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Half-year Report - Part 3

31 Jul 2024 16:15

RNS Number : 5763Y
HSBC Holdings PLC
31 July 2024
 

Wholesale analysis

IFRS 9 ECL sensitivity to future economic conditions1,2,3

By geography at 30 Jun 20245

Reported

Gross carrying amount4

Reported

allowance

for ECL

Consensus Central scenario allowance for ECL

Consensus Upside scenario allowance for ECL

Consensus Downside

scenario allowance for ECL

Downside 2 scenario allowance for ECL

$m

$m

$m

$m

$m

$m

UK

422,340 

803 

738 

591 

989 

2,455 

US

200,895 

202 

186 

187 

241 

455 

Hong Kong

428,358 

543 

506 

373 

741 

1,199 

Mainland China

129,488 

179 

146 

90 

314 

791 

Mexico

35,659 

55 

51 

41 

67 

229 

UAE

56,876 

54 

52 

45 

61 

104 

France

170,093 

102 

100 

88 

116 

150 

Other geographies6

451,769 

269 

242 

190 

378 

875 

Total

1,895,479

2,206 

2,020 

1,604 

2,907 

6,257 

of which:

Stage 1

1,759,826

743 

682 

535 

870 

868 

Stage 2

135,653 

1,463 

1,337 

1,069 

2,037 

5,389 

 

By geography at 31 Dec 20235

UK

426,427 

820 

754 

599 

1,041 

2,487 

US

191,104 

215 

199 

189 

268 

441 

Hong Kong

447,480 

609 

566 

433 

807 

1,393 

Mainland China

129,945 

258 

217 

142 

414 

945 

Canada7

84,092 

89

75

56

107 

487 

Mexico

30,159 

60

56

46

73

226 

UAE

52,074 

32

32

30

34

40

France

178,827 

98

102 

90

124 

141 

Other geographies6

450,271 

325 

298 

245 

410 

882 

Total

1,990,378 

2,507 

2,301 

1,829 

3,278 

7,043 

of which:

Stage 1

1,820,843 

754 

702 

553 

860 

854 

Stage 2

169,535 

1,753 

1,599 

1,276 

2,418 

6,189 

1 Allowance for ECL sensitivity includes off-balance sheet financial instruments. These are subject to significant measurement uncertainty.

2 Includes low credit-risk financial instruments such as debt instruments at FVOCI, which have high carrying amounts but low ECL under all the above scenarios.

3 Excludes defaulted obligors. For a detailed breakdown of performing and non-performing wholesale portfolio exposures, see page 87.

4 Staging refers only to probability-weighted/reported gross carrying amount. Stage allocation of gross exposures varies by scenario, with higher allocation to stage 2 under the Downside 2 scenario.

5 Geographies include all legal entities which share a common set of macroeconomic scenarios for the majority of exposures.

6 Includes small portfolios that use less complex modelling approaches and are not sensitive to macroeconomic changes.

7 Classified as held for sale at 31 December 2023.

 

At 30 June 2024, the highest level of 100% scenario-weighted ECL was observed in the UK and Hong Kong. This higher ECL impact was largely driven by significant exposure in these regions. In the wholesale portfolio, off-balance sheet financial instruments have a lower likelihood to be fully converted to a funded exposure at the point of default, and consequently the ECL sensitivity impact is lower in relation to its nominal amount when compared with an on-balance sheet exposure with similar risk profile.

Compared with 31 December 2023, the Downside 2 ECL impact reduced by $0.8bn mostly due to sale of the Canada business, decrease of exposures in the performing portfolio in Hong Kong and slower deterioration of the macroeconomic conditions under this scenario, which led to a reduction of ECL impact in some markets such as mainland China.

Retail analysis

IFRS 9 ECL sensitivity to future economic conditions1

By geography at 30 Jun 2024

Reported gross carrying amount

Reported allowance

for ECL

Consensus Central scenario allowance for ECL

Consensus Upside scenario allowance for ECL

Consensus Downside scenario allowance for ECL

Downside 2 scenario allowance for ECL

$m

$m

$m

$m

$m

$m

UK

Mortgages

161,684 

162

152

146

169

320

Credit cards

7,448 

253 

249 

210 

266 

403 

Other

8,023 

235 

232 

199 

260 

315 

Mexico

Mortgages

8,315 

178 

168 

138 

206 

358 

Credit cards

2,271 

318 

314 

312 

319 

400 

Other

4,148 

443 

438 

428 

453 

550 

Hong Kong

Mortgages

105,741 

Credit cards

9,169 

260 

204 

183 

318 

1,096 

Other

6,442 

110 

94 

86 

116 

425 

UAE

Mortgages

1,879 

16 

16 

16 

16 

17 

Credit cards

476 

26 

25 

25 

26 

35 

Other

681 

20 

19 

19 

20 

29 

US

Mortgages

15,367 

14 

Credit cards

193 

15 

15 

14 

16 

16 

Other geographies

Mortgages

53,273 

155 

151 

145 

161 

219 

Credit cards

3,618 

164 

158 

144 

187 

277 

Other

2,384 

75 

73 

70 

78 

111 

Total

391,113 

2,439 

2,319 

2,143 

2,622 

4,592 

of which: mortgages

Stage 1

304,217 

78 

67 

51 

104 

283 

Stage 2

39,815 

175 

165 

144 

187 

343 

Stage 3

2,229 

267 

265 

259 

272 

309 

of which: credit cards

Stage 1

18,913 

248 

233 

201 

290 

630 

Stage 2

3,962 

597 

540 

495 

649 

1,400 

Stage 3

300 

190 

190 

190 

193 

196 

of which: others

Stage 1

18,192 

223 

211 

188 

246 

499 

Stage 2

2,875 

356 

344 

310 

377 

624 

Stage 3

611 

304 

304 

304 

305 

306 

 

 

IFRS 9 ECL sensitivity to future economic conditions1,2 (continued)

By geography at 31 Dec 2023

Reported gross carrying amount

Reported allowance

for ECL

Consensus Central scenario allowance for ECL

Consensus Upside scenario allowance for ECL

Consensus Downside scenario allowance

for ECL

Downside 2 scenario allowance for ECL

$m

$m

$m

$m

$m

$m

UK

Mortgages

161,127 

189 

180 

172 

201 

334 

Credit cards

7,582 

344 

340 

302 

353 

486 

Other

8,183 

341 

333 

273 

383 

515 

Mexico

Mortgages

8,666 

188 

180 

150 

235 

363 

Credit cards

2,445 

295 

286 

206 

376 

489 

Other

4,529 

513 

503 

426 

600 

731 

Hong Kong

Mortgages

106,136 

2

2

1

3

5

Credit cards

9,128 

287 

239 

214 

395 

887 

Other

6,269 

109 

100 

88

124 

256 

UAE

Mortgages

2,001 

25

25

25

25

25

Credit cards

471 

24

24

22

25

32

Other

721 

20

20

19

21

28

France

Mortgages

20,589 

50

50

50

51

51

Other

1,328 

44

44

43

45

48

US

Mortgages

14,385 

8

4

3

4

10

Credit cards

204 

15

15

10

15

16

Canada

Mortgages

25,464 

67

65

64

70

99

Credit cards

338 

13

13

12

16

15

Other

1,368 

13

13

12

14

33

Other geographies

Mortgages

55,368 

152 

149 

144 

158 

198 

Credit cards

3,655 

173 

166 

151 

202 

291 

Other

2,416 

91

86

83

95

137 

Total

442,373 

2,962 

2,835 

2,471 

3,411 

5,049 

of which: mortgages

Stage 1

347,874 

101 

92

77

145 

303 

Stage 2

43,451 

264 

249 

225 

280 

429 

Stage 3

2,412 

316 

314 

307 

322 

352 

of which: credit cards

Stage 1

18,557 

249 

232 

180 

329 

604 

Stage 2

4,953 

707 

657 

546 

859 

1,415 

Stage 3

312 

193 

193 

192 

194 

197 

of which: others

Stage 1

19,551 

218 

205 

151 

272 

501 

Stage 2

4,542 

540 

519 

423 

636 

868 

Stage 3

722 

373 

373 

370 

375 

379 

1 Allowance for ECL sensitivities exclude portfolios utilising less complex modelling approaches.

2 31 December 2023 includes the Canada banking business and the retained France retail banking operations.

 

At 30 June 2024, the most significant level of allowance for ECL sensitivity was observed in the UK, Mexico and Hong Kong. Mortgages reflected the lowest level of allowance for ECL sensitivity across most markets given the significant levels of collateral relative to the exposure values. Hong Kong mortgages had low levels of ECL allowance due to the credit quality of the portfolio. Credit cards and other unsecured lending across stages 1 and 2 are more sensitive to economic forecasts and therefore reflected the highest level of allowance for ECL sensitivity during 2024.

 

There was reduction in the total sensitivity for ECL allowance in all scenarios compared with 31 December 2023 due to model updates and scenario evolution.

 

There is limited sensitivity in credit cards and other unsecured lending in stage 3 as levels of loss on defaulted exposures remain materially consistent through various economic conditions. The alternative downside is from the tail of the economic distribution where allowance for ECL is more sensitive based on historical experience.

 

The reported gross carrying amount by stage is representative of the weighted scenario allowance for ECL. The allowance for ECL sensitivity to the other scenarios includes changes in allowance for ECL due to the levels of loss and the migration of additional lending balances in or out of stage 2.

Group ECL sensitivity results

The ECL impact of the scenarios and management judgemental adjustments are highly sensitive to movements in economic forecasts. Based upon the sensitivity tables presented above, if the Group ECL balance (excluding wholesale stage 3, which is assessed individually) was estimated solely on the basis of the Central scenario, Upside scenario, Downside 1 scenario or the Downside 2 scenario at 30 June 2024, it would increase/(decrease) as presented in the below table.

Retail1

Wholesale1

Total Group ECL at 30 Jun 2024

$bn

$bn

Reported ECL

2.4 

2.2 

Scenarios

100% consensus Central scenario

(0.1)

(0.2)

100% consensus Upside scenario

(0.3)

(0.6)

100% consensus Downside scenario

0.2 

0.7 

100% Downside 2 scenario

2.2 

4.1 

 

Total Group ECL at 31 Dec 2023

Reported ECL

3.0 

2.5 

Scenarios

100% consensus Central scenario

(0.1)

(0.2)

100% consensus Upside scenario

(0.5)

(0.7)

100% consensus Downside scenario

0.4 

0.8 

100% Downside 2 scenario

2.1 

4.5 

1 On the same basis as retail and wholesale sensitivity analysis.

At 30 June 2024, the Group allowance for ECL decreased in the retail portfolio by $0.6bn and decreased by $0.3bn in the wholesale portfolio, compared with 31 December 2023. There was reduction in ECL sensitivity across all scenarios as a result of the sale of our Canada banking business and sale of our retail banking operations in France during the first half of 2024.

 

The decrease in the Downside 2 scenario sensitivity within the wholesale portfolio since 31 December 2023 was also driven by a decrease of exposures in the performing portfolio in Hong Kong and a slower deterioration of macroeconomic conditions in some markets, such as mainland China. There was a modest increase in the Downside 2 scenario sensitivity within the retail portfolio since 31 December 2023, driven by deterioration of house prices in Hong Kong and offset by model updates in a number of markets.

