TIDMHSBA
RNS Number : 9024H
HSBC Holdings PLC
01 August 2023
HSBC Holdings plc
Interim Report 2023
In fulfilment of its obligations under sections 4.2.2, 6.3.3(2)
and 6.3.5(1) of the Disclosure Guidance and Transparency Rules,
HSBC Holdings plc (the "Company") hereby releases the unedited full
text of its 2023 Interim Report (the "Interim Report") for the
half-year ended 30 June 2023.
The document is now available on the Company's website at:
https://www.hsbc.com/investors/results-and-announcements/all-reporting/group
HSBC Holdings plc
Interim Report 2023
Opening up a world of opportunity
Our ambition is to be the preferred
international financial partner for our clients.
Our purpose, ambition and values reflect our
strategy and support our focus on execution.
> Read more on our values on page 4 of our Annual Report and
Accounts 2022.
> Read more on our strategy on page 7.
Contents
Overview
2 Highlights
Group Chief Executive's
4 review
7 Our strategy
10 ESG overview
11 Financial overview
17 Global businesses
25 Risk overview
Interim management report
28 Financial summary
39 Global businesses
49 Legal entities
57 Reconciliation of
alternative performance
measures
61 Risk
61
* Key developments in the first half of 2023
- Areas of special
61 interest
64 - Credit risk
93 - Treasury risk
103 - Market risk
104
* Insurance manufacturing operations risk
106 Directors' responsibility
statement
Interim condensed financial statements
107 Independent review
report to HSBC Holdings
plc
108 Interim condensed
financial statements
115 Notes on the interim
condensed financial
statements
Additional information
141 Shareholder information
149 Forward-looking statements
150 Certain defined terms
151 Abbreviations
Our global businesses
We serve customers through three global businesses. On pages 17
to 24 we provide an overview of our performance in the first half
of 2023 for each of the global businesses, as well as our Corporate
Centre.
Wealth and Personal Banking ('WPB')
We help millions of our customers look after their day-to-day
finances and manage, protect and grow their wealth.
Commercial Banking ('CMB')
Our global reach and expertise help domestic and international
businesses around the world unlock their potential.
Global Banking and Markets ('GBM')
We provide a comprehensive range of financial services and
products to corporates, governments and institutions.
A reminder
The currency we report in is US dollars.
Constant currency performance
We supplement our IFRSs figures with non-IFRSs measures used by
management internally that constitute alternative performance
measures under European Securities and Markets Authority guidance
and non-GAAP financial measures defined in and presented in
accordance with US Securities and Exchange Commission rules and
regulations. These measures are highlighted with the following
symbol: < >
> Further explanation may be found on page 13.
Cover image: Opening up a world of opportunity
Our cover features Stitt, one of HSBC's two bronze lions.
Touching the lion's paw was said to bring good luck, and that
tradition continues today. The lions, Stephen and Stitt, designed
by British sculptor Henry Poole, were commissioned to celebrate the
opening of the newly-rebuilt HSBC building on the Bund in Shanghai
in 1923. Stephen and Stitt represent the strength and endurance
that is part of our heritage. Loyal and proud, they stand guard
outside our offices in Hong Kong, London and Shanghai, and
symbolise good fortune and stability.
Performance in 1H23
HSBC is one of the world's leading
international banks.
We have a clear strategy to deliver revenue
and profit growth, enhance customer service
and improve returns to shareholders.
Delivery against our financial targets
In assessing the Group's financial performance, we use a range
of financial measures that focus on the delivery of sustainable
returns for our shareholders and maintaining our financial
strength.
> For our financial targets, we define medium term as three
to four years and long term as five to six years, commencing 1
January 2020.
> Further explanation of performance against Group financial
targets can be found on page 11.
Return on average tangible equity (annualised) < >
22.4%
Revised target: Mid-teens for 2023 and 2024, excluding the
impact of material acquisitions and disposals.
(Updated from >=12% from 2023 onwards.)
(1H22: 10.6%)
Target basis operating expenses growth compared with 1H22 <
>
4.3%
Target: Growth of approximately 3% compared with 2022. This
measure excludes from constant currency operating expenses: notable
items, the impact of retranslating the results of hyperinflationary
economies at constant currency and the impact of our acquisition of
SVB UK and the related investments internationally.
Common equity tier 1 capital ratio
14.7%
Target: >14%, managing in the range of 14% to 14.5% in the
medium term; and manage the range down further long term.
(31 December 2022: 14.2%)
Second interim dividend per ordinary share for 1H23
$0.10
Target: Dividend payout ratio of 50% for 2023 and 2024,
excluding material notable items.
Strategic performance indicators
Our strategy supports our ambition of being the preferred
international financial partner for our clients.
We are committed to building a business for the long term,
developing relationships that last.
> Read more on our strategic progress on page 7.
> Read more on our approach to environmental, social and
governance matters on page 10.
Commercial Banking net fee income
$2.0bn
Growth of 2% compared with 1H22.
Net new invested assets
$34bn
Generated in 1H23, of which $27bn were in Asia.
Gender diversity
33.6%
Women in senior leadership roles.
(31 December 2022: 33.3%)
Sustainable finance and investment
$255.7bn
Cumulative total provided and facilitated since January
2020.
(31 December 2022: $210.7bn)
Highlights
Financial performance reflected the impact of global interest
rate rises on revenue and strong cost and balance sheet discipline.
Our strategic approach has now changed from transformation to value
creation.
Financial performance (1H23 vs 1H22)
- Profit before tax rose by $12.9bn to $21.7bn. This included a
$2.1bn reversal of an impairment relating to the planned sale of
our retail banking operations in France and a provisional gain of
$1.5bn on the acquisition of Silicon Valley Bank UK Limited ('SVB
UK'). On a constant currency basis, profit before tax increased by
$13.3bn to $21.7bn. Reported profit after tax increased by $9.1bn
to $18.1bn.
- Revenue increased by $12.3bn to $36.9bn . The increase was
driven by higher net interest income in all of our global
businesses due to interest rate rises. It also included the impacts
related to the planned sale in France and the acquisition in the
UK. On a constant currency basis, revenue rose by $13.2bn to
$36.9bn.
- Net interest margin ('NIM') of 1.70% increased by 46 basis
points ('bps').
- Expected credit losses and other credit impairment charges
('ECL') of $1.3bn reflected a more stable outlook in most markets,
although inflationary pressures remain. The 1H23 charge included
$0.3bn relating to the commercial real estate sector in mainland
China and charges in Commercial Banking ('CMB') in the UK. The 1H22
charge of $1.1bn reflected heightened economic uncertainty, mainly
due to the Russia-Ukraine war and inflationary pressures, and also
included $0.3bn relating to the commercial real estate sector in
mainland China, partly offset by releases of Covid-19-related
allowances.
- Operating expenses of $15.5bn were $0.7bn or 4% lower than in
1H22, primarily due to lower restructuring and other related costs
following the completion of our cost-saving programme at the end of
2022 and from a $0.2bn impact from a reversal of historical asset
impairments. This was partly offset by higher technology costs, an
increase in performance-related pay, severance of $0.2bn in 1H23
and the effects of rising inflation. Target basis operating
expenses rose by 4.3%.
- Customer lending balances increased by $36bn since 31 December
2022. On a constant currency basis, lending balances grew by $23bn,
mainly due to the reclassification of balances associated with our
retail banking operations in France from held for sale during the
period, and $7bn of additional balances following our acquisition
of SVB UK during 1Q23. These were partly offset by the
reclassification of our business in Oman as held for sale, which
resulted in a $3bn reduction. Excluding these factors, customer
lending fell, reflecting weaker customer demand for wholesale
lending, notably in Hong Kong and Europe.
- Customer accounts increased by $25bn since 31 December 2022.
On a constant currency basis, customer accounts increased by $3bn,
mainly due to the reclassification of balances associated with our
retail banking operations in France from held for sale during the
period. In addition, our acquisition of SVB UK resulted in growth
of $7bn, and in 1H23, we reclassified our business in Oman as held
for sale, resulting in a $5bn reduction. Excluding these factors,
deposits fell, reflecting reductions in Wealth and Personal Banking
('WPB') and CMB in HSBC UK, as well as in Global Banking and
Markets ('GBM').
- Annualised return on average tangible equity ('RoTE') of 22.4%
compared with 10.6% in 1H22. Excluding the annualised impacts
related to the planned sale in France and the acquisition in the
UK, annualised RoTE was 18.5%.
- Common equity tier 1 ('CET1') capital ratio of 14.7% increased
by 0.5 percentage points compared with 4Q22, which was driven by
capital generation net of the dividend accrual, and included an
approximately 0.3 percentage point impact from the reversal of an
impairment on the planned sale of our retail banking operations in
France and the provisional gain on the acquisition of SVB UK. This
was partly offset by increased risk-weighted assets ('RWAs') and
the impact of the share buy-back announced with our 1Q23 results in
May 2023.
- The Board has approved a second interim dividend of $0.10 per
share. We also intend to initiate a further share buy-back of up to
$2bn, which we expect to commence shortly and complete within three
months.
- From 1 January 2023, we adopted IFRS 17 'Insurance Contracts',
which replaced IFRS 4 'Insurance Contracts'. Comparative data have
been restated. For further details of our adoption of IFRS 17, see
page 28.
Financial performance (2Q23 vs 2Q22)
- Reported profit before tax increased by $4.1bn to $8.8bn.
- Revenue rose by $4.5bn to $16.7bn, with growth across all of
our global businesses, primarily reflecting interest rate rises.
There were good performances in insurance in WPB and in Debt
Capital Markets in GBM, which offset reductions in Global Foreign
Exchange and Equities.
- NIM of 1.72% increased by 3bps, compared with 1Q23.
- ECL of $0.9bn increased by $0.5bn. ECL in 2Q23 included $0.3bn
of charges in the commercial real estate sector in mainland China,
and $0.3bn in the UK, mainly in CMB.
- Operating expenses of $7.9bn fell by $0.1bn. This was driven
by lower restructuring and other related costs following the
completion of our cost-saving programme at the end of 2022 and the
reversal of historical asset impairments. This reduction was partly
offset by $0.2bn of severance costs incurred in 2Q23, as well as
higher technology spend, an increase in our performance-related pay
accrual and the effects of rising inflation.
- Customer lending decreased by $9bn compared with 31 March
2023, which included a reduction of $3bn related to a
reclassification of our business in Oman to held for sale. The
remaining reduction was mainly in GBM in HSBC Bank plc, reflecting
client deleveraging and weaker demand as interest rates rose.
- Customer accounts decreased by $18bn compared with 31 March
2023, which included a reduction of $5bn related to the
reclassification of our business in Oman to held for sale. The
remaining reduction was in GBM in Europe, as corporate customers
used deposits to pay down their loans, and in HSBC UK, reflecting
higher cost of living and competitive pressures.
-
Outlook
currency. Our target also
* Our strategy has enabled us to further strengthen our * We continue to expect ECL charges of around 40bps of excludes the impact of
balance sheet, providing us with a good platform for average gross loans in 2023 (including lending our acquisition of SVB
growth in the current interest rate cycle, while balances transferred to held for sale). There remains UK, and the related investments
maintaining cost discipline. This has given us the a degree of uncertainty in the forward economic internationally, which
confidence to revise our returns guidance for 2023 outlook, particularly in the UK, and we are are expected to add approximately
and 2024. Based on the current path implied by the monitoring risks related to our exposures in mainland 1% to the Group's operating
market for global policy rates, we are now targeting China's commercial real estate sector. Over the expenses. In 2Q23, we
a RoTE in the mid-teens for 2023 and 2024, which medium to long term, we continue to use a range of incurred severance costs
excludes the impact of material acquisitions and 30bps to 40bps of average loans for planning our ECL of $0.2bn, with the benefits
disposals. charges. expected to be realised
towards the end of 2023
and into 2024.
* Given the current market consensus for global central * We remain highly focused on maintaining cost * We intend to manage the CET1 ratio within our medium
bank rates, we have raised our 2023 full-year discipline. We continue to target operating expense term target range of 14% to 14.5%, and we aim to
guidance for net interest income to above $35bn. growth of approximately 3% for 2023, excluding the manage this range down in the long term. In addition,
While the interest rate outlook remains positive, we impact of foreign currency translation differences, our dividend payout ratio is 50% for 2023 and 2024,
expect continued migration to term deposits as notable items and the impact of retranslating the excluding material notable items. We have announced a
short-term interest rates rise. 2022 results of hyperinflationary economies at second interim dividend of $0.10 per share and intend
constant to initiate a further share buy-back of up to $2bn,
which we expect to commence shortly and complete
within three months. Further buy-backs for 2023 and
beyond will be subject to appropriate capital levels.
Strategic progress
- In March 2023, we acquired SVB UK. This acquisition
strengthens our CMB franchise and enhances our ability to serve
innovative and fast-growing firms in the technology and life
science sectors in the UK, and internationally. In June 2023, we
launched HSBC Innovation Banking, which includes SVB UK together
with newly formed teams in the US, Hong Kong and Israel. This newly
formed proposition will deliver a globally connected, specialised
banking proposition to support innovation businesses and their
investors.
- During 1Q23, the significant interest rate rises in France
resulted in the completion of the planned sale of our retail
operations in France becoming less certain , as the capital
required to be held by the buyer at completion of the transaction
will increase significantly. As a
result we were required to change the accounting classification
of our retail banking operations in France to no longer be
classified as held for sale. In June, we agreed new terms for the
sale of these operations that will involve HSBC retaining a
portfolio of home and other loans. The transaction remains subject
to information and consultation processes with respective works
councils and regulatory approvals, and the parties aim to complete
on 1 January 2024. An estimated pre-tax loss of up to $2.2bn is
expected to be recognised in the second half of 2023 upon
reclassification to held for sale.
- The plan to sell our banking business in Canada remains a key
priority, as we reshape the organisation to focus on our
international customer base. The transaction is now expected to
complete in the first quarter of 2024, subject to regulatory and
governmental approval, and we continue to classify these operations
as held for sale.
-
We remain committed to consider the payment of a special
dividend of $0.21 per share as a priority use of the proceeds from
the sale of our banking business in Canada in the first half of
2024. The remaining proceeds will accrue into CET1 capital in
consideration for organic growth and investment, and we intend to
use any excess capital to supplement share buy-backs.
- We remain focused on investing and growing in our areas of
strength, and we have continued to make progress in executing our
Wealth strategy, notably in Asia. We attracted net new invested
assets of $34bn in the first half of 2023, of which $27bn was from
Asia.
ESG highlights
Transition to net zero
- Our net zero transition plan, which we expect to publish later
this year, will bring together our strategic approach to net zero,
our science-based targets for financed emissions and our
operations, and details on how we plan to embed climate
considerations into our business processes, policies, risk
management and governance. We intend to report annually on our
implementation progress in our Annual Report and Accounts.
