TIDMHSBA
RNS Number : 2814D
HSBC Holdings PLC
18 February 2020
HSBC Holdings plc
Pillar 3 Disclosures at 31 December 2019
Contents
Page
Introduction 3
Highlights 3
Key metrics 4
Pillar 3 disclosures 5
Regulatory developments 5
Risk management 7
Capital and RWAs 13
Capital management 13
Own funds 13
Leverage 15
Pillar 1 minimum capital requirements
and RWA flow 17
Minimum requirement for own funds
and eligible liabilities 20
Pillar 2 and ICAAP 29
Credit risk 30
Counterparty credit risk 62
Securitisation 66
Market risk 72
Non-financial risk 80
Liquidity 82
Other risks 86
Appendices
Appendix I - Additional tables 87
Appendix II - Countercyclical
capital buffer 104
Appendix III - Asset encumbrance 105
Appendix IV - Summary of disclosures
withheld 106
Other Information
Abbreviations 107
Cautionary statement regarding
forward-looking statements 109
--------------------------------------- ----
Contacts 109
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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 '$m' and
'$bn' represent millions and billions (thousands of millions) of US
dollars respectively.
Tables
Ref Page
1 Key metrics (KM1/IFRS9-FL) a 4
------ -------------------------------------- ---- ----
Reconciliation of balance
sheets - financial accounting
2 to regulatory scope of consolidation 9
---- ----
Principal entities with
a different regulatory and
accounting scope of consolidation
3 (LI3) 10
---- ----
Differences between accounting
and regulatory scopes of
consolidation and mapping
of financial statement categories
with regulatory risk categories
4 (LI1) 11
---- ----
Main sources of differences
between regulatory exposure
amounts and carrying values
in financial statements
5 (LI2) a 12
---- ----
6 Own funds disclosure b 13
---- ----
Leverage ratio common disclosure
7 (LRCom) b 15
---- ----
Summary reconciliation of
accounting assets and leverage
8 ratio exposures (LRSum) a 16
---- ----
Leverage ratio - Split of
on-balance sheet exposures
(excluding derivatives,
SFTs and exempted exposures)
9 (LRSpl) b 16
---- ----
10 Overview of RWAs (OV1) b 18
---- ----
RWA flow statements of credit
risk exposures under the
11 IRB approach (CR8) 18
------ -------------------------------------- ---- ----
RWA flow statements of CCR
12 exposures under IMM (CCR7) 19
------ -------------------------------------- ---- ----
RWA flow statements of market
risk exposures under IMA
13 (MR2-B) 19
------ -------------------------------------- ---- ----
Key metrics of the resolution
14 groups (KM2) 20
------ -------------------------------------- ---- ----
15 TLAC composition (TLAC1) 21
------ -------------------------------------- ---- ----
HSBC Holdings plc creditor
16 ranking (TLAC3) 22
------ -------------------------------------- ---- ----
HSBC UK Bank plc creditor
17 ranking (TLAC2) 22
------ -------------------------------------- ---- ----
HSBC Bank plc creditor ranking
18 (TLAC2) 23
------ -------------------------------------- ---- ----
HSBC Asia Holdings Ltd creditor
19 ranking (TLAC3) 23
------ -------------------------------------- ---- ----
The Hongkong and Shanghai
Banking Corporation Ltd
20 creditor ranking (TLAC2) 23
------ -------------------------------------- ---- ----
Hang Seng Bank Ltd creditor
21 ranking (TLAC2) 24
------ -------------------------------------- ---- ----
HSBC North America Holdings
22 Inc. creditor ranking (TLAC3) 24
------ -------------------------------------- ---- ----
Credit risk exposure - summary
23 (CRB-B) a 27
------ -------------------------------------- ---- ----
Credit quality of exposures
by exposure classes and
24 instruments (CR1-A) 28
------ -------------------------------------- ---- ----
Credit quality of exposures
by industry or counterparty
25 types (CR1-B) 30
------ -------------------------------------- ---- ----
Credit quality of exposures
26 by geography (CR1-C) 31
------ -------------------------------------- ---- ----
Changes in stock of general
and specific credit risk
27 adjustments (CR2-A) 31
------ -------------------------------------- ---- ----
Changes in stock of defaulted
loans and debt securities
28 (CR2-B) 32
------ -------------------------------------- ---- ----
Credit quality of forborne
29 exposures 32
------ -------------------------------------- ---- ----
Credit quality of performing
and non-performing exposures
30 by past due days 33
------ -------------------------------------- ---- ----
Collateral obtained by taking
possession and execution
31 processes 33
------ -------------------------------------- ---- ----
Performing and non-performing
32 exposures and related provisions 34
------ -------------------------------------- ---- ----
Amount of past due unimpaired
and credit-impaired exposures
33 by geographical region 34
------ -------------------------------------- ---- ----
Geographical breakdown of
34 exposures (CRB-C) 35
------ -------------------------------------- ---- ----
Concentration of exposures
by industry or counterparty
35 types (CRB-D) 37
------ -------------------------------------- ---- ----
Maturity of on-balance sheet
36 exposures (CRB-E) 39
------ -------------------------------------- ---- ----
Credit risk mitigation techniques
37 - overview (CR3) 41
------ -------------------------------------- ---- ----
Standardised approach -
credit conversion factor
('CCF') and credit risk
mitigation ('CRM') effects
38 (CR4) b 41
------ -------------------------------------- ---- ----
Credit risk mitigation techniques
39 - IRB and Standardised 42
------ -------------------------------------- ---- ----
IRB - Effect on RWA of credit
derivatives used as CRM
40 techniques (CR7) 42
------ -------------------------------------- ---- ----
Standardised approach -
exposures by asset class
41 and risk weight (CR5) b 43
------ -------------------------------------- ---- ----
Wholesale IRB credit risk
42 models 46
------ -------------------------------------- ---- ----
IRB models - estimated and
43 actual values (wholesale) 47
------ -------------------------------------- ---- ----
44 Retail IRB risk rating systems 48
------ -------------------------------------- ---- ----
IRB models - estimated and
45 actual values (retail) 50
------ -------------------------------------- ---- ----
Wholesale IRB exposure -
back-testing of probability
of default (PD) per portfolio
46 (CR9) 51
------ -------------------------------------- ---- ----
Retail IRB exposure - back-testing
of probability of default
47 (PD) per portfolio (CR9) 53
------ -------------------------------------- ---- ----
Analysis of counterparty
credit risk exposure by
approach (excluding centrally
48 cleared exposures) (CCR1) 55
------ -------------------------------------- ---- ----
Credit valuation adjustment
49 (CVA) capital charge (CCR2) 56
------ -------------------------------------- ---- ----
Standardised approach -
CCR exposures by regulatory
portfolio and risk weights
50 (CCR3) 56
------ -------------------------------------- ---- ----
Impact of netting and collateral
held on exposure values
51 (CCR5-A) 56
------ -------------------------------------- ---- ----
Composition of collateral
52 for CCR exposure (CCR5-B) 56
------ -------------------------------------- ---- ----
Credit derivatives exposures
53 (CCR6) 57
------ -------------------------------------- ---- ----
Exposures to central counterparties
54 (CCR8) 57
------ -------------------------------------- ---- ----
Securitisation exposure
55 - movement in the year 59
------ -------------------------------------- ---- ----
Securitisation - asset values
56 and impairments 60
------ -------------------------------------- ---- ----
Securitisation exposures
in the non-trading book
57 (SEC1) 60
------ -------------------------------------- ---- ----
Securitisation exposures
58 in the trading book (SEC2) 61
------ -------------------------------------- ---- ----
Securitisation exposures
in the non-trading book
and associated capital requirements
- bank acting as originator
or sponsor (under the pre-existing
59.i framework) (SEC3) 61
------ -------------------------------------- ---- ----
Securitisation exposures
in the non-trading book
and associated capital requirements
- bank acting as originator
or sponsor (under the new
59.ii framework) (SEC3) 62
------ -------------------------------------- ---- ----
Securitisation exposures
in the non-trading book
and associated capital requirements
- bank acting as investor
(under the pre-existing
60.i framework) (SEC4) 63
------ -------------------------------------- ---- ----
Securitisation exposures
in the non-trading book
and associated capital requirements
- bank acting as investor
(under the new framework)
60.ii (SEC4) 63
------ -------------------------------------- ---- ----
Market risk under standardised
61 approach (MR1) 64
------ -------------------------------------- ---- ----
62 Market risk under IMA (MR2-A) 64
------ -------------------------------------- ---- ----
IMA values for trading portfolios
63 (MR3) 67
------ -------------------------------------- ---- ----
Prudential valuation adjustments
64 (PV1) 69
------ -------------------------------------- ---- ----
65 Operational risk RWAs 70
------ -------------------------------------- ---- ----
Level and components of
HSBC Group consolidated
liquidity coverage ratio
66 (LIQ1) 72
------ -------------------------------------- ---- ----
Analysis of on-balance sheet
encumbered and unencumbered
67 assets 73
------ -------------------------------------- ---- ----
Non-trading book equity
68 investments 75
------ -------------------------------------- ---- ----
Wholesale IRB exposure -
69 by obligor grade 76
------ -------------------------------------- ---- ----
PD, LGD, RWA and exposure
70 by country/territory 77
------ -------------------------------------- ---- ----
Retail IRB exposure - by
71 internal PD band 80
------ -------------------------------------- ---- ----
IRB expected loss and CRAs
72 - by exposure class b 81
------ -------------------------------------- ---- ----
Credit risk RWAs - by geographical
73 region b 82
------ -------------------------------------- ---- ----
Standardised exposure -
74 by credit quality step a 83
------ -------------------------------------- ---- ----
Specialised lending on slotting
75 approach (CR10) 83
------ -------------------------------------- ---- ----
IRB - Credit risk exposures
by portfolio and PD range
76 (CR6) a 84
------ -------------------------------------- ---- ----
Counterparty credit risk
- RWAs by exposure class,
product and geographical
77 region 90
------ -------------------------------------- ---- ----
IRB - CCR exposures by portfolio
78 and PD scale (CCR4) 91
------ -------------------------------------- ---- ----
Geographical distribution
of credit exposures relevant
for the calculation of the
countercyclical capital
79 buffer 93
------ -------------------------------------- ---- ----
Countercyclical capital
80 buffer 93
------ -------------------------------------- ---- ----
81 A - Assets 94
------ -------------------------------------- ---- ----
81 B - Collateral received 94
------ -------------------------------------- ---- ----
C - Encumbered assets/collateral
received and associated
81 liabilities 94
------ -------------------------------------- ---- ----
The Group has adopted the EU's regulatory transitional
arrangements for International Financial Reporting Standard
('IFRS') 9 Financial instruments. A number of tables in this
document report under this arrangement as follows:
a. Some figures (indicated with ^) within the table have been
prepared on an IFRS 9 transitional basis.
b. All figures within the table have been prepared on an IFRS 9
transitional basis.
All other tables report numbers on the basis of full adoption of
IFRS 9.
Introduction
Highlights
Common equity tier 1 ('CET1') ratio further strengthened over
4Q19 to 14.7% driven by RWA reduction of $22bn
http://www.rns-pdf.londonstockexchange.com/rns/2814D_1-2020-2-17.pdf
For footnotes, see page 4.
Key metrics
Table 1: Key metrics (KM1/IFRS9-FL)
At
31 Dec 30 Sep 30 Jun 31 Mar 31 Dec
Ref* Footnotes 2019 2019 2019 2019 2018
----- ----------------------------------------- ---------- --------- --------- --------- --------- ---------
Available capital ($bn) 1
1 Common equity tier 1 ('CET1') capital ^ 124.0 123.8 126.9 125.8 121.0
CET1 capital as if IFRS 9 transitional
2 arrangements had not been applied 123.1 122.9 126.0 124.9 120.0
-------
3 Tier 1 capital ^ 148.4 149.7 152.8 151.8 147.1
4 Tier 1 capital as if IFRS 9 transitional 147.5 148.8 151.9 150.9 146.1
arrangements had not been applied
5 Total regulatory capital ^ 172.2 175.1 178.3 177.8 173.2
----- ----------------------------------------- ---------- ------- ------- ------- ------- -------
Total capital as if IFRS 9 transitional
6 arrangements had not been applied 171.3 174.2 177.4 176.9 172.2
----- ----------------------------------------- ---------- ------- ------- ------- ------- -------
Risk-weighted assets ('RWAs') ($bn)
7 Total RWAs 843.4 865.2 886.0 879.5 865.3
----- ----------------------------------------- ---------- ------- ------- ------- ------- -------
Total RWAs as if IFRS 9 transitional
8 arrangements had not been applied 842.9 864.7 885.5 878.9 864.7
----- ----------------------------------------- ---------- ------- ------- ------- ------- -------
Capital ratios (%) 1
9 CET1 ^ 14.7 14.3 14.3 14.3 14.0
CET1 as if IFRS 9 transitional
10 arrangements had not been applied 14.6 14.2 14.2 14.2 13.9
11 Tier 1 ^ 17.6 17.3 17.2 17.3 17.0
Tier 1 as if IFRS 9 transitional
12 arrangements had not been applied 17.5 17.2 17.2 17.2 16.9
----- ----------------------------------------- ---------- ------- ------- ------- ------- -------
13 Total capital ^ 20.4 20.2 20.1 20.2 20.0
----- ----------------------------------------- ---------- ------- ------- ------- ------- -------
Total capital as if IFRS 9 transitional
14 arrangements had not been applied 20.3 20.1 20.0 20.1 19.9
----- ----------------------------------------- ---------- ------- ------- ------- ------- -------
Additional CET1 buffer requirements
as a percentage of RWA (%)
Capital conservation buffer requirement 2.50 2.50 2.50 2.50 1.88
Countercyclical buffer requirement 0.61 0.69 0.68 0.67 0.56
Bank G-SIB and/or D-SIB additional
requirements 2.00 2.00 2.00 2.00 1.50
Total of bank CET1 specific buffer
requirements 5.11 5.19 5.18 5.17 3.94
----- ----------------------------------------- ---------- ------- ------- ------- ------- -------
Total capital requirement (%) 2
----- ----------------------------------------- ---------- --------- --------- --------- --------- ---------
Total capital requirement 11.0 11.0 11.0 11.0 10.9
CET1 available after meeting the
bank's minimum capital requirements 8.5 8.1 8.1 8.1 7.9
----- ----------------------------------------- ---------- ------- ------- ------- ------- -------
Leverage ratio 3
----- ----------------------------------------- ---------- --------- --------- --------- --------- ---------
Total leverage ratio exposure measure
15 ($bn) 2,726.5 2,708.2 2,786.5 2,735.2 2,614.9
16 Leverage ratio (%) ^ 5.3 5.4 5.4 5.4 5.5
----- ----------------------------------------- ---------- ------- ------- ------- ------- -------
17 Leverage ratio as if IFRS 9 transitional 5.3 5.4 5.3 5.4 5.5
arrangements had not been applied
(%)
----- ----------------------------------------- ---------- ------- ------- ------- ------- -------
Liquidity Coverage Ratio ('LCR') 4
Total high-quality liquid assets
($bn) 601.4 513.2 532.8 535.4 567.2
-------
Total net cash outflow ($bn) 400.5 378.0 391.0 374.8 368.7
-------
LCR ratio (%) 150.2 135.8 136.3 142.9 153.8
----- ----------------------------------------- ---------- ------- ------- ------- ------- -------
* The references in this and subsequent tables identify the
lines prescribed in the EBA template where applicable and where
there is a value.
^ Figures have been prepared on an IFRS 9 transitional basis.
1 Effective 30 June 2019, the capital figures and ratios are
reported in accordance with the revised Capital Requirements
Regulation and Directive, as implemented ('CRR II'). Prior period
capital figures and ratios are reported on a Capital Requirements
Regulation and Directive ('CRD IV') transitional basis.
2 Total capital requirement is defined as the sum of Pillar 1
and Pillar 2A capital requirements set by the Prudential Regulation
Authority ('PRA'). Our Pillar 2A requirement at 31 December 2019,
as per the PRA's Individual Capital Requirement based on a point in
time assessment, was 3.0% of RWAs, of which 1.7% was met by CET1.
The minimum requirements represent the total capital requirement to
be met by CET1.
3 Effective 30 June 2019, the leverage ratio is calculated using
the CRR II end point basis for capital. Prior period leverage
ratios are calculated on the CRD IV end point basis for
capital.
4 The EU's regulatory transitional arrangements for IFRS 9
'Financial instruments' in article 473a of the Capital Requirements
Regulation do not apply to liquidity coverage measures. LCR is
calculated as at the end of each period rather than using average
values.
We have adopted the regulatory transitional arrangements,
including paragraph four within article 473a of the Capital
Requirements Regulation, published by the EU on 27 December 2017
for IFRS 9 'Financial Instruments'. These permit 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 proportion that banks may add back starts at 95% in 2018, and
reduces to 25% by 2022. The impact of IFRS 9 on loan loss
allowances is defined as:
-- the increase in loan loss allowances on day one of IFRS 9 adoption; and
-- any subsequent increase in expected credit losses ('ECL') in
the non-credit-impaired book thereafter.
The impact is calculated separately for portfolios using the
standardised ('STD') and internal ratings based ('IRB') approaches
and, for IRB portfolios, there is no add-back to capital unless
loan loss allowances exceed regulatory 12-month expected
losses.
Any add-back must be tax affected and accompanied by a
recalculation of capital deduction thresholds, exposure and
RWAs.
In the current period, the add-back to the capital base amounted
to $1.0bn under the STD approach with a tax impact of $0.2bn and a
capital deduction threshold impact of $0.1bn. This resulted in a
net add-back of $0.9bn.
Pillar 3 disclosures
Regulatory framework for disclosure
We are supervised on a consolidated basis in the United Kingdom
('UK') by the Prudential Regulation Authority ('PRA'), which
receives information on the capital adequacy of, and sets capital
requirements for, the Group as a whole. Individual banking
subsidiaries are directly regulated by their local banking
supervisors, who set and monitor their local capital adequacy
requirements. In most jurisdictions, non-banking financial
subsidiaries are also subject to the supervision and capital
requirements of local regulatory authorities.
At the consolidated Group level, capital is calculated for
prudential regulatory reporting purposes using the Basel III
framework of the Basel Committee ('Basel') as implemented by the
European Union ('EU') in CRR II, and in the PRA Rulebook for the UK
banking industry. The regulators of Group banking entities outside
the EU are at varying stages of implementation of Basel's
framework, so local regulation in 2019 may have been on the basis
of Basel I, II or III.
The Basel framework is structured around three 'pillars': the
Pillar 1 minimum capital requirements and Pillar 2 supervisory
review process are complemented by Pillar 3 market discipline. The
aim of Pillar 3 is to produce disclosures that allow market
participants to assess the scope of application by banks of the
Basel framework and the rules in their jurisdiction, their capital
condition, risk exposures and risk management processes, and hence
their capital adequacy.
Our Pillar 3 Disclosures at 31 December 2019 comprises both
quantitative and qualitative information required under Pillar 3.
They are made in accordance with Part Eight of CRR II and the
European Banking Authority's ('EBA') guidelines on disclosure
requirements. These disclosures are supplemented by specific
additional requirements of the PRA and discretionary disclosures on
our part.
The Pillar 3 disclosures are governed by the Group's disclosure
policy framework as approved by the Group Audit Committee ('GAC').
Information relating to the rationale for withholding certain
disclosures is provided in Appendix IV.
Comparatives
To give insight into movements during the year, we provide
comparative figures for the previous year or period, analytical
review of variances and 'flow' tables for capital requirements. In
all tables where the term 'capital requirements' is used, this
represents the minimum total capital charge set at 8% of RWAs by
article 92 of the Capital Requirements Regulation. Table name
references and row numbering in tables identify those prescribed in
the relevant EBA guidelines where applicable and where there is a
value.
Where disclosures have been enhanced, or are new, we do not
generally restate or provide prior year comparatives. Wherever
specific rows and columns in the tables prescribed by the EBA or
Basel are not applicable or immaterial to our activities, we omit
them and follow the same approach for comparative disclosures.
Frequency and location
We publish comprehensive Pillar 3 disclosures annually and at
interim on our website www.hsbc.com, concurrently with the release
of our Annual Report and Accounts and Interim Report. Quarterly
earnings releases also include regulatory information in line with
the guidelines on the frequency of regulatory disclosures. Pillar 3
requirements may be met by inclusion in other disclosure media.
Where we adopt this approach, references are provided to the
relevant pages of the Annual Report and Accounts 2019 or other
locations. We continue to engage in the work of the UK authorities
and industry associations to improve the transparency and
comparability of UK banks' Pillar 3 disclosures.
Material risks
Pillar 3 requires all material risks to be disclosed to provide
a comprehensive view of a bank's risk profile. In addition to the
disclosure in this document, other information on material risks
can be found on page 83 of the Annual Report and Accounts 2019.
This includes:
-- Credit risk (refer to page 84 of the Annual Report and Accounts 2019)
-- Capital and liquidity risk (refer to page 130 of the Annual Report and Accounts 2019)
-- Market risk (refer to page 135 of the Annual Report and Accounts 2019)
-- Resilience risk (refer to page 143 of the Annual Report and Accounts 2019)
-- Regulatory compliance risk (refer to page 144 of the Annual Report and Accounts 2019)
-- Financial crime and fraud risk (refer to page 145 of the Annual Report and Accounts 2019)
-- Model risk (refer to page 146 of the Annual Report and Accounts 2019)
-- Insurance manufacturing operations risk (refer to page 146 of
the Annual Report and Accounts 2019)
Information on climate change risk can be found on page 22 of
the Annual Report and Accounts 2019.
Capital buffers
Our geographical breakdown and institution-specific
countercyclical capital buffer ('CCyB') disclosure is provided in
Appendix II. The G-SIB Indicators disclosure is published annually
on our website, www.hsbc.com.
Remuneration
Our remuneration policy, including the remuneration committee
membership and activities, remuneration strategy and remuneration
details of HSBC's Identified Staff and Material Risk Takers, is set
out in the Directors' Remuneration Report on page 184 of the Annual
Report and Accounts 2019.
Regulatory developments
The UK's withdrawal from the EU
As a result of the decision of the referendum on 23 June 2016,
the UK left the EU on 31 January 2020. In order to smooth the
transition, the UK remains subject to EU law during an
implementation period, which is currently expected to end on
31 December 2020. This implementation period may be extended by
a further two years, subject to political agreement.
In preparation for the UK leaving without an agreement, a series
of statutory instruments were made to transpose into UK law all of
the EU laws and regulations that were directly applicable to UK
firms on exit day. Although these statutory instruments were
prepared for the UK leaving without a deal, it is anticipated that
they will form the basis of the UK's regulation after the
implementation period has ended; however, these may be subject to
change to reflect the introduction of new EU law during the
implementation period and the terms of any trade deal between the
UK and the EU.
The Basel Committee
In December 2017, Basel published the Basel III Reforms. The
package is broadly final, with Basel having completed a
recalibration of the market risk RWA regime, the Fundamental Review
of the Trading Book ('FRTB'), in January 2019. The remaining
outstanding element is the revision of the calibration of the CVA
framework, which Basel consulted on in November 2019.
The package aims for a 1 January 2022 implementation, with a
five-year transitional provision for the output floor. This floor
ensures that, at the end of the transitional period, banks'
total
RWAs are no lower than 72.5% of those generated by the
standardised approaches. The final standards will need to be
transposed into the relevant local law before coming into
effect.
We currently estimate our pre-mitigation RWAs could potentially
rise in the range of 5% to 10% as at 1 January 2022 as a result of
the regulatory changes. The primary drivers include changes in the
market risk, operational risk and credit valuation adjustment
methodologies, as well as the potential lack of equivalence for
certain investments in funds. We plan to take action to
substantially mitigate a significant proportion of the
increase.
We estimate that there will be an additional RWA impact as a
result of the output floor from 2026.
There remains a significant degree of uncertainty in the impact
due to the number of national discretions within Basel's reforms,
the need for further supporting technical standards to be developed
and the lack of clarity regarding their implementation following
the UK's withdrawal from the EU. Furthermore, the impact does not
take into consideration the possibility of offsets against Pillar
2, which may arise as the shortcomings within Pillar 1 are
addressed.
The Capital Requirements Regulation amendments
In June 2019, the EU enacted the final rules amending the
Capital Requirements Regulation, known as the CRR II. This was the
EU's implementation of the Financial Stability Board's ('FSB')
requirements for Total Loss Absorbing Capacity ('TLAC'), known in
Europe as the Minimum Requirement for Own Funds and Eligible
Liabilities ('MREL'). Furthermore, it also included changes to the
own funds regime.
The CRR II will also implement the first tranche of changes to
the EU's legislation to reflect the Basel III Reforms, including
the FRTB, revisions to the standardised approach for measuring
counterparty risk, changes to the equity investments in funds rules
and the new leverage ratio rules. The CRR II rules will follow a
phased implementation with significant elements entering into force
in 2021, in advance of Basel's timeline.
Since Basel's review of the calibration of the FRTB came too
late to be included in the final CRR II text, the changes are being
incorporated by way of a Delegated Act, which was published in near
final format in December 2019. This introduces the FRTB in the EU
as a reporting requirement only until a full impact assessment can
be performed. Reporting on the standardised approach will begin 12
months after the enactment of the Delegated Act; whereas reporting
on the modelled approaches will begin three years after enactment.
A final date for the implementation of the FRTB in the EU has yet
to be agreed.
The CRR II applies to HSBC's subsidiaries in the EU. In the UK,
only the parts of the CRR II that are in force at the end of the
Brexit implementation period will be transposed into UK law. As a
result, any elements that are scheduled to enter into force after
the end of the implementation period will need to be implemented
separately by the UK.
The EU's implementation of the Basel III Reforms
The remaining elements of the Basel III Reforms will be
implemented in the EU by a further set of amendments to the Capital
Requirements Regulation ('CRR III'). In 2019, the European
Commission ('EC') began consulting on the implementation of the CRR
III, which will include reforms to credit risk, operational risk,
and the output floor. The EC is expected to produce a draft CRR III
text in the second quarter of 2020. The EU implementation will then
be subject to an extensive negotiation process with the EU Council
and Parliament. As a result, the final form of the rules remains
unclear.
It is expected that the Brexit implementation period will have
been completed before the CRR III enters into EU law. As a result,
the UK will have to implement the remaining Basel III Reforms
independently under UK law.
Other developments
In December 2019, the UK's Financial Policy Committee ('FPC')
issued the latest Financial Stability Report. In the report, the
FPC announced that it will increase the UK's countercyclical buffer
from 1% to 2% on 16 December 2020, in order to give the UK more
flexibility in times of future stress. It considers that the UK
remains in a standard risk environment and as a result, the total
loss absorbing capacity in the banking system should remain
unchanged, notwithstanding the buffer increase. To this end, the
PRA will consult in 2020 on proposals to reduce Pillar 2A
requirements to reflect the additional resilience associated with a
higher buffer.
The FPC also announced a review of IFRS9 and stress testing to
ensure that there is a permanent solution to avoid unwarranted
capital increases as a result of the interaction between the two.
This may result in amendments to minimum capital requirements and
TLAC.
In October 2019, the EBA published a consultation paper on draft
guidelines concerning the carve-out of 'structural FX positions'
from Pillar 1 market risk RWAs. The guidelines aim to ensure
consistency in determining which positions qualify for the Pillar 1
carve out.
In July 2019, the Bank of England ('BoE') published its
Resolvability Assessment Framework ('RAF'), which requires firms to
develop capabilities to address eight identified barriers to
resolvability. Banks are required to assess their resolvability in
accordance with the BoE's criteria, submit this assessment by
October 2020 and publish a summary by June 2021. Contemporaneously,
the BoE will disclose its assessment of each firm's resolvability.
The deadline for full compliance with the RAF framework is 1
January 2022.
In April 2019, the PRA issued statements setting out its
expectations of how firms should manage the financial risks from
climate change, focusing on governance, risk management, scenario
analysis and disclosure areas. In particular, there is a
requirement that the risk associated with climate change should be
assessed and captured in firms' Pillar 2 assessments. The PRA also
announced in December 2019 that the effects of climate change will
be included in its 2021 stress test and are currently consulting on
the form it might take.
Risk management
Our risk management framework
We use an enterprise-wide risk management framework across the
organisation and across all risk types. It is underpinned by our
risk culture.
The framework fosters continuous monitoring of the risk
environment, and promotes risk awareness and sound operational and
strategic decision making. It also ensures we have a consistent
approach to monitoring, managing and mitigating the risks we accept
and incur in our activities.
Further information on our risk management framework is set out
on page 74 of the Annual Report and Accounts 2019. The management
and mitigation of principal risks facing the Group is described in
our top and emerging risks on page 76 of the Annual Report and
Accounts 2019.
Commentary on hedging strategies and associated processes can be
found in the Market risk and Securitisation sections of this
document.
Culture
HSBC has long recognised the importance of a strong culture. Our
culture is reinforced by our values. It is instrumental in aligning
the behaviours of individuals with our attitude to assuming and
managing risk, which helps to ensure that our risk profile remains
in line with our risk appetite. The fostering of a strong culture
is a key responsibility of our senior executives.
Our culture is also reinforced by our approach to remuneration.
Individual awards, including those for senior executives, are based
on compliance with our values and the achievement of financial and
non-financial objectives, which are aligned to our risk appetite
and global strategy.
Further information on risk and remuneration is set out on page
207 of the Annual Report and Accounts 2019.
Risk governance
The Board has ultimate responsibility for the effective
management of risk and approves our risk appetite. It is advised on
risk-related matters by the Group Risk Committee ('GRC') and the
Financial System Vulnerabilities Committee ('FSVC'). The final
meeting of the FSVC was held on 15 January 2020, with
responsibility for oversight of financial crime risk transferred to
the GRC, which will continue to advise the Board on risk-related
matters.
The activities of the GRC and the FSVC are set out on pages 178
to 182 of the Annual Report and Accounts 2019.
Executive accountability for the ongoing monitoring, assessment
and management of the risk environment, and the effectiveness of
the risk management framework resides with the Group Chief Risk
Officer ('CRO'). The CRO is supported by the Risk Management
Meeting ('RMM') of the Group Management Board.
The management of financial crime risk resides with the Group
Chief Compliance Officer ('COO'). The COO is supported by the
Financial Crime Risk Management Meeting.
Further information is available on page 145 of the Annual
Report and Accounts 2019.
Day-to-day responsibility for risk management is delegated to
senior managers with individual accountability for decision making.
These senior managers are supported by global functions. All our
people have a role to play in risk management. These roles are
defined using the three lines of defence model, which takes into
account our business and functional structures.
We use a defined executive risk governance structure to ensure
appropriate oversight and accountability for risk, which
facilitates the reporting and escalation to the RMM.
Further information about the Group's three lines of defence
model and executive risk governance structures is available on page
75 of the Annual Report and Accounts 2019.
Risk appetite
Risk appetite is a key component of our management of risk. It
describes the type and quantum of risk that the Group is willing to
accept in achieving its medium- and long-term strategic goals. At
HSBC, risk appetite is managed through a global risk appetite
framework and articulated in a risk appetite statement ('RAS'),
which is approved biannually by the Board on the advice of the
GRC.
Our risk appetite informs our strategic and financial planning
process, defining the desired forward-looking risk profile of the
Group. It is also integrated within other risk management tools,
such as the top and emerging risks report and stress testing, to
ensure consistency in risk management.
Information about our risk management tools is set out from page
73 of the Annual Report and Accounts 2019. Details of the Group's
overarching risk appetite are set out on page 73 of the Annual
Report and Accounts 2019.
Stress testing
HSBC operates a wide-ranging stress testing programme that
supports our risk management and capital planning. It includes
execution of stress tests mandated by our regulators. Our stress
testing is supported by dedicated teams and infrastructure.
Our testing programme assesses our capital strength and enhances
our resilience to external shocks. It also helps us understand and
mitigate risks, and informs our decision about capital levels. As
well as taking part in regulatory driven stress tests, we conduct
our own internal stress tests.
The Group stress testing programme is overseen by the GRC, and
results are reported, where appropriate, to the RMM and GRC.
Further information about stress testing and details of the
Group's regulatory stress test results are set out on page 75 of
the Annual Report and Accounts 2019.
Global Risk function
We have a dedicated Global Risk function, headed by the Group
Chief Risk Officer, which is responsible for the Group's risk
management framework. This includes establishing global policy,
monitoring risk profiles, and forward-looking risk identification
and management. Global Risk is made up of sub-functions covering
all risks to our operations. It is independent from the global
businesses in order to provide challenge, appropriate oversight and
balance in risk/return decisions. The Global Risk function operates
in line with the three lines of defence model.
For further information see page 75 of the Annual Report and
Accounts 2019.
Risk management and internal control
systems
The Directors are responsible for maintaining and reviewing the
effectiveness of risk management and internal control systems, and
for determining the aggregate level and risk types they are willing
to accept in achieving the Group's business objectives. On behalf
of the Board, the GAC has responsibility for oversight of risk
management and internal controls over financial reporting, and the
GRC has responsibility for oversight of risk management and
internal controls other than for financial reporting.
The Directors, through the GRC and the GAC received regular
updates and confirmation that management has taken, or was taking,
the necessary actions to remediate any failings or weaknesses
identified through the operation of our framework of controls.
HSBC's key risk management and internal control procedures are
described on page 173 of the Annual Report and Accounts 2019, where
the Report of the Directors on the effectiveness of internal
controls can also be found.
Risk measurement and reporting systems
Our risk measurement and reporting systems are designed to help
ensure that risks are comprehensively captured with all the
attributes necessary to support well-founded decisions, that those
attributes are accurately assessed, and that information is
delivered in a timely manner for those risks to be successfully
managed and mitigated.
Risk measurement and reporting systems are also subject to a
governance framework designed to ensure that their build and
implementation are fit for purpose and functioning appropriately.
Risk information systems development is a key responsibility of the
Global Risk function, while the development and operation of risk
rating and management systems and processes are ultimately subject
to the oversight of the Board.
We continue to invest significant resources in IT systems and
processes in order to maintain and improve our risk management
capabilities. Group standards govern the procurement and operation
of systems used in our subsidiaries to process risk information
within business lines and risk functions.
Risk measurement and reporting structures deployed at Group
level are applied throughout global businesses and major operating
subsidiaries through a common operating model for integrated risk
management and control. This model sets out the respective
responsibilities of Group, global business, region and country
level risk functions in respect of risk governance and oversight,
compliance risks, approval authorities and lending guidelines,
global and local scorecards, management information and reporting,
and relations with third parties such as regulators, rating
agencies and auditors.
Risk analytics and model governance
The Global Risk function manages a number of analytics
disciplines supporting the development and management of models,
including those for risk rating, scoring, economic capital and
stress testing; covering different risk types and business
segments. The analytics functions formulate technical responses to
industry developments and regulatory policy in the field of risk
analytics, develops HSBC's global risk models, and oversees local
model development and use around the Group toward our
implementation targets for IRB approaches.
The Global Model Oversight Committee ('Global MOC') is the
primary committee responsible for the oversight of Model Risk
globally within HSBC. It serves an important role in providing
strategic direction on the management of models and their
associated risks to HSBC's businesses globally and is an essential
element of the governance structure for model risk management.
Global MOC is supported by Functional MOCs at the Global and
Regional levels which are responsible for model risk management
within their functional areas, including wholesale credit risk,
market risk, retail risk, and finance.
The Global MOC meets regularly and reports to RMM. It is chaired
by the Group CRO and membership includes the CEOs of the Global
Businesses, and senior executives from Risk, Finance and global
businesses. Through its oversight of the functional MOCs, it
identifies emerging risks for all aspects of the risk rating
system, ensuring that model risk is managed within our risk
appetite statement, and formally advises RMM on any material
model-related issues.
Models are also subject to an independent validation process and
governance oversight by the Model Risk Management team within
Global Risk. The team provides robust challenge to the modelling
approaches used across the Group. It also ensures that the
performance of those models is transparent and that their
limitations are visible to key stakeholders. The development and
use of data and models to meet local requirements are the
responsibility of global businesses or functions, as well as
regional and/or local entities under the governance of their own
management, subject to overall Group policy and oversight.
Regulatory and other expectations continue to evolve with
regards to our capability and practice of model risk management. We
have benchmarked our capability against leading industry practice
and are designing a new target operating model for Model Risk
Management ('MRM') function, which sets model risk management
policy, standards and model risk appetite.
Further information is available on page 146 of the Annual
Report and Accounts 2019.
Linkage to the Annual Report and
Accounts
2019
Structure of the regulatory group
Assets, liabilities and post-acquisition reserves of
subsidiaries
engaged in insurance activities are excluded from the
regulatory
consolidation. Our investments in these insurance subsidiaries
are
recorded at cost and deducted from CET1 capital, subject to
thresholds.
The regulatory consolidation also excludes special purpose
entities ('SPEs') where significant risk has been transferred to
third parties. Exposures to these SPEs are risk-weighted as
securitisation positions for regulatory purposes.
Participating interests in banking associates are proportionally
consolidated for regulatory purposes by including our share of
assets, liabilities, profit and loss, and risk-weighted assets in
accordance with the PRA's application of EU legislation.