 

Reconciliation of changes in gross carrying/nominal amount and allowances for loans and advances to banks and customers

The following disclosure provides a reconciliation by stage of the Group's gross carrying/nominal amount and allowances for loans and advances to banks and customers, including loan commitments and financial guarantees. Movements are calculated on a quarterly basis and therefore fully capture stage movements between quarters. If movements were calculated on a year-to-date basis they would only reflect the opening and closing position of the financial instrument.

 

The transfers of financial instruments represent the impact of stage transfers upon the gross carrying/nominal amount and associated allowance for ECL.

 

The net remeasurement of ECL arising from stage transfers represents the increase or decrease due to these transfers, for example, moving from a 12-month (stage 1) to a lifetime (stage 2) ECL measurement basis. Net remeasurement excludes the underlying customer risk rating ('CRR')/probability of default ('PD') movements of the financial instruments transferring stage. This is captured, along with other credit quality movements in the 'changes in risk parameters - credit quality' line item.

 

Changes in 'Net new and further lending/repayments' represents the impact from volume movements within the Group's lending portfolio and includes 'New financial assets originated or purchased', 'assets derecognised (including final repayments)' and 'changes to risk parameters - further lending/repayment'.

Reconciliation of changes in gross carrying/nominal amount and allowances for loans and advances to banks and customers including

loan commitments and financial guarantees

(Reviewed)

Non-credit impaired

Credit impaired

Stage 1

Stage 2

Stage 3

POCI

Total

Gross carrying/ nominal amount

Allowance for ECL

Gross carrying/ nominal amount

Allowance for ECL

Gross carrying/ nominal amount

Allowance for ECL

Gross carrying/ nominal amount

Allowance for ECL

Gross carrying/ nominal amount

Allowance for ECL

$m

$m

$m

$m

$m

$m

$m

$m

$m

$m

At 1 Jan 2024

1,496,805

(1,300)

153,084 

(3,102)

20,799 

(7,063)

85 

(30)

1,670,773

(11,495)

Transfers of financial instruments:

(11,716)

(774)

4,004 

1,428 

7,712 

(654)

- transfers from stage 1 to stage 2

(62,466)

226 

62,466 

(226)

- transfers from stage 2 to stage 1

51,401 

(977)

(51,401)

977 

-

- transfers to stage 3

(984)

(7,705)

806 

8,689 

(811)

- transfers from stage 3

333 

(28)

644 

(129)

(977)

157 

-

Net remeasurement of ECL arising from transfer of stage

647 

(552)

(127)

(32)

Net new and further lending/ repayments

44,715 

(64)

(16,213)

289 

(2,949)

587 

(2)

25,553 

810 

Changes to risk parameters - credit quality

150 

(685)

(1,197)

(3)

(1,735)

Changes to models used for ECL calculation

16 

(3)

22 

35 

Assets written off

(1,549)

1,549 

(1,549)

1,549 

Foreign exchange and

others1,2

(57,198)

48 

(5,251)

89 

(97)

(164)

(62,546)

(27)

At 30 Jun 2024

1,472,606

(1,277)

135,624 

(2,536)

23,916 

(7,047)

85 

(35)

1,632,231

(10,895)

ECL income statement change for the period

749 

(951)

(715)

(5)

(922)

Recoveries

126 

Others

(86)

Total ECL income statement change for the period

(882)

 

At 30 Jun 2024

6 months ended 30 Jun 2024

Gross carrying/nominal amount

Allowance for

ECL

ECL release/(charge)

$m

$m

$m

As above

1,632,231

(10,895)

(882)

Other financial assets measured at amortised cost

850,367 

(158)

(77)

Non-trading reverse purchase agreement commitments

73,584 

Performance and other guarantees not considered for IFRS 9

(94)

Summary of financial instruments to which the impairment requirements in IFRS 9 are applied/Summary consolidated income statement

2,556,182

(11,053)

(1,053)

Debt instruments measured at FVOCI

318,238 

(96)

(13)

Total allowance for ECL/total income statement ECL change for the period

n/a

(11,149)

(1,066)

1 Total includes $2.5bn of gross carrying loans and advances to customers and banks, which were classified to assets held for sale, and corresponding allowance for ECL of $42m, reflecting business disposals as disclosed on page 68.

2 Total includes $35.3bn of nominal amount and $21m of corresponding allowance for ECL related to derecognition of loan commitments and financial guarantees following the sale of our banking business in Canada during 1H24.

 

 

As shown in the previous table, the allowance for ECL for loans and advances to customers and banks and relevant loan commitments and financial guarantees decreased by $600m during the period, from $11,495m at 31 December 2023 to $10,895m at 30 June 2024.

 

This decrease was driven by:

- $1,549m of assets written off, $780m of which in relation to Wholesale and $769m in relation to Personal;

- $810m relating to volume movements, which included the ECL allowance associated with new originations, assets derecognised and further pending repayment; and

- $35m relating to changes to models used for ECL calculation.

 

These were partly offset by:

- $1,735m relating to underlying credit quality changes, including the credit quality impact of financial instruments transferring between stages;

- $32m relating to the net remeasurement impact of stage transfers; and

- foreign exchange and other movements of $27m.

 

The ECL charge for the period of $922m presented in the previous table consisted of $1,735m relating to underlying credit quality changes, including the credit quality impact of financial instruments transferring between stages, and $32m relating to the net remeasurement impact of stage transfers. These were partly offset by $810m relating to underlying net book volume and $35m relating to changes to models used for ECL calculation.

Reconciliation of changes in gross carrying/nominal amount and allowances for loans and advances to banks and customers including

loan commitments and financial guarantees (continued)

(Reviewed)

Non-credit impaired

Credit impaired

Stage 1

Stage 2

Stage 3

POCI

Total

Gross carrying/ nominal amount

Allowance for ECL

Gross carrying/ nominal amount

Allowance for ECL

Gross carrying/ nominal amount

Allowance for ECL

Gross carrying/ nominal amount

Allowance for ECL

Gross carrying/ nominal amount

Allowance for ECL

$m

$m

$m

$m

$m

$m

$m

$m

$m

$m

At 1 Jan 2023

1,433,643 

(1,257)

177,223 

(3,710)

21,207 

(6,949)

129 

(38)

1,632,202 

(11,954)

Transfers of financial instruments:

(18,948)

(1,048)

10,286 

2,228 

8,662 

(1,180)

- transfers from stage 1 to

stage 2

(150,728)

442 

150,728 

(442)

- transfers from stage 2 to

stage 1

133,079 

(1,467)

(133,079)

1,467 

- transfers to stage 3

(1,986)

23

(8,600)

1,379 

10,586 

(1,402)

- transfers from stage 3

687 

(46)

1,237 

(176)

(1,924)

222 

Net remeasurement of ECL arising from transfer of stage

917 

(973)

(124)

(180)

Net new and further

lending/repayments

77,693 

(185)

(36,795)

661 

(4,956)

1,117 

(36)

3

35,906 

1,596 

Changes to risk parameters - credit quality

307 

(1,262)

(3,896)

21

(4,830)

Changes to models used for ECL calculation

(22)

46

7

31

Assets written off

(3,922)

3,922 

(3,922)

3,922 

Credit-related modifications that resulted in derecognition

(119)

95

(119)

95

Foreign exchange and

others1

4,417 

(12)

2,370 

(92)

(73)

(55)

(8)

(16)

6,706 

(175)

At 31 Dec 2023

1,496,805 

(1,300)

153,084 

(3,102)

20,799 

(7,063)

85

(30)

1,670,773 

(11,495)

ECL income statement change for the period

1,017 

(1,528)

(2,896)

24

(3,383)

Recoveries

268 

Other

(195)

Total ECL income statement change for the period2

(3,310)

 

At 31 Dec 2023

12 months ended 31 Dec 2023

Gross carrying/nominal amount

Allowance for

 ECL

ECL charge

$m

$m

$m

As above

1,670,773 

(11,495)

(3,310)

Other financial assets measured at amortised cost

960,271 

(422)

(35)

Non-trading reverse purchase agreement commitments

69,777 

Performance and other guarantees not considered for IFRS 9

(44)

Summary of financial instruments to which the impairment requirements in IFRS 9 are applied/Summary consolidated income statement

2,700,821 

(11,917)

(3,389)

Debt instruments measured at FVOCI

302,348 

(97)

(58)

Total allowance for ECL/total income statement ECL change for the period

n/a

(12,014)

(3,447)

1 Total includes $7.7bn of gross carrying loans and advances, which were classified from assets held for sale, and a corresponding allowance for ECL of $70m, reflecting the planned sale of our retail banking operations in France no longer meeting the definition of held for sale. For further details, see 'Assets held for sale' on page 68.

2 The 31 December 2023 total ECL income statement change of $3,310m is attributable to $1,342m for the six months ended 30 June 2023 and $1,968m to the six months ended 31 December 2023.

 

Credit quality of financial instruments

We assess the credit quality of all financial instruments that are subject to credit risk. The credit quality of financial instruments is a point-in-time assessment of PD, whereas stages 1 and 2 are determined based on relative deterioration of credit quality since initial recognition. Accordingly, for non-credit-impaired financial instruments, there is no direct relationship between the credit quality assessment and stages 1 and 2, though typically the lower credit quality bands exhibit a higher proportion in stage 2.

The five credit quality classifications each encompass a range of granular internal credit rating grades assigned to wholesale and personal lending businesses and the external ratings attributed by external agencies to debt securities, as shown in the following table. Personal lending credit quality is disclosed based on a 12-month point-in-time PD adjusted for multiple economic scenarios. The credit quality classifications for wholesale lending are based on internal credit risk ratings.

Credit quality classification

Sovereign debt

securities

and bills

Other debt

securities

and bills

Wholesale lending

and derivatives

Retail lending

External credit

rating

External credit

rating

Internal credit

rating

12-month Basel

probability of

default %

Internal credit

rating

12 month probability- weighted PD %

Quality classification1,2

Strong

BBB and above

A- and above

CRR 1 to CRR 2

0 - 0.169

Band 1 and 2

0.000 - 0.500

Good

BBB- to BB

BBB+ to BBB-

CRR 3

0.170 - 0.740

Band 3

0.501 - 1.500

Satisfactory

BB- to B and unrated

BB+ to B and unrated

CRR 4 to CRR 5

0.741 - 4.914

Band 4 and 5

1.501 - 20.000

Sub-standard

B- to C

B- to C

CRR 6 to CRR 8

4.915 - 99.999

Band 6

20.001 - 99.999

Credit impaired

Default

Default

CRR 9 to CRR 10

100

Band 7

100

1 Customer risk rating ('CRR').

2 12-month point-in-time probability-weighted probability of default ('PD').

