HSBC Holdings Regulatory News (HSBA)

Key financial measures: basis of preparation

Return on average tangible equity excluding notable items

From 1 January 2024, we revised the adjustments made to our adjusted RoTE measure. Prior to this we adjusted RoTE for the impact of strategic transactions and the impairment of our investment in Bank of Communications Co., Limited ('BoCom'), whereas from 1 January 2024 we have excluded all notable items. This was intended to improve alignment with the treatment of notable items in our other income statement disclosures. RoTE excluding notable items has been re-presented for 1H23 on the revised basis and we no longer disclose RoTE excluding strategic transactions and the impairment of BoCom. The calculation for RoTE excluding notable items adjusts the 'profit attributable to the ordinary shareholders, excluding goodwill and other intangible assets impairment' for the post-tax impact of notable items. It also adjusts the 'average tangible equity' for the post-tax impact of notable items in each period, which remain as adjusting items for all relevant periods within that calendar year. For a reconciliation from return on equity to RoTE excluding notable items, see page 58. We will now target a RoTE excluding notable items in the mid-teens for both 2024 and 2025. We do not reconcile our forward RoTE guidance to the equivalent reported measure.

Banking net interest income

Banking net interest income ('banking NII') adjusts our NII, primarily for the impact of funding trading and fair value activities reported in interest expense. It represents the Group's banking revenue that is directly impacted by changes in interest rates.

We use this measure to determine the deployment of our surplus funding, and to help optimise our structural hedging and risk management actions. For more information on banking NII, see page 33.

Target basis operating expenses

Target basis operating expenses is computed by excluding the direct cost impact of our France retail banking operations and Canada banking business disposals from the 2023 baseline. It is measured on a constant currency basis and excludes notable items and the impact of retranslating the prior year results of hyperinflationary economies at constant currency, which we consider to be outside of our control. We consider target basis operating expenses to provide useful information to investors by quantifying and excluding the notable items that management considered when setting and assessing cost-related targets. For a reconciliation from reported operating expenses to target basis operating expenses, see page 60.

In 2024, we are targeting growth of approximately 5% compared with 2023 on a target basis. This target reflects our current business plan for 2024, and includes an increase in staff compensation, higher technology spend and investment for growth and efficiency, in part mitigated by cost savings from actions taken during 2023. We do not reconcile our forward target basis operating expenses guidance to the reported operating expenses.

Dividend payout ratio target basis

Given our current returns trajectory, we are targeting a dividend payout ratio target basis of 50% for 2024. For the purposes of computing our dividend payout ratio target basis, we exclude from earnings per share material notable items and related impacts. Material notable items are components of our income statement that management would consider as outside the normal course of business and generally non-recurring in nature, which are excluded from our dividend payout ratio calculation and our earnings per share measure, along with related impacts. Material notable items are a subset of notable items for which categorisation is dependent on the nature of each item in conjunction with the financial impact on the Group's income statement. They comprise the impacts of the sales of our banking business in Canada and our retail banking operations in France, the gain following the acquisition of SVB UK, the impacts of the planned sale of our business in Argentina and the impairment of BoCom. We also exclude HSBC Bank Canada's financial results from the 30 June 2022 net asset reference date until completion, as the gain on sale was recognised through a combination of the consolidation of HSBC Bank Canada's results in the Group's results since this date, and the remaining gain on sale was recognised at completion, inclusive of the recycling of related reserves and fair value gains on related hedges. Following the completion of the sale of our banking business in Canada, the Board approved a special dividend of $0.21 per share, which was paid in June 2024, alongside the first interim dividend.

For the planned sale of our business in Argentina, there is a mechanism by which the loss on sale will vary by changes in the net asset value of HSBC Argentina, and in the fair value of consideration including price adjustments and migration costs (see page 139 for details). There were no additional related impacts identified, and the ongoing profits from HSBC Argentina will not be excluded from our dividend payout ratio target basis.

For a reconciliation of basic earnings per share to basic earnings per share excluding material notable items and related impacts, see page 60. We do not reconcile our forward dividend payout ratio target basis guidance to the reported dividend payout ratio.

