TIDMHSBA
RNS Number : 9033H
HSBC Holdings PLC
01 August 2023
Risk
Contents
61 Key developments in the first
half of 2023
61 Areas of special interest
64 Credit risk
93 Treasury risk
103 Market risk
104 Insurance manufacturing operations
risk
We recognise that the primary role of risk management is to
protect our customers, business, colleagues, shareholders and the
communities that we serve, while ensuring we are able to support
our strategy and provide sustainable growth.
All our people are responsible for the management of risk, with
the ultimate accountability residing with the Board. Our Group Risk
and Compliance function, led by the Group Chief Risk and Compliance
Officer, plays an important role in reinforcing our culture and
values. We are focused on creating an environment that encourages
our people to speak up and do the right thing.
Group Risk and Compliance is independent from the global
businesses, including our sales and trading functions, to provide
challenge, oversight and appropriate balance in risk/reward
decisions.
We aim to use a comprehensive risk management approach across
the organisation and across all risk types, underpinned by our
culture and values. This is outlined in our risk management
framework, including the key principles and practices that we
employ in managing material risks, both financial and
non-financial. The framework fosters continuous monitoring,
promotes risk awareness, and encourages sound operational and
strategic decision making. It also supports a consistent approach
to identifying, assessing, managing and reporting the risks we
accept and incur in our activities. We continue to actively review
and develop our risk management framework and enhance our approach
to managing risk through our activities with regard to: people and
capabilities; governance; reporting and management information;
credit risk management models; and data.
A summary of our current policies and practices regarding the
management of risk is set out in the 'Risk management' section on
pages 132 to 135 of the Annual Report and Accounts 2022.
Key developments in the first half of 2023
We continued to actively manage the risks related to
macroeconomic and geopolitical uncertainties, as well as other key
risks described in this section. In addition, we sought to enhance
our risk management in the following areas:
- We enhanced our management of concentration risk at country
and single customer group levels by implementing new frameworks to
strengthen our control of risk tolerance and appetite.
- We have continued to strengthen our third-party risk policy
and enhanced the way third-party risk is overseen and managed
across all non-financial risks. Our processes, framework and
reporting capabilities have been enhanced to improve the control
and oversight of our material third parties, to help maintain our
operational resilience and meet new and evolving regulatory
requirements.
- We continued to make progress with our comprehensive
regulatory reporting programme to strengthen our global processes,
improve consistency and enhance controls.
- We continued our programme to enhance our framework for
managing risks associated with machine learning and artificial
intelligence ('AI').
- Through our climate risk programme, we continued to embed
climate considerations throughout the organisation, including
enhancing our approach to assessing the impact of climate on
capital, and continued the development of risk metrics to manage
our exposure to climate risk.
- We deployed industry-leading technology and advanced analytics
capabilities into new markets to improve our ability to identify
suspicious activities and prevent financial crime. We continue to
monitor regulatory changes.
- We continued to develop and enhance our electronic
communication policies and standards, to help ensure escalations
and follow-up actions can better focus on substantive issues.
Areas of special interest
During the first half of 2023, a number of areas were considered
as part of our top and emerging risks because of the effect they
have on the Group. In this section we have focused on risks related
to geopolitical and macroeconomic risk and the interbank offered
rate ('Ibor') transition.
Geopolitical and macroeconomic risk
The Russia-Ukraine war has had far-reaching geopolitical and
economic implications. HSBC is monitoring the impacts of the war,
and continues to respond to the significant sanctions and trade
restrictions imposed against Russia by the UK, the US and the EU,
as well as other countries. In response to such sanctions and trade
restrictions, as well as to asset flight, Russia has implemented
certain countermeasures. The global economy has largely adapted to
the imposition of significant sanctions and trade restrictions,
with European countries diversifying their energy sources to reduce
their dependence on Russian energy supplies.
Further sanctions-related matters, including sanctions evasion
by parties in third countries and Russian countermeasures may
adversely impact the Group, its customers and the markets in which
it operates. Our business in Russia, which principally serves
multinational corporate clients headquartered in other countries,
is not accepting new business or customers and is consequently on a
declining trend. Following a strategic review in 2022, HSBC Europe
BV (a wholly-owned subsidiary of HSBC Bank plc) entered into an
agreement to sell its wholly-owned subsidiary HSBC Bank Russia (RR)
(Limited Liability Company), subject to regulatory and governmental
approvals.
Global supply chain disruptions caused by the war in Ukraine
have eased, although inflation is likely to remain high in several
regions as the demand for services remains relatively strong. This
has prompted central banks to continue tightening monetary
policies. Since the beginning of 2023, the US Federal Reserve Board
('FRB') has delivered a cumulative 75 basis point ('bps') increase
in the Federal Funds rate. The European Central Bank and the Bank
of England have each tightened their policy rates by 150 bps over
the same period. All three central banks and their counterparts in
other developed markets are expected to increase rates further in
the near term. While the peak in rates may be getting closer, as of
early-July 2023, interest-rate futures did not suggest that central
banks in developed markets (with the possible exception of the FRB)
will begin to ease monetary policy until well into 2024. This may
change if inflation moderates more significantly than expected, or
if recession concerns increase. Some central banks in emerging
markets have already begun to ease on monetary policy.
Fiscal policies are likely to remain relatively generous in
coming years as demand increases for public spending on items
including social welfare, defence and decarbonisation initiatives.
This may increasingly happen against a backdrop of slower growth,
volatile energy prices and high interest rates. Financial markets
are showing a degree of forbearance, with long-term yields
relatively contained. However, this may be tested by the
acceleration in the coming months of central bank sales of
government securities accumulated over several years of
quantitative easing. Sovereigns with high public debt burdens could
come under renewed focus as investors question the sustainability
of that debt. We continue to monitor our risk profile closely in
the context of uncertainty over global macroeconomic policies.
Higher inflation and interest rate expectations around the world
- and the resulting economic uncertainty - have had an impact on
expected credit losses and other credit impairment charges ('ECL')
during the first half of 2023. In certain markets, the combined
pressure of higher inflation and interest rates may impact the
ability of our customers to repay their debt. Our Central scenario,
which has the highest probability weighting in our IFRS 9
'Financial Instruments' calculations of ECL, assumes low growth and
a higher inflation environment across many of our key markets.
The Central scenario has been assigned our standard weighting
across all of our major markets, reflecting narrowing forecast
dispersion, reduced uncertainty, and a view that forecasts now
sufficiently capture the weak growth outlook. Our approach to
macroeconomic scenarios remained unchanged in 2Q23, but the shift
in UK interest rate expectations in June resulted in updates to key
scenario variables. There remains continued uncertainty with
respect to the relationship between the economic drivers and the
historical loss experience, which has required adjustments to
modelled ECL in cases where we determined that our models were
unable to capture the material underlying risks. For retail
portfolios where models do not sufficiently capture the interest
rate and inflation risks, there has been a globally consistent
approach developed that is utilised for assessing the affordability
pressure on potentially affected customers and the consequential
impact this would have on ECL. This is incorporated into ECL via
management judgemental adjustments.
For further details of our Central and other scenarios, see
'Measurement uncertainty and sensitivity analysis of ECL estimates'
on page 69.
Given that key sectors of the global economy such as trade and
manufacturing are underperforming, and the risk of recessions
remains, the demand for Chinese exports may also diminish. While
the mainland China commercial real estate market showed signs of
recovery and stabilisation in early 2023, recent market data
remains mixed, suggesting both an uncertain and protracted
recovery. China's government policy measures relating to the
mainland China commercial real estate market introduced in late
2022 have resulted in improved financial support for onshore
borrowers, although offshore financial market conditions remain
challenging in light of a continued shortage of liquidity.
Corporates operating in this sector are therefore facing continued
challenges and are becoming increasingly divided, with state-owned
enterprises and certain privately-owned enterprises likely to see
some improvements in their performances and allocations of
investments and liquidity, while other entities may still remain
subject to performance uncertainty and material market pressure. We
will continue to monitor the sector closely, notably the risk of
further credit migration and idiosyncratic defaults.
Global tensions over trade, technology and ideology are
manifesting themselves in divergent regulatory standards and
compliance regimes, presenting long-term strategic challenges for
multinational businesses.
The US-China relationship remains complex. In addition to the
US, the UK, the EU and other countries have also imposed certain
sanctions and trade restrictions on Chinese persons and companies.
There is a continued risk of additional sanctions and trade
restrictions being imposed by the US and other governments in
relation to human rights, advanced technology, and other issues
with China, and this could create a more complex operating
environment for the Group and its customers.
China has in turn announced a number of its own sanctions and
trade restrictions that target, or provide authority to target,
foreign individuals and companies, and materials for technology
production.
These and any future measures and countermeasures that may be
taken by the US, China and other countries may affect the Group,
its customers and the markets in which the Group operates.
The conclusion of the Windsor Framework between the UK and the
EU introduced a new system of checks on goods moving from the UK to
Northern Ireland, and removed a major area of friction. On 27 June
2023, the UK and the EU also signed a memorandum of understanding
on regulatory cooperation in financial services, potentially paving
the way for closer coordination of policymaking for the sector.
Over the medium to long term, the UK's withdrawal from the EU
may impact markets and increase economic risk, particularly in the
UK, which could adversely impact our profitability and prospects
for growth in this market. We are monitoring the situation closely,
including the potential impacts on our customers.
As the geopolitical landscape evolves, compliance by
multinational corporations with their legal or regulatory
obligations in one jurisdiction may be seen as supporting the law
or policy objectives of that jurisdiction over another, creating
additional compliance, reputational and political risks for the
Group. We maintain dialogue with our regulators in various
jurisdictions on the impact of legal and regulatory obligations on
our business and customers.
It remains the Group's policy to comply with all applicable laws
and regulations of all jurisdictions in which it operates, although
geopolitical risks and tensions, and potential ambiguities in the
Group's compliance obligations will continue to present challenges
and risks for the Group. These could have a material adverse impact
on the Group's business, financial condition, results of
operations, prospects and strategy, as well as on the Group's
customers.
Expanding data privacy, national security and cybersecurity laws
in a number of markets could pose potential challenges to
intra-Group data sharing. These developments may affect our ability
to manage financial crime risks across markets due to limitations
on cross-border transfers of personal information.
Ibor transition
Interbank offered rates ('Ibors') were previously used
extensively to set interest rates on different types of financial
transactions and for valuation purposes, risk measurement and
performance benchmarking.
Following the UK's Financial Conduct Authority ('FCA')
announcement in July 2017 that it would no longer continue to
persuade or require panel banks to submit rates for the London
interbank offered rate ('Libor') after 2021, we have been actively
working to transition legacy contracts from Ibors to products
linked to near risk-free replacement rates ('RFRs') or alternative
reference rates.
The publication of sterling, Swiss franc, euro and Japanese yen
Libor interest rate benchmarks, as well as Euro Overnight Index
Average ('Eonia'), and two US dollar Libor settings ceased from the
end of 2021. Following this, the publication of all remaining
settings of US dollar Libor ceased from 30 June 2023. To support
any remaining contracts referencing these benchmarks, the FCA has
compelled the ICE Benchmark Administration Limited to publish the
three-month sterling Libor setting using an alternative 'synthetic'
methodology until 31 March 2024, and one-month, three-month and
six-month US dollar Libor settings until 30 September 2024. We
continue to support our customers in the transition of the limited
number of outstanding contracts relying on 'synthetic' Libor
benchmarks in line with these dates.
Our Ibor transition programme - which is tasked with the
development of RFR products and the transition of legacy Ibor
products - has implemented the required processes, technology and
RFR product capabilities in support of the benchmark cessation
events. As a result, the transition of the majority of legacy
contracts was undertaken successfully throughout 1H23 with the
remaining contracts expected to largely complete in 3Q23.
Specifically, our derivatives portfolio was largely transitioned
through clearing house conversion mechanisms, and the use of
industry legal fall-back provisions at cessation, leaving a limited
number of trades that continue to be discussed with customers. Our
wholesale and private bank lending portfolios for both uncommitted
and committed facilities have been repapered with client consent,
albeit a small number of wholesale contracts will continue
repapering activities until their first interest rate fixing date
after cessation. Where applicable, our structured notes and certain
MREL instruments of the Group are being transitioned in line with
jurisdictional legislative solutions and through client and
investor notification. In respect of HSBC's regulatory capital and
other MREL instruments that include references to legacy Ibors
(including indirect references) in their terms, HSBC expects to be
able to remediate or mitigate these risks by the relevant
calculation dates, which may occur post-cessation of the relevant
Ibor. HSBC remains committed to seeking to remediate or mitigate
relevant risks relating to Ibor-demise, as appropriate.
While the majority of our legacy contracts referencing demised
Ibors have been transitioned, as a result of other demising
benchmarks or remaining contracts, we continue to be exposed to,
and actively monitor, risks including:
- regulatory compliance and conduct risks, as the use of
'synthetic' Libor rates, transition of legacy contracts to RFRs or
alternative rates, or sales of products referencing RFRs, may not
deliver fair client outcomes; and
- legal risk, as issues arising from the use of legislative
solutions and from legacy contracts that the Group is unable to
transition may result in unintended or unfavourable outcomes for
clients and market participants, which could potentially increase
the risk of disputes.
While the level of risk has diminished in line with our process
implementation and continued transition of contracts, we will
monitor these risks through the remainder of the transition of
legacy contracts. Throughout 2023, we plan to continue to engage
with our clients and investors to complete an orderly transition of
contracts
that reference the remaining demising Ibors. Additionally, plans
and policies are in place to help us to react to any future
regulatory notification of the intention to demise an interest rate
benchmark.
Financial instruments impacted by Ibor reform
Interest Rate Benchmark Reform Phase 2, the amendments to IFRSs
issued in August 2020, represents the second phase of the IASB's
project on the effects of interest rate benchmark reform. The
amendments address issues affecting financial statements when
changes are made to contractual cash flows and hedging
relationships.
Under these amendments, changes made to a financial instrument
measured at other than fair value through profit or loss that are
economically equivalent and required by interest rate benchmark
reform, do not result in the derecognition or a change in the
carrying amount of the financial instrument. Instead they require
the effective interest rate to be updated to reflect the change in
the interest rate benchmark. In addition, hedge accounting will not
be discontinued solely because of the replacement of the interest
rate benchmark if the hedge meets other hedge accounting
criteria.
Financial instruments impacted by Ibor reform
Financial instruments yet
to transition to alternative
benchmarks, by main benchmark
-----------------------------------------------------------------------------------------------------
USD Libor GBP Libor JPY Libor Others(1)
At 30 Jun 2023 $m $m $m $m
--------------- ----------------------- ------------------------ ------------------------ ------------------------
Non-derivative
financial
assets
--------------- ----------------------- ------------------------ ------------------------ ------------------------
Loans and
advances to
customers 22,805 154 - 6,571
--------------- ----------------------- ------------------------ ------------------------ ------------------------
Other financial
assets 2,676 - - 1,914
--------------- ----------------------- ------------------------ ------------------------ ------------------------
Total
non-derivative
financial
assets(2) 25,481 154 - 8,485
--------------- ----------------------- ------------------------ ------------------------ ------------------------
Non-derivative
financial
liabilities
--------------- ----------------------- ------------------------ ------------------------ ------------------------
Financial
liabilities
designated at
fair
value 688 1,871 1,096 -
--------------- ----------------------- ------------------------ ------------------------ ------------------------
Debt securities 2,410 - - -
in issue
--------------- ----------------------- ------------------------ ------------------------ ------------------------
Other financial
liabilities 1,896 - - 181
--------------- ----------------------- ------------------------ ------------------------ ------------------------
Total
non-derivative
financial
liabilities 4,994 1,871 1,096 181
--------------- ----------------------- ------------------------ ------------------------ ------------------------
Derivative
notional
contract amount
--------------- ----------------------- ------------------------ ------------------------ ------------------------
Foreign
exchange 389,263 - - 16,322
--------------- ----------------------- ------------------------ ------------------------ ------------------------
Interest rate 787,566 - - 181,389
Total
derivative
notional
contract
amount 1,176,829 - - 197,711
--------------- ----------------------- ------------------------ ------------------------ ------------------------
At 31 Dec 2022
--------------- ---------------------- ------------------------- ------------------------- -------------------------
Non-derivative
financial
assets
--------------- ---------------------- ------------------------- ------------------------- -------------------------
Loans and
advances to
customers 49,632 262 - 7,912
--------------- ---------------------- ------------------------- ------------------------- -------------------------
Other financial
assets 4,716 42 - 1,562
--------------- ---------------------- ------------------------- ------------------------- -------------------------
Total
non-derivative
financial
assets(2) 54,348 304 - 9,474
--------------- ---------------------- ------------------------- ------------------------- -------------------------
Non-derivative
financial
liabilities
--------------- ---------------------- ------------------------- ------------------------- -------------------------
Financial
liabilities
designated at
fair
value 17,224 1,804 1,179 -
--------------- ---------------------- ------------------------- ------------------------- -------------------------
Debt securities 5,352 - - -
in issue
--------------- ---------------------- ------------------------- ------------------------- -------------------------
Other financial
liabilities 2,988 - - 176
--------------- ---------------------- ------------------------- ------------------------- -------------------------
Total
non-derivative
financial
liabilities 25,564 1,804 1,179 176
--------------- ---------------------- ------------------------- ------------------------- -------------------------
Derivative
notional
contract amount
--------------- ---------------------- ------------------------- ------------------------- -------------------------
Foreign
exchange 140,223 - - 7,337
--------------- ---------------------- ------------------------- ------------------------- -------------------------
Interest rate 2,208,189 68 - 186,952
Total
derivative
notional
contract
amount 2,348,412 68 - 194,289
--------------- ---------------------- ------------------------- ------------------------- -------------------------
1 Comprises financial instruments referencing other significant
benchmark rates yet to transition to alternative benchmarks (euro
Libor, SOR, THBFIX, MIFOR, Sibor, CDOR and TIIE). An announcement
was made by the South African regulator during the first half of
2023 on the cessation of the Johannesburg interbank average rate
('JIBAR'). Therefore, JIBAR is also included in 'Others' during the
current period.
2 Gross carrying amount excluding allowances for expected credit losses.
The amounts in the above table relate to HSBC's main operating
entities where HSBC has material exposures impacted by Ibor reform,
including in the UK, Hong Kong, France, the US, Mexico, Canada,
Singapore, the UAE, Bermuda, Australia, Qatar, Germany, Thailand,
India and Japan. The amounts provide an indication of the extent of
the Group's exposure to the Ibor benchmarks that are due to be
replaced. Amounts are in respect of financial instruments that:
- contractually reference an interest rate benchmark that is
planned to transition to an alternative benchmark;
- have a contractual maturity date beyond the date by which the
reference interest rate benchmark is expected to cease; and
- are recognised on HSBC's consolidated balance sheet.
-
Credit risk
64 Overview
64 Credit risk in the first half
of 2023
65 Summary of credit risk
67 Stage 2 decomposition
68 Assets held for sale
69 Measurement uncertainty and sensitivity
analysis of ECL estimates
77 Reconciliation of changes in
gross carrying/nominal amount
and allowances for loans and
advances to banks and customers
80 Credit quality of financial instruments
81 Personal lending
83 Wholesale lending
86 Commercial real estate
89 Supplementary information
Overview
Credit risk is the risk of financial loss if a customer or
counterparty fails to meet an obligation under a contract. Credit
risk arises principally from direct lending, trade finance and
leasing business, but also from certain other products, such as
guarantees and derivatives.
Credit risk in the first half of 2023
There were no material changes to credit risk policy in the
first half of 2023.
A summary of our current policies and practices for the
management of credit risk is set out in 'Credit risk management' on
page 145 of the Annual Report and Accounts 2022.
At 30 June 2023, gross loans and advances to customers and banks
of $1,072bn increased by $32.7bn, compared with 31 December 2022.
This included favourable foreign exchange movements of $12.3bn.
Excluding foreign exchange movements, growth was driven by a
$29.3bn increase in personal loans and advances to customers. This
was partly offset by a $6.4bn decrease in wholesale loans and
advances to customers and a $2.6bn decrease in loans and advances
to banks.
The underlying increase in personal loans and advances to
customers was driven mainly by an increase in France (up $22.3bn)
due to our retail banking operations in France no longer being
classified as assets held for sale. It also comprised increases in
Hong Kong (up $4.4bn), in the UK (up $1.8bn), in Mexico (up $1.2bn)
and in Australia (up $1.0bn) driven mainly by mortgage growth.
These were partly offset by a decrease in Oman (down $1.2bn) from
the reclassification of our business in the country into 'assets
held for sale'.
The underlying decrease in wholesale loans and advances to
customers was driven mainly by lower commercial real estate
exposures in Hong Kong (down $8.3bn) and mainland China (down
$1.5bn). It also comprised a decrease in Oman (down $2.1bn) from
the reclassification of our business in the country into 'assets
held for sale'. These were partly offset by increases in France (up
$2.1bn) and in the UK (up $2.1bn). The increase in the UK included
loans and advances to customers of $7.1bn from HSBC Innovation Bank
Limited (formerly SVB UK).
At 30 June 2023, the allowance for ECL of $12.8bn increased by
$0.2bn compared with 31 December 2022, including adverse foreign
exchange movements of $0.1bn. The $12.8bn allowance comprised
$12.3bn in respect of assets held at amortised cost, $0.4bn in
respect of loan commitments and financial guarantees, and $0.1bn in
respect of debt instruments measured at fair value through other
comprehensive income ('FVOCI').
Excluding foreign exchange movements, the allowance for ECL in
relation to loans and advances to customers increased by $0.1bn
from 31 December 2022. This was attributable to:
- a $0.1bn increase in wholesale loans and advances to
customers, which included a $0.4bn increase driven by stage 3,
offset by a $0.3bn decrease driven by stages 1 and 2; and
- broadly unchanged allowances for ECL in personal loans and
advances to customers across all stages.
In wholesale lending, mainland China's commercial real estate
sector continued to deteriorate in 2023, resulting in new and
additional stage 3 charges.
In personal lending, stable allowances reflected customer
resilience during the period, despite significant inflationary
pressures.
The Group ECL charge for the first six months of 2023 was
$1.3bn, inclusive of recoveries. This was driven by higher stage 3
charges, notably in the Hong Kong commercial real estate sector, as
well as continued economic uncertainty and inflationary
pressures.
The ECL charge comprised: $0.5bn in respect of personal lending,
of which the stage 3 charge was $0.3bn; and $0.8bn in respect of
wholesale lending, of which the stage 3 and POCI charge was
$0.7bn.
Summary of credit risk
The following disclosure presents the gross carrying/nominal
amount of financial instruments to which the impairment
requirements in IFRS 9 are applied and the associated allowance for
ECL.
The following tables analyse loans by industry sector and
represent the concentration of exposures on which credit risk is
managed. The allowance for ECL increased from $12.6bn at 31
December 2022 to $12.8bn at 30 June 2023.
Summary of financial instruments to which the impairment requirements
in IFRS 9 are applied
At 30 Jun 2023 At 31 Dec 2022
------------------------------------------------------------- --------------------------------------------------------------
Gross Gross
carrying/ Allowance carrying/ Allowance
nominal for nominal for
amount ECL(1) amount ECL(1)
$m $m $m $m
--------------- --------------------------- -------------------------------- ---------------------------- --------------------------------
Loans and
advances to
customers at
amortised
cost 971,296 (11,738) 935,008 (11,447)
--------------- --------------------------- -------------------------------- ---------------------------- --------------------------------
- personal 453,447 (3,026) 414,882 (2,870)
---------------
- corporate and
commercial 441,258 (8,401) 453,202 (8,320)
---------------
- non-bank
financial
institutions 76,591 (311) 66,924 (257)
--------------- --------------------------- -------------------------------- ----------------------------
Loans and
advances to
banks at
amortised
cost 100,995 (74) 104,544 (69)
--------------- --------------------------- -------------------------------- ---------------------------- --------------------------------
Other financial
assets
measured at
amortised
cost 960,249 (489) 954,934 (493)
--------------- --------------------------- -------------------------------- ---------------------------- --------------------------------
- cash and
balances at
central banks 307,734 (1) 327,005 (3)
---------------
- items in the
course of
collection
from other
banks 10,649 - 7,297 -
---------------
- Hong Kong
Government
certificates
of
indebtedness 42,407 - 43,787 -
---------------
- reverse
repurchase
agreements -
non-trading 258,056 - 253,754 -
---------------
- financial
investments 131,277 (27) 109,086 (20)
---------------
- assets held
for sale(2) 80,244 (402) 102,556 (415)
---------------
- prepayments,
accrued income
and other
assets(3) 129,882 (59) 111,449 (55)
--------------- --------------------------- -------------------------------- ----------------------------
Total gross
carrying
amount
on-balance
sheet 2,032,540 (12,301) 1,994,486 (12,009)
--------------- --------------------------- -------------------------------- ---------------------------- --------------------------------
Loans and other
credit-related
commitments 649,526 (348) 618,788 (386)
--------------- --------------------------- -------------------------------- ---------------------------- --------------------------------
- personal 253,764 (25) 244,006 (27)
---------------
- corporate and
commercial 265,552 (301) 269,187 (340)
---------------
- financial 130,210 (22) 105,595 (19)
--------------- --------------------------- -------------------------------- ----------------------------
Financial
guarantees 18,882 (51) 18,783 (52)
--------------- --------------------------- -------------------------------- ---------------------------- --------------------------------
- personal 1,188 - 1,135 -
---------------
- corporate and
commercial 13,613 (47) 13,587 (50)
---------------
- financial 4,081 (4) 4,061 (2)
--------------- --------------------------- -------------------------------- ----------------------------
Total nominal
amount
off-balance
sheet(4) 668,408 (399) 637,571 (438)
--------------- --------------------------- -------------------------------- ---------------------------- --------------------------------
2,700,948 (12,700) 2,632,057 (12,447)
--------------- --------------------------- -------------------------------- ---------------------------- --------------------------------
Memorandum Memorandum
allowance allowance
Fair for Fair for
value ECL(5) value ECL(5)
$m $m $m $m
Debt
instruments
measured at
fair value
through other
comprehensive
income
('FVOCI') 287,195 (125) 265,147 (126)
--------------- --------------------------- -------------------------------- ---------------------------- --------------------------------
1 Total ECL is recognised in the loss allowance for the
financial asset unless total ECL exceeds the gross carrying amount
of the financial asset, in which case the ECL is recognised as a
provision.
2 For further details on gross carrying amounts and allowances
for ECL related to assets held for sale, see 'Assets held for sale'
on page 68.
3 Includes only those financial instruments that are subject to
the impairment requirements of IFRS 9. 'Prepayments, accrued income
and other assets', as presented within the consolidated balance
sheet on page 110, includes both financial and non-financial
assets.
4 Represents the maximum amount at risk should the contracts be
fully drawn upon and clients default.
5 Debt instruments measured at FVOCI continue to be measured at
fair value with the allowance for ECL as a memorandum item. Change
in ECL is recognised in 'Change for expected credit losses and
other credit impairment charges' in the income statement.
The following table provides an overview of the Group's credit
risk by stage and industry, and the associated ECL coverage. The
financial assets recorded in each stage have the following
characteristics:
- Stage 1: These financial assets are unimpaired and without a
significant increase in credit risk for which a 12-month allowance
for ECL is recognised.
- Stage 2: A significant increase in credit risk has been
experienced on these financial assets since initial recognition for
which a lifetime ECL is recognised.
- Stage 3: There is objective evidence of impairment and the
financial assets are therefore considered to be in default or
otherwise credit impaired for which a lifetime ECL is
recognised.
- POCI: Financial assets that are purchased or originated at a
deep discount are seen to reflect the incurred credit losses on
which a lifetime ECL is recognised.
Summary of credit risk (excluding debt instruments measured at FVOCI)
by stage distribution and ECL coverage by industry sector at
30 June 2023
Gross carrying/nominal Allowance for ECL ECL coverage %
amount(1)
-------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------
Stage Stage Stage Stage Stage Stage Stage Stage Stage
1 2 3 POCI(2) Total 1 2 3 POCI(2) Total 1 2 3 POCI(2) Total
$m $m $m $m $m $m $m $m $m $m % % % % %
-------------------------------------- ------------------------------- -------------- ---------------- ---------- ------------------------------- ---------------- ---------------- ---------------- ----------- ------------------------------- ---------- ---------- ----------------- -------------- ----------
Loans
and advances
to customers
at amortised
cost 808,376 142,843 20,016 61 971,296 (1,106) (3,269) (7,338) (25) (11,738) 0.1 2.3 36.7 41.0 1.2
-------------------------------------- ------------------------------- -------------- ---------------- ---------- ------------------------------- ---------------- ---------------- ---------------- ----------- ------------------------------- ---------- ---------- ----------------- -------------- ----------
- personal 391,701 58,160 3,586 - 453,447 (576) (1,567) (883) - (3,026) 0.1 2.7 24.6 - 0.7
-------------------------------------- ---------- ---------- ----------------- -------------- ----------
* corporate and commer-cial 345,116 80,274 15,807 61 441,258 (468) (1,630) (6,278) (25) (8,401) 0.1 2.0 39.7 41.0 1.9
-------------------------------------- ---------- ---------- ----------------- -------------- ----------
* non-bank financial institutions 71,559 4,409 623 - 76,591 (62) (72) (177) - (311) 0.1 1.6 28.4 - 0.4
-------------------------------------- ------------------------------- -------------- ---------------- ---------- ------------------------------- ---------------- ---------------- ---------------- ----------- ------------------------------- ---------- ---------- ----------------- -------------- ----------
Loans
and advances
to banks
at amortised
cost 99,623 1,288 84 - 100,995 (18) (33) (23) - (74) - 2.6 27.4 - 0.1
-------------------------------------- ------------------------------- -------------- ---------------- ---------- ------------------------------- ---------------- ---------------- ---------------- ----------- ------------------------------- ---------- ---------- ----------------- -------------- ----------
Other
financial
assets
measured
at amortised
cost 945,902 13,580 757 10 960,249 (96) (147) (237) (9) (489) - 1.1 31.3 90.0 0.1
-------------------------------------- ------------------------------- -------------- ---------------- ---------- ------------------------------- ---------------- ---------------- ---------------- ----------- ------------------------------- ---------- ---------- ----------------- -------------- ----------
Loans
and other
credit-related
commit-ments 610,072 37,849 1,605 - 649,526 (135) (150) (63) - (348) - 0.4 3.9 - 0.1
-------------------------------------- ------------------------------- -------------- ---------------- ---------- ------------------------------- ---------------- ---------------- ---------------- ----------- ------------------------------- ---------- ---------- ----------------- -------------- ----------
- personal 243,830 8,936 998 - 253,764 (22) (1) (2) - (25) - - 0.2 - -
-------------------------------------- ---------- ---------- ----------------- -------------- ----------
* corporate and commer-cial 240,799 24,184 569 - 265,552 (105) (137) (59) - (301) - 0.6 10.4 - 0.1
-------------------------------------- ---------- ---------- ----------------- -------------- ----------
- financial 125,443 4,729 38 - 130,210 (8) (12) (2) - (22) - 0.3 5.3 - -
-------------------------------------- ------------------------------- -------------- ---------------- ---------- ------------------------------- ---------------- ---------------- ---------------- ----------- ------------------------------- ---------- ---------- ----------------- -------------- ----------
Financial
guarantees 16,135 2,535 212 - 18,882 (8) (12) (31) - (51) - 0.5 14.6 - 0.3
-------------------------------------- ------------------------------- -------------- ---------------- ---------- ------------------------------- ---------------- ---------------- ---------------- ----------- ------------------------------- ---------- ---------- ----------------- -------------- ----------
- personal 1,173 15 - - 1,188 - - - - - - - - - -
-------------------------------------- ---------- ---------- ----------------- -------------- ----------
* corporate and commer-cial 11,698 1,704 211 - 13,613 (7) (10) (30) - (47) 0.1 0.6 14.2 - 0.3
-------------------------------------- ---------- ---------- ----------------- -------------- ----------
- financial 3,264 816 1 - 4,081 (1) (2) (1) - (4) - 0.2 100.0 - 0.1
-------------------------------------- ------------------------------- -------------- ---------------- ---------- ------------------------------- ---------------- ---------------- ---------------- ----------- ------------------------------- ---------- ---------- ----------------- -------------- ----------
At 30
Jun 2023 2,480,108 198,095 22,674 71 2,700,948 (1,363) (3,611) (7,692) (34) (12,700) 0.1 1.8 33.9 47.9 0.5
-------------------------------------- ------------------------------- -------------- ---------------- ---------- ------------------------------- ---------------- ---------------- ---------------- ----------- ------------------------------- ---------- ---------- ----------------- -------------- ----------
1 Represents the maximum amount at risk should the contracts be
fully drawn upon and clients default.
2 Purchased or originated credit-impaired ('POCI').
Unless identified at an earlier stage, all financial assets are
deemed to have suffered a significant increase in credit risk when
they are 30 days past due ('DPD') and are transferred from stage 1
to stage 2.
