Personal lending - residential
mortgage loans including loan commitments by level of collateral
for key countries/territories by stage
(continued)
|
(Audited)
|
|
|
|
|
|
|
|
|
Gross
carrying/nominal amount
|
ECL
coverage
|
|
Stage
1
|
Stage
2
|
Stage
3
|
Total
|
Stage
1
|
Stage
2
|
Stage
3
|
Total
|
|
$m
|
$m
|
$m
|
$m
|
%
|
%
|
%
|
%
|
Fully collateralised by LTV
ratio
|
310,705
|
39,906
|
2,097
|
352,708
|
-
|
0.6
|
9.9
|
0.1
|
- less than 50%
|
154,337
|
12,250
|
1,077
|
167,664
|
-
|
0.7
|
7.2
|
0.1
|
- 51% to 70%
|
102,191
|
16,989
|
537
|
119,717
|
-
|
0.5
|
9.5
|
0.1
|
- 71% to 80%
|
25,458
|
6,770
|
212
|
32,440
|
-
|
0.5
|
14.7
|
0.2
|
- 81% to 90%
|
17,106
|
3,388
|
147
|
20,641
|
-
|
0.5
|
17.8
|
0.2
|
- 91% to 100%
|
11,613
|
509
|
124
|
12,246
|
-
|
1.1
|
18.1
|
0.3
|
Partially collateralised (A): LTV
> 100%
|
6,964
|
143
|
133
|
7,240
|
-
|
6.9
|
46.9
|
1.0
|
- collateral value on A
|
6,521
|
123
|
79
|
6,723
|
|
|
|
|
Total at 31 Dec 2022
|
317,669
|
40,049
|
2,230
|
359,948
|
-
|
0.6
|
12.1
|
0.2
|
of
which: UK
|
|
|
|
|
|
|
|
|
Fully collateralised by LTV ratio
|
134,044
|
34,541
|
676
|
169,261
|
-
|
0.4
|
11.1
|
0.1
|
- less than 50%
|
70,936
|
10,387
|
448
|
81,771
|
-
|
0.6
|
9.4
|
0.1
|
- 51% to 70%
|
43,617
|
14,943
|
158
|
58,718
|
-
|
0.4
|
11.6
|
0.1
|
- 71% to 80%
|
12,849
|
5,922
|
33
|
18,804
|
-
|
0.3
|
19.7
|
0.1
|
- 81% to 90%
|
5,922
|
2,918
|
10
|
8,850
|
-
|
0.2
|
24.5
|
0.1
|
- 91% to 100%
|
720
|
371
|
27
|
1,118
|
-
|
0.2
|
22.5
|
0.6
|
Partially collateralised (B): LTV > 100%
|
329
|
49
|
12
|
390
|
-
|
0.3
|
9.8
|
0.3
|
- collateral value on
B
|
237
|
38
|
4
|
279
|
|
|
|
|
Total UK at 31 Dec 2022
|
134,373
|
34,590
|
688
|
169,651
|
-
|
0.4
|
11.1
|
0.1
|
of
which: Hong Kong
|
|
|
|
|
|
|
|
|
Fully collateralised by LTV ratio
|
94,949
|
981
|
237
|
96,167
|
-
|
-
|
0.1
|
-
|
- less than 50%
|
44,740
|
577
|
105
|
45,422
|
-
|
-
|
-
|
-
|
- 51% to 70%
|
28,123
|
256
|
37
|
28,416
|
-
|
-
|
0.3
|
-
|
- 71% to 80%
|
4,167
|
37
|
25
|
4,229
|
-
|
-
|
0.1
|
-
|
- 81% to 90%
|
7,883
|
51
|
27
|
7,961
|
-
|
0.1
|
-
|
-
|
- 91% to 100%
|
10,036
|
60
|
43
|
10,139
|
-
|
0.2
|
-
|
-
|
Partially collateralised (C): LTV > 100%
|
6,441
|
47
|
1
|
6,489
|
-
|
0.2
|
0.3
|
-
|
- collateral value on
C
|
6,146
|
44
|
1
|
6,191
|
|
|
|
|
Total Hong Kong at 31 Dec 2022
|
101,390
|
1,028
|
238
|
102,656
|
-
|
-
|
0.1
|
-
|
Supplementary information
Wholesale lending - loans and
advances to customers at amortised cost by
country/territory
|
|
Gross carrying
amount
|
Allowance for
ECL
|
|
Corporate and
commercial
|
of which: real estate and
construction1
|
Non-bank financial
institutions
|
Total
|
Corporate and
commercial
|
of which: real estate and
construction1
|
Non-bank financial
institutions
|
Total
|
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
UK
|
105,536
|
17,852
|
18,343
|
123,879
|
(1,451)
|
(246)
|
(231)
|
(1,682)
|
- of which: HSBC UK Bank plc
(ring-fenced bank)
|
80,248
|
17,060
|
9,372
|
89,620
|
(1,212)
|
(212)
|
(66)
|
(1,278)
|
- of which: HSBC Bank plc
(non-ring-fenced bank)
|
24,791
|
792
|
8,971
|
33,762
|
(240)
|
(34)
|
(165)
|
(405)
|
- of which: Other trading entities
|
497
|
-
|
-
|
497
|
1
|
-
|
-
|
1
|
France
|
27,017
|
4,796
|
5,701
|
32,718
|
(636)
|
(53)
|
(18)
|
(654)
|
Germany
|
6,667
|
240
|
632
|
7,299
|
(74)
|
-
|
-
|
(74)
|
Switzerland
|
1,168
|
423
|
378
|
1,546
|
(12)
|
(1)
|
-
|
(12)
|
Hong Kong
|
125,340
|
48,594
|
19,319
|
144,659
|
(3,099)
|
(2,147)
|
(57)
|
(3,156)
|
Australia
|
12,685
|
4,443
|
1,564
|
14,249
|
(49)
|
(1)
|
-
|
(49)
|
India
|
10,856
|
2,083
|
5,315
|
16,171
|
(47)
|
(7)
|
(4)
|
(51)
|
Indonesia
|
3,100
|
162
|
411
|
3,511
|
(136)
|
(58)
|
-
|
(136)
|
Mainland China
|
28,655
|
6,709
|
7,775
|
36,430
|
(313)
|
(212)
|
(11)
|
(324)
|
Malaysia
|
5,797
|
1,137
|
258
|
6,055
|
(69)
|
(15)
|
-
|
(69)
|
Singapore
|
15,845
|
3,458
|
948
|
16,793
|
(321)
|
(40)
|
(1)
|
(322)
|
Taiwan
|
4,512
|
30
|
81
|
4,593
|
-
|
-
|
-
|
-
|
Egypt
|
899
|
45
|
86
|
985
|
(128)
|
(10)
|
(1)
|
(129)
|
UAE
|
13,740
|
1,979
|
823
|
14,563
|
(543)
|
(296)
|
-
|
(543)
|
US
|
26,993
|
5,143
|
9,155
|
36,148
|
(239)
|
(101)
|
(58)
|
(297)
|
Mexico
|
11,326
|
865
|
1,349
|
12,675
|
(320)
|
(19)
|
(5)
|
(325)
|
Other
|
27,519
|
3,496
|
2,294
|
29,813
|
(366)
|
(80)
|
(18)
|
(384)
|
At
31 Dec 2023
|
427,655
|
101,455
|
74,432
|
502,087
|
(7,803)
|
(3,286)
|
(404)
|
(8,207)
|
Wholesale lending - loans and
advances to customers at amortised cost by country/territory
(continued)
|
|
Gross
carrying amount
|
Allowance for ECL
|
|
Corporate and commercial
|
of which: real estate and
construction
|
Non-bank
financial institutions
|
Total
|
Corporate and commercial
|
of which: real estate and
construction
|
Non-bank
financial institutions
|
Total
|
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
UK
|
104,775
|
18,747
|
12,662
|
117,437
|
(1,522)
|
(420)
|
(131)
|
(1,653)
|
- of which: HSBC UK Bank plc
(ring-fenced bank)
|
78,249
|
17,121
|
2,980
|
81,229
|
(1,247)
|
(279)
|
(6)
|
(1,253)
|
- of which: HSBC Bank plc
(non-ring-fenced bank)
|
26,526
|
1,625
|
9,682
|
36,208
|
(275)
|
(141)
|
(125)
|
(400)
|
France
|
27,571
|
4,607
|
4,152
|
31,723
|
(621)
|
(49)
|
(4)
|
(625)
|
Germany
|
6,603
|
252
|
713
|
7,316
|
(154)
|
-
|
(3)
|
(157)
|
Switzerland
|
988
|
635
|
298
|
1,286
|
(8)
|
-
|
-
|
(8)
|
Hong Kong
|
144,256
|
58,531
|
20,798
|
165,054
|
(2,997)
|
(1,980)
|
(35)
|
(3,032)
|
Australia
|
11,641
|
3,339
|
1,157
|
12,798
|
(97)
|
(1)
|
-
|
(97)
|
India
|
9,052
|
1,901
|
4,267
|
13,319
|
(80)
|
(26)
|
(10)
|
(90)
|
Indonesia
|
3,214
|
206
|
226
|
3,440
|
(187)
|
(5)
|
-
|
(187)
|
Mainland China
|
31,790
|
7,499
|
8,908
|
40,698
|
(327)
|
(174)
|
(30)
|
(357)
|
Malaysia
|
5,986
|
1,351
|
180
|
6,166
|
(133)
|
(38)
|
-
|
(133)
|
Singapore
|
15,905
|
4,031
|
1,192
|
17,097
|
(387)
|
(44)
|
(1)
|
(388)
|
Taiwan
|
4,701
|
36
|
65
|
4,766
|
(1)
|
-
|
-
|
(1)
|
Egypt
|
1,262
|
111
|
101
|
1,363
|
(117)
|
(6)
|
(1)
|
(118)
|
UAE
|
13,503
|
2,091
|
149
|
13,652
|
(674)
|
(342)
|
-
|
(674)
|
US
|
28,249
|
6,491
|
8,640
|
36,889
|
(214)
|
(95)
|
(26)
|
(240)
|
Mexico
|
9,784
|
1,081
|
717
|
10,501
|
(334)
|
(34)
|
(1)
|
(335)
|
Other
|
33,922
|
3,676
|
2,699
|
36,621
|
(467)
|
(79)
|
(15)
|
(482)
|
At 31 Dec 2022
|
453,202
|
114,585
|
66,924
|
520,126
|
(8,320)
|
(3,293)
|
(257)
|
(8,577)
|
1 Real estate lending within this
disclosure corresponds solely to the industry of the borrower.
Commercial real estate on page 183
includes borrowers in multiple industries investing in
income-producing assets and, to a lesser extent, their construction
and development.
Personal lending - loans and
advances to customers at amortised cost by
country/territory
|
|
Gross carrying
amount
|
Allowance for
ECL
|
|
First lien residential
mortgages
|
Other
personal
|
of which: credit
cards
|
Total
|
First lien residential
mortgages
|
Other
personal
|
of which: credit
cards
|
Total
|
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
UK
|
168,469
|
19,503
|
8,056
|
187,972
|
(209)
|
(697)
|
(339)
|
(906)
|
- of which: HSBC UK Bank plc
(ring-fenced bank)
|
164,878
|
17,884
|
7,975
|
182,762
|
(205)
|
(692)
|
(336)
|
(897)
|
- of which: HSBC Bank plc
(non-ring-fenced
bank)
|
3,226
|
141
|
81
|
3,367
|
(3)
|
(5)
|
(2)
|
(8)
|
- of which: Other trading
entities
|
365
|
1,478
|
-
|
1,843
|
(1)
|
-
|
(1)
|
(1)
|
France1
|
436
|
7,476
|
1
|
7,912
|
(13)
|
(8)
|
-
|
(21)
|
Germany
|
-
|
165
|
-
|
165
|
-
|
-
|
-
|
-
|
Switzerland
|
1,770
|
5,466
|
-
|
7,236
|
(1)
|
(20)
|
-
|
(21)
|
Hong Kong
|
107,182
|
31,248
|
9,663
|
138,430
|
(2)
|
(417)
|
(286)
|
(419)
|
Australia
|
23,001
|
446
|
396
|
23,447
|
(5)
|
(19)
|
(18)
|
(24)
|
India
|
1,537
|
680
|
185
|
2,217
|
(4)
|
(16)
|
(12)
|
(20)
|
Indonesia
|
58
|
288
|
137
|
346
|
(2)
|
(11)
|
(7)
|
(13)
|
Mainland China
|
7,503
|
754
|
287
|
8,257
|
(3)
|
(49)
|
(39)
|
(52)
|
Malaysia
|
2,313
|
2,115
|
882
|
4,428
|
(23)
|
(87)
|
(36)
|
(110)
|
Singapore
|
8,151
|
5,589
|
521
|
13,740
|
-
|
(38)
|
(17)
|
(38)
|
Taiwan
|
5,607
|
1,370
|
309
|
6,977
|
-
|
(17)
|
(4)
|
(17)
|
Egypt
|
-
|
341
|
89
|
341
|
-
|
(1)
|
(1)
|
(1)
|
UAE
|
1,957
|
1,325
|
440
|
3,282
|
(10)
|
(62)
|
(24)
|
(72)
|
US
|
18,340
|
673
|
199
|
19,013
|
(15)
|
(19)
|
(14)
|
(34)
|
Mexico
|
8,778
|
6,215
|
2,465
|
14,993
|
(176)
|
(757)
|
(297)
|
(933)
|
Other
|
5,807
|
2,959
|
1,050
|
8,766
|
(108)
|
(78)
|
(42)
|
(186)
|
At
31 Dec 2023
|
360,909
|
86,613
|
24,680
|
447,522
|
(571)
|
(2,296)
|
(1,136)
|
(2,867)
|
Personal lending - loans and
advances to customers at amortised costs by country/territory
(continued)
|
|
Gross
carrying amount
|
Allowance for ECL
|
|
First
lien residential mortgages
|
Other
personal
|
of which: credit
cards
|
Total
|
First
lien residential mortgages
|
Other
personal
|
of which: credit
cards
|
Total
|
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
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)
|
France1
|
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
at 31 December 2023 is $7,424m (31 December 2022: nil) guaranteed
by Crédit Logement.
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 1
|
Stage 2
|
Stage 3
|
POCI
|
Total
|
Stage 1
|
Stage 2
|
Stage 3
|
POCI
|
Total
|
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
- WPB
|
630,661
|
54,069
|
4,233
|
-
|
688,963
|
(621)
|
(1,551)
|
(977)
|
-
|
(3,149)
|
- CMB
|
464,893
|
66,688
|
12,698
|
49
|
544,328
|
(508)
|
(1,336)
|
(4,995)
|
(23)
|
(6,862)
|
- GBM
|
696,377
|
14,247
|
3,002
|
32
|
713,658
|
(119)
|
(199)
|
(1,161)
|
(7)
|
(1,486)
|
- Corporate Centre
|
75,805
|
37
|
6
|
-
|
75,848
|
(1)
|
(13)
|
-
|
-
|
(14)
|
Total gross carrying amount on-balance sheet at
31 Dec 2023
|
1,867,736
|
135,041
|
19,939
|
81
|
2,022,797
|
(1,249)
|
(3,099)
|
(7,133)
|
(30)
|
(11,511)
|
- WPB
|
253,333
|
3,811
|
333
|
-
|
257,477
|
(22)
|
-
|
(2)
|
-
|
(24)
|
- CMB
|
142,206
|
16,238
|
877
|
-
|
159,321
|
(100)
|
(101)
|
(102)
|
-
|
(303)
|
- GBM
|
250,007
|
10,752
|
314
|
4
|
261,077
|
(38)
|
(34)
|
(7)
|
-
|
(79)
|
- Corporate Centre
|
149
|
-
|
-
|
-
|
149
|
-
|
-
|
-
|
-
|
-
|
Total nominal amount off-balance sheet at
31 Dec 2023
|
645,695
|
30,801
|
1,524
|
4
|
678,024
|
(160)
|
(135)
|
(111)
|
-
|
(406)
|
|
|
|
|
|
|
|
|
|
|
|
- WPB
|
124,747
|
406
|
-
|
-
|
125,153
|
(14)
|
(17)
|
-
|
-
|
(31)
|
- CMB
|
86,021
|
405
|
-
|
-
|
86,426
|
(9)
|
(18)
|
-
|
-
|
(27)
|
- GBM
|
88,229
|
173
|
1
|
-
|
88,403
|
(13)
|
(6)
|
(1)
|
-
|
(20)
|
- Corporate Centre
|
2,201
|
165
|
-
|
-
|
2,366
|
(1)
|
(18)
|
-
|
-
|
(19)
|
Debt instruments measured at FVOCI at
31
Dec 2023
|
301,198
|
1,149
|
1
|
-
|
302,348
|
(37)
|
(59)
|
(1)
|
-
|
(97)
|
- WPB
|
593,424
|
53,302
|
3,959
|
-
|
650,685
|
(602)
|
(1,586)
|
(980)
|
-
|
(3,168)
|
- CMB
|
440,638
|
82,087
|
13,072
|
112
|
535,909
|
(484)
|
(1,620)
|
(4,988)
|
(38)
|
(7,130)
|
- GBM
|
700,267
|
20,577
|
3,344
|
17
|
724,205
|
(116)
|
(463)
|
(1,116)
|
-
|
(1,695)
|
- Corporate Centre
|
83,491
|
188
|
8
|
-
|
83,687
|
(3)
|
(13)
|
-
|
-
|
(16)
|
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)
|
- WPB
|
239,357
|
4,388
|
770
|
-
|
244,515
|
(25)
|
(1)
|
-
|
-
|
(26)
|
- CMB
|
130,342
|
20,048
|
642
|
-
|
151,032
|
(83)
|
(136)
|
(81)
|
-
|
(300)
|
- GBM
|
229,507
|
12,059
|
209
|
-
|
241,775
|
(39)
|
(56)
|
(17)
|
-
|
(112)
|
- Corporate Centre
|
248
|
1
|
-
|
-
|
249
|
-
|
-
|
-
|
-
|
-
|
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)
|
Loans and advances to customers and
banks - other supplementary information
|
|
Gross carrying
amount
|
of which: stage 3 and
POCI
|
Allowance for
ECL
|
of which: stage 3 and
POCI
|
Change in
ECL
|
Write-offs
|
Recoveries
|
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
First lien residential
mortgages
|
360,909
|
2,212
|
(571)
|
(269)
|
(10)
|
(53)
|
10
|
- second lien residential
mortgages
|
396
|
21
|
(8)
|
(5)
|
(1)
|
(1)
|
2
|
- guaranteed loans in respect
of residential property
|
8,593
|
90
|
(20)
|
(14)
|
2
|
(8)
|
2
|
- other personal lending which
is secured
|
29,481
|
157
|
(42)
|
(24)
|
8
|
(2)
|
2
|
- credit cards
|
24,680
|
352
|
(1,136)
|
(203)
|
(577)
|
(571)
|
108
|
- other personal lending which
is unsecured
|
21,251
|
659
|
(1,048)
|
(331)
|
(380)
|
(663)
|
99
|
- motor vehicle
finance
|
2,212
|
14
|
(42)
|
(8)
|
(61)
|
(28)
|
3
|
Other personal lending
|
86,613
|
1,293
|
(2,296)
|
(585)
|
(1,009)
|
(1,273)
|
216
|
Personal lending
|
447,522
|
3,505
|
(2,867)
|
(854)
|
(1,019)
|
(1,326)
|
226
|
- agriculture, forestry and
fishing
|
7,181
|
312
|
(130)
|
(64)
|
(21)
|
(9)
|
-
|
- mining and
quarrying
|
7,223
|
325
|
(101)
|
(83)
|
27
|
(49)
|
-
|
- manufacturing
|
85,333
|
1,899
|
(1,143)
|
(860)
|
(355)
|
(273)
|
11
|
- electricity, gas, steam and
air-conditioning supply
|
14,355
|
255
|
(119)
|
(88)
|
(26)
|
(10)
|
-
|
- water supply, sewerage,
waste management and remediation
|
3,262
|
102
|
(63)
|
(51)
|
(44)
|
(2)
|
-
|
- real estate and
construction
|
101,455
|
5,883
|
(3,286)
|
(2,561)
|
(1,358)
|
(1,191)
|
6
|
- wholesale and retail trade,
repair of motor vehicles and motorcycles
|
79,121
|
2,362
|
(1,341)
|
(1,134)
|
(124)
|
(447)
|
12
|
- transportation and
storage
|
21,456
|
445
|
(230)
|
(160)
|
(87)
|
(42)
|
-
|
- accommodation and
food
|
15,874
|
1,058
|
(257)
|
(112)
|
(33)
|
(26)
|
-
|
- publishing, audiovisual and
broadcasting
|
19,731
|
210
|
(173)
|
(50)
|
(106)
|
(73)
|
-
|
- professional, scientific and
technical activities
|
26,753
|
740
|
(401)
|
(306)
|
(262)
|
(110)
|
1
|
- administrative and support
services
|
22,203
|
597
|
(268)
|
(174)
|
39
|
(137)
|
-
|
- public administration and
defence, compulsory social security
|
1,042
|
-
|
-
|
-
|
-
|
-
|
-
|
- education
|
1,460
|
46
|
(15)
|
(4)
|
(1)
|
(22)
|
-
|
- health and care
|
4,236
|
183
|
(56)
|
(26)
|
40
|
(7)
|
-
|
- arts, entertainment and
recreation
|
1,961
|
99
|
(42)
|
(31)
|
15
|
(8)
|
-
|
- other services
|
8,355
|
318
|
(153)
|
(90)
|
22
|
(181)
|
12
|
- activities of
households
|
694
|
-
|
-
|
-
|
-
|
-
|
-
|
- extra-territorial
organisations and bodies activities
|
101
|
-
|
-
|
-
|
-
|
-
|
-
|
- government
|
5,827
|
205
|
(12)
|
(10)
|
(15)
|
-
|
-
|
- asset-backed
securities
|
32
|
-
|
(13)
|
-
|
-
|
-
|
-
|
Corporate and commercial
|
427,655
|
15,039
|
(7,803)
|
(5,804)
|
(2,289)
|
(2,587)
|
42
|
Non-bank financial
institutions
|
74,432
|
810
|
(404)
|
(322)
|
(168)
|
(9)
|
-
|
Wholesale lending
|
502,087
|
15,849
|
(8,207)
|
(6,126)
|
(2,457)
|
(2,596)
|
42
|
Loans and advances to
customers
|
949,609
|
19,354
|
(11,074)
|
(6,980)
|
(3,476)
|
(3,922)
|
268
|
Loans and advances to
banks
|
112,917
|
2
|
(15)
|
(2)
|
53
|
-
|
-
|
At
31 Dec 2023
|
1,062,526
|
19,356
|
(11,089)
|
(6,982)
|
(3,423)
|
(3,922)
|
268
|
Loans and advances to customers and
banks - other supplementary information (continued)
|
|
Gross
carrying amount
|
of which: stage 3 and
POCI
|
Allowance for ECL
|
of which: stage 3 and
POCI
|
Change
in ECL
|
Write-offs
|
Recoveries
|
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
First lien residential
mortgages
|
336,821
|
2,042
|
(575)
|
(270)
|
180
|
(48)
|
26
|
- second lien residential
mortgages
|
379
|
6
|
(6)
|
(3)
|
9
|
(1)
|
4
|
- guaranteed loans in respect
of residential property
|
1,367
|
125
|
(34)
|
(30)
|
(11)
|
(9)
|
2
|
- other personal lending which
is secured
|
32,106
|
206
|
(55)
|
(30)
|
(16)
|
(5)
|
1
|
- credit cards
|
21,388
|
260
|
(1,161)
|
(160)
|
(638)
|
(471)
|
126
|
- other personal lending which
is unsecured
|
20,880
|
687
|
(1,008)
|
(305)
|
(655)
|
(660)
|
119
|
- motor vehicle
finance
|
1,941
|
13
|
(31)
|
(7)
|
39
|
(18)
|
5
|
Other personal lending
|
78,061
|
1,297
|
(2,295)
|
(535)
|
(1,272)
|
(1,164)
|
257
|
Personal lending
|
414,882
|
3,339
|
(2,870)
|
(805)
|
(1,092)
|
(1,212)
|
283
|
- agriculture, forestry and
fishing
|
6,571
|
261
|
(122)
|
(68)
|
(32)
|
(42)
|
-
|
- mining and
quarrying
|
8,120
|
233
|
(172)
|
(146)
|
(24)
|
(46)
|
-
|
- manufacturing
|
87,460
|
2,065
|
(1,153)
|
(896)
|
(191)
|
(171)
|
3
|
- electricity, gas, steam and
air-conditioning supply
|
16,478
|
277
|
(108)
|
(67)
|
(75)
|
(16)
|
-
|
- water supply, sewerage,
waste management and remediation
|
2,993
|
26
|
(21)
|
(13)
|
3
|
(1)
|
-
|
- real estate and
construction
|
114,585
|
5,651
|
(3,293)
|
(2,232)
|
(1,630)
|
(310)
|
8
|
- wholesale and retail trade,
repair of motor vehicles and motorcycles
|
82,429
|
2,810
|
(1,666)
|
(1,344)
|
(344)
|
(667)
|
8
|
- transportation and
storage
|
24,686
|
556
|
(248)
|
(153)
|
(13)
|
(82)
|
1
|
- accommodation and
food
|
17,174
|
789
|
(244)
|
(82)
|
103
|
(29)
|
-
|
- publishing, audiovisual and
broadcasting
|
18,388
|
277
|
(117)
|
(59)
|
9
|
(47)
|
1
|
- professional, scientific and
technical activities
|
17,935
|
542
|
(272)
|
(200)
|
(81)
|
(31)
|
1
|
- administrative and support
services
|
25,077
|
980
|
(408)
|
(293)
|
(27)
|
(27)
|
1
|
- public administration and
defence, compulsory social security
|
1,180
|
-
|
(1)
|
-
|
5
|
-
|
-
|
- education
|
1,593
|
87
|
(31)
|
(22)
|
1
|
(3)
|
-
|
- health and care
|
3,902
|
266
|
(90)
|
(67)
|
(30)
|
(7)
|
1
|
- arts, entertainment and
recreation
|
1,862
|
146
|
(77)
|
(57)
|
1
|
(17)
|
-
|
- other services
|
12,471
|
589
|
(274)
|
(219)
|
120
|
(92)
|
7
|
- activities of
households
|
744
|
-
|
-
|
-
|
-
|
-
|
-
|
- extra-territorial
organisations and bodies activities
|
47
|
-
|
-
|
-
|
1
|
-
|
1
|
- government
|
9,475
|
270
|
(10)
|
(7)
|
(5)
|
-
|
-
|
- asset-backed
securities
|
32
|
-
|
(13)
|
-
|
(4)
|
-
|
-
|
Corporate and commercial
|
453,202
|
15,825
|
(8,320)
|
(5,925)
|
(2,213)
|
(1,588)
|
32
|
Non-bank financial
institutions
|
66,924
|
469
|
(257)
|
(137)
|
(165)
|
(1)
|
1
|
Wholesale lending
|
520,126
|
16,294
|
(8,577)
|
(6,062)
|
(2,378)
|
(1,589)
|
33
|
Loans and advances to
customers
|
935,008
|
19,633
|
(11,447)
|
(6,867)
|
(3,470)
|
(2,801)
|
316
|
Loans and advances to
banks
|
104,544
|
82
|
(69)
|
(22)
|
(53)
|
-
|
-
|
At 31 Dec 2022
|
1,039,552
|
19,715
|
(11,516)
|
(6,889)
|
(3,523)
|
(2,801)
|
316
|
HSBC Holdings
(Audited)
Risk in HSBC Holdings is overseen by
the HSBC Holdings Asset and Liability Management Committee. The
major risks faced by HSBC Holdings are credit risk, liquidity risk
and market risk (in the form of interest rate risk and foreign
exchange risk).
