TIDMHSBA

RNS Number : 1463X

HSBC Holdings PLC

26 August 2020

 
 Risk 
                                      Page 
 Key developments in the first 
  half of 2020                          50 
                                      ---- 
 Areas of special interest              50 
------------------------------------  ---- 
 Credit risk                            54 
                                      ---- 
 Capital and liquidity risk             77 
                                      ---- 
 Market risk                            84 
                                      ---- 
 Insurance manufacturing operations 
  risk                                  87 
------------------------------------  ---- 
 

We recognise that the primary role of risk management is to protect our customers, business, colleagues, shareholders and the communities that we serve, while ensuring we are able to support our strategy and provide sustainable growth. As we move forward with the transformation programme announced in February, it will be critical that we actively manage the execution risks arising from our transformation plans.

We use a comprehensive and newly updated risk management framework across the organisation and all risk types, underpinned by the Group's culture and values. This outlines the key principles, policies and practices that we employ in managing material risks, both financial and non-financial.

All our people are responsible for the management of risk, with the ultimate accountability residing with the Board. Our Global Risk function, led by the Group Chief Risk Officer, plays an important role in reinforcing the Group's culture and values. It focuses on creating an environment that encourages our people to speak up and do the right thing.

Global Risk is independent from the global businesses, including our sales and trading functions, to provide challenge, oversight and appropriate balance in risk/reward decisions.

A summary of our current policies and practices regarding the management of risk is set out in the 'Risk management' section on pages 73 to 76 of the Annual Report and Accounts 2019.

 
 Key developments in the first half 
  of 2020 
 

We have actively managed the risks resulting from the Covid-19 outbreak and its impacts on our customers and operations during the first half of 2020, as well as other key risks described in this section.

We supplemented our existing approach to risk management with additional tools and practices to mitigate and manage risks. We increased our focus on the quality and timeliness of the data used to inform management decisions, such as through increased frequency of governance touch points informed by early warning indicators and prudent active risk management of our risk appetite.

In addition, we enhanced our risk management in the following areas:

-- In January 2020, we simplified our approach and articulation of risk management through the combination of our enterprise risk management framework and our operational risk management framework.

-- Capital risk management practices continued to be enhanced across the Group through the Capital Risk Management function, focusing on both adequacy of capital and sufficiency of returns.

-- The global model risk policy and associated standards were revised to improve how we manage model risk and meet enhanced external expectations. The new policy will be implemented over a six-month period commencing 1 May 2020.

-- We continued to focus on simplifying our approach to non-financial risk management. We are driving more effective oversight and better end-to-end identification and management of non-financial risks.

-- We combined the second line of defence Operational Risk and second line of defence Resilience Risk sub-functions. By bringing the two teams together, we expect to benefit from improved stewardship, better risk management capabilities and better outcomes for our customers.

-- We continued to improve the effectiveness of our financial crime controls in accordance with our specific regulatory obligations. We continued to invest in both advanced analytics and artificial intelligence, which remain key components of our next generation of tools to fight financial crime.

 
 Areas of special interest 
 

During the first half of 2020, a number of areas were considered as part of our top and emerging risks because of the effect they have on the Group. In this section we have focused on geopolitical and macroeconomic risk, risks related to Covid-19, risks to our operations and portfolios in Asia-Pacific, the UK's withdrawal from the EU, model risk and interbank offered rate ('Ibor') transition.

Geopolitical and macroeconomic risk

The Covid-19 outbreak dominated the political and economic landscape for the first six months of 2020. The twin shocks of a public health emergency and the resultant economic fallout have been felt around the world, and hit both advanced and emerging markets. The closure of borders threatened medical and food supplies for many markets, and there is the potential for countries and territories to focus efforts on building resilient supply chains closer to home to be less vulnerable to global shocks.

The Covid-19 outbreak has heightened existing US-China tensions. US executive branch and congressional action has put pressure on the initial 'phase one' provisions under the trade agreement signed in January. Frictions span an increasing range of issues, including trade, technology and human rights. The Covid-19 outbreak has accelerated US efforts to reduce reliance on China in strategic industries such as sensitive technology, pharmaceuticals and precursor chemicals.

Hong Kong also emerged as an additional source of tension in US-China relations, with potential ramifications for the Group, including the impact of sanctions, as well as regulatory, reputational and market risks for the Group. While Hong Kong has experienced lower levels of social unrest in 2020, disagreements over the interpretation of the 'one country, two systems' model may continue to drive protest activity in the lead up to Hong Kong's legislative council elections. For further details see 'Risks to our operations in Asia-Pacific'.

While UK-China relations have historically been shaped by strong trade and investment, there are also emerging challenges. Following the passage of the Hong Kong national security law, the UK has offered residency rights and a path to citizenship to eligible British National (Overseas) passport holders in Hong Kong. In addition, both the UK and Hong Kong have suspended their extradition treaties with each other. The rollout of the UK 5G telecommunications network has also complicated relations. On 14 July, new restrictions on Chinese company Huawei were announced under the Telecoms Security Bill. These issues have the potential to impact bilateral commercial relationships adversely.

Emerging and frontier markets are suffering particularly heavily from the Covid-19 outbreak, in light of healthcare shortcomings, widespread labour informality, exposure to commodities production and often weak policy frameworks and buffers. Multilateral institutions have mobilised support for the weaker frontier markets, with the World Bank and G-20 marshalling efforts to implement a standstill on debt to public sector institutions. The International Monetary Fund has also, to date, lent $25bn in emergency funds to over 70 countries. However, negotiations on debt to the private sector will prove more difficult, and may result in sovereign debt restructuring and defaults for several countries. Most developed markets are expected to recover from the crisis, albeit after some permanent business closures and job losses. The majority of developed markets are also expected to not achieve pre-crisis growth rates or activity levels for the foreseeable future. These countries and territories should be able to shoulder the higher public deficits and debts necessary to offset private sector weaknesses, given the continuing low cost of servicing public debt. However, a group of weaker developed markets, including some members of the EU, entered the Covid-19 crisis on weak economic and fiscal footing and suffered high healthcare and economic costs. Although eurozone progress in mutualisation of the debt should help support recoveries and keep debt servicing costs down in the near term, there are concerns that permanently higher debt burdens will eventually lead to economies questioning their sustainability.

Following the UK's departure from the EU, an end to the transition period on 31 December 2020 without a free-trade agreement or an extension of the negotiating period would likely lead to a reversion of UK-EU trade to WTO rules from 2021. The absence of formal arrangements could further set back the expected gradual recovery of the UK and EU economies from recessions caused by the Covid-19 outbreak.

The contraction in the global economy has had varying effects on our customers, with many of them experiencing financial difficulties. This has resulted in an increase in expected credit losses ('ECL') and risk-weighted assets ('RWAs'). For further details on customer relief programmes, see page 66. For further details on RWAs, see page 79.

Risks related to Covid-19

The Covid-19 pandemic and its effect on the global economy have impacted our customers and our performance, and the future effects of the pandemic are uncertain. The outbreak necessitated governments to respond at unprecedented levels to protect public health, local economies and livelihoods. It has affected regions at different times and varying degrees as it has developed. The varying government measures in response have added challenges, given the rapid pace of change and significant operational demands. The speed at which countries and territories will be able to unwind their lockdown measures and return to pre-Covid-19 economic levels will vary based on the levels of infection and local political decisions. There remains a risk of subsequent waves of infection.

Government restrictions imposed around the world to limit the spread of Covid-19 resulted in a sharp contraction in global economic activity in the first half of 2020. At the same time governments also took steps designed to soften the extent of the damage to investment, trade and labour markets. Economic activity is expected to gradually recover in the second half of the year but there is significant uncertainty associated with the pace and scale of recovery. In our Central scenario, GDP contracts sharply in 2020 in all our major markets, except China, reflective of the widespread nature of government restrictions. GDP growth in China is expected to be positive in 2020, although the growth rate is expected to be significantly lower compared with previous years. Strong recovery in economic activity in our major markets is expected in 2021, but this is contingent on the successful containment of the virus and the evolution of other top risks, including the UK's relationship with the EU following the transition period, political unrest in Hong Kong and tensions between the US and China. It also relies on the willingness and ability of households and businesses to return towards pre-crisis spending levels. While GDP is expected to grow strongly in our major markets in 2021, the Central scenario projects a more gradual decline in the unemployment rate in these key markets. For further details on our central scenario see 'Measurement uncertainty and sensitivity analysis' on page 56.

There is a material risk of a renewed drop in economic activity. The economic fallout from Covid-19 risks increasing inequality across markets that have already suffered from social unrest. This will leave the burden on governments and central banks to maintain or increase fiscal and monetary stimulus. After financial markets suffered a sharp fall in the early phases of the spread of Covid-19, they rebounded but still remain volatile. Depending on the degree to which global economic growth suffers permanent losses, financial asset prices may suffer a further sharp fall.

Governments and central banks in major economies have deployed extensive measures to support their local populations. Measures implemented by governments included income support to households and funding support to businesses. Central bank measures included cuts to policy rates, support to funding markets and asset purchases. These measures are expected to be unwound gradually as government restrictions ease and as economic activity increases. Central banks are expected to maintain record-low interest rates for a considerable period of time and the debt burden of governments is expected to rise significantly.

We initiated market-specific measures to support our personal and business customers through these challenging times. These included mortgage assistance, payment holidays, the waiving of certain fees and charges, and liquidity relief for businesses facing market uncertainty and supply chain disruption. We are also working closely with governments, and supporting national schemes that focus on the parts of the economy most impacted by Covid-19. In the UK, this included providing access to the various government support schemes from the beginning. In Hong Kong, we provided prompt liquidity relief to businesses facing market uncertainty and supply chain pressures. For further details of our customer relief programmes, see page 66.

Central bank and government actions and support measures taken in response to the Covid-19 outbreak, and our responses to those, have created, and may in the future create restrictions in relation to capital. This has limited and may in the future limit management's flexibility in managing the business and taking action in relation to capital distribution and capital allocation. For example, in response to a written request from the Prudential Regulation Authority ('PRA'), we cancelled the fourth interim dividend for 2019 of $0.21 per ordinary share. Similar requests were also made to other UK incorporated banking groups. We also announced that until the end of 2020, we will make no quarterly or interim dividend payments or accruals in respect of ordinary shares. We also plan to suspend share buy-backs in respect of ordinary shares in 2020 and 2021.

It is recognised that all of the above measures and actions, and our responses to those, expose the Group to heightened risks. The rapid introduction and varying nature of the government support schemes, as well as customer expectations, can lead to risks as the Group implements large-scale changes in a short period of time. This has led to increased operational risks, including complex conduct considerations, increased reputational risk and increased risk of fraud. These risks are likely to be heightened further as and when those government support schemes are unwound. Central bank and government actions and support measures, and our responses to those, have also led to increased litigation risk, including lawsuits that have been and may continue to be brought in connection with our cancellation of the fourth interim dividend for 2019.

At 30 June 2020, our CET1 ratio was 15.0%, compared with 14.7% at 31 December 2019, and our liquidity coverage ratio ('LCR') was 148%. Our capital, funding and liquidity position is expected to help us to continue supporting our customers throughout the Covid-19 outbreak.

In many of our markets, the Covid-19 outbreak has led to a weakening in GDP, a key input used for calculating ECL, and there remains the risk of more adverse economic scenarios given its ongoing impact. Furthermore, ECL will also increase from other parts of our business impacted by the disruption to supply chains. The impact will vary by sectors of the economy, with heightened risk to the oil and gas, transport and discretionary consumer sectors being observed in the first stages of the outbreak. The impact of the outbreak on the long-term prospects of businesses in these sectors is uncertain and may lead to significant ECL charges on specific exposures, which may not be fully captured in ECL estimates. In addition, in times of crisis, fraudulent activity is often more prevalent, leading to potentially significant ECL charges.

The significant changes in economic and market drivers, customer behaviours and government actions caused by Covid-19 have also impacted the performance of financial models. These include retail and wholesale credit models such as IFRS loss models, as well as capital models, traded risk models and models used in the asset/liability management process. This has required more ongoing monitoring and more frequent testing across the Group, particularly for credit models. It also has resulted in the use of compensating controls, specifically as underlays on top of model outputs to provide a more appropriate assessment. By their nature, such compensating controls require a significant degree of management judgement and assumptions to be applied, and there is a risk that future actual results/performance may differ from such judgements and assumptions.

The performance and usage of models over the next 12 to 18 months will continue to be impacted by the consequences of the Covid-19 outbreak. It is too early in the current situation to be certain of the magnitude of change required for models at HSBC. However, it is likely that capital, credit risk and IFRS 9 models will need to be recalibrated, or in some cases may need to be replaced with the development of alternative models. The effectiveness of the existing models will depend in large part on the depth and length of the economic downturn faced by the world's economies.

As a result of the Covid-19 outbreak, business continuity plans have been implemented. Despite high levels of working from home, the majority of our service level agreements, both internal and external, are being maintained. We have experienced no major impacts to the supply chain from our third-party service providers. The risk of damage or theft to our physical assets or criminal injury to our employees remains unchanged. No significant incidents have impacted our buildings or staff. Expedited decisions to ensure the continuity of critical customer services are being documented through governance.

There remain significant uncertainties in assessing the duration of the Covid-19 outbreak and its impact, and how this will evolve through 2020 and beyond. The actions taken by the various governments and central banks, in particular in the UK, mainland China, Hong Kong and the US, provide an indication of the potential severity of the downturn and post-recovery environment, which from a commercial, regulatory and risk perspective could be significantly different to past crises and persist for a prolonged period. A prolonged period of significantly reduced economic activity as a result of the impact of the outbreak would have a materially adverse effect on our financial condition, results of operations, prospects, liquidity, capital position and credit ratings. This would, in turn, have an impact on our ability to meet our financial targets as set out in our business update in February 2020 and also adversely affect our future dividend policy. We continue to monitor the situation closely, and given the novel or prolonged nature of the outbreak, additional mitigating actions may be required.

Risks to our operations and portfolios in Asia-Pacific

The global Covid-19 outbreak has fuelled existing tensions within the US-China bilateral relationship. Disagreements over trade, technology, human rights and the status of Hong Kong could result in people, sanctions, regulatory, reputational and market risks for the Group. The extent to which both countries can overcome these tensions and coordinate their responses to the outbreak is likely to have an important bearing on the post-Covid-19 global economy and geopolitical order.

The rapid rollout of 5G in 2020 and its importance to future standard setting and economic growth is likely to lead to heightened corporate and national competition over ownership of the relevant technologies.

Hong Kong has also emerged as an additional source of tension in US-China relations, with potential ramifications for the Group. In June, China passed the Hong Kong national security law, which is now in force in Hong Kong. In response, the US took steps to terminate the preferential treatment afforded to Hong Kong under the 1992 Hong Kong Policy Act. Additionally, the US President signed into law the Hong Kong Autonomy Act and issued an Executive Order, providing authority to impose primary sanctions against entities and individuals determined to have undermined Hong Kong's autonomy. The Act also provides authority to impose secondary sanctions against non-US financial institutions determined to have conducted a significant transaction for any individual or entity subject to primary sanctions under the Act. Disagreements over the interpretation of the 'one country, two systems' model is likely to affect protest activity in Hong Kong, and may prompt further US executive branch or congressional action. Tensions in the UK-China relationship have been heightened over disagreements about future UK 5G networks and Hong Kong. In response to the introduction of the Hong Kong national security law, the UK has offered residency rights and a path to citizenship to eligible British National (Overseas) passport holders in Hong Kong. The UK and Hong Kong extradition treaties have also recently been suspended.

As geopolitical tensions rise, the compliance by multinational corporations with their legal or regulatory obligations in one jurisdiction may be seen as supporting the law or policy objectives of that jurisdiction over another jurisdiction, creating additional risks for the Group. Geopolitical tensions will continue to present challenges for HSBC.

Process of UK withdrawal from the EU

The UK left the EU on 31 January 2020 and entered a transition period until 31 December 2020, during which negotiations have been taking place on the future relationship. At this stage it remains unclear what that relationship will look like, potentially leaving firms with little time to adapt to changes, which may enter into force on 1 January 2021.

Our programme to manage the impact of the UK leaving the EU has now been largely completed. The programme base case scenario assumes the UK exits the transition period without the existing passporting or regulatory equivalence framework that supports cross-border business. Priority has been given to ensuring we can continue to service our European Economic Area ('EEA')-based customers once this framework falls away, with three main areas of activity:

-- extension of our product and balance sheet capabilities in continental Europe, mainly in HSBC France and its branches in the Netherlands and Ireland;

-- migration of HSBC Bank plc's EEA clients to HSBC France and other affiliates within the EU; and

   --    the transfer of HSBC Bank plc's EEA branch businesses to HSBC France. 

These objectives were largely completed by the end of 2019. The current priority is to complete the migration of remaining customers to one of our entities in the EU.

Product offering and client migration

To accommodate customer migrations and new business after the UK's departure from the EU, we expanded and enhanced our existing product offering in France, the Netherlands and Ireland.

The UK's departure from the EU's financial services regulatory framework at the end of the transition period without alternative equivalence-type arrangements, or a trade deal being in place, is likely to have an impact on our clients' operating models, including their working capital requirements, investment decisions and access to financial markets infrastructure. Our priority is to provide continuity of service, while minimising the level of change for our customers.

Due to our base case scenario we are required to migrate some EEA-incorporated clients from the UK to HSBC France, or another EEA entity. This has now mostly been completed for clients we expect can no longer be serviced from the UK. We are working in close collaboration with any remaining clients to make the transition as smooth as possible before the end of December 2020. We have been in close contact with these clients since the beginning of the transition period and will support them in the final phase of their migration to one of our entities in the EU. We are also considering the application of regulatory regimes in certain EU member states that allow cross-border business with third-country firms and the extent to which those may permit continued servicing of some EEA clients from the UK following the transition period.

Employees

The migration of EEA-incorporated clients requires us to strengthen our local teams in the EU, and France in particular. Given the scale and capabilities of our existing business in France, we are well prepared to take on additional roles and activities. Looking beyond the transfer of roles to the EU, we are also providing support to our employees who are UK citizens resident in EEA countries, and employees who are citizens of an EU member state resident in the UK.

Across the programme, we have made good progress in terms of ensuring we are prepared for the UK leaving the transition period under the terms described above. However, there remain execution risks, many of them linked to the uncertain outcome of negotiations.

Model risk

The economic consequences of the Covid-19 outbreak on macroeconomic variables that are used in models are outside of the bounds for which IFRS 9 models have been built and calibrated to operate. Moreover, the complexities of current governmental support programmes and regulatory guidance on the treatment of customer impacts, such as forbearance, payment holidays and the unpredictable pathways of the Covid-19 outbreak, have not previously been factored into the modelling. Consequently, IFRS 9 models under the current economic conditions are generating outputs that do not accurately assess the actual level of credit quality. Therefore, overlays based on expert analysis are necessary to reflect ECL.

In the short term, the focus is on refining model inputs and outputs in a consistent and explainable manner, including the use of model overlays. Wider ranging model changes for risk and loss models will take time to develop and need more real data on which models can be trained to be meaningful. Given the remaining significant uncertainties of Covid-19 and its impacts, it is too early to determine if model recalibration or redevelopment will be required.

Ibor transition

The Financial Stability Board has observed that the decline in interbank short-term unsecured funding poses structural risks for interest rate benchmarks that reference these markets. In response, regulators and central banks in various jurisdictions have convened national working groups to identify alternative benchmark rates (near risk-free rates or RFRs) for these Ibors and, where appropriate, to facilitate an orderly transition to these rates.

Following the announcement by the UK's Financial Conduct Authority ('FCA') in July 2017 that it will no longer persuade or require banks to submit rates for London interbank offered rate ('Libor') after 2021, the national working groups for the affected currencies were tasked with facilitating an orderly transition of the relevant Libors to their chosen RFRs. The euro working group is also responsible for facilitating an orderly transition of the Euro Overnight Index Average ('Eonia') to the euro short-term rate ('EURSTER') as a result of Eonia not being made compliant with the EU Benchmark Regulation.

Regulators have reiterated that firms cannot rely on Libor being published after the end of 2021 but acknowledge that Covid-19 may impact on transition plans.

National working groups, regulators and governments have also recognised that certain Libor contracts genuinely have no, or inappropriate, alternatives and no realistic ability to be renegotiated or amended prior to Libor's cessation. In response, the US government and the European Commission intend to implement legislation that gives market participants the confidence to transition these 'tough legacy' contracts to the recommended benchmark replacement without the fear of legal repercussions. Similarly, in June 2020, the UK government announced that it would grant powers to the FCA to enable continued publication of a Libor number using a different and more robust methodology and inputs, and therefore reduce disruption to any holders of these tough legacy contracts. However, there is no certainty as to whether the FCA will exercise these powers or what form the revised methodology would take, and the FCA has consequently encouraged users of Libor to renegotiate or amend as many contracts as possible before Libor's cessation.

HSBC established the Ibor transition programme with the objective of facilitating an orderly transition from Libor and Eonia for HSBC and its clients. During the first half of 2020, our Libor transition has continued to develop, as detailed below.

Develop RFR product capabilities

Our global businesses continue to develop their capabilities to offer RFR-based products and the supporting processes and systems. The Covid-19 outbreak has impacted the speed with which we are able to develop these capabilities and many of our customers' readiness to adopt RFR-based products. Consequently, the sale of Libor and Eonia contracts with maturities beyond 2021, known as legacy contracts, will continue for longer than initially anticipated. This is likely to increase the volume of legacy contracts that will need to be transitioned.

Transition legacy contracts

The programme is also continuing to develop the capability to transition legacy Libor and Eonia contracts on a larger scale. The Covid-19 outbreak has also affected the pace with which many of our customers will have been preparing to adopt RFR-based products. Therefore, it has likely affected the pace at which they will transition their legacy contracts to RFRs. Consequently, we expect legacy contract transition to occur over a shortened time period. In combination with the greater number of legacy contracts requiring transition, this increases the overall level of execution risk on the transition process, which could potentially increase the level of conduct and operational risks.

In addition to the heightened conduct and operational risks, the process of adopting new reference rates may expose the Group to an increased level of financial risk, such as potential earnings volatility resulting from contract modifications and changes in hedge accounting relationships. Furthermore, the transition to RFRs could have a range of adverse impacts on our business, including legal proceedings or other actions regarding the interpretation and enforceability of provisions in Ibor-based contracts and regulatory investigations or reviews in respect of our preparation and readiness for the replacement of Ibor with RFRs. We continue to engage with industry participants, the official sector and our clients to support an orderly transition and the mitigation of the risks resulting from the transition.

 
 Credit risk 
                                           Page 
 Overview                                    54 
 Credit risk in the first half 
  of 2020                                    54 
 Summary of credit risk                      54 
 Measurement uncertainty and sensitivity 
  analysis of ECL estimates                  56 
 Reconciliation of changes in 
  gross carrying/nominal amount 
  and allowances for loans and 
  advances to banks and customers            62 
 Credit quality of financial instruments     64 
                                           ---- 
 Customer relief programmes                  66 
-----------------------------------------  ---- 
 Personal lending                            68 
                                           ---- 
 Wholesale lending                           70 
                                           ---- 
 Supplementary information                   73 
-----------------------------------------  ---- 
 Change in reportable segments               73 
-----------------------------------------  ---- 
 

Overview

Credit risk is the risk of financial loss if a customer or counterparty fails to meet an obligation under a contract. Credit risk arises principally from direct lending, trade finance and leasing business, but also from certain other products, such as guarantees and derivatives.

Credit risk in the first half of 2020

During 1H20, due to the unique market conditions in the Covid-19 outbreak, we expanded operational practices to provide short-term support to customers under the current policy framework. For further details of market-specific measures to support our personal and business customers, see page 66. There have been no material changes to credit risk policy.

A summary of our current policies and practices for the management of credit risk is set out in 'Credit risk management' on page 84 of the Annual Report and Accounts 2019.

Gross loans and advances to customers of $1,032bn decreased from $1,045bn at 31 December 2019. This decrease included adverse foreign exchange movements of $31bn. Loans and advances to banks of $77bn increased from $69bn at 31 December 2019. This included adverse foreign exchange movements of $2bn.

The change in expected credit losses and other credit impairment charges ('ECL') in the income statement for the period was $6.9bn. For further details, see the financial summary on page 25.

Summary of credit risk

The following disclosure presents the gross carrying/nominal amount of financial instruments to which the impairment requirements in IFRS 9 are applied and the associated allowance for ECL. The following tables analyse loans by industry sector and represent the concentration of exposures on which credit risk is managed.

The allowance for ECL increased from $9.4bn at 31 December 2019 to $14.5bn at 30 June 2020.

The allowance for ECL at 30 June 2020 comprised $13.5bn in respect of assets held at amortised cost, $0.7bn in respect of loan commitments and financial guarantees, and $0.2bn in respect of debt instruments measured at fair value through other comprehensive income ('FVOCI').

 
 Summary of financial instruments to which the impairment requirements 
  in IFRS 9 are applied 
                                                 At 30 Jun 2020                        At 31 Dec 2019 
                                      Gross carrying/nominal    Allowance  Gross carrying/nominal      Allowance 
                                                      amount   for ECL(1)                  amount     for ECL(1) 
                           Footnotes                      $m           $m                      $m             $m 
                          ----------  ----------------------  -----------  ----------------------  ------------- 
 Loans and advances to 
  customers 
  at amortised cost                                1,031,908     (13,227)               1,045,475      (8,732) 
 - personal                                          422,184      (4,401)                 434,271      (3,134) 
------------------------ 
 - corporate and 
  commercial                                         540,308      (8,537)                 540,499      (5,438) 
------------------------  ---------- 
 - non-bank financial 
  institutions                                        69,416        (289)                  70,705        (160) 
------------------------  ----------  ----------------------  ---------- 
 Loans and advances to 
  banks at amortised 
  cost                                                77,069         (54)                  69,219         (16) 
                          ----------  ----------------------  ---------- 
 Other financial assets 
  measured 
  at amortised cost                                  751,872        (243)                 615,179        (118) 
 - cash and balances at 
  central banks                                      249,683         (10)                 154,101          (2) 
 - items in the course 
  of collection 
  from other banks                                     6,289           -                    4,956           - 
 - Hong Kong Government 
  certificates 
  of indebtedness                                     39,519           -                   38,380           - 
 - reverse repurchase 
  agreements 
  - non-trading                                      226,345           -                  240,862           - 
 - financial investments                              89,923        (142)                  85,788         (53) 
------------------------ 
 - prepayments, accrued 
  income and 
  other assets                 2                     140,113         (91)                  91,092         (63) 
------------------------  ----------  ----------------------  ----------   ----------------------  ---------- 
 Total gross carrying 
  amount on-balance 
  sheet                                            1,860,849     (13,524)               1,729,873      (8,866) 
------------------------  ----------  ----------------------  ----------   ----------------------  ---------- 
 Loans and other 
  credit-related 
  commitments                                        648,156        (622)                 600,029        (329) 
                          ----------  ----------------------  ----------   ----------------------  ---------- 
 - personal                                          231,336         (28)                 223,314         (15) 
 - corporate and 
  commercial                                         278,350        (562)                 278,524        (307) 
 - financial                                         138,470         (32)                  98,191          (7) 
                          ----------  ----------------------  ---------- 
 Financial guarantees                                 18,328        (119)                  20,214         (48) 
                          ----------  ----------------------  ---------- 
 - personal                                              750          (1)                     804          (1) 
 - corporate and 
  commercial                                          13,484        (110)                  14,804         (44) 
 - financial                                           4,094          (8)                   4,606          (3) 
                          ----------  ----------------------  ---------- 
 Total nominal amount 
  off-balance 
  sheet                        3                     666,484        (741)                 620,243        (377) 
                                                   2,527,333     (14,265)               2,350,116      (9,243) 
------------------------  ----------  ----------------------  ----------   ----------------------  ---------- 
 
                                                                                                      Memorandum 
                                                               Memorandum                              allowance 
                                                                allowance                                    for 
                                                  Fair value   for ECL(4)              Fair value         ECL(4) 
                                                          $m           $m                      $m             $m 
                                                                           ----------------------  ------------- 
 Debt instruments 
  measured at fair 
  value through other 
  comprehensive 
  income                                             402,331        (242)                 355,664        (166) 
------------------------  ----------  ----------------------  ----------   ----------------------  ---------- 
 

1 Total ECL is recognised in the loss allowance for the financial asset unless total ECL exceeds the gross carrying amount of the financial asset, in which case the ECL is recognised as a provision.

2 Includes only those financial instruments that are subject to the impairment requirements of IFRS 9. 'Prepayments, accrued income and other assets', as presented within the consolidated balance sheet on page 94, includes both financial and non-financial assets.

3 Represents the maximum amount at risk should the contracts be fully drawn upon and clients default.

4 Debt instruments measured at FVOCI continue to be measured at fair value with the allowance for ECL as a memorandum item. Change in ECL is recognised in 'Change for expected credit losses and other credit impairment charges' in the income statement.

The following table provides an overview of the Group's credit risk by stage and industry, and the associated ECL coverage. The financial assets recorded in each stage have the following characteristics:

-- Stage 1: These financial assets are unimpaired and without a significant increase in credit risk for which a 12-month allowance for ECL is recognised.

-- Stage 2: A significant increase in credit risk has been experienced on these financial assets since initial recognition

for which a lifetime ECL is recognised.

-- Stage 3: There is objective evidence of impairment and the financial assets are therefore considered to be in default or otherwise credit impaired for which a lifetime ECL is recognised.

-- POCI: Financial assets that are purchased or originated at a deep discount are seen to reflect the incurred credit losses on which a lifetime ECL is recognised.

 
 Summary of credit risk (excluding debt instruments measured at FVOCI) 
  by stage distribution and ECL coverage by industry sector at 
  30 June 2020 
                                                Gross carrying/nominal                               Allowance for 
                                                       amount(1)                                           ECL                                   ECL coverage % 
                                                                              ---------                                         --------                                -------- 
                                             Stage    Stage   Stage                        Stage    Stage    Stage                        Stage  Stage  Stage 
                                                 1        2       3  POCI(2)      Total        1        2        3    POCI(2)      Total      1      2      3  POCI(2)   Total 
                                                $m       $m      $m       $m         $m       $m       $m       $m          $m        $m      %      %      %        %         % 
                                         ---------  -------  ------  -------  ---------  -------  -------  -------  ----------  --------  -----  -----  -----  -------  -------- 
 Loans 
  and advances 
  to customers 
  at amortised 
  cost                                     852,678  161,795  17,139      296  1,031,908  (1,906)  (4,553)  (6,669)   (99)       (13,227)    0.2    2.8   38.9     33.4     1.3 
 - personal                                390,032   27,031   5,121        -    422,184    (897)  (2,115)  (1,389)     -         (4,401)    0.2    7.8   27.1        -     1.0 
 
   *    corporate and commercial           406,194  122,319  11,499      296    540,308    (966)  (2,306)  (5,166)   (99)        (8,537)    0.2    1.9   44.9     33.4     1.6 
 
   *    non-bank financial institutions     56,452   12,445     519        -     69,416     (43)    (132)    (114)     -           (289)    0.1    1.1   22.0        -     0.4 
 Loans 
  and advances 
  to banks 
  at amortised 
  cost                                      71,693    5,367       9        -     77,069     (26)     (23)      (5)     -            (54)      -    0.4   55.6        -     0.1 
--------------------------------------- 
 Other 
  financial 
  assets 
  measured 
  at amortised 
  cost                                     744,724    6,915     232        1    751,872     (96)     (63)     (84)     -           (243)      -    0.9   36.2        -       - 
--------------------------------------- 
 Loans 
  and other 
  credit-related 
  commitments                              594,400   52,698   1,055        3    648,156    (193)    (339)     (90)     -           (622)      -    0.6    8.5        -     0.1 
--------------------------------------- 
 - personal                                228,688    2,430     218        -    231,336     (26)      (2)       -      -            (28)      -    0.1      -        -       - 
--------------------------------------- 
 
   *    corporate and commercial           232,598   44,942     807        3    278,350    (159)    (316)     (87)     -           (562)    0.1    0.7   10.8        -     0.2 
--------------------------------------- 
 - financial                               133,114    5,326      30        -    138,470      (8)     (21)      (3)     -            (32)      -    0.4   10.0        -       - 
--------------------------------------- 
 Financial 
  guarantees                                13,129    4,903     295        1     18,328     (28)     (73)     (18)     -           (119)    0.2    1.5    6.1        -     0.6 
 - personal                                    743        5       2        -        750       -       (1)       -      -             (1)      -   20.0      -        -     0.1 
 
   *    corporate and commercial             8,976    4,222     285        1     13,484     (27)     (66)     (17)     -           (110)    0.3    1.6    6.0        -     0.8 
--------------------------------------- 
 - financial                                 3,410      676       8        -      4,094      (1)      (6)      (1)     -             (8)      -    0.9   12.5        -     0.2 
--------------------------------------- 
 At 30 
  Jun 2020                               2,276,624  231,678  18,730      301  2,527,333  (2,249)  (5,051)  (6,866)   (99)       (14,265)    0.1    2.2   36.7     32.9     0.6 
---------------------------------------  ---------  -------  ------  -------  ---------  ------   ------   ------   ----   ---  -------   -----  -----  -----  -------  ------ 
 

1 Represents the maximum amount at risk should the contracts be fully drawn upon and clients default.

   2     Purchased or originated credit impaired ('POCI'). 

Unless identified at an earlier stage, all financial assets are deemed to have suffered a significant increase in credit risk when they are 30 days past due ('DPD') and are transferred from stage 1 to stage 2. The following disclosure presents the ageing of stage 2 financial assets by those less than 30 and greater than 30 DPD and therefore presents those financial assets classified as stage 2 due to ageing (30 DPD) and those identified at an earlier stage (less than 30 DPD).

 
 Stage 2 days past due analysis at 30 June 2020 
                   Gross carrying amount              Allowance for ECL                 ECL coverage % 
                               Of        Of                                                    Of 
                           which:    which:              Of which:    Of which:            which:   Of which: 
                             1 to    30 and                                                  1 to 
                  Stage        29         >     Stage         1 to       30 and   Stage        29      30 and 
                      2  DPD(1,2)  DPD(1,2)         2  29 DPD(1,2)   > DPD(1,2)       2  DPD(1,2)  > DPD(1,2) 
                     $m        $m        $m        $m           $m           $m       %         %           % 
                -------  --------  --------  --------  -----------  -----------  ------            ---------- 
 Loans and 
  advances 
  to customers 
  at 
  amortised 
  cost          161,795     3,068    2,152    (4,553)     (271)        (422)        2.8       8.8      19.6 
 - personal      27,031     1,556    1,650    (2,115)     (210)        (340)        7.8      13.5      20.6 
 - corporate 
  and 
  commercial    122,319     1,402      477    (2,306)      (60)         (82)        1.9       4.3      17.2 
-------------- 
 - non-bank 
  financial 
  institutions   12,445       110       25      (132)       (1)           -         1.1       0.9         - 
-------------- 
 Loans and 
  advances 
  to banks at 
  amortised 
  cost            5,367         -        -       (23)        -            -         0.4         -         - 
-------------- 
 Other 
  financial 
  assets 
  measured 
  at amortised 
  cost            6,915         6       (2)      (63)        -            -         0.9         -         - 
--------------  -------  --------  -------   -------   -------      -------      ------  --------  -------- 
 
   1     Days past due ('DPD'). Up-to-date accounts in stage 2 are not shown in amounts. 

2 The days past due amounts presented above are on a contractual basis and include the benefit of any customer relief payment holidays granted.

 
 Summary of credit risk (excluding debt instruments measured at FVOCI) 
  by stage distribution and ECL coverage by industry sector at 
  31 December 2019 
                                                Gross carrying/nominal                               Allowance for                              ECL coverage 
                                                       amount(1)                                          ECL                                         % 
                                                                              ---------                                        -------                                ------- 
                                             Stage    Stage   Stage                        Stage    Stage    Stage                      Stage  Stage  Stage 
                                                 1        2       3  POCI(2)      Total        1        2        3    POCI(2)    Total      1      2      3  POCI(2)    Total 
                                                $m       $m      $m       $m         $m       $m       $m       $m         $m       $m      %      %      %        %        % 
 Loans and 
  advances 
  to customers 
  at amortised 
  cost                                     951,583   80,182  13,378      332  1,045,475  (1,297)  (2,284)  (5,052)   (99)      (8,732)    0.1    2.8   37.8     29.8    0.8 
---------------------------------------                                                                                        ------ 
 - personal                                413,669   15,751   4,851        -    434,271    (583)  (1,336)  (1,215)     -       (3,134)    0.1    8.5   25.0        -    0.7 
--------------------------------------- 
 
   *    corporate and commercial           472,253   59,599   8,315      332    540,499    (672)    (920)  (3,747)   (99)      (5,438)    0.1    1.5   45.1     29.8    1.0 
--------------------------------------- 
 
   *    non-bank financial institutions     65,661    4,832     212        -     70,705     (42)     (28)     (90)     -         (160)    0.1    0.6   42.5        -    0.2 
---------------------------------------                                                                                                 -----  -----  -----  -------  ----- 
 Loans and 
  advances 
  to banks 
  at amortised 
  cost                                      67,769    1,450       -        -     69,219     (14)      (2)       -      -          (16)      -    0.1      -        -      - 
--------------------------------------- 
 Other financial 
  assets 
  measured 
  at amortised 
  cost                                     613,200    1,827     151        1    615,179     (38)     (38)     (42)     -         (118)      -    2.1   27.8        -      - 
 Loans and 
  other credit-related 
  commitments                              577,631   21,618     771        9    600,029    (137)    (133)     (59)     -         (329)      -    0.6    7.7        -    0.1 
--------------------------------------- 
 - personal                                221,490    1,630     194        -    223,314     (13)      (2)       -      -          (15)      -    0.1      -        -      - 
--------------------------------------- 
 
   *    corporate and commercial           259,138   18,804     573        9    278,524    (118)    (130)     (59)     -         (307)      -    0.7   10.3        -    0.1 
--------------------------------------- 
 - financial                                97,003    1,184       4        -     98,191      (6)      (1)       -      -           (7)      -    0.1      -        -      - 
---------------------------------------  ---------  -------  ------  -------  ---------  ------   ------   ------   ----  ---  ------   -----  -----  -----  -------  ----- 
 Financial 
  guarantees                                17,684    2,340     186        4     20,214     (16)     (22)     (10)     -          (48)    0.1    0.9    5.4        -    0.2 
--------------------------------------- 
 - personal                                    802        1       1        -        804      (1)       -        -      -           (1)    0.1      -      -        -    0.1 
--------------------------------------- 
 
   *    corporate and commercial            12,540    2,076     184        4     14,804     (14)     (21)      (9)     -          (44)    0.1    1.0    4.9        -    0.3 
--------------------------------------- 
 - financial                                 4,342      263       1        -      4,606      (1)      (1)      (1)     -           (3)      -    0.4  100.0        -    0.1 
---------------------------------------  ---------  -------  ------  -------  ---------  ------   ------   ------   ----  ---  ------   -----  -----  -----  -------  ----- 
 At 31 Dec 
  2019                                   2,227,867  107,417  14,486      346  2,350,116  (1,502)  (2,479)  (5,163)   (99)      (9,243)    0.1    2.3   35.6     28.6    0.4 
---------------------------------------  ---------  -------  ------  -------  ---------  ------   ------   ------   ----       ------   -----  -----  -----  -------  ----- 
 

1 Represents the maximum amount at risk should the contracts be fully drawn upon and clients default.

   2     Purchased or originated credit impaired ('POCI'). 
 
 Stage 2 days past due analysis at 31 December 2019 
                  Gross carrying amount           Allowance for ECL               ECL coverage % 
                  Stage       Of       Of     Stage                          Stage       Of 
                      2   which:   which:         2  Of which:  Of which:        2   which:  Of which: 
                            1 to   30 and                 1 to                         1 to 
                              29        >                   29     30 and                29     30 and 
                          DPD(1)   DPD(1)               DPD(1)   > DPD(1)            DPD(1)   > DPD(1) 
                     $m       $m       $m        $m         $m         $m        %        %          % 
 Loans and 
  advances 
  to customers 
  at amortised 
  cost           80,182    2,471    1,676   (2,284)      (208)      (247)      2.8      8.4     14.7 
-------------- 
 - personal      15,751    1,804    1,289   (1,336)      (178)      (217)      8.5      9.9     16.8 
-------------- 
 - corporate 
  and 
  commercial     59,599      657      385     (920)       (30)       (30)      1.5      4.6      7.8 
-------------- 
 - non-bank 
  financial 
  institutions    4,832       10        2      (28)         -          -       0.6        -        - 
--------------                                                             -------  -------  ------- 
 Loans and 
  advances 
  to banks at 
  amortised 
  cost            1,450        -        -       (2)         -          -       0.1        -        - 
-------------- 
 Other 
  financial 
  assets 
  measured 
  at amortised 
  cost            1,827       14       30      (38)         -          -       2.1        -        - 
--------------  -------  -------  -------  -------   --------   --------   -------  -------  ------- 
 
   1     Days past due ('DPD'). Up-to-date accounts in stage 2 are not shown in amounts. 

Measurement uncertainty and sensitivity analysis of ECL estimates

The recognition and measurement of ECL involves the use of significant judgement and estimation. We form multiple economic scenarios based on economic forecasts, apply these assumptions to credit risk models to estimate future credit losses, and probability-weight the results to determine an unbiased ECL estimate.

Methodology

Our methodology in relation to the adoption and generation of economic scenarios is described on page 92 of the Annual Report and Accounts 2019. There have been no significant changes during the 1H20 period. While in keeping with HSBC's methodology, the exceptional nature of the current economic environment has led to extensive application of management's judgement in determining the range of possible outcomes, the number and severity of scenarios selected and the probability weights assigned.

Description of consensus economic scenarios

The economic assumptions presented in this section have been formed by HSBC, with reference to external forecasts specifically for the purpose of calculating ECL. The emergent nature of the Covid-19 outbreak at the end of 2019 meant that, consistent with other banks, HSBC's view of the distribution of risks, as disclosed in the Annual Report and Accounts 2019, did not, on a forward-looking basis, consider the impact of the virus. Our consensus Central scenario at the 2019 year-end projected moderate growth over a five-year horizon, with strong prospects for employment and a gradual increase in policy interest rates by central banks in the major economies of Europe and North America. The onset of the virus has led to a fundamental reassessment of our central forecast and the distribution of risks.

Economic forecasts are subject to a high degree of uncertainty in the current environment. Limitations of forecasts and economic models require a greater reliance on management judgement in addressing both the error inherent in economic forecasts and in assessing associated ECL outcomes.

The main factors that affect uncertainty across our key markets are:

-- epidemiological concerns, including a possible resurgence of Covid-19 later in 2020 and in 2021;

-- the ability of new or continued restrictions in individual markets to affect global growth due to deep cross-border trade and financial linkages;

-- the ability of governments and central banks to continue to limit the economic damage through support measures;

-- the potential for other geopolitical and macroeconomic risks to affect growth and economic stability as the world recovers from Covid-19-related restrictions; and

-- market-specific differences in the progression of Covid-19 and the associated responses by public authorities that imply differentiation in the degree of uncertainty across our key markets. Earlier progression of Covid-19 in Hong Kong and in mainland China meant that economic forecasts for these markets demonstrated greater stability over the course of 2Q20 compared with the UK, where a rapidly evolving situation has led to a higher degree of uncertainty.

Economic forecasts and data released since the creation of scenarios in May confirmed the view of elevated uncertainty in some markets such as in the UK, where monthly GDP and unemployment data suggested a larger degree of estimation error than usual in short-term forecasts. The volatility in economic data and forecasts received since the generation of scenarios has been considered by management and is reflected in management's choice of scenarios, in probability weights and in its assessment of ECL outcomes.

The scenarios used to calculate ECL in the Interim Report 2020 are described below.

The consensus Central scenario

HSBC's Central scenario features a 'V-shaped' shock to economic activity, as characterised by a deep, initial contraction in GDP, followed by a sharp recovery. This V-shape in activity reflects the unique nature of this downturn and is driven by restrictions on mobility and activity imposed by governments to reduce the spread of Covid-19. The Central scenario further assumes that the stringent restrictions on activity, employed across several countries and territories in the first half of 2020, will not be repeated, allowing economic activity to rebound. Minimal long-term damage to economic prospects is expected, allowing economic growth across our key markets to return to forecast trend rates. Cross-region differences in the depth of the contraction, and the speed and scale of subsequent recovery, reflect timing differences in the progression of the Covid-19 outbreak, national level differences in restrictions imposed and the scale of support measures.

Global GDP is expected to contract by 3.9% in 2020 and grow by 4.8% in 2021 in the Central scenario. The average rate of global GDP growth is expected to be 2.7% over the forecast period 2020-2025, which is slightly lower than the average growth rate over the 2015-2019 period.

The unique circumstances surrounding the current fall in economic activity make it difficult to compare current prospects for global economic activity with previous recessions. However, we note that the depth of the contraction in economic activity and the subsequent recovery are both expected to be sharper than experienced during the last global economic downturn of 2008-2009 across our key markets (see chart below).

Across the key markets, we note:

-- Economic activity has fallen significantly in 1H20 across our major markets. The earlier outbreak of the virus in China and Hong Kong suggests that the trough in economic activity in these markets occurred in 1Q20, while in other major markets, the lowest point in activity is expected to have occurred in 2Q20. The Central scenario projects an annual contraction in GDP across almost all our major markets in 2020, the only exception being China, where annual GDP growth is expected to be positive, despite the strong fall in activity experienced in the first quarter of the year. GDP is expected to be positive across all our major markets in 2021.

-- The unemployment rate is expected to rise sharply in most of our major markets, before reverting gradually to pre-crisis levels over the forecast horizon.

-- Inflation is expected to fall sharply in 2020 in line with the slowdown in economic activity, before increasing to gradually converge to central bank targets in our key markets over the forecast period.

-- Governments have provided extensive support to households and corporates in our key markets. Fiscal deficits are expected to increase sharply in 2020 before reducing in the later years of the projection period. Sovereign indebtedness is expected to increase sharply as a result.

-- Major central banks have lowered their main policy interest rates, implemented emergency support measures for funding markets, and either restarted or increased quantitative easing programmes, in order to support economies and the financial system. Interest rate policy is expected to be highly accommodative over the projection horizon.

-- The West Texas Intermediate oil price is forecast to average $37 per barrel over the projection period.

The Central scenario was first created with forecasts available in May, and subsequently updated in June to reflect significant changes to forecasts. The UK unemployment rate was the only variable to have been amended as a result of this update. Probability weights assigned to the Central scenario reflect both the higher level of uncertainty in the current global economic environment and relative differences across markets. Weights assigned to the Central scenario vary from 55% to 70%.

The following table describes key macroeconomic variables and the probabilities assigned in the consensus Central scenario.

 
 Central scenario (3Q20-2Q25) 
                                                     Hong    Mainland 
                          UK             US          Kong       China         Canada         France      UAE        Mexico 
                           %              %             %           %              %              %        %             % 
 GDP growth 
 Annual 
  average 
  growth rate: 
  2020              (7.8)         (5.2)          (4.8)            1.4      (7.1)           (8.7)       (2.7)      (7.4) 
                --------      --------       --------      ----------  --------       ---------      ------   -------- 
 Annual 
  average 
  growth rate: 
  2021               5.9           4.1            4.2             8.1       5.5             7.2         3.1        2.5 
--------------  --------      --------  ---  --------      ----------  --------  ---  ---------      ------   -------- 
 1Q22-2Q25: 
  average 
  growth             1.9           2.4            2.3             5.3       2.1             1.7         3.0        2.3 
--------------  --------      --------  ---  --------      ----------  --------  ---  ---------      ------   -------- 
 3Q20-2Q22: 
  worst                (8.6)          (6.6)         (2.6)                      (8.2)          (8.9)    (2.9)         (8.8) 
  quarter             (3Q20)         (3Q20)        (3Q20)  3.3 (4Q21)         (3Q20)         (3Q20)   (3Q20)        (3Q20) 
--------------  ------------  -------------  ------------  ----------  -------------  -------------  -------  ------------ 
 Unemployment 
 rate 
                ------------  -------------  ------------  ----------  -------------  -------------  -------  ------------ 
 Annual 
  average: 
  2020                   6.8            9.5           4.6         4.5             10            9.8      N/A           5.3 
                ------------  -------------  ------------  ----------  -------------  -------------  -------  ------------ 
 Annual 
  average: 
  2021                   6.3            7.3           4.1         4.2            8.1           10.0      N/A           5.1 
--------------  ------------  -------------  ------------  ----------  -------------  -------------  -------  ------------ 
 1Q22-2Q25: 
  average                4.7            5.6           3.7         3.9            6.5            8.9      N/A           4.5 
--------------  ------------  -------------  ------------  ----------  -------------  -------------  -------  ------------ 
 3Q20-2Q22: 
  worst 
  quarter         8.1 (3Q20)    11.0 (3Q20)    4.8 (3Q20)  4.6 (3Q20)    11.1 (3Q20)    10.6 (3Q20)      N/A    6.1 (3Q20) 
--------------  ------------  -------------  ------------  ----------  -------------  -------------  -------  ------------ 
 House price 
 index 
                ------------  -------------  ------------  ----------  -------------  -------------  -------  ------------ 
 Annual 
  average 
  growth rate: 
  2020              (2.2)          1.7           (7.9)            1.8       0.2            (0.5)      (13.0)       4.8 
                --------      --------  ---  --------      ----------  --------  ---  ---------      ------   -------- 
 Annual 
  average 
  growth rate: 
  2021               0.9          (2.6)           0.4             2.6       2.1            (0.3)      (10.2)       2.9 
--------------  --------      --------       --------      ----------  --------  ---  ---------      ------   -------- 
 1Q22-2Q25: 
  average 
  growth             3.7           2.3            3.4             5.4       3.4             3.4         2.1        5.3 
--------------  --------      --------  ---  --------      ----------  --------  ---  ---------      ------   -------- 
 3Q20-2Q22: 
  worst                (3.4)          (3.6)        (11.5)                      (4.0)          (3.9)   (18.2) 
  quarter             (4Q20)         (2Q21)        (3Q20)  1.3 (1Q21)         (1Q21)         (4Q20)   (4Q20)    2.5 (1Q21) 
--------------  ------------  -------------  ------------  ----------  -------------  -------------  -------  ------------ 
 10-year bond 
 yield 
--------------  ------------  -------------  ------------  ----------  -------------  -------------  -------  ------------ 
 Annual 
  average: 
  2020                   0.5            0.9           1.2         N/A            0.8            0.0      N/A           7.1 
                ------------  -------------  ------------  ----------  -------------  -------------  -------  ------------ 
 Annual 
  average: 
  2021                   0.8            1.2           1.7         N/A            1.1            0.2      N/A           6.8 
--------------  ------------  -------------  ------------  ----------  -------------  -------------  -------  ------------ 
 1Q22-2Q25: 
  average                1.6            2.2           2.2         N/A            1.9            0.9      N/A           7.4 
--------------  ------------  -------------  ------------  ----------  -------------  -------------  -------  ------------ 
 3Q20-2Q22: 
  worst 
  quarter         0.4 (3Q20)     0.8 (3Q20)    1.2 (3Q20)         N/A     0.7 (3Q20)     0.0 (3Q20)      N/A    6.6 (4Q21) 
--------------  ------------  -------------  ------------  ----------  -------------  -------------  -------  ------------ 
 Probability              60             70            70          70             70             70       60            55 
--------------  ------------  -------------  ------------  ----------  -------------  -------------  -------  ------------ 
 

Note: N/A - not required in credit models.