The following disclosure presents the ageing of stage 2
financial assets by those less than 30 and greater than 30 DPD and
therefore presents those financial assets classified as stage 2 due
to ageing (30 DPD) and those identified at an earlier stage (less
than 30 DPD).
Stage 2 days past due analysis at 30 June 2023
Gross carrying/nominal
amount Allowance for ECL ECL coverage %
Up-to-date 1 30 Up-to-date 1 30 Up-to-date 1 30
to and to and to and
Stage 29 > Stage 29 > Stage 29 >
2 DPD(1,2) DPD(1,2) 2 DPD(1,2) DPD(1,2) 2 DPD(1,2) DPD(1,2)
$m $m $m $m $m $m $m $m % % % %
-------------------------------------- ------------ ------------ ----------------- ------------------ --------------- --------------- ----------------- ---------------- ---------- ---------- -------------- --------------
Loans and advances
to customers
at amortised
cost 142,843 138,163 2,667 2,013 (3,269) (2,761) (261) (247) 2.3 2.0 9.8 12.3
-------------------------------------- ------------ ------------ ----------------- ------------------ --------------- --------------- ----------------- ---------------- ---------- ---------- -------------- --------------
- personal 58,160 55,633 1,656 871 (1,567) (1,134) (214) (219) 2.7 2.0 12.9 25.1
-------------------------------------- ---------- ---------- -------------- --------------
- corporate
and commercial 80,274 78,356 1,006 912 (1,630) (1,555) (47) (28) 2.0 2.0 4.7 3.1
-------------------------------------- ---------- ---------- -------------- --------------
* non-bank financial institutions 4,409 4,174 5 230 (72) (72) - - 1.6 1.7 - -
-------------------------------------- ------------ ------------ ----------------- ------------------ --------------- --------------- ----------------- ---------------- ---------- ---------- -------------- --------------
Loans and advances
to banks at
amortised cost 1,288 1,286 - 2 (33) (33) - - 2.6 2.6 - -
-------------------------------------- ------------ ------------ ----------------- ------------------ --------------- --------------- ----------------- ---------------- ---------- ---------- -------------- --------------
Other financial
assets measured
at amortised
cost 13,580 13,380 122 78 (147) (126) (7) (14) 1.1 0.9 5.7 17.9
-------------------------------------- ------------ ------------ ----------------- ------------------ --------------- --------------- ----------------- ---------------- ---------- ---------- -------------- --------------
1 Days past due ('DPD').
2 The days past due amounts presented above are on a contractual
basis and include the benefit of any customer relief payment
holidays granted.
Summary of credit risk (excluding debt instruments measured at FVOCI)
by stage distribution and ECL coverage by industry sector at
31 December 2022
Gross carrying/nominal Allowance for ECL ECL coverage %
amount(1)
--------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------ ------------------------------------------------------------------
Stage Stage Stage POCI(2) Total Stage Stage Stage POCI(2) Total Stage Stage Stage POCI(2) Total
1 2 3 1 2 3 1 2 3
$m $m $m $m $m $m $m $m $m $m % % % % %
-------------------------------------- ------------------------------ ------------------------ --------------- ---------- ------------------------------ --------------- --------------- --------------- ------------ ------------------------------- ---------- ---------- -------------- -------------- ----------
Loans
and advances
to customers
at amortised
cost 776,299 139,076 19,504 129 935,008 (1,092) (3,488) (6,829) (38) (11,447) 0.1 2.5 35.0 29.5 1.2
-------------------------------------- ------------------------------ ------------------------ --------------- ---------- ------------------------------ --------------- --------------- --------------- ------------ ------------------------------- ---------- ---------- -------------- -------------- ----------
- personal 362,677 48,866 3,339 - 414,882 (561) (1,504) (805) - (2,870) 0.2 3.1 24.1 - 0.7
-------------------------------------- ---------- ---------- -------------- -------------- ----------
* corporate and commercial 351,885 85,492 15,696 129 453,202 (488) (1,907) (5,887) (38) (8,320) 0.1 2.2 37.5 29.5 1.8
-------------------------------------- ---------- ---------- -------------- -------------- ----------
* non-bank financial institutions 61,737 4,718 469 - 66,924 (43) (77) (137) - (257) 0.1 1.6 29.2 - 0.4
-------------------------------------- ------------------------------ ------------------------ --------------- ---------- ------------------------------ --------------- --------------- --------------- ------------ ------------------------------- ---------- ---------- -------------- -------------- ----------
Loans
and advances
to banks
at amortised
cost 102,723 1,739 82 - 104,544 (18) (29) (22) - (69) - 1.7 26.8 - 0.1
-------------------------------------- ------------------------------ ------------------------ --------------- ---------- ------------------------------ --------------- --------------- --------------- ------------ ------------------------------- ---------- ---------- -------------- -------------- ----------
Other
financial
assets
measured
at amortised
cost 938,798 15,339 797 - 954,934 (95) (165) (233) - (493) - 1.1 29.2 - 0.1
-------------------------------------- ------------------------------ ------------------------ --------------- ---------- ------------------------------ --------------- --------------- --------------- ------------ ------------------------------- ---------- ---------- -------------- -------------- ----------
Loans
and other
credit-related
commitments 583,383 34,033 1,372 - 618,788 (141) (180) (65) - (386) - 0.5 4.7 - 0.1
-------------------------------------- ------------------------------ ------------------------ --------------- ---------- ------------------------------ --------------- --------------- --------------- ------------ ------------------------------- ---------- ---------- -------------- -------------- ----------
- personal 239,521 3,686 799 - 244,006 (26) (1) - - (27) - - - - -
-------------------------------------- ---------- ---------- -------------- -------------- ----------
* corporate and commercial 241,313 27,323 551 - 269,187 (111) (166) (63) - (340) - 0.6 11.4 - 0.1
-------------------------------------- ---------- ---------- -------------- -------------- ----------
- financial 102,549 3,024 22 - 105,595 (4) (13) (2) - (19) - 0.4 9.1 - -
-------------------------------------- ------------------------------ ------------------------ --------------- ---------- ------------------------------ --------------- --------------- --------------- ------------ ------------------------------- ---------- ---------- -------------- -------------- ----------
Financial
guarantees 16,071 2,463 249 - 18,783 (6) (13) (33) - (52) - 0.5 13.3 - 0.3
-------------------------------------- ------------------------------ ------------------------ --------------- ---------- ------------------------------ --------------- --------------- --------------- ------------ ------------------------------- ---------- ---------- -------------- -------------- ----------
- personal 1,123 11 1 - 1,135 - - - - - - - - - -
-------------------------------------- ---------- ---------- -------------- -------------- ----------
* corporate and commercial 11,547 1,793 247 - 13,587 (5) (12) (33) - (50) - 0.7 13.4 - 0.4
-------------------------------------- ---------- ---------- -------------- -------------- ----------
- financial 3,401 659 1 - 4,061 (1) (1) - - (2) - 0.2 - - -
-------------------------------------- ------------------------------ ------------------------ --------------- ---------- ------------------------------ --------------- --------------- --------------- ------------ ------------------------------- ---------- ---------- -------------- -------------- ----------
At 31
Dec 2022 2,417,274 192,650 22,004 129 2,632,057 (1,352) (3,875) (7,182) (38) (12,447) 0.1 2.0 32.6 29.5 0.5
-------------------------------------- ------------------------------ ------------------------ --------------- ---------- ------------------------------ --------------- --------------- --------------- ------------ ------------------------------- ---------- ---------- -------------- -------------- ----------
1 Represents the maximum amount at risk should the contracts be
fully drawn upon and clients default.
2 Purchased or originated credit impaired ('POCI').
Stage 2 days past due analysis at 31 December 2022
Gross carrying amount Allowance for ECL ECL coverage %
1 1 1
to 30 to 30 to 30
Stage 29 and Stage 29 and Stage 29 and
2 Up-to-date DPD(1,2) > DPD(1,2) 2 Up-to-date DPD(1,2) > DPD(1,2) 2 Up-to-date DPD(1,2) > DPD(1,2)
$m $m $m $m $m $m $m $m % % % %
------------- ----------- ----------- --------------- ----------------- --------------- --------------- ---------------- ----------------- ---------- ---------- -------------- --------------
Loans and
advances
to customers
at amortised
cost 139,076 134,680 2,410 1,986 (3,488) (3,017) (234) (237) 2.5 2.2 9.7 11.9
------------- ----------- ----------- --------------- ----------------- --------------- --------------- ---------------- ----------------- ---------- ---------- -------------- --------------
- personal 48,866 46,378 1,682 806 (1,504) (1,080) (214) (210) 3.1 2.3 12.7 26.1
------------- ---------- ---------- -------------- --------------
- corporate
and
commercial 85,492 83,976 712 804 (1,907) (1,860) (20) (27) 2.2 2.2 2.8 3.4
------------- ---------- ---------- -------------- --------------
- non-bank
financial
institutions 4,718 4,326 16 376 (77) (77) - - 1.6 1.8 - -
------------- ----------- ----------- --------------- ----------------- --------------- --------------- ---------------- ----------------- ---------- ---------- -------------- --------------
Loans and
advances
to banks at
amortised
cost 1,739 1,729 - 10 (29) (29) - - 1.7 1.7 - -
------------- ----------- ----------- --------------- ----------------- --------------- --------------- ---------------- ----------------- ---------- ---------- -------------- --------------
Other
financial
assets
measured
at amortised
cost 15,339 15,103 140 96 (165) (141) (8) (16) 1.1 0.9 5.7 16.7
------------- ----------- ----------- --------------- ----------------- --------------- --------------- ---------------- ----------------- ---------- ---------- -------------- --------------
1 Days past due ('DPD').
2 The days past due amounts presented above are on a contractual
basis and include the benefit of any customer relief payment
holidays granted.
Stage 2 decomposition
The following table presents the stage 2 decomposition of gross
carrying amount and allowances for ECL for loans and advances to
customers. It also sets out the reasons why an exposure is
classified as stage 2 and therefore presented as a significant
increase in credit risk at 30 June 2023.
The quantitative classification shows gross carrying values and
allowances for ECL for which the applicable reporting date
probability of default ('PD') measure exceeds defined quantitative
thresholds for retail and wholesale exposures, as set out in Note
1.2 'Summary of significant accounting policies', on page 342 of
the Annual Report and Accounts 2022.
The qualitative classification primarily accounts for customer
risk rating ('CRR') deterioration, watch-and-worry and retail
management judgemental adjustments.
A summary of our current policies and practices for the
significant increase in credit risk is set out in 'Summary of
significant accounting policies' on page 342 of the Annual Report
and Accounts 2022 .
Loans and advances to customers at 30 June 2023(1)
ECL
Gross carrying amount Allowance for ECL coverage
---------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------ ----------
Non-bank Non-bank
Corporate financial Corporate financial
Personal and commercial institutions Total Personal and commercial institutions Total Total
$m $m $m $m $m $m $m $m %
------------- ------------------------ ----------------------- ------------------------ ----------------------- -------------------------- -------------------------- -------------------------- ------------------------ ----------
Quantitative 48,337 63,306 3,667 115,310 (1,369) (1,393) (67) (2,829) 2.5
------------- ------------------------ ----------------------- ------------------------ ----------------------- -------------------------- -------------------------- -------------------------- ------------------------ ----------
Qualitative 9,756 16,454 717 26,927 (195) (230) (5) (430) 1.6
------------- ------------------------ ----------------------- ------------------------ ----------------------- -------------------------- -------------------------- -------------------------- ------------------------ ----------
30 DPD
backstop(2) 67 514 25 606 (3) (7) - (10) 1.7
------------- ------------------------ ----------------------- ------------------------ ----------------------- -------------------------- -------------------------- -------------------------- ------------------------ ----------
Total stage
2 58,160 80,274 4,409 142,843 (1,567) (1,630) (72) (3,269) 2.3
------------- ------------------------ ----------------------- ------------------------ ----------------------- -------------------------- -------------------------- -------------------------- ------------------------ ----------
Loans and advances to customers at 31 December 2022(1)
ECL
Gross carrying amount Allowance for ECL coverage
------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------ ----------
Non-bank Non-bank
Corporate financial Corporate financial
Personal and commercial institutions Total Personal and commercial institutions Total Total
$m $m $m $m $m $m $m $m %
------------- ------------------------ ---------------------- ---------------------- ---------------------- -------------------------- -------------------------- ------------------------ -------------------------- ----------
Quantitative 41,610 66,421 3,679 111,710 (1,302) (1,642) (66) (3,010) 2.7
------------- ------------------------ ---------------------- ---------------------- ---------------------- -------------------------- -------------------------- ------------------------ -------------------------- ----------
Qualitative 7,209 18,555 878 26,642 (200) (262) (11) (473) 1.8
------------- ------------------------ ---------------------- ---------------------- ---------------------- -------------------------- -------------------------- ------------------------ -------------------------- ----------
30 DPD
backstop(2) 47 516 161 724 (2) (3) - (5) 0.7
------------- ------------------------ ---------------------- ---------------------- ---------------------- -------------------------- -------------------------- ------------------------ -------------------------- ----------
Total stage
2 48,866 85,492 4,718 139,076 (1,504) (1,907) (77) (3,488) 2.5
------------- ------------------------ ---------------------- ---------------------- ---------------------- -------------------------- -------------------------- ------------------------ -------------------------- ----------
1 Where balances satisfy more than one of the above three
criteria for determining a significant increase in credit risk, the
corresponding gross exposure and ECL have been assigned in order of
categories presented.
2 Days past due ('DPD').
Assets held for sale
At 30 June 2023, the most material balances held for sale came
from our banking business in Canada. During the first half of 2023
the planned sale of our retail banking operations in France became
less certain and no longer met the definition of held for sale.
'Loans and other credit-related commitments' and 'financial
guarantees', as reported in credit disclosures, also include
exposures and allowances relating to financial assets classified as
'assets held for sale'.
Loans and advances to customers and banks measured at amortised cost
At 30 Jun 2023 At 31 Dec 2022
----------------------------------------------------------------------------- ------------------------------------------------------------------------------
Total gross Total gross
loans and Allowance loans and Allowance
advances for ECL advances for ECL
$m $m $m $m
--------- ------------------------------------ --------------------------------------- ------------------------------------ ----------------------------------------
As
reported 1,072,291 (11,812) 1,039,552 (11,516)
--------- ------------------------------------ --------------------------------------- ------------------------------------ ----------------------------------------
Reported
in
'Assets
held for
sale' 60,739 (379) 81,221 (392)
--------- ------------------------------------ --------------------------------------- ------------------------------------ ----------------------------------------
Total 1,133,030 (12,191) 1,120,773 (11,908)
--------- ------------------------------------ --------------------------------------- ------------------------------------ ----------------------------------------
At 30 June 2023, gross loans and advances of our banking
business in Canada were $56.3bn, and the related allowances for ECL
were $0.2bn.
Lending balances held for sale continue to be measured at
amortised cost less allowances for impairment and, therefore, such
carrying amounts may differ from fair value.
These lending balances are part of associated disposal groups
that are measured in their entirety at the lower of carrying amount
and fair
value less costs to sell. Any difference between the carrying
amount of these assets and their sales price is part of the overall
gain or loss on the associated disposal group as a whole.
For further details of the carrying amount and the fair value at
30 June 2023 of loans and advances to banks and customers
classified as held for sale, see Note 15 on the interim condensed
financial statements.
Gross loans and allowance for ECL on loans and advances to customers
and banks reported in 'Assets held for sale'
Retail banking
Banking business operations in
in Canada France Other(1) Total
------------------------------------------------------- ------------------------------------------------------ -----------------------------------------------------
Gross Gross Gross Gross
carrying Allowance carrying Allowance carrying Allowance carrying Allowance
value for ECL value for ECL value for ECL value for ECL
$m $m $m $m $m $m $m $m
------------- -------------------------- --------------------------- -------------------------- --------------------------- ------------------------- --------------------------- ------------------------ ---------------------------
Loans and
advances
to customers
at
amortised
cost 56,178 (247) - - 3,410 (130) 59,588 (377)
------------- -------------------------- --------------------------- -------------------------- --------------------------- ------------------------- --------------------------- ------------------------ ---------------------------
- personal 26,908 (87) - - 1,463 (61) 28,371 (148)
-------------
- corporate
and
commercial 27,732 (155) - - 1,947 (69) 29,679 (224)
-------------
- non-bank
financial
institutions 1,538 (5) - - - - 1,538 (5)
------------- -------------------------- --------------------------- -------------------------- --------------------------- ------------------------- --------------------------- ------------------------
Loans and
advances
to banks at
amortised
cost 76 - - - 1,075 (2) 1,151 (2)
------------- -------------------------- --------------------------- -------------------------- --------------------------- ------------------------- --------------------------- ------------------------ ---------------------------
At 30 Jun
2023 56,254 (247) - - 4,485 (132) 60,739 (379)
------------- -------------------------- --------------------------- -------------------------- --------------------------- ------------------------- --------------------------- ------------------------ ---------------------------
Loans and
advances
to customers
at
amortised
cost 55,431 (234) 25,121 (92) 412 (62) 80,964 (388)
------------- -------------------------- --------------------------- -------------------------- --------------------------- ------------------------- --------------------------- ------------------------ ---------------------------
- personal 26,637 (75) 22,691 (88) 305 (47) 49,633 (210)
-------------
- corporate
and
commercial 27,128 (154) 2,379 (4) 107 (15) 29,614 (173)
-------------
- non-bank
financial
institutions 1,666 (5) 51 - - - 1,717 (5)
------------- -------------------------- --------------------------- -------------------------- --------------------------- ------------------------- --------------------------- ------------------------
Loans and
advances
to banks at
amortised
cost 100 - - - 157 (4) 257 (4)
------------- -------------------------- --------------------------- -------------------------- --------------------------- ------------------------- --------------------------- ------------------------ ---------------------------
At 31 Dec
2022 55,531 (234) 25,121 (92) 569 (66) 81,221 (392)
------------- -------------------------- --------------------------- -------------------------- --------------------------- ------------------------- --------------------------- ------------------------ ---------------------------
1 Comprising assets held for sale relating to the planned merger
of our business in Oman, and the planned sales of our branch
operations in Greece and our business in Russia.
Measurement uncertainty and sensitivity analysis of ECL
estimates
The recognition and measurement of ECL involves the use of
significant judgement and estimation. We form multiple economic
scenarios based on economic forecasts, apply these assumptions to
credit risk models to estimate future credit losses, and
probability-weight the results to determine an unbiased ECL
estimate. Management judgemental adjustments are used to address
late-breaking events, data and model limitations, model
deficiencies and expert credit judgements.
At 30 June 2023, management recognised a reduction in
uncertainty in most markets. It was management's view that the
Central scenario sufficiently reflected the muted global economic
environment and that the probability weightings assigned to this
scenario for each of our major markets should increase and revert
to the standard weight of 75%.
Methodology
At 30 June 2023, four economic scenarios were used to capture
the current economic environment and to articulate management's
view of the range of potential outcomes. Each scenario is updated
with new forecasts and estimates each quarter.
The Upside, Central and Downside scenarios are drawn from
external consensus forecasts, market data and distributional
estimates of the entire range of economic outcomes.
The fourth scenario, the Downside 2, represents management's
view of severe downside risks.
Economic scenarios produced to calculate ECL are aligned to
HSBC's top and emerging risks.
In June 2023, following a significant shift in UK policy
interest rate expectations, the Central scenario for the UK was
updated and key economic and financial variables were updated.
Outer scenario economic variables for the UK were changed in
parallel with these Central scenario adjustments.
Description of economic scenarios
In the Central scenario, global economic forecasts have improved
since 1Q23. In western Europe and North America, GDP and employment
have proved resilient to higher inflation and interest rates, as
well as the failure of several US banks. In Hong Kong and mainland
China, the post-pandemic reopening has led to a faster than
expected improvement in growth and expectations, which has now been
reflected in forecasts.
Stronger than expected growth means that inflation has declined
at a slower pace than projected. For many markets, inflation
forecasts have been raised. Further monetary tightening is also
expected although interest rates are, in most markets, thought to
be at, or close to, their peak. The UK and China are key
exceptions.
In the UK, interest rates are expected to rise over the
remainder of 2023. There remains uncertainty around the speed and
extent of the increases, which may impose additional downside
risks. In China, policy interest rates have been cut.
The Upside and Downside scenarios are designed to encompass the
potential crystallisation of a number of key macro-financial risks.
Higher inflation, tighter monetary policy and financial conditions,
and an escalation of geopolitical risks pose key downside risks to
the outlook. To the upside, a swifter decline in inflation, a cut
to interest rates and greater cooperation between the US and China
on trade and investment are assumed to drive faster economic
growth.
The scenarios used to calculate ECL are described below.
The consensus Central scenario
HSBC's Central scenario features a slowdown in GDP growth and a
rise in unemployment across our major markets in 2023, relative to
2022, with the exception of Hong Kong and mainland China.
Global GDP forecasts have been raised in recent quarters due to
stronger-than-expected growth in 1Q23, underpinned by resilience in
household consumption. Nevertheless, the outlook for the remainder
of 2023 and the beginning of 2024 remains subdued as high inflation
continues to erode disposable income and curtail investment. In
Hong Kong and mainland China, higher growth expectations reflect
the removal of pandemic-related restrictions.
The Central scenario assumes that inflation gradually declines
through 2023 and only reverts to central bank target ranges in
2025.
Global GDP is expected to grow by 2.0% in 2023 in the Central
scenario. The average rate of global GDP growth is expected to be
2.6% over the forecast period, slightly below the 2.8% average
five-year growth rate expectation prior to the onset of the
pandemic.
Across the key markets, the Central scenario assumes the
following:
- GDP growth in mainland China is expected to continue at a rate
above the official target of 5% in 2023, with policy stimulus
offsetting headwinds from a weak property sector and lower external
demand. In Hong Kong, the resumption of international travel and
tourism, and the recovery in mainland China are expected to sustain
the rapid rebound in GDP, led by the services sector and high
employment.
- In the UK, persistently high inflation and wage growth have
caused a significant reappraisal of interest rate expectations. A
substantially higher terminal rate for interest rates implies a
bigger impact on confidence, discretionary income and investment.
We have sought to reflect this in an updated Central scenario,
which incorporates a recession for the UK that begins in the second
half of 2023 and persists into 2024.
- In the remainder of western Europe and North America, economic
growth is expected to slow in the second half of 2023, as tighter
monetary policy and elevated inflation squeeze corporate margins
and households' real disposable income. Tighter financial
conditions are expected to weigh on credit growth.
- Unemployment is expected to rise gradually in most of our key
markets from 2022 levels as economic growth slows. It is forecast
to fall in mainland China and Hong Kong as the economic recovery
continues.
- Inflation is expected to remain above central bank targets in
our key markets in 2023 as core inflation and food prices remain
high. Inflation is subsequently expected to converge back to
central bank targets over the next two years of the forecast.
Mainland China is expected to be an exception as inflation remains
low throughout the forecast horizon.
- Policy interest rates in key markets are expected to peak
later this year following rapid tightening cycles over the past 18
months to bring inflation rates back towards their targets.
Thereafter, they are expected to fall slowly and remain at higher
levels than they were pre-pandemic. In the UK, policy interest
rates are forecast to rise until the end of the year and remain
high for an extended period of time.
- The Brent crude oil price is expected to average $77 per
barrel in 2023, before dropping back as demand weakens. Over the
entire projection the oil price is expected to average $69 per
barrel.
The Central scenario was created from consensus forecasts
available in May, and market-based projections updated in June. For
the UK, significant UK variables, including GDP, unemployment and
policy rates were updated in late June.
The following table describes key macroeconomic variables in the
consensus Central scenario.
Consensus Central scenario
Hong Mainland
UK US Kong China Canada France UAE Mexico
GDP (annual
average
growth rate, %)
---------------- ---------------------------- ---------- ---------------------------- ---------------------------- ----------------------------- ---------- -------------- --------------
2023 0.0 1.0 4.5 5.4 1.2 0.5 3.2 1.9
---------------- ---------------------------- ---------- ---------------------------- ---------------------------- ----------------------------- ---------- -------------- --------------
2024 (0.6) 0.9 3.2 4.9 1.0 1.0 3.8 1.7
---------------- ---------------------------- ---------- ---------------------------- ---------------------------- ----------------------------- ---------- -------------- --------------
2025 1.0 2.2 2.7 4.7 2.2 1.5 4.1 2.2
---------------- ---------------------------- ---------- ---------------------------- ---------------------------- ----------------------------- ---------- -------------- --------------
2026 1.6 2.1 2.6 4.6 2.0 1.6 3.7 2.2
---------------- ---------------------------- ---------- ---------------------------- ---------------------------- ----------------------------- ---------- -------------- --------------
2027 1.4 2.0 2.5 4.3 1.9 1.5 3.3 2.2
---------------- ---------------------------- ---------- ---------------------------- ---------------------------- ----------------------------- ---------- -------------- --------------
5-year
average(1) 0.8 1.7 3.1 4.6 1.7 1.3 3.6 2.0
---------------- ---------------------------- ---------- ---------------------------- ---------------------------- ----------------------------- ---------- -------------- --------------
Unemployment
rate
(%)
---------------- ---------------------------- ---------- ---------------------------- ---------------------------- ----------------------------- ---------- -------------- --------------
2023 4.2 3.9 3.3 5.2 5.7 7.4 2.9 3.3
---------------- ---------------------------- ---------- ---------------------------- ---------------------------- ----------------------------- ---------- -------------- --------------
2024 4.7 4.6 3.2 5.1 6.1 7.4 2.6 3.6
---------------- ---------------------------- ---------- ---------------------------- ---------------------------- ----------------------------- ---------- -------------- --------------
2025 4.5 4.4 3.3 5.1 6.0 7.2 2.4 3.5
---------------- ---------------------------- ---------- ---------------------------- ---------------------------- ----------------------------- ---------- -------------- --------------
2026 4.4 4.2 3.2 5.1 5.8 7.3 2.4 3.5
---------------- ---------------------------- ---------- ---------------------------- ---------------------------- ----------------------------- ---------- -------------- --------------
2027 4.5 4.1 3.3 5.0 5.7 7.0 2.3 3.5
---------------- ---------------------------- ---------- ---------------------------- ---------------------------- ----------------------------- ---------- -------------- --------------
5-year
average(1) 4.5 4.3 3.3 5.1 5.9 7.2 2.5 3.5
---------------- ---------------------------- ---------- ---------------------------- ---------------------------- ----------------------------- ---------- -------------- --------------
House prices
(annual
average growth
rate, %)
---------------- ---------------------------- ---------- ---------------------------- ---------------------------- ----------------------------- ---------- -------------- --------------
2023 (1.3) 1.3 (6.4) (2.0) (12.9) 0.7 11.1 10.2
---------------- ---------------------------- ---------- ---------------------------- ---------------------------- ----------------------------- ---------- -------------- --------------
2024 (5.7) 1.1 0.4 5.5 (3.1) 0.6 4.4 5.3
---------------- ---------------------------- ---------- ---------------------------- ---------------------------- ----------------------------- ---------- -------------- --------------
2025 (1.9) 2.8 1.8 3.8 4.1 3.1 4.5 4.3
---------------- ---------------------------- ---------- ---------------------------- ---------------------------- ----------------------------- ---------- -------------- --------------
2026 3.2 2.6 3.0 2.9 2.8 3.8 3.9 4.0
---------------- ---------------------------- ---------- ---------------------------- ---------------------------- ----------------------------- ---------- -------------- --------------
2027 2.7 2.8 3.3 3.6 0.6 3.7 3.3 3.9
---------------- ---------------------------- ---------- ---------------------------- ---------------------------- ----------------------------- ---------- -------------- --------------
5-year
average(1) (0.6) 2.2 1.8 3.5 (0.1) 2.5 4.5 4.8
---------------- ---------------------------- ---------- ---------------------------- ---------------------------- ----------------------------- ---------- -------------- --------------
Inflation
(annual
average growth
rate, %)
---------------- ---------------------------- ---------- ---------------------------- ---------------------------- ----------------------------- ---------- -------------- --------------
2023 7.5 4.3 2.4 1.8 3.7 5.3 3.4 5.9
---------------- ---------------------------- ---------- ---------------------------- ---------------------------- ----------------------------- ---------- -------------- --------------
2024 2.8 2.6 2.3 2.3 2.2 2.6 2.2 4.2
---------------- ---------------------------- ---------- ---------------------------- ---------------------------- ----------------------------- ---------- -------------- --------------
2025 1.8 2.2 2.1 2.1 2.0 1.9 2.1 3.7
---------------- ---------------------------- ---------- ---------------------------- ---------------------------- ----------------------------- ---------- -------------- --------------
2026 1.9 2.2 2.2 2.1 2.0 1.9 2.1 3.6
---------------- ---------------------------- ---------- ---------------------------- ---------------------------- ----------------------------- ---------- -------------- --------------
2027 2.1 2.2 2.3 2.0 2.0 1.9 2.1 3.6
---------------- ---------------------------- ---------- ---------------------------- ---------------------------- ----------------------------- ---------- -------------- --------------
5-year
average(1) 2.5 2.4 2.3 2.1 2.2 2.3 2.2 3.9
---------------- ---------------------------- ---------- ---------------------------- ---------------------------- ----------------------------- ---------- -------------- --------------
1 The five-year average is calculated over a projected period of 20 quarters from 3Q23 to 2Q28.
The graphs compare the respective Central scenario with current
economic expectations beginning in the second quarter of 2023.
GDP growth: Comparison of Central scenarios
UK
Note: Real GDP shown as year-on-year percentage change.
Hong Kong
Note: Real GDP shown as year-on-year percentage change.
US
Note: Real GDP shown as year-on-year percentage change.
Mainland China
Note: Real GDP shown as year-on-year percentage change.
The consensus Upside scenario
The consensus Upside scenario features stronger growth, lower
unemployment and a faster fall in inflation compared with the
Central
scenario. Asset prices, including housing, also rise more
quickly in this scenario. Other upside risk themes include a
de-escalation of geographical tensions and looser financial
conditions.
The following table describes key macroeconomic variables in the
consensus Upside scenario.
Consensus Upside scenario (3Q23-2Q28)
Hong Mainland
UK US Kong China Canada France UAE Mexico
GDP level (%,
start-to-peak)(1) 8.7 (2Q28) 14.7 (2Q28) 22.5 (2Q28) 33.3 (2Q28) 15.2 (2Q28) 10.1 (2Q28) 28.8 (2Q28) 17.3 (2Q28)
------------------ ---------- ------ -------------- ------ -------------- ------ -------------- ------ -------------- ------ -------------- ------ -------------- ------ -------------- ------
Unemployment
rate (%, min)(2) 3.0 (2Q25) 3.0 (1Q24) 2.5 (2Q24) 4.6 (1Q24) 5.1 (2Q25) 6.2 (2Q25) 1.8 (2Q25) 2.8 (1Q24)
------------------ ---------- ------ -------------- ------ -------------- ------ -------------- ------ -------------- ------ -------------- ------ -------------- ------ -------------- ------
House price
index (%,
start-to-peak)(1) 5.7 (2Q28) 22.1 (2Q28) 17.2 (2Q28) 27.2 (2Q28) 13.7 (2Q28) 17.1 (2Q28) 28.3 (2Q28) 31.2 (2Q28)
------------------ ---------- ------ -------------- ------ -------------- ------ -------------- ------ -------------- ------ -------------- ------ -------------- ------ -------------- ------
Inflation rate
(YoY % change,
min)(3) 1.0 (2Q24) 1.3 (2Q24) 0.4 (2Q24) 0.6 (3Q24) 1.0 (3Q24) 1.4 (3Q24) 1.1 (3Q24) 2.8 (3Q24)
------------------ ---------- ------ -------------- ------ -------------- ------ -------------- ------ -------------- ------ -------------- ------ -------------- ------ -------------- ------
1 Cumulative change to the highest level of the series during the 20-quarter projection.
2 Lowest projected unemployment rate in the scenario.
3 Lowest projected year-on-year percentage change in inflation in the scenario.
Downside scenarios
Downside scenarios explore the intensification and
crystallisation of a number of key economic and financial risks.
High inflation and the monetary policy response to it remain key
concerns for global growth. While supply chain disruptions caused
by the Covid-19 pandemic and the Russia-Ukraine war are easing,
helping to reduce headline price inflation across many markets,
core inflation remains high. This reflects tight labour markets,
which is putting upward pressure on wages, and resilience in
demand. In turn, it raises the risk of a more forceful policy
response from central banks, encompassing a steeper trajectory for
interest rates, a higher terminal rate and ultimately, economic
recession.
The rapid increase in interest rates has already led to a
repricing of asset valuations, as corporate and household borrowers
face steep increases in debt service costs. Policymakers have also
raised
concerns that, following the collapse of several US regional
banks, financial conditions could tighten further, acting as
another constraint on activity. Insolvencies and default rates
could rise sharply as businesses find it difficult to refinance,
and cash buffers diminish amid weaker demand.
