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* FY2018 profit, after provisions, rises 5.5 pct to $2.55 bln
* Says to achieve at least 10 pct return on equity by 2021
* Plans to distribute surplus capital to shareholders
* Costs rise 2 pct in 2018 from year prior to $10.1 bln (Adds comments on Indonesian bank stake, plans for other markets)
HONG KONG/LONDON, Feb 26 (Reuters) - Standard Chartered PLC on Tuesday said it would cut $700 million in costs and exit smaller businesses as part of a three-year strategy overhaul aimed at boosting growth and possibly doubling dividend payments.
The bank plans to achieve return on tangible equity of at least 10 percent by 2021, from 5.1 percent last year, and intends to distribute to shareholders surplus capital not deployed to fund additional growth.
Earnings growth and divestment are likely to generate that surplus capital, it said, adding planned exits and the run-down of low-return businesses include discontinuing ship leasing and completing the sale of its private equity arm.
"We will achieve this through relentlessly focusing on where we have a distinct competitive advantage, attacking the residual causes of lower returns and ramping-up innovation and productivity," Chief Executive Bill Winters said in a statement.
StanChart said it aims to improve returns in India, South Korea, the United Arab Emirates and Indonesia, four large markets that have in recent years been a drag on its financials, accounting for 21 percent of costs but just 13 percent of profit.
The bank also said its 45 percent stake in Indonesia's PT Bank Permata Tbk was "no longer core," indicating that it could move towards selling the holding. StanChart did not elaborate on its divestment plans in the earnings statement.
Its stake in Permata is valued at about $835 million as per the Indonesian bank's current market value.
StanChart shares have fallen 40 percent since Winters, a former JPMorgan Chase & Co banker, took over in June 2015. Last year, its London shares dropped 22 percent compared with a 15.6 percent fall for rival HSBC Holdings.
The 150-year-old lender's new strategy comes at a time when its core emerging markets face increasing risk of slowdown due to the impact of the Sino-U.S. trade war as well as economic uncertainties in China and Britain, two of its main markets.
StanChart, which generates the bulk of its revenue in Asia, has seen its fortunes slump as restructuring under Winters repaired a balance sheet hit by excessive lending in the previous decade, but left the bank struggling to lift profit.
Winters, in addition to cutting risky lending, has also worked to improve senior bankers' accountability and exit some businesses.
Hong Kong shares in StanChart extended their morning gains to be up more than 2.5 percent at 0635 GMT, while the main Hong Kong market index was trading down 0.8 percent.
To stimulate growth, StanChart has poured money into retail banking and wealth management technology platforms in the last couple of years, a move which led to a surge in costs but has yet to yield significant return.
Chief Financial Officer Andy Halford told staff in October the bank had made "virtually no progress" in meeting cost targets and urged managers to consider cutting jobs, paring back travel expenses and freezing recruitment.
The bank's costs grew 2 percent in 2018 to $10.1 billion. However, it said, "continued cost discipline" would enable sustained investments, as well as the potentially doubling of full-year dividend by 2021 from 15 cents per share last year.
StanChart also raised its target range for common equity tier 1 ratio - a key measure of financial strength - to 13-14 percent from its previous view of 12-13 percent. The ratio rose to 14.2 percent last year, from 13.6 percent in 2017.
Earlier, the bank posted a 5.5 percent rise in 2018 pre-tax profit, pulled down by $900 million in provisions set aside to cover any impact from regulatory investigations in the United States and Britain.
StanChart last week said the provision related to the potential resolution of U.S. investigations into alleged sanctions violations and foreign exchange trades.
The emerging markets-focused bank booked profit of $2.55 billion, versus $2.42 billion in 2017.
Before provision for regulatory matters, restructuring and other items, StanChart reported a profit of $3.9 billion, compared with the $3.9 billion average of 16 analyst estimates compiled by Refinitiv.
(Reporting by Sumeet Chatterjee in HONG KONG and Lawrence White in LONDON; Additional reporting by Alun John; Editing by Christopher Cushing)