Use of alternative performance measures

Our reported results are prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board ('IFRS Accounting Standards') as detailed in the interim condensed consolidated financial statements starting on page 113.

To measure our performance, we supplement our IFRS Accounting Standards figures with non-IFRS Accounting Standards measures, which constitute alternative performance measures under European Securities and Markets Authority guidance and non-GAAP financial measures defined in and presented in accordance with US Securities and Exchange Commission rules and regulations. These measures include those derived from our reported results that eliminate factors that distort period-on-period comparisons. The 'constant currency performance' measure used in the Interim Report 2024 is described below. Definitions and calculations of other alternative performance measures are included in our 'Reconciliation of alternative performance measures' on page Error! Bookmark not defined.. In addition, insurance-specific non-GAAP measures including 'Insurance manufacturing value of new business' and 'Insurance equity plus CSM net of tax' are provided on pages 46 to 47, together with their definitions and reconciliation to GAAP measures. All alternative performance measures are reconciled to the closest reported performance measure.

The global business segmental results are presented on a constant currency basis in accordance with IFRS 8 'Operating Segments' as detailed in Note 5: 'Segmental analysis' on page 122.

Constant currency performance

Constant currency performance is computed by adjusting reported results for the effects of foreign currency translation differences, which distort period-on-period comparisons.

We consider constant currency performance to provide useful information for investors by aligning internal and external reporting, and reflecting how management assesses period-on-period performance.

Notable items and material notable items

We separately disclose 'notable items', which are components of our income statement that management would consider as outside the normal course of business and generally non-recurring in nature.

Certain notable items are classified as 'material notable items', which are a subset of notable items. Categorisation as a material notable item is dependent on the nature of each item in conjunction with the financial impact on the Group's income statement. We exclude material notable items when computing our dividend payout ratio target basis. Material notable items currently comprise the sale of our retail operations in France banking and our business in Canada, the planned sale of our business in Argentina, the acquisition of SVB UK and the impairment of our investment in BoCom.

The tables on pages 40 to Error! Bookmark not defined. and pages 52 to Error! Bookmark not defined. detail the effects of notable items on each of our global business segments, legal entities and selected countries/territories in 1H24 and 1H23.

Constant currency revenue and profit before tax excluding notable items

We separately report constant currency revenue excluding notable items and profit before tax excluding notable items which exclude the impact of notable items and the impact of foreign exchange translation. We consider this measure to provide useful information to investors as it removes items which distort period-on-period comparisons. For a reconciliation of constant currency revenue excluding notable items and profit before tax excluding notable items to reported revenue and reported profit respectively, see page 58.

Constant currency revenue and profit before tax excluding notable items and the impact of strategic transactions

To aid the understanding of our results, we separately disclose constant currency revenue and profit before tax excluding notable items and the impact of strategic transactions. This measure excludes the impact of strategic transactions classified as material notable items from constant currency revenue and profit before tax excluding notable items. At 1H24, strategic transactions classified as material notable items comprise the disposal of our retail banking operations in France, our banking business in Canada, the planned sale of our business in Argentina and the acquisition of SVB UK.

The impacts quoted include the gains or losses on classification to held for sale or acquisition and all other related notable items. They also include the distorting impact between the periods of the operating income statement results related to acquisitions and disposals that affect period-on-period comparisons. It is computed by including the operating income statement results of each business in any period for which there are no results in the comparative period. We consider the monthly impacts of distorting income statement results when calculating the impact of strategic transactions.

Foreign currency translation differences

Foreign currency translation differences reflect the movements of the US dollar against most major currencies during 2024.

We exclude them to derive constant currency data, allowing us to assess balance sheet and income statement performance on a like-for-like basis and to better understand the underlying trends in the business.

Foreign currency translation differences for the half-year to 30 June 2024 are computed by retranslating into US dollars for non-US dollar branches, subsidiaries, joint ventures and associates:

- the income statement for the half-year to 30 June 2023 at the average rate of exchange for the half-year to 30 June 2024; and

- the balance sheets at 30 June 2023 and 31 December 2023 at the prevailing rates of exchange on 30 June 2024.