- In the second half of 2023, we expect to complete assessments
of transition plans for remaining customers in scope of our thermal
coal phase-out policy. We also expect to complete assessments for
major oil and gas, and power and utilities customers globally, as
well as other customers in EU and OECD markets in scope of our
updated energy policy.
- As part of our ambition to support our customers in their
transition to net zero and a sustainable future, we aim to provide
and facilitate $750bn to $1tn of sustainable finance and
investments by 2030. In 1H23, we provided and facilitated $45bn of
sustainable finance and investments, bringing our cumulative amount
since 1 January 2020 to $255.7bn.
Build inclusion and resilience
- We have continued to focus on building a workplace for our
colleagues that is fit for the future and provides teams with the
flexibility and resources to deliver for our customers. More of our
colleagues are working in a hybrid way than in 1H22, and in the
2022 Snapshot survey, 71% of colleagues said they have everything
they needed to feel equipped for success at work. Flexible working
practices are also helping us to attract and retain talented
employees, with one-third of new joiners saying it influenced their
decision to join HSBC.
- Developing the skills of colleagues plays a pivotal role in
achieving our strategic goals and growth ambitions. We have
continued to focus on programmes critical to our strategy such as
those in wealth, sustainability, and leadership development.
Group Chief Executive's review
Noel Quinn
Group Chief Executive
We have repositioned HSBC over the last three
and a half years to enable it to reach its true potential.
Return on average tangible equity
(annualised) < >
22.4%
(1H22: 10.6%)
Constant currency revenue < >
$36.9bn
(1H22: $23.6bn)
By the time we completed the first phase of our strategy at the
end of 2022, the changes we had made were delivering an improved
financial performance. Six months into 2023, our financial
performance has continued to improve, aided by the interest rate
environment. As we move further into the next phase of our strategy
focused on value creation, I am optimistic about our ability to
continue to deliver strong returns for our investors.
Our purpose of 'opening up a world of opportunity' underpins
everything we do for our customers, colleagues and the communities
we serve. In the first half of 2023, we continued to deliver on
that promise by launching new products and services, and developing
our capabilities to meet the international needs of our diverse
customer base. From the new international proposition for Wealth
and Personal Banking customers launched in March and the continued
development of our Global Money and Global Wallet products, to the
digitisation of international account opening and the globally
connected HSBC Innovation Banking business launched in June, there
are many examples of how my colleagues are truly living our
purpose.
Many of these achievements contributed to our strong first-half
performance, as we saw continued good revenue growth across all our
global businesses, supported by higher interest rates. We delivered
a strong annualised return on tangible equity of 22.4%, including
the reversal of an impairment relating to the planned sale of our
retail banking operations in France and a provisional gain on the
acquisition of SVB UK, both of which were reported in the first
quarter. Excluding them, we achieved an annualised return on
tangible equity of 18.5%. Our strategy is working. The Board, my
colleagues and our shareholders are all focused on the shared
objectives of supporting our customers, driving stronger
performance and creating more value for our investors.
The biggest challenge we all face remains the uncertainty within
the external environment. High inflation remains a significant
concern for many of our customers. Even though headline inflation
rates are now falling in most countries, they remain persistently
high in some markets. In the UK, we have seen limited signs of
stress in the mortgage book, although we are acutely aware of the
day-to-day financial challenges that some of our customers face.
With more mortgage customers due to roll off fixed-term deals in
the next six months, and further rate rises expected, tougher times
are ahead. We will continue to communicate regularly with our
customers, listen to their concerns, seek to offer them help should
they want it and ensure they are aware of the range of products
available to them.
Across the global economy, growth remains uneven. China's
reopening at the start of the year lifted both its economy and the
prospects for global GDP growth in 2023, although weaker recent
data underlines that its recovery may be slower than previously
expected. Other parts of Asia, such as India and the ASEAN region,
are growing robustly, as is the Middle East .
From transformation to value creation
At the end of 2022, we completed the first phase of our
strategy. As a result of the work done to transform HSBC, including
to reposition our portfolio, create broad-based profit generation,
maintain strong cost discipline and introduce a sustainable
dividend, we built a strong platform for growth. This work helped
to put HSBC on track to achieve a return on tangible equity of 12%+
in 2023.
"As we move further into the next phase of our strategy focused
on value creation, I am optimistic about our ability to continue to
deliver strong returns for our investors."
In the first half of 2023, our strategic approach has changed
from transformation to value creation. While there have been - and
will continue to be - opportunities to further simplify HSBC, we
have shifted our focus to driving growth, while maintaining strong
returns.
First, we have further leveraged our international connectivity.
Our ability to connect the world's major trading and investment
blocs has always been, and remains, our greatest strength. In the
first-half, our wholesale cross-border client business increased by
around 50%, with growth across all regions, due mainly to rising
interest rates. In Wealth and Personal Banking, we now have 6.3
million international customers, which is up 8% on the same period
last year. There was also strong revenue growth in global
transaction banking, which was up by 63%. Within global transaction
banking, there were good performances in Foreign Exchange and in
Global Payments Solutions, due to higher rates. Trade was slightly
down in line with global trade volumes, although HSBC was recently
named 'Best Bank for Trade Finance' by Euromoney for the second
year in a row, while also being named 'Best Bank in Asia'.
Second, we made further progress towards the redeployment of
capital from less strategic or low-connectivity businesses into
high-growth international opportunities. We are pleased to have
agreed revised terms for the sale of our French retail banking
operations, which we now expect to complete in early 2024. The sale
of our banking operations in Canada also remains on track to
complete in early 2024. We have also completed the disposal of our
Greek business, and announced the planned exit of Russia, a change
to the nature of our presence in Oman, and the wind-down of Wealth
and Personal Banking in New Zealand.
At the same time, we are investing in growth in a strategic and
targeted way. We have invested further in our Wealth business in
Asia. We now have a total of 1,400 digitally enabled wealth
planners in our Pinnacle business in mainland China, while we
launched Global Private Banking in India in July. In June,
following our acquisition of SVB UK, we also launched a new
strengthened, globally connected proposition - HSBC Innovation
Banking. Through it, we are building similar businesses to the
former SVB UK in the US, Hong Kong and Israel, and using our
international network and balance sheet strength to offer new
opportunities to expand globally to our clients in the technology
and life sciences sectors.
Third, we are working to diversify our revenue. A key strategic
priority has been to grow fee income by investing in our Wealth
business, especially in Asia. We saw the continuing benefit of this
in the first-half as we grew net new invested assets by $34bn, of
which $27bn were in Asia. Fee income in Commercial Banking, which
is another priority area, was also up in the first-half by 6%,
while collaboration revenue from referrals between our global
businesses also increased by 5%.
Fourth, we have maintained tight cost discipline. Costs of
$15.5bn in the first-half were $0.7bn or 4% lower than the same
period last year, primarily due to lower restructuring costs
following the end of our cost-saving programme at the end of 2022.
On the basis of our target to limit cost growth to around 3% in
2023, operating expenses increased by 4% in the first-half,
including the expected severance costs booked in the second
quarter. We remain committed to disciplined cost management.
Fifth, we have reinvested cost savings in technology. Spending
on technology increased by 12.8% in the first-half, and now
accounts for almost a quarter of total operating expenses.
Delivering faster services, reducing friction and offering more
competitive products has been critical to improving the customer
experience. For example, we have now migrated over 26,000 business
customers in Hong Kong and the UK to our next generation digital
trade platform, which is enabling us to future-proof a
market-leading business.
Investing in technology is also key to enhancing our
capabilities and building the bank of the future. We now have a
range of 'test and learn' use cases for generative AI across HSBC,
and are in the process of scaling those up. Last month, HSBC became
the first bank to join BT's and Toshiba's quantum-secured metro
network employing quantum technology for secure transmission of
data, which will enable us to evaluate how best to use this
technology against future cyber threats. We are also pleased to be
working with the Hong Kong Monetary Authority on two pilots to test
the e-HKD in a new payments ecosystem and to trial tokenised
deposits.
Future growth levers
In the first half of 2023, we continued to build new sources of
value creation.
We brought in
$34bn
of net new invested assets in Wealth.
We provided and facilitated
$45bn
of sustainable finance and investment in 1H23.
Finally, we continued to build on our position as an enabler of
the net zero transition by supporting our customers' transition
plans. In the first-half, we provided and facilitated $45bn of
sustainable finance and investments, which consisted of capital
markets financing and lending to clients as we continued to work
closely with them on their transitions. This included a number of
key deals in Asia and the Middle East. We have also continued to
help unlock new climate solutions, including through our Climate
Tech Venture Capital strategy. HSBC was named 'Best Bank for
Sustainable Finance in Asia' by Euromoney for the sixth consecutive
year.
Translating into strong financial performance
Our strong first-half featured good broad-based profit
generation around the world. There was also higher revenue in our
global businesses driven by strong net interest income, supported
by continued tight cost control. We achieved an annualised return
on tangible equity of 22.4%, or 18.5% excluding the two material
notable items reported with our first quarter results.
Profit before tax for the first half of 2023 was $21.7bn, which
was an increase of $12.9bn on the first half of 2022. This included
a $2.1bn reversal of an impairment relating to the planned sale of
our retail banking operations in France and a provisional gain of
$1.5bn on the acquisition of SVB UK. Profit after tax increased by
$9.1bn to $18.1bn.
Revenue increased by $12.3bn to $36.9bn, driven mainly by higher
net interest income in all three global businesses due to interest
rate rises. It also included gains related to the two
aforementioned transactions in the first quarter.
Expected credit losses and other credit impairment charges were
$1.3bn, which was a $0.3bn increase on the first half of 2022.
Our CET1 ratio at the end of the first-half was 14.7%. We have
announced a second interim dividend of $0.10 per share, further to
the $0.10 per share dividend already paid in respect of the first
quarter. We are also announcing a second share buy-back of up to
$2bn. We continue to expect to have substantial distribution
capacity going forward.
Our strong performance in the first half of 2023 and our
continued strategic progress mean that we now expect to achieve a
return on tangible equity in the mid-teens for 2023 and 2024.
Thank you to my colleagues
Over the last six months, I had the opportunity to spend time
with colleagues in France, Hong Kong, mainland China, Mexico, Saudi
Arabia, the United Arab Emirates and the UK. I have been constantly
impressed by their commitment, dedication and tireless efforts to
support our customers - all of which are evident in our many
achievements. I am especially grateful to those colleagues who have
faced serious challenges so far this year, including the
earthquakes in Türkiye in February and, of course, the ongoing cost
of living crisis in many markets.
Overall, we have delivered a strong first-half performance and
are confident of delivering our revised return on tangible equity
target for 2023 and 2024. I am also pleased that we can reward our
shareholders with strong capital returns, with substantial further
distribution capacity still expected ahead.
There is still much work to do, especially given the many
challenges in the global economy, but I am confident about our
future as we move further into the next phase of our strategy and
focus on opportunities to drive value creation, diversify our
revenue and retain tight cost control.
Noel Quinn
Group Chief Executive
1 August 2023
Our strategy
We are implementing our strategy across the four strategic
pillars
aligned to our purpose, values and ambition.
Our strategy remains anchored around our four strategic pillars,
aligned to our purpose, values and ambition, which are:
- focus on our areas of strength;
- digitise at scale to adapt our operating model for the future;
- energise our organisation for growth; and
- support the transition to a net zero global economy.
In our Annual Report and Accounts 2022, we shared our progress
in our transformation journey, which has resulted in improved
financial performance and a strong foundation as we look ahead.
Our strong first-half featured broad-based profit generation
around the world. There was also higher revenue across our global
businesses supported by strong net interest income.
We achieved an annualised return on tangible equity of 22.4%, or
18.5% excluding the annualised impacts related to the planned sale
in France and the acquisition in the UK. In our global businesses,
Wealth and Personal Banking ('WPB') revenue was up 61% on a
constant currency basis, Commercial Banking ('CMB') up 73% and
Global Banking and Markets ('GBM') up 14%.
Focus on our strengths
Across the Group, three cross-cutting themes - international
connectivity, capital deployment and cost discipline - underpin our
strategy upon which our global businesses execute.
Cross-cutting themes
International connectivity
Our strength in international connectivity, including taking
advantage of our deep liquidity pools in the UK and Hong Kong,
remains our key differentiator. In each of our global businesses,
international connectivity is core to who we serve. In our
wholesale business, driven mainly by interest rates, cross-border
client business increased to approximately $7bn in 1H23, compared
with approximately $5bn in 1H22. In addition, across wholesale
transaction banking, a cornerstone of our international
connectivity, revenue grew by 63%, similarly due to interest rates.
Within WPB, international clients remain our most attractive client
base, with an average customer providing over double the revenue
compared with a domestic customer. In 1H23, we grew our
international WPB client base to 6.3 million from 5.8 million
customers in 1H22, with new-to-bank international customers
increasing by 34%.
Capital deployment
We are repositioning our portfolio by exiting unprofitable,
sub-scale or less internationally connected portfolios and
investing in growth opportunities. The planned sale of our banking
business in Canada, and of our retail banking operations in France,
as well as the planned exits of our operations in Russia, and
wind-down of our WPB business in New Zealand are all in process. We
have also completed the disposal of our branch operations in
Greece. In Oman, we are changing the nature of our presence, with
the planned merger of our business underway with plans to establish
a new branch in its place subject to regulatory approvals.
From an acquisition perspective, we acquired SVB UK in March
2023. This acquisition strengthens our CMB franchise and enhances
our ability to serve innovative and fast-growing firms in the
technology and life science sectors in the UK, and internationally.
We have made significant progress since then, launching HSBC
Innovation Banking - a stand-alone entity supported by dedicated
bankers across the UK, the US, Israel and Hong Kong, with the
purpose of bridging people, products and propositions across the
bank.
Within our Asian Wealth business, Pinnacle now has approximately
1,400 personal wealth planners digitally enabled, and has witnessed
a positive momentum in business growth in 2Q23. In India, we
launched Global Private Banking in July 2023 to serve high net
worth and ultra high net worth customers onshore. We have also
continued to diversify our business with more than 35% of net new
invested assets in Asia originating outside Hong Kong.
Cost discipline
We remain committed to disciplined cost management. Costs of
$15.5bn in 1H23 were $0.7bn or 4% lower than the same period last
year, primarily due to lower restructuring costs following the end
of our cost to achieve programme at the end of 2022. On a 2023
target basis, the Group's operating expense increased by 4.3% in
1H23, including severance costs which accounted for 1.4%.