Non-participating significant investments, along with non-financial
associates, are deducted from capital, subject to thresholds.
Table 2: Reconciliation of balance sheets - financial accounting to
regulatory scope of consolidation
Accounting Deconsolidation Consolidation Regulatory
balance of insurance/ of banking balance
sheet other entities associates sheet
Ref $m $m $m $m
Assets
------------------------------------------------------------ ----- ---------- ----------------- --------------- ------------
Cash and balances at central banks 154,099 (26) 299 154,372
Items in the course of collection
from other banks 4,956 - - 4,956
Hong Kong Government certificates
of indebtedness 38,380 - - 38,380
Trading assets 254,271 (822) - 253,449
Financial assets designated and otherwise
mandatorily measured at fair value
through profit or loss 43,627 (33,839) 604 10,392
* of which: debt securities eligible as tier 2 issued
by Group Financial Sector Entities ('FSEs') that are
outside the regulatory scope of consolidation r - 602 - 602
------------------------------------------------------------ ----- --------- ----------- ---- --------- ---- ---------
Derivatives 242,995 (14) 93 243,074
Loans and advances to banks 69,203 (1,309) 1,316 69,210
Loans and advances to customers 1,036,743 (776) 12,004 1,047,971
------------------------------------------------------------------- --------- ----------- --- --------- ---- ---------
* of which: lending eligible as tier 2 to Group FSEs
outside the regulatory scope of consolidation r - 392 - 392
------------------------------------------------------------ ----- --------- ----------- ---- --------- ---- ---------
expected credit losses on IRB portfolios h (6,703) - - (6,703)
------------------------------------------------------------ ----- --------- ----------- ---- --------- ---- ---------
Reverse repurchase agreements - non-trading 240,862 (42) 127 240,947
Financial investments 443,312 (66,551) 4,485 381,246
------------------------------------------------------------------- --------- ----------- --- --------- ---- ---------
* of which: lending eligible as tier 2 to Group FSEs
outside the regulatory scope of consolidation r - 367 - 367
------------------------------------------------------------ ----- --------- ----------- ---- --------- ---- ---------
Capital invested in insurance and
other entities - 2,304 - 2,304
Prepayments, accrued income and other
assets 136,680 (6,636) 588 130,632
------------------------------------------------------------------- --------- ----------- --- --------- ---- ---------
- of which: retirement benefit assets j 8,280 - - 8,280
------------------------------------------------------------ --------- ----------- ---- --------- ---- ---------
Current tax assets 755 - - 755
------------------------------------------------------------------- --------- ----------- ---- --------- ---- ---------
Interests in associates and joint
ventures 24,474 (430) (4,836) 19,208
------------------------------------------------------------------- --------- ----------- --- --------- --- ---------
- of which: positive goodwill on
acquisition e 486 (13) - 473
------------------------------------------------------------ --------- ----------- --- --------- ---- ---------
Goodwill and intangible assets e 20,163 (9,131) 1,222 12,254
Deferred tax assets f 4,632 159 14 4,805
Total assets at 31 Dec 2019 2,715,152 (117,113) 15,916 2,613,955
------------------------------------------------------------------- --------- ----------- --- --------- ---- ---------
Liabilities and equity
------------------------------------------------------------ ----- --------- --------- ------ -----------
Hong Kong currency notes in circulation 38,380 - - 38,380
Deposits by banks 59,022 (12) 372 59,382
Customer accounts 1,439,115 2,596 14,277 1,455,988
Repurchase agreements - non-trading 140,344 - - 140,344
Items in course of transmission to
other banks 4,817 - - 4,817
Trading liabilities 83,170 59 - 83,229
Financial liabilities designated at
fair value 164,466 (4,225) - 160,241
- of which:
included in tier 1 n 419 - - 419
o,
q,
included in tier 2 i 10,130 - - 10,130
------------------------------------------------------------ ----- --------- -------- ------ ---------
Derivatives 239,497 27 127 239,651
- of which: debit valuation adjustment i 95 - - 95
------------------------------------------------------------ ----- --------- -------- ------ ---------
Debt securities in issue 104,555 (2,246) - 102,309
Accruals, deferred income and other
liabilities 118,156 (2,695) 819 116,280
--------- -------- ------ ---------
Current tax liabilities 2,150 (45) 148 2,253
Liabilities under insurance contracts 97,439 (97,439) - -
--------- -------- ------ ---------
Provisions 3,398 (11) 46 3,433
* of which: credit-related contingent liabilities and
contractual commitments on IRB portfolios h 357 - - 357
------------------------------------------------------------ ----- --------- -------- ------ ---------
Deferred tax liabilities 3,375 (1,337) 9 2,047
Subordinated liabilities 24,600 2 118 24,720
- of which:
l,
included in tier 1 n 1,825 - - 1,825
o,
included in tier 2 q 21,071 - - 21,071
------------------------------------------------------------ ----- --------- -------- ------ ---------
Total liabilities at 31 Dec 2019 2,522,484 (105,326) 15,916 2,433,074
------------------------------------------------------------------- --------- -------- ------ ---------
Equity
------------------------------------------------------------ ----- --------- --------- ------ -----------
Called up share capital a 10,319 - - 10,319
a,
Share premium account l 13,959 - - 13,959
Other equity instruments k 20,871 - - 20,871
c,
Other reserves g 2,127 1,913 - 4,040
b,
Retained earnings c 136,679 (12,595) - 124,084
-----
Total shareholders' equity 183,955 (10,682) - 173,273
------------------------------------------------------------------- --------- -------- ------ ---------
d,
m,
n,
Non-controlling interests p 8,713 (1,105) - 7,608
Total equity at 31 Dec 2019 192,668 (11,787) - 180,881
------------------------------------------------------------------- --------- -------- ------ ---------
Total liabilities and equity at 31
Dec 2019 2,715,152 (117,113) 15,916 2,613,955
------------------------------------------------------------------- --------- -------- ------ ---------
The references (a)-(r) identify balance sheet components that
are used in the calculation of regulatory capital in Table 6: Own
funds disclosure on page 13.
Table 3: Principal entities with a different regulatory and accounting
scope of consolidation (LI3)
At 31 Dec 2019
---------------------------------------------
Method of regulatory
consolidation
Deducted
Method Neither from capital
Principal of accounting Proportional consolidated subject
Footnotes activities consolidation consolidation nor deducted to thresholds
------------- --------------
Principal associates
------------------------- ---------- --------------- ---------------
Banking
The Saudi British Bank services Equity l
--------------- --------------- --------------
Principal insurance
entities
excluded from the
regulatory
consolidation
------------------------- ---------- --------------- ---------------
HSBC Life Life insurance Fully
(International) Ltd manufacturing consolidated l
--------------- --------------
HSBC Assurances Vie Life insurance Fully
(France) manufacturing consolidated l
--------------
Hang Seng Insurance Life insurance Fully
Company manufacturing consolidated
Ltd l
--------------
HSBC Insurance Life insurance Fully
(Singapore) manufacturing consolidated
Pte Ltd l
------------------------- ---------- --------------- --------------- --------------
HSBC Life (UK) Ltd Life insurance Fully
manufacturing consolidated l
--------------
HSBC Life Insurance Life insurance Fully
Company manufacturing consolidated
Ltd l
------------------------- ---------- --------------- --------------- --------------
HSBC Life Assurance Life insurance Fully
(Malta) manufacturing consolidated
Ltd l
--------------- --------------- --------------
HSBC Seguros S.A. Life insurance Fully
(Mexico) manufacturing consolidated l
------------------------- --------------- --------------- --------------
Principal SPEs excluded
from
the regulatory
consolidation 1
------------------------- ---------- --------------- ---------------
Metrix Portfolio Securitisation Fully
Distribution consolidated
plc l
------------------------- ---------- --------------- --------------- -------------- ------------- --------------
Neon Portfolio Securitisation Fully
Distribution consolidated
DAC l
------------------------- ---------- --------------- --------------- -------------- ------------- --------------
Regency Assets Ltd Securitisation Fully
consolidated l
------------------------- ---------- --------------- --------------- -------------- ------------- --------------
1 These SPEs issued no or de minimis share capital.
Measurement of regulatory exposures
This section sets out the main reasons why the measurement of
regulatory exposures is not directly comparable with the financial
information presented in the Annual Report and Accounts 2019.
The Pillar 3 Disclosures at 31 December 2019 are prepared in
accordance with regulatory capital adequacy concepts and rules,
while the Annual Report and Accounts 2019 are prepared in
accordance with IFRSs. The purpose of the regulatory balance sheet
is to provide a point-in-time ('PIT') value of all on-balance sheet
assets.
The regulatory exposure value includes an estimation of risk,
and is expressed as the amount expected to be outstanding if and
when the counterparty defaults.
Moreover, regulatory exposure classes are based on different
criteria from accounting asset types and are therefore not
comparable on a line by line basis.
The following tables show in two steps how the accounting values
in the regulatory balance sheet link to regulatory exposure at
default ('EAD').
Table 4 shows the difference between the accounting and
regulatory scope of consolidation, and a breakdown of the
accounting balances into the risk types that form the basis for
regulatory capital requirements. Table 5 then shows the main
differences between the accounting balances and regulatory
exposures by regulatory risk type.
Table 4: Differences between accounting and regulatory scopes of consolidation
and mapping of financial statement categories with
regulatory risk categories (LI1)
Carrying value of items
Subject
Carrying to deduction
values Carrying Subject from capital
as reported values Subject to the Subject or not
in under to the counter-party Subject to the subject
published scope credit credit to the market to regulatory
financial of regulatory risk risk securitisation risk capital
statements consolidation(1) framework framework(2) framework(3) framework requirements
$bn $bn $bn $bn $bn $bn $bn
-------------- ----------- ---------------- ---------- ------------- -------------- ---------- --------------
Assets
Cash and
balances at
central
banks 154.1 154.4 154.4 - - - -
----------------
Items in the
course of
collection
from other
banks 5.0 5.0 5.0 - - - -
----------------
Hong Kong
Government
certificates
of
indebtedness 38.4 38.4 38.4 - - - -
----------------
Trading
assets 254.3 253.4 1.2 21.3 - 253.4 -
----------------
Financial
assets
designated
and
otherwise
mandatorily
measured at
fair value 43.6 10.4 4.2 3.9 2.3 - -
----------- ----------------
Derivatives 243.0 243.1 - 242.0 1.1 243.1 -
----------------
Loans and
advances to
banks 69.2 69.2 68.5 - 0.7 - -
----------------
Loans and
advances to
customers 1,036.7 1,048.0 1,021.5 2.9 23.6 - -
----------------
Reverse
repurchase
agreements
-
non-trading 240.9 240.9 - 240.9 - - -
---------------- ---------- --------------
Financial
investments 443.3 381.2 381.2 - - - -
----------- ----------------
Capital
invested in
insurance
and other
entities - 2.3 1.5 - - - 0.8
----------
Prepayments,
accrued
income
and other
assets 136.7 130.6 47.1 55.6 - 14.8 19.5
Current tax
assets 0.8 0.8 0.8 - - - -
Interests in
associates
and joint
ventures 24.5 19.2 11.6 - - - 7.6
Goodwill and
intangible
assets 20.1 12.3 - - - - 12.0
Deferred tax
assets 4.6 4.8 6.6 - - - (1.8)
----------- ----------
Total assets
at 31 Dec
2019 2,715.2 2,614.0 1,742.0 566.6 27.7 511.3 38.1
-------------- ----------- ---------------- ---------- ------------- -------------- ---------- -----------
Liabilities
-------------- ----------- ---------------- ---------- ------------- -------------- ---------- --------------
Hong Kong
currency
notes
in
circulation 38.4 38.4 - - - - 38.4
-------------- ----------- ---------------- ---------- ------------- -------------- ---------- -----------
Deposits by
banks 59.0 59.4 - - - - 59.4
-------------- ----------- ---------------- ---------- ------------- -------------- ---------- -----------
Customer
accounts 1,439.1 1,456.0 - - - - 1,456.0
-------------- ----------- ---------------- ---------- ------------- -------------- ---------- -----------
Repurchase
agreements
-
non-trading 140.3 140.3 - 140.3 - - -
-------------- ----------- ---------------- ---------- ------------- -------------- ---------- -----------
Items in
course of
transmission
to other
banks 4.8 4.8 - - - - 4.8
-------------- ----------- ---------------- ---------- ------------- -------------- ---------- -----------
Trading
liabilities 83.2 83.2 - 10.3 - 83.2 -
-------------- ----------- ---------------- ---------- ------------- -------------- ---------- -----------
Financial
liabilities
designated
at FV 164.5 160.2 - - - 62.1 98.1
-------------- ----------- ---------------- ---------- ------------- -------------- ---------- -----------
Derivatives 239.5 239.7 - 239.7 - 239.7 -
-------------- ----------- ---------------- ---------- ------------- -------------- ---------- -----------
Debt
securities
in issue 104.6 102.3 - - - - 102.3
-------------- ----------- ---------------- ---------- ------------- -------------- ---------- -----------
Accruals,
deferred
income,
and other
liabilities 118.2 116.3 - 56.6 - - 59.7
-------------- ----------- ---------------- ---------- ------------- -------------- ---------- -----------
Current tax
liabilities 2.1 2.3 - - - - 2.3
-------------- ----------- ---------------- ---------- ------------- -------------- ---------- -----------
Liabilities
under
insurance
contract 97.4 - - - - - -
-------------- ----------- ---------------- ---------- ------------- -------------- ---------- -----------
Provisions 3.4 3.4 0.6 - - - 2.8
-------------- ----------- ---------------- ---------- ------------- -------------- ---------- -----------
Deferred tax
liabilities 3.4 2.1 2.0 - - - 2.3
-------------- ----------- ---------------- ---------- ------------- -------------- ---------- -----------
Subordinated
liabilities 24.6 24.7 - - - - 24.7
-------------- ----------- ---------------- ---------- ------------- -------------- ---------- -----------
Total
liabilities
at 31
Dec 2019 2,522.5 2,433.1 2.6 446.9 - 385.0 1,850.8
-------------- ----------- ---------------- ---------- ------------- -------------- ---------- -----------
1 The amounts shown in the column 'Carrying values under scope
of regulatory consolidation' do not equal the sum of the amounts
shown in the remaining columns of this table for line items
'Derivatives', 'Trading assets' and 'Prepayments, accrued income
and other assets' as some of the assets in this column are subject
to regulatory capital charges for both CCR and market risk.
2 The amounts shown in the column 'Subject to the counterparty
credit risk framework' include both non-trading book and trading
book.
3 The amounts shown in the column 'Subject to the securitisation
framework' are non-trading book positions. Trading book
securitisation positions are included in the market risk
column.
Table 5: Main sources of differences between regulatory exposure amounts
and carrying values in financial statements (LI2)
Of which items subject
to:
--------
Credit Securitisation
Total risk framework CCR framework framework
Footnotes $bn $bn $bn $bn
Carrying value of assets within scope
of regulatory consolidation 1 2,575.9 1,742.0 566.6 27.7
Carrying value of liabilities within
scope of regulatory consolidation 1 582.3 2.6 446.9 -
------- -------------- ----------- ------------
Net carrying value within scope of
regulatory consolidation 1,993.6 1,739.4 119.7 27.7
---------------------------------------- ---------- ------- -------------- ----------- ------------
Off-balance sheet amounts and potential
future exposure for counterparty risk 865.5 275.6 52.9 11.2
Differences in netting rules 4.1 10.1 (6.0) -
Differences due to financial collateral
on standardised approach (5.2) (5.2) - -
Differences due to expected credit
losses on IRB approach 6.5 6.5 - -
Differences due to EAD modelling and
other differences 5.3 7.7 - (2.4)
------- -------------- ----------- ------------
Differences due to credit risk
mitigation (10.8) - (10.8) -
------- -------------- ----------- ------------
Exposure values considered for
regulatory
purposes at 31 Dec 2019 2,859.0 2,034.1 155.8 36.5
---------------------------------------- ---------- ------- -------------- ----------- ------------
1 Excludes amounts subject to deduction from capital or not
subject to regulatory capital requirements.
Explanations of differences between accounting and regulatory
exposure amounts
Off-balance sheet amounts and potential future exposure for
counterparty risk
Off-balance sheet amounts subject to credit risk and
securitisation regulatory frameworks include undrawn portions of
committed facilities, various trade finance commitments and
guarantees. We apply a credit conversion factor ('CCF') to these
items and add potential future exposures ('PFE') for counterparty
credit risk.
Differences in netting rules
The increase from carrying value due to differences in netting
rules is the reversal of amounts deducted from gross loans and
advances to customers in the published financial statements in
accordance with the offsetting criteria of IAS 32 'Financial
instruments: presentation'.
Differences due to financial collateral
Exposure value under the standardised approach is calculated
after deducting credit risk mitigation whereas accounting value is
before such deductions.
Differences due to expected credit losses
The carrying value of assets is net of credit risk adjustments.
The regulatory exposure value under IRB approaches is before
deducting credit risk adjustments.
Differences due to EAD modelling
The carrying value of assets is usually measured at amortised
cost or fair value as at the balance sheet date. For certain IRB
models, the exposure value used as EAD is the projected value over
the next year.
Differences due to credit risk mitigation
In counterparty credit risk ('CCR'), differences arise between
accounting carrying values and regulatory exposure as a result of
the application of credit risk mitigation and the use of modelled
exposures.
Explanation of differences between accounting fair value and
regulatory prudent valuation
Fair value is defined as the best estimate of the price that
would be received to sell an asset or be paid to transfer a
liability in an orderly transaction between market participants at
the measurement date.
Some fair value adjustments already reflect valuation
uncertainty to some degree. These are market data uncertainty,
model uncertainty and concentration adjustments.
However, it is recognised that a variety of valuation techniques
using stressed assumptions and combined with the range of plausible
market parameters at a given point in time may still generate
unexpected uncertainty beyond fair value.
A series of additional valuation adjustments ('AVAs') are
therefore required to reach a specified degree of confidence (the
'prudent value') set by regulators that differs both in terms of
scope and measurement from HSBC's own quantification for disclosure
purposes.
AVAs should consider at the minimum: market price uncertainty,
bid-offer (close-out) uncertainty, model risk, concentration,
administrative costs, unearned credit spreads and investing and
funding costs.
AVAs are not limited to level 3 exposures, for which a 95%
uncertainty range is already computed and disclosed, but must also
be calculated for any exposure for which the exit price cannot be
determined with a high degree of certainty. Table 64 presents
further information on the prudent valuation adjustment.
Capital and RWAs
Capital management
Approach and policy
Our approach to capital management is driven by our strategic
and organisational requirements, taking into account the
regulatory, economic and commercial environment. We aim 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 process culminates in the annual Group
capital plan, which is approved by the Board. HSBC Holdings is the
primary provider of equity capital to its subsidiaries and also
provides them with non-equity and loss-absorbing capital where
necessary. These investments are substantially funded by HSBC
Holdings' issuance of equity and non-equity capital and by profit
retention. As part of its capital management process, HSBC Holdings
seeks to maintain a balance between the composition of its capital
and its investment in subsidiaries, including management of double
leverage. Subject to the above, there is no current or foreseen
impediment to HSBC Holdings' ability to provide such
investments.
Each subsidiary manages its own capital to support its planned
business growth and meet its local regulatory requirements within
the context of the Group capital plan. Capital generated by
subsidiaries in excess of planned requirements is returned to HSBC
Holdings, normally by way of dividends, in accordance with the
Group's capital plan.
During 2019, the Group's subsidiaries paid dividends consistent
with their financial performance and local regulatory regimes,
informed by the Group's capital plan. No significant restrictions
are envisaged with respect to the payment of planned dividends or
payments.
However, the ability of subsidiaries to pay dividends or advance
monies to HSBC Holdings depends on, among other things, their
respective local regulatory capital and banking requirements,
exchange controls, statutory reserves, and financial and operating
performance. None of our subsidiaries that are excluded from the
regulatory consolidation have capital resources below their minimum
regulatory requirement. HSBC Holdings has not entered into any
Group Financial Support Agreements pursuant to the application of
early intervention measures under the Bank Recovery and Resolution
Directive.
All capital securities included in the capital base of HSBC have
either been issued as fully compliant CRD IV securities (on an end
point basis) or in accordance with the rules and guidance in the
PRA's previous General Prudential Sourcebook, which are included in
the capital base by virtue of the application of CRR II. The main
features of capital securities issued by the Group, categorised as
tier 1 ('T1') capital and tier 2 ('T2') capital, are set out on the
HSBC website, www.hsbc.com.
The values disclosed are the IFRS balance sheet carrying
amounts, not the amounts that these securities contribute to
regulatory capital. For example, the IFRS accounting and the
regulatory treatments differ in their approaches to issuance costs,
regulatory amortisation and regulatory eligibility limits
prescribed by the relevant regulatory legislation.
A list of the main features of our capital instruments in
accordance with Annex III of Commission Implementing Regulation
1423/2013 is also published on our website with reference to our
balance sheet on 31 December 2019. This is in addition to the full
terms and conditions of our securities, also available on our
website.
For further details of our approach to capital risk management,
please see page 130 of the Annual Report and Accounts 2019.
Own funds
Table 6: Own funds disclosure
----------
At
31 Dec
At
31 Dec 31 Dec
2019 2018
Ref(*) Ref $m $m
---------- ----------
Common equity tier 1 ('CET1') capital: instruments
and reserves
------- ----------------------------------------------------------- ---- ---------- ----------
Capital instruments and the related share premium
1 accounts 22,873 22,384
- ordinary shares a 22,873 22,384
----
2 Retained earnings b 127,188 121,180
----
3 Accumulated other comprehensive income (and other
reserves) c 1,735 3,368
----
5 Minority interests (amount allowed in consolidated
CET1) d 4,865 4,854
----
5a Independently reviewed interim net profits net
of any foreseeable charge or dividend b (3,381) 3,697
----
6 Common equity tier 1 capital before regulatory
adjustments 153,280 155,483
------- ----------------------------------------------------------- ---- ------- -------
Common equity tier 1 capital: regulatory adjustments
------- ----------------------------------------------------------- ---- ---------- ----------
7 Additional value adjustments(1) (1,327) (1,180)
----
8 Intangible assets (net of related deferred tax
liability) e (12,372) (17,323)
----
10 Deferred tax assets that rely on future profitability
excluding those arising from temporary differences
(net of related tax liability) f (1,281) (1,042)
----
11 Fair value reserves related to gains or losses
on cash flow hedges g (41) 135
----
12 Negative amounts resulting from the calculation
of expected loss amounts h (2,424) (1,750)
----
14 Gains or losses on liabilities valued at fair value
resulting from changes in own credit standing i 2,450 298
----
15 Defined benefit pension fund assets j (6,351) (6,070)
----
16 Direct and indirect holdings of own CET1 instruments(2) (40) (40)
------- ----------------------------------------------------------- ---- ------- -------
19 Direct, indirect and synthetic holdings by the
institution of the CET1 instruments of financial
sector entities where the institution has a significant
investment in those entities (amount above 10%
threshold and net of eligible short positions)(3) (7,928) (7,489)
------- ----------------------------------------------------------- ---- ------- -------
28 Total regulatory adjustments to common equity tier
1 (29,314) (34,461)
------- ----------------------------------------------------------- ---- ------- -------
29 Common equity tier 1 capital 123,966 121,022
------- ----------------------------------------------------------- ---- ------- -------
Additional tier 1 ('AT1') capital: instruments
------- ----------------------------------------------------------- ---- ---------- ----------
30 Capital instruments and the related share premium
accounts 20,871 22,367
31 - classified as equity under IFRSs k 20,871 22,367
----
33 Amount of qualifying items and the related share
premium accounts subject to phase out
from AT1 l 2,305 2,297
------- ----------------------------------------------------------- ---- -------
Table 6: Own funds disclosure (continued)
----------
At
31 Dec 31 Dec
2019 2018
Ref(*) Ref $m $m
------- ----------------------------------------------------------- ---- ---------- ----------
34 Qualifying tier 1 capital included in consolidated
AT1 capital (including minority interests not included
in CET1) issued by subsidiaries and held by third m,
parties n 1,277 1,516
------- ----------------------------------------------------------- ---- ------- -------
35 - of which: instruments issued by subsidiaries
subject to phase out n 1,218 1,298
------- ----------------------------------------------------------- ---- ------- -------
36 Additional tier 1 capital before regulatory adjustments 24,453 26,180
------- ----------------------------------------------------------- ---- ------- -------
Additional tier 1 capital: regulatory adjustments
------- ----------------------------------------------------------- ---- ---------- ----------
37 Direct and indirect holdings of own AT1 instruments(2) (60) (60)
------- ----------------------------------------------------------- ---- ------- -------
43 Total regulatory adjustments to additional tier
1 capital (60) (60)
------- ----------------------------------------------------------- ---- ------- -------
44 Additional tier 1 capital 24,393 26,120
45 Tier 1 capital (T1 = CET1 + AT1) 148,359 147,142
------- ----------------------------------------------------------- ---- ------- -------
Tier 2 capital: instruments and provisions
------- ----------------------------------------------------------- ---- ---------- ----------
46 Capital instruments and the related share premium
accounts o 20,525 20,249
----
- of which: instruments grandfathered under CRR
II 7,067 N/A
----------------------------------------------------------- ----
48 Qualifying own funds instruments included in consolidated
T2 capital (including minority interests and AT1
instruments not included in CET1 or AT1) issued p,
by subsidiaries and held by third parties(4) q 4,667 6,480
----
49 - of row 48: instruments issued by subsidiaries
subject to phase out q 2,251 1,585
----
- of row 48: instruments issued by subsidiaries
grandfathered under CRR II 1,452 N/A
------- ---- -------
51 Tier 2 capital before regulatory adjustments 25,192 26,729
------- ----------------------------------------------------------- ---- ------- -------
Tier 2 capital: regulatory adjustments
------- ----------------------------------------------------------- ---- ---------- ----------
52 Direct and indirect holdings of own T2 instruments(2) (40) (40)
55 Direct and indirect holdings by the institution
of the T2 instruments and subordinated loans of
financial sector entities where the institution
has a significant investment in those entities
(net of eligible short positions) r (1,361) (593)
----
57 Total regulatory adjustments to tier 2 capital (1,401) (633)
------- ----------------------------------------------------------- ---- ------- -------
58 Tier 2 capital 23,791 26,096
59 Total capital (TC = T1 + T2) 172,150 173,238
------- ----------------------------------------------------------- ---- ------- -------
60 Total risk-weighted assets 843,395 865,318
------- ----------------------------------------------------------- ---- ------- -------
Capital ratios and buffers
------- ----------------------------------------------------------- ---- ---------- ----------
61 Common equity tier 1 14.7% 14.0%
----------
62 Tier 1 17.6% 17.0%
63 Total capital 20.4% 20.0%
----------
64 Institution specific buffer requirement 5.11% 3.94%
------- ----------------------------------------------------------- ----
65
* capital conservation buffer requirement 2.50% 1.88%
66
* counter-cyclical buffer requirement 0.61% 0.56%
67a
* Global Systemically Important Institution ('G-SII')
buffer 2.00% 1.50%
----------
68 Common equity tier 1 available to meet buffers 8.5% 7.9%
---------- ----------
Amounts below the threshold for deduction (before
risk weighting)
------- ----------------------------------------------------------- ---- ---------- ----------
72 Direct and indirect holdings of the capital of
financial sector entities where the institution
does not have a significant investment in those
entities (amount below 10% threshold and net of
eligible short positions) 2,938 2,534
73 Direct and indirect holdings by the institution
of the CET1 instruments of financial sector entities
where the institution has a significant investment
in those entities (amount below 10% threshold and
net of eligible short positions) 13,189 12,851
75 Deferred tax assets arising from temporary differences
(amount below 10% threshold, net of related tax
liability) 4,529 4,956
Applicable caps on the inclusion of provisions
in tier 2
------- ----------------------------------------------------------- ---- ---------- ----------
77 Cap on inclusion of credit risk adjustments in
T2 under standardised approach 2,163 2,200
79 Cap for inclusion of credit risk adjustments in
T2 under internal ratings-based approach 3,128 3,221
Capital instruments subject to phase-out arrangements
(only applicable until 1 Jan 2022)
------- ----------------------------------------------------------- ---- ---------- ----------
82 Current cap on AT1 instruments subject to phase
out arrangements 5,191 6,921
83 Amount excluded from AT1 due to cap (excess over
cap after redemptions and maturities) 122 -
84 Current cap on T2 instruments subject to phase
out arrangements 2,737 5,131
------- ----------------------------------------------------------- ---- ------- -------
The references (a) - (r) identify balance sheet components in
Table 2: Reconciliation of balance sheets - financial accounting to
regulatory scope of consolidation on page 9 which are used in the
calculation of regulatory capital.
1 Additional value adjustments are deducted from CET1. These are
calculated on all assets measured at fair value.
2 The deduction for holdings of own CET1, T1 and T2 instruments is set by the PRA.
3 The threshold deduction for significant investments is drawn
from numerous lines of the balance sheet and includes: investments
in insurance subsidiaries and non-consolidated associates, other
CET1 equity held in financial institutions, and connected funding
of a capital nature.
4 Eligible instruments issued by subsidiaries previously
reported in row 46 'Capital instruments and the related share
premium accounts' are now reported here. For comparative purposes,
2018 data have been re-presented to reflect this change.
At 31 December 2019, our CET1 ratio increased to 14.7% from
14.0% at 31 December 2018. CET1 capital increased during the year
by $2.9bn, mainly as a result of:
-- capital generation of $6.0bn through profits
-- a fall in the deduction for intangible assets of $4.9bn. This
was primarily due to $7.3bn of goodwill impairment, partly offset
by an increase in internally generated software;
-- a $1.5bn increase in FVOCI reserve; and
-- favourable foreign currency translation differences of $1.0bn.
These increases were partly offset by:
-- dividends and scrip of $9.0bn;
-- share buy-back of $1.0bn; and
-- an increase in the deduction for excess expected loss $0.7bn.
RWAs reduced by $21.9bn during the year. Excluding foreign
currency translation differences, the remaining decrease of $26.9bn
was primarily driven by methodology and policy changes and model
updates which reduced RWAs by $39.9bn. These reductions were partly
offset by increases of $12.7bn from movements in asset quality and
size, including both RWA increases due to overall lending growth
and reductions as a result of active portfolio management.
Leverage
The risk of excessive leverage is managed as part of HSBC's
global risk appetite framework and monitored using a leverage ratio
metric within our RAS. The RAS articulates the aggregate level and
types of risk that HSBC is willing to accept in its business
activities in order to achieve its strategic business objectives.
The RAS is monitored via the risk appetite profile report, which
includes comparisons of actual performance against the risk
appetite and tolerance thresholds assigned to each metric, to
ensure that any excessive risk is highlighted, assessed and
mitigated appropriately. The risk appetite profile report is
presented monthly to the RMM and the GRC.
Our approach to risk appetite is described on page 73 of the
Annual Report and Accounts 2019.
Table 7: Leverage ratio common disclosure (LRCom)
At 31 Dec
2019(^) 2018
Ref* Footnotes $bn $bn
------ --------------------------------------------------------- ---------- ----------------- -----------------
On-balance sheet exposures (excluding derivatives
and SFT)
------ --------------------------------------------------------- ---------- ----------------- -----------------
On-balance sheet items (excluding derivatives,
1 SFTs and fiduciary assets, but including collateral) 2,119.1 2,012.5
2 (Asset amounts deducted in determining tier 1
capital) (30.5) (33.8)
3 Total on-balance sheet exposures (excluding derivatives,
SFTs and fiduciary assets) 2,088.6 1,978.7
------ --------------------------------------------------------- ---------- -------------- --------------
Derivative exposures
------ --------------------------------------------------------- ---------- ----------------- -----------------
4 Replacement cost associated with all derivatives
transactions (i.e. net of eligible cash variation
margin) 53.5 44.2
5 Add-on amounts for potential future exposure
('PFE') associated with all derivatives transactions
(mark-to-market method) 162.1 154.1
6 Gross-up for derivatives collateral provided
where deducted from the balance sheet assets
pursuant to IFRSs 8.3 5.9
7 (Deductions of receivables assets for cash variation
margin provided in derivatives transactions) (43.1) (21.5)
8 (Exempted central counterparty ('CCP') leg of
client-cleared trade exposures) (53.2) (38.0)
9 Adjusted effective notional amount of written
credit derivatives 159.4 160.9
10 (Adjusted effective notional offsets and add-on
deductions for written credit derivatives) (150.4) (153.4)
11 Total derivative exposures 136.6 152.2
------ --------------------------------------------------------- ---------- -------------- --------------
Securities financing transaction exposures
------ --------------------------------------------------------- ---------- ----------------- -----------------
12 Gross SFT assets (with no recognition of netting), 1
after adjusting for sales accounting transactions 451.0 429.8
13 (Netted amounts of cash payables and cash receivables 1
of gross SFT assets) (196.1) (184.5)
14 Counterparty credit risk exposure for SFT assets 10.7 11.3
16 Total securities financing transaction exposures 265.6 256.6
------ --------------------------------------------------------- ---------- -------------- --------------
Other off-balance sheet exposures
------ --------------------------------------------------------- ---------- ----------------- -----------------
17 Off-balance sheet exposures at gross notional
amount 865.5 829.8
18 (Adjustments for conversion to credit equivalent
amounts) (629.8) (602.4)
19 Total off-balance sheet exposures 235.7 227.4
------ --------------------------------------------------------- ---------- -------------- --------------
Capital and total exposures
------ --------------------------------------------------------- ---------- ----------------- -----------------
20 Tier 1 capital 144.8 143.5
21 Total leverage ratio exposure 2,726.5 2,614.9
------ --------------------------------------------------------- ---------- -------------- --------------
22 Leverage ratio (%) 5.3 5.5
------ --------------------------------------------------------- ---------- -------------- --------------
EU-23 Choice of transitional arrangements for the definition
of the capital measure Fully phased-in Fully phased-in
------ --------------------------------------------------------- ---------- ----------------- -----------------
^ Figures have been prepared on an IFRS 9 transitional basis.
1 At 31 December 2018, netting of $180.9bn relating to SFT
assets was recognised. This had no impact on the total leverage
ratio exposure. Comparatives have been restated.
Our leverage ratio calculated in accordance with the Capital
Requirements Regulation was 5.3% at 31 December 2019, down from
5.5% at 31 December 2018. The increase in exposure was primarily
due to growth in customer lending and financial investments.
At 31 December 2019, the Group's leverage ratio measured under
the PRA's UK leverage framework was 5.7%. This measure excludes
qualifying central bank balances from the calculation of
exposure.
At 31 December 2019, our UK minimum leverage ratio requirement
of 3.25% under the PRA's UK leverage framework was supplemented by
an additional leverage ratio buffer of 0.7% and a countercyclical
leverage ratio buffer of 0.2%. These additional buffers translated
into capital values of $17.7bn and $5.4bn respectively. We exceeded
these leverage requirements.
For further details of the UK leverage ratio, please see page
155 of the Annual Report and Accounts 2019.
The following table provides a reconciliation of the total
assets in our published balance sheet under IFRS and the total
leverage exposure:
Table 8: Summary reconciliation of accounting assets and leverage ratio
exposures (LRSum)
At 31 Dec
2019 2018
Ref* $bn $bn
1 Total assets as per published financial statements 2,715.2 2,558.1
----- ---------------------------------------------------------- ------- -------
Adjustments for:
- entities which are consolidated for accounting
purposes but are outside the scope of regulatory
2 consolidation (101.2) (89.5)
4 * derivative financial instruments (106.4) (55.6)
5 * securities financing transactions ('SFT') 2.8 (5.1)
* off-balance sheet items (i.e. conversion to credit
6 equivalent amounts of off-balance sheet exposures) 235.7 227.4
7 * other (19.6) (20.4)
----- ---------------------------------------------------------- ------- -------
8 Total leverage ratio exposure 2,726.5 2,614.9
----- ---------------------------------------------------------- ------- -------
The table below provides a breakdown of on-balance sheet
exposures excluding derivatives, SFTs and exempted exposures, by
asset class:
Table 9: Leverage ratio - Split of on-balance sheet exposures (excluding
derivatives, SFTs and exempted exposures) (LRSpl)
At 31 Dec
2019 2018
Ref(*) $bn $bn
Total on-balance sheet exposures (excluding derivatives,
EU-1 SFTs and exempted exposures) 2,076.0 1,991.0
EU-2 - trading book exposures 230.8 218.5
EU-3 - banking book exposures 1,845.2 1,772.5
-------
'banking book exposures' comprises:
EU-4 covered bonds 2.6 1.6
------- -------
EU-5 exposures treated as sovereigns 539.3 507.3
------- -------
exposures to regional governments, multilateral
development banks ('MDB'), international organisations
EU-6 and public sector entities not treated as sovereigns 9.4 9.3
------- -------
EU-7 institutions 59.3 66.8
------- -------
EU-8 secured by mortgage of immovable property 330.4 300.0
------- -------
EU-9 retail exposures 106.2 82.8
------- -------
EU-10 corporate 603.2 614.3
------- -------
EU-11 exposures in default 9.9 9.1
------- -------
other exposures (e.g. equity, securitisations and
EU-12 other non-credit obligation assets) 184.9 181.3
-------- ----------------------------------------------------------- ------- -------
Pillar 1 minimum capital requirements
and
RWA flow
Pillar 1 covers the minimum capital resource requirements for
credit risk, counterparty credit risk, equity, securitisation,
market
risk and operational risk. These requirements are expressed in
terms of RWAs. The table provides information on the scope of
permissible approaches and our adopted approach by risk type.