In addition, mainland China's recovery from the pandemic may be
weaker than expected, with negative implications for global growth
and Hong Kong in particular.
In the consensus Downside scenario, economic activity is
considerably weaker compared with the Central scenario, driven by
an intensification of geopolitical risks that aggravate supply
chain disruptions and cause global energy and other commodity
prices to rise. In this scenario, the economies of our key markets
experience moderate recession, unemployment rates increase, and
asset prices fall.
The following table describes key macroeconomic variables in the
consensus Downside scenario.
Consensus Downside scenario (3Q23-2Q28)
Hong Mainland
UK US Kong China Canada France UAE Mexico
GDP level (%,
start-to-trough)(1) (3.2) (3Q25) (3.1) (1Q24) (2.4) (1Q24) (1.2) (4Q23) (3.3) (1Q24) (0.4) (2Q24) 0.0 (3Q23) (2.2) (1Q24)
-------------------- ----------------------------- ------ ---------------------------- ------ ---------------------------- ------ ---------------------------- ------ ----------------------------- ------ ---------------------------- ------ ---------------------------- ------ ---------------------------- ------
Unemployment
rate (%, max)(2) 6.2 (4Q24) 6.1 (3Q24) 5.0 (2Q25) 6.3 (4Q24) 7.5 (1Q24) 8.5 (1Q24) 3.9 (1Q24) 4.4 (2Q24)
-------------------- ----------------------------- ------ ---------------------------- ------ ---------------------------- ------ ---------------------------- ------ ----------------------------- ------ ---------------------------- ------ ---------------------------- ------ ---------------------------- ------
House price
index (%,
start-to-trough)(1) (16.6) (2Q25) (2.6) (1Q24) (2.9) (4Q23) 1.0 (3Q23) (16.1) (3Q24) (1.3) (2Q24) (1.9) (4Q23) 1.4 (3Q23)
-------------------- ----------------------------- ------ ---------------------------- ------ ---------------------------- ------ ---------------------------- ------ ----------------------------- ------ ---------------------------- ------ ---------------------------- ------ ---------------------------- ------
Inflation rate
(YoY % change,
max)(3) 7.0 (3Q23) 4.1 (4Q23) 4.0 (2Q24) 4.3 (1Q24) 3.9 (1Q24) 5.6 (3Q23) 3.9 (4Q23) 6.6 (2Q24)
-------------------- ----------------------------- ------ ---------------------------- ------ ---------------------------- ------ ---------------------------- ------ ----------------------------- ------ ---------------------------- ------ ---------------------------- ------ ---------------------------- ------
1 Cumulative change to the lowest level of the series during the 20-quarter projection.
2 The highest projected unemployment rate in the scenario.
3 The highest projected year-on-year percentage change in inflation in the scenario.
Downside 2 scenario
The Downside 2 scenario features a deep global recession and
reflects management's view of the tail of the economic risk
distribution. It incorporates the simultaneous crystallisation of a
number of risks. The narrative features an escalation in
geopolitical
tensions, which leads to further disruptions to supply chains.
This creates additional upward pressure on inflation, prompting
central banks to keep interest rates higher than in the Central
scenario. However, demand subsequently falls sharply and
unemployment rises before inflation pressures begin to subside.
The following table describes key macroeconomic variables in the
Downside 2 scenario.
Downside 2 scenario (3Q23-2Q28)
Hong Mainland
UK US Kong China Canada France UAE Mexico
GDP level (%,
start-to-trough)(1) (7.7) (4Q24) (4.3) (2Q24) (6.9) (3Q24) (8.3) (2Q24) (5.9) (4Q24) (7.1) (3Q24) (5.4) (4Q24) (8.9) (4Q24)
-------------------- ----------------------------- ------ ----------------------------- ------ ----------------------------- ------ ----------------------------- ------ ----------------------------- ------ ----------------------------- ------ ---------------------------- ------ ---------------------------- ------
Unemployment
rate (%, max)(2) 9.0 (4Q24) 9.6 (2Q25) 6.3 (2Q24) 6.8 (2Q25) 12.2 (4Q24) 10.0 (3Q25) 4.4 (1Q24) 5.7 (4Q24)
-------------------- ----------------------------- ------ ----------------------------- ------ ----------------------------- ------ ----------------------------- ------ ----------------------------- ------ ----------------------------- ------ ---------------------------- ------ ---------------------------- ------
House price
index (%,
start-to-trough)(1) (40.8) (3Q25) (15.3) (2Q24) (16.1) (4Q26) (21.4) (2Q25) (45.1) (2Q25) (12.1) (4Q25) (4.8) (4Q24) 1.3 (3Q23)
-------------------- ----------------------------- ------ ----------------------------- ------ ----------------------------- ------ ----------------------------- ------ ----------------------------- ------ ----------------------------- ------ ---------------------------- ------ ---------------------------- ------
Inflation rate
(YoY % change,
max)(3) 10.3 (4Q23) 4.5 (4Q23) 4.5 (2Q24) 5.3 (1Q24) 5.0 (4Q23) 9.9 (4Q23) 4.4 (4Q23) 6.9 (2Q24)
-------------------- ----------------------------- ------ ----------------------------- ------ ----------------------------- ------ ----------------------------- ------ ----------------------------- ------ ----------------------------- ------ ---------------------------- ------ ---------------------------- ------
1 Cumulative change to the lowest level of the series during the 20-quarter projection.
2 The highest projected unemployment rate in the scenario.
3 The highest projected year-on-year percentage change in inflation in the scenario.
Scenario weightings
In reviewing the economic situation, as well as the level of
uncertainty and risk, management has considered both global and
country-specific factors. This has led management to assigning
scenario probabilities that are tailored to its view of uncertainty
in individual markets.
In 2Q23, the level of certainty attached to the Central scenario
was assessed to have increased compared with previous quarters. It
was noted that:
- the dispersion of external economic forecasts had narrowed;
- there has been stabilisation of a number of key risk drivers; and
- the current Central scenario forecasts were sufficiently
reflective of weak GDP growth prospects.
As a result, it was decided that having previously reduced the
probability weights assigned to the Central scenario for each of
our major markets, the weightings should increase and revert to the
standard weight of 75%.
Scenario weightings for Hong Kong and mainland China, are now
aligned to the consensus probability distribution. The upside
potential in other major markets is considered to be limited by
current inflation and monetary policy trends. Management therefore
assigned only 5% to the Upside scenario in these markets. The
remaining 20% weighting is assigned across our two Downside
scenarios to reflect the continued downside risks posed by
inflation and monetary policy.
For the UK, uncertainty generated by shifting interest rate
expectations was addressed with revisions to scenario
variables.
The weighting assigned to the UK Central scenario therefore
aligns to the standard weight.
The following table describes the probabilities assigned in each
scenario.
Scenario weightings, %
Standard Hong Mainland
weights UK US Kong China Canada France UAE Mexico
2Q23
-------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
Upside 10.0 5.0 5.0 10.0 10.0 5.0 5.0 5.0 5.0
-------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
Central 75.0 75.0 75.0 75.0 75.0 75.0 75.0 75.0 75.0
-------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
Downside 10.0 15.0 15.0 10.0 10.0 15.0 15.0 15.0 15.0
-------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
Downside
2 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0
-------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
4Q22
-------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
Upside 10.0 5.0 5.0 20.0 20.0 5.0 5.0 5.0 5.0
-------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
Central 75.0 60.0 70.0 55.0 55.0 70.0 60.0 70.0 70.0
-------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
Downside 10.0 25.0 20.0 20.0 20.0 15.0 25.0 20.0 20.0
-------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
Downside
2 5.0 10.0 5.0 5.0 5.0 10.0 10.0 5.0 5.0
-------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
The following graphs show the historical and forecasted GDP
growth rate for the various economic scenarios in our four largest
markets.
US
UK
Hong Kong
Mainland China
Note: Real GDP shown as year-on-year percentage change.
Critical accounting estimates and judgements
The calculation of ECL under IFRS 9 involved significant
judgements, assumptions and estimates at 30 June 2023. These
included:
- the selection of economic scenarios, given rapidly changing
economic conditions and a wide distribution of economic forecasts;
and
- estimating the economic effects of those scenarios on ECL,
particularly the effect of interest rates and inflationary
pressures on specific sectors.
How economic scenarios are reflected in ECL calculations
The methodologies for the application of forward economic
guidance into the calculation of ECL for wholesale and retail
portfolios are set out on page 158 of the Annual Report and
Accounts 2022. Models are used to reflect economic scenarios on ECL
estimates. These models are based largely on historical
observations and correlations with default.
Economic forecasts and ECL model responses to these forecasts
are subject to a degree of uncertainty. The models continue to be
supplemented by management judgemental adjustments where
required.
Management judgemental adjustments
In the context of IFRS 9, management judgemental adjustments are
typically increases or decreases to the modelled ECL at either a
customer, segment or portfolio level to account for late-breaking
events, model and data limitations and deficiencies, and expert
credit judgement applied during management review and challenge.
These include refining model inputs and outputs, and using
adjustments to ECL based on management judgement and higher levels
of quantitative analysis for impacts that are difficult to model.
The effects of management judgemental adjustments are considered
for both balances and ECL, and will consider any changes to stage
allocation where appropriate. This is in accordance with the
internal adjustments framework.
The wholesale and retail management judgemental adjustments are
presented as part of the internal review and challenge committees,
and are subject to a further second line review, where significant.
This is in line with the governance process for IFRS 9 as set out
on page 145 of the Annual Report and Accounts 2022. We have
internal governance in place to monitor management judgemental
adjustments regularly and, where possible, to reduce the reliance
on these through model recalibration or redevelopment, as
appropriate.
The drivers of management judgemental adjustments continue to
evolve with the economic environment as new risks emerge.
At 30 June 2023, management judgemental adjustments reduced by
$0.6bn compared with 31 December 2022. Adjustments reflected
macroeconomic uncertainty at a portfolio and sector level, and
operational limitations.
Management judgemental adjustments made in estimating the
reported ECL at 30 June 2023 are set out in the following
table.
Management judgemental adjustments to ECL at 30 June 2023(1)
Retail Wholesale Total
$bn $bn $bn
Banks, sovereigns,
government entities and
low-risk
counterparties (0.1) (0.1)
-------------------------- ----------------------------- ---------------------------- -----------------------------
Corporate lending - -
adjustments
-------------------------- ----------------------------- ---------------------------- -----------------------------
Retail lending
inflation-related
adjustments 0.1 0.1
-------------------------- ----------------------------- ---------------------------- -----------------------------
Other -
macroeconomic-related
adjustments
-------------------------- ----------------------------- ---------------------------- -----------------------------
Other retail lending
adjustments 0.2 0.2
-------------------------- ----------------------------- ---------------------------- -----------------------------
Total 0.3 (0.1) 0.2
-------------------------- ----------------------------- ---------------------------- -----------------------------
Management judgemental adjustments to ECL at 31 December 2022(1)
Retail Wholesale Total
$bn $bn $bn
Banks, sovereigns, - -
government entities and
low-risk
counterparties
------------------------- ----------------------------- ----------------------------- -----------------------------
Corporate lending
adjustments 0.5 0.5
------------------------- ----------------------------- ----------------------------- -----------------------------
Retail lending
inflation-related
adjustments 0.1 0.1
------------------------- ----------------------------- ----------------------------- -----------------------------
Other
macroeconomic-related
adjustments 0.1 0.1
------------------------- ----------------------------- ----------------------------- -----------------------------
Other retail lending
adjustments 0.2 0.2
------------------------- ----------------------------- ----------------------------- -----------------------------
Total 0.3 0.5 0.8
------------------------- ----------------------------- ----------------------------- -----------------------------
1 Management judgemental adjustments presented in the table
reflect increases or (decreases) to modelled ECL, respectively.
In the wholesale portfolio, management judgemental adjustments
were a decrease to modelled ECL of $50m (31 December 2022: $0.5bn
increase).
- Adjustments to sovereigns, government entities and low-risk
counterparties were a decrease to modelled ECL of $83m at 30 June
2023 (31 December 2022: $22m increase), mostly to reflect
amendments to data and management judgemental adjustments to
reflect geopolitical uncertainty and late-breaking events.
- Adjustments to corporate exposures increased modelled ECL by
$33m at 30 June 2023 (31 December 2022: $0.5bn increase). These
included an increase to modelled ECL of $190m, mostly due to
management judgements to reflect heightened uncertainty in specific
sectors and geographies, including adjustments to exposures to the
real estate sector in mainland China and the US, and offsetting
adjustments to specific sectors in the UK.
Management judgemental adjustments were offset by a decrease to
modelled ECL of $157m to adjust for amendments to data and known
model limitations. The decrease in the adjustments compared with 31
December 2022 reflected a crystallisation of downgrades and
defaults for high-risk exposures, and the effect of offsetting
adjustments.
In the retail portfolio, management judgemental adjustments were
an increase to modelled ECL of $0.3bn at 30 June 2023 (31 December
2022: $0.3bn increase).
- Inflation-related adjustments increased ECL by $0.1bn (31
December 2022: $0.1bn). These adjustments addressed where
country-specific inflation risks were not fully captured by the
modelled output.
- Other retail lending adjustments increased ECL by $0.2bn (31
December 2022: $0.2bn increase), reflecting operational, data and
model adjustments.
-
Economic scenarios sensitivity analysis of ECL estimates
Management considered the sensitivity of the ECL outcome against
the economic forecasts as part of the ECL governance process by
recalculating the ECL under each scenario described above for
selected portfolios, applying a 100% weighting to each scenario in
turn. The weighting is reflected in both the determination of a
significant increase in credit risk and the measurement of the
resulting ECL.
The ECL calculated for the Upside and Downside scenarios should
not be taken to represent the upper and lower limits of possible
ECL outcomes. The impact of defaults that might occur in the future
under different economic scenarios is captured by recalculating ECL
for loans at the balance sheet date.
There is a particularly high degree of estimation uncertainty in
numbers representing tail risk scenarios when assigned a 100%
weighting.
For wholesale credit risk exposures, the sensitivity analysis
excludes ECL and financial instruments related to defaulted (stage
3) obligors. The measurement of stage 3 ECL is relatively more
sensitive to credit factors specific to the obligor than future
economic scenarios, and therefore the effect of macroeconomic
factors are not necessarily the key consideration when performing
individual assessments of ECL for obligors in default. Loans to
defaulted obligors are a small portion of the overall wholesale
lending exposure, even if representing the majority of the
allowance for ECL. Due to the range and specificity of
the credit factors to which the ECL is sensitive, it is not
possible to provide a meaningful alternative sensitivity analysis
for a consistent set of risks across all defaulted obligors.
For retail credit risk exposures, the sensitivity analysis
includes ECL for loans and advances to customers related to
defaulted obligors. This is because the retail ECL for secured
mortgage portfolios, including loans in all stages, is sensitive to
macroeconomic variables.
Wholesale and retail sensitivity
The wholesale and retail sensitivity analysis is stated
inclusive of management judgemental adjustments, as appropriate to
each scenario and scope of sensitivity. The results tables exclude
portfolios held by the insurance and private banking businesses and
small portfolios, and as such cannot be directly compared with
personal and wholesale lending presented in other credit risk
tables. In both the wholesale and retail analysis, the comparative
period results for Downside 2 scenarios are also not directly
comparable with the current period, because they reflect different
risks relative to the consensus scenarios for the period end.
For both retail and wholesale portfolios, the gross carrying
amount and nominal amount of financial instruments are the same
under each scenario. For exposures with similar risk profile and
product characteristics, the sensitivity impact is therefore
largely the result of changes in macroeconomic assumptions.
Wholesale analysis
IFRS 9 ECL sensitivity to future economic conditions(1,2)
Consensus
Gross carrying Consensus Consensus Downside Downside
and nominal Reported Central scenario Upside scenario scenario 2 scenario
amount ECL ECL ECL ECL ECL
By
geography
at 30 Jun
2023 $m $m $m $m $m $m
UK 424,186 940 811 587 1,098 2,965
---------- ------------------------------------ ----------------------------------------- ----------------------------------------- ----------------------------------------- ----------------------------------------- -----------------------------------------
US 196,193 295 263 258 359 755
---------- ------------------------------------ ----------------------------------------- ----------------------------------------- ----------------------------------------- ----------------------------------------- -----------------------------------------
Hong Kong 430,282 609 565 395 866 1,325
---------- ------------------------------------ ----------------------------------------- ----------------------------------------- ----------------------------------------- ----------------------------------------- -----------------------------------------
Mainland
China 123,776 236 188 106 347 1,265
---------- ------------------------------------ ----------------------------------------- ----------------------------------------- ----------------------------------------- ----------------------------------------- -----------------------------------------
Canada(3) 83,083 94 74 50 127 540
---------- ------------------------------------ ----------------------------------------- ----------------------------------------- ----------------------------------------- ----------------------------------------- -----------------------------------------
Mexico 28,445 69 63 49 86 232
---------- ------------------------------------ ----------------------------------------- ----------------------------------------- ----------------------------------------- ----------------------------------------- -----------------------------------------
UAE 48,637 26 25 21 31 47
---------- ------------------------------------ ----------------------------------------- ----------------------------------------- ----------------------------------------- ----------------------------------------- -----------------------------------------
France 166,451 74 70 61 86 106
---------- ------------------------------------ ----------------------------------------- ----------------------------------------- ----------------------------------------- ----------------------------------------- -----------------------------------------
By
geography
at 31 Dec
2022
UK 421,685 769 624 484 833 2,240
---------- ------------------------------------ ----------------------------------------- ----------------------------------------- ----------------------------------------- ----------------------------------------- -----------------------------------------
US 190,858 277 241 227 337 801
---------- ------------------------------------ ----------------------------------------- ----------------------------------------- ----------------------------------------- ----------------------------------------- -----------------------------------------
Hong Kong 415,875 925 819 592 1,315 2,161
---------- ------------------------------------ ----------------------------------------- ----------------------------------------- ----------------------------------------- ----------------------------------------- -----------------------------------------
Mainland
China 125,466 295 242 144 415 1,227
---------- ------------------------------------ ----------------------------------------- ----------------------------------------- ----------------------------------------- ----------------------------------------- -----------------------------------------
Canada(3) 83,274 126 80 60 148 579
---------- ------------------------------------ ----------------------------------------- ----------------------------------------- ----------------------------------------- ----------------------------------------- -----------------------------------------
Mexico 26,096 88 80 67 116 313
---------- ------------------------------------ ----------------------------------------- ----------------------------------------- ----------------------------------------- ----------------------------------------- -----------------------------------------
UAE 45,064 45 41 30 55 93
---------- ------------------------------------ ----------------------------------------- ----------------------------------------- ----------------------------------------- ----------------------------------------- -----------------------------------------
France 173,146 110 102 90 121 145
---------- ------------------------------------ ----------------------------------------- ----------------------------------------- ----------------------------------------- ----------------------------------------- -----------------------------------------
1 ECL sensitivity includes off-balance sheet financial
instruments that are subject to significant measurement
uncertainty.
2 Includes low credit-risk financial instruments such as debt
instruments at FVOCI, which have high carrying amounts but low ECL
under all the above scenarios.
3 Classified as 'assets held for sale' at 31 December 2022 and 30 June 2023.
At 30 June 2023, the highest level of 100% scenario-weighted ECL
was observed in the UK and Hong Kong. This higher ECL impact was
largely driven by significant exposure in these regions. In the
wholesale portfolio, off-balance sheet financial instruments have a
lower likelihood to be fully converted to a funded exposure at the
point of default, and consequently the ECL sensitivity impact is
lower in relation to its nominal amount when compared with an
on-balance sheet exposure with similar risk profile.
Compared with 31 December 2022, the Downside 2 ECL impact was
higher in the UK and lower in Hong Kong. In the UK, the increase in
the Downside 2 ECL impact was mostly reflective of the heightened
macroeconomic uncertainty driven by the high inflation and interest
rate environment. In Hong Kong, the reduction in the Downside 2 ECL
impact reflected the crystallisation of defaults for certain
high-risk exposures and decrease of the associated downside
uncertainty.
Retail analysis
IFRS 9 ECL sensitivity to future economic conditions(1)
Consensus Consensus Consensus
Gross Central Upside Downside Downside
carrying Reported scenario scenario scenario 2 scenario
amount ECL ECL ECL ECL ECL
By $m $m $m $m $m $m
geography
at 30
Jun 2023
---------- ------------------------------- -------------------------------- -------------------------------- ---------------------------------- -------------------------------- ----------------------------------
UK
---------- ------------------------------- -------------------------------- -------------------------------- ---------------------------------- -------------------------------- ----------------------------------
Mortgages 157,016 214 201 195 215 421
---------- ------------------------------- -------------------------------- -------------------------------- ---------------------------------- -------------------------------- ----------------------------------
Credit
cards 6,958 428 418 365 433 702
---------- ------------------------------- -------------------------------- -------------------------------- ---------------------------------- -------------------------------- ----------------------------------
Other 8,156 403 374 272 452 727
---------- ------------------------------- -------------------------------- -------------------------------- ---------------------------------- -------------------------------- ----------------------------------
Mexico
---------- ------------------------------- -------------------------------- -------------------------------- ---------------------------------- -------------------------------- ----------------------------------
Mortgages 7,937 172 158 124 225 340
---------- ------------------------------- -------------------------------- -------------------------------- ---------------------------------- -------------------------------- ----------------------------------
Credit
cards 2,039 233 220 154 297 365
---------- ------------------------------- -------------------------------- -------------------------------- ---------------------------------- -------------------------------- ----------------------------------
Other 4,110 494 479 400 557 629
---------- ------------------------------- -------------------------------- -------------------------------- ---------------------------------- -------------------------------- ----------------------------------
Hong Kong
---------- ------------------------------- -------------------------------- -------------------------------- ---------------------------------- -------------------------------- ----------------------------------
Mortgages 102,533 - - - - 1
---------- ------------------------------- -------------------------------- -------------------------------- ---------------------------------- -------------------------------- ----------------------------------
Credit
cards 8,249 268 254 216 385 496
---------- ------------------------------- -------------------------------- -------------------------------- ---------------------------------- -------------------------------- ----------------------------------
Other 6,418 95 92 80 110 129
---------- ------------------------------- -------------------------------- -------------------------------- ---------------------------------- -------------------------------- ----------------------------------
UAE
---------- ------------------------------- -------------------------------- -------------------------------- ---------------------------------- -------------------------------- ----------------------------------
Mortgages 2,048 40 40 39 40 41
---------- ------------------------------- -------------------------------- -------------------------------- ---------------------------------- -------------------------------- ----------------------------------
Credit
cards 437 39 36 18 67 86
---------- ------------------------------- -------------------------------- -------------------------------- ---------------------------------- -------------------------------- ----------------------------------
Other 700 19 17 11 24 29
---------- ------------------------------- -------------------------------- -------------------------------- ---------------------------------- -------------------------------- ----------------------------------
France
---------- ------------------------------- -------------------------------- -------------------------------- ---------------------------------- -------------------------------- ----------------------------------
Mortgages 21,112 51 50 50 51 52
---------- ------------------------------- -------------------------------- -------------------------------- ---------------------------------- -------------------------------- ----------------------------------
Other 1,390 49 48 47 50 53
---------- ------------------------------- -------------------------------- -------------------------------- ---------------------------------- -------------------------------- ----------------------------------
US
---------- ------------------------------- -------------------------------- -------------------------------- ---------------------------------- -------------------------------- ----------------------------------
Mortgages 13,854 10 10 9 10 14
---------- ------------------------------- -------------------------------- -------------------------------- ---------------------------------- -------------------------------- ----------------------------------
Credit
cards 209 21 20 18 22 26
---------- ------------------------------- -------------------------------- -------------------------------- ---------------------------------- -------------------------------- ----------------------------------
Canada(2)
---------- ------------------------------- -------------------------------- -------------------------------- ---------------------------------- -------------------------------- ----------------------------------
Mortgages 25,353 60 58 56 64 99
---------- ------------------------------- -------------------------------- -------------------------------- ---------------------------------- -------------------------------- ----------------------------------
Credit
cards 307 10 10 9 12 12
---------- ------------------------------- -------------------------------- -------------------------------- ---------------------------------- -------------------------------- ----------------------------------
Other 1,383 13 12 11 16 44
---------- ------------------------------- -------------------------------- -------------------------------- ---------------------------------- -------------------------------- ----------------------------------
By
geography
at 31
Dec 2022
UK
---------- ------------------------------- ---------------------------------- ---------------------------------- ---------------------------------- ---------------------------------- ----------------------------------
Mortgages 147,306 204 188 183 189 399
---------- ------------------------------- ---------------------------------- ---------------------------------- ---------------------------------- ---------------------------------- ----------------------------------
Credit
cards 6,518 455 434 396 442 719
---------- ------------------------------- ---------------------------------- ---------------------------------- ---------------------------------- ---------------------------------- ----------------------------------
Other 7,486 368 333 274 383 605
---------- ------------------------------- ---------------------------------- ---------------------------------- ---------------------------------- ---------------------------------- ----------------------------------
Mexico
---------- ------------------------------- ---------------------------------- ---------------------------------- ---------------------------------- ---------------------------------- ----------------------------------
Mortgages 6,319 152 127 102 183 270
---------- ------------------------------- ---------------------------------- ---------------------------------- ---------------------------------- ---------------------------------- ----------------------------------
Credit
cards 1,616 198 162 97 233 289
---------- ------------------------------- ---------------------------------- ---------------------------------- ---------------------------------- ---------------------------------- ----------------------------------
Other 3,447 438 400 318 503 618
---------- ------------------------------- ---------------------------------- ---------------------------------- ---------------------------------- ---------------------------------- ----------------------------------
Hong Kong
---------- ------------------------------- ---------------------------------- ---------------------------------- ---------------------------------- ---------------------------------- ----------------------------------
Mortgages 100,107 1 1 - 1 1
---------- ------------------------------- ---------------------------------- ---------------------------------- ---------------------------------- ---------------------------------- ----------------------------------
Credit
cards 8,003 261 227 180 417 648
---------- ------------------------------- ---------------------------------- ---------------------------------- ---------------------------------- ---------------------------------- ----------------------------------
Other 5,899 85 81 74 100 123
---------- ------------------------------- ---------------------------------- ---------------------------------- ---------------------------------- ---------------------------------- ----------------------------------
UAE
---------- ------------------------------- ---------------------------------- ---------------------------------- ---------------------------------- ---------------------------------- ----------------------------------
Mortgages 2,170 37 37 36 38 38
---------- ------------------------------- ---------------------------------- ---------------------------------- ---------------------------------- ---------------------------------- ----------------------------------
Credit
cards 441 41 37 21 68 86
---------- ------------------------------- ---------------------------------- ---------------------------------- ---------------------------------- ---------------------------------- ----------------------------------
Other 718 17 17 15 19 22
---------- ------------------------------- ---------------------------------- ---------------------------------- ---------------------------------- ---------------------------------- ----------------------------------
France
---------- ------------------------------- ---------------------------------- ---------------------------------- ---------------------------------- ---------------------------------- ----------------------------------
Mortgages 21,440 51 50 50 51 52
---------- ------------------------------- ---------------------------------- ---------------------------------- ---------------------------------- ---------------------------------- ----------------------------------
Other 1,433 54 53 52 55 59
---------- ------------------------------- ---------------------------------- ---------------------------------- ---------------------------------- ---------------------------------- ----------------------------------
US
---------- ------------------------------- ---------------------------------- ---------------------------------- ---------------------------------- ---------------------------------- ----------------------------------
Mortgages 13,489 7 6 6 8 15
---------- ------------------------------- ---------------------------------- ---------------------------------- ---------------------------------- ---------------------------------- ----------------------------------
Credit
cards 219 26 25 23 27 36
---------- ------------------------------- ---------------------------------- ---------------------------------- ---------------------------------- ---------------------------------- ----------------------------------
Canada(2)
---------- ------------------------------- ---------------------------------- ---------------------------------- ---------------------------------- ---------------------------------- ----------------------------------
Mortgages 25,163 45 44 43 46 58
---------- ------------------------------- ---------------------------------- ---------------------------------- ---------------------------------- ---------------------------------- ----------------------------------
Credit
cards 299 10 9 8 11 11
---------- ------------------------------- ---------------------------------- ---------------------------------- ---------------------------------- ---------------------------------- ----------------------------------
Other 1,399 16 14 13 17 36
---------- ------------------------------- ---------------------------------- ---------------------------------- ---------------------------------- ---------------------------------- ----------------------------------
1 ECL sensitivities exclude portfolios utilising less complex modelling approaches.
2 Classified as 'assets held for sale' at 31 December 2022 and 30 June 2023.
At 30 June 2023, the highest level of 100% scenario-weighted ECL
was observed in the UK, Mexico and Hong Kong. Mortgages reflected
the lowest level of ECL across most markets and scenarios, as
collateral values remained resilient. Hong Kong mortgages had low
levels of reported ECL due to the credit quality of the portfolio,
and so ECL under the remaining scenarios were also negligible.
Credit cards and 'Other' portfolios contributed to the largest
proportion of ECL, as they generally have higher ECL and are more
sensitive to economic forecasts. ECL sensitivity in Mexico
increased under each of the scenarios aligned to the observed
lending growth.
Group ECL sensitivity results
The ECL impact of the scenarios and management judgemental
adjustments are highly sensitive to movements in economic
forecasts. Based upon the sensitivity tables presented above, if
the Group ECL balance (excluding wholesale stage 3, which is
assessed individually) was estimated solely on the basis of the
Central scenario, Upside scenario, Downside 1 scenario or the
Downside 2 scenario at 30 June 2023, it would increase/(decrease)
as presented in the below table.
Retail(1) Wholesale(1)
Total Group ECL $bn $bn
at 30 Jun 2023
------------------------ -------------------------------- --------------------------------
Reported ECL 3.1 2.7
------------------------ -------------------------------- --------------------------------
Scenarios
------------------------ -------------------------------- --------------------------------
100% consensus Central
scenario (0.1) (0.3)
------------------------ -------------------------------- --------------------------------
100% consensus Upside
scenario (0.6) (0.9)
------------------------ -------------------------------- --------------------------------
100% consensus Downside
scenario 0.5 0.8
------------------------ -------------------------------- --------------------------------
100% Downside 2
scenario 1.9 5.5
------------------------ -------------------------------- --------------------------------
Total Group ECL
at 31 Dec 2022
------------------------ -------------------------------- --------------------------------
Reported ECL 3.0 3.1
------------------------ -------------------------------- --------------------------------
Scenarios
------------------------ -------------------------------- --------------------------------
100% consensus Central
scenario (0.2) (0.5)
------------------------ -------------------------------- --------------------------------
100% consensus Upside
scenario (0.6) (1.1)
------------------------ -------------------------------- --------------------------------
100% consensus Downside
scenario 0.4 0.8
------------------------ -------------------------------- --------------------------------
100% Downside 2
scenario 1.8 5.5
------------------------ -------------------------------- --------------------------------
1 On the same basis as retail and wholesale sensitivity analysis.
At 30 June 2023, the Group reported ECL increased by $0.1bn in
retail and decreased by $0.4bn in wholesale compared with 31
December 2022.
In both the retail and wholesale portfolios, the reduction in
the Central scenario ECL was observed due to a higher assigned
weighting to the scenario at 30 June 2023. For retail, there was
minimal ECL change observed in the remaining scenarios.
In the wholesale portfolio, the uncertainty in relation to high
inflation and interest rates was offset in some markets by the
crystallisation of defaults in Hong Kong and the decrease of the
corresponding downside uncertainty.
Reconciliation of changes in gross carrying/nominal amount and
allowances for loans and advances to banks and customers
The following disclosure provides a reconciliation by stage of
the Group's gross carrying/nominal amount and allowances for loans
and advances to banks and customers, including loan commitments and
financial guarantees. Movements are calculated on a quarterly basis
and therefore fully capture stage movements between quarters. If
movements were calculated on a year-to-date basis they would only
reflect the opening and closing position of the financial
instrument.
The transfers of financial instruments represent the impact of
stage transfers upon the gross carrying/nominal amount and
associated allowance for ECL.
The net remeasurement of ECL arising from stage transfers
represents the increase or decrease due to these transfers, for
example, moving from a 12-month (stage 1) to a lifetime (stage 2)
ECL measurement basis. Net remeasurement excludes the underlying
customer risk rating ('CRR')/probability of default ('PD')
movements of the financial instruments transferring stage. This is
captured, along with other credit quality movements in the 'changes
in risk parameters - credit quality' line item.
Changes in 'New financial assets originated or purchased',
'assets derecognised (including final repayments)' and 'changes to
risk parameters - further lending/repayments' represent the impact
from volume movements within the Group's lending portfolio.