Credit risk in HSBC Holdings
primarily arises from transactions with Group
subsidiaries.
In HSBC Holdings, the maximum
exposure to credit risk arises from two components:
- financial assets on the balance sheet, where maximum exposure
equals the carrying amount (see page 338); and
- financial guarantees and other guarantees, where the maximum
exposure is the maximum that we would have to pay if the guarantees
were called upon (see Note 34).
In the case of our derivative asset
balances (see page 338), there is a legally enforceable right of
offset in the event of counterparty default and where, as a result,
there is a net exposure for credit risk purposes. However, as there
is no intention to settle these balances on a net basis under
normal circumstances, they do not qualify for net presentation for
accounting purposes. These offsets also include collateral received
in cash and other financial assets.
The total offset relating to our
derivative asset balances was $3.0bn at 31 December 2023
(2022: $3.1bn).
The credit quality of loans and
advances and financial investments, both of which consist of
intra-Group lending and US Treasury bills and bonds,
is assessed as 'strong', with 100% of the exposure being
neither past due nor impaired (2022: 100%). For further details of
credit quality classification, see page 148.
Contents
203
|
Overview
|
203
|
Treasury risk management
|
205
|
Other Group risks
|
206
|
Capital risk in 2023
|
210
|
Liquidity and funding risk in
2023
|
213
|
Structural foreign exchange risk in
2023
|
214
|
Interest rate risk in the banking
book in 2023
|
Overview
Treasury risk is the risk of having
insufficient capital, liquidity or funding resources to meet
financial obligations and satisfy regulatory requirements,
including the risk of adverse impact on earnings or capital due to
structural and transactional foreign exchange exposures, as well as
changes in market interest rates, together with pension and
insurance risk.
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
(Audited)
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 aim to 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. The risk management 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, structural and
transactional foreign exchange risk, and interest rate risk in the
banking book.
For further details, refer to our Pillar 3 Disclosures at 31 December 2023.
Treasury risk
management
Key developments in 2023
- Following high-profile banking failures in the first quarter
of 2023, we reviewed our liquidity monitoring and metric
assumptions as part of our internal liquidity adequacy assessment
process cycle to ensure they continued to cover observed and
emerging risks.
- In
2023, we reverted to a policy of paying quarterly
dividends, with the Board approving three interim dividends of
$0.10 per share. We announced $7bn of share buy-backs during
2023.
- Effective July 2023, the Bank of England's
Financial Policy Committee doubled the UK countercyclical capital
buffer rate from 1% to 2%, in line with the usual
12‑month
implementation lag. This change increased our CET1 requirement by
0.2 percentage points.
- We
further stabilised our net interest income against a backdrop of
fluctuating interest rate expectations as the trajectory of
inflation for major economies was reassessed.
- Following the acquisition of SVB UK in the first quarter of
2023, we launched HSBC Innovation Banking in June, which combined
the expertise of SVB UK with the reach of our international
network. We are in the process of integrating HSBC Innovation
Banking into the Group. The acquisition was funded from existing
resources, and the impacts on our Group LCR and CET1 ratio were minimal.
- In
the fourth quarter of 2023, we reclassified our retail banking
operations in France as held for sale, recognising a $2.0bn loss.
In the first quarter, we had recognised a $2.1bn partial reversal
of impairment for this business. The net result for the year was a
favourable $0.1bn impact. On 1 January 2024, we completed the sale
of this business with no material incremental impact on
CET1.
- Having entered into an agreement to sell
our banking business in Canada in 2022, the transaction is expected
to complete at the end of the first quarter of 2024. The associated
gain on sale is expected to add approximately 1.2 percentage points
to the CET1 ratio as it stood at 31 December
2023.
For quantitative disclosures on capital ratios, own funds and
risk-weighted assets ('RWAs'), see pages 206 to 207. For
quantitative disclosures on liquidity and funding metrics, see
pages 210 to 211. For quantitative disclosures on interest rate
risk in the banking book, see pages 214 to 216.
Governance and structure
The Global Head of Traded and
Treasury Risk Management and Risk Analytics is the accountable risk
steward for all treasury risks. The Group Treasurer is the risk
owner for all treasury risks, with the exception of pension risk
and insurance risk. The Group Treasurer co-owns pension risk with
the Group Head of Performance, Reward and Employee Relations.
Insurance risk is owned by the Chief Executive Officer for Global
Insurance.
Capital risk, liquidity risk,
interest rate risk in the banking book, structural foreign exchange
risk and transactional foreign exchange risk are the responsibility
of the Group Executive Committee and the Group Risk Committee
('GRC'). Global Treasury actively manages these risks on an ongoing
basis, supported by the Holdings Asset and Liability Management
Committee ('ALCO') and local ALCOs, overseen by Treasury Risk
Management and Risk Management Meetings.
Pension risk is overseen by a
network of local and regional pension risk management meetings. The
Global Pensions Risk Management Meeting provides oversight of all
pension plans sponsored by HSBC globally, and is chaired by
the accountable risk steward. Insurance risk is
overseen by the Global Insurance Risk Management Meeting, chaired
by the Chief Risk and Compliance Officer for Global
Insurance.
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'), the leverage ratio and double
leverage. Our internal capital adequacy assessment process
('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.
The Group's ICAAP supports the determination of the consolidated
capital risk appetite and target ratios, as well as enables the
assessment and determination of capital requirements by regulators.
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
MREL to its subsidiaries, including equity and non-equity capital.
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 group retains a substantial holdings capital
buffer comprising cash and other high-quality liquid assets, which
at 31 December 2023 was in excess of $27bn,
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 internal liquidity adequacy assessment process ('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 RWA 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
Holdings ALCO.
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 and a related economic
profit measure.
Funding and liquidity plans also
form part of the financial resource plan that is approved by the
Board. The Board-level appetite measures are the liquidity coverage
ratio ('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.
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 developments 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 July 2025. The PRA has also published a set of near-final
rules in relation to some Basel 3.1 elements. We are currently
assessing the impact of implementation.
The RWA output floor under Basel 3.1
is proposed to be subject to a four-and-a-half year transitional
provision. Any impact from the output floor is expected be towards
the end of the transition period.
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 global
processes, improve consistency and enhance controls across
regulatory reports.
The ongoing programme of work
focuses on our material regulatory reports and is being phased over
a number of years. This programme includes data enhancement,
transformation of the reporting systems and an uplift to the
control environment over the report production process.
While this programme continues,
there may be further impacts on some of our regulatory ratios, such
as the CET1, LCR and NSFR, as we implement recommended changes and
continue to enhance our controls across the process.
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, input into global business
performance measures through tangible equity allocation, 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
('BoE'), 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 and the BoE publicly disclosed
the status of HSBC's progress against the BoE's Resolvability
Assessment Framework in June 2022, following the submission of
HSBC's inaugural resolvability self-assessment in October 2021.
HSBC has continued to enhance its resolvability capabilities since
this time and submitted its second self-assessment in October 2023.
A subsequent update was provided to the BoE in January 2024.
Further public disclosure by the Group and the BoE as to HSBC's
progress against the Resolvability Assessment Framework will be
made in June 2024.
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 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.
Global Treasury uses a number of
measures to monitor and control interest rate risk in the banking
book, including:
- net
interest income sensitivity;
- banking net interest income sensitivity; and
- economic value of equity sensitivity.
Net
interest income and banking 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 and Group level, where a range of interest rate scenarios
are monitored on a one-year basis.
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 prepayments. 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.
During 2023, we introduced an
additional metric to measure and manage the sensitivity of our NII
to interest rate shocks. In addition to NII sensitivity, we now
also monitor banking NII sensitivity. HSBC has a significant
quantity of trading book assets that are funded by banking book
liabilities, and the NII sensitivity measure does not include the
sensitivity of the internal transfer income from this funding.
Banking NII sensitivity includes an adjustment on top of NII
sensitivity to reflect this. Going forwards, this will be our
primary metric for monitoring and management of interest rate risk
in the banking book.
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. 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.
Further details of HSBC's risk management of interest rate
risk in the banking book can be found in the Group's
Pillar 3 Disclosures at 31 December
2023.
Other Group risks
Non-trading book foreign exchange
exposures
Structural foreign exchange exposures
Structural foreign exchange
exposures arise from net assets or capital investments in foreign
operations, together with any associated hedging. A foreign
operation is defined as a subsidiary, associate, joint arrangement
or branch where the activities are conducted in a currency other
than that of the reporting entity. An entity's functional reporting
currency is normally that of the primary economic environment in
which the entity operates.
Exchange differences on structural
exposures are recognised in other comprehensive income ('OCI'). We
use the US dollar as our presentation currency in our consolidated
financial statements because the US dollar and currencies linked to
it form the major currency bloc in which we transact and fund our
business. Therefore, our consolidated balance sheet is affected by
exchange differences between the US dollar and all the non-US
dollar functional currencies of underlying foreign
operations.
Our structural foreign exchange
exposures are managed with the primary objective of ensuring, where
practical, that our consolidated capital ratios and the capital
ratios of individual banking subsidiaries are largely protected
from the effect of changes in exchange rates. We hedge structural
foreign exchange positions where it is capital efficient to do so,
and subject to approved limits. This is achieved through a
combination of net investment hedges and economic hedges. Hedging
positions are monitored and rebalanced periodically to manage RWA
or downside risks associated with HSBC's foreign currency
investments.
For further details of our structural foreign exchange
exposures, see page 213.
Transactional foreign exchange exposures
Transactional foreign exchange risk
arises primarily from day-to-day transactions in the banking book
generating profit and loss or fair value through other
comprehensive income ('FVOCI') reserves in a currency other than
the reporting currency of the operating entity. Transactional foreign exchange exposure generated through
profit and loss is periodically transferred to Markets and
Securities Services and managed within limits, with the exception
of limited residual foreign exchange exposure arising from timing
differences or for other reasons. Transactional foreign exchange
exposure generated through OCI reserves is managed by Global
Treasury within approved appetite.
HSBC Holdings risk
management
As a financial services holding
company, HSBC Holdings has limited market risk activities. Its
activities predominantly involve maintaining sufficient capital
resources to support the Group's diverse activities; allocating
these capital resources across the Group's businesses; earning
dividend and interest income on its investments in the businesses;
payment of operating expenses; providing dividend payments to its
equity shareholders and interest payments to providers of debt
capital; and maintaining a supply of short-term liquid assets for
deployment under extraordinary circumstances.
The main market risks to which HSBC
Holdings is exposed are banking book interest rate risk and foreign
currency risk. Exposure to these risks arises from short-term cash
balances, funding positions held, loans to subsidiaries,
investments in long-term financial assets, financial liabilities
including debt capital issued, and structural foreign exchange
hedges. The objective of HSBC Holdings' market risk management
strategy is to manage volatility in capital resources, cash flows
and distributable reserves that could be caused by movements in
market parameters. Market risk for HSBC Holdings is monitored by
Holdings ALCO in accordance with its risk appetite
statement.
HSBC Holdings uses interest rate
swaps and cross-currency interest rate swaps to manage the interest
rate risk and foreign currency risk arising from its long-term debt
issues. It also uses forward foreign exchange contracts to manage
its structural foreign exchange exposures.
For quantitative disclosures on interest rate risk in the
banking book, see pages 214 to 216.
Pension risk management
processes
Our global pensions strategy is to
move from defined benefit to defined contribution plans, where
local law allows and it is considered competitive to do so. Our
most material defined benefit plans have been closed to new
entrants for many years, and the majority (including the largest
plan in the UK) are also closed to future accrual.
In defined
contribution pension plans, the contributions that HSBC is required
to make are known, while the ultimate pension benefit will vary,
typically with investment returns achieved by investment choices
made by the employee. While the market risk to HSBC of defined
contribution plans is low, the Group is still exposed to
operational and reputational risk.
In defined benefit pension plans,
the level of pension benefit is known. Therefore, the level of
contributions required by HSBC will vary due to a number of risks,
including:
- investments delivering a return below the level required to
provide the projected plan benefits;
- the
prevailing economic environment leading to corporate failures, thus
triggering write-downs in asset values (both equity and
debt);
- a
change in either interest rates or inflation expectations, causing
an increase in the value of plan liabilities; and
- plan members living longer than expected (known as longevity
risk).
Pension risk is assessed using an
economic capital model that takes into account potential variations
in these factors. The impact of these variations on both pension
assets and pension liabilities is assessed using a one-in-200-year
stress test. Scenario analysis and other stress tests are also used
to support pension risk management, including the review of
de-risking opportunities.
To fund the benefits associated with
defined benefit plans, sponsoring Group companies, and in some
instances employees, make regular contributions in accordance with
advice from actuaries and in consultation with the plan's
fiduciaries where relevant. These contributions are normally set to
ensure that there are sufficient funds to meet the cost of the
accruing benefits for the future service of active members.
However, higher contributions are required when plan assets are
considered insufficient to cover the existing pension liabilities.
Contribution rates are typically revised annually or once every
three years, depending on the plan.
The defined benefit plans invest
contributions in a range of investments designed to limit the risk
of assets failing to meet a plan's liabilities. Any changes in
expected returns from the investments may also change future
contribution requirements. In pursuit of these long-term
objectives, an overall target allocation is
established between asset classes of the defined benefit
plan. In addition, each permitted asset class has its own
benchmarks, such as stock-market or property valuation indices or
liability characteristics. The benchmarks are reviewed at least
once every three to five years and more frequently if required by
local legislation or circumstances. The process generally involves
an extensive asset and liability review.
In addition, some of the Group's
pension plans hold longevity swap contracts. These arrangements
provide long-term protection to the relevant plans against costs
resulting from pensioners or their dependants living longer than
initially expected. The most sizeable plan to do this is the HSBC
Bank (UK) Pension Scheme, which holds longevity swaps covering approximately 50% of the plan's pensioner liabilities.
Capital adequacy metrics
|
|
At
|
|
31 Dec
|
31
Dec
|
|
2023
|
2022
|
Risk-weighted assets ('RWAs') ($bn)
|
|
|
Credit risk
|
683.9
|
679.1
|
Counterparty credit risk
|
35.5
|
37.1
|
Market risk
|
37.5
|
37.6
|
Operational risk
|
97.2
|
85.9
|
Total RWAs
|
854.1
|
839.7
|
Capital on a transitional basis ($bn)
|
|
|
Common equity tier 1 ('CET1')
capital
|
126.5
|
119.3
|
Tier 1 capital
|
144.2
|
139.1
|
Total capital
|
171.2
|
162.4
|
Capital ratios on a transitional basis (%)
|
|
|
Common equity tier 1
ratio
|
14.8
|
14.2
|
Tier 1 ratio
|
16.9
|
16.6
|
Total capital ratio
|
20.0
|
19.3
|
Capital on an end point basis ($bn)
|
|
|
Common equity tier 1 ('CET1')
capital
|
126.5
|
119.3
|
Tier 1 capital
|
144.2
|
139.1
|
Total capital
|
167.1
|
157.2
|
Capital ratios on an end point basis (%)
|
|
|
Common equity tier 1
ratio
|
14.8
|
14.2
|
Tier 1 ratio
|
16.9
|
16.6
|
Total capital ratio
|
19.6
|
18.7
|
Liquidity coverage ratio ('LCR')
|
|
|
Total high-quality liquid assets
($bn)
|
647.5
|
647.0
|
Total net cash outflow
($bn)
|
477.1
|
490.8
|
LCR
(%)
|
136
|
132
|
Net
stable funding ratio ('NSFR')
|
|
|
Total available stable funding
($bn)
|
1,601.9
|
1,552.0
|
Total required stable funding
($bn)
|
1,202.4
|
1,138.4
|
NSFR (%)
|
133
|
136
|
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
previous table are calculated in accordance with the regulatory
requirements of the Capital Requirements Regulation and Directive,
the CRR II regulation and the PRA Rulebook ('CRR II'). The table
presents them under the
transitional arrangements in CRR II
for capital instruments and after their expiry, known as the end
point.
The liquidity coverage ratio is
based on the average month-end value over the preceding 12 months.
The net stable funding ratio is the average of the preceding four
quarters.
Regulatory numbers and ratios are as
presented at the date of reporting. Small changes may exist between
these numbers and ratios and those submitted in regulatory filings.
Where differences are significant, we may restate in subsequent
periods.
Own funds disclosure
|
(Audited)
|
At
|
|
|
31 Dec
|
31
Dec
|
|
|
2023
|
2022
|
Ref*
|
|
$m
|
$m
|
|
Common equity tier 1 ('CET1') capital: instruments and
reserves
|
|
|
1
|
Capital instruments and the related
share premium accounts
|
22,964
|
23,406
|
|
- ordinary shares
|
22,964
|
23,406
|
2,3
|
Retained earnings, accumulated other
comprehensive income (and other reserves)1
|
128,419
|
121,609
|
5
|
Minority interests (amount allowed
in consolidated CET1)
|
3,917
|
4,444
|
5a
|
Independently reviewed net profits
net of any foreseeable charge or dividend
|
10,568
|
8,633
|
6
|
Common equity tier 1 capital before regulatory
adjustments1
|
165,868
|
158,092
|
28
|
Total regulatory adjustments to
common equity tier1
|
(39,367)
|
(38,801)
|
29
|
Common equity tier 1 capital
|
126,501
|
119,291
|
36
|
Additional tier 1 capital before
regulatory adjustments
|
17,732
|
19,836
|
43
|
Total regulatory adjustments to
additional tier 1 capital
|
(70)
|
(60)
|
44
|
Additional tier 1 capital
|
17,662
|
19,776
|
45
|
Tier 1 capital
|
144,163
|
139,067
|
51
|
Tier 2 capital before regulatory
adjustments
|
28,148
|
24,779
|
57
|
Total regulatory adjustments to tier
2 capital
|
(1,107)
|
(1,423)
|
58
|
Tier 2 capital
|
27,041
|
23,356
|
59
|
Total capital
|
171,204
|
162,423
|
* The references identify lines
prescribed in the PRA template, which are applicable and where
there is a value.
1 On adoption of IFRS 17 'Insurance
Contracts', comparative data previously published under IFRS 4
'Insurance Contracts' have been restated for 2022, with no impact
on CET1 and total capital.
At 31 December 2023, our CET1 capital ratio
increased to 14.8% from 14.2% at 31 December 2022, reflecting an
increase in CET1 capital of $7.2bn, partly offset by an increase in
RWAs of $14.4bn. The key drivers of the overall rise in our
CET1 ratio during the year were:
- a
1.0 percentage point increase from capital generation, mainly
through profits less dividends and share buy-backs;
- a
0.3 percentage point reduction due to an increase in regulatory
deductions, primarily for expected excess loss and intangible
assets; and
- a
0.1 percentage point decrease from the adverse impact of foreign
exchange fluctuations and the increase in the underlying
RWAs.