Distribution of financial instruments to which the impairment requirements in IFRS 9 are applied, by credit quality and stage allocation

(Reviewed)

Gross carrying/nominal amount

Allowance

for ECL

Net

Strong

Good

Satisfactory

Sub-standard

Credit

impaired

Total

$m

$m

$m

$m

$m

$m

$m

$m

Loans and advances to customers at amortised cost

509,871 

197,438 

197,634 

21,080 

22,744 

948,767 

(10,510)

938,257 

- stage 1

487,521 

172,944 

154,028 

3,450 

817,943 

(1,112)

816,831 

- stage 2

22,350 

24,494 

43,606 

17,630 

108,080 

(2,399)

105,681 

- stage 3

22,662 

22,662 

(6,964)

15,698 

- POCI

82 

82 

(35)

47 

Loans and advances to banks at amortised cost

92,718 

4,734 

4,397 

219 

102,070 

(13)

102,057 

- stage 1

92,620 

4,708 

3,700 

203 

101,231 

(9)

101,222 

- stage 2

98 

26 

697 

16 

837 

(2)

835 

- stage 3

(2)

- POCI

Other financial assets measured at amortised cost

744,337 

68,275 

35,731 

1,584 

440 

850,367 

(158)

850,209 

- stage 1

743,981 

67,713 

34,870 

810 

847,374 

(96)

847,278 

- stage 2

356 

562 

861 

774 

2,553 

(26)

2,527 

- stage 3

440 

440 

(36)

404 

- POCI

Loans and other credit-related commitments

417,367 

135,294 

77,315 

7,698 

961 

638,635 

(335)

638,300 

- stage 1

413,905 

128,479 

67,174 

2,935 

612,493 

(149)

612,344 

- stage 2

3,462 

6,815 

10,141 

4,763 

25,181 

(123)

25,058 

- stage 3

958 

958 

(63)

895 

- POCI

Financial guarantees

7,501 

3,785 

4,147 

616 

294 

16,343 

(37)

16,306 

- stage 1

7,481 

3,637 

3,282 

123 

14,523 

(7)

14,516 

- stage 2

20 

148 

865 

493 

1,526 

(12)

1,514 

- stage 3

294 

294 

(18)

276 

- POCI

At 30 Jun 2024

1,771,794

409,526 

319,224 

31,197 

24,441 

2,556,182

(11,053)

2,545,129

Debt instruments at FVOCI1

- stage 1

303,803 

12,674 

7,418 

323,895 

(37)

323,858 

- stage 2

48 

469 

2,053 

2,570 

(59)

2,511 

- stage 3

- POCI

At 30 Jun 2024

303,851 

12,674 

7,887 

2,053 

326,465 

(96)

326,369 

1 For the purposes of this disclosure, gross carrying value is defined as the amortised cost of a financial asset, before adjusting for any loss allowance. As such, the gross carrying value of debt instruments at FVOCI will not reconcile to the balance sheet as it excludes fair value gains and losses.

Distribution of financial instruments to which the impairment requirements in IFRS 9 are applied, by credit quality and stage allocation

(continued)

(Reviewed)

Gross carrying/notional amount

Strong

Good

Satisfactory

Sub- standard

Credit impaired

Total

Allowance for ECL

 Net

$m

$m

$m

$m

$m

$m

$m

$m

Loans and advances to customers at amortised cost

497,665 

206,476 

197,582 

28,532 

19,354 

949,609 

(11,074)

938,535 

- stage 1

478,422 

177,410 

147,940 

5,612 

809,384 

(1,130)

808,254 

- stage 2

19,243 

29,066 

49,642 

22,920 

120,871 

(2,964)

117,907 

- stage 3

19,273 

19,273 

(6,950)

12,323 

- POCI

81

81

(30)

51

Loans and advances to banks at amortised cost

101,057 

4,640 

6,363 

855 

2

112,917 

(15)

112,902 

- stage 1

101,011 

4,631 

5,550 

287 

111,479 

(10)

111,469 

- stage 2

46

9

813 

568 

1,436 

(3)

1,433 

- stage 3

2

2

(2)

- POCI

Other financial assets measured at amortised cost

815,259 

80,151 

60,197 

4,000 

664 

960,271 

(422)

959,849 

- stage 1

814,776 

78,486 

53,095 

516 

946,873 

(109)

946,764 

- stage 2

483 

1,665 

7,102 

3,484 

12,734 

(132)

12,602 

- stage 3

664 

664 

(181)

483 

- POCI

Loans and other credit-related commitments

436,359 

142,500 

73,230 

7,782 

1,144 

661,015 

(367)

660,648 

- stage 1

432,017 

135,192 

61,213 

2,527 

630,949 

(153)

630,796 

- stage 2

4,342 

7,308 

12,017 

5,255 

28,922 

(128)

28,794 

- stage 3

1,140 

1,140 

(86)

1,054 

- POCI

4

4

4

Financial guarantees

7,700 

4,146 

4,080 

699 

384 

17,009 

(39)

16,970 

- stage 1

7,497 

3,943 

3,204 

102 

14,746 

(7)

14,739 

- stage 2

203 

203 

876 

597 

1,879 

(7)

1,872 

- stage 3

384 

384 

(25)

359 

- POCI

At 31 Dec 2023

1,858,040 

437,913 

341,452 

41,868 

21,548 

2,700,821 

(11,917)

2,688,904 

Debt instruments at FVOCI1

- stage 1

288,909 

12,037 

7,579 

308,525 

(37)

308,488 

- stage 2

50

318 

805 

1,173 

(59)

1,114 

- stage 3

5

5

(1)

4

- POCI

At 31 Dec 2023

288,959 

12,037 

7,897 

805 

5

309,703 

(97)

309,606 

1 For the purposes of this disclosure, gross carrying value is defined as the amortised cost of a financial asset, before adjusting for any loss allowance. As such, the gross carrying value of debt instruments at FVOCI will not reconcile to the balance sheet as it excludes fair value gains and losses.

 

Personal lending

This section provides details of the major legal entities, countries and products that are driving the change observed in personal loans and advances to customers, with the impact of foreign exchange separately identified. Additionally, Hong Kong and UK mortgage bookloan-to-value ('LTV') data is provided.

 

Further product granularity is also provided by stage, with data for major legal entities presented for loans and advances to customers, loans and other credit-related commitments and financial guarantees.

 

At 30 June 2024, total personal lending for loans and advances to customers of $446.5bn decreased by $1.1bn on a reported basis, compared with 31 December 2023. This included adverse foreign exchange movements of $5.6bn.

 

On a constant currency basis, the increase of $4.5bn was mainly driven by growth in HSBC UK (up $2.6bn) and our main entities in the US (up $1.1bn), Hong Kong (up $0.6bn) and Mexico (up $0.4bn). This was partly offset by a decrease in Argentina (down $0.3bn) following the classification of our business as held for sale.

 

On a reported basis, the allowance for ECL attributable to personal lending, excluding off-balance sheet loan commitments and guarantees, decreased by $0.4bn to $2.5bn, compared with 31 December 2023. This was driven by a resilient performance, and a reduction in credit judgements in the UK in relation to unemployment and the potential delayed impact of economic scenarios on unsecured portfolio defaults.

 

On a constant currency basis, mortgage lending balances increased by $3.2bn to $360.4bn at 30 June 2024. Mortgages grew by $2.4bn in HSBC UK, $1.1bn in the United States, $0.7bn in Australia and $0.2bn in Mexico. This was partly offset by a decrease of $1.0bn in Singapore.

 

The allowance for ECL attributable to mortgages of $0.5bn decreased by $0.1bn compared with 31 December 2023.

 

The quality of both our Hong Kong and UK mortgage books remained high, with low levels of impairment allowances. The average LTV ratio on new mortgage lending in Hong Kong was 66%, compared with an estimated 61% for the overall mortgage portfolio. The average LTV ratio on new lending in the UK was 67%, compared with an estimated 53% for the overall mortgage portfolio.

 

On a constant currency basis, other personal lending balances increased by $1.3bn compared with 31 December 2023. This included an increase of $1.0bn in Singapore, $0.1bn in HSBC UK, $0.1bn in Taiwan and $0.1bn in Mexico. This was partly offset by a decrease of $0.3bn in Argentina following the classification of our business as held for sale.

 

The allowance for ECL attributable to other personal lending of $2.0bn decreased by $0.3bn, on a constant currency basis, compared with 31 December 2023. The allowance for ECL attributable to unsecured lending decreased by $0.2bn and credit cards decreased by $0.1bn.

Total personal lending for loans and advances to customers by stage distribution

Gross carrying amount

Allowance for ECL

Stage 1

Stage 2

Stage 3

Total

Stage 1

Stage 2

Stage 3

Total

$m

$m

$m

$m

$m

$m

$m

$m

By portfolio

First lien residential mortgages

317,924 

40,093 

2,403 

360,420 

(85)

(174)

(269)

(528)

- of which: interest only (including offset)

21,611 

2,556 

151 

24,318 

(4)

(13)

(31)

(48)

- affordability (including US adjustable rate mortgages)

15,314 

420 

280 

16,014 

(3)

(1)

(8)

(12)

Other personal lending

77,729 

7,106 

1,199 

86,034 

(466)

(945)

(551)

(1,962)

- second lien residential mortgages

355 

13 

27 

395 

(1)

(3)

(4)

- guaranteed loans in respect of residential

property

7,728 

223 

81 

8,032 

(2)

(5)

(17)

(24)

- other personal lending which is secured

30,324 

512 

112 

30,948 

(11)

(4)

(18)

(33)

- credit cards

19,588 

3,749 

345 

23,682 

(220)

(593)

(204)

(1,017)

- other personal lending which is unsecured

17,676 

2,512 

619 

20,807 

(212)

(325)

(301)

(838)

- motor vehicle finance

2,058 

97 

15 

2,170 

(21)

(17)

(8)

(46)

At 30 Jun 2024

395,653 

47,199 

3,602 

446,454 

(551)

(1,119)

(820)

(2,490)

By legal entity

HSBC UK Bank plc

146,102 

36,331 

1,214 

183,647 

(163)

(274)

(246)

(683)

HSBC Bank plc1

23,081 

1,468 

346 

24,895 

(22)

(23)

(103)

(148)

The Hongkong and Shanghai Banking Corporation Limited

190,908 

7,088 

1,072 

199,068 

(156)

(358)

(156)

(670)

HSBC Bank Middle East Limited

3,307 

355 

51 

3,713 

(16)

(29)

(33)

(78)

HSBC North America Holdings Inc.

19,217 

513 

396 

20,126 

(5)

(11)

(14)

(30)

Grupo Financiero HSBC, S.A. de C.V.

12,297 

1,414 

520 

14,231 

(183)

(422)

(265)

(870)

Other trading entities1

741 

30 

774 

(6)

(2)

(3)

(11)

At 30 Jun 2024

395,653 

47,199 

3,602 

446,454 

(551)

(1,119)

(820)

(2,490)

1 At 31 December 2023, 'Other trading entities' included gross carrying amount of $9,079m and allowances for ECL of $23m related to Private Banking entities that were reclassified to HSBC Bank plc to continue the process of simplifying our structure.

 

Total personal lending for loans and other credit-related commitments and financial guarantees by stage distribution

Nominal amount

Allowance for ECL

Stage 1

Stage 2

Stage 3

Total

Stage 1

Stage 2

Stage 3

Total

$m

$m

$m

$m

$m

$m

$m

$m

HSBC UK Bank plc

53,964 

524 

82 

54,570 

(7)

(2)

(9)

HSBC Bank plc

1,380 

1,387 

The Hongkong and Shanghai Banking Corporation Limited

186,657 

2,818 

186 

189,661 

(3)

(3)

HSBC Bank Middle East Limited

2,290 

2,297 

HSBC North America Holdings Inc.

3,738 

69 

3,810 

HSBC Bank Canada

Grupo Financiero HSBC, S.A. de C.V.