Credit The Basel framework applies For consolidated Group reporting,
risk three approaches of increasing we have adopted the AIRB approach
sophistication to the calculation for the majority of our business.
of Pillar 1 credit risk capital Some portfolios remain on the standardised
requirements. The most basic or FIRB approaches:
level, the standardised approach, * pending the issuance of local regulations or model
requires banks to use external approval;
credit ratings to determine
the risk weightings applied
to rated counterparties. Other * following supervisory prescription of a non-advanced
counterparties are grouped into approach; or
broad categories and standardised
risk weightings are applied
to these categories. The next * under exemptions from IRB treatment.
level, the foundation IRB ('FIRB')
approach, allows banks to calculate
their credit risk capital requirements
on the basis of their internal
assessment of a counterparty's
probability of default ('PD'),
but subjects their quantified
estimates of EAD and loss given
default ('LGD') to standard
supervisory parameters. Finally,
the advanced IRB ('AIRB') approach
allows banks to use their own
internal assessment in determining
PD and in quantifying EAD and
LGD.
--------------- ---------------------------------------------------- -----------------------------------------------------------
Counterparty Four approaches to calculating We use the mark-to-market and IMM
credit CCR and determining exposure approaches for CCR. Details of
risk values are defined by Basel: the IMM permission we have received
mark-to-market, original exposure, from the PRA can be found in the
standardised and internal model Financial Services Register on
method ('IMM'). These exposure the PRA website. Our aim is to
values are used to determine increase the proportion of positions
capital requirements under one on IMM over time.
of the three approaches to credit
risk: standardised, FIRB or
AIRB.
--------------- ---------------------------------------------------- -----------------------------------------------------------
Equity For the non-trading book, equity For Group reporting purposes, all
exposures can be assessed under non-trading book equity exposures
standardised or IRB approaches. are treated under the standardised
approach.
--------------- ---------------------------------------------------- -----------------------------------------------------------
Securitisation Basel specifies two approaches For the majority of the non-trading
for calculating credit risk book securitisation positions,
requirements for securitisation we use the IRB approach, and within
positions in non-trading books: this principally the RBM, with
the standardised approach and lesser amounts on the IAA and the
the IRB approach, which incorporates SFM. We also use the standardised
the ratings based method ('RBM'), approach for an immaterial amount
the internal assessment approach of non-trading book positions.
('IAA') and the supervisory We follow the CRD IV standard rules
formula method ('SFM'). Securitisation for the securitisation positions
positions in the trading book in the trading book.
are treated within the market Our exposures subject to the new
risk framework, using the CRD framework in 2019 include exposures
IV standard rules. under SEC-IRBA,SEC-ERBA, IAA and
On 1 January 2019, the new securitisation SEC-SA.
framework came into force in
the EU for new transactions.
This framework prescribes the
following approaches:
* internal ratings-based approach ('SEC-IRBA');
* external ratings-based approach ('SEC-ERBA');
* internal assessment approach ('IAA'); and
* standardised approach ('SEC-SA').
From 1 January 2020, all transactions
will be subject to the new framework.
--------------- ---------------------------------------------------- -----------------------------------------------------------
Market Market risk capital requirements The market risk capital requirement
risk are calculated using a combination is measured using internal market
of standard rules and the internal risk models, where approved by
models approach ('IMA'). The the PRA, or under the standard
latter involves the use of internal rules. Our internal market risk
value at risk ('VaR') models models comprise VaR, stressed VaR
to measure market risks and and IRC. Non-proprietary details
determine the appropriate capital of the scope of our IMA permission
requirement. The internal model are available in the Financial
approach also includes stressed Services Register on the PRA website.
VaR ('SVaR') and incremental We are in compliance with the requirements
risk charge ('IRC'). HSBC does regarding i) rules and procedures
not use or need a Comprehensive for inclusion of positions within
Risk Model ('CRM'). trading books and ii) application
of prudent valuation adjustments
to trading book positions.
--------------- ---------------------------------------------------- -----------------------------------------------------------
Operational Basel allows firms to calculate We currently use the standardised
risk their operational risk capital approach in determining our operational
requirement under the basic risk capital requirement. We have
indicator approach, the standardised in place an operational risk model
approach or the advanced measurement that is used for economic capital
approach. calculation purposes.
--------------- ---------------------------------------------------- -----------------------------------------------------------
Table 10: Overview of RWAs (OV1)
At
31 Dec 30 Sep 31 Dec
2019 2019 2019
-------- -------- -----------
Capital
RWAs RWAs required
$bn $bn $bn
-------- -----------
Credit risk (excluding counterparty credit
1 risk) 624.3 636.6 50.0
---- ---------------------------------------------- ---------
2 - standardised approach 126.1 129.3 10.1
3 - foundation IRB approach 32.3 31.0 2.6
----
4 - advanced IRB approach 465.9 476.3 37.3
---- ----------------------------------------------
6 Counterparty credit risk 43.9 49.6 3.5
---- ---------------------------------------------- ---------
7 - mark-to-market 20.6 23.4 1.7
---- ----------------------------------------------
10 - internal model method 18.7 20.4 1.5
---- ----------------------------------------------
- risk exposure amount for contributions to
11 the default fund of a central counterparty 0.6 0.5 -
---- ----------------------------------------------
12 - credit valuation adjustment 4.0 5.3 0.3
---- ---------------------------------------------- ------ ------ ---------
13 Settlement risk 0.2 0.2 -
---- ---------------------------------------------- ------ ------ ---------
Securitisation exposures in the non-trading
14 book 8.3 6.9 0.7
---- ---------------------------------------------- ------ ------
15 - IRB ratings based method 1.8 2.2 0.1
---- ----------------------------------------------
17 - IRB internal assessment approach 0.6 1.0 0.1
---- ----------------------------------------------
18 - standardised approach 1.3 1.3 0.1
---- ----------------------------------------------
- exposures subject to the new securitisation
14a framework(1) 4.6 2.4 0.4
---- ---------------------------------------------- ------ ------ ---------
19 Market risk 29.9 36.9 2.4
---- ---------------------------------------------- ------ ------ ---------
20 - standardised approach 7.8 8.1 0.6
---- ----------------------------------------------
21 - internal models approach 22.1 28.8 1.8
---- ----------------------------------------------
23 Operational risk 92.8 91.1 7.4
---- ---------------------------------------------- ------ ------ ---------
25 - standardised approach 92.8 91.1 7.4
---- ----------------------------------------------
Amounts below the thresholds for deduction
27 (subject to 250% risk weight) 44.0 43.9 3.5
---- ---------------------------------------------- ------ ------ ---------
29 Total 843.4 865.2 67.5
---- ---------------------------------------------- ------ ------ ---------
1 On 1 January 2019, a new securitisation framework came into
force in the EU for new transactions. Existing positions are
subject to 'grandfathering' provisions and will transfer to the new
framework on 1 January 2020. Our exposures subject to the
approaches under the new framework at 31 December 2019 include
$1.7bn under the external ratings-based approach, $5.2bn under the
internal ratings-based approach, $7.1bn under the internal
assessment approach, and $5.8bn under the standardised
approach.
Credit risk (including amounts below the thresholds for
deduction)
RWAs decreased by $12.2bn in the fourth quarter of the year
including an increase of $16.6bn due to foreign currency
translation differences. Excluding foreign currency translation
differences, the remaining decrease of $28.8bn was primarily driven
by asset size decreases of $13.7bn, reflecting active portfolio
management, and reductions of $7.3bn due to changes to methodology
and policy. These included the effect of risk parameter refinements
and securitisation transactions. A further reduction of $5.7bn was
due to model updates, especially to global corporate and Private
Banking models.
Counterparty credit risk
Counterparty credit risk (including settlement risk) RWAs
decreased by $5.7bn primarily due to management initiatives
totalling $3.5bn - including hedging, improved collateral
recognition and parameter refinements. In addition, lower
derivative exposures reduced RWAs by $1.7bn.
Securitisation
The $1.4bn RWA increase is primarily due to new securitisation
transactions. During the period, exposures moved from the
pre-existing securitisation framework to the new framework due to
new deals on existing facilities.
Market risk
RWAs decreased by $7bn mainly due to reductions in sovereign and
flow credit portfolio exposures.
Operational risk
RWAs increased by $1.7bn primarily due to increased
contributions from Retail Banking and Wealth Management ('RBWM')
and Commercial Banking ('CMB') reflecting income growth in those
businesses between 2016 and 2019, partly offset by a $0.9bn fall in
RWAs caused by an approved change to operational risk
methodology.
Table 11: RWA flow statements of credit risk exposures under the IRB
approach(1) (CR8)
Capital
RWAs required
$bn $bn
---- ----------------------------------------------- ------------- -----------
1 At 1 Oct 2019 507.3 40.6
-----------------------------------------------
2 Asset size (11.8) (0.9)
3 Asset quality (2.2) (0.2)
4 Model updates (3.1) (0.2)
-----------------------------------------------
5 Methodology and policy (6.0) (0.5)
-----------------------------------------------
7 Foreign exchange movements 14.0 1.1
---- --------- --------
9 At 31 Dec 2019 498.2 39.9
---- ----------------------------------------------- --------- --------
1 Securitisation positions are not included in this table.
RWAs under the IRB approach decreased by $9.1bn in the fourth
quarter of the year, including an increase of $14.0bn due to
foreign currency translation differences. The remaining decrease of
$23.1bn (excluding foreign currency translation differences) was
principally due to:
-- an $11.8bn asset size reduction in RWAs largely due to active portfolio management;
-- a $6.0bn fall in RWAs due to methodology and policy changes -
reflecting securitisation transactions, risk parameter refinements
and improved collateral recognition; and
-- a $3.1bn decrease in RWAs from model updates, mainly to our global corporate model.
Table 12: RWA flow statements of CCR exposures under IMM (CCR7)
Capital
RWAs required
$bn $bn
----------- -----------
1 At 1 Oct 2019 25.0 2.0
-------------------------------------------
2 Asset size (2.7) (0.3)
3 Asset quality (0.1) -
4 Model updates (0.1) -
---- ------------------------------------------- -------- --------
5 Methodology and policy (0.3) -
---- ------------------------------------------- -------- --------
9 At 31 Dec 2019 21.8 1.7
---- ------------------------------------------- -------- --------
RWAs under the IMM decreased by $3.2bn primarily due to
management initiatives, including hedging and parameter
refinements, and lower derivative exposure.
Table 13: RWA flow statements of market risk exposures under IMA (MR2-B)
Total
Stressed Total capital
VaR VaR IRC Other RWAs required
$bn $bn $bn $bn $bn $bn
-----------
1 At 1 Oct 2019 6.0 8.6 10.6 3.6 28.8 2.3
--------------------------------
2 Movement in risk levels (0.6) (0.5) (4.0) (0.7) (5.8) (0.4)
4 Methodology and policy (0.1) (0.1) - (0.7) (0.9) (0.1)
8 At 31 Dec 2019 5.3 8.0 6.6 2.2 22.1 1.8
--- -------------------------------- ------ ------- ----- ----- ----- --------
RWAs under the IMA decreased by $6.7bn mainly due to reductions
in sovereign and flow credit portfolio exposures.
Minimum requirement for own funds
and
eligible liabilities
Overview and requirements
From 1 January 2019, a requirement for total loss-absorbing
capacity ('TLAC') was introduced, as defined in the final standards
adopted by the Financial Stability Board. In the EU, TLAC
requirements were implemented via CRR II, which came into force in
June 2019 and includes a new framework on minimum requirement for
own funds and eligible liabilities ('MREL').
MREL includes own funds and liabilities that can be written down
or converted into capital resources in order to absorb losses or
recapitalise a bank in the event of its failure. The new framework
is complemented with new disclosure requirements. As the specific
EU format for disclosure is yet to be agreed, the disclosures are
based on the formats provided in the Basel Standards for Pillar 3
disclosures requirements.
The preferred resolution strategy for the Group, as confirmed by
the BoE, is a multiple point of entry ('MPE') strategy -
allowing
each individual resolution group to be resolved by its
respective local resolution authority. Aligned with this strategy,
the Group issues TLAC to the market from HSBC Holdings only, and
then downstreams the proceeds to its subsidiaries as necessary and
in accordance with requirements set by our regulators. This
approach gives host authorities the option to recapitalise local
subsidiaries through the write-down of internal TLAC resources,
with the BoE applying bail-in powers at the HSBC Holdings level
where necessary, and subsequently conducting any necessary
restructuring and separation of the Group in coordination with host
authorities.
In line with the existing structure and business model of the
Group, we have three resolution groups - namely the European
resolution group, the Asian resolution group and the US resolution
group. There are some smaller entities that fall outside of the
resolution groups, and can be separately resolved.
The table below lists the resolution groups, the related
resolution entities and their material subsidiaries subject to TLAC
requirements as currently agreed with the BoE.
Resolution structure
European resolution HSBC Holdings plc HSBC UK Holdings Limited
group
-------------------- -------------------
HSBC Bank plc
-------------------- -------------------
HSBC UK Bank plc
HSBC France
-------------------- -------------------
Asian resolution HSBC Asia Holdings The Hongkong and Shanghai Banking Corporation
group Limited Limited
-------------------- -------------------
Hang Seng Bank Limited
-------------------- -------------------
US resolution HSBC North America N/A
group Holdings Inc
-------------------- ------------------- ----------------------------------------------
The external MREL requirement for the Group as a whole is
currently the highest of:
-- 16% of the Group's consolidated RWAs;
-- 6% of the Group's consolidated leverage exposure; and
-- the sum of all loss-absorbing capacity requirements and other
capital requirements relating to Group entities or sub-groups.
We expect the indicative, external MREL requirements applying to
the Group from 2020 to 2021 to follow the same calibration. The
indicative, external MREL requirement applicable in 2022 is
expected to be the highest of:
-- 18% of the Group's consolidated RWAs;
-- 6.75% of the Group's consolidated leverage exposure; and
-- the sum of all loss-absorbing capacity requirements and other
capital requirements relating to other Group entities or
sub-groups.
These indicative requirements remain subject to the BoE's
confirmation and its review of the MREL framework in 2020.
Further details of our approach to capital management may be
found in 'Capital management' on page 152 of the Annual Report and
Accounts 2019.
Key metrics of the resolution groups
The table below provides a summary of key prudential metrics of
the European, Asian and US resolution groups.
Table 14: Key metrics of the resolution groups (KM2)
Resolution groups
European(1) Asian(2) US(3)
At At At At At At At At At
31 Dec 30 Sep 30 Jun 31 Dec 30 Sep 30 Jun 31 Dec 30 Sep 30 Jun
2019 2019 2019 2019 2019 2019 2019 2019 2019
----------- ----------- ----------- --------- --------- ---------
Total loss
absorbing
capacity
('TLAC')
available
1 ($m) 94,583 95,474 97,256 98,753 97,244 97,040 29,843 30,184 31,739
--------- -------
Fully loaded
ECL accounting
model TLAC
1a available ($m) 94,439 95,282 97,055 98,753 97,244 97,040 N/A N/A N/A
Total RWA at
the level
of the
resolution
group
2 ($m) 297,431 316,766 321,149 366,076 370,590 371,100 128,705 139,016 140,762
--------- --------- --------- ------- -------
TLAC as a
percentage
of RWA
3 (row1/row2) (%) 31.8 30.1 30.3 27.0 26.2 26.1 23.2 21.7 22.5
--- ---------------- --------- --------- --------- --------- --------- --------- ------- ------- -------
Fully loaded
ECL accounting
model TLAC as a
percentage
of fully loaded
ECL
accounting
model RWA
3a (%) 31.8 30.1 30.2 27.0 26.2 26.1 N/A N/A N/A
--- ---------------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Leverage
exposure
measure
at the level of
the
resolution
4 group ($m) 1,166,576 1,132,679 1,176,134 1,036,243 1,024,554 1,041,168 331,869 372,556 362,621
--------- -------
TLAC as a
percentage
of leverage
exposure
measure
(row1/row4)
5 (%) 8.1 8.4 8.3 9.5 9.5 9.3 9.0 8.1 8.8
--- ---------------- --------- --------- --------- --------- --------- --------- ------- ------- -------
Fully loaded
ECL accounting
model TLAC as a
percentage
of fully loaded
ECL
accounting
model Leverage
exposure
5a measure (%) 8.1 8.4 8.3 9.5 9.5 9.3 N/A N/A N/A
--------- --------- --------- --------- --------- --------- --------- --------- ---------
6a Does the
subordination
exemption in
the
antepenultimate
paragraph of
Section
11 of the FSB
TLAC Term
Sheet apply? No No No No No No No No No
----------- ----------- ----------- ----------- ----------- ----------- --------- --------- ---------
6b Does the
subordination
exemption in
the penultimate
paragraph of
Section
11 of the FSB
TLAC Term
Sheet apply? No No No No No No No No No
----------- ----------- ----------- ----------- ----------- ----------- --------- --------- ---------
6c If the capped
subordination
exemption
applies, the
amount of
funding issued
that ranks pari
passu
with excluded
liabilities
and that is
recognised
as external
TLAC, divided
by funding
issued that
ranks pari
passu with
excluded
liabilities
and that would
be recognised
as external
TLAC if
no cap was
applied (%) N/A N/A N/A N/A N/A N/A N/A N/A N/A
--- ---------------- ----------- ----------- ----------- ----------- ----------- ----------- --------- --------- ---------
1 The European resolution group reports in accordance with CRR
II. Unless otherwise stated, all figures are calculated using the
EU's regulatory transitional arrangements for IFRS 9 in article
473a of the Capital Requirements Regulation.
2 Reporting for the Asian resolution group follows the Hong Kong
Monetary Authority ('HKMA') regulatory rules. IFRS 9 has been
implemented but no regulatory transitional arrangements apply.
3 Reporting for the US resolution group is prepared in
accordance with local regulatory rules. The US accounting standard
for current expected credit losses ('CECL') corresponding to IFRS 9
is not yet effective. Leverage exposure and ratio are calculated
under the US supplementary leverage ratio rules.
Given the preferred MPE resolution strategy, and the fact that
the BoE framework includes requirements set on the basis of HSBC
group consolidated position, the following table presents data for
both the consolidated Group and the resolution groups. The
difference between Group CET1 and the aggregate of resolution
groups' CET1 is driven by entities that fall outside of the
resolution groups and by differences in regulatory frameworks.
Table 15: TLAC composition (TLAC1)
At 31 Dec 2019 At 30 June 2019
------------------------------------- -------------------------------------
Resolution group Resolution group
--------- ---------
Group(1) European(1) Asian(2) US(3) Group(1) European(1) Asian(2) US(3)
----------- ----------- --------- ----------- ----------- ---------
Regulatory capital elements
of TLAC and adjustments
($m)
----------- ------------- ----------- --------- ----------- ------------- ----------- ---------
Common equity tier 1 capital
before adjustments 123,966 110,263 63,156 16,753 126,949 116,222 61,561 18,649
--- ------------------------------------------------------------- ----------- ------------- ----------- --------- ----------- ------------- ----------- ---------
Deduction of CET1 exposures
between MPE resolution
groups and other group
entities - 100,028 - - - 102,699 - -
--- ------------------------------------------------------------- --------- ------------- --------- ------- --------- ------------- --------- -------
Common equity tier 1 capital
1 ('CET1') 123,966 10,235 63,156 16,753 126,949 13,523 61,561 18,649
--- ------------------------------------------------------------- ----------- ------------- ----------- --------- ----------- ------------- ----------- ---------
Additional tier 1 capital
2 ('AT1') before TLAC adjustments 24,393 23,515 5,855 2,240 25,878 25,089 5,837 2,240
--- ----------- ------------- ----------- --------- ----------- ------------- ----------- ---------
4 Other adjustments - 6,673 - - - 7,940 - -
--- ------------------------------------------------------------- --------- ------------- --------- ------- --------- ------------- --------- -------
AT1 instruments eligible
under the TLAC framework
(row 2 minus row 3 minus
5 row 4) 24,393 16,842 5,855 2,240 25,878 17,149 5,837 2,240
--- ------------------------------------------------------------- ----------- ------------- ----------- --------- ----------- ------------- ----------- ---------
Tier 2 capital ('T2')
6 before TLAC adjustments 23,791 24,957 7,892 4,643 25,432 25,167 8,074 5,503
--- ------------------------------------------------------------- ----------- ------------- ----------- --------- ----------- ------------- ----------- ---------
Amortised portion of T2
instruments where remaining
7 maturity > 1 year 579 579 - - 1,257 302 - -
--- ------------------------------------------------------------- ----------- ------------- --------- ------- ----------- ------------- --------- -------
T2 capital ineligible
as TLAC as issued out
of subsidiaries to third
8 parties - - 400 - - - 400 -
--- ------------------------------------------------------------- --------- ----------- --------- ------- --------- ----------- --------- -------
9 Other adjustments 164 8,087 - 1,793 - 7,947 - 2,653
--- ------------------------------------------------------------- --------- ------------- --------- --------- --------- ------------- --------- ---------
T2 instruments eligible
under the TLAC framework
(row 6 plus row 7 minus
10 row 8 minus row 9) 24,206 17,449 7,492 2,850 26,689 17,522 7,674 2,850
--- ----------- ------------- ----------- --------- ----------- ------------- ----------- ---------
TLAC arising from regulatory
11 capital 172,566 44,526 76,503 21,843 179,516 48,194 75,072 23,739
--- ------------------------------------------------------------- ----------- ------------- ----------- --------- ----------- ------------- ----------- ---------
Non-regulatory capital
elements of TLAC ($m)
--- ----------- ------------- ----------- --------- ----------- ------------- ----------- ---------
External TLAC instruments
issued directly by the
bank and subordinated
12 to excluded liabilities 81,192 50,057 22,257 8,000 80,046 49,062 21,970 8,000
--- ------------------------------------------------------------- ----------- ------------- ----------- --------- ----------- ------------- ----------- ---------
TLAC arising from non-regulatory
capital instruments before
17 adjustments 81,192 50,057 22,257 8,000 80,046 49,062 21,970 8,000
--- ----------- ------------- --------- ------- ----------- ------------- --------- -------
Non-regulatory capital
elements of TLAC: adjustments
($m)
--- ------------------------------------------------------------- ----------- ------------- ----------- --------- ----------- ------------- ----------- ---------
18 TLAC before deductions 253,757 94,583 98,760 29,843 259,562 97,256 97,042 31,739
--- ----------- ------------- --------- ------- ----------- ------------- --------- -------
Deductions of exposures
between MPE resolution
groups that correspond
to items eligible for
19 TLAC - - 7 - - - 2 -
--- ------------------------------------------------------------- --------- ----------- --------- ------- --------- ----------- --------- -------
Deduction of investments
20 in own other TLAC liabilities 80 - - - 43 - - -
--- ----------- ----------- --------- ------- ----------- ----------- --------- -------
21 Other adjustments to TLAC - - - - - - - -
--- ------------------------------------------------------------- --------- ----------- --------- ------- --------- ----------- --------- -------
TLAC after deductions
(row 18 minus row 19 minus
22 row 20 minus row 21) 253,677 94,583 98,753 29,843 259,519 97,256 97,040 31,739
--- ----------- ------------- ----------- ------- ----------- ------------- ----------- -------
Risk-weighted assets and
leverage exposure measure
for TLAC purposes ($m)
--- ------------------------------------------------------------- ----------- ------------- ----------- --------- ----------- ------------- ----------- ---------
23 Total risk-weighted assets 843,395 297,431 366,076 128,705 885,971 321,149 371,100 140,762
--- ----------- ------------- ----------- ------- ----------- ------------- ----------- -------
24 Leverage exposure measure 2,726,542 1,166,576 1,036,243 331,869 2,786,468 1,176,134 1,041,168 362,621
--- ------------------------------------------------------------- ----------- ------------- ----------- ------- ----------- ------------- ----------- -------
TLAC ratios and buffers
(%)
--- ----------- ------------- ----------- --------- ----------- ------------- ----------- ---------
TLAC (as a percentage
25 of risk-weighted assets) 30.1% 31.8% 27.0% 23.2% 29.3% 30.3% 26.1% 22.5%
--- ------------------------------------------------------------- ----------- ------------- ----------- --------- ----------- ------------- ----------- ---------
TLAC (as a percentage
26 of leverage exposure) 9.3% 8.1% 9.5% 9.0% 9.3% 8.3% 9.3% 8.8%
--- ----------- ------------- ----------- --------- ----------- ------------- ----------- ---------
CET1 (as a percentage
of risk-weighted assets)
available after meeting
the resolution group's
minimum capital and TLAC
27 requirements(4) 8.5% N/A N/A 5.2% 8.1% N/A N/A 4.5%
--- ------------------------------------------------------------- ----------- ------------- ----------- --------- ----------- ------------- ----------- ---------
Institution-specific buffer
requirement expressed
as a percentage of risk-weighted
28 assets 5.1% N/A N/A 2.5% 5.2% N/A N/A 2.5%
--- ------------------------------------------------------------- ----------- ------------- ----------- --------- ----------- ------------- ----------- ---------
29
* of which: capital conservation buffer requirement 2.5% N/A N/A 2.5% 2.5% N/A N/A 2.5%
--- ------------------------------------------------------------- ----------- ------------- ----------- --------- ----------- ------------- ----------- ---------
30
* of which: bank specific countercyclical buffer
requirement 0.6% N/A N/A N/A 0.7% N/A N/A N/A
--- ----------- ------------- ----------- --------- ----------- ------------- ----------- ---------
31
* of which: higher loss absorbency (G-SIB) requirement 2.0% N/A N/A N/A 2.0% N/A N/A N/A
--- ------------------------------------------------------------- ----------- ------------- ----------- --------- ----------- ------------- ----------- ---------
1 The Group and European resolution group reports in accordance
with CRR II. Unless otherwise stated all figures are calculated
using the EU's regulatory transitional arrangements for IFRS 9 in
article 473a. Investments by the European resolution group in the
regulatory capital or TLAC of other group companies are deducted
from the corresponding form of capital in rows 1, 4 & 9. Buffer
requirements are reported as 'Not applicable' as none have yet been
set for the European resolution group.
2 Reporting for the Asian resolution group follows HKMA
regulatory rules. IFRS 9 has been implemented but no regulatory
transitional arrangements apply.
3 Reporting for the US resolution group is prepared in
accordance with local regulatory rules. The US accounting standard
for current expected credit losses ('CECL') corresponding to IFRS 9
is not yet effective. Leverage exposure and ratio are calculated
under the US supplementary leverage ratio rules. Other adjustments
for the US resolution group relate to allowances for loan and lease
losses that are not TLAC eligible and Tier 2 instruments that
currently do not qualify as TLAC. Under the US Final TLAC rules, in
addition to the risk-weighted assets component of the TLAC
requirement, the US resolution group is subject to an external 2.5%
TLAC buffer that is similar to the capital conservation buffer.
4 For the Group, minimum capital requirement is defined as the
sum of Pillar 1 and Pillar 2A capital requirements set by the PRA.
The minimum requirements represent the total capital requirement to
be met by CET1.
Creditor ranking at legal entity level
The following tables present information regarding the ranking
of creditors in the liability structure of legal entities at 31
December 2019. The tables present the ranking of creditors of HSBC
Holdings plc, its resolution entities, and their material sub-group
entities. Nominal values are disclosed.
The main features of capital instruments disclosure for the
Group, Asia and US resolution groups is published on our website,
https://www.hsbc.com/investors/fixed-income-investors/regulatory-capital-securities.
European resolution group
The European resolution group comprises HSBC Holdings plc, the
designated resolution entity, together with its material operating
entities - namely HSBC Bank plc and its subsidiaries, and HSBC UK
Bank plc and its subsidiaries. The following tables present
information regarding the ranking of creditors of HSBC Holdings
plc, HSBC Bank plc and HSBC UK Bank plc.
Table 16: HSBC Holdings plc creditor ranking (TLAC3)
Creditor ranking ($m)
1 2 3 4
--------- ----------- -------------- -----------
Sum of
(most (most 1 to
junior) senior) 4
--------------
Senior
Preference notes
shares and other
Ordinary and AT1 Subordinated pari passu
1 Description of creditor ranking Footnotes shares(1) instruments notes liabilities
---------------------------------------------------
Total capital and liabilities
2 net of credit risk mitigation 10,319 23,633 20,816 82,234 137,002
- of row 2 that are excluded
3 liabilities 2 - - - 412 412
Total capital and liabilities
less excluded liabilities (row
4 2 minus row 3) 10,319 23,633 20,816 81,822 136,590
- of row 4 that are potentially
5 eligible as TLAC 10,319 23,633 20,816 80,031 134,799
- of row 5 with 1 year <= residual
6 maturity < 2 years - - - 15,658 15,658
- of row 5 with 2 years <= residual
7 maturity < 5 years - - 2,000 30,341 32,341
- of row 5 with 5 years <= residual
8 maturity < 10 years - - 7,525 27,290 34,815
9
* of row 5 with residual maturity >= 10 years,
but
excluding perpetual securities - - 10,391 6,742 17,133
---------------------------------------------------
- of row 5 that are perpetual
10 securities 10,319 23,633 900 - 34,852
--- --------------------------------------------------- ---------- --------- ----------- ------------ -----------
1 Excludes the value of share premium and reserves attributable to ordinary shareholders.
2 Excluded liabilities are defined in CRR II Article 72a (2).
The balance mainly relates to accruals for service company
recharges.
Table 17: HSBC UK Bank plc creditor ranking (TLAC2)
Creditor ranking ($m)
1 2 3 4
Sum of
(most (most 1 to
Footnotes junior) senior) 4
---------- --------------
Is the resolution entity the
1 creditor/investor? 1 No No No No
---------------------------------------------------
Senior
Ordinary AT1 Subordinated subordinated
2 Description of creditor ranking shares(2) instruments loans loans
---------------------------------------------------
Total capital and liabilities
3 net of credit risk mitigation - 2,903 3,881 8,619 15,403
--------------------------------------------------- ---------- --------- ----------- ------------ ------------
- of row 3 that are excluded
4 liabilities - - - - -
--------------------------------------------------- ---------- --------- ----------- ------------ ------------ ------
Total capital and liabilities
less excluded liabilities (row
5 3 minus row 4) - 2,903 3,881 8,619 15,403
--------------------------------------------------- ---------- --------- ----------- ------------ ------------ ------
- of row 5 that are eligible
6 as TLAC - 2,903 3,881 8,619 15,403
--------------------------------------------------- ---------- --------- ----------- ------------ ------------ ------
- of row 6 with 1 year <= residual
7 maturity < 2 years - - - - -
--------------------------------------------------- ---------- --------- ----------- ------------ ------------ ------
- of row 6 with 2 years <= residual
8 maturity < 5 years - - - - -
--------------------------------------------------- ---------- --------- ----------- ------------ ------------ ------
- of row 6 with 5 years <= residual
9 maturity < 10 years - - 1,700 4,627 6,327
--------------------------------------------------- ---------- --------- ----------- ------------ ------------ ------
10
* of row 6 with residual maturity >= 10 years,
but
excluding perpetual securities - - 2,181 3,992 6,173
--- --------------------------------------------------- ---------- --------- ----------- ------------ ------------ ------
- of row 6 that are perpetual
11 securities - 2,903 - - 2,903
--- --------------------------------------------------- ---------- --------- ----------- ------------ ------------ ------
1 The entity's capital and TLAC are owned by HSBC UK Holdings Limited.
2 The nominal value of ordinary shares is GBP50,002. This
excludes the value of share premium and reserves attributable to
ordinary shareholders.
Table 18: HSBC Bank plc creditor ranking (TLAC2)
Creditor ranking ($m)
1 2 3 4
Sum of
(most (most 1 to
Footnotes junior) senior) 4
----------
Is the resolution entity the
1 creditor/investor? 1 No No No No
Third
Dollar Subordinated
preference Undated notes
shares primary and
Ordinary and AT1 capital subordinated
2 Description of creditor ranking shares(2) instruments notes loans
Total capital and liabilities
3 net of credit risk mitigation 1,054 5,203 1,550 18,381 26,188
---------- --------- ----------- ------- ------------
- of row 3 that are excluded
4 liabilities - - - - -
---------- --------- ----------- ------- ------------
Total capital and liabilities
less excluded liabilities (row
5 3 minus row 4) 1,054 5,203 1,550 18,381 26,188
---------- --------- ----------- ------- ------------
- of row 5 that are eligible
6 as TLAC 1,054 5,203 1,550 18,381 26,188
---------- --------- ----------- ------- ------------
- of row 6 with 1 year <= residual
7 maturity < 2 years - - - 450 450
---------- --------- ----------- ------- ------------
- of row 6 with 2 years <= residual
8 maturity < 5 years - - - 11,003 11,003
---------- --------- ----------- ------- ------------
- of row 6 with 5 years <= residual
9 maturity < 10 years - - - 3,391 3,391
---------- --------- ----------- ------- ------------
10
* of row 6 with residual maturity >= 10 years,
but
excluding perpetual securities - - - 2,215 2,215
--- --------------------------------------------------- ---------- --------- ----------- ------- ------------
- of row 6 that are perpetual
11 securities 1,054 5,203 1,550 1,322 9,129
--- --------------------------------------------------- ---------- --------- ----------- ------- ------------ ------
1 The entity's ordinary shares are owned by HSBC UK Holdings
Limited. Other instruments are either owned by HSBC UK Holdings
Limited or by third parties.
2 Excludes the value of share premium and reserves attributable to ordinary shareholders.
Asian resolution group
The Asian resolution group comprises HSBC Asia Holdings Ltd, The
Hongkong & Shanghai Banking Corporation Limited, Hang Seng Bank
Limited and their subsidiaries. HSBC Asia Holdings Ltd
is the designated resolution entity. The following table
presents information regarding the ranking of creditors of HSBC
Asia Holdings Limited.
Table 19: HSBC Asia Holdings Ltd creditor ranking(1) (TLAC3)
--------
Creditor ranking ($m)
1 2 3 4
---------- --------------- ---------------- ---------
Sum of
(most (most 1 to
junior) senior) 4
-----------
Ordinary Tier
1 Description of creditor ranking shares(2) AT1 instruments 2 instruments LAC loans
---------------------------------------
Total capital and liabilities net
2 of credit risk mitigation 56,587 5,700 1,780 21,177 85,244
---------------------------------------
3 - of row 2 that are excluded
liabilities - - - - -
---------------------------------------
Total capital and liabilities less
excluded liabilities (row 2 minus
4 row 3) 56,587 5,700 1,780 21,177 85,244
---------------------------------------
- of row 4 that are potentially
5 eligible as TLAC 56,587 5,700 1,780 21,177 85,244
---------------------------------------
- of row 5 with 1 year <= residual
6 maturity < 2 years - - - - -
---------------------------------------
- of row 5 with 2 years <= residual
7 maturity < 5 years - - - 9,828 9,828
---------------------------------------
- of row 5 with 5 years <= residual
8 maturity < 10 years - - - 9,349 9,349
---------------------------------------
- of row 5 with residual maturity
>= 10 years, but excluding perpetual
9 securities - - 1,780 2,000 3,780
---------------------------------------
10 - of row 5 that are perpetual
securities 56,587 5,700 - - 62,287
--- --------------------------------------- ---------- --------------- -------------- ---------
1 The entity's capital and TLAC are held by HSBC Holdings plc.
2 Excludes the value of share premium and reserves attributable to ordinary shareholders.
Table 20: The Hongkong and Shanghai Banking Corporation Ltd creditor
ranking (TLAC2)
Creditor ranking ($m)
1 2 3 4 5
Sum of
(most (most 1 to
junior) senior) 5
Is the resolution entity
1 the creditor/investor? Yes Yes No(1) Yes Yes
Primary
Description of creditor Ordinary AT1 capital Tier 2
2 ranking shares(2) instruments notes instruments LAC loans
Total capital and liabilities
3 net of credit risk mitigation 22,125 5,700 400 1,780 21,177 51,182
---------------------------------------------------
- of row 3 that are excluded
4 liabilities - - - - - -
---------------------------------------------------
Total capital and liabilities
less excluded liabilities
5 (row 3 minus row 4) 22,125 5,700 400 1,780 21,177 51,182
---------------------------------------------------
- of row 5 that are eligible
6 as TLAC 22,125 5,700 - 1,780 21,177 50,782
---------------------------------------------------
- of row 6 with 1 year
<= residual maturity <
7 2 years - - - - - -
---------------------------------------------------
- of row 6 with 2 years
<= residual maturity <
8 5 years - - - - 9,828 9,828
---------------------------------------------------
- of row 6 with 5 years
<= residual maturity <
9 10 years - - - - 9,349 9,349
---------------------------------------------------
10
* of row 6 with residual maturity >= 10 years,
but
excluding perpetual securities - - - 1,780 2,000 3,780
--- --------------------------------------------------- --------- ----------- ------- ----------- -------
- of row 6 that are perpetual
11 securities 22,125 5,700 - - - 27,825
--- --------------------------------------------------- --------- ----------- ------- ----------- ------- ------
1 The company's primary capital notes are held by third parties.
2 Excludes the value of share premium and reserves attributable to ordinary shareholders.
Table 21: Hang Seng Bank Ltd creditor ranking (TLAC2)
--------
Creditor ranking ($m)
1 2 3
Sum of
(most (most 1 to
Footnotes junior) senior) 3
---------- -----------
Is the resolution entity the
1 creditor/investor? 1 No No No
Ordinary
2 Description of creditor ranking shares(2) AT1 instruments LAC loans
---------- --------------
Total capital and liabilities net of
3 credit risk mitigation 1,240 1,500 2,503 5,243
-------------------------------------------
4 - of row 3 that are excluded liabilities - - - -
-------------------------------------------
Total capital and liabilities less
excluded liabilities (row 3 minus row
5 4) 1,240 1,500 2,503 5,243
-------------------------------------------
6 - of row 5 that are eligible as TLAC 1,240 1,500 2,503 5,243
-------------------------------------------
- of row 6 with 1 year <= residual
7 maturity < 2 years - - - -
-------------------------------------------
- of row 6 with 2 years <= residual
8 maturity < 5 years - - - -
-------------------------------------------
- of row 6 with 5 years <= residual
9 maturity < 10 years - - 2,103 2,103
-------------------------------------------
10 - of row 6 with residual maturity >=
10 years, but excluding perpetual
securities - - 400 400
--- ------------------------------------------- ---------- ------------ --------------- ---------
11 - of row 6 that are perpetual securities 1,240 1,500 - 2,740
--- ------------------------------------------- ---------- ------------ --------------- --------- ------
1 62.14% of Hang Seng Bank Limited's ordinary share capital is
owned by The Hongkong and Shanghai Banking Corporation Limited.