We continue to use cost savings to increase investment in our
efforts to further digitise HSBC. Our spending on technology
increased by 12.8% in 1H23 on a target basis, and now accounts for
23% of total operating expenses.
International
customers in WPB
6.3m
Up 8% since 1H22.
Cross-border wholesale
client business
c.$7bn
Up approximately 50%
since 1H22.
Wholesale transaction
banking revenue
$13.5bn
Up 63% since 1H22.
Technology spend
+12.8%
vs 1H22.
Focus on our strengths continued
In our global businesses
In each of our global businesses, we continue to focus on areas
where we are strongest and have opportunities to grow. We aim to
diversify revenue streams with a focus on growing Wealth,
fee-income streams and collaborating across businesses.
Wealth and Personal Banking
In WPB, we continued to make progress in executing our wealth,
asset management and insurance strategy. Constant currency revenue
in 1H23 was $16.2bn, up 61% compared with 1H22. Personal Banking
performed strongly, with 57% growth during the same period. We
recorded net new invested assets of $34bn, with $27bn coming from
Asia.
We continue to develop our Global Money proposition, which is
now live in eight markets with over 140 features released so far
this year. We also launched our faster, fees-free payments rails
for Global Money transfers in Hong Kong and the US, giving
customers access to cheaper, faster payments. Global Money won
'Outstanding FX Services Solution' at The Digital Banker's Middle
East and Africa Innovation Awards 2023.
Net new invested assets in Asia in 1H23
$27bn
Up 21% since 1H22.
Commercial Banking
We saw strong performance in CMB, with constant currency revenue
reaching $12.2bn, a 73% increase compared with 1H22, driven by
Global Payments Solutions ('GPS'). Overall fee income, a key area
of our focus, rose by 6% to $2.0bn, driven by our GPS and Global
Trade and Receivables Finance businesses.
Our digital propositions continue to gain traction. We have
migrated over 26,000 customers in Hong Kong and the UK to our next
generation trade platform, HSBC Trade Solutions, enabling the
digitisation of trade and trade-as-a-service via enhanced API
connectivity. Global Wallet, a digital wallet that allows customers
to transact across currencies without the need of local accounts,
has launched Merchant Box in Hong Kong, a one-stop digital payments
solution to help e-commerce merchants manage payments across
different platforms. Kinetic, our digital business account for SMEs
in the UK, now has onboarded over 66,000 customers.
CMB fee income in 1H23
$2.0bn
Up 6% since 1H22.
Global Banking and Markets
We saw sustained performance in GBM, with constant currency
revenue increasing by 14% compared with 1H22, reaching $8.5bn.
Collaboration revenue with our other global businesses, which
remains a key opportunity for us, increased by 5% to approximately
$2.0bn. GBM continues to drive international connectivity across
regions, with our Western clients facilitating approximately $1.4bn
of client business into Asia and the Middle East, an increase of
approximately 60% compared with 1H22.(1)
Within our Markets and Securities Services business, we launched
AI Markets, a Cloud-hosted global digital service that uses natural
language processing to enable institutional investors to generate
bespoke financial market analytics, browse the latest market
insights and access real-time and historical data. We also went
live on SwapConnect, enabling clients to enter into onshore
deliverable Chinese yuan interest rate swap deals settled from
outside China.
Collaboration revenue between GBM and other global businesses in
1H23
c.$2.0bn
Up 5% since 1H22.
1 Client business differs from reported revenue as it relates to
certain client-specific income, and excludes certain products
(including Principal Investments, CMB and GBM Other and Asset
Management), Group allocations, recoveries and other
non-client-related and portfolio level revenue. It also excludes
Hang Seng. CMB client business excludes Business Banking customers.
GBM client business includes an estimation of client-specific day
one trade-specific revenue from Markets and Securities Services
products, which excludes ongoing mark-to-market revenue and
portfolio level revenue such as hedging. Cross-border client
business represents the income earned from a client's entity
domiciled in a different geography than from where the client
group's global relationship is managed.
Digitise at scale
We are continuing to invest in innovative digital solutions and
deploying them rapidly, delivering better banking services for our
customers and improving our operational efficiency. In 1H23,
approximately $3.5bn or 23% of our overall operating expenses on a
target basis were dedicated to technology, up from approximately
21% in 1H22.
We are making digital banking more seamless and efficient for
our customers and building digital solutions to enable
international customers to take their bank with them wherever they
are in the world.
As a result, more of our customers are engaging with us through
digital channels. At the end of May 2023, 51% of our WPB customers
were active on our mobile services, compared with 45% at the end of
May 2022. A total of 48% of WPB sales were also made digitally at
the end of May 2023, compared with 40% at the end of May 2022.
Within CMB, 82% of our customers were digitally active at the end
of May 2023, compared with 76% at the end of May 2022.
To improve our operational efficiency, we are digitising our
processes and modernising our systems across the bank. We are using
the power of the Cloud to process large volumes of data. Our Cloud
adoption rate, which is the percentage of our technology services
on the private or public Cloud, increased from 31% at the end of
1H22 to 37% at the end of 1H23.
We are embracing disruptive technologies to help enhance our
services, strengthen our cybersecurity, and unlock future
innovation. These include artificial intelligence ('AI'), central
bank digital currencies, and quantum computing to develop and
harness their potential to help reshape banking.
Our award-winning anti-money laundering AI solution is now
deployed in five markets, covering over 75% of our customers. We
also have a range of 'test and learn' use cases of generative AI,
as we explore the potential of this technology.
We are participating in two digital currency pilots with the
Hong Kong Monetary Authority. The first will develop a new payments
ecosystem to trial the use of eHKD, with the potential to lower
transaction costs and reduce fraud. The second will test tokenised
deposits with Visa in Asia.
We are leading research into quantum computing for financial
services. In 1H23, we became the first bank to join BT's and
Toshiba's quantum-secured metro network, employing quantum key
distribution to securely connect our headquarters to our data
centre using data encryption keys.
Our aim is to deliver world-class digital banking, now and for
the future.
Energise for growth
Empowering and energising our colleagues is crucial for
inspiring a dynamic culture. We remained focused on creating a
diverse and inclusive environment, especially in senior leadership
roles. We achieved 33.6% female representation in senior leadership
positions by the end of 1H23, and are on track to achieve our
target of 35% by 2025.(1)
In 2022, we also set a Group-wide ethnicity strategy to better
represent the communities we serve. We are making good progress to
meet this, with 2.8% of leadership roles in the UK and US held by
colleagues of Black heritage in 1H23.
We have strengthened the development programmes offered to our
most senior leaders through the continuation of our Enterprise
Leadership Programme and the launch of a new range of interventions
designed to build the knowledge, skills and networks of our
Managing Directors.
We outline how we put our purpose and values into practice in
the following 'ESG overview' section .
1 This data excludes Saudi Arabia due to local data restrictions
and Canada due to the agreed sale of the banking business.
Transition to net zero
As part of our ambition to support our customers through the
transition to net zero and to a sustainable future, we aim to
provide and facilitate $750bn to $1tn of sustainable finance and
investments by 2030. In 1H23, we provided and facilitated $45bn of
sustainable finance and investments, bringing our cumulative amount
since 1 January 2020 to $255.7bn.
We also continued to demonstrate progress towards our net zero
ambition. In December 2022 we published our updated energy policy,
which is now extended to the wider energy sector.
We continue to help unlock new climate solutions, focusing on
supporting innovation in critical areas such as green
technologies.
We are expanding the number of sectors where we plan to provide,
and make progress towards, 2030 on-balance sheet financed emissions
targets. These include the shipping, agriculture, commercial real
estate and residential real estate sectors, and will be in addition
to the carbon-intensive sectors we have already set targets for, as
published in our Annual Report and Accounts 2022 in February.
Our aim to support our customers through their own journeys to
transition to net zero remains a key area of focus and we continue
to work towards it through the facilitation of sustainable finance
and investments.
> For further details on our climate ambition, see the
following 'ESG overview' section.
ESG overview
We are committed to embedding strong environmental,
social and governance principles in the way we do business .
Our approach
Our approach to ESG is shaped by our purpose and values, and a
desire to create sustainable long-term value for our stakeholders.
As an international bank with significant breadth and scale, we
understand that we can have a significant impact in helping to
tackle ESG challenges and realise opportunities. We also recognise
the complexity of ESG issues. Our ESG efforts are focused on the
areas which align most closely to our strategy, purpose and values,
and where we can help make a significant difference: the transition
to net zero, building inclusion and resilience, and acting
responsibly.
Transition to net zero
We continue to make progress on our net zero ambition of
becoming net zero in our operations and supply chain by 2030 and
aligning our financed emissions to net zero by 2050, recognising we
have a significant role to play in enabling the transition to a net
zero global economy.
We are expanding the number of sectors where we plan to provide,
and make progress towards, 2030 on-balance sheet financed emissions
targets. These include the shipping, agriculture, commercial real
estate and residential real estate sectors, and will be in addition
to the carbon-intensive sectors we have already set targets for, as
published in our Annual Report and Accounts 2022 in February.
Our updated thermal coal exposures dating back to 31 December
2020 are expected to be made available for reporting in 2023,
although this continues to be dependent on availability and quality
of data. We aim to update our baseline facilitated emissions from
our capital markets activities for the oil and gas, and power and
utilities sectors following the publication of the Partnership for
Carbon Accounting Financials ('PCAF') standard for capital markets,
which is expected later this year.
In December 2022, we published an updated energy policy covering
the broader energy system including upstream oil and gas, oil and
gas power generation, hydrogen, renewables and hydropower, nuclear,
biomass and energy from waste. We also updated our thermal coal
phase-out policy. For further details of our policies, see page 65
of our Annual Report and Accounts 2022. We continue to focus on the
implementation of these policies through customer engagement and
assessment of their transition plans.
We continue to unlock new climate solutions, focusing on
supporting innovation in critical areas such as climate
technologies. HSBC Asset Management's Climate Tech Venture Capital
strategy has deployed $30m of capital to date including investing
in Chargetrip, a European start-up developing electric vehicle
routing and range technology. In 2Q23, HSBC Asset Management
launched a 'Purpose' share class, designed to align with the
corporate social objectives of our customers. The share class
focuses on addressing gender, racial and ethnic inequality in our
societies.
In the first half of 2023, we undertook an analysis of the
agri-food sector in Europe using the draft Taskforce on
Nature-related Financial Disclosures' ('TNFD') framework. We aim to
use this analysis to inform the next steps in expanding our risk
management framework to incorporate nature considerations.
Build inclusion and resilience
We are committed to building an inclusive workplace where the
best want to work. We place a strong focus on recruiting and
retaining diverse talent to better represent our communities. Data
is core to this and we have enabled 91% of our colleagues to
disclose their ethnicity, with 58% currently choosing to do so.
We have continued to develop the skills of our colleagues to
support the achievement of our strategic priorities. Our
Sustainability Academy was launched in 2022 to improve the skills
of key groups of colleagues in support of our net zero ambitions.
The academy has been strengthened with external partnerships with
Imperial College London and the Global Association of Risk
Professionals. The Accelerating Wealth Programme has continued to
support our business growth ambitions in Asia, by attracting and
developing individuals with transferable skills into front-line
wealth management roles through an immersive re-skilling
programme.
Cost of living pressures have continued to be felt around the
world, and we have provided a range of resources for colleagues,
including financial guidance and assistance programmes. Our 2022
reward survey showed a nine percentage-point improvement in
colleagues believing they are paid fairly for the work they do.
While this is encouraging progress, we continue to review our
approach to performance and pay to ensure we are able to motivate
colleagues in a way that is authentic to our culture and
values.
We know that many of our customers around the world are also
facing increasing cost of living pressures, and we are committed to
helping them. We continue to proactively take steps to help prevent
customers from falling into financial difficulty, and work closely
with those who could benefit from additional assistance. We have
developed a range of initiatives and tools designed to support
financial resilience and build the financial capability of our
customers.
We drive inclusion for our customers by identifying and
addressing barriers to finance and financial markets. We aim to
simplify the banking experience by providing tools to help
customers manage their finances more easily, as well as provide
education and support to help them make the most of their money. We
also provide finance to our clients in a way that aims to help them
improve their social outcomes. We engage with the communities we
operate within through philanthropic giving, disaster relief and
volunteering.
Act responsibly
Our purpose-led conduct approach guides us to do the right thing
and to focus on the impact we have for our customers and the
financial markets in which we operate. It is incorporated into the
way we design, approve, market and manage products and services. It
complements our purpose and values and, together with more formal
policies and the tools we have to do our jobs, provides an
enterprise-wide, outcome-focused conduct method.
Financial overview
In assessing the Group's financial performance, management uses
a range of
financial measures that focus on the delivery of sustainable
returns for our
shareholders and maintaining our financial strength.
Executive summary
Financial performance in the first half of 2023 benefited from
the impact of interest rate rises while operating expenses
continued to reflect ongoing cost discipline, despite inflationary
pressures.
Reported profit before tax of $21.7bn increased by $12.9bn
compared with 1H22. This included a $2.1bn reversal of an
impairment relating to the planned sale of our retail banking
operations in France, and a provisional gain of $1.5bn on the
acquisition of SVB UK in March. The increase in reported profit
before tax also reflected revenue growth from the impact of
interest rate rises. Lower reported operating expenses mainly
reflected reduced restructuring costs following the completion of
our cost-saving programme at the end of 2022 and favourable foreign
currency translation differences. Meanwhile ECL increased, with
1H23 including charges relating to the commercial real estate
sector in mainland China and to CMB in the UK, while 1H22 benefited
from releases of Covid-19-related allowances.
Our annualised return on average tangible equity ('RoTE') for
1H23 was 22.4%, which included the annualised impact of our
provisional gain on the acquisition of SVB UK and the reversal of
an impairment on the planned sale of our retail banking operations
in France. After excluding these transactions, annualised RoTE was
18.5%. The annualised RoTE in 1H23 is expected to be higher than in
the second half of 2023, due to the impacts of these transactions,
as well as other seasonal factors.
At 30 June 2023, the Group's CET1 ratio of 14.7% increased by
0.5 percentage points from 31 December 2022. The Board has
announced a second interim dividend of $0.10 per ordinary
share.
Delivery against Group
financial targets
Return on average tangible equity (annualised) (%)
22.4%
(1H22: 10.6%)
We achieved an annualised RoTE of 22.4%, compared with 10.6% in
1H22. Our 1H23 RoTE annualised the impact of our provisional gain
on the acquisition of SVB UK and the reversal of an impairment on
the planned sale of our retail banking operations in France.
Excluding the impacts related to these transactions, annualised
RoTE was 18.5%.