Reconciliation of changes in gross carrying/nominal amount and allowances
for loans and advances to banks and customers including
loan commitments and financial guarantees
Non-credit impaired Credit impaired
-------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------
Stage 1 Stage 2 Stage 3 POCI Total
------------------------------------------ ------------------------------------------ ----------------------------------------- ------------------------------------------- -------------------------------------------
Gross Gross Gross Gross Gross
carrying/ carrying/ carrying/ carrying/ carrying/
nominal Allowance nominal Allowance nominal Allowance nominal Allowance nominal Allowance
amount for ECL amount for ECL amount for ECL amount for ECL amount for ECL
$m $m $m $m $m $m $m $m $m $m
---------------------------------------- ------------------ ---------------------- ----------------- ----------------------- ------------------ --------------------- ------------------ ----------------------- ------------------ -----------------------
At 1 Jan 2023 1,433,643 (1,257) 177,223 (3,710) 21,207 (6,949) 129 (38) 1,632,202 (11,954)
---------------------------------------- ------------------ ---------------------- ----------------- ----------------------- ------------------ --------------------- ------------------ ----------------------- ------------------ -----------------------
Transfers of
financial instruments: (22,336) (491) 18,284 1,120 4,052 (629) - - - -
---------------------------------------- ------------------ ---------------------- ----------------- ----------------------- ------------------ --------------------- ------------------ ----------------------- ------------------ -----------------------
* transfers from stage 1 to stage 2 (82,829) 196 82,829 (196) - - - - - -
----------------------------------------
* transfers from stage 2 to stage 1 61,112 (665) (61,112) 665 - - - - - -
----------------------------------------
* transfers to stage 3 (1,045) 4 (4,146) 718 5,191 (722) - - - -
----------------------------------------
* transfers from stage 3 426 (26) 713 (67) (1,139) 93 - - - -
---------------------------------------- ------------------ ---------------------- ----------------- ----------------------- ------------------ --------------------- ------------------ ----------------------- ------------------
Net remeasurement
of ECL arising
from transfer
of stage - 437 - (532) - (62) - - - (157)
New financial
assets originated
or purchased 207,739 (325) - - - - - - 207,739 (325)
---------------------------------------- ------------------ ---------------------- ----------------- ----------------------- ------------------ --------------------- ------------------ ----------------------- ------------------ -----------------------
Assets derecognised
(including final
repayments) (137,067) 113 (18,659) 163 (2,216) 170 (14) - (157,956) 446
---------------------------------------- ------------------ ---------------------- ----------------- ----------------------- ------------------ --------------------- ------------------ ----------------------- ------------------ -----------------------
Changes to risk
parameters -
further lending/repayments (47,927) 102 2,882 97 (65) 187 (44) 1 (45,154) 387
Changes to risk
parameters -
credit quality - 212 - (494) - (1,432) - 13 - (1,701)
---------------------------------------- ------------------ ---------------------- ----------------- ----------------------- ------------------ --------------------- ------------------ ----------------------- ------------------ -----------------------
Changes to models
used for ECL
calculation - (7) - (6) - - - - - (13)
---------------------------------------- ------------------ ---------------------- ----------------- ----------------------- ------------------ --------------------- ------------------ ----------------------- ------------------ -----------------------
Assets written
off - - - - (1,378) 1,378 - - (1,378) 1,378
Foreign exchange 16,358 (47) 3,260 (107) 252 (90) - - 19,870 (244)
---------------------------------------- ------------------ ---------------------- ----------------- ----------------------- ------------------ --------------------- ------------------ ----------------------- ------------------ -----------------------
Other(1,2) 18,386 (4) 1,373 5 65 (28) (10) (1) 19,814 (28)
---------------------------------------- ------------------ ---------------------- ----------------- ----------------------- ------------------ --------------------- ------------------ ----------------------- ------------------ -----------------------
At 30 Jun 2023 1,468,796 (1,267) 184,363 (3,464) 21,917 (7,455) 61 (25) 1,675,137 (12,211)
---------------------------------------- ------------------ ---------------------- ----------------- ----------------------- ------------------ --------------------- ------------------ ----------------------- ------------------ -----------------------
ECL income statement
change for the
period 532 (772) (1,137) 14 (1,363)
---------------------------------------- ------------------ ---------------------- ----------------- ----------------------- ------------------ --------------------- ------------------ ----------------------- ------------------ -----------------------
Recoveries 136
Other (115)
---------------------------------------- ------------------ ---------------------- ----------------- ----------------------- ------------------ --------------------- ------------------ ----------------------- ------------------ -----------------------
Total ECL income
statement change
for the period (1,342)
---------------------------------------- ------------------ ---------------------- ----------------- ----------------------- ------------------ --------------------- ------------------ ----------------------- ------------------ -----------------------
6 months
ended 30
At 30 Jun 2023 Jun 2023
------------------------------------------------------------------------ ----------------------------------
Allowance ECL release/(charge)
Gross carrying/nominal for
amount ECL
$m $m $m
---------------- ------------------------------------ ---------------------------------- ----------------------------------
As above 1,675,137 (12,211) (1,342)
---------------- ------------------------------------ ---------------------------------- ----------------------------------
Other financial
assets measured
at amortised
cost 960,249 (489) (32)
---------------- ------------------------------------ ---------------------------------- ----------------------------------
Non-trading 65,562 - -
reverse purchase
agreement
commitments
---------------- ------------------------------------ ---------------------------------- ----------------------------------
Performance and
other
guarantees not
considered
for IFRS 9 - - 25
---------------- ------------------------------------ ---------------------------------- ----------------------------------
Summary of
financial
instruments to
which
the impairment
requirements in
IFRS 9 are
applied/Summary
consolidated
income
statement 2,700,948 (12,700) (1,349)
---------------- ------------------------------------ ---------------------------------- ----------------------------------
Debt instruments
measured at
FVOCI 287,195 (125) 4
---------------- ------------------------------------ ---------------------------------- ----------------------------------
Total allowance
for ECL/total
income
statement
ECL change for
the period n/a (12,825) (1,345)
---------------- ------------------------------------ ---------------------------------- ----------------------------------
1 Total includes $25.1bn of gross carrying loans and advances,
which were classified from assets held for sale, and a
corresponding allowance for ECL of $92m, reflecting the planned
sale of our retail banking operations in France no longer meeting
the definition of held for sale. For further details, see 'Assets
held for sale' on page 68.
2 Total includes $3.9bn of gross carrying loans and advances to
customers and banks, which were classified to assets held for sale,
and corresponding allowance for ECL of $75m, reflecting the planned
merger of our business in Oman. For further details, see 'Assets
held for sale' on page 68.
As shown in the previous table, the allowance for ECL for loans
and advances to customers and banks and relevant loan commitments
and financial guarantees increased by $257m during the period, from
$11,954m at 31 December 2022 to $12,211m at 30 June 2023.
This increase was driven by:
- $1,701m relating to underlying credit quality changes,
including the credit quality impact of financial instruments
transferring between stages;
- foreign exchange and other movements of $272m;
- $157m relating to the net remeasurement impact of stage transfers; and
- $13m relating to changes to models used for ECL calculation.
These were partly offset by:
- $1,378m of assets written off; and
- $508m relating to volume movements, which included the ECL
allowance associated with new originations, assets derecognised and
further pending repayment.
The ECL charge for the period of $1,363m presented in the
previous table consisted of $1,701m relating to underlying credit
quality changes, including the credit quality impact of financial
instruments transferring between stages, $157m relating to the net
remeasurement impact of stage transfers and $13m relating to
changes to models used for ECL calculation. These were partly
offset by $508m relating to underlying net book volume.
Reconciliation of changes in gross carrying/nominal amount and allowances
for loans and advances to banks and customers including
loan commitments and financial guarantees (continued)
Non-credit impaired Credit impaired
-------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------
Stage 1 Stage 2 Stage 3 POCI Total
-------------------------------------------- ---------------------------------------- --------------------------------------------- ------------------------------------------- ------------------------------------------------
Gross Gross Gross Gross Gross
carrying/ carrying/ carrying/ carrying/ carrying/
nominal Allowance nominal Allowance nominal Allowance nominal Allowance nominal Allowance
amount for ECL amount for ECL amount for ECL amount for ECL amount for ECL
$m $m $m $m $m $m $m $m $m $m
---------------------------------- -------------------- ---------------------- ----------------- --------------------- -------------------- ----------------------- ------------------- ---------------------- -------------------- --------------------------
At 1 Jan 2022 1,575,808 (1,552) 155,654 (3,323) 19,796 (6,928) 275 (64) 1,751,533 (11,867)
---------------------------------- -------------------- ---------------------- ----------------- --------------------- -------------------- ----------------------- ------------------- ---------------------- -------------------- --------------------------
Transfers of
financial instruments: (98,940) (794) 88,974 1,616 9,966 (822) - - - -
---------------------------------- -------------------- ---------------------- ----------------- --------------------- -------------------- ----------------------- ------------------- ---------------------- -------------------- --------------------------
* transfers from stage 1 to
stage 2 (225,458) 469 225,458 (469) - - - - - -
----------------------------------
* transfers from stage 2 to
stage 1 128,170 (1,211) (128,170) 1,211 - - - - - -
----------------------------------
- transfers
to stage 3 (2,392) 9 (10,083) 1,132 12,475 (1,141) - - - -
----------------------------------
- transfers
from stage 3 740 (61) 1,769 (258) (2,509) 319 - - - -
---------------------------------- -------------------- ---------------------- ----------------- --------------------- -------------------- ----------------------- ------------------- ---------------------- --------------------
Net remeasurement
of ECL arising
from transfer
of stage - 735 - (948) - (148) - - - (361)
---------------------------------- -------------------- ---------------------- ----------------- --------------------- -------------------- ----------------------- ------------------- ---------------------- -------------------- --------------------------
New financial
assets originated
or purchased 483,484 (547) - - - - 26 (2) 483,510 (549)
---------------------------------- -------------------- ---------------------- ----------------- --------------------- -------------------- ----------------------- ------------------- ---------------------- -------------------- --------------------------
Assets derecognised
(including final
repayments) (318,585) 147 (37,900) 343 (2,806) 416 (98) - (359,389) 906
---------------------------------- -------------------- ---------------------- ----------------- --------------------- -------------------- ----------------------- ------------------- ---------------------- -------------------- --------------------------
Changes to risk
parameters -
further lending/repayment (65,646) 225 (6,977) 92 (593) 258 (61) 5 (73,277) 580
---------------------------------- -------------------- ---------------------- ----------------- --------------------- -------------------- ----------------------- ------------------- ---------------------- -------------------- --------------------------
Changes to risk
parameters -
credit quality - 400 - (1,671) - (3,019) - 32 - (4,258)
---------------------------------- -------------------- ---------------------- ----------------- --------------------- -------------------- ----------------------- ------------------- ---------------------- -------------------- --------------------------
Changes to models
used for ECL
calculation - 4 - (151) - 13 - - - (134)
---------------------------------- -------------------- ---------------------- ----------------- --------------------- -------------------- ----------------------- ------------------- ---------------------- -------------------- --------------------------
Assets written
off - - - - (2,791) 2,791 (10) 10 (2,801) 2,801
---------------------------------- -------------------- ---------------------- ----------------- --------------------- -------------------- ----------------------- ------------------- ---------------------- -------------------- --------------------------
Credit-related
modifications
that resulted
in derecognition - - - - (32) 9 - - (32) 9
---------------------------------- -------------------- ---------------------- ----------------- --------------------- -------------------- ----------------------- ------------------- ---------------------- -------------------- --------------------------
Foreign exchange (81,954) 59 (8,811) 170 (1,395) 323 (3) 1 (92,163) 553
---------------------------------- -------------------- ---------------------- ----------------- --------------------- -------------------- ----------------------- ------------------- ---------------------- -------------------- --------------------------
Other(1,2) (60,524) 66 (13,717) 162 (938) 158 - (20) (75,179) 366
---------------------------------- -------------------- ---------------------- ----------------- --------------------- -------------------- ----------------------- ------------------- ---------------------- -------------------- --------------------------
At 31 Dec 2022 1,433,643 (1,257) 177,223 (3,710) 21,207 (6,949) 129 (38) 1,632,202 (11,954)
---------------------------------- -------------------- ---------------------- ----------------- --------------------- -------------------- ----------------------- ------------------- ---------------------- -------------------- --------------------------
ECL income statement
change for the
period 964 (2,335) (2,480) 35 (3,816)
---------------------------------- -------------------- ---------------------- ----------------- --------------------- -------------------- ----------------------- ------------------- ---------------------- -------------------- --------------------------
Recoveries 316
Other (28)
---------------------------------- -------------------- ---------------------- ----------------- --------------------- -------------------- ----------------------- ------------------- ---------------------- -------------------- --------------------------
Total ECL income
statement change
for the period(3) (3,528)
---------------------------------- -------------------- ---------------------- ----------------- --------------------- -------------------- ----------------------- ------------------- ---------------------- -------------------- --------------------------
12 months
ended 31
At 31 Dec 2022 Dec 2022
---------------------------------------------------------------------- ---------------------------------
Allowance
Gross carrying/nominal for
amount ECL ECL charge
$m $m $m
---------------- ---------------------------------- ---------------------------------- ---------------------------------
As above 1,632,202 (11,954) (3,528)
---------------- ---------------------------------- ---------------------------------- ---------------------------------
Other financial
assets measured
at amortised
cost 954,934 (493) (38)
---------------- ---------------------------------- ---------------------------------- ---------------------------------
Non-trading 44,921 - -
reverse purchase
agreement
commitments
---------------- ---------------------------------- ---------------------------------- ---------------------------------
Performance and
other
guarantees not
considered
for IFRS 9 - - 39
---------------- ---------------------------------- ---------------------------------- ---------------------------------
Summary of
financial
instruments to
which
the impairment
requirements in
IFRS 9 are
applied/Summary
consolidated
income
statement 2,632,057 (12,447) (3,527)
---------------- ---------------------------------- ---------------------------------- ---------------------------------
Debt instruments
measured at
FVOCI 265,147 (126) (57)
---------------- ---------------------------------- ---------------------------------- ---------------------------------
Total allowance
for ECL/total
income
statement
ECL change for
the period n/a (12,573) (3,584)
---------------- ---------------------------------- ---------------------------------- ---------------------------------
1 Total includes $82.7bn of gross carrying loans and advances to
customers, which were classified to assets held for sale, and a
corresponding allowance for ECL of $426m, reflecting business
disposals as disclosed on page 68.
2 Includes $8.9bn of gross carrying amounts of stage 1 loans and
advances to banks, representing the balance maintained with the
Bank of England to support Bacs along with Faster Payments and the
cheque-processing Image Clearing System in the UK. This balance was
previously reported under 'Cash and balances at central banks'.
Comparatives have not been restated.
3 The 31 December 2022 total ECL income statement change of
$3,528m is attributable to $1,069m for the six months ended 30 June
2022 and $2,459m to the six months ended 31 December 2022.
Credit quality of financial instruments
We assess the credit quality of all financial instruments that
are subject to credit risk. The credit quality of financial
instruments is a point-in-time assessment of PD, whereas stages 1
and 2 are determined based on relative deterioration of credit
quality since initial recognition. Accordingly, for
non-credit-impaired financial instruments, there is no direct
relationship between the credit quality assessment and stages 1 and
2, though typically the lower credit quality bands exhibit a higher
proportion in stage 2.
The five credit quality classifications each encompass a range
of granular internal credit rating grades assigned to wholesale and
personal lending businesses and the external ratings attributed by
external agencies to debt securities, as shown in the following
table. Personal lending credit quality is disclosed based on a
12-month point-in-time PD adjusted for multiple economic scenarios.
The credit quality classifications for wholesale lending are based
on internal credit risk ratings.
Credit quality classification
Sovereign Other
debt debt
securities securities Wholesale lending
and bills and bills and derivatives Retail lending
--------------- --------------- ----------------------- -----------------------
12-month
Basel
probability 12 month
External External Internal of Internal probability-
credit credit credit default credit weighted
rating rating rating % rating PD %
---------------------------- --------------- --------------- --------- ------------ -------- -------------
Quality classification(1,2)
---------------------------- --------------- --------------- --------- ------------ -------- -------------
Strong BBB and A- and CRR 1 to 0 - 0.169 Band 1 0.000 -
above above CRR 2 and 2 0.500
---------------------------- --------------- --------------- --------- ------------ -------- -------------
Good BBB- to BBB+ to CRR 3 0.170 Band 3 0.501 -
BB BBB- - 0.740 1.500
---------------------------- --------------- --------------- --------- ------------ -------- -------------
BB- to BB+ to CRR 4 to 0.741 Band 4 1.501 -
Satisfactory B and unrated B and unrated CRR 5 - 4.914 and 5 20.000
---------------------------- --------------- --------------- --------- ------------ -------- -------------
Sub-standard B- to B- to CRR 6 to 4.915 Band 6 20.001
C C CRR 8 - 99.999 - 99.999
---------------------------- --------------- --------------- --------- ------------ -------- -------------
CRR 9 to
Credit impaired Default Default CRR 10 100 Band 7 100
---------------------------- --------------- --------------- --------- ------------ -------- -------------
1 Customer risk rating ('CRR').
2 12-month point-in-time probability-weighted probability of default ('PD').
Distribution of financial instruments to which the impairment requirements
in IFRS 9 are applied, by credit quality and stage allocation
Gross carrying/nominal amount
Allowance
Credit for
Strong Good Satisfac-tory Sub-standard impaired Total ECL Net
$m $m $m $m $m $m $m $m
--------------- -------------------- -------------------- ------------------- ------------------- --------------------- --------------------- ---------------------- ---------------------
Loans and
advances to
customers at
amortised
cost 514,425 210,675 199,372 26,747 20,077 971,296 (11,738) 959,558
--------------- -------------------- -------------------- ------------------- ------------------- --------------------- --------------------- ---------------------- ---------------------
- stage 1 484,205 173,801 145,995 4,375 - 808,376 (1,106) 807,270
---------------
- stage 2 30,220 36,874 53,377 22,372 - 142,843 (3,269) 139,574
---------------
- stage 3 - - - - 20,016 20,016 (7,338) 12,678
---------------
- POCI - - - - 61 61 (25) 36
--------------- -------------------- -------------------- ------------------- ------------------- --------------------- --------------------- ----------------------
Loans and
advances to
banks at
amortised cost 89,733 4,282 5,614 1,282 84 100,995 (74) 100,921
--------------- -------------------- -------------------- ------------------- ------------------- --------------------- --------------------- ---------------------- ---------------------
- stage 1 89,658 4,181 5,467 317 - 99,623 (18) 99,605
---------------
- stage 2 75 101 147 965 - 1,288 (33) 1,255
---------------
- stage 3 - - - - 84 84 (23) 61
---------------
- POCI - - - - - - - -
--------------- -------------------- -------------------- ------------------- ------------------- --------------------- --------------------- ----------------------
Other financial
assets
measured at
amortised
cost 814,096 80,611 60,807 3,968 767 960,249 (489) 959,760
--------------- -------------------- -------------------- ------------------- ------------------- --------------------- --------------------- ---------------------- ---------------------
- stage 1 813,916 78,629 53,012 345 - 945,902 (96) 945,806
---------------
- stage 2 180 1,982 7,795 3,623 - 13,580 (147) 13,433
---------------
- stage 3 - - - - 757 757 (237) 520
---------------
- POCI - - - - 10 10 (9) 1
--------------- -------------------- -------------------- ------------------- ------------------- --------------------- --------------------- ----------------------
Loans and other
credit-related
commitments 412,775 144,157 83,471 7,518 1,605 649,526 (348) 649,178
--------------- -------------------- -------------------- ------------------- ------------------- --------------------- --------------------- ---------------------- ---------------------
- stage 1 401,616 134,384 71,762 2,310 - 610,072 (135) 609,937
---------------
- stage 2 11,159 9,773 11,709 5,208 - 37,849 (150) 37,699
---------------
- stage 3 - - - - 1,605 1,605 (63) 1,542
---------------
- POCI - - - - - - - -
--------------- -------------------- -------------------- ------------------- ------------------- --------------------- --------------------- ----------------------
Financial
guarantees 8,195 4,846 4,810 819 212 18,882 (51) 18,831
--------------- -------------------- -------------------- ------------------- ------------------- --------------------- --------------------- ---------------------- ---------------------
- stage 1 8,020 4,466 3,502 147 - 16,135 (8) 16,127
---------------
- stage 2 175 380 1,308 672 - 2,535 (12) 2,523
---------------
- stage 3 - - - - 212 212 (31) 181
---------------
- POCI - - - - - - - -
--------------- -------------------- -------------------- ------------------- ------------------- --------------------- --------------------- ----------------------
At 30 Jun 2023 1,839,224 444,571 354,074 40,334 22,745 2,700,948 (12,700) 2,688,248
--------------- -------------------- -------------------- ------------------- ------------------- --------------------- --------------------- ---------------------- ---------------------
Debt
instruments at
FVOCI(1)
--------------- -------------------- -------------------- ------------------- ------------------- --------------------- --------------------- ---------------------- ---------------------
- stage 1 278,748 12,202 7,362 - - 298,312 (74) 298,238
---------------
- stage 2 107 13 229 1,732 - 2,081 (50) 2,031
---------------
- stage 3 - - - - 5 5 (1) 4
---------------
- POCI - - - - 2 2 - 2
--------------- -------------------- -------------------- ------------------- ------------------- --------------------- --------------------- ----------------------
At 30 Jun 2023 278,855 12,215 7,591 1,732 7 300,400 (125) 300,275
--------------- -------------------- -------------------- ------------------- ------------------- --------------------- --------------------- ---------------------- ---------------------
1 For the purposes of this disclosure, gross carrying value is
defined as the amortised cost of a financial asset, before
adjusting for any loss allowance. As such, the gross carrying value
of debt instruments at FVOCI will not reconcile to the balance
sheet as it excludes fair value gains and losses.
Distribution of financial instruments to which the impairment requirements
in IFRS 9 are applied, by credit quality and stage allocation
(continued)
Gross carrying/notional amount
-------------------------------------------------------------------------------------------------------------------------------------------
Sub- Credit Allowance
Strong Good Satisfa-ctory standard impaired Total for ECL Net
$m $m $m $m $m $m $m $m
--------------- --------------------- --------------------- --------------------- --------------------- ----------------------- ---------------------- ----------------------- -----------------------
Loans and
advances to
customers at
amortised
cost 492,711 196,735 196,486 29,443 19,633 935,008 (11,447) 923,561
--------------- --------------------- --------------------- --------------------- --------------------- ----------------------- ---------------------- ----------------------- -----------------------
- stage 1 458,706 170,055 142,408 5,130 - 776,299 (1,092) 775,207
---------------
- stage 2 34,005 26,680 54,078 24,313 - 139,076 (3,488) 135,588
---------------
- stage 3 - - - - 19,504 19,504 (6,829) 12,675
---------------
- POCI - - - - 129 129 (38) 91
--------------- --------------------- --------------------- --------------------- --------------------- ----------------------- ---------------------- -----------------------
Loans and
advances to
banks at
amortised cost 92,675 4,833 5,643 1,311 82 104,544 (69) 104,475
--------------- --------------------- --------------------- --------------------- --------------------- ----------------------- ---------------------- ----------------------- -----------------------
- stage 1 92,377 4,465 5,466 415 - 102,723 (18) 102,705
---------------
- stage 2 298 368 177 896 - 1,739 (29) 1,710
---------------
- stage 3 - - - - 82 82 (22) 60
---------------
- POCI - - - - - - - -
--------------- --------------------- --------------------- --------------------- --------------------- ----------------------- ---------------------- -----------------------
Other financial
assets
measured at
amortised
cost 808,573 75,298 67,462 2,804 797 954,934 (493) 954,441
--------------- --------------------- --------------------- --------------------- --------------------- ----------------------- ---------------------- ----------------------- -----------------------
- stage 1 807,893 70,794 59,887 224 - 938,798 (95) 938,703
---------------
- stage 2 680 4,504 7,575 2,580 - 15,339 (165) 15,174
---------------
- stage 3 - - - - 797 797 (233) 564
---------------
- POCI - - - - - - - -
--------------- --------------------- --------------------- --------------------- --------------------- ----------------------- ---------------------- -----------------------
Loans and other
credit-related
commitments 402,972 132,402 74,410 7,632 1,372 618,788 (386) 618,402
--------------- --------------------- --------------------- --------------------- --------------------- ----------------------- ---------------------- ----------------------- -----------------------
- stage 1 398,120 121,581 60,990 2,692 - 583,383 (141) 583,242
---------------
- stage 2 4,852 10,821 13,420 4,940 - 34,033 (180) 33,853
---------------
- stage 3 - - - - 1,372 1,372 (65) 1,307
---------------
- POCI - - - - - - - -
--------------- --------------------- --------------------- --------------------- --------------------- ----------------------- ---------------------- -----------------------
Financial
guarantees 8,281 4,669 4,571 1,013 249 18,783 (52) 18,731
--------------- --------------------- --------------------- --------------------- --------------------- ----------------------- ---------------------- ----------------------- -----------------------
- stage 1 8,189 4,245 3,488 149 - 16,071 (6) 16,065
---------------
- stage 2 92 424 1,083 864 - 2,463 (13) 2,450
---------------
- stage 3 - - - - 249 249 (33) 216
---------------
- POCI - - - - - - - -
--------------- --------------------- --------------------- --------------------- --------------------- ----------------------- ---------------------- -----------------------
At 31 Dec 2022 1,805,212 413,937 348,572 42,203 22,133 2,632,057 (12,447) 2,619,610
Debt
instruments at
FVOCI(1)
--------------- --------------------- --------------------- --------------------- --------------------- ----------------------- ---------------------- ----------------------- -----------------------
- stage 1 260,411 9,852 5,446 - - 275,709 (66) 275,643
---------------
- stage 2 243 105 284 1,910 - 2,542 (60) 2,482
---------------
- stage 3 - - - - 5 5 (1) 4
---------------
- POCI - - - - 2 2 - 2
--------------- --------------------- --------------------- --------------------- --------------------- ----------------------- ---------------------- -----------------------
At 31 Dec 2022 260,654 9,957 5,730 1,910 7 278,258 (127) 278,131
--------------- --------------------- --------------------- --------------------- --------------------- ----------------------- ---------------------- ----------------------- -----------------------
1 For the purposes of this disclosure, gross carrying value is
defined as the amortised cost of a financial asset, before
adjusting for any loss allowance. As such, the gross carrying value
of debt instruments at FVOCI will not reconcile to the balance
sheet as it excludes fair value gains and losses.
Personal lending
This section provides further details on the regions, countries
and products driving the increase in personal loans and advances to
customers. Additionally, Hong Kong and UK mortgage book
loan-to-value ('LTV') data are provided.
Further product granularity is also provided by stage, with
geographical data presented for loans and advances to customers,
loans and other credit-related commitments, and financial
guarantees and similar contracts.
At 30 June 2023, total personal lending for loans and advances
to customers of $453.4bn increased by $38.5bn compared with 31
December 2022. This increase included favourable foreign exchange
movements of $9.2bn. Excluding foreign exchange movements, the
increase was mainly due to an increase of $22.3bn from our retail
banking operations in France being no longer classified as assets
held for sale. In addition, our personal lending increased by
$4.4bn in Hong Kong, $1.8bn in the UK, $1.2bn in Mexico and $1.0bn
in Australia. This was partly offset by a $1.2bn decline by the
reclassification of our business in Oman as held for sale.
The allowance for ECL attributable to personal lending,
excluding off-balance sheet loan commitments and guarantees,
increased by $0.1bn to $3.0bn at 30 June 2023. This was mostly due
to adverse foreign exchange movements.
Excluding foreign exchange movements, mortgage lending balances
increased by $9.9bn to $354.7bn at 30 June 2023. Mortgages grew by
$4.0bn in Hong Kong, $1.1bn in the UK, $1.1bn in Mexico, $1.0bn in
Australia and $0.6m in the US. In addition, mortgage lending
balances increased by $2.2bn from the recognition of our retail
banking operations in France being no longer classified as held for
sale. This was partly offset by a $0.3bn decline by the
reclassification of our business in Oman as held for sale.
The allowance for ECL attributable to mortgages remained broadly
stable at $0.6bn when compared with 31 December 2022.
Total personal lending gross carrying amounts in stage 2
increased by $9.3bn compared with 31 December 2022. Excluding
favourable foreign exchange movements of $2.2bn and the reversal of
our retail banking operations in France being classified as held
for sale of $2.2bn, the increase was mainly due to $5.0bn growth in
HSBC UK. The rise in stage 2 balances was largely explained by the
deterioration in the economic outlook on account of rising interest
rates and inflationary pressures. This was partly offset by
transfers to stage 1.
The quality of both our Hong Kong and UK mortgage books remained
high, with low levels of impairment allowances. The average LTV
ratio on new mortgage lending in Hong Kong was 67%, compared with
an estimated 54% for the overall mortgage portfolio. The average
LTV ratio on new lending in the UK was 64%, compared with an
estimated 52% for the overall mortgage portfolio.
Excluding foreign exchange movements, other personal lending
balances increased by $19.4bn compared with 31 December 2022. The
increase of $20.1bn was due to our retail banking operations in
France being no longer classified as held for sale. This was partly
offset by a $0.9bn decline by the reclassification of our business
in Oman as held for sale. At 30 June 2023, the allowance for ECL
attributable to other personal lending remained broadly stable at
$2.4bn.