Hang Seng Bank Limited's other TLAC eligible securities are
directly held by The Hongkong and Shanghai Banking Corporation
Limited.
2 Excludes the value of reserves attributable to ordinary shareholders.
US resolution group
The US resolution group comprises HSBC North America Holdings
Inc. and its subsidiaries. HSBC North America Holdings Inc. is the
designated resolution entity.
The following table presents information regarding the ranking
of creditors of HSBC North America Holdings Inc.
Table 22: HSBC North America Holdings Inc. creditor ranking(1)
(TLAC3)
--------
Creditor ranking ($m)
1 2 3 4
-------- --------- -------------- -----------
Sum of
(most (most 1 to
junior) senior) 4
Senior
unsecured
loans
and other
Common Preferred Subordinated pari passu
1 Description of creditor ranking Footnotes stock(2) stock loans liabilities
---------------------------------------------------
Total capital and liabilities
2 net of credit risk mitigation - 2,240 2,850 8,333 13,423
- of row 2 that are excluded
3 liabilities 3 - - - 183 183
--------------------------------------------------- ------
Total capital and liabilities
less excluded liabilities (row
4 2 minus row 3) - 2,240 2,850 8,150 13,240
--------------------------------------------------- ------
- of row 4 that are potentially
5 eligible as TLAC - 2,240 2,850 8,000 13,090
--------------------------------------------------- ------
- of row 5 with 1 year <= residual
6 maturity < 2 years - - - - -
--------------------------------------------------- ------
- of row 5 with 2 years <= residual
7 maturity < 5 years - - - 3,500 3,500
--------------------------------------------------- ------
- of row 5 with 5 years <= residual
8 maturity < 10 years - - 2,850 4,500 7,350
--------------------------------------------------- ------
9
* of row 5 with residual maturity >= 10 years,
but
excluding perpetual
securities - - - - -
--------------------------------------------------- ------
- of row 5 that are perpetual
10 securities - 2,240 - - 2,240
--- --------------------------------------------------- ---------- -------- --------- ------------ ----------- ------
1 The entity's capital and TLAC are held by HSBC Overseas Holdings (UK) Limited.
2 The nominal value of common stock is $2. This excludes the
value of share premium and reserves attributable to ordinary
shareholders.
3 Excluded liabilities consists of 'unrelated liabilities' as
defined in the Final US TLAC rules. This mainly represents accrued
employee benefit obligations.
Pillar 2 and ICAAP
Pillar 2
We conduct an Internal Capital Adequacy Assessment Process
('ICAAP') to determine a forward-looking assessment of our capital
requirements given our business strategy, risk profile, risk
appetite and capital plan. This process incorporates the Group's
risk management processes and governance framework. Our base
capital plan undergoes stress testing. This, coupled with our
economic capital framework and other risk management practices, is
used to assess our internal capital adequacy requirements and
inform our view of our internal capital planning buffer. The ICAAP
is formally approved by the Board, which has the ultimate
responsibility for the effective management of risk and approval of
HSBC's risk appetite.
The ICAAP is reviewed by the PRA and by a college of
supervisors, as part of the joint risk assessment and decision
process, during the Supervisory Review and Evaluation Process. This
process occurs periodically to enable the regulator to define the
individual capital requirement ('ICR') (previously known as the
individual capital guidance ('ICG')) or minimum capital
requirements for HSBC and to define the PRA buffer, where required.
Under the revised Pillar 2 PRA regime, which came into effect
from
1 January 2017, the capital planning buffer has been replaced
with a 'PRA buffer'. This is not intended to duplicate the CRD IV
buffers and, where necessary, will be set according to
vulnerability in a stress scenario, as identified and assessed
through the annual PRA stress testing exercise.
The processes of internal capital adequacy assessment and
supervisory review lead to a final determination by the PRA of the
ICR and any PRA buffer that may be required.
Pillar 2 comprises Pillar 2A and Pillar 2B. Pillar 2A considers,
in addition to the minimum capital requirements for Pillar 1 risks
described above, any supplementary requirements for those risks and
any requirements for risk categories not captured by Pillar 1. The
risk categories covered under Pillar 2A depend on the specific
circumstances of a firm and the nature and scale of its
business.
Pillar 2B consists of guidance from the PRA on the capital
buffer a firm would require in order to remain above its ICR in
adverse circumstances that may be largely outside the firm's normal
and direct control; for example, during a period of severe but
plausible downturn stress, when asset values and the firm's capital
surplus may become strained. This is quantified via any PRA buffer
requirement the PRA may consider necessary. The assessment of this
is informed by stress tests and a rounded judgement of a firm's
business model, also taking into account the PRA's view of a firm's
options and capacity to protect its capital position under stress;
for instance, through capital generation. Where the PRA assesses
that a firm's risk management and governance are significantly
weak, it may also increase the PRA buffer to cover the risks posed
by those weaknesses until they are addressed. The PRA buffer is
intended to be drawn upon in times of stress, and its use is not of
itself a breach of capital requirements that would trigger
automatic restrictions on distributions. In specific circumstances,
the PRA should agree a plan
with a firm for its restoration over an agreed timescale.
Internal capital adequacy assessment
The Board manages the Group ICAAP and, together with RMM and
GRC, it examines the Group's risk profile from both a regulatory
and economic capital viewpoint. They aim to ensure that capital
resources:
-- remain sufficient to support our risk profile and outstanding commitments;
-- meet current regulatory requirements, and that HSBC is well
placed to meet those expected in the future;
-- allow the group to remain adequately capitalised in the event
of a severe economic downturn stress scenario; and
-- remain consistent with our strategic and operational goals,
and our shareholder and investor expectations.
The minimum regulatory capital that we are required to hold is
determined by the rules and guidance established by the PRA for the
consolidated Group and by local regulators for individual Group
companies. These capital requirements are a primary factor in
influencing and shaping the business planning process, in which RWA
targets are established for our global businesses in accordance
with the Group's strategic direction and risk appetite.
Economic capital is the internally calculated capital
requirement that we deem necessary to support the risks to which we
are exposed. The economic capital assessment is a more
risk-sensitive measure than the regulatory minimum, and takes
account of the substantial diversification of risk accruing from
our operations. Both the regulatory and the economic capital
assessments rely upon the use of models that are integrated into
our risk management processes. Our economic capital models are
calibrated to quantify the level of capital that is sufficient to
absorb potential losses over a one-year time horizon to a 99.95%
level of confidence for our banking and trading activities, to a
99.5% level of confidence for our insurance activities and pension
risks, and to a 99.9% level of confidence for our operational
risks.
The ICAAP and its constituent economic capital calculations are
examined by the PRA as part of its Supervisory Review and
Evaluation Process. This examination informs the regulator's view
of our Pillar 2 capital requirements.
Preserving our strong capital position remains a priority, and
the level of integration of our risk and capital management helps
to optimise our response to business demand for regulatory and
economic capital. Risks that are explicitly assessed through
economic capital are credit risk (including CCR), market risk,
operational risk, interest rate risk in the banking book ('IRRBB'),
insurance risk, pension risk and structural foreign exchange
risk.
Credit risk
Overview and responsibilities
Credit risk represents our largest regulatory capital
requirement.
The principal objectives of our
credit risk management function
are:
* to maintain across HSBC a strong culture of
responsible lending and a robust credit risk policy
and control framework;
* to both partner and challenge our businesses in
defining, implementing and continually re-evaluating
our credit risk appetite under actual and stress
scenario conditions; and
* to ensure there is independent, expert scrutiny of
credit risks, their costs and their mitigation.
============================================================
The credit risk functions within Wholesale Credit and Market
Risk and RBWM are the constituent parts of Global Risk that support
the Group CRO in overseeing credit risks. Their major duties
comprise undertaking independent reviews of large and high-risk
credit proposals, overseeing large exposure policy and reporting on
our wholesale and retail credit risk management disciplines. They
also own our credit policy and credit systems programmes, oversee
portfolio management and report on risk matters to senior executive
management and regulators.
These credit risk functions work closely with other parts of
Global Risk; for example, with Operational Risk on the internal
control framework and with Risk Strategy on the risk appetite
process. In addition, they work jointly with Risk Strategy and
Global Finance on stress testing.
The credit responsibilities of Global Risk are described on page
75 of the Annual Report and Accounts 2019.
Group-wide, the credit risk functions comprise a network of
credit risk management offices reporting within regional risk
functions. They fulfil an essential role as independent risk
control units distinct from business line management in providing
objective scrutiny of risk rating assessments, credit proposals for
approval and other risk matters.
Our credit risk procedures operate through a hierarchy of
personal credit limit approval authorities. Operating company chief
executives, acting under authorities delegated by their boards and
Group standards, are accountable for credit risk and other risks in
their business. In turn, chief executives delegate authority to
operating company chief risk officers and management teams on an
individual basis. Each operating company is responsible for the
quality and performance of its credit portfolios in accordance with
Group standards. Above these thresholds of delegated personal
credit limited approval authorities, approval must be sought from
the regional and, as appropriate, the global credit risk
function.
Credit risk management
Our exposure to credit risk arises from a wide range of customer
and products, and the risk rating systems in place to measure and
monitor these risks are correspondingly diverse. Senior management
receives a variety of reports on our credit risk exposures,
including expected credit losses, total exposures and RWAs, as well
as updates on specific portfolios that are considered to have
heightened credit risk.
Credit risk exposures are generally measured and managed in
portfolios of either customer types or product categories. Risk
rating systems are designed to assess the default propensity of,
and loss severity associated with, distinct customers who are
typically managed as individual relationships or, in the case of
retail business exposures, on a product portfolio basis.
Risk rating systems for retail exposures are generally
quantitative in nature, applying techniques such as behavioural
analysis across product portfolios comprising large numbers of
homogeneous transactions. Rating systems for individually managed
relationships typically use customer financial statements and
market data analysis, but also qualitative elements and a final
subjective overlay to better reflect any idiosyncratic elements of
the customer's risk profile.
See 'Application of the IRB Approach' on page 44 for more
information.
A fundamental principle of our policy and approach is that
analytical risk rating systems and scorecards are all valuable
tools at the disposal of management.
The credit process provides for at least an annual review of
facility limits granted. Review may be more frequent, as required
by circumstances such as the emergence of adverse risk factors.
We constantly seek to improve the quality of our risk
management. Group IT systems that process credit risk data continue
to be enhanced in order to deliver both comprehensive management
information in support of business strategy and solutions to
evolving regulatory reporting requirements.
Group standards govern the process through which risk rating
systems are initially developed, judged fit for purpose, approved
and implemented. They also govern the conditions under which
analytical risk model outcomes can be overridden by decision takers
and the process of model performance monitoring and reporting. The
emphasis is on an effective dialogue between business line and risk
management, suitable independence of decision takers, and a good
understanding and robust challenge on the part of senior
management.
Like other facets of risk management, analytical risk rating
systems are not static. They are subject to review and modification
in light of the changing environment, the greater availability and
quality of data, and any deficiencies identified through internal
and external regulatory review. Structured processes and metrics
are in place to capture relevant data and feed this into continuous
model improvement.
See 'Model performance' on page 51 for more information.
Credit risk models governance
All new or materially changed IRB capital models require the
PRA's approval, as set out in more detail on page 44. Throughout
HSBC, such models fall directly under the remit of the global
functional MOCs, operating in line with HSBC's model risk policy,
and under the oversight of the Global MOC.
Both the Wholesale and RBWM MOCs require all credit risk models
for which they are responsible to be approved by delegated senior
managers with notification to the committees that retain the
responsibility for oversight.
Global Risk sets internal standards for the development,
validation, independent review, approval, implementation and
performance monitoring of credit risk rating models. Independent
reviews of our models are performed by our Independent Model Review
function which is separate from our Risk Analytics functions that
are responsible for the development of models.
We are designing a new target operating model for the MRM
function, which sets model risk management policy, standards and
model risk appetite.
Further information is available on page 146 of the Annual
Report and Accounts 2019.
Compliance with Group standards is subject to examination by
Risk oversight and review from within the Risk function itself, and
by Internal Audit.
Dilution risk
Dilution risk is the risk that an amount receivable is reduced
through cash or non-cash credit to the obligor, and arises mainly
from factoring and invoice discounting transactions.
Where there is recourse to the seller, we treat these
transactions as loans secured by the collateral of the debts
purchased and do not report dilution risk for them. For our
non-recourse portfolio we obtain an indemnity from the seller that
indemnifies us against this risk. Moreover, factoring transactions
involve lending at a discount to the face-value of the receivables,
which provides protection against dilution risk.
The table below provides a summary of credit risk exposure by
exposure class and approach. Further information on credit risk
exposure by industry and geography can be found in the
Concentration risk section on page 35.
Table 23: Credit risk exposure - summary (CRB-B)
At 31 Dec 2019 At 31 Dec 2018
Average Average
Net net Net net
carrying carrying Capital RWA carrying carrying Capital RWA
values values(3) RWAs^ required density values values(3) RWAs^ required density
Footnotes $bn $bn $bn $bn % $bn $bn $bn $bn %
-------
IRB advanced
approach 1,935.3 1,892.4 452.6 36.2 29 1,844.5 1,812.1 468.2 37.4 32
-------
- central
governments
and central
banks 346.3 343.9 36.3 2.9 11 331.7 315.4 36.9 3.0 11
- institutions 74.7 82.4 10.8 0.9 16 80.6 88.0 14.2 1.1 19
- corporates 1 959.9 958.1 327.7 26.2 50 948.9 932.0 345.1 27.5 52
- total retail 554.4 508.0 77.8 6.2 16 483.3 476.7 72.0 5.8 17
Secured by
mortgages
on immovable
property
SME 3.6 3.6 1.5 0.1 45 3.5 3.2 1.8 0.1 54
Secured by
mortgages
on immovable
property
non-SME 314.5 298.9 40.4 3.2 13 285.9 280.9 37.2 3.0 13
Qualifying
revolving
retail 140.3 135.1 18.8 1.5 23 132.1 129.1 17.3 1.4 23
----------------
Other SME 7.9 7.8 4.7 0.4 76 7.5 8.7 4.8 0.4 76
Other non-SME 88.1 62.6 12.4 1.0 18 54.3 54.8 10.9 0.9 24
-------- --------- ----- -------- ------- -------- --------- ----- -------- -------
IRB
securitisation
positions 20.2 25.0 3.7 0.3 19 29.7 31.0 6.3 0.5 21
IRB non-credit
obligation
assets 62.4 60.1 13.3 1.1 21 56.9 59.2 10.8 0.9 19
----------
IRB foundation
approach 88.3 82.1 32.3 2.6 59 78.4 76.5 30.5 2.4 61
- central
governments
and central
banks - - - - 20 - - - - 25
- institutions 0.7 0.6 0.2 - 26 0.5 0.3 0.2 - 35
- corporates 87.6 81.5 32.1 2.6 59 77.9 76.2 30.3 2.4 61
-------- --------- ----- -------- ------- -------- --------- ----- -------- -------
Standardised
approach 525.3 518.3 174.7 14.0 45 501.8 501.9 175.3 14.1 48
- central
governments
and central
banks 176.9 164.5 11.2 0.9 6 163.9 182.5 12.5 1.0 7
- regional
governments
or local
authorities 8.9 7.9 1.6 0.1 18 7.3 5.7 1.3 0.1 19
- public sector
entities 16.6 14.1 - - - 12.2 7.6 - - -
- multilateral
development
banks 0.1 0.1 - - - 0.2 0.2 - - 2
- international
organisations 1.6 1.5 - - - 1.6 2.0 - - -
- institutions 2.4 2.8 0.9 0.1 58 3.4 3.0 1.2 0.1 52
- corporates 159.8 181.4 72.5 5.8 94 179.4 168.4 79.2 6.3 94
- retail 70.7 67.0 14.4 1.2 74 63.8 66.2 14.8 1.2 74
- secured by
mortgages
on immovable
property 33.4 32.1 12.0 1.0 37 32.0 30.3 11.3 0.9 37
- exposures in
default 3.4 3.1 4.1 0.3 114 3.0 3.0 3.8 0.3 117
- items
associated with
particularly
high risk 5.5 5.3 7.9 0.6 150 4.8 4.2 6.9 0.6 150
- securitisation
positions 16.3 8.1 4.6 0.4 28 2.7 2.5 2.1 0.2 82
- collective
investment
undertakings
('CIU') 0.4 0.5 0.4 - 100 0.6 0.6 0.6 0.1 100
- equity
exposures 2 16.4 16.2 36.3 2.9 220 15.6 13.2 35.0 2.8 223
- other items 12.9 13.7 8.8 0.7 68 11.3 12.5 6.6 0.5 58
---------- -------- --------- ----- -------- ------- -------- --------- ----- -------- -------
Total 2,631.5 2,577.9 676.6 54.2 33 2,511.3 2,480.7 691.1 55.3 35
---------- -------- --------- ----- -------- ------- -------- --------- -------- -------
^ Figures have been prepared on an IFRS 9 transitional basis.
1 Corporates includes specialised lending exposures which are
reported in more detail in Table 75: Specialised lending on
slotting approach (CR10).
2 Equity exposures include investments that are risk weighted at 250%.
3 Average net carrying values are calculated by aggregating net
carrying values of the last five quarters and dividing by five.
Credit quality
We are a universal bank with a conservative approach to credit
risk. This is reflected in our credit risk profile being
diversified across a number of asset classes and geographies with a
credit quality profile mainly concentrated in the higher quality
bands. The following tables present information on the credit
quality of exposures by exposure class, industry and geography. For
further detail on the credit quality of STD exposures, refer to
Table 41 and 74. Information on the credit quality of IRB exposures
can be found in Table 76.
Table 24: Credit quality of exposures by exposure classes and instruments(1)
(CR1-A)
Gross carrying
values of
Credit
risk
Specific adjustment
credit Write-offs charges Net
Defaulted Non-defaulted risk in the of the carrying
exposures exposures adjustments year(2) period(2) values
$bn $bn $bn $bn $bn $bn
----------- --------------- ------------- ------------ ------------ ----------
Central governments and central
1 banks - 346.4 0.1 - - 346.3
2 Institutions - 75.4 - - - 75.4
3 Corporates 6.9 1,044.9 4.3 0.9 1.0 1,047.5
---- --------------------------------------
4 * of which: specialised lending 1.1 50.8 0.5 - - 51.4
--------------------------------------
6 Retail 3.4 553.0 2.0 0.8 1.1 554.4
7 * Secured by real estate property 2.4 316.0 0.3 - - 318.1
--------------------------------------
8 SMEs 0.1 3.6 0.1 - - 3.6
--------------------------------------
9 Non-SMEs 2.3 312.4 0.2 - - 314.5
--------------------------------------
10 * Qualifying revolving retail 0.3 141.0 1.0 0.4 0.6 140.3
11 * Other retail 0.7 96.0 0.7 0.4 0.5 96.0
--------------------------------------
12 SMEs 0.4 7.8 0.3 0.2 0.2 7.9
--------------------------------------
13 Non-SMEs 0.3 88.2 0.4 0.2 0.3 88.1
---- --------------------------------------
15 Total IRB approach 10.3 2,019.7 6.4 1.7 2.1 2,023.6
---- --------------------------------------
Central governments and central
16 banks - 176.9 - - - 176.9
Regional governments or local
17 authorities - 8.9 - - - 8.9
18 Public sector entities - 16.6 - - - 16.6
19 Multilateral development banks - 0.1 - - - 0.1
20 International organisations - 1.6 - - - 1.6
21 Institutions - 2.4 - - - 2.4
22 Corporates 3.7 160.3 2.0 0.5 0.2 162.0
24 Retail 1.0 71.7 1.4 0.7 0.8 71.3
25 - of which: SMEs - 1.3 0.1 - - 1.2
Secured by mortgages on immovable
26 property 0.7 33.5 0.2 - - 34.0
27 - of which: SMEs - 0.1 - - - 0.1
28 Exposures in default 5.4 - 2.0 1.2 1.0 3.4
Items associated with particularly
29 high risk 0.1 5.4 - - - 5.5
Collective investment undertakings
32 ('CIU') - 0.4 - - - 0.4
33 Equity exposures - 16.4 - - - 16.4
34 Other exposures - 12.9 - - - 12.9
35 Total standardised approach 5.5 507.1 3.6 1.2 1.0 509.0
---- --------------------------------------
36 Total at 31 Dec 2019 15.8 2,526.8 10.0 2.9 3.1 2,532.6
---- --------------------------------------
- of which: loans 14.6 1,274.0 9.4 2.9 3.1 1,279.2
- of which: debt securities - 377.4 0.1 - - 377.3
- of which: off-balance sheet
exposures 1.2 837.5 0.5 - - 838.2
---- --------------------------------------
Table 24: Credit quality of exposures by exposure classes and instruments(1)
(CR1-A) (continued)
Gross carrying
values of
Credit
risk
Specific adjustment
credit Write-offs charges
Defaulted Non-defaulted risk in the of the Net carrying
exposures exposures adjustments year(2) period(2) values
$bn $bn $bn $bn $bn $bn
------------ --------------- -------------- ------------ ------------- --------------
Central governments
and central
1 banks - 331.8 0.1 - - 331.7
2 Institutions - 81.1 - - - 81.1
3 Corporates 6.9 1,024.0 4.1 0.8 0.5 1,026.8
- of which:
4 specialised lending 0.8 49.3 0.4 - 0.1 49.7
6 Retail 3.3 481.8 1.8 0.7 0.9 483.3
- Secured by real
7 estate property 2.5 287.3 0.4 - 0.1 289.4
8 SMEs 0.1 3.5 0.1 - 0.1 3.5
9 Non-SMEs 2.4 283.8 0.3 - - 285.9
- Qualifying
10 revolving retail 0.1 132.7 0.7 0.3 0.4 132.1
11 - Other retail 0.7 61.8 0.7 0.4 0.4 61.8
12 SMEs 0.3 7.5 0.3 0.2 0.2 7.5
13 Non-SMEs 0.4 54.3 0.4 0.2 0.2 54.3
15 Total IRB approach 10.2 1,918.7 6.0 1.5 1.4 1,922.9
----
Central governments
and central
16 banks - 163.9 - - - 163.9
Regional governments
or local
17 authorities - 7.3 - - - 7.3
Public sector
18 entities - 12.2 - - - 12.2
Multilateral
19 development banks - 0.2 - - - 0.2
International
20 organisations - 1.6 - - - 1.6
21 Institutions - 3.4 - - - 3.4
22 Corporates 3.3 180.0 2.1 0.3 0.4 181.2
24 Retail 1.1 64.9 1.5 0.7 0.5 64.5
25 - of which: SMEs - 1.2 - - - 1.2
Secured by mortgages
on immovable
26 property 0.6 32.1 0.2 - - 32.5
27 - of which: SMEs - 0.1 - - - 0.1
28 Exposures in default 5.1 - 2.1 1.0 0.8 3.0
Items associated
with particularly
29 high risk 0.1 4.7 - - - 4.8
Collective
investment
undertakings
32 ('CIU') - 0.6 - - - 0.6
33 Equity exposures - 15.6 - - - 15.6
34 Other exposures - 11.3 - - - 11.3
Total standardised
35 approach 5.1 497.8 3.8 1.0 0.9 499.1
36 Total at 31 Dec 2018 15.3 2,416.5 9.8 2.5 2.3 2,422.0
----
- of which: loans 13.7 1,233.4 9.1 2.5 2.3 1,238.0
- of which: debt
securities - 348.5 - - - 348.5
- of which:
off-balance sheet
exposures 1.6 798.7 0.6 - - 799.7
1 Securitisation positions and non-credit obligation assets are not included in this table.
2 Presented on a year-to-date basis.
Table 25: Credit quality of exposures by industry or counterparty types(1),
(2) (CR1-B)
Gross carrying
values of
Credit
risk
Specific adjustment
credit Write-offs charges
Defaulted Non-defaulted risk in the of the Net carrying
exposures exposures adjustments year(3) period(3) values
$bn $bn $bn $bn $bn $bn
1 Agriculture 0.3 9.7 0.2 - - 9.8
Mining & oil
2 extraction 0.4 41.1 0.3 - - 41.2
3 Manufacturing 1.8 261.3 1.4 0.6 0.8 261.7
4 Utilities 0.2 32.2 0.1 0.1 - 32.3
5 Water supply - 3.4 - - - 3.4
6 Construction 1.2 46.1 0.6 0.2 0.1 46.7
Wholesale &
7 retail trade 2.1 204.3 1.3 0.3 0.3 205.1
Transportation &
8 storage 0.4 44.6 0.2 - - 44.8
Accommodation &
9 food services 0.3 29.0 0.1 0.1 0.1 29.2
Information &
10 communication - 16.8 0.1 - - 16.7
Financial &
11 insurance 0.4 535.0 0.3 - 0.1 535.1
---------- ------------- ------------ ------------ --------- ------------
12 Real estate 1.2 196.0 0.7 - 0.1 196.5
Professional
13 activities 0.1 28.0 0.1 - - 28.0
Administrative
14 service 2.0 154.9 0.9 - 0.1 156.0
Public admin &
15 defence 0.2 214.1 0.2 - (0.2) 214.1
16 Education - 3.6 - - - 3.6
Human health &
17 social work 0.2 7.1 0.1 - - 7.2
Arts &
18 entertainment - 7.0 - 0.1 - 7.0
19 Other services 0.2 17.6 0.1 - 0.1 17.7
20 Personal 4.8 631.6 3.3 1.5 1.6 633.1
Extra-territorial
21 bodies - 43.4 - - - 43.4
---------- ------------- ------------ ------------ --------- ------------
Total at 31 Dec
22 2019 15.8 2,526.8 10.0 2.9 3.1 2,532.6
---- ---------- ------------- ------------ ------------ ---------
1 Agriculture 0.3 8.6 0.1 - - 8.8
Mining & oil
2 extraction 0.5 40.9 0.3 0.1 (0.1) 41.1
3 Manufacturing 2.0 255.6 1.4 0.4 0.3 256.2
4 Utilities 0.1 31.5 0.2 - - 31.4
5 Water supply - 3.6 - - - 3.6
6 Construction 1.4 39.8 0.6 - 0.2 40.6
Wholesale &
7 retail trade 2.2 203.4 1.3 0.3 0.4 204.3
Transportation &
8 storage 0.4 45.0 0.2 - 0.1 45.2
Accommodation &
9 food services 0.4 27.2 0.2 - - 27.4
----
Information &
10 communication - 18.8 0.1 - 0.1 18.7
----
Financial &
11 insurance 0.3 531.4 0.2 0.1 (0.1) 531.5
----
12 Real estate 1.0 189.3 0.6 - 0.2 189.7
----
Professional
13 activities 0.2 28.5 0.1 - 0.1 28.6
----
Administrative
14 service 1.1 146.3 0.9 0.1 0.1 146.5
Public admin &
15 defence 0.4 192.0 0.4 - - 192.0
16 Education - 3.5 - - - 3.5
Human health &
17 social work 0.2 6.9 0.1 - - 7.0
Arts &
18 entertainment - 8.5 - - - 8.5
19 Other services 0.2 13.0 0.1 - - 13.1
20 Personal 4.6 572.8 3.0 1.5 1.0 574.4
Extra-territorial
21 bodies - 49.9 - - - 49.9
----
Total at 31 Dec
22 2018 15.3 2,416.5 9.8 2.5 2.3 2,422.0
----
1 Securitisation positions and non-credit obligation assets are not included in this table.
2 The industry classifications of this disclosure have been
revised. 31 December 2018 data has been restated to be on a
consistent basis with the current year.
3 Presented on a year-to-date basis.
Table 26: Credit quality of exposures by geography(1) (CR1-C)
Gross carrying
values of
Credit
risk
Specific adjustment
credit Write-offs charges
Defaulted Non-defaulted risk in the of the Net carrying
exposures exposures adjustments year(2) period(2) values
$bn $bn $bn $bn $bn $bn
1 Europe 7.1 811.5 3.8 1.1 1.2 814.8
2 - United Kingdom 4.6 505.5 2.7 0.8 1.0 507.4
3 - France 1.2 136.5 0.6 0.1 0.2 137.1
4 - Other countries 1.3 169.5 0.5 0.2 - 170.3
5 Asia 2.5 1,056.3 2.3 0.6 0.8 1,056.5
6 - Hong Kong 0.7 531.7 0.9 0.2 0.4 531.5
7 - China 0.3 163.3 0.4 0.1 0.2 163.2
8 - Singapore 0.2 76.5 0.2 - 0.1 76.5
9 - Australia 0.2 59.4 0.1 - - 59.5
10 - Other countries 1.1 225.4 0.7 0.3 0.1 225.8
11 MENA 3.5 145.2 2.1 0.4 0.1 146.6
12 North America 1.9 439.8 0.7 0.2 0.3 441.0
- United States of
13 America 1.2 311.0 0.4 0.2 0.2 311.8
14 - Canada 0.3 112.5 0.2 - 0.1 112.6
15 - Other countries 0.4 16.3 0.1 - - 16.6
----
16 Latin America 0.8 60.3 1.1 0.6 0.7 60.0
Other geographical
17 areas - 13.7 - - - 13.7
Total at 31 Dec
18 2019 15.8 2,526.8 10.0 2.9 3.1 2,532.6
----
1 Europe 6.7 780.1 3.8 0.9 1.0 783.0
2 - United Kingdom 4.1 474.2 2.4 0.8 0.9 475.9
3 - France 1.0 127.2 0.6 0.1 - 127.6
4 - Other countries 1.6 178.7 0.8 - 0.1 179.5
5 Asia 2.8 1,001.7 2.1 0.6 0.8 1,002.4
6 - Hong Kong 0.9 497.5 0.7 0.3 0.1 497.7
7 - China 0.3 157.3 0.3 0.1 0.2 157.3
8 - Singapore 0.2 71.9 0.2 - 0.1 71.9
9 - Australia 0.2 52.5 0.2 - - 52.5
10 - Other countries 1.2 222.5 0.7 0.2 0.4 223.0
11 MENA 2.9 137.3 2.3 0.3 0.3 137.9
12 North America 2.0 419.4 0.6 0.2 (0.1) 420.8
- United States of
13 America 1.3 295.1 0.3 0.1 - 296.1
14 - Canada 0.2 107.5 0.2 0.1 - 107.5
15 - Other countries 0.5 16.8 0.1 - (0.1) 17.2
16 Latin America 0.9 62.9 1.0 0.5 0.3 62.8
Other geographical
17 areas - 15.1 - - - 15.1
Total at 31 Dec
18 2018 15.3 2,416.5 9.8 2.5 2.3 2,422.0
----
1 Amounts shown by geographical region and country/territory in
this table are based on the country/territory of residence of the
counterparty. Securitisation positions and non-credit obligation
assets are not included in this table.
2 Presented on a year-to-date basis.
Table 27: Changes in stock of general and specific credit risk adjustments
(CR2-A)
Twelve months to 31 Dec
2019 2018
Accumulated Accumulated
Accumulated Accumulated specific general
specific general credit credit
credit credit risk risk
risk adjustments risk adjustments adjustments adjustments
Footnotes $bn $bn $bn $bn
---- ------------ ------------------- -------------------
Opening balance at the
beginning of
1 the period 9.8 - 10.4 -
------------
Increases due to amounts
set aside for
estimated loan losses
2 during the period 1 3.1 - 2.3 -
---- ------------
Decreases due to amounts
taken against
accumulated credit risk
4 adjustments (2.9) - (2.5) -
Impact of exchange rate
6 differences - - (0.4) -
Closing balance at the
9 end of the period 10.0 - 9.8 -
Recoveries on credit
risk adjustments
recorded directly to the
statement of
10 profit or loss 0.4 - 0.4 -
---- ------------ -------------- --- -----------------
1 Following adoption of IFRS 9 'Financial Instruments', the
movement due to amounts set aside for estimated loan losses during
the period has been reported on a net basis.
Table 28: Changes in stock of defaulted loans and debt securities (CR2-B)
Twelve months
to 31 Dec
2019 2018
Gross Gross
carrying carrying
value value
Footnotes $bn $bn
Defaulted loans and debt securities at the beginning
1 of the period 13.7 15.1
-----------------------------------------------------
2 Loans and debt securities that have defaulted since
the last reporting period 6.5 5.7
3 Returned to non-defaulted status (1.0) (1.3)
--------
4 Amounts written off (2.9) (2.5)
5 Other changes 1 (0.1) (0.8)
----------
7 Repayments (1.6) (2.5)
----------------------------------------------------- --------
6 Defaulted loans and debt securities at the end of
the period 14.6 13.7
---------- --------
1 Other changes include foreign exchange movements and changes
in assets held for sale in default.
Non-performing and forborne exposures
Tables 29 to 32 are presented in accordance with the EBA's
'Guidelines on disclosure of non-performing and forborne
exposures'.
The EBA defines non-performing exposures as exposures with
material amounts that are more than 90 days past due or exposures
where the debtor is assessed as unlikely to pay its credit
obligations in full without the realisation of collateral,
regardless of the existence of any past due amounts or number days
past due. Any debtors that are in default for regulatory purposes
or impaired under the applicable accounting framework are always
considered as non-performing exposures. The Annual Report and
Accounts 2019 does not define non-performing exposures, however,
the definition of credit-impaired (stage 3) is aligned to the EBA's
definition of non-performing exposures.
Forborne exposures are defined by the EBA as exposures where the
bank has made concessions toward a debtor that is
experiencing or about to experience financial difficulties in
meeting its financial commitments. In the Annual Report and
Accounts 2019, forborne exposures are reported as 'renegotiated
loans'. This term is aligned to the EBA definition of forborne
exposure, except in its treatment of 'cures'.
Under the EBA definition, exposures cease to be reported as
forborne if they pass three tests:
-- the forborne exposure must have been considered to be
performing for a 'probation period' of at least two years;
-- regular payments of more than an insignificant aggregate
amount of principal or interest have been made during at least half
of the probation period; and
-- no exposure to the debtor is more than 30 days past due at the end of the probation period.
In the Annual Report and Accounts 2019, renegotiated loans
retain this classification until maturity or de-recognition.
Table 29: Credit quality of forborne exposures
Gross carrying amount/nominal Accumulated impairment,
amount accumulated negative Collateral received
changes in fair and financial
value due to credit guarantees received
risk and provisions on forborne exposures
Non-performing
forborne
On On Of which
performing non-performing forborne
Performing Of which Of which forborne forborne non-performing
forborne Total defaulted impaired exposures exposures Total exposures
$bn $bn $bn $bn $bn $bn $bn $bn
------------ ---------- ----------------
At 31 Dec
2019
Loans and
1 advances 1.7 5.7 5.7 5.7 - (1.8) 3.2 2.4
2 Central banks - - - - - - - -
General
3 governments - - - - - - - -
----
Credit
4 institutions - - - - - - - -
Other
financial
5 corporations - - - - - - - -
Non-financial
6 corporations 1.7 3.5 3.5 3.5 - (1.4) 1.8 1.0
7 Households - 2.2 2.2 2.2 - (0.4) 1.4 1.4
Debt
8 securities - - - - - - - -
---- ----
Loan
commitments
9 given - 0.1 0.1 0.1 - - 0.1 0.1
10 Total 1.7 5.8 5.8 5.8 - (1.8) 3.3 2.5
---- ---
Table 30 presents an analysis of performing and non-performing
exposures by days past due. The gross non-performing loan ('NPL')
ratio at 31 Dec 2019 was 0.94% calculated in line with the EBA
guidelines.