No adjustment has been made to the exchange rates used to translate foreign currency-denominated assets and liabilities into the functional currencies of any HSBC branches, subsidiaries, joint ventures or associates. The constant currency data of our operations in Argentina and Türkiye has not been adjusted further for the impacts of hyperinflation. When reference is made to foreign currency translation differences in tables or commentaries, comparative data reported in the functional currencies of HSBC's operations have been translated at the appropriate exchange rates applied in the current period on the basis described above.

Impact of hyperinflationary accounting

We continue to treat Argentina and Türkiye as hyperinflationary economies for accounting purposes. The impact of applying IAS 29 'Financial Reporting in Hyperinflationary Economies' and the hyperinflation provisions of IAS 21 'The Effects of Changes in Foreign Exchange Rates' in the current period for our operations in both Argentina and Türkiye was a decrease in the Group's profit before tax of $646m (1H23: $396m), comprising a decrease in revenue, including loss on net monetary position, of $594m (1H23: $411m) and an increase in ECL and operating expenses of $52m (1H23: decrease of $15m). The consumer price index ('CPI') at 30 June 2024 for Argentina was 6,352, with an increase in the period of 2,776 (1H23: 562 increase). The CPI for Türkiye was 2,319 with an increase in the period of 460 (1H23: 223 increase).

Summary consolidated income statement

1 Includes a $255m gain (1H23: $284m loss) on the foreign exchange hedging of the proceeds from the sale of our banking business in Canada.

2 Gain recognised in respect of the acquisition of SVB UK.

3 In the first half of 2024, a gain of $4.6bn inclusive of the recycling of $0.6bn in foreign currency translation reserve losses and $0.4bn of other reserves recycling losses on the sale of our banking business in Canada, and an impairment loss of $1.2bn relating to the planned sale of our business in Argentina was recognised. In the first quarter of 2023, the $2.1bn reversal of the held for sale classification was recognised relating to the sale of our retail banking operations in France.

4 Net operating income before change in expected credit losses and other credit impairment charges, also referred to as revenue.

5 The $0.62 dividend paid during the period consisted of a fourth interim dividend of $0.31 per ordinary share in respect of the financial year ended 31 December 2023 paid in April 2024, a first interim dividend of $0.10 per ordinary share in respect of the financial year ending 31 December 2024 and a special dividend of $0.21 per ordinary share from the Canada sale proceeds.

Distribution of results by global business and legal entity

1 Constant currency net operating income before change in expected credit losses and other credit impairment charges including the effects of foreign currency translation differences, also referred to as constant currency revenue.

2 On 1 January 2024, HSBC Continental Europe completed the sale of its retail banking operations in France to CCF, a subsidiary of Promontoria MMB SAS ('My Money Group'). With effect from this date, we have prospectively reclassified the portfolio of retained loans, profit participation interest and licence agreement of the CCF brand from WPB to Corporate Centre.

1 Other trading entities includes the results of entities located in Oman (pre merger with Sohar International Bank SAOG in August 2023), Türkiye, Egypt and Saudi Arabia (including our share of the results of Saudi Awwal Bank) which do not consolidate into HSBC Bank Middle East Limited. Supplementary analysis is provided on page 55 for a fuller picture of the Middle East, North Africa and Türkiye ('MENAT') regional performance.

2 Includes a $4.8bn gain on disposal of our banking business in Canada, inclusive of a $0.3bn gain on the foreign exchange hedging of the sale proceeds, the recycling of $0.6bn in foreign currency translation reserve losses and $0.4bn of other reserves recycling losses. This is partly offset by a $1.2bn impairment recognised in relation to the planned sale of our business in Argentina.

The tables on pages 40 and 52 reconcile reported to constant currency results for each of our global business segments and legal entities.

Income statement commentary

The below tables and commentary compare Group financial performance for the half-year to 30 June 2024 with the half-year to 30 June 2023, unless otherwise stated. For further financial performance data of our global business segments, see pages 40 to 49. For further financial performance data by major legal entity, see pages 50 to 55.

1 Gross interest yield is the average annualised interest rate earned on average interest-earning assets ('AIEA'). Gross interest payable is the average annualised interest cost as a percentage of average interest-bearing liabilities.