Total personal lending for loans and advances to customers by stage
distribution
Gross carrying amount Allowance for ECL
-------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------
Stage Stage Stage Stage Stage Stage
1 2 3 Total 1 2 3 Total
$m $m $m $m $m $m $m $m
------------------- ------------------- --------------------- --------------------- ------------------- ---------------------- ---------------------- ---------------------- ----------------------
By portfolio
------------------- ------------------- --------------------- --------------------- ------------------- ---------------------- ---------------------- ---------------------- ----------------------
First lien
residential
mortgages 305,349 47,161 2,224 354,734 (103) (224) (277) (604)
- of which:
interest
only (including
offset) 20,236 7,348 227 27,811 (7) (29) (49) (85)
------------------- ------------------- --------------------- --------------------- ------------------- ---------------------- ---------------------- ---------------------- ----------------------
- affordability
(including
US adjustable rate
mortgages) 15,200 373 262 15,835 (5) (1) (6) (12)
------------------- ------------------- --------------------- --------------------- ------------------- ---------------------- ---------------------- ---------------------- ----------------------
Other personal
lending 86,352 10,999 1,362 98,713 (473) (1,343) (606) (2,422)
------------------- ------------------- --------------------- --------------------- ------------------- ---------------------- ---------------------- ---------------------- ----------------------
- second lien
residential
mortgages 335 13 25 373 (1) (2) (3) (6)
-------------------
- guaranteed
loans in
respect of
residential
property 17,703 1,803 172 19,678 (4) (6) (22) (32)
-------------------
- other personal
lending
which is secured 31,567 538 165 32,270 (15) (9) (31) (55)
-------------------
- credit cards 17,855 4,569 277 22,701 (227) (759) (180) (1,166)
-------------------
- other personal
lending
which is unsecured 17,001 3,874 712 21,587 (213) (548) (363) (1,124)
-------------------
- motor vehicle
finance 1,891 202 11 2,104 (13) (19) (7) (39)
At 30 Jun 2023 391,701 58,160 3,586 453,447 (576) (1,567) (883) (3,026)
------------------- ------------------- --------------------- --------------------- ------------------- ---------------------- ---------------------- ---------------------- ----------------------
By legal entity
------------------- ------------------- --------------------- --------------------- ------------------- ---------------------- ---------------------- ---------------------- ----------------------
HSBC UK Bank plc 132,652 44,460 1,094 178,206 (150) (662) (249) (1,061)
------------------- ------------------- --------------------- --------------------- ------------------- ---------------------- ---------------------- ---------------------- ----------------------
HSBC Bank plc 25,924 3,528 331 29,783 (16) (26) (102) (144)
------------------- ------------------- --------------------- --------------------- ------------------- ---------------------- ---------------------- ---------------------- ----------------------
The Hong Kong and
Shanghai
Banking
Corporation
Limited 189,301 7,987 958 198,246 (140) (380) (162) (682)
------------------- ------------------- --------------------- --------------------- ------------------- ---------------------- ---------------------- ---------------------- ----------------------
HSBC Bank Middle
East
Limited 3,546 175 70 3,791 (35) (35) (44) (114)
------------------- ------------------- --------------------- --------------------- ------------------- ---------------------- ---------------------- ---------------------- ----------------------
HSBC North America
Holdings
Inc. 17,386 369 367 18,122 (9) (16) (10) (35)
------------------- ------------------- --------------------- --------------------- ------------------- ---------------------- ---------------------- ---------------------- ----------------------
Grupo Financiero
HSBC,
S.A. de C.V. 11,873 1,318 488 13,679 (197) (407) (236) (840)
------------------- ------------------- --------------------- --------------------- ------------------- ---------------------- ---------------------- ---------------------- ----------------------
Other trading
entities 11,019 323 278 11,620 (29) (41) (80) (150)
------------------- ------------------- --------------------- --------------------- ------------------- ---------------------- ---------------------- ---------------------- ----------------------
At 30 Jun 2023 391,701 58,160 3,586 453,447 (576) (1,567) (883) (3,026)
------------------- ------------------- --------------------- --------------------- ------------------- ---------------------- ---------------------- ---------------------- ----------------------
Total personal lending for loans and other credit-related commitments
and financial guarantees by stage distribution
Nominal amount Allowance for ECL
--------------------------------------------------------------------------------------------------
Stage Stage Stage Total Stage Stage Stage Total
1 2 3 1 2 3
$m $m $m $m $m $m $m $m
HSBC UK Bank
plc 49,093 4,800 82 53,975 (12) (1) (2) (15)
------------ ------------------ ---------------------- ----------------------- ------------------ ----------------------- ----------------------- ----------------------- -----------------------
HSBC Bank
plc 2,343 41 3 2,387 - - - -
------------ ------------------ ---------------------- ----------------------- ------------------ ----------------------- ----------------------- ----------------------- -----------------------
The Hong
Kong and
Shanghai
Banking
Corporation
Limited 174,742 3,905 873 179,520 (3) - - (3)
------------ ------------------ ---------------------- ----------------------- ------------------ ----------------------- ----------------------- ----------------------- -----------------------
HSBC Bank
Middle East
Limited 1,892 22 1 1,915 (1) - - (1)
------------ ------------------ ---------------------- ----------------------- ------------------ ----------------------- ----------------------- ----------------------- -----------------------
HSBC North
America
Holdings
Inc. 3,955 19 7 3,981 - - - -
------------ ------------------ ---------------------- ----------------------- ------------------ ----------------------- ----------------------- ----------------------- -----------------------
HSBC Bank
Canada 6,419 117 29 6,565 - - - -
------------ ------------------ ---------------------- ----------------------- ------------------ ----------------------- ----------------------- ----------------------- -----------------------
Grupo
Financiero
HSBC,
S.A. de
C.V. 4,053 - - 4,053 (6) - - (6)
------------ ------------------ ---------------------- ----------------------- ------------------ ----------------------- ----------------------- ----------------------- -----------------------
Other
trading
entities 2,506 47 3 2,556 - - - -
------------ ------------------ ---------------------- ----------------------- ------------------ ----------------------- ----------------------- ----------------------- -----------------------
At 30 Jun
2023 245,003 8,951 998 254,952 (22) (1) (2) (25)
------------ ------------------ ---------------------- ----------------------- ------------------ ----------------------- ----------------------- ----------------------- -----------------------
Total personal lending for loans and advances to customers by stage
distribution (continued)
Gross carrying amount Allowance for ECL
-------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------
Stage Stage Stage Total Stage Stage Stage Total
1 2 3 1 2 3
$m $m $m $m $m $m $m $m
------------------- -------------------- ---------------------- ------------------------ -------------------- ------------------------ ------------------------ ------------------------ ------------------------
By portfolio
------------------- -------------------- ---------------------- ------------------------ -------------------- ------------------------ ------------------------ ------------------------ ------------------------
First lien
residential
mortgages 294,919 39,860 2,042 336,821 (74) (231) (270) (575)
- of which:
interest
only (including
offset) 19,636 4,485 169 24,290 (3) (46) (41) (90)
------------------- -------------------- ---------------------- ------------------------ -------------------- ------------------------ ------------------------ ------------------------ ------------------------
- affordability
(including
US adjustable rate
mortgages) 14,773 369 240 15,382 (5) (3) (4) (12)
------------------- -------------------- ---------------------- ------------------------ -------------------- ------------------------ ------------------------ ------------------------ ------------------------
Other personal
lending 67,758 9,006 1,297 78,061 (487) (1,273) (535) (2,295)
------------------- -------------------- ---------------------- ------------------------ -------------------- ------------------------ ------------------------ ------------------------ ------------------------
- second lien
residential
mortgages 353 20 6 379 (1) (2) (3) (6)
-------------------
- guaranteed
loans in
respect of
residential
property 1,121 121 125 1,367 (1) (3) (30) (34)
-------------------
- other personal
lending
which is secured 31,306 594 206 32,106 (15) (10) (30) (55)
-------------------
- credit cards 16,705 4,423 260 21,388 (225) (776) (160) (1,161)
-------------------
- other personal
lending
which is unsecured 16,512 3,681 687 20,880 (234) (469) (305) (1,008)
-------------------
- motor vehicle
finance 1,761 167 13 1,941 (11) (13) (7) (31)
At 31 Dec 2022 362,677 48,866 3,339 414,882 (561) (1,504) (805) (2,870)
------------------- -------------------- ---------------------- ------------------------ -------------------- ------------------------ ------------------------ ------------------------ ------------------------
By legal entity
------------------- -------------------- ---------------------- ------------------------ -------------------- ------------------------ ------------------------ ------------------------ ------------------------
HSBC UK Bank plc 128,590 37,394 1,012 166,996 (135) (688) (227) (1,050)
------------------- -------------------- ---------------------- ------------------------ -------------------- ------------------------ ------------------------ ------------------------ ------------------------
HSBC Bank plc 6,377 740 127 7,244 (10) (18) (38) (66)
------------------- -------------------- ---------------------- ------------------------ -------------------- ------------------------ ------------------------ ------------------------ ------------------------
The Hong Kong and
Shanghai
Banking
Corporation
Limited 185,723 8,698 1,117 195,538 (138) (362) (187) (687)
------------------- -------------------- ---------------------- ------------------------ -------------------- ------------------------ ------------------------ ------------------------ ------------------------
HSBC Bank Middle
East
Limited 3,657 184 86 3,927 (26) (37) (52) (115)
------------------- -------------------- ---------------------- ------------------------ -------------------- ------------------------ ------------------------ ------------------------ ------------------------
HSBC North America
Holdings
Inc. 16,906 375 270 17,551 (12) (23) (6) (41)
------------------- -------------------- ---------------------- ------------------------ -------------------- ------------------------ ------------------------ ------------------------ ------------------------
Grupo Financiero
HSBC,
S.A. de C.V. 9,542 1,099 377 11,018 (213) (331) (194) (738)
------------------- -------------------- ---------------------- ------------------------ -------------------- ------------------------ ------------------------ ------------------------ ------------------------
Other trading
entities 11,882 376 350 12,608 (27) (45) (101) (173)
------------------- -------------------- ---------------------- ------------------------ -------------------- ------------------------ ------------------------ ------------------------ ------------------------
At 31 Dec 2022 362,677 48,866 3,339 414,882 (561) (1,504) (805) (2,870)
------------------- -------------------- ---------------------- ------------------------ -------------------- ------------------------ ------------------------ ------------------------ ------------------------
Total personal lending for loans and other credit-related commitments
and financial guarantees by stage distribution (continued)
Nominal amount Allowance for ECL
------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------
Stage Stage Stage Total Stage Stage Stage Total
1 2 3 1 2 3
$m $m $m $m $m $m $m $m
HSBC UK Bank
plc 50,535 439 104 51,078 (11) (1) - (12)
------------ ------------------- ------------------------ ----------------------- ------------------- ------------------------ ------------------------ ---------------------- ------------------------
HSBC Bank
plc 2,440 131 7 2,578 - - - -
------------ ------------------- ------------------------ ----------------------- ------------------- ------------------------ ------------------------ ---------------------- ------------------------
The Hong
Kong and
Shanghai
Banking
Corporation
Limited 170,104 2,916 634 173,654 (2) - - (2)
------------ ------------------- ------------------------ ----------------------- ------------------- ------------------------ ------------------------ ---------------------- ------------------------
HSBC Bank
Middle East
Limited 1,717 8 1 1,726 (1) - - (1)
------------ ------------------- ------------------------ ----------------------- ------------------- ------------------------ ------------------------ ---------------------- ------------------------
HSBC North
America
Holdings
Inc. 3,914 24 17 3,955 (1) - - (1)
------------ ------------------- ------------------------ ----------------------- ------------------- ------------------------ ------------------------ ---------------------- ------------------------
HSBC Bank
Canada 6,346 115 30 6,491 - - - -
------------ ------------------- ------------------------ ----------------------- ------------------- ------------------------ ------------------------ ---------------------- ------------------------
Grupo
Financiero
HSBC,
S.A. de
C.V. 3,198 - - 3,198 (9) - - (9)
------------ ------------------- ------------------------ ----------------------- ------------------- ------------------------ ------------------------ ---------------------- ------------------------
Other
trading
entities 2,390 64 7 2,461 (2) - - (2)
------------ ------------------- ------------------------ ----------------------- ------------------- ------------------------ ------------------------ ---------------------- ------------------------
At 31 Dec
2022 240,644 3,697 800 245,141 (26) (1) - (27)
------------ ------------------- ------------------------ ----------------------- ------------------- ------------------------ ------------------------ ---------------------- ------------------------
Wholesale lending
This section provides further details on the regions, countries
and industries driving the decrease in wholesale loans and advances
to customers and banks, with the impact of foreign exchange
separately identified. Industry granularity is also provided by
stage, with geographical data presented for loans and advances to
customers, banks, other credit commitments, financial guarantees
and similar contracts.
At 30 June 2023, wholesale lending for loans and advances to
banks and customers of $618.8bn decreased by $5.8bn since 31
December 2022. This included adverse foreign exchange movements of
$3.1bn.
Excluding foreign exchange movements, the total wholesale
lending decrease of $8.9bn was driven by a $15.7bn decrease in
corporate and commercial balances. This can be attributed to a
$10.5bn decrease in Hong Kong, a $3.0bn decrease in the UK and a
$2.1bn decrease from the reclassification of our business in Oman
into 'assets held for sale'.
A further decline in wholesale lending was driven by a $2.6bn
decrease in loans and advances to banks, including a $5.0bn
decrease in mainland China, a $1.3bn decrease in the UAE, a $0.9bn
decrease in Switzerland and a $0.6bn decrease from the
reclassification of our business in Oman into 'assets held for
sale'. These were partly offset by a $2.8bn increase in Hong Kong
and a $2.6bn increase in Singapore.
Loans and advances to non-bank financial institutions grew by
$9.4bn, including a $5.1bn increase in the UK and a $2.2bn increase
in Hong Kong.
Loan commitments and financial guarantees increased by $21bn
since 31 December 2022 to $413.5bn at 30 June 2023. Excluding
favourable foreign exchange movements of $6.3bn, loan commitments
and financial guarantees grew by $14.8bn. This can be mainly
attributed to a $19.6bn increase in unsettled reverse repurchase
agreements, partly offset by a decrease of $7.9bn in loan
commitments with corporate and commercial customers.
The allowance for ECL attributable to loans and advances to
banks and customers of $8.8bn at 30 June 2023 increased from $8.6bn
at 31 December 2022. This included adverse foreign exchange
movements of $64m.
Excluding foreign exchange movements, the total increase in the
wholesale ECL allowance for loans and advances to customers and
banks was mostly driven by a $47m growth in loans to non-bank
financial institutions and a $24m rise in corporate and commercial
balances.
The allowance for ECL attributable to loan commitments and
financial guarantees at 30 June 2023 remained at $0.4bn from 31
December 2022.
Total wholesale lending for loans and advances to banks and customers
by stage distribution
Gross carrying amount Allowance for ECL
----------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------
Stage Stage Stage POCI Total Stage Stage Stage POCI Total
1 2 3 1 2 3
$m $m $m $m $m $m $m $m $m $m
------------------------------------------------------------ ------------------ ------------------- ------------------ -------------------- ------------------ -------------------- ------------------- ------------------- -------------------- -------------------
Corporate and commercial 345,116 80,274 15,807 61 441,258 (468) (1,630) (6,278) (25) (8,401)
------------------------------------------------------------ ------------------ ------------------- ------------------ -------------------- ------------------ -------------------- ------------------- ------------------- -------------------- -------------------
- agriculture, forestry
and fishing 5,075 1,714 310 - 7,099 (11) (46) (61) - (118)
------------------------------------------------------------
- mining and quarrying 6,957 829 360 1 8,147 (6) (17) (117) (1) (141)
------------------------------------------------------------
- manufacturing 68,475 15,594 1,932 24 86,025 (89) (213) (807) (22) (1,131)
------------------------------------------------------------
* electricity, gas, steam and air-conditioning supply 13,690 1,510 298 - 15,498 (14) (24) (80) - (118)
------------------------------------------------------------
* water supply, sewerage, waste management and
remediation 2,345 636 29 - 3,010 (4) (14) (16) - (34)
------------------------------------------------------------
- construction 10,550 2,324 843 - 13,717 (21) (43) (424) - (488)
------------------------------------------------------------
* wholesale and retail trade, repair of motor vehicles
and motorcycles 64,397 13,484 2,484 4 80,369 (90) (168) (1,237) (2) (1,497)
------------------------------------------------------------
- transportation
and storage 18,996 4,825 439 - 24,260 (23) (57) (142) - (222)
------------------------------------------------------------
- accommodation
and food 8,674 6,962 882 - 16,518 (25) (171) (87) - (283)
------------------------------------------------------------
* publishing, audiovisual and broadcasting 16,602 1,552 311 - 18,465 (17) (48) (137) - (202)
------------------------------------------------------------
- real estate 67,095 20,976 5,223 18 93,312 (75) (578) (2,322) - (2,975)
------------------------------------------------------------
* professional, scientific and technical activities 16,679 2,128 647 - 19,454 (21) (67) (214) - (302)
------------------------------------------------------------
- administrative
and support services 21,010 4,453 935 14 26,412 (29) (83) (330) - (442)
------------------------------------------------------------
* public administration and defence, compulsory social
security 1,043 9 - - 1,052 - (1) - - (1)
------------------------------------------------------------
- education 1,139 282 86 - 1,507 (3) (7) (26) - (36)
------------------------------------------------------------
- health and care 3,285 595 165 - 4,045 (3) (26) (23) - (52)
------------------------------------------------------------
- arts, entertainment
and recreation 1,329 397 112 - 1,838 (4) (13) (42) - (59)
------------------------------------------------------------
- other services 9,701 1,736 489 - 11,926 (31) (40) (207) - (278)
------------------------------------------------------------
- activities of
households 776 1 - - 777 - - - - -
------------------------------------------------------------
* extra-territorial organisations and bodies activities - - - - - - - - - -
------------------------------------------------------------
- government 7,278 254 262 - 7,794 (2) (1) (6) - (9)
------------------------------------------------------------
- asset-backed securities 20 13 - - 33 - (13) - - (13)
------------------------------------------------------------ ------------------ ------------------- ------------------ -------------------- ------------------ -------------------- ------------------- ------------------- --------------------
Non-bank financial
institutions 71,559 4,409 623 - 76,591 (62) (72) (177) - (311)
------------------------------------------------------------ ------------------ ------------------- ------------------ -------------------- ------------------ -------------------- ------------------- ------------------- -------------------- -------------------
Loans and advances
to banks 99,623 1,288 84 - 100,995 (18) (33) (23) - (74)
------------------------------------------------------------ ------------------ ------------------- ------------------ -------------------- ------------------ -------------------- ------------------- ------------------- -------------------- -------------------
At 30 Jun 2023 516,298 85,971 16,514 61 618,844 (548) (1,735) (6,478) (25) (8,786)
By legal entity
------------------------------------------------------------ ------------------ ------------------- ------------------ -------------------- ------------------ -------------------- ------------------- ------------------- -------------------- -------------------
HSBC UK Bank plc 70,737 24,049 4,161 - 98,947 (174) (593) (759) - (1,526)
------------------------------------------------------------ ------------------ ------------------- ------------------ -------------------- ------------------ -------------------- ------------------- ------------------- -------------------- -------------------
HSBC Bank plc 83,612 10,101 2,959 3 96,675 (65) (168) (1,099) - (1,332)
------------------------------------------------------------ ------------------ ------------------- ------------------ -------------------- ------------------ -------------------- ------------------- ------------------- -------------------- -------------------
The Hong Kong and
Shanghai Banking
Corporation Limited 286,821 40,313 7,357 54 334,545 (204) (677) (3,498) (22) (4,401)
------------------------------------------------------------ ------------------ ------------------- ------------------ -------------------- ------------------ -------------------- ------------------- ------------------- -------------------- -------------------
HSBC Bank Middle
East Limited 20,978 1,393 852 4 23,227 (12) (12) (620) (3) (647)
------------------------------------------------------------ ------------------ ------------------- ------------------ -------------------- ------------------ -------------------- ------------------- ------------------- -------------------- -------------------
HSBC North America
Holdings Inc. 29,482 6,792 260 - 36,534 (33) (197) (55) - (285)
Grupo Financiero
HSBC, S.A. de C.V. 12,068 1,583 441 - 14,092 (36) (64) (242) - (342)
------------------------------------------------------------ ------------------ ------------------- ------------------ -------------------- ------------------ -------------------- ------------------- ------------------- -------------------- -------------------
Other trading entities 12,569 1,740 484 - 14,793 (24) (24) (205) - (253)
Holding companies,
shared service centres
and intra-Group
eliminations 31 - - - 31 - - - - -
------------------------------------------------------------ ------------------ ------------------- ------------------ -------------------- ------------------ -------------------- ------------------- ------------------- -------------------- -------------------
At 30 Jun 2023 516,298 85,971 16,514 61 618,844 (548) (1,735) (6,478) (25) (8,786)
------------------------------------------------------------ ------------------ ------------------- ------------------ -------------------- ------------------ -------------------- ------------------- ------------------- -------------------- -------------------
Total wholesale lending for loans and other credit-related commitments
and financial guarantees by stage distribution(1)
Nominal amount Allowance for ECL
------------------------------------------------------------------------------------------ -------------------------------------------------------------------------------------------------------
Stage Stage Stage POCI Total Stage Stage Stage POCI Total
1 2 3 1 2 3
$m $m $m $m $m $m $m $m $m $m
------------ -------------- ------------------ ------------------- ----------------- -------------- -------------------- ------------------- -------------------- ----------------- -------------------
Corporate
and
commercial 252,497 25,888 780 - 279,165 (112) (147) (89) - (348)
------------ -------------- ------------------ ------------------- ----------------- -------------- -------------------- ------------------- -------------------- ----------------- -------------------
Financial 128,707 5,545 39 - 134,291 (9) (14) (3) - (26)
------------ -------------- ------------------ ------------------- ----------------- -------------- -------------------- ------------------- -------------------- ----------------- -------------------
At 30 Jun
2023 381,204 31,433 819 - 413,456 (121) (161) (92) - (374)
------------ -------------- ------------------ ------------------- ----------------- -------------- -------------------- ------------------- -------------------- ----------------- -------------------
By legal
entity
------------ -------------- ------------------ ------------------- ----------------- -------------- -------------------- ------------------- -------------------- ----------------- -------------------
HSBC UK Bank
plc 29,661 7,134 222 - 37,017 (23) (48) (44) - (115)
------------ -------------- ------------------ ------------------- ----------------- -------------- -------------------- ------------------- -------------------- ----------------- -------------------
HSBC Bank
plc 159,850 11,389 248 - 171,487 (14) (33) (32) - (79)
------------ -------------- ------------------ ------------------- ----------------- -------------- -------------------- ------------------- -------------------- ----------------- -------------------
The Hong
Kong and
Shanghai
Banking
Corporation
Limited 68,226 4,151 69 - 72,446 (49) (37) (10) - (96)
------------ -------------- ------------------ ------------------- ----------------- -------------- -------------------- ------------------- -------------------- ----------------- -------------------
HSBC Bank
Middle
East
Limited 5,889 732 10 - 6,631 (5) - - - (5)
------------ -------------- ------------------ ------------------- ----------------- -------------- -------------------- ------------------- -------------------- ----------------- -------------------
HSBC North
America
Holdings
Inc. 86,911 4,767 162 - 91,840 (19) (34) (2) - (55)
------------ -------------- ------------------ ------------------- ----------------- -------------- -------------------- ------------------- -------------------- ----------------- -------------------
HSBC Bank
Canada 26,695 2,826 100 - 29,621 (9) (7) (2) - (18)
------------ -------------- ------------------ ------------------- ----------------- -------------- -------------------- ------------------- -------------------- ----------------- -------------------
Grupo
Financiero
HSBC, S.A.
de C.V. 2,426 60 1 - 2,487 (1) (1) (1) - (3)
------------ -------------- ------------------ ------------------- ----------------- -------------- -------------------- ------------------- -------------------- ----------------- -------------------
Other
trading
entities 1,546 374 7 - 1,927 (1) (1) (1) - (3)
At 30 Jun
2023 381,204 31,433 819 - 413,456 (121) (161) (92) - (374)
------------ -------------- ------------------ ------------------- ----------------- -------------- -------------------- ------------------- -------------------- ----------------- -------------------
1 Included in loans and other credit-related commitments and
financial guarantees is $66bn relating to unsettled reverse
repurchase agreements, which once drawn are classified as 'Reverse
repurchase agreements - non-trading'.
Total wholesale lending for loans and advances to banks and customers
by stage distribution (continued)
Gross carrying amount Allowance for ECL
----------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------
Stage Stage Stage POCI Total Stage Stage Stage POCI Total
1 2 3 1 2 3
$m $m $m $m $m $m $m $m $m $m
------------------------------------------------------------ ------------------- ------------------ ------------------ -------------------- ------------------ -------------------- -------------------- -------------------- -------------------- --------------------
Corporate and commercial 351,885 85,492 15,696 129 453,202 (488) (1,907) (5,887) (38) (8,320)
------------------------------------------------------------ ------------------- ------------------ ------------------ -------------------- ------------------ -------------------- -------------------- -------------------- -------------------- --------------------
- agriculture, forestry
and fishing 4,805 1,505 261 - 6,571 (10) (44) (68) - (122)
------------------------------------------------------------
- mining and quarrying 6,424 1,463 232 1 8,120 (5) (21) (145) (1) (172)
------------------------------------------------------------
- manufacturing 70,144 15,251 2,016 49 87,460 (93) (164) (867) (29) (1,153)
------------------------------------------------------------
* electricity, gas, steam and air-conditioning supply 14,402 1,799 277 - 16,478 (10) (31) (67) - (108)
------------------------------------------------------------
* water supply, sewerage, waste management and
remediation 2,690 277 26 - 2,993 (3) (5) (13) - (21)
------------------------------------------------------------
* construction 9,678 2,742 791 7 13,218 (21) (51) (368) (3) (443)
------------------------------------------------------------
* wholesale and retail trade, repair of motor vehicles
and motorcycles 63,752 15,867 2,805 5 82,429 (97) (225) (1,341) (3) (1,666)
------------------------------------------------------------
* transportation and storage 19,068 5,062 556 - 24,686 (30) (65) (153) - (248)
------------------------------------------------------------
* accommodation and food 9,862 6,523 787 2 17,174 (23) (139) (81) (1) (244)
------------------------------------------------------------
* publishing, audiovisual and broadcasting 16,574 1,537 249 28 18,388 (22) (36) (58) (1) (117)
------------------------------------------------------------
* real estate 72,152 24,362 4,834 19 101,367 (86) (903) (1,861) - (2,850)
------------------------------------------------------------
* professional, scientific and technical activities 15,164 2,229 542 - 17,935 (21) (51) (200) - (272)
------------------------------------------------------------
* administrative and support services 20,592 3,505 962 18 25,077 (25) (90) (293) - (408)
------------------------------------------------------------
* public administration and defence, compulsory social
security 1,166 14 - - 1,180 - (1) - - (1)
------------------------------------------------------------
- education 1,325 181 87 - 1,593 (4) (5) (22) - (31)
------------------------------------------------------------
- health and care 2,993 643 266 - 3,902 (6) (17) (67) - (90)
------------------------------------------------------------
* arts, entertainment and recreation 1,264 452 146 - 1,862 (4) (16) (57) - (77)
------------------------------------------------------------
- other services 10,335 1,547 589 - 12,471 (25) (30) (219) - (274)
------------------------------------------------------------
- activities of
households 730 14 - - 744 - - - - -
------------------------------------------------------------
* extra-territorial organisations and bodies activities 47 - - - 47 - - - - -
------------------------------------------------------------
- government 8,699 506 270 - 9,475 (3) - (7) - (10)
------------------------------------------------------------
- asset-backed securities 19 13 - - 32 - (13) - - (13)
------------------------------------------------------------ ------------------- ------------------ ------------------ -------------------- ------------------ -------------------- -------------------- -------------------- --------------------
Non-bank financial
institutions 61,737 4,718 469 - 66,924 (43) (77) (137) - (257)
------------------------------------------------------------ ------------------- ------------------ ------------------ -------------------- ------------------ -------------------- -------------------- -------------------- -------------------- --------------------
Loans and advances
to banks 102,723 1,739 82 - 104,544 (18) (29) (22) - (69)
------------------------------------------------------------ ------------------- ------------------ ------------------ -------------------- ------------------ -------------------- -------------------- -------------------- -------------------- --------------------
At 31 Dec 2022 516,345 91,949 16,247 129 624,670 (549) (2,013) (6,046) (38) (8,646)
By legal entity
------------------------------------------------------------ ------------------- ------------------ ------------------ -------------------- ------------------ -------------------- -------------------- -------------------- -------------------- --------------------
HSBC UK Bank plc 64,930 18,856 4,439 28 88,253 (165) (445) (643) (1) (1,254)
------------------------------------------------------------ ------------------- ------------------ ------------------ -------------------- ------------------ -------------------- -------------------- -------------------- -------------------- --------------------
HSBC Bank plc 83,174 9,175 2,631 3 94,983 (56) (181) (1,075) - (1,312)
------------------------------------------------------------ ------------------- ------------------ ------------------ -------------------- ------------------ -------------------- -------------------- -------------------- -------------------- --------------------
The Hong Kong and
Shanghai Banking
Corporation Limited 292,022 50,708 6,934 80 349,744 (216) (1,074) (3,125) (24) (4,439)
------------------------------------------------------------ ------------------- ------------------ ------------------ -------------------- ------------------ -------------------- -------------------- -------------------- -------------------- --------------------
HSBC Bank Middle
East Limited 21,922 1,777 946 4 24,649 (11) (21) (684) (3) (719)
------------------------------------------------------------ ------------------- ------------------ ------------------ -------------------- ------------------ -------------------- -------------------- -------------------- -------------------- --------------------
HSBC North America
Holdings Inc. 30,816 6,861 211 - 37,888 (24) (194) (22) - (240)
Grupo Financiero
HSBC, S.A. de C.V. 9,969 1,979 399 - 12,347 (48) (62) (225) - (335)
------------------------------------------------------------ ------------------- ------------------ ------------------ -------------------- ------------------ -------------------- -------------------- -------------------- -------------------- --------------------
Other trading entities 13,343 2,593 687 14 16,637 (27) (36) (272) (10) (345)
At 31 Dec 2022 516,345 91,949 16,247 129 624,670 (549) (2,013) (6,046) (38) (8,646)
------------------------------------------------------------ ------------------- ------------------ ------------------ -------------------- ------------------ -------------------- -------------------- -------------------- -------------------- --------------------
Total wholesale lending for loans and other credit-related commitments
and financial guarantees by stage distribution(1) (continued)
Nominal amount Allowance for ECL
--------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------
Stage Stage Stage POCI Total Stage Stage Stage POCI Total
1 2 3 1 2 3
$m $m $m $m $m $m $m $m $m $m
------------ --------------- ----------------- -------------------- ------------------ --------------- -------------------- -------------------- -------------------- ------------------ --------------------
Corporate
and
commercial 252,860 29,116 798 - 282,774 (116) (178) (96) - (390)
------------ --------------- ----------------- -------------------- ------------------ --------------- -------------------- -------------------- -------------------- ------------------ --------------------
Financial 105,950 3,683 23 - 109,656 (5) (14) (2) - (21)
------------ --------------- ----------------- -------------------- ------------------ --------------- -------------------- -------------------- -------------------- ------------------ --------------------
At 31 Dec
2022 358,810 32,799 821 - 392,430 (121) (192) (98) - (411)
By legal
entity
------------ --------------- ----------------- -------------------- ------------------ --------------- -------------------- -------------------- -------------------- ------------------ --------------------
HSBC UK Bank
plc 26,036 5,527 208 - 31,771 (24) (45) (38) - (107)
------------ --------------- ----------------- -------------------- ------------------ --------------- -------------------- -------------------- -------------------- ------------------ --------------------
HSBC Bank
plc 142,100 11,710 291 - 154,101 (16) (41) (47) - (104)
------------ --------------- ----------------- -------------------- ------------------ --------------- -------------------- -------------------- -------------------- ------------------ --------------------
The Hong
Kong and
Shanghai
Banking
Corporation
Limited 67,473 6,081 114 - 73,668 (54) (53) (9) - (116)
------------ --------------- ----------------- -------------------- ------------------ --------------- -------------------- -------------------- -------------------- ------------------ --------------------
HSBC Bank
Middle
East
Limited 6,683 231 14 - 6,928 (2) (2) - - (4)
------------ --------------- ----------------- -------------------- ------------------ --------------- -------------------- -------------------- -------------------- ------------------ --------------------
HSBC North
America
Holdings
Inc. 88,039 3,959 87 - 92,085 (13) (32) (2) - (47)
------------ --------------- ----------------- -------------------- ------------------ --------------- -------------------- -------------------- -------------------- ------------------ --------------------
HSBC Bank
Canada 24,395 4,671 84 - 29,150 (8) (15) - - (23)
------------ --------------- ----------------- -------------------- ------------------ --------------- -------------------- -------------------- -------------------- ------------------ --------------------
Grupo
Financiero
HSBC, S.A.
de C.V. 2,468 240 3 - 2,711 (1) - - - (1)
------------ --------------- ----------------- -------------------- ------------------ --------------- -------------------- -------------------- -------------------- ------------------ --------------------
Other
trading
entities 1,616 380 20 - 2,016 (3) (4) (2) - (9)
At 31 Dec
2022 358,810 32,799 821 - 392,430 (121) (192) (98) - (411)
------------ --------------- ----------------- -------------------- ------------------ --------------- -------------------- -------------------- -------------------- ------------------ --------------------
1 Included in loans and other credit-related commitments and
financial guarantees is $45bn relating to unsettled reverse
repurchase agreements, which once drawn are classified as 'Reverse
repurchase agreements - non-trading'.
Commercial real estate
Commercial real estate lending includes the financing of
corporate, institutional and high net worth customers who are
investing primarily in income-producing assets and, to a lesser
extent, in their construction and development. The portfolio is
globally diversified with larger concentrations in Hong Kong, the
UK, mainland China and the US.
Our global exposure is centred largely on cities with economic,
political or cultural significance. In more developed markets, our
exposure mainly comprises the financing of investment assets, the
redevelopment of existing stock and the augmentation of both
commercial and residential markets to support economic and
population growth. In less developed commercial real estate
markets, our exposures comprise lending for development assets on
relatively short tenors with a particular focus on supporting
larger, better capitalised developers involved in residential
construction or assets supporting economic expansion.
Excluding favourable foreign exchange movements of $0.5bn,
commercial real estate lending decreased by $8.4bn, mainly from
$5.7bn in Hong Kong due to loan repayments, in addition to
reclassifications of $0.5bn to assets held for sale in the US.