Table 30: Credit quality of performing and non-performing exposures
by past due days
Gross carrying amount/nominal amount(1)
Performing exposures Non-performing exposures
Unlikely
to pay
but
Not not
past Past past Past Past Past Past Past
due due due due due due due due
or past > 30 or past > 90 > 180 > 1 > 2 > 5 Past
due days due days days year years years due
<= 30 <= 90 <= 90 <= 180 <= 1 <= 2 <= 5 <= 7 > 7 of which:
Total days days Total days days year years years years years defaulted
$bn $bn $bn $bn $bn $bn $bn $bn $bn $bn $bn $bn
At 31 Dec 2019
Loans and
1 advances 1,535.0 1,533.2 1.8 14.6 7.4 2.8 0.8 1.1 1.7 0.3 0.5 14.6
2 Central banks 191.7 191.7 - - - - - - - - - -
General
3 governments 9.9 9.9 - - - - - - - - - -
Credit
4 institutions 126.0 126.0 - - - - - - - - - -
Other financial
5 corporations 238.5 238.4 0.1 0.3 0.3 - - - - - - 0.3
Non-financial
6 corporations 537.6 537.2 0.4 9.5 4.8 1.9 0.3 0.8 1.1 0.2 0.4 9.5
8 Households 431.3 430.0 1.3 4.8 2.3 0.9 0.5 0.3 0.6 0.1 0.1 4.8
9 Debt securities 381.2 381.2 - - - - - - - - - -
---------
10 Central banks 66.9 66.9 - - - - - - - - - -
---------
General
11 governments 229.9 229.9 - - - - - - - - - -
Credit
12 institutions 36.8 36.8 - - - - - - - - - -
Other financial
13 corporations 41.0 41.0 - - - - - - - - - -
Non-financial
14 corporations 6.6 6.6 - - - - - - - - - -
Off-balance-sheet
15 exposures 709.5 N/A N/A 1.2 N/A N/A N/A N/A N/A N/A N/A 1.2
---------
16 Central banks 0.1 N/A N/A - N/A N/A N/A N/A N/A N/A N/A -
General
17 governments 2.7 N/A N/A - N/A N/A N/A N/A N/A N/A N/A -
Credit
18 institutions 56.3 N/A N/A - N/A N/A N/A N/A N/A N/A N/A -
Other financial
19 corporations 54.9 N/A N/A - N/A N/A N/A N/A N/A N/A N/A -
Non-financial
20 corporations 373.1 N/A N/A 1.0 N/A N/A N/A N/A N/A N/A N/A 1.0
21 Households 222.4 N/A N/A 0.2 N/A N/A N/A N/A N/A N/A N/A 0.2
22 Total 2,625.7 1,914.4 1.8 15.8 7.4 2.8 0.8 1.1 1.7 0.3 0.5 15.8
1 Includes reverse repos and settlement accounts
The table below provides information on the instruments that
were cancelled in exchange for collateral obtained by taking
possession and on the value of the collateral obtained by taking
possession. The value at initial recognition represents the gross
carrying amount of the collateral obtained by taking possession at
initial recognition on the balance sheet, whilst the accumulated
negative changes is the accumulated impairment or negative change
on the initial recognition value of the collateral obtained by
taking possession including amortisation in the case of PP&E
and investment properties.
Table 31: Collateral obtained by taking possession and execution processes
At 31 Dec 2019
Collateral obtained
by taking possession
Value Accumulated
at initial negative
recognition changes
$bn $bn
1 Property, plant and equipment (PP&E) - -
2 Other than PP&E 0.1 -
3 Residential immovable property 0.1 -
8 Total 0.1 -
The following table provides information on the gross carrying
amount of exposures and related impairment with further detail on
the IFRS 9 stage, accumulated partial write off and collateral. The
IFRS 9 stages have the following characteristics:
-- stage 1: These financial assets are unimpaired and without a
significant increase in credit risk. 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. 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. A lifetime ECL is recognised.
-- Purchased or originated credit-impaired ('POCI'): Financial
assets purchased or originated at a deep discount are seen to
reflect incurred credit losses. A lifetime ECL is recognised. These
exposures are included in stage 3 in table 32 below.
Refer to the section 'EL and credit risk adjustments' on page 44
for further information on IFRS 9.
Credit-impaired (stage 3) exposures are disclosed on page 105
and 120 of the Annual Report and Accounts 2019.
Table 32: Performing and non-performing exposures and related provisions
Accumulated impairment, Collaterals
accumulated negative changes and financial
Gross carrying amount/nominal in fair value due to credit guarantees
amount(1) risk and provisions received
Performing Non-performing Performing Non-performing
exposures exposures exposures exposures
of of of of of of of On On
of which which which which which which which which Accu-mulated perfor-ming non-perfo-rming
stage stage stage stage stage stage stage stage partial expo- expo-
1 2 2 3 1 2 2 3 write-off sures sures
$bn $bn $bn $bn $bn $bn $bn $bn $bn $bn $bn $bn $bn $bn $bn
--------------
At 31
Dec 2019
Loans
1 and advances 1,535.0 1,448.0 82.0 14.6 - 14.6 (3.8) (1.4) (2.5) (5.5) - (5.5) (0.5) 931.4 5.6
----
Central
2 banks 191.7 190.4 1.3 - - - - - - - - - - 8.3 -
General
3 governments 9.9 9.3 0.6 - - - - - - - - - - 2.1 -
Credit
4 institutions 126.0 125.8 0.1 - - - - - - - - - - 83.9 -
Other
financial
5 corporations 238.5 229.4 5.2 0.3 - 0.3 (0.1) (0.1) (0.1) (0.2) - (0.2) - 169.3 -
Non-financial
6 corporations 537.6 477.7 59.2 9.5 - 9.5 (1.7) (0.7) (1.0) (4.1) - (4.1) (0.2) 295.0 2.7
8 Households 431.3 415.4 15.6 4.8 - 4.8 (2.0) (0.6) (1.4) (1.2) - (1.2) (0.3) 372.8 2.9
----
9 Debt securities 381.2 379.6 0.4 - - - (0.1) - (0.1) - - - - 19.3 -
-----
Central
10 banks 66.9 66.8 0.1 - - - - - - - - - - - -
-----
General
11 governments 229.9 229.0 0.2 - - - (0.1) - (0.1) - - - - 6.3 -
Credit
12 institutions 36.8 36.8 0.1 - - - - - - - - - - - -
Other
financial
13 corporations 41.0 40.6 - - - - - - - - - - - 13.0 -
Non-financial
14 corporations 6.6 6.4 - - - - - - - - - - - - -
Off-balance-sheet
15 exposures 709.5 614.6 24.0 1.2 - 1.2 (0.4) (0.1) (0.2) (0.2) - (0.1) 117.5 0.1
Central
16 banks 0.1 0.1 - - - - - - - - - - - -
General
17 governments 2.7 1.7 0.1 - - - - - - - - - 0.3 -
Credit
18 institutions 56.3 52.6 - - - - - - - - - - 0.4 -
Other
financial
19 corporations 54.9 51.2 1.4 - - - (0.1) - - - - - 6.9 -
Non-financial
20 corporations 373.1 288.2 20.9 1.0 - 1.0 (0.3) (0.1) (0.2) (0.2) - (0.1) 60.6 0.1
21 Households 222.4 220.8 1.6 0.2 - 0.2 - - - - - - 49.3 -
22 Total 2,625.7 2,442.2 106.4 15.8 - 15.8 (4.3) (1.5) (2.8) (5.7) - (5.6) (0.5) 1,068.2 5.7
----
1 Includes reverse repos and settlement accounts.
Table 33 analyses past due unimpaired and credit-impaired
exposures on a regulatory consolidation basis using accounting
values. There are no material differences between the regulatory
and accounting scope of consolidation.
All amounts past due more than 90 days are considered credit
impaired even where regulatory rules deem default as 180 days past
due.
Table 33: Amount of past due unimpaired and credit-impaired exposures
by geographical region
Europe Asia MENA North America Latin America Total
At 31 Dec 2019 $bn $bn $bn $bn $bn $bn
Past due 4.2 5.0 3.2 2.1 1.2 15.7
- personal 2.1 2.7 0.7 1.5 0.6 7.6
- corporate and commercial 2.1 1.7 2.5 0.5 0.5 7.3
- financial - 0.6 - 0.1 0.1 0.8
At 31 Dec 2018
Past due 5.0 5.2 3.3 2.3 1.3 17.1
- personal 2.1 2.6 0.8 1.5 0.6 7.6
- corporate and commercial 2.9 2.4 2.3 0.8 0.7 9.1
- financial - 0.2 0.2 - - 0.4
Concentration risk
Concentrations of credit risk arise when a number of
counterparties or exposures have comparable economic
characteristics, are engaged in similar activities or operate in
the same geographical areas or industry sectors so that their
collective ability to meet contractual obligations is uniformly
affected by changes in economic, political or other conditions.
We have a number of global businesses with a broad range of
products. We operate in a number of geographical markets with the
majority of our exposures in Asia and Europe. We use a number of
controls and measures to minimise undue concentration of exposure
in our portfolios across industries, countries and global
businesses. These include portfolio
and counterparty limits, approval and review controls, and
stress
testing. The following tables present information on the
concentration of exposures by geography and industry.
Table 34: Geographical breakdown of exposures (CRB-C)
Net carrying values(1,2)
Of which: Of which:
United Other Hong Other
Europe Kingdom France countries Asia Kong China Singapore Australia countries
$bn $bn $bn $bn $bn $bn $bn $bn $bn $bn
-------- ------- ----------- -----------
IRB approach
exposure
classes
-------- ------- ----------- -----------
Central
governments
and central
1 banks 3.7 0.1 - 3.6 172.0 54.1 28.7 15.8 8.9 64.5
2 Institutions 23.4 12.5 1.6 9.3 34.7 4.1 12.2 2.5 4.1 11.8
3 Corporates 308.1 169.0 47.4 91.7 461.0 216.3 85.6 32.8 24.6 101.7
4 Retail 243.3 214.1 26.6 2.6 251.6 202.2 5.9 12.3 17.3 13.9
Total IRB
6 approach 578.5 395.7 75.6 107.2 919.3 476.7 132.4 63.4 54.9 191.9
Standardised
approach
exposure
classes -
--- -------- ------- ----------- --------- -----------
Central
governments
and central
7 banks 172.1 99.4 50.5 22.2 0.9 0.4 - - 0.1 0.4
Regional
governments
or local
8 authorities 2.8 - - 2.8 - - - - - -
Public sector
9 entities 16.6 - 2.9 13.7 - - - - - -
Multilateral
development
10 banks - - - - - - - - - -
International
11 organisations - - - - - - - - - -
12 Institutions 1.0 0.1 0.8 0.1 0.1 - 0.1 - - -
13 Corporates 23.0 2.8 3.6 16.6 53.7 32.3 5.7 4.9 2.6 8.2
14 Retail 3.1 1.3 0.3 1.5 45.0 11.7 4.8 7.5 1.8 19.2
Secured by
mortgages
on immovable
15 property 7.6 2.4 1.0 4.2 16.7 3.6 8.0 0.6 0.1 4.4
Exposures in
16 default 0.6 0.1 0.1 0.4 0.4 0.1 - - - 0.3
Items
associated
with
particularly
high
17 risk 3.4 1.1 0.9 1.4 - - - - - -
Collective
investment
undertakings
20 ('CIU') 0.4 0.4 - - - - - - - -
Equity
21 exposures 1.7 1.1 0.5 0.1 13.4 1.8 11.4 0.1 - 0.1
Other
22 exposures 4.0 3.0 0.9 0.1 7.0 4.9 0.8 - - 1.3
Total
standardised
23 approach 236.3 111.7 61.5 63.1 137.2 54.8 30.8 13.1 4.6 33.9
Total at 31
24 Dec 2019 814.8 507.4 137.1 170.3 1,056.5 531.5 163.2 76.5 59.5 225.8
--- --------- ------- --------- --------- ---------
Table 34: Geographical breakdown of exposures (CRB-C)
Net carrying values(1,2)
Of which:
United
North States Other Latin
MENA America of America Canada countries America Other Total
$bn $bn $bn $bn $bn $bn $bn $bn
------- ---------- ------------- -------- ------------ ---------- ------- ---------
IRB approach exposure
classes
--- ------- ---------- ------------- -------- ------------ ---------- ------- ---------
Central governments
and
1 central banks 20.4 129.3 108.4 20.8 0.1 8.9 12.0 346.3
2 Institutions 6.2 10.3 2.1 8.2 - 0.8 - 75.4
3 Corporates 48.5 223.1 159.3 55.6 8.2 6.8 - 1,047.5
4 Retail 3.5 55.8 27.4 25.1 3.3 0.2 - 554.4
6 Total IRB approach 78.6 418.5 297.2 109.7 11.6 16.7 12.0 2,023.6
---
Standardised approach
exposure
classes
--- ------- ---------- ------------- -------- ------------ ---------- ------- ---------
Central governments
and
7 central banks 1.7 1.7 1.6 0.1 - 0.5 - 176.9
Regional governments
or
8 local authorities 5.0 - - - - 1.1 - 8.9
Public sector
9 entities - - - - - - - 16.6
Multilateral
development
10 banks - - - - - - 0.1 0.1
International
11 organisations - - - - - - 1.6 1.6
12 Institutions 1.3 - - - - - - 2.4
13 Corporates 44.8 10.6 7.6 0.7 2.3 27.7 - 159.8
14 Retail 8.7 4.6 2.3 1.9 0.4 9.3 - 70.7
Secured by mortgages
on
15 immovable property 3.9 1.8 0.6 0.1 1.1 3.4 - 33.4
16 Exposures in default 1.6 0.3 - - 0.3 0.5 - 3.4
Items associated with
particularly
17 high risk 0.2 1.8 0.9 - 0.9 0.1 - 5.5
Collective investment
undertakings
20 ('CIU') - - - - - - - 0.4
21 Equity exposures 0.2 1.0 1.0 - - 0.1 - 16.4
22 Other exposures 0.6 0.7 0.6 0.1 - 0.6 - 12.9
Total standardised
23 approach 68.0 22.5 14.6 2.9 5.0 43.3 1.7 509.0
---
24 Total at 31 Dec 2019 146.6 441.0 311.8 112.6 16.6 60.0 13.7 2,532.6
--- ----- -------- ----------- ------ ---------- -------- ----- -------
Table 34: Geographical breakdown of exposures (CRB-C) (continued)
Net carrying values(1,2)
Of which: Of which:
United Other Hong Other
Europe Kingdom France countries Asia Kong China Singapore Australia countries
$bn $bn $bn $bn $bn $bn $bn $bn $bn $bn
IRB approach
exposure
classes
Central
governments
and central
1 banks 4.3 0.4 0.1 3.8 172.4 52.9 29.7 15.4 7.2 67.2
2 Institutions 23.1 8.7 1.8 12.6 40.8 7.0 13.9 2.6 4.4 12.9
3 Corporates 307.9 171.7 47.2 89.0 440.9 207.9 79.8 32.2 22.9 98.1
4 Retail 228.1 201.0 25.1 2.0 199.9 161.5 5.4 6.8 13.8 12.4
Total IRB
6 approach 563.4 381.8 74.2 107.4 854.0 429.3 128.8 57.0 48.3 190.6
-------
Standardised
approach
exposure
classes
Central
governments
and central
7 banks 158.6 82.7 45.3 30.6 0.8 0.5 - - 0.1 0.2
Regional
governments
or local
8 authorities 2.7 - - 2.7 - - - - - -
Public sector
9 entities 12.1 - 0.2 11.9 - - - - - -
Multilateral
development
10 banks - - - - - - - - - -
International
11 organisations - - - - - - - - - -
12 Institutions 1.0 - 0.9 0.1 0.2 0.1 - - - 0.1
13 Corporates 27.3 2.9 4.2 20.2 69.3 45.3 5.5 7.8 2.0 8.7
14 Retail 3.0 1.2 0.4 1.4 40.2 10.5 3.8 6.6 1.9 17.4
Secured by
mortgages
on immovable
15 property 5.5 1.4 0.8 3.3 18.8 6.2 7.5 0.4 0.2 4.5
Exposures in
16 default 0.6 0.1 - 0.5 0.4 0.1 - - - 0.3
Items
associated
with
particularly
high
17 risk 2.9 1.3 0.5 1.1 - - - - - -
Collective
investment
undertakings
20 ('CIU') 0.6 0.6 - - - - - - - -
Equity
21 exposures 1.5 0.9 0.5 0.1 12.5 1.5 10.8 0.1 - 0.1
Other
22 exposures 3.8 3.0 0.6 0.2 6.2 4.2 0.9 - - 1.1
Total
standardised
23 approach 219.6 94.1 53.4 72.1 148.4 68.4 28.5 14.9 4.2 32.4
-------
Total at 31
24 Dec 2018 783.0 475.9 127.6 179.5 1,002.4 497.7 157.3 71.9 52.5 223.0
-------
Table 34: Geographical breakdown of exposures (CRB-C) (continued)
Net carrying values(1,2)
Of which:
United
North States Other Latin
MENA America of America Canada countries America Other Total
$bn $bn $bn $bn $bn $bn $bn $bn
IRB approach exposure
classes
---
Central governments
1 and central banks 17.1 111.9 89.2 22.7 - 12.8 13.2 331.7
2 Institutions 6.3 10.2 1.9 8.0 0.3 0.6 0.1 81.1
3 Corporates 45.8 223.2 162.8 51.8 8.6 9.0 - 1,026.8
4 Retail 2.4 52.6 27.8 22.3 2.5 0.3 - 483.3
6 Total IRB approach 71.6 397.9 281.7 104.8 11.4 22.7 13.3 1,922.9
---
Standardised approach
exposure classes
---
Central governments
7 and central banks 1.7 2.2 2.1 0.1 - 0.6 - 163.9
Regional governments
8 or local authorities 3.7 - - - - 0.9 - 7.3
Public sector
9 entities - - - - - 0.1 - 12.2
Multilateral
development
10 banks - - - - - - 0.2 0.2
International
11 organisations - - - - - - 1.6 1.6
12 Institutions 2.1 - - - - 0.1 - 3.4
13 Corporates 44.7 12.3 8.4 0.8 3.1 25.8 - 179.4
14 Retail 8.7 2.9 0.7 1.7 0.5 9.0 - 63.8
Secured by mortgages
15 on immovable property 3.4 1.7 0.6 0.1 1.0 2.6 - 32.0
16 Exposures in default 1.1 0.4 0.1 - 0.3 0.5 - 3.0
Items associated with
particularly high
17 risk 0.2 1.6 0.8 - 0.8 0.1 - 4.8
Collective investment
20 undertakings ('CIU') - - - - - - - 0.6
21 Equity exposures 0.2 1.2 1.1 - 0.1 0.2 - 15.6
22 Other exposures 0.5 0.6 0.6 - - 0.2 - 11.3
Total standardised
23 approach 66.3 22.9 14.4 2.7 5.8 40.1 1.8 499.1
---
24 Total at 31 Dec 2018 137.9 420.8 296.1 107.5 17.2 62.8 15.1 2,422.0
---
1 Amounts shown by geographical region and country/territory in
this table are based on the country/territory of residence of the
counterparty.
2 Securitisation positions and non-credit obligation assets are not included in this table.
Table 35: Concentration of exposures by industry or counterparty types(1)
(CRB-D)
Whole-sale Accom-modation
Mining/oil Water & retail Trans-portation & food Infor-mation Financial
Agriculture extraction Manufac-turing Utilities supply Construction trade & storage services & commun-ication & insurance
Net carrying
values(1) $bn $bn $bn $bn $bn $bn $bn $bn $bn $bn $bn
Central
governments
and central
1 banks - - 0.1 0.5 - - 0.1 0.1 - - 150.2
2 Institutions - 0.5 0.3 0.4 - 0.1 0.1 0.2 - 0.1 69.9
3 Corporates 7.7 35.3 234.6 27.7 3.1 38.0 181.8 41.1 25.5 14.3 111.9
4 Retail 1.0 - 0.8 - - 0.3 1.4 0.2 0.4 0.1 4.8
Total IRB
6 approach 8.7 35.8 235.8 28.6 3.1 38.4 183.4 41.6 25.9 14.5 336.8
---- ----------- ------------
Central
governments
and central
7 banks - - - - - - - - - 0.1 132.0
Regional
governments
or local
8 authorities - - - - - - - - - - 0.3
Public sector
9 entities - - 0.1 - - - - - - - 13.6
Multilateral
development
10 banks - - - - - - - - - - 0.1
International
11 organisations - - - - - - - - - - -
12 Institutions - - - - - - - - - - 2.4
13 Corporates 1.0 5.4 25.0 3.7 0.3 7.8 21.3 3.0 3.1 2.1 15.6
14 Retail 0.1 - 0.4 - - - 0.2 0.2 - - -
Secured by
mortgages
on immovable
15 property - - - - - 0.3 - - 0.1 - 0.1
Exposures
16 in default - - 0.4 - - 0.2 0.2 - 0.1 - 0.1
Items
associated
with
particularly
17 high risk - - - - - - - - - - 4.8
Collective
investment
undertakings
20 ('CIU') - - - - - - - - - - 0.4
Equity
21 exposures - - - - - - - - - - 16.2
Other
22 exposures - - - - - - - - - - 12.7
Total STD
23 approach 1.1 5.4 25.9 3.7 0.3 8.3 21.7 3.2 3.3 2.2 198.3
Total at 31
24 Dec 2019 9.8 41.2 261.7 32.3 3.4 46.7 205.1 44.8 29.2 16.7 535.1
---- ----------- ------------
Table 35: Concentration of exposures by industry or counterparty types
(CRB-D)
Human
Public health
Real Professional Adminis-trative admin & social Arts Other Extra-territorial
estate activities services & defence Education work & enter-tainment services Personal bodies Total
Net carrying
values(1) $bn $bn $bn $bn $bn $bn $bn $bn $bn $bn $bn
Central
governments
and central
1 banks - - - 164.8 - 0.2 - 0.3 - 30.0 346.3
2 Institutions 0.2 - - 1.9 0.1 0.2 - - - 1.4 75.4
3 Corporates 180.7 26.4 87.3 2.6 3.1 5.7 6.3 14.0 0.4 - 1,047.5
4 Retail 0.8 - 15.9 - 0.3 0.2 0.1 0.2 527.9 - 554.4
Total IRB
6 approach 181.7 26.4 103.2 169.3 3.5 6.3 6.4 14.5 528.3 31.4 2,023.6
--- ------------ --------------- --------- -------
Central
governments
and central
7 banks(3) - - - 33.5 - - - 1.5 - 9.8 176.9
Regional
governments
or local
8 authorities - - - 8.6 - - - - - - 8.9
Public sector
9 entities - - - 2.2 - - - 0.1 - 0.6 16.6
Multilateral
development
10 banks - - - - - - - - - - 0.1
International
11 organisations - - - - - - - - - 1.6 1.6
12 Institutions - - - - - - - - - - 2.4
13 Corporates 13.0 1.5 51.0 0.5 0.1 0.8 0.6 1.6 2.4 - 159.8
14 Retail - - 0.2 - - - - - 69.6 - 70.7
Secured by
mortgages
on immovable
15 property 1.1 - 0.2 - - - - - 31.6 - 33.4
Exposures
16 in default 0.1 0.1 1.0 - - - - - 1.2 - 3.4
Items
associated
with
particularly
17 high risk 0.6 - 0.1 - - - - - - - 5.5
Collective
investment
20 undertakings - - - - - - - - - - 0.4
Equity
21 exposures - - 0.1 - - 0.1 - - - - 16.4
Other
22 exposures - - 0.2 - - - - - - - 12.9
Total STD
23 approach 14.8 1.6 52.8 44.8 0.1 0.9 0.6 3.2 104.8 12.0 509.0
--- ------------ --------------- --------- -------
Total at 31
24 Dec 2019 196.5 28.0 156.0 214.1 3.6 7.2 7.0 17.7 633.1 43.4 2,532.6
--- --------------- --------- -------- ----------------- -------
Table 35: Concentration of exposures by industry or counterparty types(1)
(CRB-D) (continued)
Wholesale Accom-modation
Mining/oil Water & retail Trans-portation & food Infor-mation Financial
Agriculture extraction Manufac-turing Utilities supply Construction trade & storage services & commun-ication & insurance
Net carrying
values(1) $bn $bn $bn $bn $bn $bn $bn $bn $bn $bn $bn
Central
governments
and central
1 banks - - - 0.4 - - - - - - 140.2
2 Institutions - 0.2 - 0.4 - - - - - - 80.1
3 Corporates 6.8 35.4 228.6 26.5 3.6 32.5 181.0 40.6 23.7 16.6 120.2
4 Retail 1.0 - 0.8 - - 0.2 1.4 0.3 0.4 - 0.2
Total IRB
6 approach 7.8 35.6 229.4 27.3 3.6 32.7 182.4 40.9 24.1 16.6 340.7
---- -------------- ---------
Central
governments
and central
7 banks - - - - - - - - - - 126.3
Regional
governments
or local
8 authorities - - - - - - - - - - 0.3
Public sector
9 entities - - - - - - - - - - 10.4
Multilateral
development
10 banks - - - - - - - - - - 0.2
International
11 organisations - - - - - - - - - - -
12 Institutions - - - - - - - - - - 3.4
13 Corporates 0.9 5.5 26.1 4.1 - 7.5 21.4 4.1 3.2 2.1 18.0
14 Retail 0.1 - 0.2 - - - 0.2 0.1 - - 0.6
Secured by
mortgages
on immovable
15 property - - - - - 0.1 - - - - 0.1
Exposures
16 in default - - 0.5 - - 0.2 0.3 0.1 0.1 - 0.1
Items
associated
with
particularly
17 high risk - - - - - 0.1 - - - - 4.2
Collective
investment
20 undertakings - - - - - - - - - - 0.6
Equity
21 exposures - - - - - - - - - - 15.6
Other
22 exposures - - - - - - - - - - 11.0
Total STD
23 approach 1.0 5.5 26.8 4.1 - 7.9 21.9 4.3 3.3 2.1 190.8
Total at 31
24 Dec 2018 8.8 41.1 256.2 31.4 3.6 40.6 204.3 45.2 27.4 18.7 531.5
---- -------------- ---------
Human
Adminis- Public health
Real Professional trative admin & social Arts & Other Extra-territorial
estate activities services & defence Education work entertainment services Personal bodies Total
Net carrying
values(1) $bn $bn $bn $bn $bn $bn $bn $bn $bn $bn $bn
Central
governments
and central
1 banks - - - 154.5 - 0.3 - 0.2 - 36.1 331.7
2 Institutions - - - 0.2 0.1 - - - - 0.1 81.1
3 Corporates 173.4 26.5 80.7 2.6 2.9 5.5 7.6 11.5 0.6 - 1,026.8
4 Retail 1.0 - 0.4 - 0.1 0.2 0.2 0.1 477.0 - 483.3
Total IRB
6 approach 174.4 26.5 81.1 157.3 3.1 6.0 7.8 11.8 477.6 36.2 1,922.9
------- --------
Central
governments
and central
7 banks - - - 26.2 - - - - - 11.4 163.9
Regional
governments
or local
8 authorities - - - 7.0 - - - - - - 7.3
Public sector
9 entities - - - 1.0 0.1 - - - - 0.7 12.2
Multilateral
development
10 banks - - - - - - - - - - 0.2
International
11 organisations - - - - - - - - - 1.6 1.6
12 Institutions - - - - - - - - - - 3.4
13 Corporates 14.3 2.1 64.4 0.5 0.3 1.0 0.7 1.1 2.1 - 179.4
14 Retail 0.1 - 0.2 - - - - 0.1 62.2 - 63.8
Secured by
mortgages
on immovable
15 property 0.5 - - - - - - - 31.3 - 32.0
Exposures
16 in default 0.1 - 0.3 - - - - 0.1 1.2 - 3.0
Items
associated
with
particularly
17 high risk 0.3 - 0.2 - - - - - - - 4.8
Collective
investment
20 undertakings - - - - - - - - - - 0.6
Equity
21 exposures - - - - - - - - - - 15.6
Other
22 exposures - - 0.3 - - - - - - - 11.3
Total STD
23 approach 15.3 2.1 65.4 34.7 0.4 1.0 0.7 1.3 96.8 13.7 499.1
------- --------
Total at 31
24 Dec 2018 189.7 28.6 146.5 192.0 3.5 7.0 8.5 13.1 574.4 49.9 2,422.0
------- --------
1 The industry classifications of this disclosure have been
revised. 31 December 2018 data have been restated to be on a
consistent basis with the current year.
2 Securitisation positions and non-credit obligation assets are
not included in this table.
Table 36: Maturity of on-balance sheet exposures (CRB-E)
Net carrying values(1)
Between
Less than 1 and More than
On demand 1 year 5 years 5 years Undated Total
$bn $bn $bn $bn $bn $bn
IRB approach exposure classes
Central governments and
1 central banks 39.3 136.2 105.5 61.8 - 342.8
2 Institutions 11.8 27.9 22.2 1.3 - 63.2
3 Corporates 51.7 191.2 232.7 56.1 - 531.7
4 Retail 23.6 32.8 33.4 297.4 - 387.2
6 Total IRB approach 126.4 388.1 393.8 416.6 - 1,324.9
--- --------- --------- -------- --------- ------- -------
Standardised approach exposure
classes
---
Central governments and
7 central banks 90.9 46.0 15.9 18.6 4.6 176.0
Regional governments or
8 local authorities 0.8 0.9 5.3 1.5 - 8.5
9 Public sector entities - 2.5 9.7 4.3 - 16.5
---------
Multilateral development
10 banks - - 0.1 - - 0.1
11 International organisations - - 0.7 0.9 - 1.6
12 Institutions 0.3 1.4 0.5 - - 2.2
13 Corporates 4.3 30.7 32.1 7.8 - 74.9
14 Retail 7.3 1.2 7.0 4.1 - 19.6
Secured by mortgages on
15 immovable property - 2.1 5.9 24.3 - 32.3
16 Exposures in default 0.3 0.7 1.4 0.8 - 3.2
Items associated with particularly
17 high risk - 0.2 0.6 0.1 2.2 3.1
Collective investment undertakings
20 ('CIU') - - - - 0.4 0.4
21 Equity exposures - - - - 16.4 16.4
22 Other exposures - 2.7 - 0.4 9.1 12.2
23 Total standardised approach 103.9 88.4 79.2 62.8 32.7 367.0
--- --------- --------- -------- --------- ------- -------
24 Total at 31 Dec 2019 230.3 476.5 473.0 479.4 32.7 1,691.9
--- --------- --------- -------- --------- ------- -------
IRB approach exposure classes
Central governments and
1 central banks 38.0 149.5 93.8 47.3 - 328.6
2 Institutions 10.1 35.1 23.4 0.9 - 69.5
3 Corporates 59.1 183.7 221.0 62.5 - 526.3
4 Retail 21.5 7.3 38.0 267.3 - 334.1
6 Total IRB approach 128.7 375.6 376.2 378.0 - 1,258.5
---
Standardised approach exposure
classes
---
Central governments and
7 central banks 75.5 50.5 22.9 8.8 5.2 162.9
Regional governments or
8 local authorities 0.8 0.9 3.9 1.4 - 7.0
9 Public sector entities - 2.6 7.3 2.2 - 12.1
Multilateral development
10 banks - - 0.2 - - 0.2
11 International organisations - 0.8 0.3 0.5 - 1.6
12 Institutions 0.1 0.3 2.9 - - 3.3
13 Corporates 3.9 44.0 36.5 6.6 - 91.0
14 Retail 6.8 2.0 7.0 4.5 - 20.3
Secured by mortgages on
15 immovable property - 1.9 5.0 23.7 - 30.6
16 Exposures in default 0.3 0.9 1.1 0.5 - 2.8
Items associated with particularly
17 high risk - 0.1 0.7 0.1 1.6 2.5
Collective investment undertakings
20 ('CIU') - - - - 0.6 0.6
21 Equity exposures - - - - 15.6 15.6
22 Other exposures - 2.7 - 0.2 7.6 10.5
23 Total standardised approach 87.4 106.7 87.8 48.5 30.6 361.0
---
24 Total at 31 Dec 2018 216.1 482.3 464.0 426.5 30.6 1,619.5
---
1 Securitisation positions and non-credit obligation assets are not included in this table.
Risk mitigation
Our approach when granting credit facilities is to do so on the
basis of capacity to repay, rather than placing primary reliance on
credit risk mitigants. Depending on a customer's standing and the
type of product, facilities may be provided unsecured.
Mitigation of credit risk is a key aspect of effective risk
management and takes many forms. Our general policy is to promote
the use of credit risk mitigation, justified by commercial prudence
and capital efficiency. Detailed policies cover the acceptability,
structuring and terms with regard to the availability of credit
risk mitigation such as in the form of collateral security. These
policies, together with the setting of suitable valuation
parameters, are subject to regular review to ensure that they are
supported by empirical evidence and continue to fulfil their
intended purpose.
Collateral
The most common method of mitigating credit risk is to take
collateral. In our retail residential and commercial real estate
('CRE') businesses, a mortgage over the property is usually taken
to help secure claims. Physical collateral is also taken in various
forms of specialised lending and leasing transactions where income
from the physical assets that are financed is also the principal
source of facility repayment. In the commercial and industrial
sectors, charges are created over business assets such as premises,
stock and debtors. Loans to private banking clients may be made
against a pledge of eligible marketable securities, cash or real
estate. Facilities to small- and medium-sized enterprises ('SMEs')
are commonly granted against guarantees given by their owners
and/or directors.
For credit risk mitigants in the form of immovable property, the
key determinant of concentration at Group level is geographic. Use
of immovable property mitigants for risk management purposes is
predominantly in Asia and Europe.
Further information regarding collateral held over CRE and
residential property is provided on pages 112 and 123,
respectively, of the Annual Report and Accounts 2019.
Financial collateral
In the institutional sector, trading facilities are supported by
charges over financial instruments, such as cash, debt securities
and equities. Financial collateral in the form of marketable
securities is used in much of the Group's derivatives activities
and in securities financing transactions, such as repos, reverse
repos, securities lending and borrowing. Netting is used
extensively and is a prominent feature of market standard
documentation.
Further information regarding collateral held for trading
exposures is on page 118 of the Annual Report and Accounts
2019.
In the non-trading book, we provide customers with working
capital management products. In some cases, these products combine
loans and advances to customers with customer accounts over which
we have right of offset which comply with the regulatory
requirements for on-balance sheet netting. Where this applies, the
customer accounts are treated as cash collateral and are reflected
in our LGD estimates.
Under on-balance sheet netting, the customer accounts are
treated as cash collateral and the effects of this collateral are
incorporated in our LGD estimates. For risk management purposes,
the net amounts of such exposures are subject to limits and the
relevant customer agreements are subject to review to ensure the
legal right of offset remains appropriate.
At 31 December 2019, $31bn of customer accounts were treated as
cash collateral, mainly in the UK.
Other forms of credit risk mitigation
Our Global Banking and Markets ('GB&M') business utilises
credit risk mitigation to manage the credit risk of its portfolios,
with the goal of reducing concentrations in individual names,
sectors or portfolios. The techniques in use include credit default
swap ('CDS') purchases, structured credit notes and securitisation
structures. Buying credit protection creates credit exposure
against the protection provider, which is monitored as part of the
overall credit exposure to them. Where applicable, the transaction
is entered into directly with a central clearing house
counterparty; otherwise our exposure to CDS protection providers is
diversified among mainly banking counterparties with strong credit
ratings.
In our corporate lending, we also take guarantees from
corporates and export credit agencies ('ECA'). Corporates would
normally provide guarantees as part of a parent/subsidiary or
common parent relationship and would span a number of credit
grades.
The ECAs will normally be investment grade.
Policy and procedures
Policies and procedures govern the protection of our position
from the outset of a customer relationship; for instance, in
requiring standard terms and conditions or specifically agreed
documentation permitting the offset of credit balances against debt
obligations, and through controls over the integrity, current
valuation and, if necessary, realisation of collateral
security.
Valuing collateral
Valuation strategies are established to monitor collateral
mitigants to ensure that they will continue to provide the
anticipated secure secondary repayment source. The frequency of
valuation increases with the volatility of the collateral. For
market trading activities such as collateralised over-the-counter
('OTC') derivatives and securities financing transactions ('SFTs'),
we typically carry out daily valuations. In the residential
mortgage business, Group policy prescribes revaluation at intervals
of up to three years, or more frequently as the need arises; for
example, where market conditions are subject to significant change.
Residential property collateral values are determined through a
combination of professional appraisals, house price indices or
statistical analysis.
Local market conditions determine the frequency of valuation for
CRE. Revaluations are sought where, for example, material concerns
arise in relation to the performance of the collateral. CRE
revaluation also occurs commonly in circumstances where an
obligor's credit quality has declined sufficiently to cause concern
that the principal payment source may not fully meet the
obligation.