2 Net interest spread is the difference between the average annualised interest rate earned on AIEA, net of amortised premiums and loan fees, and the average annualised interest rate payable on average interest-bearing liabilities.

3 Net interest margin is net interest income expressed as an annualised percentage of AIEA.

1 The average balances for repurchase and reverse repurchase agreements include net amounts where the criteria for offsetting are met, resulting in a lower net balance reported for repurchase agreements and thus higher cost.

2 Including interest-bearing bank deposits only.

3 Including interest-bearing customer accounts only.

Net interest income ('NII') for 1H24 was $16.9bn, a decrease of $1.4bn or 8% compared with 1H23. as growth in HSBC UK, and a number of other markets, was more than offset by reductions due to business disposals, deposit migration, and redeployment into the trading book in HSBC Bank plc and our main entity in Hong Kong. 

Excluding the unfavourable impact of foreign currency translation differences, NII decreased by $0.8bn or 5%.

NII for 2Q24 was $8.3bn, down 11% compared with 2Q23, and down 5% compared with 1Q24. The decline compared with 2Q23 was predominantly due to the impact of the disposal of our businesses in Canada and France, and higher interest expense which included the impact of deposit migration. The decline compared with 1Q24 was predominantly driven by the impact of the disposal of our Canada business.

Net interest margin ('NIM') for 1H24 of 1.62% was 8 basis points ('bps') lower compared with 1H23, reflecting a rise in the funding cost of average interest-bearing liabilities.

The decrease in NIM in 1H24 included the unfavourable impact of foreign currency translation differences. Excluding this, NIM still would have declined by 8bps.

NIM for 2Q24 was 1.62%, 10bps lower year-on-year, and down 1bp compared with the previous quarter. The year-on-year decline was predominantly driven by a rise in the funding cost of average interest-bearing liabilities including the impact of deposit migration.

Interest income for 1H24 of $55.4bn increased by $8.4bn, compared with 1H23. This was primarily due to higher asset yields, partly offset by the impact of the disposal of our Canada business.

The change in interest income included $1bn from the adverse effect of foreign currency translation differences. Excluding this, interest income increased by $9.4bn.

Interest income of $27.1bn in 2Q24 was up $2.2bn compared with 2Q23, and $1.2bn lower compared with 1Q24. The increase compared with 2Q23 was predominantly driven by the impact of higher asset yields, partly offset by a reduction in term lending and the impact of the disposal of our Canada business. The decrease compared with 1Q24 was predominantly driven by the impact of the disposal of our Canada business.

Interest expense for 1H24 of $38.5bn increased by $9.8bn or 34% compared with 1H23. This was primarily driven by a rise in the funding cost of average interest-bearing liabilities which included the impact of deposit migration notably in our main entities in Asia and Europe.

The rise in interest expense included the favourable effects of foreign currency translation differences of $0.4bn. Excluding this, interest expense increased by $10.2bn.

Interest expense of $18.8bn in 2Q24 was up $3.2bn compared with 2Q23, and $0.8bn lower compared with 1Q24. The increase compared with 2Q23 was predominantly driven by a rise in the funding cost of average interest-bearing liabilities which included the impact of deposit migration notably in our main entities in Asia and Europe. The decline compared with 1Q24 was predominantly driven by the impact of the disposal of our Canada business.

Banking net interest income

 Banking net interest income ('banking NII') adjusts our NII, primarily for the impact of funding trading and fair value activities reported in interest expense. It represents the Group's banking revenue that is directly impacted by changes in interest rates. It is defined as Group net interest income after deducting:

- the internal cost to fund trading and fair value net assets for which associated revenue is reported in 'Net income from financial instruments held for trading or managed on a fair value basis', also referred to as 'trading and fair value income'. These funding costs reflect proxy overnight or term interest rates as applied by internal funds transfer pricing;

- the funding cost of foreign exchange swaps in Markets Treasury, where an offsetting income or loss is recorded in trading and fair value income. These instruments are used to manage foreign currency deployment and funding in our entities; and

- third-party net interest income in our insurance business.