 
 GDP growth: Historical comparison 
 

Note: Real GDP shown as year-on-year percentage change.

The consensus Upside scenario

Compared with the consensus Central scenario, the consensus Upside scenario features a faster recovery in economic activity during the first two years, before converging to long-run trends. Despite this feature, the scenario forecasts 2020 as a year in which global GDP growth contracts and several quarters elapse before economic activity reaches the level attained at the end of 2019, prior to the onset of the Covid-19 outbreak.

The scenario is consistent with a number of key upside risk themes. These include orderly global abatement of Covid-19 via successful containment and/or the development of a vaccine, deescalation of tensions between the US and China, continued support from fiscal and monetary policy, positive resolution of economic uncertainty in the UK, stronger oil prices and deescalation of geopolitical tensions in Hong Kong.

Probability weights assigned to the Upside scenario range from 0% to 10%. These weights reflect management's view of the

potential for more positive outcomes relative to the Central scenario in our key markets.

The consensus Downside scenario

Global real GDP growth contracts significantly in 2020 in the Downside scenario, accompanied by a sharp increase in unemployment, and falls in asset and consumer prices, before gradually recovering towards its long-run trend. Compared with the Central scenario, the recovery in economic activity is considerably weaker.

The scenario is consistent with our key downside risks. These include renewed outbreaks of Covid-19 and/or slower easing of restriction of travel and activity, an intensification of tensions between the US and China, a worsening of economic uncertainty in the UK, further risks to economic growth in Hong Kong and weaker commodity prices.

A broad range of weights has been assigned to the consensus Downside scenario. These range from 0% to 35% and reflect management's view of the dispersion of risks and severity across key markets.

UK management Downside scenario

The consensus Downside scenario was replaced with a management Downside scenario for the UK only, to reflect management's view of the dispersion of risks. Management took the view that this scenario provided a better representation of risks that lie in between the Central and the alternative Downside scenario. In this scenario, UK GDP falls 9.6% in 2020 and UK unemployment peaks at 8.5% in 2021. This scenario has been assigned a 20% probability.

Alternative Downside scenario

An alternative Downside scenario has been created to reflect management's view of extreme risks. This 'U-shaped' scenario assumes that a number of HSBC's top risks crystallise simultaneously and results in an extremely severe and prolonged recession. This scenario has been assigned a 5% probability across all markets except the UK where it has been assigned a 10% weighting.

The range of macroeconomic projections across the various scenarios are shown in the table below:

 
 Outer scenario ranges (3Q20-2Q25) 
                                               Hong     Mainland 
                        UK           US        Kong        China        Canada        France         UAE        Mexico 
                         %            %           %            %             %             %           %             % 
                ----------  -----------  ----------  -----------  ------------  ------------  ----------  ------------ 
 GDP growth          (8.3)        (6.0)    (1.5) to       3.9 to         (8.1)         (8.7)    (2.3) to         (7.9) 
                 to (16.7)    to (12.8)      (15.8)        (7.2)     to (14.3)     to (22.0)      (13.3)     to (14.8) 
                    (3Q20)       (3Q20)      (3Q20)       (4Q21)        (3Q20)        (3Q20)      (3Q20)        (3Q20) 
                    (1Q21)       (3Q20)      (3Q20)       (3Q20)        (2Q21)        (3Q20)      (2Q21)        (1Q21) 
                ----------  -----------  ----------  -----------  ------------  ------------  ----------  ------------ 
                    8.0 to 
                      10.5      10.5 to      4.5 to       4.5 to         11 to         10 to                    5.8 to 
 Unemployment       (3Q20)  18.2 (3Q20)  8.0 (3Q20)   6.1 (3Q20)   19.5 (3Q20)   11.5 (3Q20)                7.3 (3Q20) 
  rate              (2Q21)       (3Q20)      (1Q21)       (1Q22)        (3Q20)        (1Q21)         N/A        (4Q21) 
                ----------  -----------  ----------  -----------  ------------  ------------  ----------  ------------ 
 House price         (2.8)        (1.7)      (10.3)       3.3 to         (1.3)         (2.4)      (13.9)        3.2 to 
  index          to (24.7)    to (15.6)   to (26.3)       (25.8)     to (27.6)     to (13.4)   to (25.7)        (16.0) 
                    (3Q20)       (1Q21)      (3Q20)       (3Q20)        (3Q20)        (4Q20)      (3Q20)        (4Q20) 
                    (2Q21)       (2Q21)      (1Q21)       (3Q21)        (2Q21)        (3Q21)      (2Q21)        (2Q21) 
                ----------  -----------  ----------  -----------  ------------  ------------  ----------  ------------ 
 10-year bond       0.5 to       0.8 to      1.2 to          N/A        0.7 to        0.1 to         N/A        7.2 to 
  yield              (1.7)        (0.2)       (0.8)                      (0.2)         (0.5)               10.2 (4Q20) 
                    (3Q20)       (3Q20)      (3Q20)                     (3Q20)        (3Q20)                    (4Q20) 
                    (3Q21)       (2Q21)      (1Q21)                     (2Q21)        (2Q22) 
                ----------  -----------  ----------  -----------  ------------  ------------  ----------  ------------ 
 Consensus 
  Upside 
  scenario: 
  Probability           10            5           5           10            10            10           0             5 
                ----------  -----------  ----------  -----------  ------------  ------------  ----------  ------------ 
 Consensus 
  Downside 
  scenario: 
  Probability            0           20          20           15            15            15          35            35 
                ----------  -----------  ----------  -----------  ------------  ------------  ----------  ------------ 
 UK management 
  Downside 
  scenario: 
  Probability           20 
                ----------  -----------  ----------  -----------  ------------  ------------  ----------  ------------ 
 Alternative 
  Downside 
  scenario: 
  Probability           10            5           5            5             5             5           5             5 
--------------  ----------  -----------  ----------  -----------  ------------  ------------  ----------  ------------ 
 

Note: The worst point refers to the quarter that is either the trough or peak in the respective variable. The figures provided represent the worst point across all four outer scenarios: the consensus Upside, the consensus Downside, the UK management Downside and the alternative Downside. These figures should not be directly compared with the annual averages presented in the previous table for the Central scenario. N/A - not required in credit models.

 
 US GDP growth 
 
 
 UK GDP growth 
 

Note: Real GDP shown as year-on-year percentage change.

 
 Hong Kong GDP growth 
 
 
 Mainland China GDP growth 
 

Critical accounting estimates and judgements

The calculation of ECL under IFRS 9 involves significant judgements, assumptions and estimates, as set out in the Annual Report and Accounts 2019 under 'Critical accounting estimates and judgements'. The level of estimation uncertainty and judgement has increased since 31 December 2019 as a result of the economic effects of the Covid-19 outbreak, including significant judgements relating to:

-- the selection and weighting of economic scenarios, given rapidly changing economic conditions in an unprecedented manner, uncertainty as to the effect of government and central bank support measures designed to alleviate adverse economic impacts, and a widening in the distribution of economic forecasts. The key judgement is whether the economic effects of the pandemic are more likely to be temporary or prolonged, and the shape of recovery;

-- estimating the economic effects of those scenarios on ECL, where there is no observable historical trend that can be reflected in the models that will accurately represent the effects of the economic changes of the severity and speed brought about by the Covid-19 outbreak. Modelled assumptions and linkages between economic factors and credit losses may underestimate or overestimate ECL in these conditions, and there is significant uncertainty in the estimation of parameters such as collateral values and loss severity; and

-- the identification of customers experiencing significant increases in credit risk and credit impairment, particularly where those customers have accepted payment deferrals and other reliefs designed to address short-term liquidity issues, or have extended those deferrals, given limitations in the available credit information on these customers. The use of segmentation techniques for indicators of significant increases in credit risk involves significant estimation uncertainty.

How economic scenarios are reflected in ECL

The methodologies for the application of forward economic guidance into the calculation of ECL for wholesale and retail loans and portfolios are set out on page 95 of the Annual Report and Accounts 2019. These models are based largely on historical observations and correlations with default rates.

The severe projections at 30 June 2020 of macroeconomic variables are outside the historical observations on which IFRS 9 models have been built and calibrated to operate. Moreover, the complexities of governmental support programmes and regulatory guidance on treatment of customer impacts (such as forbearance and payment holidays) and the unpredictable pathways of the pandemic have never been modelled. Consequently, HSBC's IFRS 9 models, in some cases, generate outputs that appear overly conservative when compared with other economic and credit metrics. Post-model adjustments are required to ensure that an appropriate amount of ECL impairment is recognised.

These data and model limitations have been addressed in the short term using in-model and post-model adjustments. This includes refining model inputs and outputs and using post-model adjustments based on management judgement and higher level quantitative analysis for impacts that are difficult to model. To ensure a consistent framework, we identified the model segments where results were overly conservative based on historical benchmarks and defined the worst economic inputs where the model output is considered reliable. For example, in the case of probability of default ('PD') models for bank and sovereign exposures, based on the historical calibration data, the model was defined as producing meaningful results when the GDP growth input is not worse than five standard deviations below the long-term average. Re-running the models with these capped economic limits established boundary conditions used by credit experts as a starting point for further adjustments based on their own structured judgement and granular analysis. For the wholesale portfolio, this analysis produced a 'credit experts best estimate' to act as a benchmark against the modelled outcomes, and inform post-model adjustments. In the short term, the focus is on refining model inputs and outputs in a consistent and explainable manner, using post-model adjustments. Wider-ranging model changes will take time to develop and need more real data on which models can be trained.

Models will be recalibrated over time once the full impacts of Covid-19 are observed, but that will not occur in 2020. Therefore, we anticipate significant in-model and post-model adjustments for the foreseeable future.

Post-model adjustments

In the context of IFRS 9, post-model adjustments are short-term increases or decreases to the ECL at either a customer or portfolio level to account for late breaking events, model deficiencies and expert credit judgement applied following management review and challenge. We have internal governance in place to regularly monitor post-model adjustments and, where possible, to reduce the reliance on these through model recalibration or redevelopment, as appropriate. Depending on the path of the Covid-19 outbreak and the shape of the economic recovery, we anticipate the composition of modelled ECL and post-model adjustments may be revised significantly over 2020, particularly when the economy resumes positive GDP growth and the uncertainty over long-term unemployment abates.

Post-model adjustments made in estimating the reported ECL at 30 June 2020 are set out in the following table. The table includes adjustments in relation to data and model limitations resulting from Covid-19 economic conditions, and as a result of the regular process of model development and implementation. It shows the adjustments applicable to the scenario-weighted ECL numbers. Adjustments in relation to Downside scenarios are more significant, as results are subject to greater uncertainty.

 
 Net post-model            Retail  Wholesale    Total 
  reductions in 
  ECL ($bn) 
-------------------------  ------  ---------  ------- 
 Low-risk counterparties 
  and economies 
  (banks, sovereigns 
  and government 
  entities)                   0.4        1.1    1.5 
-------------------------  ------  ---------  ----- 
 Corporate lending 
  adjustments                   -        2.8    2.8 
-------------------------  ------  ---------  ----- 
 Retail lending 
  adjustments                 0.2          -    0.2 
-------------------------  ------  ---------  ----- 
 Total                        0.6        3.9    4.5 
-------------------------  ------  ---------  ----- 
 

Post-model adjustments at 31 December 2019 were an increase of $75m for the wholesale portfolio and $131m for the retail portfolio.

The adjustments relating to low-credit-risk exposures are mainly to highly rated banks, sovereigns and US government-sponsored entities, where modelled credit factors do not fully reflect the underlying fundamentals of these entities or the effect of government support and economic programmes in the Covid-19 environment.

Adjustments to corporate exposures principally reflect the outcome of the 'credit experts best estimate' review on wholesale corporate exposures. Post-model adjustments, both positive and negative, have been made where modelled rating migration, and ECL outputs based on historical relationships, produced results that were overly sensitive. This can be the case when using economic inputs that are well outside the range of historical experience. For retail lending, the net impact of model adjustments was much less significant. The adjustment, under low-risk counterparties and economies, was to reduce ECL on insurance portfolios due to model over-prediction of downgrades in the bank and sovereign portfolios.

The main retail lending post-model adjustment was in relation to the UK where modelled PD outputs for the Downside scenarios were adjusted to address model limitations, so as to be consistent with longer-term relationships between unemployment and defaults.

Economic scenarios sensitivity analysis of ECL estimates

Management considered the sensitivity of the ECL outcome against the economic forecasts as part of the ECL governance process by recalculating the ECL under each scenario described above for selected portfolios, applying a 100% weighting to each scenario in turn. The weighting is reflected in both the determination of a significant increase in credit risk and the measurement of the resulting ECL.

The ECL calculated for the Upside and Downside scenarios should not be taken to represent the upper and lower limits of possible ECL outcomes. The impact of defaults that might occur in future under different economic scenarios is captured by recalculating ECL for loans in stages 1 and 2 at the balance sheet date. The population of stage 3 loans (in default) at the balance sheet date is unchanged in these sensitivity calculations. Stage 3 ECL would only be sensitive to changes in forecasts of future economic conditions if the loss-given default ('LGD') of a particular portfolio was sensitive to these changes.

There is a particularly high degree of estimation uncertainty in numbers representing tail risk scenarios when assigned a 100% weighting.

For wholesale credit risk exposures, the sensitivity analysis excludes ECL and financial instruments related to defaulted obligors because the measurement of ECL is relatively more sensitive to credit factors specific to the obligor than future economic scenarios. Therefore, it is impracticable to separate the effect of macroeconomic factors in individual assessments.

For retail credit risk exposures, the sensitivity analysis includes ECL for loans and advances to customers related to defaulted obligors. This is because the retail ECL for secured mortgage portfolios including loans in all stages is sensitive to macroeconomic variables.

Wholesale and retail sensitivity

The wholesale and retail sensitivity analysis is stated inclusive of post-model adjustments, as appropriate to each scenario. The results tables exclude portfolios held by insurance business and small portfolios

In both the wholesale and retail analysis, the comparative period results for alternative Downside scenarios are not directly comparable to the current period, because they reflect different risk profiles relative with the Consensus scenarios for the period end.

Wholesale analysis

 
 IFRS 9 ECL sensitivity to future economic conditions(1) 
                                                             Mainland 
                                     UK       US  Hong Kong     China  Canada  Mexico     UAE     France 
 ECL coverage of 
  financial instruments 
  subject to significant 
  measurement uncertainty 
  at 30 June 2020(2)                 $m       $m         $m        $m      $m      $m      $m         $m 
------------------------------ 
 Reported ECL                     1,729      407        537       157     239     218     227      121 
                                -------  -------  ---------  --------  ------  ------  ------  ------- 
 Consensus scenarios 
------------------------------  -------  -------  ---------  --------  ------  ------  ------  --------- 
 Central scenario                 1,538      336        449       122     208     171     186      104 
                                -------  -------  ---------  --------  ------  ------  ------  ------- 
 Upside scenario                  1,350      226        348        76     151     137     126       98 
                                -------  -------  ---------  --------  ------  ------  ------  ------- 
 Downside scenario(3)             2,027      570        687       211     294     255     262      187 
                                -------  -------  ---------  --------  ------  ------  ------  ------- 
 Alternative scenarios 
                                -------  -------  ---------  --------  ------  ------  ------  --------- 
 Alternative Downside 
  scenario                        2,933    1,059      1,706     1,273     647     574     711      304 
                                -------  -------  ---------  --------  ------  ------  ------  ------- 
 Gross carrying amount/nominal 
  amount(4)                     406,516  213,202    433,950   108,954  81,583  27,860  45,614  136,810 
------------------------------  -------  -------  ---------  --------  ------  ------  ------  ------- 
 
 
 ECL coverage of 
  financial instruments 
  subject to significant 
  measurement uncertainty 
  at 31 December 2019(2) 
 Reported ECL                         725      148      328      124      80      69      97       55 
 Consensus scenarios 
-------------------------------  --------  -------  -------  -------  ------  ------  ------  --------- 
 Central scenario                     536      149      243      118      79      68      97       53 
                                 --------  -------  -------  -------  ------  ------  ------  ------- 
 Upside scenario                      480      132      241       95      63      48      89       50 
                                 --------  -------  -------  -------  ------  ------  ------  ------- 
 Downside scenario                    635      161      244      106     108      99     108       79 
                                           -------  -------  -------  ------  ------  ------  ------- 
 Alternative scenarios 
                                 --------  -------  -------  -------  ------  ------  ------  --------- 
 UK alternative Downside 
  scenario 1                        1,050 
                                 --------  -------  -------  -------  ------  ------  ------  --------- 
 Tail risk scenarios 
  (UK alternative 
  Downside scenarios                1,900 
  2 and 3)                        - 2,100 
                                 --------  -------  -------  -------  ------  ------  ------  --------- 
 Asia-Pacific alternative 
  Downside scenario                                     550      150 
-------------------------------  --------  -------  -------  -------  ------  ------  ------  --------- 
 Hong Kong alternative 
  Downside scenario                                     700 
-------------------------------  --------  -------  -------  -------  ------  ------  ------  --------- 
 Gross carrying amount/nominal 
  amount(4)                       346,035  203,610  418,102  104,004  74,620  32,632  42,304  124,618 
-------------------------------  --------  -------  -------  -------  ------  ------  ------  ------- 
 
   1     ECL sensitivities exclude portfolios utilising less complex modelling approaches. 

2 ECL sensitivity includes off-balance sheet financial instruments that are subject to significant measurement uncertainty.

   3     For the UK, this is the UK management Downside scenario. 

4 Includes low credit-risk financial instruments, such as debt instruments at FVOCI, which have high carrying values but low ECL under all the scenarios.

In the wholesale portfolio, at 30 June 2020, the alternative Downside scenario reflected the most significant levels of ECL sensitivity, in absolute terms, in the UK, Hong Kong and mainland China due to potential for deterioration of the credit quality on those markets and levels of exposure.

ECL sensitivities demonstrated an increase from the 2019 year-end across all countries and territories, primarily due to the deterioration of economic forecasts under all scenarios.

The UK observed the highest sensitivity when compared with 4Q19, mainly due to the deterioration of economic forecasts, with an emphasis on the unemployment rate in the June 2020 economic forecasts.

The higher ECL sensitivities can all be observed for the alternative Downside scenario, which represents a prolonged recovery period and sharper impact relative to other scenarios.

Retail analysis

 
 IFRS 9 ECL sensitivity to future economic conditions(1) 
                                   Hong 
                    UK  Mexico     Kong    UAE  France      US  Malaysia  Singapore  Australia    Canada 
 ECL of loans 
 and advances 
 to customers 
 at 30 
 June 2020(2)       $m      $m       $m     $m      $m      $m        $m         $m         $m        $m 
               -------  ------  -------  -----  ------  ------  --------  ---------  ---------  -------- 
 Reported ECL    1,704     631      385    250     138     129       122         70         61      46 
               ------- 
 Consensus 
 scenarios 
-------------  -------  ------  -------  -----  ------  ------  --------  ---------  ---------  -------- 
 Central 
  scenario       1,592     595      349    237     137     118       120         70         48      42 
               -------  ------  -------  -----  ------  ------  --------  ---------  ---------  ------ 
 Upside 
  scenario       1,364     540      319    210     135     107       114         67         32      38 
               -------  ------  -------  -----  ------  ------  --------  ---------  ---------  ------ 
 Downside 
  scenario(3)    1,912     683      418    265     146     163       126         80         83      49 
               -------  ------  -------  -----  ------  ------  --------  ---------  ---------  ------ 
 Alternative 
 scenarios 
               -------  ------  -------  -----  ------  ------  --------  ---------  ---------  -------- 
 Alternative 
  Downside 
  scenario       2,253     814      772    310     144     236       160        119        216     124 
                        ------  -------  -----  ------  ------  --------  ---------  ---------  ------ 
 Gross 
  carrying 
  amount       139,599   6,293  100,916  3,188  23,453  15,849     5,360      7,701     18,115  21,746 
-------------  -------  ------  -------  -----  ------  ------  --------  ---------  ---------  ------ 
 
 
 ECL of loans and 
 advances 
 to customers at 
 31 
 December 2019(2) 
-----------------  -----------  -----  -------  -----  ------  ------  -----  -----  ------  -------- 
 Reported ECL              936    584      349    174     133      90     94     60      38      39 
 Consensus 
 scenarios 
 Central scenario          773    583      296    173     133      90     94     58      37      39 
 Upside scenario           686    526      282    158     132      84     85     57      32      36 
 Downside 
  scenario                 918    652      306    193     133      98    106     58      45      41 
 Alternative 
 scenarios 
 UK alternative 
  Downside 
  scenario 1             1,200 
 Tail risk 
  scenarios 
  (UK alternative 
  Downside 
  scenarios 2 and 
  3)               1,500-1,700 
 Asia-Pacific 
  alternative 
  Downside 
  scenario                                 530                           110     80      50 
 Hong Kong 
  alternative 
  Downside 
  scenario                                 540 
 Gross carrying 
  amount               149,576  7,681  101,689  3,391  23,017  15,470  5,839  8,164  17,258  22,344 
-----------------  -----------  -----  -------  -----  ------  ------  -----  -----  ------  ------ 
 
   1     ECL sensitivities exclude portfolios utilising less complex modelling approaches. 

2 ECL sensitivity includes only on-balance sheet financial instruments to which IFRS 9 impairment requirements are applied.

   3     For the UK, this is the UK management Downside scenario. 

In the retail portfolio at 30 June 2020, the alternative Downside scenario reflected the most significant level of ECL sensitivity, in absolute terms, in the UK, Mexico and Hong Kong due to the levels of exposure and credit quality of those markets.

Across all countries and territories, primarily due to the worsening of the economic forecasts, ECL sensitivities demonstrated an increase from the 2019 year-end. In the UK, there was an increase in ECL sensitivity observed in all scenarios compared with 4Q19. This was primarily due to the worsening of the unemployment rates in the June 2020 economic forecasts. The alternative Downside scenario ECL sensitivity is reflective of a significantly more pessimistic view of the economy and external environment.

Group ECL sensitivity results

The ECL income statement charge for the first half of 2020 was $6.9bn, of which $3.0bn related to stage 3 financial instruments. The ECL impact of the scenarios and judgemental management adjustments are highly sensitive to movements in economic forecasts, including the efficacy of government support measures. Based upon the sensitivity tables presented above, if the Group ECL balance (excluding wholesale stage 3, which is assessed individually) was estimated solely on the basis of the Central scenario, Downside scenario or the alternative Downside scenario at 30 June 2020, it would increase/(decrease) as presented in the below table.

 
                           Retail    Wholesale 
                              (2)          (2) 
 Total Group ECL              $bn          $bn 
 Reported ECL                4.0        4.3 
 Scenarios 
------------------------- 
 100% consensus Central 
  scenario                  (0.2)      (0.5) 
-------------------------  -----   -------- 
 100% consensus Downside 
  scenario(1)                0.4        1.0 
 100% alternative 
  Downside scenario          1.9        6.8 
-------------------------  -----   -------- 
 
   1     For the UK, this is the UK management Downside scenario. 
   2     On same basis as wholesale and retail sensitivity analysis. 

Reconciliation of changes in gross carrying/nominal amount and allowances for loans and advances to banks and customers

The following disclosure provides a reconciliation by stage of the Group's gross carrying/nominal amount and allowances for loans and advances to banks and customers, including loan commitments and financial guarantees. Movements are calculated on a quarterly basis and therefore fully capture stage movements between quarters. If movements were calculated on a year-to-date basis they would only reflect the opening and closing position of the financial instrument.

The transfers of financial instruments represent the impact of stage transfers upon the gross carrying/nominal amount and associated allowance for ECL.

The net remeasurement of ECL arising from stage transfers represents the increase or decrease due to these transfers, for example, moving from a 12-month (stage 1) to a lifetime (stage 2) ECL measurement basis. Net remeasurement excludes the underlying customer risk rating ('CRR')/probability of default ('PD') movements of the financial instruments transferring stage. This is captured, along with other credit quality movements in the 'changes in risk parameters - credit quality' line item.

Changes in 'New financial assets originated or purchased', 'assets derecognised (including final repayments)' and 'changes to risk parameters - further lending/repayments' represent the impact from volume movements within the Group's lending portfolio.

 
 Reconciliation of changes in gross carrying/nominal amount and allowances 
  for loans and advances to banks and customers including 
  loan commitments and financial guarantees 
                                                         Non-credit impaired                                  Credit impaired 
                                                   Stage 1                  Stage 2                  Stage 3                    POCI                     Total 
                                                Gross                   Gross                     Gross                     Gross                    Gross 
                                            carrying/    Allowance  carrying/    Allowance    carrying/                 carrying/                carrying/ 
                                              nominal          for    nominal          for      nominal    Allowance      nominal    Allowance     nominal    Allowance 
                                               amount          ECL     amount          ECL       amount      for ECL       amount      for ECL      amount      for ECL 
                                                   $m           $m         $m           $m           $m           $m           $m           $m          $m           $m 
                                           ----------  -----------  ---------  -----------  -----------  -----------  -----------  -----------  ----------  ----------- 
 At 1 Jan 2020                             1,561,613    (1,464)      105,551    (2,441)      14,335       (5,121)       345          (99)       1,681,844     (9,125) 
                                           ---------   -------      --------   -------      -------      -------      -----  ----  -----   ---  ---------   -------- 
 Transfers of 
  financial instruments:                    (138,661)     (148)      131,316       498        7,345         (350)         -            -                -          - 
 
   *    transfers from stage 1 to stage 2   (175,849)      489       175,849      (489)           -            -          -            -                -          - 
 
   *    transfers from stage 2 to stage 1     39,559      (638)      (39,559)      638            -            -          -            -                -          - 
 - transfers to 
  stage 3                                     (2,724)       11        (5,434)      392        8,158         (403)         -            -                -          - 
 - transfers from 
  stage 3                                        353       (10)          460       (43)        (813)          53          -            -                -          - 
-----------------------------------------  ---------   -------      --------   -------      -------      -------      -----  ----  -----  ----  ---------   -------- 
 Net remeasurement 
  of ECL arising 
  from transfer 
  of stage                                         -       355             -      (558)           -         (712)         -            -                -       (915) 
-----------------------------------------  ---------   -------      --------   -------      -------      -------      -----  ----  -----  ----  ---------   -------- 
 Changes due to 
  modifications 
  not derecognised                                 -         -             -         -            -            -          -            -                -          - 
                                           ---------   -------      --------   -------      -------      -------      -----  ----  -----  ----  ---------   -------- 
 New financial 
  assets originated 
  or purchased                               215,501      (291)            -         -            -            -         12            -          215,513       (291) 
                                           ---------   -------      --------   -------      -------      -------      -----  ----  -----  ----  ---------   -------- 
 Asset derecognised 
  (including final 
  repayments)                               (163,342)       52       (12,522)      203       (1,064)         176        (20)           1         (176,948)       432 
-----------------------------------------  ---------   -------      --------   -------      -------      -------      -----   ---  -----  ----  ---------   -------- 
 Changes to risk 
  parameters - 
  further lending/repayments                  13,119      (169)        2,831      (221)        (300)          63        (31)          (1)          15,619       (328) 
 Change in risk 
  parameters - 
  credit quality                                   -      (620)            -    (2,561)           -       (2,266)         -           (3)               -     (5,450) 
                                           ---------   -------      --------   -------      -------      -------      -----  ----  -----   ---  ---------   -------- 
 Changes to models 
  used for ECL 
  calculation                                      -        30             -       (63)           -           (9)         -            -                -        (42) 
                                           ---------   -------      --------   -------      -------      -------      -----  ----  -----  ----  ---------   -------- 
 Assets written 
  off                                              -         -             -         -       (1,249)       1,249          -            -           (1,249)     1,249 
 Credit-related 
  modifications 
  that resulted 
  in derecognition                                 -         -             -         -           (1)           -          -            -               (1)         - 
-----------------------------------------  ---------   -------      --------   -------      -------      -------      -----  ----  -----  ----  ---------   -------- 
 Foreign exchange                            (43,145)       90        (2,672)      162         (588)         196        (13)           4          (46,418)       452 
-----------------------------------------  ---------   -------      --------   -------      -------      -------      -----   ---  -----  ----  ---------   -------- 
 Other                                            36        12            93        (7)          16           (8)         7           (1)             152         (4) 
-----------------------------------------  ---------   -------      --------   -------      -------      -------      -----  ----  -----   ---  ---------   -------- 
 At 30 Jun 2020                            1,445,121    (2,153)      224,597    (4,988)      18,494       (6,782)       300          (99)       1,688,512    (14,022) 
-----------------------------------------  ---------   -------      --------   -------      -------      -------      -----  ----  -----   ---  ---------   -------- 
 ECL income statement 
  change for the 
  period(1)                                               (643)                 (3,200)                   (2,748)                     (3)                     (6,594) 
 Recoveries                                                                                                                                                      127 
-----------------------------------------  ----------  -----------  ---------  -----------  -----------  -----------  -----------  -----------  ----------  -------- 
 Other                                                                                                                                                             3 
                                                                                                                                                            -------- 
 Total ECL income 
  statement change 
  for the period                                                                                                                                              (6,464) 
-----------------------------------------  ----------  -----------  ---------  -----------  -----------  -----------  -----------  -----------  ----------  -------- 
 

1 In addition to the $2.8bn stage 3 (personal: $0.6bn, wholesale: $2.2bn) and POCI ECL income statement charge for the period presented above, the Group also recognised a stage 3 and POCI ECL income statement charge of $0.2bn in respect of other financial assets measured at amortised cost, performance and other guarantees and debt instruments measured at FVOCI.

 
                                                                                             6 months 
                                                                                             ended 30 
                                                                At 30 Jun 2020               Jun 2020 
                                                      Gross carrying/nominal  Allowance 
                                                                      amount    for ECL    ECL charge 
                                                                          $m         $m            $m 
                                                      ----------------------  ---------  ------------ 
 As above                                                          1,688,512   (14,022)     (6,464) 
 Other financial assets measured at amortised 
  cost                                                               751,872      (243)       (127) 
 Non-trading reverse purchase agreement commitments                   86,949         -           - 
 Performance and other guarantees                                          -         -        (157) 
----------------------------------------------------  ----------------------  --------   --------- 
 Summary of financial instruments to which 
  the impairment requirements in IFRS 9 are 
  applied/Summary consolidated income statement                    2,527,333   (14,265)     (6,748) 
 Debt instruments measured at FVOCI                                  402,331      (242)       (110) 
----------------------------------------------------  ----------------------  --------   --------- 
 Total allowance for ECL/total income statement 
  ECL charge for the period                                              n/a   (14,507)     (6,858) 
----------------------------------------------------  ----------------------  --------   --------- 
 

As shown in the previous table, the allowance for ECL for loans and advances to customers and banks and relevant loan commitments and financial guarantees increased $4,897m during the period, from $9,125m at 31 December 2019 to $14,022m at 30 June 2020.

This increase was primarily driven by:

-- $5,450m relating to underlying credit quality changes, including the credit quality impact of financial instruments transferring between stages;

   --    $915m relating to the net remeasurement impact of stage transfers; 

-- $187m relating to volume movements, which included the ECL allowance associated with new originations, assets derecognised and further pending repayment; and

   --    $42m relating to changes to models used for ECL calculation. 

These increases were partly offset by:

   --    $1,249m of assets written off; and 
   --    foreign exchange and other movements of $448m. 

The ECL charge for the period of $6,594m presented in the previous table consisted of $5,450m relating to underlying credit quality changes, including the credit quality impact of financial instruments transferring between stage; $915m relating to the net remeasurement impact of stage transfers; $187m relating to underlying net book volume; and $42m relating to changes to models used for ECL calculation.

 
 Reconciliation of changes in gross carrying/nominal amount and allowances 
  for loans and advances to banks and customers including 
  loan commitments and financial guarantees 
                                                         Non-credit impaired                                  Credit impaired 
                                                   Stage 1                  Stage 2                  Stage 3                    POCI                     Total 
                                                Gross                   Gross                     Gross                     Gross                    Gross 
                                            carrying/    Allowance  carrying/    Allowance    carrying/                 carrying/                carrying/ 
                                              nominal          for    nominal          for      nominal    Allowance      nominal    Allowance     nominal    Allowance 
                                               amount          ECL     amount          ECL       amount      for ECL       amount      for ECL      amount      for ECL 
                                                   $m           $m         $m           $m           $m           $m           $m           $m          $m           $m 
                                           ----------  -----------  ---------  -----------  -----------  -----------  -----------  -----------  ----------  ----------- 
 At 1 Jan 2019                             1,502,976    (1,449)       95,104    (2,278)      14,232       (5,135)       334          (194)      1,612,646    (9,056) 
                                           ---------   -------      --------   -------      -------      -------      -----  ----  ------       ---------   ------- 
 Transfers of 
  financial instruments:                     (36,244)     (543)       31,063     1,134        5,181         (591)         -             -               -         - 
 
   *    transfers from stage 1 to stage 2   (108,434)      487       108,434      (487)           -            -          -             -               -         - 
 
   *    transfers from stage 2 to stage 1     73,086    (1,044)      (73,086)    1,044            -            -          -             -               -         - 
 - transfers to 
  stage 3                                     (1,284)       59        (5,022)      665        6,306         (724)         -             -               -         - 
 - transfers from 
  stage 3                                        388       (45)          737       (88)      (1,125)         133          -             -               -         - 
-----------------------------------------  ---------   -------      --------   -------      -------      -------      -----  ----  ------  ---  ---------   ------- 
 Net remeasurement 
  of ECL arising 
  from transfer 
  of stage                                         -       669             -      (676)           -         (114)         -             -               -      (121) 
-----------------------------------------  ---------   -------      --------   -------      -------      -------      -----  ----  ------  ---  ---------   ------- 
 New financial 
  assets originated 
  or purchased                               504,064      (534)            -         -            -            -        135           (21)        504,199      (555) 
-----------------------------------------  ---------   -------      --------   -------      -------      -------      -----  ----  ------       ---------   ------- 
 Assets derecognised 
  (including final 
  repayments)                               (352,961)      112       (19,909)      553       (2,712)         656        (26)            8        (375,608)    1,329 
-----------------------------------------  ---------   -------      --------   -------      -------      -------      -----   ---  ------  ---  ---------   ------- 
 Changes to risk 
  parameters - 
  further lending/repayment                  (72,239)      291        (2,560)       67          402           (6)        28            12         (74,369)      364 
-----------------------------------------  ---------   -------      --------   -------      -------      -------      -----  ----  ------  ---  ---------   ------- 
 Changes in risk 
  parameters - 
  credit quality                                   -         2             -    (1,208)           -       (2,704)         -           (51)              -    (3,961) 
                                           ---------   -------      --------   -------      -------      -------      -----  ----  ------       ---------   ------- 
 Changes to models 
  used for ECL 
  calculation                                      -        (6)            -         4            -           14          -             -               -        12 
                                           ---------   -------      --------   -------      -------      -------      -----  ----  ------  ---  ---------   ------- 
 Assets written 
  off                                              -         -             -         -       (2,657)       2,657       (140)          140          (2,797)    2,797 
 Credit-related 
  modifications 
  that resulted 
  in derecognition                                 -         -             -         -         (268)         125          -             -            (268)      125 
-----------------------------------------  ---------   -------      --------   -------      -------      -------      -----  ----  ------  ---  ---------   ------- 
 Foreign exchange                             16,838        (9)        1,201       (40)         160          (31)         1             1          18,200       (79) 
-----------------------------------------  ---------   -------      --------   -------      -------      -------      -----  ----  ------  ---  ---------   ------- 
 Other                                          (821)        3           652         3           (3)           8         13             6            (159)       20 
-----------------------------------------  ---------   -------      --------   -------      -------      -------      -----  ----  ------  ---  ---------   ------- 
 At 31 Dec 2019                            1,561,613    (1,464)      105,551    (2,441)      14,335       (5,121)       345           (99)      1,681,844    (9,125) 
-----------------------------------------  ---------   -------      --------   -------      -------      -------      -----  ----  ------       ---------   ------- 
 ECL income statement 
  change for the 
  period                                                   534                  (1,260)                   (2,154)                     (52)                   (2,932) 
 Recoveries                                                                                                                                                     361 
                                                       ----------- 
 Others                                                                                                                                                         (20) 
-----------------------------------------  ----------  -----------  ---------  -----------  -----------  -----------  -----------  -----------  ----------  ------- 
 Total ECL income 
  statement change 
  for the period(1)                                                                                                                                          (2,591) 
-----------------------------------------  ----------  -----------  ---------  -----------  -----------  -----------  -----------  -----------  ----------  ------- 
 
 
                                                                                            12 months 
                                                                                                ended 
                                                                                               31 Dec 
                                                                At 31 Dec 2019                   2019 
                                                      Gross carrying/nominal  Allowance 
                                                                      amount    for ECL    ECL charge 
                                                                          $m         $m            $m 
                                                      ----------------------  ---------  ------------ 
 As above                                                          1,681,844    (9,125)     (2,591) 
 Other financial assets measured at amortised 
  cost                                                               615,179      (118)        (26) 
 Non-trading reverse purchase agreement commitments                   53,093         -           - 
 Performance and other guarantees                                          -         -         (34) 
----------------------------------------------------  ----------------------  --------   --------- 
 Summary of financial instruments to which 
  the impairment requirements in IFRS 9 are 
  applied/Summary consolidated income statement                    2,350,116    (9,243)     (2,651) 
 Debt instruments measured at FVOCI                                  355,664      (166)       (105) 
----------------------------------------------------  ----------------------  --------   --------- 
 Total allowance for ECL/total income statement 
  ECL charge for the period                                              n/a    (9,409)     (2,756) 
----------------------------------------------------  ----------------------  --------   --------- 
 

1 The 31 December 2019 total ECL income statement change of $2,591m is attributable to $1,136m for the six months ended 30 June 2019 and $1,455m to the six months ended 31 December 2019.

Credit quality of financial instruments

We assess the credit quality of all financial instruments that are subject to credit risk. The credit quality of financial instruments is a point-in-time assessment of PD, whereas stages 1 and 2 are determined based on relative deterioration of credit quality since initial recognition. Accordingly, for non-credit-impaired financial instruments, there is no direct relationship between the credit quality assessment and stages 1 and 2, though typically the lower credit quality bands exhibit a higher proportion in stage 2.

The five credit quality classifications each encompass a range of granular internal credit rating grades assigned to wholesale and personal lending businesses and the external ratings attributed by external agencies to debt securities, as shown in the following table. Personal lending credit quality is disclosed based on a 12-month point-in-time PD adjusted for multiple economic scenarios. The credit quality classifications for wholesale lending are unchanged and are based on internal credit risk ratings.

 
 Credit quality classification 
                                    Sovereign      Other debt 
                              debt securities      securities         Wholesale lending 
                                    and bills       and bills          and derivatives              Retail lending 
                                                                                     12-month 
                                                                                        Basel                 12 month 
                                     External        External                     probability  Internal   probability- 
                                       credit          credit        Internal      of default    credit       weighted 
                   Footnotes           rating          rating   credit rating               %    rating           PD % 
----------------  ----------  ---------------  --------------  --------------  --------------  --------  ------------- 
 Quality              1, 
  classification       2 
                  ---------- 
                                      BBB and          A- and        CRR 1 to                    Band 1        0.000 - 
 Strong                                 above           above           CRR 2       0 - 0.169     and 2          0.500 
 Good                                 BBB- to         BBB+ to           CRR 3         0.170 -    Band 3        0.501 - 
                                           BB            BBB-                           0.740                    1.500 
                                       BB- to          BB+ to        CRR 4 to         0.741 -    Band 4        1.501 - 
 Satisfactory                   B and unrated   B and unrated           CRR 5           4.914     and 5         20.000 
                                                                     CRR 6 to         4.915 -                 20.001 - 
 Sub-standard                         B- to C         B- to C           CRR 8          99.999    Band 6         99.999 
----------------  ----------  ---------------  --------------  --------------  --------------  --------  ------------- 
                                                                     CRR 9 to 
 Credit impaired                      Default         Default          CRR 10             100    Band 7            100 
----------------  ----------  ---------------  --------------  --------------  --------------  --------  ------------- 
 
   1     Customer risk rating ('CRR'). 
   2     12-month point-in-time probability-weighted probability of default ('PD'). 
 
 Distribution of financial instruments to which the impairment requirements 
  in IFRS 9 are applied, by credit quality and stage allocation 
                                              Gross carrying/nominal amount 
                                                                                              Allowance 
                                                                   Sub-    Credit                   for 
                                Strong     Good  Satisfactory  standard  impaired      Total        ECL          Net 
                  Footnotes         $m       $m            $m        $m        $m         $m         $m           $m 
 Loans and 
  advances to 
  customers at 
  amortised 
  cost                         493,586  243,340       248,791    28,756    17,435  1,031,908   (13,227)  1,018,681 
----------------             ---------  -------  ------------  --------  --------  ---------  --------   --------- 
 - stage 1                     480,945  203,612       160,839     7,282         -    852,678    (1,906)    850,772 
 - stage 2                      12,641   39,728        87,952    21,474         -    161,795    (4,553)    157,242 
 - stage 3                           -        -             -         -    17,139     17,139    (6,669)     10,470 
 - POCI                              -        -             -         -       296        296       (99)        197 
----------------  ---------  ---------  -------  ------------  --------  --------  ---------  --------   --------- 
 Loans and 
  advances to 
  banks at 
  amortised cost                69,599    4,039         2,382     1,040         9     77,069       (54)     77,015 
                             ---------  -------  ------------  --------  --------  ---------  --------   --------- 
 - stage 1                      66,544    2,919         2,142        88         -     71,693       (26)     71,667 
 - stage 2                       3,055    1,120           240       952         -      5,367       (23)      5,344 
 - stage 3                           -        -             -         -         9          9        (5)          4 
 - POCI                              -        -             -         -         -          -         -           - 
                  ---------  ---------  -------  ------------  --------  --------  ---------  --------   --------- 
 Other financial 
  assets 
  measured at 
  amortised 
  cost                         665,256   60,821        24,788       774       233    751,872      (243)    751,629 
                  ---------  ---------  -------  ------------  --------  --------  ---------  --------   --------- 
 - stage 1                     664,153   58,654        21,716       201         -    744,724       (96)    744,628 
 - stage 2                       1,103    2,167         3,072       573         -      6,915       (63)      6,852 
 - stage 3                           -        -             -         -       232        232       (84)        148 
 - POCI                              -        -             -         -         1          1         -           1 
                  ---------  ---------  -------  ------------  --------  --------  ---------  --------   --------- 
 Loan and other 
  credit-related 
  commitments                  407,827  149,477        81,707     8,087     1,058    648,156      (622)    647,534 
                  ---------  ---------  -------  ------------  --------  --------  ---------  --------   --------- 
 - stage 1                     400,182  131,509        60,334     2,375         -    594,400      (193)    594,207 
 - stage 2                       7,645   17,968        21,373     5,712         -     52,698      (339)     52,359 
 - stage 3                           -        -             -         -     1,055      1,055       (90)        965 
 - POCI                              -        -             -         -         3          3         -           3 
                  ---------  ---------  -------  ------------  --------  --------  ---------  --------   --------- 
 Financial 
  guarantees                     6,348    5,393         5,068     1,223       296     18,328      (119)     18,209 
                  ---------  ---------  -------  ------------  --------  --------  ---------  --------   --------- 
 - stage 1                       5,918    4,290         2,590       331         -     13,129       (28)     13,101 
 - stage 2                         430    1,103         2,478       892         -      4,903       (73)      4,830 
 - stage 3                           -        -             -         -       295        295       (18)        277 
 - POCI                              -        -             -         -         1          1         -           1 
 At 30 Jun 2020              1,642,616  463,070       362,736    39,880    19,031  2,527,333   (14,265)  2,513,068 
----------------  ---------  ---------  -------  ------------  --------  --------  ---------  --------   --------- 
 Debt 
  instruments at 
  FVOCI               1 
                  --------- 
 - stage 1                     369,864    9,395         9,533         -         -    388,792      (124)    388,668 
---------------- 
 - stage 2                       2,812      616           387       962         -      4,777       (18)      4,759 
 - stage 3                           -        -             -         -       280        280      (100)        180 
 - POCI                              -        -             -         -         -          -         -           - 
----------------  ---------  ---------  -------  ------------  --------  --------  ---------  --------   --------- 
 At 30 Jun 2020                372,676   10,011         9,920       962       280    393,849      (242)    393,607 
----------------  ---------  ---------  -------  ------------  --------  --------  ---------  --------   --------- 
 
 
 Distribution of financial instruments to which the impairment requirements 
  in IFRS 9 are applied, by credit quality and stage allocation 
  (continued) 
                                                Gross carrying/notional amount 
                                                                               Credit             Allowance 
                                Strong     Good  Satisfactory  Sub-standard  impaired      Total    for ECL          Net 
                  Footnotes         $m       $m            $m            $m        $m         $m         $m           $m 
 Loans and 
  advances 
  to customers 
  at amortised 
  cost                         524,889  258,402       228,485        20,007    13,692  1,045,475    (8,732)  1,036,743 
 - stage 1                     523,092  242,631       181,056         4,804         -    951,583    (1,297)    950,286 
 - stage 2                       1,797   15,771        47,429        15,185         -     80,182    (2,284)     77,898 
 - stage 3                           -        -             -             -    13,378     13,378    (5,052)      8,326 
 - POCI                              -        -             -            18       314        332       (99)        233 
----------------  ---------  ---------  -------  ------------  ------------  --------  ---------  --------   --------- 
 Loans and 
  advances 
  to banks at 
  amortised 
  cost                          60,636    5,329         1,859         1,395         -     69,219       (16)     69,203 
 - stage 1                      60,548    5,312         1,797           112         -     67,769       (14)     67,755 
 - stage 2                          88       17            62         1,283         -      1,450        (2)      1,448 
 - stage 3                           -        -             -             -         -          -         -           - 
 - POCI                              -        -             -             -         -          -         -           - 
                             ---------  -------  ------------  ------------  --------  ---------  --------   --------- 
 Other financial 
  assets 
  measured at 
  amortised 
  cost                         537,253   54,505        22,766           503       152    615,179      (118)    615,061 
                             ---------  -------  ------------  ------------  --------  ---------  --------   --------- 
 - stage 1                     536,942   54,058        21,921           279         -    613,200       (38)    613,162 
 - stage 2                         311      447           845           224         -      1,827       (38)      1,789 
 - stage 3                           -        -             -             -       151        151       (42)        109 
 - POCI                              -        -             -             -         1          1         -           1 
----------------  ---------  ---------  -------  ------------  ------------  --------  ---------  --------   --------- 
 Loan and other 
  credit-related 
  commitments                  369,424  146,988        77,499         5,338       780    600,029      (329)    599,700 
 - stage 1                     368,711  141,322        66,283         1,315         -    577,631      (137)    577,494 
 - stage 2                         713    5,666        11,216         4,023         -     21,618      (133)     21,485 
 - stage 3                           -        -             -             -       771        771       (59)        712 
 - POCI                              -        -             -             -         9          9         -           9 
----------------  ---------  ---------  -------  ------------  ------------  --------  ---------  --------   --------- 
 Financial 
  guarantees                     7,441    6,033         5,539         1,011       190     20,214       (48)     20,166 
 - stage 1                       7,400    5,746         4,200           338         -     17,684       (16)     17,668 
 - stage 2                          41      287         1,339           673         -      2,340       (22)      2,318 
 - stage 3                           -        -             -             -       186        186       (10)        176 
 - POCI                              -        -             -             -         4          4         -           4 
 At 31 Dec 2019              1,499,643  471,257       336,148        28,254    14,814  2,350,116    (9,243)  2,340,873 
----------------  ---------  ---------  -------  ------------  ------------  --------  ---------  --------   --------- 
 Debt 
  instruments 
  at FVOCI            1 
----------------  --------- 
 - stage 1                     333,072   10,941         6,902             -         -    350,915       (39)    350,876 
 - stage 2                          86       25           320           544         -        975      (127)        848 
 - stage 3                           -        -             -             -         -          -         -           - 
 - POCI                              -        -             -             -         1          1         -           1 
----------------             ---------  -------  ------------  ------------  --------  ---------  --------   --------- 
 At 31 Dec 2019                333,158   10,966         7,222           544         1    351,891      (166)    351,725 
----------------  ---------  ---------  -------  ------------  ------------  --------  ---------  --------   --------- 
 

1 For the purposes of this disclosure, gross carrying value is defined as the amortised cost of a financial asset, before adjusting for any loss allowance. As such, the gross carrying value of debt instruments at FVOCI will not reconcile to the balance sheet as it excludes fair value gains and losses.

Customer relief programmes

In response to the Covid-19 outbreak, governments and regulators around the world have introduced a number of support measures for both personal and wholesale customers in market-wide schemes. The following table presents the number of personal accounts/wholesale customers and the associated drawn loan

values of customers under these schemes and HSBC-specific measures for major markets at 30 June 2020. In relation to personal lending, the majority of relief measures, including payment holidays, relate to existing lending, while in wholesale lending the relief measures comprise of payment holidays, refinancing of existing facilities and new lending under government-backed schemes.