4,236 

4,236 

(22)

(22)

Other trading entities

2,587 

42 

2,631 

(1)

(1)

At 30 Jun 2024

254,852 

3,465 

275 

258,592 

(33)

(2)

(35)

 

 

Total personal lending for loans and advances to customers by stage distribution (continued)

Gross carrying amount

Allowance for ECL

Stage 1

Stage 2

Stage 3

Total

Stage 1

Stage 2

Stage 3

Total

$m

$m

$m

$m

$m

$m

$m

$m

By portfolio

First lien residential mortgages

320,410 

38,287 

2,212 

360,909 

(102)

(200)

(269)

(571)

- of which: interest only (including offset)

21,895 

2,923 

139 

24,957 

(4)

(27)

(31)

(62)

- affordability (including US adjustable rate mortgages)

14,380 

381 

291 

15,052 

(3)

(1)

(10)

(14)

Other personal lending

76,124 

9,196 

1,293 

86,613 

(477)

(1,234)

(585)

(2,296)

- second lien residential mortgages

317 

58

21

396 

(3)

(5)

(8)

- guaranteed loans in respect of residential

property

8,001 

502 

90

8,593 

(1)

(5)

(14)

(20)

- other personal lending which is secured

28,900 

424 

157 

29,481 

(13)

(5)

(24)

(42)

- credit cards

19,909 

4,419 

352 

24,680 

(236)

(697)

(203)

(1,136)

- other personal lending which is unsecured

17,010 

3,582 

659 

21,251 

(212)

(505)

(331)

(1,048)

- motor vehicle finance

1,987 

211 

14

2,212 

(15)

(19)

(8)

(42)

At 31 Dec 2023

396,534 

47,483 

3,505 

447,522 

(579)

(1,434)

(854)

(2,867)

By legal entity

HSBC UK Bank plc

146,354 

35,190 

1,218 

182,762 

(152)

(490)

(255)

(897)

HSBC Bank plc

14,598 

1,747 

273 

16,618 

(24)

(22)

(91)

(137)

The Hongkong and Shanghai Banking Corporation Limited

191,382 

7,741 

948 

200,071 

(165)

(402)

(162)

(729)

HSBC Bank Middle East Limited

3,335 

397 

47

3,779 

(19)

(33)

(36)

(88)

HSBC North America Holdings Inc.

18,096 

553 

364 

19,013 

(5)

(14)

(16)

(35)

Grupo Financiero HSBC, S.A. de C.V.

12,717 

1,740 

536 

14,993 

(197)

(463)

(273)

(933)

Other trading entities

10,052 

115 

119 

10,286 

(17)

(10)

(21)

(48)

At 31 Dec 2023

396,534 

47,483 

3,505 

447,522 

(579)

(1,434)

(854)

(2,867)

 

Total personal lending for loans and other credit-related commitments and financial guarantees by stage distribution (continued)

Nominal amount

Allowance for ECL

Stage 1

Stage 2

Stage 3

Total

Stage 1

Stage 2

Stage 3

Total

$m

$m

$m

$m

$m

$m

$m

$m

HSBC UK Bank plc

52,093 

734 

88 

52,915 

(11)

(2)

(13)

HSBC Bank plc

1,630 

36 

1,670 

The Hongkong and Shanghai Banking Corporation Limited

181,967 

2,479 

223 

184,669 

(3)

(3)

HSBC Bank Middle East Limited

1,978 

1,986 

HSBC North America Holdings Inc.

3,695 

72 

3,775 

HSBC Bank Canada

6,610 

113 

30 

6,753 

Grupo Financiero HSBC, S.A. de C.V.

4,308 

4,308 

(8)

(8)

Other trading entities

2,008 

31 

2,040 

(1)

(1)

At 31 Dec 2023

254,289 

3,472 

355 

258,116 

(23)

(2)

(25)

 

Wholesale lending

This section provides further details on the major legal entities, countries and industries driving the decrease in wholesale loans and advances to customers and banks, with the impact of foreign exchange separately identified. Industry granularity is also provided by stage, with legal entity data presented for loans and advances to customers, banks, other credit commitments, financial guarantees and similar contracts.

 

At 30 June 2024, wholesale lending for loans and advances to banks and customers of $604.4bn decreased by $10.6bn on a reported basis, compared with 31 December 2023. This included adverse foreign exchange movements of $10.8bn.

 

On a constant currency basis, the total wholesale lending increase of $0.2bn was driven by an increase in loans and advances to non-bank financial institutions, which grew by $5.7bn, including a $2.5bn increase in the UK, $1.5bn in France and a $1.2bn increase in India.

 

Corporate and commercial balances increased by $1.9bn. This increase, which was spread across multiple industries, was partly offset by a decrease of $2.9bn in 'real estate and construction' exposures driven by repayments. Additionally, there was a $0.5bn decrease from the reclassification of our business in Argentina into 'assets held for sale'.

 

The increase in stage 3 corporate and commercial exposure during the period was driven by defaults in commercial real estate lending, mainly in Hong Kong. The associated allowance for ECL for those loans is relatively lower due to the high collateralisation, with headroom for depreciation.

 

On a constant currency basis, loans and advances to banks declined by $7.4bn, including a $4.8bn decrease in Singapore, a $2.5bn decrease in the UK, a $1.9bn decrease in China and a $0.6bn decrease from the reclassification of our business in Argentina into 'assets held for sale'. These were partly offset by a $2.0bn increase in UAE.

 

On a reported basis, loan commitments and financial guarantees of $396.4bn decreased by $23.5bn since 31 December 2023. Excluding unfavourable foreign exchange movements of $7.4bn, loan commitments and financial guarantees decreased by $16.1bn due to lower exposures with corporate and commercial customers.

 

The allowance for ECL attributable to loans and advances to banks and customers of $8.0bn at 30 June 2024 decreased from $8.2bn at 31 December 2023. This included adverse foreign exchange movements of $0.2bn.

 

 

On a constant currency basis, the wholesale allowance for ECL for loans and advances to customers decreased by $36m and the allowance for ECL for loans and advances to banks remained broadly flat.

The allowance for ECL attributable to loan commitments and financial guarantees at 30 June 2024 decreased to $0.3bn from $0.4bn at 31 December 2023.

 

 

Total wholesale lending for loans and advances to banks and customers by stage distribution

Gross carrying 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

Corporate and commercial

346,248 

58,178 

18,556 

82 

423,064 

(509)

(1,245)

(5,968)

(35)

(7,757)

- agriculture, forestry and fishing

5,170 

1,761 

299 

7,230 

(13)

(48)

(55)

(116)

- mining and quarrying

6,389 

451 

325 

7,165 

(10)

(9)

(54)

(73)

- manufacturing

73,557 

11,184 

1,624 

21 

86,386 

(91)

(171)

(773)

(18)

(1,053)

- electricity, gas, steam and air-conditioning supply

13,884 

1,177 

214 

15,275 

(14)

(14)

(92)

(120)

- water supply, sewerage, waste management and remediation

2,735 

593 

21 

3,349 

(4)

(20)

(13)

(37)

- real estate and construction

70,855 

18,056 

8,723 

53 

97,687 

(91)

(447)

(2,639)

(16)

(3,193)

- of which: commercial real estate

55,785 

15,872 

7,080 

53 

78,790 

(67)

(414)

(2,166)

(16)

(2,663)

- wholesale and retail trade, repair of motor vehicles and motorcycles

67,879 

9,633 

2,879 

80,395 

(77)

(143)

(1,263)

(1)

(1,484)

- transportation and storage

16,924 

3,802 

443 

21,169 

(16)

(70)

(197)

(283)

- accommodation and food

10,489 

2,780 

1,530 

14,799 

(40)

(82)

(149)

(271)

- publishing, audiovisual and broadcasting

17,476 

1,775 

295 

19,546 

(47)

(62)

(99)

(208)

- professional, scientific and technical activities

23,294 

2,792 

809 

26,899 

(33)

(59)

(291)

(383)

- administrative and support services

19,523 

2,126 

586 

22,235 

(33)

(46)

(203)

(282)

- public administration and defence, compulsory social security

97 

105 

- education

1,089 

224 

56 

1,369 

(3)

(9)

(11)

(23)

- health and care

3,302 

638 

166 

4,106 

(10)

(18)

(19)

(47)

- arts, entertainment and recreation

1,094 

474 

98 

1,666 

(4)

(4)

(52)

(60)

- other services

6,211 

537 

286 

7,034 

(22)

(30)

(55)

(107)

- activities of households

605 

612 

- extra-territorial organisations and bodies activities

90 

92 

- government

5,566 

145 

202 

5,913 

(1)

(3)

(4)

- asset-backed securities

19 

13 

32 

(13)

(13)

Non-bank financial institutions

76,042 

2,703 

504 

79,249 

(52)

(35)

(176)

(263)

Loans and advances to banks

101,231 

837 

102,070 

(9)

(2)

(2)

(13)

At 30 Jun 2024

523,521 

61,718 

19,062 

82 

604,383 

(570)

(1,282)

(6,146)

(35)

(8,033)

By legal entity

HSBC UK Bank plc

76,357 

14,977 

3,672 

95,006 

(225)

(439)

(639)

(1,303)

HSBC Bank plc1

86,874 

7,864 

2,539 

43 

97,320 

(70)

(115)

(895)

(15)

(1,095)

The Hongkong and Shanghai Banking Corporation Limited

282,180 

30,826 

10,876 

35 

323,917 

(172)

(543)

(3,737)

(19)

(4,471)

HSBC Bank Middle East Limited

24,285 

1,630 

814 

26,733 

(24)

(13)

(444)

(1)

(482)

HSBC North America Holdings Inc.

32,034 

4,378 

562 

36,974 

(32)

(118)

(128)

(278)

Grupo Financiero HSBC, S.A. de C.V.

13,930 

1,270 

250 

15,450 

(37)

(50)

(142)

(229)

Other trading entities1

7,796 

773 

349 

8,918 

(10)

(4)

(161)

(175)

Holding companies, shared service centres and intra-Group eliminations

65 

65 

At 30 Jun 2024

523,521 

61,718 

19,062 

82 

604,383 

(570)

(1,282)

(6,146)

(35)

(8,033)

1 At 31 December 2023, Other trading entities included gross carrying amount of $1,792m and allowances for ECL of $1m related to Private Banking entities that were reclassified to HSBC Bank plc to continue the process of simplifying our structure.

 

Total wholesale lending for loans and other credit-related commitments and financial guarantees by stage distribution1

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

Corporate and commercial

233,770 

18,131 

908 

252,812 

(112)

(127)

(76)

(315)

Financial

138,394 

5,111 

69 

143,574 

(11)

(8)

(3)

(22)

At 30 Jun 2024

372,164 

23,242 

977 

396,386 

(123)

(135)

(79)

(337)

By legal entity

HSBC UK Bank plc

34,909 

4,896 

233 

40,038 

(31)

(37)

(48)

(116)

HSBC Bank plc

165,863 

8,848 

262 

174,976 

(19)

(25)

(17)

(61)

The Hongkong and Shanghai Banking Corporation Limited

68,349 

3,860 

177 

72,386 

(49)

(32)

(7)

(88)

HSBC Bank Middle East Limited

6,803 

245 

26 

7,074 

(6)

(12)

(4)

(22)

HSBC North America Holdings Inc.

91,810 

5,166 

213 

97,189 

(18)

(29)

(47)

Grupo Financiero HSBC, S.A. de C.V.

2,765 

35 

2,800 

Other trading entities

1,665 

192 

66 

1,923 

(3)

(3)

At 30 Jun 2024

372,164 

23,242 

977 

396,386 

(123)

(135)

(79)

(337)

1 Included in loans and other credit-related commitments and financial guarantees is $74bn relating to unsettled reverse repurchase agreements, which once drawn are classified as 'Reverse repurchase agreements - non-trading'.