Our strategy has enabled us to further strengthen our balance
sheet, providing us with a good platform for growth in the current
interest rate cycle, while maintaining cost discipline. This has
given us the confidence to revise our returns guidance for 2023 and
2024. Based on the current path implied by the market for global
policy rates, we are now targeting a RoTE in the mid-teens for 2023
and 2024, which excludes the impact of material acquisitions and
disposals.
Target basis operating expenses growth compared with 1H22 <
>
4.3%
(1H23: $15.3bn; 1H22: $14.7bn)
In 2023, the Group is targeting to limit cost growth to
approximately 3%, excluding the impact of foreign currency
translation differences, notable items and the impact of
retranslating the 2022 results of hyperinflationary economies at
constant currency. Our target also excludes the impact of our
acquisition of SVB UK, and the related investments internationally,
which are expected to add approximately 1% to the Group's operating
expenses .
On this basis, the Group's operating expenses increased by
$0.6bn or 4.3% compared with 1H22.
We announced at our 2022 full-year results that we intend to
incur up to $0.3bn severance costs during 2023, with the benefits
expected to be realised towards the end of 2023 and into 2024.
During 1H23, we incurred severance costs of $0.2bn.
Capital and dividends
CET1 ratio
14.7%
(31 December 2022: 14.2%)
At 30 June 2023, our CET1 ratio was 14.7%, up 0.5 percentage
points from 31 December 2022. This was driven by capital generation
net of the dividend accrual, and included an approximately 0.3
percentage point impact from the reversal of an impairment on the
planned sale of our retail banking operations in France and the
provisional gain on the acquisition of SVB UK. This was partly
offset by increased RWAs and the impact of the share buy-back
announced with our 1Q23 results in May 2023.
We intend to manage the CET1 ratio within our medium term target
range of 14% to 14.5%, and we aim to manage this range down in the
long term. We intend to continue to manage capital efficiently,
returning excess capital to shareholders where appropriate. Our
capital distributions remain independent of the reversal of the
impairment of our retail banking operations in France and our
provisional gain on the acquisition of SVB UK.
Alongside our 1H23 results, the Board has announced a second
interim dividend of $0.10 per ordinary share. The total dividend in
respect of 1H23 was $0.20 per ordinary share. We also intend to
initiate a share buy-back of up to $2bn, which we expect to
commence shortly and complete within three months.
Given our current forecast returns trajectory, we are targetting
a dividend payout ratio of 50% for 2023 and 2024, excluding
material notable items, comprising the impacts of the planned sale
of our retail banking operations in France, the agreed sale of our
banking business in Canada and the provisional gain following the
acquisition of SVB UK. Our dividend payout ratio also excludes the
earnings of our Canada business from 30 June 2022 until completion
of the agreed sale.
Second interim dividend per ordinary share in respect of
2023
$0.10
Key financial metrics
Half-year to
30 Jun 30 Jun
2023 2022
------------------------------------------------------- ----------------------------- ------------------------------
Reported results
Profit before tax ($m) 21,657 8,780
------------------------------------------------------- ----------------------------- ------------------------------
Profit after tax ($m) 18,071 8,931
Cost efficiency ratio (%) 41.9 65.7
------------------------------------------------------- ----------------------------- ------------------------------
Net interest margin (%) 1.70 1.24
------------------------------------------------------- ----------------------------- ------------------------------
Basic earnings per share ($) 0.86 0.40
------------------------------------------------------- ----------------------------- ------------------------------
Diluted earnings per share ($) 0.86 0.40
Dividend per ordinary share (in respect of the period)
($) 0.20 0.09
------------------------------------------------------- ----------------------------- ------------------------------
Alternative performance measures < >
Constant currency profit before tax ($m) 21,657 8,404
Constant currency cost efficiency ratio (%) 41.9 65.7
------------------------------------------------------- ----------------------------- ------------------------------
Expected credit losses and other credit impairment
charges (annualised) as % of average gross loans and
advances to customers (%) 0.28 0.21
------------------------------------------------------- ----------------------------- ------------------------------
Expected credit losses and other credit impairment
charges (annualised) as % of average gross loans and
advances to customers, including held for sale (%) 0.26 0.21
------------------------------------------------------- ----------------------------- ------------------------------
Basic earnings per share excluding material notable
items ($)(1) 0.70 0.29
------------------------------------------------------- ----------------------------- ------------------------------
Return on average ordinary shareholders' equity
(annualised)
(%) 20.8 9.9
------------------------------------------------------- ----------------------------- ------------------------------
Return on average tangible equity (annualised) (%) 22.4 10.6
------------------------------------------------------- ----------------------------- ------------------------------
Return on average tangible equity excluding strategic
transactions (annualised) (%)(2) 18.5 10.6
------------------------------------------------------- ----------------------------- ------------------------------
Target basis operating expenses ($m)(3) 15,319 14,683
------------------------------------------------------- ----------------------------- ------------------------------
At
30 Jun 31 Dec
2023 2022
------------------------------------------------------- ----------------------------- ------------------------------
Balance sheet
------------------------------------------------------- ----------------------------- ------------------------------
Total assets ($m) 3,041,476 2,949,286
------------------------------------------------------- ----------------------------- ------------------------------
Net loans and advances to customers ($m) 959,558 923,561
------------------------------------------------------- ----------------------------- ------------------------------
Customer accounts ($m) 1,595,769 1,570,303
------------------------------------------------------- ----------------------------- ------------------------------
Average interest-earning assets, year to date ($m) 2,162,662 2,143,754
------------------------------------------------------- ----------------------------- ------------------------------
Loans and advances to customers as % of customer
accounts
(%) 60.1 58.8
------------------------------------------------------- ----------------------------- ------------------------------
Total shareholders' equity ($m) 184,170 177,833
------------------------------------------------------- ----------------------------- ------------------------------
Tangible ordinary shareholders' equity ($m) 153,234 146,927
------------------------------------------------------- ----------------------------- ------------------------------
Net asset value per ordinary share at period end ($) 8.44 8.01
------------------------------------------------------- ----------------------------- ------------------------------
Tangible net asset value per ordinary share at period
end ($) 7.84 7.44
Capital, leverage and liquidity
------------------------------------------------------- ----------------------------- ------------------------------
Common equity tier 1 capital ratio (%)(4,5) 14.7 14.2
------------------------------------------------------- ----------------------------- ------------------------------
Risk-weighted assets ($m)(4,5) 859,545 839,720
------------------------------------------------------- ----------------------------- ------------------------------
Total capital ratio (%)(4,5) 19.8 19.3
------------------------------------------------------- ----------------------------- ------------------------------
Leverage ratio (%)(4,5) 5.8 5.8
------------------------------------------------------- ----------------------------- ------------------------------
High-quality liquid assets (liquidity value, average)
($bn)(5,6) 631 647
------------------------------------------------------- ----------------------------- ------------------------------
Liquidity coverage ratio (average) (%)(5,6) 132 132
Share count
------------------------------------------------------- ----------------------------- ------------------------------
Period end basic number of $0.50 ordinary shares
outstanding
(millions) 19,534 19,739
------------------------------------------------------- ----------------------------- ------------------------------
Period end basic number of $0.50 ordinary shares
outstanding
and dilutive potential ordinary shares (millions) 19,679 19,876
------------------------------------------------------- ----------------------------- ------------------------------
Average basic number of $0.50 ordinary shares
outstanding
(millions) 19,693 19,849
------------------------------------------------------- ----------------------------- ------------------------------
For reconciliations of our reported results to a constant
currency basis, including lists of notable items, see page 39.
Definitions and calculations of other alternative performance
measures are included in our 'Reconciliation of alternative
performance measures' on page 57.
1 At 2Q23, earnings per share included the impact of the
provisional gain recognised in respect of the acquisition of SVB UK
of $0.08 (2Q22: nil); the reversal of the impairment loss related
to the planned sale of our retail banking operations in France of
$0.08 (2Q22: nil); and the agreed sale of our banking business in
Canada of $nil (2Q22: $nil). Additionally, the earnings per share
at 2Q22 included the impact of the recognition of certain tax
assets of $0.11.
2 Excludes impacts of the reversal of the impairment loss of
$1.6bn (net of tax) relating to the planned sale of our retail
banking operations in France, which is no longer classified as held
for sale, and the provisional gain of $1.5bn recognised in respect
of the acquisition of SVB UK, both recognised in 1Q23.
3 Excluding the impact of retranslating prior year costs of
hyperinflationary economies at constant currency.
4 Unless otherwise stated, regulatory capital ratios and
requirements are based on the transitional arrangements of the
Capital Requirements Regulation in force at the time. At 30 June
2023, the IFRS 9 add-back to CET1 capital was immaterial.
References to EU regulations and directives (including technical
standards) should, as applicable, be read as references to the UK's
version of such regulation or directive, as onshored into UK law
under the European Union (Withdrawal) Act 2018, and as may be
subsequently amended under UK law.
5 Regulatory numbers and ratios are as presented at the date of
reporting. Small changes may exist between these numbers and ratios
and those subsequently submitted in regulatory filings. Where
differences are significant, we will restate in subsequent
periods.
6 The liquidity coverage ratio is based on the average month-end
values over the preceding 12 months.
Basis of presentation
IFRS 17 'Insurance Contracts'
On 1 January 2023, HSBC adopted IFRS 17 'Insurance Contracts'.
As required by the standard, the Group applied the requirements
retrospectively with comparative data previously published under
IFRS 4 'Insurance Contracts' restated from the 1 January 2022
transition date.
For more information, see 'Changes to presentation from 1
January 2023' on page 28.
Changes to our reporting framework
On 1 January 2023, we updated our financial reporting framework.
We no longer report 'adjusted' results, which exclude the impact of
both foreign currency translation differences and significant
items. Instead, we compute constant currency performance by
adjusting comparative reported results only for the effects of
foreign currency translation differences between the relevant
periods.
Constant currency performance
Constant currency performance is computed by adjusting reported
results of comparative periods for the effects of foreign currency
translation differences, which distort period-on-period
comparisons.
We consider constant currency performance to provide useful
information for investors by aligning internal and external
reporting, and reflecting how management assesses period-on-period
performance.
Notable items
We separately disclose 'notable items', which are components of
our income statement that management would consider as outside the
normal course of business and generally non-recurring in
nature.
The tables on pages 39 to 41 and pages 51 to 54 detail the
effects of notable items on each of our global business segments
and legal entities during 1H23 and 1H22.
Management view of revenue on a constant currency basis
Our global business segment commentary includes tables that
provide breakdowns of revenue on a constant currency basis by major
product. These reflect the basis on which revenue performance of
the businesses is assessed and managed.
Reported results
1H23 compared with 1H22 - reported performance
Half-year to Variance
------------------------------------------------------- --------------------------------------------------------------------------------------
30 Jun 30 Jun Impact
2023 2022 1H23 vs 1H22 of FX
-----------------
Reported results $m $m $m % %
----------------- ------------------------- ---------------------------- ---------------------------- --------------------------- ---------------------------
Net operating
income before
change in
expected credit
losses
and other credit
impairment
charges
('revenue') 36,876 24,545 12,331 50 (6)
----------------- ------------------------- ---------------------------- ---------------------------- ---------------------------
ECL (1,345) (1,087) (258) (24) 2
----------------- ------------------------- ---------------------------- ---------------------------- --------------------------- ---------------------------
Net operating
income 35,531 23,458 12,073 51 (6)
----------------- ------------------------- ---------------------------- ---------------------------- --------------------------- ---------------------------
Total operating
expenses (15,457) (16,127) 670 4 4
----------------- ------------------------- ---------------------------- ---------------------------- --------------------------- ---------------------------
Operating
profit/(loss) 20,074 7,331 12,743 >100 (11)
----------------- ------------------------- ---------------------------- ---------------------------- --------------------------- ---------------------------
Share of profit
in associates
and joint
ventures 1,583 1,449 134 9 (7)
----------------- ------------------------- ---------------------------- ---------------------------- --------------------------- ---------------------------
Profit before tax 21,657 8,780 12,877 >100 (11)
----------------- ------------------------- ---------------------------- ---------------------------- --------------------------- ---------------------------
Tax
income/(expense) (3,586) 151 (3,737) >(100) >(100)
----------------- ------------------------- ---------------------------- ---------------------------- --------------------------- ---------------------------
Profit/(loss)
after tax 18,071 8,931 9,140 >100 (7)
----------------- ------------------------- ---------------------------- ---------------------------- --------------------------- ---------------------------
Half-year to
--------------------------------------------------------------
30 Jun 30 Jun
2023 2022
Notable items $m $m
------------------------------------------------------ ------------------------------ ------------------------------
Revenue
------------------------------------------------------ ------------------------------ ------------------------------
Disposals, acquisitions and related costs 3,321 (288)
------------------------------------------------------ ------------------------------ ------------------------------
Fair value movements on financial instruments 15 (371)
------------------------------------------------------ ------------------------------ ------------------------------
Restructuring and other related costs - 68
------------------------------------------------------ ------------------------------ ------------------------------
Currency translation on revenue notable items - 14
------------------------------------------------------ ------------------------------ ------------------------------
Operating expenses
------------------------------------------------------ ------------------------------ ------------------------------
Disposals, acquisitions and related costs (118) -
------------------------------------------------------ ------------------------------ ------------------------------
Restructuring and other related costs 47 (1,040)
------------------------------------------------------ ------------------------------ ------------------------------
Currency translation on operating expenses notable
items - 31
------------------------------------------------------ ------------------------------ ------------------------------
1H23 compared with 1H22 - reported performance continued
Reported profit
Reported profit before tax of $21.7bn was $12.9bn higher than in
1H22. This was primarily driven by an increase in revenue due to
continued growth in net interest income, reflecting the impact of
interest rate rises. Revenue growth also included a $2.1bn reversal
of an impairment relating to the planned sale of our retail banking
operations in France, and a provisional gain of $1.5bn recognised
on the acquisition of SVB UK. Reported operating expenses were
lower, mainly reflecting reduced restructuring and other related
costs following the completion of our cost-saving programme at the
end of 2022.
Reported profit after tax of $18.1bn was $9.1bn higher than in
1H22. This included a higher tax expense, notably as 1H22 included
a net $1.8bn gain, mainly on the recognition of a deferred tax
asset.
Reported revenue
Reported revenue of $36.9bn was $12.3bn or 50% higher, and
included the reversal of an impairment relating to the planned sale
of our retail banking operations in France and a provisional gain
on the acquisition of SVB UK, as described above.
The increase also reflected the impact of interest rate rises,
mainly in Global Payments Solutions ('GPS') in CMB and GBM, and in
Personal Banking and Global Private Banking in WPB.
In GBM, revenue increased in Markets and Securities Services
('MSS'), mainly in Global Debt Markets reflecting favourable
primary market conditions and a better trading performance, and
also in Securities Services and Global Foreign Exchange.