 
 Personal lending 
                                                                 Hong             Other major 
                                                           UK    Kong     US   markets(1,2,3)     Total 
                                                       ------  ------  -----  ---------------  -------- 
 Market-wide schemes 
 Number of accounts granted mortgage 
  customer relief                                000s      65       -      -               45     110 
 Drawn loan value of accounts granted 
  mortgage customer relief                       $m    13,550       -      -            3,759  17,309 
 Number of accounts granted other personal 
  lending customer relief                        000s     153       -      -              219     372 
 Drawn loan value of accounts granted 
  other personal lending customer relief         $m     1,594       -      -            2,180   3,774 
 HSBC-specific measures 
 Number of accounts granted mortgage 
  customer relief                                000s       -       3      3               18      24 
 Drawn loan value of accounts granted 
  mortgage customer relief                       $m         -   1,231  1,322            2,655   5,208 
 Number of accounts granted other personal 
  lending customer relief                        000s       -       1     19              200     220 
 Drawn loan value of accounts granted 
  other personal lending customer relief         $m         -      95    150            1,184   1,429 
 Total personal lending to major markets 
  under market-wide schemes and HSBC-specific 
  measures 
 Number of accounts granted mortgage 
  customer relief                                000s      65       3      3               63     134 
                                                       ------  ------  -----  ---------------  ------ 
 Drawn loan value of accounts granted 
  mortgage customer relief                       $m    13,550   1,231  1,322            6,414  22,517 
 Number of accounts granted other personal 
  lending customer relief                        000s     153       1     19              419     592 
 Drawn loan value of accounts granted 
  other personal lending customer relief         $m     1,594      95    150            3,364   5,203 
----------------------------------------------  -----  ------  ------  -----  ---------------  ------ 
 Market-wide schemes and HSBC-specific 
  measures - mortgage relief as a proportion 
  of total mortgages                             %      10.3%    1.4%   7.2%             9.0%      7.2% 
----------------------------------------------         ------  ------  -----  ---------------  -------- 
 Market-wide schemes and HSBC-specific 
  measures - other personal lending 
  relief as a proportion of total other 
  personal lending loans and advances            %       8.7%    0.3%   6.5%             7.1%      5.2% 
----------------------------------------------  -----  ------  ------  -----  ---------------  -------- 
 
 Wholesale lending 
                                                                 Hong             Other major 
                                                           UK    Kong     US       markets(1)     Total 
----------------------------------------------  -----  ------  ------  -----  ---------------  -------- 
 Market-wide schemes 
---------------------------------------------- 
 Number of customers under market-wide 
  measures                                       000s     130       7      4                6     147 
 Drawn loan value of customers under 
  market-wide schemes                            $m     6,696  18,711  1,197            6,736  33,340 
 HSBC-specific schemes 
---------------------------------------------- 
 Number of customers under HSBC-specific 
  measures                                       000s       5       4      -               16      25 
 Drawn loan value of customers under 
  HSBC-specific measures                         $m     3,998   6,216  1,229            7,873  19,316 
 Total wholesale lending to major markets 
  under market-wide schemes and HSBC-specific 
  measures 
 Number of customers(4)                          000s     135      11      4               22     172 
                                                       ------  ------  -----  ---------------  ------ 
 Drawn loan value                                $m    10,694  24,927  2,426           14,609  52,656 
----------------------------------------------  -----  ------  ------  -----  ---------------  ------ 
 Market-wide schemes and HSBC-specific 
  measures as a proportion of total 
  wholesale lending loans and advances           %       7.7%   13.2%   5.0%             7.5%      9.2% 
----------------------------------------------  -----  ------  ------  -----  ---------------  -------- 
 

1 Other major markets include Australia, Canada, mainland China, Egypt, France, Germany, India, Indonesia, Malaysia, Mexico, Singapore, Switzerland, Taiwan and UAE.

2 In Malaysia, personal lending customers are granted an automatic moratorium programme for all eligible retail customers. At 30 June 2020, the number of accounts under this moratorium was 133,000 with an associated drawn balance of $4,023m.

3 In Mexico, there were 115,000 personal lending accounts under customer relief with an associated drawn balance of $954m.

4 Within total wholesale customers, there are 2,000 customers under both market-wide and HSBC-specific schemes.

The initial granting of customer relief does not automatically trigger a migration to stage 2 or 3. However, information provided by payment deferrals is considered in the context of other reasonable and supportable information. This forms part of the overall assessment for significant increase in credit risk and credit impairment to identify loans for which lifetime ECL is appropriate. An extension in payment deferral does not automatically result in stage 2 or stage 3. The key accounting and credit risk judgement to ascertain whether a significant increase in credit risk has occurred is whether the economic effects of the Covid-19 outbreak on the customer are likely to be temporary over the lifetime of the loan, and whether they indicate that a concession is being made in respect of financial difficulty that would be consistent with stage 3.

Market-wide schemes

The following narrative provides further details on the major government and regulatory schemes offered in the UK, Hong Kong and the US.

UK personal lending

Mortgages

Customer relief granted on UK mortgages primarily consists of payment holidays or partial payment deferrals.

Relief is offered for an initial period of three months and may be extended for a further three months in certain circumstances. No payment is required from the customer during this period (though with a partial payment deferral the customer has expressed a desire to make a contribution) and interest continues to be charged as usual. The customers' arrears status is not worsened from utilisation of these schemes.

Other personal lending payment holidays

Customer relief is granted for an initial period of three months and may be extended for a further three months. The maximum relief value is up to the due payment amount during the period.

UK wholesale lending

The primary relief granted under government schemes consists of the Bounce Back Loan Scheme, Coronavirus Business Interruption Loan Scheme and Coronavirus Large Business Interruption Loan Scheme. The key features of these schemes are as follows:

-- The Bounce Back Loan Scheme provides small and medium-sized enterprises ('SME') with loans of up to GBP50,000 for a maximum period of six years. Interest is charged at 2.5% and the government pays the fees and interest for the first 12 months. No capital repayment is required by the customer for the first 12 months of the scheme. A government guarantee of 100% is provided under the scheme.

-- The Coronavirus Business Interruption Loan Scheme provides SMEs that have a turnover of less than GBP45m with loans of up to GBP5m for a maximum period of six years. Interest is charged between 3.49% and 3.99% above the UK base rate and no capital repayment is required by the customer for the first 12 months of the scheme. A government guarantee of up to 80% is provided under the scheme.

-- The Coronavirus Large Business Interruption Loan Scheme provides medium and large-sized enterprises that have a turnover in excess of GBP45m with loans of up to GBP200m. The interest rate and tenor of the loan are negotiated on commercial terms. A government guarantee of 80% is provided under the scheme.

Hong Kong wholesale lending

Pre-approved Principal Payment Holiday Scheme for Corporate Customers

The above scheme enables eligible customers to apply for a payment holiday of six months (or 90 days for trade finance) with no change to the existing interest rate charge.

US wholesale lending

Paycheck Protection Program

The CARES Act created the Paycheck Protection Program ('PPP') loan guarantee programme to provide small businesses with support to cover payroll and certain other expenses. Loans made under the PPP are fully guaranteed by the Small Business Administration, whose guarantee is backed by the full faith and credit of the US. PPP-covered loans also afford customers forgiveness up to the principal amount of the PPP-covered loan, plus accrued interest, if the loan proceeds are used to retain workers and maintain payroll or to make certain mortgage interest, lease and utility payments, and certain other criteria are satisfied. The Small Business Administration will reimburse PPP lenders for any amount of a PPP-covered loan that is forgiven, and PPP lenders will not be liable for any representations made by PPP borrowers in connection with their requests for loan forgiveness. Lenders receive pre-determined fees for processing and servicing PPP loans.

HSBC-specific measures

UK personal lending

Overdrafts

HSBC has offered all customers a GBP500 interest-free overdraft for a duration of three months.

UK wholesale lending

HSBC is offering capital repayment holidays to CMB customers. Relief is offered on a preferred term of six months. However, some are granted for three months with the option of an extension. Interest continues to be paid as usual.

Hong Kong personal lending

Mortgages

Customer relief granted on Hong Kong mortgages consists of deferred principal repayment of up to 12 months. This relief programme is available to existing HSBC mortgage loan customers who have a good repayment record during the past six months.

Hong Kong wholesale lending

Temporary relief measures for CMB customers

The above scheme enables eligible customers to apply for a payment holiday of up to six months with no change to the existing interest rate charge.

US total personal lending

Customer relief granted on US mortgages and other personal lending consists of deferrals of up to 12 months and up to six months respectively

Personal lending

This section provides further details on the regions, countries and products driving the decrease in personal loans and advances to customers. Additionally, Hong Kong and UK mortgage book loan-to-value ('LTV') data is provided.

Further product granularity is also provided by stage, with geographical data presented for loans and advances to customers, loan and other credit-related commitments, and financial guarantee and similar contracts.

At 30 June 2020, total personal lending for loans and advances to customers of $422.2bn decreased by $12.1bn compared with

31 December 2019. This decrease included adverse exchange movements of $14.3bn. Excluding foreign exchange movements, there was growth of $2.2bn, primarily driven by $1.2bn in Europe, $0.7bn in North America and $0.6bn in Asia.

The allowance for ECL attributable to personal lending, excluding off-balance sheet loan commitments and guarantees, increased by $1.3bn to $4.4bn at 30 June 2020. This included favourable foreign exchange movements of $0.2bn.

Excluding foreign exchange movements, total personal lending was primarily driven by mortgage growth, which grew by $7.4bn. Mortgages grew in the UK by $3.3bn, driven by stronger acquisition performance, including the expanded use of broker relationships. In Asia, mortgages grew $2.7bn, notably $2.0bn in Hong Kong and $1.1bn in Australia, as a result of business growth initiatives. The allowance for ECL attributable to mortgages increased by $0.3bn to $0.8bn at 30 June 2020.

The quality of both our Hong Kong and UK mortgage books remained high, with negligible defaults and impairment allowances. The average LTV ratio on new mortgage lending in Hong Kong was 59%, compared with an estimated 43% for the overall mortgage portfolio. The average LTV ratio on new lending in the UK was 68%, compared with an estimated 51% for the overall mortgage portfolio.

Excluding foreign exchange movements, other personal lending balances at 30 June 2020 decreased by $5.2bn compared with

31 December 2019. The decrease was attributable to a $4.1bn decrease in credit card balances and to a lesser extent loans and overdrafts, which decreased by $1.0bn. The decrease in credit card balances was driven by $2.1bn in the UK and $1.4bn in Asia, notably $0.8bn in Hong Kong. These decreases in drawn credit cards partially contributed to an increase in total off-balance sheet loan commitments and guarantees, which grew by $8.0bn to $232.1bn at 30 June 2020. This increase included $4.9bn of adverse foreign exchange movements.

Excluding foreign exchange movements, the allowance for ECL attributable to other personal lending, excluding loan commitments and guarantees, increased by $1.2bn to $3.6bn at 30 June 2020. The main drivers of this increase was loans and overdrafts and credit cards in the UK with increases of $0.4bn and $0.2bn respectively. There was also an increase in Asia of $0.2bn, notably $0.1bn in loans and overdrafts and $0.1bn in credit cards.

 
 Total personal lending for loans and advances to customers by stage 
  distribution 
                                            Gross carrying amount              Allowance for ECL 
                                                                   -------                           --------- 
                                             Stage   Stage  Stage           Stage    Stage    Stage 
                                                 1       2      3    Total      1        2        3      Total 
                                                $m      $m     $m       $m     $m       $m       $m         $m 
                                           -------  ------  -----  -------  -----  -------  -------  --------- 
 By portfolio 
                                           -------  ------  -----  -------  -----  -------  -------  --------- 
 First lien residential 
  mortgages                                299,392  15,648  3,045  318,085  (102)    (298)    (406)    (806) 
                                           -------  ------  -----  -------  ----   ------   ------   ------ 
 - of which: 
   interest only (including 
    offset)                                 28,428   1,383    348   30,159    (8)     (17)     (81)    (106) 
----------------------------------------- 
   affordability (including 
    US adjustable rate 
    mortgages)                              12,667   2,590    534   15,791    (6)      (6)      (5)     (17) 
-----------------------------------------  -------  ------  -----  -------  ----   ------   ------   ------ 
 Other personal lending                     90,640  11,383  2,076  104,099  (795)  (1,817)    (983)  (3,595) 
                                           -------  ------  -----  -------  ----   ------   ------   ------ 
 - other                                    72,069   6,794  1,287   80,150  (358)    (735)    (599)  (1,692) 
 - credit cards                             16,449   4,441    726   21,616  (428)  (1,063)    (366)  (1,857) 
 
   *    second lien residential mortgages      673      84     53      810    (2)     (10)     (11)     (23) 
 - motor vehicle finance                     1,449      64     10    1,523    (7)      (9)      (7)     (23) 
-----------------------------------------  -------  ------  -----  -------  ----   ------   ------   ------ 
 At 30 Jun 2020                            390,032  27,031  5,121  422,184  (897)  (2,115)  (1,389)  (4,401) 
-----------------------------------------  -------  ------  -----  -------  ----   ------   ------   ------ 
 By geography 
                                           -------  ------  -----  -------  -----  -------  -------  --------- 
 Europe                                    174,021   9,683  2,416  186,120  (245)  (1,081)    (733)  (2,059) 
-----------------------------------------  -------  ------  -----  -------  ----   ------   ------   ------ 
 - of which: UK                            140,171   8,421  1,640  150,232  (230)  (1,048)    (469)  (1,747) 
                                           -------  ------  -----  -------  ----   ------   ------   ------ 
 Asia                                      167,690  11,313    853  179,856  (284)    (412)    (210)    (906) 
                                           -------  ------  -----  -------  ----   ------   ------   ------ 
 - of which: Hong Kong                     116,657   4,504    224  121,385  (101)    (234)     (59)    (394) 
-----------------------------------------  -------  ------  -----  -------  ----   ------   ------   ------ 
 MENA                                        5,005     480    278    5,763   (63)    (148)    (182)    (393) 
                                           -------  ------  -----  -------  ----   ------   ------   ------ 
 North America                              37,788   4,749  1,337   43,874  (138)    (171)    (145)    (454) 
                                           -------  ------  -----  -------  ----   ------   ------   ------ 
 Latin America                               5,528     806    237    6,571  (167)    (303)    (119)    (589) 
-----------------------------------------  -------  ------  -----  -------  ----   ------   ------   ------ 
 At 30 Jun 2020                            390,032  27,031  5,121  422,184  (897)  (2,115)  (1,389)  (4,401) 
-----------------------------------------  -------  ------  -----  -------  ----   ------   ------   ------ 
 
 
 Total personal lending for loans and other credit-related commitments 
  and financial guarantees by stage distribution 
                                         Nominal amount                      Allowance for ECL 
                                  Stage    Stage  Stage       Total       Stage  Stage  Stage    Total 
                                      1        2      3                       1      2      3 
                                     $m       $m     $m          $m          $m     $m     $m       $m 
                             ----------  -------  -----  ----------  ----------  -----  -----  ------- 
 Europe                          50,714    1,050    138      51,902     (20)       (2)      -   (22) 
                             ----------  -------  -----  ----------  ------      ----   -----  ---- 
 of which: UK                    48,112      921    121      49,154     (19)       (1)      -   (20) 
---------------------------  ----------  -------  -----  ----------  ------      ----   -----  ---- 
 Asia                           157,180    1,047     11     158,238       -        (1)      -    (1) 
                             ----------  -------  -----  ----------  ------      ----   -----  ---- 
 of which: Hong Kong            120,624       27     10     120,661       -         -       -     - 
---------------------------  ----------  -------  -----  ----------  ------      ----   -----  ---- 
 MENA                             3,175       55     50       3,280      (1)        -       -    (1) 
                             ----------  -------  -----  ----------  ------      ----   -----  ---- 
 North America                   14,980      243     20      15,243      (2)        -       -    (2) 
                             ----------  -------  -----  ----------  ------      ----   -----  ---- 
 Latin America                    3,382       40      1       3,423      (3)        -       -    (3) 
---------------------------  ----------  -------  -----  ----------  ------      ----   -----  ---- 
 At 30 Jun 2020                 229,431    2,435    220     232,086     (26)       (3)      -   (29) 
---------------------------  ----------  -------  -----  ----------  ------      ----   -----  ---- 
 
 
 Total personal lending for loans and advances to customers by stage 
  distribution 
                                            Gross carrying amount              Allowance for ECL 
                                                                   -------                           --------- 
                                             Stage   Stage  Stage    Total  Stage    Stage    Stage      Total 
                                                 1       2      3               1        2        3 
                                                $m      $m     $m       $m     $m       $m       $m         $m 
                                           -------  ------  -----  -------  -----  -------  -------  --------- 
 By portfolio 
                                           -------  ------  -----  -------  -----  -------  -------  --------- 
 First lien residential 
  mortgages                                312,031   7,077  3,070  322,178   (39)     (68)    (422)    (529) 
                                           -------  ------  -----  -------  ----   ------   ------   ------ 
 - of which: 
  interest only (including 
   offset)                                  31,201   1,602    376   33,179    (6)     (15)     (91)    (112) 
----------------------------------------- 
  affordability (including 
   US adjustable rate 
   mortgages)                               14,222     796    514   15,532    (3)      (3)      (3)      (9) 
-----------------------------------------  -------  ------  -----  -------  ----   ------   ------   ------ 
 Other personal lending                    101,638   8,674  1,781  112,093  (544)  (1,268)    (793)  (2,605) 
                                           -------  ------  -----  -------  ----   ------   ------   ------ 
 - other                                    77,031   4,575  1,193   82,799  (229)    (451)    (491)  (1,171) 
 - credit cards                             22,285   3,959    524   26,768  (310)    (801)    (284)  (1,395) 
 
   *    second lien residential mortgages      750      84     55      889    (1)      (6)     (10)     (17) 
 - motor vehicle finance                     1,572      56      9    1,637    (4)     (10)      (8)     (22) 
-----------------------------------------  -------  ------  -----  -------  ----   ------   ------   ------ 
 At 31 Dec 2019                            413,669  15,751  4,851  434,271  (583)  (1,336)  (1,215)  (3,134) 
-----------------------------------------  -------  ------  -----  -------  ----   ------   ------   ------ 
 By geography 
                                           -------  ------  -----  -------  -----  -------  -------  --------- 
 Europe                                    186,561   6,854  2,335  195,750  (112)    (538)    (578)  (1,228) 
-----------------------------------------  -------  ------  -----  -------  ----   ------   ------   ------ 
 
   *    of which: UK                       153,313   5,455  1,612  160,380  (104)    (513)    (370)    (987) 
                                           -------  ------  -----  -------  ----   ------   ------   ------ 
 Asia                                      173,523   5,855    717  180,095  (223)    (339)    (170)    (732) 
                                           -------  ------  -----  -------  ----   ------   ------   ------ 
 
   *    of which: Hong Kong                117,013   2,751    189  119,953   (90)    (220)     (44)    (354) 
-----------------------------------------  -------  ------  -----  -------  ----   ------   ------   ------ 
 MENA                                        5,671     247    299    6,217   (50)     (58)    (189)    (297) 
                                           -------  ------  -----  -------  ----   ------   ------   ------ 
 North America                              41,148   1,930  1,238   44,316   (56)    (119)    (141)    (316) 
                                           -------  ------  -----  -------  ----   ------   ------   ------ 
 Latin America                               6,766     865    262    7,893  (142)    (282)    (137)    (561) 
-----------------------------------------  -------  ------  -----  -------  ----   ------   ------   ------ 
 At 31 Dec 2019                            413,669  15,751  4,851  434,271  (583)  (1,336)  (1,215)  (3,134) 
-----------------------------------------  -------  ------  -----  -------  ----   ------   ------   ------ 
 
 
 Total personal lending for loans and other credit-related commitments 
  and financial guarantees by stage distribution 
                                            Nominal amount                    Allowance for ECL 
                                      Stage   Stage  Stage     Total       Stage  Stage  Stage    Total 
                                          1       2      3                     1      2      3 
                                         $m      $m     $m        $m          $m     $m     $m       $m 
                                  ---------  ------  -----  --------  ----------  -----  -----  ------- 
 Europe                              51,575     604    110    52,289     (10)       (2)      -   (12) 
                                  ---------  ------  -----  --------  ------      ----   -----  ---- 
 
   *    of which: UK                 49,322     493    105    49,920      (8)       (1)      -    (9) 
--------------------------------  ---------  ------  -----  --------  ------      ----   -----  ---- 
 Asia                               149,336     682      9   150,027       -         -       -     - 
                                  ---------  ------  -----  --------  ------      ----   -----  ---- 
 
   *    of which: Hong Kong         115,025      27      3   115,055       -         -       -     - 
--------------------------------  ---------  ------  -----  --------  ------      ----   -----  ---- 
 MENA                                 3,150      46     53     3,249       -         -       -     - 
                                  ---------  ------  -----  --------  ------      ----   -----  ---- 
 North America                       13,919     256     20    14,195      (1)        -       -    (1) 
                                  ---------  ------  -----  --------  ------      ----   -----  ---- 
 Latin America                        4,312      43      3     4,358      (3)        -       -    (3) 
--------------------------------  ---------  ------  -----  --------  ------      ----   -----  ---- 
 At 31 Dec 2019                     222,292   1,631    195   224,118     (14)       (2)      -   (16) 
--------------------------------  ---------  ------  -----  --------  ------      ----   -----  ---- 
 

Wholesale lending

This section provides further details on the regions, countries and industries driving the increase in wholesale loans and advances to customers and banks, with the impact of foreign exchange separately identified. Industry granularity is also provided by stage, with geographical data presented for loans and advances to customers, banks, other credit commitments, financial guarantees and similar contracts.

At 30 June 2020, wholesale lending for loans and advances to banks and customers of $686.8bn increased by $6.4bn since

31 December 2019. This included adverse foreign exchange movements of $18.1bn.

Excluding foreign exchange movements, the total wholesale lending growth was driven by a $14.3bn increase in corporate and commercial balances and $9.6bn increase in loans and advances to banks.

The primary driver of the increase in corporate and commercial balances was $7.2bn in Europe, notably $3.5bn in the UK and $2.7bn in France. Additionally, corporate and commercial balances in North America and MENA grew $4.8bn and $2.2bn respectively.

Loan commitments and financial guarantees grew $38.3bn since 31 December 2019 to $434.4bn at 30 June 2020, including a $33.9bn increase related to unsettled reverse repurchase agreements. This also included adverse foreign exchange movements of $8.5bn.

The allowance for ECL attributable to loans and advances to banks and customers of $8.9bn at 30 June 2020 increased from $5.6bn at 31 December 2019. This included favourable foreign exchange movements of $0.2bn.

Excluding foreign exchange movements, the total increase in the wholesale ECL allowance for loans and advances to customers and banks was driven by $3.3bn in corporate and commercial balances. The primary driver of this increase in corporate and commercial allowance for ECL was $1.2bn in Europe, notably $1.1bn in the UK. There was an increase of $1.1bn in Asia, notably $0.7bn in Singapore and $0.2bn in Hong Kong. Additionally, there were increases of $0.5bn and $0.3bn in North America and MENA, respectively.

 
 Total wholesale lending for loans and advances to banks and customers 
  by stage distribution 
                                                                    Gross carrying amount                      Allowance for ECL 
                                                                                               ------- 
                                                                 Stage    Stage   Stage                   Stage    Stage    Stage 
                                                                     1        2       3  POCI    Total        1        2        3  POCI      Total 
                                                                    $m       $m      $m    $m       $m       $m       $m       $m    $m         $m 
                                                                                               -------                                   --------- 
 Corporate and commercial                                      406,194  122,319  11,499   296  540,308    (966)  (2,306)  (5,166)  (99)  (8,537) 
                                                               -------  -------  ------  ----  -------  ------   ------   ------   ---   ------ 
 
   *    agriculture, forestry and fishing                        5,620      782     293     2    6,697     (13)     (31)    (142)   (1)    (187) 
 
   *    mining and quarrying                                    10,811    2,719   1,308    12   14,850     (52)    (134)    (371)  (11)    (568) 
 
   *    manufacturing                                           72,719   27,694   1,589   123  102,125    (153)    (435)    (869)  (46)  (1,503) 
 
   *    electricity, gas, steam and air-conditioning supply     11,987    3,144     175     1   15,307     (30)     (40)     (24)    -      (94) 
 
   *    water supply, sewerage, waste management and 
        remediation                                              2,291      966      29     -    3,286      (7)     (15)     (17)    -      (39) 
 - construction                                                  8,982    5,136     723    31   14,872     (40)    (142)    (396)  (30)    (608) 
 
   *    wholesale and retail trade, repair of motor vehicles 
        and motorcycles                                         64,461   25,558   2,972    10   93,001    (150)    (311)  (1,749)   (2)  (2,212) 
 
   *    transportation and storage                              18,293    7,733     664    12   26,702     (77)    (145)    (235)    -     (457) 
 
   *    accommodation and food                                  14,723   10,109     330     1   25,163     (59)    (196)     (82)   (1)    (338) 
 
   *    publishing, audiovisual and broadcasting                16,635    3,860      66    29   20,590     (41)     (98)     (16)   (5)    (160) 
 - real estate                                                 110,646   14,737   1,426     1  126,810    (150)    (302)    (525)    -     (977) 
 
   *    professional, scientific and technical activities       18,842    6,786     517     -   26,145     (48)    (100)    (170)    -     (318) 
 
   *    administrative and support services                     19,959    7,312     682    74   28,027     (50)    (163)    (260)   (3)    (476) 
 
   *    public administration and defence, compulsory social 
        security                                                 2,405      565       3     -    2,973      (3)      (8)      (1)    -      (12) 
 - education                                                     1,781      661      13     -    2,455      (8)     (25)      (6)    -      (39) 
 - health and care                                               4,064    1,497     244     -    5,805     (13)     (42)    (118)    -     (173) 
 
   *    arts, entertainment and recreation                       1,692      980      42     -    2,714      (8)     (38)     (10)    -      (56) 
 - other services                                               11,445    1,134     422     -   13,001     (53)     (60)    (174)    -     (287) 
 - activities of 
  households                                                       707      244       -     -      951       -       (1)       -     -       (1) 
 
   *    extra-territorial organisations and bodies activities        9        -       -     -        9       -        -        -     -        - 
 - government                                                    7,484      689       1     -    8,174     (11)      (8)      (1)    -      (20) 
 - asset-backed securities                                         638       13       -     -      651       -      (12)       -     -      (12) 
-------------------------------------------------------------  -------  -------  ------  ----  -------  ------   ------   ------   ---   ------ 
 Non-bank financial 
  institutions                                                  56,452   12,445     519     -   69,416     (43)    (132)    (114)    -     (289) 
                                                                                                        ------   ------   ------   ---   ------ 
 Loans and advances 
  to banks                                                      71,693    5,367       9     -   77,069     (26)     (23)      (5)    -      (54) 
-------------------------------------------------------------  -------  -------  ------  ----  -------  ------   ------   ------   ---   ------ 
 At 30 Jun 2020                                                534,339  140,131  12,027   296  686,793  (1,035)  (2,461)  (5,285)  (99)  (8,880) 
-------------------------------------------------------------  -------  -------  ------  ----  -------  ------   ------   ------   ---   ------ 
 By geography 
 Europe                                                        165,295   38,744   6,229   132  210,400    (444)  (1,188)  (1,980)  (48)  (3,660) 
                                                               -------  -------  ------  ----  -------  ------   ------   ------   ---   ------ 
 - of which: UK                                                110,296   28,906   4,262    74  143,538    (376)  (1,042)  (1,267)  (35)  (2,720) 
                                                               -------  -------  ------  ----  -------  ------   ------   ------   ---   ------ 
 Asia                                                          276,436   71,147   2,541   117  350,241    (273)    (578)  (1,695)  (34)  (2,580) 
                                                               -------  -------  ------  ----  -------  ------   ------   ------   ---   ------ 
 - of which: Hong 
  Kong                                                         165,429   43,919     874    47  210,269    (153)    (314)    (496)  (24)    (987) 
-------------------------------------------------------------  -------  -------  ------  ----  -------  ------   ------   ------   ---   ------ 
 MENA                                                           22,959    7,450   1,879    17   32,305     (83)    (195)  (1,093)  (12)  (1,383) 
 North America                                                  57,321   18,484   1,005     -   76,810    (119)    (342)    (306)    -     (767) 
 Latin America                                                  12,328    4,306     373    30   17,037    (116)    (158)    (211)   (5)    (490) 
-------------------------------------------------------------  -------  -------  ------  ----  -------  ------   ------   ------   ---   ------ 
 At 30 Jun 2020                                                534,339  140,131  12,027   296  686,793  (1,035)  (2,461)  (5,285)  (99)  (8,880) 
-------------------------------------------------------------  -------  -------  ------  ----  -------  ------   ------   ------   ---   ------ 
 
 
 Total wholesale lending for loans and other credit-related commitments 
  and financial guarantees by stage distribution(1) 
                                         Nominal amount                      Allowance for ECL 
                               Stage   Stage  Stage  POCI    Total  Stage  Stage  Stage  POCI    Total 
                                   1       2      3                     1      2      3 
                                  $m      $m     $m    $m       $m     $m     $m     $m    $m       $m 
                             -------  ------  -----  ----  -------  -----  -----  -----  ----  ------- 
 Corporate and commercial    241,574  49,164  1,092     4  291,834  (186)  (382)  (104)     -  (672) 
                             -------  ------  -----  ----  -------  ----   ----   ----   ----  ---- 
 Financial                   136,524   6,002     38     -  142,564    (9)   (27)    (4)     -   (40) 
---------------------------  -------  ------  -----  ----  -------  ----   ----   ----   ----  ---- 
 At 30 Jun 2020              378,098  55,166  1,130     4  434,398  (195)  (409)  (108)     -  (712) 
---------------------------  -------  ------  -----  ----  -------  ----   ----   ----   ----  ---- 
 By geography 
 Europe                      205,781  27,797    913     4  234,495   (89)  (166)   (83)     -  (338) 
                             -------  ------  -----  ----  -------  ----   ----   ----   ----  ---- 
 
   *    of which: UK          74,777  16,431    541     3   91,752   (77)  (132)   (41)     -  (250) 
                             -------  ------  -----  ----  -------  ----   ----   ----   ----  ---- 
 Asia                         58,773  11,181     63     -   70,017   (36)   (99)   (14)     -  (149) 
                             -------  ------  -----  ----  -------  ----   ----   ----   ----  ---- 
 
   *    of which: Hong Kong   30,271   3,100      3     -   33,374   (16)   (43)    (3)     -   (62) 
                             -------  ------  -----  ----  -------  ----   ----   ----   ----  ---- 
 MENA                          5,219   1,306     25     -    6,550   (11)   (33)    (5)     -   (49) 
                                              -----  ---- 
 North America               106,302  14,592     96     -  120,990   (45)  (108)    (3)     -  (156) 
                                              -----  ---- 
 Latin America                 2,023     290     33     -    2,346   (14)    (3)    (3)     -   (20) 
---------------------------           ------  -----  ----                  ----   ----   ----  ---- 
 At 30 Jun 2020              378,098  55,166  1,130     4  434,398  (195)  (409)  (108)     -  (712) 
---------------------------  -------  ------  -----  ----  -------  ----   ----   ----   ----  ---- 
 

1 Included in loans and other credit-related commitments and financial guarantees is $87bn relating to unsettled reverse repurchase agreements, which once drawn are classified as 'Reverse repurchase agreements - non-trading'.

 
 Total wholesale lending for loans and advances to banks and customers 
  by stage distribution 
                                                                   Gross carrying amount                   Allowance for ECL 
                                                                                             ------- 
                                                                 Stage   Stage  Stage  POCI    Total  Stage  Stage    Stage  POCI      Total 
                                                                     1       2      3                     1      2        3 
                                                                    $m      $m     $m    $m       $m     $m     $m       $m    $m         $m 
                                                                                             -------                               --------- 
 Corporate and commercial                                      472,253  59,599  8,315   332  540,499  (672)  (920)  (3,747)  (99)  (5,438) 
                                                               -------  ------  -----  ----  -------  ----   ----   ------   ---   ------ 
 
   *    agriculture, forestry and fishing                        5,416   1,000    278     2    6,696   (13)   (29)    (139)   (1)    (182) 
 
   *    mining and quarrying                                     9,923   4,189    311    12   14,435   (22)   (70)    (122)  (12)    (226) 
 
   *    manufacturing                                           88,138  14,525  1,581   136  104,380  (143)  (211)    (806)  (50)  (1,210) 
 
   *    electricity, gas, steam and air-conditioning supply     13,479   1,386    175     -   15,040   (14)   (41)     (25)    -      (80) 
 
   *    water supply, sewerage, waste management and 
        remediation                                              2,963     508     30     -    3,501    (6)    (4)     (18)    -      (28) 
 - construction                                                 10,520   3,883    852    32   15,287   (16)   (49)    (467)  (32)    (564) 
 
   *    wholesale and retail trade, repair of motor vehicles 
        and motorcycles                                         83,151   9,897  1,625     8   94,681  (111)  (137)    (934)   (2)  (1,184) 
 
   *    transportation and storage                              22,604   2,359    588    29   25,580   (42)   (37)    (158)    -     (237) 
 
   *    accommodation and food                                  20,109   4,284    262     1   24,656   (37)   (46)     (62)   (1)    (146) 
 
   *    publishing, audiovisual and broadcasting                18,103   1,706    141    21   19,971   (30)   (23)     (33)   (1)     (87) 
 - real estate                                                 122,972   6,450  1,329     1  130,752  (108)   (97)    (475)    -     (680) 
 
   *    professional, scientific and technical activities       21,085   2,687    350     -   24,122   (31)   (33)    (145)    -     (209) 
 
   *    administrative and support services                     21,370   3,817    438    89   25,714   (33)   (58)    (179)    -     (270) 
 
   *    public administration and defence, compulsory social 
        security                                                 1,889     488      -     -    2,377    (1)    (7)       -     -       (8) 
 - education                                                     1,700     184     16     -    1,900    (7)    (5)      (6)    -      (18) 
 - health and care                                               3,543     811    111     -    4,465    (9)   (20)     (28)    -      (57) 
 
   *    arts, entertainment and recreation                       2,537     257     30     -    2,824    (6)    (8)     (11)    -      (25) 
 - other services                                               13,143     941    191     1   14,276   (35)   (31)    (133)    -     (199) 
 - activities of 
  households                                                       725      66      -     -      791     -      -        -     -        - 
 
   *    extra-territorial organisations and bodies activities        2       -      -     -        2     -      -        -     -        - 
 - government                                                    8,159     147      7     -    8,313    (6)    (2)      (6)    -      (14) 
 - asset-backed securities                                         722      14      -     -      736    (2)   (12)       -     -      (14) 
-------------------------------------------------------------  -------  ------  -----  ----  -------  ----   ----   ------   ---   ------ 
 Non-bank financial 
  institutions                                                  65,661   4,832    212     -   70,705   (42)   (28)     (90)    -     (160) 
                                                                                                      ----   ----   ------   ---   ------ 
 Loans and advances 
  to banks                                                      67,769   1,450      -     -   69,219   (14)    (2)       -     -      (16) 
-------------------------------------------------------------  -------  ------  -----  ----  -------  ----   ----   ------   ---   ------ 
 At 31 Dec 2019                                                605,683  65,881  8,527   332  680,423  (728)  (950)  (3,837)  (99)  (5,614) 
-------------------------------------------------------------  -------  ------  -----  ----  -------  ----   ----   ------   ---   ------ 
 By geography 
 Europe                                                        190,528  20,276  4,671   129  215,604  (318)  (458)  (1,578)  (45)  (2,399) 
                                                               -------  ------  -----  ----  -------  ----   ----   ------   ---   ------ 
 
   *    of which: UK                                           131,007  16,253  3,343    79  150,682  (252)  (385)    (989)  (32)  (1,658) 
                                                               -------  ------  -----  ----  -------  ----   ----   ------   ---   ------ 
 Asia                                                          308,305  32,287  1,419   148  342,159  (228)  (253)    (986)  (38)  (1,505) 
                                                               -------  ------  -----  ----  -------  ----   ----   ------   ---   ------ 
 
   *    of which: Hong Kong                                    182,501  23,735    673    48  206,957  (118)  (172)    (475)  (28)    (793) 
-------------------------------------------------------------  -------  ------  -----  ----  -------  ----   ----   ------   ---   ------ 
 MENA                                                           25,470   3,314  1,686    18   30,488   (55)   (85)    (946)  (12)  (1,098) 
 North America                                                  64,501   7,495    458     -   72,454   (45)   (96)    (141)    -     (282) 
 Latin America                                                  16,879   2,509    293    37   19,718   (82)   (58)    (186)   (4)    (330) 
-------------------------------------------------------------  -------  ------  -----  ----  -------  ----   ----   ------   ---   ------ 
 At 31 Dec 2019                                                605,683  65,881  8,527   332  680,423  (728)  (950)  (3,837)  (99)  (5,614) 
-------------------------------------------------------------  -------  ------  -----  ----  -------  ----   ----   ------   ---   ------ 
 
 
 Total wholesale lending for loans and other credit-related commitments 
  and financial guarantees by stage distribution(1) 
                                         Nominal amount                      Allowance for ECL 
                               Stage   Stage  Stage  POCI    Total  Stage  Stage  Stage  POCI    Total 
                                   1       2      3                     1      2      3 
                                  $m      $m     $m    $m       $m     $m     $m     $m    $m       $m 
 Corporate and commercial    271,678  20,880    757    13  293,328  (132)  (151)   (68)     -  (351) 
 Financial                   101,345   1,447      5     -  102,797    (7)    (2)    (1)     -   (10) 
---------------------------  -------  ------  -----  ----  -------  ----   ----   ----   ----  ---- 
 At 31 Dec 2019              373,023  22,327    762    13  396,125  (139)  (153)   (69)     -  (361) 
---------------------------  -------          -----  ----  -------         ----          ----  ---- 
 By geography 
 Europe                      190,604   7,852    645    13  199,114   (60)   (43)   (56)     -  (159) 
                             -------  ------  -----  ----  -------  ----   ----   ----   ----  ---- 
 
   *    of which: UK          76,013   4,193    494     9   80,709   (48)   (32)   (31)     -  (111) 
 Asia                         60,759   3,762      8     -   64,529   (43)   (33)    (4)     -   (80) 
                             -------  ------  -----  ----  -------  ----   ----   ----   ----  ---- 
 
   *    of which: Hong Kong   27,047   2,114      5     -   29,166   (14)   (23)    (2)     -   (39) 
---------------------------  -------          -----  ----  -------         ----          ----  ---- 
 MENA                          5,690     621     31     -    6,342   (12)   (13)    (4)     -   (29) 
 North America               112,812   9,933     77     -  122,822   (22)   (62)    (5)     -   (89) 
 Latin America                 3,158     159      1     -    3,318    (2)    (2)     -      -    (4) 
---------------------------  -------  ------  -----  ----  -------  ----   ----   ----   ----  ---- 
 At 31 Dec 2019              373,023  22,327    762    13  396,125  (139)  (153)   (69)     -  (361) 
---------------------------  -------          -----  ----  -------         ----          ----  ---- 
 

1 Included in loans and other credit-related commitments and financial guarantees is $53bn relating to unsettled reverse repurchase agreements, which once drawn are classified as 'Reverse repurchase agreements - non-trading'.

Supplementary information

The following disclosure presents the gross carrying/nominal amount of financial instruments to which the impairment requirements in IFRS 9 are applied by global business and the associated allowance for ECL.

Change in reportable segments

Effective from 30 June 2020, we made the following realignments within our internal reporting:

-- We simplified our matrix organisational structure by merging Global Private Banking and Retail Banking and Wealth Management to form Wealth and Personal Banking ('WPB'). The impact of this change is to merge the Global Private Banking's and Retail Banking and Wealth Management's gross carrying/nominal values and the associated allowance for ECL into WPB.

-- We reallocated Balance Sheet Management from Corporate Centre to the global businesses. The impact of this change is to transfer the Balance Sheet Management's gross carrying/nominal values and the associated allowance for ECL from Corporate Centre into the other global businesses.

Comparative data have been re-presented accordingly. There is no impact upon total gross carrying/nominal values, total allowance for ECL or the staging of financial instruments.

 
 Summary of financial instruments to which the impairment requirements 
  in IFRS 9 are applied - by global business 
                        Gross carrying/nominal amount                      Allowance for ECL 
                     Stage    Stage   Stage                     Stage    Stage    Stage 
                         1        2       3  POCI      Total        1        2        3  POCI       Total 
                        $m       $m      $m    $m         $m       $m       $m       $m    $m          $m 
Loans and 
 advances 
 to customers 
 at amortised 
 cost              852,678  161,795  17,139   296  1,031,908  (1,906)  (4,553)  (6,669)  (99)  (13,227) 
                            -------  ------  ----             ------   ------   ------   ---   ------- 
- WPB              399,922   28,625   5,452     -    433,999    (924)  (2,123)  (1,467)    -    (4,514) 
- CMB              246,831   95,965   8,682   209    351,687    (768)  (1,938)  (4,343)  (70)   (7,119) 
- GBM              204,704   37,141   3,005    87    244,937    (214)    (480)    (859)  (29)   (1,582) 
- Corporate 
 Centre              1,221       64       -     -      1,285       -      (12)       -     -       (12) 
                 ---------  -------                                             ------   --- 
Loans and 
 advances 
 to banks at 
 amortised 
 cost               71,693    5,367       9     -     77,069     (26)     (23)      (5)    -       (54) 
                 ---------  -------                                             ------   --- 
- WPB               14,888      589       -     -     15,477      (4)      (2)       -     -        (6) 
- CMB               10,302      345       -     -     10,647      (2)      (3)       -     -        (5) 
- GBM               31,367    4,140       9     -     35,516     (13)     (17)      (5)    -       (35) 
- Corporate 
 Centre             15,136      293       -     -     15,429      (7)      (1)       -     -        (8) 
                 ---------  -------                                             ------   --- 
Other financial 
 assets 
 measured at 
 amortised 
 cost              744,724    6,915     232     1    751,872     (96)     (63)     (84)    -      (243) 
                 ---------  -------                                             ------   --- 
- WPB              147,136    1,804     110     -    149,050     (62)     (32)     (46)    -      (140) 
- CMB               86,603    3,290      62     1     89,956     (15)     (25)     (27)    -       (67) 
- GBM              426,407    1,692      43     -    428,142     (19)      (6)     (11)    -       (36) 
- Corporate 
 Centre             84,578      129      17     -     84,724       -        -        -     -         - 
Total gross 
 carrying 
 amount 
 on-balance 
 sheet at 30 
 Jun 2020        1,669,095  174,077  17,380   297  1,860,849  (2,028)  (4,639)  (6,758)  (99)  (13,524) 
                 ---------  -------  ------  ----             ------   ------   ------   ---   ------- 
Loans and other 
 credit-related 
 commitments       594,400   52,698   1,055     3    648,156    (193)    (339)     (90)    -      (622) 
                 ---------  -------                                             ------   --- 
- WPB              218,348    3,627     208     -    222,183     (27)      (5)       -     -       (32) 
- CMB               96,980   30,578     747     3    128,308    (101)    (204)     (50)    -      (355) 
- GBM              278,848   18,493     100     -    297,441     (65)    (130)     (40)    -      (235) 
- Corporate 
 Centre                224        -       -     -        224       -        -        -     -         - 
Financial 
 guarantees         13,129    4,903     295     1     18,328     (28)     (73)     (18)    -      (119) 
                            -------                                             ------ 
- WPB                  896       46       2     -        944       -        -        -     -         - 
- CMB                4,971    3,014     164     1      8,150     (11)     (47)     (16)    -       (74) 
- GBM                7,261    1,843     129     -      9,233     (17)     (26)      (2)    -       (45) 
- Corporate 
 Centre                  1        -       -     -          1       -        -        -     -         - 
Total nominal 
 amount 
 off-balance 
 sheet 
 at 30 Jun 2020    607,529   57,601   1,350     4    666,484    (221)    (412)    (108)    -      (741) 
                 ---------  -------  ------  ----             ------   ------   ------   ---   ------- 
WPB                160,143    3,476     176     -    163,795     (41)      (6)     (81)    -      (128) 
CMB                 98,425      497      55     -     98,977     (25)      (2)     (14)    -       (41) 
GBM                133,565      275      49     -    133,889     (35)      (1)      (4)    -       (40) 
Corporate 
 Centre              4,821      849       -     -      5,670     (23)      (9)      (1)    -       (33) 
                            -------                                             ------ 
Debt 
 instruments 
 measured at 
 FVOCI 
 at 30 Jun 2020    396,954    5,097     280     -    402,331    (124)     (18)    (100)    -      (242) 
                 ---------  -------                                             ------   --- 
 
 
 Summary of financial instruments to which the impairment requirements 
  in IFRS 9 are applied - by global business (continued)(1) 
                           Gross carrying/nominal 
                                   amount                                Allowance for ECL 
                     Stage   Stage   Stage                     Stage    Stage    Stage 
                         1       2       3  POCI      Total        1        2        3  POCI      Total 
                        $m      $m      $m    $m         $m       $m       $m       $m    $m         $m 
Loans and 
 advances to 
 customers at 
 amortised 
 cost              951,583  80,182  13,378   332  1,045,475  (1,297)  (2,284)  (5,052)  (99)  (8,732) 
 
- WPB              424,342  16,797   5,131     -    446,270    (602)  (1,330)  (1,312)    -   (3,244) 
- CMB              297,364  46,423   6,649   212    350,648    (520)    (765)  (3,190)  (68)  (4,543) 
- GBM              228,770  16,934   1,598   120    247,422    (173)    (177)    (550)  (31)    (931) 
- Corporate 
 Centre              1,107      28       -     -      1,135      (2)     (12)       -     -      (14) 
                 ---------  ------ 
Loans and 
 advances to 
 banks at 
 amortised cost     67,769   1,450       -     -     69,219     (14)      (2)       -     -      (16) 
                 ---------  ------                --------- 
- WPB               14,636     393       -     -     15,029      (1)      (1)       -     -       (2) 
- CMB                8,842     219       -     -      9,061      (2)       -        -     -       (2) 
- GBM               30,391     818       -     -     31,209      (9)      (1)       -     -      (10) 
- Corporate 
 Centre             13,900      20       -     -     13,920      (2)       -        -     -       (2) 
                 ---------  ------ 
Other financial 
 assets 
 measured at 
 amortised 
 cost              613,200   1,827     151     1    615,179     (38)     (38)     (42)    -     (118) 
                 ---------  ------                --------- 
- WPB              109,423     548      41     -    110,012     (21)     (30)      (5)    -      (56) 
- CMB               64,586     904      51     1     65,542     (10)      (7)     (26)    -      (43) 
- GBM              361,541     374      37     -    361,952      (7)      (1)     (11)    -      (19) 
- Corporate 
 Centre             77,650       1      22     -     77,673       -        -        -     -        - 
Total gross 
 carrying 
 amount 
 on-balance 
 sheet at 
 31 Dec 2019     1,632,552  83,459  13,529   333  1,729,873  (1,349)  (2,324)  (5,094)  (99)  (8,866) 
                 ---------  ------ 
Loans and other 
 credit-related 
 commitments       577,631  21,618     771     9    600,029    (137)    (133)     (59)    -     (329) 
                 ---------  ------                --------- 
- WPB              213,093   1,945     185     -    215,223     (15)      (1)       -     -      (16) 
- CMB              117,703  11,403     558     9    129,673     (69)     (65)     (56)    -     (190) 
- GBM              246,805   8,270      28     -    255,103     (53)     (67)      (3)    -     (123) 
- Corporate 
 Centre                 30       -       -     -         30       -        -        -     -        - 
Financial 
 guarantees         17,684   2,340     186     4     20,214     (16)     (22)     (10)    -      (48) 
                 --------- 
- WPB                  972       4       1     -        977       -        -        -     -        - 
- CMB                7,446   1,442     105     4      8,997      (9)     (12)      (6)    -      (27) 
- GBM                9,263     894      80     -     10,237      (7)     (10)      (4)    -      (21) 
- Corporate 
 Centre                  3       -       -     -          3       -        -        -     -        - 
Total nominal 
 amount 
 off-balance 
 sheet at 
 31 Dec 2019       595,315  23,958     957    13    620,243    (153)    (155)     (69)    -     (377) 
                 ---------  ------ 
WPB                144,632     378       -     -    145,010     (13)     (81)       -     -      (94) 
CMB                 85,353      62       -     1     85,416      (5)     (19)       -     -      (24) 
GBM                118,571      68       -     -    118,639      (9)     (16)       -     -      (25) 
Corporate 
 Centre              6,093     506       -     -      6,599     (12)     (11)       -     -      (23) 
                 --------- 
Debt 
 instruments 
 measured 
 at FVOCI at 
 31 Dec 2019       354,649   1,014       -     1    355,664     (39)    (127)       -     -     (166) 
                 ---------  ------ 
 
   1     2019 figures are restated for the change in reportable segments. 
 
