying both with the spirit and letter of law in things that are very important to us and things that are very important to our stakeholders, including the government in which countries in which we operate. So a long way of saying, yes, we're completely focused on doing business the right way in terms of helping our Chinese clients, be they're onshore or offshore, to broaden out their range of investments opportunities and the channel and come into the places or channel wealth into the places that make most sense for them. Yes. So we're very, very, very focused on that. The results of that is that no, we didn't see any change in activity and we wouldn't have expected to because we didn't see a change in orientation from the Chinese leadership itself. What we did see was a focus on compliance. So we've got some rules. I believe everybody follows the rules, if you don't, we're going to call you out and find you or play other sanctions. Of course, we've not been on the receiving end of that because we are compliant in the first instance. So we don't see any underlying or structural shift in attitude. In fact, a lot of the rhetoric and action, since this business came out 6 weeks or so ago, has been further reinforcing the ongoing policy of internationalizing the RMB, whether that's cross-border payments, expanding the connect schemes and encouraging and appropriate migration of wealth into a broader investment basket, which is obviously what we're providing. So yes, I'd say so far so good and....

It's interesting you say that Bill because...

Thank you, Joe. So the movement in Stage 2 assets is the result of the overlays that we've taken. When we take those overlays, we have to move a proportion of the assets which they refer to into Stage 2 as well, which is why you've seen a tick up in stage 2. You'll also note there the differential on Slide 8 between the move in Stage 2 and the move in Stage 3 and credit grade trial, which is de minimis and a much smaller pickup in early alerts as well. So you should really see it as part of our precautionary overlays, Joe, rather than anything indicating any significant increase in credit risk across those items.

We will now take the next question from the line of Andrew Coombs from Citi.

Just 1 follow-up, and then I'll switch gears to capital and capital return I think the MOF issued a document on the 24th of July tightening up personal income tax laws on offshore trusts. So just interested in any thoughts you have on that and any implications that has for your wealth business, please? And then secondly, on capital, I'm going to ask 2 parts of this question, forgive me. But the first part is you've had a very good reduction in RWA this quarter down 2% but you said that's going to reverse in the second half. So can you just explain the dynamics there? And secondly, how are you thinking about the capital return mix because the dividends come in a bit better than consensus, but the buyback is a bit lower. So happy for any comments on that.

Great, Andrew. Thanks very much for the questions. Per my earlier answer, I think we have seen and you should probably expect to see an ongoing focus around compliance. And -- in the case of your question is compliance around the way trusts are established and the motivation for those trusts and the way that they're managed. So the first thing, of course, we have a trust business. There's a small -- I would call it, close to immaterial proportion of our AUM that is sitting in trusts. Number two, the responsibility for the tax affairs of our clients that are operating in those trust is with the client. And number three, we -- as part of our ongoing due diligence and onboarding process or inclusion in a trust, satisfy ourselves that the client is discharging her or his appropriate responsibilities vis-a-vis different tax authorities, compliance authorities, et cetera. But it's not ultimately something we can police entirely. But we -- so we see no material or practical impact on our business. And when we step back and say, does it make sense for tax authorities around the world to crack down on activities that they deem to be outside of the spirit of their intentions, yes, I mean I think that's quite normal. I think we see that from those countries. Capital -- I'll let Manus dig into the details, but broadly, especially as we come into the rest of this year, we would expect to see some RWAs moving around a little bit, including operational risk capital, obviously, market risk capital moves around a bit. And the things that we're putting on our balance sheet are taking off will also be a little bit volatile from quarter-to-quarter, which is why we called out specifically why the slight downdraft towards the end of Q2 is likely to reverse in the second half. So I wouldn't read anything in particular into that. But in terms of capital return mix, of course, we're going to debate regularly and openly how we combine the ongoing buyback program that we've had with dividends. And we've been very clear about 30%-plus payout ratio on earnings and our desire to have a dividend per share that's progressive. And that is sort of first and foremost. We're also going to look at the value of our company from time to time. And I can tell you we're very happy to buy back $1 billion worth of shares at this price. And even after today, we'll still be very happy to buy back $1 billion of shares at this price. But we're going to make that judgment from period to period. Manus?