There was a good performance in our insurance business in WPB,
while the increase in revenue in Corporate Centre included higher
revenue in Central Treasury and lower losses relating to the
restructuring of our business in Europe.
These factors were partly offset by lower Credit and Lending
revenue in CMB, primarily driven by margin compression, and in GBM,
reflecting an enhanced focus on returns and weaker client demand.
In MSS in GBM, Equities revenue fell due to lower customer
activity. Revenue also reduced in Markets Treasury due to the
impact of rising interest rates on our funding costs and flattening
yield curves. This revenue is allocated to our global
businesses.
Reported ECL
Reported ECL of $1.3bn were $0.3bn or 24% higher. The 1H23
charge included stage 3 charges of $1.1bn. There were charges of
$0.3bn related to the commercial real estate sector in mainland
China and charges in CMB in the UK. The 1H23 charge reflected a
more stable outlook in most markets, although inflationary
pressures remain.
In 1H22, ECL included charges of $0.3bn relating to the
commercial real estate sector in mainland China, as well as
Russia-related exposures. It also included additional stage 1 and
stage 2 allowances to reflect heightened levels of economic
uncertainty and inflationary pressures, in part offset by the
release of most of our remaining Covid-19-related allowances.
Reported operating expenses
Reported operating expenses of $15.5bn were $0.7bn or 4% lower,
mainly due to a reduction in restructuring and other related costs
of $1.1bn following the completion of our cost-saving programme,
which concluded at the end of 2022. The reduction also included a
$0.2bn impact from the reversal of historical asset impairments,
the impact of our continued cost discipline, and favourable foreign
currency translation differences between the periods of $0.6bn.
These factors were partly offset by higher technology spend of
$0.5bn, an increase in our performance-related pay accrual of
$0.2bn and severance payments of $0.2bn. Our operating expenses
also rose due to the impact of higher inflation and incremental
costs following our acquisition of SVB UK.
Reported share of profit from associates and JVs
Reported share of profit from associates and joint ventures of
$1.6bn was $0.1bn or 9% higher, reflecting an increase in the share
of profit from Saudi Awwal Bank ('SAB'), formerly The Saudi British
Bank, and Bank of Communications Co., Limited ('BoCom').
Tax expense
Tax in 1H23 was a charge of $3.6bn, representing an effective
tax rate of 16.6%. The effective tax rate for 1H23 was reduced by
1.9 percentage points by the non-taxable provisional gain on the
acquisition of SVB UK and by 2.1 percentage points by the release
of provisions for uncertain tax positions. Tax in 1H22 was a credit
of $151m. This was mainly due to a $2.1bn credit arising from the
recognition of a deferred tax asset on historical tax losses of
HSBC Holdings as a result of improved profit forecasts for the UK
tax group and a charge of $0.3bn for uncertain tax positions.
Excluding these items, the effective tax rate for 1H22 was
18.4%.
Return on average tangible equity
In 1H23, our annualised RoTE was 22.4%. Excluding the impact of
the reversal of an impairment relating to the planned sale of our
retail banking operations in France and the provisional gain of
$1.5bn on the acquisition of SVB UK, annualised RoTE was 18.5%.
Reported profit after tax in 1H23
$18.1bn
(1H22: $8.9bn)
Reported net interest income in 1H23
$18.3bn
Up 36% compared with 1H22.
Reported performance - 2Q23 vs 2Q22
Quarter ended
----------------------------------------------------------------------------------------
30 Jun 30 Jun 31 Mar Impact
2023 2022 2023 2Q23 vs 2Q22 of FX
-----------------
Reported results $m $m $m $m % %
----------------- ---------------------------- ---------------------------- ---------------------------- ------------------------------ ---------------------------- --------------------------
Net operating
income
before change in
expected
credit losses
and other
credit
impairment
charges
('revenue') 16,705 12,240 20,171 4,465 36 (2)
----------------- ---------------------------- ---------------------------- ---------------------------- ------------------------------ ---------------------------- --------------------------
ECL (913) (447) (432) (466) (104) 3
----------------- ---------------------------- ---------------------------- ---------------------------- ------------------------------ ---------------------------- --------------------------
Net operating
income 15,792 11,793 19,739 3,999 34 (2)
----------------- ---------------------------- ---------------------------- ---------------------------- ------------------------------ ---------------------------- --------------------------
Total operating
expenses (7,871) (7,949) (7,586) 78 1 2
----------------- ---------------------------- ---------------------------- ---------------------------- ------------------------------ ---------------------------- --------------------------
Operating
profit/(loss) 7,921 3,844 12,153 4,077 106 (2)
----------------- ---------------------------- ---------------------------- ---------------------------- ------------------------------ ---------------------------- --------------------------
Share of profit
in associates
and joint
ventures 850 792 733 58 7 (6)
----------------- ---------------------------- ---------------------------- ---------------------------- ------------------------------ ---------------------------- --------------------------
Profit before tax 8,771 4,636 12,886 4,135 89 (3)
----------------- ---------------------------- ---------------------------- ---------------------------- ------------------------------ ---------------------------- --------------------------
Tax
income/(expense) (1,726) 863 (1,860) (2,589) 300
----------------- ---------------------------- ---------------------------- ---------------------------- ------------------------------ ---------------------------- --------------------------
Profit/(loss)
after
tax 7,045 5,499 11,026 1,546 28
----------------- ---------------------------- ---------------------------- ---------------------------- ------------------------------ ---------------------------- --------------------------
Quarter ended
--------------------------------------------------------------------------------------------------
30 Jun 30 Jun 31 Mar
2023 2022 2023
Notable items $m $m $m
------------------ ------------------------------ -------------------------------- --------------------------------
Revenue
------------------ ------------------------------ -------------------------------- --------------------------------
Disposals,
acquisitions and
related costs (241) (288) 3,562
------------------ ------------------------------ -------------------------------- --------------------------------
Fair value
movements on
financial
instruments - (171) 15
------------------ ------------------------------ -------------------------------- --------------------------------
Restructuring and - (12) -
other related
costs
------------------ ------------------------------ -------------------------------- --------------------------------
Currency
translation on
revenue notable
items - 23 77
------------------ ------------------------------ -------------------------------- --------------------------------
Operating expenses
------------------ ------------------------------ -------------------------------- --------------------------------
Disposals,
acquisitions and
related costs (57) - (61)
------------------ ------------------------------ -------------------------------- --------------------------------
Restructuring and
other related
costs 47 (589) -
------------------ ------------------------------ -------------------------------- --------------------------------
Currency
translation on
operating
expenses notable
items - 1 (2)
------------------ ------------------------------ -------------------------------- --------------------------------
Reported profit
Reported profit before tax of $8.8bn was $4.1bn higher than in
2Q22, reflecting an increase in revenue driven by rising interest
rates. Growth also reflected the non-recurrence of losses related
to the planned restructure of our businesses in Europe.
Reported profit after tax of $7.0bn was $1.5bn higher than in
2Q22. This included a higher tax expense, notably as 2Q22 included
a $1.8bn deferred tax gain.
Reported revenue
Reported revenue grew by $4.5bn to $16.7bn. Net interest income
increased in all global businesses, mainly as a result of higher
interest rates, a good performance in life insurance manufacturing
in WPB and increased activity in debt capital markets in GBM.
These increases were partly offset by reductions in revenue in
Global Foreign Exchange, compared with a strong 2Q22, and in
Equities. There was also a reduction in Markets Treasury revenue
from lower net interest income due to the impact of rising interest
rates on our funding costs and flattening yield curves. This
revenue is allocated to our global businesses.
'Disposals, acquisitions and related costs' in 2Q23 primarily
related to fair value losses on the foreign exchange hedging of the
proceeds from the agreed sale of our banking business in
Canada.
Reported ECL
Reported ECL in 2Q23 of $0.9bn were $0.5bn higher. ECL in 2Q23
included $0.3bn of charges against exposures in the commercial real
estate sector in mainland China and charges in the UK in CMB.
Reported operating expenses
Reported operating expenses of $7.9bn were $0.1bn lower, mainly
due to the favourable impact of foreign currency translation
differences of $0.1bn. The non-recurrence of restructuring and
other related costs following the completion of our cost-reduction
programme at the end of 2022 and a $0.2bn impact from the reversal
of historical asset impairments, together with continued cost
discipline, broadly offset increases in technology spend, a higher
performance-related pay accrual, increased severance costs and
inflationary impacts.
Reported profit after tax in 2Q23
$7.0bn
(2Q22: $5.5bn)
Net interest margin in 2Q23
1.72%
Up 3 basis points from 1Q23.
Constant currency results
1H23 compared with 1H22 - constant currency basis
Half-year to 1H23 vs 1H22
---------------------------------------- ----------------------------------------------------- -----------------------------------------------------------
30 Jun 30 Jun
2023 2022
Results - on a constant currency basis
<> $m $m $m %
---------------------------------------- ------------------------- -------------------------- ------------------------------ ---------------------------
Revenue 36,876 23,647 13,229 56
---------------------------------------- ------------------------- -------------------------- ------------------------------ ---------------------------
ECL (1,345) (1,074) (271) (25)
---------------------------------------- ------------------------- -------------------------- ------------------------------ ---------------------------
Total operating expenses (15,457) (15,532) 75 -
---------------------------------------- ------------------------- -------------------------- ------------------------------ ---------------------------
Operating profit 20,074 7,041 13,033 >100
---------------------------------------- ------------------------- -------------------------- ------------------------------ ---------------------------
Share of profit in associates and joint
ventures 1,583 1,363 220 16
---------------------------------------- ------------------------- -------------------------- ------------------------------ ---------------------------
Profit before tax 21,657 8,404 13,253 >100
---------------------------------------- ------------------------- -------------------------- ------------------------------ ---------------------------
Profit before tax of $21.7bn was $13.3bn higher than in 1H22 on
a constant currency basis.
Revenue increased by $13.2bn or 56%, and included a $2.1bn
reversal of an impairment relating to the planned sale of our
retail banking operations in France, and a provisional gain of
$1.5bn recognised on the acquisition of SVB UK. The increase in
revenue was also due to higher net interest income reflecting the
impact of global interest rates rises and revenue growth in MSS in
GBM, despite a weaker performance in Equities. There was also a
good performance from our insurance business in WPB and higher
revenue in Corporate Centre.
ECL were $0.3bn higher. In 1H23, ECL included charges relating
to the commercial real estate sector in mainland China and stage 3
charges in CMB in the UK. This compared with 1H22 charges, which
reflected heightened economic uncertainty mainly due to the
Russia-Ukraine war, inflationary pressures and charges related to
the commercial real estate sector in mainland China, although it
benefited from releases of Covid-19-related allowances.
Operating expenses remained stable, as the non-recurrence of
restructuring and other related costs following the completion of
our cost-saving programme at the end of 2022 broadly offset other
cost growth. The impact of retranslating the prior year results of
our operations in hyperinflationary economies at 1H23 average rates
of foreign exchange resulted in cost growth of $160m.
Balance sheet and capital
Balance sheet strength
Total assets of $3.0tn were $92bn higher than at 31 December
2022 on a reported basis, and included the favourable impact of
foreign currency translation differences of $46bn. On a constant
currency basis, total assets increased by $46bn, mainly from an
increase in financial investments and higher trading asset
balances. In addition, there was growth in loans and advances to
customers.
Reported loans and advances to customers of $1.0tn increased by
$36bn. On a constant currency basis, loans and advances to
customers grew by $23bn including the reclassification of lending
balances from 'assets held for sale' relating to the planned sale
of our retail banking operations in France and increases following
the acquisition of SVB UK. While our near-term outlook on lending
growth remains cautious, we expect mid-single-digit percentage
annual loan growth in the medium to long term.
Reported customer accounts of $1.6tn increased by $25bn. On a
constant currency basis, customer accounts increased by $3bn, which
also included the reclassification of balances from held for sale
relating to the planned sale of our retail banking operations in
France and increases following the acquisition of SVB UK. These
increases were partly offset by reductions in deposit balances in
HSBC UK.
Loans and advances to customers as a percentage of customer
accounts was 60%, compared with 59% at 31 December 2022.
Distributable reserves
The distributable reserves of HSBC Holdings at 30 June 2023 were
$25.7bn, compared with $35.2bn at 31 December 2022. The decrease
was primarily driven by ordinary dividend payments and additional
tier 1 coupon distributions of $7.1bn, a share buy-back programme
of $2bn and a reduction in other reserves of $0.4bn. The profits
generated of $6.3bn in 1H23 will be reflected in the distributable
reserves as at 31 December 2023.
Capital position
We actively manage the Group's capital position to support our
business strategy and meet our regulatory requirements at all
times, including under stress, while optimising our capital
efficiency. To do this, we monitor our capital position using a
number of measures. These include our capital ratios and the impact
on our capital ratios as a result of stress.
Our CET1 ratio at 30 June 2023 was 14.7%, up from 14.2% at 31
December 2022, reflecting an increase in CET1 capital of $7.1bn
including the reversal of an impairment on the planned sale of our
retail banking operations in France and the provisional gain on the
acquisition of SVB UK. This was partly offset by an increase in
RWAs of $19.8bn and the impact of the share buy-back announced with
our 1Q23 results.
Liquidity position
We actively manage the Group's liquidity and funding to support
our business strategy and meet regulatory requirements at all
times, including under stress. To do this, we monitor our position
using a wider set of measures, including the liquidity coverage
ratio ('LCR') and the net stable funding ratio. At 30 June 2023,
the Group's LCR was 132% and we held high-quality liquid assets of
$631bn. For further details, see page 99.
Wealth and Personal Banking
We serve around 40 million customers globally,
including over 6 million who are international, from retail
customers to ultra high net worth individuals and their
families.
Contribution to Group 1H23
profit before tax < >
To meet our customers' needs, we offer a full suite of products
and services across transactional banking, lending and wealth.
WPB continued to make strategic investments in our digital
capabilities and colleagues, to expand our Wealth franchise in
Asia, and enhance our offering to customers with international
needs. Performance benefited from our product diversification, as
the rise in interest rates, and growth in lending and wealth
deposits, as well as a good performance in our insurance business,
offset lower revenue in equities and mutual funds.