 Wholesale lending - loans and advances to customers at amortised cost 
  by country/territory 
                               Gross carrying amount                               Allowance for ECL 
                    Corporate  Of which:      Non-bank              Corporate     Of which:        Non-bank 
                          and       real     financial                    and          real       financial 
                   commercial  estate(1)  institutions    Total    commercial     estate(1)    institutions      Total 
                           $m         $m            $m       $m            $m            $m              $m         $m 
                   ----------  ---------  ------------  -------  ------------  ------------  --------------  --------- 
 Europe               173,614     24,803        24,680  198,294    (3,429)         (497)          (196)      (3,625) 
 - UK                 121,692     17,703        17,856  139,548    (2,570)         (444)          (130)      (2,700) 
 - France              30,550      5,292         4,204   34,754      (541)          (30)           (59)        (600) 
 - Germany             10,608        405         1,436   12,044      (121)            -             (3)        (124) 
 - Switzerland          1,396        336           340    1,736        (2)            -              -           (2) 
 - other                9,368      1,067           844   10,212      (195)          (23)            (4)        (199) 
                   ----------  ---------  ------------  -------  --------      --------      ---------       ------ 
 Asia                 265,105     83,623        33,259  298,364    (2,520)         (152)           (57)      (2,577) 
 - Hong Kong          167,960     66,928        20,833  188,793      (956)          (56)           (28)        (984) 
 - Australia           10,931      1,951         1,554   12,485       (82)          (11)             -          (82) 
 - India                7,076      1,761         3,043   10,119       (82)          (23)            (7)         (89) 
 - Indonesia            3,974         58           196    4,170      (254)           (1)            (1)        (255) 
 - mainland China      27,838      5,528         5,832   33,670      (217)          (44)           (19)        (236) 
 - Malaysia             7,347      1,749           256    7,603       (65)           (6)             -          (65) 
 - Singapore           18,347      4,123           671   19,018      (754)           (6)            (1)        (755) 
 - Taiwan               5,374         14            36    5,410         0             -              -            0 
 - other               16,258      1,511           838   17,096      (110)           (5)            (1)        (111) 
                   ----------  ---------  ------------  -------  --------      --------      ---------       ------ 
Middle East and 
 North 
 Africa 
 (excluding Saudi 
 Arabia)               25,311      1,996           311   25,622    (1,364)         (191)           (16)      (1,380) 
 - Egypt                2,214         36            14    2,228      (147)           (4)            (3)        (150) 
 - UAE                 14,820      1,837           190   15,010      (893)         (183)           (10)        (903) 
 - other                8,277        123           107    8,384      (324)           (4)            (3)        (327) 
                   ----------  ---------  ------------  -------  --------      --------      ---------       ------ 
 North America         63,296     14,618         9,863   73,159      (751)          (95)           (13)        (764) 
 - US                  39,828      8,376         8,286   48,114      (418)          (45)            (3)        (421) 
 - Canada              22,597      5,982         1,450   24,047      (299)          (26)            (5)        (304) 
 - other                  871        260           127      998       (34)          (24)            (5)         (39) 
                   ----------  ---------  ------------  -------  --------      --------      ---------       ------ 
 Latin America         12,982      1,770         1,303   14,285      (473)          (42)            (7)        (480) 
 - Mexico              10,910      1,768         1,270   12,180      (353)          (42)            (7)        (360) 
 - other                2,072          2            33    2,105      (120)            -              -         (120) 
-----------------  ----------  ---------  ------------  -------  -------- 
 At 30 Jun 2020       540,308    126,810        69,416  609,724    (8,537)         (977)          (289)      (8,826) 
-----------------  ----------  ---------  ------------  -------  --------      --------      ---------       ------ 
 
 
 Europe                    175,215   26,587  26,497  201,712  (2,304)  (354)   (81)  (2,385) 
 - UK                      126,760   18,941  18,545  145,305  (1,629)  (303)   (26)  (1,655) 
 - France                   27,885    5,643   4,899   32,784    (423)   (28)   (52)    (475) 
 - Germany                   9,771      390   1,743   11,514     (60)     -      -      (60) 
 - Switzerland               1,535      554     406    1,941      (1)     -      -       (1) 
 - other                     9,264    1,059     904   10,168    (191)   (23)    (3)    (194) 
                           -------  -------  ------  -------  ------   ---- 
 Asia                      267,709   85,556  32,157  299,866  (1,449)   (94)   (52)  (1,501) 
 - Hong Kong               168,380   67,856  19,776  188,156    (750)   (51)   (40)    (790) 
 - Australia                11,428    1,993   1,743   13,171     (70)    (3)     -      (70) 
 - India                     6,657    1,565   2,622    9,279     (49)    (3)    (1)     (50) 
 - Indonesia                 4,346       63     353    4,699    (222)    (1)    (2)    (224) 
 - mainland China           26,594    5,304   5,911   32,505    (198)   (29)    (8)    (206) 
 - Malaysia                  6,914    1,597     230    7,144     (40)    (2)     -      (40) 
 - Singapore                19,986    5,235     618   20,604     (60)    (2)     -      (60) 
 - Taiwan                    6,384       28      82    6,466      (2)     -      -       (2) 
 - other                    17,020    1,915     822   17,842     (58)    (3)    (1)     (59) 
                           -------           ------  -------  ------   ---- 
Middle East and North 
 Africa (excluding Saudi 
 Arabia)                    23,447    1,816     288   23,735  (1,087)  (181)   (13)  (1,100) 
 
 - Egypt                     1,889       35      16    1,905    (132)     -     (3)    (135) 
 - UAE                      13,697    1,695     122   13,819    (683)  (179)    (7)    (690) 
 - other                     7,861       86     150    8,011    (272)    (2)    (3)    (275) 
                           -------  -------  ------  -------  ------   ---- 
 North America              59,680   15,128  10,078   69,758    (274)   (43)   (11)    (285) 
 - US                       34,477    8,282   8,975   43,452    (116)   (14)    (2)    (118) 
 - Canada                   24,427    6,556     979   25,406    (136)   (10)    (4)    (140) 
 - other                       776      290     124      900     (22)   (19)    (5)     (27) 
                           -------  -------  ------  -------  ------   ---- 
 Latin America              14,448    1,665   1,685   16,133    (324)    (8)    (3)    (327) 
 - Mexico                   12,352    1,664   1,625   13,977    (221)    (8)    (3)    (224) 
 - other                     2,096        1      60    2,156    (103)     -      -     (103) 
-------------------------  -------  -------  ------  -------  ------ 
 At 31 Dec 2019            540,499  130,752  70,705  611,204  (5,438)  (680)  (160)  (5,598) 
------------------------- 
 

1 Real estate lending within this disclosure corresponds solely to the industry of the borrower.

 
 Personal lending - loans and advances to customers at amortised cost 
  by country/territory 
                             Gross carrying amount                           Allowance for ECL 
                         First                                         First 
                          lien             Of which:                    lien             Of which: 
                   residential      Other     credit             residential      Other     credit 
                     mortgages   personal      cards    Total      mortgages   personal      cards      Total 
                            $m         $m         $m       $m             $m         $m         $m         $m 
                   -----------  ---------  ---------  -------  -------------  ---------  ---------  --------- 
 Europe                139,270     46,850      7,395  186,120       (434)       (1,625)      (649)  (2,059) 
 - UK                  132,005     18,227      7,046  150,232       (318)       (1,429)      (644)  (1,747) 
 - France(1)             3,434     21,733        303   25,167        (40)         (107)        (3)    (147) 
 - Germany                   -        308          -      308          -             -          -        - 
 - Switzerland           1,127      6,247          -    7,374         (3)          (70)         -      (73) 
 - other                 2,704        335         46    3,039        (73)          (19)        (2)     (92) 
                   -----------  ---------  ---------  -------  ---------      --------              ------ 
 Asia                  134,104     45,752     10,719  179,856        (63)         (843)      (566)    (906) 
                                                               --------- 
 - Hong Kong            89,284     32,101      7,276  121,385         (1)         (393)      (262)    (394) 
 - Australia            17,727        577        498   18,304        (12)          (51)       (49)     (63) 
 - India                   919        590        206    1,509         (8)          (28)       (20)     (36) 
 - Indonesia                66        277        156      343          -           (38)       (27)     (38) 
 - mainland China        8,892      1,114        615   10,006         (4)          (97)       (85)    (101) 
 - Malaysia              2,646      2,859        801    5,505        (28)          (96)       (49)    (124) 
 - Singapore             6,473      6,208        330   12,681          -           (70)       (23)     (70) 
 - Taiwan                5,232      1,004        241    6,236          -           (15)        (5)     (15) 
 - other                 2,865      1,022        596    3,887        (10)          (55)       (46)     (65) 
                   -----------  ---------  ---------  -------                 --------   --------   ------ 
Middle East and 
 North 
 Africa 
 (excluding Saudi 
 Arabia)                 2,263      3,500        819    5,763        (71)         (322)      (161)    (393) 
                   -----------  ---------  ---------  -------  ---------      --------   --------   ------ 
 - Egypt                     -        336         80      336          -            (7)        (3)      (7) 
 - UAE                   1,900      1,282        408    3,182        (66)         (189)      (104)    (255) 
 - other                   363      1,882        331    2,245         (5)         (126)       (54)    (131) 
                   -----------  ---------  ---------  -------  ---------      --------   --------   ------ 
 North America          39,323      4,551      1,446   43,874       (144)         (310)      (242)    (454) 
 - US                   18,341      2,295      1,199   20,636        (16)         (276)      (235)    (292) 
 - Canada               19,814      2,073        212   21,887        (26)          (26)        (6)     (52) 
 - other                 1,168        183         35    1,351       (102)           (8)        (1)    (110) 
                   -----------  ---------  ---------  -------  ---------      --------   --------   ------ 
 Latin America           3,125      3,446      1,237    6,571        (94)         (495)      (239)    (589) 
 - Mexico                2,982      2,968        990    5,950        (93)         (455)      (218)    (548) 
 - other                   143        478        247      621         (1)          (40)       (21)     (41) 
-----------------  -----------  ---------  ---------  -------  ---------      --------   --------   ------ 
 At 30 Jun 2020        318,085    104,099     21,616  422,184       (806)       (3,595)    (1,857)  (4,401) 
-----------------  -----------  ---------  ---------  -------  ---------      --------   --------   ------ 
 
 
 Europe                    145,382   50,368  10,246  195,750  (266)    (962)    (438)  (1,228) 
 - UK                      137,985   22,395   9,816  160,380  (159)    (828)    (434)    (987) 
 - France(1)                 3,520   21,120     376   24,640   (39)    (101)      (3)    (140) 
 - Germany                       -      325       -      325     -        -        -        - 
 - Switzerland               1,183    6,165       -    7,348    (6)     (17)       -      (23) 
 - other                     2,694      363      54    3,057   (62)     (16)      (1)     (78) 
                           -------  -------  ------  -------         ------   ------ 
 Asia                      131,864   48,231  12,144  180,095   (42)    (690)    (463)    (732) 
 - Hong Kong                86,892   33,061   8,043  119,953    (1)    (353)    (242)    (354) 
 - Australia                16,997      693     603   17,690    (5)     (34)     (33)     (39) 
 - India                     1,047      528     219    1,575    (5)     (21)     (15)     (26) 
 - Indonesia                    67      329     204      396     -      (24)     (18)     (24) 
 - mainland China            8,966    1,190     656   10,156    (2)     (74)     (68)     (76) 
 - Malaysia                  2,840    3,200     980    6,040   (22)     (73)     (33)     (95) 
 - Singapore                 6,687    7,033     452   13,720    (1)     (60)     (19)     (61) 
 - Taiwan                    5,286    1,004     297    6,290     0      (14)      (4)     (14) 
 - other                     3,082    1,193     690    4,275    (6)     (37)     (31)     (43) 
                           ------- 
Middle East and North 
 Africa (excluding Saudi 
 Arabia)                     2,303    3,914   1,042    6,217   (62)    (235)    (111)    (297) 
 
 - Egypt                         -      346      88      346     -       (3)      (1)      (3) 
 - UAE                       1,920    1,462     517    3,382   (59)    (121)     (54)    (180) 
 - other                       383    2,106     437    2,489    (3)    (111)     (56)    (114) 
                           -------  -------  ------  -------         ------   ------   ------ 
 North America              39,065    5,251   1,742   44,316  (122)    (194)    (142)    (316) 
 - US                       17,870    2,551   1,424   20,421    (8)    (160)    (134)    (168) 
 - Canada                   19,997    2,495     271   22,492   (21)     (25)      (7)     (46) 
 - other                     1,198      205      47    1,403   (93)      (9)      (1)    (102) 
                           -------  -------  ------  -------         ------   ------   ------ 
 Latin America               3,564    4,329   1,594    7,893   (37)    (524)    (241)    (561) 
 - Mexico                    3,419    3,780   1,308    7,199   (31)    (488)    (224)    (519) 
 - other                       145      549     286      694    (6)     (36)     (17)     (42) 
-------------------------  -------  -------          -------         ------            ------ 
 At 31 Dec 2019            322,178  112,093  26,768  434,271  (529)  (2,605)  (1,395)  (3,134) 
------------------------- 
 

1 Included in other personal lending as at 30 June 2020 is $18,406m (31 December 2019: $17,585m) guaranteed by Crédit Logement.

 
 Capital and liquidity risk 
 
 
                                         Page 
 Overview                                  77 
---------------------------------------  ---- 
 Capital risk management                   77 
 Capital risk in the first half 
  of 2020                                  78 
 Capital overview                          78 
Regulatory transitional arrangements 
 for IFRS 9 
 'Financial Instruments'                   78 
 Own funds                                 79 
 Risk-weighted assets                      79 
                                         ---- 
 Leverage ratio                            81 
                                         ---- 
 Regulatory disclosures                    82 
---------------------------------------  ---- 
 Liquidity and funding risk management     82 
---------------------------------------  ---- 
 Liquidity and funding risk in 
  the first half of 2020                   82 
---------------------------------------  ---- 
 Operating entities liquidity              82 
---------------------------------------  ---- 
 Sources of funding                        83 
---------------------------------------  ---- 
 

Overview

Capital and liquidity risk is the risk of having insufficient capital, liquidity or funding resources to meet financial obligations and satisfy regulatory requirements, including pension risk.

Capital and liquidity risk arises from changes to the respective resources and risk profiles driven by customer behaviour, management decisions or the external environment.

A summary of our current policies and practices regarding the management of capital and liquidity risk is set out on pages 130 and 131 of the Annual Report and Accounts 2019.

Capital risk management

Overview

Capital risk is the risk that we fail to meet our regulatory capital requirements either at Group, subsidiary or branch level.

Key developments in the first half of 2020

The management of capital was a key focus in the first half of 2020 to ensure the Group responded to unprecedented customer and capital demands arising from the Covid-19 outbreak.

In response to a written request from the PRA, we cancelled the fourth interim dividend for 2019 of $0.21 per ordinary share. Similar requests were also made to other UK incorporated banking groups. We also announced that until the end of 2020 we will make no quarterly or interim dividend payments or accruals in respect of ordinary shares. We also plan to suspend share buy-backs in respect of ordinary shares in 2020 and 2021.

Governments, central banks and regulatory authorities globally have responded to the Covid-19 outbreak to ensure continued support and provision of financial services to the real economy. The Financial Policy Committee announced a reduction of the UK countercyclical buffer rate to 0% effective from March 2020. This change was reflected in the Group's risk appetite statement, and together with other regulatory relief, resulted in a reduction to Group CET1 and leverage ratio requirements.

In the EU, the relief measures include an acceleration of some of the beneficial elements of the amendments to the Capital Requirements Regulation ('CRR II') that were originally scheduled for June 2021. The relevant changes impacting 1H20 positions included a resetting of the transitional provisions in relation to recognising IFRS 9 provisions and netting the leverage ratio exposure measure of regular-way purchases and sales. Additionally, there were beneficial changes to prudent valuation adjustments and market risk back-testing exemptions.

In 1H20, all entities remained within the CET1 risk appetite and the Group continues to maintain the appropriate resources required to adequately support risks to which it is exposed. This has been further informed by additional internal stress tests carried out in response to the Covid-19 outbreak. Capital risk management practices continued to be enhanced across the Group through the capital risk management function, focusing on both adequacy of capital and sufficiency of returns.

Approach and policy

The objectives of our capital management policy are to maintain a strong capital base to support the risks inherent in our business and invest in accordance with our strategy, meeting both consolidated and local regulatory capital requirements at all times.

Our capital management policy is underpinned by a capital management framework and our internal capital adequacy assessment process ('ICAAP'). The framework incorporates key capital risk appetites for CET1, total capital, minimum required eligible liabilities ('MREL') and double leverage. The ICAAP is an assessment of the Group's capital position, outlining both regulatory and internal capital resources and requirements resulting from HSBC's business model, strategy, risk profile and management, performance and planning, risks to capital, and the implications of stress testing. Our assessment of capital adequacy is driven by an assessment of risks. These risks include credit, market, operational, pensions, insurance, structural foreign exchange and interest rate risk in the banking book. The Group ICAAP supports the determination of the consolidated risk appetite and target ratios as well as enables the assessment and determination of capital requirements by regulators. Subsidiaries prepare ICAAPs based on their local regulatory regimes in order to determine their own risk appetites and ratios.

The holding company has a portfolio of high-quality liquid assets ('HQLA'). This mitigates holding company cash flow risk arising from double leverage and underpins the strength of support it can offer to its subsidiaries in times of stress.

Planning and performance

Capital and risk-weighted asset ('RWA') plans form part of the annual operating plan that is approved by the Board. Capital and RWA forecasts are submitted to the Group Executive Committee on a monthly basis, and capital and RWAs are monitored and managed against the plan. The responsibility for global capital allocation principles rests with the Group Chief Financial Officer, supported by the Group Capital Management Meeting. This is a specialist forum addressing capital management, reporting into the Holdings Asset and Liability Management Committee. Through our internal governance processes, we strengthen discipline over our investment and capital allocation decisions, and aim to ensure that returns on investment meet the Group's management objectives. Our strategy is to allocate capital to businesses and entities to support growth objectives and local economies where returns above internal hurdle levels have been identified and in order to meet their regulatory and economic capital needs. We evaluate and manage business returns by using a return on average tangible equity measure.

Risks to capital

Outside the stress testing framework, other risks may be identified that have the potential to affect our RWAs and/or capital position. Downside and Upside scenarios are assessed against our capital management objectives and mitigating actions are assigned as necessary. We closely monitor and consider future regulatory change. We continue to evaluate the impact upon our capital requirements of regulatory developments, including the CRR II amendments, the Basel III reforms package and the UK's withdrawal from the EU.

As part of the CRR II amendments in response to the Covid-19 outbreak, the EU accelerated the application of the revised small and medium-sized enterprises ('SME') supporting factor and the new infrastructure supporting factor. The accelerated application of the revised SME and infrastructure supporting factors will be implemented by the Group in the second half of 2020. Finalisation of the changes to the treatment of software intangible assets are also expected in the second half of 2020.

The Basel Committee has recommended a one-year delay in effective date, which means Basel III reforms are now expected to impact from 1 January 2023.

Stress testing and recovery planning

In addition to a range of internal stress tests, we are subject to supervisory stress testing in many jurisdictions. Supervisory stress testing requirements are increasing in the granularity with which the results are required. These exercises include the programmes of the UK PRA, the US Federal Reserve Board, the European Banking Authority ('EBA'), the European Central Bank ('ECB') and the Hong Kong Monetary Authority, as well as stress tests undertaken in other jurisdictions. We take into account the results of regulatory stress testing and our internal stress tests when assessing our internal capital requirements. The outcome of stress testing exercises carried out by the PRA also feeds into a PRA buffer under Pillar 2 requirements.

The Group and its subsidiaries have recovery plans that set out potential options that management could take in a range of stress scenarios that could result in a breach of our internal capital buffers. This is to help ensure that our capital position can be recovered even in an extreme stress.

During 1H20, in light of the Covid-19 outbreak, we carried out additional internal testing on a baseline and stressed scenario. The results of these stress tests were considered in determining capital actions to manage the Group's position.

Capital risk in the first half of 2020

Capital overview

 
 Capital adequacy metrics 
                                   At 
                            30 Jun    31 Dec 
                              2020      2019 
Risk-weighted assets 
 ('RWAs') ($bn) 
Credit risk                  686.7   676.6 
Counterparty credit 
 risk                         43.1    44.1 
Market risk                   35.2    29.9 
Operational risk              89.6    92.8 
                            ------ 
Total RWAs                   854.6   843.4 
                            ------  ------ 
Capital on a transitional 
 basis ($bn) 
Common equity tier 
 1 ('CET1') capital          128.4   124.0 
                            ------  ------ 
Tier 1 capital               152.5   148.4 
                            ------ 
Total capital                177.2   172.2 
                            ------ 
Capital ratios on a 
 transitional basis 
 (%) 
Common equity tier 
 1 ratio                      15.0    14.7 
Tier 1 ratio                  17.8    17.6 
                            ------ 
Total capital ratio           20.7    20.4 
                            ------  ------ 
Capital on an end point 
 basis ($bn) 
Common equity tier 
 1 ('CET1') capital          128.4   124.0 
                            ------ 
Tier 1 capital               149.4   144.8 
                            ------ 
Total capital                164.4   159.3 
                            ------ 
Capital ratios on an 
 end point basis (%) 
Common equity tier 
 1 ratio                      15.0    14.7 
Tier 1 ratio                  17.5    17.2 
                            ------  ------ 
Total capital ratio           19.2    18.9 
                            ------ 
Liquidity coverage 
 ratio ('LCR') 
Total high-quality 
 liquid assets ($bn)         654.4   601.4 
Total net cash outflow 
 ($bn)                       442.9   400.5 
LCR ratio (%)                147.8   150.2 
                            ------  ------ 
 

Capital figures and ratios in the table above are calculated in accordance with the revisions to the Capital Requirements Regulation and Directive, as implemented ('CRR II'). The table presents them under the transitional arrangements in CRR II for capital instruments and after their expiry, known as the end point. The end point figures in the table above include the benefit of the regulatory transitional arrangements in CRR II for IFRS 9, which are more fully described below.

Where applicable, they also reflect government relief schemes intended to mitigate the impact of the Covid-19 outbreak.

Regulatory transitional arrangements for IFRS 9 'Financial Instruments'

We have adopted the regulatory transitional arrangements in CRR II for IFRS 9, including paragraph four of article 473a. Our capital and ratios are presented under these arrangements throughout the table above, including in the end point figures. Without their application, our CET1 ratio would be 14.9%.

The IFRS 9 regulatory transitional arrangements allow banks to add back to their capital base a proportion of the impact that IFRS 9 has upon their loan loss allowances during the first five years of use. The impact is defined as:

   --     the increase in loan loss allowances on day one of IFRS 9 adoption; and 
   --     any subsequent increase in ECL in the non-credit-impaired book thereafter. 

Any add-back must be tax affected and accompanied by a recalculation of capital deduction thresholds, exposure and RWAs. The impact is calculated separately for portfolios using the standardised ('STD') and internal ratings based ('IRB') approaches. For IRB portfolios, there is no add-back to capital unless loan loss allowances exceed regulatory 12-month expected losses.

The EU's CRR 'Quick Fix' relief package enacted in June 2020 increased from 70% to 100% the relief that banks may take for loan loss allowances recognised since 1 January 2020 on the

non-credit-impaired book.

In the current period, the add-back to CET1 capital amounted to $1.4bn under the STD approach with a tax impact of $0.3bn. At

31 December 2019, the add-back to the capital base under the STD approach was $1.0bn with a tax impact of $0.2bn.

Own funds

 
 Own funds disclosure 
                                                                              At 
                                                                        30 Jun      31 Dec 
                                                                          2020        2019 
Ref(*)                                                                      $m          $m 
 6      Common equity tier 1 capital before regulatory adjustments  159,557     153,280 
 28     Total regulatory adjustments to common equity tier 
         1                                                          (31,111)    (29,314) 
29      Common equity tier 1 capital                                128,446     123,966 
                                                                    -------     ------- 
 36     Additional tier 1 capital before regulatory adjustments      24,091      24,453 
 43     Total regulatory adjustments to additional tier 1 capital       (60)        (60) 
44      Additional tier 1 capital                                    24,031      24,393 
                                                                    -------     ------- 
45      Tier 1 capital                                              152,477     148,359 
                                                                    ------- 
 51     Tier 2 capital before regulatory adjustments                 26,181      25,192 
 57     Total regulatory adjustments to tier 2 capital               (1,416)     (1,401) 
58      Tier 2 capital                                               24,765      23,791 
                                                                    -------     ------- 
59      Total capital                                               177,242     172,150 
                                                                    ------- 
60      Total risk-weighted assets                                  854,552     843,395 
                                                                    ------- 
        Capital ratios                                                       %           % 
 61     Common equity tier 1 ratio                                     15.0        14.7 
62      Tier 1 ratio                                                   17.8        17.6 
                                                                    -------     ------- 
63      Total capital ratio                                            20.7        20.4 
                                                                    ------- 
 
   *     The references identify the lines prescribed in the EBA template. 

At 30 June 2020, our common equity tier 1 ('CET1') capital ratio increased to 15.0% from 14.7% at 31 December 2019. CET1 capital increased in 1H20 by $4.5bn, mainly as a result of:

   --    the cancellation of the 4Q19 unpaid dividend of $3.4bn at the PRA's request; 

-- a $1.8bn increase as a result of lower deductions for excess expected loss. ECL against IRB exposures rose by $4.3bn compared with 31 December 2019, while regulatory expected losses rose by $2.5bn;

-- capital generation of $1.7bn through profits, net of dividends relating to other equity instruments; and

   --    a $1.5bn increase in the fair value through other comprehensive income reserve. 

These increases were partly offset by:

   --     foreign currency translation differences of $3.7bn; and 

-- a $0.8bn fall in the allowable non-controlling interest in the CET1. This partly reflected the acquisition in May 2020 of additional shares representing 18.66% of the capital of HSBC Trinkaus & Burkhardt AG from Landesbank Baden-Württemberg, the principal minority shareholder.

At 30 June 2020, our Pillar 2A requirement was 3.1% of RWAs, of which 1.7% was met by CET1. This is based on a point-in-time view as per the PRA's Individual Capital Requirement assessment, and set as a nominal amount based on RWAs at 31 December 2019.

Throughout the first half of 2020, we complied with the PRA's regulatory capital adequacy requirements.

Risk-weighted assets

 
 RWAs by global business 
                                                Corporate 
                             WPB    CMB    GBM     Centre    Total 
                             $bn    $bn    $bn        $bn      $bn 
Credit risk                127.1  304.6  176.4       78.6  686.7 
Counterparty credit risk     0.6    0.2   41.1        1.2   43.1 
Market risk                  1.2    0.7   29.7        3.6   35.2 
Operational risk            32.9   25.4   30.4        0.9   89.6 
                           -----  -----  -----  ---------  ----- 
At 30 Jun 2020             161.8  330.9  277.6       84.3  854.6 
                           -----  -----  -----  ---------  ----- 
 
 
 RWAs by geographical region 
                                                          North     Latin 
                                  Europe   Asia  MENA   America   America    Total 
                       Footnotes     $bn    $bn   $bn       $bn       $bn      $bn 
Credit risk                        206.6  299.2  49.5     105.0      26.4  686.7 
Counterparty credit 
 risk                               22.7    9.8   1.3       7.6       1.7   43.1 
Market risk                1        26.4   20.8   1.7       6.3       1.1   35.2 
                      ----------  ------  -----  ----  --------  --------  ----- 
Operational risk                    22.8   44.9   6.1      11.7       4.1   89.6 
                      ----------  ------  -----  ----  --------  --------  ----- 
At 30 Jun 2020                     278.5  374.7  58.6     130.6      33.3  854.6 
                      ----------  ------  -----  ----  --------  --------  ----- 
 

1 Market risk RWAs are non-additive across geographical regions due to diversification effects within the Group.

 
 RWA movement by global businesses by key driver 
                                        Credit risk, counterparty credit 
                                            risk and operational risk 
                                                                                     Market     Total 
                                     WPB          CMB       GBM    Corporate Centre    risk      RWAs 
                                     $bn          $bn       $bn                 $bn     $bn       $bn 
RWAs at 1 Jan 2020             161.4        325.1        248.7             78.3       29.9   843.4 
                                          -------      -------   --------------      -----   ----- 
Asset size                       2.4          3.1          8.7              1.0        8.1    23.3 
Asset quality                    0.5         11.1          4.7              0.5          -    16.8 
Model updates                    0.7          0.6         (0.8)               -       (1.0)   (0.5) 
                                          -------      -------   --------------      -----   ----- 
Methodology and policy           0.6          0.4         (7.1)             1.5       (1.8)   (6.4) 
 
Foreign exchange movements      (5.0)       (10.1)        (6.3)            (0.6)         -   (22.0) 
                                          -------      -------   --------------      -----   ----- 
Total RWA movement              (0.8)         5.1         (0.8)             2.4        5.3    11.2 
                                          -------      -------   --------------      -----   ----- 
RWAs at 30 Jun 2020            160.6        330.2        247.9             80.7       35.2   854.6 
                                          -------      -------   --------------      -----   ----- 
 
 
 RWA movement by geographical region by key driver 
                                      Credit risk, counterparty credit 
                                          risk and operational risk 
                                                                North     Latin  Market     Total 
                                  Europe        Asia   MENA   America   America    risk      RWAs 
                                     $bn         $bn    $bn       $bn       $bn     $bn       $bn 
 RWAs at 1 Jan 2020            257.9       345.9      55.5     117.6      36.6    29.9   843.4 
---------------------------- 
 Asset size                      0.8         7.4       1.9       3.2       1.9     8.1    23.3 
 Asset quality                   3.9         5.9       0.6       6.1       0.3       -    16.8 
 Model updates                  (0.3)        0.6         -       0.2         -    (1.0)   (0.5) 
 Methodology and policy          1.3        (3.6)     (0.4)     (1.4)     (0.5)   (1.8)   (6.4) 
 Foreign exchange movements    (11.5)       (2.3)     (0.7)     (1.4)     (6.1)      -   (22.0) 
 
 Total RWA movement             (5.8)        8.0       1.4       6.7      (4.4)    5.3    11.2 
---------------------------- 
RWAs at 30 Jun 2020            252.1       353.9      56.9     124.3      32.2    35.2   854.6 
 
 

Risk-weighted assets ('RWAs') rose by $11.2bn during the first half of the year, including a reduction of $22.0bn due to foreign currency translation differences. The $33.2bn increase (excluding foreign currency translation differences) comprised the movements described by the following comments.

Asset size

The $23.3bn increase in RWAs was predominantly due to lending growth in GBM, CMB and WPB during 1Q20, and an $8.1bn increase in market risk RWAs. Increases in GBM credit risk and market risk RWAs were partly offset by reductions under management initiatives.

GBM RWAs rose by $8.7bn, with $12.2bn coming from lending growth - mostly in Europe, Asia and MENA. This was partly offset by active portfolio management measures of $4.6bn in the same regions. GBM counterparty credit risk RWAs rose by $1.2bn, largely as a result of mark-to-market movements. This was after the effect of management initiatives.

In CMB, the RWA increase of $3.1bn mainly resulted from lending growth in all regions, partly offset by a $3.3bn reduction of RWAs through management actions in Europe and Asia.

WPB's RWA increase of $2.4bn was mainly driven by continued growth in the property market in Asia, coupled with movements in other asset classes.

The $1.0bn increase in Corporate Centre RWAs was mostly due to an increase in the value of significant holdings in Asia.

Market risk RWAs increased by $8.1bn. Most of this was due to market conditions, partly offset by management initiatives of $3.6bn.

Asset quality

Changes in asset quality led to an RWA increase of $16.8bn, mainly in CMB and GBM.

In CMB, a $11.1bn RWA increase included credit migration impacts of $4.6bn in Europe, $5.0bn in North America, and $2.8bn in Asia. These were partly offset by decreases totalling $1.5bn due to portfolio mix changes.

In GBM, a $4.7bn rise in RWAs was mainly due to credit migration impacts of $2.6bn in North America and $2.6bn in Asia, partly offset by portfolio mix changes.

Model updates

The $0.5bn decrease due to model updates was largely due to a fall of $1.0bn in GBM market risk RWAs, as a result of a temporary adjustment to the calculation of risks not in VaR, and a $0.8bn decrease in GBM credit risk RWAs, mostly due to global corporate model updates. These were partly offset by increases of $1.3bn in WPB and CMB, mainly due to updates to Hong Kong and North American credit models.

Methodology and policy

The $6.4bn fall in RWAs included reductions due to management initiatives and increases caused by changes in approach to wholesale credit risk exposures.

With effect from 1 January 2020, we implemented two changes in approach that led to a $6.4bn increase in our wholesale credit risk exposures. Application of the new securitisation framework to the pre-existing book caused RWAs to rise by $3.4bn, mainly in Corporate Centre and GBM. Following the conclusion of discussions with the PRA, we also transferred several UK corporate portfolios onto a Foundation IRB approach, causing a $3bn rise in RWAs in CMB and GBM.

Within GBM and CMB, management initiatives reduced credit risk RWAs by $11.1bn. These included risk parameter refinements, improved collateral linkage and a change in the treatment of undrawn private equity fund commitments.

The $1.8bn fall in market risk RWAs mostly related to changes in the calculation of foreign exchange risk.

 
 Credit risk summary by approach 
                                                   At 30 Jun 2020                At 31 Dec 2019 
                                              Exposure              RWA  Exposure 
                                                 value   RWAs   density     value   RWAs    RWA density 
                                                   $bn    $bn         %       $bn    $bn              % 
IRB advanced approach                          1,467.5  398.3        27   1,537.6  452.6           29 
                                              --------  -----  --------  --------  -----  ----------- 
- central governments and central 
 banks                                           404.4   41.3        10     343.5   36.3           11 
- institutions                                    75.4   12.3        16      66.2   10.8           16 
- corporates                                     524.2  268.1        51     654.3  327.7           50 
- total retail                                   463.5   76.6        17     473.6   77.8           16 
- of which:                                          -      -         - 
 secured by mortgages on immovable 
  property SME                                     1.4    0.5        34       3.4    1.5           45 
 secured by mortgages on immovable 
  property non-SME                               331.4   43.4        13     315.7   40.4           13 
 qualifying revolving retail                      77.3   17.5        23      80.2   18.8           23 
 other SME                                         5.4    3.9        73       6.2    4.7           76 
 other non-SME                                    48.0   11.3        24      68.1   12.4           18 
                                              --------  -----  --------  --------  -----  ----------- 
IRB securitisation positions                       6.1    1.8        29      20.2    3.7           19 
IRB non-credit obligation assets                  62.7   13.6        22      62.4   13.3           21 
IRB foundation approach                          184.1  103.9        56      54.9   32.3           59 
                                              --------  -----  --------  --------  -----  ----------- 
- central governments and central 
 banks                                             0.3    0.1        24       0.1      -           20 
- institutions                                     0.7    0.2        24       0.6    0.2           26 
- corporates                                     183.1  103.6        57      54.2   32.1           59 
                                              --------  -----  --------  --------  -----  ----------- 
Standardised approach                            489.1  169.1        35     397.9  174.7           45 
- central governments and central 
 banks                                           274.1   10.0         4     185.5   11.2            6 
- regional governments or local authorities        9.4    1.6        17       8.9    1.6           18 
- public sector entities                          15.7      -         -      16.4      -            - 
- multilateral development banks                     -      -         -       0.1      -            - 
- international organisations                      1.4      -         -       1.6      -            - 
- institutions                                     0.9    0.6        64       1.6    0.9           58 
- corporates                                      70.0   65.9        94      76.8   72.5           94 
- retail                                          18.7   13.6        73      19.5   14.4           74 
- secured by mortgages on immovable 
 property                                         31.1   11.6        37      32.5   12.0           37 
- exposures in default                             3.0    3.5       114       3.6    4.1          114 
- items associated with particularly 
 high risk                                         4.4    6.5       150       5.3    7.9          150 
- securitisation positions                        28.1    8.6        31      16.3    4.6           28 
- collective investment undertakings               0.4    0.4       100       0.4    0.4          100 
- equity                                          17.0   37.3       220      16.5   36.3          220 
- other items                                     14.9    9.5        64      12.9    8.8           68 
Total                                          2,209.5  686.7        31   2,073.0  676.6           33 
                                              --------  -----  --------  --------  -----  ----------- 
 

Leverage ratio

 
                                                                           30 Jun             31 Dec 
                                                                             2020               2019 
Ref*                                                                          $bn                $bn 
                                                                -----------------  ----------------- 
 20     Tier 1 capital                                                    149.4              144.8 
21      Total leverage ratio exposure                                   2,801.4            2,726.5 
                                                                ---------------    --------------- 
                                                                                %                  % 
                                                                -----------------  ----------------- 
22      Leverage ratio                                                      5.3                5.3 
                                                                --------------- 
 EU-23  Choice of transitional arrangements for the definition 
         of the capital measure                                   Fully phased-in    Fully phased-in 
------                                                          ----------------- 
        UK leverage ratio exposure - quarterly average(1)               2,565.8            2,535.4 
                                                                ---------------    --------------- 
                                                                                %                  % 
                                                                -----------------  ----------------- 
        UK leverage ratio - quarterly average                               5.7                5.8 
                                                                ---------------    --------------- 
        UK leverage ratio - quarter end                                     5.9                5.7 
                                                                ---------------    --------------- 
 
   *     The references identify the lines prescribed in the EBA template. 

1 UK leverage ratio denotes the Group's leverage ratio calculated under the PRA's UK leverage framework and excludes qualifying central bank balances from the calculation of exposure.

Our leverage ratio calculated in accordance with the Capital Requirements Regulation was 5.3% at 30 June 2020, unchanged from 5.3% at 31 December 2019. The impact of the $4.6bn increase in tier 1 capital was offset by a $74.9bn rise in leverage exposure comprising:

-- balance sheet growth of $122.8bn, mainly in cash and balances at central banks and financial investments.

This was partly offset by:

-- the $33.0bn impact of the CRR 'Quick Fix' relief permitting the netting in leverage exposure of regular-way purchases and sales awaiting settlement under certain conditions; and

   --    the $14.9bn decrease in off-balance sheet exposure. 

The Group's UK leverage ratio at 30 June 2020 was 5.9%. This measure excludes qualifying central bank balances and loans under the UK Bounce Back Loan scheme from the calculation of exposure.

At 30 June 2020, our UK minimum leverage ratio requirement of 3.25% was supplemented by an additional leverage ratio buffer of 0.7% and a countercyclical leverage ratio buffer of 0.1%. These additional buffers translated into capital values of $17.9bn and $1.8bn, respectively. We exceeded these leverage requirements.

Regulatory disclosures

Pillar 3 disclosure requirements

Pillar 3 of the Basel regulatory framework is related to market discipline and aims to make financial services firms more transparent by requiring publication of wide-ranging information on their risks, capital and management. Our Pillar 3 Disclosures at 30 June 2020 is expected to be published on or around 10 August 2020 at www.hsbc.com/investors.

Liquidity and funding risk management

Overview

Liquidity risk is the risk that we do not have sufficient financial resources to meet our obligations as they fall due. Liquidity risk arises from mismatches in the timing of cash flows. Funding risk is the risk that we cannot raise funding or can only do so at excessive cost.

Key developments in the first half of 2020

The management of liquidity risk was enhanced during the first half of 2020 in response to the Covid-19 outbreak to ensure the Group anticipated, monitored and responded to the impacts both at Group and entity level. Liquidity levels were impacted by the drawdown of committed facilities and buy-backs of short-term debt. However, this was offset by increases in deposits, use of central bank facilities where appropriate and the ability to issue in the short-term markets as they stabilised. As a result of these liability enhancing actions, the Group and all entities had significant surplus liquidity, resulting in heightened liquidity coverage ratios ('LCR') ratios in the first half of 2020.

Liquidity and funding risk in the first half of 2020

Liquidity metrics

At 30 June 2020, all of the Group's material operating entities were above regulatory minimum levels.

Each entity maintains sufficient unencumbered liquid assets to comply with local and regulatory requirements. The liquidity value of these liquidity assets for each entity is shown in the following table along with the individual LCR levels on a European Commission ('EC') basis. This basis may differ from local LCR measures due to differences in the way non-EU regulators have implemented the Basel III standards.

Each entity maintains a sufficient stable funding profile and it is assessed by using the net stable funding ratio ('NSFR') or other appropriate metrics.

The Group liquidity and funding position at 30 June 2020 is analysed in the following sections.

 
 Operating entities' liquidity 
                                                                     At 30 June 2020 
                                                              LCR  HQLA  Net outflows    NSFR 
                                                 Footnotes      %   $bn           $bn       % 
HSBC UK Bank plc (ring-fenced bank)                  1        187    95            51   158 
                                                                   ---- 
HSBC Bank plc (non-ring-fenced bank)                 2        141   123            87   118 
                                                ----------  -----  ----                ---- 
The Hongkong and Shanghai Banking Corporation 
 - Hong Kong branch                                  3        192   128            67   138 
                                                ----------  -----  ----                ---- 
The Hongkong and Shanghai Banking Corporation 
 - Singapore branch                                  3        210    12             6   136 
                                                ----------  -----  ----                ---- 
Hang Seng Bank                                                181    46            26   151 
                                                ----------  -----  ----                ---- 
HSBC Bank China                                               169    22            13   149 
                                                ----------  -----  ----                ---- 
HSBC Bank USA                                                 145   105            72   127 
                                                ----------  -----  ----                ---- 
HSBC France                                          4        167    56            33   122 
                                                ----------  -----  ----                ---- 
HSBC Middle East - UAE branch                                 177    12             7   148 
                                                ----------  -----  ----                ---- 
HSBC Canada                                          4        173    29            17   135 
                                                ----------  -----  ----                ---- 
HSBC Mexico                                                   206     9             4   134 
                                                ----------  -----  ----                ---- 
 
 
                                                        At 31 December 2019 
HSBC UK Bank plc (ring-fenced bank)              1     165     75   45    150 
 
HSBC Bank plc (non-ring-fenced bank)             2     142    103   72    106 
 
The Hongkong and Shanghai Banking Corporation 
 - Hong Kong branch                              3     163    109   67    128 
 
The Hongkong and Shanghai Banking Corporation 
 - Singapore branch                              3     147     14   10    120 
 
Hang Seng Bank                                         185     42   23    148 
 
HSBC Bank China                                        180     21   11    151 
 
HSBC Bank USA                                          125     73   59    122 
 
HSBC France                                      4     152     44   29    117 
 
HSBC Middle East - UAE branch                          202     11    5    159 
 
HSBC Canada                                      4     124     18   14    124 
 
HSBC Mexico                                            208      9    4    136 
                                                    ------  -----       ----- 
 

1 HSBC UK Bank plc refers to the HSBC UK liquidity group, which comprises four legal entities: HSBC UK Bank plc (including the Dublin branch), Marks and Spencer Financial Services plc, HSBC Private Bank (UK) Ltd and HSBC Trust Company (UK) Limited, managed as a single operating entity, in line with the application of UK liquidity regulation as agreed with the PRA.

2 HSBC Bank plc includes overseas branches and SPEs consolidated by HSBC for financial statements purposes.

3 The Hongkong and Shanghai Banking Corporation - Hong Kong branch and The Hongkong and Shanghai Banking Corporation - Singapore branch represent the material activities of The Hongkong and Shanghai Banking Corporation. Each branch is monitored and controlled for liquidity and funding risk purposes as a stand-alone operating entity.

4 HSBC France and HSBC Canada represent the consolidated banking operations of the Group in France and Canada, respectively. HSBC France and HSBC Canada are each managed as single distinct operating entities for liquidity purposes.

At 30 June 2020, all of the Group's principal operating entities were well above regulatory minimum levels.

The most significant movements in 2020 are explained below:

-- HSBC UK Bank plc improved its liquidity ratio to 187%, mainly driven by increased commercial and retail current and savings accounts.

   --    HSBC Bank plc's liquidity ratio remained largely unchanged. 

-- The Hongkong and Shanghai Banking Corporation - Hong Kong branch liquidity position remained strong, mainly reflecting strong retail and corporate deposits.

-- Hang Seng Bank's liquidity position remained largely unchanged, mainly supported by its strong customer deposit base.

-- The Hongkong and Shanghai Banking Corporation - Singapore branch improved its liquidity ratio to 210%, mainly due to a higher commercial surplus following increased deposits across all lines of businesses.

-- HSBC Bank China's liquidity ratio dropped by 11%, mainly due to growth in loans to corporate customers, partly offset by long-term debt issuances.

-- HSBC Bank USA improved its liquidity ratio to 145%, mainly driven by increased customer deposits.

-- HSBC France increased its liquidity position, reflecting successful subscription to the ECB targeted longer-term refinancing operations programme.

-- HSBC Bank Middle East - UAE Branch retained a strong liquidity position, with a liquidity ratio of 177%.

-- HSBC Canada improved its liquidity ratio to 173%, mainly driven by increased customer deposits, covered bond issuance and secured funding.

Consolidated liquidity metrics

Liquidity coverage ratio

At 30 June 2020, HQLA at entity level amounted to $784bn

(31 December 2019: $646bn), an increase of $138bn, reflecting the increases in entity liquidity positions described above. Consistent with prior periods, the application of requirements under the EC Delegated Act results in an adjustment of $130bn (31 December 2019: $45bn) to reflect the limitations in the fungibility of entity liquidity around the Group. As a consequence, the Group consolidated LCR was 148% at 30 June 2020 (31 December 2019: 150%). The $130bn of HQLA remains available to cover liquidity risk in the relevant entities.

The methodology used in the Group consolidated LCR in relation to the treatment of part of our HQLA is currently under review with our regulators.

 
                                           At 
                                30 Jun    30 Jun    31 Dec 
                                  2020      2019      2019 
                              -------- 
                                   $bn       $bn       $bn 
                              -------- 
High-quality liquid 
 assets (in entities)              784       606       646 
                              -------- 
EC Delegated Act adjustment      (130)      (73)      (45) 
                              -------- 
Group LCR HQLA                     654       533       601 
                              -------- 
Net outflows                       443       391       400 
                              -------- 
Liquidity coverage 
 ratio                         148%      136%      150% 
 
 

Liquid assets

After the $130bn adjustment, the Group LCR HQLA of $654bn

(31 December 2019: $601bn) was held in a range of asset classes and currencies. Of these, 88% were eligible as level 1 (31 December 2019: 90%).

The following tables reflect the composition of the liquidity pool by asset type and currency at 30 June 2020:

 
 Liquidity pool by asset type 
                       Liquidity        Level    Level 
                            pool  Cash   1(1)     2(1) 
                             $bn   $bn    $bn      $bn 
--------------------- 
 Cash and balance 
  at central bank            251   251      -      - 
--------------------- 
 Central and local 
  government bonds           339     -    282     57 
--------------------- 
 Regional government 
  PSE                         14     -     13      1 
---------------------             ---- 
 International 
  organisation 
  and MDBs                    16     -     16      - 
--------------------- 
 Covered bonds                12     -      3      9 
---------------------             ---- 
 Other                        22     -     13      9 
---------------------             ---- 
 Total at 30 June 
  2020                       654   251    327     76 
---------------------             ---- 
 Total at 31 Dec 
  2019                       601   158    383       60 
---------------------  --------- 
 

1 As defined in EU regulation, level 1 assets means 'assets of extremely high liquidity and credit quality', and level 2 assets means 'assets of high liquidity and credit quality'.

 
 Liquidity pool by currency 
                    $  GBP  EUR  HK$  Other    Total 
                  $bn  $bn  $bn  $bn    $bn      $bn 
Liquidity pool 
 at 30 June 
 2020             215  151  118   56    114    654 
Liquidity pool 
 at 31 Dec 2019   179  117   93   47    165      601 
 
 

Sources of funding

Our primary sources of funding are customer current accounts and savings deposits payable on demand or at short notice. We issue secured and unsecured wholesale securities to supplement customer deposits, meet regulatory obligations and to change the currency mix, maturity profile or location of our liabilities.

The following 'Funding sources' and 'Funding uses' tables provide a view of how our consolidated balance sheet is funded. In practice, all the principal operating entities are required to manage liquidity and funding risk on a stand-alone basis.

The tables analyse our consolidated balance sheet according to the assets that primarily arise from operating activities and the sources of funding primarily supporting these activities. Assets and liabilities that do not arise from operating activities are presented as a net balancing source or deployment of funds.

In 1H20, the level of customer accounts continued to exceed the level of loans and advances to customers. The positive funding gap was predominantly deployed in liquid assets.

 
 Funding sources 
                                             At 
                                      30 Jun       31 Dec 
                                        2020         2019 
                                          $m           $m 
Customer accounts                  1,532,380  1,439,115 
Deposits by banks                     82,715     59,022 
Repurchase agreements 
 - non-trading                       112,799    140,344 
Debt securities in issue             110,114    104,555 
Cash collateral, margin 
 and settlement accounts             127,342     71,002 
                                   ---------  --------- 
Subordinated liabilities              23,621     24,600 
Financial liabilities 
 designated at fair value            156,608    164,466 
Liabilities under insurance 
 contracts                            98,832     97,439 
                                              --------- 
Trading liabilities                   79,612     83,170 
                                   --------- 
 
  *    repos                           8,325        558 
 
  *    stock lending                   2,795      9,702 
 
  *    other trading liabilities      68,492     72,910 
                                              --------- 
Total equity                         195,221    192,668 
                                   --------- 
Other balance sheet liabilities      403,554    338,771 
                                   ---------  --------- 
                                   2,922,798  2,715,152 
                                   ---------  --------- 
 
 
 Funding uses 
                                               At 
                                        30 Jun       31 Dec 
                                          2020         2019 
                          Footnotes         $m           $m 
                         ----------  ---------  ----------- 
Loans and advances 
 to customers                        1,018,681  1,036,743 
                         ---------- 
Loans and advances 
 to banks                               77,015     69,203 
                         ---------- 
Reverse repurchase 
 agreements 
 - non-trading                         226,345    240,862 
Prepayments, accrued 
 income and other 
 assets                      1         113,867     63,891 
- cash collateral, 
 margin and settlement 
 accounts                              113,867     63,891 
Assets held for sale                       139        123 
                                                --------- 
Trading assets                         208,964    254,271 
                         ---------- 
- reverse repos                         16,116     13,659 
- stock borrowing                        8,161      7,691 
- other trading assets                 184,687    232,921 
                         ----------  ---------  --------- 
Financial investments                  494,109    443,312 
Cash and balances 
 with central banks                    249,673    154,099 
Other balance sheet 
 assets                                534,005    452,648 
                         ----------             --------- 
                                     2,922,798  2,715,152 
                         ----------  ---------  --------- 
 

1 Includes only those financial instruments that are subject to the impairment requirements of IFRS 9. 'Prepayments, accrued income and other assets' as presented within the consolidated balance sheet on page 94 includes both financial and non-financial assets.

 
 Market risk 
 

Overview

Market risk is the risk that movements in market factors, such as foreign exchange rates, interest rates, credit spreads, equity prices and commodity prices, will reduce our income or the value of our portfolios.

