TIDMHSBA
RNS Number : 4599C
HSBC Holdings PLC
22 February 2022
Risk
Our risk review outlines our approach
to risk management, how we identify
and monitor top and emerging risks,
and the actions we take to mitigate
them. In addition, it explains our
material banking risks, including
how we manage capital.
Page
Our approach to risk 121
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Our risk appetite 121
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Risk management 121
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Key developments in 2021 124
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Top and emerging risks 124
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Externally driven 124
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Internally driven 129
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Areas of special interest 131
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Risks related to Covid-19 131
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Climate-related risks 131
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Our material banking risks 135
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Credit risk 137
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Treasury risk 189
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Market risk 203
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Resilience risk 207
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Regulatory compliance risk 208
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Financial crime risk 208
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Model risk 209
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Insurance manufacturing operations
risk 210
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Investing in technology to screen suspicious activities
We screen the names of more than 112 million personal and
corporate customers every day against external and internal
watchlists to identify potential financial crime risks and their
impact on our customers and organisation. This currently generates
approximately 350,000 alerts for our colleagues to review each
month. In October, working with technology company Silent Eight, we
launched a global automated alert adjudication tool for name
screening, which will be able to close 50% of the false positives
without human intervention. This will help us increase the speed
and accuracy of monitoring adherence to risk appetite, while
reducing the cost of compliance.
Our approach to risk
Our risk appetite
We recognise the importance of a strong culture, which refers to
our shared attitudes, values and standards that shape behaviours
related to risk awareness, risk taking and risk management. All our
people are responsible for the management of risk, with the
ultimate accountability residing with the Board.
We seek to build our business for the long term by balancing
social, environmental and economic considerations in the decisions
we make. Our strategic priorities are underpinned by our endeavour
to operate in a sustainable way. This helps us to carry out our
social responsibility and manage the risk profile of the business.
We are committed to managing and mitigating climate-related risks,
both physical and transition risks, and continue to incorporate
consideration of these into how we manage and oversee risks
internally and with our customers.
The following principles guide the Group's overarching appetite
for risk and determine how our businesses and risks are
managed.
Financial position
-- We aim to maintain a strong capital position, defined by
regulatory and internal capital ratios.
-- We carry out liquidity and funding management for each
operating entity, on a stand-alone basis.
Operating model
-- We seek to generate returns in line with our risk appetite
and strong risk management capability.
-- We aim to deliver sustainable and diversified earnings and
consistent returns for shareholders.
Business practice
-- We have zero tolerance for any of our people knowingly
engaging in any business, activity or association where foreseeable
reputational risk or damage has not been considered and/or
mitigated.
-- We have no appetite for deliberately or knowingly causing
detriment to consumers, or incurring a breach of the letter or
spirit of regulatory requirements.
-- We have no appetite for inappropriate market conduct by any
member of staff or by any Group business.
-- We are committed to managing the climate risks that have an
impact on our financial position, and delivering on our net zero
ambition.
Enterprise-wide application
Our risk appetite encapsulates the consideration of financial
and non-financial risks. We define financial risk as the risk of a
financial loss as a result of business activities. We actively take
these types of risks to maximise shareholder value and profits.
Non-financial risk is the risk to achieving our strategy or
objectives as the result of failed internal processes, people and
systems, or from external events.
Our risk appetite is expressed in both quantitative and
qualitative terms and applied at the global business level, at the
regional level and to material operating entities. Every three
years, the Global Risk and Compliance function commissions an
external independent firm to review the Group's approach to risk
appetite and to help ensure that it remains in line with market
best practice and regulatory expectations. This review was last
carried out in 2019 and confirmed the Group's risk appetite
statement ('RAS') remains aligned to best practices, regulatory
expectations and strategic goals. Our risk appetite continues to
evolve and expand its scope as part of our regular review
process.
The Board reviews and approves the Group's risk appetite twice a
year to make sure it remains fit for purpose. The Group's risk
appetite is considered, developed and enhanced through:
-- an alignment with our strategy, purpose, values and customer needs;
-- trends highlighted in other Group risk reports;
-- communication with risk stewards on the developing risk landscape;
-- strength of our capital, liquidity and balance sheet;
-- compliance with applicable laws and regulations;
-- effectiveness of the applicable control environment to
mitigate risk, informed by risk ratings from risk control
assessments;
-- functionality, capacity and resilience of available systems to manage risk; and
-- the level of available staff with the required competencies to manage risks.
We formally articulate our risk appetite through our RAS.
Setting out our risk appetite ensures that we agree a suitable
level of risk for our strategy. In this way, risk appetite informs
our financial planning process and helps senior management to
allocate capital to business activities, services and products.
The RAS consists of qualitative statements and quantitative
metrics, covering financial and non-financial risks. It is applied
to the development of business line strategies, strategic and
business planning and remuneration. At a Group level, performance
against the RAS is reported to the Group Risk Management Meeting
('RMM') alongside key risk indicators to support targeted insight
and discussion on breaches of risk appetite and any associated
mitigating actions. This reporting allows risks to be promptly
identified and mitigated, and informs risk-adjusted remuneration to
drive a strong risk culture.
Each global business, region and strategically important country
and territory is required to have its own RAS, which is monitored
to help ensure it remains aligned with the Group's RAS. Each RAS
and business activity is guided and underpinned by qualitative
principles and/or quantitative metrics.
Risk management
We recognise that the primary role of risk management is to
protect our customers, business, colleagues, shareholders and the
communities that we serve, while ensuring we are able to support
our strategy and provide sustainable growth. This is supported
through our three lines of defence model described on page 123.
The implementation of our business strategy, which includes a
major transformation programme, remains a key focus. As we
implement change initiatives, we actively manage the execution
risks. We also perform periodic risk assessments, including against
strategies, to help ensure retention of key personnel for our
continued safe operation.
We aim to use a comprehensive risk management approach across
the organisation and across all risk types, underpinned by our
culture and values. This is outlined in our risk management
framework, including the key principles and practices that we
employ in managing material risks, both financial and
non-financial. The framework fosters continual monitoring, promotes
risk awareness and encourages a sound operational and strategic
decision-making and escalation process. It also supports a
consistent approach to identifying, assessing, managing and
reporting the risks we accept and incur in our activities, with
clear accountabilities. We continue to actively review and develop
our risk management framework and enhance our approach to managing
risk, through our activities with regard to: people and
capabilities; governance; reporting and management information;
credit risk management models; and data.
We merged our Group Risk and Compliance functions on 1 July 2021
to take an increasingly comprehensive view of risk, and enhance
cross-discipline collaboration on key areas such as fraud, credit
and conduct risk. This merger did not have an impact on our
policies and practices regarding the management of risk. Led by the
Group Chief Risk and Compliance Officer, this merged function plays
an important role in reinforcing our culture and values. It focuses
on creating an environment that encourages our people to speak up
and do the right thing.
Group Risk and Compliance is independent from the global
businesses, including our sales and trading functions, to provide
challenge, oversight and appropriate balance in risk/reward
decisions.
Our risk management framework
The following diagram and descriptions summarise key aspects of
the risk management framework, including governance, structure,
risk management tools and our culture, which together help align
employee behaviour with risk appetite.
Key components of our risk management framework
Risk governance Non-executive risk governance The Board approves the Group's
risk appetite, plans and performance
targets. It sets the 'tone from
the top' and is advised by the
Group Risk Committee (see page
232).
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Executive risk governance Our executive risk governance structure
is responsible for the enterprise-wide
management of all risks, including
key policies and frameworks for
the management of risk within the
Group (see pages 123 and 135).
Roles and Three lines of defence Our 'three lines of defence' model
responsibilities model defines roles and responsibilities
for risk management. An independent
Global Risk and Compliance function
helps ensure the necessary balance
in risk/return decisions (see page
123).
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Processes Risk appetite The Group has processes in place
and tools to identify/assess, monitor, manage
and report risks to help ensure
we remain within our risk appetite.
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Enterprise-wide risk management
tools
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Active risk management:
identification/assessment,
monitoring, management
and reporting
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Internal Policies and procedures Policies and procedures define
controls the minimum requirements for the
controls required to manage our
risks.
================= ===========================================
Control activities Operational and resilience risk
management defines minimum standards
and processes for managing operational
risks and internal controls.
===========================================
Systems and infrastructure The Group has systems and/or processes
that support the identification,
capture and exchange of information
to support risk management activities.
================= ===========================================
Risk governance
The Board has ultimate responsibility for the effective
management of risk and approves our risk appetite.
The Group Chief Risk and Compliance Officer, supported by the
RMM, holds executive accountability for the ongoing monitoring,
assessment and management of the risk environment and the
effectiveness of the risk management framework.
The Group Chief Risk and Compliance Officer is also responsible
for the oversight of reputational risk, with the support of the
Group Reputational Risk Committee. The Group Reputational Risk
Committee considers matters arising from customers, transactions
and third parties that either present a serious potential
reputational risk to the Group or merit a Group-led decision to
ensure a consistent risk management approach across the regions,
global
businesses and global functions. Our reputational risk policy
sets out our risk appetite and the principles for managing
reputational risk. Further details can be found under the
'Reputational risk' section of
www.hsbc.com/our-approach/risk-and-responsibility.
Day-to-day responsibility for risk management is delegated to
senior managers with individual accountability for decision making.
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 as described in
the following commentary, 'Our responsibilities'.
We use a defined executive risk governance structure to help
ensure there is appropriate oversight and accountability of risk,
which facilitates reporting and escalation to the Group RMM. This
structure is summarised in the following table.
Governance structure for the management of risk and compliance
Risk Management Group Chief Risk
Meeting and Compliance Officer * Supporting the Group Chief Risk and Compliance
Group Chief Legal Officer in exercising Board-delegated risk management
Officer authority
Group Chief Executive
Group Chief Financial
Officer * Overseeing the implementation of risk appetite and
All other Group Executive the risk management framework
Committee members
* Forward-looking assessment of the risk environment,
analysing possible risk impacts and taking
appropriate action
* Monitoring all categories of risk and determining
appropriate mitigating action
* Promoting a supportive Group culture in relation to
risk management and conduct
------------------------ ----------------------------- ------------------------------------------------------------
Global Risk Group Chief Risk
Executive Committee and Compliance Officer * Supporting the Group Chief Risk and Compliance
Chief risk officers Officer in providing strategic direction for the
of HSBC's global Global Risk and Compliance function, setting
businesses and regions priorities and providing oversight
Heads of Global Risk
and Compliance sub-functions
* Overseeing a consistent approach to accountability
for, and mitigation of, risk and compliance across
the Group
------------------------ ----------------------------- ------------------------------------------------------------
Global business/regional Global business/regional
risk management chief risk officer * Supporting the Group Chief Risk and Compliance
meetings Global business/regional Officer in exercising Board-delegated risk management
chief executive officer authority
Global business/regional
chief financial officer
Global business/regional * Forward-looking Group assessment of the risk
heads of global functions environment, analysing the possible risk impact and
taking appropriate action
* Implementation of risk appetite and the risk
management framework
* Monitoring all categories of risk and determining
appropriate mitigating actions
* Embedding a supportive culture in relation to risk
management and controls
------------------------ ----------------------------- ------------------------------------------------------------
The Board committees with responsibility for oversight of
risk-related matters are set out on page 237.
.
Our responsibilities
All our people are responsible for identifying and managing risk
within the scope of their roles. Roles are defined using the three
lines of defence model, which takes into account our business and
functional structures as described below.
Three lines of defence
To create a robust control environment to manage risks, we use
an activity-based three lines of defence model. This model
delineates management accountabilities and responsibilities for
risk management and the control environment.
The model underpins our approach to risk management by
clarifying responsibility and encouraging collaboration, as well as
enabling efficient coordination of risk and control activities. The
three lines of defence are summarised below:
-- The first line of defence owns the risks and is responsible
for identifying, recording, reporting and managing them in line
with risk appetite, and ensuring that the right controls and
assessments are in place to mitigate them.
-- The second line of defence challenges the first line of
defence on effective risk management, and provides advice and
guidance in relation to the risk.
-- The third line of defence is our Global Internal Audit
function, which provides independent assurance as to whether our
risk management approach and processes are designed and operating
effectively.
Global Risk and Compliance function
Our Global Risk and Compliance function is responsible for the
Group's risk management framework. This responsibility includes
establishing global policy, monitoring risk profiles, and
identifying and managing forward-looking risk. Global Risk and
Compliance is made up of sub-functions covering all risks to our
business. Forming part of the second line of defence, the Global
Risk and Compliance function is independent from the global
businesses, including sales and trading functions, to provide
challenge, appropriate oversight and balance in risk/return
decisions.
Responsibility for minimising both financial and non-financial
risk lies with our people. They are required to manage the risks of
the business and operational activities for which they are
responsible. We maintain adequate oversight of our risks through
our various specialist risk stewards and the collective
accountability held by our chief risk officers.
We have continued to strengthen the control environment and our
approach to the management of non-financial risk, as broadly set
out in our risk management framework. The management of
non-financial risk focuses on governance and risk appetite, and
provides a single view of the non-financial risks that matter the
most and the associated controls. It incorporates a risk management
system designed to enable the active management of non-financial
risk. Our ongoing focus is on simplifying our approach to
non-financial risk management, while driving more effective
oversight and better end-to-end identification and management of
non-financial risks. This is overseen by the Operational and
Resilience Risk function, headed by the Group Head of Operational
and Resilience Risk.
Stress testing and recovery planning
We operate a wide-ranging stress testing programme that is a key
part of our risk management and capital and liquidity planning.
Stress testing provides management with key insights into the
impact of severely adverse events on the Group, and provides
confidence to regulators on the Group's financial stability.
Our stress testing programme assesses our capital and liquidity
strength through a rigorous examination of our resilience to
external shocks. As well as undertaking regulatory-driven stress
tests, we conduct our own internal stress tests in order to
understand the nature and level of all material risks, quantify the
impact of such risks and develop plausible business-as-usual
mitigating actions.
Internal stress tests
Our internal capital assessment uses a range of stress scenarios
that explore risks identified by management. They include potential
adverse macroeconomic, geopolitical and operational risk events, as
well as other potential events that are specific to HSBC.
The selection of stress scenarios is based upon the output of
our identified top and emerging risks and our risk appetite. Stress
testing analysis helps management understand the nature and extent
of vulnerabilities to which the Group is exposed. Using this
information, management decides whether risks can or should be
mitigated through management actions or, if they were to
crystallise, be absorbed through capital and liquidity. This in
turn informs decisions about preferred capital and liquidity levels
and allocations.
In addition to the Group-wide stress testing scenarios, each
major subsidiary conducts regular macroeconomic and event-driven
scenario analyses specific to its region. They also participate, as
required, in the regulatory stress testing programmes of the
jurisdictions in which they operate, such as the Bank of England
('BoE') stress tests required in the UK, Comprehensive Capital
Analysis and Review and Dodd-Frank Act Stress Testing programmes in
the US, and the stress tests of the Hong Kong Monetary Authority
('HKMA'). Global functions and businesses also perform bespoke
stress testing to inform their assessment of risks to potential
scenarios.
We also conduct reverse stress tests each year at Group level
and, where required, at subsidiary entity level to understand
potential extreme conditions that would make our business model
non-viable. Reverse stress testing identifies potential stresses
and vulnerabilities we might face, and helps inform early warning
triggers, management actions and contingency plans designed to
mitigate risks.
Recovery and resolution plans
Recovery and resolution plans form part of the integral
framework safeguarding the Group's financial stability. The Group
recovery plan, together with stress testing, helps us understand
the likely outcomes of adverse business or economic conditions and
in the identification of appropriate risk mitigating actions. The
Group is committed to further developing its recovery and
resolution capabilities in line with the BoE resolvability
assessment framework requirements.
Key developments in 2021
We continued to actively manage the risks resulting from the
Covid-19 pandemic and its impacts on our customers and operations
during 2021, as well as other key risks described in this section.
In addition, we enhanced our risk management in the following
areas:
-- We streamlined the articulation of our risk appetite
framework, providing further clarity on how risk appetite interacts
with strategic planning and recovery planning processes.
-- We continued to simplify our approach to non-financial risk
management, with the implementation of more effective oversight
tools and techniques to improve end-to-end identification and
management of these risks.
-- We accelerated the transformation of our approach to managing
financial risks across the businesses and risk functions, including
initiatives to enhance portfolio monitoring and analytics, credit
risk management, traded risk management, treasury risk management
and models used to manage financial risks.
-- We are progressing with a comprehensive regulatory reporting
programme to strengthen our global processes, improve consistency,
and enhance controls.
-- We launched an enhanced approach to conduct for all
colleagues, businesses and geographies, establishing the outcomes
to be achieved for customers and markets in all risk disciplines,
operations and technologies and integrating it into our approach to
culture and our risk management arrangements.
-- We continued to enhance our approach to portfolio risk
management, through clearly defined roles and responsibilities, and
improving our data and management information reporting
capabilities.
-- The Climate Risk Oversight Forum continued to shape and
oversee our approach to climate risk. We appointed a Head of
Climate Risk in support of our climate change strategy and to
oversee the development of our climate risk management
capabilities. The climate risk programme continues to drive the
delivery of our enhanced climate risk management approach.
-- We continued to improve the effectiveness of our financial
crime controls with a targeted update of our fraud controls. We
refreshed our financial crime policies, ensuring they remained up
to date and addressed changing and emerging risks, and we continued
to meet our regulatory obligations.
-- We introduced enhanced governance and oversight around
management judgemental adjustments and related processes for IFRS 9
models and Sarbanes-Oxley controls.
Top and emerging risks
We use a top and emerging risks process to provide a
forward-looking view of issues with the potential to threaten the
execution of our strategy or operations over the medium to long
term.
We proactively assess the internal and external risk
environment, as well as review the themes identified across our
regions and global businesses, for any risks that may require
global escalation. We update our top and emerging risks as
necessary.
Our current top and emerging risks are as follows.
Externally driven
Geopolitical and macroeconomic risks
Our operations and portfolios are exposed to risks associated
with political instability, civil unrest and military conflict,
which could lead to disruption of our operations, physical risk to
our staff and/or physical damage to our assets.
Global tensions over trade, technology and ideology are
manifesting themselves in divergent regulatory standards and
compliance regimes, presenting long-term strategic challenges for
multinational businesses.
The Covid-19 pandemic brought supply chain issues into focus,
with shortages appearing across several regions and products
throughout 2020 and 2021, and it is not expected that these issues
will ease significantly before mid-2022.
The pandemic has also heightened geopolitical tensions, which
could have implications for the Group and its customers.
The Group will continue to need to consider potential
regulatory, reputational and market risks arising from the evolving
geopolitical landscape. In 2021, there was an escalation of
diplomatic tensions between China and the US, and increasingly
extending to the UK, the EU, India and other countries.
The US-China relationship in particular remains complex, with
tensions over a number of critical issues. The US, the UK, the EU,
Canada and other countries have imposed various sanctions and trade
restrictions on Chinese individuals or companies, and the US
continues to develop its approach to perceived strategic
competition with China.
Among these, the US Hong Kong Autonomy Act authorises the
imposition of secondary sanctions against non-US financial
institutions found to be knowingly engaged in significant
transactions with individuals and entities subject to US sanctions
for engaging in certain activities that undermine Hong Kong's
autonomy. In addition, the US has imposed restrictions on US
persons' ability to buy or sell certain publicly traded securities
linked to a number of prominent Chinese companies.
There is also a risk of increased sanctions being imposed by the
US and other governments in relation to human rights, technology
and other issues with China, and this could create a more complex
operating environment for the Group and its customers. Notably,
alongside the EU, UK, and Canada, the US has increasingly imposed
sanctions and other measures in response to allegations of human
rights abuses in Xinjiang.
China, in turn, has announced a number of its own sanctions and
trade restrictions that target, or provide authority to target,
foreign individuals or companies. These have been imposed mainly
against certain public officials associated with the implementation
of foreign sanctions against China. China has also promulgated new
laws that provide a legal framework for imposing further sanctions
and export restrictions, including laws prohibiting implementation
of - or compliance with - foreign sanctions against China and
creating a private right of action in Chinese courts for damages
caused by third parties implementing foreign sanctions or other
discriminatory measures.
These and any future measures and countermeasures that may be
taken by the US, China and other countries may affect the Group,
its customers and the markets in which the Group operates.
As the geopolitical landscape evolves, compliance by
multinational corporations with their legal or regulatory
obligations in one jurisdiction may be seen as supporting the law
or policy objectives of that jurisdiction over another, creating
additional compliance, reputational and political risks for the
Group. We maintain dialogue with our regulators in various
jurisdictions on the impact of legal and regulatory obligations on
our business and customers.
Tensions between Russia and the US and a number of European
states have heightened significantly following the increasing risk
of hostilities between Russia and Ukraine. While negotiations are
ongoing to seek a resolution, a continuation of or any further
deterioration to the situation could have significant geopolitical
implications, including economic, social and political
repercussions on a number of regions that may impact HSBC and its
customers. In addition, the US, the UK and the EU have threatened a
significant expansion of sanctions and trade restrictions against
Russia in the event of a Russian incursion into Ukraine, and
Russian countermeasures are also possible.
Expanding data privacy and cybersecurity laws in a number of
markets could pose potential challenges to intra-group data
sharing. These developments could increase financial institutions'
compliance burdens in respect of cross-border transfers of personal
information.
Political disagreements between the UK and the EU, notably over
the future operation of the Northern Ireland Protocol, have meant
work on the creation of a framework for voluntary regulatory
cooperation in financial services following the UK's withdrawal
from the EU has stalled. While negotiations are continuing, it is
unclear whether or when an agreement will be reached, and this has
led to speculation that the UK may trigger Article 16 of the
Protocol, which could suspend the operation of the Protocol in
certain respects. Any decision to do so could be met with
retaliatory action by the EU, complicating the terms of trade
between the UK and the EU and potentially preventing progress in
other areas such as financial services. We are monitoring the
situation closely, including the potential impacts on our
customers.
Our global presence and diversified customer base should help
mitigate the direct impacts on our financial position of the
absence of a comprehensive EU-UK agreement on financial services.
Our wholesale and markets footprint in the EU provides a strong
foundation for us to build upon. Over the medium to long term, the
UK's withdrawal from the EU may impact markets and increase
economic risk, particularly in the UK, which could adversely impact
our profitability and prospects for growth in this market.
Monetary and fiscal policies in developed markets will likely
remain broadly accommodative for some time owing to uncertainty
over the economic outlook, although rising global inflation -
partly on the back of higher energy prices - is putting pressure on
central banks to tighten monetary policy. The US Federal Reserve
Board began tapering its asset purchases in November 2021 and
financial markets currently expect it to raise the Federal Funds
rate over the next year. The European Central Bank is on course to
end its extraordinary asset purchase programme in March 2022.
Persistent supply issues or further increases in energy prices -
for instance as a result of escalation in the Russia-Ukraine crisis
- could keep inflation high and force central banks to tighten
monetary policies faster than currently envisaged. Conversely,
monetary policy tightening may be constrained by the emergence and
spread of new Covid-19 variants that dampen economic recovery. We
continue to monitor our risk profile closely in the context of
uncertainty over monetary policy.
The global economic recovery in 2021 eased financial
difficulties for some of our customers, which contributed to a
reduction in ECL charges. For further details on customer relief
programmes, see page 159.
Mitigating actions
-- We closely monitor geopolitical and economic developments in
key markets and sectors and undertake scenario analysis where
appropriate. This helps us to take portfolio actions where
necessary, including enhanced monitoring, amending our risk
appetite and/or reducing limits and exposures.
-- We stress test portfolios of particular concern to identify
sensitivity to loss under a range of scenarios, with management
actions being taken to rebalance exposures and manage risk appetite
where necessary.
-- We regularly review key portfolios to help ensure that
individual customer or portfolio risks are understood and our
ability to manage the level of facilities offered through any
downturn is appropriate.
-- We continue to monitor the UK's relationship with the EU, and
assess the potential impact on our people, operations and
portfolios.
-- We have taken steps, where necessary, to enhance physical
security in geographical areas deemed to be at high risk from
terrorism and military conflicts.
Environmental, social and governance risk
We are subject to financial and non-financial risks associated
with environmental, social and governance ('ESG') related matters.
Our current areas of focus are climate risk, nature-related risks
and human rights risks. These can impact us both directly and
indirectly through our customers. For details on how we govern ESG,
see page 80.
Climate-related risk increased over 2021, owing to the pace and
volume of policy and regulatory changes globally particularly on
climate risk management, stress testing and scenario analysis and
disclosures. If we fail to meet evolving regulatory expectations or
requirements on climate risk management, this could have regulatory
compliance and reputational impacts.
We face increased reputational, legal and regulatory risk as we
make progress towards our net zero ambition, with stakeholders
likely to place greater focus on our actions such as the
development of climate-related policies, our disclosures and
financing and investment decisions relating to our ambition. We
will face additional risks if we are perceived to mislead
stakeholders in respect of our climate strategy, the climate impact
of a product or service, or the commitments of our customers.
To track and report on progress towards achieving our ambition,
we rely on internal and, where appropriate and available, external
data, guided by certain industry standards. While emissions
reporting has improved over time, data remains of limited quality
and consistency. Methodologies we have used may develop over time
in line with market practice and regulations, as well as owing to
developments in climate science. Any developments in data and
methodologies could result in revisions to reported data going
forward, including on financed emissions, meaning that reported
figures may not be reconcilable or comparable year-on-year. We may
also have to reevaluate our progress towards our climate-related
targets in future and this could result in reputational, legal and
regulatory risks.
Climate risk will also have an impact on model risk, as models
play an important role in risk management and the financial
reporting of climate-related risks. The uncertain impacts of
climate change and data limitations present challenges to creating
reliable and accurate model outputs.
We could also face increased resilience risk, retail credit risk
and wholesale credit risk owing to the increase in frequency and
severity of weather events and chronic shifts in weather patterns.
These risks could affect our own critical operations, impacting our
customers and resulting in losses to our operations. Our customers'
operations and assets could also be affected, reducing their
ability to afford mortgage or loan repayments, and leading to
credit risk impacts.
There is increasing evidence that a number of nature-related
risks beyond climate change - which include risks that can be
represented more broadly by economic dependence on nature - can and
will have significant economic impact. These risks arise when the
provision of natural services - such as water availability, air
quality, and soil quality - is compromised by overpopulation, urban
development, natural habitat and ecosystem loss, and other
environmental stresses beyond climate change. They can show
themselves in various ways, including through macroeconomic,
market, credit, reputational, legal and regulatory risks, for both
HSBC and our customers. In 2021, we added nature-related risks as a
new emerging risk driver, under the umbrella theme of ESG risks and
we continue to engage with investors, regulators and customers on
nature-related risks to evolve our approach and understand best
practice risk mitigation.
Regulation and disclosure requirements in relation to human
rights, and to modern slavery in particular, are increasing.
Businesses are expected to explain more about their efforts to
identify and respond to the risk of negative human rights impacts
arising from the actions of their employees, suppliers, customers
and those in whom they invest.
Mitigating actions
-- We continue to deepen our understanding of the drivers of
climate risk as well as manage our exposure. A dedicated Climate
Risk Oversight Forum is responsible for shaping and overseeing our
approach and providing support in managing climate risk. For
further details on the Group's ESG governance structure, see page
80.
-- Our climate risk programme continues to accelerate the
development of our climate risk management capabilities across four
key pillars - governance and risk appetite, risk management, stress
testing and scenario analysis, and disclosures. We are also
enhancing our approach to greenwashing risk management.
-- In December, we published our thermal coal phase-out policy,
which committed to phase out the financing of coal-fired power and
thermal coal mining in EU/OECD markets by 2030, and globally by
2040. The policy helps us chart the path to net zero and is a
component of our approach towards managing the climate risk of our
lending portfolio.
-- Climate stress tests and scenarios are being used to further
improve our understanding of our risk exposures for use in risk
management and business decision making.
-- We are undertaking training and adding additional roles with
specialist skills to manage climate-related model risk.
-- We have delivered climate risk training to our legal entity
boards and wider target audiences.
-- With the help of external stakeholders, we continued to
review and improve our approach to human rights issues, following
the UN Guiding Principles on Business and Human Rights.
-- In 2021, we joined several industry working groups dedicated to helping us assess and manage nature-related risks, such as the Taskforce on Nature-related Financial Disclosure ('TNFD'). Our asset management business also published its biodiversity policy to publicly explain how our analysts address nature-related issues.
-- We continue to engage with our customers, investors and
regulators proactively on the management of ESG risks. We also
engage with initiatives, including the Climate Financial Risk
Forum, Equator Principles, Taskforce on Climate-related Financial
Disclosures and CDP (formerly the Carbon Disclosure Project) to
drive best practice for climate risk management.
For further details on our approach to climate risk management,
see 'Areas of special interest' on page 131.
For further details on ESG risk management see 'Financial crime
risk environment and 'Regulatory compliance risk
environment including conduct' on page 129.
Our ESG review can be found on page 43.
Ibor transition
Interbank offered rates ('Ibors') have historically been used
extensively to set interest rates on different types of financial
transactions and for valuation purposes, risk measurement and
performance benchmarking.
Following the UK's Financial Conduct Authority ('FCA')
announcement in July 2017 that it would no longer continue to
persuade or require panel banks to submit rates for the London
interbank offered rate ('Libor') after 2021, we have been actively
working to transition legacy contracts from Ibors to products
linked to near risk-free replacement rates ('RFRs') or alternative
reference rates. In March 2021, in accordance with the 2017 FCA
announcement, ICE Benchmark Administration Limited ('IBA')
announced that it would cease publication of 24 of the 35 main
Libor currency interest rate benchmark settings from the end of
2021, and that the most widely used US dollar Libor settings would
cease from 30 June 2023. The FCA subsequently used its regulatory
powers to compel IBA to publish the remaining six sterling and
Japanese yen settings, from 1 January 2022, under an amended
methodology, commonly known as 'synthetic' Libor. As a result, our
focus during 2021 was on the transition of legacy contracts
referencing the Euro Overnight Index average ('Eonia') and the
Libor settings that demised from the end of 2021, including those
settings subsequently being published on a 'synthetic' basis.
During 2021, we continued the development of IT and RFR product
capabilities, implemented supporting operational processes, and
engaged with our clients to discuss options for the transition of
their legacy contracts. The successful implementation of new
processes and controls, as well as the transition of contracts away
from Ibors, reduced the heightened financial and non-financial
risks to which we were exposed. However, while all but exceptional
new Libor contract issuance ceased during 2021, or from the end of
2021 for US dollar Libor, we remain exposed to material risks.
These include from so-called 'tough legacy' contracts, which have
not been able to be transition to a new RFR rate and will use a
'synthetic' Libor or a contractual fallback rate, and from legacy
contracts that reference the remaining US dollar Libor tenors,
which are expected to demise from June 2023.
Financial risks have been largely mitigated as a result of the
implementation of model and pricing changes. However, differences
in US dollar Libor and its replacement RFR, Secured Overnight
Funding Rate ('SOFR'), create a basis risk in the trading book and
banking book due to the asymmetric adoption of SOFR across assets,
liabilities and products that we need to actively manage through
appropriate financial hedging. Additionally, the comparatively
limited use of the SOFR benchmark for new RFR products to date and
lack of alignment around conventions could potentially delay
transition of some US dollar contracts into 2023. This would
compress the amount of time to transition these contracts, which
could lead to heightened operational and conduct-related risk.
Additional non-financial risks, including regulatory compliance
risk, resilience risk, financial reporting risk, and legal risk
also remain for 'tough legacy' contracts, and the US dollar legacy
portfolio. These risks continue to be actively managed and
mitigated with a focus on ensuring that fair outcomes for our
clients are achieved.
These risks are present in different degrees across our product
offering.
Transition of legacy contracts
During 2021 we successfully transitioned over 90% of legacy Ibor
lending contracts in sterling, Swiss franc, euro and Japanese yen
Libor interest rates, as well as Eonia, directly or via appropriate
fallback mechanisms. The majority of the remaining contracts will
transition in advance of their next interest payment date, with
only a small proportion of 'tough legacy' contracts remaining. We
expect that out of approximately 5,000 lending contracts there will
be less than 50 'tough legacy' contracts, the majority of which
will be transitioned to alternative rates during 2022. Our approach
to transition 'tough legacy' and US dollar Libor legacy contracts
will differ by product and business area, but will be based on the
lessons learned from the successful transition of contracts during
2021. We will continue to communicate with our clients and
investors in a structured manner and be client led in the timing
and nature of the transition.
For derivatives, approximately 99% of our sterling, Swiss franc,
euro and Japanese yen Libor interest rate exposures at the end of
2021 had successfully transitioned directly or via appropriate
fallback mechanisms, leaving a small number of 'tough legacy'
contracts. Out of the approximately 13,000 bilateral derivatives
trades there are expected to be less than 20 that remain 'tough
legacy', the majority of which are expected to mature or transition
in 2022. We anticipate our 'tough legacy' and US dollar exposure
will continue to reduce through 2022 as a result of contract
maturities, and active transition. We will continue to look to
actively reduce our US dollar exposure by transitioning trades
ahead of the demise date of 30 June 2023, by working with our
clients to determine their needs and discuss how we transition
their contracts. Additionally, we are working with market
participants, including clearing houses, to ensure we are able to
transition our cleared derivative contracts as the US dollar Libor
benchmark demise date approaches.
For our loan book, approximately 85% of our reported exposure at
the end of 2021 linked to sterling, Swiss franc, euro and Japanese
yen Libor interest rate contracts required no further client
negotiation but remained drawn as they have yet to reach their next
interest payment date. The majority of the remaining exposure
linked to benchmarks that demised from the end of 2021 relates to
contracts where discussions with our clients and other market
participants, for syndicated transactions, have continued into
early 2022, in advance of their next scheduled interest payment
date, and this has led to further transitions being completed. A
small number of 'tough legacy' contracts, less than 50, that were
unable to transition prior to their first interest payment date in
2022, are expected to use legislative reliefs, such as 'synthetic'
Libor, or an alternative rate determined by the contractual
fallback language, and in the main will be transitioned during
2022. For the remaining demising Ibors, notably US dollar Libor, we
have implemented new products and processes and updated our systems
in readiness for transition. In our US retail bank, our mortgage
products are offered in SOFR, and the transition of legacy
contracts will occur once an industry spread adjustment is
available. Global Banking, Commercial Banking and Global Private
Banking have begun to engage with clients who have upcoming
contract maturities with a view to refinancing using an appropriate
replacement rate. Further communications and outreach to customers
with US dollar Libor contracts with later maturities will occur in
due course.
For the Group's own debt securities issuances, in 2021 HSBC
launched a consent solicitation to remediate Ibor references in
five of its English law governed regulatory capital and MREL
sterling and Singapore dollar instruments. The proposed amendments
were successfully adopted on all of the sterling instruments, but
were not adopted with respect to the Singapore dollar instruments
as the minimum quorum requirements were not met. The terms of these
two instruments provide for an Ibor benchmark being used to reset
the coupon rate if HSBC chooses not to redeem the instruments on
the respective call date, or dates, for each series. We remain
mindful of the various factors that impact on the Ibor remediation
strategy for our regulatory capital and MREL instruments, including
- but not limited to - timescales for
cessation of relevant Ibor rates, constraints relating to the
governing law of outstanding instruments, and the potential
relevance of legislative solutions. We remain committed in seeking
to remediate or mitigate relevant risks relating to Ibor-demise, as
appropriate, on our outstanding regulatory capital and MREL
instruments before the relevant calculation dates, which may occur
post-cessation of the relevant Ibor rate or rates. Where we hold
bonds issued by other institutions, we have remained dependent on
the issuer's agents to engage in the transition process, although
analysis will be undertaken of the issuers in US dollar Libor bonds
to reduce our exposure, as occurred through 2021.