Half-year to 1H23 vs 1H22
------------------------- ------------------------------------------------------ -----------------------------------------------------
30 Jun 30 Jun
2023 2022
Results - on a constant
currency basis <
> $m $m $m %
------------------------- ------------------------- --------------------------- ------------------------- --------------------------
Net operating income 16,200 10,058 6,142 61
------------------------- ------------------------- --------------------------- ------------------------- --------------------------
ECL (502) (584) 82 14
------------------------- ------------------------- --------------------------- ------------------------- --------------------------
Operating expenses (7,141) (6,995) (146) (2)
------------------------- ------------------------- --------------------------- ------------------------- --------------------------
Share of profit in
associates and JVs 35 8 27 >100
------------------------- ------------------------- --------------------------- ------------------------- --------------------------
Profit before tax 8,592 2,487 6,105 >100
------------------------- ------------------------- --------------------------- ------------------------- --------------------------
RoTE (annualised)(1)
(%) 43.1 11.5
------------------------- ------------------------- --------------------------- ------------------------- --------------------------
1 RoTE (annualised) in 1H23 included a 10.5
percentage point favourable impact of the reversal
of the impairment losses relating to the planned
sale of our retail banking operations in France.
Divisional highlights
$34bn
WPB net new invested assets, a decrease of 13% compared with
1H22.
Constant currency profit before tax < > ($bn)
$8.6bn
Half-year to
6.3 million
International customers at 30 June 2023, an increase of 8%
compared with 1H22.
Constant currency net operating income < > ($bn)
$16.2bn
Half-year to
> International customers are those who bank in more than one
market, those whose address is different from the market we bank
them in and customers whose nationality, or country of birth for
non-resident Indians and overseas Chinese, is different to the
market we bank them in. Customers may be counted more than once
when banked in multiple countries. Customer numbers include 1.7
million customers acquired through our purchase of L&T
Investment Management.
Half-year to 1H23 vs 1H22
-------------------------------- -------------------------------------------------- ------------------------------------------
30 Jun 30 Jun
2023 2022
Management view of revenue < > $m $m $m %
-------------------------------- ----------------------- ------------------------- --------------------------- -------------
Wealth 3,921 3,382 539 16
-------------------------------- ----------------------- ------------------------- --------------------------- -------------
- investment distribution 1,281 1,263 18 1
-------------------------------- ----------------------- ------------------------- --------------------------- -------------
- Global Private Banking 1,141 941 200 21
-------------------------------- ----------------------- ------------------------- --------------------------- -------------
net interest income 580 387 193 50
-------------------------------- ----------------------- ------------------------- --------------------------- -------------
non-interest income 561 554 7 1
-------------------------------- ----------------------- ------------------------- --------------------------- -------------
- life insurance 875 651 224 34
-------------------------------- ----------------------- ------------------------- --------------------------- -------------
- asset management 624 527 97 18
-------------------------------- ----------------------- ------------------------- --------------------------- -------------
Personal Banking 10,217 6,500 3,717 57
-------------------------------- ----------------------- ------------------------- --------------------------- -------------
- net interest income 9,557 5,858 3,699 63
-------------------------------- ----------------------- ------------------------- --------------------------- -------------
- non-interest income 660 642 18 3
-------------------------------- ----------------------- ------------------------- --------------------------- -------------
Other(1) 2,062 176 1,886 >100
-------------------------------- ----------------------- ------------------------- --------------------------- -------------
- of which: reversal of
impairment loss
relating to the planned sale of
our retail
banking operations in France 2,034 - 2,034 100
-------------------------------- ----------------------- ------------------------- --------------------------- -------------
Net operating income(2) 16,200 10,058 6,142 61
-------------------------------- ----------------------- ------------------------- --------------------------- -------------
1 'Other' includes Markets Treasury, HSBC Holdings interest
expense and hyperinflation. It also includes the distribution and
manufacturing (where applicable) of retail and credit protection
insurance, disposal gains and other non-product-specific
income.
2 'Net operating income' means net operating income before
change in expected credit losses and other credit impairment
charges (also referred to as 'revenue').
Half-year to
------------------------------------------------------
30 Jun 30 Jun
2023 2022
Notable items $m $m
--------------------------------------------------------- ------------------------- ---------------------------
Revenue
--------------------------------------------------------- ------------------------- ---------------------------
Disposals, acquisitions and related costs 2,034 -
Restructuring and other related costs - 93
--------------------------------------------------------- ------------------------- ---------------------------
Currency translation on revenue notable items - (1)
--------------------------------------------------------- ------------------------- ---------------------------
Operating expenses
--------------------------------------------------------- ------------------------- ---------------------------
Disposals, acquisitions and related costs (23) -
--------------------------------------------------------- ------------------------- ---------------------------
Restructuring and other related costs - (113)
--------------------------------------------------------- ------------------------- ---------------------------
Currency translation on operating expenses notable items - 4
--------------------------------------------------------- ------------------------- ---------------------------
Financial performance
Profit before tax of $8.6bn was $6.1bn higher than in 1H22 on a
constant currency basis, including a $2.0bn reversal of an
impairment relating to the sale of our retail banking operations in
France. The growth in profit before tax reflected an increase in
revenue of $6.1bn, notably from higher net interest income due to
wider margins from rising interest rates, and a fall in ECL of
$0.1bn, partly offset by a $0.1bn increase in operating
expenses.
Revenue of $16.2bn was $6.1bn or 61% higher on a constant
currency basis. This included the impact of a reversal of an
impairment relating to the planned sale of our retail banking
operations in France included within 'Other'. There was strong
growth in Personal Banking net interest income of $3.7bn, due to
wider margins from rising interest rates, higher revenue of $0.2bn
in life insurance, a rise of $0.2bn in Global Private Banking net
interest income and a $0.1bn increase in revenue in asset
management. These were partly offset by a reduction in revenue
allocated from Corporate Centre of $0.4bn, including from Markets
Treasury.
In Wealth, revenue of $3.9bn was $0.5bn or 16% higher.
- Life insurance revenue was $0.2bn or 34% higher.(1) The new
business contractual service margin written of $0.7bn in 1H23 was
up $0.1bn, mainly in Hong Kong due to the mainland China border
reopening and the launch of new products in 1H23.
- Global Private Banking revenue was $0.2bn or 21% higher due to
the positive impact of wider margins from rising interest rates on
net interest income.
- Asset management revenue was $0.1bn or 18% higher, driven by
increased assets under management and positive market movements in
the seed investment portfolio. Performance continued to be impacted
by market volatility.
In Personal Banking, revenue of $10.2bn was up $3.7bn or
57%.
- Net interest income was $3.7bn or 63% higher due to the
benefit of wider margins following interest rate rises and balance
sheet growth, excluding the impact of transfers to held for sale.
Lending grew in HSBC UK, and in Hong Kong, Mexico and the US.
Mortgage lending rose in HSBC UK by $5bn and in Hong Kong by $5bn.
Compared with 1H22, unsecured lending increased by $1bn, notably in
Mexico by $1bn, and in Hong Kong by $1bn, partly offset by the
closure of the John Lewis cards portfolio.
ECL of $0.5bn were $0.1bn lower than in 1H22 on a constant
currency basis. The modest reduction was primarily due to higher
charges in 1H22 relating to the Russia-Ukraine war. Credit
performance in 1H23 remained resilient as delinquencies and
write-offs remained broadly stable, despite a significant rise in
inflationary pressures.
Operating expenses of $7.1bn were 2% higher on a constant
currency basis, reflecting continued investment in Wealth in Asia,
higher technology spend and from the impact of higher inflation.
These were partly offset by continued cost discipline, the
non-recurrence of restructuring and other related costs following
the completion of our cost-saving programme at the end of 2022, and
a $0.1bn reversal related to historical asset impairments.
1.From 1 January 2023, we adopted IFRS 17 'Insurance Contracts',
which replaced IFRS 4 'Insurance Contracts'. Under IFRS 17, the
future profits from new business are capitalised in the contractual
service margin, and not recognised immediately in the income
statement, as was the case for the value of new business measure
under IFRS 4.
Commercial Banking
We support businesses in 55 countries and territories,
ranging from small enterprises to large corporates operating
globally.
Contribution to Group 1H23
profit before tax
We help businesses grow by supporting their financial needs,
facilitating cross-border trade and payments, and providing access
to products and services. We help them access international
markets, provide expert financial advice and offer access to a full
suite of HSBC solutions from across the Group's other
businesses.
In the first half of 2023, CMB acquired SVB UK, demonstrating
our continued commitment to the UK economy.
The subsequent launch of HSBC Innovation Banking has
strengthened our Commercial Banking franchise by enhancing our
ability to serve innovative and fast-growing firms in the
innovation ecosystem with an international proposition for
businesses in the technology and life science sectors.
CMB delivered a strong revenue performance in 1H23, reflecting
interest rate rises and growth in collaboration revenue with GBM,
while ECL and operating expenses both increased.
Half-year to 1H23 vs 1H22
------------------------- ------------------------------------------------------
30 Jun 30 Jun
2023 2022
Results - on a constant
currency basis <> $m $m $m %
------------------------- -------------------------- ------------------------- -------------------------- --------------------------
Net operating income 12,216 7,055 5,161 73
------------------------- -------------------------- ------------------------- -------------------------- --------------------------
ECL (704) (278) (426) >(100)
------------------------- -------------------------- ------------------------- -------------------------- --------------------------
Operating expenses (3,572) (3,345) (227) (7)
------------------------- -------------------------- ------------------------- -------------------------- --------------------------
Share of profit in
associates and JVs (1) - (1) -
------------------------- -------------------------- ------------------------- -------------------------- --------------------------
Profit before tax 7,939 3,432 4,507 >100
------------------------- -------------------------- ------------------------- -------------------------- --------------------------
RoTE (annualised)(1)
(%) 28.8 12.2
------------------------- -------------------------- ------------------------- -------------------------- --------------------------
1 RoTE (annualised) in 1H23 included a 6.2 percentage
point favourable impact of the provisional gain
on the acquisition of SVB UK.
Divisional highlights
154%
Increase in GPS revenue.
Constant currency profit before tax < >
($bn)
$7.9bn
Half-year to
11%
Increase in collaboration income from the sale of products to
CMB clients.
Constant currency net operating income < >
($bn)
$12.2bn
Half-year to
Half-year to 1H23 vs 1H22
------------------------------- -----------------------------------------------------
30 Jun 30 Jun
2023 2022
Management view of revenue <> $m $m $m %
------------------------------- ----------------------- ------------------------- ------------------------- --------------------------
Global Trade and Receivables
Finance 1,026 1,053 (27) (3)
------------------------------- ----------------------- ------------------------- ------------------------- --------------------------
Credit and Lending 2,745 2,908 (163) (6)
------------------------------- ----------------------- ------------------------- ------------------------- --------------------------
Global Payments Solutions 5,967 2,352 3,615 >100
------------------------------- ----------------------- ------------------------- ------------------------- --------------------------
GBM products, Insurance and
Investments,
and Other(1) 2,478 742 1,736 >100
------------------------------- ----------------------- ------------------------- ------------------------- --------------------------
- of which: share of revenue
from Markets
and Securities Services and
Banking products 658 592 66 11
------------------------------- ----------------------- ------------------------- ------------------------- --------------------------
- of which: provisional gain on
the acquisition
of Silicon Valley Bank UK
Limited 1,507 - 1,507 100
------------------------------- ----------------------- ------------------------- ------------------------- --------------------------
Net operating income(2) 12,216 7,055 5,161 73
------------------------------- ----------------------- ------------------------- ------------------------- --------------------------
1 Includes CMB's share of revenue from the sale of Markets and
Securities Services and Banking products to CMB customers. GBM's
share of revenue
from the sale of these products to CMB customers is included
within the corresponding lines of the GBM management view of
revenue. Also
includes allocated revenue from Markets Treasury, HSBC Holdings
interest expense and hyperinflation.
2 'Net operating income' means net operating income before
change in expected credit losses and other credit impairment
charges (also referred to as
'revenue').
Half-year to
------------------------------------------------------
30 Jun 30 Jun
2023 2022
Notable items $m $m
--------------------------------------------------------- ------------------------- ---------------------------
Revenue
--------------------------------------------------------- ------------------------- ---------------------------
Disposals, acquisitions and related costs 1,507 -
Currency translation on revenue notable items - (1)
--------------------------------------------------------- ------------------------- ---------------------------
Operating expenses
--------------------------------------------------------- ------------------------- ---------------------------
Disposals, acquisitions and related costs (15) -
--------------------------------------------------------- ------------------------- ---------------------------
Restructuring and other related costs 29 (66)
--------------------------------------------------------- ------------------------- ---------------------------
Currency translation on operating expenses notable items - 2
--------------------------------------------------------- ------------------------- ---------------------------
Financial performance
Profit before tax of $7.9bn was $4.5bn higher than in 1H22 on a
constant currency basis, primarily driven by an increase in revenue
in all of our main legal entities. This reflected a $3.5bn increase
in net interest income in Global Payments Solutions ('GPS'). It
also included a provisional gain of $1.5bn from HSBC UK's
acquisition of SVB UK. These increases were partly offset by a
higher ECL charge and growth in operating expenses.
Revenue of $12.2bn was $5.2bn or 73% higher on a constant
currency basis:
- In GPS, revenue rose by $3.6bn, with growth in all main legal
entities, reflecting wider margins from interest rate rises and
business actions, while average balances decreased marginally.
There was also a 9% increase in fee income, notably in cards and
payments, with growth in most of our main legal entities, mainly in
the UK and Asia.
- In Global Trade and Receivables Finance ('GTRF'), revenue was
down 3%, driven by lower balances reflecting the softer trade
cycle, notably in our main legal entity in Asia. This was partly
offset by growth in HSBC UK from higher average balances and
improved margins. Fee income was broadly stable.
- In Credit and Lending, revenue decreased by $0.2bn or 6%,
primarily in our legal entities in Europe and Asia due to lower
balances as rising interest rates softened demand, and from higher
funding costs.
- In GBM products, Insurance and Investments, and Other, revenue
increased by $1.7bn, reflecting the provisional gain of $1.5bn on
the acquisition of SVB UK, and an 11% increase in collaboration
revenue from GBM products, notably Foreign Exchange. These
increases were partly offset by a fall in Markets Treasury revenue
and the adverse impacts of hyperinflation accounting, which are
allocated to the global businesses.
ECL of $0.7bn were $0.4bn higher than in 1H22 on a constant
currency basis. The increase was mainly due to releases in 1H22 of
our remaining Covid-19-related allowances, and from higher charges
in 1H23, mainly in the UK. The 1H23 period included charges of
$0.2bn relating to the commercial real estate sector in mainland
China, compared with charges of $0.2bn in 1H22.
Operating expenses of $3.6bn were $0.2bn higher on a constant
currency basis, largely driven by an increase in the
performance-related pay accrual, incremental costs of $0.1bn
following the acquisition of SVB UK, investment in technology and
inflationary impacts. These increases were partly mitigated by the
impact of our continued cost discipline around hiring and strategic
cost-saving initiatives.
Global Banking and Markets
We support multinational corporates, financial institutions and
institutional
clients, as well as public sector and government bodies.