Thanks, Bill. Just to give a bit more detail on the RWAs. And -- there was some timing of some flows, Andrew, which -- Andy, which came across in the quarter. So some banking deals move towards the end of the quarter and some deposit flows came in as well, which is why we saw a bit of a dip and then a pickup at the beginning of the third quarter. So hopefully, that's clear in the way that we've talked about it and presented it. In terms of the dividend and the mix of dividend versus buyback for capital return, I think Billy explained the longer-term philosophy quite well. Bear in mind that the interim dividend is worked out on a mechanical basis, we do it as 1/3 of the previous year's full year dividend. So we're not making any commentary with our interim dividend here. It's the same policy that we've introduced before. And when we get to the end of the year, we'll take that view on dividend versus buyback versus growth that we've talked about in the past.

We will now take our next question from the line of Perlie Mong from Bank of America.

Can I just unpack the wealth trends a little bit because 43% is very, very impressive. But investment product is up over 50%, and bancassurance is 9%. So there's just a very big gap. So how do you see maybe especially bancassurance going through in the next few quarters? Because I mean, 9% is obviously still very good, but maybe a little bit below the level of growth that we've been seeing in recent quarters? And then on investment products. How -- is there anything -- well, I guess historically, you don't talk about a correlation with the stock market, but clearly, Q2 was very, very strong in equities across many of the markets that you have footprints in Korea, Taiwan, et cetera. And since then, I guess, a lot of those markets have come down a lot. So how do we think of that, please? Was there a lot of sentiment uplift from the stock market activities in the quarter. So that's on the wealth side of things. And then on CIB, I guess, again, it's probably 2 parts, so excuse me for that. The first one is episodic income was obviously against a strong comparator last year. But I suppose listening to peers and across most metrics, it doesn't look like capital markets strong in Asia this quarter. So I'm just somewhat surprised by the episodic coming down a little bit. So if you could just help us understand what drives your episodic income a little bit. That would be really, really helpful. And then secondly, if I look at income over RWAs, it's pretty much flattish versus last year this time. And with RWA also actually may be benefiting from some of the timing benefits that you've talked about. And you've guided to income over to improving in the next couple of years. So I suppose the question is when would we expect to see more of a significant pickup in that?

Great, Perlie. Thanks for that whole slew of questions. We'll try to take them in turn. The -- well -- yes, thanks for noting the very strong wealth quarter. It has been strong in investment products. I think 9% growth in bancassurance is also strong, but you point to the gap. A couple of things to remind ourselves. One is we have been in a risk-on environment for sure. And while we think that the structural flow of net new money, new clients, AUM, we really think of that's structural. We're going to see behavior trends, which are a function of risk appetite in the market. And in a very compelling risk on period, which is the first half of the year has clearly been we're going to see relative outperformance in investment products relative to banca, which is a relatively defensive product. So that's -- that mix is not surprising at all in the context of the sentiment to the market. The correlation to equity markets is always an interesting one to try to assess and analyze as well. I think the good news, if I can make a general comment is that we have a very diversified set of wealth products. And obviously, it starts with deposits. Costs and time deposits, which are the most defensive, very attractive for us to generate, but defensive obviously, at the other end of the spectrum, we've got equity-linked products and variations in structured notes and things like that. So what we found through different, I call the mini cycle so far, is that as the risk appetite for the more levered equity type products comes down, people are migrating into fixed income or other investment products or banca or into deposits, all of which is fine for us. Should we expect with the market becoming -- I wouldn't say we're risk off today by any means, although obviously, we're seeing a tiny bit of a correction relative to the enormous jumps that we've had in for example, the chip companies, in particular, in Korea, I mean, these stocks are still way, way, way up from where they were just a year or 18 months ago. So I think this kind of a correction is quite healthy. if we had a more substantial correction in equity markets, is at the end of our growth in Wealth Management, I don't think so because of that diversification that we talked about just a moment ago. Maybe I'll just stop on the wealth. You get any additional color from Manus and then we can come back on the CIB questions.

Just on the bancassurance question specifically, I would just highlight the fact that, that line across the year can be somewhat distorted sometimes by the timing of some of our bonuses with our bancassurance partners. And that was the case this quarter. If you actually look at the underlying momentum that we've got in that business, it was very steady across the year. So what you're really looking at is bonus timing differences throughout the year. We're very happy with the ongoing performance there.