The impairment of BoCom had an
insignificant impact on our capital and CET1 ratio. This is because
the impairment charge had a partially offsetting reduction in
threshold deductions from regulatory capital. For regulatory
capital purposes, our share of BoCom's profits is not capital
accretive, although the dividends we receive from BoCom are capital
accretive.
Our Pillar 2A requirement at 31
December 2023, as per 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 required to be met by CET1. Throughout 2023, we complied with the PRA's regulatory capital
adequacy requirements.
Risk-weighted assets
RWAs by global business
|
|
WPB
|
CMB1
|
GBM1
|
Corporate
Centre
|
Total
RWAs
|
|
$bn
|
$bn
|
$bn
|
$bn
|
$bn
|
Credit risk
|
155.3
|
319.1
|
131.5
|
78.0
|
683.9
|
Counterparty credit risk
|
1.9
|
1.5
|
32.0
|
0.1
|
35.5
|
Market risk
|
1.3
|
1.0
|
22.2
|
13.0
|
37.5
|
Operational risk
|
34.4
|
32.9
|
32.8
|
(2.9)
|
97.2
|
At
31 Dec 2023
|
192.9
|
354.5
|
218.5
|
88.2
|
854.1
|
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
entities1
|
|
HSBC UK Bank
plc
|
HSBC Bank
plc
|
The Hongkong and Shanghai
Banking Corporation Limited
|
HSBC Bank Middle East
Limited
|
HSBC North America Holdings
Inc
|
HSBC Bank
Canada
|
Grupo Financiero HSBC,
S.A.
de C.V.
|
Other trading
entities
|
Holding companies, shared
service centres and intra-Group eliminations
|
Total
RWAs
|
|
$bn
|
$bn
|
$bn
|
$bn
|
$bn
|
$bn
|
$bn
|
$bn
|
$bn
|
$bn
|
Credit risk
|
110.7
|
73.4
|
314.0
|
17.1
|
59.3
|
27.1
|
25.9
|
48.0
|
8.4
|
683.9
|
Counterparty credit risk
|
0.3
|
17.8
|
8.7
|
0.7
|
3.1
|
0.5
|
0.7
|
3.7
|
-
|
35.5
|
Market risk2
|
0.2
|
22.7
|
27.4
|
2.8
|
2.6
|
0.8
|
0.7
|
1.6
|
9.3
|
37.5
|
Operational risk
|
18.0
|
17.6
|
46.6
|
3.7
|
7.2
|
3.5
|
5.3
|
6.3
|
(11.0)
|
97.2
|
At
31 Dec 2023
|
129.2
|
131.5
|
396.7
|
24.3
|
72.2
|
31.9
|
32.6
|
59.6
|
6.7
|
854.1
|
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 legal entities due to diversification effects within the
Group.
RWA movement by global business by
key driver
|
|
Credit risk, counterparty
credit risk and operational risk
|
|
|
|
WPB
|
CMB1
|
GBM1
|
Corporate
Centre
|
Market
risk
|
Total
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 size2
|
15.6
|
3.2
|
3.2
|
2.6
|
1.6
|
26.2
|
Asset quality
|
2.8
|
1.5
|
(0.6)
|
(1.2)
|
-
|
2.5
|
Model updates
|
(1.3)
|
(0.1)
|
(0.3)
|
-
|
(0.9)
|
(2.6)
|
Methodology and policy
|
(6.2)
|
(1.8)
|
(7.5)
|
(3.5)
|
(0.9)
|
(19.9)
|
Acquisitions and
disposals
|
(1.3)
|
8.0
|
(0.7)
|
0.1
|
0.1
|
6.2
|
Foreign exchange
movements3
|
0.8
|
1.4
|
(0.1)
|
(0.1)
|
-
|
2.0
|
Total RWA movement
|
10.4
|
12.2
|
(6.0)
|
(2.1)
|
(0.1)
|
14.4
|
RWAs at 31 Dec 2023
|
191.6
|
353.5
|
196.3
|
75.2
|
37.5
|
854.1
|
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 The movements in asset size include the
increase in operational risk RWAs, which was driven by
revenue.
3 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 driver1
|
|
Credit risk, counterparty
credit risk and operational risk
|
|
|
|
HSBC UK Bank
plc
|
HSBC Bank
plc
|
The Hongkong and Shanghai
Banking Corporation Limited
|
HSBC Bank Middle East
Limited
|
HSBC North America Holdings
Inc
|
HSBC Bank
Canada
|
Grupo Financiero HSBC,
S.A.
de C.V.
|
Other trading
entities
|
Holding companies, shared
service centres and intra-Group eliminations
|
Market
risk
|
Total 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 size2
|
5.1
|
0.2
|
5.8
|
1.8
|
0.4
|
(0.2)
|
2.9
|
12.1
|
(3.5)
|
1.6
|
26.2
|
Asset quality
|
2.3
|
(0.9)
|
(1.9)
|
(1.0)
|
0.8
|
0.3
|
(0.5)
|
3.3
|
0.1
|
-
|
2.5
|
Model updates
|
(1.0)
|
(0.3)
|
(0.4)
|
0.1
|
-
|
-
|
-
|
(0.1)
|
-
|
(0.9)
|
(2.6)
|
Methodology and policy
|
(4.0)
|
0.8
|
(11.2)
|
(0.3)
|
(1.1)
|
(0.7)
|
0.2
|
(2.5)
|
(0.2)
|
(0.9)
|
(19.9)
|
Acquisitions and
disposals
|
9.5
|
(0.2)
|
(0.1)
|
-
|
-
|
-
|
-
|
(3.2)
|
0.1
|
0.1
|
6.2
|
Foreign exchange
movements3
|
6.3
|
2.7
|
(1.3)
|
0.1
|
-
|
0.6
|
3.1
|
(9.6)
|
0.1
|
-
|
2.0
|
Total RWA movement
|
18.2
|
2.3
|
(9.1)
|
0.7
|
0.1
|
-
|
5.7
|
-
|
(3.4)
|
(0.1)
|
14.4
|
RWAs at 31 Dec 2023
|
129.0
|
108.8
|
369.3
|
21.5
|
69.6
|
31.1
|
31.9
|
58.0
|
(2.6)
|
37.5
|
854.1
|
1 Balances are on a third-party Group
consolidated basis.
2 The movements in asset size include the
increase in operational risk RWAs, which was driven by
revenue.
3 Credit risk foreign exchange movements in this
disclosure are computed by retranslating the RWAs into US dollars
based on the underlying transactional currencies.
Risk-weighted assets ('RWAs') rose
by $14.4bn during the year, driven by an
increase of $34.4bn from increased lending, higher operational risk
RWAs, business acquisitions and foreign exchange movements. These
were partly offset by a reduction of $19.9bn due to methodology and
policy changes.
Asset size
Asset size RWAs increased by
$26.2bn, including a $10.4bn rise in
operational risk RWAs driven by growth in NII.
WPB RWAs increased by $15.6bn, notably due to an expansion of retail lending
in Asia, the UK and Mexico, additional sovereign exposures in Asia
and other trading entities, including a $2.9bn rise in operational
risk RWAs.
CMB RWAs increased by $3.2bn, reflecting an increase in operational risk RWAs
of $5.2bn and additional sovereign exposures across various
entities. This was partly offset by a net decrease in corporate
lending in Asia, the US and Europe.
GBM RWAs increased by $3.2bn, mainly from the $4.0bn rise in operational risk
RWAs and additional sovereign exposures across various entities.
This was partly offset by a fall in lending in Asia and
Europe.
Corporate Centre RWAs rose by
$2.6bn, primarily due to an increase in
corporate exposures in Saudi Awwal Bank ('SAB').
Asset quality
Asset quality contributed to an RWA
increase of $2.5bn due to credit risk
rating migrations and portfolio mix changes, notably in Asia, the
US and Europe.
Model updates
Model updates decreased RWAs by
$2.6bn, mainly due to a change in our risk approach to multilateral
development banks' exposures, following approval for change from
the PRA, the implementation of the exposure at default mortgage
model in the UK, and changes to the incremental risk charge
model.
Methodology and policy
The decrease of RWAs from
methodology and policy of $19.9bn was mainly driven by a decline of
$7.7bn from regulatory changes related to the risk-weighting of
residential mortgages in Hong Kong, and credit risk parameter
refinements mainly in Asia and Europe.
Acquisitions and disposals
The increase in RWAs from
acquisitions and disposals of $6.2bn was
primarily due to a rise of $9.6bn from the acquisition of SVB UK.
This was partly offset by a decline of $3.2bn from the disposal of
our business in Oman.
Foreign currency movements increased
total RWAs by $2.0bn.
Leverage
ratio1
|
At
|
|
31 Dec
|
31
Dec
|
|
2023
|
2022
|
|
$bn
|
$bn
|
Tier 1 capital (leverage)
|
144.2
|
139.1
|
Total leverage ratio
exposure
|
2,574.8
|
2,417.2
|
|
%
|
%
|
Leverage ratio
|
5.6
|
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.
Our leverage ratio was 5.6% at 31 December 2023, down from 5.8% at 31
December 2022. The increase in the
leverage exposure was primarily due to growth in the balance sheet,
which led to a fall of 0.4 percentage points in the leverage
ratio. This was partly offset by a rise of 0.2 percentage
points due to an increase in tier 1 capital.
At 31 December 2023, our UK minimum leverage ratio requirement of
3.25% was supplemented by a leverage ratio buffer of 0.9%, which consists 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 $18.0bn and $5.1bn
respectively.
Regulatory and other
developments
In September 2023, the PRA announced
changes to the UK implementation of Basel 3.1 with a new proposed
implementation date of 1 July 2025. For further details related to
the November 2022 consultation, see page 6 of our Pillar 3 Disclosures at 31 December
2022. We are currently assessing the impact of the
consultation paper and the associated implementation challenges
(including data provision) on our RWAs upon initial implementation.
The RWA output floor under Basel 3.1 is now proposed to be subject
to a four-and-a-half year transitional provision. Any impact from
the output floor is expected to be towards the end of the
transition period.
Regulatory transitional arrangements
for IFRS 9 'Financial Instruments'
We have adopted the regulatory
transitional arrangements of the Capital Requirements Regulation
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.
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, see our Pillar 3 Disclosures at 31 December 2023, which is expected to be published on or
around 21 February 2024 at
www.hsbc.com/investors.
Liquidity and funding risk in
2023
Liquidity metrics
At 31 December 2023, all of the
Group's material operating entities were above the required
regulatory minimum liquidity and funding levels.
Each entity maintains sufficient
unencumbered liquid assets to comply with local and regulatory
requirements.
Each entity maintains a sufficient
stable funding profile and is assessed using the NSFR or other
appropriate metrics.
In addition to regulatory metrics,
we use a wide set of measures to manage our liquidity and funding
profile.
The Group liquidity and funding
position on an average basis is analysed in the following
sections.
Operating entities'
liquidity1
|
|
At 31 December 2023
|
|
LCR
|
HQLA
|
Net
outflows
|
NSFR
|
|
%
|
$bn
$bn
|
$bn
|
%
|
HSBC UK Bank plc (ring-fenced
bank)2
|
201
|
118
|
59
|
158
|
HSBC Bank plc (non-ring-fenced
bank)3
|
148
|
132
|
89
|
116
|
The Hongkong and Shanghai Banking
Corporation - Hong Kong branch4
|
192
|
147
|
77
|
127
|
HSBC
Singapore5
|
292
|
26
|
9
|
174
|
Hang Seng Bank
|
254
|
52
|
21
|
163
|
HSBC Bank China
|
170
|
24
|
14
|
139
|
HSBC Bank USA
|
172
|
82
|
48
|
131
|
HSBC Continental Europe
6,7
|
158
|
83
|
52
|
137
|
HSBC Bank Middle East Ltd - UAE
branch
|
281
|
13
|
5
|
163
|
HSBC Canada
|
164
|
21
|
13
|
129
|
HSBC Mexico
|
149
|
8
|
5
|
124
|
|
At 31
December 2022
|
HSBC UK Bank plc (ring-fenced
bank)2
|
226
|
136
|
60
|
164
|
HSBC Bank plc (non-ring-fenced
bank)3
|
143
|
128
|
90
|
115
|
The Hongkong and Shanghai Banking
Corporation - Hong Kong branch4
|
179
|
147
|
82
|
130
|
HSBC
Singapore5
|
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
Europe6
|
151
|
55
|
37
|
132
|
HSBC Bank Middle East Ltd - UAE
branch
|
239
|
12
|
5
|
158
|
HSBC Canada
|
149
|
22
|
15
|
122
|
HSBC Mexico
|
155
|
8
|
5
|
129
|
1
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.
2
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.
3
HSBC Bank plc
includes overseas branches and special purpose entities
consolidated by HSBC for financial statements
purposes.
4
The Hongkong
and Shanghai Banking Corporation - Hong Kong branch represents the
material activities of The Hongkong and Shanghai Banking
Corporation Limited. It is monitored and controlled for liquidity
and funding risk purposes as a stand-alone operating
entity.
5 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.
6
In response to
the requirement for an intermediate parent undertaking in line with
the 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.
7
HSBC
Continental Europe NSFR includes the impact of the sale of our
retail banking operations in France.
Consolidated liquidity
metrics
We manage funding risk based on the
PRA's NSFR rules. The Group's NSFR at 31 December 2023, calculated
from the average of the four preceding quarters average, was
133%.
|
At1
|
|
31 Dec
|
30
Jun
|
31
Dec
|
|
2023
|
2023
|
2022
|
|
$bn
|
$bn
|
$bn
|
Total available stable funding
($bn)
|
1,602
|
1,575
|
1,552
|
Total required stable funding
($bn)
|
1,202
|
1,172
|
1,138
|
NSFR ratio (%)
|
133
|
134
|
136
|
1 Group NSFR numbers above are based on average
values. The NSFR number is the average of the preceding four
quarters.
Liquidity coverage ratio
At 31 December 2023, the average
high-quality liquid assets ('HQLA') held at entity level amounted
to $795bn (31 December 2022: $812bn). The Group consolidation
methodology includes a deduction to reflect the impact of
limitations in the transferability of entity liquidity around the
Group. That resulted in an adjustment of $147bn to LCR HQLA and
$7bn to LCR inflows on an average basis. Furthermore, this
methodology was enhanced in 2023 to consider more accurately
non-convertible currencies.
|
At1
|
|
31 Dec
|
30
Jun
|
31
Dec
|
|
2023
|
2023
|
2022
|
|
$bn
|
$bn
|
$bn
|
High-quality liquid assets (in
entities)
|
795
|
796
|
812
|
EC Delegated Act adjustment for
transfer
restrictions2
|
(154)
|
(172)
|
(174)
|
Group LCR HQLA
|
648
|
631
|
647
|
Net outflows
|
477
|
478
|
491
|
Liquidity coverage ratio
(%)
|
136
|
132
|
132
|
1 Group LCR numbers above are based on average
values. The LCR is the average of the preceding 12
months.
2 This includes adjustments made to high-quality
liquid assets and inflows in entities to reflect liquidity transfer
restrictions.
Liquid assets
After the $147bn deduction, the
average Group LCR HQLA of $648bn (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 average liquidity pool by asset type and
currency at 31 December 2023.
Liquidity pool by asset
type1
|
|
Liquidity
pool
|
Cash
|
Level
12
|
Level
22
|
|
$bn
|
$bn
|
$bn
|
$bn
|
Cash and balance at central
bank
|
310
|
310
|
-
|
-
|
Central and local government
bonds
|
319
|
-
|
303
|
16
|
Regional government public sector
entities
|
2
|
-
|
2
|
-
|
International organisation and
multilateral developments banks
|
10
|
-
|
10
|
-
|
Covered bonds
|
6
|
-
|
2
|
4
|
Other
|
1
|
-
|
-
|
1
|
Total at 31 Dec 2023
|
648
|
310
|
317
|
21
|
Total at 31 Dec 2022
|
647
|
344
|
284
|
19
|
1 Group liquid assets numbers are
based on average values.
2 As defined in EU regulations, 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
currency1
|
|
$
|
£
|
€
|
HK$
|
Other
|
Total
|
|
$bn
|
$bn
|
$bn
|
$bn
|
$bn
|
$bn
|
Liquidity pool at 31 Dec 2023
|
184
|
173
|
112
|
51
|
128
|
648
|
Liquidity pool at 31 Dec
2022
|
167
|
191
|
98
|
54
|
137
|
647
|
1 Group liquid assets numbers are based on
average values.
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 at a net balancing
source or deployment of funds.
Funding sources
|
(Audited)
|
|
2023
|
20221
|
|
$m
|
$m
|
Customer accounts
|
1,611,647
|
1,570,303
|
Deposits by banks
|
73,163
|
66,722
|
Repurchase agreements -
non-trading
|
172,100
|
127,747
|
Debt securities in issue
|
93,917
|
78,149
|
Cash collateral, margin and
settlement accounts
|
85,255
|
88,476
|
Liabilities of disposal groups held
for sale2
|
108,406
|
114,597
|
Subordinated liabilities
|
24,954
|
22,290
|
Financial liabilities designated at
fair value
|
141,426
|
127,321
|
Insurance contract
liabilities
|
120,851
|
108,816
|
Trading liabilities
|
73,150
|
72,353
|
- repos
|
12,198
|
16,254
|
- stock lending
|
3,322
|
3,541
|
- other trading
liabilities
|
57,630
|
52,558
|
Total equity
|
192,610
|
185,197
|
Other balance sheet
liabilities
|
341,198
|
387,315
|
At
31 Dec
|
3,038,677
|
2,949,286
|
Funding uses
|
(Audited)
|
|
2023
|
20221
|
|
$m
|
$m
|
Loans and advances to
customers
|
938,535
|
923,561
|
Loans and advances to
banks
|
112,902
|
104,475
|
Reverse repurchase agreements -
non-trading
|
252,217
|
253,754
|
Cash collateral, margin and
settlement accounts
|
89,911
|
82,984
|
Assets held for
sale2
|
114,134
|
115,919
|
Trading assets
|
289,159
|
218,093
|
- reverse repos
|
16,575
|
14,798
|
- stock borrowing
|
14,609
|
10,706
|
- other trading
assets
|
257,975
|
192,589
|
Financial investments
|
442,763
|
364,726
|
Cash and balances with central
banks
|
285,868
|
327,002
|
Other balance sheet
assets
|
513,188
|
558,772
|
At
31 Dec
|
3,038,677
|
2,949,286
|
1 From 1 January 2023, we adopted IFRS 17 'Insurance
Contracts', which replaced IFRS 4 'Insurance Contracts'. We have
restated 2022 comparative data.
2 'Liabilities of disposal groups held for sale'
includes $82bn and 'Assets held for sale' includes $88bn in respect
of the planned sale of our banking business in Canada. 'Liabilities
of disposal groups held for sale' includes $26bn and 'Assets of
disposal groups held for sale' includes $28bn in respect of the
sale of our retail banking operations in France.
Wholesale term debt maturity profile
The maturity profile of our
wholesale term debt obligations is set out in the following table.
The balances in the table are not directly comparable with those in
the consolidated balance sheet because the
table presents gross cash flows
relating to principal payments and not the balance sheet carrying
value, which includes debt securities and subordinated liabilities
measured at fair value.
Wholesale funding cash flows payable
by HSBC under financial liabilities by remaining contractual
maturities1
|
|
Due not
more than
1 month
|
Due over
1 month
but not more
than
3 months
|
Due over
3 months
but not more
than
6 months
|
Due over
6 months
but not more
than
9 months
|
Due over
9 months
but not
more
than
1 year
|
Due over
1 year
but not more
than
2 years
|
Due over
2 years
but not more
than
5 years
|
Due over
5 years
|
Total
|
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
Debt securities issued
|
17,620
|
9,798
|
14,284
|
13,226
|
12,226
|
20,882
|
64,010
|
50,045
|
202,091
|
- unsecured CDs and
CP
|
6,400
|
6,777
|
7,601
|
6,429
|
6,513
|
1,179
|
1,073
|
925
|
36,897
|
- unsecured senior
MTNs
|
8,190
|
1,160
|
4,365
|
3,627
|
3,267
|
12,903
|
54,984
|
41,007
|
129,503
|
- unsecured senior structured
notes
|
2,307
|
1,491
|
1,617
|
2,513
|
1,978
|
2,924
|
2,793
|
5,910
|
21,533
|
- secured covered
bonds
|
-
|
-
|
-
|
-
|
-
|
-
|
1,275
|
-
|
1,275
|
- secured asset-backed
commercial paper
|
426
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
426
|
- secured ABS
|
22
|
44
|
62
|
58
|
55
|
188
|
861
|
539
|
1,829
|
- others
|
275
|
326
|
639
|
599
|
413
|
3,688
|
3,024
|
1,664
|
10,628
|
Subordinated liabilities
|
-
|
2,013
|
-
|
-
|
-
|
3,358
|
4,282
|
27,234
|
36,887
|
- subordinated debt
securities
|
-
|
2,000
|
-
|
-
|
-
|
3,358
|
4,282
|
25,441
|
35,081
|
- preferred
securities
|
-
|
13
|
-
|
-
|
-
|
-
|
-
|
1,793
|
1,806
|
At
31 Dec 2023
|
17,620
|
11,811
|
14,284
|
13,226
|
12,226
|
24,240
|
68,292
|
77,279
|
238,978
|
|
|
|
|
|
|
|
|
|
|
Debt securities issued
|
11,959
|
11,266
|
12,532
|
8,225
|
8,212
|
26,669
|
52,435
|
52,952
|
184,250
|
- unsecured CDs and
CP
|
3,821
|
6,017
|
7,088
|
4,137
|
3,123
|
1,264
|
707
|
1,004
|
27,161
|
- unsecured senior
MTNs
|
5,973
|
2,351
|
3,534
|
1,363
|
3,238
|
19,229
|
44,023
|
44,021
|
123,732
|
- unsecured senior structured
notes
|
1,264
|
1,421
|
1,247
|
1,850
|
1,627
|
4,463
|
2,609
|
5,990
|
20,471
|
- secured covered
bonds
|
-
|
-
|
-
|
-
|
-
|
-
|
602
|
-
|
602
|
- secured asset-backed
commercial paper
|
690
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
690
|
- secured ABS
|
15
|
28
|
40
|
38
|
36
|
123
|
656
|
220
|
1,156
|
- others
|
196
|
1,449
|
623
|
837
|
188
|
1,590
|
3,838
|
1,717
|
10,438
|
Subordinated liabilities
|
-
|
-
|
11
|
160
|
-
|
2,000
|
5,581
|
25,189
|
32,941
|
- subordinated debt
securities
|
-
|
-
|
11
|
160
|
-
|
2,000
|
5,581
|
23,446
|
31,198
|
- preferred
securities
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
1,743
|
1,743
|
At 31 Dec 2022
|
11,959
|
11,266
|
12,543
|
8,385
|
8,212
|
28,669
|
58,016
|
78,141
|
217,191
|
1 Excludes financial liabilities of
disposal groups.
Structural foreign exchange risk in
2023
Structural foreign exchange
exposures represent net assets or capital investments in
subsidiaries, branches, joint arrangements or associates, together
with any associated hedges, the functional currencies of which are
currencies other than the US dollar. Exchange differences on
structural exposures are usually recognised in 'other comprehensive
income'.