Commercial real estate lending to customers
of which:
--------------------------------------
The Hong
Kong and HSBC Grupo
Shanghai North Financiero
HSBC HSBC Banking HSBC America HSBC, Other
UK Bank Bank Corpora-tion Bank Middle Holdings S.A. de trading Hong
plc plc Limited East Limited Inc.(1,2) C.V. entities Total UK Kong
$m $m $m $m $m $m $m $m $m $m
---------- ------------------ ------------------ -------------------------------------- ------------------------- -------------------------- ------------------------- ------------------ ------------------ ------------------ ------------------
Gross
loans and
advances
---------- ------------------ ------------------ -------------------------------------- ------------------------- -------------------------- ------------------------- ------------------ ------------------ ------------------ ------------------
Stage 1 12,827 4,181 42,242 1,118 1,918 877 839 64,002 13,621 30,218
---------- ------------------ ------------------ -------------------------------------- ------------------------- -------------------------- ------------------------- ------------------ ------------------ ------------------ ------------------
Stage 2 1,385 650 13,588 313 2,662 65 44 18,707 1,553 10,447
---------- ------------------ ------------------ -------------------------------------- ------------------------- -------------------------- ------------------------- ------------------ ------------------ ------------------ ------------------
Stage 3 593 214 3,712 173 63 34 45 4,834 731 3,385
---------- ------------------ ------------------ -------------------------------------- ------------------------- -------------------------- ------------------------- ------------------ ------------------ ------------------ ------------------
POCI - - 18 - - - - 18 - 18
---------- ------------------ ------------------ -------------------------------------- ------------------------- -------------------------- ------------------------- ------------------ ------------------ ------------------ ------------------
At 30
Jun 2023 14,805 5,045 59,560 1,604 4,643 976 928 87,561 15,905 44,068
---------- ------------------ ------------------ -------------------------------------- ------------------------- -------------------------- ------------------------- ------------------ ------------------ ------------------ ------------------
- of
which:
forborne
loans 272 154 1,227 378 508 58 - 2,597 410 1,138
---------- ------------------ ------------------ -------------------------------------- ------------------------- -------------------------- ------------------------- ------------------ ------------------ ------------------ ------------------
Allowance
for ECL (240) (144) (2,326) (68) (84) (21) (13) (2,896) (363) (2,121)
---------- ------------------ ------------------ -------------------------------------- ------------------------- -------------------------- ------------------------- ------------------ ------------------ ------------------ ------------------
Gross
loans
and
advances
---------- ------------------ ------------------ --------------------------------------- ------------------------- -------------------------- ------------------------- ------------------- ------------------- ------------------ -------------------
Stage 1 11,409 5,083 46,700 1,094 2,096 832 906 68,120 12,209 35,905
---------- ------------------ ------------------ --------------------------------------- ------------------------- -------------------------- ------------------------- ------------------- ------------------- ------------------ -------------------
Stage 2 2,763 828 16,311 323 3,249 43 91 23,608 3,008 11,068
---------- ------------------ ------------------ --------------------------------------- ------------------------- -------------------------- ------------------------- ------------------- ------------------- ------------------ -------------------
Stage 3 702 277 3,320 264 - 28 57 4,648 827 3,029
---------- ------------------ ------------------ --------------------------------------- ------------------------- -------------------------- ------------------------- ------------------- ------------------- ------------------ -------------------
POCI - - 19 - - - - 19 - 19
---------- ------------------ ------------------ --------------------------------------- ------------------------- -------------------------- ------------------------- ------------------- ------------------- ------------------ -------------------
At 31 Dec
2022 14,874 6,188 66,350 1,681 5,345 903 1,054 96,395 16,044 50,021
---------- ------------------ ------------------ --------------------------------------- ------------------------- -------------------------- ------------------------- ------------------- ------------------- ------------------ -------------------
- of
which:
forborne
loans 215 143 763 449 428 47 23 2,068 336 654
---------- ------------------ ------------------ --------------------------------------- ------------------------- -------------------------- ------------------------- ------------------- ------------------- ------------------ -------------------
Allowance
for ECL (216) (153) (2,094) (153) (93) (24) (13) (2,746) (323) (1,878)
---------- ------------------ ------------------ --------------------------------------- ------------------------- -------------------------- ------------------------- ------------------- ------------------- ------------------ -------------------
1 The figures for 30 June 2023 exclude gross loans and advances
of $0.5bn, and an associated allowance for ECL of $4m,
corresponding to individual assets which were reported as held for
sale by HSBC North America Holdings Inc.
2 During 1Q23, we aligned the classification of commercial real
estate across the Group and re-presented commercial real estate
exposure in HSBC North America Holdings Inc. at 31 December 2022 as
$5.3bn, which had a corresponding ECL charge of $0.1bn.
Refinance risk in commercial real estate
Commercial real estate lending tends to require the repayment of
a significant proportion of the principal at maturity. Typically, a
customer will arrange repayment through the acquisition of a new
loan to settle the existing debt. Refinance risk is the risk that a
customer, being
unable to repay the debt on maturity, fails to refinance it at
commercial terms. We monitor our commercial real estate portfolio
closely, assessing indicators for signs of potential issues with
refinancing.
Commercial real estate gross loans and advances to customers maturity
analysis
of which:
--------------------------------
The Hong
Kong and HSBC Grupo
Shanghai North Financiero
HSBC HSBC Banking HSBC America HSBC, Other
UK Bank Bank Corporation Bank Middle Holdings S.A. de trading Hong
plc plc Limited East Limited Inc. C.V. entities Total UK Kong
$m $m $m $m $m $m $m $m $m $m
< 1
year 4,522 1,684 23,350 403 1,363 279 828 32,429 5,393 18,929
------ ---------------- ---------------- ----------------------------------- ----------------------- -------------------------- ------------------------- ------------------ -------------- ---------------- --------------
1-2
years 4,296 717 16,651 290 1,164 234 10 23,362 4,321 13,013
------ ---------------- ---------------- ----------------------------------- ----------------------- -------------------------- ------------------------- ------------------ -------------- ---------------- --------------
2-5
years 5,416 1,745 16,763 526 2,099 378 34 26,961 5,609 10,080
------ ---------------- ---------------- ----------------------------------- ----------------------- -------------------------- ------------------------- ------------------ -------------- ---------------- --------------
> 5
years 571 899 2,796 385 17 85 56 4,809 582 2,046
------ ---------------- ---------------- ----------------------------------- ----------------------- -------------------------- ------------------------- ------------------ -------------- ---------------- --------------
At 30
Jun
2023 14,805 5,045 59,560 1,604 4,643 976 928 87,561 15,905 44,068
------ ---------------- ---------------- ----------------------------------- ----------------------- -------------------------- ------------------------- ------------------ -------------- ---------------- --------------
< 1
year 8,315 2,059 23,468 423 1,883 241 703 37,092 9,211 18,675
------ ---------------- ---------------- ----------------------------------- ----------------------- -------------------------- ------------------------- ------------------ --------------- ---------------- ---------------
1-2
years 3,518 1,503 18,007 218 810 115 228 24,399 3,678 13,873
------ ---------------- ---------------- ----------------------------------- ----------------------- -------------------------- ------------------------- ------------------ --------------- ---------------- ---------------
2-5
years 2,385 1,644 21,804 664 2,624 449 60 29,630 2,472 14,963
------ ---------------- ---------------- ----------------------------------- ----------------------- -------------------------- ------------------------- ------------------ --------------- ---------------- ---------------
> 5
years 656 982 3,071 376 28 98 63 5,274 683 2,510
------ ---------------- ---------------- ----------------------------------- ----------------------- -------------------------- ------------------------- ------------------ --------------- ---------------- ---------------
At 31
Dec
2022 14,874 6,188 66,350 1,681 5,345 903 1,054 96,395 16,044 50,021
------ ---------------- ---------------- ----------------------------------- ----------------------- -------------------------- ------------------------- ------------------ --------------- ---------------- ---------------
The following table presents the Group's exposure to borrowers
classified in the commercial real estate sector where the ultimate
parent is based in mainland China, as well as all commercial
real
estate exposures booked on mainland China balance sheets. The
exposures at 30 June 2023 are split by country/territory and credit
quality including allowances for ECL by stage.
Mainland China commercial real estate
Hong Kong Mainland Rest of Total
China the Group
$m $m $m $m
------------- -------------------------------------- ------------------------------------ ---------------------------------------- ------------------------------------
Loans and
advances to
customers(1) 7,835 4,700 960 13,495
------------- -------------------------------------- ------------------------------------ ---------------------------------------- ------------------------------------
Guarantees
issued and
others(2) 241 464 79 784
------------- -------------------------------------- ------------------------------------ ---------------------------------------- ------------------------------------
Total
mainland
China
commercial
real estate
exposure at
30 Jun 2023 8,076 5,164 1,039 14,279
Distribution
of mainland
China
commercial
real estate
exposure
by credit
quality
------------- -------------------------------------- ------------------------------------ ---------------------------------------- ------------------------------------
- Strong 1,161 1,836 205 3,202
-------------
- Good 747 908 355 2,010
-------------
-
Satisfactory 973 1,756 252 2,981
-------------
-
Sub-standard 1,891 456 214 2,561
-------------
- Credit
impaired 3,304 208 13 3,525
------------- -------------------------------------- ------------------------------------ ----------------------------------------
At 30 Jun
2023 8,076 5,164 1,039 14,279
------------- -------------------------------------- ------------------------------------ ---------------------------------------- ------------------------------------
Allowance for
ECL by credit
quality
------------- -------------------------------------- ------------------------------------ ---------------------------------------- ------------------------------------
- Strong - (2) - (2)
-------------
- Good - (3) (1) (4)
-------------
-
Satisfactory (2) (87) (1) (90)
-------------
-
Sub-standard (205) (17) (3) (225)
-------------
- Credit
impaired (1,774) (82) - (1,856)
------------- -------------------------------------- ------------------------------------ ----------------------------------------
At 30 Jun
2023 (1,981) (191) (5) (2,177)
------------- -------------------------------------- ------------------------------------ ---------------------------------------- ------------------------------------
Allowance for
ECL by stage
distribution
------------- -------------------------------------- ------------------------------------ ---------------------------------------- ------------------------------------
- Stage 1 - (6) (1) (7)
-------------
- Stage 2 (207) (103) (4) (314)
-------------
- Stage 3 (1,774) (82) - (1,856)
At 30 Jun
2023 (1,981) (191) (5) (2,177)
------------- -------------------------------------- ------------------------------------ ---------------------------------------- ------------------------------------
ECL coverage
% 24.5 3.7 0.5 15.2
------------- -------------------------------------- ------------------------------------ ---------------------------------------- ------------------------------------
1 Amounts represent gross carrying amount.
2 Amounts represent nominal amount for guarantees and other contingent liabilities.
Mainland China commercial real estate (continued)
Hong Kong Mainland Rest of Total
China the Group
$m $m $m $m
------------- ----------------------------------------- ------------------------------------- ----------------------------------------- -------------------------------------
Loans and
advances to
customers(1) 9,129 5,752 860 15,741
------------- ----------------------------------------- ------------------------------------- ----------------------------------------- -------------------------------------
Guarantees
issued and
others(2) 249 755 18 1,022
------------- ----------------------------------------- ------------------------------------- ----------------------------------------- -------------------------------------
Total
mainland
China
commercial
real estate
exposure at
31 Dec 2022 9,378 6,507 878 16,763
Distribution
of mainland
China
commercial
real estate
exposure by
credit
quality
------------- ----------------------------------------- ------------------------------------- ----------------------------------------- -------------------------------------
- Strong 1,425 2,118 220 3,763
-------------
- Good 697 1,087 370 2,154
-------------
-
Satisfactory 1,269 2,248 77 3,594
-------------
-
Sub-standard 2,887 779 193 3,859
-------------
- Credit
impaired 3,100 275 18 3,393
------------- ----------------------------------------- ------------------------------------- -----------------------------------------
At 31 Dec
2022 9,378 6,507 878 16,763
------------- ----------------------------------------- ------------------------------------- ----------------------------------------- -------------------------------------
Allowance for
ECL by credit
quality
------------- ----------------------------------------- ------------------------------------- ----------------------------------------- -------------------------------------
- Strong - (5) - (5)
-------------
- Good - (8) (1) (9)
-------------
-
Satisfactory (20) (81) - (101)
-------------
- (458) (42) (3) (503)
Sub-standard
-------------
- Credit
impaired (1,268) (105) - (1,373)
------------- ----------------------------------------- ------------------------------------- -----------------------------------------
At 31 Dec (1,746) (241) (4) (1,991)
2022
------------- ----------------------------------------- ------------------------------------- ----------------------------------------- -------------------------------------
Allowance for
ECL by stage
distribution
------------- ----------------------------------------- ------------------------------------- ----------------------------------------- -------------------------------------
- Stage 1 (1) (9) (1) (11)
-------------
- Stage 2 (477) (127) (3) (607)
-------------
- Stage 3 (1,268) (105) - (1,373)
-------------
- POCI - - - -
------------- ----------------------------------------- ------------------------------------- -----------------------------------------
At 31 Dec (1,746) (241) (4) (1,991)
2022
ECL coverage
% 18.6 3.7 0.5 11.9
------------- ----------------------------------------- ------------------------------------- ----------------------------------------- -------------------------------------
1 Amounts represent gross carrying amount.
2 Amounts represent nominal amount for guarantees and other contingent liabilities.
Commercial real estate financing refers to lending that focuses
on commercial development and investment in real estate and covers
commercial, residential and industrial assets. Commercial real
estate financing can also be provided to a corporate or financial
entity for the purchase or financing of a property which supports
the overall operations of the business.
The exposures in the table are related to companies whose
primary activities are focused on residential, commercial and
mixed-use real estate activities. Lending is generally focused on
tier 1 and 2 cities.
The table above shows 57% of total exposure with a credit
quality of 'satisfactory' or above, which was unchanged compared
with 31 December 2022. Total 'credit impaired' exposures have
nevertheless increased to 26% (31 December 2022: 21%), reflecting
sustained stress in the China commercial real estate market,
including weakness in both property market fundamentals and
financing conditions for borrowers operating in this sector.
Allowances for ECL are substantially against unsecured
exposures. For secured exposures, allowances for ECL are minimal,
reflecting the nature and value of the security held.
Facilities booked in Hong Kong continue to represent the largest
proportion of mainland China commercial real estate exposures,
although total exposures reduced to $8.1bn, down $1.3bn since
31 December 2022, as a result of de-risking measures and
repayments. This portfolio remains relatively higher risk, with 36%
(31 December 2022: 36%) of exposure booked with a credit quality of
'satisfactory' or above and 41% 'credit impaired' (31 December
2022: 33%). This reflected a further credit deterioration during
the first half of the year. At 30 June 2023, the Group had
allowances for ECL of $2bn (31 December 2022: $1.7bn) held against
mainland China commercial real estate exposures booked in Hong
Kong.
Approximately half of the unimpaired exposure in the Hong Kong
portfolio is lending to state-owned enterprises and relatively
strong private-owned enterprises. This is reflected in the
relatively low ECL allowance in this part of the portfolio.
Market conditions are likely to remain stressed with a
protracted and uncertain recovery as sentiment and domestic
residential demand remain weak. There is potential for a further
deterioration in credit conditions during the second half of the
year given the heightened uncertainty around liquidity support and
ongoing weakness in property market fundamentals.
The Group has additional exposures to mainland China commercial
real estate as a result of lending to multinational corporates
booked outside of mainland China. These are not incorporated in the
table above.
Supplementary information
The following disclosure presents the gross carrying/nominal
amount of financial instruments to which the impairment
requirements in IFRS 9 are applied by global business and the
associated allowance for ECL.
Summary of financial instruments to which the impairment requirements
in IFRS 9 are applied - by global business
Gross carrying/nominal amount Allowance for ECL
------------------------------------------------------------------------------------------------------ ---------------------------------------------------------------------------------------------
Stage Stage Stage POCI Total Stage Stage Stage POCI Total
1 2 3 1 2 3
$m $m $m $m $m $m $m $m $m $m
--------------- ------------------ ------------------ --------------------- ------------------- ------------------ ----------------- ----------------- ----------------- ----------------- -----------------
Loans and
advances
to customers
at amortised
cost 808,376 142,843 20,016 61 971,296 (1,106) (3,269) (7,338) (25) (11,738)
--------------- ------------------ ------------------ --------------------- ------------------- ------------------ ----------------- ----------------- ----------------- ----------------- -----------------
- WPB 403,926 58,906 4,107 - 466,939 (589) (1,575) (939) - (3,103)
---------------
- CMB 244,261 69,186 12,745 46 326,238 (423) (1,441) (5,103) (25) (6,992)
---------------
- GBM 159,915 14,718 3,164 15 177,812 (94) (240) (1,296) - (1,630)
---------------
- Corporate
Centre 274 33 - - 307 - (13) - - (13)
--------------- ------------------ ------------------ --------------------- ------------------- ------------------ ----------------- ----------------- ----------------- -----------------
Loans and
advances
to banks at
amortised
cost 99,623 1,288 84 - 100,995 (18) (33) (23) - (74)
--------------- ------------------ ------------------ --------------------- ------------------- ------------------ ----------------- ----------------- ----------------- ----------------- -----------------
- WPB 27,291 422 2 - 27,715 (4) (1) (2) - (7)
---------------
- CMB 26,328 331 - - 26,659 (4) - - - (4)
---------------
- GBM 43,273 423 82 - 43,778 (10) (32) (21) - (63)
---------------
- Corporate
Centre 2,731 112 - - 2,843 - - - - -
--------------- ------------------ ------------------ --------------------- ------------------- ------------------ ----------------- ----------------- ----------------- -----------------
Other financial
assets
measured at
amortised
cost 945,902 13,580 757 10 960,249 (96) (147) (237) (9) (489)
--------------- ------------------ ------------------ --------------------- ------------------- ------------------ ----------------- ----------------- ----------------- ----------------- -----------------
- WPB 163,096 3,946 275 - 167,317 (26) (75) (73) - (174)
---------------
- CMB 205,866 8,913 437 10 215,226 (45) (63) (160) (9) (277)
---------------
- GBM 500,442 644 41 - 501,127 (23) (9) (4) - (36)
---------------
- Corporate
Centre 76,498 77 4 - 76,579 (2) - - - (2)
--------------- ------------------ ------------------ --------------------- ------------------- ------------------ ----------------- ----------------- ----------------- -----------------
Total gross
carrying
amount
on-balance
sheet at 30
Jun 2023 1,853,901 157,711 20,857 71 2,032,540 (1,220) (3,449) (7,598) (34) (12,301)
--------------- ------------------ ------------------ --------------------- ------------------- ------------------ ----------------- ----------------- ----------------- ----------------- -----------------
Loans and other
credit-related
commitments 610,072 37,849 1,605 - 649,526 (135) (150) (63) - (348)
--------------- ------------------ ------------------ --------------------- ------------------- ------------------ ----------------- ----------------- ----------------- ----------------- -----------------
- WPB 242,869 9,324 984 - 253,177 (23) (1) (2) - (26)
---------------
- CMB 129,160 16,511 473 - 146,144 (80) (107) (60) - (247)
---------------
- GBM 237,911 12,014 148 - 250,073 (32) (42) (1) - (75)
---------------
- Corporate
Centre 132 - - - 132 - - - - -
--------------- ------------------ ------------------ --------------------- ------------------- ------------------ ----------------- ----------------- ----------------- -----------------
Financial
guarantees 16,135 2,535 212 - 18,882 (8) (12) (31) - (51)
--------------- ------------------ ------------------ --------------------- ------------------- ------------------ ----------------- ----------------- ----------------- ----------------- -----------------
- WPB 1,245 14 - - 1,259 - - - - -
---------------
- CMB 7,291 1,818 121 - 9,230 (7) (4) (25) - (36)
---------------
- GBM 7,599 703 91 - 8,393 (1) (8) (6) - (15)
---------------
- Corporate - - - - - - - - - -
Centre
--------------- ------------------ ------------------ --------------------- ------------------- ------------------ ----------------- ----------------- ----------------- -----------------
Total nominal
amount
off-balance
sheet
at 30 Jun 2023 626,207 40,384 1,817 - 668,408 (143) (162) (94) - (399)
WPB 117,142 903 - 1 118,046 (12) (14) - - (26)
--------------- ------------------ ------------------ --------------------- ------------------- ------------------ ----------------- ----------------- ----------------- ----------------- -----------------
CMB 83,149 841 - 1 83,991 (11) (14) - - (25)
--------------- ------------------ ------------------ --------------------- ------------------- ------------------ ----------------- ----------------- ----------------- ----------------- -----------------
GBM 81,178 162 1 - 81,341 (13) (7) - - (20)
--------------- ------------------ ------------------ --------------------- ------------------- ------------------ ----------------- ----------------- ----------------- ----------------- -----------------
Corporate
Centre 3,611 206 - - 3,817 (38) (16) - - (54)
--------------- ------------------ ------------------ --------------------- ------------------- ------------------ ----------------- ----------------- ----------------- ----------------- -----------------
Debt
instruments
measured at
FVOCI
at 30 Jun 2023 285,080 2,112 1 2 287,195 (74) (51) - - (125)
--------------- ------------------ ------------------ --------------------- ------------------- ------------------ ----------------- ----------------- ----------------- ----------------- -----------------
Summary of financial instruments to which the impairment requirements
in IFRS 9 are applied - by global business (continued)
Gross carrying/nominal amount Allowance for ECL
-------------------------------------------------------------------------------------------------
Stage Stage Stage POCI Total Stage Stage Stage POCI Total
1 2 3 1 2 3
$m $m $m $m $m $m $m $m $m $m
-------------------- ------------------ ------------------ ------------------ --------------------
Loans and
advances
to customers
at amortised
cost 776,299 139,076 19,504 129 935,008 (1,092) (3,488) (6,829) (38) (11,447)
-------------------- -------------------- ------------------ ---------------- -------------------------- ------------------ ------------------ -------------------- ----------------- ----------------
- WPB 372,691 49,045 3,501 - 425,237 (569) (1,510) (850) - (2,929)
- CMB 235,293 70,654 12,815 112 318,874 (444) (1,538) (4,896) (38) (6,916)
- GBM 167,990 19,334 3,188 17 190,529 (79) (427) (1,083) - (1,589)
- Corporate
Centre 325 43 - - 368 - (13) - - (13)
-------------------- -------------------- ------------------ ---------------- -------------------------- ------------------ ------------------ -------------------- -----------------
Loans and
advances
to banks at
amortised
cost 102,723 1,739 82 - 104,544 (18) (29) (22) - (69)
-------------------- -------------------- ------------------ ---------------- -------------------------- ------------------ ------------------ -------------------- ----------------- ----------------
- WPB 25,770 295 - - 26,065 (3) (1) - - (4)
- CMB 24,107 695 4 - 24,806 (5) - (2) - (7)
- GBM 46,778 606 78 - 47,462 (9) (28) (20) - (57)
- Corporate
Centre 6,068 143 - - 6,211 (1) - - - (1)
-------------------- -------------------- ------------------ ---------------- -------------------------- ------------------ ------------------ -------------------- -----------------
Other financial
assets
measured at
amortised
cost 938,798 15,339 797 - 954,934 (95) (165) (233) - (493)
-------------------- -------------------- ------------------ ---------------- -------------------------- ------------------ ------------------ -------------------- ----------------- ----------------
- WPB 194,963 3,962 458 - 199,383 (30) (75) (130) - (235)
- CMB 181,238 10,738 253 - 192,229 (35) (82) (90) - (207)
- GBM 485,499 637 78 - 486,214 (28) (8) (13) - (49)
- Corporate
Centre 77,098 2 8 - 77,108 (2) - - - (2)
-------------------- -------------------- ------------------ ---------------- -------------------------- ------------------ ------------------ -------------------- -----------------
Total gross
carrying
amount
on-balance
sheet at 31
Dec 2022 1,817,820 156,154 20,383 129 1,994,486 (1,205) (3,682) (7,084) (38) (12,009)
-------------------- -------------------- ------------------ ---------------- -------------------------- ------------------ ------------------ -------------------- ----------------- ----------------
Loans and other
credit-related
commitments 583,383 34,033 1,372 - 618,788 (141) (180) (65) - (386)
-------------------- -------------------- ------------------ ---------------- -------------------------- ------------------ ------------------ -------------------- ----------------- ----------------
- WPB 238,161 4,377 769 - 243,307 (25) (1) - - (26)
- CMB 123,512 18,484 512 - 142,508 (78) (128) (55) - (261)
- GBM 221,462 11,171 91 - 232,724 (38) (51) (10) - (99)
- Corporate
Centre 248 1 - - 249 - - - - -
-------------------- -------------------- ------------------ ---------------- -------------------------- ------------------ ------------------ -------------------- -----------------
Financial
guarantees 16,071 2,463 249 - 18,783 (6) (13) (33) - (52)
-------------------- -------------------- ------------------ ---------------- -------------------------- ------------------ ------------------ -------------------- ----------------- ----------------
- WPB 1,196 11 1 - 1,208 - - - - -
- CMB 6,830 1,564 130 - 8,524 (5) (8) (26) - (39)
- GBM 8,045 888 118 - 9,051 (1) (5) (7) - (13)
- Corporate - - - - - - - - - -
Centre
-------------------- -------------------- ------------------ ---------------- -------------------------- ------------------ ------------------ -------------------- -----------------
Total nominal
amount
off-balance
sheet
at 31 Dec 2022 599,454 36,496 1,621 - 637,571 (147) (193) (98) - (438)
WPB 112,591 1,066 - 1 113,658 (17) (17) - - (34)
-------------------- -------------------------- --------------------
CMB 71,445 735 - - 72,180 (9) (14) - - (23)
-------------------- -------------------- ------------------ ---------------- -------------------------- ------------------ ------------------ -------------------- ----------------- ----------------
GBM 75,228 434 - 1 75,663 (10) (8) - - (18)
-------------------- -------------------- ------------------ ---------------- -------------------------- ------------------ ------------------ -------------------- ----------------- ----------------
Corporate
Centre 3,347 299 - - 3,646 (31) (19) (1) - (51)
-------------------- -------------------- ------------------ ---------------- -------------------------- ------------------ ------------------ -------------------- ----------------- ----------------
Debt
instruments
measured at
FVOCI
at 31 Dec 2022 262,611 2,534 - 2 265,147 (67) (58) (1) - (126)
-------------------- -------------------- ------------------ ---------------- -------------------------- ------------------ ------------------ -------------------- ----------------- ----------------
Wholesale lending - loans and advances to customers at amortised cost
by country/territory
Gross carrying amount Allowance for ECL
of which: Non-bank of which: Non-bank
Corporate real financial Corporate real financial
and commercial estate(1) institutions Total and commercial estate(1) institutions Total
$m $m $m $m $m $m $m $m
UK 107,700 14,800 18,507 126,207 (1,813) (358) (175) (1,988)
- of which: HSBC
UK Bank plc
(ring-fenced
bank) 82,258 13,620 8,815 91,073 (1,487) (229) (37) (1,524)
- of which: HSBC
Bank plc
(non-ring-fenced
bank) 25,442 1,180 9,692 35,134 (326) (129) (138) (464)
France 29,789 4,293 4,829 34,618 (564) (29) (5) (569)
Germany 7,329 240 864 8,193 (159) - (2) (161)
Switzerland 1,227 625 346 1,573 (11) - - (11)
Hong Kong 133,025 49,326 22,843 155,868 (3,203) (2,211) (37) (3,240)
Australia 12,165 3,637 1,253 13,418 (44) (1) (1) (45)
India 10,323 1,868 5,011 15,334 (54) (5) (7) (61)
Indonesia 3,449 122 317 3,766 (202) (1) - (202)
Mainland China 28,956 4,748 8,223 37,179 (277) (150) (22) (299)
Malaysia 5,212 1,005 290 5,502 (83) (10) - (83)
Singapore 16,009 3,253 1,170 17,179 (328) (10) - (328)
Taiwan 4,575 45 102 4,677 - - - -
Egypt 1,038 20 77 1,115 (108) (9) - (108)
UAE 11,964 1,129 689 12,653 (610) (61) - (610)
US 26,824 5,362 8,786 35,610 (242) (85) (43) (285)
Mexico 11,022 913 988 12,010 (340) (17) (3) (343)
Other 30,651 1,926 2,296 32,947 (363) (28) (16) (379)
At 30 Jun 2023 441,258 93,312 76,591 517,849 (8,401) (2,975) (311) (8,712)
UK 104,775 14,309 12,662 117,437 (1,522) (329) (131) (1,653)
------------------------ ------------------------ ------------------- -------------------------- ------------------------ ------------------------
- of which: HSBC
UK Bank plc
(ring-fenced
bank) 78,249 13,041 2,980 81,229 (1,247) (193) (6) (1,253)
------------------------ ------------------------ ------------------- -------------------------- ------------------------ ------------------------
- of which: HSBC
Bank plc
(non-ring-fenced
bank) 26,526 1,268 9,682 36,208 (275) (136) (125) (400)
France 27,571 4,216 4,152 31,723 (621) (36) (4) (625)
------------------------ ------------------------ ------------------- -------------------------- ------------------------ ------------------------
Germany 6,603 252 713 7,316 (154) - (3) (157)
------------------------ ------------------------ ------------------- -------------------------- ------------------------ ------------------------
Switzerland 988 635 298 1,286 (8) - - (8)
Hong Kong 144,256 56,093 20,798 165,054 (2,997) (1,965) (35) (3,032)
------------------------ ------------------------ ------------------- -------------------------- ------------------------ ------------------------
Australia 11,641 3,106 1,157 12,798 (97) (1) - (97)
------------------------ ------------------------ ------------------- -------------------------- ------------------------ ------------------------
India 9,052 1,711 4,267 13,319 (80) (22) (10) (90)
------------------------ ------------------------ ------------------- -------------------------- ------------------------ ------------------------
Indonesia 3,214 85 226 3,440 (187) (1) - (187)
------------------------ ------------------------ ------------------- -------------------------- ------------------------ ------------------------
Mainland China 31,790 5,752 8,908 40,698 (327) (167) (30) (357)
------------------------ ------------------------ ------------------- -------------------------- ------------------------ ------------------------
Malaysia 5,986 1,081 180 6,166 (133) (15) - (133)
------------------------ ------------------------ ------------------- -------------------------- ------------------------ ------------------------
Singapore 15,905 3,812 1,192 17,097 (387) (12) (1) (388)
------------------------ ------------------------ ------------------- -------------------------- ------------------------ ------------------------
Taiwan 4,701 20 65 4,766 (1) - - (1)
Egypt 1,262 77 101 1,363 (117) (5) (1) (118)
------------------------ ------------------------ ------------------- -------------------------- ------------------------ ------------------------
UAE 13,503 1,569 149 13,652 (674) (152) - (674)
US 28,249 5,714 8,640 36,889 (214) (94) (26) (240)
Mexico 9,784 903 717 10,501 (334) (24) (1) (335)
Other 33,922 2,032 2,699 36,621 (467) (27) (15) (482)
------------------------ ------------------------ ------------------- -------------------------- ------------------------ ------------------------
At 31 Dec 2022 453,202 101,367 66,924 520,126 (8,320) (2,850) (257) (8,577)
------------------------ ------------------------ ------------------- -------------------------- ------------------------ ------------------------
1 Real estate lending within this disclosure corresponds solely
to the industry of the borrower on the same basis as the 'Total
wholesale lending for loans and advances to banks and customers by
stage distribution' on page 84.
Personal lending - loans and advances to customers at amortised cost
by country/territory
Gross carrying amount Allowance for ECL
First First
lien of which: lien of which:
residential Other credit residential Other credit
mortgages personal cards Total mortgages personal cards Total
$m $m $m $m $m $m $m $m
UK 164,322 18,452 7,483 182,774 (231) (841) (422) (1,072)
- of which: HSBC
UK
Bank plc
(ring-fenced
bank) 160,792 17,414 7,405 178,206 (227) (834) (420) (1,061)
- of which: HSBC
Bank
plc
(non-ring-fenced
bank) 3,530 1,038 78 4,568 (4) (7) (2) (11)
France(1) 2,243 20,163 329 22,406 (34) (70) (3) (104)
Germany - 176 - 176 - - - -
Switzerland 1,447 5,762 - 7,209 (1) (20) - (21)
Hong Kong 105,000 31,633 8,384 136,633 - (371) (265) (371)
Australia 22,062 439 383 22,501 (6) (21) (20) (27)
India 1,356 627 169 1,983 (5) (15) (11) (20)
Indonesia 66 285 140 351 (2) (11) (7) (13)
Mainland China 8,098 801 323 8,899 (3) (53) (42) (56)
Malaysia 2,275 2,073 795 4,348 (24) (86) (32) (110)
Singapore 8,060 5,433 436 13,493 - (38) (16) (38)
Taiwan 5,420 1,288 298 6,708 - (16) (4) (16)
Egypt - 295 81 295 - (2) (1) (2)
UAE 1,969 1,329 416 3,298 (19) (80) (38) (99)
US 17,458 664 197 18,122 (12) (24) (19) (36)
Mexico 8,079 5,599 2,136 13,678 (162) (677) (234) (839)
Other 6,879 3,694 1,131 10,573 (105) (97) (52) (202)
At 30 Jun 2023 354,734 98,713 22,701 453,447 (604) (2,422) (1,166) (3,026)
UK 154,519 16,793 6,622 171,312 (227) (838) (449) (1,065)
----------------------- ----------------------- ------------------------ --------------------- ------------------------ ------------------------ ------------------------ ------------------------
- of which: HSBC
UK
Bank plc
(ring-fenced
bank) 151,188 15,808 6,556 166,996 (222) (828) (447) (1,050)
----------------------- ----------------------- ------------------------ --------------------- ------------------------ ------------------------ ------------------------ ------------------------
- of which: HSBC
Bank
plc
(non-ring-fenced
bank) 3,331 985 66 4,316 (5) (10) (2) (15)
France(1) 30 76 9 106 (14) (8) - (22)
----------------------- ----------------------- ------------------------ --------------------- ------------------------ ------------------------ ------------------------ ------------------------
Germany - 234 - 234 - - - -
----------------------- ----------------------- ------------------------ --------------------- ------------------------ ------------------------ ------------------------ ------------------------
Switzerland 1,378 5,096 - 6,474 - (20) - (20)
Hong Kong 101,478 31,409 8,644 132,887 (1) (352) (258) (353)
----------------------- ----------------------- ------------------------ --------------------- ------------------------ ------------------------ ------------------------ ------------------------
Australia 21,372 456 396 21,828 (11) (18) (18) (29)
----------------------- ----------------------- ------------------------ --------------------- ------------------------ ------------------------ ------------------------ ------------------------
India 1,078 590 162 1,668 (4) (18) (13) (22)
----------------------- ----------------------- ------------------------ --------------------- ------------------------ ------------------------ ------------------------ ------------------------
Indonesia 70 278 141 348 (1) (17) (12) (18)
----------------------- ----------------------- ------------------------ --------------------- ------------------------ ------------------------ ------------------------ ------------------------
Mainland China 9,305 921 378 10,226 (3) (61) (49) (64)
----------------------- ----------------------- ------------------------ --------------------- ------------------------ ------------------------ ------------------------ ------------------------
Malaysia 2,292 2,437 843 4,729 (27) (92) (31) (119)
----------------------- ----------------------- ------------------------ --------------------- ------------------------ ------------------------ ------------------------ ------------------------
Singapore 7,501 6,264 422 13,765 - (35) (14) (35)
----------------------- ----------------------- ------------------------ --------------------- ------------------------ ------------------------ ------------------------ ------------------------
Taiwan 5,428 1,189 284 6,617 - (18) (5) (18)
Egypt - 310 83 310 - (2) (1) (2)
----------------------- ----------------------- ------------------------ --------------------- ------------------------ ------------------------ ------------------------ ------------------------
UAE 2,104 1,339 426 3,443 (14) (84) (41) (98)
US 16,847 704 213 17,551 (10) (31) (23) (41)
Mexico 6,124 4,894 1,615 11,018 (145) (593) (196) (738)
----------------------- ----------------------- ------------------------ --------------------- ------------------------ ------------------------ ------------------------ ------------------------
Other 7,295 5,071 1,150 12,366 (118) (108) (51) (226)
----------------------- ----------------------- ------------------------ --------------------- ------------------------ ------------------------ ------------------------ ------------------------
At 31 Dec 2022 336,821 78,061 21,388 414,882 (575) (2,295) (1,161) (2,870)
----------------------- ----------------------- ------------------------ --------------------- ------------------------ ------------------------ ------------------------ ------------------------
1 Included in other personal lending as at 30 June 2023 is
$18,403m (31 December 2022: nil) guaranteed by Crédit Logement.