The completion of an orderly transition from the remaining
Ibors, notably US dollar Libor, continues to be our programme's key
objective through 2022 and 2023, with the aim of putting systems
and processes in place to help achieve this.
Mitigating actions
-- Our global Ibor transition programme, which is overseen by
the Group Chief Risk and Compliance Officer, will continue to
deliver IT and operational processes to meet its objectives.
-- We carry out extensive training, communication and client
engagement to facilitate appropriate selection of new rates and
products.
-- We have dedicated teams in place to support the transition.
-- We actively transitioned legacy contracts and ceased new
issuance of Libor-based contracts, other than those allowed under
regulatory exemptions, with associated monitoring and controls.
-- We assess, monitor and dynamically manage risks arising from
Ibor transition, and implement specific mitigating controls when
required.
-- We continue to actively engage with regulatory and industry
bodies to mitigate risks relating to 'tough legacy' contracts.
Financial instruments impacted by Ibor reform
(Audited)
Interest Rate Benchmark Reform Phase 2, the amendments to IFRSs
issued in August 2020, represents the second phase of the IASB's
project on the effects of interest rate benchmark reform. The
amendments address issues affecting financial statements when
changes are made to contractual cash flows and hedging
relationships.
Under these amendments, changes made to a financial instrument
measured at other than fair value through profit or loss that are
economically equivalent and required by interest rate benchmark
reform, do not result in the derecognition or a change in the
carrying amount of the financial instrument. Instead they require
the effective interest rate to be updated to reflect the change in
the interest rate benchmark. In addition, hedge accounting will not
be discontinued solely because of the replacement of the interest
rate benchmark if the hedge meets other hedge accounting
criteria.
Financial instruments yet
to transition to alternative
benchmarks, by main benchmark
-----------------------------------------------------------------------------------------------------------
USD Libor GBP Libor JPY Libor Others(1)
At 31 Dec 2021 $m $m $m $m
--------------- ------------------------- ------------------------- ------------------------- --------------------------
Non-derivative
financial
assets
--------------- ------------------------- ------------------------- ------------------------- --------------------------
Loans and
advances to
customers 70,932 18,307 370 8,259
--------------- ------------------------- ------------------------- ------------------------- --------------------------
Other financial
assets 5,131 1,098 - 2
--------------- ------------------------- ------------------------- ------------------------- --------------------------
Total
non-derivative
financial
assets(2) 76,063 19,405 370 8,261
--------------- ------------------------- ------------------------- ------------------------- --------------------------
Non-derivative
financial
liabilities
--------------- ------------------------- ------------------------- ------------------------- --------------------------
Financial
liabilities
designated at
fair
value 20,219 4,019 1,399 1
--------------- ------------------------- ------------------------- ------------------------- --------------------------
Debt securities
in issue 5,255 - - -
--------------- ------------------------- ------------------------- ------------------------- --------------------------
Other financial
liabilities 2,998 78 - -
--------------- ------------------------- ------------------------- ------------------------- --------------------------
Total
non-derivative
financial
liabilities 28,472 4,097 1,399 1
--------------- ------------------------- ------------------------- ------------------------- --------------------------
Derivative
notional
contract amount
--------------- ------------------------- ------------------------- ------------------------- --------------------------
Foreign
exchange 137,188 5,157 31,470 9,652
--------------- ------------------------- ------------------------- ------------------------- --------------------------
Interest rate 2,318,613 284,898 72,229 133,667
--------------- ------------------------- ------------------------- ------------------------- --------------------------
Others - - - -
--------------- ------------------------- ------------------------- ------------------------- --------------------------
Total
derivative
notional
contract
amount 2,455,801 290,055 103,699 143,319
--------------- ------------------------- ------------------------- ------------------------- --------------------------
At 31 Dec 2020
Non-derivative
financial
assets
--------------- ------------------------- ------------------------- ------------------------- ---------------------------
Loans and
advances to
customers 85,378 43,681 371 10,751
--------------- ------------------------- ------------------------- ------------------------- ---------------------------
Other financial
assets 8,770 2,906 - 12
--------------- ------------------------- ------------------------- ------------------------- ---------------------------
Total
non-derivative
financial
assets(2) 94,148 46,587 371 10,763
--------------- ------------------------- ------------------------- ------------------------- ---------------------------
Non-derivative
financial
liabilities
--------------- ------------------------- ------------------------- ------------------------- ---------------------------
Financial
liabilities
designated at
fair
value 24,350 6,219 1,548 128
--------------- ------------------------- ------------------------- ------------------------- ---------------------------
Debt securities
in issue 5,840 - - 416
--------------- ------------------------- ------------------------- ------------------------- ---------------------------
Other financial
liabilities 3,412 964 - 5
--------------- ------------------------- ------------------------- ------------------------- ---------------------------
Total
non-derivative
financial
liabilities 33,602 7,183 1,548 549
--------------- ------------------------- ------------------------- ------------------------- ---------------------------
Derivative
notional
contract amount
--------------- ------------------------- ------------------------- ------------------------- ---------------------------
Foreign
exchange 196,774 6,374 28,411 22,762
--------------- ------------------------- ------------------------- ------------------------- ---------------------------
Interest rate 2,848,552 1,190,491 479,789 492,197
--------------- ------------------------- ------------------------- ------------------------- ---------------------------
Others 11 - - -
--------------- ------------------------- ------------------------- ------------------------- ---------------------------
Total
derivative
notional
contract
amount 3,045,337 1,196,865 508,200 514,959
--------------- ------------------------- ------------------------- ------------------------- ---------------------------
1 Comprises financial instruments referencing other significant
benchmark rates yet to transition to alternative benchmarks (euro
Libor, Swiss franc Libor, Eonia, SOR, THBFIX and Sibor).
2 Gross carrying amount excluding allowances for expected credit losses.
The amounts in the above table relate to HSBC's main operating
entities where HSBC has material exposures impacted by Ibor reform,
including in the UK, Hong Kong, France, the US, Mexico, Canada,
Singapore, the UAE, Bermuda, Australia, Qatar, Germany, Japan and
Thailand. The amounts provide an indication of the extent of the
Group's exposure to the Ibor benchmarks that are due to be
replaced. Amounts are in respect of financial instruments that:
-- contractually reference an interest rate benchmark that is
planned to transition to an alternative benchmark;
-- have a contractual maturity date beyond the date by which the
reference interest rate benchmark is expected to cease; and
-- are recognised on HSBC's consolidated balance sheet.
In March 2021, the administrator of Libor, IBA, announced that
the publication date of most US dollar Libor tenors has been
extended from 31 December 2021 to 30 June 2023. Publication of
one-week and two-month tenors ceased after 31 December 2021. This
change, together with the extended publication dates of Sibor, SOR
and THBFIX, reduce the amounts presented at 31 December 2021 in the
above table as some financial instruments included at 31 December
2020 will reach their contractual maturity date prior to the
extended publication dates. Comparative data have not been
re-presented.
Financial crime risk environment
Financial institutions remain under considerable regulatory
scrutiny regarding their ability to prevent and detect financial
crime. The financial crime threats we face have continued to
evolve, often in tandem with broader geopolitical, socioeconomic
and technological shifts in our markets, leading to challenges such
as managing conflicting laws and approaches to legal and regulatory
regimes.
Financial crime risk evolved during the Covid-19 pandemic,
notably with the manifestation of fraud risks linked to the
economic slowdown and resulting deployment of government relief
measures. The accelerated digitisation of financial services has
fostered significant changes to the payments ecosystem, including a
multiplicity of providers and new payment mechanisms, not all of
which are subject to the same level of regulatory scrutiny or
regulations as financial institutions. This is presenting
increasing challenges to the industry in terms of maintaining
required levels of transparency, notably where institutions serve
as intermediaries. Developments around digital assets and
currencies, notably the role of stablecoins and central bank
digital currencies, have continued at pace, with an increasing
regulatory and enforcement focus on the financial crimes linked to
these types of assets.
Expectations with respect to the intersection of ESG issues and
financial crime as our organisation, customers and suppliers
transition to net zero, are increasing, not least with respect to
potential 'greenwashing'. Companies also face a heightened
regulatory focus on both human rights issues and environmental
crimes from a financial crime perspective. We also continue to face
increasing challenges presented by national data privacy
requirements, which may affect our ability to manage financial
crime risks holistically and effectively.
Mitigating actions
-- We are strengthening our fraud and surveillance controls, and
investing in next generation capabilities to fight financial crime
through the application of advanced analytics and artificial
intelligence ('AI').
-- We are looking at the impact of a rapidly changing payments
ecosystem to ensure our financial crime controls remain appropriate
for changes in customer behaviour and gaps in regulatory coverage,
including the development of procedures and controls to manage the
risks associated with direct and indirect exposure to digital
assets and currencies.
-- We are assessing our existing policies and control framework
to ensure that developments in the ESG space are considered and the
risks mitigated.
-- We work with jurisdictions and relevant international bodies
to address data privacy challenges through international standards,
guidance, and legislation to help enable effective management of
financial crime risk.
-- We work closely with our regulators and engage in
public-private partnerships, playing an active role in shaping the
industry's financial crime controls for the future, notably with
respect to the enhanced, and transparent, use of technology.
Regulatory compliance risk environment including conduct
We keep abreast of the emerging regulatory compliance and
conduct agenda, which currently includes, but is not limited to:
ESG matters; operational resilience; how digital and technology
changes, including payments, are impacting financial institutions;
how we are ensuring good customer outcomes, including addressing
customer vulnerabilities; regulatory reporting; and employee
compliance. We monitor regulatory developments closely and engage
with regulators, as appropriate, to help ensure new regulatory
requirements are implemented effectively and in a timely way.
The competitive landscape in which the Group operates may be
impacted by future regulatory changes and government intervention.
In the UK, potential regulatory developments include any
legislative changes resulting from a statutory review of
ring-fencing, which has been undertaken by an independent panel
appointed by HM Treasury. The panel has recommended several
adjustments to the regime and HM Treasury is reviewing these
recommendations. Legislative amendments may be proposed in due
course.
Mitigating actions
-- We monitor for regulatory developments to understand the
evolving regulatory landscape and respond with changes in a timely
way.
-- We engage, wherever possible, with governments and regulators
to make a positive contribution to regulations and ensure that new
requirements are considered properly and can be implemented
effectively. We hold regular meetings with relevant authorities to
discuss strategic contingency plans, including those arising from
geopolitical issues.
-- We launched our simplified conduct approach to align to our
new purpose and values, in particular the value 'we take
responsibility'.
Cyber threat and unauthorised access to systems
Together with other organisations, we continue to operate in an
increasingly hostile cyber threat environment. This requires
ongoing investment in business and technical controls to defend
against these threats, including potential unauthorised access to
customer accounts, attacks on our systems, and attacks on our
third-party suppliers.
Mitigating actions
-- We continually evaluate threat levels for the most prevalent
attack types and their potential outcomes. To further protect HSBC
and our customers and help ensure the safe expansion of our global
business lines, we strengthen our controls to reduce the likelihood
and impact of advanced malware, data leakage, exposure through
third parties and security vulnerabilities.
-- We continue to enhance our cybersecurity capabilities,
including Cloud security, identity and access management, metrics
and data analytics, and third-party security reviews. An important
part of our defence strategy is ensuring our colleagues remain
aware of cybersecurity issues and know how to report incidents.
-- We report and review cyber risk and control effectiveness at
executive and non-executive Board level. We also report across our
global businesses, functions and regions to help ensure appropriate
visibility and governance of the risk and mitigating actions.
-- We participate globally in industry bodies and working groups
to collaborate on tactics employed by cyber-crime groups and to
collaborate in fighting, detecting and preventing cyber-attacks on
financial organisations.
Digitalisation and technological advances
Developments in technology and changes in regulations are
enabling new entrants to the industry. This challenges HSBC to
continue to innovate and optimise in order to take advantage of new
digital capabilities to best serve our customers, and adapt our
products to attract and retain customers. As a result, we may need
to increase our investment in our business to modify or adapt our
existing products and services or develop new products and services
to respond to our customers' needs.
Mitigating actions:
-- We continue to monitor this emerging risk, as well as the
advances in technology, and changes in customer behaviours to
understand how these may impact our business.
-- We closely monitor and assess financial crime and the impact
on payment transparency and architecture.
Internally driven
Data management
We use a large number of systems and growing quantities of data
to support our customers. Risk arises if data is incorrect,
unavailable, misused, or unprotected. Along with other banks and
financial institutions, we need to meet external regulatory
obligations and laws that cover data, such as the Basel Committee
on Banking Supervision's 239 guidelines and the General Data
Protection Regulation ('GDPR').
Mitigating actions
-- Through our global data management framework, we monitor
proactively the quality, availability and security of data that
supports our customers and internal processes. We resolve any
identified data issues in a timely manner.
-- We have made improvements to our data policies and are
implementing an updated control framework to enhance the end-to-end
management of data risk by our global businesses, global functions
and regions.
-- We protect customer data via our data privacy framework,
which establishes practices, design principles and guidelines that
enable us to demonstrate compliance with data privacy laws and
regulations.
-- We continue to modernise our data and analytics
infrastructure through investments in Cloud technology, data
visualisation, machine learning and AI.
-- We educate our employees on data risk and data management and
have delivered global mandatory training on the importance of
protecting data and managing data appropriately.
Model risk management
Model risk arises whenever business decision making includes
reliance on models. We use models in both financial and
non-financial contexts, as well as in a range of business
applications such as customer selection, product pricing, financial
crime transaction monitoring, creditworthiness evaluation and
financial reporting. Assessing model performance is a continuous
undertaking. Models can need redevelopment as market conditions
change. This was required following the outbreak of Covid-19 as
some models used for estimating credit losses needed to be
redeveloped due to the dramatic change to inputs. This included
GDP; unemployment rates; housing prices; and the varying government
support measures introduced.
We prioritised the redevelopment of internal ratings-based
('IRB') and internal model methods ('IMM') models, in relation to
counterparty credit, as part of the IRB repair and Basel III
programmes with a key focus on enhancing the quality of data used
as model inputs. Submission of these models to the UK's Prudential
Regulation Authority ('PRA') and other key regulators for feedback
and approval is in progress. Some IMM and internal model approach
('IMA') models have been approved for use and feedback has been
received for some IRB models. Climate risk modelling is a key focus
for the Group as HSBC's commitment to sustainability has become a
critical part of the Group's strategy.
Mitigating actions
-- We further enhanced the monitoring, review and challenge of
loss model performance through our Model Risk Management function
as part of a broader quarterly process to determine loss levels.
The Model Risk Management team aims to provide strong and effective
review and challenge of any future redevelopment of these
models.
-- Model Risk Management works closely with businesses to ensure
that IRB/IMM/IMA models in development meet risk management,
pricing and capital management needs. Global Internal Audit
provides assurance over the risk management framework for
models.
-- Additional assurance work is performed by the model risk
governance teams, which act as second lines of defence. The teams
test whether controls implemented by model users comply with model
risk policy and if model risk standards are adequate.
-- Models using advanced machine learning techniques are
validated and monitored to ensure that risks that are determined by
the algorithms have adequate oversight and review.
Risks arising from the receipt of services from third
parties
We use third parties to provide a range of goods and services.
Risks arising from the use of third-party providers and their
supply chain may be harder to identify. It is critical that we
ensure we have appropriate risk management policies, processes and
practices over the selection, governance and oversight of third
parties and their supply chain, particularly for key activities
that could affect our operational resilience. Any deficiency in the
management of risks associated with our third parties could affect
our ability to support our customers and meet regulatory
expectations.
Mitigating actions
-- We have enhanced our control framework for external supplier
arrangements to ensure the risks associated with third-party
arrangements are understood and managed effectively by our global
businesses, global functions and regions.
-- We have applied the same control standards to intra-group
arrangements as we have for external third-party arrangements to
ensure we are managing them effectively.
-- We are implementing the changes required by the new global
third-party risk policy to comply with new regulations as defined
by our regulators.
Risks associated with workforce capability, capacity and
environmental factors with potential impact on growth
Our success in delivering our strategic priorities and managing
the regulatory environment proactively depends on the development
and retention of our leadership and high-performing employees. A
very competitive employment market will continue to test our
ability to attract and retain talent. Changed working arrangements,
local Covid-19 restrictions and health concerns during the pandemic
have also impacted on employee mental health and well-being.
Mitigating actions
-- We have put in place measures to help support our people so
they are able to work safely during the Covid-19 pandemic. While
our approach to workplace recovery around the world is consistent,
the measures we take in different locations are specific to their
environment.
-- We promote a diverse and inclusive workforce and provide
active support across a wide range of health and well-being
activities. We continue to build our speak-up culture through
active campaigns.
-- We monitor people risks that could arise due to
organisational restructuring, helping to ensure we manage
redundancies sensitively and support impacted employees. We
encourage our people leaders to focus on talent retention at all
levels, with an empathetic mindset and approach, while ensuring the
whole proposition of working at HSBC is well understood.
-- Our Future Skills curriculum helps provide critical skills
that will enable employees and HSBC to be successful in the
future.
-- We continue to develop succession plans for key management
roles, with actions agreed and reviewed on a regular basis by the
Group Executive Committee.
IT systems infrastructure and resilience
We operate an extensive and complex technology landscape, which
must remain resilient in order to support customers, the
organisation and markets globally. Risks arise where technology is
not understood or maintained, and development of technology is not
controlled.
Mitigating actions
-- We continue to invest in transforming how software solutions
are developed, delivered and maintained. We concentrate on
improving system resilience and service continuity testing. We
continue to ensure security is built into our software development
life cycle and improve our testing processes and tools.
-- We continue to upgrade many of our IT systems, simplify our
service provision and replace older IT infrastructure and
applications. These enhancements supported global improvements in
service availability during 2021 for both our customers and
colleagues.
Change execution risk
We have continued our increased investment in strategic change
to support the delivery of our strategic priorities and regulatory
commitments. This requires change to be executed safely and
efficiently.
Mitigating actions
-- A global transformation programme is progressing with the
delivery of strategic change commitments made in February 2020 to
restructure our business, reallocate capital into higher growth and
higher return businesses and markets, and to simplify our
organisation to improve operational resilience and reduce
costs.
-- The remit of the Transformation Oversight Executive
Committee, established in 2020 to oversee the global transformation
programme, was expanded in 2021 to oversee the prioritisation,
strategic alignment and management of execution risk for all change
portfolios and initiatives.
-- We continue to work to strengthen our change management
practices to deliver sustainable change, increased adoption of
Agile ways of working, and a more consistent standard of delivery.
The Transformation Oversight Executive Committee oversees the
continued embedding of our improved Group-wide change framework
released in May 2021, which sets out the mandatory principles and
standards relating to leading and delivering change.
Areas of special interest
During 2021, a number of areas were identified and considered as
part of our top and emerging risks because of the effect they may
have on the Group. While considered under the themes captured under
top and emerging risks, in this section we have placed a particular
focus on the Covid-19 pandemic and climate-related risks.
Risks related to Covid-19
Despite the successful roll-out of vaccines around the world,
the Covid-19 pandemic and its effect on the global economy have
continued to impact our customers and organisation. The global
vaccination roll-out in 2021 helped reduce the social and economic
impact of the Covid-19 pandemic, although there has been
significant divergence in the speed at which vaccines have been
deployed around the world. Most developed countries have now
vaccinated a large proportion of their populations, but many less
developed countries have struggled to secure supplies and are at an
earlier stage of their roll-out. By the end of 2021, high
vaccination rates had ensured that many Covid-19-related
restrictions on activity in developed markets had been lifted and
travel constraints were easing. However, the emergence of the
Omicron variant in late 2021 demonstrated the continued risk new
variants pose.
The pandemic necessitated governments to respond at
unprecedented levels to protect public health, and to support local
economies and livelihoods. The resulting government support
measures and restrictions created additional challenges, given the
rapid pace of change and significant operational demands. Renewed
outbreaks, particularly those resulting from the emergence of
variants of the virus, emphasise the ongoing threat of Covid-19 and
could result in further tightening of government restrictions.
There remains a divergence in approach taken by countries to the
level of restrictions on activity and travel. Such diverging
approaches to future pandemic waves could prolong or worsen supply
chain and international travel disruptions. The evolving Covid-19
restrictions in Hong Kong, including travel, public gathering and
social distancing restrictions, are impacting the Hong Kong
economy, and may affect the ability to attract and retain
staff.
We continue to support our personal and business customers
through market-specific measures initiated during the Covid-19
pandemic, and by supporting those remaining national government
schemes that focus on the parts of the economy most impacted by the
pandemic. For further details of our customer relief programmes,
see page 159.
The rapid introduction and varying nature of the government
support schemes introduced throughout the Covid-19 pandemic led to
increased operational risks, including complex conduct
considerations, increased reputational risk and increased risk of
fraud. These risks are likely to be heightened further as and when
those remaining government support schemes are unwound. These
events have also led to increased litigation risk.
The impact of the pandemic on the long-term prospects of
businesses in the most vulnerable sectors of the economy - such as
retail, hospitality, travel and commercial real estate - remains
uncertain and may lead to significant credit losses on specific
exposures, which may not be fully captured in ECL estimates. In
addition, in times of stress, fraudulent activity is often more
prevalent, leading to potentially significant credit or operational
losses.
As economic conditions improve, and government support measures
come to an end, there is a risk that the outputs of IFRS 9 models
may have a tendency to underestimate loan losses. To help mitigate
this risk, model outputs and management adjustments are closely
monitored and independently reviewed at the Group and country level
for reliability and appropriateness. For further details on model
risk, see page 209.
Despite the ongoing economic recovery, significant uncertainties
remain in assessing the duration and impact of the Covid-19
pandemic, including whether any subsequent outbreaks result in a
reimposition of government restrictions. There is a risk that
economic activity remains below pre-pandemic levels for a prolonged
period, increasing inequality across markets, and it will likely be
some time before societies return to pre-pandemic levels of social
interactions. As a result, there may still be a requirement for
additional mitigating actions including further use of adjustments,
overlays and model redevelopment.
Governments and central banks in major economies have deployed
extensive measures to support their local populations. This is
expected to reverse partially in 2022. Central banks in major
markets are expected to raise interest rates, but such increases
are expected to be gradual and monetary policy is expected to
remain accommodative overall. Policy tightening in major emerging
markets has already begun in order to counteract rising inflation
and the risk of capital outflows. Governments are also expected to
reduce the level of fiscal support they offer households and
businesses as the appetite for broad lockdowns and public health
restrictions decreases. Government debt has risen in most advanced
economies, and is expected to remain high into the medium term.
High government debt burdens have raised fiscal vulnerabilities,
increasing the sensitivity of debt service costs to interest rate
increases and potentially reducing the fiscal space available to
address future economic downturns. Our Central scenario used to
calculate impairment assumes that economic activity will continue
to recover through 2022, surpassing peak pre-pandemic levels of GDP
in all our key markets. It is assumed that private sector growth
accelerates, ensuring a strong recovery is sustained even as
pandemic-related fiscal support is withdrawn. However, there is a
high degree of uncertainty associated with economic forecasts in
the current environment and there are significant risks to our
Central scenario. The degree of uncertainty varies by market,
driven by country-specific trends in the evolution of the pandemic
and associated policy responses. As a result, our Central scenario
for impairment has not been assigned an equal likelihood of
occurrence across our key markets. For further details of our
Central and other scenarios, see 'Measurement uncertainty and
sensitivity analysis of ECL estimates' on page 144.
We continue to monitor the situation closely, and given the
novel and prolonged nature of the pandemic, additional mitigating
actions may be required.
Climate-related risks
Climate change can have an impact across HSBC's risk taxonomy
through both transition and physical channels. Transition risk can
arise from the move to a net zero economy, such as through policy,
regulatory and technological changes. Physical risk can arise
through increasing severity and/or frequency of severe weather or
other climatic events, such as rising sea levels and flooding.
These have the potential to cause both idiosyncratic and
systemic risks, resulting in potential financial and non-financial
impacts for HSBC. Financial impacts could materialise if transition
and physical risks impact the ability of our customers to repay
their loans. Non-financial impacts could materialise if our own
assets or operations are impacted by extreme weather or chronic
changes in weather patterns, or as a result of business decisions
to achieve our climate ambition.
How climate risk can impact our customers
Climate change could impact our customers in two main ways.
Firstly, customer business models may fail to align to a net zero
economy, which could mean that new climate-related regulation would
have a material impact on their business. Secondly, extreme weather
events or chronic changes in weather patterns may damage our
customers' assets leaving them unable to operate their business or
potentially even live in their home.
One of the most valuable ways we can help our customers navigate
the transition challenges and to become more resilient to the
physical impacts of climate change is through financing and
investment. To do this effectively, we must understand the risks
they are facing.
The table below summarises the key categories of transition and
physical risk, with examples of how our customers might be affected
financially by climate change and the shift to a low-carbon
economy.
Transition Policy Mandates on, and regulation
and legal of, existing products
and services
Litigation from parties
who have suffered from
the effects of climate
change
---------- ------------ ---------------------------
Technology Replacement of existing
products with lower
emission options
---------- ------------ ---------------------------
End-demand Changing consumer behaviour
(market)
---------- ------------ ---------------------------
Reputational Increased scrutiny
following a change
in stakeholder perceptions
of climate-related
action or inaction
---------- ------------ ---------------------------
Physical Acute Increased frequency
and severity of weather
events
---------- ------------ ---------------------------
Chronic Changes in precipitation
patterns
Rising temperatures
---------- ------------ ---------------------------
For further details on how we manage climate risk for our other
stakeholders, see the ESG review on page 56.
Integrating climate into enterprise-wide risk management
Our approach to climate risk management is aligned to our
Group-wide risk management framework and three lines of defence
model, which sets out how we identify, assess and manage our risks.
This approach ensures the Board and senior management have
visibility and oversight of our key climate risks.
Climate risk appetite
Our developing climate risk appetite measures support the
oversight and management of the financial and non-financial risks
from climate change, meet regulatory expectations and support the
business to deliver our climate ambition in a safe and sustainable
way. Our initial measures are focused on the oversight and
management of our key climate risks: wholesale credit risk, retail
credit risk, reputational risk, resilience risk and regulatory
compliance. These measures are implemented at a global and regional
level. We continue to develop climate risk appetite measures and
our future ambition for our climate risk appetite is to:
-- adapt the risk appetite metrics to incorporate
forward-looking transition plans and net zero commitments;
-- expand metrics to consider other financial and non-financial risks; and
-- use enhanced scenario analysis capabilities.
Climate risk policies, processes and controls
We are integrating climate risk into the policies, processes and
controls for our key climate risks and we will continue to update
these as our climate risk management capabilities mature over time.
We have updated our policy on product management, and developed the
first version of a climate risk scoring tool for our corporate
portfolios. In addition, we published and started to implement our
new thermal coal phase-out policy. For further details on our
thermal coal phase-out policy, see page 62.
Climate risk governance and reporting
Our global and regional Climate Risk Oversight Forums are
responsible for the oversight, management and escalation of climate
risks across the Group and are supported by specific forums for our
global businesses, as well as for our Risk and Compliance function.
These include the Sustainability Risk Oversight Forum, the WPB Risk
Management Meeting and the Regulatory Compliance ESG and Climate
Risk Working Group.
Our climate risk management information dashboard includes
metrics relating to our key climate risks, and is reported to the
Group Climate Risk Oversight Forum. The Group Risk Management
Meeting and the Group Risk Committee receive scheduled updates on
climate risk, and receive regular updates on our climate risk
appetite and top and emerging climate risks.
For further details on the Group's ESG governance structure, see
page 80.
The Group Chief Risk and Compliance Officer is the key senior
manager responsible for the management of climate-related financial
risks under the UK Senior Managers Regime. The Group Chief Risk and
Compliance Officer is the overall accountable executive for the
Group's climate risk programme, including responsibility for
governance, risk management, stress testing and scenario analysis
and disclosures.
Climate risk programme
Our dedicated programme continues to accelerate the development
of our climate risk management capabilities. The key achievements
in 2021 include:
-- We delivered tailored training sessions to our legal entity boards.
-- We delivered training to colleagues across the three lines of
defence so they can understand climate risk as part of their role,
and we also included an introduction to our climate ambition in our
global mandatory training.
-- We developed our climate risk scoring tool for corporate
customers for use in priority regions, which builds on our
corporate transition questionnaire.
-- We introduced a risk appetite based on monitoring climate
risk exposure at property level across the UK mortgage
portfolio.
-- We have continued to develop our climate stress testing and
scenarios capabilities, including model development and delivered
regulatory climate stress tests. These are being used to further
improve our understanding of our risk exposures for use in risk
management and business decision making. For more detail on our
approach to climate stress testing and scenario analysis, see page
57.
We will continue to enhance our climate risk management
capabilities throughout 2022. This will include the further
roll-out of training, refinement of our risk appetite, enhancement
of our climate risk scoring tool and increasing the availability
and quality of data so that new metrics can be developed.
How climate risk can impact HSBC
Below, we provide details on how climate risk impacts to our
customers might manifest across our key climate risks, and the
potential timeframes involved using the TCFD's four main drivers of
transition climate risk - policy and legal, technology, end-demand
(market) and reputational - and two physical risk drivers - acute
and chronic.
Non-financial
Financial risks risk
-------------------------------------------- ------------------------
Regulatory
Wholesale Retail Strategic Resilience compliance
Risk type credit credit risk (reputational) risk risk
--------------------------------- --------- ----------- -------------------- ---------- ------------
All term Medium-long All term All term
Timescale(1) periods term periods periods Short-medium
--------------------------------- --------- ----------- -------------------- ---------- ------------
Transition risk drivers(2)
--------------------------------- --------- ----------- -------------------- ---------- ------------
- policy and legal l l l
--------------------------------- --------- ----------- -------------------- ---------- ------------
- technology l
--------------------------------- --------- ----------- -------------------- ---------- ------------
- end-demand (market) l l
--------------------------------- --------- ----------- -------------------- ---------- ------------
- reputational l l l
--------------------------------- --------- ----------- -------------------- ---------- ------------
Physical risk drivers(2)
--------------------------------- --------- ----------- -------------------- ---------- ------------
- acute - increased frequency and l l l
severity of weather events
--------------------------------- --------- ----------- -------------------- ---------- ------------
- chronic - changes in weather l l l
patterns
--------------------------------- --------- ----------- -------------------- ---------- ------------
1 Short-term: less than one year; medium term: period to 2030; long term: period to 2050.
2 Transition and physical risk drivers defined by TCFD.
Wholesale credit risk
Identification and assessment
We have identified six key sectors where our wholesale credit
customers have the highest climate risk, based on their carbon
emissions. These are oil and gas, building and construction,
chemicals, automotive, power and utilities, and metals and mining.
We continue to roll out our transition and physical risk
questionnaire to our largest customers in high-risk sectors, with
the addition of four more sectors: agriculture, manufacturing, real
estate and transportation. The questionnaires will help us to
assess and improve our understanding of the impact of climate
changes on our customers' business models and any related
transition strategies. It also helps us to identify potential
business opportunities to support the transition. In 2022, we
intend to increase the scope of the questionnaires by adding more
countries to the scope.
Management
In 2021, we developed a scoring tool, which provides a climate
risk score for each customer based on questionnaire responses. The
climate risk score will then be used in portfolio level management
information to assess and compare clients. The scoring tool will be
enhanced and refined over time as more data becomes available. The
results of the tool have been provided to business and risk
management teams. During 2021, we also performed a climate-related
stress test, as explained further on page 58. In 2022 we aim to
further embed climate risk considerations in our credit risk
management processes.
Aggregation and reporting
We currently internally report our transition risk exposure and
RWAs consumed by the six high-risk sectors in the wholesale
portfolio.
We also report the proportion of questionnaire responses that
reported either having a board policy or management plan for
transition risk. Our key wholesale credit exposures are included as
part of our broader ESG management information dashboard, which is
presented to the Group Executive Committee each quarter. In
addition, a representative from wholesale credit risk attends the
Global Climate Risk Oversight Forum to ensure consideration of this
risk type, and we report our exposure through the climate risk
management information dashboard at this meeting.
We will continue to report these metrics in 2022 and will aim to
cascade these measures to global businesses and to provide insight
on the climate risk profile of our portfolio and customers.
In the table below, we capture our lending activity, including
environmentally responsible and sustainable finance activities, to
customers within the six high risk sectors. Green financing for
large companies that work in high transition sectors is also
included. The overall exposure has increased slightly to 20.0%
(2020:19.6%). For further details on how we designate
counterparties as high transition risk, see footnote 2.
Since 2019, we have received responses from customers within the
six high transition risk sectors, which represent 56% of our
exposure, an increase in coverage of 15% since last year. The
breakdown of our customer responses is presented by sector in the
table below.
Within the power and utilities, and metals and mining sectors
shown in the table below, and recognising external third-party
assessments of power generation and mining capacity, our exposure
to thermal coal is 0.2% of the total wholesale loans and advances
figures.
Wholesale loan exposure to transition risk sectors and customer questionnaire
responses at 31 December 2021
Construction Oil
and building Metals and Power
Automotive Chemicals materials and mining gas and utilities Total
% % % % % % %
---------------------------------- ---------- --------- ------------- ----------- ------ -------------- -------
Wholesale loan exposure as %
of total wholesale loans and
advances to customers and
banks(1,2,3) <= 2.8 <= 3.4 <= 4.5 <= 2.4 <= 3.4 <= 3.5 <= 20.0
---------------------------------- ---------- --------- ------------- ----------- ------ -------------- -------
Proportion of sector for which
questionnaires were completed(4) 59 44 56 52 64 59 56
---------------------------------- ---------- --------- ------------- ----------- ------ -------------- -------
Proportion of questionnaire
responses
that reported either having a
board policy or a management
plan(4) 65 76 76 57 77 90 75
---------------------------------- ---------- --------- ------------- ----------- ------ -------------- -------
Sector weight as proportion of
high transition risk sector(4) 14 17 22 12 17 18 100
---------------------------------- ---------- --------- ------------- ----------- ------ -------------- -------
1 Amounts shown in the table also include green and other
sustainable finance loans, which support the transition to the net
zero economy. The methodology for quantifying our exposure to high
transition risk sectors and the transition risk metrics will evolve
over time as more data becomes available and is incorporated in our
risk management systems and processes.
2 Counterparties are allocated to the high transition risk
sectors via a two-step approach. Firstly, where the main business
of a group of connected counterparties is in a high transition risk
sector, all lending to the group is included irrespective of the
sector of each individual obligor within the group. Secondly, where
the main business of a group of connected counterparties is not in
a high transition risk sector, only lending to individual obligors
in the high transition risk sectors is included. For Global Banking
and Markets clients, the main business of a group of connected
counterparties is identified by the relationship manager for the
group. For Commercial Banking clients, the main business of a group
of connected counterparties is identified based on the largest
industry of HSBC's total lending limits to the group.