Recognition of risk mitigation under the IRB approach
Within an IRB approach, risk mitigants are considered in two
broad categories:
-- those which reduce the intrinsic PD of an obligor and
therefore operate as determinants of PD; and
-- those which affect the estimated recoverability of
obligations and require adjustment of LGD or, in certain limited
circumstances, EAD.
The first category typically includes full parental guarantees
where one obligor within a group guarantees another. In these
circumstances, the parent guarantor materially influences the PD of
the guaranteed obligor. PD estimates are also subject to a
'sovereign ceiling', constraining the risk ratings assigned to
obligors in countries of higher risk, and where only partial
parental support exists. In certain jurisdictions, certain types of
third-party guarantee are recognised by substituting the obligor's
PD with that of the guarantor.
In the second category, LGD estimates are affected by a wider
range of collateral, including cash, charges over real estate
property, fixed assets, trade goods, receivables and floating
charges such as mortgage debentures. Unfunded mitigants, such as
third-party guarantees, are also considered in LGD estimates where
there is evidence that they reduce loss expectation.
The main types of provider of guarantees are banks, other
financial institutions and corporates. The creditworthiness of
providers of unfunded credit risk mitigation is taken into
consideration as part of the guarantor's risk profile. Internal
limits for such contingent exposure are approved in the same way as
direct exposures.
EAD and LGD values, in the case of individually assessed
exposures, are determined by reference to regionally approved
internal risk parameters based on the nature of the exposure. For
retail portfolios, credit risk mitigation data is incorporated into
the internal risk parameters for exposures and feeds into the
calculation of the expected loss ('EL') band value summarising both
customer delinquency and product or facility risk. Credit and
credit risk mitigation data form inputs submitted by all Group
offices to centralised databases. A range of collateral recognition
approaches are applied to IRB capital treatments:
-- Unfunded protection, which includes credit derivatives and
guarantees, is reflected through adjustment or determination of PD
or LGD. Under the IRB advanced approach, recognition may be through
PD or LGD.
-- Eligible financial collateral under the IRB advanced approach
is recognised in LGD models. Under the IRB foundation approach,
regulatory LGD values are adjusted. The adjustment to LGD is based
on the degree to which the exposure value would be adjusted
notionally if the financial collateral comprehensive method were
applied.
-- For all other types of collateral, including real estate, the
LGD for exposures under the IRB advanced approach is calculated by
models. For IRB foundation, base regulatory LGDs are adjusted
depending on the value and type of the asset taken as collateral
relative to the exposure. The types of eligible mitigant recognised
under the IRB foundation approach are more limited.
Table 39 sets out, for IRB exposures, the exposure value and the
effective value of credit risk mitigation expressed as the exposure
value covered by the credit risk mitigant. IRB credit risk
mitigation reductions of EAD were immaterial at 31 December
2019.
Recognition of risk mitigation under the standardised
approach
Where credit risk mitigation is available in the form of an
eligible guarantee, non-financial collateral or a credit
derivative, the exposure is divided into covered and uncovered
portions. The covered portion is determined after applying an
appropriate 'haircut' for currency and maturity mismatches (and for
omission of restructuring clauses in credit derivatives, where
appropriate) to the amount of the protection provided and attracts
the risk weight of the protection provider. The uncovered portion
attracts the risk weight of the obligor.
The value of exposure fully or partially covered by eligible
financial collateral is adjusted under the financial collateral
comprehensive method using supervisory volatility adjustments
(including those for currency mismatch) which are determined by the
specific type of collateral (and its credit quality, in the case of
eligible debt securities) and its liquidation period. The adjusted
exposure value is subject to the risk weight of the obligor.
Table 37: Credit risk mitigation techniques - overview (CR3)
Exposures Exposures Exposures Exposures
unsecured: secured: Exposures secured secured
carrying carrying secured by financial by credit
amount amount by collateral guarantees derivatives
$bn $bn $bn $bn $bn
1 Loans 626.0 653.2 546.1 106.6 0.5
2 Debt securities 335.8 41.5 35.6 5.9 -
3 Total at 31 Dec 2019 961.8 694.7 581.7 112.5 0.5
---
4 of which: defaulted 5.3 4.2 3.7 0.5 -
1 Loans 641.2 596.8 494.0 102.1 0.7
---
2 Debt securities 316.1 32.4 27.2 5.2 -
---
3 Total at 31 Dec 2018 957.3 629.2 521.2 107.3 0.7
---
4 of which: defaulted 6.3 4.6 4.1 0.4 -
---
Table 38: Standardised approach - credit conversion factor ('CCF')
and credit risk mitigation ('CRM') effects (CR4)
Exposures before
CCF Exposures post-CCF RWAs and RWA
and CRM and CRM density
On-balance Off-balance On-balance Off-balance
sheet sheet sheet sheet
amount amount amount amount RWAs RWA density
$bn $bn $bn $bn $bn %
---- ------------ ------------- -------------- ------------- ---------- -------------
Asset classes(1)
---- ------------ ------------- -------------- ------------- ---------- -------------
Central governments
or
1 central banks 175.8 0.9 183.9 1.6 11.2 6
---------- ----------- ------------ ----------- -------- -----------
Regional governments
2 or local authorities 8.5 0.4 8.8 0.1 1.6 18
Public sector
3 entities 16.5 0.1 16.4 - - -
Multilateral
development
4 banks 0.1 - 0.1 - - -
International
5 organisations 1.6 - 1.6 - - -
6 Institutions 2.2 0.2 1.5 0.1 0.9 58
7 Corporates 75.0 84.9 66.3 10.5 72.5 94
8 Retail 19.8 51.1 19.1 0.4 14.4 74
Secured by mortgage
on
9 immovable property 32.3 1.1 32.2 0.3 12.0 37
10 Exposures in default 3.6 0.2 3.6 - 4.1 114
Higher-risk
11 categories 3.1 2.4 3.1 2.2 7.9 150
-----------
Collective investment
14 undertakings 0.4 - 0.4 - 0.4 100
15 Equity 16.5 - 16.5 - 36.3 220
16 Other items 12.2 0.7 12.2 0.7 8.8 68
17 Total at 31 Dec 2019 367.6 142.0 365.7 15.9 170.1 45
---------- ----------- ------------ ----------- -------- -----------
Central governments
or
1 central banks 162.7 1.0 170.8 1.1 12.5 7
Regional governments
2 or local authorities 7.0 0.3 7.0 0.1 1.3 19
Public sector
3 entities 12.1 0.1 12.0 - - -
Multilateral
development
4 banks 0.2 - 0.2 - - 2
International
5 organisations 1.6 - 1.6 - - -
6 Institutions 3.3 0.1 2.3 - 1.2 52
7 Corporates 91.2 88.3 72.0 12.2 79.2 94
8 Retail 20.5 43.5 19.7 0.2 14.8 74
Secured by mortgage
on
9 immovable property 30.6 1.4 30.6 0.3 11.3 37
10 Exposures in default 3.3 0.2 3.3 - 3.8 117
Higher-risk
11 categories 2.5 2.3 2.4 2.2 6.9 150
Collective investment
14 undertakings 0.6 - 0.6 - 0.6 100
15 Equity 15.7 - 15.7 - 35.0 223
16 Other items 10.5 0.8 10.5 0.8 6.6 58
17 Total at 31 Dec 2018 361.8 138.0 348.7 16.9 173.2 47
1 Securitisation positions are not included in this table.
Table 39: Credit risk mitigation techniques - IRB and Standardised
At 31 Dec 2019 At 31 Dec 2018
Secured by: Secured by:
Exposures Exposures Exposures Exposures
unsecured: secured: unsecured: secured:
carrying carrying financial credit carrying carrying financial credit
amount amount collateral guarantees derivatives amount amount collateral guarantees derivatives
Footnotes $bn $bn $bn $bn $bn $bn $bn $bn $bn $bn
---------- ----------
Exposures
under the
IRB approach 1
Central
governments
and central
banks 309.4 36.9 35.2 1.7 - 303.4 28.3 26.8 1.5 -
Institutions 69.9 5.5 4.7 0.8 - 75.0 6.1 4.4 1.7 -
-----------
Corporates 612.6 434.9 305.3 116.5 13.1 618.0 408.8 287.6 110.3 10.9
Retail 205.6 348.8 322.0 26.8 - 192.0 291.3 267.9 23.4 -
-----------
Securitisation
positions 20.2 - - - - 29.7 - - - -
-----------
Total 1,217.7 826.1 667.2 145.8 13.1 1,218.1 734.5 586.7 136.9 10.9
---------- ---------- --------- ---------- ---------- -----------
Exposures
under the
STD approach 1
-----------
Central
governments
and central
banks 2 171.7 0.6 0.1 0.5 - 157.9 0.8 - 0.8 -
Institutions 1.6 0.8 - 0.8 - 2.3 1.1 - 1.1 -
-----------
Corporates 117.5 42.3 32.0 10.3 - 125.6 53.8 43.0 10.8 -
-----------
Retail 69.5 1.2 1.0 0.2 - 62.3 1.5 1.3 0.2 -
-----------
Secured
by mortgages
on immovable
property 11.8 21.6 21.5 0.1 - 9.8 22.2 22.1 0.1 -
Exposures
in default 2.7 0.7 0.6 0.1 - 2.4 0.6 0.5 0.1 -
-----------
Items
associated
with
particularly
high risk 3 2.0 0.1 - 0.1 - 1.7 0.1 - 0.1 -
Regional
governments
or local
authorities 8.9 - - - - 7.1 0.2 0.2 - -
Public sector
entities 11.7 4.9 0.1 4.8 - 8.2 4.0 - 4.0 -
---------- ---------- --------- ---------- ---------- -----------
Securitisation
positions 15.8 0.5 - - 0.5 2.7 - - - -
-----------
Total 413.2 72.7 55.3 16.9 0.5 380.0 84.3 67.1 17.2 -
---------- ---------- --------- ---------- ---------- -----------
1 This table includes both on- and off-balance sheet exposures.
2 Deferred tax assets are excluded from the exposure.
3 Equities are excluded from the exposure.
Table 40: IRB - Effect on RWA of credit derivatives used as CRM techniques
(CR7)
At 31 Dec
2019 2018
Pre-credit Pre-credit
derivatives Actual derivatives Actual
RWAs RWAs RWAs RWAs
$bn $bn $bn $bn
1 Exposures under FIRB 32.3 32.3 30.5 30.5
----
3 Institutions 0.2 0.2 0.2 0.2
6 Corporates - other 32.1 32.1 30.3 30.3
7 Exposures under AIRB 467.1 465.9 480.0 479.0
----
8 Central governments and central banks 36.3 36.3 36.9 36.9
9 Institutions 10.8 10.8 14.2 14.2
11 Corporates - specialised lending 26.8 26.8 27.0 27.0
12 Corporates - other 302.1 300.9 319.1 318.1
13 Retail - Secured by real estate SMEs 1.5 1.5 1.8 1.8
14 Retail - Secured by real estate non-SMEs 40.4 40.4 37.2 37.2
15 Retail - Qualifying revolving 18.8 18.8 17.3 17.3
16 Retail - Other SMEs 4.7 4.7 4.8 4.8
17 Retail - Other non-SMEs 12.4 12.4 10.9 10.9
----
19 Other non-credit obligation assets 13.3 13.3 10.8 10.8
20 Total 499.4 498.2 510.5 509.5
----
Global risk
Qualitative disclosures on banks' use of external credit ratings
under the standardised approach for credit risk
The standardised approach is applied where exposures do not
qualify for use of an IRB approach and/or where an exemption from
IRB has been granted. The standardised approach requires banks to
use risk assessments prepared by external credit assessment
institutions ('ECAIs') or ECAs to determine the risk weightings
applied to rated counterparties.
ECAI risk assessments are used within the Group as part of the
determination of risk weightings for the following classes of
exposure:
-- central governments and central banks;
-- regional governments and local authorities;
-- institutions;
-- corporates;
-- securitisation positions; and
-- short-term claims on institutions and corporates.
We have nominated three ECAIs for this purpose - Moody's
Investor Service ('Moody's'), Standard and Poor's rating agency
('S&P') and Fitch Ratings ('Fitch'). In addition to this, we
use DBRS ratings specifically for securitisation positions. We have
not nominated any ECAs.
Data files of external ratings from the nominated ECAIs are
matched with customer records in our centralised credit
database.
When calculating the risk-weighted value of an exposure using
ECAI risk assessments, risk systems identify the customer in
question and look up the available ratings in the central database
according to the rating selection rules. The systems then apply the
prescribed credit quality step mapping to derive from the rating
the relevant risk weight.
All other exposure classes are assigned risk weightings as
prescribed in the PRA's Rulebook.
Credit
quality Moody's S&P's Fitch's
step assessment assessment assessment DBRS assessment
1 Aaa to AAA to AAA to AAA to
Aa3 AA- AA- AAL
2 A1 to A+ to A+ to AH to
A3 A- A- AL
3 Baa1 to BBB+ to BBB+ to BBBH to
Baa3 BBB- BBB- BBBL
4 Ba1 to BB+ to BB+ to BBH to
Ba3 BB- BB- BBL
5 B1 to B+ to B+ to BH to
B3 B- B- BL
6 Caa1 and CCC+ and CCC+ and CCCH and
below below below below
Exposures to, or guaranteed by, central governments and central
banks of the European Economic Area ('EEA') states are
risk-weighted at 0% provided that they are denominated and funded
in local currency or qualify for that weight by virtue of their
external rating.
The following table provides further detail on the risk
weighting of our standardised non-counterparty credit exposures.
For further detail on the risk weighting of our standardised
counterparty credit risk exposures, refer to Table 50.
Table 41: Standardised approach - exposures by asset class and risk
weight (CR5)
Exposure
amount
(post-CCF
Risk weight and Of which
('RW%') 0% 2% 20% 35% 50% 70% 75% 100% 150% 250% Deducted CRM) unrated
$bn $bn $bn $bn $bn $bn $bn $bn $bn $bn $bn $bn $bn
Asset
classes(1)
Central
governments
or central
1 banks 180.9 - 0.1 - - - - 0.1 - 4.4 - 185.5 4.4
--------
Regional
governments
or local
2 authorities 3.8 - 3.9 - 0.9 - - 0.3 - - - 8.9 0.3
Public sector
3 entities 16.4 - - - - - - - - - - 16.4 -
Multilateral
development
4 banks 0.1 - - - - - - - - - - 0.1 -
International
5 organisations 1.6 - - - - - - - - - - 1.6 -
6 Institutions - - 0.3 - 0.8 - - 0.5 - - - 1.6 0.3
7 Corporates - - 3.9 0.3 2.5 0.5 - 68.0 1.6 - - 76.8 65.9
8 Retail - - - - - - 19.5 - - - - 19.5 19.5
Secured by
mortgage
on immovable
9 property - - - 30.7 1.0 - - 0.8 - - - 32.5 32.5
Exposures in
10 default - - - - - - - 2.6 1.0 - - 3.6 3.6
Higher-risk
11 categories - - - - - - - - 5.3 - - 5.3 5.3
Collective
investment
14 undertakings - - - - - - - 0.4 - - - 0.4 0.4
15 Equity - - - - - - - 3.3 - 13.2 - 16.5 16.5
16 Other items 0.1 - 5.0 - - - - 7.8 - - - 12.9 12.9
Total at 31
17 Dec 2019 202.9 - 13.2 31.0 5.2 0.5 19.5 83.8 7.9 17.6 - 381.6 161.6
Central
governments
or central
1 banks 166.5 - 0.2 - 0.1 - - 0.1 - 5.0 - 171.9 5.0
Regional
governments
or local
2 authorities 2.8 - 3.5 - 0.5 - - 0.3 - - - 7.1 0.5
Public sector
3 entities 12.0 - - - - - - - - - - 12.0 -
Multilateral
development
4 banks 0.2 - - - - - - - - - - 0.2 -
International
5 organisations 1.6 - - - - - - - - - - 1.6 -
6 Institutions - 0.1 0.4 - 1.4 - - 0.4 - - - 2.3 0.2
7 Corporates - - 3.6 0.3 3.4 0.5 - 75.6 0.8 - - 84.2 59.1
8 Retail - - - - - - 19.9 - - - - 19.9 19.9
Secured by
mortgage
on immovable
9 property - - - 30.2 - - - 0.7 - - - 30.9 30.9
Exposures in
10 default - - - - - - - 2.2 1.1 - - 3.3 3.3
Higher-risk
11 categories - - - - - - - - 4.6 - - 4.6 4.6
Collective
investment
14 undertakings - - - - - - - 0.6 - - - 0.6 0.6
15 Equity - - - - - - - 2.8 - 12.9 - 15.7 15.7
16 Other items - - 5.9 - - - - 5.4 - - - 11.3 11.3
Total at 31
17 Dec 2018 183.1 0.1 13.6 30.5 5.4 0.5 19.9 88.1 6.5 17.9 - 365.6 151.1
1 Securitisation positions are not included in this table.
Application of the IRB approach
Our Group IRB credit risk rating framework incorporates obligor
propensity to default expressed in PD, and loss severity in the
event of default expressed in EAD and LGD. These measures are used
to calculate regulatory EL and capital requirements. They are also
used with other inputs to inform rating assessments for the
purposes of credit approval and many other purposes, for
example:
-- credit approval and monitoring: IRB models are used in the
assessment of customer and portfolio risk in lending decisions;
-- risk appetite: IRB measures are an important element in
identifying risk exposure at customer, sector and portfolio
level;
-- pricing: IRB parameters are used in pricing tools for new transactions and reviews; and
-- economic capital and portfolio management: IRB parameters are
used in the economic capital model that has been implemented across
HSBC.
Refer to Tables 69 and 71 in Appendix I for further information
on our wholesale and retail IRB models.
Roll-out of the IRB approach
With the PRA's permission, we have adopted the advanced IRB
approach for the majority of our business. At the end of 2019,
portfolios in much of Europe, Asia and North America were on
advanced IRB approaches. Others remain on the standardised or
foundation approaches pending the development of models for the
PRA's approval in line with our IRB roll-out plans where the
primary focus is on corporate and retail exposures.
At 31 December 2019, 77% of the Group's exposures were treated
under AIRB, 3% under FIRB and 20% under the standardised
approach.
Refer to Table 70 in Appendix I for further detail on our IRB
models including PD, LGD, RWA and exposure by
country/territory.
EL and credit risk adjustments
We analyse credit loss experience in order to assess the
performance of our risk measurement and control processes, and to
inform our understanding of the implications for risk and capital
management of dynamic changes occurring in the risk profile of our
exposures.
When comparing regulatory EL with measures of ECL under IFRS 9,
differences in the definition and scope of each should be
considered. These can give rise to material differences in the way
economic, business and methodological drivers are reflected
quantitatively in the accounting and regulatory measures of
loss.
In general, HSBC calculates ECL using three main components
namely probability of default, loss given default, and exposure at
default.
ECLs include impairment allowances (or provisions, against
commitments and guarantees) calculated for a 12-month period
('12-month ECL'), for the remaining life of an exposure ('lifetime
ECL'), and on financial assets that are considered to be in default
or otherwise credit impaired. ECLs resulting from default events
that are possible:
-- within the next 12 months are recognised for financial instruments in stage 1; and
-- beyond 12 months are recognised for financial instruments in stages 2 and 3.
An assessment of whether credit risk has increased significantly
since initial recognition is performed at each reporting period by
considering the change in the risk of default occurring over the
remaining life of the financial instrument.
Unless identified at an earlier stage, all financial assets are
deemed to have suffered a significant increase in credit risk when
30 days past due.
Change in ECL and other credit impairment charges represents the
movement in the ECL during the year including write-offs,
recoveries and foreign exchange. EL represents the one-year
regulatory expected loss accumulated in the book at the balance
sheet date.
Credit risk adjustments ('CRAs') encompass the impairment
allowances or provisions balances, and changes in ECL and other
credit impairment charges.
Table 72 in Appendix I sets out for IRB credit exposures the EL,
CRA balances and actual loss experience reflected in the charges
for CRAs.
HSBC leverages the Basel IRB framework where possible, with
recalibration to meet the differing IFRS 9 requirements as
follows:
PD
* Through the cycle (represents long-run average PD * Point in time (based on current conditions, adjusted
throughout a full economic cycle) to take into account estimates of future conditions
that will impact PD)
* The definition of default includes a backstop of 90+
days past due, although this has been modified to * Default backstop of 90+ days past due for all
180+ days past due for some portfolios, particularly portfolios
UK and US mortgages
EAD
* Cannot be lower than current balance * Amortisation captured for term products
LGD
* Downturn LGD (consistent with losses we would expect * Expected LGD (based on estimate of loss given default
to suffer during a severe but plausible economic including the expected impact of future economic
downturn) conditions such as changes in value of collateral)
* Regulatory floors may apply to mitigate risk of * No floors
underestimating downturn LGD due to lack of
historical data
* Discounted using the original effective interest rate
of the loan
* Discounted using cost of capital
* Only costs associated with obtaining/selling
* All collection costs included collateral included
Other
* Discounted back from point of default to balance
sheet date
Wholesale risk
The wholesale risk rating system
This section describes how we operate our credit risk analytical
models and use IRB metrics in the wholesale customer business.
PDs for wholesale customer segments (that is central governments
and central banks, financial institutions and corporate customers)
and for certain individually assessed personal customers are
derived from a customer risk rating ('CRR') master scale of 23
grades. Of these, 21 are non-default grades representing varying
degrees of strength of financial condition, and two are default
grades. Each CRR has a PD range associated with it as well as a
mid-point PD.
The score generated by a credit risk rating model for the
obligor is mapped to a corresponding PD and master-scale CRR. The
CRR is then reviewed by a credit approver who, taking into account
information such as the most recent events and market data, makes
the final decision on the rating. The rating assigned reflects the
approver's overall view of the obligor's credit standing.
The mid-point PD associated with the finally assigned CRR is
then used in the regulatory capital calculation.
Relationship managers may propose a different CRR from that
indicated through an override process which must be approved by the
Credit function. Overrides for each model are recorded and
monitored as part of the model management process.
The CRR is assigned at an obligor level, which means that
separate exposures to the same obligor are generally subject to a
single, consistent rating. Unfunded credit risk mitigants, such as
guarantees, may also influence the final assignment of a CRR to an
obligor. The effect of unfunded risk mitigants is considered for
IRB and standardised approaches in Table 39.
If an obligor is in default on any material credit obligation to
the Group, all of the obligor's facilities from the Group are
considered to be in default.
Under the IRB approach, obligors are grouped into grades that
have similar PD or anticipated default frequency. The anticipated
default frequency may be estimated using all relevant information
at the relevant date (PIT rating system) or be free of the effects
of the credit cycle (TTC rating system).
We generally utilise a hybrid approach of PIT and through the
cycle ('TTC'). That is, while models are calibrated to long-run
default rates, obligor ratings are reviewed annually, or more
frequently if necessary, to reflect changes in their circumstances
and/or their economic operating environment.
Our policy requires approvers to downgrade ratings on
expectations, but to upgrade them only on performance. This leads
to expected defaults typically exceeding actual defaults.
For EAD and LGD estimation, operating entities are permitted,
subject to overview by Group Risk, to use their own modelling
approaches to suit conditions in their jurisdictions. Group Risk
provides co-ordination, benchmarks, and promotion of best practice
on EAD and LGD estimation.
EAD is estimated to a 12-month forward time horizon and
represents the current exposure, plus an estimate for future
increases in exposure and the realisation of contingent exposures
post-default.
LGD is based on the effects of facility and collateral structure
on outcomes post-default. This includes such factors as the type of
client, the facility seniority, the type and value of collateral,
past recovery experience and priority under law. It is expressed as
a percentage of EAD.
Wholesale models
To determine credit ratings for the different types of wholesale
obligor, multiple models and scorecards are used for PD, LGD, and
EAD. These models may be differentiated by region, customer segment
and/or customer size. For example, we have separate PD models for
all of our key customer segments, including sovereigns, financial
institutions, and large-, medium- and small-sized corporates.
Global PD models have been developed for asset classes, or
clearly identifiable segments of asset classes, where the customer
relationship is managed globally; for example, sovereigns,
financial institutions and the largest corporate clients that
typically operate internationally.
Local PD models, specific to a particular country, region, or
sector, are developed for other obligors. These include corporate
clients when they show distinct characteristics in common in a
particular geography.
The two major drivers of model methodology are the nature of the
portfolio and the availability of internal or external data on
historical defaults and risk factors. For some historically
low-default portfolios, e.g. sovereign and financial institutions,
a model will rely more heavily on external data and/or the input of
an expert panel. Where sufficient data is available, models are
built on a statistical basis, although the input of expert
judgement may still form an important part of the overall model
development methodology.
Most LGD and EAD models are developed according to local
circumstances, considering legal and procedural differences in the
recovery and workout processes. Our approach to EAD and LGD also
encompasses global models for central governments and central
banks, and for institutions, as exposures to these customer types
are managed centrally by Global Risk. The PRA requires all firms to
apply an LGD floor of 45% for senior unsecured exposure to
sovereign entities. This floor was applied to reflect the
relatively few loss observations across all firms in relation to
these obligors. This floor is applied for the purposes of
regulatory capital reporting.
The PRA has published guidance on the appropriateness of LGD
models for low default portfolios. It states there should be at
least 20 defaults per country per collateral type for LGD models to
be approved. Where there are insufficient defaults, an LGD floor
will be applied. As a result, in 2019, we continued to apply LGD
floors for our banks portfolio and some Asian corporate portfolios
where there were insufficient loss observations.
The PRA has also indicated that it considers income-producing
real estate to be an asset class that would be difficult to model.
As a result, RWAs for our UK CRE portfolio and US income-producing
CRE portfolio are calculated using the supervisory slotting
approach. Under the supervisory slotting approach the bank
allocates exposures to one of five categories. Each category then
receives a fixed pre-determined RWA and EL percentage.
Local models for the corporate exposure class are developed
using various data inputs, including collateral information and
geography (for LGD) and product type (for EAD). The most material
corporate models are the UK and Asian models, all of which are
developed using more than 10 years' data. The LGD models are
calibrated to a period of credit stress or downturn in economic
conditions.
None of our EAD models is calibrated for a downturn, as analysis
shows that utilisation decreases during a downturn because credit
stress is accompanied by more intensive limit monitoring and
facility reduction.
Table 42 sets out the key characteristics of the significant
wholesale credit risk models that drive the capital calculation
split by regulatory wholesale asset class, with their associated
RWAs, including the number of models for each component, the model
method or approach and the number of years of loss data used.
Table 42: Wholesale IRB credit risk models
Central
government
and central A shadow rating approach
banks, that includes macroeconomic
Institutions, and political factors,
Corporates constrained with expert
Sovereign - Others 36.3 PD 1 judgement. >10 No
An unsecured model built
on assessment of structural
factors that influence
the country's long-term
economic performance. For Floored
unsecured LGD, a floor at Foundation
LGD 1 of 45% is applied. 8 IRB
EAD must
be at least
A cross-classification equal to
model that uses both internal the current
data and expert judgement, utilisation
as well as information of the balance
on similar exposure types at account
EAD 1 from other asset classes. 8 level
A statistical model that
combines quantitative analysis
on financial information
Banking with expert inputs and
institutions Institutions 11.0 PD 1 macroeconomic factors. 10 PD >0.03%
A quantitative model that
produces both downturn
and expected LGD. Several
securities types are included
in the model to recognise
collateral in the LGD calculation. Floored
For unsecured LGD, a floor at Foundation
LGD 1 of 45% is applied. 10 IRB
A quantitative model that EAD must
assigns credit conversion be at least
factors ('CCF') taking equal to
into account product types the current
and committed/uncommitted utilisation
indicator to calculate of the balance
EAD using current utilisation at account
EAD 1 and available headroom. 10 level
Corporates
- Other,
Corporates(1) institutions 337.2
A statistical model built
on 15 years of data. The
model uses financial information,
macroeconomic information
and market-driven data,
Large and is complemented by
corporates PD 1 a qualitative assessment. 15 PD >0.03%
Regional PD 10 Corporates that fall below >10
corporates the global large corporate
threshold are rated through
regional/local PD models,
which reflect regional/local
circumstances. These models
use financial information,
behavioural data and qualitative
information to derive a
statistically built PD.
Predominantly statistical
Non-banks models that combine quantitative
financial analysis on financial information
institutions PD 10 with expert inputs. 10 PD >0.03%
All corporates LGD 7 Regional/local statistical >7 UK Floored
models covering all corporates, at Foundation
including global large IRB
corporates, developed using
historical loss/recovery
data and various data inputs,
including collateral information,
customer type and geography.
EAD 5 Regional/local statistical >7 EAD must
models covering all corporates, be at least
including global large equal to
corporates, developed using the current
historical utilisation utilisation
information and various of the balance
data inputs, including at account
product type and geography. level
1 Excludes specialised lending exposures subject to supervisory slotting approach (see table 75).
Table 43: IRB models - estimated and actual values (wholesale)(1)
PD(2) LGD(3) EAD(4)
Estimated Actuals Estimated(5) Actuals(5) Estimated Actuals
Footnotes % % % % % %
2019
------------ --------- ------- ------------ ---------- --------- ---------
- Sovereigns model 6 2.01 - - - - -
- Banks model 1.09 - - - - -
- Corporates models 7 1.53 1.05 33.23 25.37 0.42 0.31
------------ --------- ------- ------------ ---------- --------- -------
2018
------------
- Sovereigns model 6 2.37 - - - - -
- Banks model 1.31 - - - - -
- Corporates models 7 1.61 0.87 30.47 16.60 0.38 0.33
------------
2017
------------
- Sovereigns model 6 2.24 - - - - -
- Banks model 1.72 - - - - -
- Corporates models 7 1.72 0.96 27.75 17.50 0.39 0.36
------------
1 Data represents an annual view, analysed at 30 September.
2 Estimated PD for all models in each asset class, calculated on
the total number of obligors covered by the models. Actual numbers
are the observed default rate in each asset class for the specified
period.
3 Estimated and actual LGD represent defaulted populations. Average LGD values are EAD-weighted.
4 Expressed as a percentage of total EAD, which includes all
defaulted and non-defaulted exposures for the relevant
population.
5 Estimated LGD represents the EAD weighted average downturn
LGD. In the current year, we have changed the methodology of
computing actual LGD. Actual LGD represents the actual loss for
defaults resolved in period divided by EAD of defaults resolved in
the period. Prior period actual LGD has been restated.
6 The estimated PD excludes inactive sovereign obligors.
7 Covers the combined populations of the global large corporates
model, all regional IRB models for large, medium and small
corporates, and non-bank financial institutions. The estimated and
observed PDs were calculated only for unique obligors.
Retail risk
Retail risk rating systems
Due to the different country-level portfolio performance
characteristics and loss history, there are no global models for
our retail portfolios. Across the Group, over 100 models are used
with the PRA's approval under our IRB permission.
Table 44 sets out the key characteristics of significant retail
credit risk models that drive the capital calculation, consistent
with those shown in the previous year. The table presents
regulatory retail asset class, the associated RWAs, the number of
models for each component, the model method or approach and the
number of years of loss data used. The RWAs of $47.7bn represent
61% of the total retail IRB RWA.
PD models are developed using statistical estimation based on a
minimum of five years of historical data. The modelling approach is
typically inherently TTC. Where models are developed based on a PIT
approach (as in the UK), the model outputs become effectively TTC
through the application of buffer or model adjustments as agreed
with the PRA.
EAD models are also developed using at least five years of
historical observations and typically adopt one of two
approaches:
-- For closed-end products without the facility for additional
drawdowns, EAD is estimated as the outstanding balance of accounts
at the time of observation.
-- For products with the facility for additional drawdowns, EAD
is estimated as the outstanding balance of accounts at the time of
observation plus a credit conversion factor applied to the undrawn
portion of the facility.
LGD estimates have more variation, particularly in respect of
the time period that is used to quantify economic downturn
assumptions.
Table 44: Retail IRB risk rating systems
Statistical model built
on internal behavioural
data and bureau information.
Underlying PIT model is
calibrated to the latest
Retail observed PD. An adjustment
- secured is then applied to generate
by mortgages the long-run PD based on
UK HSBC on immovable a combination of historical
residential property misalignment of the underlying PD floor
mortgages non-SME 5.36 PD 1 model and expert judgement. 7-10 of 0.03%
LGD 1Component based model incorporating, >10 LGD floor
'possession given default', of 10%
'predicted shortfall' and at portfolio
'time to possession'. A level
downturn adjustment is
applied to each component
including a 30% reduction
from peak house valuation
and a 10% adjustment to
forced sale haircut.
Logical model that uses EAD must
the sum of balance at observation at least
plus further unpaid interest be equal
that could accrue before to current
EAD 1 default. 7-10 balance
Underlying PIT PD model
Retail is a segmented scorecard.
- secured An adjustment is then applied
UK First by mortgages based on observed misalignment
Direct on immovable in the underlying model
residential property (with some additional conservatism PD floor
mortgages non-SME 0.80 PD 1 applied). 7-10 of 0.03%
LGD 1Component based model incorporating, >10 LGD floor
'possession given default', of 10%
'predicted shortfall' and at portfolio
'time to possession'. A level
downturn adjustment is
applied to each component
including a 30% reduction
from peak house valuation
and a 10% adjustment to
forced sale haircut.
There are two separate
EAD models - one for standard EAD must
capital repayment mortgages at least
and one for offset mortgages be equal
which offer a revolving to current
EAD 2 loan facility. 7-10 balance
Statistical model built
on internal behavioural
data and bureau information.
Underlying PIT model is
calibrated to the latest
observed PD. An adjustment
is then applied to generate
UK HSBC Retail the long-run PD based on
credit - qualifying historical observed misalignment PD floor
cards revolving 3.02 PD 1 of the underlying model. 7-10 of 0.03%
Statistical model based
on forecasting the amount
of expected future recoveries,
LGD 1 segmented by default status. 7-10
Statistical model that
directly estimates EAD EAD must
for different segments at least
of the portfolio using be equal
either balance or limit to current
EAD 1 as the key input. 7-10 balance
Statistical model built
on internal behavioural
data and bureau information.
Underlying PIT model is
calibrated to the latest
observed PD. An adjustment
is then applied to generate
UK HSBC Retail the long-run PD based on
personal - other historical observed misalignment PD floor
loans non-SME 4.75 PD 1 of the underlying model. 7-10 of 0.03%
Statistical model based
on forecasting the amount
of expected future recoveries,
LGD 1 segmented by default status. 7-10
EAD must
at least
EAD is equal to current be equal
balance as this provides to current
EAD 1 a conservative estimate. 7-10 balance
Table 44: Retail IRB risk rating systems (continued)
Statistical model built
on internal behavioural
data and bureau information.
Underlying PIT model is
calibrated to the latest
observed PD. An adjustment
is then applied to generate
Retail the long run PD based on
UK business - other historical observed misalignment PD floor
banking SME 3.28 PD 1 of the underlying model. 7-10 of 0.03%
Two sets of models - one
for secured exposures and
another for unsecured exposures.
The secured model uses
the value to loan as a
key component for estimation
and the unsecured model
estimates the amount of
future recoveries and undrawn
LGD 2 portion. 7-10
Statistical model using EAD must
segmentation according at least
to limit and utilisation be equal
and estimation of the undrawn to current
EAD 1 exposure. 7-10 balance
Retail
Hong Kong - secured Statistical model built
HSBC by mortgages on internal behavioural
personal on immovable data and bureau information,
residential property and calibrated to a long-run PD floor
mortgages(2) non-SME 12.34 PD 2 default rate. >10 of 0.03%
LGD 2Statistical model based >10 LGD floor
on estimate of loss incurred of 10%
over a recovery period at portfolio
derived from historical level
data with downturn LGD
based on the worst observed
default rate.
EAD 2Rule-based calculation >10 EAD must
based on current balance, at least
which provides a conservative be equal
estimate of EAD. to current
balance
Retail
Hong Kong - secured
Hang by mortgages Statistical model built
Seng personal on immovable on internal behavioural
residential property data, and calibrated to PD floor
mortgages non-SME 7.52 PD 2 a long-run default rate. >10 of 0.03%
LGD 2Two statistical models >10 LGD floor
and one historical average of 10%
model based on estimates at portfolio
of loss incurred over a level
recovery period derived
from historical data with
a downturn adjustment.
EAD 2Rule-based calculation >10 EAD must
based on current balance, at least
which provides a conservative be equal
estimate of EAD. to current
balance
Statistical model built
Hong Kong on internal behavioural
HSBC Retail data and bureau information,
credit - qualifying and calibrated to a long-run PD floor
cards revolving 4.08 PD 1 default rate. >10 of 0.03%
LGD 1Statistical model based >10
on forecasting the amount
of expected losses. Downturn
LGD derived using data
from the period with the
highest default rate.
EAD 1Statistical model that >10 EAD must
derives a credit utilisation at least
which is used to estimate be equal
EAD. to current
balance
Hong Kong Statistical model built
HSBC on internal behavioural
personal Retail data and bureau information,
instalment - other and calibrated to a long-run PD floor
loans non-SME 1.50 PD 1 default rate. >10 of 0.03%
LGD 1Statistical model based >10
on forecasting the amount
of expected future losses.
Downturn LGD derived using
data from the period with
the highest default rate.