Net structural foreign exchange
exposures
|
|
2023
|
Currency of structural exposure
|
Net investment in foreign
operations (excl non-controlling interest)
|
Net investment
hedges
|
Structural foreign exchange
exposures (pre-economic hedges)
|
Economic hedges - structural
FX hedges1
|
Economic hedges - equity
securities (AT1)2
|
Net structural foreign
exchange exposures
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
Hong Kong dollars
|
39,014
|
(5,792)
|
33,222
|
(7,979)
|
-
|
25,243
|
Pounds sterling
|
46,661
|
(16,415)
|
30,246
|
-
|
(1,275)
|
28,971
|
Chinese renminbi
|
33,809
|
(3,299)
|
30,510
|
(1,066)
|
-
|
29,444
|
Euros
|
15,673
|
(515)
|
15,158
|
-
|
(1,384)
|
13,774
|
Canadian dollars
|
5,418
|
(1,076)
|
4,342
|
-
|
-
|
4,342
|
Indian rupees
|
6,286
|
(2,110)
|
4,176
|
-
|
-
|
4,176
|
Mexican pesos
|
4,883
|
-
|
4,883
|
-
|
-
|
4,883
|
Saudi riyals
|
4,312
|
-
|
4,312
|
-
|
-
|
4,312
|
UAE dirhams
|
4,995
|
(613)
|
4,382
|
(2,761)
|
-
|
1,621
|
Malaysian ringgit
|
2,754
|
-
|
2,754
|
-
|
-
|
2,754
|
Singapore dollars
|
2,345
|
(224)
|
2,121
|
-
|
-
|
2,121
|
Australian dollars
|
2,362
|
-
|
2,362
|
-
|
-
|
2,362
|
Taiwanese dollars
|
2,212
|
(1,127)
|
1,085
|
-
|
-
|
1,085
|
Indonesian rupiah
|
1,535
|
(512)
|
1,023
|
-
|
-
|
1,023
|
Swiss francs
|
1,191
|
(526)
|
665
|
-
|
-
|
665
|
Korean won
|
1,354
|
(864)
|
490
|
-
|
-
|
490
|
Thai baht
|
1,022
|
-
|
1,022
|
-
|
-
|
1,022
|
Egyptian pound
|
959
|
-
|
959
|
-
|
-
|
959
|
Qatari rial
|
834
|
(215)
|
619
|
(299)
|
-
|
320
|
Argentinian peso
|
794
|
-
|
794
|
-
|
-
|
794
|
Vietnamese dong
|
872
|
-
|
872
|
-
|
-
|
872
|
Others, each less than
$700m
|
4,386
|
(487)
|
3,899
|
-
|
-
|
3,899
|
At
31 Dec
|
183,671
|
(33,775)
|
149,896
|
(12,105)
|
(2,659)
|
135,132
|
|
|
|
|
|
|
|
|
20223
|
Hong Kong dollars
|
39,191
|
(4,597)
|
34,594
|
(8,363)
|
-
|
26,231
|
Pounds sterling
|
39,298
|
(14,000)
|
25,298
|
-
|
(1,205)
|
24,093
|
Chinese renminbi
|
35,712
|
(3,532)
|
32,180
|
(994)
|
-
|
31,186
|
Euros
|
14,436
|
(777)
|
13,659
|
-
|
(2,402)
|
11,257
|
Canadian dollars
|
4,402
|
(811)
|
3,591
|
-
|
-
|
3,591
|
Indian rupees
|
4,967
|
(1,380)
|
3,587
|
-
|
-
|
3,587
|
Mexican pesos
|
3,932
|
-
|
3,932
|
-
|
-
|
3,932
|
Saudi riyals
|
4,182
|
(109)
|
4,073
|
-
|
-
|
4,073
|
UAE dirhams
|
4,534
|
(731)
|
3,803
|
(2,285)
|
-
|
1,518
|
Malaysian ringgit
|
2,715
|
-
|
2,715
|
-
|
-
|
2,715
|
Singapore dollars
|
2,517
|
(358)
|
2,159
|
-
|
(559)
|
1,600
|
Australian dollars
|
2,264
|
-
|
2,264
|
-
|
-
|
2,264
|
Taiwanese dollars
|
2,058
|
(1,140)
|
918
|
-
|
-
|
918
|
Indonesian rupiah
|
1,453
|
(469)
|
984
|
-
|
-
|
984
|
Swiss francs
|
1,233
|
(727)
|
506
|
-
|
-
|
506
|
Korean won
|
1,283
|
(817)
|
466
|
-
|
-
|
466
|
Thai baht
|
908
|
-
|
908
|
-
|
-
|
908
|
Egyptian pound
|
746
|
-
|
746
|
-
|
-
|
746
|
Qatari rial
|
785
|
(200)
|
585
|
(277)
|
-
|
308
|
Argentinian peso
|
1,010
|
-
|
1,010
|
-
|
-
|
1,010
|
Vietnamese dong
|
665
|
-
|
665
|
-
|
-
|
665
|
Others, each less than
$700m
|
4,470
|
(495)
|
3,975
|
(36)
|
-
|
3,939
|
At 31 Dec
|
172,761
|
(30,143)
|
142,618
|
(11,955)
|
(4,166)
|
126,497
|
1 Represents hedges that do not
qualify as net investment hedges for accounting
purposes.
2 Represents foreign
currency-denominated preference share and AT1 instruments. These
are accounted for at historical cost under IFRS Accounting
Standards and do not qualify as net investment hedges for
accounting purposes. The gain or loss arising from changes in the
US dollar value of these instruments is recognised on redemption in
retained earnings.
3 From 1 January 2023, we adopted IFRS 17
'Insurance Contracts', which replaced IFRS 4 'Insurance Contracts'.
Comparative data for the financial year
ended 31 December 2022 have been restated
accordingly.
For a definition of structural foreign exchange exposures,
see page 205.
Interest rate risk in the banking
book in 2023
Net interest income and banking net
interest income
We have introduced a new metric to
analyse sensitivity of our income to interest rate shocks. In
addition to NII sensitivity, we are also disclosing banking NII
sensitivity. HSBC has trading book assets that are funded by
banking book liabilities and the NII sensitivity measure does not
include the sensitivity of the internal transfer income from this
funding. Banking NII sensitivity includes an adjustment on top of
NII sensitivity to reflect this. The currency split of banking NII
sensitivities includes the impact of vanilla foreign exchange swaps
to optimise cash management across the Group.
In this disclosure we present the
banking NII sensitivity alongside the NII sensitivity. Over time we
expect to phase out NII sensitivity once the appropriate prior
period comparables are available for banking NII
sensitivity.
The following tables set out the
assessed impact to a hypothetical base case projection of our NII
and banking NII under an immediate shock of 100bps to the current
market-implied path of interest rates across all currencies on 1
January 2024 (effects in the first, second and third years). For
example, Year 3 shows the impact of an immediate rate shock on the
NII and banking NII projected for the third year.
The sensitivities shown represent a
hypothetical simulation of the base case income, assuming a static
balance sheet (specifically no assumed migration from current
account to term deposits), and no management actions from Global
Treasury. 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 interests
in associates.
The 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. 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.
An immediate interest rate rise of
100bps would increase projected NII for the 12 months to 31
December 2024 by $1.1bn and banking NII by $2.8bn. An immediate
interest rate fall of 100bps would decrease projected NII for the
12 months to 31 December 2024 by $1.6bn and banking NII by
$3.4bn.
The sensitivity of NII for 12 months
as at 31 December 2023 decreased by $2.5bn in the plus 100bps
parallel shock and by $2.4bn in the minus 100bps parallel shock,
when compared with 31 December 2022. The key drivers of the
reduction in NII sensitivity are the increase in stabilisation
activities in line with our strategy, as well as deposit
migration.
For further details of measurement of interest rate risk in
the banking book, see page 205.
NII sensitivity to an instantaneous
change in yield curves (12 months) - Year 1 sensitivity by
currency
|
|
Currency
|
|
|
$
|
HK$
|
£
|
€
|
Other
|
Total
|
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
Change in Jan 2024 to Dec
2024 (based on balance sheet at 31
December 2023)
|
|
|
|
|
|
|
+100bps parallel
|
(1,155)
|
148
|
325
|
503
|
1,232
|
1,053
|
-100bps parallel
|
1,004
|
(230)
|
(432)
|
(522)
|
(1,391)
|
(1,571)
|
Change in Jan 2023 to Dec 2023 (based on
balance sheet at 31 December 2022)
|
|
|
|
|
|
|
+100bps parallel
|
(267)
|
413
|
1,026
|
674
|
1,689
|
3,535
|
-100bps parallel
|
236
|
(476)
|
(1,177)
|
(765)
|
(1,787)
|
(3,969)
|
NII sensitivity to an instantaneous
down 100bps parallel change in yield curves - Year 2 and Year 3
sensitivity by currency
|
|
Currency
|
|
|
$
|
HK$
|
£
|
€
|
Other
|
Total
|
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
Change in NII (based on balance sheet at 31 December
2023)
|
|
|
|
|
|
|
Year 2 (Jan 2025 to Dec
2025)
|
488
|
(431)
|
(768)
|
(552)
|
(1,733)
|
(2,996)
|
Year 3 (Jan 2026 to Dec
2026)
|
213
|
(499)
|
(1,269)
|
(624)
|
(1,861)
|
(4,040)
|
Change in NII (based on balance
sheet at 31 December 2022)
|
|
|
|
|
|
|
Year 2 (Jan 2024 to Dec
2024)
|
(43)
|
(532)
|
(1,580)
|
(810)
|
(1,979)
|
(4,944)
|
Year 3 (Jan 2025 to Dec
2025)
|
(404)
|
(636)
|
(1,954)
|
(839)
|
(2,092)
|
(5,925)
|
Banking NII sensitivity to an
instantaneous change in yield curves (12 months) - Year 1
sensitivity by currency
|
|
Currency
|
|
|
$
|
HK$
|
£
|
€
|
Other
|
Total
|
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
Change in Jan 2024 to Dec
2024 (based on balance sheet at 31
December 2023)
|
|
|
|
|
|
|
+100bps parallel
|
343
|
411
|
496
|
285
|
1,297
|
2,832
|
-100bps parallel
|
(494)
|
(493)
|
(602)
|
(304)
|
(1,460)
|
(3,353)
|
Banking NII sensitivity to an
instantaneous down 100bps parallel change in yield curves - Year 2
and Year 3 sensitivity by currency
|
|
Currency
|
|
|
$
|
HK$
|
£
|
€
|
Other
|
Total
|
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
Change in banking NII (based on balance sheet at 31 December
2023)
|
|
|
|
|
|
|
Year 2 (Jan 2025 to Dec
2025)
|
(1,015)
|
(693)
|
(938)
|
(333)
|
(1,798)
|
(4,777)
|
Year 3 (Jan 2026 to Dec
2026)
|
(1,289)
|
(761)
|
(1,439)
|
(405)
|
(1,926)
|
(5,820)
|
Non-trading value at risk
Non-trading portfolios comprise
positions that primarily arise from the interest rate management of
our retail and commercial banking assets and liabilities, financial
investments measured at fair value through other comprehensive
income, debt instruments measured at amortised cost, and exposures
arising from our insurance operations.
Value at risk of non-trading portfolios
Value at risk ('VaR') is a technique
for estimating potential losses on risk positions as a result of
movements in market rates and prices over a specified time horizon
and to a given level of confidence. The use of VaR is integrated
into the market risk management of non-trading portfolios to have a
complete picture of risk, complementing risk sensitivity
analysis.
Our models are predominantly based
on historical simulation that incorporates the following
features:
- historical market rates and prices, which are calculated with
reference to interest rates, credit spreads and the associated
volatilities;
- potential market movements that are calculated with reference
to data from the past two years; and
- calculations to a 99% confidence level and using a one-day
holding period.
Although a valuable guide to risk,
VaR is used for non-trading portfolios with awareness of its
limitations. For example:
- The
use of historical data as a proxy for estimating future market
moves may not encompass all potential market events, particularly
those that are extreme in nature. As the model is calibrated on the
last 500 business days, it does not adjust instantaneously to a
change in the market regime.
- The
use of a one-day holding period for risk management purposes of
non-trading books is only an indication of exposure and not
indicative of the time period required to hedge or liquidate
positions.
- The
use of a 99% confidence level by definition does not take into
account losses that might occur beyond this level of
confidence.
The interest rate risk on the
fixed-rate securities issued by HSBC Holdings is not included in
the Group non-trading VaR. The management of this risk is described
on page 217.
Non-trading VaR also excludes the
equity risk on securities held at fair value and non-trading book
foreign exchange risk.
The daily levels of total
non-trading VaR in 2023 are set out in the
graph below.
Daily VaR (non-trading portfolios),
99% 1 day ($m)
|
The Group non-trading VaR for 2023
is shown in the table below.
Non-trading VaR, 99% 1
day
|
(Audited)
|
|
Interest
rate
|
Credit
spread
|
Portfolio
diversification1
|
Total2
|
|
$m
|
$m
|
$m
|
$m
|
Balance at 31 Dec 2023
|
173.8
|
112.8
|
(104.2)
|
182.4
|
Average
|
156.2
|
84.2
|
(63.7)
|
176.6
|
Maximum
|
201.9
|
116.4
|
|
224.3
|
Minimum
|
108.8
|
55.2
|
|
127.0
|
|
|
|
|
|
|
Interest
rate
|
Credit
spread
|
Portfolio
diversification1
|
Total2
|
|
$m
|
$m
|
$m
|
$m
|
Balance at 31 Dec 2022
|
159.8
|
56.6
|
(45.3)
|
171.1
|
Average
|
134.6
|
56.9
|
(35.9)
|
155.6
|
Maximum
|
225.5
|
84.7
|
|
265.3
|
Minimum
|
98.3
|
43.4
|
|
106.3
|
1 Portfolio diversification is the
market risk dispersion effect of holding a portfolio containing
different risk types. It represents the reduction in unsystematic
market risk that occurs when combining a number of different risk
types - such as interest rate and credit spreads - together
in one portfolio. It is measured as the difference between the
sum of the VaR by individual risk type and the combined total
VaR. A negative number represents the benefit of portfolio
diversification. As the maximum and minimum occurs on different
days for different risk types, it is not meaningful to calculate a
portfolio diversification benefit for these
measures.
2 The total VaR is non-additive
across risk types due to diversification effects.
The VaR for non-trading activity
increased by $11m from $171m at 31 December 2022 to $182m at
31 December 2023 due to relatively small changes in risk profile
over the year. The average portfolio diversification effect between
interest rate and credit spread exposure increased during the year,
with the offset increasing to $104m from $45m.
Sensitivity of capital and
reserves
Global Treasury maintains a
portfolio of high-quality liquid assets for contingent liquidity
and NII stabilisation purposes, which is in part accounted for
under a hold-to-collect-and-sell business model. This
hold-to-collect-and-sell portfolio,
together with any associated derivatives in designated hedge
accounting relationships, is accounted for at fair value through
other comprehensive income and has an impact on CET1. The portfolio
represents the vast majority of our hold-to-collect-and-sell
capital risk and is risk managed with a variety of tools, including
risk sensitivities and value at risk measures.
The table below measures the
sensitivity of the value of this portfolio to an instantaneous 100
basis point increase in interest rates, based on the risk
sensitivity of a shift in value for a 1 basis point ('bps')
parallel movement in interest rates.
Sensitivity of
hold-to-collect-and-sell reserves to interest rate
movements
|
|
$m
|
At
31 Dec 2023
|
|
+100 basis point parallel move in
all yield curves
|
(2,264)
|
As a percentage of total
shareholders' equity
|
(1.22)%
|
|
|
At 31 Dec 2022
|
|
+100 basis point parallel move in
all yield curves
|
(1,199)
|
As a percentage of total
shareholders' equity
|
(0.64)%
|
The increase in the sensitivity of
the portfolio during 2023 was mainly driven by an increase in NII
stabilisation in line with our strategy. The figures in the table
above do not take into account the effects of interest rate
convexity. The portfolio mostly comprises vanilla sovereign bonds
in a variety of currencies, and the primary risk is interest rate
duration risk, although the portfolio also generates asset swap,
credit spread and asset spread risks that are managed within
appetite as part of our risk management framework. A minus 100bps
shock would lead to an approximately symmetrical gain.
Alongside our monitoring of the
hold-to-collect-and-sell reserve sensitivity, we also monitor the
sensitivity of reported cash flow hedging reserves to interest rate
movements on a yearly basis by assessing the expected reduction in
valuation of cash flow hedges due to parallel movements of plus or
minus 100bps in all yield curves.
The following table describes the
sensitivity of our cash flow hedging reserves to the stipulated
movements in yield curves at the
year end. The sensitivities are
indicative and based on simplified scenarios. These particular
exposures form only a part of our overall interest rate exposure.
We apply flooring on negative rates in the minus 100bps scenario in
this assessment. Due to increases in interest rates in most
markets, the effect of this flooring is immaterial at the end of
2023.
Comparing 31 December 2023 with 31
December 2022, the sensitivity of the cash flow hedging reserve
increased by $1,537m in the plus 100bps scenario and increased by
$1,562m in the minus 100bps scenario. The increase in the
sensitivity of this reserve was mainly driven by an increase in our
NII stabilisation. Our exposure to fixed rate pound sterling hedges
continued to be the largest in size and in terms of year-on-year
increase. Hong Kong dollar and euro hedges contributed to the
majority of the rest of the increase in exposure, partly offset by
a reduction in the size of US dollar hedges.
Sensitivity of cash flow hedging
reported reserves to interest rate movements
|
|
$m
|
At
31 Dec 2023
|
|
+100 basis point parallel move in
all yield curves
|
(3,436)
|
As a percentage of total
shareholders' equity
|
(1.85)%
|
-100 basis point parallel move in
all yield curves
|
3,474
|
As a percentage of total
shareholders' equity
|
1.87%
|
|
|
At 31 Dec 2022
|
|
+100 basis point parallel move in
all yield curves
|
(1,899)
|
As a percentage of total
shareholders' equity
|
(1.01)%
|
-100 basis point parallel move in
all yield curves
|
1,912
|
As a percentage of total
shareholders' equity
|
1.02%
|
Third-party assets in Markets
Treasury
Third-party assets in Markets
Treasury increased by 5% compared with 31 December 2022. The net
increase of $38bn is partly reflective of higher commercial
surpluses during the year, with the
increase of $76bn in 'Financial
Investments' and the decrease of $39bn in 'Cash and balances at
central banks' largely driven by NII stabilisation
activity.
Third-party assets in Markets
Treasury
|
|
2023
|
2022
|
|
$m
|
$m
|
Cash and balances at central
banks
|
278,289
|
317,479
|
Trading assets
|
238
|
498
|
Loans and advances:
|
|
|
- to banks
|
78,667
|
67,612
|
- to customers
|
1,083
|
2,102
|
Reverse repurchase
agreements
|
45,419
|
53,016
|
Financial investments
|
396,259
|
319,852
|
Other
|
34,651
|
36,192
|
At
31 Dec
|
834,606
|
796,751
|
Defined benefit pension
plans
Market risk arises within our
defined benefit pension plans to the extent that the obligations of
the plans are not fully matched by assets with determinable cash
flows.
For details of our defined benefit plans, including asset
allocation, see Note 5 on the financial statements, and for pension
risk management, see page 206.
Additional market risk measures
applicable only to the parent company
HSBC Holdings monitors and manages
foreign exchange risk and interest rate risk. In order to manage
interest rate risk, HSBC Holdings uses the projected sensitivity of
its NII to future changes in yield curves.
Foreign exchange risk
HSBC Holdings' foreign exchange
exposures derive almost entirely from the execution of structural
foreign exchange hedges on behalf of the Group. At 31 December
2023, HSBC Holdings had forward foreign
exchange contracts of $33.8bn (2022: $30.1bn) to manage the Group's
structural foreign exchange exposures.
For further details of our
structural foreign exchange exposures, see page 213.
Sensitivity of net interest income
HSBC Holdings monitors NII
sensitivity in the first, second and third years, reflecting the longer-term perspective on interest rate risk
management appropriate to a financial services holding
company. These sensitivities assume that any issuance where
HSBC Holdings has an option to redeem at a future call date is
called at this date.
The tables below set out the effect
on HSBC Holdings' future NII of an immediate shock of +/-100bps to
the current market-implied path of interest rates across all
currencies on 1 January 2024.
The NII sensitivities shown are
indicative and based on simplified scenarios. An immediate interest
rate rise of 100bps would decrease projected NII for the 12 months
to 31 December 2024 by $233m. Conversely, an immediate fall of
100bps would increase projected NII for the 12 months to 31
December 2024 $233m.
Overall the NII sensitivity is
mainly driven by floating liabilities funding equity (non-interest
bearing) investments in subsidiaries.
During 2023, HSBC Holdings hedged
$3.6bn of previously unhedged issuances, which increased the
negative NII sensitivity to positive parallel shifts in interest
rates. In year 1, that impact is offset by a shorter repricing
profile of assets.
As of the Annual Report and Accounts 2023, HSBC
Holdings is no longer disclosing the interest rate repricing gap
table, as the sensitivity of net interest income table captures
HSBC Holdings' exposure to interest rate risk and is aligned to the
way we disclose interest rate risk internally to key
management.
NII sensitivity to an instantaneous
change in yield curves (12 months) - Year 1 sensitivity by
currency
|
|
$
|
HK$
|
£
|
€
|
Other
|
Total
|
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
Change in Jan 2024 to Dec 2024 (based on balance sheet at 31
December 2023)
|
|
|
|
|
|
|
+100bps parallel
|
(258)
|
-
|
12
|
5
|
8
|
(233)
|
-100bps parallel
|
258
|
-
|
(12)
|
(5)
|
(8)
|
233
|
Change in Jan 2023 to Dec 2023
(based on balance sheet at 31 December 2022)
|
|
|
|
|
|
|
+100bps parallel
|
(265)
|
-
|
16
|
9
|
-
|
(240)
|
-100bps parallel
|
265
|
-
|
(16)
|
(9)
|
-
|
240
|
NII sensitivity to an instantaneous
down 100bps parallel change in yield curves - Year 2 and Year 3
sensitivity by currency
|
|
$
|
HK$
|
£
|
€
|
Other
|
Total
|
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
Change in NII (based on balance sheet at 31 December
2023)
|
|
|
|
|
|
|
Year 2 (Jan 2025 to Dec
2025)
|
219
|
-
|
(12)
|
1
|
(9)
|
199
|
Year 3 (Jan 2026 to Dec
2026)
|
218
|
-
|
(12)
|
-
|
(10)
|
196
|
Change in NII (based on balance
sheet at 31 December 2022)
|
|
|
|
|
-
|
|
Year 2 (Jan 2024 to Dec
2024)
|
182
|
-
|
(12)
|
(8)
|
-
|
162
|
Year 3 (Jan 2025 to Dec
2025)
|
160
|
-
|
(10)
|
(7)
|
-
|
143
|
The figures represent hypothetical
movements in NII based on our projected yield curve scenarios, HSBC
Holdings' current interest rate risk profile and assumed changes to
that profile during the next three years. The sensitivities
represent our assessment of the change to a
hypothetical base case based on a
static balance sheet assumption, and do not take into account
the effect of actions that could be taken to mitigate this
interest rate risk.