3 Total wholesale loans and advances to customers and banks amount to $662bn (2020: $673bn).
4 All percentages are weighted by exposure.
Retail credit risk
Identification and assessment
We manage retail credit risk under a framework of controls that
enable the identification and assessment of credit risk across the
retail portfolio.
In 2021, we completed a Group-wide climate scenario analysis and
stress testing exercise. This enabled us to enhance our
understanding and assess the impact of physical risk to our
mortgage portfolio under three potential future climate scenarios,
with a focus on the UK, Hong Kong and Canada.
Additionally, for the UK mortgage portfolio, we considered the
impact of potential minimum energy performance certificate ('EPC')
rating requirements, as well as changes to the availability of
buildings insurance following the demise of FloodRe. These factors
were considered alongside macroeconomic drivers, given the
supplemental data available for the UK.
FloodRe is a scheme between the UK Government and the insurance
industry that aims to improve the availability and affordability of
flood cover for properties in high flood risk areas. It is
currently in place until 2039.
Understanding the impact of future climate risk relies heavily
upon the availability of quality data, as well as on the evolution
of climate risk modelling expertise. As this matures, we plan to
expand our approach to additional markets.
Management
We are focusing on embedding climate risk into retail credit
risk management processes, prioritising the largest residential
mortgage portfolios.
We continue to update our risk management framework to reflect
lessons learnt.
Aggregation and reporting
We manage and monitor the integration of climate risk across
Wealth and Personal Banking through the Risk Management
Meeting.
We have also developed and are implementing metrics to support
active risk management, which will be tracked and monitored through
relevant credit risk meetings.
A representative from Retail Credit Risk attends the Group
Climate Risk Oversight Forum to ensure this risk type is
considered.
How we are starting to measure climate risk
We are starting to measure climate risk with the most material
market, which is the UK, where the primary risk facing properties
is flooding.
Using a risk methodology that considers a combination of the
likelihood and severity of flood hazard affecting individual
properties, we estimate that on a total volume basis, and at
present day levels, 3.5% of the UK retail banking mortgage
portfolio is at high risk of flooding, and 0.3% is at a very high
risk. This is based on 94% coverage of our mortgage portfolio and
is reliant on flood data provided by Ambiental Risk Analytics,
flood risk experts and suppliers of flood models to more than 50%
of the UK insurance industry.
This data will enable monitoring and reporting of properties at
risk of flooding, which will support activities to educate impacted
customers and protect the Group from incurring losses as a result
of climate events.
Our transition risk efforts in the UK have focused on obtaining
current and potential energy efficiency ratings for individual
properties, sourced from property EPC data.
The UK Government has a stated ambition to improve the EPC
ratings of housing stock as set out in its Clean Growth Strategy.
We are working towards improving the proportion of properties on
our book with an EPC rating of C or above and on improving the EPC
data coverage.
We have approximately 53% of properties in our portfolio with a
valid EPC certificate (i.e. dated within the last 10 years) and
35.7% of these are rated A to C.
For further details and metrics relating to physical and
transition risk to our UK mortgage portfolio, see our ESG Data Pack
at www.hsbc.com/esg.
Reputational risk
Identification and assessment
We implement sustainability risk policies, including the Equator
Principles, as part of our broader reputational risk framework. We
focus on sensitive sectors that may have a high adverse impact on
people or the environment, and in which we have a significant
number of customers. A key area of focus is high-carbon sectors,
which include oil and gas, power generation, mining, agricultural
commodities and forestry. During 2021 we published our thermal coal
phase-out policy.
Management
As the primary point of contact for our customers, our
relationship managers are responsible for checking that our
customers meet policies aimed at reducing carbon impacts. Our
global network of more than 75 sustainability risk managers
provides local policy support and expertise to relationship
managers. A central Sustainability Risk team provides a higher
level of guidance and is responsible for the oversight of policy
compliance and implementation over wholesale banking activities.
During 2021, we introduced a refreshed assurance framework, which
takes a risk-based approach focusing on higher risks.
For further details on our sustainability risk policies, see our
ESG review on page 62.
Aggregation and reporting
Our Sustainability Risk Oversight Forum provides a Group-wide
forum for senior members of our Global Risk and Compliance team and
global businesses. It also oversees the development and
implementation of sustainability risk policies. Cases involving
complex sustainability risk issues related to customers,
transactions or third parties are managed through the reputational
risk and client selection governance process. We report annually on
our implementation of the Equator Principles and the corporate
loans, project-related bridge loans and advisory mandates completed
under the principles. With the introduction of Equator Principles
IV, a training programme was delivered to raise the awareness of
the changes and obligations therein.
For the latest report, see:
www.hsbc.com/who-we-are/our-climate-strategy/sustainability-risk/equator-principles.
A representative from Reputational risk attends the Group
Climate Risk Forum to ensure consideration of this risk type.
Regulatory compliance risk
Identification and assessment
Compliance, as a sub-function within Group Risk and Compliance,
continues to prioritise the identification and assessment of
compliance risks that may arise from climate risk. Although not an
exhaustive list, key regulatory compliance risks under
consideration include those related to product management,
mis-selling, marketing, conflicts of interest and regulatory
change.
An area of particular focus is the risk of greenwashing. We
regard greenwashing as the act of knowingly or unknowingly
misleading stakeholders regarding our climate ambition, the climate
impact/benefits of a product or service or regarding the climate
commitments of our customers. For the Compliance function,
product-based greenwashing is a key area of focus. When considering
product-based greenwashing, we seek to:
-- effectively and consistently consider climate risk factors in
the development and ongoing governance of new, changed or withdrawn
products and services through the enhancement of existing risk
management frameworks utilised within the Group's operating
entities and lines of business, enabling climate risks to be
identified and assessed in a timely manner;
-- ensure that climate-related products and services offered to
customers are appropriately designed and that related sales
practices and marketing materials are clear, fair and not
misleading; and
-- develop climate-related products and services consistent with
the evolving expectations of the Group's regulators and other
relevant authorities.
Management
We continue to develop our compliance policies and underlying
measurement capability to enhance the management of climate risks
in line with our climate ambition and risk appetite. As such, we
have integrated and are continuing to enhance climate risk
considerations within our product and customer life-cycle policies.
Our policies set the minimum standards that are required to manage
the risk of breaches of our regulatory duty to customers, including
those related to climate risk, ensuring fair customer outcomes are
achieved.
The Compliance sub-function placed significant focus in 2021 on
supporting and improving the capability of Compliance colleagues
through climate-specific training, communications and guidance
materials to ensure the robust identification, assessment and
management of climate risks.
Aggregation and reporting
The Compliance sub-function continues to operate an ESG and
Climate Risk Working Group. This group tracks and monitors the
integration and embedding of Climate risk within the management of
regulatory compliance risks and controls more generally, and
monitors ongoing regulatory and legislative changes across the
sustainability and climate risk agenda.
We have also developed and implemented climate risk metrics and
indicators aligned to wider regulatory compliance risks.
The Compliance sub-function is also represented at the Group's
Climate Risk Oversight Forum to ensure this risk type is
considered.
Resilience risk
Identification and assessment
Our assessment of climate risk identified building
unavailability, workplace safety, information technology and
cybersecurity risk, transaction processing risk, and third-party
risk as the key risks facing our operational resilience.
In 2021 we repeated and extended our scenario stress testing. We
will continue to work with our partners to identify and assess
emerging climate risks.
Management
In 2021, we reviewed existing policies, processes and controls,
which were then revised as required. This work will continue in
subsequent years.
Identification of new tooling, both internally and through
collaboration with business partners, for the management of climate
risk is ongoing with new tooling being introduced as
appropriate.
Our stress test results will continue to inform our approach to
climate risk management.
Aggregation and reporting
Our exposure to climate risk will continue to be aggregated and
reported to the Group Climate Risk Forum and other relevant formal
governance forums.
Our material banking risks
The material risk types associated with our banking and
insurance manufacturing operations are described in the following
tables:
Description of risks - banking operations
Credit risk (see page 137)
Credit risk is Credit risk arises Credit risk is:
the risk of financial principally from * measured as the amount that could be lost if a
loss if a customer direct lending, customer or counterparty fails to make repayments;
or counterparty trade finance
fails to meet and leasing business,
an obligation but also from * monitored using various internal risk management
under a contract. other products measures and within limits approved by individuals
such as guarantees within a framework of delegated authorities; and
and derivatives.
* managed through a robust risk control framework,
which outlines clear and consistent policies,
principles and guidance for risk managers.
Treasury risk (see page 189)
Treasury risk Treasury risk Treasury risk is:
is the risk of arises from changes * measured through risk appetite and more granular
having insufficient to the respective limits, set to provide an early warning of increasing
capital, liquidity resources and risk, minimum ratios of relevant regulatory metrics,
or funding resources risk profiles and metrics to monitor the key risk drivers impacting
to meet financial driven by customer treasury resources;
obligations and behaviour, management
satisfy regulatory decisions, or
requirements, the external environment * monitored and projected against appetites and by
including the using operating plans based on strategic objectives
risk of adverse together with stress and scenario testing; and
impact on earnings
or capital due
to structural * managed through control of resources in conjunction
foreign exchange with risk profiles, strategic objectives and cash
exposures and flows.
changes in market
interest rates,
together with
pension and insurance
risk.
Market risk (see page 203)
Market risk is Exposure to market Market risk is:
the risk of an risk is separated * measured using sensitivities, value at risk and
adverse financial into two portfolios: stress testing, giving a detailed picture of
impact on trading trading portfolios potential gains and losses for a range of market
activities arising and non-trading movements and scenarios, as well as tail risks over
from changes in portfolios. specified time horizons;
market parameters Market risk exposures
such as interest arising from our
rates, foreign insurance operations * monitored using value at risk, stress testing and
exchange rates, are discussed other measures; and
asset prices, on page 185.
volatilities,
correlations and * managed using risk limits approved by the RMM and the
credit spreads. risk management meeting in various global businesses.
---------------------- ------------------------- ------------------------------------------------------------
Description of risks - banking operations (continued)
Resilience risk (see page 207)
Resilience risk Resilience risk Resilience risk is:
is the risk that arises from failures * measured using a range of metrics with defined
we are unable or inadequacies maximum acceptable impact tolerances, and against our
to provide critical in processes, agreed risk appetite;
services to our people, systems
customers, affiliates or external events.
and counterparties * monitored through oversight of enterprise processes,
as a result of risks, controls and strategic change programmes; and
sustained and
significant operational
disruption. * managed by continual monitoring and thematic reviews.
Regulatory compliance risk (see page 208)
Regulatory compliance Regulatory compliance Regulatory compliance risk is:
risk is the risk risk arises from * measured by reference to risk appetite, identified
associated with the failure to metrics, incident assessments, regulatory feedback
breaching our observe relevant and the judgement and assessment of our regulatory
duty to clients laws, codes, rules compliance teams;
and other counterparties, and regulations
inappropriate and can manifest
market conduct itself in poor * monitored against the first line of defence risk and
and breaching market or customer control assessments, the results of the monitoring
related financial outcomes and lead and control assurance activities of the second line
services regulatory to fines, penalties of defence functions, and the results of internal and
standards. and reputational external audits and regulatory inspections; and
damage to our
business.
* managed by establishing and communicating appropriate
policies and procedures, training employees in them
and monitoring activity to help ensure their
observance. Proactive risk control and/or remediation
work is undertaken where required.
Financial crime risk (see page 208)
Financial crime Financial crime Financial crime risk is:
risk is the risk risk arises from * measured by reference to risk appetite, identified
of knowingly or day-to-day banking metrics, incident assessments, regulatory feedback
unknowingly helping operations involving and the judgement of, and assessment by, our
parties to commit customers, third compliance teams;
or to further parties and employees.
potentially illegal
activity through * monitored against the first line of defence risk and
HSBC, including control assessments, the results of the monitoring
money laundering, and control assurance activities of the second line
fraud, bribery of defence functions, and the results of internal and
and corruption, external audits and regulatory inspections; and
tax evasion, sanctions
breaches, and
terrorist and * managed by establishing and communicating appropriate
proliferation policies and procedures, training employees in them
financing. and monitoring activity to help ensure their
observance. Proactive risk control and/or remediation
work is undertaken where required.
Model risk (see page 209)
Model risk is Model risk arises Model risk is:
the risk of inappropriate in both financial * measured by reference to model performance tracking
or incorrect business and non-financial and the output of detailed technical reviews, with
decisions arising contexts whenever key metrics including model review statuses and
from the use of business decision findings;
models that have making includes
been inadequately reliance on models.
designed, implemented * monitored against model risk appetite statements,
or used or that insight from the independent review function,
model does not feedback from internal and external audits, and
perform in line regulatory reviews; and
with expectations
and predictions.
* managed by creating and communicating appropriate
policies, procedures and guidance, training
colleagues in their application, and supervising
their adoption to ensure operational effectiveness.
-------------------------- ----------------------- ------------------------------------------------------------
Our insurance manufacturing subsidiaries are regulated
separately from our banking operations. Risks in our insurance
entities are managed using methodologies and processes that are
subject to Group oversight. Our insurance operations are also
subject to many of the same risks as our banking operations, and
these are covered by the Group's risk management processes.
However, there are specific risks inherent to the insurance
operations as noted below.
Description of risks - insurance manufacturing operations
Financial risk (see page 214)
For insurance Exposure to financial Financial risk is:
entities, risk arises from: * measured (i) for credit risk, in terms of economic
financial * market risk affecting the fair values of financial capital and the amount that could be lost if a
risk assets or their future cash flows; counterparty fails to make repayments; (ii) for
includes the market risk, in terms of economic capital, internal
risk metrics and fluctuations in key financial variables;
of not being * credit risk; and and (iii) for liquidity risk, in terms of internal
able metrics including stressed operational cash flow
to projections;
effectively * liquidity risk of entities being unable to make
match payments to policyholders as they fall due.
liabilities * monitored through a framework of approved limits and
arising under delegated authorities; and
insurance
contracts
with * managed through a robust risk control framework,
appropriate which outlines clear and consistent policies,
investments principles and guidance. This includes using product
and that the design, asset liability matching and bonus rates.
expected
sharing of
financial
performance
with
policyholders
under
certain
contracts
is not
possible.
------------- -------------------------------------------------------- ----------------------------------------------------------
Insurance risk (see page 216)
Insurance The cost of claims Insurance risk is:
risk and benefits * measured in terms of life insurance liabilities and
is the risk can be influenced economic capital allocated to insurance underwriting
that, by many factors, risk;
over time, including mortality
the and morbidity
cost of experience, as * monitored through a framework of approved limits and
insurance well as lapse delegated authorities; and
policies and surrender
written, rates.
including * managed through a robust risk control framework,
claims which outlines clear and consistent policies,
and benefits, principles and guidance. This includes using product
may design, underwriting, reinsurance and claims-handlin
exceed the g
total procedures.
amount of
premiums
and
investment
income
received.
------------- -------------------------------------------------------- ----------------------------------------------------------
Credit risk
Page
Overview 137
---------------------------------------- ----
Credit risk management 137
---------------------------------------- ----
Credit risk in 2021 139
---------------------------------------- ----
Summary of credit risk 140
---------------------------------------- ----
Stage 2 decomposition as at December
2021 143
---------------------------------------- ----
Credit exposure 143
---------------------------------------- ----
Measurement uncertainty and sensitivity
analysis of ECL estimates 144
---------------------------------------- ----
Reconciliation of changes in
gross carrying/nominal amount
and allowances for loans and
advances to banks and customers
including loan commitments and
financial guarantees 154
---------------------------------------- ----
Credit quality 155
---------------------------------------- ----
Customer relief programmes 159
---------------------------------------- ----
Wholesale lending 162
---------------------------------------- ----
Personal lending 176
---------------------------------------- ----
Supplementary information 183
HSBC Holdings 188
---------------------------------------- ----
Overview
Credit risk is the risk of financial loss if a customer or
counterparty fails to meet an obligation under a contract. Credit
risk arises principally from direct lending, trade finance and
leasing business, but also from other products such as guarantees
and credit derivatives.
Credit risk management
Key developments in 2021
There were no material changes to the policies and practices for
the management of credit risk in 2021. We continued to apply the
requirements of IFRS 9 'Financial Instruments' within the Credit
Risk sub-function.
Due to the Covid-19 pandemic and its continued effects on the
global economy we provided short-term support to customers through
market-specific measures under the current credit policy framework.
We have also implemented the guidance provided by regulators on
managing the credit portfolio as required throughout the course of
the customer relief life cycle.
The extent of our support depends on the degree of
country-specific government support measures, restrictions,
associated policy responses, and the effects of new Covid-19
variants.
The majority of the customer relief programmes that we provided
during the Covid-19 pandemic ended by 31 December 2021 and will not
be reassessed under the revised definition of default. For further
details of market-specific measures to support our personal and
business customers, see page 159.
In the second half of 2021, market concerns regarding China's
commercial real estate sector emerged. At 31 December 2021 we had
no direct exposures to developers in the 'red' category under the
Chinese government's 'three red lines' framework used to govern the
real estate sector. We continue to monitor the situation closely,
including potential indirect impacts that may arise, and seek to
take mitigating actions as required under our existing policy
framework.
During 2021, we adopted the EBA 'Guidelines on the application
of definition of default' for our wholesale portfolios. This did
not have a material impact on our wholesale portfolios. For our
retail portfolios, these guidelines will be adopted in 2022 and
this is not expected to have a material impact.
Governance and structure
We have established Group-wide credit risk management and
related IFRS 9 processes. We continue to assess the impact of
economic developments in key markets on specific customers,
customer segments or portfolios. As credit conditions change, we
take mitigating actions, including the revision of risk appetites
or limits and tenors, as appropriate. In addition, we continue to
evaluate the terms under which we provide credit facilities within
the context of individual customer requirements, the quality of the
relationship, local regulatory requirements, market practices and
our local market position.
Credit Risk sub-function
(Audited)
Credit approval authorities are delegated by the Board to the
Group Chief Executive together with the authority to sub-delegate
them. The Credit Risk sub-function in Global Risk and Compliance is
responsible for the key policies and processes for managing credit
risk, which include formulating Group credit policies and risk
rating frameworks, guiding the Group's appetite for credit risk
exposures, undertaking independent reviews and objective assessment
of credit risk, and monitoring performance and management of
portfolios.
The principal objectives of our credit risk management are:
-- to maintain across HSBC a strong culture of responsible
lending, and robust risk policies and control frameworks;
-- to both partner and challenge our businesses in defining,
implementing and continually re-evaluating our risk appetite under
actual and scenario conditions; and
-- to ensure there is independent, expert scrutiny of credit
risks, their costs and their mitigation.
Key risk management processes
IFRS 9 'Financial Instruments' process
The IFRS 9 process comprises three main areas: modelling and
data; implementation; and governance.
Modelling and data
We have established IFRS 9 modelling and data processes in
various geographies, which are subject to internal model risk
governance including independent review of significant model
developments.
Implementation
A centralised impairment engine performs the expected credit
losses calculation using data, which is subject to a number of
validation checks and enhancements, from a variety of client,
finance and risk systems. Where possible, these checks and
processes are performed in a globally consistent and centralised
manner.
Governance
Regional management review forums are established in key sites
and regions in order to review and approve the impairment results.
Regional management review forums have representatives from Credit
Risk and Finance. The key site and regional approvals are reported
up to the global business impairment committee for final approval
of the Group's ECL for the period. Required members of the
committee are the global heads of Wholesale Credit, Market Risk,
and Wealth and Personal Banking Risk, as well as the relevant
global business Chief Financial Officer and the Global Financial
Controller.
Concentration of exposure
(Audited)
Concentrations of credit risk arise when a number of
counterparties or exposures have comparable economic
characteristics, or such counterparties 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 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.
Credit quality of financial instruments
(Audited)
Our risk rating system facilitates the internal ratings-based
approach under the Basel framework adopted by the Group to support
the calculation of our minimum credit regulatory capital
requirement. The five credit quality classifications encompass a
range of granular internal credit rating grades assigned to
wholesale and retail customers, and the external ratings attributed
by external agencies to debt securities.
For debt securities and certain other financial instruments,
external ratings have been aligned to the five quality
classifications based upon the mapping of related customer risk
rating ('CRR') to external credit rating.
Wholesale lending
The CRR 10-grade scale summarises a more granular underlying
23-grade scale of obligor probability of default ('PD'). All
corporate customers are rated using the 10- or 23-grade scale,
depending on the degree of sophistication of the Basel approach
adopted for the exposure.
Each CRR band is associated with an external rating grade by
reference to long-run default rates for that grade, represented by
the average of issuer-weighted historical default rates. This
mapping between internal and external ratings is indicative and may
vary over time.
Retail lending
Retail lending credit quality is based on a 12-month
point-in-time probability-weighted PD.
Credit quality classification
Sovereign Other debt
debt securities securities Wholesale lending
and bills and bills and derivatives Retail lending
----------------------------------- -----------------------
12-month 12 month
External External Basel probability Internal probability-
credit credit Internal of default credit weighted
rating rating credit rating % rating PD %
-------------------- ----------------- --------------- --------------- ------------------ -------- -------------
Quality
classification(1,2)
-------------------- ----------------- --------------- --------------- ------------------ -------- -------------
Strong BBB and A- and CRR 1 to 0-0.169 Band 1 0.000-0.500
above above CRR 2 and 2
-------------------- ----------------- --------------- --------------- ------------------ -------- -------------
Good BBB- to BBB+ to CRR 3 0.170-0.740 Band 3 0.501-1.500
BB BBB-
-------------------- ----------------- --------------- --------------- ------------------ -------- -------------
BB- to BB+ to CRR 4 to Band 4
Satisfactory B and unrated B and unrated CRR 5 0.741-4.914 and 5 1.501-20.000
-------------------- ----------------- --------------- --------------- ------------------ -------- -------------
Sub-standard B- to C B- to C CRR 6 to 4.915-99.999 Band 6 20.001-99.999
CRR 8
-------------------- ----------------- --------------- --------------- ------------------ -------- -------------
CRR 9 to
Credit impaired Default Default CRR 10 100 Band 7 100
-------------------- ----------------- --------------- --------------- ------------------ -------- -------------
1 Customer risk rating ('CRR').
2 12-month point-in-time probability-weighted probability of default ('PD').
Quality classification definitions
* 'Strong' exposures demonstrate a strong capacity to
meet financial commitments, with negligible or low
probability of default and/or low levels of expected
loss.
* 'Good' exposures require closer monitoring and
demonstrate a good capacity to meet financial
commitments, with low default risk.
* 'Satisfactory' exposures require closer monitoring
and demonstrate an average-to-fair capacity to meet
financial commitments, with moderate default risk.
* 'Sub-standard' exposures require varying degrees of
special attention and default risk is of greater
concern.
* 'Credit-impaired' exposures have been assessed as
described on Note 1.2(i) on the financial statements.
============================================================
Renegotiated loans and forbearance
(Audited)
'Forbearance' describes concessions made on the contractual
terms of a loan in response to an obligor's financial
difficulties.
A loan is classed as 'renegotiated' when we modify the
contractual payment terms on concessionary terms because we have
significant concerns about the borrowers' ability to meet
contractual payments when due. Non-payment-related concessions
(e.g. covenant waivers), while potential indicators of impairment,
do not trigger identification as renegotiated loans under our
existing disclosures.
Loans that have been identified as renegotiated retain this
designation until maturity or derecognition under our existing
disclosures.
For details of our policy on derecognised renegotiated loans,
see Note 1.2(i) on the financial statements.
Credit quality of renegotiated loans
On execution of a renegotiation, the loan will also be
classified as credit impaired if it is not already so classified.
In wholesale lending, all facilities with a customer, including
loans that have not been modified, are considered credit impaired
following the identification of a renegotiated loan under our
existing disclosures.
Wholesale renegotiated loans are classified as credit impaired
until there is sufficient evidence to demonstrate a significant
reduction in the risk of non-payment of future cash flows, observed
over a minimum one-year period, and there are no other indicators
of impairment. Personal renegotiated loans generally remain credit
impaired until repayment, write-off or derecognition.
Renegotiated loans and recognition of expected credit losses
(Audited)
For retail lending, unsecured renegotiated loans are generally
segmented from other parts of the loan portfolio. Renegotiated
expected credit loss assessments reflect the higher rates of losses
typically encountered with renegotiated loans. For wholesale
lending, renegotiated loans are typically assessed individually.
Credit risk ratings are intrinsic to the impairment assessments.
The individual impairment assessment takes into account the higher
risk of the future non-payment inherent in renegotiated loans.
Customer relief programmes and renegotiated loans
In response to the Covid-19 pandemic, governments and regulators
around the world encouraged a range of customer relief programmes
including payment deferrals. In determining whether a customer is
experiencing financial difficulty for the purposes of identifying
renegotiated loans a payment deferral requested under such schemes,
or an extension thereof, is not automatically determined to be
evidence of financial difficulty and would therefore not
automatically trigger identification as renegotiated loans. Rather,
information provided by payment deferrals is considered in the
context of other reasonable and supportable information. The IFRS 9
treatment of customer relief programmes is explained on page
159.
Impairment assessment
(Audited)
For details of our impairment policies on loans and advances and
financial investments, see Note 1.2(i) on the financial
statements.
Write-off of loans and advances
(Audited)
For details of our policy on the write-off of loans and
advances, see Note 1.2(i) on the financial statements.
Unsecured personal facilities, including credit cards, are
generally written off at between 150 and 210 days past due. The
standard period runs until the end of the month in which the
account becomes 180 days contractually delinquent. However, in
exceptional circumstances to achieve a fair customer outcome, and
in line with regulatory expectations, they may be extended
further.
For secured facilities, write-off should occur upon repossession
of collateral, receipt of proceeds via settlement, or determination
that recovery of the collateral will not be pursued.
Any secured assets maintained on the balance sheet beyond
60 months of consecutive delinquency-driven default require
additional monitoring and review to assess the prospect of
recovery.
There are exceptions in a few countries and territories where
local regulation or legislation constrains earlier write-off, or
where the realisation of collateral for secured real estate lending
takes more time. Write-off, either partially or in full, may be
earlier when there is no reasonable expectation of further
recovery, for example, in the event of a bankruptcy or equivalent
legal proceedings. Collection procedures may continue after
write-off.
Credit risk in 2021
At 31 December 2021, gross loans and advances to customers and
banks of $1,140bn increased by $6.3bn, compared with 31 December
2020. This included adverse foreign exchange movements of $17.0bn
and a $2.4bn decrease due to domestic mass market retail banking in
the US being reclassified to assets held for sale.
Excluding foreign exchange movements, the growth was driven by a
$24.0bn increase in personal loans and advances to customers and a
$3.0bn increase in loans and advances to banks. Wholesale loans and
advances to customers decreased by $3.7bn.
The increase in personal loans and advances to customers was
driven by mortgage growth of $22.8bn, mainly in the UK (up
$10.1bn), Hong Kong (up $6.6bn), Canada (up $3.4bn) and Australia
(up $2.1bn). Other personal lending increased by $1.2bn, mainly
from unsecured personal lending in Hong Kong (up $1.0bn) and Latin
America (up $0.7bn), as well as guaranteed loans in respect of
residential property in France (up $0.8bn). These were offset by a
decrease in credit cards mainly in the US (down $0.9bn).
At 31 December 2021, the allowance for ECL of $12.2bn decreased
by $3.5bn compared with 31 December 2020, including favourable
foreign exchange movements of $0.4bn. The $12.2bn allowance
comprised $11.6bn in respect of assets held at amortised cost,
$0.4bn in respect of loan commitments and financial guarantees, and
$0.1bn in respect of debt instruments measured at fair value
through other comprehensive income ('FVOCI').
During the first half of 2021, the Group experienced a release
in allowances for ECL, reflecting an improvement of the economic
outlook. This trend continued during the second half of the year
following better than expected levels of credit performance and
lower levels of stage 3 charges. However, in the later part of
the
year the trend slowed down due to the emergence of the new
Omicron variant and the recent developments in China's commercial
real estate sector.
Excluding foreign exchange movements, the allowance for ECL in
relation to loans and advances to customers decreased by $2.7bn
from 31 December 2020. This was attributable to:
-- a $1.2bn decrease in wholesale loans and advances to
customers, of which $1.0bn was driven by stages 1 and 2; and
-- a $1.5bn decrease in personal loans and advances to
customers, of which $1.3bn was driven by stages 1 and 2.
During the first six months of the year, the Group experienced
significant migrations from stage 2 to stage 1, reflecting an
improvement of the economic outlook. This trend continued during
the second half of 2021 as forecasts underpinning forward economic
guidance stabilised.
Stage 3 balances at 31 December 2021 remained broadly stable
compared with 31 December 2020.
The ECL release for 2021 was $0.9bn, inclusive of recoveries.
This release comprised $0.6bn in respect of wholesale lending, of
which the stage 3 and purchased or originated credit impaired
('POCI') charge was $0.5bn, and $0.3bn in respect of personal
lending, of which the stage 3 charge was $0.4bn. Uncertainty
remains as countries recover from the pandemic at different speeds,
government support measures unwind and the emergence of new strains
of the virus continue to test the efficacy of vaccination
programmes.
During 2021, we continued to provide Covid-19-related support to
customers under the current policy framework. For further details
of market-specific measures to support our personal and business
customers, see page 159.
Income statement movements are analysed further on page 92.
While credit risk arises across most of our balance sheet, ECL
have typically been recognised on loans and advances to customers
and banks, in addition to securitisation exposures and other
structured products. As a result, our disclosures focus primarily
on these two areas. For further details of:
-- maximum exposure to credit risk, see page 144;
-- measurement uncertainty and sensitivity analysis of ECL estimates, see page 144;
-- reconciliation of changes in gross carrying/nominal amount
and allowances for loans and advances to banks and customers
including loan commitments and financial guarantees, see page
152;
-- credit quality, see page 155;
-- customer relief programmes, see page 159;
-- total wholesale lending for loans and advances to banks and
customers by stage distribution, see page 163;
-- wholesale lending collateral, see page 169;
-- total personal lending for loans and advances to customers at
amortised cost by stage distribution, see page 177; and
-- personal lending collateral, see page 181.
--
Summary of credit risk
The following disclosure presents the gross carrying/nominal
amount of financial instruments to which the impairment
requirements in IFRS 9 are applied and the associated allowance for
ECL.
Summary of financial instruments to which the impairment requirements
in IFRS 9 are applied
(Audited)
31 Dec 2021 At 31 Dec 2020
---------------------------------------------------------------- -----------------------------------------------------------------
Allowance
Gross carrying/nominal for Gross carrying/nominal Allowance
amount ECL(1) amount for ECL(1)
$m $m $m $m
--------------- ---------------------------- ---------------------------------- ------------------------------- --------------------------------
Loans and
advances to
customers at
amortised
cost 1,057,231 (11,417) 1,052,477 (14,490)
--------------- ---------------------------- ---------------------------------- ------------------------------- --------------------------------
- personal 478,337 (3,103) 460,809 (4,731)
---------------
- corporate and
commercial 513,539 (8,204) 527,088 (9,494)
---------------
- non-bank
financial
institutions 65,355 (110) 64,580 (265)
--------------- ---------------------------- ---------------------------------- -------------------------------
Loans and
advances to
banks at
amortised
cost 83,153 (17) 81,658 (42)
--------------- ---------------------------- ---------------------------------- ------------------------------- --------------------------------
Other financial
assets
measured at
amortised
cost 880,351 (193) 772,408 (175)
--------------- ---------------------------- ---------------------------------- ------------------------------- --------------------------------
- cash and
balances at
central banks 403,022 (4) 304,486 (5)
---------------
- items in the
course of
collection
from other
banks 4,136 - 4,094 -
---------------
- Hong Kong
Government
certificates
of
indebtedness 42,578 - 40,420 -
---------------
- reverse
repurchase
agreements -
non-trading 241,648 - 230,628 -
---------------
- financial
investments 97,364 (62) 88,719 (80)
---------------
- prepayments,
accrued income
and other
assets(2) 91,603 (127) 104,061 (90)
--------------- ---------------------------- ---------------------------------- -------------------------------
Total gross
carrying
amount
on-balance
sheet 2,020,735 (11,627) 1,906,543 (14,707)
--------------- ---------------------------- ---------------------------------- ------------------------------- --------------------------------
Loans and other
credit-related
commitments 627,637 (379) 659,783 (734)
--------------- ---------------------------- ---------------------------------- ------------------------------- --------------------------------
- personal 239,685 (39) 236,170 (40)
---------------
- corporate and
commercial 283,625 (325) 299,802 (650)
---------------
- financial 104,327 (15) 123,811 (44)
--------------- ---------------------------- ---------------------------------- -------------------------------
Financial
guarantees 27,795 (62) 18,384 (125)
--------------- ---------------------------- ---------------------------------- ------------------------------- --------------------------------
- personal 1,130 - 900 (1)
---------------
- corporate and
commercial 22,355 (58) 12,946 (114)
---------------
- financial 4,310 (4) 4,538 (10)
--------------- ---------------------------- ---------------------------------- -------------------------------
Total nominal
amount
off-balance
sheet(3) 655,432 (441) 678,167 (859)
--------------- ---------------------------- ---------------------------------- ------------------------------- --------------------------------
2,676,167 (12,068) 2,584,710 (15,566)
--------------- ---------------------------- ---------------------------------- ------------------------------- --------------------------------
Memorandum Memorandum
allowance allowance
Fair value for ECL(4) Fair value for ECL(4)
$m $m $m $m
--------------- ---------------------------- ---------------------------------- ------------------------------- --------------------------------
Debt
instruments
measured at
fair value
through other
comprehensive
income
('FVOCI') 347,203 (96) 399,717 (141)
--------------- ---------------------------- ---------------------------------- ------------------------------- --------------------------------
1 The total ECL is recognised in the loss allowance for the
financial asset unless the total ECL exceeds the gross carrying
amount of the financial asset, in which case the ECL is recognised
as a provision.
2 Includes only those financial instruments that are subject to
the impairment requirements of IFRS 9. 'Prepayments, accrued income
and other assets', as presented within the consolidated balance
sheet on page 310, includes both financial and non-financial
assets. The 31 December 2021 balances include $2,424m gross
carrying amounts and $39m allowances for ECL related to assets held
for sale due to the exit of domestic mass market retail banking in
the US.
3 Represents the maximum amount at risk should the contracts be
fully drawn upon and clients default.
4 Debt instruments measured at FVOCI continue to be measured at
fair value with the allowance for ECL as a memorandum item. Change
in ECL is recognised in 'Change in expected credit losses and other
credit impairment charges' in the income statement.
The following table provides an overview of the Group's credit
risk by stage and industry, and the associated ECL coverage. The
financial assets recorded in each stage have the following
characteristics:
-- Stage 1: These financial assets are unimpaired and without
significant increase in credit risk on which a 12-month allowance
for ECL is recognised.
-- Stage 2: A significant increase in credit risk has been
experienced on these financial assets since initial recognition for
which a lifetime ECL is recognised.
--
Stage 3: There is objective evidence of impairment and the
financial assets are therefore considered to be in default or
otherwise credit impaired on which a lifetime ECL is
recognised.