Contribution to Group 1H23
profit before tax < >
We are a leader in facilitating global trade and payments,
particularly into and within Asia and the Middle East, enabling our
clients in the East and West to achieve their objectives by
accessing our expertise and geographical reach. Our product
specialists deliver a comprehensive range of transaction banking,
financing, capital markets and advisory, and risk management
services.
GBM delivered a strong performance in 1H23, achieving a RoTE of
14.2%. We grew revenue by 14%, while maintaining cost discipline,
even as we continued to invest in technology and people to improve
operating resilience and support our clients. Revenue growth was
driven by higher interest rates and good client activity. We also
had a reduction in ECL, reflecting a stable credit performance.
Half-year to 1H23 vs 1H22
------------------------- -----------------------------------------------------
30 Jun 30 Jun
2023 2022
Results - on a constant
currency basis <> $m $m $m %
------------------------- ------------------------ ------------------------- ------------------------- --------------------------
Net operating income 8,501 7,459 1,042 14
------------------------- ------------------------ ------------------------- ------------------------- --------------------------
ECL (136) (210) 74 35
------------------------- ------------------------ ------------------------- ------------------------- --------------------------
Operating expenses (4,785) (4,557) (228) (5)
------------------------- ------------------------ ------------------------- ------------------------- --------------------------
Share of profit in
associates and JVs - - - -
------------------------- ------------------------ ------------------------- ------------------------- --------------------------
Profit before tax 3,580 2,692 888 33
------------------------- ------------------------ ------------------------- ------------------------- --------------------------
RoTE (annualised)
(%) 14.2 11.5
------------------------- ------------------------ ------------------------- ------------------------- --------------------------
Divisional highlights
14.2%
RoTE in 1H23, up 2.7 percentage points compared with 1H22.
Constant currency profit before tax < >
($bn)
$3.6bn
Half-year to
111%
Increase in GPS revenue.
Constant currency net operating income < >
($bn)
$8.5bn
Half-year to
Half-year to 1H23 vs 1H22
------------------------------- ---------------------------------------------------- --------------------------------------------------------
30 Jun 30 Jun
2023 2022
Management view of revenue <> $m $m $m %
------------------------------- ------------------------- ------------------------- --------------------------- ---------------------------
Markets and Securities Services 4,763 4,658 105 2
------------------------------- ------------------------- ------------------------- --------------------------- ---------------------------
- Securities Services 1,220 933 287 31
------------------------------- ------------------------- ------------------------- --------------------------- ---------------------------
- Global Debt Markets 588 423 165 39
------------------------------- ------------------------- ------------------------- --------------------------- ---------------------------
- Global Foreign Exchange 2,225 2,138 87 4
------------------------------- ------------------------- ------------------------- --------------------------- ---------------------------
- Equities 236 594 (358) (60)
------------------------------- ------------------------- ------------------------- --------------------------- ---------------------------
- Securities Financing 513 458 55 12
------------------------------- ------------------------- ------------------------- --------------------------- ---------------------------
- Credit and funding valuation
adjustments (19) 112 (131) >(100)
------------------------------- ------------------------- ------------------------- --------------------------- ---------------------------
Banking 4,273 3,097 1,176 38
------------------------------- ------------------------- ------------------------- --------------------------- ---------------------------
- Global Trade and Receivables
Finance 341 333 8 2
------------------------------- ------------------------- ------------------------- --------------------------- ---------------------------
- Global Payments Solutions 2,197 1,043 1,154 >100
------------------------------- ------------------------- ------------------------- --------------------------- ---------------------------
- Credit and Lending 987 1,170 (183) (16)
------------------------------- ------------------------- ------------------------- --------------------------- ---------------------------
- Capital Markets and Advisory 558 424 134 32
------------------------------- ------------------------- ------------------------- --------------------------- ---------------------------
- Other(1) 190 127 63 50
------------------------------- ------------------------- ------------------------- --------------------------- ---------------------------
GBM Other (535) (296) (239) (81)
------------------------------- ------------------------- ------------------------- --------------------------- ---------------------------
- Principal Investments 13 78 (65) (83)
------------------------------- ------------------------- ------------------------- --------------------------- ---------------------------
- Other(2) (548) (374) (174) (47)
------------------------------- ------------------------- ------------------------- --------------------------- ---------------------------
Net operating income(3) 8,501 7,459 1,042 14
------------------------------- ------------------------- ------------------------- --------------------------- ---------------------------
1 Includes portfolio management, earnings on capital and other
capital allocations on all Banking products.
2 Includes notional tax credits and Markets Treasury, HSBC
Holdings interest expense and hyperinflation.
3 'Net operating income' means net operating income before
change in expected credit losses and other credit impairment
charges (also referred to as 'revenue').
Half-year to
----------------------------------------------------------
30 Jun 30 Jun
2023 2022
Notable items $m $m
--------------------------------------------------------- ----------------------------- ---------------------------
Revenue
Restructuring and other related costs - (26)
--------------------------------------------------------- ----------------------------- ---------------------------
Currency translation on revenue notable items - -
--------------------------------------------------------- ----------------------------- ---------------------------
Operating expenses
--------------------------------------------------------- ----------------------------- ---------------------------
Disposals, acquisitions and related costs 3 -
--------------------------------------------------------- ----------------------------- ---------------------------
Restructuring and other related costs - (87)
--------------------------------------------------------- ----------------------------- ---------------------------
Currency translation on operating expenses notable items - 3
--------------------------------------------------------- ----------------------------- ---------------------------
Financial performance
Profit before tax of $3.6bn was $0.9bn or 33% higher than in
1H22 on a constant currency basis. This was driven by an increase
in revenue of $1.0bn or 14%, notably from higher net interest
income and a lower ECL charge compared with 1H22. Operating
expenses increased by $0.2bn.
Revenue of $8.5bn was $1.0bn or 14% higher on a constant
currency basis.
In Markets and Securities Services, revenue increased by $0.1bn
or 2%, despite adverse movements in credit and funding valuation
adjustments of $0.1bn which included methodology changes.
- In Securities Services, revenue grew by $0.3bn or 31% due to
higher net interest income as global interest rates rose.
- In Global Debt Markets, revenue increased by $0.2bn or 39%
from more favourable primary market conditions, and due to the
reopening of mainland China's borders, and a better trading
performance. The 1H22 period was impacted by lower primary activity
and client flow due to uncertainty and challenging market
conditions.
- In Global Foreign Exchange, revenue growth of $0.1bn or 4%
reflected strong client activity and trading performance due to
market-wide volatility, and the macroeconomic impacts from rising
inflation and increasing interest rates.
- In Securities Financing, revenue increased by $0.1bn or 12%
due to strong prime trading performance and from the reopening of
mainland China's borders.
- In Equities, revenue fell by $0.4bn or 60% in the context of a
strong 1H22, and due to lower client activity as a result of
reduced market volatility.
In Banking, revenue increased by $1.2bn or 38%.
- In GPS, revenue increased by $1.2bn from higher global interest rates.
- Capital Markets and Advisory revenue increased by $0.1bn or
32%. Investment banking fees were stable, despite a reduction in
the global market fee pool, due to an increase in capital markets
activity. Issuer Services revenue also increased due to higher
interest rates.
- Credit and Lending revenue decreased by $0.2bn or 16%, due to
weaker client demand and an enhanced focus on returns.
In GBM Other, Principal Investments revenue declined by $0.1bn,
as 1H23 included lower revaluation gains compared with 1H22. There
was also a reduction in revenue from Markets Treasury and from
adverse impacts of hyperinflationary accounting, which are
allocated to the global businesses.
ECL were $0.1bn, compared with charges of $0.2bn in 1H22 on a
constant currency basis, reflecting a stable credit
performance.
Operating expenses of $4.8bn increased by $0.2bn or 5% on a
constant currency basis, due to the impact of higher inflation,
partly offset by the impact of our cost-saving initiatives.
Corporate Centre
Contribution to Group 1H23 profit before tax < >
The results of Corporate Centre primarily comprise the share of
profit from our interests in our associates and joint ventures. It
also includes Central Treasury, stewardship costs and consolidation
adjustments.
Corporate Centre performance in 1H23 primarily reflected the
non-recurrence of adverse fair value movements on financial
instruments, restructuring of our business in Europe, including
losses on the completed sale of our branch operations in Greece,
planned sale of our operations in Russia, and the non-recurrence of
restructuring and other related costs following the completion of
our cost-saving programme at the end of 2022. In addition, our
share of profit from associates and joint ventures increased.
Half-year to 1H23 vs 1H22
---------------------------------------- ------------------------------------------------------- -------------------------------------------------------
30 Jun 30 Jun
2023 2022
Results - on a constant currency basis
< > $m $m $m %
---------------------------------------- -------------------------- --------------------------- -------------------------- ---------------------------
Net operating income (41) (925) 884 96
---------------------------------------- -------------------------- --------------------------- -------------------------- ---------------------------
ECL (3) (2) (1) (50)
---------------------------------------- -------------------------- --------------------------- -------------------------- ---------------------------
Operating expenses 41 (635) 676 >100
---------------------------------------- -------------------------- --------------------------- -------------------------- ---------------------------
Share of profit in associates and JVs 1,549 1,355 194 14
---------------------------------------- -------------------------- --------------------------- -------------------------- ---------------------------
Profit before tax 1,546 (207) 1,753 >100
---------------------------------------- -------------------------- --------------------------- -------------------------- ---------------------------
RoTE (annualised) (%) 8.0 7.3
---------------------------------------- -------------------------- --------------------------- -------------------------- ---------------------------
Divisional highlights
Constant currency profit before tax < >
($bn)
$1.5bn
Half-year to
Constant currency net operating income < >
($m)
$(41)m
Half-year to
Half-year to 1H23 vs 1H22
------------------------------- ------------------------------------------------------ -----------------------------------
30 Jun 30 Jun
2023 2022
Management view of revenue <> $m $m $m %
------------------------------- ------------------------- --------------------------- ------------------------ ---------
Central Treasury(1) 81 (378) 459 >100
------------------------------- ------------------------- --------------------------- ------------------------ ---------
Legacy portfolios (11) 6 (17) >(100)
Other(2,3) (111) (553) 442 80
Net operating income(4) (41) (925) 884 96
------------------------------- ------------------------- --------------------------- ------------------------ ---------
1 Central Treasury comprises valuation differences on issued
long-term debt and associated swaps and fair value movements on
financial instruments.
2 Other comprises consolidation adjustments, funding charges on
property and technology assets, revaluation gains and losses on
investment properties and property disposals, gains and losses on
certain planned business disposals, and other revenue items not
allocated to global businesses.
3 Revenue from Markets Treasury, HSBC Holdings net interest
expense and hyperinflation are allocated out to the global
businesses, to align them better with their revenue and expense.
The total Markets Treasury revenue component of this allocation for
1H23 was $450m (1H22: $822m; 2H22: $624m).
4 'Net operating income' means net operating income before
change in expected credit losses and other credit impairment
charges (also referred to as 'revenue').
Half-year to
------------------------------------------------------
30 Jun 30 Jun
2023 2022
Notable items $m $m
--------------------------------------------------------- ------------------------- ---------------------------
Revenue
--------------------------------------------------------- ------------------------- ---------------------------
Disposals, acquisitions and related costs (220) (288)
--------------------------------------------------------- ------------------------- ---------------------------
Fair value movements on financial instruments 15 (371)
--------------------------------------------------------- ------------------------- ---------------------------
Restructuring and other related costs - 1
--------------------------------------------------------- ------------------------- ---------------------------
Currency translation on revenue notable items - 16
--------------------------------------------------------- ------------------------- ---------------------------
Operating expenses
--------------------------------------------------------- ------------------------- ---------------------------
Disposals, acquisitions and related costs (83) -
--------------------------------------------------------- ------------------------- ---------------------------
Restructuring and other related costs 18 (774)
--------------------------------------------------------- ------------------------- ---------------------------
Currency translation on operating expenses notable items - 27
--------------------------------------------------------- ------------------------- ---------------------------
Financial performance
Profit before tax of $1.5bn compared with a loss before tax of
$0.2bn in 1H22, on a constant currency basis. This increase
primarily reflected higher revenue and lower restructuring and
other related costs, together with an increase in the share of
profit from associates and joint ventures.
Revenue was $0.9bn or 96% higher on a constant currency basis.
This reflected the non-recurrence of adverse fair value movements
on financial instruments, favourable valuation differences on
long-term debt and associated swaps, and valuation gains on
structural hedging. In addition, the increase reflected the impacts
of the restructuring of our business in Europe, including the
non-recurrence of 1H22 losses associated with the completed sale of
our branch operations in Greece and lower losses related to the
planned disposal of our operations in Russia. These were partly
offset by fair value losses in 1H23 of $0.3bn relating to the
foreign exchange hedging of the expected proceeds from the agreed
sale of our banking business in Canada.
Operating expenses decreased by $0.7bn on a constant currency
basis, primarily driven by the non-recurrence of restructuring and
other related costs following the completion of our cost-saving
programme at the end of 2022, partly offset by costs related to the
planned disposals of our retail banking operation in France and our
banking business in Canada.
Share of profit from associates and joint ventures of $1.5bn
rose by $0.2bn or 14% on a constant currency basis, primarily
driven by increases in the share of profit from SAB and BoCom.
Risk overview
Active risk management helps us to achieve our strategy, serve
our customers and communities and grow our business safely.
Managing risk
The economic outlook improved in most markets during the first
half of 2023, although there remained key economic and regulatory
risks. While the Russia-Ukraine war has continued to have
far-reaching geopolitical implications, the global economy has
adapted to the resulting imposition of significant sanctions and
trade restrictions. In particular, European countries have
diversified their energy sources to reduce dependence on Russian
energy supplies.
However, the continuation of - or any further escalation in -
the Russia-Ukraine war could have additional economic, social and
political consequences. These include further sanctions and trade
restrictions, longer-term changes in the macroeconomic environment
with the risk of higher and sustained inflation, and a continued
volatility in energy prices.
The relationship between China and several countries, including
the US and the UK, remains complex. Efforts across a variety of
sectors have been undertaken to decrease vulnerabilities to
geopolitical shocks through de-risking supply chains. The US, the
UK, the EU and other countries have imposed various sanctions and
trade restrictions on Chinese persons and companies. In response,
China has imposed sanctions and introduced new laws and trade
restrictions that could impact the Group and its customers. Further
sanctions or counter-sanctions, whether in connection with Russia
or China, may affect the Group and its customers by creating
regulatory, reputational and market risks.
Central banks in both developed and emerging markets continued
to tighten monetary policy in the first half of 2023, and with
further tightening expected in the second half. While accumulated
policy tightening has increased the risks of recession and
financial instability, and even though inflation has started to
fall in most developed markets, central banks are expected to
sustain higher interest rates to address persistent underlying
inflation pressures through to mid-2024.