Treasury risk
93 Overview
93 Treasury risk management
95 Capital risk in the first half
of 2023
98 Liquidity and funding risk in
the first half of 2023
100 Sources of funding
101 Interest rate risk in the banking
book in the first half of 2023
Overview
Treasury risk is the risk of having insufficient capital,
liquidity or funding resources to meet financial obligations and
satisfy regulatory requirements, together with the financial risks
arising from the provision of pensions and other post-employment
benefits to staff and their dependants. Treasury risk also includes
the risk to our earnings or capital due to non-trading book foreign
exchange exposures and changes in market interest rates.
Treasury risk arises from changes to the respective resources
and risk profiles driven by customer behaviour, management
decisions or the external environment.
Approach and policy
Our objective in the management of treasury risk is to maintain
appropriate levels of capital, liquidity, funding, foreign exchange
and market risk to support our business strategy, and meet our
regulatory and stress testing-related requirements.
Our approach to treasury management is driven by our strategic
and organisational requirements, taking into account the
regulatory, economic and commercial environment. We maintain a
strong capital and liquidity base to support the risks inherent in
our business and invest in accordance with our strategy, meeting
both consolidated and local regulatory requirements at all
times.
Our policy is underpinned by our risk management framework, our
internal capital adequacy assessment process ('ICAAP') and our
internal liquidity adequacy assessment process ('ILAAP'). The risk
framework incorporates a number of measures aligned to our
assessment of risks for both internal and regulatory purposes.
These risks include credit, market, operational, pensions,
non-trading book foreign exchange risk, and interest rate risk in
the banking book.
A summary of our current policies and practices regarding the
management of treasury risk is set out on pages 202 to 217 of the
Annual Report and Accounts 2022.
Treasury risk management
Key developments in the first half of 2023
- All of the Group's material operating entities were above
regulatory minimum levels of capital, liquidity and funding at 30
June 2023.
- Following high-profile US and Swiss banking failures in the
first quarter of 2023, we validated our existing risk management
practices including stress testing and limit setting. We also
reviewed our liquidity monitoring and metric assumptions as part of
our ILAAP cycle to ensure they continued to cover observed and
emerging risks.
- We continued to improve our analysis and understanding of the
drivers of capital volatility and the underlying sensitivities,
ensuring these are actively considered in our risk appetite and
limit setting processes.
- As announced in the first quarter of 2023, we reverted to a
policy of paying quarterly dividends, with the Board approving an
interim dividend of $0.10 per share. On 10 May 2023, we initiated a
share buy-back of up to $2bn with an approximately 0.25 percentage
point impact on the CET1 capital ratio. This buy-back was completed
in July 2023. The Board has announced a further dividend of $0.10
per share, and intends to initiate a further share buy-back of up
to $2bn, which is expected to commence shortly.
- We enhanced the Group consolidation methodology regarding the
liquidity available to the Group from underlying subsidiaries. This
resulted in a change to the available liquidity reported in the
liquidity coverage ratio ('LCR') and increased the Group LCR by
approximately 6%, on a spot basis, at 30 June 2023.
- As announced by the Bank of England's Financial Policy
Committee, the UK countercyclical capital buffer rate increased
from 1% to 2%, effective July 2023 in line with the usual 12 --
month implementation lag. The change is expected to increase our
CET1 requirement by approximately 0.2 percentage points.
- We continued to increase the stabilisation of our net interest
income ('NII') as interest rate expectations fluctuated, driven by
central bank rate increases and a reassessment of the trajectory of
inflation in major economies.
- Following the acquisition of SVB UK in the first quarter of
2023, we launched HSBC Innovation Banking in June, combining the
expertise of SVB UK with our international network. We are in the
process of integrating the staff, assets and liabilities of SVB UK
into the Group. The acquisition was funded from existing resources,
and the impact on our Group LCR and CET1 ratio is minimal.
- During 1Q23, the significant interest rate rises in France
resulted in the completion of the planned sale of our retail
banking operations in France becoming less certain, as the capital
required to be held by the buyer at completion of the transaction
was expected to 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. The impairment on classifying the disposal as held for sale,
which had resulted in an approximately 0.3 percentage point
reduction in the Group's CET1 ratio last year, was reversed. In
June 2023, we agreed new terms for the sale of these operations
that will involve HSBC retaining a portfolio of loans. The
transaction remains subject to information and consultation
processes with respective works councils and regulatory approvals,
and the parties aim to complete the transaction on 1 January 2024.
An estimated pre-tax loss of up to $2.2bn would be recognised in
the second half of 2023 if the retail operations in France were
reclassified as held for sale.
- We entered into an agreement to sell our banking business in
Canada to the Royal Bank of Canada in 2022. The transaction is now
expected to complete in the first quarter of 2024, subject to
regulatory and governmental approvals. We continue to classify our
banking business in Canada 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 sale proceeds
are expected to accrue into CET1 capital. We intend to use any
excess capital to supplement share buy-backs.
For quantitative disclosures on capital ratios, own funds and
RWAs, see pages 95 to 98. For quantitative disclosures on liquidity
and funding metrics, see pages 98 to 100. For quantitative
disclosures on interest rate risk in the banking book, see pages
101 to 102.
Capital, liquidity and funding risk management processes
Assessment and risk appetite
Our capital management policy is supported by a global capital
management framework. The framework sets out our approach to
determining key capital risk appetites including CET1, total
capital, minimum requirements for own funds and eligible
liabilities ('MREL'), leverage ratio and double leverage. Our ICAAP
is an assessment of the Group's capital position, outlining both
regulatory and internal capital resources and requirements
resulting from HSBC's business model, strategy, risk profile and
management, performance and planning, risks to capital, and the
implications of stress testing. Our assessment of capital adequacy
is driven by an assessment of risks. These risks include credit,
market, operational, pensions, insurance, structural foreign
exchange, interest rate risk in the banking book and Group risk.
Climate risk is also considered as part of the ICAAP, and we are
continuing to develop our approach. Subsidiaries prepare ICAAPs in
line with global guidance, while considering their local regulatory
regimes to determine their own risk appetites and ratios.
HSBC Holdings is the provider of equity capital and
MREL-eligible debt to its subsidiaries, and also provides them with
non-equity capital where necessary. These investments are funded by
HSBC Holdings' own equity capital and MREL-eligible debt. MREL
includes own funds and liabilities that can be written down or
converted into capital resources in order to absorb losses or
recapitalise a bank in the event of its failure. In line with our
existing structure and business model, HSBC has three resolution
groups - the European resolution group, the Asian resolution group
and the US resolution group. There are some smaller entities that
fall outside these resolution groups.
HSBC Holdings seeks to maintain a prudent balance between the
composition of its capital and its investments in subsidiaries.
As a matter of long-standing policy, the holding company retains
a substantial holdings capital buffer comprising high-quality
liquid assets ('HQLA'), which at 30 June 2023 was in excess of
$26bn and within risk appetite.
We aim to ensure that management has oversight of our liquidity
and funding risks at Group and entity level through robust
governance, in line with our risk management framework. We manage
liquidity and funding risk at an operating entity level, in
accordance with globally consistent policies, procedures and
reporting standards. This ensures that obligations can be met in a
timely manner, in the jurisdiction where they fall due.
Operating entities are required to meet internal minimum
requirements and any applicable regulatory requirements at all
times. These requirements are assessed through our ILAAP, which
ensures that operating entities have robust strategies, policies,
processes and systems for the identification, measurement,
management and monitoring of liquidity risk over an appropriate set
of time horizons, including intra-day. The ILAAP informs the
validation of risk tolerance and the setting of risk appetite. It
also assesses the capability to manage liquidity and funding
effectively in each major entity. These metrics are set and managed
locally but are subject to robust global review and challenge to
ensure consistency of approach and application of the Group's
policies and controls.
Planning and performance
Capital and risk-weighted asset ('RWA') plans, as well as
funding and liquidity plans, form part of the annual financial
resource plan that is approved by the Board.
Capital and RWA forecasts are submitted to the Group Executive
Committee on a monthly basis, and capital and RWAs are monitored
and managed against the plan. The responsibility for global capital
allocation principles rests with the Group Chief Financial Officer,
supported by the Group Capital Management Meeting. This is a
specialist forum addressing capital management, reporting into the
HSBC Holdings Asset Liability Management Committee.
The Board-level appetite measures for funding and liquidity are
the LCR and net stable funding ratio ('NSFR'), together with an
internal liquidity metric. In addition, we use a wider set of
measures to manage an appropriate funding and liquidity profile,
including legal entity depositor concentration limits, intra-day
liquidity, forward-looking funding assessments and other key
measures.
Through our internal governance processes, we seek to strengthen
discipline over our investment and capital allocation decisions,
and to ensure that returns on investment meet management's
objectives. Our strategy is to allocate capital to businesses and
entities to support growth objectives where returns above internal
hurdle levels have been identified, and in order to meet their
regulatory and economic capital needs. We evaluate and manage
business returns by using a return on average tangible equity
measure.
Risks to capital and liquidity
Outside the stress testing framework, other risks may be
identified that have the potential to affect our RWAs, capital
and/or liquidity position. Downside and Upside scenarios are
assessed against our management objectives, and mitigating actions
are assigned as necessary. We closely monitor future regulatory
changes, and continue to evaluate the impact of these upon our
capital and liquidity requirements, particularly those related to
the UK's implementation of the outstanding measures to be
implemented from the Basel III reforms ('Basel 3.1').
Regulatory developments
Future changes to our ratios will occur with the implementation
of Basel 3.1. The Prudential Regulation Authority ('PRA') has
published its consultation paper on the UK's implementation, with a
proposed implementation date of 1 January 2025. We currently do not
foresee a material net impact on our ratios from the initial
implementation. The RWA output floor under Basel 3.1 is proposed to
be subject to a five-year transitional provision. Any impact from
the output floor would be towards the end of the transition
period.
The PRA has published a consultation paper to remove the CET1
deduction requirement in the PRA Rulebook regarding non-performing
exposures that are treated as insufficiently covered by firms'
accounting provisions. The changes are anticipated to come into
force in the second half of 2023, with an estimated marginal
increase to the capital base based on initial assessment.
Regulatory reporting processes and controls
The quality of regulatory reporting remains a key priority for
management and regulators. We are progressing with a comprehensive
programme to strengthen our processes, improve consistency and
enhance controls across regulatory reports, focusing on our
prudential regulatory reporting and other priority regulatory
reports globally.
Our ongoing programme of work on our prudential regulatory
reports is being phased over a number of years, prioritising RWA,
capital and liquidity reporting. This programme includes both data
enhancement and the transformation of the reporting systems that
they flow into. While this programme continues, there may be
further impacts on some of our regulatory ratios, such as CET1, LCR
and NSFR, as we implement recommended changes and continue to
enhance our controls. We are also establishing enhanced risk
stewardship and assurance over our regulatory reports and have
developed a strategic inventory and tooling to drive consistent
standards and accountability.
Stress testing and recovery and resolution planning
The Group uses stress testing to inform management of the
capital and liquidity needed to withstand internal and external
shocks, including a global economic downturn or a systems failure.
Stress testing results are also used to inform risk mitigation
actions, allocation of financial resources, and recovery and
resolution planning, as well as to re-evaluate business plans where
analysis shows capital, liquidity and/or returns do not meet their
target.
In addition to a range of internal stress tests, we are subject
to supervisory stress testing in many jurisdictions. These include
the programmes of the Bank of England, the US Federal Reserve
Board, the European Banking Authority, the European Central Bank
and the Hong Kong Monetary Authority. The results of regulatory
stress testing and our internal stress tests are used when
assessing our internal capital and liquidity requirements through
the ICAAP and ILAAP. The outcomes of stress testing exercises
carried out by the PRA and other regulators feed into the setting
of regulatory minimum ratios and buffers.
We maintain recovery plans for the Group and material entities,
which set out potential options management could take in a range of
stress scenarios that could result in a breach of capital or
liquidity buffers. The Group recovery plan sets out the framework
and governance arrangements to support restoring HSBC to a stable
and viable position, and so lowering the probability of failure
from either idiosyncratic company-specific stress or systemic
market-wide issues. Our material entities' recovery plans provide
detailed actions that management would consider taking in a stress
scenario should their positions deteriorate and threaten to breach
risk appetite and regulatory minimum levels. This is to help ensure
that HSBC entities can stabilise their financial position and
recover from financial losses in a stress environment.
The Group also has capabilities, resources and arrangements in
place to address the unlikely event that HSBC might not be
recoverable and would therefore need to be resolved by regulators.
The Group performed the inaugural Resolvability Assessment
Framework self-assessment during 2021 to meet the Bank of England's
requirements, which came into effect on 1 January 2022.
Overall, HSBC's recovery and resolution planning helps safeguard
the Group's financial and operational stability. The Group is
committed to further developing its recovery and resolution
capabilities, including in relation to the Bank of England's
Resolvability Assessment Framework.
Measurement of interest rate risk in the banking book
processes
Assessment and risk appetite
Interest rate risk in the banking book is the risk of an adverse
impact to earnings or capital due to changes in market interest
rates. It is generated by our non-traded assets and liabilities,
specifically loans, deposits and financial instruments that are not
held for trading intent or in order to hedge positions held with
trading intent. Interest rate risk that can be economically hedged
may be transferred to Global Treasury.
Hedging is generally executed through interest rate derivatives
or fixed-rate government bonds. Any interest rate risk that Global
Treasury cannot economically hedge is not transferred and will
remain within the global business where the risks originate.
HSBC uses a number of measures to monitor and control interest
rate risk in the banking book, including:
- net interest income sensitivity; and
- economic value of equity sensitivity;
Net interest income sensitivity
A principal part of our management of non-traded interest rate
risk is to monitor the sensitivity of expected net interest income
('NII') under varying interest rate scenarios (i.e. simulation
modelling), where all other economic variables are held constant.
This monitoring is undertaken at an entity level, where entities
calculate both one-year and five-year NII sensitivities across a
range of interest rate scenarios.
NII sensitivity figures represent the effect of pro forma
movements in projected yield curves based on a static balance sheet
size and structure, except for certain mortgage products where
balances are impacted by interest rate sensitive prepayment. These
sensitivity calculations do not incorporate actions that would be
taken by Global Treasury or in the business that originates the
risk to mitigate the effect of interest rate movements.
The NII sensitivity calculations assume that interest rates of
all maturities move by the same amount in the 'up-shock' scenario.
The sensitivity calculations in the 'down-shock' scenarios reflect
no floors to the shocked market rates. However, customer
product-specific interest rate floors are recognised where
applicable.
Economic value of equity sensitivity
Economic value of equity ('EVE') represents the present value of
the future banking book cash flows that could be distributed to
equity holders under a managed run-off scenario. This equates to
the current book value of equity plus the present value of future
NII in this scenario. EVE can be used to assess the economic
capital required to support interest rate risk in the banking book.
An EVE sensitivity represents the expected movement in EVE due to
pre-specified interest rate shocks, where all other economic
variables are held constant. Operating entities are required to
monitor EVE sensitivities as a percentage of capital resources.
Hold-to-collect-and-sell stressed value at risk
Hold-to-collect-and-sell stressed value at risk ('VaR') is a
quantification of the potential losses to a 99% confidence level of
the portfolio of high-quality liquid assets held under a
hold-to-collect-and-sell business model in the Markets Treasury
business. The portfolio is accounted for at fair value through
other comprehensive income together with the derivatives held in
designated hedging relationships with these securities. The
mark-to-market of this portfolio therefore has an impact on
CET1.
Stressed VaR is quantified based on the worst losses over a
one-year period, using a historical time series stretching back to
the beginning of 2007, and the assumed holding period is 60 days.
At the end of June 2023, the stressed VaR of the portfolio was
$3.4bn (31 December 2022: $2.15bn). The increase was primarily due
to an increase in duration risk in this portfolio during the
period.
Capital risk in the first half of 2023
Capital overview
Capital adequacy metrics
At
30 Jun 31 Dec
2023 2022
Risk-weighted assets
('RWAs') ($bn)
Credit risk(1) 690.5 679.1
------------------------ ------------------------
Counterparty credit
risk(1) 38.6 37.1
------------------------ ------------------------
Market risk 43.0 37.6
------------------------ ------------------------
Operational risk 87.4 85.9
------------------------ ------------------------
Total RWAs 859.5 839.7
------------------------ ------------------------
Capital on a transitional
basis ($bn)
Common equity tier
1 capital 126.4 119.3
------------------------ ------------------------
Tier 1 capital 145.8 139.1
------------------------ ------------------------
Total capital 170.0 162.4
------------------------ ------------------------
Capital ratios on
a transitional basis
(%)
Common equity tier
1 ratio 14.7 14.2
------------------------ ------------------------
Tier 1 ratio 17.0 16.6
------------------------ ------------------------
Total capital ratio 19.8 19.3
------------------------ ------------------------
Capital on an end
point basis ($bn)
Common equity tier
1 capital 126.4 119.3
------------------------ ------------------------
Tier 1 capital 145.8 139.1
------------------------ ------------------------
Total capital 165.9 157.2
------------------------ ------------------------
Capital ratios on
an end point basis
(%)
Common equity tier
1 ratio 14.7 14.2
------------------------ ------------------------
Tier 1 ratio 17.0 16.6
------------------------ ------------------------
Total capital ratio 19.3 18.7
------------------------ ------------------------
Liquidity coverage
ratio ('LCR')(2)
Total high-quality
liquid assets ($bn) 631.2 647.0
------------------------ ------------------------
Total net cash outflow
($bn) 477.7 490.8
------------------------ ------------------------
LCR (%) 132.1 131.8
------------------------ ------------------------
1 From 1 January 2023, RWAs related to free deliveries have been
allocated to credit risk, having previously been classified under
counterparty credit risk.
2 The LCR figures presented in the above table are based on
average values. The LCR is the average month-end values over the
preceding 12 months.
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.
Capital figures and ratios in the table above are calculated in
accordance with the revised Capital Requirements Regulation and
Directive, as implemented ('CRR II'). The table presents them under
the transitional arrangements in CRR II for capital instruments and
after their expiry, known as the end point.
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.
Own funds
Own funds disclosure
At
30 Jun 31 Dec
2023 2022
Ref(*) $m $m
--------------------------
Common equity tier 1 capital before regulatory
6 adjustments(1) 164,015 158,092
-------------------------- --------------------------
28 Total regulatory adjustments to common equity tier (37,597) (38,801)
1(1)
-------------------------- --------------------------
29 Common equity tier 1 capital 126,418 119,291
-------------------------- --------------------------
36 Additional tier 1 capital before regulatory 19,442 19,836
adjustments
-------------------------- --------------------------
43 Total regulatory adjustments to additional tier 1 (60) (60)
capital
-------------------------- --------------------------
44 Additional tier 1 capital 19,382 19,776
-------------------------- --------------------------
45 Tier 1 capital 145,800 139,067
-------------------------- --------------------------
51 Tier 2 capital before regulatory adjustments 25,668 24,779
-------------------------- --------------------------
57 Total regulatory adjustments to tier 2 capital (1,447) (1,423)
-------------------------- --------------------------
58 Tier 2 capital 24,221 23,356
-------------------------- --------------------------
59 Total capital 170,021 162,423
-------------------------- --------------------------
60 Total risk-weighted assets 859,545 839,720
-------------------------- --------------------------
Capital ratios % %
61 Common equity tier 1 ratio 14.7 14.2
-------------------------- --------------------------
62 Tier 1 ratio 17.0 16.6
-------------------------- --------------------------
63 Total capital ratio 19.8 19.3
-------------------------- --------------------------
* These are references to lines prescribed in the Pillar 3 'Own funds disclosure' template.
1 On adoption of IFRS 17 'Insurance Contracts', comparative data
previously published under IFRS 4 'Insurance Contracts' have been
restated from the 1 January 2022 transition date, with no impact on
CET1 and total capital.
At 30 June 2023, our common equity tier 1 ('CET1') capital ratio
increased to 14.7% from 14.2% at 31 December 2022, reflecting an
increase in CET1 capital of $7.1bn, partly offset by an increase in
RWAs of $19.8bn. The key drivers of the overall rise in our CET1
ratio during the period were:
- a 0.7 percentage point increase from the $7.0bn capital
generation through profits less dividends, adjusted for the $2.0bn
share buy-back announced with our 1Q23 results and completed in
July 2023;
- a 0.3 percentage point increase from the reversal of the
impairment relating to the planned sale of our retail banking
operations in France, and the provisional gain on the acquisition
of SVB UK;
- a 0.1 percentage point increase, driven by regulatory change
that reduced the risk weighting of residential mortgages in Hong
Kong; and
- a 0.6 percentage point fall in the CET1 ratio, driven mainly
by an increase in the underlying RWAs and deductions for investment
in financial sector entities, intangible assets and excess expected
loss.
At 30 June 2023, our Pillar 2A requirement, set by the PRA's
Individual Capital Requirement based on a point-in-time assessment,
was equivalent to 2.6% of RWAs, of which 1.5% was met by CET1
capital. Throughout the first half of 2023, we complied with the
PRA's regulatory capital adequacy requirements.
Risk-weighted assets
RWAs by global business
Corporate Total
WPB CMB(1) GBM(1) Centre RWAs
$bn $bn $bn $bn $bn
-------------------------------- -------------------------------- ------------------------------ -------------------------------- ------------------------------
Credit risk 152.1 324.1 135.8 78.5 690.5
-------------------------------- -------------------------------- ------------------------------ -------------------------------- ------------------------------
Counterparty
credit risk 1.7 1.1 34.7 1.1 38.6
-------------------------------- -------------------------------- ------------------------------ -------------------------------- ------------------------------
Market risk 1.3 1.4 27.2 13.1 43.0
-------------------------------- -------------------------------- ------------------------------ -------------------------------- ------------------------------
Operational
risk 31.5 27.2 29.3 (0.6) 87.4
-------------------------------- -------------------------------- ------------------------------ -------------------------------- ------------------------------
At 30 Jun
2023 186.6 353.8 227.0 92.1 859.5
-------------------------------- -------------------------------- ------------------------------ -------------------------------- ------------------------------
At 31 Dec
2022 182.9 342.4 225.9 88.5 839.7
-------------------------------- -------------------------------- ------------------------------ -------------------------------- ------------------------------
1 In the first quarter of 2023, following an internal review to
assess which global businesses were best suited to serve our
customers' respective needs, a portfolio of our customers within
our entities in Latin America was transferred from GBM to CMB for
reporting purposes. Comparative data have been re-presented
accordingly.
RWAs by legal entities(1)
The Hong Holding
Kong and companies,
Shanghai HSBC HSBC Grupo shared
Banking Bank North Financiero service
HSBC HSBC Corporation Middle America HSBC HSBC, Other centres
UK Bank Bank Limited East Holdings Bank S.A. trading and intra-Group Total
plc plc Limited Inc Canada de C.V. entities eliminations RWAs
$bn $bn $bn $bn $bn $bn $bn $bn $bn $bn
------------------ ---------------- ----------------------- ------------------- ------------------- ------------------- --------------------- ------------------- -----------------
Credit risk 109.2 72.7 318.4 17.8 59.3 27.1 24.4 53.2 8.4 690.5
------------------ ---------------- ----------------------- ------------------- ------------------- ------------------- --------------------- ------------------- -----------------
Counterparty
credit risk 0.5 18.7 10.1 0.8 3.3 0.5 0.8 3.9 - 38.6
------------------ ---------------- ----------------------- ------------------- ------------------- ------------------- --------------------- ------------------- -----------------
Market
risk(2) 0.2 21.0 23.6 2.6 3.1 0.7 0.7 3.7 9.5 43.0
------------------ ---------------- ----------------------- ------------------- ------------------- ------------------- --------------------- ------------------- -----------------
Operational
risk 15.8 15.0 39.4 3.0 7.4 3.1 4.8 5.5 (6.6) 87.4
------------------ ---------------- ----------------------- ------------------- ------------------- ------------------- --------------------- ------------------- -----------------
At 30 Jun
2023 125.7 127.4 391.5 24.2 73.1 31.4 30.7 66.3 11.3 859.5
------------------ ---------------- ----------------------- ------------------- ------------------- ------------------- --------------------- ------------------- -----------------
At 31 Dec
2022 110.9 127.0 407.0 22.5 72.5 31.9 26.7 60.3 8.1 839.7
------------------ ---------------- ----------------------- ---------------------
1 Balances are on a third-party Group consolidated basis.
2 Market risk RWAs are non-additive across the principal
entities due to diversification effects within the Group.
RWA movement by global businesses by key driver
Credit risk, counterparty credit
risk and operational risk
WPB CMB(1) GBM(1) Corporate Market Total
Centre risk RWAs
$bn $bn $bn $bn $bn $bn
------------------------------- -------------------------------- -------------------------------- --------------------------------------- -------------------------------- --------------------------------
RWAs at 1 Jan
2023 181.2 341.3 202.3 77.3 37.6 839.7
------------------------------- -------------------------------- -------------------------------- --------------------------------------- -------------------------------- --------------------------------
Asset size 7.8 (0.4) 1.1 4.6 6.6 19.7
------------------------------- -------------------------------- -------------------------------- --------------------------------------- -------------------------------- --------------------------------
Asset quality 0.5 (0.2) - (1.7) - (1.4)
------------------------------- -------------------------------- -------------------------------- --------------------------------------- -------------------------------- --------------------------------
Model updates (0.9) - - - (0.1) (1.0)
Methodology
and policy (5.3) (0.7) (3.1) (1.2) (1.2) (11.5)
Acquisitions
and
disposals - 9.5 - - 0.1 9.6
------------------------------- ---------------------------------------
Foreign
exchange
movements(2) 2.0 2.9 (0.5) - - 4.4
------------------------------- -------------------------------- -------------------------------- --------------------------------------- -------------------------------- --------------------------------
Total RWA
movement 4.1 11.1 (2.5) 1.7 5.4 19.8
------------------------------- -------------------------------- -------------------------------- --------------------------------------- -------------------------------- --------------------------------
RWAs at 30
Jun 2023 185.3 352.4 199.8 79.0 43.0 859.5
------------------------------- -------------------------------- -------------------------------- --------------------------------------- -------------------------------- --------------------------------
1 In the first quarter of 2023, following an internal review to
assess which global businesses were best suited to serve our
customers' respective needs, a portfolio of our customers within
our entities in Latin America was transferred from GBM to CMB for
reporting purposes. Comparative data have been re-presented
accordingly.
2 Credit risk foreign exchange movements in this disclosure are
computed by retranslating the RWAs into US dollars based on the
underlying transactional currencies.
RWA movement by legal entities by key driver(1)
Credit risk, counterparty credit risk and operational
risk
Holding
The Hong companies,
Kong and HSBC HSBC Grupo shared
HSBC Shanghai Bank North Financiero service
UK HSBC Banking Middle America HSBC HSBC, Other centres
Bank Bank Corporation East Holdings Bank S.A. trading and intra-Group Market Total
plc plc Limited Limited Inc Canada de C.V. entities eliminations risk RWAs
$bn $bn $bn $bn $bn $bn $bn $bn $bn $bn $bn
------------------ ---------------------
RWAs at 1
Jan 2023 110.8 106.5 378.4 20.8 69.5 31.1 26.2 58.0 0.8 37.6 839.7
-------------- ------------------ --------------------- --------------
Asset size 1.2 (0.4) 4.4 1.6 0.7 (0.7) 0.8 4.8 0.7 6.6 19.7
-------------- ------------------ --------------------- --------------
Asset quality 0.5 (1.1) (3.3) (0.5) 0.4 0.2 0.1 2.2 0.1 - (1.4)
-------------- ------------------ --------------------- --------------
Model updates (0.8) 0.1 (0.2) - - - - - - (0.1) (1.0)
Methodology
and policy (1.7) (0.7) (8.1) (0.3) (0.6) (0.5) - 1.5 0.1 (1.2) (11.5)
Acquisitions
and
disposals 9.5 - - - - - - - - 0.1 9.6
------------------ ---------------------
Foreign
exchange
movements(2) 6.0 2.0 (3.3) - - 0.6 2.9 (3.9) 0.1 - 4.4
-------------- ------------------ --------------------- --------------
Total RWA
movement 14.7 (0.1) (10.5) 0.8 0.5 (0.4) 3.8 4.6 1.0 5.4 19.8
-------------- ------------------ --------------------- --------------
RWAs at 30
Jun 2023 125.5 106.4 367.9 21.6 70.0 30.7 30.0 62.6 1.8 43.0 859.5
-------------- ------------------ --------------------- --------------
1 Balances are on a third-party Group consolidated basis.
2 Credit risk foreign exchange movements in this disclosure are
computed by retranslating the RWAs into US dollars based on the
underlying transactional currencies.
RWAs rose by $19.8bn during the first half of the year.
Excluding foreign currency translation differences of $4.4bn, RWAs
increased by $15.4bn, predominantly due to the acquisition of SVB
UK, and RWA asset size growth. This was partly offset by reductions
due to a regulatory change to the risk weighting of residential
mortgages in Hong Kong.
Asset size
WPB RWAs rose by $7.8bn, primarily due to sovereign exposures in
other trading entities and retail lending and mortgage growth,
mainly in Hong Kong, Mexico and HSBC UK.
The $6.6bn increase in market risk RWAs was mainly attributed to
heightened market volatility impacting value at risk averages.
Additional RWAs were primarily driven by an incremental risk charge
resulting from higher exposures at risk and the hedges related to
the agreed sale of our banking business in Canada.
Corporate Centre RWAs rose by $4.6bn, which was driven by
increased sovereign exposures mainly in Asia, North America and
HSBC Bank plc, and higher thresholds for the recognition of
significant investments in financial sector entities in Asia.
GBM RWAs increased by $1.1bn, largely as a result of
mark-to-market movements in counterparty credit risk in HSBC Bank
plc, Asia and Mexico. These movements were partly offset by a
decline in corporate exposures, mainly in Asia and HSBC Bank
plc.
The $0.4bn fall in CMB RWAs reflected lower corporate lending
mainly in Asia and HSBC Bank plc, which was partly offset by a rise
in overdrafts in HSBC UK and HSBC Bank plc.
The RWAs of our global businesses also included the RWAs of
other trading entities, which reflected an increase of $4.8bn,
primarily due to increased sovereign, corporate and central
counterparty exposures.
Asset quality
The $1.4bn RWA decrease was mostly driven by portfolio mix
changes, mainly in Asia and HSBC Bank plc, which were partly offset
by unfavourable movements due to sovereign rating downgrades in
Argentina and Egypt.
Model updates
The $1.0bn fall in RWAs was mainly due to the implementation of
a new retail mortgage model, notably in HSBC UK, and the
application
of a new model for premium financing and wealth portfolio
lending in Asia.
Acquisitions and disposals
The acquisition of SVB UK led to an RWA increase of $9.6bn.