-- POCI: Financial assets that are purchased or originated at a
deep discount are seen to reflect the incurred credit losses on
which a lifetime ECL is recognised.
--
Summary of credit risk (excluding debt instruments measured at FVOCI)
by stage distribution and ECL coverage by industry sector at
31 December 2021
(Audited)
Gross carrying/nominal Allowance for ECL ECL coverage %
amount(1)
-------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------- --------------------------------------------------------------------------
Stage Stage Stage Stage Stage Stage Stage Stage Stage
1 2 3 POCI(2) Total 1 2 3 POCI(2) Total 1 2 3 POCI(2) Total
$m $m $m $m $m $m $m $m $m $m % % % % %
-------------------------------------- -------------------------------- --------------- -------------- -------- --------------- -------------- -------------- -------------- ---------- ------------------------------- ----------- ----------- ------------------ --------------- -----------
Loans
and advances
to customers
at amortised
cost 918,936 119,224 18,797 274 1,057,231 (1,367) (3,119) (6,867) (64) (11,417) 0.1 2.6 36.5 23.4 1.1
-------------------------------------- -------------------------------- --------------- -------------- -------- --------------- -------------- -------------- -------------- ---------- ------------------------------- ----------- ----------- ------------------ --------------- -----------
- personal 456,956 16,439 4,942 - 478,337 (658) (1,219) (1,226) - (3,103) 0.1 7.4 24.8 - 0.6
-------------------------------------- ----------- ----------- ------------------ --------------- -----------
* corporate and commercial 400,894 98,911 13,460 274 513,539 (665) (1,874) (5,601) (64) (8,204) 0.2 1.9 41.6 23.4 1.6
-------------------------------------- ----------- ----------- ------------------ --------------- -----------
* non-bank financial institutions 61,086 3,874 395 - 65,355 (44) (26) (40) - (110) 0.1 0.7 10.1 - 0.2
-------------------------------------- -------------------------------- --------------- -------------- -------- --------------- -------------- -------------- -------------- ---------- ------------------------------- ----------- ----------- ------------------ --------------- -----------
Loans
and advances
to banks
at amortised
cost 81,636 1,517 - - 83,153 (14) (3) - - (17) - 0.2 - - -
-------------------------------------- -------------------------------- --------------- -------------- -------- --------------- -------------- -------------- -------------- ---------- ------------------------------- ----------- ----------- ------------------ --------------- -----------
Other
financial
assets
measured
at amortised
cost 875,016 4,988 304 43 880,351 (91) (54) (42) (6) (193) - 1.1 13.8 14.0 -
-------------------------------------- -------------------------------- --------------- -------------- -------- --------------- -------------- -------------- -------------- ---------- ------------------------------- ----------- ----------- ------------------ --------------- -----------
Loan and
other
credit-related
commitments 594,473 32,389 775 - 627,637 (165) (174) (40) - (379) - 0.5 5.2 - 0.1
-------------------------------------- -------------------------------- --------------- -------------- -------- --------------- -------------- -------------- -------------- ---------- ------------------------------- ----------- ----------- ------------------ --------------- -----------
- personal 237,770 1,747 168 - 239,685 (37) (2) - - (39) - 0.1 - - -
-------------------------------------- ----------- ----------- ------------------ --------------- -----------
* corporate and commercial 254,750 28,269 606 - 283,625 (120) (165) (40) - (325) - 0.6 6.6 - 0.1
-------------------------------------- ----------- ----------- ------------------ --------------- -----------
- financial 101,953 2,373 1 - 104,327 (8) (7) - - (15) - 0.3 - - -
-------------------------------------- -------------------------------- --------------- -------------- -------- --------------- -------------- -------------- -------------- ---------- ------------------------------- ----------- ----------- ------------------ --------------- -----------
Financial
guarantees 24,932 2,638 225 - 27,795 (11) (30) (21) - (62) - 1.1 9.3 - 0.2
-------------------------------------- -------------------------------- --------------- -------------- -------- --------------- -------------- -------------- -------------- ---------- ------------------------------- ----------- ----------- ------------------ --------------- -----------
- personal 1,114 15 1 - 1,130 - - - - - - - - - -
-------------------------------------- ----------- ----------- ------------------ --------------- -----------
* corporate and commercial 20,025 2,107 223 - 22,355 (10) (28) (20) - (58) - 1.3 9.0 - 0.3
-------------------------------------- ----------- ----------- ------------------ --------------- -----------
- financial 3,793 516 1 - 4,310 (1) (2) (1) - (4) - 0.4 100.0 - 0.1
-------------------------------------- -------------------------------- --------------- -------------- -------- --------------- -------------- -------------- -------------- ---------- ------------------------------- ----------- ----------- ------------------ --------------- -----------
At 31
Dec 2021 2,494,993 160,756 20,101 317 2,676,167 (1,648) (3,380) (6,970) (70) (12,068) 0.1 2.1 34.7 22.1 0.5
-------------------------------------- -------------------------------- --------------- -------------- -------- --------------- -------------- -------------- -------------- ---------- ------------------------------- ----------- ----------- ------------------ --------------- -----------
1 Represents the maximum amount at risk should the contracts be
fully drawn upon and clients default.
2 Purchased or originated credit-impaired ('POCI').
Unless identified at an earlier stage, all financial assets are
deemed to have suffered a significant increase in credit risk when
they are 30 days past due ('DPD') and are transferred from stage 1
to stage 2. The following disclosure presents the ageing of stage
2
financial assets by those less than 30 days and greater than 30
DPD and therefore presents those financial assets classified as
stage 2 due to ageing (30 DPD) and those identified at an earlier
stage (less than 30 DPD).
Stage 2 days past due analysis at 31 December 2021
(Audited)
Gross carrying amount Allowance for ECL ECL coverage %
Stage 1 to 30 and Stage 1 to 30 and Stage 1 to 30 and
2 Up-to-date 29 DPD(1,2) > DPD(1,2) 2 Up-to-date 29 DPD(1,2) > DPD(1,2) 2 Up-to-date 29 DPD(1,2) > DPD(1,2)
$m $m $m $m $m $m $m $m % % % %
-------------------------------------- ----------- ----------- ---------------- ---------------- ------------------ ------------------ ------------------ ------------------ ----------- ----------- ---------------- ---------------
Loans and advances
to customers
at amortised
cost 119,224 115,350 2,193 1,681 (3,119) (2,732) (194) (193) 2.6 2.4 8.8 11.5
-------------------------------------- ----------- ----------- ---------------- ---------------- ------------------ ------------------ ------------------ ------------------ ----------- ----------- ---------------- ---------------
- personal 16,439 14,124 1,387 928 (1,219) (884) (160) (175) 7.4 6.3 11.5 18.9
-------------------------------------- ----------- ----------- ---------------- ---------------
* corporate and commercial 98,911 97,388 806 717 (1,874) (1,822) (34) (18) 1.9 1.9 4.2 2.5
-------------------------------------- ----------- ----------- ---------------- ---------------
* non-bank financial institutions 3,874 3,838 - 36 (26) (26) - - 0.7 0.7 - -
-------------------------------------- ----------- ----------- ---------------- ---------------- ------------------ ------------------ ------------------ ------------------ ----------- ----------- ---------------- ---------------
Loans and advances
to banks at
amortised cost 1,517 1,517 - - (3) (3) - - 0.2 0.2 - -
-------------------------------------- ----------- ----------- ---------------- ---------------- ------------------ ------------------ ------------------ ------------------ ----------- ----------- ---------------- ---------------
Other financial
assets measured
at amortised
cost 4,988 4,935 22 31 (54) (47) (4) (3) 1.1 1.0 18.2 9.7
-------------------------------------- ----------- ----------- ---------------- ---------------- ------------------ ------------------ ------------------ ------------------ ----------- ----------- ---------------- ---------------
1 Days past due ('DPD').
2 The days past due amounts presented above are on a contractual
basis and include the benefit of any customer relief payment
holidays granted.
Summary of credit risk (excluding debt instruments measured at FVOCI)
by stage distribution and ECL coverage by industry sector at
31 December 2020 (continued)
(Audited)
Gross carrying/nominal Allowance for ECL ECL coverage %
amount(1)
------------------------------------------------------------------------------------ -------------------------------------------------------------------------------- --------------------------------------------------------------------
Stage Stage Stage Stage Stage Stage Stage Stage Stage
1 2 3 POCI(2) Total 1 2 3 POCI(2) Total 1 2 3 POCI(2) Total
$m $m $m $m $m $m $m $m $m $m % % % % %
-------------------------------------- ------------------- -------------- -------------- ---------- ------------------- --------------- --------------- --------------- ------------- -------------- ---------- ---------- ------------- ----------------- ----------
Loans
and advances
to customers
at amortised
cost 869,920 163,185 19,095 277 1,052,477 (1,974) (4,965) (7,439) (112) (14,490) 0.2 3.0 39.0 40.4 1.4
-------------------------------------- ------------------- -------------- -------------- ---------- ------------------- --------------- --------------- --------------- ------------- -------------- ---------- ---------- ------------- ----------------- ----------
- personal 430,134 25,064 5,611 - 460,809 (827) (2,402) (1,502) - (4,731) 0.2 9.6 26.8 - 1.0
-------------------------------------- ---------- ---------- ------------- ----------------- ----------
* corporate and commercial 387,563 126,287 12,961 277 527,088 (1,101) (2,444) (5,837) (112) (9,494) 0.3 1.9 45.0 40.4 1.8
-------------------------------------- ---------- ---------- ------------- ----------------- ----------
* non-bank financial institutions 52,223 11,834 523 - 64,580 (46) (119) (100) - (265) 0.1 1.0 19.1 - 0.4
-------------------------------------- ------------------- -------------- -------------- ---------- ------------------- --------------- --------------- --------------- ------------- -------------- ---------- ---------- ------------- ----------------- ----------
Loans
and advances
to banks
at amortised
cost 79,654 2,004 - - 81,658 (33) (9) - - (42) - 0.4 - - 0.1
-------------------------------------- ------------------- -------------- -------------- ---------- ------------------- --------------- --------------- --------------- ------------- -------------- ---------- ---------- ------------- ----------------- ----------
Other
financial
assets
measured
at amortised
cost 768,216 3,975 177 40 772,408 (80) (44) (42) (9) (175) - 1.1 23.7 22.5 -
-------------------------------------- ------------------- -------------- -------------- ---------- ------------------- --------------- --------------- --------------- ------------- -------------- ---------- ---------- ------------- ----------------- ----------
Loan and
other
credit-related
commitments 604,485 54,217 1,080 1 659,783 (290) (365) (78) (1) (734) - 0.7 7.2 100.0 0.1
-------------------------------------- ------------------- -------------- -------------- ---------- ------------------- --------------- --------------- --------------- ------------- -------------- ---------- ---------- ------------- ----------------- ----------
- personal 234,337 1,681 152 - 236,170 (39) (1) - - (40) - 0.1 - - -
-------------------------------------- ---------- ---------- ------------- ----------------- ----------
* corporate and commercial 253,062 45,851 888 1 299,802 (236) (338) (75) (1) (650) 0.1 0.7 8.4 100.0 0.2
-------------------------------------- ---------- ---------- ------------- ----------------- ----------
- financial 117,086 6,685 40 - 123,811 (15) (26) (3) - (44) - 0.4 7.5 - -
-------------------------------------- ------------------- -------------- -------------- ---------- ------------------- --------------- --------------- --------------- ------------- -------------- ---------- ---------- ------------- ----------------- ----------
Financial
guarantees 14,090 4,024 269 1 18,384 (37) (62) (26) - (125) 0.3 1.5 9.7 - 0.7
-------------------------------------- ------------------- -------------- -------------- ---------- ------------------- --------------- --------------- --------------- ------------- -------------- ---------- ---------- ------------- ----------------- ----------
- personal 872 26 2 - 900 - (1) - - (1) - 3.8 - - 0.1
-------------------------------------- ---------- ---------- ------------- ----------------- ----------
* corporate and commercial 9,536 3,157 252 1 12,946 (35) (54) (25) - (114) 0.4 1.7 9.9 - 0.9
-------------------------------------- ---------- ---------- ------------- ----------------- ----------
- financial 3,682 841 15 - 4,538 (2) (7) (1) - (10) 0.1 0.8 6.7 - 0.2
-------------------------------------- ------------------- -------------- -------------- ---------- ------------------- --------------- --------------- --------------- ------------- -------------- ---------- ---------- ------------- ----------------- ----------
At 31
Dec 2020 2,336,365 227,405 20,621 319 2,584,710 (2,414) (5,445) (7,585) (122) (15,566) 0.1 2.4 36.8 38.2 0.6
-------------------------------------- ------------------- -------------- -------------- ---------- ------------------- --------------- --------------- --------------- ------------- -------------- ---------- ---------- ------------- ----------------- ----------
1 Represents the maximum amount at risk should the contracts be
fully drawn upon and clients default.
2 Purchased or originated credit-impaired ('POCI').
Stage 2 days past due analysis at 31 December 2020
(Audited)
Gross carrying amount Allowance for ECL ECL coverage %
Stage 1 to 30 and Stage 1 to 30 and Stage 1 to 30 and
2 Up-to-date 29 DPD(1,2) > DPD(1,2) 2 Up-to-date 29 DPD(1,2) > DPD(1,2) 2 Up-to-date 29 DPD(1,2) > DPD(1,2)
$m $m $m $m $m $m $m $m % % % %
-------------------------------------- ------------- ------------- ------------------ ------------------ ------------- ------------------ ----------------- ----------------- ---------- ---------- ------------- -------------
Loans and advances
to customers
at amortised
cost 163,185 159,367 2,052 1,766 (4,965) (4,358) (275) (332) 3.0 2.7 13.4 18.8
-------------------------------------- ------------- ------------- ------------------ ------------------ ------------- ------------------ ----------------- ----------------- ---------- ---------- ------------- -------------
- personal 25,064 22,250 1,554 1,260 (2,402) (1,895) (227) (280) 9.6 8.5 14.6 22.2
-------------------------------------- ---------- ---------- ------------- -------------
* corporate and commercial 126,287 125,301 489 497 (2,444) (2,344) (48) (52) 1.9 1.9 9.8 10.5
-------------------------------------- ---------- ---------- ------------- -------------
* non-bank financial institutions 11,834 11,816 9 9 (119) (119) - - 1.0 1.0 - -
-------------------------------------- ------------- ------------- ------------------ ------------------ ------------- ------------------ ----------------- ----------------- ---------- ---------- ------------- -------------
Loans and advances
to banks at amortised
cost 2,004 2,004 - - (9) (9) - - 0.4 0.4 - -
-------------------------------------- ------------- ------------- ------------------ ------------------ ------------- ------------------ ----------------- ----------------- ---------- ---------- ------------- -------------
Other financial
assets measured
at amortised
cost 3,975 3,963 3 9 (44) (44) - - 1.1 1.1 - -
-------------------------------------- ------------- ------------- ------------------ ------------------ ------------- ------------------ ----------------- ----------------- ---------- ---------- ------------- -------------
1 Days past due ('DPD').
2 The days past due amounts presented above are on a contractual
basis and include the benefit of any customer relief payment
holidays granted.
Stage 2 decomposition at 31 December 2021
The following disclosure presents the stage 2 decomposition of
gross carrying amount and allowances for ECL for loans and advances
to customers.
The table below discloses the reasons why an exposure moved into
stage 2 originally, and is therefore presented as a significant
increase in credit risk since origination.
The quantitative classification shows when the relevant
reporting date PD measure exceeds defined quantitative thresholds
for retail and wholesale exposures, as set out in Note 1.2 'Summary
of significant accounting policies', on page 324.
The qualitative classification primarily accounts for CRR
deterioration, watch and worry and retail management judgemental
adjustments.
For further details on our approach to the assessment of
significant increase in credit risk, see 'Summary of significant
accounting policies' on page 324.
Loans and advances to customers(1)
Gross carrying amount Allowance for ECL
------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------
Non-bank Non-bank
Corporate financial Corporate financial ECL coverage
Personal and commercial institutions Total Personal and commercial institutions Total Total
$m $m $m $m $m $m $m $m %
------------- --------------------- -------------------------- ---------------------- --------------------- ------------------------- ----------------------------- ------------------------- ----------------------- ------------
Quantitative 9,907 68,000 3,041 80,948 (1,076) (1,347) (19) (2,442) 3.0
------------- --------------------- -------------------------- ---------------------- --------------------- ------------------------- ----------------------------- ------------------------- ----------------------- ------------
Qualitative 6,329 30,326 818 37,473 (134) (520) (7) (661) 1.8
------------- --------------------- -------------------------- ---------------------- --------------------- ------------------------- ----------------------------- ------------------------- ----------------------- ------------
30 DPD
backstop(2) 203 585 15 803 (9) (7) - (16) 2.0
------------- --------------------- -------------------------- ---------------------- --------------------- ------------------------- ----------------------------- ------------------------- ----------------------- ------------
Total stage
2 16,439 98,911 3,874 119,224 (1,219) (1,874) (26) (3,119) 2.6
------------- --------------------- -------------------------- ---------------------- --------------------- ------------------------- ----------------------------- ------------------------- ----------------------- ------------
1 Where balances satisfy more than one of the above three
criteria for determining a significant increase in credit risk, the
corresponding gross exposure and ECL have been assigned in order of
categories presented.
2 Days past due ('DPD').
Credit exposure
Maximum exposure to credit risk
(Audited)
This section provides information on balance sheet items and
their offsets as well as loan and other credit-related
commitments.
Commentary on consolidated balance sheet movements in 2021 is
provided on page 96.
The offset on derivatives remains in line with the movements in
maximum exposure amounts.
'Maximum exposure to credit risk'
table
The following table presents our
maximum exposure before taking account
of any collateral held or other
credit enhancements (unless such
enhancements meet accounting offsetting
requirements). The table excludes
financial instruments whose carrying
amount best represents the net exposure
to credit risk, and it excludes
equity securities as they are not
subject to credit risk. For the
financial assets recognised on the
balance sheet, the maximum exposure
to credit risk equals their carrying
amount and is net of the allowance
for ECL. For financial guarantees
and other guarantees granted, it
is the maximum amount that we would
have to pay if the guarantees were
called upon. For loan commitments
and other credit-related commitments,
it is generally the full amount
of the committed facilities.
The offset in the table relates
to amounts where there is a legally
enforceable right of offset in the
event of counterparty default and
where, as a result, there is a net
exposure for credit risk purposes.
However, as there is no intention
to settle these balances on a net
basis under normal circumstances,
they do not qualify for net presentation
for accounting purposes. No offset
has been applied to off-balance
sheet collateral. In the case of
derivatives, the offset column also
includes collateral received in
cash and other financial assets.
=========================================
Other credit risk mitigants
While not disclosed as an offset in the following 'Maximum
exposure to credit risk' table, other arrangements are in place
that reduce our maximum exposure to credit risk. These include a
charge over collateral on borrowers' specific assets, such as
residential properties, collateral held in the form of financial
instruments that are not held on the balance sheet and short
positions in securities. In addition, for financial assets held as
part of linked insurance/investment contracts the risk is
predominantly borne by the policyholder. See page 322 and Note 30
on the financial statements for further details of collateral in
respect of certain loans and advances and derivatives.
Collateral available to mitigate credit risk is disclosed in the
'Collateral' section on page 169.
Maximum exposure to credit risk
(Audited)
2021 2020
-------------------------------------------------------------- -----------------------------------------------------------------
Maximum Maximum
exposure Offset Net exposure Offset Net
$m $m $m $m $m $m
--------------- ------------------ ---------------------- ------------------ ------------------- ----------------------- -------------------
Loans and
advances to
customers
held at
amortised cost 1,045,814 (22,838) 1,022,976 1,037,987 (27,221) 1,010,766
--------------- ------------------ ---------------------- ------------------ ------------------- ----------------------- -------------------
- personal 475,234 (4,461) 470,773 456,078 (4,287) 451,791
---------------
- corporate and
commercial 505,335 (16,824) 488,511 517,594 (21,102) 496,492
---------------
- non-bank
financial
institutions 65,245 (1,553) 63,692 64,315 (1,832) 62,483
--------------- ------------------ ---------------------- ------------------ ------------------- ----------------------- -------------------
Loans and
advances to
banks at
amortised cost 83,136 - 83,136 81,616 - 81,616
--------------- ------------------ ---------------------- ------------------ ------------------- ----------------------- -------------------
Other financial
assets held at
amortised cost 882,708 (12,231) 870,477 774,116 (14,668) 759,448
--------------- ------------------ ---------------------- ------------------ ------------------- ----------------------- -------------------
- cash and
balances at
central
banks 403,018 - 403,018 304,481 - 304,481
---------------
- items in the
course of
collection
from other
banks 4,136 - 4,136 4,094 - 4,094
---------------
- Hong Kong
Government
certificates
of
indebtedness 42,578 - 42,578 40,420 - 40,420
---------------
- reverse
repurchase
agreements
- non-trading 241,648 (12,231) 229,417 230,628 (14,668) 215,960
---------------
- financial
investments 97,302 - 97,302 88,639 - 88,639
---------------
- prepayments,
accrued income
and
other assets 94,026 - 94,026 105,854 - 105,854
--------------- ------------------ ---------------------- ------------------ ------------------- -----------------------
Derivatives 196,882 (188,284) 8,598 307,726 (293,240) 14,486
--------------- ------------------ ---------------------- ------------------ ------------------- ----------------------- -------------------
Total
on-balance
sheet exposure
to credit risk 2,208,540 (223,353) 1,985,187 2,201,445 (335,129) 1,866,316
--------------- ------------------ ---------------------- ------------------ ------------------- ----------------------- -------------------
Total
off-balance
sheet 928,183 - 928,183 940,185 - 940,185
--------------- ------------------ ---------------------- ------------------ ------------------- ----------------------- -------------------
- financial and
other
guarantees 113,088 - 113,088 96,147 - 96,147
---------------
- loan and
other
credit-related
commitments 815,095 - 815,095 844,038 - 844,038
--------------- ------------------ ---------------------- ------------------ ------------------- -----------------------
At 31 Dec 3,136,723 (223,353) 2,913,370 3,141,630 (335,129) 2,806,501
--------------- ------------------ ---------------------- ------------------ ------------------- ----------------------- -------------------
Concentration of exposure
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.
For an analysis of:
-- financial investments, see Note 17 on the financial statements;
-- trading assets, see Note 11 on the financial statements;
-- derivatives, see page 176 and Note 16 on the financial statements; and
-- loans and advances by industry sector and by the location of
the principal operations of the lending subsidiary (or, in the case
of the operations of The Hongkong and Shanghai Banking Corporation
Limited, HSBC Bank plc, HSBC Bank Middle East Limited and HSBC Bank
USA, by the location of the lending branch), see page 162 for
wholesale lending and page 176 for personal lending.
Credit deterioration of financial instruments
(Audited)
A summary of our current policies and practices regarding the
identification, treatment and measurement of stage 1, stage 2,
stage 3 (credit impaired) and POCI financial instruments can be
found in Note 1.2 on the financial statements.
Measurement uncertainty and sensitivity analysis of ECL
estimates
(Audited)
Despite a broad recovery in economic conditions during 2021, ECL
estimates continued to be subject to a high degree of uncertainty,
and management judgements and estimates continued to reflect a
degree of caution, both in the selection of economic scenarios and
their weightings, and through management judgemental adjustments.
Releases of provisions were made progressively as economic
conditions recovered and by 31 December 2021 the majority of the
2020 uplift in ECL provisions had been reversed. By the end of
2021, we retained $0.6bn (15%) of the $3.9bn uplift in stage 1 and
stage 2 ECL provisions on loans made during 2020.
The recognition and measurement of ECL involves the use of
significant judgement and estimation. We form multiple economic
scenarios based on economic forecasts, apply these assumptions to
credit risk models to estimate future credit losses, and
probability-weight the results to determine an unbiased ECL
estimate. Management judgemental adjustments are used to address
late-breaking events, data and model limitations, model
deficiencies and expert credit judgements.
Methodology
Four economic scenarios are used to capture the current economic
environment and to articulate management's view of the range of
potential outcomes. Scenarios produced to calculate ECL are aligned
to HSBC's top and emerging risks.
In the second quarter of 2020, to ensure that the severe risks
associated with the pandemic were appropriately captured,
management added a fourth, more severe, scenario to use in the
measurement of ECL. Starting in the fourth quarter of 2021, HSBC's
methodology has been adjusted so that the use of four scenarios, of
which two are Downside scenarios, is the standard approach to ECL
calculation.
Three of the scenarios are drawn from consensus forecasts and
distributional estimates. The Central scenario is deemed the 'most
likely' scenario, and usually attracts the largest probability
weighting, while the outer scenarios represent the tails of the
distribution, which are less likely to occur. The Central scenario
is created using the average of a panel of external forecasters.
Consensus Upside and Downside scenarios are created with reference
to distributions for select markets that capture forecasters' views
of the entire range of outcomes. In the later years of the
scenarios, projections revert to long-term consensus trend
expectations. In the consensus outer scenarios, reversion to trend
expectations is done mechanically with reference to historically
observed quarterly changes in the values of macroeconomic
variables.
The fourth scenario, Downside 2, is designed to represent
management's view of severe downside risks. It is a globally
consistent narrative-driven scenario that explores more extreme
economic outcomes than those captured by the consensus scenarios.
In this scenario, variables do not, by design, revert to long-term
trend expectations. They may instead explore alternative states of
equilibrium, where economic activity moves permanently away from
past trends.
The consensus Downside and the consensus Upside scenarios are
each constructed to be consistent with a 10% probability. The
Downside 2 is constructed with a 5% probability. The Central
scenario is assigned the remaining 75%. This weighting scheme is
deemed appropriate for the unbiased estimation of ECL in most
circumstances. However, management may depart from this
probability-based scenario weighting approach when the economic
outlook is determined to be particularly uncertain and risks are
elevated.
In light of ongoing risks, related primarily to the Covid-19
pandemic, management deviated from this probability weighting in
most markets in the fourth quarter of 2021.
Description of economic scenarios
The economic assumptions presented in this section have been
formed by HSBC with reference to external forecasts specifically
for the purpose of calculating ECL.
The global economy experienced a recovery in 2021, following an
unprecedented contraction in 2020. Restrictions to mobility and
travel eased across our key markets, aided by the successful
roll-out of vaccination programmes. The emergence of new variants
that potentially reduce the efficacy of vaccines remains a
risk.
Economic forecasts remain subject to a high degree of
uncertainty. Risks to the economic outlook are dominated by the
progression of the pandemic, vaccine roll-out and the public policy
response. Geopolitical risks also remain significant and include
continued differences between the US and other countries with China
over a range of economic and strategic defence issues. Continued
uncertainty over the long-term economic relationship between the UK
and EU also present downside risks.
The scenarios used to calculate ECL in the Annual Report and
Accounts 2021 are described below.
The consensus Central scenario
HSBC's Central scenario features a continued recovery in
economic growth in 2022 as activity and employment gradually return
to the levels reached prior to the outbreak of Covid-19.
Our Central scenario assumes that the stringent restrictions on
activity, imposed across several countries and territories in 2020
and 2021 are not repeated. The new viral strain that emerged late
in 2021, Omicron, has only a limited impact on the recovery,
according to this scenario. Consumer spending and business
investment, supported by elevated levels of private sector savings,
are expected to drive the economic recovery as fiscal and monetary
policy support recedes.
Regional differences in the speed of economic recovery in the
Central scenario reflect differences over the progression of the
pandemic, roll-out of vaccination programmes, national level
restrictions imposed and scale of support measures. Global GDP is
expected to grow by 4.2% in 2022 in the Central scenario and the
average rate of global GDP growth is 3.1% over the five-year
forecast period. This exceeds the average growth rate over the
five-year period prior to the onset of the pandemic.
The key features of our Central scenario are:
-- Economic activity in our top eight markets continues to
recover. GDP grows at a moderate rate and exceeds pre-pandemic
levels across all our key markets in 2022.
-- Unemployment declines to levels only slightly higher than
existed pre-pandemic, with the exception of France where the
downward trend in unemployment, related to structural changes to
the labour market, resumes.
-- Covid-19-related fiscal spending recedes in 2022 as fewer
restrictions on activity allow fiscal support to be withdrawn.
Deficits remain high in several countries as they embark on
multi-year investment programmes to support recovery, productivity
growth and climate transition.
-- Inflation across many of our key markets remains elevated
through 2022. Supply-driven price pressures persist through the
first half of 2022 before gradually easing. In subsequent years,
inflation quickly converges back towards central bank target
rates.
-- Policy interest rates in key markets rise gradually over our
projection period, in line with economic recovery.
-- The West Texas Intermediate oil price is forecast to average
$62 per barrel over the projection period.
In the longer term, growth reverts back towards similar rates
that existed prior to the pandemic, suggesting that the damage to
long-term economic prospects is expected to be minimal.
The Central scenario was first created with forecasts available
in November, and subsequently updated in December. Probability
weights assigned to the Central scenario vary from 60% to 80% and
reflect relative differences in uncertainty across markets.
The following table describes key macroeconomic variables and
the probabilities assigned in the consensus Central scenario.
Central scenario 2022-2026
UK US Hong Mainland Canada France UAE Mexico
Kong China
% % % % % % % %
------------- ----------- --------------- ----------- ----------- ----------- ---------------------------- ----------- -----------
GDP growth
rate
------------- ----------- --------------- ----------- ----------- ----------- ---------------------------- ----------- -----------
2022: Annual
average
growth rate 5.0 4.0 3.1 5.3 4.1 3.9 4.4 2.9
------------- ----------- --------------- ----------- ----------- ----------- ---------------------------- ----------- -----------
2023: Annual
average
growth rate 2.1 2.4 2.9 5.4 2.8 2.1 3.4 2.3
------------- ----------- --------------- ----------- ----------- ----------- ---------------------------- ----------- -----------
2024: Annual
average
growth rate 1.9 2.1 2.6 5.1 2.0 1.6 3.0 2.2
------------- ----------- --------------- ----------- ----------- ----------- ---------------------------- ----------- -----------
5-year
average 2.5 2.5 2.7 5.1 2.5 2.1 3.2 2.3
------------- ----------- --------------- ----------- ----------- ----------- ---------------------------- ----------- -----------
Unemployment
rate
------------- ----------- --------------- ----------- ----------- ----------- ---------------------------- ----------- -----------
2022: Annual
average
rate 4.5 4.2 4.1 3.8 6.3 8.0 3.1 4.0
------------- ----------- --------------- ----------- ----------- ----------- ---------------------------- ----------- -----------
2023: Annual
average
rate 4.3 3.8 3.6 3.7 5.9 7.7 3.0 3.9
------------- ----------- --------------- ----------- ----------- ----------- ---------------------------- ----------- -----------
2024: Annual
average
rate 4.2 3.8 3.5 3.8 5.8 7.6 2.9 3.8
------------- ----------- --------------- ----------- ----------- ----------- ---------------------------- ----------- -----------
5-year
average 4.3 3.8 3.6 3.8 5.9 7.7 3.0 3.8
------------- ----------- --------------- ----------- ----------- ----------- ---------------------------- ----------- -----------
House price
growth
------------- ----------- --------------- ----------- ----------- ----------- ---------------------------- ----------- -----------
2022: Annual
average
growth rate 5.5 10.3 3.4 0.3 6.4 4.9 4.9 5.8
------------- ----------- --------------- ----------- ----------- ----------- ---------------------------- ----------- -----------
2023: Annual
average
growth rate 3.3 5.4 2.4 4.7 2.8 4.6 - 5.0
------------- ----------- --------------- ----------- ----------- ----------- ---------------------------- ----------- -----------
2024: Annual
average
growth rate 3.3 3.7 2.0 4.9 2.1 4.0 2.1 4.4
------------- ----------- --------------- ----------- ----------- ----------- ---------------------------- ----------- -----------
5-year
average 3.5 5.4 2.6 3.5 3.3 3.9 2.7 4.7
------------- ----------- --------------- ----------- ----------- ----------- ---------------------------- ----------- -----------
Short-term
interest
rate
------------- ----------- --------------- ----------- ----------- ----------- ---------------------------- ----------- -----------
2022: Annual
average
rate 1.0 0.5 0.5 3.1 1.1 (0.5) 1.1 7.2
------------- ----------- --------------- ----------- ----------- ----------- ---------------------------- ----------- -----------
2023: Annual
average
rate 1.3 1.1 1.1 3.2 2.0 (0.3) 1.7 8.1
------------- ----------- --------------- ----------- ----------- ----------- ---------------------------- ----------- -----------
2024: Annual
average
rate 1.2 1.5 1.6 3.4 2.2 (0.1) 2.2 8.0
------------- ----------- --------------- ----------- ----------- ----------- ---------------------------- ----------- -----------
5-year
average 1.2 1.3 1.4 3.4 1.9 (0.2) 2.0 7.9
------------- ----------- --------------- ----------- ----------- ----------- ---------------------------- ----------- -----------
Probability 60 75 70 80 75 60 70 65
------------- ----------- --------------- ----------- ----------- ----------- ---------------------------- ----------- -----------
The graphs comparing the respective Central scenarios in the
fourth quarters of 2020 and 2021 reveal the extent of economic
dislocation that occurred in 2020 and compare current economic
expectations with those held a year ago.
GDP growth: Comparison
UK
Note: Real GDP shown as year-on-year percentage change.
Hong Kong
Note: Real GDP shown as year-on-year percentage change.
US
Note: Real GDP shown as year-on-year percentage change.
Mainland China
Note: Real GDP shown as year-on-year percentage change.
The consensus Upside scenario
Compared with the Central scenario, the consensus Upside
scenario features a faster recovery in economic activity during the
first two years, before converging to long-run trend
expectations.
The scenario is consistent with a number of key upside risk
themes. These include the orderly and rapid global abatement of
Covid-19 via successful containment and ongoing vaccine
efficacy; de-escalation of tensions between the US and China;
continued fiscal and monetary support; and smooth relations between
the UK and the EU.
The following table describes key macroeconomic variables and
the probabilities assigned in the consensus Upside scenario.
Consensus Upside scenario best outcome
Mainland
UK US Hong Kong China Canada France UAE Mexico
% % % % % % % %
------------- ----------- ------ --------------- ------ --------------- ------ --------------- ------ --------------- ------ ---------------------------- ------ --------------- ------ ----------- ------
GDP growth
rate 9.9 (1Q22) 7.3 (3Q22) 10.3 (4Q22) 11.8 (4Q22) 9.1 (3Q22) 7.0 (2Q22) 10.8 (1Q22) 7.6 (3Q22)
------------- ----------- ------ --------------- ------ --------------- ------ --------------- ------ --------------- ------ ---------------------------- ------ --------------- ------ ----------- ------
Unemployment
rate 3.0 (4Q23) 2.7 (2Q23) 2.7 (4Q23) 3.5 (1Q23) 5.0 (2Q23) 6.6 (4Q23) 2.3 (4Q23) 3.3 (3Q22)
------------- ----------- ------ --------------- ------ --------------- ------ --------------- ------ --------------- ------ ---------------------------- ------ --------------- ------ ----------- ------
House price
growth 7.4 (2Q23) 14.8 (1Q22) 11.9 (4Q22) 8.2 (4Q22) 16.0 (4Q22) 6.8 (2Q22) 14.4 (2Q22) 9.6 (1Q23)
------------- ----------- ------ --------------- ------ --------------- ------ --------------- ------ --------------- ------ ---------------------------- ------ --------------- ------ ----------- ------
Short-term
interest
rate 0.7 (1Q22) 0.4 (1Q22) 0.6 (1Q22) 3.2 (1Q22) 0.9 (1Q22) (0.5) (1Q22) 0.9 (1Q22) 8.7 (1Q22)
------------- ----------- ------ --------------- ------ --------------- ------ --------------- ------ --------------- ------ ---------------------------- ------ --------------- ------ ----------- ------
Probability 10 5 5 5 10 10 5 5
------------- ------------------- ----------------------- ----------------------- ----------------------- ----------------------- ------------------------------------ ----------------------- -------------------
Note: Extreme point in the consensus Upside is 'best outcome' in
the scenario, for example the highest GDP growth and the lowest
unemployment rate, in the first two years of the scenario.