In our segmental disclosures, the funding costs of trading and fair value net assets are predominantly recorded in GBM in 'net income from financial instruments held for trading or managed on a fair value basis'. On consolidation, this funding is eliminated in Corporate Centre, resulting in an increase in the funding cost reported in net interest income with an equivalent offsetting increase in 'net income from financial instruments held for trading or managed on a fair value basis' in this segment. In the consolidated Group results, the cost to fund these trading and fair value net assets is reported in net interest income.

Banking NII was $22.2bn in 1H24. The funding costs associated with generating trading and fair value income were $5.5bn, an increase of $1.7bn compared with 1H23, primarily reflecting growth in net trading and fair value assets. Banking NII also deducts third-party NII related to our insurance business, which was $0.2bn, broadly stable compared with 1H23. In HSBC UK, banking NII increased in part due to the acquisition of SVB UK in 1Q23, which resulted in a $0.1bn increase. The movement in banking NII also included a reduction of $0.2bn relating to a reclassification, from 1 January 2024, of cash flow hedge revenue between NII and non-NII.

The internally allocated funding to generate trading and fair value income was approximately $207bn at 30 June 2024, a rise of approximately $77bn since 30 June 2023. This relates to trading, fair value and associated net asset balances predominantly in GBM.

To supplement banking NII, we also provide banking NII sensitivity to demonstrate our revenue sensitivity to interest rate movements. Management uses these measures to determine the deployment of our surplus funding, and to help optimise our structural hedging and risk management actions.

For further details on banking NII sensitivity, see page 105.

Net fee income of $6.2bn was $0.1bn higher than in 1H23, and included a $0.1bn adverse impact from foreign currency translation differences, as well as a reduction of $0.2bn due to the impact of the disposal of our banking business in Canada. On a constant currency basis, net fee income was $0.2bn higher, as an increase in WPB was partly offset by reductions in GBM and CMB.

In WPB, fee income grew, primarily from higher income from unit trusts and funds under management, notably in Hong Kong. This reflected stronger equity markets and improved customer sentiment, supported by business initiatives. Cards income grew, notably in our main entity in Hong Kong and also in Mexico, as customer spending increased. The growth in cards activity resulted in a corresponding rise in fee expense.

In GBM, fee income grew in broking income in our main entity in Europe, although this was largely offset by a rise in associated fee expense. In addition, there was higher fee expense relating to broking and custody, as well as intercompany fee expenses incurred on behalf of other global businesses.

In CMB, fee income from credit facilities reduced, notably due to disposal of our banking operations in Canada. This reduction was partly offset by an increase in fee income from GBM products sold to CMB customers.

Net income from financial instruments held for trading or managed on a fair value basis of $10.5bn was $2.4bn higher compared with 1H23. This reflected a rise in income of $1.7bn, primarily relating to trading activities in GBM, for which the associated funding costs are reported in net interest income, notably in our main legal entities in Hong Kong and Europe.

Trading income increased in Corporate Centre reflecting favourable fair value movements of $0.5bn on the foreign exchange hedging of the proceeds of the sale of our banking business in Canada until the completion of the sale.

In WPB, trading income rose by $0.2bn due to gains on hedges in our insurance business.

Net income from assets and liabilities of insurance businesses, including related derivatives, measured at fair value through profit or loss of $2.4bn was $1.9bn lower than in 1H23. This decrease was mainly in Hong Kong, reflecting adverse fair value movements on debt securities due to movements in interest rates.

This unfavourable movement resulted in a corresponding movement in insurance finance expense, which has an offsetting impact for the related liabilities to policyholders.

Insurance finance expense of $2.5bn was $1.7bn lower than in 1H23, reflecting the impact of investment returns on underlying assets on the value of liabilities to policyholders, which moves inversely with 'net income from assets and liabilities of insurance businesses, including related derivatives, measured at fair value through profit or loss'.

Insurance service result of $0.7bn increased by $0.1bn compared with 1H23, primarily due to an increase in the release of the contractual service margin ('CSM') of $0.1bn. This primarily reflected a higher CSM balance from higher new business written.

Gain on acquisitions fell by $1.5bn, reflecting the non-recurrence of a gain recognised in respect of the acquisition of SVB UK in 1Q23.