Great. And on CIB, the -- we've got to focus on the good first. The episodic income is a meaningful positive. That's a good thing. Although it's down from an extraordinary positive later. So no concerns about our ability to deliver returns on large customer deals and our ability to capture value on substantial market moves. That continues to be very strong. The flow income up 17%, 18% is just fantastic. And that, of course, is the thing that we're investing in consistently in terms of client-facing professionals, interaction between our transaction banking business and financial markets, interaction between the retail business and our structured note origination volumes and the financial market business, et cetera. So I'd say that flow income is the gift that keeps on giving, and that's into that, which we are investing. The episodic is obviously materially positive, but often compared to a very, very strong year last year. which as we will recall was the year or the period that tariffs were announced and we had very, very substantial movement in markets, especially in our developing economies. The income return on risk-weighted assets. look, I mean, the RoRWA that we're generating is consistent with the -- with our target return on tangible equity. And we will add risk-weighted assets to the extent that it's accretive to our return on tangible equity and generating positive EVA against our forward view of what our returns should be, and we've guided to those 16% to 18% numbers So a flat RoRWA at a high level is just fine in terms of RWA -- sorry, in terms of EVA accretion -- that's what we're focusing on. And we found some really interesting opportunities to deploy assets in the second quarter, notwithstanding the reduction that Manus has talked about in terms of end of quarter RWA reductions versus some kind of return of those RWAs in the second half of the year. We do think structurally, over time, as we continue to optimize our portfolio as we continue to have a higher proportion of our income coming from financial institution clients rather than corporate clients as we continue to develop our originate to distribute underlying credit intermediation model, we think that there's structural opportunity to increase our RoRWA. But we're very happy with the returns that we're generating now. And if we could deploy another $10 billion of RWAs at the returns that we're generating here, we would do that.

Just to follow up on the calculation of return on risk-weighted assets. Remember, partly that we do calculate that on an average RWAs across the quarters. So it's not just on the spot at the end. And in fact, if you look I think you were comparing Q2 to Q2 last year, our RWAs were actually higher in the second quarter of this year than they were in the second quarter of last year. And as Bill said, we had a very strong episodic print in the second quarter of 2025. So all told, that return on risk-weighted asset number we think will move up over time. We've given you structural drivers behind why we think that will move up. Obviously, quarter-to-quarter, there can be some noise in it, but we're happy with the trends, as Bill said.

The next question comes from the line of Aman Rakkar from Barclays.

Yes, 2 questions, please. One is on net interest income. So obviously, good to see the guidance uplift in the quarter. It looks like for -- the full year, sorry. And it looks like you're stepping away from this expectation that pass-through rates should normalize in your footprint? But I am struggling to make sense of what looks to be a relatively conservative guidance for the full year. I think your guidance at face value implies net interest income flat in H2 relative to H1. Secondly, can we talk about the degree of conservatism that's embedded in that? And I guess, you're pointing to WRB deposit mix dynamics. That would be great to give us a sense of how much additional mix shift you're kind of embedding in that guide? Second question was, unfortunately, also about income guidance. On the non net interest income front. If I again, just take your guidance at face value, it would actually imply an H2 outturn for non-net interest income that I think would be actually somewhere below what consensus is factoring in phase 2. So I'm just interested if you could comment on that, would you encourage us not to overinterpret the guidance at face value? And is it conservative? Or would you call out any particular line items and consensus for the full year that you think might look a bit rich?

Great. Thanks, Aman. I'm going to let Manus dig in on both those questions. I'd just say that we've guided to an RoTE in excess of 12%. And obviously, the operative words there are in excess of rather than the 12% itself. As always, we would hope to deliver performance as we did in the first half that suggests that there's an underlying strength that would allow us to surpass any of the guidance numbers that we give. But fine-tuning, especially in an environment like this from quarter-to-quarter. It just seems a little bit unwise or imprudent. So we can get into all the details that you talk about, but there's nothing that we see in terms of the momentum of the business or the degree to which we've started with a perfectly fine July or Q3 that suggests that we can't maintain the kind of seasonally adjusted run rate that we've been talking about in our businesses, both on the NII side and on the non-NII side. Manus.