Downside scenarios
The progress of the pandemic and the ongoing public policy
response continue to be a key sources of risk. Downside scenarios
assume that new strains of the virus result in an acceleration in
infection rates and increased pressure on public health services,
necessitating restrictions on activity. The reimposition of such
restrictions could be assumed to have a damaging effect on consumer
and business confidence.
Government fiscal programmes in advanced economies in 2020 and
2021 were supported by accommodative actions taken by central
banks. These measures have provided households and firms with
significant support. An inability or unwillingness to
continue with such support or the untimely withdrawal of support
present a downside risk to growth.
While Covid-19 and related risks dominate the economic outlook,
geopolitical risks also present a threat. These risks include:
-- continued differences between the US and other countries with
China, which could affect sentiment and restrict global economic
activity;
-- the re-emergence of social unrest in Hong Kong; and
-- potential disagreements between the UK and the EU, which may
hinder the ability to reach a more comprehensive agreement on trade
and services, despite the Trade and Cooperation Agreement averting
a disorderly UK departure.
The consensus Downside scenario
In the consensus Downside scenario, economic recovery is weaker
compared with the Central scenario as key global risks, including
the Covid-19 pandemic, escalate. Compared with the Central
scenario, GDP growth is expected to be lower, unemployment rates
rise moderately and asset and commodity
prices fall, before gradually recovering towards their long-run
trend expectations.
The following table describes key macroeconomic variables and
the probabilities assigned in the consensus Downside scenario.
Consensus Downside scenario worst outcome
UK US Hong Kong Mainland Canada France UAE Mexico
China
% % % % % % % %
------------- ---------------------------- ------ ----------- ------ ---------------------------- ------ ---------------------------- ------ ---------------------------- ------ ---------------------------- ------ ---------------------------- ------ ---------------------------- ------
GDP growth
rate (0.5) (3Q23) 0.0 (4Q22) (1.0) (4Q22) 2.3 (4Q22) (0.5) (4Q22) 0.5 (4Q23) (2.0) (4Q22) (0.7) (4Q22)
------------- ---------------------------- ------ ----------- ------ ---------------------------- ------ ---------------------------- ------ ---------------------------- ------ ---------------------------- ------ ---------------------------- ------ ---------------------------- ------
Unemployment
rate 5.6 (4Q22) 5.6 (3Q22) 5.6 (2Q22) 4.0 (2Q22) 7.3 (3Q22) 9.1 (3Q22) 4.3 (3Q22) 4.8 (3Q22)
------------- ---------------------------- ------ ----------- ------ ---------------------------- ------ ---------------------------- ------ ---------------------------- ------ ---------------------------- ------ ---------------------------- ------ ---------------------------- ------
House price
growth (4.2) (1Q23) 3.0 (4Q23) (7.9) (4Q22) (3.7) (2Q22) (2.3) (4Q22) 2.0 (4Q22) (6.6) (1Q23) 2.5 (1Q23)
------------- ---------------------------- ------ ----------- ------ ---------------------------- ------ ---------------------------- ------ ---------------------------- ------ ---------------------------- ------ ---------------------------- ------ ---------------------------- ------
Short-term
interest
rate 0.2 (4Q23) 0.3 (1Q22) 0.4 (1Q22) 2.9 (1Q22) 0.5 (3Q23) (0.5) (1Q22) 0.6 (4Q23) 4.6 (1Q22)
------------- ---------------------------- ------ ----------- ------ ---------------------------- ------ ---------------------------- ------ ---------------------------- ------ ---------------------------- ------ ---------------------------- ------ ---------------------------- ------
Probability 15 10 20 10 10 15 20 20
------------- ------------------------------------ ------------------- ------------------------------------ ------------------------------------ ------------------------------------ ------------------------------------ ------------------------------------ ------------------------------------
Note: Extreme point in the consensus Downside is 'worst outcome'
in the scenario, for example lowest GDP growth and the highest
unemployment rate, in the first two years of the scenario.
Downside 2 scenario
The Downside 2 scenario features a deep global recession. In
this scenario, new Covid-19 variants emerge that cause infections
to rise sharply in 2022, resulting in setbacks to vaccination
programmes and the rapid imposition of restrictions on mobility
and travel across some countries. The scenario also assumes
governments and central banks are unable to significantly increase
fiscal and monetary support, which results in abrupt corrections in
labour and asset markets.
The following table describes key macroeconomic variables and
the probabilities assigned in the Downside 2 scenario.
Downside 2 scenario worst outcome
UK US Hong Kong Mainland Canada France UAE Mexico
China
% % % % % % % %
------------- ----------------------------- ------ ---------------------------- ------ ----------------------------- ------ ----------------------------- ------ ----------------------------- ------ ---------------------------- ------ ----------------------------- ------ ---------------------------- ------
GDP growth
rate (4.6) (4Q22) (4.6) (4Q22) (8.2) (4Q22) (4.8) (4Q22) (13.9) (4Q22) (4.6) (4Q22) (12.5) (4Q22) (8.5) (4Q22)
------------- ----------------------------- ------ ---------------------------- ------ ----------------------------- ------ ----------------------------- ------ ----------------------------- ------ ---------------------------- ------ ----------------------------- ------ ---------------------------- ------
Unemployment
rate 7.5 (2Q23) 10.6 (4Q23) 6.1 (4Q22) 5.4 (4Q23) 11.5 (2Q23) 10.0 (4Q23) 4.7 (2Q22) 5.9 (2Q23)
------------- ----------------------------- ------ ---------------------------- ------ ----------------------------- ------ ----------------------------- ------ ----------------------------- ------ ---------------------------- ------ ----------------------------- ------ ---------------------------- ------
House price
growth (14.2) (2Q23) (6.2) (4Q22) (17.7) (4Q22) (24.8) (4Q22) (23.8) (1Q23) (6.0) (2Q23) (16.2) (4Q22) 1.0 (2Q23)
------------- ----------------------------- ------ ---------------------------- ------ ----------------------------- ------ ----------------------------- ------ ----------------------------- ------ ---------------------------- ------ ----------------------------- ------ ---------------------------- ------
Short-term
interest
rate 1.6 (2Q22) 1.3 (2Q22) 1.3 (2Q22) 4.0 (2Q22) 0.5 (3Q23) 0.4 (2Q22) 1.5 (2Q22) 9.6 (2Q22)
------------- ----------------------------- ------ ---------------------------- ------ ----------------------------- ------ ----------------------------- ------ ----------------------------- ------ ---------------------------- ------ ----------------------------- ------ ---------------------------- ------
Probability 15 10 5 5 5 15 5 10
------------- ------------------------------------- ------------------------------------ ------------------------------------- ------------------------------------- ------------------------------------- ------------------------------------ ------------------------------------- ------------------------------------
Note: Extreme point in the Downside 2 is 'worst outcome' in the
scenario, for example lowest GDP growth and the highest
unemployment rate, in the first two years of the scenario.
Scenario weighting
In reviewing the economic conjuncture, the level of uncertainty
and risk, management has considered both global and
country-specific factors. This has led management to assign
scenario probabilities that are tailored to its view of uncertainty
in individual markets.
To inform its view, management has considered the progression of
the virus in individual countries, the speed of vaccine roll-outs,
the degree of current and expected future government support and
connectivity with other countries. Management has also been guided
by the policy response and economic performance through the
pandemic, as well as the evidence that economies have adapted as
the virus has progressed.
A key consideration in the fourth quarter was the emergence of
the new variant, Omicron. The virulence and severity of the new
strain, in addition to the continued efficacy of vaccines against
it, was unknown when the variant first emerged. Management
therefore determined that uncertainty attached to forecasts had
increased and sought to reflect this in scenario weightings.
China's significant capacity to extend policy support to the
economy and manage through Covid-19-related disruptions, led
management to conclude that the outlook for mainland China was the
least uncertain of all our key markets. The Central scenario was
given an 80% probability while a total of 15% has been assigned to
the two Downside scenarios.
In Hong Kong, the combination of recurrent outbreaks and the
other risks outlined above led management to assign a 25% weight to
the two Downside scenarios.
The UK and France faced the greatest economic uncertainties of
our key markets. The emergence of Omicron exacerbated the rise in
case rates and hospitalisations in both countries, necessitating
the imposition of new restrictions. These increase uncertainties
around economic growth and employment. Accordingly, the Central
scenario was assigned a 60% weight in both countries. The two
Downside scenarios were given a combined probability weighting of
30% for both the UK and France.
For the US, Canada and Mexico, connectivity across the three
North American economies has been considered. For the US and
Mexico, management similarly sought to reflect the increase in
uncertainty by raising the probability weighting of the Downside 2
scenario. The two Downside scenarios combined have been given
weights of between 20% and 30%. For Canada, the probability
attached to the Downside 2 scenario was reduced. This follows from
an adjustment to the methodology used for this scenario, which
increased its overall severity. The change aligned the methodology
to the global approach and weighting adjustments reflect the
greater implied severity. In the UAE, the impact of the oil price
on the economy and the ability of non-oil sectors to contribute to
economic recovery have influenced the view of uncertainty. The
Central scenario has been assigned between 65% and 75% weight for
these four markets and, with risks perceived as being weighted to
the downside, the two Downside scenarios have been given weights of
between 15% and 30%.
The following graphs show the historical and forecasted GDP
growth rate for the various economic scenarios in our four largest
markets.
US
UK
Hong Kong
Mainland China
Critical accounting estimates and judgements
The calculation of ECL under IFRS 9 involves significant
judgements, assumptions and estimates. Despite a general recovery
in economic conditions during 2021, the level of estimation
uncertainty and judgement has remained high during 2021 as a result
of the ongoing economic effects of the Covid-19 pandemic and other
sources of economic instability, including significant judgements
relating to:
-- the selection and weighting of economic scenarios, given
rapidly changing economic conditions in an unprecedented manner,
uncertainty as to the effect of government and central bank support
measures designed to alleviate adverse economic impacts, and a
wider distribution of economic forecasts than before the pandemic.
The key judgements are the length of time over which the economic
effects of the pandemic will occur, and the speed and shape of
recovery. The main factors include the effectiveness of pandemic
containment measures, the pace of roll-out and effectiveness of
vaccines, and the emergence of new variants of the virus, plus a
range of geopolitical uncertainties, which together represent a
high degree of estimation uncertainty, particularly in assessing
Downside scenarios;
-- estimating the economic effects of those scenarios on ECL,
where there is no observable historical trend that can be reflected
in the models that will accurately represent the effects of the
economic changes of the severity and speed brought about by the
Covid-19 pandemic and the recovery from those conditions. Modelled
assumptions and linkages between economic factors and credit losses
may underestimate or overestimate ECL in these conditions, and
there is significant uncertainty in the estimation of parameters
such as collateral values and loss severity; and
-- the identification of customers experiencing significant
increases in credit risk and credit impairment, particularly where
those customers have accepted payment deferrals and other reliefs
designed to address short-term liquidity issues given muted default
experience to date. The use of segmentation techniques for
indicators of significant increases in credit risk involves
significant estimation uncertainty.
How economic scenarios are reflected in ECL calculations
Models are used to reflect economic scenarios on ECL estimates.
As described above, modelled assumptions and linkages based on
historical information could not alone produce relevant information
under the conditions experienced in 2021, and management
judgemental adjustments were still required to support modelled
outcomes.
We have developed globally consistent methodologies for the
application of forward economic guidance into the calculation of
ECL for wholesale and retail credit risk. These standard approaches
are described below, followed by the management judgemental
adjustments made, including those to reflect the circumstances
experienced in 2021.
For our wholesale portfolios, a global methodology is used for
the estimation of the term structure of probability of default
('PD') and loss given default ('LGD'). For PDs, we consider the
correlation of forward economic guidance to default rates for a
particular industry in a country. For LGD calculations, we consider
the correlation of forward economic guidance to collateral values
and realisation rates for a particular country and industry. PDs
and LGDs are estimated for the entire term structure of each
instrument.
For impaired loans, LGD estimates take into account independent
recovery valuations provided by external consultants where
available or internal forecasts corresponding to anticipated
economic conditions and individual company conditions. In
estimating the ECL on impaired loans that are individually
considered not to be significant, we incorporate forward economic
guidance proportionate to the probability-weighted outcome and the
Central scenario outcome for non-stage 3 populations.
For our retail portfolios, the impact of economic scenarios on
PD is modelled at a portfolio level. Historical relationships
between observed default rates and macroeconomic variables are
integrated into IFRS 9 ECL estimates by using economic response
models. The impact of these scenarios on PD is modelled over a
period equal to the remaining maturity of the underlying asset or
assets. The impact on LGD is modelled for mortgage portfolios by
forecasting future loan-to-value ('LTV') profiles for the remaining
maturity of the asset by using national level forecasts of the
house price index and applying the corresponding LGD
expectation.
These models are based largely on historical observations and
correlations with default rates. Management judgemental adjustments
are described below.
Management judgemental adjustments
In the context of IFRS 9, management judgemental adjustments are
short-term increases or decreases to the ECL at either a customer,
segment or portfolio level to account for late-breaking events,
model and data limitations and deficiencies, and expert credit
judgement applied following management review and challenge.
At 31 December 2021, management judgements were applied to
reflect credit risk dynamics not captured by our models. The
drivers of the management judgemental adjustments reflect the
changing economic outlook and evolving risks across our
geographies.
Where the macroeconomic and portfolio risk outlook continues to
improve, supported by low levels of observed defaults, adjustments
initially taken to reflect increased risk expectations have been
retired or reduced.
However, other adjustments have increased where modelled
outcomes are overly sensitive and not aligned to observed changes
in the risk of the underlying portfolios during the pandemic, or
where sector-specific risks are not adequately captured.
The effects of management judgemental adjustments are considered
for balances and ECL when determining whether or not a significant
increase in credit risk has occurred and are attributed or
allocated to a stage as appropriate. This is in accordance with the
internal adjustments framework.
Management judgemental adjustments are reviewed under the
governance process for IFRS 9 (as detailed in the section 'Credit
risk management' on page 137). Review and challenge focuses on the
rationale and quantum of the adjustments with a further review
carried out by the second line of defence where significant. For
some management judgemental adjustments, internal frameworks
establish the conditions under which these adjustments should no
longer be required and as such are considered as part of the
governance process. This internal governance process allows
management judgemental adjustments to be reviewed regularly and,
where possible, to reduce the reliance on these through model
recalibration or redevelopment, as appropriate.
Management judgemental adjustments made in estimating the
scenario-weighted reported ECL at 31 December 2021 are set out in
the following table. The table includes adjustments in relation to
data and model limitations, including those driven by late-breaking
events and sector-specific risks and as a result of the regular
process of model development and implementation.
Management judgemental adjustments
to ECL at 31 December 2021(1)
Retail Wholesale Total
$bn $bn $bn
Low-risk counterparties
(banks, sovereigns
and government
entities) (0.1) (0.1)
------------------------ ---------------------------- ----------------------------- -----------------------------
Corporate
lending adjustments 1.3 1.3
------------------------ ---------------------------- ----------------------------- -----------------------------
Retail lending
probability
of default
adjustments -
------------------------ ---------------------------- ----------------------------- -----------------------------
Retail model
default timing
adjustments -
------------------------ ---------------------------- ----------------------------- -----------------------------
Macroeconomic-related
adjustments -
------------------------ ---------------------------- ----------------------------- -----------------------------
Pandemic-related
economic recovery
adjustments 0.2 0.2
------------------------ ---------------------------- ----------------------------- -----------------------------
Other retail
lending adjustments 0.3 0.3
------------------------ ---------------------------- ----------------------------- -----------------------------
Total 0.5 1.2 1.7
------------------------ ---------------------------- ----------------------------- -----------------------------
.
Management judgemental adjustments
to ECL at 31 December 2020(1)
Retail Wholesale Total
$bn $bn $bn
Low-risk
counterparties
(banks, sovereigns
and government
entities) (0.7) (0.7)
---------------------- ------------------------------ ------------------------------ ------------------------------
Corporate
lending adjustments 0.5 0.5
---------------------- ------------------------------ ------------------------------ ------------------------------
Retail lending
probability
of default
adjustments (0.8) (0.8)
---------------------- ------------------------------ ------------------------------ ------------------------------
Retail model
default timing
adjustment 1.9 1.9
---------------------- ------------------------------ ------------------------------ ------------------------------
Macroeconomic-related
adjustments 0.1 0.1
---------------------- ------------------------------ ------------------------------ ------------------------------
Pandemic-related
economic recovery
adjustments -
---------------------- ------------------------------ ------------------------------ ------------------------------
Other retail
lending adjustments 0.3 0.3
---------------------- ------------------------------ ------------------------------ ------------------------------
Total 1.5 (0.2) 1.3
---------------------- ------------------------------ ------------------------------ ------------------------------
1 Management judgemental adjustments presented in the table
reflect increases or (decreases) to ECL, respectively.
Management judgemental adjustments at 31 December 2021 were an
increase to ECL of $1.2bn for the wholesale portfolio and an
increase to ECL of $0.5bn for the retail portfolio.
During 2021, management judgemental adjustments reflected an
evolving macroeconomic outlook and the relationship of the modelled
ECL to this outlook and to late-breaking and sector-specific
risks.
At 31 December 2021, wholesale management judgemental
adjustments were an ECL increase of $1.2bn (31 December 2020:
$0.2bn decrease).
-- Adjustments relating to low credit-risk exposures decreased
ECL by $0.1bn at 31 December 2021 (31 December 2020: $0.7bn
decrease). These were mainly to highly rated banks, sovereigns and
US government-sponsored entities, where modelled credit factors did
not fully reflect the underlying fundamentals of these entities or
the effect of government support and economic programmes in the
Covid-19 environment. The decrease in adjustment impact relative to
31 December 2020 was mostly driven by increased alignment of
modelled outcomes to management expectations following changes in
systems and data.
-- Adjustments to corporate exposures increased ECL by $1.3bn at
31 December 2021 (31 December 2020: $0.5bn increase). These
principally reflected the outcome of management judgements for
high-risk and vulnerable sectors in some of our key markets,
supported by credit experts' input, portfolio risk metrics,
quantitative analyses and benchmarks. Considerations include risk
of individual exposures under different macroeconomic scenarios and
comparison of key risk metrics to pre-pandemic levels, resulting in
either releases or increases to ECL in each geography. The increase
in adjustment impact relative to 31 December 2020 was mostly driven
by management judgements as a result of the effect of further
improvement of macroeconomic scenarios on modelled outcomes and
increased dislocation of modelled outcomes to management
expectations for high-risk sectors and due to late-breaking events
not fully reflected in the underlying data. The highest increase
was observed in the real estate sector, including an adjustment to
reflect the uncertainty of the higher risk Chinese commercial real
estate offshore exposures, booked in Hong Kong, on account of
tightening liquidity and increased refinancing risks resulting in
the downgrade of even some previously highly rated borrowers.
At 31 December 2021, retail management judgemental adjustments
were an ECL increase of $0.5bn (31 December 2020: $1.5bn
increase).
-- Pandemic-related economic recovery adjustments increased ECL
by $0.2bn (31 December 2020: $0) to adjust for the effects of the
volatile pace of recovery from the pandemic. This is where in
management's judgement, supported by quantitative analyses of
portfolio and economic metrics, modelled outcomes are overly
sensitive given the limited observed deterioration in the
underlying portfolio during the pandemic.
-- Other retail lending adjustments increased ECL by $0.3bn
(31 December 2020: $0.3bn increase). These were primarily to
address areas such as model recalibration and redevelopment,
customer relief and data limitations.
Economic scenarios sensitivity analysis of ECL estimates
Management considered the sensitivity of the ECL outcome against
the economic forecasts as part of the ECL governance process by
recalculating the ECL under each scenario described above for
selected portfolios, applying a 100% weighting to each scenario in
turn. The weighting is reflected in both the determination of a
significant increase in credit risk and the
measurement of the resulting ECL.
The ECL calculated for the Upside and Downside scenarios should
not be taken to represent the upper and lower limits of possible
ECL outcomes. The impact of defaults that might occur in the future
under different economic scenarios is captured by recalculating ECL
for loans at the balance sheet date.
There is a particularly high degree of estimation uncertainty in
numbers representing more severe risk scenarios when assigned a
100% weighting.
For wholesale credit risk exposures, the sensitivity analysis
excludes ECL and financial instruments related to defaulted (stage
3) obligors. It is generally impracticable to separate the effect
of macroeconomic factors in individual assessments of obligors in
default. The measurement of stage 3 ECL is relatively more
sensitive to credit factors specific to the obligor than future
economic scenarios, and loans to defaulted obligors are a small
portion of the overall wholesale lending exposure, even if
representing the majority of the allowance for ECL. Therefore, the
sensitivity analysis to macroeconomic scenarios does not capture
the residual estimation risk arising from wholesale stage 3
exposures.
For retail credit risk exposures, the sensitivity analysis
includes ECL for loans and advances to customers related to
defaulted obligors. This is because the retail ECL for secured
mortgage portfolios including loans in all stages is sensitive to
macroeconomic variables.
Wholesale and retail sensitivity
The wholesale and retail sensitivity analysis is stated
inclusive of management judgemental adjustments, as appropriate to
each scenario. The results tables exclude portfolios held by the
insurance business and small portfolios, and as such cannot be
directly compared to personal and wholesale lending presented in
other credit risk tables. Additionally, in both the wholesale and
retail analysis, the comparative period results for Downside 2
scenarios are also not directly comparable with the current period,
because they reflect different risk profiles relative to the
consensus scenarios for the period end.
Wholesale analysis
IFRS 9 ECL sensitivity to future economic conditions(1, 2, 3)
Consensus Consensus Consensus
Central Upside Downside Downside
Gross carrying Reported scenario scenario scenario 2 scenario
amount(2) ECL ECL ECL ECL ECL
By
geography
at 31
Dec 2021 $m $m $m $m $m $m
UK 483,273 920 727 590 944 1,985
---------- -------------------------- ------------------------------ -------------------------------- -------------------------------- ------------------------------ ------------------------------
US 227,817 227 204 155 317 391
---------- -------------------------- ------------------------------ -------------------------------- -------------------------------- ------------------------------ ------------------------------
Hong Kong 434,608 767 652 476 984 1,869
---------- -------------------------- ------------------------------ -------------------------------- -------------------------------- ------------------------------ ------------------------------
Mainland
China 120,627 149 113 36 216 806
---------- -------------------------- ------------------------------ -------------------------------- -------------------------------- ------------------------------ ------------------------------
Canada 85,117 151 98 61 150 1,121
---------- -------------------------- ------------------------------ -------------------------------- -------------------------------- ------------------------------ ------------------------------
Mexico 23,054 118 80 61 123 358
---------- -------------------------- ------------------------------ -------------------------------- -------------------------------- ------------------------------ ------------------------------
UAE 44,767 158 122 73 214 711
---------- -------------------------- ------------------------------ -------------------------------- -------------------------------- ------------------------------ ------------------------------
France 163,845 133 121 106 162 187
---------- -------------------------- ------------------------------ -------------------------------- -------------------------------- ------------------------------ ------------------------------
By
geography
at 31
Dec 2020
UK 430,555 2,077 1,514 1,026 2,271 3,869
---------- ---------------------------- ------------------------------- --------------------------------- --------------------------------- ------------------------------- -------------------------------
US 201,263 369 314 219 472 723
---------- ---------------------------- ------------------------------- --------------------------------- --------------------------------- ------------------------------- -------------------------------
Hong Kong 452,983 474 388 211 672 1,363
---------- ---------------------------- ------------------------------- --------------------------------- --------------------------------- ------------------------------- -------------------------------
Mainland
China 118,163 116 93 28 252 1,158
---------- ---------------------------- ------------------------------- --------------------------------- --------------------------------- ------------------------------- -------------------------------
Canada 85,720 183 140 82 253 528
---------- ---------------------------- ------------------------------- --------------------------------- --------------------------------- ------------------------------- -------------------------------
Mexico 25,920 246 222 177 285 437
---------- ---------------------------- ------------------------------- --------------------------------- --------------------------------- ------------------------------- -------------------------------
UAE 44,777 250 241 190 330 536
---------- ---------------------------- ------------------------------- --------------------------------- --------------------------------- ------------------------------- -------------------------------
France 164,899 117 109 97 131 238
---------- ---------------------------- ------------------------------- --------------------------------- --------------------------------- ------------------------------- -------------------------------
1 ECL sensitivity includes off-balance sheet financial
instruments that are subject to significant measurement
uncertainty.
2 Includes low credit-risk financial instruments such as debt
instruments at FVOCI, which have high carrying amounts but low ECL
under all the above scenarios.
3 Excludes defaulted obligors. For a detailed breakdown of
performing and non-performing wholesale portfolio exposures, see
page 162.
At 31 December 2021, the most significant level of ECL
sensitivity was observed in Hong Kong, the UK and Canada. Real
estate was the sector with higher sensitivity to a severe scenario,
namely in Hong Kong and Canada. In the case of Hong Kong, the
higher ECL sensitivity was mainly driven by increased uncertainty
due to tightening liquidity and increased refinancing risks
resulting in the
downgrade of even some previously highly rated borrowers. In the
case of Canada, the higher ECL sensitivity was mainly driven by the
adoption of a new Downside 2 scenario, which resulted in increased
modelled ECL for this scenario relative to 31 December 2020.
Retail analysis
IFRS 9 ECL sensitivity to future economic conditions(1)
Consensus Consensus
Central Consensus Downside Downside
Gross carrying Reported scenario Upside scenario scenario 2 scenario
amount ECL ECL ECL ECL ECL
ECL of
loans and
advances
to
customers
at 31
December
2021 $m $m $m $m $m $m
---------- ---------------------------------- ------------------------------------- ------------------------------------- ------------------------------------- ------------------------------------ ------------------------------------
UK
---------- ---------------------------------- ------------------------------------- ------------------------------------- ------------------------------------- ------------------------------------ ------------------------------------
Mortgages 155,084 191 182 175 197 231
---------- ---------------------------------- ------------------------------------- ------------------------------------- ------------------------------------- ------------------------------------ ------------------------------------
Credit
cards 8,084 439 381 330 456 987
---------- ---------------------------------- ------------------------------------- ------------------------------------- ------------------------------------- ------------------------------------ ------------------------------------
Other 7,902 369 298 254 388 830
---------- ---------------------------------- ------------------------------------- ------------------------------------- ------------------------------------- ------------------------------------ ------------------------------------
Mexico
---------- ---------------------------------- ------------------------------------- ------------------------------------- ------------------------------------- ------------------------------------ ------------------------------------
Mortgages 4,972 123 116 106 130 164
---------- ---------------------------------- ------------------------------------- ------------------------------------- ------------------------------------- ------------------------------------ ------------------------------------
Credit
cards 1,167 141 134 122 150 176
---------- ---------------------------------- ------------------------------------- ------------------------------------- ------------------------------------- ------------------------------------ ------------------------------------
Other 2,935 366 360 350 374 401
---------- ---------------------------------- ------------------------------------- ------------------------------------- ------------------------------------- ------------------------------------ ------------------------------------
Hong Kong
---------- ---------------------------------- ------------------------------------- ------------------------------------- ------------------------------------- ------------------------------------ ------------------------------------
Mortgages 96,697 - - - - -
---------- ---------------------------------- ------------------------------------- ------------------------------------- ------------------------------------- ------------------------------------ ------------------------------------
Credit
cards 7,644 218 206 154 231 359
---------- ---------------------------------- ------------------------------------- ------------------------------------- ------------------------------------- ------------------------------------ ------------------------------------
Other 5,628 109 101 88 128 180
---------- ---------------------------------- ------------------------------------- ------------------------------------- ------------------------------------- ------------------------------------ ------------------------------------
UAE
---------- ---------------------------------- ------------------------------------- ------------------------------------- ------------------------------------- ------------------------------------ ------------------------------------
Mortgages 1,982 45 44 42 46 57
---------- ---------------------------------- ------------------------------------- ------------------------------------- ------------------------------------- ------------------------------------ ------------------------------------
Credit
cards 429 43 41 29 54 82
---------- ---------------------------------- ------------------------------------- ------------------------------------- ------------------------------------- ------------------------------------ ------------------------------------
Other 615 19 18 13 21 25
---------- ---------------------------------- ------------------------------------- ------------------------------------- ------------------------------------- ------------------------------------ ------------------------------------
France
---------- ---------------------------------- ------------------------------------- ------------------------------------- ------------------------------------- ------------------------------------ ------------------------------------
Mortgages 23,159 63 62 62 63 64
---------- ---------------------------------- ------------------------------------- ------------------------------------- ------------------------------------- ------------------------------------ ------------------------------------
Other 1,602 61 61 60 61 63
---------- ---------------------------------- ------------------------------------- ------------------------------------- ------------------------------------- ------------------------------------ ------------------------------------
US
---------- ---------------------------------- ------------------------------------- ------------------------------------- ------------------------------------- ------------------------------------ ------------------------------------
Mortgages 15,379 28 27 26 29 41
---------- ---------------------------------- ------------------------------------- ------------------------------------- ------------------------------------- ------------------------------------ ------------------------------------
Credit
cards 446 80 76 70 83 118
---------- ---------------------------------- ------------------------------------- ------------------------------------- ------------------------------------- ------------------------------------ ------------------------------------
Canada
---------- ---------------------------------- ------------------------------------- ------------------------------------- ------------------------------------- ------------------------------------ ------------------------------------
Mortgages 26,097 28 27 26 29 48
---------- ---------------------------------- ------------------------------------- ------------------------------------- ------------------------------------- ------------------------------------ ------------------------------------
Credit
cards 279 9 9 9 10 13
---------- ---------------------------------- ------------------------------------- ------------------------------------- ------------------------------------- ------------------------------------ ------------------------------------
Other 1,598 19 18 17 19 27
---------- ---------------------------------- ------------------------------------- ------------------------------------- ------------------------------------- ------------------------------------ ------------------------------------
IFRS 9 ECL sensitivity to future economic conditions(1)
Central Downside Additional
Gross carrying Reported scenario Upside scenario scenario Downside
amount ECL ECL ECL ECL scenario
ECL of
loans and
advances
to
customers
at 31
December
2020 $m $m $m $m $m $m
---------- ----------------------------------- -------------------------------------- -------------------------------------- -------------------------------------- -------------------------------------- --------------------------------------
UK
---------- ----------------------------------- -------------------------------------- -------------------------------------- -------------------------------------- -------------------------------------- --------------------------------------
Mortgages 146,478 197 182 172 205 221
---------- ----------------------------------- -------------------------------------- -------------------------------------- -------------------------------------- -------------------------------------- --------------------------------------
Credit
cards 7,869 857 774 589 904 1,084
---------- ----------------------------------- -------------------------------------- -------------------------------------- -------------------------------------- -------------------------------------- --------------------------------------
Other 9,164 897 795 471 1,022 1,165
---------- ----------------------------------- -------------------------------------- -------------------------------------- -------------------------------------- -------------------------------------- --------------------------------------
Mexico
---------- ----------------------------------- -------------------------------------- -------------------------------------- -------------------------------------- -------------------------------------- --------------------------------------
Mortgages 3,896 111 101 79 136 167
---------- ----------------------------------- -------------------------------------- -------------------------------------- -------------------------------------- -------------------------------------- --------------------------------------
Credit
cards 1,113 260 255 243 269 290
---------- ----------------------------------- -------------------------------------- -------------------------------------- -------------------------------------- -------------------------------------- --------------------------------------
Other 2,549 436 428 411 451 491
---------- ----------------------------------- -------------------------------------- -------------------------------------- -------------------------------------- -------------------------------------- --------------------------------------
Hong Kong
---------- ----------------------------------- -------------------------------------- -------------------------------------- -------------------------------------- -------------------------------------- --------------------------------------
Mortgages 89,943 - - - - -
---------- ----------------------------------- -------------------------------------- -------------------------------------- -------------------------------------- -------------------------------------- --------------------------------------
Credit
cards 7,422 266 259 247 277 405
---------- ----------------------------------- -------------------------------------- -------------------------------------- -------------------------------------- -------------------------------------- --------------------------------------
Other 6,020 112 105 102 115 130
---------- ----------------------------------- -------------------------------------- -------------------------------------- -------------------------------------- -------------------------------------- --------------------------------------
UAE
---------- ----------------------------------- -------------------------------------- -------------------------------------- -------------------------------------- -------------------------------------- --------------------------------------
Mortgages 1,889 66 63 53 73 78
---------- ----------------------------------- -------------------------------------- -------------------------------------- -------------------------------------- -------------------------------------- --------------------------------------
Credit
cards 426 92 81 62 107 126
---------- ----------------------------------- -------------------------------------- -------------------------------------- -------------------------------------- -------------------------------------- --------------------------------------
Other 683 38 37 33 41 46
---------- ----------------------------------- -------------------------------------- -------------------------------------- -------------------------------------- -------------------------------------- --------------------------------------
France
---------- ----------------------------------- -------------------------------------- -------------------------------------- -------------------------------------- -------------------------------------- --------------------------------------
Mortgages 24,565 68 68 68 69 70
---------- ----------------------------------- -------------------------------------- -------------------------------------- -------------------------------------- -------------------------------------- --------------------------------------
Other 1,725 88 87 85 88 91
---------- ----------------------------------- -------------------------------------- -------------------------------------- -------------------------------------- -------------------------------------- --------------------------------------
US
---------- ----------------------------------- -------------------------------------- -------------------------------------- -------------------------------------- -------------------------------------- --------------------------------------
Mortgages 15,399 41 39 38 41 53
---------- ----------------------------------- -------------------------------------- -------------------------------------- -------------------------------------- -------------------------------------- --------------------------------------
Credit
cards 570 86 84 81 88 119
---------- ----------------------------------- -------------------------------------- -------------------------------------- -------------------------------------- -------------------------------------- --------------------------------------
Canada
---------- ----------------------------------- -------------------------------------- -------------------------------------- -------------------------------------- -------------------------------------- --------------------------------------
Mortgages 22,454 31 30 29 31 36
---------- ----------------------------------- -------------------------------------- -------------------------------------- -------------------------------------- -------------------------------------- --------------------------------------
Credit
cards 260 9 9 8 9 9
---------- ----------------------------------- -------------------------------------- -------------------------------------- -------------------------------------- -------------------------------------- --------------------------------------
Other 1,775 22 21 20 24 28
---------- ----------------------------------- -------------------------------------- -------------------------------------- -------------------------------------- -------------------------------------- --------------------------------------
1 ECL sensitivities exclude portfolios utilising less complex modelling approaches.
At 31 December 2021, the most significant level of ECL
sensitivity was observed in the UK, Mexico and Hong Kong. Mortgages
reflected the lowest level of ECL sensitivity across most markets
as collateral values remained resilient. Hong Kong mortgages had
low levels of reported ECL due to the credit quality of the
portfolio, and so presented sensitivity was negligible. Credit
cards and other unsecured lending are more sensitive to economic
forecasts, which improved during 2021.