Contents
218
|
Overview
|
218
|
Market risk management
|
219
|
Market risk in 2023
|
219
|
Trading portfolios
|
220
|
Market risk balance sheet
linkages
|
Overview
Market risk is the risk of an
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.
Market risk arises from both trading portfolios and non-trading
portfolios.
For further details of market risk in non-trading portfolios,
see page 215 of the Annual Report
and Accounts 2023.
Market risk management
Key developments in 2023
There were no material changes to
our policies and practices for the management of market risk in
2023.
Governance and structure
The following diagram summarises the
main business areas where trading market risks reside and the
market risk measures used to monitor and limit
exposures.
|
Trading risk
|
- Foreign exchange
and commodities
- Interest
rates
- Credit
spreads
- Equities
|
|
GBM
|
|
Value at risk | Sensitivity | Stress
testing
|
The objective of our risk management
policies and measurement techniques is to manage and control market
risk exposures to optimise return on risk while maintaining a
market profile consistent with our established risk
appetite.
Market risk is managed and
controlled through limits approved by the Group Chief Risk and
Compliance Officer for HSBC Holdings. These limits are allocated
across business lines and to the Group's legal entities. Each major
operating entity has an independent market risk management and
control sub-function, which is responsible for measuring,
monitoring and reporting market risk exposures against limits on a
daily basis. Each operating entity is required to assess the market
risks arising in its business and to transfer them either to its
local Markets and Securities Services or Markets Treasury unit for
management, or to separate books managed under the supervision of
the local ALCO. The Traded Risk function enforces the controls
around trading in permissible instruments approved for each site as
well as changes that follow completion of the new product approval
process. Traded Risk also restricts trading in the more complex
derivative products to only those offices with appropriate levels
of product expertise and control systems.
Key risk management
processes
Monitoring and limiting market risk
exposures
Our objective is to manage and
control market risk exposures while maintaining a market profile
consistent with our risk appetite.
We use a range of tools to monitor
and limit market risk exposures including sensitivity analysis, VaR
and stress testing.
Sensitivity analysis
Sensitivity analysis measures the
impact of movements in individual market factors on specific
instruments or portfolios, including interest rates, foreign
exchange rates and equity prices. We use sensitivity measures to
monitor the market risk positions within each risk type. Granular
sensitivity limits are set for trading desks with consideration of
market liquidity, customer demand and capital constraints, among
other factors.
Value at risk
(Audited)
VaR is a technique for estimating
potential losses on risk positions as a result of movements in
market rates and prices over a specified time horizon and to a
given level of confidence. The use of VaR is integrated into market
risk management and calculated for all trading positions regardless
of how we capitalise them. Where we do not calculate VaR
explicitly, we use alternative tools as summarised in the 'Stress
testing' section below.
Our models are predominantly based
on historical simulation that incorporates the following
features:
- historical market rates and prices, which are calculated with
reference to foreign exchange rates, commodity prices, interest
rates, equity prices and the associated volatilities;
- potential market movements that are calculated with reference
to data from the past two years; and
- calculations to a 99% confidence level and using a one-day
holding period.
The models also incorporate the
effect of option features on the underlying exposures. The nature
of the VaR models means that an increase in observed market
volatility will lead to an increase in VaR without any changes
in the underlying positions.
VaR model limitations
Although a valuable guide to risk,
VaR is used with awareness of its limitations. For
example:
- The
use of historical data as a proxy for estimating future market
moves may not encompass all potential market events, particularly
those that are extreme in nature. As the model is calibrated on the
last 500 business days, it does not adjust instantaneously to a
change in the market regime.
- The
use of a one-day holding period for risk management purposes of
trading books assumes that this short period is sufficient to hedge
or liquidate all positions.
- The
use of a 99% confidence level by definition does not take into
account losses that might occur beyond this level of
confidence.
- VaR
is calculated on the basis of exposures outstanding at the close of
business and therefore does not reflect intra-day
exposures.
Risk not in VaR framework
The risks not in VaR ('RNIV')
framework captures and capitalises material market risks that are
not adequately covered in the VaR model.
Risk factors are reviewed on a
regular basis and are either incorporated directly in the VaR
models, where possible, or quantified through either the VaR-based
RNIV approach or a stress test approach within the RNIV framework.
While VaR-based RNIVs are calculated by using historical scenarios,
stress-type RNIVs are estimated on the basis of stress scenarios
whose severity is calibrated to be in line with the capital
adequacy requirements. The outcome of the VaR-based RNIV approach
is included in the overall VaR calculation but excluded from the
VaR measure used for regulatory back-testing.
Stress-type RNIVs include a deal
contingent derivatives capital charge to capture risk for these
transactions and a de-peg risk measure to capture risk to pegged
and heavily managed currencies.
Stress testing
Stress testing is an important
procedure that is integrated into our market risk management
framework to evaluate the potential impact on portfolio values of
more extreme, although plausible, events or movements in a set of
financial variables. In such scenarios, losses can be much greater
than those predicted by VaR modelling. Stress testing and reverse
stress testing provide senior management with insights regarding
the 'tail risk' beyond VaR.
Stress testing is implemented at
legal entity, regional and overall Group levels. A set of scenarios
is used consistently across all regions within the Group. Market
risk stress testing incorporates both historical and hypothetical
events. Market risk reverse stress tests are designed to identify
vulnerabilities in our portfolios by looking for scenarios that
lead to loss levels considered severe for the relevant portfolio.
These scenarios may be local or idiosyncratic in nature and
complement the systematic top-down stress testing.
The risk appetite around potential
stress losses for the Group is set and monitored against
limits.
Trading portfolios
Trading portfolios comprise
positions held for client servicing and market-making, with the
intention of short-term resale and/or to hedge risks resulting from
such positions.
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 of intra-day transactions.
The hypothetical profit and loss
reflects the profit and loss that would be realised if positions
were held constant from the end of one trading day to the end of
the next. This measure of profit and loss does not align with how
risk is dynamically hedged, and is not therefore necessarily
indicative of the actual performance of the business.
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 of a VaR model is required. We
back-test our VaR at set levels of our Group entity
hierarchy.
Market risk in 2023
During 2023, global financial
markets were mainly driven by the inflation outlook, interest rate
expectations and recession risks, coupled with banking failures in
March, and rising geopolitical tensions in the Middle East from
October. Major central banks maintained restrictive monetary
policies, and bond markets experienced a volatile year. After
rising significantly in the second and third quarters of 2023, US
treasury bond yields fell during the fourth quarter, as lower
inflation pressures led markets to expect that key rates would be
cut in 2024. The interest rate outlook was also a major driver of
performance in global equity markets, alongside resilient corporate
earnings and positive sentiment in the technology sector. Equities
in developed markets advanced significantly amid low volatility,
while performance in emerging markets was more subdued. In foreign
exchange markets, the US dollar fluctuated against other major
currencies, mostly in line with US Federal Reserve policy and bond
yields expectations. Investor sentiment remained resilient in
credit markets. High-yield and investment-grade credit spreads
narrowed, in general, as fears of contagion in the banking sector
in the first quarter of 2023 abated, and economic growth remained
resilient throughout the year.
We continued to manage market risk
prudently during 2023. Sensitivity exposures and VaR remained
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 the Markets and Securities Services
business.
Trading VaR as at 31 December 2023
increased by $3.3m compared with 31 December 2022. Interest rate
risk factors were the major contributors to VaR at the end of
December 2023. The VaR increase during 2023 peaked in September,
and was mainly driven by:
- interest rate risk exposures in currencies held across the
Fixed Income and Foreign Exchange business lines to facilitate
client-driven activity; and
- the
effects of relatively large short-term interest rate shocks for key
currencies, which are captured in the VaR scenario
window.
These factors were partly offset by
lower losses from equity risks and interest rate risks that were
captured within the RNIV framework.
The daily levels of total trading
VaR during 2023 are set out in the
graph below.
Daily VaR (trading portfolios), 99%
1 day ($m)
|
The Group trading VaR for the year
is shown in the table below.
Trading VaR, 99% 1
day1
|
(Audited)
|
|
|
|
|
|
|
|
Foreign
exchange and
commodity
|
Interest
rate
|
Equity
|
Credit
spread
|
Portfolio
diversification2
|
Total3
|
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
Balance at 31 Dec 2023
|
13.4
|
55.9
|
15.2
|
7.2
|
(38.9)
|
52.8
|
Average
|
16.2
|
53.9
|
19.0
|
11.6
|
(40.8)
|
59.8
|
Maximum
|
24.6
|
86.0
|
27.8
|
16.5
|
|
98.2
|
Minimum
|
9.3
|
25.5
|
13.4
|
6.6
|
|
34.4
|
|
|
|
|
|
|
|
Balance at 31 Dec 2022
|
15.4
|
40.0
|
18.6
|
11.9
|
(36.4)
|
49.5
|
Average
|
13.6
|
29.6
|
16.1
|
16.8
|
(34.0)
|
42.1
|
Maximum
|
29.2
|
73.3
|
24.8
|
27.9
|
|
78.3
|
Minimum
|
5.7
|
20.2
|
11.5
|
9.1
|
|
29.1
|
1 Trading portfolios comprise
positions arising from the market-making and warehousing of
customer-derived positions.
2 Portfolio diversification is the
market risk dispersion effect of holding a portfolio containing
different risk types. It represents the reduction in unsystematic
market risk that occurs when combining a number of different risk
types - such as interest rate, equity and foreign exchange -
together in one portfolio. It is measured as the difference
between the sum of the VaR by individual risk type and the
combined total VaR. A negative number represents the benefit of
portfolio diversification. As the maximum and minimum occurs on
different days for different risk types, it is not meaningful to
calculate a portfolio diversification benefit for these
measures.
3 The total VaR is non-additive
across risk types due to diversification effects.
The table below shows trading VaR at
a 99% confidence level compared with trading VaR at a 95%
confidence level at 31 December 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, 99% 1
day
|
Trading VaR, 95% 1
day
|
|
$m
|
$m
|
Balance at 31 Dec 2023
|
52.8
|
35.3
|
Average
|
59.8
|
36.8
|
Maximum
|
98.2
|
53.3
|
Minimum
|
34.4
|
21.0
|
|
|
|
Balance at 31 Dec 2022
|
49.5
|
31.7
|
Average
|
42.1
|
24.6
|
Maximum
|
78.3
|
49.0
|
Minimum
|
29.1
|
17.5
|
Back-testing
During 2023, the Group experienced
no back-testing exceptions on losses against actual or hypothetical
profit and losses.
Market risk balance sheet
linkages
The following balance sheet lines in
the Group's consolidated position are subject to market
risk:
Trading assets and liabilities
The Group's trading assets and
liabilities are in almost all cases originated by GBM. Other than a
limited number of exceptions, these assets and liabilities are
treated as traded risk for the purposes of market risk management.
The exceptions primarily arise in Global Banking where the
short-term acquisition and disposal of assets are linked to other
non-trading-related activities such as loan origination.
Derivative assets and liabilities
We undertake derivative activity for
three primary purposes: to create risk management solutions for
clients, to manage the portfolio risks arising from client
business, and to manage and hedge our own risks. Most of our
derivative exposures arise from sales and trading activities within
GBM. The assets and liabilities included in trading VaR give rise
to a large proportion of the income included in net income from
financial instruments held for trading or managed on a fair value
basis. Adjustments to trading income such as valuation adjustments
are not measured by the trading VaR model.
For information on the accounting policies applied to
financial instruments at fair value, see Note 1 on the
financial statements.
Contents
221
|
Overview
|
222
|
Climate risk management
|
223
|
Embedding our climate risk
approach
|
225
|
Insights from climate scenario
analysis
|
Overview
Our climate risk approach is aligned
to the framework outlined by the Taskforce on Climate-related
Financial Disclosures ('TCFD'), which identifies two primary
drivers of climate risk:
- physical risk, which arises from the increased frequency and
severity of extreme weather events, such as hurricanes and floods,
or chronic gradual shifts in weather patterns or rises in the sea
level; and
- transition risk, which arises from the process of moving to a
net zero economy, including changes in government policy and
legislation, technology, market demand, and reputational
implications triggered by a change in stakeholder expectations,
action or inaction.
In addition to these primary drivers
of climate risk, we have also identified the following thematic
issues related to climate risk, which are most likely to
materialise in the form of reputational, regulatory compliance and
litigation risks:
- net
zero alignment risk, which arises from the risk of HSBC failing to
meet its net zero commitments or failing to meet external
expectations related to net zero, because of inadequate ambition
and/or plans, poor execution, or inability to adapt to changes in
the external environment; and
- the
risk of greenwashing, which arises from the act of knowingly or
unknowingly making inaccurate, unclear, misleading or
unsubstantiated claims regarding sustainability to our
stakeholders.
Approach
We recognise that the physical
impacts of climate change and the transition to a net zero economy
can create significant financial risks for companies, investors and
the financial system. HSBC may be affected by climate risks either
directly or indirectly through our relationships with our
customers, which could result in both financial and non-financial
impacts.
Our climate risk approach aims to
effectively manage the material climate risks that could impact our
operations, financial performance and stability, and reputation. It
is informed by the evolving expectations of our
regulators.
We are developing our climate risk
capabilities across our businesses, by prioritising sectors,
portfolios and counterparties with the highest impacts.
We continue to make progress in
enhancing our climate risk capabilities, and recognise it is a
long-term iterative process.
We aim to regularly review our
approach to increase coverage and incorporate maturing data,
climate analytics capabilities, frameworks and tools, as well as
respond to emerging industry best practice and climate risk
regulations.
This includes updating our approach
to reflect how the risks associated with climate change continue to
evolve in the real world, and maturing how we embed climate risk
factors into strategic planning, transactions and decision making
across our businesses.
Our climate risk approach is aligned
to our Group-wide risk management framework and three lines of
defence model, which sets out how we identify, assess and manage
our risks. For further details of the three
lines of defence framework, see page 138.
The tables below provide an overview
of the climate risk drivers and thematic issues considered within
HSBC's climate risk approach.
|
|
|
|
Physical
|
Acute
|
Increased frequency and severity of
weather events causing disruption to business operations
|
- Decreased real
estate values or stranded assets
- Decreased
household income and wealth
- Increased costs
of legal and compliance
- Increased
public scrutiny
- Decreased
profitability
- Lower asset
performance
|
Short term
Medium term
Long term
|
|
Chronic
|
Longer-term shifts in climate
patterns (e.g. sustained higher temperatures, sea level rise,
shifting monsoons or chronic heat waves)
|
Transition
|
Policy and legal
|
Mandates on, and regulation of
products and services and/or policy support for low-carbon
alternatives. Litigation from parties who have suffered loss and
damage from climate impacts
|
Technology
|
Replacement of existing products
with lower emissions options
|
End-demand (market)
|
Changing consumer demand from
individuals and corporates
|
Reputational
|
Increased scrutiny following a
change in stakeholder perceptions of climate-related action or
inaction
|
|
Net
zero alignment risk
|
Net
zero ambition risk
|
Failing to set or adapt our net zero
ambition and broader business strategy in alignment with key
stakeholder expectations, latest scientific understanding and
commercial objectives.
|
Net
zero execution risk
|
Failing to meet our net zero targets
due to taking insufficient or ineffective actions, or due to the
actions of clients, suppliers and other stakeholders.
|
Net
zero reporting risk
|
Failing to report emissions
baselines and targets, and performance against these accurately due
to data, methodology and model limitations.
|
Risk of greenwashing
|
Firm
|
Making inaccurate, unclear,
misleading, or unsubstantiated claims in relation to our
sustainability commitments and targets, as well as the reporting of
our performance towards them.
|
Product
|
Making inaccurate, unclear,
misleading or unsubstantiated claims in relation to products or
services offered to clients that have stated sustainability
objectives, characteristics, impacts or features.
|
Client
|
Making inaccurate, unclear,
misleading or unsubstantiated claims as a consequence of our
relationships with clients or transactions we undertake with them,
where their sustainability commitments or related performance are
misrepresented or are not aligned to our own
commitments.
|
In 2023, we updated our climate risk
materiality assessment, to understand how climate risk may impact
across HSBC's risk taxonomy. The
assessment focused on a 12-month time horizon, as well as time
horizons for the short-term, medium-term and long-term periods. We
define short term as time periods up to 2025; medium term as
between 2026 and 2035; and long term as between 2036 and 2050.
These time periods align to the Climate Action 100+ disclosure
framework v1.2. The table below provides a summary of how climate
risk may impact a subset of HSBC's principal risks.
The assessment is refreshed
annually, and the results may change as our understanding of
climate risk and how it impacts HSBC evolve (for further details,
see 'Impact on reporting and financial statements' on page
44).
In addition to this assessment, we
also consider climate risk in our emerging risk reporting and
scenario analysis (for further details, see
'Top and emerging risks' on page 38).
|
|
|
|
|
|
|
Physical risk
|
●
|
●
|
●
|
|
●
|
●
|
Transition risk
|
●
|
●
|
●
|
●
|
●
|
●
|
1 Our climate risk approach identifies thematic
issues such as HSBC net zero alignment risk and the risk of
greenwashing, which are most likely to materialise in the form of
reputational, regulatory compliance and litigation
risks.
Key developments in 2023
Our climate risk programme continues
to support the development of our climate risk management
capabilities. The following outlines key developments in
2023:
- We
updated our climate risk management approach to incorporate net
zero alignment risk and developed guidance on how climate risk
should be managed for non-financial risk types.
- We
enhanced our climate risk materiality assessment to consider longer
time horizons.
- We
enhanced our approach to assessing the impact of climate change on
capital, focusing on credit and market risks.
- We
further developed our risk metrics to monitor our
performance against our net zero targets for both financed
emissions and own operations.
- We
enhanced our internal climate scenario analysis, including through
improvements to our use of customer transition plan data. For
further details of scenario analysis, see page 65.
- We
have updated our merger and acquisition process to consider
potential climate and sustainability-related targets, net zero
transition plans and climate strategy, and how this relates to
HSBC.
While we have made progress in
enhancing our climate risk framework, further work remains. This
includes the need to develop additional metrics and tools to
measure our exposure to climate-related risks, and to incorporate
these tools within decision making.
Governance and structure
The Board takes overall supervisory
responsibility for our ESG strategy, overseeing executive
management in developing the approach, execution and associated
reporting.
The ESG Committee supports the
development and delivery of our ESG strategy, key policies and
material commitments by providing oversight, coordination and
management of ESG commitments and initiatives. It is co-chaired by
the Group Chief Sustainability Officer and the Group Chief
Financial Officer.
The Sustainability Execution
Committee has oversight of the environmental strategy, including
the commercial execution and operationalisation through the
sustainability execution programme, which is a Group-wide programme
established to enable the delivery of our sustainability
agenda.
The Group Reputational Risk
Committee considers climate-related matters arising from customers,
transactions and third parties that either present a serious
potential reputational risk to the Group or merit a Group-led
decision to ensure a consistent approach to reputational risk
management across the regions, global businesses and global
functions.
The Group Risk Management Meeting
and the Group Risk Committee receive regular updates on our climate
risk profile and progress of our climate risk programme.
The Group Chief Risk and Compliance
Officer is the senior manager responsible for the management of
climate risk under the UK Senior Managers Regime, which involves
holding overall accountability for the Group's climate risk
programme.
The Environmental Risk Oversight
Forum (formerly the Climate Risk Oversight Forum) oversees risk
activities relating to climate and sustainability risk management,
including the transition and physical risks from climate change.
Equivalent forums have been established at a regional
level.
For further details of the Group's
ESG governance structure, see page 88.
Risk appetite
Our climate risk appetite forms part
of the Group's risk appetite statement and supports the business in
delivering our net zero ambition effectively and
sustainably.
Our climate risk appetite statement
is approved and overseen by the Board. It is supported by risk
appetite metrics and tolerance thresholds. We have also defined
additional key management information metrics. Both the risk
appetite statement and key management information metrics are
reported on a quarterly basis for oversight by the Group Risk
Management Meeting and the Group Risk Committee.
Policies, processes and controls
We continue to integrate climate
risk into policies, processes and controls across many areas of our
organisation, and we will continue to update these as our climate
risk management capabilities mature over time. For further details of how we manage climate risk across our
global businesses, see page 65.
Embedding our climate risk
approach
The table below provides
further details of how we have embedded the
management of climate risk across key risk types. For
further details of our internal scenario analysis, see 'Insights
from climate scenario analysis' on page 225.
|
|
|
|
|
|
|
|
|
|
Wholesale credit risk
|
We have metrics in place to monitor
the exposure of our wholesale corporate lending portfolio to six
high transition risk sectors, as shown in the below table. As at 31
December 2023, the overall exposure to six high transition risk
sectors was $112bn. The sector
classifications are based on internal HSBC definitions and can be
judgemental in nature. The sector classifications are subject to
the remediation of ongoing data quality challenges. This data will
be enhanced and refined in future years.
Our relationship managers engage
with our key wholesale customers through a transition engagement
questionnaire (formerly the transition and physical risk
questionnaire) to gather information and assess the alignment of
our wholesale customers' business models to net zero and their
exposure to physical and transition risks. We use the responses to
the questionnaire to create a climate risk score for our key
wholesale customers.
Our credit policies require that
relationship managers comment on climate risk factors in credit
applications for new money requests and annual credit reviews. Our
credit policies also require manual credit risk rating overrides if
climate is deemed to have a material impact on credit risk under 12
months if not already captured under the original credit risk
rating.
Key developments to our framework in
2023 include expanding the scope of our transition engagement
questionnaire to capture new countries, territories and
sectors.
Key challenges for further embedding
climate risk into credit risk management relate to the availability
of adequate physical risk data to assess impacts to our wholesale
customers.
|
Wholesale loan exposure to high
transition risk sectors at 31 December 20231
|
|
Units
|
Automotive
|
Chemicals
|
Construction and building
materials
|
Metals and
mining
|
Oil and
gas
|
Power and
utilities
|
Total 2023
|
Exposure to sector1, 2, 3,
4
|
$bn
|
21
|
17
|
20
|
14
|
18
|
22
|
112
|
Sector weight as a proportion of
high transition risk sectors
|
%
|
18
|
16
|
18
|
13
|
16
|
19
|
100
|
1 Amounts shown in the table also include green
and other sustainable finance loans, which support the transition
to the net zero economy. The methodology for quantifying our
exposure to high transition risk sectors and the transition risk
metrics will evolve over time as more data becomes available and is
incorporated in our risk management systems and
processes.
2 Counterparties are allocated to the high
transition risk sectors via a two-step approach. Firstly, where the
main business of a group of connected counterparties is in a high
transition risk sector, all lending to the group is included in one
high transition risk sector irrespective of the sector of each
individual obligor within the group. Secondly, where the main
business of a group of connected counterparties is not in a high
transition risk sector, only lending to individual obligors in the
high transition risk sectors is included. The main business of a
group of connected counterparties is identified by the industry
that generates the majority of revenue within a group. Customer
revenue data utilised during this allocation process is the most
recent readily available and will not align to our own reporting
period.
3 These disclosures cover the whole of the value
chain of the sector. For details of financed emissions coverage,
please refer to page 53.