Gains less impairment relating to sale of business operations was $3.3bn compared with $2.1bn in 1H23. In 1H24, there was a gain of $4.6bn inclusive of the recycling of $0.6bn in foreign currency translation reserve losses and $0.4bn of other reserves recycling losses on the sale of our banking business in Canada. This was partly offset by an impairment loss of $1.2bn relating to the planned sale of our business in Argentina. In 1H23, we recognised a $2.1bn reversal of an impairment relating to the sale of our retail banking operations in France, as the sale became less certain. In the second half of 2023, this impairment was reinstated as we reclassified these operations as held for sale. The sale completed on 1 January 2024.

Other operating expense of $0.1bn was $0.3bn lower than the income of $0.2bn in 1H23. The net expense in 1H24 included a loss of $0.1bn related to the recycling of reserves following the completion of the sale of our business in Russia, and an impairment loss related to the planned disposal of our operations in Armenia.

Change in expected credit losses and other credit impairment charges ('ECL') of $1.1bn was $0.3bn lower than in 1H23. ECL benefited from a release of stage 3 allowances in GBM in HSBC Bank plc related to a single client, while lower charges in CMB were primarily in HSBC UK due to allowance releases, as well as lower charges in relation to the commercial real estate sector in mainland China compared with 1H23. ECL charges in WPB were broadly stable as a release of allowances in HSBC UK were offset by higher charges in Mexico, reflecting unemployment trends and growth in our unsecured portfolio.

For further details on the calculation of ECL, including the measurement uncertainties and significant judgements applied to such calculations, the impact of economic scenarios and management judgemental adjustments, see pages 69 to 81.

1 Other operating expenses includes professional fees, contractor costs, transaction taxes, marketing and travel. The increase was primarily driven by the Bank of England levy and FDIC special assessment. This was partly offset by favourable currency translation differences.

1 Represents the number of full-time equivalent people with contracts of service with the Group who are being paid at the reporting date.

Operating expenses of $16.3bn were $0.8bn or 5% higher than in 1H23, mainly due to higher technology costs of $0.3bn, including investment, the impacts of inflation, and an increase in our performance-related pay accrual of $0.3bn, which reflects a change in the expected quarterly phasing of the performance-related pay pool relative to 1H23. Our operating expenses also rose due to the incremental costs from IVB of $0.1bn, and the non-recurrence of a $0.2bn impact from the reversal of historical asset impairments in 1H23.

These factors were partly offset by the impact of disposals in Canada and France, continued cost discipline and favourable foreign currency translation differences between the periods of $0.2bn.

The number of employees expressed in full-time equivalent staff ('FTE') at 30 June 2024 was 213,978, a decrease of 6,883 from 31 December 2023, primarily reflecting the completion of the sales of our banking business in Canada and our retail banking operations in France. Additionally, the number of contractors at 30 June 2024 was 4,364, a decrease of 312 from 31 December 2023.

Share of profit in associates and joint ventures of $1.6bn was $43m or 3% higher, including an increase in the share of profit from Saudi Awwal Bank ('SAB').

In relation to BoCom, at 30 June 2024 we concluded there is no indication of further significant impairment (or indication that an impairment may no longer exist or may have decreased significantly) since 31 December 2023.

For further details of our impairment review process, see Note 10 on the interim condensed consolidated financial statements.

Tax in 1H24 was a charge of $3.9bn, representing an effective tax rate of 18.1%. The effective tax rate for 1H24 was reduced by the non-taxable gain on the sale of our banking business in Canada and increased by the non-deductible loss recorded on the planned sale of our business in Argentina. Excluding these items, the effective rate for 1H24 was 21.4%.

Tax in 1H23 was a charge of $3.6bn, representing an effective tax rate of 16.6%. The effective tax rate for 1H23 was reduced by 1.9 percentage points by the non-taxable gain recognised on the acquisition of SVB UK and by 2.1 percentage points by the release of provisions for uncertain tax positions.

Supplementary table for planned disposals

The income statements and selected balance sheet metrics for the half-year to 30 June 2024 of our banking business in Argentina are presented below.

The asset and liability balances relating to these planned disposals are reported on the Group balance sheet within 'Assets held for sale' and 'Liabilities of disposal groups held for sale', respectively, as at 30 June 2024.