Total wholesale lending for loans and advances to banks and customers by stage distribution (continued)

Gross carrying amount

Allowance for ECL

Stage 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

Corporate and commercial

342,878 

69,738 

14,958 

81

427,655 

(499)

(1,500)

(5,774)

(30)

(7,803)

- agriculture, forestry and fishing

5,207 

1,662 

312 

7,181 

(13)

(53)

(64)

(130)

- mining and quarrying

6,260 

638 

325 

7,223 

(7)

(11)

(83)

(101)

- manufacturing

69,690 

13,744 

1,877 

22

85,333 

(89)

(194)

(839)

(21)

(1,143)

- electricity, gas, steam and air-conditioning supply

12,817 

1,283 

255 

14,355 

(14)

(17)

(88)

(119)

- water supply, sewerage, waste management and remediation

2,753 

407 

102 

3,262 

(5)

(7)

(51)

(63)

- real estate and construction

73,701 

21,871 

5,835 

48

101,455 

(96)

(629)

(2,554)

(7)

(3,286)

- of which: commercial real estate

59,883 

19,107 

4,552 

47

83,589 

(73)

(603)

(2,091)

(7)

(2,774)

- wholesale and retail trade, repair of motor vehicles and motorcycles

66,083 

10,676 

2,358 

4

79,121 

(80)

(127)

(1,132)

(2)

(1,341)

- transportation and storage

17,117 

3,894 

445 

21,456 

(18)

(52)

(160)

(230)

- accommodation and food

9,681 

5,135 

1,058 

15,874 

(27)

(118)

(112)

(257)

- publishing, audiovisual and broadcasting

17,455 

2,066 

210 

19,731 

(42)

(81)

(50)

(173)

- professional, scientific and technical activities

22,686 

3,327 

733 

7

26,753 

(32)

(63)

(306)

(401)

- administrative and support services

19,055 

2,551 

597 

22,203 

(31)

(63)

(174)

(268)

- public administration and defence, compulsory social security

1,037 

5

1,042 

- education

1,137 

277 

46

1,460 

(3)

(8)

(4)

(15)

- health and care

3,245 

808 

183 

4,236 

(9)

(21)

(26)

(56)

- arts, entertainment and recreation

1,666 

196 

99

1,961 

(5)

(6)

(31)

(42)

- other services

7,065 

972 

318 

8,355 

(26)

(37)

(90)

(153)

- activities of households

684 

10

694 

- extra-territorial organisations and bodies activities

100 

1

101 

- government

5,420 

202 

205 

5,827 

(2)

(10)

(12)

- asset-backed securities

19

13

32

(13)

(13)

Non-bank financial institutions

69,972 

3,650 

810 

74,432 

(52)

(30)

(322)

(404)

Loans and advances to banks

111,479 

1,436 

2

112,917 

(10)

(3)

(2)

(15)

At 31 Dec 2023

524,329 

74,824 

15,770 

81

615,004 

(561)

(1,533)

(6,098)

(30)

(8,222)

By legal entity

HSBC UK Bank plc

76,793 

18,735 

3,769 

99,297 

(213)

(474)

(593)

(1,280)

HSBC Bank plc

82,025 

8,452 

2,673 

40

93,190 

(69)

(138)

(1,035)

(7)

(1,249)

The Hongkong and Shanghai Banking Corporation Limited

287,876 

37,402 

7,077 

38

332,393 

(185)

(696)

(3,349)

(21)

(4,251)

HSBC Bank Middle East Limited

21,927 

1,598 

894 

3

24,422 

(17)

(11)

(571)

(2)

(601)

HSBC North America Holdings Inc.

30,797 

5,712 

583 

37,092 

(24)

(145)

(127)

(296)

Grupo Financiero HSBC, S.A. de C.V.

13,714 

1,186 

382 

15,282 

(39)

(56)

(231)

(326)

Other trading entities

11,164 

1,739 

392 

13,295 

(14)

(13)

(192)

(219)

Holding companies, shared service centres and intra-group eliminations

33

33

At 31 Dec 2023

524,329 

74,824 

15,770 

81

615,004 

(561)

(1,533)

(6,098)

(30)

(8,222)

 

 

Total wholesale lending for loans and other credit-related commitments and financial guarantees by stage distribution1 (continued)

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

Corporate and commercial

256,367 

22,218 

1,066 

4

279,655 

(126)

(125)

(107)

(358)

Financial

135,039 

5,111 

103 

140,253 

(11)

(10)

(2)

(23)

At 31 Dec 2023

391,406 

27,329 

1,169 

4

419,908 

(137)

(135)

(109)

(381)

By legal entity

HSBC UK Bank plc

31,982 

5,760 

350 

38,092 

(31)

(32)

(56)

(119)

HSBC Bank plc

148,980 

9,466 

310 

4

158,760 

(20)

(27)

(27)

(74)

The Hongkong and Shanghai Banking Corporation Limited

70,436 

3,975 

79

74,490 

(59)

(39)

(16)

(114)

HSBC Bank Middle East Limited

6,944 

323 

56

7,323 

(4)

(1)

(3)

(8)

HSBC North America Holdings Inc.

101,067 

5,103 

248 

106,418 

(14)

(27)

(1)

(42)

HSBC Bank Canada

28,156 

2,461 

66

30,683 

(8)

(8)

(3)

(19)

Grupo Financiero HSBC, S.A. de C.V.

2,092 

34

2,126 

(1)

(1)

Other trading entities

1,749 

207 

60

2,016 

(1)

(3)

(4)

At 31 Dec 2023

391,406 

27,329 

1,169 

4

419,908 

(137)

(135)

(109)

(381)

1 Included in loans and other credit-related commitments and financial guarantees is $70bn relating to unsettled reverse repurchase agreements, which once drawn are classified as 'Reverse repurchase agreements - non-trading'.

 

Commercial real estate

Commercial real estate ('CRE') lending includes the financing of corporate, institutional and high net worth customers who are investing primarily in income-producing assets and, to a lesser extent, in their construction and development. The portfolio is globally diversified with larger concentrations in Hong Kong, the UK, mainland China and the US.

 

Our global exposure is centred largely on cities with economic, political or cultural significance. In more developed markets, our exposure mainly comprises the financing of investment assets, the redevelopment of existing stock and the augmentation of both commercial and residential markets to support economic and population growth. In less developed commercial real estate markets, our exposures comprise lending for development assets on relatively short tenors with a particular focus on supporting larger, better capitalised developers involved in residential construction or assets supporting economic expansion.

 

Excluding adverse foreign exchange movements of $0.7bn, commercial real estate lending decreased by $4.1bn, mainly from $2.4bn in Hong Kong due to loan repayments.

 

In the tables below, we have disclosed additional information related to exposures booked in Hong Kong excluding exposures to mainland China borrowers by stage and credit quality. These exposures mostly comprise lending to Hong Kong borrowers and, to a lesser degree, borrowers overseas.

Commercial real estate lending to customers

of which:

HSBC UK Bank plc

HSBC Bank plc

The Hongkong and Shanghai Banking Corporation Limited

HSBC Bank Middle East Limited

HSBC North America Holdings Inc.

Grupo Financiero HSBC, S.A. de C.V.

Other trading entities

Total

UK

Hong Kong

of which: Hong Kong excluding exposure to mainland China borrowers

$m

$m

$m

$m

$m

$m

$m

$m

$m

$m

$m

Gross loans and advances

Stage 1

9,800 

4,205 

38,475 

999 

1,792 

494 

20 

55,785 

10,115 

25,694 

24,945 

Stage 2

3,460 

347 

10,698 

171 

1,137 

58 

15,872 

3,492 

8,854 

7,440 

Stage 3

499 

232 

5,934 

119 

253 

22 

21 

7,080 

577 

5,566 

3,224 

POCI

37 

16 

53 

37 

16 

At 30 Jun 2024

13,759 

4,821 

55,123 

1,289 

3,182 

574 

42 

78,790 

14,221 

40,130 

35,609 

- of which: forborne loans

628 

126 

2,402 

117 

453 

48 

3,774 

743 

2,234 

Allowance for ECL

(157)

(64)

(2,295)

(30)

(101)

(11)

(5)

(2,663)

(192)

(2,081)

(258)

 

Gross loans and advances

Stage 1

10,304 

4,218 

41,307 

1,126 

1,803 

685 

440 

59,883 

10,790 

28,846 

27,560 

Stage 2

3,262 

400 

13,229 

189 

1,956 

70

1

19,107 

3,294 

10,375 

8,681 

Stage 3

444 

184 

3,570 

145 

166 

25

18

4,552 

470 

3,226 

576 

POCI

32

15

47

32

15

At 31 Dec 2023

14,010 

4,834 

58,121 

1,460 

3,925 

780 

459 

83,589 

14,586 

42,462 

36,817 

- of which: forborne loans

461 

69

2,454 

126 

433 

52

3,595 

519 

2,227 

Allowance for ECL

(148)

(49)

(2,399)

(55)

(98)

(15)

(10)

(2,774)

(172)

(2,149)

(296)

 

Commercial real estate lending to customers by global business

of which:

HSBC UK Bank plc

HSBC Bank plc

The Hongkong and Shanghai Banking Corporation Limited

HSBC Bank Middle East Limited

HSBC North America Holdings Inc.

Grupo Financiero HSBC, S.A. de C.V.

Other trading entities

Total

UK

Hong Kong

$m

$m

$m

$m

$m

$m

$m

$m

$m

$m

Wealth and Personal Banking1

367 

582 

79 

1,030 

367 

79 

Commercial Banking

13,392 

3,146 

36,525 

688 

3,180 

574 

42 

57,547 

13,455 

26,768 

Global Banking and Markets

1,093 

18,381 

601 

20,075 

399 

13,145 

Corporate Centre

138 

138 

138 

At 30 Jun 2024

13,759 

4,821 

55,123 

1,289 

3,182 

574 

42 

78,790 

14,221 

40,130 

Wealth and Personal Banking1

409 

377 

66 

423 

1,277 

409 

66 

Commercial Banking

13,601 

3,322 

37,826 

733 

3,923 

780 

36 

60,221 

13,686 

27,811 

Global Banking and Markets

1,135 

20,066 

727 

21,928 

491 

14,444 

Corporate Centre

163 

163 

141 

At 31 Dec 2023

14,010 

4,834 

58,121 

1,460 

3,925 

780 

459 

83,589 

14,586 

42,462 

1 Comprised exclusively by exposures in Global Private Banking.

 

Commercial real estate lending to customers by credit quality

of which:

HSBC UK Bank plc

HSBC Bank plc

The Hongkong and Shanghai Banking Corporation Limited

HSBC Bank Middle East Limited

HSBC North America Holdings Inc.

Grupo Financiero HSBC, S.A. de C.V.

Other trading entities

Total

UK

Hong Kong

of which: Hong Kong excluding exposure to mainland China borrowers

$m

$m

$m

$m

$m

$m

$m

$m

$m

$m

$m

Strong

4,241 

905 

10,748 

196 

23 

21 

16,139 

4,464 

5,256 

5,028 

Good

2,578 

1,905 

16,365 

268 

638 

189 

21,943 

2,633 

11,081 

10,535 

Satisfactory

5,734 

1,569 

18,747 

535 

1,463 

319 

28,367 

5,777 

15,081 

14,836 

Sub-standard

707 

173 

3,313 

171 

805 

39 

5,208 

733 

3,130 

1,986 

Credit impaired

499 

269 

5,950 

119 

253 

22 

21 

7,133 

614 

5,582 

3,224 

At 30 Jun 2024

13,759 

4,821 

55,123 

1,289 

3,182 

574 

42 

78,790 

14,221 

40,130 

35,609 

Strong

3,940 

740 

12,394 

255 

25 

65 

16 

17,435 

4,191 

6,527 

6,118 

Good

2,555 

2,054 

17,777 

246 

781 

130 

18 

23,561 

2,592 

12,004 

11,262 

Satisfactory

6,370 

1,642 

19,509 

634 

1,691 

500 

407 

30,753 

6,575 

16,290 

15,759 

Sub-standard

701 

182 

4,856 

180 

1,262 

60 

7,241 

726 

4,400 

3,102 

Credit impaired

444 

216 

3,585 

145 

166 

25 

18 

4,599 

502 

3,241 

576 

At 31 Dec 2023

14,010 

4,834 

58,121 

1,460 

3,925 

780 

459 

83,589 

14,586 

42,462 

36,817 

Approximately 60% of the Hong Kong CRE portfolio (excluding exposure to mainland China borrowers) is secured.