4 The six high transition risk sectors make up
17.4% of total wholesale loans and advances to customer and banks
of $644bn. Amounts include assets held for sale.
|
|
|
|
|
|
|
|
|
|
|
Retail credit risk
|
We have implemented policies and
tools to manage climate risk across our retail mortgage
markets.
Our retail credit risk management
policy requires each mortgage market to conduct an annual review of
their climate risk management procedures, including perils and data
sources, to ensure they remain fit for purpose. In 2023 we
introduced a global 'soft trigger' monitoring and review process
for physical risk exposure where a market reaches or exceeds a set
threshold, as this ensures markets are actively considering their
balance sheet risk exposure to peril events.
Within our mortgage portfolios,
properties or areas with potentially heightened physical risk are
identified and assessed locally and potential exposure is monitored
through quarterly metrics. We have also set risk appetite
metrics for physical risk in our largest mortgage markets, the UK
and Hong Kong, as well as those with local regulatory requirements,
including Singapore.
The UK is our largest mortgage
market, which as at September 2023 made up 40.0% of our global
mortgage portfolio. We estimate that 0.2%
of our UK retail mortgage portfolio is at very high risk of
flooding and 3.5% is at high risk. This is
based on approximately 94.2% climate risk
data coverage by value of our UK portfolio as at September
2023.
In the UK we also monitor the energy
performance certificate ('EPC') ratings of individual properties in
our mortgage portfolio. As at September 2023, approximately
64.5% of properties within the portfolio
by value had a valid EPC dated within the last 10 years. Of these,
40.0% of properties had a current rating
of A to C, and 97.0% had the potential to
reach these rating bands, if appropriate energy efficiency
improvement measures are taken.
For both flood risk and EPC data, we
disclose the end of September 2023 position. This is due to the
time required for the data to be processed and our reliance on the
government's public EPC data, which usually lags one month
behind.
The table below outlines the UK
retail mortgage portfolio tenor as at the end of December 2023 (by
balance split by remaining term). This table shows that the
majority of our portfolio tenor is greater than five years, and
that the average remaining loan term in the UK is 21.5
years.
|
Residential mortgages tenor (remaining mortgage term by
balance $m)1
|
Tenor
|
Remaining mortgage balance ($m)
|
<1
years
|
382
|
|
|
|
|
|
|
|
1 to 5
years
|
3,469
|
|
|
|
|
|
|
|
>5
years
|
157,643
|
|
|
|
|
|
|
Weighted average of remaining
mortgage term (years)
|
21.50
|
|
|
|
|
|
|
|
The average term for new mortgages
in the UK is 25 years, although the average life of a loan is
approximately five years due to refinancing. Despite this, our
strategic approach to climate risk considers present day and
long-term risk given customers may remain over the whole loan
term.
For further details of flood risk
and the EPC breakdown of our UK retail mortgage portfolio, see our
ESG Data Pack at
www.hsbc.com/esg.
|
1 The table includes instances where individual
properties have multiple associated accounts and balances. These
are aggregated to a property level and the longest term remaining
is taken as the tenor.
|
Treasury risk
|
As part of our ICAAP in 2023, we
enhanced our approach for assessing the impact of climate change on
capital, focusing on credit and market risks. As part of our ILAAP,
we conducted an initial analysis to identify the potential climate
risk exposures across key liquidity risk drivers.
We updated our treasury risk
policies to ensure that the impact of climate risk is considered
when assessing applicable treasury risks. We regularly discuss
climate-related topics that may impact Global Treasury through
climate-relevant governance forums, including the Treasury Risk
Management Climate Risk Oversight Forum and the Group Treasury
Sustainability Committee.
Treasury portfolios are also
included within the scope of the internal climate scenario analysis
and the Hong Kong Monetary Authority's climate risk stress test,
with potential quantitative impacts on relevant
hold-to-collect-and-sell positions estimated.
Pensions risk
We conduct an annual exercise to
monitor the exposure of our largest pension plans to climate
risk.
Our pension policies have also been
updated to explicitly reflect climate considerations.
Insurance risk
We have an evolving programme to
support the identification and management of climate risk. In 2023,
we updated our sustainability procedures to align with the Group's
updated energy and thermal coal-phase out policy.
|
Traded risk
|
We have implemented metrics and
thresholds to monitor exposure to high physical and transition risk
sectors for the different asset classes in the Markets and
Securities Services ('MSS') business. The metrics use a risk
taxonomy that categorises countries/territories and sectors into
high, medium and low risk, for which we have set corresponding
thresholds. We have implemented these metrics for key entities. In
addition, we have identified key regions and business lines that
contribute the most to the total MSS high-climate sensitive
exposures and developed reports to monitor trends and pockets of
risks.
We have developed tools to provide a
better understanding of key profit and loss drivers under different
climate scenarios along different dimensions such as risk factors
and business lines. These reports are available to traded risk
managers to help monitor and understand how climate-sensitive
exposures are impacted under different scenarios. Stress testing
results have been presented to senior management for visibility
during dedicated review and challenge sessions to provide awareness
on the impact to the MSS portfolio and underlying business
lines.
|
Reputational risk
|
We manage the reputational impact of
climate risk through our broader reputational risk framework,
supported by our sustainability risk policies and
metrics.
Our sustainability risk policies set
out our appetite for financing activities in certain sectors. Our
thermal coal phase-out and energy policies aim to drive down
greenhouse gas emissions while supporting a just
transition.
Our global network of sustainability
risk managers provides local policy guidance to relationship
managers for the oversight of policy compliance and in support of
implementation across our wholesale banking activities. For further
details of our sustainability risk policies, see the ESG review on page 42.
We have developed risk appetite
metrics to monitor our performance against our financed emissions
targets. For further details of our targets, see page 57.
|
|
|
|
|
|
|
|
|
|
|
Regulatory compliance risk
|
Our policies set the Group-wide
standards that are required to manage the risk of breaches of our
regulatory duty to customers, including those related to climate
risk, ensuring fair customer outcomes are achieved. To make sure
our responsibilities are met in this regard, our policies are
subject to continuous review and enhancement. We are also focused
on the ongoing development and improvement of our monitoring
capabilities, ensuring appropriate alignment to the broader focus
on regulatory compliance risks.
Regulatory Compliance is
particularly focused on mitigating climate risks inherent to the
product lifecycle. To support this, we have enhanced a number of
processes including:
- ensuring Regulatory Compliance provides risk oversight and
review of new product marketing materials with any reference to
climate, sustainability and ESG;
- developing our product marketing controls to ensure climate
claims are robustly evidenced and substantiated within product
marketing materials; and
- clarifying and improving product marketing framework,
procedures and associated guidance, to ensure product-related
marketing materials comply with both internal and external
standards, and are subject to robust governance.
Regulatory Compliance operates an
ESG and Climate Risk Working Group to track and monitor the
integration and embedding of climate risk management into the
functions' activities, while monitoring regulatory and legislative
changes across the ESG and climate risk agenda. Regulatory
Compliance also continues to be an active member of the Group's
Environmental Risk Oversight Forums.
|
Resilience risk
|
Our Enterprise Risk Management
function is responsible for overseeing the identification and
assessment of physical and transition climate risks that may impact
on the organisation's operational and resilience
capabilities.
We have developed metrics to assess
how physical risk may impact our critical properties. In 2023, we
also developed an energy and travel risk appetite metric for our
own operations to establish and monitor progress against our net
zero ambitions.
Our resilience risk policies are
subject to continuous improvement to remain relevant to evolving
climate risks. New developments relevant to our own operations are
reviewed to ensure climate risk considerations are effectively
captured.
|
Model risk
|
The impact of climate risk on model
risk is driven by the increasing number of climate risk models and
the expanding model use cases. Review and challenge of models
mitigates some risk but given the nascent nature of climate
modelling and the lack of benchmarks, the validation of model
assumptions and results remains a key challenge.
Model Risk has published a new
climate risk and ESG model category standard, which sets out
minimum control requirements for identifying, measuring and
managing model risk for climate-related models.
We completed independent model
validation for a number of models used for financed emissions
calculations and climate scenario analysis using both qualitative
and quantitative assessments of modelling decisions and
outputs.
|
Financial reporting risk
|
We have expanded the scope of
financial reporting risk to explicitly include oversight over
accuracy and completeness of ESG and climate reporting. In 2023, we
updated the risk appetite statement to reference our ESG and
climate-related disclosures. We also updated our internal controls
to incorporate requirements for addressing the risk of misstatement
in ESG and climate reporting. To support this, we have developed a
framework to guide control implementation over ESG and climate
reporting disclosures, which includes areas such as process and
data governance, and risk assessment.
As the landscape for ESG and
climate-related disclosures develops, we continue to focus on
horizon scanning and interpretation of relevant external reporting
requirements, to ensure a timely response for producing the
required disclosures. As the volume and nature of these
requirements continue to evolve, the level of risk is heightened.
Part of our response to this heightened risk includes undertaking a
range of assurance procedures over these disclosures.
|
Challenges
While we have continued to develop
our climate risk framework, our remaining challenges
include:
- the
diverse range of internal and external data sources and data
structures needed for climate-related reporting, which introduces
data accuracy and reliability risks;
- data limitations on customer assets and supply chains, and
methodology gaps, which hinder our ability to assess physical risks
accurately;
- industry-wide data gaps on customer emissions and transition
plan and methodology gaps, which limit our ability to assess
transition risks accurately; and
- limitations in our management of net zero alignment risk is
due to known and unknown factors, including the limited accuracy
and reliability of data, merging methodologies, and the need to
develop new tools to better inform decision making.
Insights from climate scenario
analysis
Scenario analysis supports our
strategy by assessing our potential exposures to risks and
vulnerabilities under a range of climate scenarios. It helps to
build our awareness of climate change, plan for the future and meet
our growing regulatory requirements.
In 2023, we enhanced our internal
climate scenario analysis exercise by focusing our efforts on
generating more granular insights for key sectors and regions to
support core decision-making processes, and to respond to our
regulatory requirements. We also produced
several climate stress tests for regulators around the world,
including the Hong Kong Monetary Authority ('HKMA') and the Central
Bank of the United Arab Emirates.
We continue to enhance our climate
scenario analysis exercises so that we can have a more
comprehensive understanding of climate headwinds, risks and
opportunities to support our strategic planning and
actions.
In climate scenario analysis, we
consider, jointly, both physical risks and transition risks.
For further details about these risks, see
'Climate risk' on page 221.
We also analyse how these climate
risks impact principal risk types within our organisation,
including credit and traded market risks, non-financial risks, and
pension risk.
Our climate scenarios
In our 2023 climate scenario
analysis exercises, we explored five scenarios that were created to
examine the potential impacts from climate change for the Group and
its entities.
The analysis considered the key
regions in which we operate, and assessed the impact on our balance
sheet across three distinct timeframes: short term up to 2025;
medium term from 2026 to 2035; and long term from 2036 to 2050. The
time horizons are aligned to the Climate Action 100+ framework
v1.2.
We created our internal scenarios
using external publicly available climate scenarios as a reference,
including those produced by the Network for Greening the Financial
System ('NGFS'), the Intergovernmental Panel on Climate Change
('IPCC') and the International Energy Agency. Using these external
scenarios as a template, we adapted them by incorporating the
unique climate risks and vulnerabilities to which our organisation
and customers across different business sectors and regions are
exposed. This helped us produce the scenarios, which vary by
severity to analyse how climate risks will impact our
portfolios.
Our scenarios were:
- the
Net Zero scenario, which is consistent with the Paris Agreement.
This assumes that there will be orderly but considerable climate
action, limiting global warming to no more than 1.5°C by 2100, when
compared with pre-industrial levels;
- the
Current Commitments scenario, which assumes that climate action is
limited to current governmental committed policies, including
already implemented actions, leading to global temperature rises of
2.4°C by 2100. This slow transition scenario helps us to determine
the actions we need to take to reach our net zero ambition while
operating in a world that is not net zero;
- the
Delayed Transition Risk scenario, which assumes that climate action
is delayed until 2030 with a late disorderly transition to net zero
but stringent and rapid enough to limit global warming to under 2°C
by 2100. This scenario allows us to stress test severe but
plausible transition risk impacts;
- the
Downside Physical Risk scenario, which assumes climate action is
limited to currently implemented governmental policies, leading to
extreme global warming with global temperatures increasing by
greater than 4°C by 2100. This scenario allows us to assess
physical risks associated with climate change; and
-
the Near Term scenario, which
assumes both a sharp increase in policies that drive a disorderly
transition towards net zero and a sharp increase in extreme climate
events over a five-year period until 2027. This scenario focused on
our business in Asia.
We have chosen these scenarios to
provide a holistic view that will supplement the Group's current
and future strategic thinking. They reflect inputs from our key
stakeholders and experts across the Group, and have been reviewed
through internal governance.
Our scenarios reflect different
levels of physical and transition risks over a variety of time
periods. The scenario assumptions include varying levels of
governmental climate policy changes, macroeconomic factors and
technological developments. However, these scenarios rely on the
development of technologies that are still unproven, such as global
hydrogen production to decarbonise aviation and
shipping.
The nature of the scenarios, our
developing capabilities, and limitations of the analysis lead to
outcomes that are indicative of climate change headwinds, although
they are not a direct forecast.
Developments in climate science,
data, methodology and scenario analysis techniques will help us
shape our approach further. We therefore expect this view to change
over time.
Characteristics of our
scenarios
|
Scenarios
|
|
|
Net
zero
|
Current Commitments
|
Delayed Transition Risk
|
Downside
Physical Risk
|
Near Term
|
Scenario outcomes
|
Rise in global temperatures by 2100 (vs pre-industrial
levels)
|
1.5˚c
|
|
2.4˚c
|
|
1.6˚c
|
|
4.2˚c
|
|
1.4˚c
|
|
|
Focus horizon
|
Medium term
|
Short/medium term
|
Medium/long term
|
Medium/long term
|
Short/medium term
|
Underlying assumptions based on global
averages
|
Assumed variation in global climate
policies
|
Low
|
Medium
|
High
|
Low
|
High
|
Assumed pace of technology change and
adoption
|
Fast
|
Gradual
|
Accelerates from 2030
|
None
|
Based on existing
technology
|
Assumed socioeconomic impact
|
High
|
Moderate
|
Very high
|
Very high
(in long term)
|
Very high
|
|
|
2030
|
2050
|
2030
|
2050
|
2030
|
2050
|
2030
|
2050
|
|
2027
|
|
|
Assumed carbon price
($/tCO2)
|
161
|
623
|
34
|
91
|
34
|
558
|
6
|
6
|
|
193
|
|
|
Assumed change in energy consumption (% change after
2022)
|
(10)%
|
(16)%
|
12%
|
17%
|
12%
|
(11)%
|
5%
|
24%
|
|
(14)%
|
|
|
Assumed change in CO2 emissions (% change after
2022)
|
(37)%
|
(100)%
|
(7)%
|
(33)%
|
(7)%
|
(89)%
|
3%
|
11%
|
|
(34)%
|
|
|
Scenario risk characteristics
|
Climate
risk
|
Physical
|
q
|
Lower
|
u
|
Moderate
|
q
|
Lower
|
p
|
Higher
|
p
|
Higher
|
Transition
|
p
|
Higher
|
u
|
Moderate
|
p
|
Higher
|
q
|
Lower
|
p
|
Higher
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
For our scenario analysis, we used
models to assess how transition and physical risks may impact our
portfolios under different scenarios. Our models incorporate a
range of climate-specific metrics that will have an impact on our
customers, including expected production volumes, revenue, costs
and capital expenditure.
We assess how these metrics
interplay with economic factors such as carbon prices, which
represent the cost effect of climate-related policies that aim to
discourage carbon-emitting activities and encourage low-carbon
solutions. The expected result of higher carbon prices is a
reduction in emissions as high-emission activities become
uneconomical. We also assume carbon prices will vary from country
to country.
The models for our wholesale
corporate lending portfolio consider our customers'
individual climate transition plans where available, while we
refine and deepen our assessment of these plans. These results feed
into the calculation of our risk-weighted assets and expected
credit loss ('ECL') projections. For our real estate portfolio
models, we focus on physical risk factors, including property
locations, perils and insurance coverage when assessing the overall
credit risk impact to the portfolio. The results are reviewed by
our sector specialists who, subject to our governance procedures,
make bespoke adjustments to our results based on their expert
judgement where relevant.
Our models support the calculation
of outputs that inform us about the level of climate-related ECL
provisions required under IFRS 9, and also support the shaping of
our climate-related capital approach under ICAAP. In 2023, in
addition to incorporating our customers' transition plans, we
enhanced our credit risk models for the wholesale portfolio by
updating our assumptions regarding how we expect state-supported
companies to be impacted, and improved how we model the impact of
emissions on company financial forecasts.
Modelling limitations
We continue to look for ways of
enhancing our methodology to improve the effectiveness of our
climate scenario analyses. There are industry-wide limitations,
particularly on data availability, although our models are designed
to produce outputs that can support our assessment of the level of
our climate resilience.
Climate scenario analysis requires
considerable amounts of data, although data is only available for a
subset of our counterparties. As a result, we have to extrapolate
the results observed in the subset to the wider population or
dataset. We do not capture the second order impacts of climate risk
exposures within our modelling approach, such as impacts on our
counterparties from their supply chains.
We continue to enhance our
capabilities by incorporating lessons learnt from previous
exercises and feedback from key stakeholders, including
regulators.
For a broad overview of the models that we use for our
climate scenario analysis, as well as graphs that show how global
carbon prices and carbon emissions will differ under our climate
scenarios, see our ESG Data Pack
at
www.hsbc.com/esg.
Analysing the outputs of climate
scenario analysis
Climate scenario analysis allows us
to model how different potential climate pathways may affect and
impact the resilience of our customers and our portfolios,
particularly in respect of credit losses. As the following chart shows, losses are influenced by their
exposure
to a variety of climate risks under
different climate scenarios.
1 The counterfactual
scenario is modelled on a scenario where there would be no losses
due to climate change.
2 The dotted line in the chart shows the impact
of modelled expected credit losses following our strategic
responses to reduce the effect of climate risks under the Net Zero
scenario.
3 The projections shown in this chart were
modelled during 2023 and are not intended to reflect the final 31
December 2023 position that is disclosed elsewhere in
the Annual Report and Accounts
2023.
While climate-related losses are
expected to remain minimal in the short term, they are likely to
increase compared with the counterfactual scenario in the medium
and longer term, driven by the transition to a net zero
economy.
These losses are lower in the Net
Zero orderly transition scenario, than in the Delayed
Transition Risk scenario where climate action begins later and is
more rapid and disruptive as our customers will have less time to
restructure their business models and reduce their carbon
emissions. As the dotted line in the graph shows, losses in these
scenarios can be mitigated through active management approaches,
which include identifying new climate-related business
opportunities and adapting our portfolios to reduce exposure to
climate risks and losses.
By building a more climate-resilient
balance sheet, we can reduce impairment risks and improve
longer-term stability.
Under the Current Commitments
scenario, we expect lower levels of losses relating to transition
risks, although we would expect an increase in the effects of
climate-related physical risks over the longer term.
If the world does not align with a net zero path,
physical risks in the medium to long term are expected to continue
to rise due to the increasing frequency of extreme weather
events.
The
Near Term scenario
Our Near Term scenario allowed us to
explore the combined impacts of a disorderly transition towards net
zero and extreme acute physical events occurring simultaneously.
The scenario was designed to meet HKMA regulatory requirements and
will help us to improve how we assess short-term impacts across the
Group. As part of the HKMA exercise, our initial analysis was
focused on our portfolio in Asia.
The exercise allowed us to
understand the extent to which a stressed scenario exhibiting both
high physical and transition risks in the near term could
immediately impact our customers across all our sectors.
In the following sections, we assess
the impacts to our banking portfolios under different climate
scenarios.
How climate change is impacting our
wholesale lending portfolio
In our internal climate scenario
analysis, we assessed the impact of climate-related risks on our
corporate counterparties under different climate scenarios, which
we measured by reviewing the modelled effect on our ECL.
The climate scenario analysis
exercise for the wholesale lending portfolio was designed to
examine our climate risks and vulnerabilities, primarily in the
short and medium term. We focused on the Current Commitment
scenario, believing it to be the scenario most likely to unfold in
this timeframe, and the Net Zero scenario, which allows us to
assess the resilience of our strategy and to identify specific
climate-related opportunities.
Within our wholesale lending
portfolio, customers in higher emitting sectors continue to be most
exposed to larger climate-related losses.
For each sector in both scenarios,
we calculated the projected ECL increase as at 2035, where we
compared the increase in ECL under the scenario against a
counterfactual scenario that incorporates no climate
change.
We use the sector's exposure at
default ('EAD'), which represents the size of our exposure to
potential losses from customer defaults. This helps to identify
which sectors are the most material to us in terms of the impact of
climate change.
The table below shows the relative size of exposures at default in 2023 and the
increase in cumulative ECL under each scenario compared with a
counterfactual scenario by 2035 (expressed as a
multiple).
Impact on wholesale lending
portfolios
Wholesale sectors
|
Exposure at default
(2023)
|
ECL
increase1
|
Current
Commitments
|
Net Zero
|
Conglomerates and
industrials
|
n
|
<1.1x
|
<2.75x
|
Construction and building
materials
|
n
|
<1.25x
|
<2.25x
|
Chemicals
|
n
|
<1.1x
|
<1.75x
|
Power and utilities
|
n
|
<1.1x
|
<1.75x
|
Oil and gas
|
n
|
<1.1x
|
<1.25x
|
Automotive
|
n
|
<1.25x
|
<1.75x
|
Land transport and
logistics
|
n
|
<1.1x
|
<2.75x
|
Agriculture & soft
commodities
|
n
|
<1.1x
|
<2.5x
|
Metals and mining
|
n
|
<1.1x
|
>3x
|
Aviation
|
n
|
<1.1x
|
<1.5x
|
Marine
|
n
|
<1.1x
|
<1.5x
|
1 Increase in cumulative ECL compared with
counterfactual by 2035 expressed as a multiple.
We have continued to incorporate
information from our customers' transition plans to consider more
detailed information on how they and their sector will be impacted
under different climate scenarios.
The levels of ECL observed across
our wholesale lending portfolio are driven by: our customers'
carbon emissions; the presence of realistic transition plans; the
amount of capital investment required to support their transition;
and the degree to which their competitive environment impacts their
ability to pass on carbon costs.
In 2022, we used scenario analysis
to assess the impacts on our corporate counterparties across the
sectors that are most affected by climate-related risks.
In 2023, we enhanced our approach in
some key high-emitting sectors, which includes the construction and
building materials, power and utilities, and oil and gas sectors.
The analysis below provides a more detailed view of the anticipated
impacts on these portfolios and our customers, improving our
understanding of climate risks and potential
opportunities.
The construction and building
materials sector faces an increase in losses because it includes
companies with high emissions from manufacturing processes, such as
steel or cement, or from their supply chains, which will increase
cost pressures due to carbon taxes. The sector also has a high
proportion of customers without transition plans.
Although our scenario analysis
showed that companies with transition plans performed better on
average, their plans typically fall short of requirements needed to
meet net zero targets. Overall, we believe there are significant
lending opportunities for us to help support our customers as they
transition to a lower carbon economy while meeting their growing
business demands.
These opportunities include the
exploration of less carbon-intensive fuel sources, electrification,
the integration of carbon capture and storage, and the adoption of
new technologies in the search to reduce emissions.