1 RWAs quoted exclude operational risk RWAs.

For further details on the impact of strategic transactions on the Group and our global business segments, see page 42.

Summary consolidated balance sheet

1 Capital resources are total regulatory capital, the calculation of which is set out on page 99.

2 Including perpetual preferred securities.

3 For the definition, see page 57.

A more detailed consolidated balance sheet is contained in the interim condensed consolidated financial statements on page 115.

Balance sheet commentary compared with 31 December 2023

At 30 June 2024, total assets of $3.0tn were $64bn or 2% lower on a reported basis, and decreased $23bn or 1% on a constant currency basis.

Our asset base included lower assets held for sale following the completion of the sales of our retail banking operations in France and our banking business in Canada during 1H24. This was partly offset by a rise in trading assets, notably in our main legal entities in Hong Kong and Europe, and higher financial investments as we increased our holdings of treasury bills and debt securities.

Reported loans and advances to customers as a percentage of customer accounts was 58.9% compared with 58.2% at 31 December 2023. 

Assets

Cash and balances at central banks decreased by $9bn or 3%, primarily due to the adverse impact from foreign currency translation differences of $7bn. The reduction was mainly in HSBC UK, reflecting an increase in the deployment of our cash surplus into financial investments and a fall in customer account balances. This was partly offset by increases in HSBC Bank plc and our main legal entity in the US.

Trading assets rose by $42bn or 15%, reflecting an increase in client activity in equity and debt securities, particularly in our legal entity in Hong Kong and in HSBC Bank plc.

Derivative assets decreased by $10bn or 5%, reflecting a reduction in foreign exchange contracts, mainly in HSBC Bank plc, as a result of reduced volatility in foreign exchange rate movements. The decrease in derivative assets was broadly consistent with the fall in derivative liabilities, as the underlying risk is broadly matched.

Loans and advances to banks of $102bn were $11bn lower, reflecting lower central bank placements, notably in our main legal entities in Singapore and mainland China, as well as a decrease in central bank loans, notably in HSBC UK.

Loans and advances to customers of $938bn were stable on a reported basis. This included an adverse impact from foreign currency translation differences of $13bn.

On a constant currency basis, customer lending balances were $12bn or 1% higher, reflecting the following movements.

Customer lending balances increased in CMB by $6bn, primarily in HSBC Bank plc (up $3bn) as well as in our main legal entities in mainland China (up $2bn) and India (up $1bn) due to an increase in term lending balances. These increases were partly offset by a decrease in term lending in our main legal entity in Hong Kong (down $2bn) from lower market-wide loan demand.

In GBM, customer lending balances were $3bn higher, mainly in our main legal entity in Singapore (up $2bn) from an increase in term lending, and in HSBC Bank plc (up $1bn) reflecting higher overdraft balances. Lending also grew in our main legal entities in India and Australia. These increases were partly offset by a reduction in term lending in our main legal entity in Hong Kong (down $3bn).

In WPB, customer lending balances decreased by $3bn. This primarily reflected the $7.6bn transfer to Corporate Centre of a portfolio of home and certain other loans retained following the sale of our retail banking operations in France. This was partly offset by increases in HSBC UK (up $3bn) and the US (up $1bn) primarily from growth in mortgage lending balances.

In Corporate Centre, the increase in customer lending balances of $7.6bn reflected the transfer of balances from WPB, mentioned above.

Reverse repurchase agreements - non-trading decreased by $22bn or 9%, primarily in our main legal entities in Asia and in HSBC Bank plc reflecting reduced client demand.

Financial investments increased by $25bn or 6%, mainly as we increased our holdings of treasury bills and debt securities, notably in HSBC Bank plc and the HSBC UK. This was partly offset by decreases in our main legal entities in Hong Kong and mainland China.

Assets held for sale decreased by $108bn or 95% following the completion of the sales of our retail banking operations in France and our banking operations in Canada during 1H24.

Other assets grew by $24bn or 9%, primarily due to an increase of $19bn in settlement accounts, notably in HSBC Bank plc and the US, from higher trading activity, compared with the seasonal reduction in December 2023.