 

Unsecured exposures are typically granted to strong, listed CRE developers, which commonly are members of conglomerate groups with diverse cashflows. There has been relatively little credit deterioration in this portfolio. All unsecured exposures are performing, with close to 90% rated Strong or Good.

 

There has been some credit deterioration in the portfolio of secured exposures, as certain borrowers have sought payment deferrals to accommodate debt serviceability challenges. Nevertheless, collateral coverage remains strong. As at 30 June 2024, the weighted average LTV:

- Of performing exposures rated sub-standard was 50%;

 

- Of impaired exposures was 55%. This has driven relatively low levels of stage 3 allowance for ECL.

 

Collateral coverage levels have remained broadly stable during the past six months despite an observed softening of property valuations. This reflects generally conservative LTVs at loan inception, providing headroom for collateral depreciation, as well as a trend of borrower deleveraging and loan right-sizing at the point of refinance to mitigate against higher interest rates.

 

Collateral values are subject to regular assessments and updates in line with our existing practice. Through ongoing portfolio reviews and stress testing, vulnerable borrowers, including those with higher loan to value levels, have been identified and are subject to heightened monitoring and management.

Refinance risk in commercial real estate

Commercial real estate lending tends to require the repayment of a significant proportion of the principal at maturity. Typically, a customer will arrange repayment through the acquisition of a new loan to settle the existing debt. Refinance risk is the risk that a customer, being unable to repay the debt on maturity, fails to refinance it at commercial terms. We monitor our commercial real estate portfolio closely, assessing indicators for signs of potential issues with refinancing.

 

Commercial real estate gross loans and advances to customers maturity analysis

of which:

HSBC UK Bank plc

HSBC Bank plc

The Hongkong and Shanghai Banking Corporation Limited

HSBC Bank Middle East Limited

HSBC North America Holdings Inc.

Grupo Financiero HSBC, S.A. de C.V.

Other trading entities

Total

UK

Hong Kong

$m

$m

$m

$m

$m

$m

$m

$m

$m

$m

< 1 year

3,588 

1,460 

25,383 

430 

1,499 

195 

23 

32,578 

3,854 

20,708 

1-2 years

4,145 

1,100 

12,506 

158 

187 

30 

18,130 

4,280 

8,449 

2-5 years

5,506 

1,568 

14,791 

397 

1,484 

323 

14 

24,083 

5,556 

9,361 

> 5 years

520 

693 

2,443 

304 

12 

26 

3,999 

531 

1,612 

At 30 Jun 2024

13,759 

4,821 

55,123 

1,289 

3,182 

574 

42 

78,790 

14,221 

40,130 

 

< 1 year

3,553 

1,496 

25,427 

396 

1,472 

619 

437 

33,400 

3,950 

19,887 

1-2 years

4,514 

474 

14,144 

175 

623 

60

2

19,992 

4,571 

10,923 

2-5 years

5,411 

2,149 

16,052 

441 

1,814 

71

3

25,941 

5,520 

9,885 

> 5 years

532 

715 

2,498 

448 

16

30

17

4,256 

545 

1,767 

At 31 Dec 2023

14,010 

4,834 

58,121 

1,460 

3,925 

780 

459 

83,589 

14,586 

42,462 

 

 

The following table presents the Group's exposure to borrowers classified in the commercial real estate sector where the ultimate parent is based in mainland China, as well as all commercial real estate exposures booked on mainland China balance sheets. The exposures at 30 June 2024 are split by country/territory and credit quality including allowances for ECL by stage.

 

Mainland China commercial real estate

Hong Kong

Mainland China

Rest of the Group

Total

$m

$m

$m

$m

Loans and advances to customers1

4,683 

4,250 

317 

9,250 

Guarantees issued and others2

82 

65 

153 

Total mainland China commercial real estate exposure at 30 Jun 2024

4,765 

4,315 

323 

9,403 

Distribution of mainland China commercial real estate exposure by credit quality

Strong

297 

1,669 

105 

2,071 

Good

408 

942 

1,350 

Satisfactory

310 

1,279 

49 

1,638 

Sub-standard

1,144 

167 

151 

1,462 

Credit impaired

2,606 

258 

18 

2,882 

At 30 Jun 2024

4,765 

4,315 

323 

9,403 

Allowance for ECL by credit quality

Strong

(3)

(3)

Good

(4)

(4)

Satisfactory

(30)

(30)

Sub-standard

(103)

(28)

(18)

(149)

Credit impaired

(1,721)

(88)

(3)

(1,812)

At 30 Jun 2024

(1,824)

(153)

(21)

(1,998)

Allowance for ECL by stage distribution

Stage 1

(9)

(9)

Stage 2

(103)

(56)

(18)

(177)

Stage 3

(1,721)

(88)

(3)

(1,812)

At 30 Jun 2024

(1,824)

(153)

(21)

(1,998)

ECL coverage %

38.3 

3.5 

6.5 

21.2 

1 Amounts represent gross carrying amount.

2 Amounts represent nominal amount for guarantees and other contingent liabilities.

 

 

Mainland China commercial real estate (continued)

Hong Kong

Mainland China

Rest of the Group

Total

$m

$m

$m

$m

Loans and advances to customers1

6,033 

4,917 

839 

11,789 

Guarantees issued and others2

255 

66

37

358 

Total mainland China commercial real estate exposure at 31 Dec 2023

6,288 

4,983 

876 

12,147 

Distribution of mainland China commercial real estate exposure by credit quality

Strong

781 

1,723 

6

2,510 

Good

604 

953 

421 

1,978 

Satisfactory

679 

1,704 

261 

2,644 

Sub-standard

1,298 

327 

188 

1,813 

Credit impaired

2,926 

276 

3,202 

At 31 Dec 2023

6,288 

4,983 

876 

12,147 

Allowance for ECL by credit quality

Strong

(3)

(3)

Good

(5)

(1)

(6)

Satisfactory

(3)

(27)

(30)

Sub-standard

(66)

(87)

(16)

(169)

Credit impaired

(1,726)

(125)

(1,851)

At 31 Dec 2023

(1,795)

(247)

(17)

(2,059)

Allowance for ECL by stage distribution

Stage 1

(10)

(10)

Stage 2

(69)

(112)

(17)

(198)

Stage 3

(1,726)

(125)

(1,851)

At 31 Dec 2023

(1,795)

(247)

(17)

(2,059)

ECL coverage %

28.5 

5.0 

1.9 

17.0 

1 Amounts represent gross carrying amount.

2 Amounts represent nominal amount for guarantees and other contingent liabilities.

 

Commercial real estate financing refers to lending that focuses on commercial development and investment in real estate and covers commercial, residential and industrial assets. The exposures in the table are related to companies whose primary activities are focused on these activities. The table also includes financing provided to a corporate or financial entity for the purchase or financing of a property that supports the overall operations of the business. Such exposures are outside of our normal definition of commercial real estate, as applied elsewhere in this report, but are provided here for a more comprehensive view of our mainland property exposure.

 

The table above shows 54% ($5.1bn) of total exposure with a credit quality of 'satisfactory' or above, which was lower in proportion compared with 31 December 2023 at 59% ($7.1bn). Total 'credit impaired' exposures have increased to 31% ($2.9bn) (31 December 2023: 26%, $3.2bn), reflecting sustained stress in the China commercial real estate market, including weakness in both property market fundamentals and financing conditions for borrowers operating in this sector.

 

Allowances for ECL are substantially against unsecured exposures. For secured exposures, allowances for ECL are minimal, reflecting the nature and value of the security held.

 

Facilities booked in Hong Kong continue to represent the largest proportion of mainland China commercial real estate exposures, although total exposures reduced to $4.8bn, down $1.5bn since 31 December 2023, as a result of de-risking measures, repayments and write-offs. This portfolio remains relatively higher risk, with 21% (31 December 2023: 33%) of exposure booked with a credit quality of 'satisfactory' or above and 55% 'credit impaired' (31 December 2023: 47%).

 

At 30 June 2024, the Group had allowances for ECL of $1.8bn (31 December 2023: $1.8bn) held against mainland China commercial real estate exposures to companies whose ultimate parent is based in mainland China, which are booked in Hong Kong. ECL coverage increased to 38% (31 December 2023: 29%).

 

Approximately 40% ($0.8bn) of the unimpaired exposure in the Hong Kong portfolio is lending to state-owned enterprises and relatively strong private-owned enterprises. This is reflected in the relatively low allowance for ECL in this part of the portfolio.

 

Market conditions remain subdued as a result of generally weak sentiment and residential property transaction levels. Performance divergence between privately-owned enterprises and state-owned enterprises has continued in the first half of 2024, with state-owned enterprises achieving above-market sales, and benefiting from market share gains and better access to funding. A series of policy measures have been introduced by the Chinese government to stabilise the market, with some initial improvement in sentiment driving an early rebound in secondary market transactions. We continue to closely monitor developments in the real estate sector, including the extent to which government support measures are driving a sustained stabilisation in property market fundamentals and financing conditions.

 

The Group has additional exposures to mainland China commercial real estate as a result of lending to multinational corporates booked outside of mainland China. These are not incorporated in the table above.

 

 

Supplementary information

The following disclosure presents the gross carrying/nominal amount of financial instruments to which the impairment requirements in IFRS 9 are applied by global business and the associated allowance for ECL.

 

Summary of financial instruments to which the impairment requirements in IFRS 9 are applied - by global business

Gross carrying/nominal amount

Allowance for ECL

Stage 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

WPB1

552,650 

48,019 

3,861 

604,530 

(591)

(1,156)

(846)

(2,593)

CMB

433,623 

50,668 

16,921 

45 

501,257 

(503)

(1,083)

(5,253)

(21)

(6,860)

GBM

695,052 

12,609 

2,301 

37 

709,999 

(121)

(174)

(887)

(14)

(1,196)

Corporate Centre1

85,223 

174 

21 

85,418 

(2)

(14)

(16)

(32)

Total gross carrying amount on-balance sheet at 30 Jun 2024

1,766,548

111,470 

23,104 

82 

1,901,204

(1,217)

(2,427)

(7,002)

(35)

(10,681)

WPB

254,078 

3,456 

268 

257,802 

(34)

(9)

(43)

CMB

124,304 

13,687 

754 

138,745 

(87)

(108)

(66)

(261)

GBM

248,434 

9,564 

230 

258,231 

(35)

(27)

(6)

(68)

Corporate Centre

200 

200 

Total nominal amount off-balance sheet at 30 Jun 2024

627,016 

26,707 

1,252 

654,978 

(156)

(135)

(81)

(372)

WPB

129,090 

1,001 

130,091 

(13)

(16)

(29)

CMB

93,505 

1,052 

94,557 

(11)

(18)

(29)

GBM

90,868 

376 

91,244 

(12)

(6)

(18)

Corporate Centre

2,229 

117 

2,346 

(1)

(19)

(20)

Debt instruments measured at FVOCI at 30 Jun 2024

315,692 

2,546 

318,238 

(37)

(59)

(96)

 

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)

1 With effect from 1 January 2024, following the sale of our retail banking business in France, we have prospectively reclassified the $7.6bn portfolio of retained loans from WPB to Corporate Centre.