Group ECL sensitivity results
The ECL impact of the scenarios and management judgemental
adjustments are highly sensitive to movements in economic
forecasts. Based upon the sensitivity tables presented above, if
the Group ECL balance was estimated solely on the basis of the
Central scenario, Downside scenario or the Downside 2 scenario at
31 December 2021, it would increase/(decrease) as presented in the
below table.
Retail(1) Wholesale(1)
Total Group ECL at $bn $bn
31 December 2021
------------------------- ----------------------------- -----------------------------
Reported ECL 3.0 3.1
------------------------- ----------------------------- -----------------------------
Scenarios
------------------------- ----------------------------- -----------------------------
100% Consensus Central
scenario (0.2) (0.6)
------------------------- ----------------------------- -----------------------------
100% Consensus Upside
scenario (0.5) (1.2)
------------------------- ----------------------------- -----------------------------
100% Consensus Downside
scenario 0.2 0.6
------------------------- ----------------------------- -----------------------------
100% Downside 2 scenario 2.0 5.5
------------------------- ----------------------------- -----------------------------
Retail(1) Wholesale
Total Group ECL at
31 December 2020 $bn $bn
------------------------- ------------------------------ ------------------------------
Reported ECL 4.5 4.5
------------------------- ------------------------------ ------------------------------
Scenarios
------------------------- ------------------------------ ------------------------------
100% Consensus Central
scenario (0.3) (0.9)
------------------------- ------------------------------ ------------------------------
100% Consensus Upside
scenario (1.0) (2.0)
------------------------- ------------------------------ ------------------------------
100% Consensus Downside
scenario 0.3 1.0
------------------------- ------------------------------ ------------------------------
100% Downside 2 scenario 1.3 5.9
------------------------- ------------------------------ ------------------------------
1 On the same basis as retail and wholesale sensitivity analysis.
For both retail and wholesale portfolios, the reported ECL
decreased since 31 December 2020. The relative sensitivity of the
Group total consensus Central scenario remained relatively stable,
while the Group total consensus Upside and consensus Downside
sensitivities both reduced since 31 December 2020. The Group total
Downside 2 scenario continues to present the highest level of
sensitivity. The Group results are reflective of the improvement in
economic expectations, inclusive of the continuing pandemic-related
and sector-specific uncertainty.
Reconciliation of changes in gross carrying/nominal amount and
allowances for loans and advances to banks and customers including
loan commitments and financial guarantees
The following disclosure provides a reconciliation by stage of
the Group's gross carrying/nominal amount and allowances for loans
and advances to banks and customers, including loan commitments and
financial guarantees. Movements are calculated on a quarterly basis
and therefore fully capture stage movements between quarters. If
movements were calculated on a year-to-date basis they would only
reflect the opening and closing position of the financial
instrument.
The transfers of financial instruments represents the impact of
stage transfers upon the gross carrying/nominal amount and
associated allowance for ECL.
The net remeasurement of ECL arising from stage transfers
represents the increase or decrease due to these transfers, for
example, moving from a 12-month (stage 1) to a lifetime (stage 2)
ECL measurement basis. Net remeasurement excludes the underlying
customer risk rating ('CRR')/probability of default ('PD')
movements of the financial instruments transferring stage. This is
captured, along with other credit quality movements in the 'changes
in risk parameters - credit quality' line item.
Changes in 'New financial assets originated or purchased',
'assets derecognised (including final repayments)' and 'changes to
risk parameters - further lending/repayment' represent the impact
from volume movements within the Group's lending portfolio.
Reconciliation of changes in gross carrying/nominal amount and allowances
for loans and advances to banks and customers including
loan commitments and financial guarantees
(Audited)
Non-credit impaired Credit impaired
----------------------------------------------------------------------------------- ------------------------------------------------------------------------------------
Stage 1 Stage 2 Stage 3 POCI Total
------------------------------------------- -------------------------------------- ---------------------------------------- ------------------------------------------ -----------------------------------------
Gross Gross Gross Gross Gross
carrying/ carrying/ Allowance carrying/ Allowance carrying/ Allowance carrying/ Allowance
nominal Allowance nominal for nominal for nominal for nominal for
amount for ECL amount ECL amount ECL amount ECL amount ECL
$m $m $m $m $m $m $m $m $m $m
------------------ -------------------- --------------------- ----------------- ------------------- ------------------ -------------------- -------------------- -------------------- -------------------- -------------------
At 1 Jan 2021 1,506,451 (2,331) 223,432 (5,403) 20,424 (7,544) 279 (113) 1,750,586 (15,391)
------------------ -------------------- --------------------- ----------------- ------------------- ------------------ -------------------- -------------------- -------------------- -------------------- -------------------
Transfers of
financial
instruments: 21,107 (1,792) (27,863) 2,601 6,756 (809) - - - -
------------------ -------------------- --------------------- ----------------- ------------------- ------------------ -------------------- -------------------- -------------------- -------------------- -------------------
- transfers from
stage 1 to stage
2 (159,633) 527 159,633 (527) - - - - - -
------------------
- transfers from
stage 2 to stage
1 182,432 (2,279) (182,432) 2,279 - - - - - -
------------------
- transfers to
stage 3 (2,345) 24 (6,478) 1,010 8,823 (1,034) - - - -
------------------
- transfers from
stage 3 653 (64) 1,414 (161) (2,067) 225 - - - -
------------------ -------------------- --------------------- ----------------- ------------------- ------------------ -------------------- -------------------- -------------------- --------------------
Net remeasurement
of ECL arising
from transfer
of stage - 1,225 - (596) - (34) - - - 595
------------------
New financial
assets originated
or purchased 444,070 (553) - - - - 124 - 444,194 (553)
------------------ -------------------- --------------------- ----------------- ------------------- ------------------ -------------------- -------------------- -------------------- -------------------- -------------------
Assets
derecognised
(including final
repayments) (304,158) 174 (31,393) 489 (2,750) 458 (10) 6 (338,311) 1,127
------------------ -------------------- --------------------- ----------------- ------------------- ------------------ -------------------- -------------------- -------------------- -------------------- -------------------
Changes to risk
parameters -
further
lending/repayment (61,742) 547 (3,634) 498 (1,268) 576 (108) 12 (66,752) 1,633
------------------ -------------------- --------------------- ----------------- ------------------- ------------------ -------------------- -------------------- -------------------- -------------------- -------------------
Changes to risk
parameters -
credit
quality - 1,111 - (1,012) - (2,354) - 28 - (2,227)
------------------ -------------------- --------------------- ----------------- ------------------- ------------------ -------------------- -------------------- -------------------- -------------------- -------------------
Changes to models
used for ECL
calculation - (17) - (33) - 1 - - - (49)
------------------ -------------------- --------------------- ----------------- ------------------- ------------------ -------------------- -------------------- -------------------- -------------------- -------------------
Assets written
off - - - - (2,610) 2,605 (7) 7 (2,617) 2,612
------------------ -------------------- --------------------- ----------------- ------------------- ------------------ -------------------- -------------------- -------------------- -------------------- -------------------
Credit-related
modifications
that resulted
in derecognition - - - - (125) - - - (125) -
------------------ -------------------- --------------------- ----------------- ------------------- ------------------ -------------------- -------------------- -------------------- -------------------- -------------------
Foreign exchange (25,231) 26 (2,918) 45 (479) 157 (4) 1 (28,632) 229
------------------ -------------------- --------------------- ----------------- ------------------- ------------------ -------------------- -------------------- -------------------- -------------------- -------------------
Others(1) (2,915) 53 (1,882) 85 (151) 16 - (5) (4,948) 149
------------------ -------------------- --------------------- ----------------- ------------------- ------------------ -------------------- -------------------- -------------------- -------------------- -------------------
At 31 Dec 2021 1,577,582 (1,557) 155,742 (3,326) 19,797 (6,928) 274 (64) 1,753,395 (11,875)
------------------ -------------------- --------------------- ----------------- ------------------- ------------------ -------------------- -------------------- -------------------- -------------------- -------------------
ECL income
statement
change for the
period 2,487 (654) (1,353) 46 526
------------------ -------------------- --------------------- ----------------- ------------------- ------------------ -------------------- -------------------- -------------------- -------------------- -------------------
Recoveries 409
------------------ -------------------- --------------------- ----------------- ------------------- ------------------ -------------------- -------------------- -------------------- -------------------- -------------------
Others (111)
------------------ -------------------- --------------------- ----------------- ------------------- ------------------ -------------------- -------------------- -------------------- -------------------- -------------------
Total ECL income
statement change
for the period 824
------------------ -------------------- --------------------- ----------------- ------------------- ------------------ -------------------- -------------------- -------------------- -------------------- -------------------
1 Total includes $3.0bn of gross carrying loans and advances to
customers, which were classified to assets held for sale and a
corresponding allowance for ECL of $123m, reflecting our exit of
the domestic mass market retail banking in the US.
12 months
ended
At 31 Dec 2021 31 Dec 2021
------------------------------------------------------------------------------------------------ ----------------------------------------------
Gross carrying/nominal Allowance
amount for ECL ECL charge
$m $m $m
---------------- ----------------------------------------------- ----------------------------------------------- ----------------------------------------------
As above 1,753,395 (11,875) 824
---------------- ----------------------------------------------- ----------------------------------------------- ----------------------------------------------
Other financial 880,351 (193) (19)
assets measured
at
amortised cost
---------------- ----------------------------------------------- ----------------------------------------------- ----------------------------------------------
Non-trading 42,421 - -
reverse purchase
agreement
commitments
---------------- ----------------------------------------------- ----------------------------------------------- ----------------------------------------------
Performance and
other
guarantees not
considered for
IFRS 9 - - 75
---------------- ----------------------------------------------- ----------------------------------------------- ----------------------------------------------
Summary of
financial
instruments to
which the
impairment
requirements in
IFRS 9 are
applied/Summary
consolidated
income
statement 2,676,167 (12,068) 880
---------------- ----------------------------------------------- ----------------------------------------------- ----------------------------------------------
Debt instruments 347,203 (96) 48
measured at
FVOCI
---------------- ----------------------------------------------- ----------------------------------------------- ----------------------------------------------
Total allowance n/a (12,164) 928
for ECL/total
income
statement ECL
change for the
period
---------------- ----------------------------------------------- ----------------------------------------------- ----------------------------------------------
As shown in the previous table, the allowance for ECL for loans
and advances to customers and banks and relevant loan commitments
and financial guarantees decreased $3,516m during the period from
$15,391m at 31 December 2020 to $11,875m at 31 December 2021.
This decrease was primarily driven by:
-- $2,612m of assets written off;
-- $2,207m relating to volume movements, which included the ECL
allowance associated with new originations, assets derecognised and
further lending/repayment;
-- $595m relating to the net remeasurement impact of stage transfers; and
-- foreign exchange and other movements of $378m.
These were partly offset by:
-- $2,227m relating to underlying credit quality changes,
including the credit quality impact of financial instruments
transferring between stages; and
-- $49m of changes to models used for ECL calculation.
The ECL release for the period of $526m presented in the
previous table consisted of $2,207m relating to underlying net book
volume movement and $595m relating to the net remeasurement impact
of stage transfers. This was partly offset by $2,227m relating to
underlying credit quality changes, including the credit quality
impact of financial instruments transferring between stages and
$49m in changes to models used for ECL calculation.
Summary views of the movement in wholesale and personal lending
are presented on pages 165 and 179.
Reconciliation of changes in gross carrying/nominal amount and allowances
for loans and advances to banks and customers including
loan commitments and financial guarantees
(Audited)
Non-credit impaired Credit impaired
------------------------------------------------------------------------------------ ----------------------------------------------------------------------------------------- ---------------------
Stage 1 Stage 2 Stage 3 POCI Total
------------------------------------------- --------------------------------------- ---------------------------------------------- ----------------------------------------- -----------------------------------------------
Allowance/ Allowance/ Allowance/
provision provision Allowance/ provision Allowance/
Gross for Gross for Gross provision Gross for Gross provision
exposure ECL exposure ECL exposure for ECL exposure ECL exposure for ECL
$m $m $m $m $m $m $m $m $m $m
------------------ --------------------- -------------------- ---------------- --------------------- --------------------- ----------------------- ------------------ --------------------- --------------------- ------------------------
At 1 Jan 2020 1,561,613 (1,464) 105,551 (2,441) 14,335 (5,121) 345 (99) 1,681,844 (9,125)
------------------ --------------------- -------------------- ---------------- --------------------- --------------------- ----------------------- ------------------ --------------------- --------------------- ------------------------
Transfers of
financial
instruments: (129,236) (1,122) 116,783 1,951 12,453 (829) - - - -
------------------ --------------------- -------------------- ---------------- --------------------- --------------------- ----------------------- ------------------ --------------------- --------------------- ------------------------
- transfers from
stage 1 to stage
2 (298,725) 947 298,725 (947) - - - - - -
------------------
- transfers from
stage 2 to stage
1 172,894 (2,073) (172,894) 2,073 - - - - - -
------------------
- transfers to
stage 3 (3,942) 30 (10,320) 986 14,262 (1,016) - - - -
------------------
- transfers from
stage 3 537 (26) 1,272 (161) (1,809) 187 - - - -
------------------ --------------------- -------------------- ---------------- --------------------- --------------------- ----------------------- ------------------ --------------------- --------------------- ------------------------
Net remeasurement
of ECL arising
from transfer
of stage - 907 - (1,158) - (750) - - - (1,001)
------------------ --------------------- -------------------- ---------------- --------------------- --------------------- ----------------------- ------------------ --------------------- --------------------- ------------------------
New financial
assets originated
or purchased 437,836 (653) - - - - 25 (1) 437,861 (654)
------------------ --------------------- -------------------- ---------------- --------------------- --------------------- ----------------------- ------------------ --------------------- --------------------- ------------------------
Assets
derecognised
(including final
repayments) (313,347) 160 (37,409) 464 (3,430) 485 (23) 2 (354,209) 1,111
------------------ --------------------- -------------------- ---------------- --------------------- --------------------- ----------------------- ------------------ --------------------- --------------------- ------------------------
Changes to risk
parameters -
further
lending/repayment (83,147) 157 29,092 85 (597) 248 (50) (2) (54,702) 488
------------------ --------------------- -------------------- ---------------- --------------------- --------------------- ----------------------- ------------------ --------------------- --------------------- ------------------------
Changes to risk
parameters -
credit
quality - (408) - (4,374) - (4,378) - (39) - (9,199)
------------------ --------------------- -------------------- ---------------- --------------------- --------------------- ----------------------- ------------------ --------------------- --------------------- ------------------------
Changes to models
used for ECL
calculation - 134 - 294 - 5 - - - 433
------------------ --------------------- -------------------- ---------------- --------------------- --------------------- ----------------------- ------------------ --------------------- --------------------- ------------------------
Assets written
off - - - - (2,946) 2,944 (30) 30 (2,976) 2,974
------------------ --------------------- -------------------- ---------------- --------------------- --------------------- ----------------------- ------------------ --------------------- --------------------- ------------------------
Credit-related
modifications
that resulted
in derecognition - - - - (23) 7 - - (23) 7
------------------ --------------------- -------------------- ---------------- --------------------- --------------------- ----------------------- ------------------ --------------------- --------------------- ------------------------
Foreign exchange 32,808 (47) 9,123 (223) 633 (163) 4 (3) 42,568 (436)
------------------ --------------------- -------------------- ---------------- --------------------- --------------------- ----------------------- ------------------ --------------------- --------------------- ------------------------
Others (76) 5 292 (1) (1) 8 8 (1) 223 11
------------------ --------------------- -------------------- ---------------- --------------------- --------------------- ----------------------- ------------------ --------------------- --------------------- ------------------------
At 31 Dec 2020 1,506,451 (2,331) 223,432 (5,403) 20,424 (7,544) 279 (113) 1,750,586 (15,391)
------------------ --------------------- -------------------- ---------------- --------------------- --------------------- ----------------------- ------------------ --------------------- --------------------- ------------------------
ECL income
statement
change for the
period 297 (4,689) (4,390) (40) (8,822)
------------------ --------------------- -------------------- ---------------- --------------------- --------------------- ----------------------- ------------------ --------------------- --------------------- ------------------------
Recoveries 326
------------------ --------------------- -------------------- ---------------- --------------------- --------------------- ----------------------- ------------------ --------------------- --------------------- ------------------------
Others (84)
------------------ --------------------- -------------------- ---------------- --------------------- --------------------- ----------------------- ------------------ --------------------- --------------------- ------------------------
Total ECL income
statement change
for the period (8,580)
------------------ --------------------- -------------------- ---------------- --------------------- --------------------- ----------------------- ------------------ --------------------- --------------------- ------------------------
At 31 Dec 2020 12 months ended
31 Dec 2020
-------------------------------------------------------------------------- -------------------------------------------------------
Gross carrying/nominal Allowance
amount for ECL ECL charge
$m $m $m
------------- ------------------------------------ ------------------------------------ -------------------------------------------------------
As above 1,750,586 (15,391) (8,580)
------------- ------------------------------------ ------------------------------------ -------------------------------------------------------
Other 772,408 (175) (95)
financial
assets
measured at
amortised
cost
------------- ------------------------------------ ------------------------------------ -------------------------------------------------------
Non-trading 61,716 - -
reverse
purchase
agreement
commitments
------------- ------------------------------------ ------------------------------------ -------------------------------------------------------
Performance
and other
guarantees
not
considered
for IFRS 9 - - (94)
------------- ------------------------------------ ------------------------------------ -------------------------------------------------------
Summary of
financial
instruments
to which
the
impairment
requirements
in IFRS 9
are applied/
Summary
consolidated
income
statement 2,584,710 (15,566) (8,769)
------------- ------------------------------------ ------------------------------------ -------------------------------------------------------
Debt 399,717 (141) (48)
instruments
measured at
FVOCI
------------- ------------------------------------ ------------------------------------ -------------------------------------------------------
Total n/a (15,707) (8,817)
allowance
for
ECL/total
income
statement
ECL change
for the
period
------------- ------------------------------------ ------------------------------------ -------------------------------------------------------
Credit quality
Credit quality of financial instruments
(Audited)
We assess the credit quality of all financial instruments that
are subject to credit risk. The credit quality of financial
instruments is a point-in-time assessment of PD, whereas stages 1
and 2 are determined based on relative deterioration of credit
quality since initial recognition. Accordingly, for
non-credit-impaired financial
instruments, there is no direct relationship between the credit
quality assessment and stages 1 and 2, although typically the lower
credit quality bands exhibit a higher proportion in stage 2.
The five credit quality classifications each encompass a range
of granular internal credit rating grades assigned to wholesale and
personal lending businesses and the external ratings attributed by
external agencies to debt securities, as shown in the table on page
138.
Distribution of financial instruments by credit quality at 31 December
2021
(Audited)
Gross carrying/notional amount
Allowance
for ECL/other
Credit credit
Strong Good Satisfactory Sub-standard impaired Total provisions Net
$m $m $m $m $m $m $m $m
--------------- --------------------- -------------------------- --------------------------- --------------------------- --------------------------- --------------------- ---------------------------- ---------------------
In-scope for
IFRS
9
--------------- --------------------- -------------------------- --------------------------- --------------------------- --------------------------- --------------------- ---------------------------- ---------------------
Loans and
advances
to customers
held
at amortised
cost 544,695 230,326 233,739 29,404 19,067 1,057,231 (11,417) 1,045,814
--------------- --------------------- -------------------------- --------------------------- --------------------------- --------------------------- --------------------- ---------------------------- ---------------------
- personal 388,903 52,080 30,492 1,920 4,942 478,337 (3,103) 475,234
---------------
- corporate and
commercial 124,819 158,938 188,858 27,194 13,730 513,539 (8,204) 505,335
---------------
- non-bank
financial
institutions 30,973 19,308 14,389 290 395 65,355 (110) 65,245
--------------- --------------------- -------------------------- --------------------------- --------------------------- --------------------------- --------------------- ---------------------------- ---------------------
Loans and
advances
to banks held
at amortised
cost 72,978 4,037 5,020 1,118 - 83,153 (17) 83,136
--------------- --------------------- -------------------------- --------------------------- --------------------------- --------------------------- --------------------- ---------------------------- ---------------------
Cash and
balances
at central
banks 400,176 1,675 1,171 - - 403,022 (4) 403,018
--------------- --------------------- -------------------------- --------------------------- --------------------------- --------------------------- --------------------- ---------------------------- ---------------------
Items in the
course
of collection
from other
banks 4,122 10 4 - - 4,136 - 4,136
--------------- --------------------- -------------------------- --------------------------- --------------------------- --------------------------- --------------------- ---------------------------- ---------------------
Hong Kong
Government
certificates
of
indebtedness 42,578 - - - - 42,578 - 42,578
--------------- --------------------- -------------------------- --------------------------- --------------------------- --------------------------- --------------------- ---------------------------- ---------------------
Reverse
repurchase
agreements -
non-trading 175,576 46,412 18,881 779 - 241,648 - 241,648
--------------- --------------------- -------------------------- --------------------------- --------------------------- --------------------------- --------------------- ---------------------------- ---------------------
Financial
investments 84,477 11,442 1,401 1 43 97,364 (62) 97,302
--------------- --------------------- -------------------------- --------------------------- --------------------------- --------------------------- --------------------- ---------------------------- ---------------------
Prepayments,
accrued
income and
other
assets 67,097 12,109 11,685 408 304 91,603 (127) 91,476
--------------- --------------------- -------------------------- --------------------------- --------------------------- --------------------------- --------------------- ---------------------------- ---------------------
- endorsements
and
acceptances 1,742 5,240 4,038 199 26 11,245 (17) 11,228
---------------
- accrued
income
and other 65,355 6,869 7,647 209 278 80,358 (110) 80,248
--------------- --------------------- -------------------------- --------------------------- --------------------------- --------------------------- --------------------- ---------------------------- ---------------------
Debt
instruments
measured at
fair value
through
other
comprehensive
income(1) 320,161 12,298 11,677 1,087 46 345,269 (96) 345,173
--------------- --------------------- -------------------------- --------------------------- --------------------------- --------------------------- --------------------- ---------------------------- ---------------------
Out-of-scope
for
IFRS 9
--------------- --------------------- -------------------------- --------------------------- --------------------------- --------------------------- --------------------- ---------------------------- ---------------------
Trading assets 101,879 16,254 20,283 678 134 139,228 - 139,228
--------------- --------------------- -------------------------- --------------------------- --------------------------- --------------------------- --------------------- ---------------------------- ---------------------
Other financial
assets
designated
and otherwise
mandatorily
measured
at fair value
through profit
or loss 6,438 723 4,455 150 - 11,766 - 11,766
--------------- --------------------- -------------------------- --------------------------- --------------------------- --------------------------- --------------------- ---------------------------- ---------------------
Derivatives 146,748 42,717 6,691 719 7 196,882 - 196,882
--------------- --------------------- -------------------------- --------------------------- --------------------------- --------------------------- --------------------- ---------------------------- ---------------------
Total gross
carrying
amount on
balance
sheet 1,966,925 378,003 315,007 34,344 19,601 2,713,880 (11,723) 2,702,157
--------------- --------------------- -------------------------- --------------------------- --------------------------- --------------------------- --------------------- ---------------------------- ---------------------
Percentage of
total credit
quality 72.5% 13.9% 11.6% 1.3% 0.7% 100%
--------------- --------------------- -------------------------- --------------------------- --------------------------- --------------------------- --------------------- ---------------------------- ---------------------
Loan and other
credit-related
commitments 389,865 136,297 92,558 8,142 775 627,637 (379) 627,258
Financial
guarantees 16,511 4,902 5,166 991 225 27,795 (62) 27,733
--------------- --------------------- -------------------------- --------------------------- --------------------------- --------------------------- --------------------- ---------------------------- ---------------------
In-scope:
Irrevocable
loan
commitments
and financial
guarantees 406,376 141,199 97,724 9,133 1,000 655,432 (441) 654,991
--------------- --------------------- -------------------------- --------------------------- --------------------------- --------------------------- --------------------- ---------------------------- ---------------------
Loan and other
credit-related
commitments 62,701 65,031 56,446 3,327 332 187,837 - 187,837
--------------- --------------------- -------------------------- --------------------------- --------------------------- --------------------------- --------------------- ---------------------------- ---------------------
Performance and
other 31,510 32,193 19,265 2,027 539 85,534 (179) 85,355
--------------- --------------------- -------------------------- --------------------------- --------------------------- --------------------------- --------------------- ---------------------------- ---------------------
Out-of-scope:
Revocable loan
commitments
and
non-financial
guarantees 94,211 97,224 75,711 5,354 871 273,371 (179) 273,192
--------------- --------------------- -------------------------- --------------------------- --------------------------- --------------------------- --------------------- ---------------------------- ---------------------
1 For the purposes of this disclosure, gross carrying value is
defined as the amortised cost of a financial asset before adjusting
for any loss allowance. As such, the gross carrying value of debt
instruments at FVOCI as presented above will not reconcile to the
balance sheet as it excludes fair value gains and losses.
Distribution of financial instruments by credit quality at 31 December
2020 (continued)
(Audited)
Gross carrying/notional amount
Allowance
for ECL/other
Credit credit
Strong Good Satisfactory Sub- standard impaired Total provisions Net
$m $m $m $m $m $m $m $m
--------------- ----------------------- ---------------------------- --------------------------- ---------------------------- -------------------------- ----------------------- ---------------------------- -----------------------
In-scope for
IFRS
9
--------------- ----------------------- ---------------------------- --------------------------- ---------------------------- -------------------------- ----------------------- ---------------------------- -----------------------
Loans and
advances
to customers
held
at amortised
cost 506,231 233,320 256,584 36,970 19,372 1,052,477 (14,490) 1,037,987
--------------- ----------------------- ---------------------------- --------------------------- ---------------------------- -------------------------- ----------------------- ---------------------------- -----------------------
- personal 357,821 53,892 38,520 4,965 5,611 460,809 (4,731) 456,078
---------------
- corporate and
commercial 120,971 158,601 203,560 30,718 13,238 527,088 (9,494) 517,594
---------------
- non-bank
financial
institutions 27,439 20,827 14,504 1,287 523 64,580 (265) 64,315
--------------- ----------------------- ---------------------------- --------------------------- ---------------------------- -------------------------- ----------------------- ----------------------------
Loans and
advances
to banks held
at amortised
cost 71,318 5,496 3,568 1,276 - 81,658 (42) 81,616
--------------- ----------------------- ---------------------------- --------------------------- ---------------------------- -------------------------- ----------------------- ---------------------------- -----------------------
Cash and
balances
at central
banks 302,028 1,388 1,070 - - 304,486 (5) 304,481
--------------- ----------------------- ---------------------------- --------------------------- ---------------------------- -------------------------- ----------------------- ---------------------------- -----------------------
Items in the
course
of collection
from other
banks 4,079 9 6 - - 4,094 - 4,094
--------------- ----------------------- ---------------------------- --------------------------- ---------------------------- -------------------------- ----------------------- ---------------------------- -----------------------
Hong Kong
Government
certificates
of
indebtedness 40,420 - - - - 40,420 - 40,420
--------------- ----------------------- ---------------------------- --------------------------- ---------------------------- -------------------------- ----------------------- ---------------------------- -----------------------
Reverse
repurchase
agreements -
non-trading 177,457 40,461 12,398 312 - 230,628 - 230,628
--------------- ----------------------- ---------------------------- --------------------------- ---------------------------- -------------------------- ----------------------- ---------------------------- -----------------------
Financial
investments 77,361 9,781 1,537 1 39 88,719 (80) 88,639
--------------- ----------------------- ---------------------------- --------------------------- ---------------------------- -------------------------- ----------------------- ---------------------------- -----------------------
Prepayments,
accrued
income and
other
assets 81,886 10,129 11,570 298 178 104,061 (90) 103,971
--------------- ----------------------- ---------------------------- --------------------------- ---------------------------- -------------------------- ----------------------- ---------------------------- -----------------------
- endorsements
and
acceptances 1,458 4,355 4,245 229 20 10,307 (30) 10,277
---------------
- accrued
income
and other 80,428 5,774 7,325 69 158 93,754 (60) 93,694
--------------- ----------------------- ---------------------------- --------------------------- ---------------------------- -------------------------- ----------------------- ----------------------------
Debt
instruments
measured at
fair
value through
other
comprehensive
income(1) 367,685 12,678 10,409 825 306 391,903 (141) 391,762
--------------- ----------------------- ---------------------------- --------------------------- ---------------------------- -------------------------- ----------------------- ---------------------------- -----------------------
Out-of-scope
for
IFRS 9
--------------- ----------------------- ---------------------------- --------------------------- ---------------------------- -------------------------- ----------------------- ---------------------------- -----------------------
Trading assets 117,972 14,694 20,809 829 43 154,347 - 154,347
--------------- ----------------------- ---------------------------- --------------------------- ---------------------------- -------------------------- ----------------------- ---------------------------- -----------------------
Other financial
assets
designated
and otherwise
mandatorily
measured
at fair value
through profit
or loss 6,440 2,378 1,827 109 - 10,754 - 10,754
--------------- ----------------------- ---------------------------- --------------------------- ---------------------------- -------------------------- ----------------------- ---------------------------- -----------------------
Derivatives 243,005 54,581 8,709 1,359 72 307,726 - 307,726
--------------- ----------------------- ---------------------------- --------------------------- ---------------------------- -------------------------- ----------------------- ---------------------------- -----------------------
Total gross
carrying
amount on
balance
sheet 1,995,882 384,915 328,487 41,979 20,010 2,771,273 (14,848) 2,756,425
--------------- ----------------------- ---------------------------- --------------------------- ---------------------------- -------------------------- ----------------------- ---------------------------- -----------------------
Percentage of
total credit
quality 72.0% 13.9% 11.9% 1.5% 0.7% 100%
--------------- ----------------------- ---------------------------- --------------------------- ---------------------------- -------------------------- ----------------------- ---------------------------- -----------------------
Loan and other
credit-related
commitments 400,911 157,339 90,784 9,668 1,081 659,783 (734) 659,049
--------------- ----------------------- ---------------------------- --------------------------- ---------------------------- -------------------------- ----------------------- ---------------------------- -----------------------
Financial
guarantees 6,356 5,194 5,317 1,247 270 18,384 (125) 18,259
--------------- ----------------------- ---------------------------- --------------------------- ---------------------------- -------------------------- ----------------------- ---------------------------- -----------------------
In-scope:
Irrevocable
loan
commitments
and financial
guarantees 407,267 162,533 96,101 10,915 1,351 678,167 (859) 677,308
--------------- ----------------------- ---------------------------- --------------------------- ---------------------------- -------------------------- ----------------------- ---------------------------- -----------------------
Loan and other
credit-related
commitments 59,392 62,664 59,666 2,837 430 184,989 - 184,989
--------------- ----------------------- ---------------------------- --------------------------- ---------------------------- -------------------------- ----------------------- ---------------------------- -----------------------
Performance and
other
guarantees 26,082 27,909 21,256 2,112 755 78,114 (226) 77,888
--------------- ----------------------- ---------------------------- --------------------------- ---------------------------- -------------------------- ----------------------- ---------------------------- -----------------------
Out-of-scope:
Revocable loan
commitments
and
non-financial
guarantees 85,474 90,573 80,922 4,949 1,185 263,103 (226) 262,877
--------------- ----------------------- ---------------------------- --------------------------- ---------------------------- -------------------------- ----------------------- ---------------------------- -----------------------
1 For the purposes of this disclosure, gross carrying value is
defined as the amortised cost of a financial asset before adjusting
for any loss allowance. As such, the gross carrying value of debt
instruments at FVOCI as presented above will not reconcile to the
balance sheet as it excludes fair value gains and losses.
Distribution of financial instruments to which the impairment requirements
in IFRS 9 are applied, by credit quality and stage allocation
(Audited)
Gross carrying/notional amount
------------------------------------------------------------------------------------------------------------------------------------------------
Sub- Credit Allowance
Strong Good Satisfactory standard impaired Total for ECL Net
$m $m $m $m $m $m $m $m
--------------- ---------------------- ---------------------- ---------------------- ------------------------ ---------------------- ---------------------- ------------------------ ----------------------
Loans and
advances
to customers
at amortised
cost 544,695 230,326 233,739 29,404 19,067 1,057,231 (11,417) 1,045,814
--------------- ---------------------- ---------------------- ---------------------- ------------------------ ---------------------- ---------------------- ------------------------ ----------------------
- stage 1 537,642 206,645 169,809 4,840 - 918,936 (1,367) 917,569
---------------
- stage 2 7,053 23,681 63,930 24,560 - 119,224 (3,119) 116,105
---------------
- stage 3 - - - - 18,797 18,797 (6,867) 11,930
---------------
- POCI - - - 4 270 274 (64) 210
--------------- ---------------------- ---------------------- ---------------------- ------------------------ ---------------------- ---------------------- ------------------------
Loans and
advances
to banks at
amortised
cost 72,978 4,037 5,020 1,118 - 83,153 (17) 83,136
--------------- ---------------------- ---------------------- ---------------------- ------------------------ ---------------------- ---------------------- ------------------------ ----------------------
- stage 1 72,903 3,935 4,788 10 - 81,636 (14) 81,622
---------------
- stage 2 75 102 232 1,108 - 1,517 (3) 1,514
---------------
- stage 3 - - - - - - - -
---------------
- POCI - - - - - - - -
--------------- ---------------------- ---------------------- ---------------------- ------------------------ ---------------------- ---------------------- ------------------------
Other financial
assets
measured at
amortised
cost 774,026 71,648 33,142 1,188 347 880,351 (193) 880,158
--------------- ---------------------- ---------------------- ---------------------- ------------------------ ---------------------- ---------------------- ------------------------ ----------------------
- stage 1 773,427 70,508 30,997 84 - 875,016 (91) 874,925
---------------
- stage 2 599 1,140 2,145 1,104 - 4,988 (54) 4,934
---------------
- stage 3 - - - - 304 304 (42) 262
---------------
- POCI - - - - 43 43 (6) 37
--------------- ---------------------- ---------------------- ---------------------- ------------------------ ---------------------- ---------------------- ------------------------
Loan and other
credit-related
commitments 389,865 136,297 92,558 8,142 775 627,637 (379) 627,258
--------------- ---------------------- ---------------------- ---------------------- ------------------------ ---------------------- ---------------------- ------------------------ ----------------------
- stage 1 387,434 129,455 76,043 1,541 - 594,473 (165) 594,308
---------------
- stage 2 2,431 6,842 16,515 6,601 - 32,389 (174) 32,215
---------------
- stage 3 - - - - 775 775 (40) 735
---------------
- POCI - - - - - - - -
--------------- ---------------------- ---------------------- ---------------------- ------------------------ ---------------------- ---------------------- ------------------------
Financial
guarantees 16,511 4,902 5,166 991 225 27,795 (62) 27,733
--------------- ---------------------- ---------------------- ---------------------- ------------------------ ---------------------- ---------------------- ------------------------ ----------------------
- stage 1 16,351 4,469 3,929 183 - 24,932 (11) 24,921
---------------
- stage 2 160 433 1,237 808 - 2,638 (30) 2,608
---------------
- stage 3 - - - - 225 225 (21) 204
---------------
- POCI - - - - - - - -
--------------- ---------------------- ---------------------- ---------------------- ------------------------ ---------------------- ---------------------- ------------------------
At 31 Dec 2021 1,798,075 447,210 369,625 40,843 20,414 2,676,167 (12,068) 2,664,099
--------------- ---------------------- ---------------------- ---------------------- ------------------------ ---------------------- ---------------------- ------------------------ ----------------------
Debt
instruments at
FVOCI(1)
--------------- ---------------------- ---------------------- ---------------------- ------------------------ ---------------------- ---------------------- ------------------------ ----------------------
- stage 1 319,557 12,196 11,354 - - 343,107 (67) 343,040
---------------
- stage 2 604 102 323 1,087 - 2,116 (22) 2,094
---------------
- stage 3 - - - - - - - -
---------------
- POCI - - - - 46 46 (7) 39
--------------- ---------------------- ---------------------- ---------------------- ------------------------ ---------------------- ---------------------- ------------------------
At 31 Dec 2021 320,161 12,298 11,677 1,087 46 345,269 (96) 345,173
--------------- ---------------------- ---------------------- ---------------------- ------------------------ ---------------------- ---------------------- ------------------------ ----------------------
1 For the purposes of this disclosure, gross carrying value is
defined as the amortised cost of a financial asset before adjusting
for any loss allowance. As such, the gross carrying value of debt
instruments at FVOCI as presented above will not reconcile to the
balance sheet as it excludes fair value gains and losses.