A summary of our current policies and practices for the management of market risk is set out in 'Market risk management' on page 135 of the Annual Report and Accounts 2019.

Market risk in the first half of 2020

There were no material changes to the policies and practices for the management of market risk in the first half of 2020.

Global financial conditions worsened rapidly with the onset of the Covid-19 outbreak from mid-February. Market volatility reached extreme levels across most asset classes and equity prices fell sharply from the previous historical peak levels. In credit markets, spreads and yields reached multi-year highs. The gold market experienced Covid-19-related disruption in refining and transportation, affecting the relative pricing of gold futures contracts. Oil prices collapsed due to rising oversupply as demand reduced materially from the economic slowdown. Financial markets tended to stabilise from April onwards, as governments in mainly developed countries announced economic recovery programmes and key central banks intervened to provide liquidity and support asset prices.

We managed market risk prudently in the first half of 2020. Sensitivity exposures remained within appetite as the business pursued its core market-making activity in support of our customers during the outbreak. We also undertook hedging activities to protect the business from potential future deterioration in credit conditions. Market risk continued to be managed using a complementary set of exposure measures and limits, including stress and scenario analysis.

The overall risk profile remained relatively stable in the first half of 2020 as the Fixed Income business continued to be the main driver of trading VaR. Interest rate risks from market-making activities were the key contributors to trading VaR, with partially offsetting gains from credit spread risks. The Equity and Foreign Exchange businesses provided a further offset to overall market risks in the trading book.

Trading portfolios

Value at risk of the trading portfolios

Trading VaR was predominantly generated by Global Markets. The VaR for trading activity at 30 June 2020 was higher than at 31 December 2019. The moderate increase in trading VaR was due mainly to higher levels of market volatility reached in March and April 2020 as a result of the economic impact of the Covid-19 outbreak. The increase was spread across all asset classes, while interest rate risk was the main contributor to this uplift in VaR. An additional driver was the increase of risks captured in the risks not in VaR ('RNIV') framework, including mainly equity correlation and dividend risks. The risk was actively managed during 1H20 and it was in line with the normal range observed in 2019, except for a spike observed in 2Q20, which was driven by higher levels of market volatility in the first half of the year. The Group trading VaR for the half-year is shown in the table below.

 
 Trading VaR, 99% 1 day 
                         Foreign 
                        exchange  Interest           Credit              Portfolio 
                   and commodity      rate  Equity   spread     diversification(1)    Total 
                              $m        $m      $m       $m                     $m       $m 
Half-year to 30 
 Jun 2020                   10.4      36.8    26.3     18.7             (47.8)       44.4 
Average                     10.6      27.6    25.0     23.1             (36.2)       50.1 
Maximum                     19.9      43.5    41.3     44.1                          69.3 
Minimum                      5.6      19.1    13.6     13.7                          33.6 
 
Half-year to 30 
 Jun 2019                    6.6      29.9    17.4     31.2             (34.8)       50.3 
Average                      7.1      30.9    16.6     24.8             (29.3)       50.1 
Maximum                     13.5      36.5    22.2     33.2                          59.3 
Minimum                      4.1      26.1    12.4     18.4                          42.8 
 
Half-year to 31 
 Dec 2019                    7.7      28.2    15.7     15.2             (26.4)       40.3 
Average                      6.9      29.9    16.2     23.7             (29.0)       47.8 
Maximum                     13.5      36.5    24.9     33.2                          59.3 
Minimum                      4.1      22.9    12.4     11.7                          33.3 
 
 

1 When VaR is calculated at a portfolio level, natural offsets in risk can occur when compared with aggregating VaR at the asset class level. This difference is called portfolio diversification. The asset class VaR maxima and minima reported in the table occurred on different dates within the reporting period. For this reason, we do not report an implied portfolio diversification measure between the maximum (minimum) asset class VaR measures and the maximum (minimum) total VaR measures in this table.

The RNIV framework covers risks from exposures in our trading book that are not fully captured by the VaR model. The VaR-based RNIVs are included within the metrics for each asset class.

Back-testing

In 1H20, the Group experienced three loss back-testing exceptions against actual profit and losses. The Group also experienced eight loss back-testing exceptions against hypothetical profit and losses. The high number of hypothetical back-testing exceptions that occurred in March 2020 was primarily due to the extreme market volatility resulting from the economic impact of the Covid-19 outbreak, which was significantly greater than the volatility used in the model calibration.

In recognition of the exceptional market environment, the PRA has granted temporary relief, valid for six months, that permits UK firms, including HSBC, to offset the impact of the higher VaR multiplier resulting from exceptions that occurred after the onset of the Covid-19 outbreak. This offset is against incremental RNIV market risk capital requirements.

The hypothetical profit and loss reflects the profit and loss that would be realised if positions were held constant from the end of one trading day to the end of the next. This measure of profit and loss does not align with how risk is dynamically hedged, and is not therefore necessarily indicative of the actual performance of the business. Accordingly, of the eight loss back-testing exceptions against hypothetical profit and losses, only the largest exception in March and one exception in April corresponded to a loss exception against actual profit and loss. The two loss exceptions against actual profit and loss that occurred in the second half of March and the loss exception against actual profit and loss that occurred in April comprised:

   --    a loss exception in March, which was partly due to unprecedented widening of the gold exchange-for-physical basis, reflecting Covid-19-related challenges in gold refining and transportation, which affected HSBC's gold leasing and financing business and other gold hedging activity leading to mark-to-market losses. Additional loss drivers on this trading day included a significant reduction in foreign exchange and equity volatilities, and a material tightening of credit spreads; 

-- a loss exception at the end of March, mainly driven by increases to month-end valuation adjustments, which were recalibrated to reflect changes in liquidity and bid-offer market conditions over the course of the month relative to February month-end; and

-- a loss exception in April, which was partly due to the renewed widening of the gold exchange-for-physical basis. Additional loss drivers included lower equity implied volatilities and a reduction in dividend projections.

Despite the high number of loss exceptions, performance of the VaR model was in line with expectations when considered in the context of the extraordinary market movements observed in March and April 2020. During this period, market risk continued to be managed using a complementary set of exposure measures and limits, including stress and scenario analysis. This ensured that the business was prudently managed and performed well across the period.

Non-trading portfolios

Value at risk of the non-trading portfolios

Non-trading VaR of the Group includes contributions from all global businesses. There is no commodity risk in the non-trading portfolios. The VaR for non-trading activity at 30 June 2020 was higher than at 31 December 2019. The increase arose primarily from the effect of higher levels of market volatility reached in March and April 2020 due to the economic impact of the Covid-19 outbreak. Although interest rate gap risk fell during the period and credit sensitivity was relatively stable, extreme volatility in the yields of sovereign debt and interest rate swaps, coupled with volatility in the spreads of agency and mortgage-backed securities, led to an uplift in contributions to total non-trading VaR from both interest rate and credit spread risks.

Non-trading VaR includes non-trading financial instruments held in portfolios managed by Balance Sheet Management ('BSM'). The management of interest rate risk in the banking book is described further in 'Net interest income sensitivity' on page 140 of the Annual Report and Accounts 2019.

The Group non-trading VaR for the half-year is shown in the following table.

 
 Non-trading VaR, 99% 1 day 
                           Interest   Credit              Portfolio 
                               rate   spread     diversification(1)    Total 
                                 $m       $m                     $m       $m 
Half-year to 30 Jun 2020      184.3     83.2             (61.6)      205.9 
Average                       122.8     80.9             (60.7)      143.0 
Maximum                       190.1    133.4                         219.7 
Minimum                        59.0     44.2                          79.7 
 
Half-year to 30 Jun 2019       68.5     36.6             (22.0)       83.1 
Average                        57.1     30.5             (16.6)       71.0 
Maximum                        74.3     36.6                          85.2 
Minimum                        49.2     26.6                          60.9 
 
Half-year to 31 Dec 2019       96.2     62.5             (28.2)      130.5 
Average                        65.9     44.2             (25.6)       84.5 
Maximum                       100.1     81.2                         132.8 
Minimum                        49.2     26.6                          60.9 
 
 

1 When VaR is calculated at a portfolio level, natural offsets in risk can occur when compared with aggregating VaR at the asset class level. This difference is called portfolio diversification. The asset class VaR maxima and minima reported in the table occurred on different dates within the reporting period. For this reason, we do not report an implied portfolio diversification measure between the maximum (minimum) asset class VaR measures and the maximum (minimum) total VaR measures in this table.

Non-trading VaR excludes equity risk on securities held at fair value, structural foreign exchange risk and interest rate risk on fixed-rate securities issued by HSBC Holdings. The following sections describe the scope of HSBC's management of market risks in non-trading books.

Third-party assets in Balance Sheet Management

Third-party assets in BSM increased by 30% during the first half of 2020.

Commercial surplus increased in this period due to an increase in client deposits and lower credit growth. This was partly reflected in the increase of $94bn in 'Cash and balances at central banks'.

The increase of $23bn across 'Loans and advances to banks' and 'Reverse repurchase agreements' was driven by the short-term investment of part of this surplus with the remainder invested in high-quality liquid assets contributing to the increase of $45bn in 'Financial investments'.

 
 Third-party assets in Balance Sheet Management 
                                             At 
                                      30 Jun     31 Dec 
                                        2020       2019 
                                          $m         $m 
Cash and balances at central banks   222,991  129,114 
Trading assets                           200      268 
Loans and advances: 
 
  *    to banks                       29,143   24,466 
                                              ------- 
 
  *    to customers                      579      310 
                                              ------- 
Reverse repurchase agreements         48,309   29,868 
Financial investments                396,918  351,842 
Other                                  9,273    7,655 
                                     -------  ------- 
                                     707,413  543,523 
                                     -------  ------- 
 

Interest rate risk in the banking book

Interest rate risk in the banking book is the risk of capital or earnings volatility due to changes in market interest rates.

Our policies regarding the funds transfer pricing process and the management of interest rate risk in the banking book are described on pages 136 and 137, respectively, of the Annual Report and Accounts 2019.

The Group utilises sensitivity of net interest income to assess the overall level of interest rate risk in the banking book. This measure reflects all interest rate risk in the banking book, including that transferred to BSM.

Sensitivity of net interest income

The following tables set out the assessed impact to a hypothetical base case projection of our net interest income ('NII'), excluding insurance, under the following scenarios:

-- an immediate shock of 25 basis points ('bps') to the current market-implied path of interest rates across all currencies on 1 July 2020 (effects over one year and five years); and

-- an immediate shock of 100bps to the current market-implied path of interest rates across all currencies on 1 July 2020 (effects over one year and five years).

The sensitivities shown represent our assessment of the change to a hypothetical base case NII, assuming a static balance sheet and no management actions from BSM. They incorporate the effect of interest rate behaviouralisation, managed rate product pricing assumptions and customer behaviour, including the prepayment of mortgages or customer migration from non-interest-bearing to interest-bearing deposit accounts. The scenarios represent interest rate shocks to the current market implied path of rates.

The NII sensitivity results in the down-shock scenarios reflect no floors to the shocked market rates. This is a change from the NII sensitivity approach published in the Annual Report and Accounts 2019, where market rates were floored to zero, unless the central bank rate was already negative, as in the case of the euro, Swiss franc and Japanese yen. This reflects the increased risk of negative market interest rates going forward. Customer product specific interest rate floors remain to be recognised where applicable.

As such, the one-year and five-year NII sensitivities in the down-shock scenarios have increased in June 2020 at Group level when compared with December 2019. This was driven by the change in approach, changes in the forecasted yield curves and changes in balance sheet composition. The NII sensitivities are forecasted for the whole period of one and five years each quarter.

The NII sensitivities shown are indicative and based on simplified scenarios. Immediate interest rate rises of 25bps and 100bps would increase projected NII for the 12 months to 30 June 2021 by $1,409m and $4,736m, respectively. Conversely, falls of 25bps and 100bps would decrease projected NII for the 12 months to 30 June 2021 by $1,552m and $4,515m, respectively.

The sensitivity of NII for 12 months has increased by $1,938m in the plus 100bps parallel shock comparing June 2020 with December 2019.

The increase in the sensitivity of NII for 12 months in the plus 100bps parallel shock was mainly driven by the general build-up of liquidity throughout the Group, which has been deployed in short-term investments (predominantly cash, held to collect and sell, and reverse repos), shortening of BSM positioning and reduction in the average cost of funds in view of the significant drop in interest rates, as well as changes in portfolio composition.

The change in NII sensitivity for five years is also driven by the factors above.

The structural sensitivity of NII arising within the three global businesses, excluding Global Markets, is positive in a rising rate environment and negative in a falling rate environment. Both BSM and Global Markets have NII sensitivity profiles that offset this to some degree. The tables do not include potential BSM management actions or changes in Global Markets's net trading income that may further limit the offset.

 
 NII sensitivity to an instantaneous change in yield curves (12 months) 
                                        US dollar  HK dollar  Sterling   Euro    Other      Total 
                                               $m         $m        $m     $m       $m         $m 
Change in Jul 2020 to Jun 2021 (based 
 on balance sheet at 
 30 Jun 2020) 
+25bps                                       229        375       394    138      273    1,409 
 
 
  *    25bps                                (233)      (464)     (506)   (94)    (255)  (1,552) 
+100bps                                      560      1,140     1,475    565      996    4,736 
 
 
  *    100bps                               (276)      (955)   (1,908)  (337)  (1,039)  (4,515) 
Change in Jan 2020 to Dec 2020 (based 
 on balance sheet at 31 Dec 2019) 
+25bps                                        59        198       278    116      202      853 
 
  *    25bps                                 (91)      (255)     (332)    11     (182)    (849) 
+100bps                                      (16)       504     1,123    441      746    2,798 
 
  *    100bps                               (490)    (1,023)   (1,049)   (23)    (726)  (3,311) 
 
 
 
 NII sensitivity to an instantaneous change in yield curves (5 years) 
                                           Year     Year     Year     Year     Year 
                                              1        2        3        4        5       Total 
                                             $m       $m       $m       $m       $m          $m 
                                        -------  -------  -------  -------  ------- 
Change in Jul 2020 to Jun 2025 (based 
 on balance sheet at 
 30 Jun 2020) 
+25bps                                   1,409    1,772    1,967    1,857    1,921     8,926 
 
 
  *    25bps                            (1,552)  (1,865)  (2,104)  (2,279)  (2,219)  (10,019) 
+100bps                                  4,736    5,965    6,655    6,819    7,014    31,189 
 
 
  *    100bps                           (4,515)  (5,627)  (6,487)  (7,290)  (7,984)  (31,903) 
Change in Jan 2020 to Dec 2024 (based 
 on balance sheet at 31 Dec 2019) 
+25bps                                     853    1,158    1,348    1,449    1,523     6,331 
 
  *    25bps                              (849)  (1,205)  (1,402)  (1,562)  (1,649)   (6,667) 
+100bps                                  2,798    4,255    4,915    5,155    5,454    22,577 
 
  *    100bps                           (3,311)  (4,621)  (5,289)  (5,766)  (6,164)  (25,151) 
 
 
 Insurance manufacturing operations 
  risk 
 

Overview

The majority of the risk in our insurance business derives from manufacturing activities and can be categorised as financial risk and insurance risk. Financial risks include market risk, credit risk and liquidity risk. Insurance risk is the risk, other than financial risk, of loss transferred from the holder of the insurance contract to HSBC, the issuer. The cost of claims and benefits can be influenced by many factors, including mortality and morbidity experience, as well as lapse and surrender rates.

A summary of our policies and practices regarding the risk management of insurance operations, our insurance model and the main contracts we manufacture is provided on page 146 of the Annual Report and Accounts 2019.

There have been no material changes to the policies and practices for the management of risks arising in our insurance operations described in the Annual Report and Accounts 2019.

Insurance manufacturing operations risk in the first half of 2020

The risk profile of our insurance manufacturing businesses is measured using an economic capital approach. Assets and liabilities are measured on a market value basis, and a capital requirement is defined to ensure that there is a less than one in 200 chance of insolvency over a one-year time horizon, given the risks to which the businesses are exposed. The methodology for the economic capital calculation is largely aligned to the pan-European Solvency II insurance capital regulations. A key risk appetite metric is the economic coverage ratio, which is calculated by dividing the economic net asset value by the economic capital requirement. The business has a current appetite to remain globally above 140% with a tolerance to 110%. In addition to economic capital, the regulatory solvency ratio is also a metric used to manage risk appetite on an entity basis.

The impact from the Covid-19 outbreak on financial markets has affected the profitability of manufactured insurance products and caused overall capital levels to fall in several of the insurance entities. At 30 June 2020, regulatory capital levels were above risk appetite and the global economic capital level was above risk tolerance. A variety of management actions were taken during the period to actively manage the risk profile of the insurance entities. Enhanced monitoring of risks and pricing conditions will continue, as the low level of interest rates results in a higher cost of guarantees to be paid to policyholders, increasing the reinvestment risk for interest rate sensitive products. This will have an impact on their profitability and increase the solvency requirements for the entities that are most exposed to these products. The following table shows the composition of assets and liabilities by contract type.

 
Balance sheet of insurance manufacturing subsidiaries by type of contract 
                                                                                                        Shareholder 
                                                                                                             assets 
                                                                            With   Unit-         Other          and 
                                                                             DPF  linked  contracts(1)  liabilities      Total 
                                                               Footnotes      $m      $m            $m           $m         $m 
                                                                          ------  ------  ------------  -----------  --------- 
Financial assets                                                          76,665  7,680         18,055        8,142  110,542 
 
- trading assets                                                               -      -              -            -        - 
 
  *    financial assets designated and otherwise mandatorily 
       measured at fair value through profit or loss                      19,872  7,429          3,288        1,306   31,895 
- derivatives                                                                400      5             15            5      425 
- financial investments - at amortised 
 cost                                                                     39,684     27         13,428        4,035   57,174 
 
  *    financial investments - at fair value through other 
       comprehensive income                                               11,818      -            425        1,640   13,883 
- other financial assets                                          2        4,891    219            899        1,156    7,165 
 
Reinsurance assets                                                         2,257     67          1,617            2    3,943 
PVIF                                                               3           -      -              -        9,379    9,379 
 
Other assets and investment properties                                     2,448      3            221          711    3,383 
 
Total assets at June 2020                                                 81,370  7,750         19,893       18,234  127,247 
                                                              ---------- 
Liabilities under investment contracts 
 designated at fair value                                                      -  1,954          4,024            -    5,978 
 
Liabilities under insurance contracts                                     78,296  5,719         14,865            -   98,880 
Deferred tax                                                       4         152     17             56        1,406    1,631 
Other liabilities                                                              -      -              -        6,665    6,665 
 
Total liabilities                                                         78,448  7,690         18,945        8,071  113,154 
Total equity                                                                   -      -              -       14,093   14,093 
Total equity and liabilities at 
 June 2020                                                                78,448  7,690         18,945       22,164  127,247 
                                                              ---------- 
 
Financial assets                                                          73,929  7,333         17,514        8,269  107,045 
 
- trading assets                                                               -      -              -            -        - 
- financial assets designated 
 at fair value                                                            21,652  7,119          3,081        2,426   34,278 
- derivatives                                                                202     (6)             9            3      208 
- financial investments at amortised 
 cost                                                                     35,299     18         13,436        4,076   52,829 
- financial investments at fair 
 value through other comprehensive 
 income                                                                   12,447      -            445        1,136   14,028 
- other financial assets                                          2        4,329    202            543          628    5,702 
 
Reinsurance assets                                                         2,208     72          1,563            1    3,844 
PVIF                                                               3           -      -              -        8,945    8,945 
                                                              ---------- 
Other assets and investment properties                                     2,495      2            211          602    3,310 
 
Total assets at December 2019                                             78,632  7,407         19,288       17,817  123,144 
                                                              ---------- 
Liabilities under investment contracts 
 designated at fair value                                                      -  2,011          3,881            -    5,892 
                                                              ---------- 
Liabilities under insurance contracts                                     77,147  6,151         14,141            -   97,439 
Deferred tax                                                       4         197     23              6        1,297    1,523 
                                                              ---------- 
Other liabilities                                                              -      -              -        4,410    4,410 
 
Total liabilities                                                         77,344  8,185         18,028        5,707  109,264 
Total equity                                                                   -      -              -       13,879   13,879 
Total equity and liabilities at 
 December 2019                                                            77,344  8,185         18,028       19,586  123,143 
                                                              ---------- 
 

1 Other contracts includes term assurance, credit life insurance, universal life insurance and certain investment contracts not included in the 'Unit-linked' or 'With DPF' columns.

2 Comprise mainly loans and advances to banks, cash and inter-company balances with other non-insurance legal entities.

   3     Present value of in-force long-term insurance business. 
   4     Deferred tax includes the deferred tax liabilities arising on recognition of PVIF. 

Market risk

Description and exposure

Market risk is the risk of changes in market factors affecting HSBC's capital or profit. Market factors include interest rates, equity and growth assets and foreign exchange rates.

Our exposure varies depending on the type of contract issued. Our most significant life insurance products are contracts with discretionary participating features ('DPF') issued in France and Hong Kong. These products typically include some form of capital guarantee or guaranteed return on the sums invested by the policyholders, to which discretionary bonuses are added if allowed by the overall performance of the funds. These funds are primarily invested in bonds, with a proportion allocated to other asset classes to provide customers with the potential for enhanced returns.

DPF products expose HSBC to the risk of variation in asset returns, which will impact our participation in the investment performance.

In addition, in some scenarios the asset returns can become insufficient to cover the policyholders' financial guarantees, in which case the shortfall has to be met by HSBC. Amounts are held against the cost of such guarantees, calculated by stochastic modelling.

Where local rules require, these reserves are held as part of liabilities under insurance contracts. Any remainder is accounted for as a deduction from the present value of in-force ('PVIF') long-term insurance business on the relevant product.

For unit-linked contracts, market risk is substantially borne by the policyholder, but some market risk exposure typically remains, as fees earned are related to the market value of the linked assets.

Sensitivities

Changes in financial market factors, from the economic assumptions in place at the start of the year, had a negative impact on reported profit before tax of $320m (1H19: $163m positive). The following table illustrates the effects of selected interest rate, equity price and foreign exchange rate scenarios on our profit for the period and the total equity of our insurance manufacturing subsidiaries.

Where appropriate, the effects of the sensitivity tests on profit after tax and equity incorporate the impact of the stress on the PVIF. In Europe, where observable long-tenor interest rates are at or close to zero, the -100bps stress sensitivity allows for the impact of negative rates. In other regions, the downside interest rate sensitivity does not take into account negative interest rates as the calculation rates are floored at zero. Due in part to the impact of the cost of guarantees and hedging strategies, which may be in place, the relationship between the profit and total equity and the risk factors is non-linear, particularly in a low interest rate environment. Therefore, the results disclosed should not be extrapolated to measure sensitivities to different levels of stress. For the same reason, the impact of the stress is not necessarily symmetrical on the upside and downside. The sensitivities are stated before allowance for management actions, which may mitigate the effect of changes in the market environment. The sensitivities presented allow for adverse changes in policyholder behaviour that may arise in response to changes in market rates. The differences between the impacts on profit after tax and equity are driven by the changes in value of the bonds measured at fair value through other comprehensive income, which are only accounted for in equity.

 
 Sensitivity of HSBC's insurance manufacturing subsidiaries to market 
  risk factors 
 
                                                          At 30 Jun 2020       At 31 Dec 2019 
                                                           Effect              Effect 
                                                               on   Effect         on     Effect 
                                                           profit       on     profit         on 
                                                            after    total      after      total 
                                                              tax   equity        tax     equity 
                                                               $m       $m         $m         $m 
+100 basis point parallel shift in yield 
 curves                                                      (97)    (196)        43      (37) 
 
  *    100 basis point parallel shift in yield curves       (126)     (23)      (221)    (138) 
10% increase in equity prices                                242      242        270      270 
10% decrease in equity prices                               (243)    (243)      (276)    (276) 
10% increase in US dollar exchange rate 
 compared with all currencies                                  3        3         41       41 
 
10% decrease in US dollar exchange rate 
 compared with all currencies                                 (3)      (3)       (41)     (41) 
 
 
 
Directors' responsibility statement 
 

The Directors(1) are required to prepare the financial statements on a going concern basis unless it is not appropriate. They are satisfied that the Group has the resources to continue in business for the foreseeable future and that the financial statements continue to be prepared on a going concern basis.

The Directors confirm that to the best of their knowledge:

-- the financial statements have been prepared in accordance with IAS 34 'Interim Financial Reporting' as adopted by the EU;

-- this Interim Report 2020 gives a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and

   --    this Interim Report 2020 includes a fair review of the information required by: 

- DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, being an indication of: important events that have occurred during the first six months of the financial year ending 31 December 2020 and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

- DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being: related party transactions that have taken place in the first six months of the financial year ending 31 December 2020, which have materially affected the financial position or performance of HSBC during that period; and any changes in the related parties transactions described in the Annual Report and Accounts 2019 that could materially affect the financial position or performance of HSBC during the first six months of the financial year ending 31 December 2020.

On behalf of the Board

Mark E Tucker

Group Chairman

3 August 2020

 
 
 

1 Mark Tucker*, Laura Cha , Henri de Castries , James Anthony Forese , Steven Guggenheimer , Irene Lee , José Antonio Meade Kuribreña , Heidi Miller , Eileen K Murray , David Nish , Noel Quinn, Ewen Stevenson, Jackson Tai and Pauline van der Meer Mohr .

*Non-executive Group Chairman Independent non-executive Director

 
Independent review report to HSBC Holdings plc 
 
 
Report on the interim condensed consolidated financial statements 
 

Our conclusion

We have reviewed HSBC Holdings plc's interim condensed consolidated financial statements (the 'interim financial statements') in the interim report of HSBC Holdings plc and its subsidiaries (the 'Group') for the six month period ended 30 June 2020. Based on our review, nothing has come to our attention that causes us to believe that the interim financial statements are not prepared, in all material respects, in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

What we have reviewed

The interim financial statements comprise:

   --    the consolidated balance sheet as at 30 June 2020; 

-- the consolidated income statement and consolidated statement of comprehensive income for the six month period then ended;

   --    the consolidated statement of cash flows for the period then ended; 
   --    the consolidated statement of changes in equity for the period then ended; and 
   --    the notes to the financial statements and certain other information(1) . 

The interim financial statements included in the interim report have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

As disclosed in note 1 to the interim financial statements, the financial reporting framework that has been applied in the preparation of the full annual financial statements of the Group is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.

 
Responsibilities for the interim financial statements and the review 
 

Our responsibilities and those of the directors

The interim report, including the interim financial statements, is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the interim report in accordance with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

Our responsibility is to express a conclusion on the interim financial statements in the interim report based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of complying with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority and for no other purpose. We do not, in giving this conclusion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

What a review of financial statements involves

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.

A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

We have read the other information contained in the interim report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the interim financial statements.

PricewaterhouseCoopers LLP

Chartered Accountants

London, United Kingdom

3 August 2020

 
 
 
   1     Certain other information comprises the following tables: "Reconciliation of changes in gross carrying/nominal amount and allowances for loans and advances to banks and customers including loan commitments and financial guarantees" and  "Distribution of financial instruments to which the impairment requirements of IFRS 9 are applied, by credit quality and stage allocation". 
 
Interim condensed financial 
 statements 
                                           Page 
 Consolidated income statement               92 
----------------------------------------- 
 Consolidated statement of comprehensive 
  income                                     93 
----------------------------------------- 
 Consolidated balance sheet                  94 
----------------------------------------- 
 Consolidated statement of cash 
  flows                                      95 
----------------------------------------- 
 Consolidated statement of changes 
  in equity                                  96 
-----------------------------------------  ---- 
 
 
Consolidated income statement 
                                                                         Half-year to 
                                                                  30 Jun    30 Jun      31 Dec 
                                                                    2020      2019        2019 
                                                        Notes*        $m        $m          $m 
Net interest income                                              14,509    15,240    15,222 
 
- interest income                                                23,000    27,750    26,945 
- interest expense                                               (8,491)  (12,510)  (11,723) 
 
Net fee income                                            2       5,926     6,124     5,899 
                                                       ------- 
- fee income                                                      7,480     7,804     7,635 
- fee expense                                                    (1,554)   (1,680)   (1,736) 
                                                       ------- 
Net income from financial instruments held 
 for trading or managed on a fair value basis                     5,768     5,331     4,900 
 
Net income/(expense) from assets and liabilities 
 of insurance businesses, including related 
 derivatives, measured at fair value through 
 profit or loss                                                  (1,290)    2,196     1,282 
 
Change in fair value of designated debt and 
 related derivatives                                                197        88         2 
 
Changes in fair value of other financial instruments 
 mandatorily measured at fair value through 
 profit or loss                                                      80       457       355 
 
Gains less losses from financial investments                        466       201       134 
Net insurance premium income                                      5,020     6,323     4,313 
 
Other operating income                                              471     2,072       885 
 
Total operating income                                           31,147    38,032    32,992 
                                                       ------- 
Net insurance claims and benefits paid and 
 movement in liabilities to policyholders                        (4,402)   (8,660)   (6,266) 
Net operating income before change in expected 
 credit losses and other credit impairment charges               26,745    29,372    26,726 
 
Change in expected credit losses and other 
 credit impairment charges                                       (6,858)   (1,140)   (1,616) 
                                                       ------- 
Net operating income                                             19,887    28,232    25,110 
                                                       ------- 
Employee compensation and benefits                               (8,514)   (9,255)   (8,747) 
General and administrative expenses                              (4,918)   (6,372)   (7,456) 
                                                       ------- 
Depreciation and impairment of property, plant 
 and equipment and right-of-use assets                           (1,209)   (1,010)   (1,090) 
                                                       ------- 
Amortisation and impairment of intangible assets                 (1,845)     (512)     (558) 
 
Goodwill impairment                                                 (41)        -    (7,349) 
 
Total operating expenses                                        (16,527)  (17,149)  (25,200) 
                                                       ------- 
Operating profit/(loss)                                           3,360    11,083       (90) 
                                                       ------- 
Share of profit in associates and joint ventures                    958     1,324     1,030 
Profit before tax                                                 4,318    12,407       940 
                                                       ------- 
Tax expense                                                      (1,193)   (2,470)   (2,169) 
Profit/(loss) for the period                                      3,125     9,937    (1,229) 
                                                       ------- 
Attributable to: 
- ordinary shareholders of the parent company                     1,977     8,507    (2,538) 
                                                       ------- 
- preference shareholders of the parent company                      45        45        45 
- other equity holders                                              617       664       660 
- non-controlling interests                                         486       721       604 
 
Profit/(loss) for the period                                      3,125     9,937    (1,229) 
                                                       ------- 
                                                                       $         $           $ 
Basic earnings per ordinary share                         4        0.10      0.42     (0.13) 
Diluted earnings per ordinary share                       4        0.10      0.42     (0.13) 
                                                       ------- 
 
   *     For Notes on the interim condensed financial statements, see page 98. 
 
Consolidated statement of comprehensive income 
                                                                    Half-year to 
                                                              30 Jun   30 Jun     31 Dec 
                                                                2020     2019       2019 
                                                                  $m       $m         $m 
                                                             -------  -------  --------- 
Profit/(loss) for the period                                  3,125    9,937   (1,229) 
 
Other comprehensive income/(expense) 
Items that will be reclassified subsequently to 
 profit or loss when specific conditions are met: 
Debt instruments at fair value through other comprehensive 
 income                                                       1,747    1,015      137 
 
- fair value gains/(losses)                                   2,654    2,141     (348) 
- fair value (gains)/losses transferred to the 
 income statement on disposal                                  (454)    (794)     429 
- expected credit recoveries/(losses) recognised 
 in the income statement                                        109       (5)     114 
- income taxes                                                 (562)    (327)     (58) 
 
Cash flow hedges                                                476      239      (33) 
 
 
  *    fair value gains                                         255      241      310 
- fair value losses/(gains) reclassified to the 
 income statement                                               364       68     (354) 
 
  *    income taxes and other movements                        (143)     (70)      11 
 
Share of other comprehensive income/(expense) of 
 associates and joint ventures                                 (115)      73      (52) 
 
 
  *    share for the period                                    (115)      85      (64) 
 
  *    fair value (gains)/losses transferred to the income 
       statement on disposal                                      -      (12)      12 
 
Exchange differences                                         (4,552)     109      935 
 
Items that will not be reclassified subsequently 
 to profit or loss: 
                                                             -------  -------  --------- 
Remeasurement of defined benefit asset/liability              1,182      (45)      58 
 
 
  *    before income taxes                                    1,703      (50)      33 
- income taxes                                                 (521)       5       25 
 
Changes in fair value of financial liabilities 
 designated at fair value upon initial recognition 
 arising from changes in own credit risk                      2,354   (1,445)    (557) 
 
- before income taxes                                         2,936   (1,816)    (823) 
- income taxes                                                 (582)     371      266 
 
Equity instruments designated at fair value through 
 other comprehensive income                                    (123)     268       98 
 
- fair value gains/(losses)                                    (122)     265       99 
- income taxes                                                   (1)       3       (1) 
 
Effects of hyperinflation                                        72      113      104 
 
Other comprehensive expense for the period, net 
 of tax                                                       1,041      327      690 
Total comprehensive income/(expense) 
 for the period                                               4,166   10,264     (539) 
 
Attributable to: 
- ordinary shareholders of the parent company                 3,043    8,741   (1,903) 
 
- preference shareholders of the parent company                  45       45       45 
 
- other equity holders                                          617      664      660 
 
- non-controlling interests                                     461      814      659 
 
Total comprehensive income/(expense) 
 for the period                                               4,166   10,264     (539) 
 
 
 
Consolidated balance sheet 
                                                                           At 
                                                                     30 Jun       31 Dec 
                                                                       2020         2019 
                                                         Notes*          $m           $m 
Assets 
Cash and balances at central banks                                 249,673     154,099 
Items in the course of collection from other banks                   6,289       4,956 
Hong Kong Government certificates of indebtedness                   39,519      38,380 
Trading assets                                                     208,964     254,271 
Financial assets designated and otherwise mandatorily 
 measured at fair value through profit and loss                     41,785      43,627 
Derivatives                                                8       313,781     242,995 
Loans and advances to banks                                         77,015      69,203 
Loans and advances to customers                                  1,018,681   1,036,743 
Reverse repurchase agreements - non-trading                        226,345     240,862 
Financial investments                                      9       494,109     443,312 
                                                        ------- 
Prepayments, accrued income and other assets                       197,425     136,680 
Current tax assets                                                     821         755 
Interests in associates and joint ventures                 10       24,800      24,474 
                                                        ------- 
Goodwill and intangible assets                                      19,438      20,163 
Deferred tax assets                                                  4,153       4,632 
                                                        -------  ---------   --------- 
Total assets                                                     2,922,798   2,715,152 
                                                                 --------- 
Liabilities and equity 
Liabilities 
Hong Kong currency notes in circulation                             39,519      38,380 
Deposits by banks                                                   82,715      59,022 
Customer accounts                                                1,532,380   1,439,115 
Repurchase agreements - non-trading                                112,799     140,344 
Items in the course of transmission to other banks                   6,296       4,817 
Trading liabilities                                                 79,612      83,170 
                                                        ------- 
Financial liabilities designated at fair value                     156,608     164,466 
Derivatives                                                8       303,059     239,497 
Debt securities in issue                                           110,114     104,555 
Accruals, deferred income and other liabilities                    173,181     118,156 
Current tax liabilities                                              1,141       2,150 
Liabilities under insurance contracts                               98,832      97,439 
Provisions                                                 12        3,209       3,398 
Deferred tax liabilities                                             4,491       3,375 
Subordinated liabilities                                            23,621      24,600 
                                                        -------  ---------   --------- 
Total liabilities                                                2,727,577   2,522,484 
                                                                 --------- 
Equity 
Called up share capital                                             10,346      10,319 
Share premium account                                               14,268      13,959 
Other equity instruments                                            20,914      20,871 
Other reserves                                                        (301)      2,127 
Retained earnings                                                  141,809     136,679 
Total shareholders' equity                                         187,036     183,955 
                                                        -------  ---------   --------- 
Non-controlling interests                                            8,185       8,713 
Total equity                                                       195,221     192,668 
                                                        -------  ---------   --------- 
Total liabilities and equity                                     2,922,798   2,715,152 
                                                                 --------- 
 
   *     For Notes on the interim condensed financial statements, see page 98. 
 
Consolidated statement of cash flows 
                                                                     Half-year to 
                                                              30 Jun     30 Jun       31 Dec 
                                                                2020       2019         2019 
                                                                  $m         $m           $m 
Profit before tax                                             4,318     12,407        940 
                                                           --------   --------   -------- 
Adjustments for non-cash items: 
                                                           ---------  ---------  ----------- 
Depreciation, amortisation and impairment                     3,095      1,522      8,997 
                                                           -------- 
Net gain from investing activities                             (405)      (352)       (47) 
                                                           -------- 
Share of profits in associates and joint ventures              (958)    (1,324)    (1,030) 
                                                           --------   --------   -------- 
Gain on disposal of subsidiaries, businesses, associates 
 and joint ventures                                               -       (828)      (101) 
                                                           -------- 
Change in expected credit losses gross of recoveries 
 and other credit impairment charges                          6,875      1,347      1,665 
                                                           -------- 
Provisions including pensions                                   277      1,012      1,411 
                                                           -------- 
Share-based payment expense                                     195        288        190 
                                                           -------- 
Other non-cash items included in profit before 
 tax                                                           (718)    (1,401)      (896) 
                                                           -------- 
Change in operating assets                                   11,185   (114,049)     9,818 
                                                           -------- 
Change in operating liabilities                             134,734    136,627    (20,544) 
                                                           -------- 
Elimination of exchange differences(1)                        3,775    (10,266)     6,524 
                                                           -------- 
Dividends received from associates                              120        170        463 
                                                           -------- 
Contributions paid to defined benefit plans                    (335)      (153)      (380) 
                                                           --------   --------   -------- 
Tax paid                                                     (2,373)    (1,347)      (920) 
                                                           -------- 
Net cash from operating activities                          159,785     23,653      6,090 
                                                           -------- 
Purchase of financial investments                          (271,830)  (234,762)  (211,145) 
Proceeds from the sale and maturity of financial 
 investments                                                225,733    204,600    208,586 
Net cash flows from the purchase and sale of property, 
 plant and equipment                                           (447)      (532)      (811) 
Net cash flows from purchase of customer and loan 
 portfolios                                                     244        435        683 
Net investment in intangible assets                            (957)      (951)    (1,338) 
Net cash flow on (purchase)/disposal of subsidiaries, 
 businesses, associates and joint ventures                     (409)       (75)        (8) 
Net cash from investing activities                          (47,666)   (31,285)    (4,033) 
                                                           --------   --------   -------- 
Cancellation of shares                                            -          -     (1,000) 
                                                           -------- 
Net sales/(purchases) of own shares for market-making 
 and investment purposes                                        (48)        27        114 
Redemption of preference shares and other equity 
 instruments                                                   (398)         -          - 
Subordinated loan capital repaid                             (1,538)    (4,138)       (72) 
Dividends paid to shareholders of the parent company 
 and non-controlling interests                               (1,204)    (4,271)    (5,502) 
Net cash from financing activities                           (3,188)    (8,382)    (6,460) 
                                                           --------   --------   -------- 
Net increase/(decrease) in cash and cash equivalents        108,931    (16,014)    (4,403) 
                                                           -------- 
Cash and cash equivalents at the beginning of the 
 period(2)                                                  293,742    312,911    296,723 
Exchange differences in respect of cash and cash 
 equivalents                                                 (7,455)      (174)     1,422 
                                                           --------   --------   -------- 
Cash and cash equivalents at the end of the period(2)       395,218    296,723    293,742 
                                                           -------- 
 

1 Adjustments to bring changes between opening and closing balance sheet amounts to average rates. This is not done on a line-by-line basis, as details cannot be determined without unreasonable expense.

2 At 31 December 2019, HSBC re-presented cash and cash equivalents to reflect a consistent global approach to these amounts. The net effect of these changes decreased cash and cash equivalents by $15.3bn at 30 June 2019.

 
Consolidated statement of changes in equity 
                                                                                                             Other reserves 
                                                               Called 
                                                                   up 
                                                                share 
                                                              capital                            Financial       Cash              Merger 
                                                                  and         Other                 assets       flow   Foreign       and             Total           Non- 
                                                                share        equity  Retained     at FVOCI    hedging  exchange     other    share-holders'    controlling       Total 
                                                              premium  instru-ments  earnings      reserve    reserve   reserve  reserves            equity      interests      equity 
                                                                   $m            $m        $m           $m         $m        $m        $m                $m             $m          $m 
At 1 Jan 2020                                                  24,278        20,871  136,679      (108)        (2)     (25,133)    27,370      183,955          8,713       192,668 
                                                              -------                          -------                 -------                          ---            --- 
 Profit for the period                                              -             -    2,639         -          -            -          -        2,639            486         3,125 
------------------------------------------------------------  -------                          -------                 -------                          ---            --- 
 Other comprehensive 
  income (net of tax)                                               -             -    3,506     1,654        465       (4,559)         -        1,066            (25)        1,041 
------------------------------------------------------------ 
 
  *    debt instruments at fair value through other 
       comprehensive income                                         -             -        -     1,735          -            -          -        1,735             12         1,747 
 
  *    equity instruments designated at fair value through 
       other comprehensive income                                   -             -        -       (81)         -            -          -          (81)           (42)         (123) 
 
  *    cash flow hedges                                             -             -        -         -        465            -          -          465             11           476 
 
  *    changes in fair value of financial liabilities 
       designated at fair value upon initial recognition 
       arising from changes in own credit risk                      -             -    2,354         -          -            -          -        2,354              -         2,354 
 
  *    remeasurement of defined benefit asset/liability             -             -    1,195         -          -            -          -        1,195            (13)        1,182 
 
  *    share of other comprehensive income of associates and 
       joint ventures                                               -             -     (115)        -          -            -          -         (115)             -          (115) 
 
  *    effects of hyperinflation                                    -             -       72         -          -            -          -           72              -            72 
 
  *    exchange differences                                         -             -        -         -          -       (4,559)         -       (4,559)             7        (4,552) 
Total comprehensive 
 income for the period                                              -             -    6,145     1,654        465       (4,559)         -        3,705            461         4,166 
                                                                       ------------            -------      -----                --------               ---            --- 
Shares issued under 
 employee remuneration 
 and share plans                                                  336             -     (329)        -          -            -          -            7              -             7 
                                                                                               -------                                                  ---            --- 
 Dividends to shareholders                                          -             -     (662)        -          -            -          -         (662)          (542)       (1,204) 
------------------------------------------------------------  -------                          -------                 ------- 
 Cost of share-based 
  payment arrangements                                              -             -      195         -          -            -          -          195              -           195 
------------------------------------------------------------  -------                          -------                 -------                          ---            --- 
 Other movements                                                    -            43     (219)       12          -            -          -         (164)          (447)         (611) 
------------------------------------------------------------  -------                          -------                 ------- 
At 30 Jun 2020                                                 24,614        20,914  141,809     1,558        463      (29,692)    27,370      187,036          8,185       195,221 
                                                              -------                          -------                 -------                          ---            --- 
 
At 1 Jan 2019                                                  23,789        22,367  138,191    (1,532)      (206)     (26,133)    29,777      186,253          7,996       194,249 
                                                                                                                                                        ---            --- 
 Profit for the period                                              -             -    9,216         -          -            -          -        9,216            721         9,937 
------------------------------------------------------------                                                                                            ---            --- 
 Other comprehensive 
  income (net of tax)                                               -             -   (1,297)    1,202        237           92          -          234             93           327 
------------------------------------------------------------ 
 
  *    debt instruments at fair value through other 
       comprehensive income                                         -             -        -     1,001          -            -          -        1,001             14         1,015 
 
  *    equity instruments designated at fair value through 
       other comprehensive income                                   -             -        -       201          -            -          -          201             67           268 
 
  *    cash flow hedges                                             -             -        -         -        237            -          -          237              2           239 
 
  *    changes in fair value of financial liabilities 
       designated at fair value upon initial recognition 
       arising from changes in own credit risk                      -             -   (1,445)        -          -            -          -       (1,445)             -        (1,445) 
 
  *    remeasurement of defined benefit asset/liability             -             -      (38)        -          -            -          -          (38)            (7)          (45) 
 
  *    share of other comprehensive income of associates and 
       joint ventures                                               -             -       73         -          -            -          -           73              -            73 
- effects of hyperinflation                                         -             -      113         -          -            -          -          113              -           113 
 
  *    exchange differences                                         -             -        -         -          -           92          -           92             17           109 
 Total comprehensive 
  income for the period                                             -             -    7,919     1,202        237           92          -        9,450            814        10,264 
------------------------------------------------------------                                                                                            ---            --- 
Shares issued under 
 employee remuneration 
 and share plans                                                  490             -     (475)        -          -            -          -           15              -            15 
Shares issued in 
 lieu of dividends 
 and amounts arising 
 thereon                                                            -             -    1,160         -          -            -          -        1,160              -         1,160 
                                                                                                                                                        ---            --- 
 Dividends to shareholders                                          -             -   (4,915)        -          -            -          -       (4,915)          (516)       (5,431) 
------------------------------------------------------------ 
 Cost of share-based 
  payment arrangements                                              -             -      255         -          -            -          -          255              -           255 
------------------------------------------------------------                                                                                            ---            --- 
 Other movements                                                    -             -      458         -          -            -          -          458            (96)          362 
------------------------------------------------------------ 
At 30 Jun 2019                                                 24,279        22,367  142,593      (330)        31      (26,041)    29,777      192,676          8,198       200,874 
                                                                                                                                                        ---            --- 
 
 
Consolidated statement of changes in equity (continued) 
                                                                                                        Other reserves 
                                                               Called 
                                                                   up 
                                                                share 
                                                              capital    Other              Financial       Cash              Merger     Total 
                                                                  and   equity                 assets       flow   Foreign       and    share-           Non- 
                                                                share  instru-  Retained     at FVOCI    hedging  exchange     other  holders'    controlling       Total 
                                                              premium    ments  earnings      reserve    reserve   reserve  reserves    equity      interests      equity 
                                                                   $m       $m        $m           $m         $m        $m        $m        $m             $m          $m 
At 1 Jul 2019                                                 24,279   22,367   142,593     (330)        31       (26,041)   29,777   192,676      8,198       200,874 
                                                              ------                      ------             ---  -------                                 --- 
Profit for the period                                              -        -    (1,833)       -          -             -         -    (1,833)       604        (1,229) 
Other comprehensive 
 income 
 (net of tax)                                                      -        -      (462)     222        (33)          908         -       635         55           690 
                                                              ------                      ------  ---             -------                                 --- 
 
  *    debt instruments at fair value through other 
       comprehensive income                                        -        -         -      145          -             -         -       145         (8)          137 
 
  *    equity instruments designated at fair value through 
       other comprehensive income                                  -        -         -       77          -             -         -        77         21            98 
 
  *    cash flow hedges                                            -        -         -        -        (33)            -         -       (33)         -           (33) 
 
  *    changes in fair value of financial liabilities 
       designated at fair value upon initial recognition 
       arising from changes in own credit risk                     -        -      (557)       -          -             -         -      (557)         -          (557) 
 
  *    remeasurement of defined benefit asset/liability            -        -        43        -          -             -         -        43         15            58 
 
  *    share of other comprehensive income of associates and 
       joint ventures                                              -        -       (52)       -          -             -         -       (52)         -           (52) 
 
  *    effects of hyperinflation                                   -        -       104        -          -             -         -       104          -           104 
 
  *    exchange differences                                        -        -         -        -          -           908         -       908         27           935 
Total comprehensive 
 income for the period                                             -        -    (2,295)     222        (33)          908         -    (1,198)       659          (539) 
Shares issued under 
 employee remuneration 
 and share plans                                                  67        -       (20)       -          -             -         -        47          -            47 
Shares issued in 
 lieu of dividends 
 and amounts arising 
 thereon                                                           -        -     1,527        -          -             -         -     1,527          -         1,527 
                                                              ------                      ------  ---        ---  -------                                 --- 
Dividends to shareholders                                          -        -    (6,768)       -          -             -         -    (6,768)      (261)       (7,029) 
Redemption of securities(1)                                        -   (1,496)      (12)       -          -             -         -    (1,508)         -        (1,508) 
Transfers(2)                                                       -        -     2,475        -          -             -    (2,475)        -          -             - 
Cost of share-based 
 payment arrangements                                              -        -       223        -          -             -         -       223          -           223 
                                                              ------                      ------  ---        ---  -------                                 --- 
Cancellation of shares(3)                                        (68)       -    (1,000)       -          -             -        68    (1,000)         -        (1,000) 
                                                              ------            -------   ------  ---        ---  -------                                 ---  ------- 
Other movements                                                    -        -       (44)       -          -             -         -       (44)       117            73 
At 31 Dec 2019                                                24,278   20,871   136,679     (108)        (2)      (25,133)   27,370   183,955      8,713       192,668 
                                                              ------                      ------                  -------                                 --- 
 

1 In 2019, HSBC Holdings called and later redeemed $1,500m 5.625% perpetual subordinated capital securities on which there were $12m of external issuance costs.

2 Permitted transfers from the merger reserve to retained earnings were made when the investment in HSBC Overseas Holdings (UK) Limited was previously impaired. In 2019, an additional impairment of $2,475m was recognised and a permitted transfer of this amount was made from the merger reserve to retained earnings.

3 In August 2019, HSBC announced a share buy-back of up to $1.0bn, which was completed in September 2019.

 
Notes on the interim condensed financial statements 
                                         Page                                             Page 
   Basis of preparation and significant              Interests in associates and 
1   accounting policies                    98    10   joint ventures                       111 
2  Net fee income                          99    11  Goodwill and intangible assets        114 
3  Dividends                               99    12  Provisions                            115 
                                         ---- 
                                                     Contingent liabilities, contractual 
4  Earnings per share                     100    13   commitments and guarantees           116 
                                                     Legal proceedings and regulatory 
5  Segmental analysis                     100    14   matters                              116 
   Fair values of financial instruments 
6   carried at fair value                 104    15  Transactions with related parties     120 
                                         ---- 
   Fair values of financial instruments              Events after the balance sheet 
7   not carried at fair value             109    16   date                                 120 
                                         ---- 
                                                     Interim Report 2020 and statutory 
8  Derivatives                            110    17   accounts                             120 
                                         ----                                             ---- 
9  Financial investments                  111 
                                         ---- 
 
 
1  Basis of preparation and significant accounting policies 
 
   (a)     Compliance with International Financial Reporting Standards 

Our interim condensed consolidated financial statements have been prepared in accordance with the Disclosure Guidance and Transparency Rules of the Financial Conduct Authority and IAS 34 'Interim Financial Reporting', as issued by the International Accounting Standards Board ('IASB') and as endorsed by the EU. Therefore, they include an explanation of events and transactions that are significant to an understanding of the changes in HSBC's financial position and performance since the end of 2019. These financial statements should be read in conjunction with the Annual Report and Accounts 2019.