 

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

103,684 

17,990 

20,669 

124,353 

(1,531)

(262)

(75)

(1,606)

- of which: HSBC UK Bank plc (ring-fenced bank)

79,516 

17,318 

9,084 

88,600 

(1,238)

(224)

(64)

(1,302)

- of which: HSBC Bank plc (non-ring-fenced bank)2

24,007 

672 

11,535 

35,542 

(293)

(38)

(11)

(304)

- of which: Other trading entities2

161 

50 

211 

France

25,859 

4,550 

7,034 

32,893 

(586)

(45)

(19)

(605)

Germany

6,860 

234 

909 

7,769 

(76)

(76)

Switzerland

1,231 

244 

241 

1,472 

(12)

(12)

Hong Kong

122,948 

46,470 

17,244 

140,192 

(3,367)

(2,127)

(84)

(3,451)

Australia

11,948 

4,599 

2,173 

14,121 

(31)

(3)

(31)

India

12,415 

2,278 

6,485 

18,900 

(46)

(6)

(7)

(53)

Indonesia

3,427 

140 

361 

3,788 

(120)

(49)

(120)

Mainland China

29,426 

6,038 

8,230 

37,656 

(251)

(149)

(7)

(258)

Malaysia

5,867 

1,143 

250 

6,117 

(63)

(12)

(63)

Singapore

17,249 

3,561 

1,206 

18,455 

(343)

(63)

(1)

(344)

Taiwan

4,712 

14 

62 

4,774 

Egypt

798 

37 

49 

847 

(105)

(6)

(105)

UAE

13,258 

1,865 

1,626 

14,884 

(420)

(265)

(420)

US

26,037 

4,874 

9,952 

35,989 

(229)

(105)

(49)

(278)

Mexico

11,043 

651 

1,273 

12,316 

(224)

(10)

(5)

(229)

Other

26,302 

2,999 

1,485 

27,787 

(353)

(91)

(16)

(369)

At 30 Jun 2024

423,064 

97,687 

79,249 

502,313 

(7,757)

(3,193)

(263)

(8,020)

 

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 entities2

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)

1 Real estate lending within this disclosure corresponds solely to the industry of the borrower. 'Commercial real estate' on page 90 includes borrowers in multiple industries investing in income-producing assets and, to a lesser extent, their construction and development.

2 At 31 December 2023, 'Other trading entities' included gross carrying amount of $497m and allowances for ECL of $1m related to the Private Banking entity that was reclassified to HSBC Bank plc to continue the process of simplifying our structure.

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

169,381 

20,056 

8,051 

189,437 

(181)

(515)

(260)

(696)

- of which: HSBC UK Bank plc (ring-fenced bank)

165,794 

17,853 

7,972 

183,647 

(176)

(507)

(258)

(683)

- of which: HSBC Bank plc (non-ring-fenced bank)1

3,587 

2,203 

79 

5,790 

(5)

(8)

(2)

(13)

- of which: Other trading entities1

France2

403 

7,023 

7,426 

(12)

(11)

(23)

Germany

132 

132 

Switzerland

1,665 

4,978 

6,643 

(1)

(14)

(15)

Hong Kong

107,456 

31,001 

9,035 

138,457 

(2)

(390)

(259)

(392)

Australia

23,193 

442 

399 

23,635 

(5)

(11)

(10)

(16)

India

1,820 

783 

212 

2,603 

(5)

(15)

(12)

(20)

Indonesia

50 

294 

132 

344 

(2)

(10)

(6)

(12)

Mainland China

6,652 

820 

248 

7,472 

(6)

(44)

(34)

(50)

Malaysia

2,202 

1,955 

828 

4,157 

(20)

(69)

(34)

(89)

Singapore

6,953 

6,444 

536 

13,397 

(41)

(18)

(41)

Taiwan

5,461 

1,430 

339 

6,891 

(16)

(4)

(16)

Egypt

283 

68 

283 

(1)

(1)

UAE

1,915 

1,326 

484 

3,241 

(7)

(58)

(26)

(65)

US

19,479 

648 

188 

20,127 

(13)

(16)

(14)

(29)

Mexico

8,341 

5,890 

2,381 

14,231 

(179)

(691)

(306)

(870)

Other

5,449 

2,529 

780 

7,978 

(95)

(60)

(34)

(155)

At 30 Jun 2024

360,420 

86,034 

23,682 

446,454 

(528)

(1,962)

(1,017)

(2,490)

 

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 entities1

365 

1,478 

1,843 

(1)

(1)

(1)

France2

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)

1 At 31 December 2023, 'Other trading entities' included gross carrying amount of $1,843m and allowances for ECL of $1m related to the Private Banking entity that was reclassified to HSBC Bank plc to continue the process of simplifying our structure.

2 Included in other personal lending as at 30 June 2024 is $6,980m (31 December 2023: $7,424m) guaranteed by Crédit Logement.

Treasury risk

97

Overview

97

Treasury risk management

99

Capital risk in the first half of 2024

102

Liquidity and funding risk in the first half of 2024

104

Sources of funding

105

Interest rate risk in the banking book in the first half of 2024

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 an 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

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.

 

A summary of our current policies and practices regarding the management of treasury risk is set out on pages 203 to 217 of the Annual Report and Accounts 2023.

Treasury risk management

Key developments in the first half of 2024

- The Board approved the first interim dividend of $0.10 per share, which was paid in June 2024. We have successfully concluded the share buy-back announced for the first quarter of 2024, amounting to $3bn. We also intend to initiate a further share buy-back of up to $3bn, which we expect to complete within three months.

- On 1 January 2024, HSBC Continental Europe completed the sale of its retail banking operations in France, with no material incremental impact on CET1.

- On 28 March 2024, HSBC completed the sale of HSBC Bank Canada to the Royal Bank of Canada. The associated gain on sale of $4.8bn added approximately 0.8 percentage points to the CET1 ratio as of 30 March 2024. In addition to the interim dividend, following completion of this transaction, the Board also approved a special dividend of $0.21 per share, paid in June 2024.

- On 9 April 2024, HSBC entered into a binding agreement to sell its business in Argentina to Grupo Financiero Galicia. The transaction is subject to conditions, including regulatory approval, and is not expected to have a significant impact on the Group's CET1 ratio by closing.

 

For quantitative disclosures on capital ratios, own funds and RWAs, see pages 99 to 101. For quantitative disclosures on liquidity and funding metrics, see pages 102 to 104. For quantitative disclosures on interest rate risk in the banking book, see pages 105 to 106.

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 and 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 30 June 2024 was in excess of $20bn, our target operating level.

 

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 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 at entity level. 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 may 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. Whilst the PRA is still to release a near final draft of the remaining parts of Basel 3.1, we continue to assess the impact of the near final rules.

 

· For further details, see the 'Regulatory developments' section in our Pillar 3 Disclosures at 30 June 2024, which is expected to be published on or around 7 August 2024 at www.hsbc.com/investors.

 

Regulatory reporting processes and controls

We are advancing a comprehensive initiative aimed at strengthening our global processes, enhancing consistency, and improving controls across our regulatory reporting. This remains a top priority for both HSBC management and regulatory authorities. This multifaceted 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 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 exercises 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 ('RAF') 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 is expected to be made in August 2024.

 

Overall, our recovery and resolution planning helps to safeguard the Group's financial and operational stability. HSBC is committed to continuing to enhance its recovery and resolution capabilities, in line with the Group's preferred resolution strategy and regulatory expectations, including the RAF.

 

 

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 is transferred to Global Treasury, with some exceptions.

 

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 remains within the global business where the risk originates.

 

Global Treasury uses a number of measures to monitor and control interest rate risk in the banking book, including:

- banking net interest income sensitivity; and

- economic value of equity sensitivity.

 

Banking net interest income sensitivity

A principal part of our management of non-traded interest rate risk is to monitor the sensitivity of expected banking net interest income ('banking NII') under varying interest rate scenarios (i.e. simulation modelling), where all other economic variables are held constant. Banking NII sensitivity measures the sensitivity of NII adjusted for the funding costs of the trading book and of interest related to AT1 capital. This monitoring is undertaken at an entity and Group level, where a range of interest rate scenarios are monitored on a one-year basis.

 

Banking 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 banking NII sensitivity calculations assume that interest rates of all maturities move by the same amount in the 'up-shock' scenario. The sensitivity calculations in the 'down-shock' scenarios reflect no floors to the shocked market rates. However, customer product-specific interest rate floors are recognised where applicable.

 

Economic value of equity sensitivity

Economic value of equity ('EVE') measures the present value of our banking book assets and liabilities excluding equity, based on a run-off balance sheet. Economic value of equity sensitivity measures the impact to EVE from a movement in interest rates, including the assumed term profile of non-maturing deposits having adjusted for stability and price sensitivity. It is measured and reported as part of our internal risk metrics, regulatory rules (including the Supervisory Outlier Test) and external Pillar 3 disclosures.

 

For further details, see the 'Economic value of equity and net interest income sensitivity' section in our Pillar 3 Disclosures at 30 June 2024, which is expected to be published on or around 7 August 2024 at www.hsbc.com/investors.

 

 

 

Capital risk in the first half of 2024

Capital overview

Capital and liquidity adequacy metrics

At

30 Jun 2024

31 Dec 2023

Risk-weighted assets ('RWAs') ($bn)

Credit risk

664.1 

683.9 

Counterparty credit risk

36.8 

35.5 

Market risk

37.9 

37.5 

Operational risk

96.3 

97.2 

Total RWAs

835.1 

854.1 

Capital on a transitional basis ($bn)

Common equity tier 1 capital

125.3 

126.5 

Tier 1 capital

144.3 

144.2 

Total capital

172.1 

171.2 

Capital ratios on a transitional basis (%)

Common equity tier 1 ratio

15.0

14.8

Tier 1 ratio

17.3

16.9

Total capital ratio

20.6

20.0

Capital on an end point basis ($bn)

Common equity tier 1 capital

125.3 

126.5 

Tier 1 capital

144.3 

144.2 

Total capital

168.1 

167.1 

Capital ratios on an end point basis (%)

Common equity tier 1 ratio

15.0

14.8

Tier 1 ratio

17.3

16.9

Total capital ratio

20.1

19.6

Liquidity coverage ratio ('LCR')

Total high-quality liquid assets ($bn)

646.1 

647.5

Total net cash outflow ($bn)

472.3 

477.1

LCR (%)1

137

136

1 We have enhanced our calculation processes during 1H24. As Group LCR is reported as a 12-month average, the benefit of these changes will be recognised incrementally over the coming year starting from 30 June 2024.

 

References to EU regulations and directives (including technical standards) should, as applicable, be read as references to the UK's version of such regulations and directives, 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 Prudential Regulation Authority ('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 value of the preceding 12 months.

 

Regulatory numbers and ratios are as presented at the date of reporting. Small changes may exist between these numbers and ratios and those subsequently submitted in regulatory filings. Where differences are significant, we may restate in subsequent periods.