In the power and utilities sector,
our analysis showed that rising costs from increased carbon prices
and the capital expenditure required to support transition
requirements, infrastructure improvements and decommissioning
costs, alongside greater downstream energy demands, will
potentially lead to higher debt levels and worsening counterparty
risk ratings for customers.
As technologies mature, the capital
cost of some renewables infrastructure is expected to fall,
becoming cheaper than non-renewable sources due to improved
efficiencies. This will reduce the required expenditure for
companies.
In the oil and gas sector, customers
that commit to renewable energy should benefit from the additional
greener revenue streams, which will help mitigate the impact of
reduced profitability from fossil fuels and heightened carbon
prices, enabling them to sustain their gross margins. This sector
has relatively lower projected losses as a large proportion of
customers provided transition plans with granular information about
their climate-related impacts.
We have the opportunity to ease
potential negative impacts as transition risks increase by
supporting our customers to diversify into more renewable and
greener revenue streams, and invest in emission-reducing
technologies.
How climate change is impacting our
retail mortgage portfolio
As part of our 2023 internal climate
scenario analysis, we completed a detailed climate risk assessment
for the UK, Hong Kong, mainland China and Australia, which together
represent 75% of the balances in our global retail mortgage
portfolio.
Our analysis shows that over the
longer term, we expect minimal losses to materialise when
considering the Current Commitments scenario. Although the severity of climate perils is expected to worsen
over time, our overall losses also remain low under a Downside
Physical Risk scenario.
In 2023, we widened the scope of our
climate modelling to include new markets, such as mainland China,
and increased the peril coverage within markets already
covered.
In our analysis of the retail
mortgage portfolio, we reassessed the physical perils that could
impact the value of properties, which include flooding, wildfire
and windstorms. The underlying peril data we use has been enhanced
to include updated and higher resolution flood maps where
available. We have also worked with external vendors to improve
outputs from peril projections and to increase the granularity of
data to provide more detailed insights into the impact of climate
risks across our portfolio of properties, in particular the impact
of wildfires.
Our scenario analysis methodology
was enriched further in 2023 by combining the impacts of physical
risk with transition risks, including rising energy costs and
impacts from direct government legislation such as homeowner energy
efficiency upgrades in the UK. We have enhanced our modelling by
considering customers' affordability incorporating increased debt
servicing costs and the impacts on property valuations. As
insurance remains a key mitigator against climate losses, we
further refined our assumptions including the assessment of
insurance availability for properties that experience frequent
climate events.
Projected peril risk
Flooding has the potential to drive
significant impacts at an aggregate level but this is localised to
specific areas that are close to water sources such as rivers or
the coast, or areas that are located in valleys where surface water
can 'pool'.
The 'Exposure to flooding' table
below shows that the majority of properties located in four of our
largest markets are predicted to experience zero to low risk of
flooding, with flood depths of less than 0.5 metres, under a
1-in-100-year event in each of the scenarios.
Flood depths outlined here do not
consider building type and property floor level, which would
potentially further mitigate the impacts. However, they are
considered within our climate risk modelling and loss
projections.
The table below sets out the
proportion of properties with projected flood depths in a
1-in-100-year severity flood event, under the Current Commitments
and Downside Physical Risk scenarios.
Exposure to flooding
(%)1
|
|
Scenarios
|
Number of
properties2
|
Flood
depth (metres)
|
Baseline
flood
risk
20233
(%)
|
Current
Commitments 2050
(%)
|
Downside Physical Risk 2050 (%)
|
UK
|
0-0.5
|
97.4
|
97.4
|
96.9
|
n
|
0.5-1.5
|
2.4
|
2.5
|
2.8
|
>1.5
|
0.2
|
0.2
|
0.3
|
Hong Kong
|
0-0.5
|
85.3
|
81.4
|
79.5
|
n
|
0.5-1.5
|
14.6
|
18.4
|
20.4
|
>1.5
|
0.1
|
0.1
|
0.1
|
Australia
|
0-0.5
|
95.7
|
95.4
|
95.3
|
n
|
0.5-1.5
|
2.9
|
3.0
|
3.1
|
>1.5
|
1.5
|
1.5
|
1.5
|
Mainland China
|
0-0.5
|
88.0
|
86.5
|
84.7
|
0.5-1.5
|
11.1
|
12.5
|
12.7
|
n
|
>1.5
|
0.9
|
1.0
|
2.7
|
1 Severe flood events include river and surface
flooding and coastal inundation. The table compares 2050 snapshots
under the Current Commitments and Downside Physical Risk scenarios
with a baseline view in 2023. We do expect to see changes to our
flood depth distributions as climate risk data is
refreshed.
2 The size of the bubbles represents the size of
the portfolios, in terms of number of properties where exposure to
flooding data is available, relative to one
another.
3 Baseline flood risk is the flood risk for a 1
in 100 year event, based on current peril data.
How climate change is impacting our
commercial real estate portfolios
We assessed our commercial real
estate customers' vulnerability to various perils, including
flooding and windstorms. Our commercial real estate portfolio is
globally diversified with larger concentrations in Hong Kong, the
UK and the US.
Geographical location is a key
determinant in our exposure to potential physical risk events,
which can lead to higher ECL due to the cost of repairing damage as
well as impact property valuations in areas where physical risk
events are increasing in frequency.
The 'Exposure to peril' table below
shows the proportion of our commercial real estate portfolio
exposed to specific physical perils in our key markets.
Exposure to peril
(%)1
|
Exposure at
default2
|
Coastal inundation
(%)
|
Cyclone
wind
(%)
|
Surface water flooding
(%)
|
Riverine
flooding
(%)
|
Hong Kong
|
n
|
2.0
|
94.8
|
19.0
|
10.0
|
UK
|
n
|
15.8
|
0.0
|
16.5
|
7.1
|
US
|
n
|
10.1
|
81.5
|
11.4
|
28.6
|
1 Proportion of our commercial real estate
portfolio exposed to specific physical perils in the Downside
Physical scenario.
2 The size of the bubbles represents the size of
the portfolios, in terms of EAD, relative to one
another.
Overall, and in line with our 2022
disclosure, our commercial real estate portfolio remains resilient
to climate risk, with the more severe impacts mitigated by
insurance coverage.
Our most significant credit exposure
is in Hong Kong, a region with material physical risk exposures to
wind and flooding due to strong tropical cyclones. The impact on
prospective credit losses remains low, due to stringent building
standards and existing measures in place against flooding and storm
surges.
Our largest exposure to transition
risk is within our UK portfolio. Under the Net Zero scenario, we
assessed the impacts of the UK government consultation on
non-domestic rental properties being required to hold an energy
performance certificate rating of at least 'B' by 2030. To meet
these proposed minimum standards, more than 80% of the properties
in our portfolio would potentially need to be retrofitted, which
would increase impairments and lead to a small uplift in ECL for
this portfolio.
In 2023, as part of the scenario
analysis exercise for the Central Bank of the United Arab Emirates,
we also assessed in more detail the climate risk impacts on our UAE
portfolio. Our findings showed that many properties could become
chronically exposed to permanent inundation over time due to their
relatively low elevation above sea level.
How we assess climate risk impacts
on other risk types
We use climate scenario analysis to
assess the impacts on other risks beyond credit risk. These include
traded market risks, non-financial risks and pension
risk.
Traded market risk
In 2023, we explored the potential
impacts of climate risks on our trading and banking portfolio under
the Delayed Transition Risk and Downside Physical Risk
scenarios.
The analysis considered all relevant
asset classes including interest rates, exchange rates, corporate
and sovereign bonds and equities. The analysis applied shocks
reflecting the impact of abrupt increases in carbon prices or
physical risk perils resulting in structural economic impacts that
affect the productivity of high-risk sectors at a country
level.
We have developed tools to provide
us with a more granular understanding of the key profit and loss
drivers under different climate scenarios. These can be viewed by
risk factor, business line or at trading desk level to help traded
risk managers to monitor and understand how climate sensitive
exposures are impacted.
Sovereign credit risk
We assessed the impacts of climate
risks on sovereign debt under the different climate scenarios. In
particular, our models considered the impacts of climate change on
a country's GDP, the amount of headroom sovereign nations have in
terms of their fiscal and external reserves, and their dependency
and exposure to particular corporate sectors.
Pension risk
We modelled balance sheet and income
statement projections for the main pension plans. Our modelling
capability has been enhanced to incorporate climate-specific
modelling over a longer timeframe, with the initial exercise being
focused on assessing the impacts of a disruptive transition to net
zero using the Delayed Transition scenario.
Non-financial risk
We assessed the potential impacts of
errors in sustainable lending volumes contained within our ESG
disclosures as part of our financial reporting risks. To understand
our regulatory compliance risks we assessed any misrepresentations
within the marketing of our ESG funds.
Use of climate scenario analysis
outputs
Climate scenario analysis plays a
crucial role helping us to identify and understand the impact of
climate-related risks and potential opportunities as we navigate
the transition to net zero.
Scenario analysis results have been
used to support the Group's ICAAP. This is an internal assessment
of the capital the Group needs to hold to meet the risks identified
on a current and projected basis, including climate
risk.
In addition, scenario analysis
informs our risk appetite statement metrics. As an example, it
supports the calibration of physical risk metrics for our retail
mortgage portfolios and it is used to consider climate impact in
our IFRS 9 assessment.
From a financial planning
perspective, internal climate scenario analysis results are used to
assess whether additional short-term climate-specific ECL are
required within our financial plan.
Next steps
We plan to continue to enhance our
capabilities for climate scenario analysis including addressing
model limitations and data gaps and developing our assessment of
liquidity, resilience and insurance risks. We also plan to use the
results for decision making, particularly in:
- client engagement, by identifying climate opportunities and
vulnerabilities in specific regions and sectors such as renewables,
carbon capture technologies and electric vehicles, and using this
information to engage and support clients in their transition to
net zero;
- portfolio steering, by using scenario analysis outputs to
inform how to reallocate our portfolio to maximise returns and
mitigate risk while achieving our net zero targets; and
- looking beyond climate change by building capabilities to
assess our resilience to wider environmental risks.
Understanding the resilience of our
critical properties
Climate change poses a physical risk
to the buildings that we occupy as an organisation, including our
offices, retail branches and data centres, both in terms of loss
and damage, and business interruption.
We measure the impacts of climate
and weather events to our buildings on an ongoing basis using
historical, current and scenario modelled forecast data. In 2023,
there were 27 major storms that had a minor impact on five premises
with no impact on the availability of our buildings.
We use stress testing to evaluate
the potential for impact on our owned or leased premises. Our
scenario stress test, conducted in 2023, analysed how eight climate
change-related hazards could impact 1,000 of our critical and
important buildings. These hazards were coastal inundation, extreme
heat, extreme winds, wildfires, riverine flooding, pluvial
flooding, soil movement due to drought, and surface water
flooding.
The 2023 stress test modelled
climate change with IPCC's Taking the Highway scenario (SSP5-8.5),
which projects that the rise in global temperatures will likely
exceed 4°C by 2100. It also modelled a less severe IPCC Middle of
the Road scenario (SSP2-4.5), which projects that global warming
will likely be limited to 2°C.
Key findings from the Taking the
Highway scenario included that by 2050, 20 of our 1,000 critical
and important buildings will have a high potential for impact due
to climate change, with insurance-related losses estimated to be in
excess of 10% of the insured value of the buildings.
These include 16 retail properties
primarily impacted by extreme temperatures and four data centres,
where three face the risk of water stress and one faces extreme
temperatures and water stress. This could lead to failure of
mechanical cooling equipment or soil movement resulting from
drought.
A further 248 properties have the
potential to be impacted by climate change, albeit to a lesser
extent, with insurance-related losses estimated at between 5% and
10% of the insured value of our buildings. The principal risks are
temperature extremes and water stress.
A key finding from the Middle of the
Road scenario showed that the total number of buildings at risk
reduced from 20 to 13. The highlighted facilities are still at risk
from the same perils of extreme temperature and water stress by
2050.
This forward-looking data along with
historical data helps inform real estate planning. We will continue
to enhance our understanding of how extreme weather events impact
our building portfolio as climate risk assessment tools improve and
evolve. We buy insurance for property damage and business
interruption and consider insurance as a loss mitigation strategy
depending on its availability and price.
We regularly review and enhance our
building selection process and global engineering standards and
will continue to assess historical claims data to help ensure our
building selection and design standards address the potential
impacts of climate change.
Resilience risk is the risk of
sustained and significant business disruption from execution,
delivery, physical security or safety events, causing the inability
to provide critical services to our customers, affiliates and
counterparties. Resilience risk arises from failures or
inadequacies in processes, people, systems or external
events.
Resilience risk
management
Key
developments in 2023
During the year, we carried out
several initiatives to keep pace with geopolitical, regulatory and
technology changes, and strengthened the management of resilience
risk:
- We
focused on enhancing our understanding of our risk and control
environment, by updating our risk taxonomy and control libraries,
and refreshing risk and control assessments.
- We
continued to recognise that our customers are impacted by service
disruptions, and responded to these urgently and aimed to recover
with minimum delay. We continued to initiate post-incident review
processes to prevent recurrence. Where we identify that investment
is required to further enhance the Group's operational resilience
capabilities, findings are fed into the Group's financial planning,
helping to ensure we continue to meet the expectations of our
customers and our regulators.
- We
continued to monitor markets affected by the Russia-Ukraine and
Israel-Hamas wars, as well as other geopolitical events, for any
potential impact they may have on our colleagues and
operations.
- We
strengthened the way third-party risk is overseen and managed
across all non-financial risks, and enhanced the processes,
framework and reporting capabilities used by our global businesses,
functions and regions.
- We
provided analysis and easy-to-access risk and control information
and metrics to enable management to focus on non-financial risks in
their decision making and appetite setting.
- We
further strengthened our non-financial risk governance and senior
leadership, and improved our coverage and risk steward oversight
for data risk and change execution.
We prioritise our efforts on
material risks and areas undergoing strategic growth, aligning our
location strategy to this need. We also remotely provide oversight
and stewardship, including support of chief risk officers, in
territories where we have no physical presence.
Governance and structure
The Enterprise Risk Management
target operating model provides a globally consistent view across
resilience risks, strengthening our risk management oversight while
operating effectively as part of a simplified non-financial risk
structure.
We view resilience risk across seven
sub-risk types related to: third-party risk; technology and
cybersecurity risk; transaction processing risk; business
interruption and incident risk; data risk; change execution risk;
and facilities availability, safety and security
risk.
Risk appetite and key escalations
for resilience risk are reported to the Non-Financial Risk
Management Board, chaired by the Group Chief Risk and Compliance
Officer, with an escalation path to the Group Risk Management
Meeting and Group Risk Committee.
Key
risk management processes
Operational resilience is our
ability to anticipate, prevent, adapt, respond to, recover and
learn from operational disruption while minimising customer and
market impact. Resilience is determined by assessing whether we can
continue to provide our important business services, within an
agreed impact tolerance. This is achieved via day-to-day oversight
and periodic and ongoing assurance, such as deep dive reviews and
controls testing, which may result in challenges being raised to
the business by risk stewards. Further challenge is also raised in
the form of risk steward opinion papers to formal governance. We
accept we will not be able to prevent all disruption but we must
prioritise investment to continually improve the response and
recovery strategies for our important business services and
important group business services to meet regulatory
expectations.
Business operations continuity
We continue to monitor the
Russia-Ukraine and Israel-Hamas wars, and remain ready to take
measures to ensure business continuity in affected markets should
the situations require. There have been no significant disruptions
to our services, although businesses and functions in nearby
markets continually review their plans and responses to minimise
any potential impacts.
Regulatory compliance risk
|
Regulatory compliance risk is the
risk associated with breaching our duty to clients and other
counterparties, inappropriate market conduct (including
unauthorised trading) and breaching related financial services
regulatory standards. Regulatory compliance risk arises from the
failure to observe relevant laws, codes, rules and regulations and
can manifest itself in poor market or customer outcomes and lead to
fines, penalties and reputational damage to our
business.
Regulatory compliance risk
management
Key
developments in 2023
The dedicated programme to embed our
updated purpose-led conduct approach has concluded. Work to map
applicable regulations to our risks and controls continued in 2023,
alongside the adoption of new tooling to support enterprise-wide
horizon scanning for new regulatory obligations and supporting
wider work on regulatory reporting enhancements. Climate risk has
been integrated into regulatory compliance policies and processes,
with enhancements made to the product governance framework and
controls to ensure the effective consideration of climate - and in
particular the risk of greenwashing - risks.
Governance and structure
The Compliance function has now been
restructured and integrated into a combined Risk and Compliance
function with the appointment
of a Group Head of Regulatory
Compliance reporting directly into the
Group Chief Risk and Compliance
Officer. Regulatory Compliance and Financial Crime teams work
together and with relevant stakeholders to achieve good conduct
outcomes, and provide enterprise-wide support on the compliance
risk agenda in close collaboration with colleagues from the Group
Risk and Compliance function.
Key
risk management processes
The Global Regulatory Compliance
capability is responsible for setting global policies, standards
and risk appetite to guide the Group's management of regulatory
compliance risk. It also devises the required frameworks, support
processes and tooling to protect against regulatory compliance
risks. The Group capability provides oversight, review and
challenge of the global market, regional and line of business teams
to help them identify, assess and mitigate regulatory compliance
risks, where required. The Group's regulatory compliance risk
policies are regularly reviewed. Global policies and procedures
require the identification and escalation of any actual or
potential regulatory breaches, and relevant events and issues are
escalated to the Group's Non-Financial Risk Management Board, the
Group Risk Management Meeting and the Group Risk Committee, as
appropriate. The Group Head of Regulatory Compliance reports to the
Group Chief Risk and Compliance Officer, and attends the Risk and
Compliance Executive Committee, the Group Risk Management Meeting
and the Group Risk Committee.
Financial crime risk is the risk
that HSBC's products and services will be exploited for criminal
activity. This includes fraud, bribery and corruption, tax evasion,
sanctions and export control violations, money laundering,
terrorist financing and proliferation financing. Financial crime
risk arises from day-to-day banking operations involving customers,
third parties and employees.
Financial crime risk
management
Key
developments in 2023
We regularly review the
effectiveness of our financial crime risk management framework,
which includes continued consideration of the complex and dynamic
nature of sanctions compliance and export control risk. We
continued to respond to the financial sanctions and trade
restrictions that have been imposed on Russia, including methods
used to limit sanctions evasion.
We continued to make progress with
several key financial crime risk management initiatives,
including:
- We
deployed our intelligence-led, dynamic risk assessment capability
for customer account monitoring in additional entities and global
businesses, including in the UK, the Channel Islands and the Isle
of Man, Hong Kong and the UAE.
- We
deployed a next generation capability to increase our monitoring
coverage on correspondent banking activity.
- We
successfully introduced the required changes to our transaction
screening capability to accommodate the global change to payment
systems formatting under ISO 20022 requirements.
- We
made enhancements in response to the rapidly evolving and complex
global payments landscape and refined our digital assets and
currencies strategy.
Governance and structure
The structure of the Financial Crime
function remained substantively unchanged in 2023, although we
continued to review the effectiveness of our governance framework
to manage financial crime risk. The Group Head of Financial Crime
and Group Money Laundering Reporting Officer continues to report to
the Group Chief Risk and Compliance Officer, while the Group Risk
Committee retains oversight of matters relating to financial
crime.
Key
risk management processes
We will not tolerate knowingly
conducting business with individuals or entities believed to be
engaged in criminal activity. We require everybody in HSBC to play
their role in maintaining effective systems and controls to prevent
and detect financial crime. Where we believe we have identified
suspected criminal activity or vulnerabilities in our control
framework, we will take appropriate mitigating action.
We manage financial crime risk
because it is the right thing to do to protect our customers,
shareholders, staff, the communities in which we operate, as well
as the integrity of the financial system on which we all rely. We
operate in a highly regulated industry in which these same policy
goals are codified in law and regulation.
We are committed to complying with
the laws and regulations of all the markets in which we operate and
applying a consistently high financial crime standard
globally.
We continue to assess the
effectiveness of our end-to-end financial crime risk management
framework, and invest in enhancing our operational control
capabilities and technology solutions to deter and detect criminal
activity. We have simplified our framework and consolidated
previously separate financial crime policies into a single policy
to drive consistency and provide a more holistic assessment of
financial crime risk. We further strengthened our financial crime
risk
taxonomy and control libraries and
our monitoring capabilities through technology deployments. We
developed more targeted metrics, and continued to seek to enhance
our governance and reporting. We are committed to working in
partnership with the wider industry and the public sector in
managing financial crime risk and we participate in numerous
public-private partnerships and information sharing initiatives
around the world. In 2023, our focus remained on measures to
improve the overall effectiveness of the global financial crime
framework, notably by providing input into legislative and
regulatory reform activities. We did this by contributing to
the
development of responses to
consultation papers focused on how financial crime risk management
frameworks can deliver more effective outcomes in detecting and
deterring criminal activity. Through our work with the Wolfsberg
Group and the Institute of International Finance, we supported the
efforts of the global standard setter, the Financial Action Task
Force. In addition, we participated in a number of public events
related to enhancing public-private partnerships, payment
transparency, asset recovery, tackling forestry crimes, wildlife
trafficking and human trafficking.
Model risk is the risk of the
potential for adverse consequences from model errors or the
inappropriate use of modelled outputs to inform business
decisions.
Model risk arises in both financial
and non-financial contexts whenever business decision making
includes reliance on models.
Key developments in 2023
In 2023, we
continued to make improvements in our model risk management
processes amid regulatory changes in model requirements.
Initiatives during the year
included:
- Following regulatory feedback on a number of our model
submissions for our internal ratings-based ('IRB') approach for
credit risk, internal model method ('IMM') for counterparty credit
risk and internal model approach ('IMA') for market risk, we
implemented approved models for IMM and IMA alongside an approved
IRB model for UK mortgages. We began a programme of work to address
feedback from the PRA and other regulators on the IRB models for
wholesale credit.
- We
made changes to our VaR model in response to multiple breaches that
had been observed from market volatility resulting from changes in
monetary policy in major markets.
- We
introduced a new procedure to ensure any new tool developed using
generative AI would require validation by Model Risk Management
before its use.
- We
enhanced our frameworks and controls as climate risk and AI and
machine learning models become more embedded in business
processes.
- Following the publication of Supervisory Statement 1/23 - the
PRA's guiding principles for how model risks should be managed
across the industry - we began a programme of work to seek to meet
the enhanced model risk management requirements, with
representation from all global businesses and key functions,
including Internal Audit.
Governance and structure
Model risk governance committees at
the Group, business and functional levels provide oversight of
model risk. The committees include senior leaders from the three
global businesses and the Group Risk and Compliance function, and
focus on model-related concerns and are supported by key model risk
metrics. We also have Model Risk Committees in our geographical
regions focused on local delivery and requirements. The Group-level
Model Risk Committee is chaired by the Group Chief Risk and
Compliance Officer, and the heads of key businesses participate in
these meetings.