At 30 June 2020, there were no unendorsed standards effective for the half-year to 30 June 2020 affecting these financial statements, and there was no difference between IFRSs endorsed by the EU and IFRSs issued by the IASB in terms of their application to HSBC.

Standards applied during the half-year to 30 June 2020

There were no new standards or amendments to standards that had an effect on these interim condensed consolidated financial statements.

   (b)     Use of estimates and judgements 

Management believes that our critical accounting estimates and judgements are those that relate to impairment of amortised cost and FVOCI debt financial assets, goodwill impairment, the valuation of financial instruments, deferred tax assets, provisions for liabilities, defined benefit obligations and interests in associates. There were no changes in the current period to the critical accounting estimates and judgements applied in 2019, which are stated on pages 47 and 242 of the Annual Report and Accounts 2019. However, the level of estimation uncertainty and judgement for the calculation of expected credit losses ('ECL') has increased since 31 December 2019 as a result of the economic effects of the Covid-19 outbreak as set out in 'Measurement uncertainty and sensitivity analysis' on page 56. In addition, as a result of the heightened economic uncertainty together with the plans announced in the 2020 business update and historical underperformance of certain businesses, the estimates and judgements with regard to the expected cash flows of cash generating units, which are applied to the impairment of non-financial assets other than goodwill, particularly intangible assets, have become more sensitive and resulted in significant impairment charges in the interim reporting period. See Note 11 'Goodwill and intangible assets'.

   (c)      Composition of Group 

There were no material changes in the composition of the Group in the half-year to 30 June 2020.

   (d)     Future accounting developments 

IFRS 17 'Insurance Contracts' was issued in May 2017, with amendments to the standard issued in June 2020. It has not been endorsed for use in the EU. The standard sets out the requirements that an entity should apply in accounting for insurance contracts it issues and reinsurance contracts it holds. Following the amendments, IFRS 17 is effective from 1 January 2023. The Group is in the process of implementing IFRS 17. Industry practice and interpretation of the standard are still developing. Therefore, the likely impact of its implementation remains uncertain.

   (e)     Going concern 

The financial statements are prepared on a going concern basis, as the Directors are satisfied that the Group and parent company have the resources to continue in business for the foreseeable future. In making this assessment, the Directors have considered a wide range of information relating to present and future conditions, including future projections of profitability, cash flows, capital requirements and capital resources. These considerations include stressed scenarios that reflect the increasing uncertainty that the global Covid-19 pandemic has had on HSBC's operations, as well as considering potential impacts from other top and emerging risks, and the related impact on profitability, capital and liquidity.

   (f)      Accounting policies 

Except as described above, the accounting policies that we applied for these interim condensed consolidated financial statements are consistent with those described on pages 240 to 251 of the Annual Report and Accounts 2019, as are the methods of computation.

 
2  Net fee income 
 
 
                                                        Half-year to 
                                                 30 Jun   30 Jun     31 Dec 
                                                   2020     2019       2019 
                                                  Total    Total      Total 
                                     Footnotes       $m       $m         $m 
Net fee income by product 
Funds under management                           1,113    1,067    1,110 
Cards                                              954      968    1,007 
                                    ---------- 
Broking income                                     743      544      513 
                                    ----------  ------   ------   ------ 
Credit facilities                                  726      805      813 
                                    ----------  ------   ------   ------ 
Account services                                   649    1,034      969 
                                    ----------  ------   ------   ------ 
Underwriting                                       552      446      383 
                                    ----------  ------   ------   ------ 
Unit trusts                                        455      546      489 
                                    ----------  ------   ------   ------ 
Global custody                                     446      342      375 
                                    ----------  ------   ------   ------ 
Remittances                                        325      373      374 
                                    ----------  ------   ------   ------ 
Imports/exports                                    288      338      324 
                                    ----------  ------   ------   ------ 
Insurance agency commission                        171      200      177 
                                    ----------  ------   ------   ------ 
Other                                            1,058    1,141    1,101 
Fee income                                       7,480    7,804    7,635 
                                    ---------- 
Less: fee expense                               (1,554)  (1,680)  (1,736) 
                                    ----------  ------   ------   ------ 
Net fee income                                   5,926    6,124    5,899 
                                                ------   ------   ------ 
Net fee income by global business       1 
Wealth and Personal Banking                      2,691    2,870    2,765 
Commercial Banking                               1,630    1,773    1,617 
Global Banking and Markets                       1,608    1,489    1,550 
Corporate Centre                                    (3)      (8)     (33) 
 
 

1 A change in reportable segments was made in 2Q20. Comparative data have been re-presented accordingly. For further guidance, refer to Note 5 on page 100.

 
3  Dividends 
 

On 31 March 2020, HSBC announced that, in response to a request from the Bank of England through the UK's Prudential Regulation Authority, the Board had cancelled the fourth interim dividend for 2019 of $0.21 per ordinary share, which was scheduled to be paid on 14 April 2020. The Board also announced that until the end of 2020, HSBC will make no quarterly or interim dividend payments or accruals in respect of ordinary shares.

The Board intends to provide an update on the dividend policy at the year-end results for 2020, when the economic impact of the Covid-19 outbreak is better understood. We will also take into account the views of our shareholders, the interests of our other stakeholders and other factors, including our financial performance and capital position.

 
 Dividends paid to shareholders of HSBC Holdings plc 
                                                                Half-year to 
                                       30 Jun 2020             30 Jun 2019              31 Dec 2019 
                                                 Settled                 Settled 
                                     Per              in     Per              in     Per           Settled 
                                   share  Total    scrip   share  Total    scrip   share  Total   in scrip 
                                       $     $m       $m       $     $m       $m       $     $m         $m 
 Dividends paid on 
  ordinary shares 
-------------------------------- 
In respect of previous 
 year: 
                                                                         -------                 --------- 
 
  *    fourth interim dividend         -      -        -    0.21  4,206    1,160       -      -        - 
 
In respect of current 
 year: 
                                                                         -------                 --------- 
 
  *    first interim dividend(1)       -      -        -       -      -        -    0.10  2,013      375 
 
 
  *    second interim dividend         -      -        -       -      -        -    0.10  2,021      795 
 
  *    third interim dividend          -      -        -       -      -        -    0.10  2,029      357 
 
Total                                  -      -        -    0.21  4,206    1,160    0.30  6,063    1,527 
                                                                         -------                 ------- 
 Total dividends on 
  preference shares 
  classified as equity 
  (paid quarterly)                 31.00     45            31.00     45            31.00     45 
-------------------------------- 
 Total coupons on capital 
  securities classified 
  as equity                                 617                     664                     660 
-------------------------------- 
Dividends to shareholders                   662                   4,915                   6,768 
                                                                         -------                 --------- 
 

1 At 30 June 2019, HSBC changed its accounting practice on the recognition of interim dividends to recognise them on the date of payment rather than the date of declaration, in line with generally accepted accounting practice.

 
 Total coupons on capital securities classified as equity 
                                                                                Half-year to 
                                                                          30 Jun  30 Jun    31 Dec 
                                                                            2020    2019      2019 
                                                                           Total   Total     Total 
                                                     First 
                                     Footnotes   call date  Per security      $m      $m        $m 
                                    ---------- 
Perpetual subordinated contingent 
 convertible securities                  1 
                                    ---------- 
 
  *    $1,500m issued at 5.625%          2        Nov 2019       $56.250       -      42      42 
 
  *    $2,000m issued at 6.875%                   Jun 2021       $68.750      69      69      69 
                                    ---------- 
 
  *    $2,250m issued at 6.375%                   Sep 2024       $63.750      72      72      71 
                                    ---------- 
 
  *    $2,450m issued at 6.375%                   Mar 2025       $63.750      78      78      78 
 
  *    $3,000m issued at 6.000%                   May 2027       $60.000      90      90      90 
                                    ---------- 
 
  *    $2,350m issued at 6.250%                   Mar 2023       $62.500      73      73      74 
 
- $1,800m issued at 6.500%                        Mar 2028       $65.000      59      58      59 
 
 
  *    EUR1,500m issued at 5.250%                 Sep 2022     EUR52.500      44      45      43 
 
 
  *    EUR1,000m issued at 6.000%                 Sep 2023     EUR60.000      33      34      32 
 
- EUR1,250m issued at 4.750%                     July 2029     EUR47.500      33      34      34 
 
 
  *    SGD1,000m issued at 4.700%                 Jun 2022     SGD47.000      17      17      17 
 
 
  *    SGD750m issued at 5.000%                   Sep 2023     SGD50.000      13      14      14 
 
- GBP1,000m issued at 5.875%                      Sep 2026     GBP58.750      36      38      37 
 
Total                                                                        617     664     660 
 
 

1 Discretionary coupons are paid twice a year on the perpetual subordinated contingent convertible securities, in denominations of 1,000 per security in each security's issuance currency.

2 This security was called by HSBC Holdings on 22 November 2019 and was redeemed and cancelled on 17 January 2020.

 
4  Earnings per share 
 

Basic earnings per ordinary share is calculated by dividing the profit attributable to ordinary shareholders of the parent company by the weighted average number of ordinary shares outstanding, excluding own shares held. Diluted earnings per ordinary share is calculated by dividing the basic earnings, which require no adjustment for the effects of dilutive potential ordinary shares, by the weighted average number of ordinary shares outstanding, excluding own shares held, plus the weighted average number of ordinary shares that would be issued on conversion of dilutive potential ordinary shares.

 
 Profit/(loss) attributable to ordinary shareholders of the parent company 
                                                                  Half-year to 
                                                            30 Jun  30 Jun     31 Dec 
                                                              2020    2019       2019 
                                                                $m      $m         $m 
Profit attributable to shareholders of the parent company   2,639   9,216   (1,833) 
Dividend payable on preference shares classified as 
 equity                                                       (45)    (45)     (45) 
                                                            ----- 
Coupon payable on capital securities classified as 
 equity                                                      (617)   (664)    (660) 
                                                            ----- 
Profit/(loss) attributable to ordinary shareholders 
 of the parent company                                      1,977   8,507   (2,538) 
                                                            ----- 
 
 
 Basic and diluted earnings per share 
                                                                 Half-year to 
                                30 Jun 2020                 30 Jun 2019                       31 Dec 2019 
                                     Number  Amount              Number  Amount                       Number    Amount 
                                         of     per                  of     per                           of       per 
                         Profit      shares   share  Profit      shares   share    Profit/(loss)      shares     share 
              Footnotes      $m  (millions)       $      $m  (millions)       $               $m  (millions)         $ 
             ----------  ------  ----------  ------  ------  ----------  ------  ---------------  ----------  -------- 
Basic             1       1,977      20,162    0.10   8,507      20,124    0.42     (2,538)           20,191  (0.13) 
 Effect of 
  dilutive 
  potential 
  ordinary 
  shares                                 58                          65                                    - 
 Diluted          1       1,977      20,220    0.10   8,507      20,189    0.42     (2,538)           20,191  (0.13) 
-----------  ----------  ------  ----------  ------  ------  ----------  ------  ---------   ---  ----------  ----- 
 

1 Weighted average number of ordinary shares outstanding (basic) or assuming dilution (diluted).

 
5  Segmental analysis 
 

The Group Chief Executive, supported by the rest of the Group Executive Committee ('GEC'), is considered the Chief Operating Decision Maker ('CODM') for the purposes of identifying the Group's reportable segments. Global business results are assessed by the CODM on the basis of adjusted performance that removes the effects of significant items and currency translation from reported results. Therefore, we present these results on an adjusted basis as required by IFRSs. The 2019 adjusted performance information is presented on a constant currency basis. The income statements for the half-years to 30 June 2019 and 31 December 2019 are converted at the average rates of exchange for 2020, and the balance sheets at 30 June 2019 and 31 December 2019 at the prevailing rates of exchange on 30 June 2020.

Our operations are closely integrated and, accordingly, the presentation of data includes internal allocations of certain items of income and expense. These allocations include the costs of certain support services and global functions to the extent that they can be meaningfully attributed to global businesses. While such allocations have been made on a systematic and consistent basis, they necessarily involve a degree of subjectivity. Costs that are not allocated to global businesses are included in Corporate Centre.

Where relevant, income and expense amounts presented include the results of inter-segment funding along with inter-company and inter-business line transactions. All such transactions are undertaken on arm's length terms. The intra-Group elimination items for the global businesses are presented in Corporate Centre.

Change in reportable segments

Effective from 2Q20, we made the following realignments within our internal reporting to the GEC and CODM:

-- We simplified our matrix organisational structure by combining Global Private Banking and Retail Banking and Wealth Management to form Wealth and Personal Banking.

-- We reallocated our reporting of Balance Sheet Management, hyperinflation accounting in Argentina and Holdings net interest expense from Corporate Centre to the global businesses.

Comparative data have been re-presented accordingly.

Our global businesses

We provide a comprehensive range of banking and related financial services to our customers in our three global businesses. The products and services offered to customers are organised by these global businesses:

-- Wealth and Personal Banking ('WPB') provides a full range of retail banking and wealth products to our customers from personal banking to ultra high net worth individuals. Typically, customer offerings include retail banking products, such as current and savings accounts, mortgages and personal loans, credit cards, debit cards and local and international payment services. We also provide wealth management services, including insurance and investment products, global asset management services, investment management and Private Wealth Solutions for customers with more sophisticated and international requirements.

-- Commercial Banking ('CMB') offers a broad range of products and services to serve the needs of our commercial customers, including small and medium-sized enterprises, mid-market enterprises and corporates. These include credit and lending, international trade and receivables finance, treasury management and liquidity solutions (payments and cash management and commercial cards), commercial insurance and investments. CMB also offers customers access to products and services offered by other global businesses, such as Global Banking and Markets, which include foreign exchange products, raising capital on debt and equity markets and advisory services.

-- Global Banking and Markets ('GBM') provides tailored financial solutions to major government, corporate and institutional clients and private investors worldwide. The client-focused business lines deliver a full range of banking capabilities, including financing, advisory and transaction services, a markets business that provides services in credit, rates, foreign exchange, equities, money markets and securities services, and principal investment activities.

 
 HSBC adjusted profit before tax and balance sheet data 
                                                                   Half-year to 30 Jun 2020 
                                                                               Global 
                                                       Wealth                 Banking 
                                                 and Personal  Commercial         and  Corporate 
                                                      Banking     Banking     Markets     Centre         Total 
                                     Footnotes             $m          $m          $m         $m            $m 
Net operating income before change 
 in expected credit losses and 
 other credit impairment charges         1            11,251       7,000       8,178         48      26,477 
- external                                             9,684       7,431      10,105       (743)     26,477 
- inter-segment                                        1,567        (431)     (1,927)       791           - 
 
of which: net interest 
 income/(expense)                                      8,032       4,883       2,372       (804)     14,483 
Change in expected credit losses 
 and other credit impairment 
 charges                                              (2,202)     (3,526)     (1,118)       (12)     (6,858) 
Net operating income                                   9,049       3,474       7,060         36      19,619 
Total operating expenses                              (7,346)     (3,290)     (4,512)       206     (14,942) 
                                    ---------- 
Operating profit                                       1,703         184       2,548        242       4,677 
 
Share of profit in associates 
 and joint ventures                                       (8)          -           -        966         958 
 
Adjusted profit before tax                             1,695         184       2,548      1,208       5,635 
                                    ---------- 
                                                            %           %           %          %             % 
                                                -------------  ----------  ----------  ---------  ------------ 
Share of HSBC's adjusted profit 
 before tax                                             30.1         3.3        45.2       21.4       100.0 
 
Adjusted cost efficiency ratio                          65.3        47.0        55.2     (429.2)       56.4 
 
Adjusted balance sheet data                                $m          $m          $m         $m            $m 
                                                -------------  ----------  ----------  ---------  ------------ 
Loans and advances to customers 
 (net)                                               429,487     344,567     243,355      1,272   1,018,681 
 
Interests in associates and joint 
 ventures                                                425          13         136     24,226      24,800 
                                    ---------- 
Total external assets                                814,719     549,530   1,390,006    168,543   2,922,798 
 
Customer accounts                                    775,870     418,263     337,573        674   1,532,380 
 
 
 
HSBC adjusted profit before tax and balance sheet data (continued) 
                                                                 Half-year to 30 Jun 2019(2) 
                                                                               Global 
                                                       Wealth                 Banking 
                                                 and Personal  Commercial         and  Corporate 
                                                      Banking     Banking     Markets     Centre         Total 
                                     Footnotes             $m          $m          $m         $m            $m 
                                    ----------  -------------  ----------  ----------  ---------  ------------ 
Net operating income/(expense) 
 before change in expected credit 
 losses and other credit 
 impairment 
 charges                                1             12,861       7,647       7,590       (283)     27,815 
 
- external                                            10,747       8,087      10,258     (1,277)     27,815 
                                    ---------- 
- inter-segment                                        2,114        (440)     (2,668)       994           - 
                                    ---------- 
of which: net interest 
 income/(expense)                                      8,525       5,466       2,667     (1,761)     14,897 
                                    ---------- 
Change in expected credit losses 
 and other credit impairment 
 (charges)/recoveries                                   (527)       (478)        (97)        14      (1,088) 
Net operating income/(expense)                        12,334       7,169       7,493       (269)     26,727 
                                    ---------- 
Total operating expenses                              (7,551)     (3,258)     (4,758)      (172)    (15,739) 
Operating profit/(loss)                                4,783       3,911       2,735       (441)     10,988 
                                    ---------- 
Share of profit in associates 
 and joint ventures                                       41           -           -      1,244       1,285 
                                    ---------- 
Adjusted profit before tax                             4,824       3,911       2,735        803      12,273 
                                    ---------- 
                                                            %           %           %          %             % 
Share of HSBC's adjusted profit 
 before tax                                             39.3        31.9        22.3        6.5       100.0 
Adjusted cost efficiency ratio                          58.7        42.6        62.7      (60.8)       56.6 
 
Adjusted balance sheet data                                $m          $m          $m         $m            $m 
                                                -------------  ----------  ----------  ---------  ------------ 
Loans and advances to customers 
 (net)                                               414,611     340,976     246,209      1,184   1,002,980 
Interests in associates and joint 
 ventures                                                451          12          14     23,046      23,523 
 
Total external assets                                729,032     506,223   1,319,642    148,668   2,703,565 
 
Customer accounts                                    714,969     354,806     286,867        505   1,357,147 
                                    ---------- 
 

1 Net operating income before change in expected credit losses and other credit impairment charges, also referred to as revenue.

2 A change in reportable segments was made in 2Q20. Comparative data have been re-presented accordingly.

 
                                                        Half-year to 31 Dec 2019(2) 
 
Net operating income/(expense) 
 before change in expected credit 
 losses and other credit impairment 
 charges                                  1 12,492     7,379       7,113      (352)     26,632 
 
- external                                  10,320     7,871       9,886    (1,445)     26,632 
 
- inter-segment                              2,172      (492)     (2,773)    1,093           - 
 
of which: net interest income/(expense)      8,769     5,409       2,533    (1,495)     15,216 
 
Change in expected credit losses 
 and other credit impairment charges          (829)     (684)        (61)       20      (1,554) 
 
Net operating income/(expense)              11,663     6,695       7,052      (332)     25,078 
Total operating expenses                    (7,685)   (3,498)     (4,656)     (609)    (16,448) 
 
Operating profit/(loss)                      3,978     3,197       2,396      (941)      8,630 
 
Share of profit in associates 
 and joint ventures                             11         -           -     1,019       1,030 
 
Adjusted profit before tax                   3,989     3,197       2,396        78       9,660 
 
                                                  %         %           %         %             % 
                                           --------  --------  ----------  --------  ------------ 
Share of HSBC's adjusted profit 
 before tax                                   41.3      33.1        24.8       0.8       100.0 
Adjusted cost efficiency ratio                61.5      47.4        65.5    (173.0)       61.8 
 
Adjusted balance sheet data                      $m        $m          $m        $m            $m 
 
Loans and advances to customers 
 (net)                                     428,834   336,345     240,411     1,071   1,006,661 
Interests in associates and joint 
 ventures                                      445        13          13    23,760      24,231 
 
Total external assets                      754,369   496,757   1,233,829   153,539   2,638,494 
 
Customer accounts                          735,301   377,691     285,954       710   1,399,656 
 
 

1 Net operating income before change in expected credit losses and other credit impairment charges, also referred to as revenue.

2 A change in reportable segments was made in 2Q20. Comparative data have been presented accordingly.

Reported external net operating income is attributed to countries and territories on the basis of the location of the branch responsible for reporting the results or advancing the funds:

 
                                                                               Half-year to 
                                                                         30 Jun  30 Jun    31 Dec 
                                                                           2020    2019      2019 
                                                              Footnotes      $m      $m        $m 
                                                                         ------  ------  -------- 
Reported external net operating income by country/territory       1      26,745  29,372  26,726 
                                                              --------- 
 
  *    UK                                                                 4,166   4,577   4,434 
 
  *    Hong Kong                                                          8,703   9,461   8,988 
 
  *    US                                                                 2,435   2,293   2,178 
 
  *    France                                                               697     979     963 
 
  *    other countries                                                   10,744  12,062  10,163 
 
 

1 Net operating income before change in expected credit losses and other credit impairment charges, also referred to as revenue.

 
 Adjusted results reconciliation 
                                                                                      Half-year to 
                                    30 Jun 2020                               30 Jun 2019                                        31 Dec 2019 
                                     Significant                           Currency    Significant                           Currency    Significant 
                         Adjusted          items  Reported  Adjusted    translation          items  Reported  Adjusted    translation          items    Reported 
              Footnotes        $m             $m        $m        $m             $m             $m        $m        $m             $m             $m          $m 
Revenue           1       26,477        268        26,745    27,815      681            876          29,372    26,632      281             (187)       26,726 
             ----------                                                                                                         -----  -------- 
ECL                       (6,858)         -        (6,858)   (1,088)     (52)             -          (1,140)   (1,554)     (62)               -        (1,616) 
                                                                                                                                 ----            --- 
Operating 
 expenses                (14,942)    (1,585)      (16,527)  (15,739)    (453)          (957)        (17,149)  (16,448)    (228)          (8,524)      (25,200) 
                                                                                                                                 ---- 
Share of 
 profit 
 in 
 associates 
 and joint 
 ventures                    958          -           958     1,285       39              -           1,324     1,030        -                -         1,030 
                                                                                                                                -----            --- 
Profit 
 before 
 tax                       5,635     (1,317)        4,318    12,273      215            (81)         12,407     9,660       (9)          (8,711)          940 
             ----------  -------   --------                                   -----           ----                               ----                 ------- 
 

1 Net operating income before change in expected credit losses and other credit impairment charges, also referred to as revenue.

 
 Adjusted balance sheet reconciliation 
                                                                     At 
                                                    30 Jun 
                                                      2020              31 Dec 2019 
                                                  Reported                 Currency 
                                              and adjusted   Adjusted   translation     Reported 
                                                        $m         $m            $m           $m 
Loans and advances to customers (net)            1,018,681  1,006,661        30,082  1,036,743 
                                                            ---------  ------------  --------- 
Interests in associates and joint ventures          24,800     24,231           243     24,474 
 
Total external assets                            2,922,798  2,638,494        76,658  2,715,152 
                                                                                     --------- 
Customer accounts                                1,532,380  1,399,656        39,459  1,439,115 
                                             ------------- 
 
 
 Adjusted profit reconciliation 
                                                                        Half-year to 
                                                                  30 Jun   30 Jun     31 Dec 
                                                                    2020     2019       2019 
                                                      Footnotes       $m       $m         $m 
Adjusted profit before tax                                        5,635   12,273    9,660 
 
Significant items                                                (1,317)     (81)  (8,711) 
 
- customer redress programmes (revenue)                              26        -     (163) 
- disposals, acquisitions and investment in 
 new businesses (revenue)                                            (8)     827      (59) 
                                                     ---------- 
- fair value movements on financial instruments          1          299       50       34 
- restructuring and other related costs (revenue)                   (49)       -        - 
- costs of structural reform                              2           -      (91)     (67) 
- customer redress programmes (operating expenses)                  (50)    (610)    (671) 
                                                     ---------- 
- impairment of goodwill and other intangible 
 assets                                                          (1,025)       -   (7,349) 
                                                     ---------- 
- restructuring and other related costs (operating 
 expenses)                                               3         (505)    (287)    (540) 
- settlements and provisions in connection 
 with legal and other regulatory matters                             (5)       2       59 
                                                     ---------- 
- currency translation on significant items                                   28       45 
                                                     ---------- 
Currency translation                                                         215       (9) 
                                                     ----------  ------- 
Reported profit before tax                                        4,318   12,407      940 
                                                     ---------- 
 

1 Includes fair value movements on non-qualifying hedges and debt valuation adjustments on derivatives.

   2     Comprises costs associated with preparations for the UK's exit from the European Union. 
   3     Includes impairment of software intangible assets of $173m. 
 
6  Fair values of financial instruments carried at fair value 
 

The accounting policies, control framework and hierarchy used to determine fair values at 30 June 2020 are consistent with those applied for the Annual Report and Accounts 2019.

 
 Financial instruments carried at fair value and bases of valuation 
                                                                      Valuation techniques 
                                                         Quoted          Using 
                                                         market     observable  With significant 
                                                          price         inputs      unobservable 
                                                          Level          Level            inputs 
                                                              1              2           Level 3      Total 
                                                             $m             $m                $m         $m 
Recurring fair value measurements 
At 30 Jun 2020 
Assets 
Trading assets                                          141,930         63,169             3,865  208,964 
Financial assets designated and otherwise mandatorily 
 measured at fair value through profit or loss           16,054         15,327            10,404   41,785 
Derivatives                                               2,126        307,800             3,855  313,781 
Financial investments                                   311,685         89,304             3,339  404,328 
Liabilities 
Trading liabilities                                      63,204         16,303               105   79,612 
Financial liabilities designated at fair value            1,059        150,541             5,008  156,608 
Derivatives                                               2,002        297,332             3,725  303,059 
                                                        -------                 ----------------  ------- 
 
At 31 Dec 2019 
Assets 
Trading assets                                          186,653         62,639             4,979  254,271 
Financial assets designated and otherwise mandatorily 
 measured at fair value through profit or loss           18,626         15,525             9,476   43,627 
Derivatives                                               1,728        239,131             2,136  242,995 
Financial investments                                   261,341         93,018             3,218  357,577 
Liabilities 
Trading liabilities                                      66,925         16,192                53   83,170 
Financial liabilities designated at fair value            9,549        149,901             5,016  164,466 
Derivatives                                               1,331        235,864             2,302  239,497 
 
 

Balances from 2019 have been re-presented to disclose a consistent application of the levelling methodology, primarily for private debt and equity and real estate investments during the period. This resulted in $15.1bn and $2.9bn moving into Levels 2 and 3, respectively, from Level 1. The change has impacted the disclosure for 'Financial investments' and 'Financial assets designated and otherwise mandatorily measured at fair value'.

 
 Transfers between Level 1 and Level 2 fair values 
                                     Assets                                      Liabilities 
                                          Designated 
                                       and otherwise 
                                         mandatorily                             Designated 
                   Financial  Trading    measured at                    Trading     at fair 
                 investments   assets     fair value  Derivatives   liabilities       value    Derivatives 
                          $m       $m             $m           $m            $m          $m             $m 
At 30 Jun 2020 
Transfers from 
 Level 
 1 to Level 2          1,342    2,132            217            -            98       7,414            - 
                ------------ 
Transfers from 
 Level 
 2 to Level 1          4,353    3,025            154            1           355           -            - 
                ------------                                                     ---------- 
 
At 31 Dec 2019 
Transfers from 
 Level 
 1 to Level 2          7,965    3,304              -           24           278           -            - 
Transfers from 
 Level 
 2 to Level 1          4,184    2,726            673          111           220           -          117 
 
 

Balances from 2019 have been re-presented to disclose a consistent application of the levelling methodology.

Transfers between levels of the fair value hierarchy are deemed to occur at the end of each quarterly reporting period. Transfers into and out of levels of the fair value hierarchy are primarily attributable to observability of valuation inputs and price transparency.

Fair value adjustments

We adopt the use of fair value adjustments when we take into consideration additional factors not incorporated within the valuation model that would otherwise be considered by a market participant. We classify fair value adjustments as either 'risk-related' or 'model-related'. The majority of these adjustments relate to GBM. Movements in the level of fair value adjustments do not necessarily result in the recognition of profits or losses within the income statement. For example, as models are enhanced, fair value adjustments may no longer be required. Similarly, fair value adjustments will decrease when the related positions are unwound, but this may not result in profit or loss.

 
 Global Banking and Markets fair value adjustments 
                                                                       At 
                                                       30 Jun 2020           31 Dec 2019 
                                                             Corporate              Corporate 
                                                        GBM     Centre       GBM       Centre 
                                        Footnotes        $m         $m        $m           $m 
Type of adjustment 
Risk-related                                         1,230         149    1,040         125 
                                                             ---------  -------   --------- 
 
  *    bid-offer                                       486          92      428          79 
 
  *    uncertainty                                     101           1      115           1 
 
  *    credit valuation adjustment                     558          48      355          38 
 
  *    debt valuation adjustment                      (184)          -     (126)          - 
 
  *    funding fair value adjustment                   239           8      241           7 
 
  *    other                                            30           -       27           - 
                                                   -------   ---------  -------   --------- 
Model-related                                           99           5       71           3 
 
  *    model limitation                                 96           5       68           3 
 
  *    other                                             3           -        3           - 
                                                   -------   ---------  -------   --------- 
Inception profit (Day 1 P&L reserves)       1           89           -       72           - 
                                        ---------  -------   ---------  -------   --------- 
                                                     1,418         154    1,183         128 
                                        ---------  -------   ---------  -------   --------- 
 
   1     See Note 8 on the interim condensed financial statements on page 110. 

Fair value adjustment changes were driven mainly by an increase in credit valuation adjustment ('CVA') due to widening credit spreads and changes to derivative exposures caused by interest rates moves.

For further details of our risk-related and model-related adjustments, see pages 267 and 268 of the Annual Report and Accounts 2019.

Fair value valuation bases

 
 Financial instruments measured at fair value using a valuation technique 
  with significant unobservable inputs - Level 3 
                                         Assets                                            Liabilities 
                                        Designated 
                                               and 
                                         otherwise 
                                       mandatorily 
                                       measured at 
                                        fair value 
                                           through                                     Designated 
                   Financial  Trading       profit                            Trading     at fair 
                 investments   assets      or loss  Derivatives    Total  liabilities       value  Derivatives    Total 
                          $m       $m           $m           $m       $m           $m          $m           $m       $m 
Private equity 
 including 
 strategic 
 investments             689        3        9,756            -   10,448            3           -            -      3 
Asset-backed 
 securities            1,095      674           98            -    1,867            -           -            -      - 
Loans held 
 for 
 securitisation            -        1            -            -        1            -           -            -      - 
Structured 
 notes                     -        3            -            -        3           36       5,003            -  5,039 
Derivatives 
 with monolines            -        -            -           75       75            -           -            -      - 
Other 
 derivatives               -        -            -        3,771    3,771            -           -        3,717  3,717 
Other 
 portfolios            1,555    3,184          550            9    5,298           66           5            8     79 
 
At 30 Jun 2020         3,339    3,865       10,404        3,855   21,463          105       5,008        3,725  8,838 
                 -----------  -------                            -------  -----------  ----------               ----- 
Private equity 
 including 
 strategic 
 investments             716        4        8,831            -    9,551            4           -            -      4 
Asset-backed 
 securities              874      934           28            -    1,836            -           -            -      - 
Loans held 
 for 
 securitisation            -        1           39            -       40            -           -            -      - 
Structured 
 notes                     -        3            -            -        3           47       5,016            -  5,063 
Derivatives 
 with monolines            -        -            -           66       66            -           -            -      - 
Other 
 derivatives               -        -            -        2,070    2,070            -           -        2,302  2,302 
Other 
 portfolios            1,628    4,037          578            -    6,243            2           -            -      2 
At 31 Dec 2019         3,218    4,979        9,476        2,136   19,809           53       5,016        2,302  7,371 
 
 

Balances from 2019 have been re-presented to disclose a consistent application of the levelling methodology. This resulted in an increase of $2.9bn of assets in Level 3. 'Other portfolios' increased by $1.4bn and 'Private equity including strategic investments' increased by $1.5bn.

The basis for determining the fair value of the financial instruments in the table above is explained on pages 268 and 269 of the Annual Report and Accounts 2019.

Reconciliation of fair value measurements in Level 3 of the fair value hierarchy

 
 Movement in Level 3 financial instruments 
                                                                                                Assets                                         Liabilities 
                                                                                                    Designated 
                                                                                                 and otherwise 
                                                                                                   mandatorily 
                                                                                                      measured 
                                                                                                       at fair 
                                                                                                 value through                                  Designated 
                                                                             Financial  Trading         profit                       Trading       at fair 
                                                                           investments   assets        or loss    Derivatives    liabilities         value    Derivatives 
                                                              Footnotes             $m       $m             $m             $m             $m            $m             $m 
At 1 Jan 2020                                                              3,218         4,979     9,476          2,136           53            5,016         2,302 
 Total gains/(losses) 
  recognised in profit 
  or loss                                                                    (13)         (541)     (106)         2,237            -             (117)        2,105 
 
  *    net income from financial instruments held for 
       trading or managed on a fair value basis                                -          (541)        -          2,237            -                -         2,105 
 
  *    changes in fair value of other financial instruments 
       mandatorily measured at fair value through profit or 
       loss                                                                    -             -      (106)             -            -             (117)            - 
 
  *    gains less losses from financial investments at fair 
       value through other comprehensive income                              (13)            -         -              -            -                -             - 
Total gains/(losses) 
 recognised in other 
 comprehensive income                                            1           (29)         (171)       (4)          (147)          (2)             (78)         (162) 
 
   *    financial investments: fair value gains/(losses)                     (19)            -         -              -            -                -             - 
 
   *    exchange differences                                                 (10)         (171)       (4)          (147)          (2)             (78)         (162) 
 Purchases                                                                   610           199     1,594              -           63                -             - 
 New issuances                                                                 -             -         -              -            2            1,091             - 
 Sales                                                                      (271)         (577)     (424)             -           (1)               -             - 
 Settlements                                                                (401)          (22)     (170)          (262)         (12)            (853)         (307) 
 Transfers out                                                               (22)         (797)      (63)          (139)          (5)            (275)         (270) 
 Transfers in                                                                247           795       101             30            7              224            57 
-----------------------------------------------------------  ----------  -------  ----  ------            ----  -------  ----  -----  ------           ---  -------  ---- 
At 30 Jun 2020                                                             3,339         3,865    10,404          3,855          105            5,008         3,725 
                                                             ----------  -------  ----  ------            ----  -------  ----  -----  ------           ---  -------  ---- 
Unrealised gains/(losses) 
 recognised in profit 
 or loss relating to 
 assets and liabilities 
 held at 
 30 Jun 2020                                                                   -            (7)     (140)           529           (3)             100         1,104 
 
  *    net income from financial instruments held for 
       trading or managed on a fair value basis                                -            (7)        -            529           (3)               -         1,104 
 
  *    changes in fair value of other financial instruments 
       mandatorily measured at fair value through profit or 
       loss                                                                    -             -      (140)             -            -              100             - 
 
 
At 1 Jan 2019                                                 2,796    6,759   7,080   2,423    58   5,328   1,756 
                                                                                                             ----- 
 Total gains/(losses) 
  recognised in profit 
  or loss                                                         -       (2)    196      (9)   (4)    246     591 
 
  *    net income from financial instruments held for 
       trading or managed on a fair value basis                   -       (2)      -      (9)   (4)      -     591 
 
  *    changes in fair value of other financial instruments 
       mandatorily measured at fair value through profit or 
       loss                                                       -        -     196       -     -     246       - 
Total gains/(losses) 
 recognised in other 
 comprehensive income 
 ('OCI')                                                     1  236      (18)      6      (6)   (1)     (6)    (10) 
                                                              -----   ------           -----   ---           ----- 
 
   *    financial investments: fair value gains/(losses)        238        -       -       -     -       -       - 
 
   *    exchange differences                                     (2)     (18)      6      (6)   (1)     (6)    (10) 
                                                              -----   ------           -----   ---           ----- 
 Purchases                                                      336    1,145   1,214       -     5     118       - 
 New issuances                                                    -      154       -       -     -     818       - 
 Sales                                                           (7)    (487)    (87)      -    (9)   (180)      - 
 Settlements                                                   (240)  (1,691)   (184)     94     -    (396)   (136) 
 Transfers out                                                   (4)    (409)    (20)   (622)   (9)   (550)   (189) 
 Transfers in                                                   179      222      40      50     9      18      21 
                                                                                                             ----- 
At 30 Jun 2019                                                3,296    5,673   8,245   1,930    49   5,396   2,033 
                                                                                                             ----- 
Unrealised gains/(losses) 
 recognised in profit 
 or loss relating to 
 assets and liabilities 
 held at 
 30 Jun 2019                                                      -        2      67     257   (23)     (7)   (320) 
 
   *    net income from financial instruments held for 
        trading or managed on a fair value basis                  -        2       -     257   (23)      -    (320) 
----------------------------------------------------------- 
 
  *    changes in fair value of other financial instruments 
       mandatorily measured at fair value through profit or 
       loss                                                       -        -      67       -     -      (7)      - 
 
 
 Movement in Level 3 financial instruments (continued) 
                                                                                               Assets                                        Liabilities 
                                                                                                   Designated 
                                                                                                      at fair 
                                                                                                        value 
                                                                                                      through                                  Designated 
                                                                             Financial  Trading        profit                       Trading       at fair 
                                                                           investments   assets       or loss    Derivatives    liabilities         value    Derivatives 
                                                              Footnotes             $m       $m            $m             $m             $m            $m             $m 
                                                             ----------  -------------                         -------------                 ------------  ------------- 
At 1 Jul 2019                                                              3,296         5,673    8,245          1,930          49             5,396         2,033 
                                                                                  ----                   ----  -------  ----        -------           ---  -------  ---- 
Total gains/(losses) 
 recognised in profit 
 or loss                                                                       6          (110)     391            287           -               (51)          339 
 
  *    net income from financial instruments held for 
       trading or managed on a fair value basis                                -          (110)       -            287           -                 -           339 
 
  *    changes in fair value of other financial instruments 
       mandatorily measured at fair value through profit or 
       loss                                                                    -             -      391              -           -               (51)            - 
 
  *    gains less losses from financial investments at fair 
       value through other comprehensive income                               10             -        -              -           -                 -             - 
 
  *    expected credit loss charges and other credit risk 
       charges                                                                (4)            -        -              -           -                 -             - 
Total gains/(losses) 
 recognised in other comprehensive 
 income ('OCI')                                                   1           73            94      (10)            55           2                24            62 
                                                                         -------  ----                    ---  -------  ----        -------           ---  -------  ---- 
 
  *    financial investments: fair value gains/(losses)                       63             -        -              -           -                 -             - 
 
  *    exchange differences                                                   10            94      (10)            55           2                24            62 
                                                                         -------  ----                    ---  -------  ----        -------           ---  -------  ---- 
Purchases                                                                    357         1,061    1,292              -           3                39             - 
New issuances                                                                  -             -        -              -           6               783             - 
Sales                                                                        (49)         (408)    (189)             -           -               (13)            - 
Settlements                                                                  (89)         (416)    (250)          (194)         (7)             (652)          (26) 
Transfers out                                                               (484)       (1,149)      (3)           (88)          -              (529)         (284) 
Transfers in                                                                 108           234        -            146           -                19           178 
                                                                                  ----                   ----           ----        -------           ---  -------  ---- 
At 31 Dec 2019                                                             3,218         4,979    9,476          2,136          53             5,016         2,302 
                                                             ----------           ----                   ----  -------  ----        -------           ---  -------  ---- 
Unrealised gains/(losses) 
 recognised in profit 
 or loss relating to assets 
 and liabilities held 
 at 31 Dec 2019                                                               (4)          (22)     465            279           -                57          (407) 
 
  *    net income from financial instruments held for 
       trading or managed on a fair value basis                                -           (22)       -            279           -                 -          (407) 
 
  *    changes in fair value of other financial instruments 
       mandatorily measured at fair value through profit or 
       loss                                                                    -             -      465              -           -                57             - 
 
  *    loan impairment recoveries and other credit risk 
       provisions                                                             (4)            -        -              -           -                 -             - 
                                                                                   ---                   ----           ----        -------           ---           ---- 
 

1 Included in 'Financial investments: fair value gains/(losses)' in the current year and 'Exchange differences' in the consolidated statement of comprehensive income.

Balances from 2019 have been re-presented to disclose a consistent application of the levelling methodology. The result of this is an increase of $2.9bn of assets in Level 3. 'Financial investments' increased by $1.2bn and 'Private equity including strategic investments financial assets designated and otherwise mandatorily measured at fair value' increased by $1.7bn.

Transfers between levels of the fair value hierarchy are deemed to occur at the end of each quarterly reporting period. Transfers into and out of levels of the fair value hierarchy are primarily attributable to observability of valuation inputs and price transparency.

Effect of changes in significant unobservable assumptions to reasonably possible alternatives

The following table shows the sensitivity of Level 3 fair values to reasonably possible alternative assumptions:

 
 Sensitivity of fair values to reasonably possible alternative assumptions 
                                                                                               Reflected in 
                                                                                                   other 
                                                                   Reflected in                comprehensive 
                                                                  profit or loss                  income 
                                                            Favourable    Unfavourable  Favourable    Unfavourable 
                                                               changes         changes     changes         changes 
                                                Footnotes           $m              $m          $m              $m 
Derivatives, trading assets and trading 
 liabilities                                        1              271        (268)              -           - 
Financial assets and liabilities designated 
 and otherwise mandatorily measured 
 at fair value                                                     625        (625)              -           - 
Financial investments                                               28         (28)            101        (104) 
At 30 Jun 2020                                                     924        (921)            101        (104) 
                                               ----------- 
 
Derivatives, trading assets and trading 
 liabilities                                        1              298        (303)              -           - 
Financial assets and liabilities designated 
 and otherwise mandatorily measured 
 at fair value                                                     545        (439)              -           - 
Financial investments                                               43         (46)             74         (74) 
At 30 Jun 2019                                                     886        (788)             74         (74) 
                                               ----------- 
 
Derivatives, trading assets and trading 
 liabilities                                        1              255        (230)              -           - 
Financial assets and liabilities designated 
 and otherwise mandatorily measured 
 at fair value through profit or loss                              618        (503)              -           - 
Financial investments                                               48         (53)             81         (81) 
At 31 Dec 2019                                                     921        (786)             81         (81) 
                                               ----------- 
 

1 'Derivatives, trading assets and trading liabilities' is presented as one category to reflect the manner in which these financial instruments are risk-managed.

Balances from 2019 have been re-presented to disclose a consistent application of the levelling methodology. The result of this is an increase in 'Financial investments reflected through OCI' and 'Financial asset designated and mandatorily measured at fair value reflected in profit or loss' of $59m and $86m respectively.

The sensitivity analysis aims to measure a range of fair values consistent with the application of a 95% confidence interval. Methodologies take account of the nature of the valuation technique employed, as well as the availability and reliability of observable proxy and historical data.

When the fair value of a financial instrument is affected by more than one unobservable assumption, the table above reflects the most favourable or the most unfavourable change from varying the assumptions individually.

Key unobservable inputs to Level 3 financial instruments

The following table lists key unobservable inputs to Level 3 financial instruments and provides the range of those inputs at 30 June 2020. There has been no change to the key unobservable inputs to Level 3 financial instruments and inter-relationships therein, which are detailed on pages 271 and 272 of the Annual Report and Accounts 2019.

 
 Quantitative information about significant unobservable inputs in Level 
  3 valuations 
                                                Fair value 
                                                                                                    Full range 
                                            Assets  Liabilities                                      of inputs 
                                                                                            Key 
                                                                      Valuation    unobservable 
                                 Footnotes      $m           $m       technique          inputs    Lower    Higher 
Private equity including                                           See footnote    See footnote 
 strategic investments                      10,448            3               1               1 
                                                                                                 -------  -------- 
Asset-backed securities                      1,867            - 
                                                                                     Prepayment 
                                     2         113            -    Market proxy            rate       0%        9% 
 *    CLO/CDO                                                 -    Market proxy      Bid quotes        0      99 
 
  *    other ABSs                            1,754            -    Market proxy      Bid quotes        0     100 
                                                                                                 ------- 
Loans held for securitisation                    1            - 
 
Structured notes                                 3        5,039 
 
                                                                 Model - option          Equity 
                                                 -        3,988           model      volatility       6%      161% 
                                                                 Model - option          Equity 
 *    equity-linked notes                                                 model     correlation      22%       92% 
                                                                 Model - option 
  *    FX-linked notes                           -          579           model   FX volatility       1%       34% 
                                                                                                 -------  -------- 
 
  *    other                                     3          472 
 
                                                                        Model - 
                                                                     discounted 
Derivatives with monolines                      75            -       cash flow   Credit spread     1.6%      2.1% 
 
Other derivatives                            3,771        3,717 
 
- interest rate derivatives 
                                                                                                 -------  -------- 
                                                                        Model - 
                                                                     discounted      Prepayment 
  securitisation swaps                         283          869       cash flow            rate       6%        7% 
                                                                 Model - option 
  long-dated swaptions                       1,778          735           model   IR volatility       7%       33% 
                                                                                                 -------  -------- 
  other                                        412          335 
                                                                                                          -------- 
- FX derivatives 
                                                                 Model - option 
  FX options                                   109          191           model   FX volatility       1%       49% 
                                                                                                 -------  -------- 
  other                                        142          139 
                                                                                                          -------- 
- equity derivatives 
  long-dated single stock                                        Model - option          Equity 
   options                                     750          821           model      volatility       0%      131% 
                                                                                                 -------  -------- 
  other                                        192          551 
                                ---------- 
- credit derivatives 
  other                                        105           76 
 
Other portfolios                             5,298           79 
                                                                        Model - 
                                                                     discounted          Credit 
  *    structured certificates               1,488            -       cash flow      volatility      11%       11% 
 
  *    repurchase agreements                   778           63 
                                                                                                          -------- 
 
  *    other                         3       3,032           16 
                                ----------                                                                -------- 
At 30 Jun 2020                              21,463        8,838 
                                                                                                          -------- 
 
 
Quantitative information about significant unobservable inputs in Level 
 3 valuations (continued) 
                                                Fair value 
                                                                                                      Full range 
                                            Assets  Liabilities                                        of inputs 
                                                                        Valuation  Key unobservable 
                                 Footnotes      $m           $m         technique            inputs  Lower  Higher 
                                            ------  ----------- 
Private equity including                                             See footnote      See footnote 
 strategic investments                       9,551            4                 1                 1    n/a     n/a 
Asset-backed securities                      1,836            - 
                                                                                         Prepayment 
                                     2         373            -      Market proxy              rate     0%      9% 
 *    CLO/CDO                                                        Market proxy        Bid quotes      0     100 
 
  *    other ABSs                            1,463            -      Market proxy        Bid quotes      0     101 
 
Loans held for securitisation                   40            - 
Structured notes                                 3        5,063 
 
                                                                   Model - option            Equity 
                                                 -        3,768             model        volatility     5%     90% 
                                                                   Model - option            Equity 
 *    equity-linked notes                                                   model       correlation     9%     93% 
                                                                   Model - option 
  *    FX-linked notes                           -        1,046             model     FX volatility     1%     23% 
 
  *    other                                     3          249 
 
                                                                          Model - 
                                                                       discounted 
Derivatives with monolines                      66            -         cash flow     Credit spread   0.4%      2% 
Other derivatives                            2,070        2,302 
 
- interest rate derivatives 
                                                                          Model - 
                                                                       discounted        Prepayment 
  securitisation swaps                         314          640         cash flow              rate     6%      7% 
                                                                   Model - option 
  long-dated swaptions                         838           51             model     IR volatility     8%     22% 
  other                                        255          155 
- FX derivatives 
                                                                   Model - option 
  FX options                                    93          218             model     FX volatility     1%     25% 
  other                                        119          104 
- equity derivatives 
  long-dated single stock                                          Model - option            Equity 
   options                                     230          293             model        volatility     0%     89% 
  other                                         78          712 
- Credit derivatives 
  Other                                        143          129 
                                ---------- 
Other portfolios                             6,243            2 
                                                                          Model - 
                                                                       discounted            Credit 
  *    structured certificates               1,515            -         cash flow        volatility     4%      4% 
 
  *    repurchase agreements                 1,604            - 
- other                              3       3,124            2 
At 31 Dec 2019                              19,809        7,371 
                                ---------- 
 
   1     See notes on page 271 of the Annual Report and Accounts 2019. 
   2     Collateralised loan obligation/collateralised debt obligation. 
   3     'Other' includes a range of smaller asset holdings. 

Balances from 2019 have been re-presented to disclose a consistent application of the levelling methodology. The result of this is an increase of $2.9bn of assets in Level 3. 'Other portfolios' increased by $1.4bn and 'Private equity including strategic investments' increased by $1.5bn.

 
7  Fair values of financial instruments not carried at fair value 
 

The bases for measuring the fair values of loans and advances to banks and customers, financial investments, deposits by banks, customer accounts, debt securities in issue, subordinated liabilities and non-trading repurchase and reverse repurchase agreements are explained on pages 273 and 274 of the Annual Report and Accounts 2019.