Liabilities

Customer accounts of $1.6tn decreased by $18bn or 1% on a reported basis. This included an adverse impact from foreign currency translation differences of $21bn.

On a constant currency basis, customer accounts were $3bn higher, reflecting the following movements:

In GBM, customer accounts increased $7bn, reflecting higher balances in HSBC Bank plc due to a short-term deposit by a single customer, and an increase in time deposits in our legal entity in Hong Kong. Deposit balances also grew in our main legal entities in India and the Middle East. These increases were partly offset by lower balances in our entities in the US and Singapore due to the impact of repricing actions.

Customer accounts decreased in WPB by $2bn, primarily driven by a reduction in our main legal entity in Hong Kong of $5bn, which included outflows into Wealth products due to an improvement in market sentiment as well as a reduction in money-market term deposits. These reductions were partly offset by growth in a number of other markets, notably in our main legal entities in Singapore and mainland China.

In CMB, customer accounts decreased by $2bn, primarily with outflows in the US and in our main legal entity in Singapore due to seasonality and attrition, and in HSBC UK due to seasonality and market-wide tightening of liquidity. These reductions were partly offset by higher deposits, notably in HSBC Bank plc and in our main legal entity in Mexico.

Deposits by banks increased by $9bn or 13%, reflecting an increase in client inflows, notably in HSBC Bank plc, as well as growth in money-market term deposits, notably in our main legal entities in the Middle East, Singapore and HSBC Bank plc.

Repurchase agreements - non-trading increased by $31bn or 18%, primarily in our main legal entities in Hong Kong reflecting higher client funding needs and in the US for funding in our Global Markets business.

Derivative liabilities decreased by $18bn or 8%, which is consistent with the reduction in derivative assets, since the underlying risk is broadly matched.

Liabilities of disposal groups held for sale decreased by $103bn or 95%, following the completion of the sales of our retail banking operations in France and our banking operations in Canada during 1H24.

Other liabilities increased by $25bn or 12%, notably from a rise of $20bn in settlement accounts in our main legal entities in Europe, the US, mainland China and Hong Kong from an increase in trading activity, compared with the seasonal reduction in December 2023.

Equity

Total shareholders' equity, including non-controlling interests, decreased by $2bn or 1% compared with 31 December 2023.

Profits generated of $18bn were more than offset by dividends paid of $13bn and the impact of share buy-backs of $5bn, as well as net losses through other comprehensive income ('OCI') of $2bn.

Financial investments

As part of our interest rate hedging strategy, we hold a portfolio of debt instruments, reported within financial investments, which are classified as hold-to-collect-and-sell. As a result, the change in value of these instruments is recognised through 'debt instruments at fair value through other comprehensive income' in equity.At 30 June 2024, we had recognised a pre-tax cumulative unrealised loss reserve through other comprehensive income of $4.2bn related to these hold-to-collect-and-sell positions. This reflected a $0.3bn pre-tax loss in 1H24, inclusive of movements on related fair value hedges. Overall, the Group is positively exposed to rising interest rates through net interest income, although there is an adverse impact on our capital base in the early stages of a rising interest rate environment due to the fair value of hold-to-collect-and-sell instruments. Over time, these adverse movements will unwind as the instruments reach maturity, although not all will necessarily be held to maturity.

Risk-weighted assets

Risk-weighted assets ('RWAs') reduced by $19.0bn during the first half of 2024. Excluding a decrease of $12.8bn from foreign currency translation differences, RWAs fell by $6.2bn, largely as a result of the following:

- a $36.3bn decrease primarily due to the disposal of our banking business in Canada and the sale of our retail banking operations in France.

- These were partly offset by:

- a $21.2bn increase, mainly driven by higher value at risk and incremental risk charge in market risk. Further increases were due to corporate lending, notably in SAB, HSBC UK Bank plc and HSBC Bank plc, and higher sovereign exposures, mainly in Argentina;

- a $7.0bn increase mainly follows a revision to the definition of default in our probability of default ('PD') models for exposures to financial institutions; and

- a $2.1bn increase due to methodology changes and risk parameter refinements notably in Argentina, HBSC UK Bank plc and HSBC Bank plc, offset by Asia.