Fiscal policies are likely to remain relatively generous in both
developed and emerging markets, as demand increases for public
spending on items including social welfare, defence and
decarbonisation initiatives. Against a backdrop of slower economic
growth, volatile energy prices and high interest rates, this could
increase the strains on highly indebted sovereigns, corporates and
households in both emerging and developed markets.
Key risk appetite metrics
------------------------------------------------------ ---------- ---------------
Risk
Component Measure appetite 1H23
------------------- --------------------------------- ---------- ---------------
14.7
Capital CET1 ratio - end point basis >=13.0% %
------------------- --------------------------------- ---------- ---------------
Change in
expected
credit losses Change in expected credit losses
and other and other credit impairment
credit impairment charges as a % of advances:
charges Retail (WPB) <=0.50% 0.23%
------------------- --------------------------------- ---------- ---------------
Change in expected credit losses
and other credit impairment
charges as a % of advances:
Wholesale (GBM, CMB) <=0.45% 0.46%
--------------------------------- ------------------------------ ---------------
The mainland China commercial real estate market showed signs of
recovery and stabilisation in early 2023, but recent market data
remains mixed, suggesting both an uncertain and protracted
recovery. Chinese government policy measures introduced in late
2022 have resulted in improved financial support for onshore
borrowers, although offshore financial market conditions remain
challenged with a continued shortage of liquidity. Corporates
operating in this sector are likely to face continued challenges
and the risk of further credit deterioration.
We continue to closely monitor the impact of the increasing cost
of living on our retail customers. Our primary concern is to ensure
that we offer the right support to our customers in line with
regulatory, government and wider stakeholder expectations. As part
of the ongoing support to our retail mortgage customers,
specifically in the UK, we have accepted and implemented the
government's commitments outlined in the Mortgage Charter, released
in June 2023, which will help provide additional assistance options
to customers that may need help. For further details in relation to
the full range of support available to our UK customers, see
www.hsbc.co.uk.
We are engaging closely with our key regulators to help ensure
we continue to meet their expectations of financial institutions'
activities during times of market volatility.
For IFRS 9 'Financial Instruments', our approach to
macroeconomic scenarios remained unchanged in the second quarter,
but the shift in UK interest rate expectations resulted in updates
to key scenario variables.
In addition, management adjustments to ECL were applied to
reflect persisting uncertainty in certain sectors, driven by
inflation, interest rate volatility and other macroeconomic risks,
which were not fully captured by our models.
We continue to monitor, and seek to manage, the potential
implications of all the above developments on our customers and our
business. While the financial performance of our operations varied
in different geographies, our balance sheet and liquidity remained
strong.
> For further details on our approach to geopolitical and
macroeconomic risks, see 'Areas of special interest' on page
61.
> For further details of our Central and other scenarios, see
'Measurement uncertainty and sensitivity analysis of ECL estimates'
on page 69.
Our risk appetite
Our risk appetite defines our desired forward-looking risk
profile and informs the strategic and financial planning process.
It provides an objective baseline to guide strategic decision
making, helping to ensure that planned business activities provide
an appropriate balance of return for the risk assumed, while
remaining within acceptable risk levels. Risk appetite supports
senior management in allocating capital, funding and liquidity
optimally to finance growth, while monitoring exposure to
non-financial risks.
At 30 June 2023, our CET1 ratio and retail ECL charges were
within their defined risk appetite thresholds. Wholesale ECL
charges were outside of appetite, reflecting the default of several
mainland China commercial real estate developer clients and a
number of UK borrowers. During the first half of 2023, we enhanced
the coverage of interest rate risk in the banking book within the
Group's appetite statement.
Managing risk continued
Stress tests
We regularly conduct stress tests to assess the resilience of
our balance sheet and our capital adequacy, as well as to provide
actionable insights into how key elements of our portfolios may
behave during a crisis. We use the outcomes to calibrate our risk
appetite and to review the robustness of our strategic and
financial plans, helping to improve the quality of management's
decision making. The results from the stress tests also drive
recovery and resolution planning to help enhance the Group's
financial stability under various macroeconomic scenarios. The
selection of stress scenarios is based upon the identification and
assessment of our top risks, emerging risks and our risk
appetite.
On 12 July 2023 the Bank of England published the Financial
Stability Report, which sets out the view of its Financial Policy
Committee on the UK financial system. This report incorporates the
results from the 2022 annual cyclical scenario stress test of the
UK banking system. The stress scenario explored the potential
impacts of a global economic contraction, persistently higher
inflation and interest rates in advanced economies with materially
increased unemployment, and a sharp fall in asset prices. The 2022
annual cyclical scenario outcomes will be used by the Bank of
England as a direct input for setting stress capital buffers.
The Bank of England judged that this 2022 annual cyclical
scenario stress test did not reveal any capital inadequacies for
HSBC given its balance sheet as of 30 June 2022.
Under this stress scenario, the Bank of England's results
indicated that HSBC Holdings is sufficiently capitalised, with the
Group's CET1 capital ratio on an IFRS 9 transitional basis
projected to fall to a low point of 10.7%, which is above the
Group's CET1 reference rate of 7.0%. On an IFRS 9 non-transitional
basis the Group's CET1 capital ratio is projected to reach a low
point of 9.9%, which is above its IFRS 9 non-transitional CET1
reference rate of 6.2%.
For the 2022 annual cyclical scenario, HSBC was asked to submit
results for HSBC UK, our ring-fenced bank, on a stand-alone basis
for the first time. The stand-alone results also showed that HSBC
UK is sufficiently capitalised, indicating that its CET1 capital
ratio on an IFRS 9 transitional basis would fall to a low point of
10.1%, above its CET1 reference rate of 6.2%. On an IFRS 9
non-transitional basis, HSBC UK's CET1 capital ratio is projected
to reach a low point of 8.9%, which is above its IFRS 9
non-transitional CET1 reference rate of 6.4%.
Both the Group's and HSBC UK's results incorporated strategic
management actions. In practice, under such adverse economic
circumstances, the Group would consider a variety of management
actions depending on the prevailing circumstances at the time.
Climate stress tests
To support the requirements for assessing the impacts of climate
change, we have developed a set of capabilities to execute climate
stress testing and scenario analysis. These are used to help
improve our understanding of our risk exposures for risk management
and business decision making.
In the second half of 2022, we ran an internal climate scenario
analysis to help identify challenges and opportunities to our net
zero strategy, and risks posed to our business model by transition
and physical risk, as well as to inform capital planning and risk
appetite. The internal climate scenario analysis outcomes were used
to test our capital adequacy under the internal capital adequacy
assessment process, and management concluded that the Group remains
adequately capitalised.
In the second half of 2023, we will run a new internal climate
scenario analysis with improved models and expanded scenarios for
internal use as part of our strategic planning, as well as to
respond to climate stress tests for regulators such as those from
the Hong Kong Monetary Authority and Central Bank of the United
Arab Emirates.
> For further details of our approach to climate risk stress
testing, see 'Insights from scenario analysis' on page 67 of our
Annual Report and Accounts 2022.
Climate risk
Climate risk relates to the financial and non-financial impacts
that may arise as a result of climate change and the move to a
greener economy. Climate risk can impact us either directly or
through our relationships with our clients. These include the
potential risks arising as a result of our net zero ambition, which
could lead to reputational concerns, and potential legal and/or
regulatory action if we are perceived to mislead stakeholders on
our business activities or if we fail to achieve our stated net
zero targets. Our most material exposure to climate risk relates to
corporate client financing activities and retail mortgages within
our banking portfolio. We also have significant responsibilities in
relation to asset ownership by our insurance business, employee
pension plans and asset management business.
We seek to manage climate risk across all our businesses in line
with our Group-wide risk management framework, and are
incorporating climate considerations within our existing risk
types.
> For further details of our approach to climate risk
management, see 'Climate risk' on page 221 of our Annual Report and
Accounts 2022.
> For further details of our TCFD disclosures, see the 'ESG
review' on page 44 of our Annual Report and Accounts 2022.
Our operations
We remain committed to investing in the reliability and
resilience of our IT systems and critical services, including those
provided by third parties, that support all parts of our business.
We do so to help protect our customers, affiliates and
counterparties, and to help ensure that we minimise any disruption
to services that could result in reputational, legal and regulatory
consequences. In our approach to defending against these threats,
we invest in business and technical controls to help us detect,
manage and recover from issues in a timely manner.
We continue to focus on improving the quality and timeliness of
the data used to inform management decisions, through measures such
as early warning indicators, prudent active management of our risk
appetite, and ensuring regular communication with our Board and key
stakeholders.
We continue to make progress with the implementation of our
business and risk transformation plans. We seek to manage change
execution risk so we can prioritise, manage and deliver change
initiatives effectively and safely, and at the scale, complexity
and pace required.
> For further details on our risk management framework and
risks associated with our banking and insurance manufacturing
operations, see pages 133 and 142 of the Annual Report and Accounts
2022, respectively.
Top and emerging risks
Our top and emerging risks report identifies forward-looking
risks so that they can be considered in determining whether any
incremental action is needed to either prevent them from
materialising or to limit their effect. Top risks are those that
have the potential to have a material adverse impact on the
financial results, reputation or business model of the Group. We
actively manage and take actions to mitigate our top risks.
Emerging risks are those that, while they could have a material
impact on our risk profile were they to occur, are not considered
immediate and are not under active management. Our suite of top and
emerging risks is subject to regular review by senior governance
forums. We continue to monitor closely the identified risks and
ensure management actions are in place, as required.
> For further details on our top and emerging risks see pages
135 to 141 of the Annual Report and Accounts 2022.
Risk Trend Description
---------------------- ----- ---------------------------------------------------------------
Externally
driven
---------------------- ----- ---------------------------------------------------------------
Geopolitical -> Our operations and portfolios are subject to risks
and macroeconomic associated with political instability, civil unrest
risks and military conflict, which could lead to disruption
of our operations, physical risk to our staff and/or
physical damage to our assets. While global supply
chain disruptions have abated, geopolitical tensions
remain high and global interest rates and the uncertain
economic outlook for China are nevertheless prompting
a global slowdown that may affect our credit portfolio.
---------------------- ----- ---------------------------------------------------------------
Technology and -> We face a risk of service disruption or loss of data
cybersecurity resulting from technology failures or malicious activities
risk by internal or external threats. We continue to monitor
ongoing geopolitical events and changes to the threat
landscape. We operate a continuous improvement programme
to help protect our technology operations and to counter
a fast-evolving cyber threat environment.
---------------------- ----- ---------------------------------------------------------------
Evolving regulatory The regulatory and compliance risk environment is
environment becoming increasingly complex, in part driven by heightened
risk geopolitical tensions. Regulatory scrutiny of financial
institutions following recent banking failures, alongside
other regulatory priorities, may result in change
requirements across the Group in the short to medium
term. We continue to monitor regulatory and wider
industry developments closely, engaging with regulators
as appropriate.
---------------------- ----- ---------------------------------------------------------------
Financial crime We are exposed to financial crime risk from our customers,
risk staff and third parties engaging in criminal activity.
The financial crime risk environment continues to
evolve, due to increasingly complex geopolitical challenges,
the macroeconomic outlook, evolving sanctions regulations,
rapid technological developments, an increasing number
of national data privacy requirements and the increasing
sophistication of fraud. As a result, we will continue
to face the possibility of regulatory enforcement
and reputational risk.
---------------------- ----- ---------------------------------------------------------------
Ibor transition We remain exposed to regulatory compliance, legal
risk and resilience risks as contracts transition away
from the remaining demising Ibor benchmarks to new
reference rates. We continue to consider the fairness
of client outcomes, our compliance with regulatory
expectations and the operation of our systems and
processes. The key risks have diminished as the majority
of contracts in the remaining demising Ibors, specifically
US dollar Libor, have been successfully transitioned.
---------------------- ----- ---------------------------------------------------------------
Environmental, We are subject to ESG risks relating to climate change,
social and governance nature and human rights. These risks have increased
('ESG') risks owing to the pace and volume of regulatory developments
globally, and due to stakeholders placing more emphasis
on financial institutions' actions and investment
decisions in respect of ESG matters. Failure to meet
these evolving expectations may result in financial
and non-financial costs, including adverse reputational
consequences.
---------------------- ----- ---------------------------------------------------------------
Digitalisation Developments in technology and changes in regulations
and technological have enabled new entrants to the banking industry,
advances and new products and services offered by competitors.
This challenges us to continue to innovate with new
digital capabilities to best serve our customers by
adapting our products, and to attract and retain customers
and colleagues. Along with opportunities, new technology
can introduce risks. We continue to ensure these are
understood and managed with appropriate controls.
---------------------- ----- ---------------------------------------------------------------
Internally driven
---------------------------------------------------------------
Risks associated -> Our businesses, functions and geographies are exposed
with workforce to risks associated with employee retention and talent
capability, availability, and compliance with employment laws
capacity and and regulations. While high employee attrition has
environmental eased generally, some markets continue to experience
factors with heightened inflation, turnover and labour market difficulties.
potential impact We monitor hiring activities and levels of employee
on growth attrition, and each business and function has workforce
plans in place to aim to ensure effective workforce
forecasting to meet business demands.
---------------------- ----- ---------------------------------------------------------------
Risks arising -> We procure goods and services from a range of third
from the receipt parties. It is critical that we have appropriate risk
of services management policies and processes to select and govern
from third parties third parties, including third parties' supply networks,
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.
---------------------- ----- ---------------------------------------------------------------
Model risk 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. Evolving regulatory
requirements are driving material changes to the way
model risk is managed across the banking industry,
with particular focus on capital models. New technologies
including generative artificial intelligence ('AI')
and large language models utilising AI are driving
a need for enhanced model risk controls.
---------------------- ----- ---------------------------------------------------------------
Data risk -> We use data to serve our customers and run our operations,
often in real-time within digital experiences and
processes. If our data is not accurate and timely,
our ability to serve customers, operate with resilience
or meet regulatory requirements could be impacted.
We need to ensure that non-public data is kept confidential,
and that we comply with the growing number of regulations
that govern data privacy and cross-border movement
of data.
---------------------- ----- ---------------------------------------------------------------
Change execution -> Failure to effectively prioritise, manage and/or deliver
risk transformation across the organisation impacts our
ability to achieve our strategic objectives. We aim
to monitor, manage and oversee change execution risk
to ensure our change portfolios and initiatives continue
to deliver the right outcomes for our customers, people,
investors and communities.
---------------------- ----- ---------------------------------------------------------------
Risk heightened during the first half of 2023 Ä Risk decreased
during the first half of 2023 -> Risk remained at the same level
as 2022
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