 
 Fair values of financial instruments not carried at fair value on the 
  balance sheet 
                                                 At 30 Jun 2020         At 31 Dec 2019 
                                               Carrying       Fair   Carrying         Fair 
                                                 amount      value     amount        value 
                                                     $m         $m         $m           $m 
                                                                    ---------  ----------- 
Assets 
Loans and advances to banks                      77,015     77,122     69,203     69,247 
                                              --------- 
Loans and advances to customers               1,018,681  1,018,036  1,036,743  1,037,543 
                                              --------- 
Reverse repurchase agreements - non-trading     226,345    226,402    240,862    240,906 
                                              --------- 
Financial investments - at amortised cost        89,781     96,434     85,735     89,061 
Liabilities 
Deposits by banks                                82,715     82,718     59,022     58,951 
                                              --------- 
Customer accounts                             1,532,380  1,533,284  1,439,115  1,439,512 
                                              --------- 
Repurchase agreements - non-trading             112,799    112,803    140,344    140,344 
Debt securities in issue                        110,114    110,474    104,555    104,936 
                                              --------- 
Subordinated liabilities                         23,621     26,599     24,600     29,246 
                                              ---------  ---------  ---------  --------- 
 

Other financial instruments not carried at fair value are typically short term in nature and reprice to current market rates frequently. Accordingly, their carrying amount is a reasonable approximation of fair value.

 
8  Derivatives 
 
 
 Notional contract amounts and fair values of derivatives by product 
  contract type held by HSBC 
                       Notional contract 
                             amount                              Fair value amount 
                     Assets and liabilities             Assets                    Liabilities 
                          Trading    Hedging  Trading  Hedging     Total  Trading  Hedging       Total 
                               $m         $m       $m       $m        $m       $m       $m          $m 
 Foreign exchange       7,383,599     36,888   83,704      366   84,070    84,600      729   85,329 
------------------                            -------  -------  -------   -------  -------  ------- 
 Interest rate         17,590,866    165,107  291,177    2,522  293,699   274,938    3,550  278,488 
                                              -------  -------  -------   -------  -------  ------- 
 Equities                 648,250          -   10,697        -   10,697    11,836        -   11,836 
                                              -------  -------  -------   -------  -------  ------- 
 Credit                   329,551          -    3,661        -    3,661     5,000        -    5,000 
                                              -------  -------  -------   -------  -------  ------- 
 Commodity and 
  other                   134,410          -    2,764        -    2,764     3,516        -    3,516 
------------------  -------------  ---------  -------  -------  -------   -------  -------  ------- 
 Gross total fair 
  values               26,086,676    201,995  392,003    2,888  394,891   379,890    4,279  384,169 
------------------                 ---------  -------  -------  -------   -------  -------  ------- 
 Offset                                                         (81,110)                    (81,110) 
------------------                 ---------  -------  -------  -------   -------  -------  ------- 
At 30 Jun 2020         26,086,676    201,995  392,003    2,888  313,781   379,890    4,279  303,059 
                    -------------  ---------  -------  -------  -------   -------  -------  ------- 
 
 Foreign exchange       8,207,629     31,899   84,083      455   84,538    84,498      740   85,238 
 
 Interest rate         17,895,349    177,006  183,668    1,208  184,876   175,095    2,031  177,126 
 
 Equities               1,077,347          -    9,053        -    9,053    11,237        -   11,237 
 
 Credit                   345,644          -    4,744        -    4,744     5,597        -    5,597 
 
 Commodity and 
  other                    93,245          -    1,523        -    1,523     2,038        -    2,038 
 
 Gross total fair 
  values               27,619,214    208,905  283,071    1,663  284,734   278,465    2,771  281,236 
 Offset                                                         (41,739)                    (41,739) 
------------------ 
At 31 Dec 2019         27,619,214    208,905  283,071    1,663  242,995   278,465    2,771  239,497 
 
 

The notional contract amounts of derivatives held for trading purposes and derivatives designated in qualifying hedge accounting relationships indicate the nominal value of transactions outstanding at the balance sheet date, not amounts at risk. Derivative assets and liabilities increased during 1H20, reflecting changes in yield curves and the market environment.

Derivatives valued using models with unobservable inputs

The following table shows the difference between the fair value at initial recognition, which is the transaction price, and the value that would have been derived had valuation techniques used for subsequent measurement been applied at initial recognition, less subsequent releases.

 
 Unamortised balance of derivatives valued using models with significant 
  unobservable inputs 
                                                                                 Half-year to 
                                                                           30 Jun  30 Jun    31 Dec 
                                                                             2020    2019      2019 
                                                                Footnotes      $m      $m        $m 
                                                               ---------- 
Unamortised balance at beginning of period                                    73      86      99 
Deferral on new transactions                                                 106      90      55 
Recognised in the income statement during the 
 period                                                                      (87)    (78)    (76) 
 
  *    amortisation                                                          (51)    (36)    (44) 
 
  *    subsequent to unobservable inputs becoming observable                  (1)     (6)      3 
 
  *    maturity, termination or offsetting derivative                        (35)    (36)    (35) 
Exchange differences                                                          (3)      -       1 
Other                                                                          -       1      (6) 
                                                               ---------- 
Unamortised balance at end of period                                1         89      99      73 
                                                               ---------- 
 
   1     This amount is yet to be recognised in the consolidated income statement. 

Hedge accounting derivatives

The notional contract amounts of derivatives held for hedge accounting purposes indicate the nominal value of transactions outstanding at the balance sheet date, not amounts at risk.

 
 Notional contract amounts of derivatives held for hedging purposes 
  by product type 
                                 At 30 Jun 2020            At 31 Dec 2019 
                              Cash flow   Fair value  Cash flow     Fair value 
                                 hedges       hedges     hedges         hedges 
                                     $m           $m         $m             $m 
Foreign exchange                 26,374           14     21,385           14 
                                         ----------- 
Interest rate                    39,590      125,517     54,253      122,753 
                             ----------               ---------  ----------- 
Total                            65,964      125,531     75,638      122,767 
                             ----------  ----------- 
 

The Group applies hedge accounting in respect of certain consolidated net investments. Hedging is undertaken using forward foreign exchange contracts or by financing with foreign currency borrowings. At 30 June 2020, the notional contract values of outstanding financial instruments designated as hedges of net investments in foreign operations were $10,500m (31 December 2019: $10,500m).

 
9  Financial investments 
 
 
 Carrying amounts of financial investments 
                                                                   30 Jun     31 Dec 
                                                                     2020       2019 
                                                       Footnotes       $m         $m 
Financial investments measured at fair value through 
 other comprehensive income                                       404,328  357,577 
                                                       --------- 
- treasury and other eligible bills                               130,389   95,043 
- debt securities                                                 271,859  260,536 
                                                       --------- 
- equity securities                                                 1,997    1,913 
- other instruments                                        1           83       85 
                                                       --------- 
Debt instruments measured at amortised cost                        89,781   85,735 
                                                       --------- 
- treasury and other eligible bills                                12,192   10,476 
- debt securities                                                  77,589   75,259 
At the end of the period                                          494,109  443,312 
                                                       --------- 
 
   1     'Other instruments' are comprised of loans and advances. 
 
10  Interests in associates and joint ventures 
 

At 30 June 2020, the carrying amount of HSBC's interests in associates and joint ventures was $24,800m (31 December 2019: $24,474m).

 
 Principal associates of HSBC 
                                                          At 
                                          30 Jun 2020           31 Dec 2019 
                                      Carrying       Fair  Carrying         Fair 
                                        amount   value(1)    amount     value(1) 
                                            $m         $m        $m           $m 
Bank of Communications Co., Limited     19,630      8,718    18,982     10,054 
The Saudi British Bank                   4,139      3,644     4,370      5,550 
                                      --------  ---------  --------  --------- 
 

1 Principal associates are listed on recognised stock exchanges. The fair values are based on the quoted market prices of the shares held (Level 1 in the fair value hierarchy).

Bank of Communications Co., Limited

The Group's investment in Bank of Communications Co. Limited ('BoCom') is classified as an associate. Significant influence in BoCom was established via representation on BoCom's Board of Directors and participation in a Resource and Experience Sharing agreement ('RES'). Under the RES, HSBC staff have been seconded to assist in the maintenance of BoCom's financial and operating policies. Investments in associates are recognised using the equity method of accounting in accordance with IAS 28 whereby the investment is initially recognised at cost and adjusted thereafter for the post-acquisition change in the Group's share of BoCom's net assets. An impairment test is required if there is any indication of impairment.

Impairment testing

At 30 June 2020, the fair value of the Group's investment in BoCom had been below the carrying amount for approximately eight years. As a result, the Group performed an impairment test on the carrying amount, which confirmed that there was no impairment at 30 June 2020 as the recoverable amount, as determined by a value-in-use ('VIU') calculation, was higher than the carrying value.

 
                               At 
             30 Jun 2020              31 Dec 2019 
              Carrying    Fair        Carrying      Fair 
         VIU     value   value   VIU     value     value 
         $bn       $bn     $bn   $bn       $bn       $bn 
BoCom   20.5      19.6     8.7  21.5      19.0    10.1 
        ----  --------  ------  ----  --------  ------ 
 
 

The decrease in VIU for the first half of 2020 was principally driven by BoCom's actual performance, which was lower than earlier forecasts due to the impact of the Covid-19 outbreak and the disruption to global economic activity, and downward revisions to management's best estimates of BoCom's future earnings.

In future periods, the VIU may increase or decrease depending on the effect of changes to model inputs. The main model inputs are described below and are based on factors observed at the period-end. The factors that could result in a change in the VIU and an impairment include a short-term underperformance by BoCom, a change in regulatory capital requirements, or an increase in uncertainty regarding the future performance of BoCom resulting in a downgrade of the future asset growth or profitability. An increase in the discount rate as a result of an increase in the risk premium or risk-free rates could also result in a reduction of VIU and an impairment. At the point where the carrying value exceeds the VIU, impairment would be recognised.

If the Group did not have significant influence in BoCom, the investment would be carried at fair value rather than the current carrying value.

Basis of recoverable amount

The impairment test was performed by comparing the recoverable amount of BoCom, determined by a VIU calculation, with its carrying amount. The VIU calculation uses discounted cash flow projections based on management's best estimates of future earnings available to ordinary shareholders prepared in accordance with IAS 36. Significant management judgement is required in arriving at the best estimate. There are two main components to the VIU calculation. The first component is management's best estimate of BoCom's earnings, which is based on explicit forecasts over the short to medium term. This results in forecast earnings growth that is lower than recent historical actual growth and also reflects the uncertainty arising from the current economic outlook. Earnings beyond the short to medium term are then extrapolated in perpetuity using a long-term growth rate to derive a terminal value, which comprises the majority of the VIU. The second component is the capital maintenance charge ('CMC'), which is management's forecast of the earnings that need to be withheld in order for BoCom to meet regulatory capital requirements over the forecast period (i.e. CMC is deducted when arriving at management's estimate of future earnings available to ordinary shareholders). The principal inputs to the CMC calculation include estimates of asset growth, the ratio of risk-weighted assets to total assets and the expected minimum regulatory capital requirements. An increase in the CMC as a result of a change to these principal inputs would reduce VIU. Additionally, management considers other factors (including qualitative factors) to ensure that the inputs to the VIU calculation remain appropriate.

Key assumptions in value-in-use calculation

We used a number of assumptions in our VIU calculation, in accordance with the requirements of IAS 36:

-- Long-term profit growth rate: 3% (31 December 2019: 3%) for periods after 2023, which does not exceed forecast GDP growth in mainland China and is consistent with forecasts by external analysts.

-- Long-term asset growth rate: 3% (31 December 2019: 3%) for periods after 2023, which is the rate that assets are expected to grow to achieve long-term profit growth of 3%.

-- Discount rate: 11.24% (31 December 2019: 11.24%), which is based on a capital asset pricing model ('CAPM') calculation for BoCom, using market data. Management also compares the rate derived from the CAPM with discount rates from external sources. The discount rate used is within the range of 10.3% to 15.0% (31 December 2019: 10.0% to 15.0%) indicated by external sources.

-- Expected credit losses as a percentage of customer advances: ranges from 0.95% to 1.10% (31 December 2019: 0.95%) in the short to medium term, reflecting increases due to the Covid-19 outbreak and BoCom's actual results. For periods after 2023, the ratio is 0.76% (31 December 2019: 0.76%), which is slightly higher than the historical average.

-- Risk-weighted assets as a percentage of total assets: ranges from 61% to 62% (31 December 2019: 61%) in the short to medium term, reflecting increases that may arise from higher expected credit losses as a percentage of customer advances. For periods after 2023, the ratio is 61% (31 December 2019: 61%). These rates are similar to BoCom's actual results in recent years and forecasts disclosed by external analysts.

-- Operating income: ranges from 1.3% to 6.2% (31 December 2019: 4.9% to 9.4%) in the short to medium term, and are lower than BoCom's actual results in recent years and the forecasts disclosed by external analysts, reflecting pressures from the Covid-19 outbreak and industry developments in mainland China.

-- Cost-income ratio: ranges from 36.2% to 36.6% (31 December 2019: 37.1% to 38.8%) in the short to medium term. These rates are similar to BoCom's actual results and slightly higher than the forecasts disclosed by external analysts.

-- Effective tax rate: ranges from 11.0% to 17.9% (31 December 2019:12.0% to 17.0%) in the short to medium term, reflecting BoCom's actual results and an expected increase towards the long-term assumption. For periods after 2023, the rate is 22.5% (31 December 2019: 22.5%), which is slightly higher than the historical average.

-- Capital requirements: Capital adequacy ratio: 11.5% (31 December 2019: 11.5%) and tier 1 capital adequacy ratio: 9.5% (31 December 2019: 9.5%), based on the minimum regulatory requirements.

The following table shows the change to each key assumption in the VIU calculation that on its own would reduce the headroom to nil:

 
                                                             Changes to key assumption to reduce 
Key assumption                                                headroom to nil 
                                                             Decrease by 36 basis points 
  *    Long-term profit growth rate 
                                                             Increase by 32 basis points 
  *    Long-term asset growth rate 
                                                             Increase by 41 basis points 
  *    Discount rate 
                                                             Increase by 6 basis points 
  *    Expected credit losses as a percentage of customer 
       advances 
                                                             Increase by 234 basis points 
  *    Risk-weighted assets as a percentage of total assets 
                                                             Decrease by 62 basis points 
  *    Operating income 
                                                             Increase by 139 basis points 
  *    Cost-income ratio 
                                                             Increase by 320 basis points 
  *    Long-term effective tax rate 
                                                             Increase by 44 basis points 
  *    Capital requirements - capital adequacy ratio 
                                                             Increase by 137 basis points 
  *    Capital requirements - tier 1 capital adequacy ratio 
 

The following table further illustrates the impact on VIU of reasonably possible changes to key assumptions. This reflects the sensitivity of the VIU to each key assumption on its own and it is possible that more than one favourable and/or unfavourable change may occur at the same time. The selected rates of reasonably possible changes to key assumptions are largely based on external analysts' forecasts, which can change period to period.

 
 Sensitivity of VIU to reasonably possible changes in key assumptions 
                                                     Favourable change                      Unfavourable change 
                                                               Increase                               Decrease 
                                                                     in                                     in 
                                                                    VIU       VIU                          VIU       VIU 
                                                        bps         $bn       $bn                bps       $bn       $bn 
                                    ---- 
At 30 Jun 2020 
                                                             ----------  --------                     --------  -------- 
Long-term profit growth rate                        -            -       20.5              (50)          (1.2)  19.3 
                                                             -----  ---  ---- 
Long-term asset growth rate                       (50)         1.3       21.8                -              -   20.5 
                                                             -----  ---  ----                   ---- 
Discount rate                                     (24)         0.6       21.1               86           (1.8)  18.7 
                                                             -----  ---  ----                   ---- 
                                                    2020 to                                  2020 to 
                                                   2023: 93                                2023: 108 
Expected credit losses as                     2024 onwards:                            2024 onwards: 
 a percentage of customer advances                       75    0.5       21.0                     92     (2.2)  18.3 
Risk-weighted assets as a 
 percentage of total assets                      (190)         0.5       21.0               93           (0.5)  20.0 
                                                             -----  ---  ---- 
Operating income                                   64          1.0       21.5              (69)          (0.9)  19.6 
                                                       ----  -----  ---  ----                    --- 
Cost-income ratio                                (205)         1.5       22.0              179           (1.3)  19.2 
                                                        ---  -----  ---  ----                   ----  -------   ---- 
Long-term effective tax rate                     (433)         1.2       21.7              250           (0.7)  19.8 
                                                        ---  -----  ---  ----                   ----  -------   ---- 
Capital requirements - capital 
 adequacy ratio                                     -            -       20.5              266           (6.0)  14.5 
                                                       ----  -----  ---  ----                   ----  -------   ---- 
Capital requirements - tier 
 1 capital adequacy ratio                           -            -       20.5              289           (4.5)  16.0 
                                                       ----  -----  ---  ----                   ----  -------   ---- 
At 31 Dec 2019 
Long-term profit growth rate                        -            -       21.5              (50)          (1.3)  20.2 
Long-term asset growth rate                       (50)         1.4       22.9                -              -   21.5 
Discount rate                                     (54)         1.4       22.9               56           (1.2)  20.3 
                                                    2019 to                                  2019 to 
                                                   2023: 90                                2023: 108 
Expected credit losses as                     2024 onwards:                            2024 onwards: 
 a percentage of customer advances                       70    1.0       22.5                     81     (1.2)  20.3 
Risk-weighted assets as a 
 percentage of total assets                       (96)         0.4       21.9               12              -   21.5 
Operating income                                   14          0.3       21.8             (102)          (1.8)  19.7 
                                                       ----         ---                          --- 
Cost-income ratio                                (175)         1.0       22.5               95           (1.2)  20.3 
                                                        ---         ---                         ---- 
Long-term effective tax rate                     (352)         1.0       22.5              250           (0.7)  20.8 
                                                        ---         ---                         ---- 
Capital requirements - capital 
 adequacy ratio                                     -            -       21.5              337           (8.2)  13.3 
                                                       ----         ---                         ---- 
Capital requirements - tier 
 1 capital adequacy ratio                           -            -       21.5              322           (6.0)  15.5 
                                                       ----         ---                         ---- 
 

Considering the interrelationship of the changes set out in the table above, management estimates that the reasonably possible range of VIU is $17.3bn to $21.9bn (31 December 2019: $18.5bn to $22.8bn). The range is based on the favourable/unfavourable change in the earnings in the short to medium term and long-term expected credit losses as a percentage of customer advances, as set out in the table above. All other long-term assumptions, the discount rate and the basis of the CMC have been kept unchanged when determining the reasonably possible range of the VIU.

The Saudi British Bank

The Group's investment in The Saudi British Bank ('SABB') is classified as an associate. In June 2019, the merger between SABB and Alawwal bank ('Alawwal') became effective, which reduced HSBC's 40% interest in SABB to 29.2%. HSBC remained the largest shareholder in SABB. Significant influence in SABB is established via representation on the Board of Directors. Investments in associates are recognised using the equity method of accounting in accordance with IAS 28, as described previously for BoCom.

Impairment testing

SABB's share price has declined during the period due to oil price volatility and global economic uncertainty arising from the Covid-19 outbreak. At 30 June 2020, the fair value of the Group's investment in SABB ($3.6bn) was below the carrying amount ($4.1bn). As a result, the Group performed an impairment test on the carrying amount, which confirmed no impairment. However, the recoverable amount as determined by a VIU calculation indicated no remaining headroom.

If SABB generates lower profitability (relative to historical trends) over the medium term, there is a risk that our investment in SABB could become impaired.

The basis of recoverable amount

The impairment test was performed by comparing the recoverable amount of SABB, determined by a VIU calculation, with its carrying amount. The VIU calculation uses discounted cash flow projections based on management's best estimates of future earnings available to ordinary shareholders prepared in accordance with IAS 36, which requires significant management judgement. A key component to the VIU calculation is management's best estimate of SABB's earnings, which is based on explicit forecasts over the short to medium term. This reflects the uncertainty arising from the current economic outlook. Earnings beyond the short to medium term are then extrapolated in perpetuity using a long-term growth rate to derive a terminal value, which comprises the majority of the VIU. Additionally, management considers other factors (including qualitative factors) to ensure that the inputs to the VIU calculation remain appropriate.

Key assumptions in value-in-use calculation

We used a number of assumptions in our VIU calculation, in accordance with the requirements of IAS 36:

-- Long-term profit growth rate: 2.55% for periods after 2023. This does not exceed forecast GDP growth in Saudi Arabia.

-- Long-term asset growth rate: 2.55% for periods after 2023. This is the rate that assets are expected to grow to achieve long-term profit growth of 2.55%.

-- Discount rate: 10.2%. This is based on a CAPM calculation for Saudi Arabia using market data. Management also compares the rate derived from the CAPM with cost of capital rates from external sources.

-- Management's judgement in estimating the cash flows of SABB: Cash flow projections have considered the scale of the entity following the merger with Alawwal, current market conditions and our macroeconomic outlook.

Sensitivity of VIU to reasonably possible changes in key assumptions

At 30 June 2020, the Group's investment in SABB was sensitive to reasonably possible adverse changes in key assumptions supporting the recoverable amount. The most sensitive inputs to the impairment test are set out in the following table.

 
Input                         Reasonably possible change 
                              Cash flow projections decrease by 
  *    Cash flow projections   5%. This could result in an impairment 
                               of $0.1bn. 
                              Discount rate increases by 50bps. 
  *    Discount rate           This could result in an impairment 
                               of $0.1bn. 
 
 
11  Goodwill and intangible assets 
 
 
                                                                     30 Jun    31 Dec 
                                                                       2020      2019 
                                                          Footnotes      $m        $m 
Goodwill                                                              5,482   5,590 
 
Present value of in-force long-term insurance business                9,379   8,945 
 
Other intangible assets                                       1       4,577   5,628 
                                                         ---------- 
At the end of the period                                             19,438  20,163 
                                                         ---------- 
 

1 Included within other intangible assets is capitalised software with a net carrying amount of $3,861m (31 December 2019: $4,829m).

We considered the pervasive macroeconomic deterioration caused by the outbreak of Covid-19, along with the impact on forecast profitability in some businesses, to be an indicator of goodwill and capitalised software impairment. As a result, interim impairment tests were performed at 30 June 2020.

Goodwill

Impairment test at 30 June 2020

An interim impairment test was performed by comparing the estimated recoverable amount of a cash generating unit ('CGU') carrying goodwill, determined by a VIU calculation, with its carrying amount. At 30 June 2020, the goodwill allocated to Middle East and North Africa - WPB ($41m) was fully impaired.

As disclosed on page 290 of our Annual Report and Accounts 2019, a reasonable change in a single key assumption would not result in impairment of goodwill in our former Europe - RBWM CGU. Though taken together, a combination of reasonable changes in forecast cash flows (30% decrease) and an increase in the discount rate (by 100bps) could result in a recoverable amount that is lower than the CGU's carrying amount. The sensitivity profile of our new Europe - WPB CGU at 30 June 2020 is the same. Details regarding our change in global businesses are set out in Note 5.

No other CGUs are sensitive to changes in key assumptions that would result in impairment.

Other intangible assets

Impairment test at 30 June 2020

An impairment test was performed at 30 June 2020 by comparing the net carrying amount of capitalised software assets with their recoverable amounts. Recoverable amounts were determined by calculating an estimated VIU or fair value, as appropriate, for each underlying business that carries software assets. Our cash flow forecasts have been updated for changes in the external outlook, although current economic and geopolitical risks increase the inherent estimation uncertainty.

We recognised $1.2bn of capitalised software impairment related principally to businesses within HSBC Bank plc, our non-ring-fenced bank in Europe. This impairment reflected underperformance and deterioration in the future forecasts of these businesses, substantially relating to prior periods.

Key assumptions in VIU calculation

We used a number of assumptions in our VIU calculation, in accordance with the requirements of IAS 36:

-- Management's judgement in estimating future cash flows: We considered past business performance, the scale of the current impact from the Covid-19 outbreak on our operations, current market conditions and our macroeconomic outlook to estimate future earnings. As required by IFRSs, estimates of future cash flows exclude estimated cash inflows or outflows that are expected to arise from restructuring initiatives before an entity has a constructive obligation to carry out the plan, and would therefore have recognised a provision for restructuring costs. For some businesses, this means that the benefit of certain strategic actions are not included in this impairment assessment, including capital releases.

-- Long-term growth rates: The long-term growth rate is used to extrapolate the cash flows in perpetuity because of the long-term perspective of the businesses within the Group. Rates do not exceed forecast inflation for the countries and territories within which the Group operates.

-- Discount rates: Rates are based on a CAPM calculation considering market data for the businesses and geographies in which the Group operates. Discount rates ranged from 8.5% to 9.7% for HSBC Bank plc's businesses.

Future software capitalisation

We will continue to invest in digital capabilities to meet our strategic objectives. However, software capitalisation within businesses where impairment was identified will not resume until the performance outlook for each business indicates future profits are sufficient to support capitalisation. The cost of additional software investment in these businesses will be recognised as an operating expense until such time.

 
12  Provisions 
 
 
                                                                        Legal 
                                                                  proceedings 
                                             Restructuring     and regulatory        Customer          Other 
                                                     costs            matters     remediation     provisions     Total 
                                Footnotes               $m                 $m              $m             $m        $m 
Provisions (excluding 
contractual 
commitments) 
                               ---------- 
At 31 Dec 2019                                     356               605            1,646            280      2,887 
                               ----------                                 --- 
Additions                                          103                20               75            109        307 
Amounts utilised                                  (128)              (70)            (436)           (91)      (725) 
 
Unused amounts reversed                            (38)              (29)             (38)           (44)      (149) 
Exchange and other movements                       (58)               (8)             (99)            25       (140) 
 
At 30 Jun 2020                                     235               518            1,148            279      2,180 
                               ----------                                 --- 
Contractual commitments             1 
                               ---------- 
At 31 Dec 2019                                                                                                  511 
                               ---------- 
Net change in expected credit 
 loss provision and other 
 movements                                                                                                      518 
At 30 Jun 2020                                                                                                1,029 
                               ---------- 
Total provisions 
At 31 Dec 2019                                                                                                3,398 
                               ---------- 
At 30 Jun 2020                                                                                                3,209 
                               ---------- 
 

1 The contractual commitments provision includes off-balance sheet loan commitments and guarantees, for which expected credit losses are provided under IFRS 9.

Further details of 'Legal proceedings and regulatory matters' are set out in Note 14. Legal proceedings include civil court, arbitration or tribunal proceedings brought against HSBC companies (whether by way of claim or counterclaim); or civil disputes that may, if not settled, result in court, arbitration or tribunal proceedings. 'Regulatory matters' refers to investigations, reviews and other actions carried out by, or in response to, the actions of regulators or law enforcement agencies in connection with alleged wrongdoing by HSBC.

Customer remediation refers to HSBC's activities to compensate customers for losses or damages associated with a failure to comply with regulations or to treat customers fairly. Customer remediation is often initiated by HSBC in response to customer complaints and/or industry developments in sales practices, and is not necessarily initiated by regulatory action. Further details of customer remediation are set out in this note.

Further disclosure on 'ECL on undrawn loan commitments and financial guarantees' can be found in the 'Credit risk' section of the 'Interim management report' on page 54.

Payment protection insurance

At 30 June 2020, $613m (31 December 2019: $1.1bn) of the customer remediation provision relates to the estimated liability for redress in respect of the possible mis-selling of PPI policies in previous years. Payments totalling $376m were made during the first six months of 2020.

At 30 June 2020, contact was made with customers who collectively held 3.0 million policies, representing 56% of total policies sold. A total of 5.4 million PPI policies have been sold since 2000, generating estimated revenue of $3.2bn at 30 June 2020. The gross written premiums on these policies were approximately $4.2bn.

As at 30 June 2020, there were an estimated 42,700 complaints still requiring assessment. Historical claim handling processes are monitored on a regular basis, and there remains potential for this review process to lead to additional rework costs in the future. Although the deadline for bringing complaints has passed, customers can still commence litigation for PPI mis-selling. Provision has been made for the best estimate of any obligation to pay compensation in respect of an estimated 43,000 future claims. However, the volume and quality of future claims through legal channels, and the amount of any compensation to be paid, remain uncertain. The provision also includes claims made by the Official Receiver to pursue redress amounts in respect of bankrupt and insolvent customers.

The estimated liability for redress for both single and regular premium policies is calculated on the basis of a refund of the total premiums paid by the customer plus simple interest of 8% per annum (or the rate inherent to the related loan product where higher). Further estimated redress levels are based on historical redress paid to customers per policy.

The PPI provision is based upon assumptions and estimates taken from historical experience. The profile of cases yet to be assessed, whether those submitted prior to the complaints deadline or subsequently via the legal channels, could therefore vary, leading to different uphold rates or average redress levels being used to arrive at the provision.

We continued to monitor available information up until the date of the approval of the financial statements to ensure that the provision estimate was appropriate.

Sensitivity to key assumptions

An increase/decrease in customer redress volumes of 10,000 received through legal channels would increase/decrease the redress provision by approximately $16m, based on observed settlement rates and average redress during the first half of 2020.

 
13  Contingent liabilities, contractual commitments and guarantees 
 
 
                                                                                 At 
                                                                          30 Jun     31 Dec 
                                                                            2020       2019 
                                                              Footnotes       $m         $m 
Guarantees and contingent liabilities: 
 
  *    financial guarantees                                               18,328   20,214 
                                                             ----------  -------  ------- 
 
  *    performance and other guarantees                                   73,078   75,933 
                                                             ----------  -------  ------- 
 
  *    other contingent liabilities                                        1,094    1,576 
                                                             ---------- 
At the end of the period                                                  92,500   97,723 
                                                             ----------  -------  ------- 
Commitments:                                                      1 
 
  *    documentary credits and short-term trade-related 
       transactions                                                        6,201    6,316 
                                                             ---------- 
 
  *    forward asset purchases and forward deposits placed                91,849   56,326 
                                                             ---------- 
 
  *    standby facilities, credit lines and other 
       commitments to lend                                               740,023  734,966 
                                                             ----------  ------- 
At the end of the period                                                 838,073  797,608 
                                                             ----------  -------  ------- 
 

1 Includes $648,156m of commitments at 30 June 2020 (31 December 2019: $600,029m), to which the impairment requirements in IFRS 9 are applied where HSBC has become party to an irrevocable commitment.

The preceding table discloses the nominal principal amounts of off-balance sheet liabilities and commitments for the Group, which represent the maximum amounts at risk should the contracts be fully drawn upon and the clients default. As a significant portion of guarantees and commitments are expected to expire without being drawn upon, the total of the nominal principal amounts is not indicative of future liquidity requirements. The expected credit loss provision relating to guarantees and commitments under IFRS 9 is disclosed in Note 12.

The majority of the guarantees have a term of less than one year, while guarantees with terms of more than one year are subject to HSBC's annual credit review process.

Contingent liabilities arising from legal proceedings, regulatory and other matters against Group companies are disclosed in Notes 12

and 14.

 
14  Legal proceedings and regulatory matters 
 

HSBC is party to legal proceedings and regulatory matters in a number of jurisdictions arising out of its normal business operations. Apart from the matters described below, HSBC considers that none of these matters are material. The recognition of provisions is determined in accordance with the accounting policies set out in Note 1 of the Annual Report and Accounts 2019. While the outcomes of legal proceedings and regulatory matters are inherently uncertain, management believes that, based on the information available to it, appropriate provisions have been made in respect of these matters as at 30 June 2020 (see Note 12). Where an individual provision is material, the fact that a provision has been made is stated and quantified, except to the extent that doing so would be seriously prejudicial. Any provision recognised does not constitute an admission of wrongdoing or legal liability. It is not practicable to provide an aggregate estimate of potential liability for our legal proceedings and regulatory matters as a class of contingent liabilities.

Bernard L. Madoff Investment Securities LLC

Bernard L. Madoff ('Madoff') was arrested in December 2008 and later pleaded guilty to running a Ponzi scheme. His firm, Bernard L. Madoff Investment Securities LLC ('Madoff Securities'), is being liquidated in the US by a trustee (the 'Trustee').

Various non-US HSBC companies provided custodial, administration and similar services to a number of funds incorporated outside the US whose assets were invested with Madoff Securities. Based on information provided by Madoff Securities as at 30 November 2008, the purported aggregate value of these funds was $8.4bn, including fictitious profits reported by Madoff.

Based on information available to HSBC, the funds' actual transfers to Madoff Securities minus their actual withdrawals from Madoff Securities during the time HSBC serviced the funds are estimated to have totalled approximately $4bn. Various HSBC companies have been named as defendants in lawsuits arising out of Madoff Securities' fraud.

US litigation: The Trustee has brought lawsuits against various HSBC companies and others in the US Bankruptcy Court for the Southern District of New York (the 'US Bankruptcy Court'), seeking recovery of transfers from Madoff Securities to HSBC in an amount not yet pleaded or determined. HSBC and other parties to the actions have moved to dismiss the Trustee's claims. The US Bankruptcy Court granted HSBC's motion to dismiss with respect to certain of the Trustee's claims in November 2016. In February 2019, the US Court of Appeals for the Second Circuit (the 'Second Circuit Court of Appeals') reversed that dismissal. Following the US Supreme Court's denial of certiorari in June 2020, the cases were remanded to the US Bankruptcy Court, where they are now pending.

Fairfield Sentry Limited, Fairfield Sigma Limited and Fairfield Lambda Limited (together, 'Fairfield') (in liquidation since July 2009) have brought a lawsuit in the US against fund shareholders, including HSBC companies that acted as nominees for clients, seeking restitution of redemption payments. In December 2018, the US Bankruptcy Court issued an opinion, which ruled in favour of the defendants' motion to dismiss in respect of certain claims by the liquidators for Fairfield and granted a motion by the liquidators to file amended complaints. As a result of that opinion, all claims against one of the HSBC companies were dismissed, and certain claims against the remaining HSBC defendants were also dismissed. In May 2019, the liquidators appealed certain issues from the US Bankruptcy Court to the US District Court for the Southern District of New York (the 'New York District Court') and, in January 2020, the liquidators filed amended complaints on the claims remaining in the US Bankruptcy Court. In March 2020, HSBC and other parties to the action moved to dismiss the amended complaints in the US Bankruptcy Court.

UK litigation: The Trustee has filed a claim against various HSBC companies in the High Court of England and Wales, seeking recovery of transfers from Madoff Securities to HSBC in an amount not yet pleaded or determined. The deadline for service of the claim has been extended to September 2020 for UK-based defendants and November 2020 for all other defendants.

Cayman Islands litigation: In February 2013, Primeo Fund ('Primeo') (in liquidation since April 2009) brought an action against HSBC Securities Services Luxembourg ('HSSL') and Bank of Bermuda (Cayman) Limited (now known as HSBC Cayman Limited), alleging breach of contract and breach of fiduciary duty and claiming damages and equitable compensation. The trial concluded in February 2017 and, in August 2017, the court dismissed all claims against the defendants. In September 2017, Primeo appealed to the Court of Appeal of the Cayman Islands and, in June 2019, the Court of Appeal of the Cayman Islands dismissed Primeo's appeal. In August 2019, Primeo filed a notice of appeal to the UK Privy Council, which has listed the hearing for April 2021.

Luxembourg litigation: In April 2009, Herald Fund SPC ('Herald') (in liquidation since July 2013) brought an action against HSSL before the Luxembourg District Court, seeking restitution of cash and securities that Herald purportedly lost because of Madoff Securities' fraud, or money damages. The Luxembourg District Court dismissed Herald's securities restitution claim, but reserved Herald's cash restitution claim and its claim for money damages. Herald has appealed this judgment to the Luxembourg Court of Appeal, where the matter is pending. In late 2018, Herald brought additional claims against HSSL and HSBC Bank plc before the Luxembourg District Court, seeking further restitution and damages.

In October 2009, Alpha Prime Fund Limited ('Alpha Prime') brought an action against HSSL before the Luxembourg District Court, seeking the restitution of securities, or the cash equivalent, or money damages. In December 2018, Alpha Prime brought additional claims before the Luxembourg District Court seeking damages against various HSBC companies. These matters are currently pending before the Luxembourg District Court.

In December 2014, Senator Fund SPC ('Senator') brought an action against HSSL before the Luxembourg District Court, seeking restitution of securities, or the cash equivalent, or money damages. In April 2015, Senator commenced a separate action against the Luxembourg branch of HSBC Bank plc asserting identical claims before the Luxembourg District Court. In December 2018, Senator brought additional claims against HSSL and HSBC Bank plc Luxembourg branch before the Luxembourg District Court, seeking restitution of Senator's securities or money damages. These matters are currently pending before the Luxembourg District Court.

Ireland litigation: In November 2013, Defender Limited brought an action against HSBC Institutional Trust Services (Ireland) Limited ('HTIE') and others, based on allegations of breach of contract and claiming damages and indemnification for fund losses. The trial commenced in October 2018. In December 2018, the Irish High Court issued a judgment in HTIE's favour on a preliminary issue, holding that Defender Limited had no effective claim against HTIE. This judgment concluded the trial without further issues in dispute being heard. In February 2019, Defender Limited appealed the decision. In July 2020, the Irish Supreme Court ruled in part in favour of Defender Limited and returned the case to the High Court for further proceedings.

There are many factors that may affect the range of possible outcomes, and any resulting financial impact, of the various Madoff-related proceedings described above, including but not limited to the multiple jurisdictions in which the proceedings have been brought. Based upon the information currently available, management's estimate of the possible aggregate damages that might arise as a result of all claims in the various Madoff-related proceedings is up to or exceeding $500m, excluding costs and interest. Due to uncertainties and limitations of this estimate, any possible damages that might ultimately arise could differ significantly from this amount.

Anti-money laundering and sanctions-related matters

In December 2012, among other agreements, HSBC Holdings agreed to an undertaking with the UK Financial Services Authority, which was replaced by a Direction issued by the UK Financial Conduct Authority ('FCA') in 2013, and again in July 2020, and consented to a cease-and-desist order with the US Federal Reserve Board ('FRB'), both of which contained certain forward-looking anti-money laundering ('AML') and sanctions-related obligations. HSBC also agreed to retain an independent compliance monitor (who is, for FCA purposes, a 'Skilled Person' under section 166 of the Financial Services and Markets Act and, for FRB purposes, an 'Independent Consultant') to produce periodic assessments of the Group's AML and sanctions compliance programme (the 'Skilled Person/Independent Consultant'). In December 2012, HSBC Holdings also entered into an agreement with the Office of Foreign Assets Control ('OFAC') regarding historical transactions involving parties subject to OFAC sanctions. HSBC's engagement with the Skilled Person appointed pursuant to the 2013 Direction was terminated in February 2020 and a new Skilled Person with a narrower mandate has been appointed to assess the remaining areas that require further work in order for HSBC to transition fully to business-as-usual financial crime risk management. The Independent Consultant will continue to carry out an annual OFAC compliance review at the FRB's discretion. The role of the Skilled Person/Independent Consultant is discussed on page 145 of the Annual Report and Accounts 2019.

Through the Skilled Person/Independent Consultant's prior reviews, as well as internal reviews conducted by HSBC, certain potential AML and sanctions compliance issues have been identified that HSBC is reviewing further with the FRB, FCA and/or OFAC. The Financial Crimes Enforcement Network of the US Treasury Department, as well as the Civil Division of the US Attorney's Office for the Southern District of New York, are investigating the collection and transmittal of third-party originator information in certain payments instructed over HSBC's proprietary payment systems. The FCA is also conducting an investigation into HSBC Bank plc's and HSBC UK Bank plc's compliance with UK money laundering regulations and financial crime systems and controls requirements. HSBC is cooperating with all of these investigations.

In May 2014, a shareholder derivative action was filed by a shareholder of HSBC Holdings purportedly on behalf of HSBC Holdings, HSBC Bank USA N.A. ('HSBC Bank USA'), HSBC North America Holdings Inc. and HSBC USA Inc. (the 'Nominal Corporate Defendants') in New York state court against certain current and former directors and officers of the Nominal Corporate Defendants (the 'Individual Defendants'). The complaint alleges that the Individual Defendants breached their fiduciary duties to the Nominal Corporate Defendants and caused a waste of corporate assets by allegedly permitting and/or causing the conduct underlying the five-year deferred prosecution agreement with the US Department of Justice ('DoJ'), entered into in December 2012. In November 2015, the New York state court granted the Nominal Corporate Defendants' motion to dismiss, but the appellate court reversed the decision in November 2018 and reinstated the action. In June 2020, the parties reached an agreement to resolve this derivative action. In July 2020, the court granted preliminary approval of the settlement, under which HSBC will receive a payment from directors and officers liability insurance carriers and will continue for a period of time certain corporate governance practices. The final settlement approval hearing has been scheduled for October 2020.

Since November 2014, a number of lawsuits have been filed in federal courts in the US against various HSBC companies and others on behalf of plaintiffs who are, or are related to, victims of terrorist attacks in the Middle East or of cartel violence in Mexico. In each case, it is alleged that the defendants aided and abetted the unlawful conduct of various sanctioned parties in violation of the US Anti-Terrorism Act. Currently, 10 actions remain pending in federal courts in New York or the District of Columbia. In March, September and October 2019, the courts granted HSBC's motions to dismiss in three of these cases. The plaintiffs have appealed the decisions in two of these cases and are seeking certification to appeal in the third case. HSBC has filed motions to dismiss in three further cases, two of which were granted in June 2020, while the third remains pending. The four remaining actions are at a very early stage.

Based on the facts currently known, it is not practicable at this time for HSBC to predict the resolution of these matters, including the timing or any possible impact on HSBC, which could be significant.

London interbank offered rates, European interbank offered rates and other benchmark interest rate investigations and litigation

Euro interest rate derivatives: In December 2016, the European Commission (the 'EC') issued a decision finding that HSBC, among other banks, engaged in anti-competitive practices in connection with the pricing of euro interest rate derivatives in early 2007. The EC imposed a fine on HSBC based on a one-month infringement. HSBC appealed the decision and, in September 2019, the General Court of the European Union (the 'General Court') issued a decision largely upholding the EC's findings on liability but annulling the fine. HSBC and the EC have both appealed the General Court's decision to the European Court of Justice.

US dollar Libor: Beginning in 2011, HSBC and other panel banks have been named as defendants in a number of private lawsuits filed in the US with respect to the setting of US dollar Libor. The complaints assert claims under various US laws, including US antitrust and racketeering laws, the US Commodity Exchange Act ('US CEA') and state law. The lawsuits include individual and putative class actions, most of which have been transferred and/or consolidated for pre-trial purposes before the New York District Court.

In 2017 and 2018, HSBC reached agreements with plaintiffs to resolve putative class actions brought on behalf of the following five groups of plaintiffs: persons who purchased US dollar Libor-indexed bonds; persons who purchased US dollar Libor-indexed exchange-traded instruments; US-based lending institutions that made or purchased US dollar Libor-indexed loans (the 'Lender class'); persons who purchased US dollar Libor-indexed interest rate swaps and other instruments directly from the defendant banks and their affiliates (the 'OTC class'); and persons who purchased US dollar Libor-indexed interest rate swaps and other instruments from certain financial institutions that are not the defendant banks or their affiliates. During 2018, the New York District Court granted final approval of the settlements with the OTC and Lender classes. The remaining settlements are subject to final court approval. Additionally, a number of other US dollar Libor-related actions remain pending against HSBC in the New York District Court and the Second Circuit Court of Appeals.

Intercontinental Exchange ('ICE') Libor: Between January and March 2019, HSBC and other panel banks were named as defendants in three putative class actions filed in the New York District Court on behalf of persons and entities who purchased instruments paying interest indexed to US dollar ICE Libor from a panel bank. The complaints allege, among other things, misconduct related to the suppression of this benchmark rate in violation of US antitrust and state law. In July 2019, the three putative class actions were consolidated, and the plaintiffs filed a consolidated amended complaint. In March 2020, the court granted the defendants' joint motion to dismiss in its entirety. The plaintiffs have appealed.

Singapore interbank offered rate ('Sibor'), Singapore swap offer rate ('SOR') and Australia bank bill swap rate ('BBSW'):

In July and August 2016, HSBC and other panel banks were named as defendants in two putative class actions filed in the New York District Court on behalf of persons who transacted in products related to the Sibor, SOR and BBSW benchmark rates. The complaints allege, among other things, misconduct related to these benchmark rates in violation of US antitrust, commodities and racketeering laws, and state law.

In the Sibor/SOR litigation, following a decision on the defendants' motion to dismiss in October 2018, the claims against a number of HSBC entities were dismissed, and The Hongkong and Shanghai Banking Corporation Limited ('HBAP') remained as the only HSBC defendant in this action. In October 2018, HBAP filed a motion for reconsideration of the decision based on the issue of personal jurisdiction. This motion was denied in April 2019. Also in October 2018, the plaintiffs filed a third amended complaint naming only the Sibor panel members, including HBAP, as defendants. The court dismissed the third amended complaint in its entirety in July 2019 against all defendants. In August 2019, the plaintiffs filed an appeal to the Second Circuit Court of Appeals, which remains pending.

In the BBSW litigation, in November 2018, the court dismissed all foreign defendants, including all the HSBC entities, on personal jurisdiction grounds. In April 2019, the plaintiffs filed an amended complaint, which the defendants moved to dismiss. In February 2020, the court again dismissed the plaintiffs' amended complaint against all the HSBC entities.

There are many factors that may affect the range of outcomes, and the resulting financial impact, of these matters, which could be significant.

Foreign exchange-related investigations and litigation

Various regulators and competition authorities around the world, including in the EU, Brazil and South Africa, are conducting investigations and reviews into trading by HSBC and others on the foreign exchange markets. HSBC is cooperating with these investigations and reviews.

In January 2018, HSBC Holdings entered into a three-year deferred prosecution agreement with the Criminal Division of the DoJ (the 'FX DPA'), regarding fraudulent conduct in connection with two particular transactions in 2010 and 2011. This concluded the DoJ's investigation into HSBC's historical foreign exchange activities. Under the terms of the FX DPA, HSBC has a number of ongoing obligations, including implementing enhancements to its internal controls and procedures in its Global Markets business, which will be the subject of annual reports to the DoJ. In addition, HSBC agreed to pay a financial penalty and restitution.

In December 2016, Brazil's Administrative Council of Economic Defense initiated an investigation into the onshore foreign exchange market and identified a number of banks, including HSBC, as subjects of its investigation.

In June 2020, the Competition Commission of South Africa, having initially referred a complaint for proceedings before the South African Competition Tribunal in February 2017, filed a revised complaint against 28 financial institutions, including HSBC Bank plc and HSBC Bank USA, for alleged anti-competitive behaviour in the South African foreign exchange market.

In October 2018, HSBC Holdings and HSBC Bank plc received an information request from the EC concerning potential coordination in foreign exchange options trading. In May 2020, HSBC was informed that the EC had discontinued its investigation and does not intend to take further action.

In late 2013 and early 2014, various HSBC companies and other banks were named as defendants in various putative class actions consolidated in the New York District Court. The consolidated complaint alleged, among other things, that the defendants conspired to manipulate the WM/Reuters foreign exchange benchmark rates. In September 2015, HSBC reached an agreement with the plaintiffs to resolve the consolidated action, and the court granted final approval of the settlement in August 2018.

A putative class action complaint making similar allegations on behalf of retail customers of foreign exchange products was filed in the US District Court for the Northern District of California in 2015, and was subsequently transferred to the New York District Court where it remains pending. In 2017, putative class action complaints making similar allegations on behalf of purported indirect purchasers of foreign exchange products were filed in New York and were subsequently consolidated in the New York District Court. In April 2020, HSBC reached an agreement with the plaintiffs to resolve the indirect purchaser action. The settlement remains subject to final court approval.

In September 2018, various HSBC companies and other banks were named as defendants in two motions for certification of class actions filed in Israel alleging foreign exchange-related misconduct. In July 2019, the Tel Aviv Court allowed the plaintiffs to consolidate their claims and, in September 2019, the plaintiffs filed a motion for certification of the consolidated class action.

In November and December 2018, complaints alleging foreign exchange-related misconduct were filed in the New York District Court and the High Court of England and Wales against HSBC and other defendants by certain plaintiffs that opted out of the US class action settlement. In May 2020, the court granted in part and denied in part the defendants' motion to dismiss the US opt-out actions. These matters remain at an early stage. It is possible that additional civil actions will be initiated against HSBC in relation to its historical foreign exchange activities.

There are many factors that may affect the range of outcomes, and the resulting financial impact, of these matters, which could be significant.

Precious metals fix-related litigation

Gold: Beginning in March 2014, numerous putative class actions were filed in the New York District Court and the US District Courts for the District of New Jersey and the Northern District of California, naming HSBC and other members of The London Gold Market Fixing Limited as defendants. The complaints allege that, from January 2004 to June 2013, the defendants conspired to manipulate the price of gold and gold derivatives for their collective benefit in violation of US antitrust laws, the US CEA and New York state law. The actions were consolidated in the New York District Court. The defendants' motion to dismiss the consolidated action was granted in part and denied in part in October 2016. In June 2017, the court granted the plaintiffs leave to file a third amended complaint, naming a new defendant. The court has denied the pre-existing defendants' request for leave to file a joint motion to dismiss, and discovery is proceeding.

Beginning in December 2015, numerous putative class actions under Canadian law were filed in the Ontario and Quebec Superior Courts of Justice against various HSBC companies and other financial institutions. The plaintiffs allege that, among other things, from January 2004 to March 2014, the defendants conspired to manipulate the price of gold and gold derivatives in violation of the Canadian Competition Act and common law. These actions are at an early stage.

Silver: Beginning in July 2014, numerous putative class actions were filed in federal district courts in New York, naming HSBC and other members of The London Silver Market Fixing Limited as defendants. The complaints allege that, from January 2007 to December 2013, the defendants conspired to manipulate the price of silver and silver derivatives for their collective benefit in violation of US antitrust laws, the US CEA and New York state law. The actions were consolidated in the New York District Court. The defendants' motion to dismiss the consolidated action was granted in part and denied in part in October 2016. In June 2017, the court granted the plaintiffs leave to file a third amended complaint, which names several new defendants. The court has denied the pre-existing defendants' request for leave to file a joint motion to dismiss, and discovery is proceeding.