Distribution of financial instruments to which the impairment requirements
in IFRS 9 are applied, by credit quality and stage allocation
(continued)
(Audited)
Gross carrying/notional amount
-----------------------------------------------------------------------------------------------------------------------------------------------------
Credit Allowance
Strong Good Satisfactory Sub-standard impaired Total for ECL Net
$m $m $m $m $m $m $m $m
--------------- ----------------------- ----------------------- ---------------------- ----------------------- ------------------------ ------------------------ ------------------------- ------------------------
Loans and
advances
to customers
at amortised
cost 506,231 233,320 256,584 36,970 19,372 1,052,477 (14,490) 1,037,987
--------------- ----------------------- ----------------------- ---------------------- ----------------------- ------------------------ ------------------------ ------------------------- ------------------------
- stage 1 499,836 199,138 165,507 5,439 - 869,920 (1,974) 867,946
---------------
- stage 2 6,395 34,182 91,077 31,531 - 163,185 (4,965) 158,220
---------------
- stage 3 - - - - 19,095 19,095 (7,439) 11,656
---------------
- POCI - - - - 277 277 (112) 165
--------------- ----------------------- ----------------------- ---------------------- ----------------------- ------------------------ ------------------------ -------------------------
Loans and
advances
to banks at
amortised
cost 71,318 5,496 3,568 1,276 - 81,658 (42) 81,616
--------------- ----------------------- ----------------------- ---------------------- ----------------------- ------------------------ ------------------------ ------------------------- ------------------------
- stage 1 71,126 5,098 3,357 73 - 79,654 (33) 79,621
---------------
- stage 2 192 398 211 1,203 - 2,004 (9) 1,995
---------------
- stage 3 - - - - - - - -
---------------
- POCI - - - - - - - -
--------------- ----------------------- ----------------------- ---------------------- ----------------------- ------------------------ ------------------------ -------------------------
Other financial
assets
measured at
amortised
cost 683,231 61,768 26,581 611 217 772,408 (175) 772,233
--------------- ----------------------- ----------------------- ---------------------- ----------------------- ------------------------ ------------------------ ------------------------- ------------------------
- stage 1 682,412 61,218 24,532 54 - 768,216 (80) 768,136
---------------
- stage 2 819 550 2,049 557 - 3,975 (44) 3,931
---------------
- stage 3 - - - - 177 177 (42) 135
---------------
- POCI - - - - 40 40 (9) 31
--------------- ----------------------- ----------------------- ---------------------- ----------------------- ------------------------ ------------------------ -------------------------
Loan and other
credit-related
commitments 400,911 157,339 90,784 9,668 1,081 659,783 (734) 659,049
--------------- ----------------------- ----------------------- ---------------------- ----------------------- ------------------------ ------------------------ ------------------------- ------------------------
- stage 1 396,028 143,600 63,592 1,265 - 604,485 (290) 604,195
---------------
- stage 2 4,883 13,739 27,192 8,403 - 54,217 (365) 53,852
---------------
- stage 3 - - - - 1,080 1,080 (78) 1,002
---------------
- POCI - - - - 1 1 (1) -
--------------- ----------------------- ----------------------- ---------------------- ----------------------- ------------------------ ------------------------ -------------------------
Financial
guarantees 6,356 5,194 5,317 1,247 270 18,384 (125) 18,259
--------------- ----------------------- ----------------------- ---------------------- ----------------------- ------------------------ ------------------------ ------------------------- ------------------------
- stage 1 6,286 4,431 3,163 210 - 14,090 (37) 14,053
---------------
- stage 2 70 763 2,154 1,037 - 4,024 (62) 3,962
---------------
- stage 3 - - - - 269 269 (26) 243
---------------
- POCI - - - - 1 1 - 1
--------------- ----------------------- ----------------------- ---------------------- ----------------------- ------------------------ ------------------------ -------------------------
At 31 Dec 2020 1,668,047 463,117 382,834 49,772 20,940 2,584,710 (15,566) 2,569,144
--------------- ----------------------- ----------------------- ---------------------- ----------------------- ------------------------ ------------------------ ------------------------- ------------------------
Debt
instruments at
FVOCI(1)
--------------- ----------------------- ----------------------- ---------------------- ----------------------- ------------------------ ------------------------ ------------------------- ------------------------
- stage 1 367,542 12,585 10,066 - - 390,193 (88) 390,105
---------------
- stage 2 143 93 343 825 - 1,404 (20) 1,384
---------------
- stage 3 - - - - 257 257 (23) 234
---------------
- POCI - - - - 49 49 (10) 39
--------------- ----------------------- ----------------------- ---------------------- ----------------------- ------------------------ ------------------------ -------------------------
At 31 Dec 2020 367,685 12,678 10,409 825 306 391,903 (141) 391,762
--------------- ----------------------- ----------------------- ---------------------- ----------------------- ------------------------ ------------------------ ------------------------- ------------------------
1 For the purposes of this disclosure, gross carrying value is
defined as the amortised cost of a financial asset before adjusting
for any loss allowance. As such, the gross carrying value of debt
instruments at FVOCI as presented above will not reconcile to the
balance sheet as it excludes fair value gains and losses.
Credit-impaired loans
(Audited)
We determine that a financial instrument is credit impaired and
in stage 3 by considering relevant objective evidence, primarily
whether:
-- contractual payments of either principal or interest are past due for more than 90 days;
-- there are other indications that the borrower is unlikely to
pay, such as when a concession has been granted to the borrower for
economic or legal reasons relating to the borrower's financial
condition; and
-- the loan is otherwise considered to be in default. If such
unlikeliness to pay is not identified at an earlier stage, it is
deemed to occur when an exposure is 90 days past due, even where
regulatory rules permit default to be defined based on 180 days
past due. Therefore, the definitions of credit impaired and default
are aligned as far as possible so that stage 3 represents all loans
that are considered defaulted or otherwise credit impaired.
Renegotiated loans and forbearance
The following table shows the gross carrying amounts of the
Group's holdings of renegotiated loans and advances to customers by
industry sector and by stages. Mandatory and general offer loan
modifications that are not borrower-specific, for example
market-wide customer relief programmes, have not been classified as
renegotiated loans. For details on customer relief schemes, see
page 159.
A summary of our current policies and practices for renegotiated
loans and forbearance is set out in 'Credit risk management' on
page 137.
Renegotiated loans and advances to customers at amortised cost by stage
allocation
Stage Stage Stage
1 2 3 POCI Total
$m $m $m $m $m
------------- ------------------------------- ------------------------------ ------------------------------- ----------------------------- -------------------------------
Gross
carrying
amount
------------- ------------------------------- ------------------------------ ------------------------------- ----------------------------- -------------------------------
Personal - - 2,256 - 2,256
------------- ------------------------------- ------------------------------ ------------------------------- ----------------------------- -------------------------------
- first lien
residential
mortgages - - 1,547 - 1,547
-------------
- other
personal
lending - - 709 - 709
------------- ------------------------------- ------------------------------ ------------------------------- -----------------------------
Wholesale 366 559 4,505 253 5,683
------------- ------------------------------- ------------------------------ ------------------------------- ----------------------------- -------------------------------
- corporate
and
commercial 355 550 4,491 253 5,649
-------------
- non-bank
financial
institutions 11 9 14 - 34
------------- ------------------------------- ------------------------------ ------------------------------- -----------------------------
At 31 Dec
2021 366 559 6,761 253 7,939
------------- ------------------------------- ------------------------------ ------------------------------- ----------------------------- -------------------------------
Allowance for
ECL
------------- ------------------------------- ------------------------------ ------------------------------- ----------------------------- -------------------------------
Personal - - (400) - (400)
------------- ------------------------------- ------------------------------ ------------------------------- ----------------------------- -------------------------------
- first lien
residential
mortgages - - (178) - (178)
-------------
- other
personal
lending - - (222) - (222)
------------- ------------------------------- ------------------------------ ------------------------------- -----------------------------
Wholesale (7) (24) (1,282) (52) (1,365)
------------- ------------------------------- ------------------------------ ------------------------------- ----------------------------- -------------------------------
- corporate
and
commercial (7) (24) (1,274) (52) (1,357)
-------------
- non-bank
financial
institutions - - (8) - (8)
------------- ------------------------------- ------------------------------ ------------------------------- -----------------------------
At 31 Dec
2021 (7) (24) (1,682) (52) (1,765)
------------- ------------------------------- ------------------------------ ------------------------------- ----------------------------- -------------------------------
Gross
carrying
amount
------------- ------------------------------- ------------------------------ ------------------------------ ------------------------------ ------------------------------
Personal - - 2,429 - 2,429
------------- ------------------------------- ------------------------------ ------------------------------ ------------------------------ ------------------------------
- first lien
residential
mortgages - - 1,692 - 1,692
-------------
- other
personal
lending - - 737 - 737
------------- ------------------------------- ------------------------------ ------------------------------ ------------------------------
Wholesale 328 989 3,929 239 5,485
------------- ------------------------------- ------------------------------ ------------------------------ ------------------------------ ------------------------------
- corporate
and
commercial 324 972 3,903 239 5,438
-------------
- non-bank
financial
institutions 4 17 26 - 47
------------- ------------------------------- ------------------------------ ------------------------------ ------------------------------
At 31 Dec
2020 328 989 6,358 239 7,914
------------- ------------------------------- ------------------------------ ------------------------------ ------------------------------ ------------------------------
Allowance for
ECL
------------- ------------------------------- ------------------------------ ------------------------------ ------------------------------ ------------------------------
Personal - - (452) - (452)
------------- ------------------------------- ------------------------------ ------------------------------ ------------------------------ ------------------------------
- first lien
residential
mortgages - - (152) - (152)
-------------
- other
personal
lending - - (300) - (300)
------------- ------------------------------- ------------------------------ ------------------------------ ------------------------------
Wholesale (10) (36) (1,276) (86) (1,408)
------------- ------------------------------- ------------------------------ ------------------------------ ------------------------------ ------------------------------
- corporate
and
commercial (10) (36) (1,263) (86) (1,395)
-------------
- non-bank
financial
institutions - - (13) - (13)
------------- ------------------------------- ------------------------------ ------------------------------ ------------------------------
At 31 Dec
2020 (10) (36) (1,728) (86) (1,860)
------------- ------------------------------- ------------------------------ ------------------------------ ------------------------------ ------------------------------
Renegotiated loans and advances to customers by geographical region
Of which:
------------------------------------
North Latin Hong
Europe Asia MENA America America Total UK Kong
$m $m $m $m $m $m $m $m
----- ---------------- ------------------ ----------------- ---------------- ------------------ ---------------- ---------------- ------------------
At 31
Dec
2021 4,119 1,322 954 1,064 480 7,939 3,469 528
----- ---------------- ------------------ ----------------- ---------------- ------------------ ---------------- ---------------- ------------------
At 31
Dec
2020 4,274 745 1,279 1,349 267 7,914 3,483 220
----- ---------------- ------------------ ----------------- ---------------- ------------------ ---------------- ---------------- ------------------
Customer relief programmes
In response to the Covid-19 pandemic, governments and regulators
around the world introduced a number of support measures for both
personal and wholesale customers in market-wide schemes. The
following table presents the number of personal accounts/wholesale
customers and the associated drawn loan values of customers under
these schemes and HSBC-specific measures for major markets at 31
December 2021. When schemes expire, accounts and customers and
their associated drawn balances are no longer reported under relief
regardless of their repayment status. In relation to personal
lending, the majority of relief measures, including payment
holidays, relate to existing lending, while in wholesale lending
the relief measures comprise payment holidays, refinancing of
existing facilities and new lending under government-backed
schemes.
At 31 December 2021, the gross carrying value of loans to
personal customers under relief was $1.7bn (31 December 2020:
$5.5bn). This comprised $1.0bn in relation to mortgages (31
December 2020: $4.7bn) and $0.7bn in relation to other personal
lending (31 December 2020: $0.9bn). The decrease in personal
customer relief during the year was driven by customers exiting
relief measures. The gross carrying value of loans to wholesale
customers under relief was $26.3bn (31 December 2020: $35.3bn). We
continue to monitor the recoverability of loans granted under
customer relief programmes, including loans to a small number of
customers that were subsequently found to be ineligible for such
relief. The ongoing performance of such loans remains an area of
uncertainty at 31 December 2021.
Personal lending
Other
Extant at 31 Hong major
December 2021 UK Kong US markets(1,2) Total
-------------- ---- ------------------- -------------------- -------------------- ------------------------------- -----------------------
Market-wide
schemes
-------------- ---- ------------------- -------------------- -------------------- ------------------------------- -----------------------
Number of
accounts
granted
mortgage
customer
relief 000s - - - 8 8
-------------- ---- ------------------- -------------------- -------------------- ------------------------------- -----------------------
Drawn loan
value of
accounts
granted
mortgage
customer
relief $m - - - 657 657
-------------- ---- ------------------- -------------------- -------------------- ------------------------------- -----------------------
Number of
accounts
granted other
personal
lending
customer
relief 000s - - - 34 34
-------------- ---- ------------------- -------------------- -------------------- ------------------------------- -----------------------
Drawn loan
value of
accounts
granted
other
personal
lending
customer
relief $m - - - 613 613
-------------- ---- ------------------- -------------------- -------------------- ------------------------------- -----------------------
HSBC-specific
measures
-------------- ---- ------------------- -------------------- -------------------- ------------------------------- -----------------------
Number of
accounts
granted
mortgage
customer
relief 000s - - 1 - 1
-------------- ---- ------------------- -------------------- -------------------- ------------------------------- -----------------------
Drawn loan
value of
accounts
granted
mortgage
customer
relief $m - 57 336 3 396
-------------- ---- ------------------- -------------------- -------------------- ------------------------------- -----------------------
Number of
accounts
granted other
personal
lending
customer
relief 000s - - - 1 1
-------------- ---- ------------------- -------------------- -------------------- ------------------------------- -----------------------
Drawn loan
value of
accounts
granted
other
personal
lending
customer
relief $m - 34 18 10 62
-------------- ---- ------------------- -------------------- -------------------- ------------------------------- -----------------------
Total personal
lending to
major markets
under
market-wide
schemes and
HSBC-specific
measures
-------------- ---- ------------------- -------------------- -------------------- ------------------------------- -----------------------
Number of
accounts
granted
mortgage
customer
relief 000s - - 1 8 9
-------------- ---- ------------------- -------------------- -------------------- ------------------------------- -----------------------
Drawn loan
value of
accounts
granted
mortgage
customer
relief $m - 57 336 660 1,053
-------------- ---- ------------------- -------------------- -------------------- ------------------------------- -----------------------
Number of
accounts
granted other
personal
lending
customer
relief 000s - - - 35 35
-------------- ---- ------------------- -------------------- -------------------- ------------------------------- -----------------------
Drawn loan
value of
accounts
granted
other
personal
lending
customer
relief $m - 34 18 623 675
Market-wide
schemes and
HSBC-specific
measures -
mortgage
relief as a
proportion
of total
mortgages % - 0.1 2.0 0.8 0.3
-------------- ---- ------------------- -------------------- -------------------- ------------------------------- -----------------------
Market-wide
schemes and
HSBC-specific
measures -
other
personal
lending
relief
as a
proportion of
total other
personal
lending loans
and advances % - 0.1 2.3 1.2 0.7
-------------- ---- ------------------- -------------------- -------------------- ------------------------------- -----------------------
Wholesale lending
Other
Extant at 31 Hong major
December 2021 UK Kong US markets(1) Total
-------------- ---- ------------------- -------------------- -------------------- ------------------------------- -----------------------
Market-wide
schemes
-------------- ---- ------------------- -------------------- -------------------- ------------------------------- -----------------------
Number of
customers
under
market-wide
measures 000s 227 1 1 5 234
-------------- ---- ------------------- -------------------- -------------------- ------------------------------- -----------------------
Drawn loan
value of
customers
under
market-wide
schemes $m 12,468 2,907 262 4,501 20,138
-------------- ---- ------------------- -------------------- -------------------- ------------------------------- -----------------------
HSBC-specific
schemes
-------------- ---- ------------------- -------------------- -------------------- ------------------------------- -----------------------
Number of
customers
under
HSBC-specific
measures 000s - 5 - - 5
-------------- ---- ------------------- -------------------- -------------------- ------------------------------- -----------------------
Drawn loan
value of
customers
under
HSBC-specific
measures $m 82 4,611 42 1,420 6,155
-------------- ---- ------------------- -------------------- -------------------- ------------------------------- -----------------------
Total
wholesale
lending to
major markets
under
market-wide
schemes and
HSBC-specific
measures
-------------- ---- ------------------- -------------------- -------------------- ------------------------------- -----------------------
Number of
customers 000s 227 6 1 5 239
-------------- ---- ------------------- -------------------- -------------------- ------------------------------- -----------------------
Drawn loan
value $m 12,550 7,518 304 5,921 26,293
Market-wide
schemes and
HSBC-specific
measures as a
proportion of
total
wholesale
lending loans
and advances % 9.9 4.1 0.9 2.9 4.8
-------------- ---- ------------------- -------------------- -------------------- ------------------------------- -----------------------
Personal lending (continued)
Other
Extant at 31 Hong major
December 2020 UK Kong US markets(1,2,3) Total
-------------- ---- --------------------- --------------------- --------------------- -------------------------------- ------------------------
Market-wide
schemes
-------------- ---- --------------------- --------------------- --------------------- -------------------------------- ------------------------
Number of
accounts
granted
mortgage
customer
relief 000s 6 - - 5 11
-------------- ---- --------------------- --------------------- --------------------- -------------------------------- ------------------------
Drawn loan
value of
accounts
granted
mortgage
customer
relief $m 1,412 - - 908 2,320
-------------- ---- --------------------- --------------------- --------------------- -------------------------------- ------------------------
Number of
accounts
granted other
personal
lending
customer
relief 000s 15 - - 28 43
-------------- ---- --------------------- --------------------- --------------------- -------------------------------- ------------------------
Drawn loan
value of
accounts
granted
other
personal
lending
customer
relief $m 140 - - 386 526
-------------- ---- --------------------- --------------------- --------------------- -------------------------------- ------------------------
HSBC-specific
measures
-------------- ---- --------------------- --------------------- --------------------- -------------------------------- ------------------------
Number of
accounts
granted
mortgage
customer
relief 000s - 3 2 3 8
-------------- ---- --------------------- --------------------- --------------------- -------------------------------- ------------------------
Drawn loan
value of
accounts
granted
mortgage
customer
relief $m 7 1,124 864 360 2,355
-------------- ---- --------------------- --------------------- --------------------- -------------------------------- ------------------------
Number of
accounts
granted other
personal
lending
customer
relief 000s - 1 6 18 25
-------------- ---- --------------------- --------------------- --------------------- -------------------------------- ------------------------
Drawn loan
value of
accounts
granted
other
personal
lending
customer
relief $m - 75 67 182 324
-------------- ---- --------------------- --------------------- --------------------- -------------------------------- ------------------------
Total personal
lending to
major markets
under
market-wide
schemes and
HSBC-specific
measures
-------------- ---- --------------------- --------------------- --------------------- -------------------------------- ------------------------
Number of
accounts
granted
mortgage
customer
relief 000s 6 3 2 8 19
-------------- ---- --------------------- --------------------- --------------------- -------------------------------- ------------------------
Drawn loan
value of
accounts
granted
mortgage
customer
relief $m 1,419 1,124 864 1,268 4,675
-------------- ---- --------------------- --------------------- --------------------- -------------------------------- ------------------------
Number of
accounts
granted other
personal
lending
customer
relief 000s 15 1 6 46 68
-------------- ---- --------------------- --------------------- --------------------- -------------------------------- ------------------------
Drawn loan
value of
accounts
granted
other
personal
lending
customer
relief $m 140 75 67 568 850
-------------- ----
Market-wide
schemes and
HSBC-specific
measures -
mortgage
relief as a
proportion
of total
mortgages % 0.9 1.2 4.7 1.6 1.4
-------------- ---- --------------------- --------------------- --------------------- -------------------------------- ------------------------
Market-wide
schemes and
HSBC-specific
measures -
other
personal
lending
relief as a
proportion of
total other
personal
lending loans
and advances % 0.7 0.2 3.1 1.1 0.8
-------------- ---- --------------------- --------------------- --------------------- -------------------------------- ------------------------
Wholesale lending (continued)
Other
Extant at 31 Hong major
December 2020 UK Kong US markets(1) Total
-------------- ---- ------------------ --------------------- --------------------- -------------------------------- ----------------------
Market-wide
schemes
-------------- ---- ------------------ --------------------- --------------------- -------------------------------- ----------------------
Number of
customers
under
market-wide
measures 000s 226 3 3 5 237
-------------- ---- ------------------ --------------------- --------------------- -------------------------------- ----------------------
Drawn loan
value of
customers
under
market-wide
schemes $m 13,517 10,622 1,043 6,017 31,199
-------------- ---- ------------------ --------------------- --------------------- -------------------------------- ----------------------
HSBC-specific
schemes
-------------- ---- ------------------ --------------------- --------------------- -------------------------------- ----------------------
Number of
customers
under
HSBC-specific
measures 000s - - - - -
-------------- ---- ------------------ --------------------- --------------------- -------------------------------- ----------------------
Drawn loan
value of
customers
under
HSBC-specific
measures $m 349 - 924 2,869 4,142
-------------- ---- ------------------ --------------------- --------------------- -------------------------------- ----------------------
Total
wholesale
lending to
major markets
under
market-wide
schemes and
HSBC-specific
measures
-------------- ---- ------------------ --------------------- --------------------- -------------------------------- ----------------------
Number of
customers 000s 226 3 3 5 237
-------------- ---- ------------------ --------------------- --------------------- -------------------------------- ----------------------
Drawn loan
value $m 13,866 10,622 1,967 8,886 35,341
-------------- ----
Market-wide
schemes and
HSBC-specific
measures as a
proportion of
total
wholesale
lending loans
and advances % 9.6 5.9 5.2 4.6 6.4
-------------- ---- ------------------ --------------------- --------------------- -------------------------------- ----------------------
1 Other major markets include Australia, Canada, mainland China,
Egypt, France, Germany, India, Indonesia, Malaysia, Mexico,
Singapore, Switzerland, Taiwan and UAE.
2 In Malaysia, personal lending customers are granted an
automatic moratorium programme for all eligible retail customers.
As a result of further loosening of eligibility criteria and scope
of relief measures, the country is now the major contributor to the
figures reported under 'Other major markets'. At 31 December 2021,
the number of accounts under relief was 39,000 (31 December 2020:
26,000) with an associated drawn balance of $1,151m (31 December
2020: $452m).
3 In Mexico, at 31 December 2020, there were 16,000 personal
lending accounts under customer relief with an associated drawn
balance of $233m.
The initial granting of customer relief does not automatically
trigger a migration to stage 2 or 3. However, information provided
by payment deferrals is considered in the context of other
reasonable and supportable information. This forms part of the
overall assessment for whether there has been a significant
increase in credit risk and credit impairment to identify loans for
which lifetime ECL is appropriate. An extension in payment deferral
does not automatically result in a migration to stage 2 or stage 3.
The key accounting and credit risk judgement to ascertain whether a
significant increase in credit risk has occurred is whether the
economic effects of the Covid-19 pandemic on the customer are
likely to be temporary over the lifetime of the loan, and whether
they indicate that a concession is being made in respect of
financial difficulty that would be consistent with stage 3.
Market-wide schemes
The following narrative provides further details on the major
government and regulatory schemes offered in the UK, Hong Kong and
the US.
UK personal lending
Mortgages
Customer relief granted on UK mortgages primarily consisted of
payment holidays or partial payment deferrals.
Relief was offered for an initial period of three months and
could be extended for a further three months in certain
circumstances. No payment was required from the customer during
this period (though with a partial payment deferral the customer
had expressed a desire to make a contribution) and interest
continued to be charged as usual. The customer's arrears status was
not worsened from utilisation of these schemes. All UK personal
lending schemes expired during 2021.
Other personal lending payment holidays
Customer relief was granted for an initial period of three
months and could be extended for a further three months. The
maximum relief value was up to the due payment amount during the
period. All UK personal lending schemes expired during 2021.
UK wholesale lending
The primary relief granted under government schemes consisted of
the Bounce Back Loan Scheme, Coronavirus Business Interruption Loan
Scheme and Coronavirus Large Business Interruption Loan Scheme.
Since their initial launch, the application deadline for these
schemes was extended to 31 March 2021. The key features of these
schemes were as follows:
-- The Bounce Back Loan Scheme provided small and medium-sized
enterprises ('SME') with loans of up to GBP50,000 for a maximum
period of six years. Interest was charged at 2.5% and the
government paid the fees and interest for the first 12 months. No
capital repayment was required by the customer for the first 12
months of the scheme. A government guarantee of 100% was provided
under the scheme. Before their first payment was due customers
could extend the term of the loan to 10 years, move to
interest-only repayments for a period of six months (customers
could use this option up to three times) and/or pause repayments
for a period of six months (customers could use this option
once).
-- The Coronavirus Business Interruption Loan Scheme provided
SMEs that had a turnover of less than GBP45m with loans of up to
GBP5m for a maximum period of six years. Interest was charged
between 3.49% and 3.99% above the UK base rate and no capital
repayment was required by the customer for the first 12 months of
the scheme. A government guarantee of up to 80% was provided under
the scheme.
-- The Coronavirus Large Business Interruption Loan Scheme
provided medium and large-sized enterprises that had a turnover in
excess of GBP45m with loans of up to GBP200m. The interest rate and
tenor of the loan were negotiated on commercial terms. A government
guarantee of 80% was provided under the scheme.
Until 31 December 2021, the Recovery Loan Scheme, launched on 6
April 2021, provided businesses of any size financial support to
recover from the Covid-19 pandemic with loans of GBP25,001 to
GBP10m subject to eligibility and viability assessments. A
government guarantee of 80% was provided under the scheme.
For term loans and asset finance, businesses could borrow for
three months up to six years and for overdrafts and invoice
finance, three months up to three years. The scheme was extended
until 30 June 2022, with the following changes coming into force
from 1 January 2022: the scheme remains open to small and
medium-sized enterprises and the maximum amount of finance
available is GBP2m per business. A government guarantee of 70% is
provided on such loans.
Hong Kong wholesale lending
Pre-approved Principal Payment Holiday Scheme for Corporate
Customers
The above scheme enabled eligible customers to apply for a
payment holiday of six months (or 90 days for trade finance) with
no change to the existing interest rate charge. On 2 September
2020, the Hong Kong Monetary Authority ('HKMA') announced that this
scheme had been extended for a further six months to April 2021 and
on 4 March 2021, it was extended for a further six months (or 90
days for trade finance) to October 2021.
Given the persistence of the Covid-19 pandemic around the world
and the severity of the ensuing impact on the global and local
economy, HKMA - together with the Banking Sector SME Lending
Coordination Mechanism - announced on 21 September 2021 that the
Pre-approved Principal Payment Holiday Scheme would be extended for
another six months until April 2022. HKMA and the coordination
mechanism agreed that all principal payments of loans falling due
between November 2021 and April 2022 by eligible corporate
customers would be deferred by another six months except for
repayments of trade loans, which would be deferred by 90 days.
US wholesale lending
Paycheck Protection Program
The CARES Act created the Paycheck Protection Program ('PPP')
loan guarantee programme to provide small businesses with support
to cover payroll and certain other expenses. Loans made under the
PPP were fully guaranteed by the Small Business Administration,
whose guarantee was backed by the full faith and credit of the US.
PPP-covered loans also afforded customers forgiveness up to the
principal amount of the PPP-covered loan, plus accrued interest, if
the loan proceeds were used to retain workers and maintain payroll
or to make certain mortgage interest, lease and utility payments,
and certain other criteria were satisfied. The Small Business
Administration would reimburse PPP lenders for any amount of a
PPP-covered loan that was forgiven, and PPP lenders would not be
liable for any representations made by PPP borrowers in connection
with their requests for loan forgiveness. Lenders received
pre-determined fees for processing and servicing PPP loans. The
schemes have now been closed.
HSBC-specific measures
UK wholesale lending
HSBC offered capital repayment holidays to CMB customers. Relief
was offered on a preferred term of six months. However, some were
granted for three months with the option of an extension. Interest
continued to be paid as usual. Schemes have now been closed for
application.
Hong Kong personal lending
Mortgages
Customer relief granted on Hong Kong mortgages consisted of
deferred principal repayment of up to 12 months. This relief
programme was available to existing HSBC mortgage loan customers
who had a good repayment record during the six months prior to
application. Schemes have now been closed for application.
Hong Kong wholesale lending
On 20 May 2021, the Group announced a new SME financing scheme
in Hong Kong, with HK$40bn reserved to support SME customers as the
economy started to recover. The scheme has now been closed for
application.
US total personal lending
Customer relief granted on US mortgages and other personal
lending consisted of deferrals of up to 12 months and up to nine
months respectively. Schemes have now been closed for
application.
Wholesale lending
This section provides further details on the regions, countries,
territories and products comprising wholesale loans and advances to
customers and banks. Product granularity is also provided by stage
with geographical data presented for loans and advances to
customers, banks, other credit commitments, financial guarantees
and similar contracts. Additionally, this section provides a
reconciliation of the opening 1 January 2021 to 31 December 2021
closing gross carrying/nominal amounts and the associated allowance
for ECL.
At 31 December 2021, wholesale lending for loans and advances to
banks and customers of $662bn decreased by $11.3bn since 31
December 2020. This included adverse foreign exchange movements of
$10.6bn. Excluding foreign exchange movements, the total wholesale
lending decrease was driven by a $5.2bn decline in corporate and
commercial balances. This was partly offset by a $3bn increase in
loans and advances to banks and a $1.5bn increase in balances from
non-bank financial institutions.
The primary driver of the decline in corporate and commercial
balances was $11.2bn in Europe, notably $12.4bn in the UK and $1bn
in Germany, partly offset by growth of $4.6bn in France.
In MENA and North America, balances declined $1.4bn and $0.9bn
respectively, while they grew in Asia by $8.0bn, notably $4.3bn in
mainland China, $1.6bn in Hong Kong and $1.1bn in India.
Loan commitments and financial guarantees declined $26.5bn since
31 December 2020 to $415bn at 31 December 2021, including a $19.3bn
decrease related to unsettled reverse repurchase agreements. This
also included adverse foreign exchange movements of $12.7bn.
The allowance for ECL attributable to wholesale loans and
advances to banks and customers decreased $1.5bn to $8.3bn at 31
December 2021 from $9.8bn at 31 December 2020. This included
favourable foreign exchange movements of $0.2bn.
Excluding foreign exchange movements, the total decrease in the
wholesale ECL allowance for loans and advances to customers and
banks was driven by a $1.1bn decline in corporate and commercial
allowances. The primary driver of this decrease in corporate and
commercial allowance for ECL was $1.1bn in Europe, notably $1.1bn
in the UK. Additionally, there were decreases of $0.2bn, $0.2bn and
$0.1bn in MENA, North America and Latin America, respectively.
There was an increase of $0.6bn in Asia, notably $0.4bn in Hong
Kong.
The allowance for ECL attributable to loan commitments and
financial guarantees of $0.4bn at 31 December 2021 decreased from
$0.8bn at 31 December 2020.