EAD 1Statistical model that >10 EAD must
derives a credit conversion at least
factor to determine the be equal
proportion of undrawn limit to current
to be added to the balance balance
at observation.
Retail
US HSBC - secured Statistical model built
personal by mortgages on internal behavioural
first on immovable data and bureau information,
lien residential property and calibrated to a long-run PD floor
mortgages(3) non-SME 5.04 PD 1 default rate. >10 of 0.03%
LGD 1Statistical model based >10 LGD floor
on identifying the main of 10%
risk drivers of loss and at portfolio
recovery and grouping them level
into homogeneous pools.
Downturn LGD is derived
based on the peak default
rate observed. Additional
assumptions and estimations
are made on incomplete
workouts.
EAD 1Rule-based calculation >10 EAD must
based on current balance at least
which provides a conservative be equal
estimate of EAD. to current
balance
1 Defined as the number of years of historical data used in model development and estimation.
2 The Hong Kong Monetary Authority ('HKMA') applies a risk
weight floor of 25% to all residential mortgages booked after 19
May 2017 (previously 15%).
3 In US mortgage business, first lien is a primary claim on a
property that takes precedence over all subsequent claims and will
be paid first from the proceeds in case of the property's
foreclosure sale.
Retail credit models
Given the large number of retail IRB models globally, we
disclose information on our significant local models. The actual
and estimated values are derived from local model monitoring and
calibration processes. Within the discipline of our global
modelling policies, our analytics teams adopt back-testing criteria
specific to local conditions in order to assess the accuracy of
their models.
Table 45 presents estimated and actual values from the
back-testing of significant IRB models covering portfolios in the
UK, Hong Kong, and the residential mortgage portfolio in the US.
The most recent three years have been included for comparative
purposes.
In the table below:
-- PD presented is expressed on an obligor count basis
consisting of non-defaulted obligors at the time of observation
and
-- LGD and EAD refer to observations for the defaulted population.
The LGD values represent the amount of loss as a percentage of
EAD, and are calculated based on defaulted accounts that were fully
resolved or have completed the modelled recovery outcome period at
the reporting date. The EAD values of the defaulted exposures are
presented as a percentage of the total EAD, which includes all
defaulted and non-defaulted exposures for the relevant population.
The regulatory PD and LGD floors (0.03% and 10% respectively) are
only applied during final capital calculation and are not reflected
in the estimates below.
For our UK residential mortgage portfolios, the estimates
include required regulatory downturn adjustments. In conducting the
back-testing, our UK residential mortgage LGD models consider
repossession rates over a 36-month period starting at the date of
default. For both our HSBC and First Direct branded residential
mortgages, estimates and actual values for LGD remained low and
stable in 2019.
The Hong Kong estimated LGD values in Table 45 include required
stressed factors to reflect downturn conditions. The LGD models for
our Hong Kong HSBC and Hang Seng residential mortgage portfolios
use a recovery outcome period of 24 months starting at the date of
default. For both portfolios, LGD estimates remain higher than the
calculated actual values but below the 10% regulatory floor.
The US estimates in Table 45 include downturn adjustments and
model overlays agreed with the PRA. The LGD models use a recovery
outcome period of 36 months, reflecting the recovery process due to
foreclosure moratoria. LGD estimates and actual values remained
stable in 2019.
Table 45: IRB models - estimated and actual values (retail)(1)
PD LGD EAD
Estimated Actuals Estimated Actuals Estimated Actuals
% % % % % %
2019
UK
- HSBC residential mortgage 0.33 0.29 9.17 0.32 0.29 0.28
- FD residential mortgages 0.42 0.34 7.42 1.85 0.93 0.74
--------- ------- --------- ------- --------- -------
- HSBC credit card 1.06 1.05 91.29 88.58 1.51 1.48
- HSBC personal loans 2.54 2.19 83.61 61.79 2.26 2.10
- Business Banking (Retail SME) 2.95 2.92 78.23 55.48 2.54 2.31
Hong Kong
- HSBC personal residential mortgage 0.60 0.03 1.58 1.21 0.02 0.02
-------------------------------------------
- Hang Seng personal residential
mortgage 0.37 0.10 4.52 1.03 0.07 0.07
- HSBC credit card 0.53 0.20 89.06 78.37 0.38 0.40
- HSBC personal instalment loans 2.13 1.31 88.92 84.70 1.06 0.92
US - HSBC personal first lien
residential mortgage 1.54 0.54 51.01 18.24 0.30 0.29
------------------------------------------- --------- ------- --------- ------- --------- -------
2018
------------------------------------------- --------- ------- --------- ------- --------- ---------
UK
- HSBC residential mortgage 0.40 0.27 9.60 0.38 0.27 0.25
- FD residential mortgages 0.45 0.38 8.19 2.07 1.05 0.86
- HSBC credit card 1.01 0.97 88.75 85.15 1.42 1.40
- HSBC personal loans 2.13 1.88 84.84 87.97 1.83 1.75
- Business Banking (Retail SME) 2.83 2.86 78.56 71.56 2.30 2.09
-------------------------------------------
Hong Kong
- HSBC personal residential mortgage 0.70 0.02 2.87 1.70 0.02 0.02
- Hang Seng personal residential
mortgage 0.39 0.09 5.99 0.84 0.08 0.08
-------------------------------------------
- HSBC credit card 0.57 0.24 87.92 75.98 0.40 0.42
- HSBC personal instalment loans 2.27 1.47 89.01 83.73 1.24 1.10
US - HSBC personal first lien residential
mortgage 1.71 0.69 52.06 21.69 0.43 0.42
-------------------------------------------
2017
------------------------------------------- --------- ------- --------- ------- --------- ---------
UK
- HSBC residential mortgage 0.44 0.28 9.74 0.88 0.26 0.24
- FD residential mortgages 0.48 0.41 2.11 0.45 1.09 0.91
- HSBC credit card 0.92 0.77 90.86 85.68 1.10 1.07
- HSBC personal loans 1.94 1.62 87.77 79.90 1.58 1.50
- Business Banking (Retail SME) 2.57 2.64 73.87 70.25 1.90 1.51
Hong Kong
- HSBC personal residential mortgage 0.72 0.04 1.43 0.14 0.05 0.05
-------------------------------------------
- Hang Seng personal residential
mortgage 0.42 0.14 5.18 0.59 0.14 0.14
- HSBC credit card 0.65 0.28 89.33 76.11 0.47 0.50
- HSBC personal instalment loans 2.34 1.51 89.07 80.05 1.25 1.14
US - HSBC personal first lien residential
mortgage 1.91 0.80 53.27 22.22 0.37 0.36
-------------------------------------------
1 Data represents an annual view, analysed at 30 September.
Model performance
Model validation is subject to global internal standards
designed to support a comprehensive quantitative and qualitative
process within a cycle of model monitoring and validation that
includes:
-- investigation of model stability;
-- measuring model performance by comparing the model's outputs against actual outcomes; and
-- reviewing model use within the business, e.g. user input data
quality, override activity and the assessment of results from key
controls around the usage of the rating system as a whole within
the overall credit process.
Models are monitored against a series of metrics and triggers
approved by the appropriate governance committee. Model performance
metrics, and any material remedial actions in the event of a
trigger breach, are reported at the Wholesale and RBWM MOCs. We
also disclose model performance reports for our IRB models to our
lead regulator, the PRA, quarterly. We are designing a new target
operating model for the MRM function, which sets model risk
management policy, standards and model risk appetite.
Further information is available on page 146 of the Annual
Report and Accounts 2019.
A large number of models are used within the Group, and data at
individual model level is, in most cases, immaterial in the context
of the overall Group. We therefore disclose data covering most
wholesale models, including corporate models on an aggregated
basis, and on the significant retail models.
Tables 46 and 47 below validate the reliability of PD
calculations by comparing the PD used in IRB calculations with
actual default experience. In Table 47, a customer's PD is observed
at a PIT and their default or non-default status in the following
one-year period is recorded against that PD grade.
Table 46: Wholesale IRB exposure - back-testing of probability of default
(PD) per portfolio(1) (CR9)
Number of
obligors
of which: Average
Arithmetic new historical
External External External average End Defaulted defaulted annual
rating rating rating Weighted PD by of End obligors obligors default
equivalent equivalent equivalent average obligors previous of the in the in the rate
PD range (S&P) (Moody's) (Fitch) PD % % year(3) year year year %
2019
----------- -----------
Sovereigns(2)
AAA to Aaa to AAA to
0.00 to <0.15 A- Baa1 BBB+ 0.02 0.04 53 54 - - -
0.15 to <0.25 BBB+ Baa2 BBB 0.22 0.22 6 7 - - -
0.25 to <0.50 BBB Baa3 BBB- 0.37 0.37 8 8 - - -
0.50 to <0.75 BBB- Baa3 BBB- 0.63 0.63 7 6 - - -
BB+ to Ba1 to BB+ to
0.75 to <2.50 BB- B1 B+ 2.05 1.38 21 16 - - -
----------- -----------
B+ to B2 to
2.5 to <10.00 B- Caa1 B to CCC+ 5.65 4.81 21 22 - - -
10.00 to CCC+ Caa1 CCC to
<100.00 to C to C C 36.00 17.33 6 7 - - 1.79
-------- ---------- --------- --------- ----------
Banks
AAA to Aaa to AAA to
0.00 to <0.15 A- Baa1 BBB+ 0.05 0.08 268 287 - - -
0.15 to <0.25 BBB+ Baa2 BBB 0.22 0.22 62 71 - - -
0.25 to <0.50 BBB Baa3 BBB- 0.37 0.37 61 49 - - -
0.50 to <0.75 BBB- Baa3 BBB- 0.63 0.63 47 50 - - -
BB+ to Ba1 to BB+ to
0.75 to <2.50 BB- B1 B+ 1.11 1.31 102 91 - - -
B+ to B2 to
2.5 to <10.00 B- Caa1 B to CCC+ 4.17 4.59 54 42 - - 0.09
----------- -----------
10.00 to CCC+ Caa1 CCC to
<100.00 to C to C C 12.67 11.77 17 24 - - 1.40
-------- ---------- --------- --------- ----------
Corporates
AAA to Aaa to AAA to
0.00 to <0.15 A- Baa1 BBB+ 0.08 0.11 12,916 13,575 12 - 0.03
0.15 to <0.25 BBB+ Baa2 BBB 0.22 0.22 12,147 12,808 19 - 0.11
0.25 to <0.50 BBB Baa3 BBB- 0.37 0.37 11,998 12,911 24 - 0.23
0.50 to <0.75 BBB- Baa3 BBB- 0.63 0.63 10,844 11,926 29 3 0.41
BB+ to Ba1 to BB+ to
0.75 to <2.50 BB- B1 B+ 1.38 1.42 33,473 32,750 262 36 0.86
B+ to B2 to
2.5 to <10.00 B- Caa1 B to CCC+ 4.15 4.25 12,978 12,999 556 77 3.05
----------- -----------
10.00 to CCC+ Caa1 CCC to
<100.00 to C to C C 21.94 18.42 1,571 1,723 234 16 13.29
-------- ---------- --------- --------- ----------
Table 46: Wholesale IRB exposure - back-testing of probability of default
(PD) per portfolio(1) (CR9) (continued)
Number of
obligors
of which: Average
Arithmetic new historical
External External External average Defaulted defaulted annual
rating rating rating Weighted PD by End of End of obligors obligors default
equivalent equivalent equivalent average obligors previous the in the in the rate
PD range (S&P) (Moody's) (Fitch) PD % % year(3) year year year %
2018
Sovereigns(2)
-----------
AAA to Aaa to AAA to
0.00 to <0.15 BBB Baa2 BBB 0.02 0.04 53 53 - - -
-----------
0.15 to <0.25 BBB- Baa3 BBB- 0.22 0.22 7 6 - - -
-----------
0.25 to <0.50 BBB- Baa3 BBB- 0.37 0.37 5 8 - - -
-----------
BB+ to Ba1 to BB+ to
0.50 to <0.75 BB Ba2 BB 0.63 0.63 7 7 - - -
BB- to Ba3 to BB- to
0.75 to <2.50 B- B2 B- 1.44 1.32 23 21 - - -
B to B2 to CCC+ to
2.5 to <10.00 B- Caa1 CCC 3.65 4.92 21 21 - - -
-----------
10.00 to B- to Caa1 CCC to
<100.00 C to C C 10.00 18.75 8 6 - - 1.79
-----------
Banks
AAA to Aaa to AAA to
0.00 to <0.15 A- Baa1 BBB+ 0.05 0.08 258 268 - - -
0.15 to <0.25 BBB+ Baa2 BBB 0.22 0.22 62 62 - - -
0.25 to <0.50 BBB Baa3 BBB- 0.37 0.37 48 61 - - -
0.50 to <0.75 BBB- Baa3 BBB- 0.63 0.63 58 47 - - -
BB+ to Ba1 to BB+ to
0.75 to <2.50 BB- B1 B+ 1.15 1.36 119 102 - - -
B+ to B2 to
2.5 to <10.00 B- Caa1 B to CCC+ 4.10 4.54 75 54 - - 0.17
10.00 to CCC+ Caa1 CCC to
<100.00 to C to C C 15.62 13.61 18 17 - - 1.55
-----------
Corporates
AAA to Aaa to AAA to
0.00 to <0.15 A- Baa1 BBB+ 0.09 0.10 12,935 13,750 6 - 0.02
0.15 to <0.25 BBB+ Baa2 BBB 0.22 0.22 12,344 12,741 4 - 0.11
0.25 to <0.50 BBB Baa3 BBB- 0.37 0.37 12,779 12,794 9 - 0.22
0.50 to <0.75 BBB- Baa3 BBB- 0.63 0.63 11,153 11,616 27 1 0.40
BB+ to Ba1 to BB+ to
0.75 to <2.50 BB- B1 B+ 1.35 1.44 36,542 35,581 275 27 0.88
B+ to B2 to
2.5 to <10.00 B- Caa1 B to CCC+ 4.23 4.32 13,712 14,023 379 42 2.93
-----------
10.00 to CCC+ Caa1 CCC to
<100.00 to C to C C 18.81 19.65 1,814 1,762 269 21 12.93
-----------
1 Data represents an annual view, analysed at 30 September.
2 The CRR to external ratings mapping has been updated for
Sovereign portfolios to reflect the current CRR master scale.
3 Back-testing is conducted on the basis of the opening count of
obligors not in default in each year. Obligors who default during
the year are excluded from the opening count for the following
year.
Table 47: Retail IRB exposure - back-testing of probability of default
(PD) per portfolio(1) (CR9)
Number of obligors
of which: Average
Arithmetic Defaulted new defaulted historical
Weighted average End of obligors obligors annual
average PD by previous End of in the in the default
PD range PD obligors year(2) the year year year rate
2019
Retail -
Secured
by real estate
non-SME
0.00 to <0.15 0.06 0.06 727,744 762,489 269 2 0.04
0.15 to <0.25 0.19 0.19 65,933 71,284 63 2 0.09
0.25 to <0.50 0.35 0.35 65,548 70,656 99 2 0.13
0.50 to <0.75 0.59 0.59 26,743 27,154 65 - 0.21
0.75 to <2.50 1.31 1.38 54,654 61,885 245 2 0.38
2.50 to <10.00 4.19 4.25 16,580 15,967 358 - 1.80
10.00 to
<100.00 26.39 21.52 6,301 3,852 1,196 16 17.19
-------- ----------- -------------
Retail -
qualifying
revolving
0.00 to <0.15 0.06 0.06 3,219,726 3,328,050 1,483 67 0.05
0.15 to <0.25 0.19 0.19 776,922 811,125 796 31 0.10
0.25 to <0.50 0.36 0.36 692,096 737,010 1,365 46 0.20
0.50 to <0.75 0.61 0.62 330,981 349,945 1,174 44 0.35
0.75 to <2.50 1.35 1.33 717,012 755,881 6,253 196 0.81
2.50 to <10.00 4.58 4.35 216,958 228,896 7,665 279 3.25
10.00 to
<100.00 29.90 29.24 60,952 47,671 17,756 33 22.75
-------- ----------- -------------
Retail - other
non-SME
-------- -------------
0.00 to <0.15 0.13 0.13 34,493 46,360 57 14 0.15
0.15 to <0.25 0.18 0.17 119,005 108,191 220 25 0.14
0.25 to <0.50 0.39 0.39 70,521 130,566 303 127 0.27
0.50 to <0.75 0.58 0.58 35,026 57,295 301 93 0.52
0.75 to <2.50 1.33 1.34 199,214 185,914 2,631 444 1.18
2.50 to <10.00 4.23 4.54 77,263 61,559 3,563 265 3.70
10.00 to
<100.00 37.52 37.19 18,396 8,894 5,864 22 34.92
-------- ----------- -------------
Retail - other
SME
-------- -------------
0.00 to <0.15 0.10 0.10 59,060 57,074 29 - 0.05
0.15 to <0.25 0.21 0.20 49,952 49,148 52 2 0.16
0.25 to <0.50 0.39 0.38 120,086 118,700 414 7 0.34
0.50 to <0.75 0.61 0.61 97,307 99,368 578 6 0.63
0.75 to <2.50 1.51 1.34 269,122 273,060 3,736 96 1.43
2.50 to <10.00 4.79 4.68 159,675 155,791 7,440 212 4.06
10.00 to
<100.00 20.75 22.90 50,282 42,171 11,718 94 17.16
-------- ----------- -------------
Table 47: Retail IRB exposure - back-testing of probability of default
(PD) per portfolio(1) (CR9) (continued)
Number of obligors
of which: Average
Arithmetic Defaulted new defaulted historical
Weighted average End of obligors obligors annual
average PD by previous End of in the in the default
PD range PD obligors year(2) the year year year rate
2018
Retail -
Secured
by real estate
non-SME
0.00 to <0.15 0.06 0.06 696,972 738,577 259 3 0.03
0.15 to <0.25 0.19 0.19 60,467 60,748 59 - 0.08
0.25 to <0.50 0.35 0.34 65,972 64,896 98 2 0.13
0.50 to <0.75 0.60 0.60 26,090 24,446 59 - 0.20
0.75 to <2.50 1.33 1.35 58,184 53,707 237 1 0.41
2.50 to <10.00 4.33 4.32 18,547 15,669 332 1 1.97
10.00 to
<100.00 26.08 23.26 7,612 4,883 1,254 9 18.79
---------
Retail -
qualifying
revolving
0.00 to <0.15 0.06 0.06 3,142,314 3,246,838 1,492 72 0.05
0.15 to <0.25 0.19 0.19 727,005 756,129 747 18 0.10
0.25 to <0.50 0.36 0.36 660,076 690,157 1,277 38 0.20
0.50 to <0.75 0.61 0.62 310,930 334,756 1,120 23 0.35
0.75 to <2.50 1.35 1.32 661,414 723,761 5,871 97 0.81
2.50 to <10.00 4.60 4.41 205,789 224,910 7,319 78 3.11
10.00 to
<100.00 29.12 28.71 68,365 48,267 16,375 11 21.00
---------
Retail - other
non-SME
0.00 to <0.15 0.09 0.08 124,924 146,849 267 7 0.15
0.15 to <0.25 0.19 0.19 79,492 89,056 145 5 0.14
0.25 to <0.50 0.36 0.36 114,634 127,085 395 23 0.27
0.50 to <0.75 0.61 0.62 39,397 40,862 213 13 0.52
0.75 to <2.50 1.35 1.40 97,623 96,793 1,345 45 1.23
2.50 to <10.00 4.52 4.82 53,464 47,449 2,108 48 3.51
10.00 to
<100.00 41.84 40.92 15,141 7,090 5,535 6 35.84
---------
Retail - other
SME
0.00 to <0.15 0.10 0.10 61,271 59,701 18 - 0.06
0.15 to <0.25 0.20 0.19 51,337 50,498 78 1 0.18
0.25 to <0.50 0.38 0.36 114,069 113,307 382 3 0.38
0.50 to <0.75 0.61 0.61 120,311 121,038 687 4 0.69
0.75 to <2.50 1.54 1.37 292,313 289,602 4,083 86 1.55
2.50 to <10.00 4.86 4.80 155,113 145,309 7,558 117 4.21
10.00 to
<100.00 19.62 22.47 49,944 42,946 11,563 29 17.07
---------
1 Data represents an annual view, analysed at 30 September.
2 Back-testing is conducted on the basis of the opening count of
obligors not in default in each year. Obligors who default during
the year are excluded from the opening count for the following
year.
Counterparty credit risk
Counterparty credit risk management
Counterparty credit risk ('CCR') arises for derivatives and
SFTs. It is calculated in both the trading and non-trading books,
and is the risk that a counterparty may default before settlement
of the transaction. CCR is generated primarily in our wholesale
global businesses.
Four approaches may be used under CRD IV to calculate exposure
values for CCR: mark-to-market, original exposure, standardised and
IMM. Exposure values calculated under these approaches are used to
determine RWAs. Across the Group, we use the mark-to-market and IMM
approaches.
Under the mark-to-market approach, the EAD is calculated as
current exposure plus regulatory add-ons. We use this approach for
all products not covered by our IMM permission. Under the IMM
approach, EAD is calculated by multiplying the effective expected
positive exposure with a multiplier called 'alpha'.
Alpha (set to a default value of 1.4) accounts for several
portfolio features that increase EL above that indicated by
effective expected positive exposure in the event of default, such
as:
-- co-variance of exposures;
-- correlation between exposures and default;
-- level of volatility/correlation that might coincide with a downturn;
-- concentration risk; and
-- model risk.
The effective expected positive exposure is derived from
simulation, pricing and aggregation internal models approved by
regulators. The IMM model is subject to ongoing model validation
including monthly model performance monitoring.
From a risk management perspective, products not covered by IMM
are subject to conservative asset class add-ons, in addition to
daily monitoring of credit limit utilisation.
The potential future exposure ('PFE') measures used for CCR
management are calibrated to the 95th percentile. The measures
consider volatility, trade maturity and the counterparty legal
documentation covering netting and collateral.
Limits for CCR exposures are assigned within the overall credit
process. The credit risk function assigns a limit against each
counterparty to cover exposure which may arise as a result of a
counterparty default. The magnitude of this limit will depend on
the overall risk appetite and type of derivatives and SFT trading
undertaken with the counterparty.
The models and methodologies used in the calculation of CCR are
overseen and monitored by the Traded Risk Model Oversight
Committee. Models are subject to ongoing monitoring and validation.
Additionally, they are subject to independent review at inception
and annually thereafter.
Table 48: Analysis of counterparty credit risk exposure by approach
(excluding centrally cleared exposures)(1) (CCR1)
Effective
Potential expected
Replacement future positive EAD
cost exposure exposure Multiplier post-CRM RWAs
$bn $bn $bn $bn $bn $bn
---
1 Mark-to-market 7.6 22.5 - - 30.1 12.4
4 Internal Model Method - - 34.8 1.4 48.7 18.7
- of which: derivatives and
6 long settlement transactions(2) - - 34.8 1.4 48.7 18.7
Financial collateral comprehensive
9 method (for SFTs) - - - - 50.4 7.9
11 Total at 31 Dec 2019 7.6 22.5 34.8 1.4 129.2 39.0
1 Mark to market 12.6 21.5 - - 34.1 13.9
4 Internal Model Method - - 29.9 1.4 41.8 16.2
- of which: derivatives and
6 long settlement transactions(2) - - 29.9 1.4 41.8 16.2
Financial collateral comprehensive
9 method (for SFTs) - - - - 49.3 10.2
11 Total at 31 Dec 2018 12.6 21.5 29.9 1.4 125.2 40.3
1 As the Group does not use the original exposure method, notional values are not reported.
2 Prior to the implementation of SA-CCR, exposures reported in
this row will be those under the mark-to-market method.
Credit valuation adjustment
Credit valuation adjustments ('CVA') represent the risk of loss
as a result of adverse changes to the credit quality of
counterparties in derivative transactions. Where we have both
specific risk VaR approval and IMM approval for a product, the CVA
VaR approach has been used to calculate the CVA capital charge.
Where we do not hold both approvals, the standardised approach
has been applied. Certain counterparty exposures are exempt from
CVA, such as non-financial counterparties and sovereigns.
Table 49: Credit valuation adjustment (CVA) capital charge (CCR2)
At 31 Dec At 31 Dec
2019 2018
EAD EAD
post-CRM RWAs post-CRM RWAs
$bn $bn $bn $bn
Total portfolios subject to the Advanced CVA
1 capital charge 22.2 3.1 21.4 4.9
2 - VaR component (including the 3 × multiplier) 0.5 0.9
3 - stressed VaR component (including the 3
× multiplier) 2.6 4.0
4 All portfolios subject to the Standardised
CVA capital charge 13.6 0.9 13.6 1.0
5 Total subject to the CVA capital charge 35.8 4.0 35.0 5.9
The following table presents information on the risk-weighting
of CCR exposures under the standardised approach by regulatory
portfolio. Further detail on the standardised approach is
provided
on page 43. Information on exposures under the IRB approach can
be found in Table 78 of Appendix I.
Table 50: Standardised approach - CCR exposures by regulatory portfolio
and risk weights (CCR3)
Total
credit of which:
Risk weight 0% 10% 20% 50% 75% 100% 150% Others exposure unrated
$bn $bn $bn $bn $bn $bn $bn $bn $bn $bn
-------- -----------
Central
governments
and central
1 banks 8.8 - - - - - - 8.8 -
Regional
government
or local
2 authorities 2.5 - - - - - - - 2.5 -
6 Institutions - - 0.1 0.1 - - 0.2
7 Corporates - - - - - 2.1 - - 2.1 1.9
Total at 31
Dec 2019 11.3 - - 0.1 - 2.2 - - 13.6 1.9
---------
Central
governments
and central
1 banks 7.4 - 0.1 - - - - - 7.5 -
Regional
government
or local
2 authorities 1.0 - - - - - - - 1.0 0.1
6 Institutions - - - - - 0.1 - - 0.1 -
7 Corporates - - - - - 1.9 - - 1.9 1.6
---
Total at 31
Dec 2018 8.4 - 0.1 - - 2.0 - - 10.5 1.7
---
Collateral arrangements
Our policy is to revalue all traded transactions and associated
collateral positions on a daily basis. An independent collateral
management function manages the collateral process, including
pledging and receiving collateral and investigating disputes and
non-receipts.
Eligible collateral types are controlled under a policy to
ensure price transparency, price stability, liquidity,
enforceability, independence, reusability and eligibility for
regulatory purposes.
A valuation 'haircut' policy reflects the fact that collateral
may fall in value between the date the collateral was called and
the date of liquidation or enforcement. Approximately 99% of
collateral held as variation margin under CSAs is either cash or
liquid government securities.
Further information on gross fair value exposure and the offset
due to legally enforceable netting and collateral is set out on
page 304 of the Annual Report and Accounts 2019.
Table 51: Impact of netting and collateral held on exposure values
(CCR5-A)
Gross positive
fair value Netted
or net current
carrying Netting credit Collateral Net credit
amount benefits exposure held exposure
$bn $bn $bn $bn $bn
1 Derivatives 595.4 442.8 152.6 51.9 100.7
2 SFTs 865.1 - 865.1 814.6 50.5
4 Total at 31 Dec 2019 1,460.5 442.8 1,017.7 866.5 151.2
-------------- --------- --------- ---------- ----------
1 Derivatives 579.7 431.8 147.9 42.4 105.5
2 SFTs 983.8 - 983.8 933.1 50.7
4 Total at 31 Dec 2018 1,563.5 431.8 1,131.7 975.5 156.2
Table 52: Composition of collateral for CCR exposure (CCR5-B)
Collateral used in derivative Collateral used
transactions in SFTs
Fair value of
collateral Fair value of
received posted collateral
Fair value Fair value
of collateral of posted
Segregated Unsegregated Segregated Unsegregated received collateral
$bn $bn $bn $bn $bn $bn
Cash - domestic
1 currency - 6.8 - 7.8 57.4 98.6
Cash - other
2 currencies - 48.1 - 45.3 287.4 374.1
Domestic
3 sovereign debt - 7.3 0.5 6.4 90.4 64.7
Other sovereign
4 debt - 5.1 2.8 11.3 327.0 275.4
Government
5 agency debt - 0.2 - 0.1 6.5 1.0
6 Corporate bonds - 1.0 0.7 0.3 47.2 10.5
Equity
7 securities - 0.2 0.2 - 39.1 40.6
Other
8 collateral - 0.2 2.8 1.6 1.7 0.2
Total at 31 Dec
9 2019 - 68.9 7.0 72.8 856.7 865.1
---
Cash - domestic
1 currency - 5.6 1.6 4.9 75.9 118.9
Cash - other
2 currencies - 37.6 5.5 32.6 344.1 402.0
Domestic
3 sovereign debt - 5.5 - 5.2 107.7 84.6
Other sovereign
4 debt - 5.8 - 9.5 352.4 323.8
Government
5 agency debt - 0.1 - 0.2 13.4 4.4
6 Corporate bonds - 0.7 - 0.3 36.4 16.5
Equity
7 securities - - - - 36.8 32.3
Other
8 collateral - 0.3 - 1.2 1.4 0.5
Total at 31 Dec
9 2018 - 55.6 7.1 53.9 968.1 983.0
Table 53 shows the credit derivative exposures that HSBC holds,
split between those amounts due to client intermediation and those
amounts booked as part of HSBC's own credit portfolio.
Where the credit derivative is used to hedge our own portfolio,
no counterparty credit risk capital requirement arises.
For a discussion on hedging risk and monitoring the continuing
effectiveness of hedges, refer to Note 1.2(h) of the Annual Report
and Accounts 2019.
Table 53: Credit derivatives exposures (CCR6)
At 31 Dec
2019 2018
Protection Protection Protection Protection
bought sold bought sold
Footnotes $bn $bn $bn $bn
Notionals
Credit derivative products used
for own credit portfolio
---------
- Index credit default swaps 9.4 7.7 2.3 -
Total notionals used for own credit
portfolio 9.4 7.7 2.3 -
--------- --------- --------- ---------
Credit derivative products used
for intermediation 1
- Index credit default swaps 160.7 142.0 168.6 154.0
---------
- Total return swaps 15.4 9.7 14.6 6.9
---------
Total notionals used for intermediation 176.1 151.7 183.2 160.9
--------- --------- ---------
Total credit derivative notionals 185.5 159.4 185.5 160.9
--------- --------- ---------
Fair values
- Positive fair value (asset) 2.4 2.3 2.6 1.2
- Negative fair value (liability) (2.8) (2.8) (1.4) (2.4)
--------- --------- ---------
1 This is where we act as an intermediary for our clients,
enabling them to take a position in the underlying securities. This
does not increase risk for HSBC.
Central counterparties
While exchange traded derivatives have been cleared through
central counterparties ('CCPs') for many years, recent regulatory
initiatives designed to reduce systemic risk in the banking system
are directing increasing volumes of OTC derivatives to be cleared
through CCPs.
To manage the significant concentration of risk in CCPs that
results from this, we have developed a risk appetite framework to
manage risk accordingly, at the level of individual CCPs and
globally. A dedicated CCP risk team has been established to manage
the interface with CCPs and undertake in-depth due diligence of the
unique risks associated with these organisations.
Table 54: Exposures to central counterparties (CCR8)
At 31 Dec 2019 At 31 Dec 2018
EAD post-
EAD post-CRM RWAs CRM RWAs
$bn $bn $bn $bn
-------------- ------
1 Exposures to QCCPs (total) 33.4 1.1 42.3 1.1
Exposures for trades at QCCPs (excluding
2 initial margin and default fund contributions) 15.2 0.3 24.8 0.5
3 - OTC derivatives 5.1 0.1 9.8 0.2
4 - exchange-traded derivatives 5.4 0.1 9.2 0.2
-----------------------------------------------
5 - securities financing transactions 4.7 0.1 5.8 0.1
----------------------------------------------- ------------ ----
7 Segregated initial margin 6.9 - 7.1 -
8 Non-segregated initial margin 11.3 0.2 10.4 0.2
9 Pre-funded default fund contributions - 0.6 - 0.4
-----------------------------------------------
Wrong-way risk
Wrong-way risk occurs when a counterparty's exposures are
adversely correlated with its credit quality.
There are two types of wrong-way risk:
-- General wrong-way risk occurs when the probability of
counterparty default is positively correlated with general risk
factors, for example, where a counterparty is resident and/or
incorporated in a higher-risk country and seeks to sell a
non-domestic currency in exchange for its home currency.
-- Specific wrong-way risk occurs in self-referencing
transactions. These are transactions in which exposure is driven by
capital or financing instruments issued by the counterparty and
occurs where exposure from HSBC's perspective materially increases
as the value of the counterparty's capital or financing instruments
referenced in the contract decreases. It is HSBC policy that
specific wrong-way transactions are approved on a case-by-case
basis.
We use a range of tools to monitor and control wrong-way risk,
including requiring the business to obtain prior approval before
undertaking wrong-way risk transactions outside pre-agreed
guidelines.
The regional Traded Risk functions are responsible for the
control and monitoring process within an overarching Group
framework and limit framework.
Credit rating downgrade
A credit rating downgrade clause in a Master Agreement or a
credit rating downgrade threshold clause in a credit support annex
('CSA') is designed to trigger an action if the credit rating of
the affected party falls below a specified level. These actions may
include the requirement to pay or increase collateral, the
termination of transactions by the non-affected party or the
assignment of transactions by the affected party.
At 31 December 2019, the value of the additional collateral
pertaining to International Swaps and Derivatives Association CSA
downgrade thresholds that we would potentially need to post with
counterparties in the event of a one-notch downgrade of our rating
was $0.2bn (2018: $0.2bn) and for a two-notch downgrade was $0.4bn
(2018: $0.4bn).
Securitisation
Securitisation strategy
HSBC acts as originator, sponsor, liquidity provider and
derivative counterparty to our own originated and sponsored
securitisations, as well as those of third parties. Our strategy is
to use securitisation to meet our needs for aggregate funding or
capital management, to the extent that market, regulatory
treatments and other conditions are suitable, and for customer
facilitation. We do not provide support to any of our originated or
sponsored securitisations, and it is not our policy to do so.
We have senior and junior exposures to Mazarin Funding Limited,
which is a securities investment conduit ('SIC'). We also hold all
of the commercial paper issued by Solitaire Funding Limited. These
are considered legacy businesses, and exposures are being repaid as
the securities they hold amortise or are sold.
Securitisation activity
Our roles in the securitisation process are as follows:
-- originator: where we originate the assets being securitised, either directly or indirectly;
-- sponsor: where we establish and manage a securitisation
programme that purchases exposures from third parties; and
-- investor: where we invest in a securitisation transaction
directly or provide derivatives or liquidity facilities to a
securitisation.
HSBC as originator
We use SPEs to securitise customer loans and advances and other
debt that we have originated in order to diversify our sources of
funding for asset origination and for capital efficiency purposes.
In such cases, we transfer the loans and advances to the SPEs for
cash, and the SPEs issue debt securities to investors to fund the
cash purchases.
In addition, we use SPEs to mitigate the capital absorbed by
some of the customer loans and advances we have originated. Credit
derivatives are used to transfer the credit risk associated with
such customer loans and advances to an SPE, using an approach
commonly known as synthetic securitisation by which the SPE writes
CDS protection for HSBC.
HSBC as sponsor
We are sponsor to a number of types of securitisation entities,
details of which can be found in the table below.
The Group's exposure to Barion Funding Limited and Malachite
Funding Limited at 31 December 2019 is not significant and limited
to balances associated with the winding-up of these entities.
Further details are available in Note 20 of the Financial
Statements in the Annual Report and Accounts 2019.
Solitaire Asset-backed commercial paper ('ABCP') P P Look through
conduit to which a first-loss letter to risk weights
of credit and transaction-specific of underlying
liquidity facilities are provided assets
Regency Multi-seller conduit to which senior P O Exposures (including
liquidity facilities and programme-wide derivatives
credit enhancement are provided and liquidity
facilities)
are risk-weighted
as securitisation
positions
HSBC as investor
We have exposure to third-party securitisations across a wide
range of sectors in the form of investments, liquidity facilities
and as a derivative counterparty. These are primarily legacy
exposures.
Monitoring of securitisation positions
Securitisation positions are managed by a dedicated team that
uses a combination of market standard systems and third-party data
providers to monitor performance data and manage market and credit
risks.
In the case of re-securitisation positions, similar processes
are conducted in respect of the underlying securitisations.
Liquidity risk of securitised assets is consistently managed as
part of the Group's liquidity and funding risk management
framework.
Valuation of securitisation positions
The process of valuing our investments in securitisation
exposures primarily focuses on quotations from third parties,
observed trade levels and calibrated valuations from market
standard models.
Our hedging and credit risk mitigation strategy, with regards to
retained securitisation and re-securitisation exposures, is to
continually review our positions.
Securitisation accounting treatment
For accounting purposes, we consolidate structured entities
(including SPEs) when the substance of the relationship indicates
that we control them; that is, we are exposed, or have rights, to
variable returns from our involvement with the structured entity
and have the ability to affect those returns through our power over
the entity.
Full details of these assessments and our accounting policy on
structured entities may be found in Note 1.2(a) and Note 20 on the
Financial Statements respectively of the Annual Report and Accounts
2019.