In April 2016, two putative class actions under Canadian law were filed in the Ontario and Quebec Superior Courts of Justice against various HSBC companies and other financial institutions. The plaintiffs in both actions allege that, from January 1999 to August 2014, the defendants conspired to manipulate the price of silver and silver derivatives in violation of the Canadian Competition Act and common law. The Ontario action is at an early stage. The Quebec action has been temporarily stayed.

Platinum and palladium: Between late 2014 and early 2015, numerous putative class actions were filed in the New York District Court, naming HSBC and other members of The London Platinum and Palladium Fixing Company Limited as defendants. The complaints allege that, from January 2008 to November 2014, the defendants conspired to manipulate the price of platinum group metals ('PGM') and PGM-based financial products for their collective benefit in violation of US antitrust laws and the US CEA. In March 2017, the defendants' motion to dismiss the second amended consolidated complaint was granted in part and denied in part. In June 2017, the plaintiffs filed a third amended complaint. In March 2020, the court granted the defendants' motion to dismiss the third amended complaint but granted the plaintiffs leave to re-plead certain claims. The plaintiffs have filed an appeal.

Based on the facts currently known, it is not practicable at this time for HSBC to predict the resolution of these matters, including the timing or any possible impact on HSBC, which could be significant.

Film finance litigation

In July and November 2015, two actions were brought by individuals against HSBC Private Bank (UK) Limited ('PBGB') in the High Court of England and Wales seeking damages on various alleged grounds, including breach of duty to the claimants, in connection with their participation in certain Ingenious film finance schemes. These actions are ongoing.

In December 2018, a separate action was brought against PBGB in the High Court of England and Wales by multiple claimants seeking damages for alleged unlawful means conspiracy and dishonest assistance in connection with lending provided by PBGB to third parties in respect of certain Ingenious film finance schemes in which the claimants participated. In June 2019, a similar claim was issued against PBGB in the High Court of England and Wales by additional claimants. These actions are ongoing.

In June 2020, two separate claims were issued against HSBC UK Bank plc (as successor to PBGB's business) by two separate groups of investors in Eclipse film finance schemes in connection with PBGB's role in facilitating the design, promotion and operation of such schemes. Only one of these claims has been served to date. These matters are at an early stage.

In February 2020, a claim was issued against HSBC UK Bank plc (as successor to PBGB's business) by two individuals in relation to the Zeus film finance schemes. Separately, in June 2020, HSBC UK Bank plc received an application for disclosure of documents by a law firm acting on behalf of a number of investors in the Zeus schemes. These matters are at an early stage.

It is possible that additional actions or investigations will be initiated against HSBC UK Bank plc as a result of PBGB's historical involvement in the provision of certain film finance-related services.

Based on the facts currently known, it is not practicable to predict the resolution of these matters, including the timing or any possible impact on HSBC, which could be significant.

Other regulatory investigations, reviews and litigation

HSBC Holdings and/or certain of its affiliates are subject to a number of other investigations and reviews by various regulators and competition and law enforcement authorities, as well as litigation, in connection with various matters relating to the firm's businesses and operations, including:

-- investigations by tax administration, regulatory and law enforcement authorities in Argentina, India and elsewhere in connection with allegations of tax evasion or tax fraud, money laundering and unlawful cross-border banking solicitation;

-- an investigation by the US Commodity Futures Trading Commission regarding interest rate swap transactions related to bond issuances;

-- an investigation by the Swiss Competition Commission in connection with the setting of Euribor and Japanese yen Libor;

-- an investigation by the FCA in connection with collections and recoveries operations in the UK;

-- an information request from the UK Competition and Markets Authority concerning the financial services sector;

-- putative class actions brought in the New York District Court relating to the Mexican government bond market, the US government-sponsored enterprise bond market, and the market for US dollar-denominated supranational sovereign and agency bonds;

-- two group actions pending in the US courts and a claim issued in the High Court of England and Wales in connection with HSBC Bank plc's role as a correspondent bank to Stanford International Bank Ltd from 2003 to 2009; and

-- litigation brought against various HSBC companies in the US courts relating to residential mortgage-backed securities, based primarily on (a) claims brought against HSBC Bank USA in connection with its role as trustee on behalf of various securitisation trusts; and (b) claims against several HSBC companies seeking that the defendants repurchase various mortgage loans.

There are many factors that may affect the range of outcomes, and the resulting financial impact, of these matters, which could be significant.

 
15  Transactions with related parties 
 

There were no changes in the related party transactions described in the Annual Report and Accounts 2019 that have had a material effect on the financial position or performance of HSBC in the half-year to 30 June 2020. All related party transactions that took place in the half-year to 30 June 2020 were similar in nature to those disclosed in the Annual Report and Accounts 2019.

 
16  Events after the balance sheet date 
 

In its assessment of events after the balance sheet date, HSBC has considered and concluded that no material events have occurred resulting in adjustments to the financial statements.

 
17  Interim Report 2020 and statutory accounts 
 

The information in this Interim Report 2020 is unaudited and does not constitute statutory accounts within the meaning of section 434 of the Companies Act 2006. This Interim Report 2020 was approved by the Board of Directors on 3 August 2020. The statutory accounts of HSBC Holdings plc for the year ended 31 December 2019 have been delivered to the Registrar of Companies in England and Wales in accordance with section 447 of the Companies Act 2006. The Group's auditor PricewaterhouseCoopers LLP ('PwC') has reported on those accounts. Its report was unqualified, did not include a reference to any matters to which PwC drew attention by way of emphasis without qualifying its report and did not contain a statement under section 498(2) or (3) of the Companies Act 2006.

 
Shareholder information 
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1  Directors' interests            121    9   Corporate governance                 124 
                                  ----                                            ---- 
2  Employee share plans            123    10  Changes in Directors' details        125 
                                  ----                                            ---- 
3  Other equity instruments        123    11  Going concern basis                  125 
                                  ----                                            ---- 
   Notifiable interests in share              Telephone and online share dealing 
4   capital                        124    12   service                             125 
                                  ----                                            ---- 
   Dealings in HSBC Holdings 
5   listed securities              124    13  Stock symbols                        125 
                                  ----                                            ---- 
                                              Copies of the Interim Report 
                                               2020 and shareholder enquiries 
6  Dividend on preference shares   124    14   and communications 
                                  ---- 
7  Earnings release                124                                             126 
                                  ---- 
8  Final results                   124 
                                  ---- 
 
 
1  Directors' interests 
 

According to the register of Directors' interests maintained by HSBC Holdings pursuant to section 352 of the Securities and Futures Ordinance of Hong Kong, at 30 June 2020 (or date of retirement from the Board, if earlier) the Directors of HSBC Holdings had the following interests, all beneficial unless otherwise stated, in the shares or debentures of HSBC and its associates:

 
 Directors' interests - shares and debentures 
                                                                       At 30 Jun 2020 
                                                                 Child 
                                            At                   under        Jointly 
                                         1 Jan  Beneficial          18   with another                  Total 
                            Footnotes     2020       owner   or spouse         person  Trustee     interests 
                           ---------- 
HSBC Holdings ordinary 
 shares 
                                                ---------- 
Kathleen Casey                 1,2      15,125      15,125           -              -        -      15,125 
                                                ----------                                      ---------- 
Laura Cha                               16,200      16,200           -              -        -      16,200 
                                                ----------  ----------  -------------  -------  ---------- 
Henri de Castries                       19,251      19,251           -              -        -      19,251 
James Forese                    3            -           -           -              -        -           - 
                                                ----------  ----------  -------------  -------  ---------- 
                              1,3, 
Steven Guggenheimer             4            -           -           -         10,000        -      10,000 
                           ----------  -------  ----------  ----------  -------------  -------  ---------- 
Irene Lee                               11,904      11,904           -              -        -      11,904 
                                                ----------  ----------  -------------  -------  ---------- 
José Antonio Meade 
 Kuribreña                              -           -           -              -        -             - 
                                                ----------  ----------  -------------  -------  ------------ 
Heidi Miller                    1       15,700      15,700           -              -        -      15,700 
                                       -------  ----------  ----------  -------------  -------  ---------- 
David Nish                              50,000           -      50,000              -        -      50,000 
                                                ----------  ----------  -------------  -------  ---------- 
Noel Quinn                      5      441,925     598,527           -              -        -     598,527 
                                       -------  ----------  ----------  -------------  -------  ---------- 
Ewen Stevenson                  5      233,972     407,903           -              -        -     407,903 
                                       -------  ----------  ----------  -------------  -------  ---------- 
Sir Jonathan Symonds            6       43,821      38,823       4,998              -        -      43,821 
                                                ----------  ----------  -------------  -------  ---------- 
Jackson Tai                    1,7      66,515      32,800      11,965         21,750        -      66,515 
                           ----------  -------  ----------  ----------  -------------  -------  ---------- 
Mark Tucker                            307,352     307,352           -              -        -     307,352 
                           ----------  -------  ----------  ----------  -------------  -------  ---------- 
Pauline van der Meer Mohr               15,000      15,000           -              -        -      15,000 
                           ----------  -------  ----------  ----------  -------------  -------  ---------- 
 

1 Kathleen Casey has an interest in 3,025, Steven Guggenheimer has an interest in 2,000, Heidi Miller has an interest in 3,140 and Jackson Tai has an interest in 13,303 listed American Depositary Shares ('ADSs'), which are categorised as equity derivatives under Part XV of the Securities and Futures Ordinance of Hong Kong. Each ADS represents five HSBC Holdings ordinary shares.

   2     Kathleen Casey retired from the Board on 24 April 2020. 
   3     James Forese and Steven Guggenheimer joined the Board on 1 May 2020. 

4 On 19 May 2020, Steven Guggenheimer reported to HSBC Holdings that he had acquired 1,000 ADSs, representing 5,000 HSBC Holdings ordinary shares, on 1 May 2020. The ADSs were acquired jointly with his spouse, Nichola Guggenheimer. Prior clearance was not obtained as required pursuant to the standards set out in the Hong Kong Model Code for Securities Transactions by Directors of Listed Issuers. The Directors' onboarding process has been reviewed and certain improvements have been made. Prior clearance was obtained for Steven Guggenheimer's sole subsequent transaction.

5 Executive Directors' other interests in HSBC Holdings ordinary shares arising from the HSBC Holdings Savings-Related Share Option Plan and the HSBC Share Plan 2011 are set out on the following pages. At 30 June 2020, the aggregate interests under the Securities and Futures Ordinance of Hong Kong in HSBC Holdings ordinary shares, including interests arising through employee share plans, were: Noel Quinn - 1,153,083; and Ewen Stevenson - 1,613,450. Each Director's total interests represents less than 0.01% of the shares in issue and 0.01% of the shares in issue excluding treasury shares.

   6     Sir Jonathan Symonds retired from the Board on 18 February 2020. 

7 Jackson Tai's holding includes a non-beneficial interest in 11,965 shares of which he is custodian.

Savings-Related Share Option Plan

Currently no executive Directors participate in a Savings-Related Share Option Plan. For further details on the Savings-Related Share Option Plan, see page 123.

HSBC Share Plan 2011

Conditional awards of deferred shares

Vesting of deferred share awards is normally subject to the Director remaining an employee on the vesting date. The awards may vest at an earlier date in certain circumstances. Under the Securities and Futures Ordinance of Hong Kong, interests in conditional share awards are categorised as the interests of the beneficial owner.

 
 Deferred share awards 
                                                              HSBC Holdings ordinary shares 
                                                          Awards made         Awards vested 
                                                             during               during 
                                              Awards     the period to        the period to            Awards 
                                             held at      30 Jun 2020         30 Jun 2020(1)          held at 
                                   Year in 
                                     which 
             Date of                awards     1 Jan             Monetary             Monetary         30 Jun 
               award  Footnotes   may vest      2020     Number     value     Number     value           2020 
                                                                   GBP000               GBP000 
                                                                 --------             -------- 
               2 Mar 
                2015      2           2020    20,199          -         -     20,838       100              - 
                                            --------  ---------  --------  ---------  --------  ------------- 
              29 Feb 
                2016      3           2021    39,549          -         -          -         -      38,910(4) 
                                            --------  ---------  --------  ---------  --------  ------------- 
              27 Feb 
                2017      5      2020-2024    82,950          -         -     17,114        77       65,836 
                                            --------  ---------  --------  ---------  --------  ----------- 
              26 Feb 
                2018      6      2021-2025   107,523          -         -          -         -      107,523 
                                            --------  ---------  --------  ---------  --------  ----------- 
              25 Feb 
                2019      7      2022-2026   140,585          -         -          -         -      140,585 
                                            --------  ---------  --------  ---------  --------  ----------- 
              24 Feb 
                2020      8           2020         -    105,072       591    105,072       591              - 
                                            --------  ---------  --------  ---------  --------  ------------- 
              24 Feb 
Noel Quinn      2020      9      2023-2027         -    201,702     1,134          -         -      201,702 
                                            --------  ---------  --------  ---------  --------  ----------- 
              28 May 
                2019     10      2020-2025   703,933          -         -    148,419       672    486,802(11) 
                                            --------  ---------  --------  ---------  --------  ------------- 
              28 May 
                2019     12      2022-2026   241,988                               -         -      241,988 
                                            --------  ---------  --------  ---------  --------  ----------- 
Ewen          24 Feb 
 Stevenson      2020      8           2020         -     96,202       541     96,202       541              - 
                                            --------  ---------  --------  ---------  --------  ------------- 
 

Noel Quinn became a Director of HSBC Holdings on 5 August 2019. He served as Interim Group Chief Executive of HSBC Holdings between 5 August 2019 and 16 March 2020. On 17 March 2020, he was appointed as Group Chief Executive of HSBC Holdings.

1 Includes any additional shares arising from dividend equivalents (see Notes 2 and 4 for further information).

2 At the date of the award (2 March 2015), the market value per share was GBP5.8300. The award vested in full on 10 March 2020 at a market value of GBP4.8187. The vesting included dividend equivalents applied in

anticipation of the fourth interim dividend for 2019 that were later recovered (see   Note 4). 

3 At the date of the award (29 February 2016), the market value per share was GBP4.6735. The award will vest in full in March 2021.

4 Following cancellation of the fourth interim dividend for 2019, shares were deducted from this award to reflect the dividend equivalents that vested on 10 March 2020 in respect of the 2015 award.

5 At the date of the award (27 February 2017), the market value per share was GBP6.5030. The award will vest in five equal annual tranches. The first tranche vested on 12 March 2020 and was based on a market value of GBP4.5246. Shares equivalent in number to those that vest under the award (net of tax liabilities) must be retained for six months from the vesting date.

6 At the date of the award (26 February 2018), the market value per share was GBP7.2340. Shares equivalent in number to those that vest under the award (net of tax liabilities) must be retained for one year from the vesting date. The award will vest in five equal annual tranches commencing in March 2021.

7 At the date of the award (25 February 2019), the market value per share was GBP6.2350. Shares equivalent in number to those that vest under the award (net of tax liabilities) must be retained for one year from the vesting date. The award will vest in five equal annual tranches commencing in March 2022.

8 The non-deferred award vested immediately on 24 February 2020 and was based on the market value of GBP5.6220. Shares equivalent in number to those that vest under the award (net of tax liabilities) must be retained for one year from the vesting date.

9 At the date of the award (24 February 2020), the market value per share was GBP5.6220. Shares equivalent in number to those that vest under the award (net of tax liabilities) must be retained for one year from the vesting date. The award will vest in five equal annual tranches commencing in March 2023.

10 The award was granted on 28 May 2019 using a market value per share of GBP6.6430 as at 30 November 2018. Shares equivalent in number to those that vest under the award (net of tax liabilities) must be retained for up to one year from the vesting date. The first tranche vested on 12 March 2020 and was based on a market value of GBP4.5246. The award replaces the 2015 to 2018 long-term incentive ('LTI') plans forfeited by the Royal Bank of Scotland Group plc ('RBS') and is subject to any performance adjustments assessed and disclosed in the relevant annual report and accounts of RBS.

11 The award has been adjusted following the performance outcome applied and disclosed in RBS's Annual Report and Accounts 2019. The RBS performance outcome was 78.09%, which resulted in a reduction of 68,712 shares in respect of the 2016 LTI plan.

12 The award was granted on 28 May 2019 using a market value per share of GBP6.2350 as at 22 February 2019. Shares equivalent in number to those that vest under the award (net of tax liabilities) must be retained for up to one year from the vesting date. The award will vest in five annual tranches commencing in March 2022. The award is in respect of the 2018 performance year granted based on Ewen Stevenson's maximum opportunity under RBS's policy and the outcome of the 2018 scorecard as disclosed in RBS's Annual Report and Accounts 2018. The number of shares that vest may be adjusted based on any 'pre-vest performance test' assessed and disclosed in RBS's Annual Report and Accounts.

Long-term incentive awards

The long-term incentive award is an award of shares with a three-year performance period. At the end of this performance period and subject to the award terms, the number of shares that vest will be determined based on an assessment against financial and non-financial measures. Subject to that assessment, the shares will vest in five equal annual instalments. On vesting, awards are subject to a retention period of up to one year. Under the Securities and Futures Ordinance of Hong Kong, interests in awards are categorised as beneficial.

 
 Long-term incentive awards 
                                                              HSBC Holdings ordinary shares 
                                                           Awards made          Awards vested 
                                               Awards         during                during            Awards 
                                                 held       the period            the period            held 
                                                   at     to 30 Jun 2020        to 30 Jun 2020            at 
                                        Year 
                                    in which 
                  Date                awards    1 Jan              Monetary              Monetary     30 Jun 
              of award  Footnotes   may vest     2020      Number     value      Number     value       2020 
                                                                     GBP000                GBP000 
Ewen            24 Feb                  2023 
 Stevenson        2020      1         - 2027        -     476,757     2,680           -         -  476,757 
                                                                             ---------- 
 
 
   1     Awards were made on 24 February 2020 and were based on the market value of GBP5.6220. 

No Directors held any short position (as defined in the Securities and Futures Ordinance of Hong Kong) in the shares or debentures of HSBC Holdings and its associated corporations. Save as stated in the tables above, none of the Directors had an interest in any shares or debentures of HSBC Holdings or any associates at the beginning or at the end of the period, and none of the Directors or members of their immediate families were awarded or exercised any right to subscribe for any shares or debentures in any HSBC corporation during the period.

There have been no changes in the shares or debentures of the Directors from 30 June 2020 to the date of this report.

 
2  Employee share plans 
 

Share options and discretionary awards of shares are granted under HSBC share plans to help align the interests of employees with those of shareholders. The following are particulars of outstanding share options, including those held by employees working under employment contracts that are regarded as 'continuous contracts' for the purposes of the Hong Kong Employment Ordinance. The options were granted at nil consideration. No options have been granted to substantial shareholders, suppliers of goods or services, or in excess of the individual limit for each share plan. No options were cancelled by HSBC during the period to 30 June 2020.

A summary of the total number of options granted, exercised or lapsed during the period is shown in the following table. Particulars of options held by Directors of HSBC Holdings are set out on page 121. Further details required to be disclosed pursuant to Chapter 17 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited are available on our website at www.hsbc.com, and on the website of The Stock Exchange of Hong Kong Limited at www.hkex.com.hk. Copies may be obtained upon request from the Group Company Secretary and Chief Governance Officer, 8 Canada Square, London E14 5HQ.

All-employee share plans

The HSBC Holdings Savings-Related Share Option Plan is an all-employee share plan under which eligible employees have been granted options to acquire HSBC Holdings ordinary shares. The HSBC International Employee Share Purchase Plan was introduced in 2013 and now includes employees based in 27 jurisdictions, although no options are granted under this plan. During 2019, approximately 178,000 employees were offered participation in these plans.

For options granted under the HSBC Holdings Savings-Related Share Option Plan, employees may make contributions of up to GBP500 each month over a period of three or five years. The contributions may be used within six months following the third or fifth anniversary of the commencement of the relevant savings contract, at the employee's election, to exercise the options. Alternatively, the employee may elect to have the savings, plus (where applicable) any interest or bonus, repaid in cash. In the case of redundancy, ceasing employment on grounds of injury or disability, retirement, death, the transfer of the employing business to another party, or a change of control of the employing company, options may be exercised before completion of the relevant savings contract. In certain limited circumstances, the exercise period of options granted under the all-employee share option plans may be extended.

Under the HSBC Holdings Savings-Related Share Option Plan, the option exercise price is determined by reference to the average market value of the HSBC Holdings ordinary shares on the five business days immediately preceding the invitation date, then applying a discount of 20%. The HSBC Holdings Savings-Related Share Option Plan has an expiry date of 24 April 2030 (by which time the plan may be extended with approval from shareholders) unless the Directors resolve to terminate the plan at an earlier date.

 
 HSBC Holdings all-employee share option plan 
                                                                                     HSBC Holdings ordinary shares 
    Dates of          Exercise          Usually 
      award             price         exercisable 
                                                                                 Granted 
                                                                          1 Jan       in      Exercised         Lapsed          30 Jun 
   from       to     from       to   from        to   Footnotes            2020   period      in period      in period            2020 
-------                                    --------  ---------- 
Savings-Related Share Option Plan                         1 
          20 Sep    (GBP)    (GBP) 
 20 Sep                             1 Nov  30 April 
   2013     2019   4.0472   5.9640   2018      2025              65,060,681      -        1,256,031      8,154,549      55,650,101 
 
 

1 The weighted average closing price of the shares immediately before the dates on which options were exercised was GBP5.3412.

 
3  Other equity instruments 
 

Additional tier 1 capital - contingent convertible securities

Our intention is to continue to issue contingent convertible securities in accordance with our issuance plans. These securities are included in our capital base as fully CRR II-compliant additional tier 1 capital securities. These securities are marketed principally and subsequently allotted to institutional investors. The net proceeds of the issuances are typically used for our general corporate purposes and to further strengthen our capital base to meet requirements under CRR II. These securities typically bear a fixed rate of interest until their initial call dates. After the initial call dates, if they are not redeemed, the securities typically bear interest at a rate which is reset every five years based on credit spreads, fixed at issuance, above prevailing market benchmark/reference security rates. Interest on the contingent convertible securities will be due and payable only at our sole discretion, and we have sole and absolute discretion at all times to cancel for any reason (in whole or part) any interest payment that would otherwise be payable on any payment date. Interest payments will not be made if they are prohibited under UK banking regulations or if we have insufficient reserves or fail to meet the solvency conditions defined in the securities' terms.

The contingent convertible securities are undated and are repayable at our option in whole at the initial call date or typically on any fifth anniversary after this date. In addition, the securities are repayable at our option in whole for certain regulatory or tax reasons. Any repayments require the prior consent of the PRA. These securities rank pari passu with our dollar and sterling preference shares and therefore rank ahead of ordinary shares. The contingent convertible securities will be converted into fully paid ordinary shares at a predetermined price, should our consolidated CET1 ratio on a non-transitional basis (i.e. on a consolidated basis and without applying the transitional provisions set out in Part Ten under CRR II) fall below 7.0%. Therefore, in accordance with the terms of the securities, if the non-transitional CET1 ratio falls below the 7.0% trigger, the securities will convert into ordinary shares at the fixed contractual conversion price specified in the securities' terms, subject to anti-dilution adjustments. During the first half of 2020, HSBC did not issue any contingent convertible securities.

 
4  Notifiable interests in share capital 
 

At 30 June 2020, HSBC Holdings had received the following notification of major holdings of voting rights pursuant to the requirements of Rule 5 of the UK Disclosure Guidance and Transparency Rules:

-- BlackRock, Inc. gave notice on 3 March 2020 that on 2 March 2020 it had an indirect interest in HSBC Holdings of 1,235,558,490 ordinary shares, qualifying financial instruments with 7,294,459 voting rights that may be acquired if the instruments are exercised or converted, and financial instruments with similar economic effect to qualifying financial instruments that refer to 2,441,397 voting rights. These represented 6.07%, 0.03% and 0.01%, respectively, of the total voting rights at 2 March 2020.

At 30 June 2020, as recorded in the register maintained by HSBC Holdings pursuant to section 336 of the Securities and Futures Ordinance of Hong Kong:

-- BlackRock, Inc. gave notice on 12 May 2020 that on 7 May 2020 it had the following interests in HSBC Holdings ordinary shares: a long position of 1,480,094,020 shares and a short position of 38,033,956, representing 7.15% and 0.18%, respectively, of the ordinary shares in issue at 7 May 2020.

-- Ping An Asset Management Co., Ltd. gave notice on 2 November 2018 that on 1 November 2018 it had a long position of 1,418,925,452 in HSBC Holdings ordinary shares, representing 7.01% of the ordinary shares in issue at that date.

 
5  Dealings in HSBC Holdings listed securities 
 

HSBC has policies and procedures that, except where permitted by statute and regulation, prohibit it undertaking specified transactions in respect of its securities listed on The Stock Exchange of Hong Kong Limited ('HKEx'). Except for dealings as intermediaries or as trustees by subsidiaries of HSBC Holdings, neither HSBC Holdings nor any of its subsidiaries has purchased, sold or redeemed any of its securities listed on HKEx during the half-year ended 30 June 2020.

 
6  Dividend on preference shares 
 

A quarterly dividend of $15.50 per 6.20% non-cumulative US dollar preference share, Series A ('Series A dollar preference share') (equivalent to a dividend of $0.3875 per Series A American Depositary Share ('ADS'), each of which represents one-fortieth of a Series A dollar preference share), and GBP0.01 per Series A sterling preference share is payable on 15 March, 15 June, 15 September and 15 December 2020 for the quarter then ended at the sole and absolute discretion of the Board of HSBC Holdings plc. Accordingly, the Board of HSBC Holdings plc has approved a quarterly dividend to be payable on 15 September 2020 to holders of record on 31 August 2020.

The Series A dollar preference share quarterly dividend, announced on 28 April 2020 to be payable on 15 June 2020, was paid on 16 June 2020 due to an administrative error and may not have been received by a limited number of ADS holders who were on the record on 29 May 2020. ADS holders who have not received their expected dividend should contact HSBC Investor Relations at investorrelations@hsbc.com to discuss this further.

 
7  Earnings release 
 

An earnings release for the three-month period ending 30 September 2020 is expected to be issued on 27 October 2020.

 
8  Final results 
 

The results for the year to 31 December 2020 are expected to be announced on 23 February 2021.

 
9  Corporate governance 
 

We are subject to corporate governance requirements in both the UK and Hong Kong. Throughout the six months ended 30 June 2020, we complied with the applicable provisions of the UK Corporate Governance Code and also the requirements of the Hong Kong Corporate Governance Code, save to the extent referred to in the next paragraph. The UK Corporate Governance Code is available at www.frc.org.uk and the Hong Kong Corporate Governance Code is available at www.hkex.com.hk

Following the UK Government's introduction of social distancing measures and prohibition on non-essential travel and public gatherings, it was not possible for shareholders to attend this year's Annual General Meeting ('AGM') in person. The Board was fully informed of all relevant AGM and shareholder matters but only a limited number of Directors and essential personnel attended the AGM to ensure the meeting was quorate and to enable the business of the meeting to be conducted. Shareholders were advised to vote by submitting a proxy in advance of the AGM and that they should only appoint the Chairman of the AGM to act as their proxy. To ensure that shareholders did not lose the opportunity to raise questions, shareholders were encouraged to submit questions for the Board via email in advance of the AGM. Responses to the most frequent questions across key themes were published on the HSBC website after due consideration by the Board. None of the questions submitted covered a topic that required consideration by the auditor. Given these measures, not all of the persons set out in paragraphs A.6.7 and E.1.2 of the Hong Kong Corporate Governance Code were able to attend the AGM.

Under the Hong Kong Code, the Group Audit Committee should be responsible for the oversight of all risk management and internal control systems, unless expressly addressed by a separate risk committee. Our Group Risk Committee is responsible for oversight of internal control, other than internal financial controls, and risk management systems.

The Board has codified obligations for transactions in Group securities in accordance with the requirements of the Market Abuse Regulation and the rules governing the listing of securities on the HKEx, save that the HKEx has granted waivers from strict compliance with the rules that take into account accepted practices in the UK, particularly in respect of employee share plans.

Following specific enquiries and except as disclosed on page 121 of the Interim Report 2020, all Directors have confirmed that they have complied with their obligations in respect of transacting in Group securities throughout the period.

There have been no material changes to the information disclosed in the Annual Report and Accounts 2019 in respect of the remuneration of employees, remuneration policies, bonus and share option plans and training schemes. Details of the number of employees are provided on page 29.

 
10  Changes in Directors' details 
 

Changes in current Directors' details since the date of the Annual Report and Accounts 2019, which are required to be disclosed pursuant to Rule 13.51(2) and Rule 13.51B(1) of the Hong Kong Listing Rules, are set out below.

Kathleen Casey

Retired from the Board and Group Audit Committee, Group Risk Committee and Nomination & Corporate Governance Committee on

24 April 2020.

James Forese

Appointed to the Board and as a member of the Group Audit Committee, Group Remuneration Committee and Nomination & Corporate Governance Committee on 1 May 2020.

Steven Guggenheimer

Appointed to the Board and as a member of the Group Risk Committee and Nomination & Corporate Governance Committee on 1 May 2020.

Heidi Miller

Appointed Chair of the Audit Committee of Fiserv, Inc. on 15 May 2020.

Eileen Murray

Appointed to the Board and as a member of the Group Audit Committee, Group Risk Committee and Nomination & Corporate Governance Committee on 1 July 2020.

David Nish

Appointed as Senior Independent Director, Chair of the Group Audit Committee and as a member of the Group Risk Committee on

18 February 2020.

Sir Jonathan Symonds

Retired from the Board, Group Audit Committee, Group Risk Committee and Nomination & Corporate Governance Committee on

18 February 2020.

Pauline van der Meer Mohr

Appointed as a member of the Group Audit Committee on 19 February 2020.

 
11  Going concern basis 
 

As mentioned in Note 1 'Basis of preparation and significant accounting policies' on page 98, the financial statements are prepared on a going concern basis as the Directors are satisfied that the Group and parent company have the resources to continue in business for the foreseeable future. In making this assessment, the Directors considered a wide range of information relating to present and future conditions, including future projections of profitability, cash flows, capital requirements and capital resources. These considerations include stressed scenarios that reflect the increasing uncertainty that the global Covid-19 pandemic has had on HSBC's operations, as well as considering potential impacts from other top and emerging risks, and the related impact on profitability, capital and liquidity.

In particular, HSBC's principal activities, business and operating models, strategic direction and top and emerging risks are addressed in the Overview section. A financial summary, including a review of the consolidated income statement and consolidated balance sheet, is provided in the 'Interim management report' section. HSBC's objectives, policies and processes for managing credit, liquidity and market risk are described in the Risk section of the Annual Report and Accounts 2019. HSBC's approach to capital management and allocation is described in the Capital section of the Annual Report and Accounts 2019.

 
12  Telephone and online share dealing service 
 

For shareholders on the Principal Register who are resident in the UK, with a UK postal address, and who hold an HSBC Bank plc personal current account, the HSBC InvestDirect share dealing service is available for buying and selling HSBC Holdings plc ordinary shares. Details are available from: HSBC InvestDirect, Forum 1, Parkway, Whiteley PO15 7PA; or UK telephone: +44 (0) 3456 080848, or from an overseas telephone: +44 (0) 1226 261090; or website: www.hsbc.co.uk/investments/products-and-services/invest-direct.

 
13  Stock symbols 
 

HSBC Holdings plc ordinary shares trade under the following stock symbols:

 
London Stock Exchange           HSBA* 
Hong Kong Stock Exchange        5 
New York Stock Exchange (ADS)   HSBC 
Euronext Paris                  HSB 
Bermuda Stock Exchange          HSBC.BH 
*HSBC's primary market 
 
 
14  Copies of the Interim Report 2020 and shareholder enquiries and 
     communications 
 

Further copies of the Interim Report 2020 may be obtained from Global Communications, HSBC Holdings plc, 8 Canada Square, London E14 5HQ, United Kingdom; from Communications (Asia), The Hongkong and Shanghai Banking Corporation Limited, 1 Queen's Road Central, Hong Kong; or from US Communications, HSBC Bank USA, N.A., 1 West 39th Street, 9th Floor, New York, NY 10018, USA. The Interim Report 2020 may also be downloaded from the HSBC website, www.hsbc.com.

Shareholders may at any time choose to receive corporate communications in printed form or to receive notifications of their availability on HSBC's website. To receive notifications of the availability of a corporate communication on HSBC's website by email, or to revoke or amend an instruction to receive such notifications by email, go to www.hsbc.com/ecomms. If you provide an email address to receive electronic communications from HSBC, we will also send notifications of any future dividend entitlements by email. If you received a notification of the availability of this document on HSBC's website and would like to receive a printed copy or, if you would like to receive future corporate communications in printed form, please write or send an email (quoting your shareholder reference number) to the appropriate Registrar at the address given below. Printed copies will be provided without charge.

Any enquiries relating to your shareholdings on the share register (for example transfers of shares, change of name or address, lost share certificates or dividend cheques) should be sent to the Registrar at the address given below. The Registrars offer an online facility, Investor Centre, which enables shareholders to manage their shareholding electronically.

 
                                        Hong Kong Overseas Branch               Bermuda Overseas Branch 
Principal Register                       Register                                Register 
Computershare Investor                  Computershare Hong Kong                 Investor Relations Team 
 Services PLC                            Investor                                HSBC Bank Bermuda Limited 
 The Pavilions                           Services Limited                        37 Front Street 
 Bridgwater Road                         Rooms 1712-1716, 17th                   Hamilton HM 11 
 Bristol BS99 6ZZ                        Floor                                   Bermuda 
 United Kingdom                          Hopewell Centre 
                                         183 Queen's Road East 
                                         Hong Kong 
Telephone: +44 (0) 370                  Telephone: +852 2862 8555               Telephone: +1 441 299 
702 0137                                 Email: hsbc.ecom@computershare.com.hk  6737 
Email: via website                       Web: www.investorcentre.com/hk         Email: 
Web:                                                                            hbbm.shareholder.services@hsbc.bm 
www.investorcentre.co.uk/contactus                                              Web: www.investorcentre.com/bm 
 

Any enquiries relating to ADSs should be sent to the depositary at:

 
The Bank of New York Mellon  Telephone (US): +1 877 283 5786 
 Shareowner Services          Telephone (international): +1 201 680 6825 
 PO Box 505000                Email: shrrelations@cpushareownerservices.com 
 Louisville, KY 40233-5000    Web: www.mybnymdr.com 
 USA 
 

Any enquiries relating to shares held through Euroclear France, the settlement and central depositary system for NYSE Euronext Paris, should be sent to the paying agent:

 
CACEIS Corporate Trust      Telephone: +33 1 57 78 34 28 
 14, rue Rouget de Lisle     Email: ct-service-ost@caceis.com 
 92130 Issy-les-Moulineaux   Website: www.caceis.com 
 France 
 

A Chinese translation of this and future documents may be obtained on request from the Registrar. Please also contact the Registrar if you have received a Chinese translation of this document and do not wish to receive such translations in future.

Persons whose shares are held on their behalf by another person may have been nominated to receive communications from HSBC pursuant to section 146 of the UK Companies Act 2006 ('nominated person'). The main point of contact for a nominated person remains the registered shareholder (for example your stockbroker, investment manager, custodian or other person who manages the investment on your behalf). Any changes or queries relating to a nominated person's personal details and holding (including any administration thereof) must continue to be directed to the registered shareholder and not HSBC's Registrar. The only exception is where HSBC, in exercising one of its powers under the UK Companies Act 2006, writes to nominated persons directly for a response.

 
Cautionary statement regarding forward- 
 looking statements 
 

This Interim Report 2020 contains certain forward-looking statements with respect to HSBC's: financial condition; results of operations and business, including the strategic priorities; 2020 financial, investment and capital targets; and ESG targets/commitments described herein.

Statements that are not historical facts, including statements about HSBC's beliefs and expectations, are forward-looking statements. Words such as 'expects', 'targets', 'anticipates', 'intends', 'plans', 'believes', 'seeks', 'estimates', 'potential' and 'reasonably possible', variations of these words and similar expressions are intended to identify forward-looking statements. These statements are based on current plans, information, data, estimates and projections, and therefore undue reliance should not be placed on them. Forward-looking statements speak only as of the date they are made. HSBC makes no commitment to revise or update any forward-looking statements to reflect events or circumstances occurring or existing after the date of any forward-looking statements.

Written and/or oral forward-looking statements may also be made in the periodic reports to the US Securities and Exchange Commission, summary financial statements to shareholders, proxy statements, offering circulars and prospectuses, press releases and other written materials, and in oral statements made by HSBC's Directors, officers or employees to third parties, including financial analysts.

Forward-looking statements involve inherent risks and uncertainties. Readers are cautioned that a number of factors could cause actual results to differ, in some instances materially, from those anticipated or implied in any forward-looking statement. These include, but are not limited to:

-- changes in general economic conditions in the markets in which we operate, such as continuing or deepening recessions and fluctuations in employment and creditworthy customers beyond those factored into consensus forecasts (including, without limitation, as a result of the Covid-19 outbreak); the Covid-19 outbreak, which will have adverse impacts on our income due to lower lending and transaction volumes, lower wealth and insurance manufacturing revenue, and lower or negative interest rates in markets where we operate, as well as, more generally, the potential for material adverse impacts on our financial condition, results of operations, prospects, liquidity, capital position and credit ratings; deviations from the market and economic assumptions that form the basis for our ECL measurements (including, without limitation, as a result of the Covid-19 outbreak); potential changes in future dividend policy; changes in foreign exchange rates and interest rates, including the accounting impact resulting from financial reporting in respect of hyperinflationary economies; volatility in equity markets; lack of liquidity in wholesale funding or capital markets, which may affect our ability to meet our obligations under financing facilities or to fund new loans, investments and businesses; geopolitical tensions or diplomatic developments producing social instability or legal uncertainty, such as the unrest in Hong Kong, the existing US-China tensions and the emerging challenges in UK-China relations, which in turn may affect demand for our products and services and could result in (among other things) regulatory, reputational and market risks for HSBC; climate change, which may cause both idiosyncratic and systemic risks resulting in potential financial impacts; illiquidity and downward price pressure in national real estate markets; adverse changes in central banks' policies with respect to the provision of liquidity support to financial markets; heightened market concerns over sovereign creditworthiness in over-indebted countries; adverse changes in the funding status of public or private defined benefit pensions; consumer perception as to the continuing availability of credit; exposure to counterparty risk, including third parties using us as a conduit for illegal activities without our knowledge; the expected discontinuation of certain key Ibors and the development of alternative risk-free benchmark rates, which may require us to enhance our capital position and/or position additional capital in specific subsidiaries; and price competition in the market segments we serve;

-- changes in government policy and regulation, including the monetary, interest rate and other policies of central banks and other regulatory authorities in the principal markets in which we operate and the consequences thereof (including, without limitation, actions taken as a result of the Covid-19 outbreak); initiatives to change the size, scope of activities and interconnectedness of financial institutions in connection with the implementation of stricter regulation of financial institutions in key markets worldwide; revised capital and liquidity benchmarks, which could serve to deleverage bank balance sheets and lower returns available from the current business model and portfolio mix; imposition of levies or taxes designed to change business mix and risk appetite; the practices, pricing or responsibilities of financial institutions serving their consumer markets; expropriation, nationalisation, confiscation of assets and changes in legislation relating to foreign ownership; the UK's exit from the EU, which may result in a prolonged period of uncertainty, unstable economic conditions and market volatility, including currency fluctuations; passage of the Hong Kong national security law and restrictions on telecommunications, as well as the US Hong Kong Autonomy Act, which have caused tensions between China, the US and the UK; general changes in government policy that may significantly influence investor decisions; the costs, effects and outcomes of regulatory reviews, actions or litigation, including any additional compliance requirements; and the effects of competition in the markets where we operate including increased competition from non-bank financial services companies; and

-- factors specific to HSBC, including our success in adequately identifying the risks we face, such as the incidence of loan losses or delinquency, and managing those risks (through account management, hedging and other techniques); our ability to achieve our targets, which may result in our failure to achieve any of the expected benefits of our strategic initiatives; model limitations or failure, including, without limitation, the impact that the consequences of the Covid-19 outbreak have had on the performance and usage of financial models, which may require us to hold additional capital, incur losses and/or use compensating controls, such as overlays and overrides, to address model limitations; changes to the judgements, estimates and assumptions we base our financial statements on; changes in our ability to meet the requirements of regulatory stress tests; a reduction in the credit rating assigned to us or any of our subsidiaries, which could increase the cost or decrease the availability of our funding and affect our liquidity position and net interest margin; changes to the reliability and security of our data management, data privacy, information and technology infrastructure, including threats from cyber-attacks, which may impact our ability to service clients and may result in financial loss, business disruption and/ or loss of customer services and data; changes in insurance customer behaviour and insurance claim rates; our dependence on loan payments and dividends from subsidiaries to meet our obligations; changes in accounting standards, which may have a material impact on the way we prepare our financial statements; changes in our ability to manage third-party, fraud and reputational risks inherent in our operations; employee misconduct, which may result in regulatory sanctions and/or reputational or financial harm; and changes in skill requirements, ways of working and talent shortages, which may affect our ability to recruit and retain senior management and diverse and skilled personnel. Effective risk management depends on, among other things, our ability through stress testing and other techniques to prepare for events that cannot be captured by the statistical models it uses; and our success in addressing operational, legal and regulatory, and litigation challenges; and other risks and uncertainties we identify in 'Top and emerging risks' on pages 76 to 81 of the Annual Report and Accounts 2019.

 
 Certain defined terms 
 

Unless the context requires otherwise, 'HSBC Holdings' means HSBC Holdings plc and 'HSBC', the 'Group', 'we', 'us' and 'our' refer to HSBC Holdings together with its subsidiaries. Within this document the Hong Kong Special Administrative Region of the People's Republic of China is referred to as 'Hong Kong'. When used in the terms 'shareholders' equity' and 'total shareholders' equity', 'shareholders' means holders of HSBC Holdings ordinary shares and those preference shares and capital securities issued by HSBC Holdings classified as equity. The abbreviations '$m', '$bn' and '$tn' represent millions, billions (thousands of millions) and trillions of US dollars, respectively.

 
Abbreviations 
 
 
Currencies 
GBP            British pound sterling 
CA$            Canadian dollar 
EUR            Euro 
HK$            Hong Kong dollar 
RMB            Chinese renminbi 
SGD            Singapore dollar 
$              United States dollar 
Abbreviation 
1H19           First half of 2019 
1H20           First half of 2020 
1Q19           First quarter of 2019 
1Q20           First quarter of 2020 
2H19           Second half of 2019 
2Q19           Second quarter of 2019 
2Q20           Second quarter of 2020 
4Q19           Fourth quarter of 2019 
A 
ABS            Asset-backed security 
ADS            American Depositary Share 
               Average interest-earning 
AIEA            assets 
AML            Anti-money laundering 
               Annualised new business 
ANP             premiums 
               Association of Southeast 
ASEAN           Asian Nations 
B 
Basel          Basel Committee on Banking 
                Supervision 
Basel III      Basel Committee's reforms 
                to strengthen global capital 
                and liquidity rules 
BoCom          Bank of Communications Co., 
                Limited, one of China's 
                largest banks 
BoE            Bank of England 
Bps            Basis points. One basis 
                point is equal to one hundredth 
                of a percentage point 
BSM            Balance Sheet Management 
C 
C&L            Credit and Lending 
CAPM           Capital asset pricing model 
CDO            Collateralised debt obligation 
CEA            Commodity Exchange Act (US) 
CET1           Common equity tier 1 
CGU            Cash generating unit 
CLO            Collateralised loan obligation 
CMB            Commercial Banking, a global 
                business 
CMC            Capital maintenance charge 
CODM           Chief Operating Decision 
                Maker 
CRR            Customer risk rating 
CRR II         Revised Capital Requirements 
                Regulation and Directive, 
                as implemented 
CRD IV         Capital Requirements Regulation 
                and Directive 
CVA            Credit valuation adjustment 
D 
DoJ            Department of Justice (US) 
DPA            Deferred prosecution agreement 
                (US) 
DPD            Days past due 
DPF            Discretionary participation 
                feature of insurance and 
                investment contracts 
E 
EBA            European Banking Authority 
EC             European Commission 
ECL            Expected credit losses. 
                In the income statement, 
                ECL is recorded as a change 
                in expected credit losses 
                and other credit impairment 
                charges. In the balance 
                sheet, ECL is recorded as 
                an allowance for financial 
                instruments to which only 
                the impairment requirements 
                in IFRS 9 are applied. 
Eonia          Euro Overnight Index Average 
ESG            Environmental, social and 
                governance 
EURSTER        Euro short-term rate 
EU             European Union 
Euribor        Euro interbank offered rate 
F 
FCA            Financial Conduct Authority 
                (UK) 
FICC           Fixed Income, Currencies 
                and Commodities 
FRB            Federal Reserve Board (US) 
FTE            Full-time equivalent staff 
FVOCI          Fair value through other 
                comprehensive income 
FX             Foreign exchange 
FX DPA         Three-year deferred prosecution 
                agreement with the US Department 
                of Justice, entered into 
                in January 2018 
G 
GAAP           Generally accepted accounting 
                principles 
GBM            Global Banking and Markets, 
                a global business 
GDP            Gross domestic product 
GEC            Group Executive Committee 
GLCM           Global Liquidity and Cash 
                Management 
Global         HSBC's capital markets services 
 Markets        in Global Banking and Markets 
GPB            Global Private Banking, 
                a former global business 
                now part of Wealth and Personal 
                Banking 
Group          HSBC Holdings together with 
                its subsidiary undertakings 
GTRF           Global Trade and Receivables 
                Finance 
H 
HKEx           The Stock Exchange of Hong 
                Kong Limited 
HNAH           HSBC North America Holdings 
                Inc. 
Hong Kong      Hong Kong Special Administrative 
                Region of the People's Republic 
                of China 
HSBC           HSBC Holdings together with 
                its subsidiary undertakings 
HSBC Bank      HSBC Bank plc, also known 
                as the non-ring-fenced bank 
HSBC Bank      HSBC Bank Middle East Limited 
 Middle 
 East 
HSBC Bank      HSBC Bank USA, N.A., HSBC's 
 USA            retail bank in the US 
HSBC Canada    The sub-group, HSBC Bank 
                Canada, HSBC Trust Company 
                Canada, HSBC Mortgage Corporation 
                Canada and HSBC Securities 
                Canada, consolidated for 
                liquidity purposes 
HSBC Finance   HSBC Finance Corporation, 
                the US consumer finance 
                company (formerly Household 
                International, Inc.) 
HSBC France    HSBC's French banking subsidiary, 
                formerly CCF S.A. 
HSBC Holdings  HSBC Holdings plc, the parent 
                company of HSBC 
HSBC Private   HSBC Private Bank (Suisse) 
 Bank Suisse    SA, HSBC's private bank 
                in Switzerland 
HSBC UK        HSBC UK Bank plc, also known 
                as the ring-fenced bank 
HSBC USA       The sub-group, HSBC USA 
                Inc and HSBC Bank USA, consolidated 
                for liquidity purposes 
HSI            HSBC Securities (USA) Inc. 
HSSL           HSBC Securities Services 
                (Luxembourg) 
HTIE           HSBC Institutional Trust 
                Services (Ireland) Limited 
I 
IAS            International Accounting 
                Standards 
IASB           International Accounting 
                Standards Board 
Ibor           Interbank offered rate 
ICAAP          Internal capital adequacy 
                assessment process 
IFRSs          International Financial 
                Reporting Standards 
IRB            Internal ratings-based 
L 
LCR            Liquidity coverage ratio 
LGD            Loss given default 
Libor          London interbank offered 
                rate 
LTV            Loan to value 
M 
Madoff         Bernard L Madoff Investment 
 Securities     Securities LLC 
Mainland       People's Republic of China 
 China          excluding Hong Kong 
                and Macau 
MENA           Middle East and North Africa 
MREL           EU minimum requirements 
                for own funds and eligible 
                liabilities 
 
 
N 
NII            Net interest income 
NIM            Net interest margin 
NSFR           Net stable funding ratio 
O 
OCI            Other comprehensive income 
OFAC           Office of Foreign Assets 
                Control 
ORMF           Operational risk management 
                framework 
P 
PBT            Profit before tax 
PD             Probability of default 
POCI           Purchased or originated 
                credit impaired 
PPI            Payment protection insurance 
PRA            Prudential Regulation Authority 
                (UK) 
Premier        HSBC Premier, HSBC's premium 
                personal global banking 
                service 
PVIF           Present value of in-force 
                long-term insurance business 
PwC            PricewaterhouseCoopers LLP 
                and its network of firms 
R 
RBWM           Retail Banking and Wealth 
                Management, a former global 
                business now part of Wealth 
                and Personal Banking 
RFR            Risk-free rate 
RNIV           Risk not in VaR 
RoE            Return on equity 
RoTE           Return on average tangible 
                equity 
RWA            Risk-weighted asset 
S 
SABB           The Saudi British Bank 
SEC            Securities and Exchange 
                Commission (US) 
ServCo         Separately incorporated 
 group          group of service companies 
                planned in response to UK 
                ringfencing proposals 
Sibor          Singapore interbank offered 
                rate 
T 
The Hongkong   The Hongkong and Shanghai 
 and Shanghai   Banking Corporation Limited, 
 Banking        the founding member of HSBC 
 Corporation 
U 
UAE            United Arab Emirates 
UK             United Kingdom 
US             United States of America 
V 
VaR            Value at risk 
VIU            Value in use 
W 
WPB            Wealth and Personal Banking, 
                a global business 
 

This document comprises the Interim Report 2020 and information herein has been filed on Form 6-K with the US Securities and Exchange Commission for HSBC Holdings plc and its subsidiary and associated undertakings.

HSBC Holdings plc

Incorporated in England with limited liability. Registered in England: number 617987

Registered Office and Group Head Office

8 Canada Square, London E14 5HQ, United Kingdom

Web: www.hsbc.com

(c) Copyright HSBC Holdings plc 2020

All rights reserved

No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of HSBC Holdings plc.

Published by Global Finance, HSBC Holdings plc, London

Designed by Superunion, London (cover and 'Overview' section) and by Global Finance, HSBC Holdings plc, London (rest of the Interim Report 2020

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