Key risk management
processes
We use a variety of modelling
approaches, including regression, simulation, sampling, machine
learning and judgemental scorecards for a range of business
applications. These activities include customer selection, product
pricing, financial crime transaction monitoring, creditworthiness
evaluation and financial reporting. Global responsibility for
managing model risk is delegated from the Board to the Group Chief
Risk and Compliance Officer, who authorises the Group Model Risk
Committee. This committee regularly reviews our model risk
management policies and procedures, and requires the first line of
defence to demonstrate comprehensive and effective controls based
on a library of model risk controls provided by Model Risk
Management. Model Risk Management also reports on model risk to
senior management and the Group Risk Committee on a regular basis
through the use of the risk map, risk appetite metrics and top and
emerging risks.
We regularly review the
effectiveness of these processes, including the model risk
committee structure, to help ensure appropriate understanding and
ownership of model risk is embedded in the businesses and
functions.
Insurance manufacturing operations
risk
|
Contents
233
|
Overview
|
233
|
Insurance manufacturing operations
risk management
|
234
|
Insurance manufacturing operations
risk in 2023
|
234
|
Measurement
|
235
|
Key risk types
|
235
|
- Market risk
|
236
|
- Credit risk
|
236
|
- Liquidity risk
|
237
|
- Insurance underwriting
risk
|
Overview
The key risks for our insurance
manufacturing operations are market risk, in particular interest
rate and equity, credit risk and insurance underwriting risk. These
have a direct impact on the financial results and capital positions
of the insurance operations. Liquidity risk, while significant in
other parts of the Group, is less material for our insurance
operations.
HSBC's insurance business
We sell insurance products through a
range of channels including our branches, insurance sales forces,
direct channels and third-party distributors. The majority of sales
are through an integrated bancassurance model that provides
insurance products principally for customers with whom we have a
banking relationship, although the proportion of sales through
other sources such as independent financial advisers, tied agents
and digital platforms is increasing.
For the insurance products we
manufacture, the majority of sales are savings, universal life
and protection contracts.
We choose to manufacture these
insurance products in HSBC subsidiaries based on an assessment of
operational scale and risk appetite. Manufacturing insurance allows
us to retain the risks and rewards associated with writing
insurance contracts by keeping part of the underwriting profit and
investment income within the Group.
We have life insurance manufacturing
subsidiaries in eight markets, which are Hong Kong, Singapore,
mainland China, France, UK, Malta, Mexico and Argentina. In
addition, we have: an interest in a life insurance manufacturing
associate in India; a captive insurance entity in Bermuda that
insures the non-financial risks of the wider Group; and a
reinsurance entity in Bermuda.
Where we do not have the risk
appetite or operational scale to be an effective insurance
manufacturer, we engage with a small number of leading external
insurance companies in order to provide insurance products to our
customers. These arrangements are generally structured with
our exclusive strategic partners and earn the Group a combination
of commissions, fees and a share of profits. We distribute
insurance products in all of our geographical regions.
This section focuses only on the
risks relating to the insurance products we manufacture.
Insurance manufacturing operations
risk management
Key developments in 2023
The insurance manufacturing
subsidiaries follow the Group's risk management framework. In
addition, there are specific policies and practices relating to the
risk management of insurance contracts, which did not change
materially over 2023. During the year, there was continued market
volatility observed across interest rates, equity and credit
markets and foreign exchange rates. This was predominantly driven
by geopolitical factors and wider inflationary concerns. One key
area of risk management focus during 2023 was the implementation of
the new accounting standard, IFRS 17 'Insurance Contracts', which
became effective on 1 January 2023. Given the fundamental change
the new accounting standard represented in insurance accounting,
and the complexity of the new standard, this presented additional
financial reporting and model risks for the Group, which were
managed via the IFRS 17 implementation project. Other areas of
focus were the ongoing integration of the insurance business that
was acquired through AXA Singapore in 2022 into the Group's risk
management framework, the establishment of a reinsurance entity in
Bermuda and controls supporting IFRS 17 implementation.
Governance and structure
(Audited)
Insurance manufacturing risks are
managed to a defined risk appetite, which is aligned to the
Group's risk appetite and risk management framework, including its
three lines of defence model. For details of the Group's governance
framework, see page 137. The Global Insurance Risk Management
Meeting oversees the control framework globally and is accountable
to the WPB Risk Management Meeting on risk matters relating to the
insurance business.
The monitoring of the risks within
our insurance operations is carried out by Insurance Risk teams.
The Group's risk stewardship functions support the Insurance Risk
teams in their respective areas of expertise.
Stress and scenario
testing
(Audited)
Stress testing forms a key part of
the risk management framework for the insurance business. We
participate in local and Group-wide regulatory stress tests, as
well as internally developed stress and scenario tests, including
Group internal stress test exercises.
The results of these stress tests
and the adequacy of management action plans to mitigate these risks
are considered in the Group's ICAAP and the entities' regulatory
Own Risk and Solvency Assessments, which are produced by all
material entities.
Key
risk management processes
Market risk
(Audited)
All our insurance manufacturing
subsidiaries have market risk mandates and limits that specify the
investment instruments in which they are permitted to invest and
the maximum quantum of market risk that they may retain. They
manage market risk by using, among others, some or all of the
techniques listed below, depending on the nature of the contracts
written:
- We
are able to adjust bonus rates to manage the liabilities to
policyholders for products with participating features. The effect
is that a significant proportion of the market risk is borne by the
policyholder.
- We
use asset and liability matching where asset portfolios are
structured to support projected liability cash flows. The Group
manages its assets using an approach that considers asset quality,
diversification, cash flow matching, liquidity, volatility and
target investment return. We use models to assess the effect of a
range of future scenarios on the values of financial assets and
associated liabilities, and ALCOs employ the outcomes in
determining how best to structure asset holdings to support
liabilities.
- We
use derivatives and other financial instruments to protect against
adverse market movements.
- We
design new products to mitigate market risk, such as changing the
investment return sharing proportion between policyholders and the
shareholder.
Credit risk
(Audited)
Our insurance manufacturing
subsidiaries also have credit risk mandates and limits within which
they are permitted to operate, which consider the credit risk
exposure, quality and performance of their investment portfolios.
Our assessment of the creditworthiness of issuers and
counterparties is based primarily upon internationally recognised
credit ratings and other publicly available information.
Stress testing is performed on
investment credit exposures using credit spread sensitivities and
default probabilities.
We use a number of tools to manage
and monitor credit risk. These include a credit report containing a
watch-list of investments with current credit concerns, primarily
investments that may be at risk of future impairment or where high
concentrations to counterparties are present in the investment
portfolio. Sensitivities to credit spread risk are assessed and
monitored regularly.
Capital and liquidity risk
(Audited)
Capital risk for our insurance
manufacturing subsidiaries is 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.
Risk appetite buffers are set to
ensure that the operations are able to remain solvent, allowing for
business-as-usual volatility and extreme but plausible stress
events.
Liquidity risk is less material for
the insurance business. It is managed by cash flow matching and
maintaining sufficient cash resources, investing in high
credit-quality investments with deep and liquid markets, monitoring
investment concentrations and restricting them where appropriate,
and establishing committed contingency borrowing
facilities.
Insurance manufacturing subsidiaries
complete quarterly liquidity risk reports and an annual review of
the liquidity risks to which they are exposed.
Insurance underwriting risk
Our insurance manufacturing
subsidiaries primarily use the following frameworks and processes
to manage and mitigate insurance underwriting risks:
- a
formal approval process for launching new products or making
changes to products;
- a
product pricing and profitability framework, which requires initial
and ongoing assessment of the adequacy of premiums charged on new
insurance contracts to meet the risks associated with
them;
- a
framework for customer underwriting;
- reinsurance, which cedes risks to third-party reinsurers to
keep risks within risk appetite, reduce volatility and improve
capital efficiency; and
- oversight by financial reporting committees in each of our
entities of the methodology and assumptions that underpin IFRS 17
reporting.
Insurance manufacturing operations
risk in 2023
The following tables show the
composition of the fair value of underlying items of the Group's
participating contracts at the reporting date.
Balance sheet of insurance
manufacturing subsidiaries by type of contract
|
(Audited)
|
|
Life direct participating
and investment DPF contracts1
|
Life
other
contracts2
|
Other
contracts3
|
Shareholder
assets
and
liabilities
|
Total
|
At
31 Dec 2023
|
$m
|
$m
|
$m
|
$m
|
$m
|
Financial assets
|
113,605
|
3,753
|
5,812
|
7,696
|
130,866
|
- trading assets
|
-
|
-
|
-
|
-
|
-
|
- financial assets designated
and otherwise mandatorily measured at fair value through profit or
loss
|
100,427
|
3,593
|
4,177
|
1,166
|
109,363
|
- derivatives
|
258
|
10
|
-
|
6
|
274
|
- financial investments - at
amortised cost
|
1,351
|
67
|
1,157
|
4,772
|
7,347
|
- financial assets at fair
value through other comprehensive income
|
8,859
|
-
|
5
|
693
|
9,557
|
- other financial
assets
|
2,710
|
83
|
473
|
1,059
|
4,325
|
Insurance contract assets
|
13
|
213
|
-
|
-
|
226
|
Reinsurance contract
assets
|
-
|
4,871
|
-
|
-
|
4,871
|
Other assets and investment
properties
|
2,782
|
164
|
35
|
1,636
|
4,617
|
Total assets at 31 Dec 2023
|
116,400
|
9,001
|
5,847
|
9,332
|
140,580
|
Liabilities under investment
contracts designated at fair value
|
-
|
-
|
5,103
|
-
|
5,103
|
Insurance contract
liabilities
|
116,389
|
3,961
|
-
|
-
|
120,350
|
Reinsurance contract
liabilities
|
-
|
819
|
-
|
-
|
819
|
Deferred tax
|
-
|
1
|
-
|
3
|
4
|
Other liabilities
|
-
|
-
|
-
|
6,573
|
6,573
|
Total liabilities
|
116,389
|
4,781
|
5,103
|
6,576
|
132,849
|
Total equity
|
-
|
-
|
-
|
7,731
|
7,731
|
Total liabilities and equity at 31 Dec 2023
|
116,389
|
4,781
|
5,103
|
14,307
|
140,580
|
Balance sheet of insurance
manufacturing subsidiaries by type of contract
(continued)
|
(Audited)
|
|
Life
direct participating and investment DPF
contracts1
|
Life
other
contracts2
|
Other
contracts3
|
Shareholder assets
and
liabilities
|
Total
|
At 31 Dec
20224
|
$m
|
$m
|
$m
|
$m
|
$m
|
Financial assets
|
102,539
|
4,398
|
6,543
|
7,109
|
120,589
|
- trading assets
|
-
|
-
|
-
|
-
|
-
|
- 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
20224
|
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 20224
|
104,685
|
4,514
|
5,374
|
14,762
|
129,335
|
1 'Life direct participating and
investment DPF contracts' are substantially measured under the
variable fee approach measurement model.
2 'Life other contracts' are measured
under the general measurement model and mainly includes protection
insurance contracts as well as reinsurance contracts. The
reinsurance contracts primarily provide diversification benefits
over the life direct participating and investment discretionary
participation feature ('DPF') contracts.
3 'Other contracts' includes
investment contracts for which HSBC does not bear significant
insurance risk.
4 From 1 January 2023, we adopted
IFRS 17 'Insurance Contracts', which replaced IFRS 4 'Insurance
Contracts'. Comparative data have been restated
accordingly.
Description and exposure
Market risk is the risk of changes
in market factors affecting HSBC's capital or profit. Market
factors include interest rates, equity and growth assets, credit
spreads and foreign exchange rates.
Our exposure varies depending on the
type of contract issued. Our most significant life insurance
products are contracts with participating features. These products
typically include some form of capital guarantee or guaranteed
return on the sums invested by the policyholders, to which
bonuses are added if allowed by the overall performance of the
funds. These funds are primarily invested in fixed interest, with a
proportion allocated to other asset classes to provide customers
with the potential for enhanced returns.
Participating products expose HSBC
to the risk of variation in asset returns, which will impact our
participation in the investment performance.
In addition, in some scenarios the
asset returns can become insufficient to cover the policyholders'
financial guarantees, in which case the shortfall has to be met by
HSBC. Amounts are held against the cost of such guarantees,
calculated by stochastic modelling in the larger
entities.
The cost of such guarantees are
generally not material and are absorbed by the insurance fulfilment
cash flows.
For unit-linked contracts, market
risk is substantially borne by the policyholder, but some
market risk exposure typically remains, as fees earned are related
to the market value of the linked assets.
Sensitivities
(Audited)
The following table provides the
impacts on the CSM, profit after tax and equity of our insurance
manufacturing subsidiaries from reasonably possible effects of
changes in selected interest rate, credit spread, equity price,
growth assets and foreign exchange rate scenarios for the year.
These sensitivities are prepared in accordance with current IFRS
Accounting Standards and are based on changing one assumption at a
time with other variables being held constant, which in practice
could be correlated.
Due in part to the impact of the
cost of guarantees and hedging strategies, which may be in place,
the relationship between the CSM, profit after tax and total equity
and the risk factors is non-linear. Therefore, the results
disclosed should not be extrapolated to measure sensitivities to
different levels of stress. For the same reason, the impact of the
stress is not necessarily symmetrical on the upside and downside.
The sensitivities are stated before allowance for management
actions, which may mitigate the effect of changes in the market
environment.
The method used for deriving
sensitivity information and significant market risk factors remain
consistent between 2022 and 2023. In 2022, due to a lower CSM
level, some portfolios generated onerous contracts in the 100bps up
scenarios for interest rate and credit spread sensitivities,
generating income statement losses and equity reductions in those
scenarios. This was less prevalent in 2023 as the base CSMs were
higher from changing market conditions and changes in lapse rate
assumptions.
Sensitivity of HSBC's insurance
manufacturing subsidiaries to market risk
factors1
|
(Audited)
|
|
|
|
|
|
|
|
2023
|
20222
|
|
Effect on profit after
tax
|
Effect on
CSM
|
Effect on total
equity
|
Effect
on profit after tax
|
Effect
on CSM
|
Effect
on total equity
|
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
+100 basis point parallel shift in
yield curves
|
66
|
(92)
|
32
|
(210)
|
(82)
|
(240)
|
- Insurance and reinsurance
contracts
|
69
|
(92)
|
69
|
(214)
|
(82)
|
(214)
|
- Financial
instruments
|
(3)
|
-
|
(37)
|
4
|
-
|
(26)
|
-100 basis point parallel shift in
yield curves
|
(137)
|
(390)
|
(103)
|
(49)
|
(57)
|
(19)
|
- Insurance and reinsurance
contracts
|
(133)
|
(390)
|
(133)
|
(41)
|
(57)
|
(41)
|
- Financial
instruments
|
(4)
|
-
|
30
|
(8)
|
-
|
22
|
+100 basis point shift in credit
spreads
|
(11)
|
(884)
|
(45)
|
(324)
|
(843)
|
(354)
|
- Insurance and reinsurance
contracts
|
(9)
|
(884)
|
(9)
|
(322)
|
(843)
|
(322)
|
- Financial
Instruments
|
(2)
|
-
|
(36)
|
(2)
|
-
|
(32)
|
-100 basis point shift in credit
spreads
|
104
|
806
|
138
|
119
|
1,133
|
149
|
- Insurance and reinsurance
contracts
|
102
|
806
|
102
|
117
|
1,133
|
117
|
- Financial
instruments
|
2
|
-
|
36
|
2
|
-
|
32
|
10% increase in growth
assets3
|
78
|
436
|
78
|
68
|
400
|
68
|
- Insurance and reinsurance
contracts
|
43
|
436
|
43
|
38
|
400
|
38
|
- Financial
instruments
|
35
|
-
|
35
|
30
|
-
|
30
|
10% decrease in growth
assets3
|
(85)
|
(507)
|
(86)
|
(81)
|
(560)
|
(81)
|
- Insurance and reinsurance
contracts
|
(49)
|
(507)
|
(49)
|
(49)
|
(560)
|
(49)
|
- Financial
instruments
|
(36)
|
-
|
(36)
|
(32)
|
-
|
(32)
|
10% appreciation in US dollar
exchange rate against local functional currency
|
117
|
390
|
117
|
95
|
272
|
95
|
- Insurance and reinsurance
contracts
|
27
|
390
|
27
|
20
|
272
|
20
|
- Financial
instruments
|
90
|
-
|
90
|
75
|
-
|
75
|
10% depreciation in US dollar
exchange rate against local functional currency
|
(117)
|
(390)
|
(117)
|
(95)
|
(272)
|
(95)
|
- Insurance and reinsurance
contracts
|
(27)
|
(390)
|
(27)
|
(20)
|
(272)
|
(20)
|
- Financial
instruments
|
(90)
|
-
|
(90)
|
(75)
|
-
|
(75)
|
1 Sensitivities presented for
'Insurance and reinsurance Contracts' includes the impact of the
sensitivity stress on underlying assets held to support insurance
and reinsurance contracts. Sensitivities presented for 'Financial
instruments' includes the impact of the sensitivity stress on other
financial instruments, primarily shareholder
assets.
2 From 1 January 2023, we adopted IFRS 17
'Insurance Contracts', which replaced IFRS 4 'Insurance Contracts'.
Comparative data have been restated accordingly.
3 'Growth assets' primarily comprise
equity securities and investment properties. Variability in growth
asset fair value constitutes a market risk to HSBC insurance
manufacturing subsidiaries.
Description and exposure
Credit risk is the risk of financial
loss if a customer or counterparty fails to meet their obligation
under a contract. It arises in two main areas for our insurance
manufacturers:
- risk associated with credit spread volatility and default by
debt security counterparties after investing premiums to generate a
return for policyholders and shareholders; and
- risk of default by reinsurance counterparties and
non-reimbursement for claims made after ceding insurance
risk.
The amounts outstanding at the
balance sheet date in respect of these items are shown in the
table on page 234.
The credit quality of the
reinsurers' share of liabilities under insurance contracts is
assessed as 'satisfactory' or higher (as defined on page 148),
with 100% of the exposure being neither past due nor impaired
(2022: 100%).
Credit risk on assets supporting
unit-linked liabilities is predominantly borne by the
policyholders. Therefore, our exposure is primarily
related to liabilities under
non-linked insurance and investment contracts and shareholders'
funds. The credit quality of insurance financial assets is included
in the table on page 172.
The risk associated with credit
spread volatility is to a large extent mitigated by holding debt
securities to maturity, and sharing a degree of credit spread
experience with policyholders.
Liquidity risk
(Audited)
Description and exposure
Liquidity risk is the risk that an
insurance operation, though solvent, either does not have
sufficient financial resources available to meet its obligations
when they fall due, or can secure them only at excessive cost.
Liquidity risk may be able to be shared with policyholders for
products with participating features.
The remaining maturity of insurance
contract liabilities is included in Note 4 on page 362.
The amounts of insurance contract
liabilities that are payable on demand are set out by the product
grouping below:
Amounts payable on demand
(Audited)
|
|
2023
|
20221
|
|
Amounts payable on
demand
|
Carrying amount for these
contracts
|
Amounts
payable on demand
|
Carrying
amount for these contracts
|
|
$m
|
$m
|
$m
|
$m
|
Life direct participating and
investment DPF contracts
|
107,287
|
116,389
|
100,273
|
104,669
|
Life other contracts
|
2,765
|
3,961
|
2,813
|
3,759
|
At
31 Dec
|
110,052
|
120,350
|
103,086
|
108,428
|
1 From 1 January 2023, we adopted IFRS 17
'Insurance Contracts', which replaced IFRS 4 'Insurance Contracts'.
Comparative data have been restated accordingly.
Insurance underwriting risk
Description and exposure
Insurance underwriting risk is the
risk of loss through adverse experience, in either timing or
amount, of insurance underwriting parameters (non-economic
assumptions). These parameters include mortality, morbidity,
longevity, lapse and expense rates. Lapse risk exposure on products
with premium financing increased over the year as rising interest
rates led to an increase in the cost of financing for
customers.
The principal risk we face is that,
over time, the cost of the contract, including claims and benefits,
may exceed the total amount of premiums and investment income
received.
The tables on pages 234 analyse our life insurance underwriting risk
exposures by composition of the fair value of the underlying
items.
The insurance underwriting risk
profile and related exposures remain largely consistent with those
observed at 31 December 2022.
Sensitivities
(Audited)
The following table shows the
sensitivity of the CSM, profit and total equity to reasonably
foreseeable changes in non-economic assumptions across all our
insurance manufacturing subsidiaries.
These sensitivities are prepared in
accordance with current IFRS Accounting Standards, which have
changed following the adoption of IFRS 17 'Insurance Contracts',
effective from 1 January 2023. Further information about the
adoption of IFRS 17 is provided on page 342.
Mortality and morbidity risk is
typically associated with life insurance contracts. The effect on
profit of an increase in mortality or morbidity depends on the type
of business being written.
Sensitivity to lapse rates depends
on the type of contracts being written. An increase in lapse
rates typically has a negative effect on CSM (and therefore
expected future profits) due to the loss of future income on
the lapsed policies. However, some contract lapses have a positive
effect on profit due to the existence of policy surrender
charges.
Expense rate risk is the exposure to
a change in the allocated cost of administering insurance
contracts. To the extent that increased expenses cannot be passed
on to policyholders, an increase in expense rates will have a
negative effect on our profits. This risk is generally
greatest for our smaller entities.
The impact of changing insurance
underwriting risk factors is primarily absorbed within the CSM,
unless contracts are onerous in which case the impact is directly
to profits. The impact of changes to the CSM is released to profits
over the expected coverage periods of the related insurance
contracts.
Sensitivity of HSBC's insurance
manufacturing subsidiaries to insurance underwriting risk
factors
(Audited)
|
|
Effect on CSM
(gross)1
|
Effect on profit after tax
(gross)1
|
Effect on profit after tax
(net)2
|
Effect on total equity
(gross)1
|
Effect on total equity
(net)2
|
At
31 Dec 2023
|
$m
|
$m
|
$m
|
$m
|
$m
|
10% increase in mortality and/or morbidity rates
|
(392)
|
(49)
|
(24)
|
(49)
|
(24)
|
10% decrease in mortality and/or morbidity rates
|
440
|
22
|
30
|
22
|
30
|
10% increase in lapse rates
|
(316)
|
(33)
|
(24)
|
(33)
|
(24)
|
10% decrease in lapse rates
|
348
|
22
|
29
|
22
|
29
|
10% increase in expense rates
|
(68)
|
(9)
|
(6)
|
(9)
|
(6)
|
10% decrease in expense rates
|
69
|
8
|
11
|
8
|
11
|
At 31 Dec 20223
|
|
|
|
|
|
10% increase in mortality and/or morbidity rates
|
(354)
|
(23)
|
(21)
|
(23)
|
(21)
|
10% decrease in mortality and/or morbidity rates
|
374
|
16
|
18
|
16
|
18
|
10% increase in lapse rates
|
(225)
|
(23)
|
(23)
|
(23)
|
(23)
|
10% decrease in lapse rates
|
232
|
22
|
22
|
22
|
22
|
10% increase in expense rates
|
(59)
|
(7)
|
(7)
|
(7)
|
(7)
|
10% decrease in expense rates
|
60
|
4
|
5
|
4
|
5
|
1 The 'gross' sensitivities impacts
are provided before considering the impacts of reinsurance
contracts held as risk mitigation.
2 The 'net' sensitivities impacts are
provided after considering the impacts of reinsurance contracts
held as risk mitigation.
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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