Methodology and policy
Regulatory changes related to the risk weighting of residential
mortgages in Hong Kong led to a $7.7bn fall in RWAs in WPB.
A further decline of RWAs across our global businesses was
caused by risk parameter refinements, which was partly offset by
changes to risk weights on certain exposures in SAB.
Allocation methodology changes related to investments in
insurance subsidiaries led to a transfer of RWAs from Corporate
Centre to WPB. In addition, the transfer of Global Banking clients
in Australia and Indonesia increased RWAs in CMB, and decreased
RWAs in GBM.
The $1.2bn decrease in market risk RWAs mainly reflected a
change in capitalisation methodology of white metals and a
reduction in transactional foreign exchange exposures relating to a
pension surplus.
Leverage ratio(1)
At
30 Jun 31 Dec
2023 2022
$bn $bn
----------------------------- -----------------------------
Tier 1 capital (leverage) 145.8 139.1
----------------------------- -----------------------------
Total leverage ratio exposure 2,497.9 2,417.2
----------------------------- -----------------------------
% %
-----------------------------
Leverage ratio 5.8 5.8
----------------------------- -----------------------------
1 Leverage ratio calculation is in line with the PRA's UK
leverage rules. This includes IFRS 9 transitional arrangement and
excludes central bank claims. At 30 June 2023, the IFRS 9 add-back
to CET1 capital and the related tax charge were immaterial.
Our leverage ratio was 5.8% at 30 June 2023, unchanged from 31
December 2022. The increase in tier 1 capital was offset by a rise
in the leverage exposure, primarily due to growth in the balance
sheet.
At 30 June 2023, our UK minimum leverage ratio requirement of
3.25% was supplemented by a leverage ratio buffer of 0.9%, made up
of an additional leverage ratio buffer of 0.7% and a
countercyclical leverage ratio buffer of 0.2%.
These buffers translated into capital values of $17.5bn and
$5.0bn respectively. We exceeded these leverage requirements.
Regulatory transitional arrangements for IFRS 9 'Financial
Instruments'
We have adopted the regulatory transitional arrangements in CRR
II for IFRS 9, including paragraph four of article 473a. These
allow banks to add back to their capital base a proportion of the
impact that IFRS 9 has upon their loan loss allowances. Our capital
and ratios are presented under these arrangements throughout the
tables in this section, including the end point figures. At 30 June
2023, the add-back to CET1 capital and the related tax charge were
immaterial.
Regulatory disclosures
Pillar 3 disclosure requirements
Pillar 3 of the Basel regulatory framework is related to market
discipline and aims to make financial services firms more
transparent by requiring publication of wide-ranging information on
their risks, capital and management.
For further details, refer to our Pillar 3 Disclosures at 30
June 2023 , which is expected to be published on or around 8 August
2023 at www.hsbc.com/investors.
Liquidity and funding risk in the first half of 2023
Liquidity metrics
At 30 June 2023, all of the Group's material operating entities
were above regulatory minimum levels.
Each entity maintains sufficient unencumbered liquid assets to
comply with local and regulatory requirements. The liquidity value
of these liquid assets for each entity is shown in the following
table along with the individual LCR levels on a local regulatory
requirements basis wherever applicable. Where local regulatory
requirements are not applicable, the PRA LCR is shown. The local
basis may differ from PRA measures due to differences in the way
regulators have implemented the Basel III standards.
Each entity maintains a sufficient stable funding profile and it
is assessed by using the PRA NSFR or other appropriate metrics.
In addition to regulatory metrics, HSBC uses a wide set of
measures to manage its liquidity and funding profile.
The Group liquidity and funding position on an average basis is
analysed in the following sections.
Operating entities' liquidity
At 30 Jun 2023
LCR(6) HQLA Net outflows NSFR(6)
% $bn $bn %
------------------------ --------------------------- ------------------------
HSBC UK Bank plc
(ring-fenced bank)(1) 213 131 61 162
------------------------ --------------------------- ------------------------
HSBC Bank plc
(non-ring-fenced
bank)(2) 149 138 93 117
------------------------ --------------------------- ------------------------
The Hongkong and
Shanghai Banking
Corporation
- Hong Kong branch(3) 180 146 81 127
------------------------ --------------------------- ------------------------
HSBC Singapore(4) 258 23 9 170
------------------------ --------------------------- ------------------------
Hang Seng Bank 255 55 21 159
------------------------ --------------------------- ------------------------
HSBC Bank China 177 25 14 135
------------------------ --------------------------- ------------------------
HSBC Bank USA 169 81 48 130
------------------------ --------------------------- ------------------------
HSBC Continental
Europe(5) 159 70 44 136
------------------------ --------------------------- ------------------------
HSBC Middle East - UAE
branch 278 12 4 166
------------------------ --------------------------- ------------------------
HSBC Canada 162 22 13 125
------------------------ --------------------------- ------------------------
HSBC Mexico 144 8 6 125
------------------------ --------------------------- ------------------------
At 31 Dec 2022
HSBC UK Bank plc
(ring-fenced bank)(1) 226 136 60 164
------------------------ ---------------------------- ------------------------
HSBC Bank plc
(non-ring-fenced
bank)(2) 143 128 90 115
------------------------ ---------------------------- ------------------------
The Hongkong and
Shanghai Banking
Corporation
- Hong Kong branch(3) 179 147 82 130
------------------------ ---------------------------- ------------------------
HSBC Singapore(4) 247 21 9 173
------------------------ ---------------------------- ------------------------
Hang Seng Bank 228 50 22 156
------------------------ ---------------------------- ------------------------
HSBC Bank China 183 23 13 132
------------------------ ---------------------------- ------------------------
HSBC Bank USA 164 85 52 131
------------------------ ---------------------------- ------------------------
HSBC Continental
Europe(5) 151 55 37 132
------------------------ ---------------------------- ------------------------
HSBC Middle East - UAE
branch 239 12 5 158
------------------------ ---------------------------- ------------------------
HSBC Canada 149 22 15 122
------------------------ ---------------------------- ------------------------
HSBC Mexico 155 8 5 129
------------------------ ---------------------------- ------------------------
1 HSBC UK Bank plc refers to the HSBC UK liquidity group, which
comprises five legal entities: HSBC UK Bank plc, Marks and Spencer
Financial Services plc, HSBC Private Bank (UK) Ltd, HSBC Innovation
Bank Limited and HSBC Trust Company (UK) Limited, managed as a
single operating entity, in line with the application of UK
liquidity regulation as agreed with the PRA.
2 HSBC Bank plc includes overseas branches and special purpose
entities consolidated by HSBC for financial statements
purposes.
3 The Hongkong and Shanghai Banking Corporation - Hong Kong
branch represents the material activities of The Hongkong and
Shanghai Banking Corporation. It is monitored and controlled for
liquidity and funding risk purposes as a stand-alone operating
entity.
4 HSBC Singapore includes HSBC Bank Singapore Limited and The
Hongkong and Shanghai Banking Corporation - Singapore branch.
Liquidity and funding risk is monitored and controlled at country
level in line with the local regulator's approval.
5 In response to the requirement for an intermediate parent
undertaking in line with EU Capital Requirements Directive ('CRD
V'), HSBC Continental Europe acquired control of HSBC Germany and
HSBC Bank Malta on 30 November 2022. The averages for LCR and NSFR
include the impact of the inclusion of the two entities from
November 2022.
6 The LCR and NSFR ratios presented in the above table are based
on average values. The LCR is the average of the preceding 12
months. The NSFR is the average of the preceding four quarters.
Prior period numbers have been restated for consistency.
Consolidated liquidity metrics
Liquidity coverage ratio
At 30 June 2023, the average HQLA held at entity level amounted
to $796bn (31 December 2022: $812bn), a decrease of $16bn. HSBC has
maintained a revised approach to the application of the
requirements under the EC Delegated Act and the PRA Rulebook. This
approach was used to assess the limitations in the fungibility of
entity liquidity around the Group and resulted in an adjustment of
$165bn to LCR HQLA and $7bn to LCR inflows. The change in
methodology was designed to better incorporate local regulatory
restrictions on the transferability of liquidity.
At(1)
30 30 Jun 31 Dec
Jun
2023 2022 2022
$bn $bn $bn
----------------- ----------------- -----------------
High-quality liquid
assets (in entities) 796 848 812
EC Delegated Act/PRA
Rulebook adjustment(2) (172) (181) (174)
Group LCR HQLA 631 676 647
Net outflows 478 500 491
Liquidity coverage
ratio 132% 135% 132%
----------------- ----------------- -----------------
1 Group LCR numbers above are based on average month-end values of the preceding 12 months.
2 This includes adjustments made to high-quality liquidity
assets and inflows in entities to reflect liquidity transfer
restrictions.
Liquid assets
After the $165bn adjustment, the Group LCR HQLA of $631bn (31
December 2022: $647bn) was held in a range of asset classes and
currencies. Of these, 97% were eligible as level 1 (31 December
2022: 97%).
The following tables reflect the composition of the liquidity
pool by asset type and currency at 30 June 2023:
Liquidity pool by asset type(1)
Liquidity Level Level
pool Cash 1(2) 2(2)
$bn $bn $bn $bn
------------------- ----------------- -----------------
Cash and balance
at central bank 321 321 - -
------------------- ----------------- -----------------
Central and local
government bonds 296 - 282 14
------------------- ----------------- -----------------
Regional government
and public sector
entities 2 - 2 -
------------------- ----------------- -----------------
International
organisation and
multilateral development
banks 8 - 8 -
------------------- ----------------- -----------------
Covered bonds 3 - 1 2
------------------- ----------------- -----------------
Other 1 - - 1
------------------- ----------------- -----------------
Total at 30 Jun
2023 631 321 293 17
------------------- ----------------- -----------------
Total at 31 Dec
2022 647 344 284 19
1 Group liquid assets numbers are based on average month-end
values over the preceding 12 months.
2 As defined in EU and PRA regulation, level 1 assets means
'assets of extremely high liquidity and credit quality', and level
2 assets means 'assets of high liquidity and credit quality'.
Liquidity pool by currency(1)
$ GBP EUR HK$ Other Total
$bn $bn $bn $bn $bn $bn
Liquidity
pool at 30
Jun 2023 173 179 104 48 127 631
--------- -------- ---------- ---------
Liquidity pool
at 31 Dec 2022 167 191 98 54 137 647
1 Group liquid assets numbers are based on average month-end values over the preceding 12 months.
Sources of funding
Our primary sources of funding are customer current accounts and
savings deposits payable on demand or at short notice. We issue
secured and unsecured wholesale securities to supplement customer
deposits, meet regulatory obligations and to change the currency
mix, maturity profile or location of our liabilities.
The following 'Funding sources' and 'Funding uses' tables
provide a view of how our consolidated balance sheet is funded. In
practice, all the principal operating entities are required to
manage liquidity and funding risk on a stand-alone basis.
The tables analyse our consolidated balance sheet according to
the assets that primarily arise from operating activities and the
sources of funding primarily supporting these activities. Assets
and liabilities that do not arise from operating activities are
presented as a net balancing source or deployment of funds.
In 1H23, the level of customer accounts continued to exceed the
level of loans and advances to customers. The positive funding gap
was predominantly deployed in liquid assets.
Funding sources
At
30 Jun 31 Dec
2023 2022
$m $m
Customer accounts 1,595,769 1,570,303
-----------------
Deposits by banks 68,709 66,722
-----------------
Repurchase agreements
- non-trading 170,110 127,747
-----------------
Debt securities in issue 85,471 78,149
Cash collateral, margin
and settlement accounts 104,521 88,476
Liabilities of disposal
groups held for sale(1) 87,241 114,597
-----------------
Subordinated liabilities 23,286 22,290
-----------------
Financial liabilities
designated at fair value 139,618 127,321
-----------------
Insurance contract liabilities 115,756 108,816
-----------------
Trading liabilities 81,228 72,353
-----------------
- repos 16,727 16,254
- stock lending 3,890 3,541
- other trading liabilities 60,611 52,558
Total equity 191,651 185,197
-----------------
Other balance sheet liabilities 378,116 387,315
-----------------
3,041,476 2,949,286
-----------------
Funding uses
At
30 Jun 31 Dec
2023 2022
$m $m
----------------- ----------------
Loans and advances to
customers 959,558 923,561
----------------- ----------------
Loans and advances to
banks 100,921 104,475
----------------- ----------------
Reverse repurchase agreements
- non-trading 258,056 253,754
Cash collateral, margin
and settlement accounts 99,060 82,984
-----------------
Assets held for sale(1) 95,480 115,919
----------------- ----------------
Trading assets 255,387 218,093
----------------- ----------------
- reverse repos 16,961 14,798
- stock borrowing 9,381 10,706
- other trading assets 229,045 192,589
-----------------
Financial investments 407,933 364,726
----------------- ----------------
Cash and balances with
central banks 307,733 327,002
----------------- ----------------
Other balance sheet assets 557,348 558,772
----------------- ----------------
3,041,476 2,949,286
----------------- ----------------
1 'Liabilities of disposal groups held for sale' includes $80bn
and 'Assets held for sale' includes $87bn in respect of the planned
sale of our banking business in Canada.
Interest rate risk in the banking book in the first half of
2023
Net interest income sensitivity
The following tables set out the assessed impact to a
hypothetical base case projection of our net interest income
('NII'), excluding pensions, insurance and investment in
subsidiaries, under the following scenarios:
- an immediate shock of 25 basis points ('bps') to the current
market-implied path of interest rates across all currencies on 1
July 2023 (effects over one year and five years); and
- an immediate shock of 100bps to the current market-implied
path of interest rates across all currencies on 1 July 2023
(effects over one year and five years).
The sensitivities shown represent a hypothetical simulation of
the
base case NII, assuming a static balance sheet (specifically no
assumed migration from current account to term deposits), no
management actions from Global Treasury and a simplified 50%
pass-on assumption applied for material entities. This also
incorporates the
effect of interest rate behaviouralisation, hypothetical managed
rate
product pricing assumptions, prepayment of mortgages and
deposit
stability. The sensitivity calculations exclude pensions,
insurance and
investments in subsidiaries.
The NII sensitivity analysis performed in the case of a
down-shock
does not include floors to market rates, and it does not include
floors
on some wholesale assets and liabilities. However, floors have
been
maintained for deposits and loans to customers where this is
contractual or where negative rates would not be applied.
As market and policy rates move, the degree to which these
changes are passed on to customers will vary based on a number of
factors, including the absolute level of market rates, regulatory
and contractual frameworks, and competitive dynamics in particular
markets. To aid comparability between markets, we have simplified
the basis of preparation for our disclosure, and have used a 50%
pass-on assumption for major entities on certain interest-bearing
deposits. Our pass-through asset assumptions are largely in line
with our contractual agreements or established market practice,
which typically results in a significant portion of interest rate
changes being passed on.
Immediate interest rate rises of 25bps and 100bps would increase
projected NII for the 12 months to 30 June 2024 by $550m and
$2,168m, respectively. Conversely, falls of 25bps and 100bps would
decrease projected NII for the 12 months to 30 June 2024 by $615m
and $2,604m, respectively.
The sensitivity of NII for 12 months decreased by $1,367m in the
plus 100bps parallel shock and decreased by $1,365m in the minus
100bps parallel shock, comparing 30 June 2023 with 31 December
2022.
The decrease in the sensitivity of NII for 12 months in the
minus 100bps parallel shock was mainly driven by management actions
to stabilise NII, coupled with deposit migration and reduction in
the net interest-bearing banking book.
The sensitivities broken down by currency in the tables below do
not include the impact of vanilla FX swaps used to optimise cash
management across the Group.
NII sensitivity to an instantaneous change in yield curves (12 months)
- 1 year NII sensitivity by currency
Currency
-------------------
US dollar HK dollar Sterling Euro Other Total
$m $m $m $m $m $m
--------------------- ------------------- ------------------- ------------------- ------------------- -------------------
Change
in Jul
2023 to
Jun 2024
(based
on
balance
sheet at
30 Jun
2023)
--------------------- ------------------- ------------------- ------------------- ------------------- -------------------
+25bps (187) 125 140 147 325 550
--------------------- ------------------- ------------------- ------------------- ------------------- -------------------
-25bps 187 (132) (173) (165) (332) (615)
--------------------- ------------------- ------------------- ------------------- ------------------- -------------------
+100bps (747) 471 575 596 1,273 2,168
--------------------- ------------------- ------------------- ------------------- ------------------- -------------------
-100bps 695 (556) (703) (657) (1,383) (2,604)
--------------------- ------------------- ------------------- ------------------- ------------------- -------------------
Change
in Jan
2023 to
Dec 2023
(based
on
balance
sheet at
31 Dec
2022)
+25bps (66) 107 245 167 431 884
-25bps 64 (115) (289) (194) (439) (973)
+100bps (267) 413 1,026 674 1,689 3,535
-100bps 236 (476) (1,177) (765) (1,787) (3,969)
NII sensitivity to an instantaneous change in yield curves (5 years)
- cumulative 5 years NII sensitivity by currency
Currency
-----------------
US dollar HK dollar Sterling Euro Other Total
$m $m $m $m $m $m
--------------------- ------------------- ----------------- ------------------- ----------------- -----------------
Change
in Jul
2023 to
Jun 2028
(based
on
balance
sheet at
30 Jun
2023)
--------------------- ------------------- ----------------- ------------------- ----------------- -----------------
+25bps (70) 804 1,816 900 2,130 5,580
--------------------- ------------------- ----------------- ------------------- ----------------- -----------------
-25bps 49 (911) (1,851) (918) (2,194) (5,825)
--------------------- ------------------- ----------------- ------------------- ----------------- -----------------
+100bps (694) 3,059 7,320 3,605 8,337 21,627
--------------------- ------------------- ----------------- ------------------- ----------------- -----------------
-100bps 43 (4,800) (7,444) (3,755) (8,991) (24,947)
--------------------- ------------------- ----------------- ------------------- ----------------- -----------------
Change
in Jan
2023 to
Dec 2027
(based
on
balance
sheet at
31 Dec
2022)
+25bps 192 668 2,315 924 2,500 6,599
-25bps (282) (688) (2,336) (1,044) (2,498) (6,848)
+100bps 673 2,401 9,254 3,764 9,765 25,857
-100bps (1,522) (3,004) (9,454) (4,173) (10,317) (28,470)
NII sensitivity to an instantaneous change in yield curves (5 years)
- NII sensitivity by years
Year Year Year Year Year Total
1 2 3 4 5
$m $m $m $m $m $m
------------------- ------------------- ----------------- ----------------- ----------------- -----------------
Change
in Jul
2023 to
Jun 2028
(based
on
balance
sheet at
30 Jun
2023)
+25bps 550 854 1,172 1,409 1,595 5,580
------------------- ------------------- ----------------- ----------------- ----------------- -----------------
-25bps (615) (892) (1,221) (1,450) (1,647) (5,825)
------------------- ------------------- ----------------- ----------------- ----------------- -----------------
+100bps 2,168 3,307 4,523 5,444 6,185 21,627
------------------- ------------------- ----------------- ----------------- ----------------- -----------------
-100bps (2,604) (3,909) (5,310) (6,188) (6,936) (24,947)
------------------- ------------------- ----------------- ----------------- ----------------- -----------------
Change
in Jan
2023 to
Dec 2027
(based
on
balance
sheet at
31 Dec
2022)
+25bps 884 1,145 1,378 1,550 1,642 6,599
-25bps (973) (1,178) (1,420) (1,579) (1,699) (6,848)
+100bps 3,535 4,565 5,367 5,962 6,429 25,857
-100bps (3,969) (4,944) (5,925) (6,565) (7,067) (28,470)
Non-trading portfolios
Value at risk of the non-trading portfolios
Non-trading portfolios comprise positions that primarily arise
from the interest rate management of our retail and wholesale
banking assets and liabilities, financial investments measured at
fair value through other comprehensive income or at amortised cost,
and exposures arising from our insurance operations.
The VaR for non-trading activity was broadly unchanged at 30
June 2023, compared with 31 December 2022. This followed increases
in the second half of 2022 that were primarily due to higher
duration risk exposures in Global Treasury, as well as from more
volatile interest rate tail scenarios.
Non-trading VaR includes non-trading financial instruments held
in portfolios managed by Markets Treasury. The management of
interest rate risk in the banking book is described further in 'Net
interest income sensitivity' on page 95.
The Group non-trading VaR for the half-year to 30 June 2023 is
shown in the following table.
Non-trading VaR, 99% 1 day
Interest Credit Portfolio
rate spread diversification(1) Total
$m $m $m $m
------------------------ ------------------------ ----------------------
Half-year
to 30 Jun
2023 156.3 84.3 (66.6) 173.9
------------------------ ------------------------ ----------------------
Average 134.8 69.0 (49.8) 153.9
------------------------ ------------------------ ----------------------
Maximum 158.9 84.3 185.7
------------------------ ------------------------ ----------------------
Minimum 108.8 55.2 127.0
------------------------ ------------------------ ----------------------
Half-year 113.3 53.3 (45.7) 120.8
to 30 Jun
2022
------------------------ ------------------------ ----------------------
Average 148.4 61.9 (36.7) 173.7
------------------------ ------------------------ ----------------------
Maximum 225.5 84.7 265.3
------------------------ ------------------------ ----------------------
Minimum 109.2 50.3 119.1
------------------------ ------------------------ ----------------------
Half-year 159.8 56.6 (45.3) 171.1
to 31 Dec
2022
------------------------ ------------------------ ----------------------
Average 121.2 52.1 (35.1) 138.2
------------------------ ------------------------ ----------------------
Maximum 159.8 59.1 183.7
------------------------ ------------------------ ----------------------
Minimum 98.3 43.4 106.3
------------------------ ------------------------ ----------------------
1 When VaR is calculated at a portfolio level, natural offsets
in risk can occur when compared with aggregating VaR at the asset
class level. This difference is called portfolio diversification.
The asset class VaR maxima and minima reported in the table
occurred on different dates within the reporting period. For this
reason, we do not report an implied portfolio diversification
measure between the maximum (minimum) asset class VaR measures and
the maximum (minimum) total VaR measures in this table.
Non-trading VaR excludes equity risk on securities held at fair
value, non-trading book foreign exchange risk and the risks managed
in HSBC Holdings arising from long-term capital issuance.
HSBC's management of market risk in the non-trading book is
described in the 'Treasury risk' section on page 93.
For disclosure of the stressed value at risk of the Markets
Treasury hold-to-collect-and-sell portfolio, see page 95. This
portfolio of financial instruments is measured at fair value
through other comprehensive income and is included in the
non-trading VaR above. The stressed VaR quantitative disclosure
provides the discrete potential capital impact from this
portfolio.
Market risk
Overview
Market risk is the risk of adverse financial impact on trading
activities arising from changes in market parameters such as
interest rates, foreign exchange rates, asset prices, volatilities,
correlations and credit spreads. Exposure to market risk is
separated into two portfolios: trading portfolios and non-trading
portfolios.
Market risk in the first half of 2023
There were no material changes to the policies and practices for
the management of market risk in the first half of 2023.
A summary of our current policies and practices for the
management of market risk is set out in 'Market risk management' on
page 218 of the Annual Report and Accounts 2022.
During the first half of 2023, global financial markets
continued to be driven by the inflation outlook, expectations of
monetary policy tightening and recession risks, coupled with
banking distress during March and negotiations over the US debt
ceiling in May. Major central banks maintained their restrictive
monetary policies throughout 1H23, while falling headline inflation
in the US led the Federal Reserve Board ('FRB') to signal that it
may be approaching the end of its tightening cycle. Short-term
yields in key interest rate markets rose during 2Q23, after falling
rapidly in the wake of the banking crisis in March. Sentiment in
global equity markets was driven by resilient corporate earnings
and changes in the monetary policy outlook. Main US indices reached
their highest in over one year in 2Q23, with large gains in the
technology sector and relatively subdued volatility. In foreign
exchange markets, the US dollar fluctuated against most other major
currencies, in response to FRB monetary policy and due to movements
in the bond markets. Investor sentiment remained mostly resilient
in credit markets. High-yield and investment-grade credit spreads
tended to narrow as the banking sector stabilised and likelihood of
a US debt downgrade receded.
We continued to manage market risk prudently in the first half
of 2023. Sensitivity exposures and VaR remained mostly within
appetite as the business pursued its core market-making activity in
support of our customers. Market risk was managed using a
complementary set of risk measures and limits, including stress
testing and scenario analysis.
Trading portfolios
Value at risk of the trading portfolios
Trading VaR was predominantly generated by Markets and
Securities Services. Trading VaR at 30 June 2023 increased compared
with 31 December 2022. The VaR increase peaked in June 2023 and was
mainly driven by:
- interest rate risk exposures in currencies held across the
Fixed Income and Foreign Exchange business lines to facilitate
client-driven activity; and
- the effects of relatively large short-term interest rate
shocks for key currencies which are captured in the VaR scenario
window.
The Group trading VaR for the half-year is shown in the table
below.
Trading VaR, 99% 1 day
Foreign
exchange Interest Credit Portfolio
and commodity rate Equity spread diversification(1) Total
$m $m $m $m $m $m
Half-year
to 30
Jun 2023 18.9 64.9 23.5 16.1 (55.6) 67.8
Average 16.7 51.9 17.5 11.1 (41.5) 55.7
Maximum 23.5 74.8 23.5 16.1 82.4
Minimum 10.6 33.9 14.9 7.7 42.2
Half-year
to 30
Jun 2022 11.3 26.8 14.6 16.1 (32.5) 36.3
Average 14.2 26.3 14.5 19.1 (35.1) 39.1
Maximum 29.2 33.9 19.2 27.9 55.6
Minimum 5.7 20.3 11.5 12.0 29.1
Half-year
to 31
Dec 2022 15.4 40.0 18.6 11.9 (36.4) 49.5
Average 13.0 32.7 17.7 14.6 (33.1) 45.0
Maximum 18.3 73.3 24.8 23.9 78.3
Minimum 9.1 20.2 13.9 9.1 34.0
1 When VaR is calculated at a portfolio level, natural offsets
in risk can occur when compared with aggregating VaR at the asset
class level. This difference is called portfolio diversification.
The asset class VaR maxima and minima reported in the table
occurred on different dates within the reporting period. For this
reason, we do not report an implied portfolio diversification
measure between the maximum (minimum) asset class VaR measures and
the maximum (minimum) total VaR measures in this table.
The table below shows trading VaR at a 99% confidence level
compared with trading VaR at a 95% confidence level at 30 June
2023.
This comparison facilitates the benchmarking of the trading VaR,
which can be stated at different confidence levels, with financial
institution peers. The 95% VaR is unaudited.
Comparison of trading VaR, 99% 1 day vs trading VaR, 95% 1 day
Trading VaR, Trading VaR,
99% 1 day 95% 1 day
$m $m
Half-year to 30 Jun 2023 67.8 44.5
Average 55.7 34.5
Maximum 82.4 47.8
Minimum 42.2 26.2
Half-year to 30 Jun 2022 36.3 21.1
Average 39.1 22.1
Maximum 55.6 28.4
Minimum 29.1 17.5
Half-year to 31 Dec 2022 49.5 31.7
Average 45.0 27.1
Maximum 78.3 49.0
Minimum 34.0 20.1
Back-testing
We routinely validate the accuracy of our VaR models by
back-testing the VaR metric against both actual and hypothetical
profit and loss. Hypothetical profit and loss excludes non-modelled
items such as fees, commissions and revenue related to intra-day
transactions. The hypothetical profit and loss reflects the profit
and loss that would be realised if positions were maintained and
held constant from the end of one trading day to the end of the
next. This measure of profit and loss does not align with how risk
is dynamically hedged and is not, therefore, necessarily indicative
of the actual performance of the business.
The number of hypothetical loss back-testing exceptions,
together with a number of other indicators, is used to assess model
performance and to consider whether enhanced internal monitoring or
recalibration of the VaR model is required. We back-test our VaR at
set levels of our Group entity hierarchy.
During the first half of 2023, the Group experienced no loss
back-testing exceptions against actual and hypothetical profit and
losses.
Insurance manufacturing operations risk
Overview
The key risks for our insurance manufacturing operations are
market risks, in particular interest rate, growth asset and credit
risks, as well as insurance underwriting and operational risks.
Liquidity risk, while significant for other parts of the Group, is
relatively minor for our insurance operations.
Insurance manufacturing operations risk in the first half of
2023
There have been no material changes to the policies and
practices for the management of risks arising in our insurance
operations described in the Annual Report and Accounts 2022.
A summary of our policies and practices regarding the risk
management of insurance operations, our insurance model and the
main contracts we manufacture is provided on page 233 of the Annual
Report and Accounts 2022.
The risk profile of our insurance manufacturing operations are
assessed in the Group's ICAAP based on their financial capacity to
support the risks to which they are exposed.
Capital adequacy is assessed on both the Group's economic
capital basis, and the relevant local insurance regulatory basis.
The Group's economic capital basis is largely aligned to European
Solvency II regulations, other than in Asia where it is based on
the draft Hong Kong risk-based capital regulations. Risk appetite
buffers are set to ensure that the operations are able to remain
solvent on both bases, allowing for business-as-usual volatility
and extreme but plausible stress events. In addition, the insurance
manufacturing operations manage their market, liquidity, credit,
underwriting and non-financial risk exposures to Board-approved
risk appetite limits. Overall, at 30 June 2023, the majority of the
capital and financial risk positions of our insurance operations
were within risk appetite. We continue to monitor these risks
closely in the current volatile economic climate.
The following table shows the composition of assets and
liabilities by contract type.
Balance sheet of insurance manufacturing subsidiaries by type of contract
Life
direct
participating Shareholder
and investment Life Other assets
DPF contracts other(1) contracts(2) and liabilities Total
$m $m $m $m $m
Financial assets 109,737 4,245 5,734 7,204 126,920
* financial assets designated and otherwise mandatorily
measured at fair value through profit or loss 95,693 3,915 4,137 1,202 104,947
- derivatives 272 6 - 7 285
- financial investments - at amortised
cost 1,296 87 1,200 4,338 6,921
- financial assets at fair value through
other comprehensive income 9,099 - 3 621 9,723
- other financial assets 3,377 237 394 1,036 5,044
Insurance contract assets 5 174 - - 179
Reinsurance contract assets - 4,928 - - 4,928
Other assets and investment properties 2,717 67 31 1,394 4,209
Total assets at 30 Jun 2023 112,459 9,414 5,765 8,598 136,236
Liabilities under investment contracts
designated at fair value - - 5,131 - 5,131
Insurance contract liabilities 111,427 3,868 - - 115,295
Reinsurance contract liabilities - 780 - - 780
Deferred tax 24 8 - 1 33
Other liabilities - - - 7,336 7,336
Total liabilities 111,451 4,656 5,131 7,337 128,575
Total equity - - - 7,661 7,661
Total liabilities and equity at 30
Jun 2023 111,451 4,656 5,131 14,998 136,236
Financial assets 102,539 4,398 6,543 7,109 120,589
* financial assets designated and otherwise mandatorily
measured at fair value through profit or loss 89,671 3,749 4,916 1,088 99,424
- derivatives 432 9 21 15 477
- financial investments - at amortised
cost 981 165 1,221 4,660 7,027
- financial assets at fair value through
other comprehensive income 9,030 - - 569 9,599
- other financial assets 2,425 475 385 777 4,062
Insurance contract assets 4 130 - - 134
------------------------ ------------------------ ----------------------
Reinsurance contract assets - 4,413 - - 4,413
------------------------ ------------------------ ----------------------
Other assets and investment properties 2,443 60 30 1,666 4,199
------------------------ ------------------------ ----------------------
Total assets at 31 Dec 2022 104,986 9,001 6,573 8,775 129,335
------------------------ ------------------------ ----------------------
Liabilities under investment contracts
designated at fair value - - 5,374 - 5,374
------------------------ ------------------------ ----------------------
Insurance contract liabilities 104,662 3,766 - - 108,428
------------------------ ------------------------ ----------------------
Reinsurance contract liabilities - 748 - - 748
------------------------ ------------------------ ----------------------
Deferred tax 23 - - 2 25
------------------------ ------------------------ ----------------------
Other liabilities - - - 7,524 7,524
------------------------ ------------------------ ----------------------
Total liabilities 104,685 4,514 5,374 7,526 122,099
------------------------ ------------------------ ----------------------
Total equity - - - 7,236 7,236
------------------------ ------------------------ ----------------------
Total liabilities and equity at 31
Dec 2022 (3) 104,685 4,514 5,374 14,762 129,335
------------------------ ------------------------ ----------------------
1 'Life other' mainly includes protection insurance contracts as
well as reinsurance contracts. The reinsurance contracts primarily
provide diversification benefits over the life participating and
investment discretionary participation feature ('DPF')
contracts.
2 'Other contracts' includes investment contracts for which HSBC
does not bear significant insurance risk.
3 From 1 January 2023, we adopted IFRS 17 'Insurance Contracts',
which replaced IFRS 4 'Insurance Contracts'. Comparative data have
been restated accordingly.
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