We reassess the need to consolidate whenever there is a change
in the substance of the relationship between HSBC and a structured
entity.
HSBC enters into transactions in the normal course of business
by which it transfers financial assets to structured entities.
Depending on the circumstances, these transfers may either result
in these financial assets being fully or partly derecognised, or
continuing to be recognised in their entirety.
Full derecognition occurs when we transfer our contractual right
to receive cash flows from the financial assets, or assume an
obligation to pass on the cash flows from the assets, and transfer
substantially all the risks and rewards of ownership. Only in the
event that derecognition is achieved are sales and any resultant
gains recognised in the financial statements.
Partial derecognition occurs when we sell or otherwise transfer
financial assets in such a way that some but not substantially all
of the risks and rewards of ownership are transferred and control
is retained. These financial assets are recognised on the balance
sheet to the extent of our continuing involvement and an associated
liability is also recognised. The net carrying amount of the
financial asset and associated liability will be based on either
the amortised cost or the fair value of the rights and obligations
retained by the entity, depending upon the measurement basis of the
financial asset.
Further disclosure of such transfers may be found in Note 17 on
the Financial Statements of the Annual Report and Accounts
2019.
Securitisation regulatory treatment
For regulatory purposes, any reduction in RWAs that would be
achieved by our own originated securitisations must receive the
PRA's permission and be justified by a commensurate transfer of
credit risk to third parties. If achieved, the associated SPEs and
underlying assets are not consolidated but exposures to them,
including derivatives or liquidity facilities, are risk-weighted as
securitisation positions.
For the majority of the non-trading book securitisation
positions we use the IRB approach and, within this, Ratings Based
Method ('RBM') and Internal Assessment Approach ('IAA') with lesser
amounts on the Supervisory Formula Method ('SFM'). We also use the
standardised approach on the non-trading book positions.
Securitisation positions in the trading book are overseen within
Market Risk under the standardised approach.
Use of the IAA is limited to exposures arising from Regency
Assets Limited related to liquidity facilities. Eligible ECAI
rating methodology, which includes stress factors, is applied to
each asset class in order to derive the equivalent rating level for
each transaction. This methodology is verified by the internal
credit function as part of the approval process for each new
transaction. The performance of each underlying asset portfolio,
including residential and commercial mortgages and
re-securitisations, is monitored to confirm that the applicable
equivalent rating level still applies and is independently
verified. Our IAA approach is audited periodically by Internal
Audit and reviewed by the PRA.
Further details of our securitisation regulatory treatment may
be found on page 17 of this document.
Analysis of securitisation exposures
Our involvement in securitisation activities reflects the
following:
-- securitisation positions are not backed by revolving
exposures other than trade receivables in Regency Assets Limited,
which is unchanged from 2018;
-- facilities are not subject to early amortisation provisions;
-- $7.2bn positions held as synthetic transactions (2018: $3.2bn);
-- no assets awaiting securitisation and no material realised
losses on securitisation asset disposals during the year;
-- unrealised losses on asset-backed securities ('ABS') in the
year amounted to $0.2bn (2018: $0.2bn), which relates to assets
within SPEs that are consolidated for regulatory purposes; and
-- total exposures include off-balance sheet exposure of $11.1bn
(2018: $10.9bn), mainly relating to contingent liquidity lines
provided to securitisation vehicles where we act as sponsor, with a
small amount from derivative exposures where we are an investor.
The off-balance sheet exposures are held in the non-trading book
and the exposure types are residential mortgages, commercial
mortgages, trade receivables and re-securitisations.
Further details of our securitisation exposures may be found on
page 287 of the Annual Report and Accounts 2019.
Table 55: Securitisation exposure - movement in the year
Movement in year
Total at Total at
1 Jan As originator As sponsor As investor 31 Dec
$bn $bn $bn $bn $bn
Aggregate amount of securitisation
exposures
Residential mortgages 9.2 - (0.6) 1.1 9.7
Commercial mortgages 2.3 - - 0.6 2.9
-------- ----------- -------- ----------- --------
Credit Cards 1.4 - (0.7) 0.9 1.6
-------- ----------- -------- ----------- --------
Leasing 6.0 - (1.3) 1.2 5.9
-------- --------
Loans to corporates or SMEs 3.3 4.0 - - 7.3
----------- -----------
Consumer loans 6.8 - (0.5) 0.8 7.1
Trade receivables 5.4 (0.4) (0.8) 0.7 4.9
Other assets 0.5 - - 0.3 0.8
-------- ----------- -------- ----------- --------
Re-securitisations 0.4 - (0.4) - -
-------- ----------- -------- ----------- --------
2019 35.3 3.6 (4.3) 5.6 40.2
-------- ----------- -------- ----------- --------
Table 56: Securitisation - asset values and impairments
2019 2018
Underlying
Underlying assets(1) assets(1)
Impaired Securitisation Impaired Securitisation
and past exposures and past exposures
Total(3) due impairment Total(3) due impairment
Footnotes $bn $bn $bn $bn $bn $bn
------------ ----------- --------- -------------- ---------
As originator 10.7 - - 5.4 - -
- loans to
corporates and
SMEs 10.7 - - 5.0 - -
------------
- trade receivables - - - 0.4 - -
-
re-securitisations 2 - - - - - -
---------
As sponsor 15.6 0.2 - 19.9 - -
- residential
mortgages 3.7 - - 4.3 - -
- commercial
mortgages 0.1 - - 0.1 - -
- credit cards - - - 0.7 - -
------------
- leasing 4.3 - - 5.6 - -
------------
- loans to
corporates and
SMEs - - - - - -
------------
- consumer loans 3.1 0.2 - 3.6 - -
------------
- trade receivables 4.2 - - 5.0 - -
-
re-securitisations 2 - - - 0.4 - -
------------
- other assets 0.2 - - 0.2 - -
------------ ---------
At 31 Dec 26.3 0.2 - 25.3 - -
------------ ---------
1 Securitisation exposures may exceed the underlying asset
values when HSBC provides liquidity facilities while also acting as
derivative counterparty and a note holder in the SPE.
2 The amount of underlying assets reported for
re-securitisations denotes the value of collateral within the
re-securitisation vehicles.
3 As originator and sponsor, all associated underlying assets
are held in the non-trading book. These assets are all underlying
to traditional securitisations with the exception of 'loans to
corporates and SMEs', which is underlying to a synthetic
securitisation.
Table 57: Securitisation exposures in the non-trading book (SEC1)
Bank acts as originator Bank acts as sponsor Bank acts as investor
Traditional Synthetic Sub-total Traditional Synthetic Sub-total Traditional Synthetic Sub-total
$bn $bn $bn $bn $bn $bn $bn $bn $bn
---- ----------- -----------
1 Retail (total) - - - 11.0 - 11.0 10.0 - 10.0
----
2 * residential mortgage - - - 3.7 - 3.7 4.5 - 4.5
3 * credit card - - - - - - 1.5 - 1.5
4 * other retail exposures - - - 7.3 - 7.3 4.0 - 4.0
5 * re-securitisation - - - - - - - - -
6 Wholesale (total) - 7.2 7.2 4.6 - 4.6 3.7 - 3.7
----
7 * loans to corporates - 7.2 7.2 - - - 0.1 - 0.1
8 * commercial mortgage - - - 0.1 - 0.1 1.9 - 1.9
9 * lease and receivables - - - 4.3 - 4.3 1.6 - 1.6
10 * other wholesale - - - 0.2 - 0.2 0.1 - 0.1
11 * re-securitisation - - - - - - - - -
Total at 31 Dec 2019 - 7.2 7.2 15.6 - 15.6 13.7 - 13.7
----
* of which:
securitisations
under the new framework - 5.2 5.2 7.2 - 7.2 7.3 - 7.3
----
securitisations
under the pre-existing
framework - 2.0 2.0 8.4 - 8.4 6.4 - 6.4
----
1 Retail (total) 0.4 - 0.4 13.6 - 13.6 6.8 - 6.8
----
2 * residential mortgage - - - 4.3 - 4.3 3.8 - 3.8
3 * credit card - - - 0.7 - 0.7 0.5 - 0.5
4 * other retail exposures 0.4 - 0.4 8.6 - 8.6 2.5 - 2.5
5 * re-securitisation - - - - - - - - -
6 Wholesale (total) - 3.2 3.2 6.3 - 6.3 2.1 - 2.1
----
7 * loans to corporates - 3.2 3.2 - - - 0.1 - 0.1
8 * commercial mortgage - - - 0.1 - 0.1 1.5 - 1.5
9 * lease and receivables - - - 5.6 - 5.6 0.4 - 0.4
10 * other wholesale - - - 0.2 - 0.2 0.1 - 0.1
11 * re-securitisation - - - 0.4 - 0.4 - - -
----
Total at 31 Dec 2018 0.4 3.2 3.6 19.9 - 19.9 8.9 - 8.9
----
Table 58: Securitisation exposures in the trading book (SEC2)
At
31 Dec 2019 31 Dec 2018
Bank acts as investor(1) Bank acts as investor(1)
Traditional Synthetic Sub-total Traditional Synthetic Sub-total
$bn $bn $bn $bn $bn $bn
1 Retail (total) 2.3 - 2.3 2.0 - 2.0
----
2 * residential mortgage 1.5 - 1.5 1.1 - 1.1
3 * credit card 0.1 - 0.1 0.2 - 0.2
4 * other retail exposures 0.7 - 0.7 0.7 - 0.7
6 Wholesale (total) 1.4 - 1.4 0.9 - 0.9
----
7 * loans to corporates - - - - - -
8 * commercial mortgage 0.9 - 0.9 0.7 - 0.7
9 * lease and receivables - - - - - -
10 * other wholesale 0.5 - 0.5 0.2 - 0.2
Total (all portfolios) 3.7 - 3.7 2.9 - 2.9
----
* of which:
securitisations under the
new framework 3.0 - 3.0 N/A N/A N/A
----
securitisations under the
pre-existing
framework 0.7 - 0.7 2.9 - 2.9
----
1 HSBC does not act as originator or sponsor for securitisation exposures in the trading book.
The following tables present the Group's exposure in the
non-trading book and associated regulatory capital requirements
where the Group acts as originator or as sponsor. Table 59.i
presents the Group's exposures under the pre-existing
securitisation framework, whereas Table 59.ii presents the
exposures the Group has taken on since 1 January 2019 under the new
securitisation framework.
Table 59.i: Securitisation exposures in the non-trading book and associated
capital requirements - bank acting as originator or sponsor (under
the pre-existing framework) (SEC3)
Exposure values (by risk Exposure values (by
weight bands) regulatory approach)
IRB
>20% >50% >100% RBM
<=20% to 50% to 100% to 1,250% 1,250% (including IRB
RW RW RW RW RW IAA) SFA SA 1,250%
$bn $bn $bn $bn $bn $bn $bn $bn $bn
-------- --------- ---------- ---------- -------- ------------ ------ ------ --------
Traditional
2 securitisation 7.4 0.5 0.5 - - 7.6 - 0.8 -
-----
3 Securitisation 7.4 0.5 0.5 - - 7.6 - 0.8 -
- retail
4 underlying 5.4 0.5 0.4 - - 5.5 - 0.8 -
5 - wholesale 2.0 - 0.1 - - 2.1 - - -
6 Re-securitisation - - - - - - - - -
-----
7 - senior - - - - - - - - -
8 - non-senior - - - - - - - - -
Synthetic
9 securitisation 1.7 - 0.3 - - 2.0 - - -
-----
10 Securitisation 1.7 - 0.3 - - 2.0 - - -
- retail
11 underlying - - - - - - - - -
12 - wholesale 1.7 - 0.3 - - 2.0 - - -
Total at 31 Dec
1 2019 9.1 0.5 0.8 - - 9.6 - 0.8 -
-----
Traditional
2 securitisation 19.0 0.2 0.8 0.2 0.1 19.5 - 0.7 0.1
-----
3 Securitisation 19.0 - 0.8 0.1 - 19.2 - 0.7 -
- retail
4 underlying 13.2 - 0.7 0.1 - 13.3 - 0.7 -
5 - wholesale 5.8 - 0.1 - - 5.9 - - -
6 Re-securitisation - 0.2 - 0.1 0.1 0.3 - - 0.1
-----
7 - senior - - - - - - - - -
8 - non-senior - 0.2 - 0.1 0.1 0.3 - - 0.1
Synthetic
9 securitisation 2.9 - - 0.3 - 3.2 - - -
-----
10 Securitisation 2.9 - - 0.3 - 3.2 - - -
- retail
11 underlying - - - - - - - - -
12 - wholesale 2.9 - - 0.3 - 3.2 - - -
Total at 31 Dec
1 2018 21.9 0.2 0.8 0.5 0.1 22.7 - 0.7 0.1
-----
Table 59.i: Securitisation exposures in the non-trading book and associated
capital requirements - bank acting as originator or sponsor (under
the pre-existing framework) (SEC3) (continued)
RWAs (by regulatory Capital charge after
approach) cap
IRB IRB
RBM RBM
(including IRB (including IRB
IAA) SFA SA 1,250% IAA) SFA SA 1,250%
$bn $bn $bn $bn $bn $bn $bn $bn
2 Traditional securitisation 1.0 - 0.6 - 0.1 - - -
3 Securitisation 1.0 - 0.6 - 0.1 - - -
4 - retail underlying 0.6 - 0.6 - 0.1 - - -
5 - wholesale 0.4 - - - - - - -
6 Re-securitisation - - - - - - - -
7 - senior - - - - - - - -
8 - non-senior - - - - - - - -
9 Synthetic securitisation 0.4 - - 0.1 - - - -
10 Securitisation 0.4 - - 0.1 - - - -
11 - retail underlying - - - - - - - -
12 - wholesale 0.4 - - 0.1 - - - -
1 Total at 31 Dec 2019 1.4 - 0.6 0.1 0.1 - - -
2 Traditional securitisation 2.5 - 0.7 1.4 0.2 - 0.1 0.1
3 Securitisation 2.0 - 0.7 0.6 0.2 - 0.1 -
4 - retail underlying 1.5 - 0.7 0.5 0.2 - 0.1 -
5 - wholesale 0.5 - - 0.1 - - - -
6 Re-securitisation 0.5 - - 0.8 - - - 0.1
7 - senior - - - - - - - -
8 - non-senior 0.5 - - 0.8 - - - 0.1
9 Synthetic securitisation 0.8 - - 0.2 0.1 - - -
10 Securitisation 0.8 - - 0.2 0.1 - - -
11 - retail underlying - - - - - - - -
12 - wholesale 0.8 - - 0.2 0.1 - - -
1 Total at 31 Dec 2018 3.3 - 0.7 1.6 0.3 - 0.1 0.1
The reduction in RWA is mainly due to the disposal of
non-senior, resecuritisation exposure in the legacy book and
renewal of pre-existing positions moving to the new securitisation
framework.
Table 59.ii: Securitisation exposures in the non-trading book and associated
capital requirements - bank acting as originator or sponsor (under
the new framework) (SEC3)
Exposure values (by risk Exposure values (by regulatory
weight bands) approach)
>100%
>20% >50% to
<=20% to 50% to 100% 1,250% 1,250% SEC
RW RW RW RW RW SEC-IRBA SEC-ERBA IAA SEC-SA 1,250%
$bn $bn $bn $bn $bn $bn $bn $bn $bn $bn
------- ------- -------- -------- ---------- ---------- -------- -------- --------
Traditional
2 securitisation 4.0 2.9 0.2 0.1 - - - 7.1 0.1 -
-----
3 Securitisation 4.0 2.9 0.2 0.1 - - - 7.1 0.1 -
- retail
4 underlying 1.8 2.6 0.2 0.1 - - - 4.6 0.1 -
5 - wholesale 2.2 0.3 - - - - - 2.5 - -
Synthetic
9 securitisation 5.2 - - - - 5.2 - - - -
-----
10 Securitisation 5.2 - - - - 5.2 - - - -
-----
- retail
11 underlying - - - - - - - - - -
12 - wholesale 5.2 - - - - 5.2 - - - -
Total at 31
Dec
1 2019 9.2 2.9 0.2 0.1 - 5.2 - 7.1 0.1 -
-----
RWAs (by regulatory approach) Capital charge after cap
SEC SEC
SEC-IRBA SEC-ERBA IAA SEC-SA 1,250% SEC-IRBA SEC-ERBA IAA SEC-SA 1,250%
$bn $bn $bn $bn $bn $bn $bn $bn $bn $bn
Traditional
2 securitisation - - 1.7 - - - - 0.1 - -
---
3 Securitisation - - 1.7 - - - - 0.1 - -
- retail
4 underlying - - 1.2 - - - - 0.1 - -
5 - wholesale - - 0.5 - - - - - - -
Synthetic
9 securitisation 0.9 - - - 0.4 0.1 - - - -
---
10 Securitisation 0.9 - - - 0.4 0.1 - - - -
- retail
11 underlying - - - - - - - - - -
12 - wholesale 0.9 - - - 0.4 0.1 - - - -
Total at 31
Dec
1 2019 0.9 - 1.7 - 0.4 0.1 - 0.1 - -
---
The following tables present the Group's exposure in the
non-trading book and associated regulatory capital requirements
where the Group acts as an investor. Table 60.i presents the
Group's exposures under the pre-existing securitisation
framework, whereas table 60.ii presents the exposures the Group has
taken on since 1 January 2019 under the new securitisation
framework.
Table 60.i: Securitisation exposures in the non-trading book and associated
capital requirements - bank acting as investor (under the pre-existing
framework) (SEC4)
Exposure values (by risk Exposure values (by
weight bands) regulatory approach)
IRB
>20% >50% >100% RBM
<=20% to 50% to 100% to 1,250% 1,250% (including IRB
RW RW RW RW RW IAA) SFA SA 1,250%
$bn $bn $bn $bn $bn $bn $bn $bn $bn
--------- --------- ---------- -------- ------------ ------ --------
Traditional
2 securitisation 5.2 0.6 0.6 - - 5.4 - 1.0 -
3 Securitisation 5.2 0.6 0.6 - - 5.4 - 1.0 -
- retail
4 underlying 3.1 0.6 0.6 - - 3.3 - 1.0 -
5 - wholesale 2.1 - - - - 2.1 - - -
Total at 31
1 Dec 2019 5.2 0.6 0.6 - - 5.4 - 1.0 -
Traditional
2 securitisation 7.0 0.6 1.3 - - 6.9 - 2.0 -
----
3 Securitisation 7.0 0.6 1.3 - - 6.9 - 2.0 -
- retail
4 underlying 5.0 0.6 1.2 - - 4.8 - 2.0 -
5 - wholesale 2.0 - 0.1 - - 2.1 - - -
Total at 31
1 Dec 2018 7.0 0.6 1.3 - - 6.9 - 2.0 -
RWAs (by regulatory Capital charge after
approach) cap
IRB IRB
RBM RBM
(including IRB (including IRB
IAA) SFA SA 1,250% IAA) SFA SA 1,250%
$bn $bn $bn $bn $bn $bn $bn $bn
-------------- ------ ----- -------- ---------------- ------ ----- --------
2 Traditional securitisation 0.7 - 0.7 0.2 0.1 - 0.1 -
3 Securitisation 0.7 - 0.7 0.2 0.1 - 0.1 -
4 - retail underlying 0.3 - 0.7 0.2 - - 0.1 -
5 - wholesale 0.4 - - - 0.1 - - -
1 Total at 31 Dec 2019 0.7 - 0.7 0.2 0.1 - 0.1 -
2 Traditional securitisation 0.9 - 1.5 0.4 0.1 - 0.1 -
3 Securitisation 0.9 - 1.5 0.4 0.1 - 0.1 -
4 - retail underlying 0.5 - 1.5 0.3 - - 0.1 -
5 - wholesale 0.4 - - 0.1 0.1 - - -
1 Total at 31 Dec 2018 0.9 - 1.5 0.4 0.1 - 0.1 -
Table 60.ii: Securitisation exposures in the non-trading book and associated
capital requirements - bank acting as investor (under the new framework)
(SEC4)
Exposure values (by risk Exposure values (by regulatory
weight bands) approach)
>100%
>20% >50% to
<=20% to 50% to 100% 1,250% 1,250% SEC
RW RW RW RW RW SEC-IRBA SEC-ERBA IAA SEC-SA 1,250%
$bn $bn $bn $bn $bn $bn $bn $bn $bn $bn
-------- -------- -------- -------- ---------- ---------- ------ -------- --------
Traditional
2 securitisation 6.1 0.7 0.4 0.1 - - 1.7 - 5.6 -
3 Securitisation 6.1 0.7 0.4 0.1 - - 1.7 - 5.6 -
- retail
4 underlying 4.6 0.7 0.2 0.1 - - 1.4 - 4.2 -
5 - wholesale 1.5 - 0.2 - - - 0.3 - 1.4 -
Total at 31
Dec
1 2019 6.1 0.7 0.4 0.1 - - 1.7 - 5.6 -
----
RWAs (by regulatory approach) Capital charge after cap
SEC SEC
SEC-IRBA SEC-ERBA IAA SEC-SA 1,250% SEC-IRBA SEC-ERBA IAA SEC-SA 1,250%
$bn $bn $bn $bn $bn $bn $bn $bn $bn $bn
---------- ------ -------- -------- ---------- ---------- ------ -------- --------
Traditional
2 securitisation - 0.5 - 1.1 - - - - 0.1 -
3 Securitisation - 0.5 - 1.1 - - - - 0.1 -
- retail
4 underlying - 0.4 - 0.9 - - - - 0.1 -
5 - wholesale - 0.1 - 0.2 - - - - - -
Total at 31
Dec
1 2019 - 0.5 - 1.1 - - - - 0.1 -
Market risk
Overview of market risk in global
businesses
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.
Exposure to market risk
Exposure to market risk is separated into two portfolio
types:
-- Trading portfolios: these comprise positions held for client
servicing and market-making, with the intention of short-term
resale and/or to hedge risks resulting from such positions.
-- Non-trading portfolios: these comprise positions that
primarily arise from the interest rate management of our retail and
commercial banking assets and liabilities, financial investments
measured at fair value through other comprehensive income, debt
instruments measured at amortised cost, and exposures arising from
our insurance operations.
Where appropriate, we apply similar risk management policies and
measurement techniques to both trading and non-trading portfolios.
Our objective is to manage and control market risk exposures to
optimise return on risk while maintaining a market risk profile
consistent with our established risk appetite.
For a discussion on hedging risk and monitoring the continuing
effectiveness of hedges, refer to page 135 of the Annual Report and
Accounts 2019.
The tables below reflect the components of capital requirement
under the standardised approach, Table 61 and the internal model
approach, Table 62 for market risk.
Table 61: Market risk under standardised approach (MR1)
At 31 Dec
2019 2018 2019
------ ---------------
Capital
RWAs RWAs requirements
$bn $bn $bn
------ ---------------
Outright products
1 Interest rate risk (general and specific) 2.6 2.5 0.2
2 Equity risk (general and specific) 0.1 0.1 -
3 Foreign exchange risk 3.7 1.4 0.3
4 Commodity risk 0.1 - -
Options
6 Delta-plus method 0.1 0.1 -
7 Scenario approach - - -
8 Securitisation 1.2 1.6 0.1
--- ---- -------------
9 Total 7.8 5.7 0.6
--- ---- -------------
Table 62: Market risk under IMA (MR2-A)
2019 2018
Capital Capital
RWAs required RWAs required
$bn $bn $bn $bn
------
1 VaR (higher of values a and b) 5.3 0.4 7.1 0.6
(a) Previous day's VaR 0.1 0.1
------
(b) Average daily VaR(1) 0.4 0.6
------
2 Stressed VaR (higher of values a and b) 8.0 0.7 12.1 1.0
(a) Latest SVaR 0.1 0.2
------
(b) Average SVaR(1) 0.7 1.0
------
Incremental risk charge (higher of values
3 a and b) 6.6 0.5 6.4 0.5
(a) Most recent IRC value 0.5 0.4
------
(b) Average IRC value(1) 0.5 0.5
------
5 Other 2.2 0.2 4.5 0.3
--- ---- ---------
6 Total at 31 Dec 22.1 1.8 30.1 2.4
--- ---- ---------
1 VaR average values are calculated on a 60 business days basis.
SVaR and IRC average values are calculated on a 12-week basis.
Under the IMA approach, the decrease in VaR and SVaR is largely
due to the increased diversification benefits following regulatory
approval to expand the regulatory scope of consolidation and
reduced exposure.
Market risk governance
The majority of the total VaR, stressed VaR ('SVaR') and
incremental risk charge ('IRC') of HSBC and almost all trading VaR
resides in GB&M. GB&M manages the Group's market risk,
using risk limits approved by the GB&M CRO.
For a discussion on market risk governance refer to page 135 of
the Annual Report and Accounts 2019.
Market risk measures
Monitoring and limiting market risk exposures
Our objective is to manage and control market risk exposures
while maintaining a market risk profile consistent with our risk
appetite. We use a range of tools to monitor and limit market risk
exposures including sensitivity analysis, VaR and stress
testing.
Sensitivity analysis
We use sensitivity measures to monitor the market risk positions
within each risk type. Granular sensitivity limits are set
primarily
for trading desks with consideration of market liquidity,
customer demand and capital constraints, amongst other factors.
Value at risk
Value at risk ('VaR') is a technique that estimates the
potential losses on risk positions in the trading portfolio as a
result of movements in market rates and prices over a specified
time horizon and to a given level of confidence. The use of VaR is
integrated into market risk management and is calculated for all
trading positions regardless of how we capitalise those
exposures.
In addition, we use VaR for non-trading portfolios. Our models
are predominantly based on historical simulation. VaR is calculated
at a 99% confidence level for a one-day holding period, although a
long period is additionally used for non-trading positions.
Our VaR models use historical series of market rates and prices,
implicitly taking into account inter-relationships between
different markets and rates such as interest rates and foreign
exchange rates.
The primary categories of risk factors driving market risk are
summarised below:
Risk arising from changes
Foreign in foreign exchange rates
exchange and volatilities.
Risk arising from changes
in the level of interest
rates that may impact prices
of interest rate sensitive
Interest assets such as interest
rate rate swaps.
Risk arising from changes
in equity prices, volatilities
Equity and dividend yields.
Risk arising from changes
Commodity in commodity prices.
Our models use a mixed approach when applying changes in market
rates and prices:
-- For equity, credit and foreign exchange risk factors, VaR
scenarios are calculated on a relative return basis.
-- For interest rates, a mixed approach is used. The scenarios
applied to volatilities are on a relative return basis, whereas the
scenarios applied to interest rate curves are calculated using a
hybrid of absolute and relative returns. This approach enables the
VaR to smoothly adapt to either low or high interest rate
environments.
We use the past two years as the historical data set in our VaR
models and the scenarios are updated on a fortnightly basis. These
scenarios are then applied to the market baselines and positions on
a daily basis. The models incorporate the effect of option features
on the underlying exposures.The valuation approach used in our
models varies:
-- non-linear instruments use a full revaluation approach; and
-- linear instruments, such as bonds and swaps, use a sensitivity-based approach.
The nature of the VaR models means that an increase in observed
market volatility will lead to an increase in VaR even without any
changes in the underlying positions.
VaR model limitations
Although a valuable guide to risk, VaR is used with awareness of
its limitations, for example:
-- The use of historical data as a
proxy for estimating future events
may not encompass all potential
events, particularly those which
are extreme in nature.
-- The use of a 1-day holding period
for risk management purposes of
trading and non-trading books assumes
that this short period is sufficient
to hedge or liquidate all positions.
-- The use of a 99% confidence level
by definition does not take into
account losses that might occur
beyond this level of confidence.
-- VaR is calculated on the basis
of exposures outstanding at close
of business and therefore does
not necessarily reflect intra-day
exposures.
Risk not in VaR framework
The risks not in VaR ('RNIV') framework captures risks from
exposures in the HSBC trading book that are not captured well by
the VaR model. Our VaR model is designed to capture significant
basis risk such as CDS versus bond, asset swap spreads and
cross-currency basis. Other basis risks that are not completely
covered in VaR, such as CCP swap basis risks, are complemented by
our RNIV calculations and are integrated into our capital
framework.
Risk factors are reviewed on a regular basis and are either
incorporated directly in the VaR models, where possible, or
quantified through the VaR-based RNIV approach or a stress test
approach within the RNIV framework. While VaR-based RNIVs are
calculated by using historical scenarios, stress-type RNIVs are
estimated on the basis of stress scenarios whose severity is
calibrated to be in line with the capital adequacy requirements.
The outcome of the VaR-based RNIV approach is included in the
overall VaR calculation but excluded from the VaR measures used for
regulatory back-testing. In addition, stressed VaR also captures
risk factors considered in the VaR-based RNIV approach through a
corresponding stressed VaR RNIV.
Stress-type RNIVs include a gap risk exposure measure to capture
risk on non-recourse margin loans and a de-peg risk measure to
capture risk to pegged and heavily managed currencies.
Back-testing
We validate daily the accuracy of our VaR models by back-testing
them against both actual and hypothetical profit and loss.
Hypothetical profit and loss excludes non-modelled items such as
fees, commissions and revenues of intra-day transactions.
The actual number of profits or losses in excess of VaR over
this period can therefore be used to gauge how well the models are
performing. We consider enhanced internal monitoring of a VaR model
if more than five profit exceptions or more than five loss
exceptions occur in a 250-day period.
We back-test our VaR at various levels of our Group entity
hierarchy. Back-testing using the regulatory hierarchy includes
entities which have approval to use VaR in the calculation of
market risk regulatory capital requirement.
HSBC submits separate back-testing results to regulators,
including the PRA and the European Central Bank, based on
applicable frequencies ranging from two business days after an
exception occurs, to quarterly submissions.
In terms of the CRD IV rules, VaR back-testing loss, and not
profit, exceptions count towards the multiplier determined by the
PRA for the purposes of the capital requirement calculation for
market risk. The multiplier is increased if there are five or more
loss exceptions in a 250-day period.
The following graphs show a one-year history for VaR
back-testing exceptions against both actual and hypothetical profit
and loss.
In 2019, the Group experienced six profit back-testing
exceptions and one loss back-testing exception against actual
profit and loss. Some of these exceptions were driven by profits
spread across a large number of desks or arose from new trades,
which are outside trading VaR scope. The above exceptions
comprised:
-- a profit exception in early January, driven by gains across
most asset classes, as interest rates rose and equity markets
rebounded;
-- a profit exception in late January, due mainly to gains from
new transactions in the Rates business and lower equity
volatilities;
-- a profit exception in March, driven by increased volatility
in some emerging markets currencies and interest rates;
-- a loss exception in March, attributable to month-end
valuation adjustments driven by portfolio and spread changes;
-- two profit exceptions in early May, arising from new
transactions and a number of relatively small gains spread across
all asset classes; and
-- a profit exception in December, due to gains from multiple
desks and spread across all asset classes.
The Group also experienced one profit back-testing exception and
one loss back-testing exception against hypothetical profit and
loss;
-- a loss exception in November 2019 driven primarily by the
impact of the widening of the credit spread on a high-yield bond
holding; and
-- a profit exception in December, due to gains from multiple
desks and spread across all asset classes.
Comparison of VaR estimates with gains/losses
VaR back-testing exceptions against actual profit and loss ($m)
Actual profit w Back-testing profit
and loss VaR exception
VaR back-testing exceptions against hypothetical profit and loss ($m)
http://www.rns-pdf.londonstockexchange.com/rns/2814D_1-2020-2-17.pdf
Hypothetical profit w Back-testing profit
and loss VaR exception
Stress testing
Stress testing is an integral part of our market risk management
framework to evaluate the potential impact on portfolio values of
more extreme, although plausible, events or movements in a set of
financial variables. In such scenarios, losses can be greater than
those predicted by VaR modelling.
Stress testing is implemented at legal entity, regional and
overall Group levels. A set of scenarios is used consistently
across all regions within the Group. The risk appetite around
potential stress losses for the Group is set and monitored against
referral limits.
Market risk reverse stress tests are designed to identify
vulnerabilities in our portfolios by looking for scenarios that
lead to loss levels considered severe for the relevant portfolio.
These scenarios may be quite local or idiosyncratic in nature, and
complement the systematic top-down stress testing.
Stressed VaR and stress testing, together with reverse stress
testing and the management of gap risk, provide senior
management with insights regarding the 'tail risk' beyond VaR,
for which HSBC's appetite is limited.
The market risk stress testing incorporates the historical and
hypothetical events.
During 2019, we ran stress scenarios for specific geopolitical
and economic events including several Brexit scenarios, Global
Trade war, and the UK elections in Q2 and Q4. We are also actively
monitoring our portfolio in Hong Kong and we have performed
internal stress tests and scenario analysis. These new scenarios
were run in addition to existing scenarios that capture potential
events of concern.
Market risk capital models
HSBC has permission to use a number of market risk capital
models to calculate regulatory capital as listed in the table
below. For regulatory purposes, the trading book comprises all
positions in financial instruments and commodities held with
trading intent and positions where it can be demonstrated that they
hedge positions in the trading book. Trading book positions must
either be free of any restrictive covenants on their tradability or
be capable of being hedged.
A financial instrument is defined as any contract that gives
rise to both a financial asset to one party and a financial
liability or equity instrument to another party.
HSBC maintains a trading book policy, which defines the minimum
requirements for trading book positions and the process for
classifying positions as trading or non-trading book. Positions in
the trading book are subject to market risk-based rules, i.e.
market risk capital, calculated using regulatory approved models.
Where we do not have permission to use internal models, market risk
capital is calculated using the standardised approach.
If any of the policy criteria are not met, then the position is
categorised as a non-trading book exposure.
VaR 99 % 10 day Uses most recent two years' history of daily returns
to determine a loss distribution. The result is scaled,
using the square root of 10, to provide an equivalent
10-day loss.
Stressed 99 % 10 day Stressed VaR is calibrated to a one-year period of
VaR stress observed in history.
IRC 99.9 % 1 year Uses a multi-factor Gaussian Monte-Carlo simulation,
which includes product basis, concentration, hedge
mismatch, recovery rate and liquidity as part of the
simulation process. A minimum liquidity horizon of
three months is applied and is based on a combination
of factors, including issuer type, currency and size
of exposure.
Non-proprietary details of these models are available in the
Financial Services Register on the PRA website.
Table 63: IMA values for trading
portfolios(1) (MR3)
At 31 Dec
2019 2018
$m $m
----
VaR (10 day 99%)
1 Maximum value 185.2 210.0
2 Average value 149.3 182.9
3 Minimum value 116.8 160.3
4 Period end 128.0 193.2
----
Stressed VaR (10
day 99%)
5 Maximum value 222.8 408.5
6 Average value 172.3 256.8
7 Minimum value 133.1 194.9
8 Period end 222.8 408.5
----
Incremental risk
charge (99.9%)
9 Maximum value 1,076.9 743.7
10 Average value 706.2 603.9
11 Minimum value 448.9 424.9
12 Period end 465.8 492.7
----
1 Comparatives as at 31 December 2018 for averages, maximums and
minimums were restated in compliance with EBA
guidance. Maximum, average and minimum values are calculated on a six-month basis.
VaR
VaR used for regulatory purposes differs from VaR used for
management purposes with key differences listed below.
Broader population
Regulatory of trading and
approval non-trading book
Scope (PRA) positions
Confidence
interval 99% 99%
Liquidity
horizon 10 day 1 day
Past 2
Data set years Past 2 years
The trading books that received approval from the regulator to
be covered via an internal model are used to calculate VaR for
regulatory purposes. Overall regulatory VaR also includes VaR-based
RNIVs. Regulatory VaR levels contribute to the calculation of
market risk RWAs.
The regulatory VaR table is calculated on consolidated positions
according to the regulatory permissions received, plus aggregated
sites. This differs from the daily VaR reported in the Annual
Report and Accounts 2019, which shows a fully diversified view used
for internal risk management.
Trading VaR used for regulatory capital purposes decreased in
2019 primarily due to lower contributions from:
-- exposures to credit spread and interest rate risks;
-- equity correlation and interest rate volatility risks captured in the RNIV framework.
Stressed VaR
Stressed VaR is primarily used for regulatory capital purposes
and is integrated into the risk management process to ensure
prudent capital management. Stressed VaR complements other risk
measures by providing the potential losses under stressed market
conditions.
Stressed VaR modelling follows the same approach as our VaR risk
measure except that:
-- potential market movements employed for stressed VaR
calculations are based on a continuous one-year period of stress
for the trading portfolio;
-- the choice of period is based on the assessment at the Group
level of the most volatile period in recent history. This is
assessed quarterly and changed during 2019 as follows:
-- to (March 2010 to February 2011) in March 2019;
-- to (December 2010 to November 2011) in June 2019;
-- to (July 2007 to July 2008) in September 2019; and
-- to (April 2016 to March 2017) in December 2019;
-- it is calculated to a 99% confidence using a 10-day holding period; and
-- it is based on an actual 10-day holding period, whereas
regulatory VaR is based on a one-day holding period scaled to 10
days.
The decrease in stressed VaR during 2019 was spread across all
asset classes, including lower contributions from the foreign
exchange options trading, flow fixed income activity and the equity
prime finance business.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR KZGMZFNFGGZZ
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