On the question on NII, specifically, Aman, coming into the second half, I think you should think about a number of factors. There'll be hopefully some more volume growth as we discussed on the slides and in the script. And offsetting that, I think there will be this impact from the WRB deposit mix. You'll have seen that we grew our TD base the first half more quickly than we grew our CASA and those TDs are slightly lower margin. That's a result of both our growth in the affluent business and the fact that rates on TDs were a bit more attractive for customers during that period. So the flow-through of that into the second half will have some minimal impact. And I think you also need to bear in mind as well, we've talked to you about a 2% impact from some of our business exits and portfolio rundowns across the course of the year, that's more weighted to the second half than the first half. So if you piece those things together, I think you'll see why we end up with the kind of guidance we've got of low single-digit NII growth. The impact of rates on the second half of the year will not be material at this point, if you look at what we're saying about the curve and flow that through into the second half. On noninterest income, I think to pick up on Bill's comments, I think I wouldn't overinterpret or think of things through in the kind of way that you are. I think that we have seen a very good first half. We're very comfortable with the momentum that we're seeing. As Bill said, we've made a good start to Q3, but there's a long way to go, and we want to make sure that we're in a good position come the end of the year. So we're very comfortable with where that comes out in terms of that midpoint of the 5% to 7% guidance range for the income overall.

Our next question comes from the line of Guy Stebbings from BNP Paribas.

I was going to ask something pretty similar to Aman, but maybe I'll just briefly call out on 1 point there and then ask something else. In terms of net interest income and rate assumptions, saying not a big support in the second half of the year. I think you did call out that sort of the reason for the negative deposit mix is higher rates. And if I look at your currency rate curve does imply some support in the second half year. So can you just help me think about the rate impact, the headwind you get on the mix effects without the kind of the more pure margin benefit from that. And then the second question was just on Slide 16, you showed progress on affluent income share in WRB. It looks like you're well on track to really outperform that 2028 target. Just interested how we should think about the economics there, if you did come in better than your expectations there?

Great. Thanks for the question, Guy. I'll turn to Manus on further detail on the NII and rates sensitivities. But the affluent income has been strong. And if we can continue with the pace of net new money growth and that translating through to wealth income. It's also obviously flowing through into an attractive deposit mix. Then there's plenty of upside. And that's -- I think that's what we've been calling out in terms of the structural strength. And how much of that upside shows up in the second half of this year versus in future period is going to be somewhat dependent on the market. But I think our competitive positioning is quite good from what we can see. And I think it's a combination of being present. So having the onshore capability across a number of markets. And I know that there's -- even on this call, there's been a bit of a focus on the China component, but the Mainland China component of our -- the growth in our wealth income is something like 1/3 with another 1/3 coming from our other core markets and the 1/3 coming from onshore. Including China, India, Korea, Taiwan, et cetera. So it's really a broad-based business. And the sources of new money are broad-based. The range of investment products that we're offering is broad-based, I guess, as broad as anybody offers. Reminder, we have open architecture. So we were not sort of compelled to sell the stuff that we have to produce. We're selling the stuff that we think is the best to put our clients. which makes us a very desirable intermediary for the world's best manufacturers. So I mean the repeating things that we talked about as recently as may, but I think it's worth repeating that we think that this is really a very high-quality business. It's very broad-based, well diversified. We commented on -- I commented earlier on the risk sentiment sensitivity to the business. It's there. We're not -- definitely not going to pretend that it's not. But the structural drivers really are quite structural. So if we can continue to beat the kind of guidance that we've given ourselves, of course, we would expect that to flow straight to the bottom line? Manus?

Yes, on the NII point, look, if you look at our curve, rates are up 20 basis points in the second half versus the first half, so that's not a huge delta on a 6-month basis. And I'd also point out as well that as we know the rates environment remains volatile. So that's why I was saying, I don't think that move will have a meaningful impact on the second half on first half. And if you think about the mix, we grew within our largest retail market, our TD based by $6 billion in the first half, and I paid by $3 billion in the first half. So you can see that kind of switch happening within that business. there'll be a bunch of different things that play through in the second half as to how much of that gets deployed into wealth products, what the outlook is in terms of the way that people want to move in when we're gathering new wealth products into -- whether it's into wealth or into TDs. But putting those in the round, we were comfortable to come out with an upgrade to our NII guidance of moving up low single digit versus where we were.

Our next question comes from the line of James Invine from Rothschild & Co Redburn.