Total wholesale lending for loans and advances to banks and customers
by stage distribution
Gross carrying amount Allowance for ECL
------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------
Stage Stage Stage Stage Stage Stage
1 2 3 POCI Total 1 2 3 POCI Total
$m $m $m $m $m $m $m $m $m $m
------------------------------------------------------------ -------------------- ------------------ ------------------ -------------------- ------------------- -------------------- -------------------- ------------------ -------------------- --------------------
Corporate and commercial 400,894 98,911 13,460 274 513,539 (665) (1,874) (5,601) (64) (8,204)
------------------------------------------------------------ -------------------- ------------------ ------------------ -------------------- ------------------- -------------------- -------------------- ------------------ -------------------- --------------------
- agriculture, forestry
and fishing 6,510 1,026 362 1 7,899 (10) (23) (104) (1) (138)
------------------------------------------------------------
- mining and quarrying 7,167 2,055 447 16 9,685 (17) (39) (159) (12) (227)
------------------------------------------------------------
- manufacturing 75,193 16,443 2,019 88 93,743 (110) (176) (931) (31) (1,248)
------------------------------------------------------------
* electricity, gas, steam and air-conditioning supply 15,255 1,285 78 - 16,618 (16) (21) (31) - (68)
------------------------------------------------------------
* water supply, sewerage, waste management and
remediation 3,376 468 51 - 3,895 (5) (4) (20) - (29)
------------------------------------------------------------
- construction 9,506 3,605 842 1 13,954 (24) (44) (439) (1) (508)
------------------------------------------------------------
* wholesale and retail trade, repair of motor vehicles
and motorcycles 79,137 12,802 3,003 2 94,944 (71) (99) (1,936) (1) (2,107)
------------------------------------------------------------
- transportation
and storage 21,199 7,726 658 9 29,592 (56) (116) (191) - (363)
------------------------------------------------------------
- accommodation
and food 8,080 14,096 1,199 1 23,376 (67) (245) (110) (1) (423)
------------------------------------------------------------
* publishing, audiovisual and broadcasting 16,417 1,804 222 28 18,471 (37) (47) (94) (6) (184)
------------------------------------------------------------
- real estate 93,633 25,154 2,375 98 121,260 (132) (737) (775) - (1,644)
------------------------------------------------------------
* professional, scientific and technical activities 16,160 2,888 637 - 19,685 (26) (40) (172) - (238)
------------------------------------------------------------
- administrative
and support services 23,186 4,740 719 30 28,675 (40) (84) (296) (11) (431)
------------------------------------------------------------
* public administration and defence, compulsory social
security 938 333 - - 1,271 (5) (3) - - (8)
------------------------------------------------------------
- education 1,455 273 65 - 1,793 (4) (15) (18) - (37)
------------------------------------------------------------
- health and care 3,743 928 183 - 4,854 (11) (24) (37) - (72)
------------------------------------------------------------
- arts, entertainment
and recreation 1,620 826 152 - 2,598 (6) (44) (42) - (92)
------------------------------------------------------------
- other services 10,123 1,726 448 - 12,297 (26) (101) (246) - (373)
------------------------------------------------------------
- activities of
households 860 117 - - 977 - - - - -
------------------------------------------------------------
* extra-territorial organisations and bodies activities 2 - - - 2 - - - - -
------------------------------------------------------------
- government 7,010 602 - - 7,612 (2) (2) - - (4)
------------------------------------------------------------
- asset-backed securities 324 14 - - 338 - (10) - - (10)
------------------------------------------------------------ -------------------- ------------------ ------------------ -------------------- ------------------- -------------------- -------------------- ------------------ --------------------
Non-bank financial
institutions 61,086 3,874 395 - 65,355 (44) (26) (40) - (110)
------------------------------------------------------------ -------------------- ------------------ ------------------ -------------------- ------------------- -------------------- -------------------- ------------------ -------------------- --------------------
Loans and advances
to banks 81,636 1,517 - - 83,153 (14) (3) - - (17)
------------------------------------------------------------ -------------------- ------------------ ------------------ -------------------- ------------------- -------------------- -------------------- ------------------ -------------------- --------------------
At 31 Dec 2021 543,616 104,302 13,855 274 662,047 (723) (1,903) (5,641) (64) (8,331)
------------------------------------------------------------ -------------------- ------------------ ------------------ -------------------- ------------------- -------------------- -------------------- ------------------ -------------------- --------------------
By geography
------------------------------------------------------------ -------------------- ------------------ ------------------ -------------------- ------------------- -------------------- -------------------- ------------------ -------------------- --------------------
Europe 154,575 31,871 6,741 30 193,217 (356) (654) (1,806) (9) (2,825)
------------------------------------------------------------ -------------------- ------------------ ------------------ -------------------- ------------------- -------------------- -------------------- ------------------ -------------------- --------------------
- of which: UK 101,029 24,461 5,126 28 130,644 (306) (518) (1,060) (6) (1,890)
------------------------------------------------------------ -------------------- ------------------ ------------------ -------------------- ------------------- -------------------- -------------------- ------------------ -------------------- --------------------
Asia 297,423 53,993 3,997 199 355,612 (182) (830) (2,299) (43) (3,354)
------------------------------------------------------------ -------------------- ------------------ ------------------ -------------------- ------------------- -------------------- -------------------- ------------------ -------------------- --------------------
- of which: Hong
Kong 165,437 30,305 1,990 159 197,891 (85) (650) (836) (21) (1,592)
------------------------------------------------------------ -------------------- ------------------ ------------------ -------------------- ------------------- -------------------- -------------------- ------------------ -------------------- --------------------
MENA 26,135 5,295 1,682 22 33,134 (62) (108) (1,028) (11) (1,209)
------------------------------------------------------------ -------------------- ------------------ ------------------ -------------------- ------------------- -------------------- -------------------- ------------------ -------------------- --------------------
North America 53,513 10,397 652 - 64,562 (57) (215) (169) - (441)
------------------------------------------------------------ -------------------- ------------------ ------------------ -------------------- ------------------- -------------------- -------------------- ------------------ -------------------- --------------------
Latin America 11,970 2,746 783 23 15,522 (66) (96) (339) (1) (502)
------------------------------------------------------------ -------------------- ------------------ ------------------ -------------------- ------------------- -------------------- -------------------- ------------------ -------------------- --------------------
At 31 Dec 2021 543,616 104,302 13,855 274 662,047 (723) (1,903) (5,641) (64) (8,331)
------------------------------------------------------------ -------------------- ------------------ ------------------ -------------------- ------------------- -------------------- -------------------- ------------------ -------------------- --------------------
Total wholesale lending for loans and other credit-related commitments
and financial guarantees by stage distribution(1)
Nominal amount Allowance for ECL
----------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------
Stage Stage Stage POCI Total Stage Stage Stage POCI Total
1 2 3 1 2 3
$m $m $m $m $m $m $m $m $m $m
----------- ------------- ------------------ ------------------- ------------------ ------------- -------------------- -------------------- -------------------- ------------------ ------------------
Corporate
and
commercial 274,775 30,376 829 - 305,980 (130) (193) (60) - (383)
----------- ------------- ------------------ ------------------- ------------------ ------------- -------------------- -------------------- -------------------- ------------------ ------------------
Financial 105,746 2,889 2 - 108,637 (9) (9) (1) - (19)
----------- ------------- ------------------ ------------------- ------------------ ------------- -------------------- -------------------- -------------------- ------------------ ------------------
At 31 Dec
2021 380,521 33,265 831 - 414,617 (139) (202) (61) - (402)
----------- ------------- ------------------ ------------------- ------------------ ------------- -------------------- -------------------- -------------------- ------------------ ------------------
By
geography
----------- ------------- ------------------ ------------------- ------------------ ------------- -------------------- -------------------- -------------------- ------------------ ------------------
Europe 189,770 15,585 673 - 206,028 (67) (76) (47) - (190)
----------- ------------- ------------------ ------------------- ------------------ ------------- -------------------- -------------------- -------------------- ------------------ ------------------
- of which:
UK 68,136 8,430 389 - 76,955 (55) (49) (28) - (132)
----------- ------------- ------------------ ------------------- ------------------ ------------- -------------------- -------------------- -------------------- ------------------ ------------------
Asia 72,179 5,229 20 - 77,428 (35) (40) (5) - (80)
----------- ------------- ------------------ ------------------- ------------------ ------------- -------------------- -------------------- -------------------- ------------------ ------------------
- of which:
Hong
Kong 31,314 1,517 10 - 32,841 (11) (17) (2) - (30)
----------- ------------- ------------------ ------------------- ------------------ ------------- -------------------- -------------------- -------------------- ------------------ ------------------
MENA 6,335 1,017 19 - 7,371 (10) (18) (3) - (31)
----------- ------------- ------------------ ------------------- ------------------ ------------- -------------------- -------------------- -------------------- ------------------ ------------------
North
America 109,851 11,350 91 - 121,292 (24) (66) (1) - (91)
----------- ------------- ------------------ ------------------- ------------------ ------------- -------------------- -------------------- -------------------- ------------------ ------------------
Latin
America 2,386 84 28 - 2,498 (3) (2) (5) - (10)
----------- ------------- ------------------ ------------------- ------------------ ------------- -------------------- -------------------- -------------------- ------------------ ------------------
At 31 Dec
2021 380,521 33,265 831 - 414,617 (139) (202) (61) - (402)
----------- ------------- ------------------ ------------------- ------------------ ------------- -------------------- -------------------- -------------------- ------------------ ------------------
1 Included in loans and other credit-related commitments and
financial guarantees is $42bn relating to unsettled reverse
repurchase agreements, which once drawn are classified as 'Reverse
repurchase agreements - non-trading'.
Total wholesale lending for loans and advances to banks and customers
by stage distribution
Gross carrying amount Allowance for ECL
------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------
Stage Stage Stage POCI Total Stage Stage Stage POCI Total
1 2 3 1 2 3
$m $m $m $m $m $m $m $m $m $m
------------------------------------------------------------
Corporate and commercial 387,563 126,287 12,961 277 527,088 (1,101) (2,444) (5,837) (112) (9,494)
------------------------------------------------------------ ------------------- --------------------- ---------------------
- agriculture, forestry
and fishing 6,087 1,026 331 1 7,445 (12) (45) (149) (1) (207)
------------------------------------------------------------
- mining and quarrying 7,429 3,705 797 16 11,947 (33) (112) (209) (11) (365)
------------------------------------------------------------
- manufacturing 68,179 23,564 2,076 87 93,906 (201) (442) (905) (40) (1,588)
------------------------------------------------------------
* electricity, gas, steam and air-conditioning supply 14,240 1,907 53 - 16,200 (25) (40) (8) - (73)
------------------------------------------------------------
* water supply, sewerage, waste management and
remediation 2,874 253 47 - 3,174 (8) (7) (22) - (37)
------------------------------------------------------------
- construction 9,368 4,455 773 4 14,600 (42) (118) (426) (4) (590)
------------------------------------------------------------
* wholesale and retail trade, repair of motor vehicles
and motorcycles 65,937 21,518 3,196 12 90,663 (174) (326) (2,029) (3) (2,532)
------------------------------------------------------------
- transportation
and storage 19,510 9,143 769 11 29,433 (90) (163) (240) - (493)
------------------------------------------------------------
- accommodation
and food 10,616 14,918 536 1 26,071 (76) (285) (129) (1) (491)
------------------------------------------------------------
* publishing, audiovisual and broadcasting 17,019 2,796 131 33 19,979 (45) (85) (39) (20) (189)
------------------------------------------------------------
- real estate 102,933 22,186 1,907 1 127,027 (169) (260) (738) - (1,167)
------------------------------------------------------------
* professional, scientific and technical activities 17,162 6,379 498 33 24,072 (56) (149) (185) (8) (398)
------------------------------------------------------------
- administrative
and support services 17,085 8,361 907 70 26,423 (66) (153) (291) (24) (534)
------------------------------------------------------------
* public administration and defence, compulsory social
security 1,530 475 3 - 2,008 (2) (11) (1) - (14)
------------------------------------------------------------
- education 1,402 691 29 - 2,122 (12) (20) (9) - (41)
------------------------------------------------------------
- health and care 4,049 1,192 261 8 5,510 (21) (45) (120) - (186)
------------------------------------------------------------
- arts, entertainment
and recreation 1,631 1,570 236 - 3,437 (9) (62) (87) - (158)
------------------------------------------------------------
- other services 11,380 1,320 410 - 13,110 (54) (105) (249) - (408)
------------------------------------------------------------
- activities of
households 660 142 - - 802 - (1) - - (1)
------------------------------------------------------------
* extra-territorial organisations and bodies activities 10 - - - 10 - - - - -
------------------------------------------------------------
- government 7,866 671 1 - 8,538 (6) (2) (1) - (9)
------------------------------------------------------------
- asset-backed securities 596 15 - - 611 - (13) - - (13)
------------------------------------------------------------ ------------------- --------------------- ---------------------
Non-bank financial
institutions 52,223 11,834 523 - 64,580 (46) (119) (100) - (265)
------------------------------------------------------------ ------------------- --------------------- ---------------------
Loans and advances
to banks 79,654 2,004 - - 81,658 (33) (9) - - (42)
------------------------------------------------------------ ------------------- --------------------- ---------------------
At 31 Dec 2020 519,440 140,125 13,484 277 673,326 (1,180) (2,572) (5,937) (112) (9,801)
------------------------------------------------------------ ------------------- --------------------- ---------------------
By geography
------------------------------------------------------------
Europe 156,474 51,708 6,531 109 214,822 (589) (1,400) (2,097) (51) (4,137)
------------------------------------------------------------ ------------------- --------------------- ---------------------
- of which: UK 104,534 40,454 4,712 53 149,753 (536) (1,234) (1,320) (33) (3,123)
------------------------------------------------------------ ------------------- --------------------- ---------------------
Asia 279,985 58,159 3,443 106 341,693 (337) (383) (2,040) (43) (2,803)
------------------------------------------------------------ ------------------- --------------------- ---------------------
- of which: Hong
Kong 156,817 39,257 1,637 45 197,756 (162) (260) (751) (23) (1,196)
------------------------------------------------------------ ------------------- --------------------- ---------------------
MENA 24,753 7,893 1,952 30 34,628 (91) (216) (1,205) (12) (1,524)
------------------------------------------------------------ ------------------- --------------------- ---------------------
North America 46,852 18,220 913 - 65,985 (77) (302) (281) - (660)
------------------------------------------------------------ ------------------- --------------------- ---------------------
Latin America 11,376 4,145 645 32 16,198 (86) (271) (314) (6) (677)
------------------------------------------------------------ ------------------- --------------------- ---------------------
At 31 Dec 2020 519,440 140,125 13,484 277 673,326 (1,180) (2,572) (5,937) (112) (9,801)
------------------------------------------------------------ ------------------- --------------------- ---------------------
Total wholesale lending for loans and other credit-related commitments
and financial guarantees by stage distribution(1)
Nominal amount Allowance for ECL
----------------------------------------------------------------------------------------------- -----------------------------------------------------------------------------------------------------------
Stage Stage Stage POCI Total Stage Stage Stage POCI Total
1 2 3 1 2 3
$m $m $m $m $m $m $m $m $m $m
-----------
Corporate
and
commercial 262,598 49,008 1,140 2 312,748 (271) (392) (100) (1) (764)
----------- ----------------- ------------------- ---------------------
Financial 120,768 7,526 55 - 128,349 (17) (33) (4) - (54)
----------- ----------------- ------------------- ---------------------
At 31 Dec
2020 383,366 56,534 1,195 2 441,097 (288) (425) (104) (1) (818)
----------- ----------------- ------------------- ---------------------
By
geography
-----------
Europe 210,141 28,705 851 2 239,699 (152) (208) (83) (1) (444)
----------- ----------------- ------------------- ---------------------
- of which:
UK 81,153 17,048 480 1 98,682 (138) (176) (72) (1) (387)
----------- ----------------- ------------------- ---------------------
Asia 63,586 6,311 20 - 69,917 (73) (43) (6) - (122)
----------- ----------------- ------------------- ---------------------
- of which:
Hong
Kong 26,502 3,639 4 - 30,145 (24) (22) (1) - (47)
----------- ----------------- ------------------- ---------------------
MENA 4,975 1,609 85 - 6,669 (14) (44) (2) - (60)
----------- ----------------- ------------------- ---------------------
North
America 102,399 19,360 198 - 121,957 (39) (124) (7) - (170)
----------- ----------------- ------------------- ---------------------
Latin
America 2,265 549 41 - 2,855 (10) (6) (6) - (22)
----------- ----------------- ------------------- ---------------------
At 31 Dec
2020 383,366 56,534 1,195 2 441,097 (288) (425) (104) (1) (818)
----------- ----------------- ------------------- ---------------------
1 Included in loans and other credit-related commitments and
financial guarantees is $62bn relating to unsettled reverse
repurchase agreements, which once drawn are classified as 'Reverse
repurchase agreements - non-trading'.
Wholesale lending - reconciliation of changes in gross carrying/nominal
amount and allowances for loans and advances to banks and
customers including loan commitments and financial guarantees
(Audited)
Non-credit impaired Credit impaired
Stage 1 Stage 2 Stage 3 POCI Total
Gross Gross Gross Gross Gross
carrying/ Allowance carrying/ Allowance carrying/ Allowance carrying/ Allowance carrying/ Allowance
nominal for nominal for nominal for nominal for nominal for
amount ECL amount ECL amount ECL amount ECL amount ECL
$m $m $m $m $m $m $m $m $m $m
------------------- ------------------- ------------------- ------------------- ------------------- ------------------- --------------------- --------------------- -------------------- -------------------
At 1 Jan 2021 841,105 (1,465) 196,662 (2,998) 14,662 (6,041) 279 (113) 1,052,708 (10,617)
------------------- ------------------- ------------------- ------------------- ------------------- ------------------- --------------------- --------------------- -------------------- -------------------
Transfers of
financial
instruments 19,285 (638) (23,361) 888 4,076 (250) - - - -
Net
remeasurement
of ECL arising
from transfer
of stage - 400 - (233) - (27) - - - 140
Net new and
further
lending/
repayments 38,224 20 (32,150) 454 (2,501) 764 6 18 3,579 1,256
------------------- ------------------- ------------------- ------------------- ------------------- ------------------- --------------------- --------------------- -------------------- -------------------
Change in risk
parameters -
credit
quality - 793 - (234) - (1,347) - 28 - (760)
------------------- ------------------- ------------------- ------------------- ------------------- ------------------- --------------------- --------------------- -------------------- -------------------
Changes to
models
used for ECL
calculation - (15) - (33) - - - - - (48)
------------------- ------------------- ------------------- ------------------- ------------------- ------------------- --------------------- --------------------- -------------------- -------------------
Assets written
off - - - - (1,085) 1,085 (7) 7 (1,092) 1,092
------------------- ------------------- ------------------- ------------------- ------------------- ------------------- --------------------- --------------------- -------------------- -------------------
Credit-related
modifications
that resulted
in
derecognition - - - - (125) - - - (125) -
------------------- ------------------- ------------------- ------------------- ------------------- ------------------- --------------------- --------------------- -------------------- -------------------
Foreign
exchange
and other (16,872) 43 (3,610) 51 (341) 114 (4) (4) (20,827) 204
At 31 Dec 2021 881,742 (862) 137,541 (2,105) 14,686 (5,702) 274 (64) 1,034,243 (8,733)
ECL income
statement
change for the
period 1,198 (46) (610) 46 588
------------------- ------------------- ------------------- --------------------- -------------------- -------------------
Recoveries 54
-------------------
Others (102)
------------------- ------------------- ------------------- ------------------- ------------------- --------------------- --------------------- -------------------
Total ECL
income
statement
change
for the period 540
-------------------- -------------------
As shown in the above table, the allowance for ECL for loans and
advances to customers and banks and relevant loan commitments and
financial guarantees decreased $1,884m during the period from
$10,617m at 31 December 2020 to $8,733m at 31 December 2021.
This decrease was primarily driven by:
-- $1,256m relating to volume movements, which included the ECL
allowance associated with new originations, assets derecognised and
further lending/repayments;
-- $1,092m of assets written off;
-- $140m relating to the net remeasurement impact of stage transfers; and
-- foreign exchange and other movements of $204m.
These were partly offset by:
-- $760m relating to underlying credit quality changes,
including the credit quality impact of financial instruments
transferring between stages; and
-- $48m of changes to models used for ECL calculation.
The ECL release for the period of $588m presented in the
previous table consisted of $1,256m relating to underlying net book
volume movement and $140m relating to the net remeasurement impact
of stage transfers. This was partly offset by $760m relating to
underlying credit quality changes, including the credit quality
impact of financial instruments transferring between stages and
$48m in changes to models used for ECL calculation.
The net transfer of gross carrying/nominal amounts to stage 1 of
$19,285m reflects the overall improvement in the economic outlook
as the effects of the Covid-19 outbreak subsided. It was primarily
driven by $14,393m in Europe, $8,871m in North America, $3,674m in
Middle East and North Africa, and was partly offset by a net
transfer out of stage 1 of $8,285m in Asia mainly driven by an
increase in Downside scenario weighting for China, reflecting
management's concern for potential deterioration on forward looking
credit quality.
Wholesale lending - reconciliation of changes in gross carrying/nominal
amount and allowances for loans and advances to banks and
customers including loan commitments and financial guarantees
(Audited)
Non-credit impaired Credit impaired
Stage 1 Stage 2 Stage 3 POCI Total
----------------------------------------- -------------------------------------------
Gross Gross Gross Gross Gross
carrying/ Allowance carrying/ Allowance carrying/ Allowance carrying/ Allowance carrying/ Allowance
nominal for nominal for nominal for nominal for nominal for
amount ECL amount ECL amount ECL amount ECL amount ECL
$m $m $m $m $m $m $m $m $m $m
------------------- ------------------ ----------------- --------------------- --------------------- --------------------
At 1 Jan 2020 925,652 (867) 88,169 (1,103) 9,289 (3,906) 345 (99) 1,023,455 (5,975)
-------------------- ------------------- ------------------ ----------------- --------------------- --------------------- --------------------- --------------------
Transfers of
financial
instruments (113,217) (493) 103,413 770 9,804 (277) - - - -
-------------------- ------------------- ------------------ ----------------- --------------------- --------------------- --------------------- --------------------
Net remeasurement
of ECL arising
from transfer of
stage - 476 - (603) - (742) - - - (869)
-------------------- ------------------- ------------------ ----------------- --------------------- --------------------- --------------------- --------------------
Net new and further
lending/repayments 10,451 (437) (2,910) 141 (3,350) 583 (48) (1) 4,143 286
-------------------- ------------------- ------------------ ----------------- --------------------- --------------------- --------------------- --------------------
Changes to risk
parameters -
credit
quality - (261) - (2,349) - (3,120) - (39) - (5,769)
-------------------- ------------------- ------------------ ----------------- --------------------- --------------------- --------------------- --------------------
Changes to models
used for ECL
calculation - 137 - 303 - - - - - 440
-------------------- ------------------- ------------------ ----------------- --------------------- --------------------- --------------------- --------------------
Assets written
off - - - - (1,537) 1,537 (30) 30 (1,567) 1,567
-------------------- ------------------- ------------------ ----------------- --------------------- --------------------- --------------------- --------------------
Credit-related
modifications that
resulted in
derecognition - - - - (23) 7 - - (23) 7
-------------------- ------------------- ------------------ ----------------- --------------------- --------------------- --------------------- --------------------
Foreign exchange
and other 18,219 (20) 7,990 (157) 479 (123) 12 (4) 26,700 (304)
-------------------- ------------------- ------------------ ----------------- --------------------- --------------------- --------------------- --------------------
At 31 Dec 2020 841,105 (1,465) 196,662 (2,998) 14,662 (6,041) 279 (113) 1,052,708 (10,617)
-------------------- ------------------- ------------------ ----------------- --------------------- --------------------- --------------------- --------------------
ECL income
statement
change for the
period (85) (2,508) (3,279) (40) (5,912)
------------------- ------------------ --------------------- --------------------- --------------------
Recoveries 46
-------------------- ------------------- ------------------ ----------------- --------------------- --------------------- --------------------- --------------------
Others (59)
--------------------
Total ECL income
statement change
for the period (5,925)
--------------------
Wholesale lending - distribution of financial instruments to which
the impairment requirements of IFRS 9 are applied by credit quality
Gross carrying/nominal amount
Sub- Credit Allowance
Strong Good Satisfactory standard impaired Total for ECL Net
$m $m $m $m $m $m $m $m
----------- ------------------ --------------- --------------- --------------- ------------------ ----------------- --------------------- ----------------
By
geography
----------- ------------------ --------------- --------------- --------------- ------------------ ----------------- --------------------- ----------------
Europe 48,758 49,254 74,240 14,196 6,769 193,217 (2,825) 190,392
----------- ------------------ --------------- --------------- --------------- ------------------ ----------------- --------------------- ----------------
- of which:
UK 30,390 37,212 48,694 9,192 5,156 130,644 (1,890) 128,754
----------- ------------------ --------------- --------------- --------------- ------------------ ----------------- --------------------- ----------------
Asia 155,072 95,626 96,046 4,670 4,198 355,612 (3,354) 352,258
----------- ------------------ --------------- --------------- --------------- ------------------ ----------------- --------------------- ----------------
- of which:
Hong Kong 74,440 54,703 63,301 3,297 2,150 197,891 (1,592) 196,299
----------- ------------------ --------------- --------------- --------------- ------------------ ----------------- --------------------- ----------------
MENA 12,264 7,004 10,321 1,844 1,701 33,134 (1,209) 31,925
----------- ------------------ --------------- --------------- --------------- ------------------ ----------------- --------------------- ----------------
North
America 11,683 24,663 22,022 5,543 651 64,562 (441) 64,121
----------- ------------------ --------------- --------------- --------------- ------------------ ----------------- --------------------- ----------------
Latin
America 993 5,736 5,638 2,349 806 15,522 (502) 15,020
----------- ------------------ --------------- --------------- --------------- ------------------ ----------------- --------------------- ----------------
At 31 Dec
2021 228,770 182,283 208,267 28,602 14,125 662,047 (8,331) 653,716
----------- ------------------ --------------- --------------- --------------- ------------------ ----------------- --------------------- ----------------
Percentage
of total
credit 34.6 27.5 31.5 4.3 2.1 100.0
quality % % % % % %
----------- ------------------ --------------- --------------- --------------- ------------------ ----------------- --------------------- ----------------
By
geography
-----------
Europe 53,373 55,436 81,049 18,327 6,637 214,822 (4,137) 210,685
----------- ------------------- ----------------- ----------------- ----------------- ------------------- ---------------- ---------------------- ------------------
- of which:
UK 35,050 42,476 55,106 12,357 4,764 149,753 (3,123) 146,630
----------- ------------------- ----------------- ----------------- ----------------- ------------------- ---------------- ---------------------- ------------------
Asia 141,811 93,350 98,488 4,493 3,551 341,693 (2,803) 338,890
----------- ------------------- ----------------- ----------------- ----------------- ------------------- ---------------- ---------------------- ------------------
- of which:
Hong Kong 72,088 52,601 68,826 2,558 1,683 197,756 (1,196) 196,560
----------- ------------------- ----------------- ----------------- ----------------- ------------------- ---------------- ---------------------- ------------------
MENA 12,398 7,810 10,990 1,448 1,982 34,628 (1,524) 33,104
----------- ------------------- ----------------- ----------------- ----------------- ------------------- ---------------- ---------------------- ------------------
North
America 11,157 22,973 24,978 5,964 913 65,985 (660) 65,325
----------- ------------------- ----------------- ----------------- ----------------- ------------------- ---------------- ---------------------- ------------------
Latin
America 989 5,355 6,127 3,049 678 16,198 (677) 15,521
----------- ------------------- ----------------- ----------------- ----------------- ------------------- ---------------- ---------------------- ------------------
At 31 Dec
2020 219,728 184,924 221,632 33,281 13,761 673,326 (9,801) 663,525
----------- ------------------- ----------------- ----------------- ----------------- ------------------- ---------------- ---------------------- ------------------
Percentage
of total
credit 32.6 27.5 32.9 4.9 2.0 100.0
quality % % % % % %
----------- ------------------- ----------------- ----------------- ----------------- ------------------- ----------------
Our risk rating system facilitates the internal ratings-based
approach under the Basel framework adopted by the Group to support
calculation of our minimum credit regulatory capital requirement.
The credit quality classifications can be found on page 138.
Wholesale lending - credit risk profile by obligor grade for loans
and advances at amortised cost
Gross carrying amount Allowance for ECL
Mapped
Basel one-year Stage Stage Stage Stage Stage Stage ECL external
PD range 1 2 3 POCI Total 1 2 3 POCI Total coverage rating
% $m $m $m $m $m $m $m $m $m $m %
-------------------------- ---------------------- -------------- -------------- ------------ -------- ---------------- ---------------
Corporate
and
commercial 400,894 98,911 13,460 274 513,539 (665) (1,874) (5,601) (64) (8,204) 1.6
0.000 to AA- and
- CRR 1 0.053 40,583 599 - - 41,182 (7) (1) - - (8) - above
---------------
0.054 to
- CRR 2 0.169 78,794 4,843 - - 83,637 (26) (43) - - (69) 0.1 A+ to A-
---------------
0.170 to BBB+ to
- CRR 3 0.740 139,739 19,199 - - 158,938 (165) (145) - - (310) 0.2 BBB-
---------------
0.741 to BB+ to
- CRR 4 1.927 91,268 23,365 - - 114,633 (218) (258) - - (476) 0.4 BB-
---------------
1.928 to BB- to
- CRR 5 4.914 45,850 28,375 - - 74,225 (185) (424) - - (609) 0.8 B
---------------
4.915 to
- CRR 6 8.860 3,280 11,197 - - 14,477 (22) (242) - - (264) 1.8 B-
---------------
8.861 to
- CRR 7 15.000 1,101 4,406 - - 5,507 (24) (167) - - (191) 3.5 CCC+
---------------
15.001 to CCC to
- CRR 8 99.999 279 6,927 - 4 7,210 (18) (594) - - (612) 8.5 C
---------------
- CRR 9/10 100.000 - - 13,460 270 13,730 - - (5,601) (64) (5,665) 41.3 D
---------------------- -------------- -------------- ------------ -------- ---------------
Non-bank
financial
institutions 61,086 3,874 395 - 65,355 (44) (26) (40) - (110) 0.2
0.000 to AA- and
- CRR 1 0.053 14,370 122 - - 14,492 (2) (1) - - (3) - above
---------------
0.054 to
- CRR 2 0.169 16,438 43 - - 16,481 (5) - - - (5) - A+ to A-
---------------
0.170 to BBB+ to
- CRR 3 0.740 18,282 1,026 - - 19,308 (11) (4) - - (15) 0.1 BBB-
---------------
0.741 to BB+ to
- CRR 4 1.927 6,835 1,204 - - 8,039 (15) (11) - - (26) 0.3 BB-
---------------
1.928 to BB- to
- CRR 5 4.914 5,053 1,297 - - 6,350 (11) (4) - - (15) 0.2 B
---------------
4.915 to
- CRR 6 8.860 102 98 - - 200 - (5) - - (5) 2.5 B-
---------------
8.861 to
- CRR 7 15.000 5 25 - - 30 - (1) - - (1) 3.3 CCC+
---------------
15.001 to CCC to
- CRR 8 99.999 1 59 - - 60 - - - - - - C
---------------
- CRR 9/10 100.000 - - 395 - 395 - - (40) - (40) 10.1 D
---------------------- -------------- -------------- ------------ -------- ---------------
Banks 81,636 1,517 - - 83,153 (14) (3) - - (17) -
-------------------------- ---------------------- -------------- -------------- ------------ -------- ---------------- ---------------
0.000 to AA- and
- CRR 1 0.053 61,275 10 - - 61,285 (4) - - - (4) - above
---------------
0.054 to
- CRR 2 0.169 11,628 65 - - 11,693 (3) - - - (3) - A+ to A-
---------------
0.170 to BBB+ to
- CRR 3 0.740 3,935 102 - - 4,037 (2) - - - (2) - BBB-
---------------
0.741 to BB+ to
- CRR 4 1.927 4,232 180 - - 4,412 (5) - - - (5) 0.1 BB-
---------------
1.928 to BB- to
- CRR 5 4.914 556 52 - - 608 - (1) - - (1) 0.2 B
---------------
4.915 to
- CRR 6 8.860 9 541 - - 550 - - - - - - B-
---------------
8.861 to
- CRR 7 15.000 1 564 - - 565 - - - - - - CCC+
---------------
15.001 to CCC to
- CRR 8 99.999 - 3 - - 3 - (2) - - (2) 66.7 C
---------------
- CRR 9/10 100.000 - - - - - - - - - - - D
---------------------- -------------- -------------- ------------ -------- ---------------
At 31 Dec
2021 543,616 104,302 13,855 274 662,047 (723) (1,903) (5,641) (64) (8,331) 1.3
-------------------------- ---------------------- -------------- -------------- ------------ -------- ---------------- ---------------
Corporate
and
commercial 387,563 126,287 12,961 277 527,088 (1,101) (2,444) (5,837) (112) (9,494) 1.8
AA-
0.000 to and
- CRR 1 0.053 36,047 486 - - 36,533 (8) (5) - - (13) - above
-----
0.054 to A+ to
- CRR 2 0.169 81,298 3,140 - - 84,438 (42) (36) - - (78) 0.1 A-
-----
BBB+
0.170 to to
- CRR 3 0.740 131,540 27,061 - - 158,601 (262) (197) - - (459) 0.3 BBB-
-----
BB+
0.741 to to
- CRR 4 1.927 91,385 35,376 - - 126,761 (390) (375) - - (765) 0.6 BB-
-----
BB-
1.928 to to
- CRR 5 4.914 42,214 34,585 - - 76,799 (330) (686) - - (1,016) 1.3 B
-----
4.915 to
- CRR 6 8.860 3,523 14,560 - - 18,083 (35) (476) - - (511) 2.8 B-
-----
8.861 to
- CRR 7 15.000 1,111 7,241 - - 8,352 (21) (322) - - (343) 4.1 CCC+
-----
CCC
15.001 to
- CRR 8 to 99.999 445 3,838 - - 4,283 (13) (347) - - (360) 8.4 C
-----
- CRR 9/10 100.000 - - 12,961 277 13,238 - - (5,837) (112) (5,949) 44.9 D
--------------- -------- -----
Non-bank
financial
institutions 52,223 11,834 523 - 64,580 (46) (119) (100) - (265) 0.4
AA-
0.000 to and
- CRR 1 0.053 12,234 28 - - 12,262 (3) - - - (3) - above
-----
0.054 to A+ to
- CRR 2 0.169 15,128 49 - - 15,177 (5) (1) - - (6) - A-
-----
BBB+
0.170 to to
- CRR 3 0.740 16,741 4,086 - - 20,827 (12) (9) - - (21) 0.1 BBB-
-----
BB+
0.741 to to
- CRR 4 1.927 4,931 3,917 - - 8,848 (15) (27) - - (42) 0.5 BB-
-----
BB-
1.928 to to
- CRR 5 4.914 2,859 2,797 - - 5,656 (10) (34) - - (44) 0.8 B
-----
4.915 to
- CRR 6 8.860 103 505 - - 608 (1) (22) - - (23) 3.8 B-
-----
8.861 to
- CRR 7 15.000 87 329 - - 416 - (9) - - (9) 2.2 CCC+
-----
CCC
15.001 to
- CRR 8 to 99.999 140 123 - - 263 - (17) - - (17) 6.5 C
-----
- CRR 9/10 100.000 - - 523 - 523 - - (100) - (100) 19.1 D
--------------- -------- -----
Banks 79,654 2,004 - - 81,658 (33) (9) - - (42) 0.1
--------------------- --------------- --------
AA-
0.000 to and
- CRR 1 0.053 62,291 46 - - 62,337 (10) - - - (10) - above
-----
0.054 to A+ to
- CRR 2 0.169 8,835 146 - - 8,981 (7) - - - (7) 0.1 A-
-----
BBB+
0.170 to to
- CRR 3 0.740 5,098 398 - - 5,496 (5) (2) - - (7) 0.1 BBB-
-----
BB+
0.741 to to
- CRR 4 1.927 2,558 168 - - 2,726 (4) (4) - - (8) 0.3 BB-
-----
BB-
1.928 to to
- CRR 5 4.914 799 43 - - 842 (1) (1) - - (2) 0.2 B
-----
4.915 to
- CRR 6 8.860 71 20 - - 91 (6) - - - (6) 6.6 B-
-----
8.861 to
- CRR 7 15.000 2 1 - - 3 - - - - - - CCC+
-----
CCC
15.001 to
- CRR 8 to 99.999 - 1,182 - - 1,182 - (2) - - (2) 0.2 C
-----
- CRR 9/10 100.000 - - - - - - - - - - - D
--------------- -------- -----
At 31 Dec
2020 519,440 140,125 13,484 277 673,326 (1,180) (2,572) (5,937) (112) (9,801) 1.5
--------------------- --------------- --------
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