Own funds

Own funds disclosure

30 Jun 2024

31 Dec 2023

Ref*

$m

$m

6

Common equity tier 1 capital before regulatory adjustments

164,545 

165,868 

28

Total regulatory adjustments to common equity tier 1

(39,252)

(39,367)

29

Common equity tier 1 capital

125,293 

126,501 

36

Additional tier 1 capital before regulatory adjustments

19,035 

17,732 

43

Total regulatory adjustments to additional tier 1 capital

(70)

(70)

44

Additional tier 1 capital

18,965 

17,662 

45

Tier 1 capital

144,258 

144,163 

51

Tier 2 capital before regulatory adjustments

28,914 

28,148 

57

Total regulatory adjustments to tier 2 capital

(1,088)

(1,107)

58

Tier 2 capital

27,826 

27,041 

59

Total capital

172,084 

171,204 

Capital ratios

%

%

61

Common equity tier 1 ratio

15.0

14.8

62

Tier 1 ratio

17.3

16.9

63

Total capital ratio

20.6

20.0

* These are references to lines prescribed in the Pillar 3 'Own funds disclosure' template.

 

At 30 June 2024, our common equity tier 1 ('CET1') capital ratio increased to 15.0% from 14.8% at 31 December 2023, driven by a decrease in RWAs of $19bn, and a decline in CET1 capital of $1.2bn. The overall rise in our CET1 ratio during the period was contributed by:

- a 0.7 percentage point net increase from strategic transactions, including the gain on disposal of our Canada banking business adjusted for the $0.21 per share special dividend, the RWAs reduction from our disposals in France and Canada, which was partially offset by the impairment loss following the held for sale classification of our business in Argentina;

- a 0.2 percentage point increase from capital generation, mainly through regulatory profits less dividends, adjusted for the share buy-backs announced along with our 4Q23 and 1Q24 results;

- a 0.5 percentage point decrease driven by higher RWAs mainly from asset size movements and model updates, excluding the reduction from our disposals in France and Canada; and

- a 0.2 percentage point decrease from the adverse impact of foreign exchange fluctuations and an increase in regulatory deductions.

 

At 30 June 2024, our Pillar 2A requirement, set by the PRA's Individual Capital Requirement based on a point-in-time assessment, was equivalent to 2.6% of RWAs, of which 1.5% was met by CET1 capital. Throughout the first half of 2024, we complied with the PRA's regulatory capital adequacy requirements.

 

 

Risk-weighted assets

RWAs by global business

WPB

CMB

GBM

Corporate

Centre

Total RWAs

$bn

$bn

$bn

$bn

$bn

Credit risk

146.8 

301.2 

131.8 

84.3 

664.1 

Counterparty credit risk

1.0 

0.6 

33.2 

2.0 

36.8 

Market risk

1.2 

1.2 

27.7 

7.8 

37.9 

Operational risk

33.5 

32.7 

32.4 

(2.3)

96.3 

At 30 Jun 2024

182.5 

335.7 

225.1 

91.8 

835.1 

At 31 Dec 2023

192.9 

354.5 

218.5 

88.2 

854.1 

 

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 eliminations2

Total RWAs

$bn

$bn

$bn

$bn

$bn

$bn

$bn

$bn

$bn

$bn

Credit risk

113.2 

75.2 

315.6 

19.1 

62.3 

25.1 

45.8 

7.8 

664.1 

Counterparty credit risk

0.2 

18.5 

10.4 

0.7 

3.6 

0.5 

2.9 

36.8 

Market risk3

0.2 

25.5 

29.2 

2.6 

3.7 

0.8 

1.5 

3.2 

37.9 

Operational risk

17.9 

17.9 

46.0 

3.7 

7.2 

4.9 

4.8 

(6.1)

96.3 

At 30 Jun 2024

131.5 

137.1 

401.2 

26.1 

76.8 

31.3 

55.0 

4.9 

835.1 

At 31 Dec 2023

129.2 

131.5 

396.7 

24.3 

72.2 

31.9 

32.6 

59.6 

6.7 

854.1 

1 Balances are on a third-party Group consolidated basis.

2 Balance at 30 June 2024 includes HSBC Bank Canada operational risk RWAs due to the averaging calculation and will roll off over future reporting cycles.

3 Market risk RWAs are non-additive across the legal entities due to diversification effects within the Group.

 

 

RWA movement by global businesses by key driver

Credit risk, counterparty credit risk and operational risk

WPB

CMB

GBM

Corporate Centre

Market risk

Total RWAs

$bn

$bn

$bn

$bn

$bn

$bn

RWAs at 1 Jan 2024

191.6 

353.5 

196.3 

75.2 

37.5 

854.1 

Asset size

1.3 

4.3 

5.6 

4.0 

6.0 

21.2 

Asset quality

0.7 

1.4 

(1.8)

(0.5)

(0.2)

Model updates

0.3 

0.1 

3.3 

3.3 

7.0 

Methodology and policy

(1.6)

1.4 

(0.4)

2.7 

2.1 

Acquisitions and disposals

(7.3)

(20.5)

(2.7)

(0.2)

(5.6)

(36.3)

Foreign exchange movements1

(3.7)

(5.7)

(2.9)

(0.5)

(12.8)

Total RWA movement

(10.3)

(19.0)

1.1 

8.8 

0.4 

(19.0)

RWAs at 30 Jun 2024

181.3 

334.5 

197.4 

84.0 

37.9 

835.1 

1 Credit risk foreign exchange movements in this disclosure are computed by retranslating RWAs into US dollars based on the underlying transactional currencies and other movements in the table are presented on a constant currency basis.

 

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 Canada2

Grupo Financiero HSBC, S.A.

de C.V.

Other trading entities

Holding companies, shared service centres and intra-Group eliminations2

Market risk

Total RWAs

$bn

$bn

$bn

$bn

$bn

$bn

$bn

$bn

$bn

$bn

$bn

RWAs at 1 Jan 2024

129.0 

108.8 

369.3 

21.5 

69.6 

31.1 

31.9 

58.0 

(2.6)

37.5 

854.1 

Asset size

1.8 

1.9 

2.0 

0.9 

2.0 

0.7 

6.1 

(0.2)

6.0 

21.2 

Asset quality

0.3 

(0.3)

1.1 

(0.5)

1.2 

(2.0)

(0.2)

Model updates

0.1 

1.2 

4.1 

1.1 

0.4 

0.1 

7.0 

Methodology and policy

1.4 

5.4 

(1.6)

0.5 

(0.1)

(3.4)

(4.6)

4.5 

2.1 

Acquisitions and disposals

(3.5)

0.2 

(27.1)

(0.3)

(5.6)

(36.3)

Foreign exchange movements3

(1.3)

(1.9)

(3.1)

(0.6)

(2.1)

(3.8)

(12.8)

Total RWA movement

2.3 

2.8 

2.7 

2.0 

3.5 

(31.1)

(1.4)

(4.5)

4.3 

0.4 

(19.0)

RWAs at 30 Jun 2024

131.3 

111.6 

372.0 

23.5 

73.1 

30.5 

53.5 

1.7 

37.9 

835.1 

1 Balances are on a third-party Group consolidated basis.

2 The balance in methodology and policy includes HSBC Bank Canada operational risk RWAs due to the averaging calculation and will roll off over future reporting cycles.

3 Credit risk foreign exchange movements in this disclosure are computed by retranslating the RWAs into US dollars based on the underlying transactional currencies and other movements in the table are presented on a constant currency basis.

 

 

During the first half of the year, RWAs decreased by $19.0bn, mainly due to strategic disposals of $36.3bn and foreign currency translation differences of $12.8bn, which were partially offset by asset size movements of $21.2bn.

 

Asset size

The $6.0bn increase in market risk RWAs was mainly attributed to a rise in value at risk, and the incremental risk charge from increased positions, notably in Asia and HSBC Bank plc.

 

GBM RWAs increased by $5.6bn, mainly driven by a rise in corporate exposures, primarily in HSBC Bank plc and higher sovereign exposures in Mexico. Further RWA increases were largely attributed to mark-to-market movements and organic growth in counterparty credit risk, notably in Asia and North America.

 

CMB RWAs rose by $4.3bn, due to an increase in corporate lending, mainly in HSBC UK Bank plc, Argentina and North America, and higher sovereign exposures in Argentina.

 

Corporate Centre RWAs increased by $4.0bn, which was largely driven by a rise in SAB corporate exposures.

 

WPB RWAs increased by $1.3bn, primarily due to higher sovereign exposures in Argentina, and mortgage portfolio growth in North America and HSBC UK.

 

Asset quality

The $0.2bn fall in RWAs was mainly due to portfolio mix changes, and favourable credit risk migrations in Argentina and Sri Lanka, which was largely offset by unfavourable credit risk migrations in Asia.

 

Model updates

The $7.0bn increase mainly follows a revision to the definition of default in our PD models for exposures to financial institutions.

 

Acquisitions and disposals

RWAs decreased by $36.3bn, predominantly from the disposal of our banking business in Canada and the sale of our retail banking operations in France.

 

Methodology and policy

Methodology changes and risk parameter refinements mainly in Argentina, HSBC UK Bank plc and HSBC Bank plc, offset by Asia, led to the RWAs increase of $2.1bn.

 

This includes the retained portfolio of our France retail banking operations transferred from WPB to Corporate Centre.

 

Leverage ratio1

At

30 Jun 2024

31 Dec 2023

$bn

$bn

Tier 1 capital (leverage)

144.3 

144.2 

Total leverage ratio exposure

2,514.5

2,574.8 

%

%

Leverage ratio

5.7

5.6

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 5.7% at 30 June 2024, up from 5.6% at 31 December 2023. The reduction in the leverage exposures led to a rise of 0.1 percentage point in the leverage ratio. This was primarily due to the reduction of the balance sheet, mainly driven by the disposal of our banking business in Canada and the sale of our retail banking operations in France.

At 30 June 2024, our UK minimum leverage ratio requirement of 3.25% was supplemented by a leverage ratio buffer of 1.0%, made up of an additional leverage ratio buffer of 0.7% and a countercyclical leverage ratio buffer of 0.3%.

 

These buffers translated into capital values of $17.6bn and $7.5bn respectively. We exceeded these leverage requirements throughout 1H24.

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.

Liquidity and funding risk in the first half of 2024

Liquidity metrics

At 30 June 2024, all of the Group's material operating entities were above regulatory minimum levels.

 

Each entity maintains sufficient unencumbered liquid assets to comply with local and regulatory requirements. The liquidity value of these liquid assets for each entity is shown in the following table along with the individual LCR levels on a local regulatory requirements basis wherever applicable. Where local regulatory requirements are not applicable, the PRA LCR is shown. The local basis may differ from PRA measures due to differences in the way regulators have implemented the Basel III standards.

 

Each entity maintains a sufficient stable funding profile and it is assessed by using the PRA NSFR or other appropriate metrics.

In addition to regulatory metrics, HSBC uses a wide set of measures to manage its liquidity and funding profile.

 

 

 

The Group liquidity and funding position on an average basis is analysed in the following sections.

 

Operating entities' liquidity

At 30 Jun 2024

LCR6

HQLA

Net outflows

 NSFR6

%

$bn

$bn

%

HSBC UK Bank plc (ring-fenced bank)1

193

114 

59 

155

HSBC Bank plc (non-ring-fenced bank)2

146

131 

90 

114

The Hongkong and Shanghai Banking Corporation Limited - Hong Kong branch3

195

142 

73 

127

HSBC Singapore4

314

29 

180

Hang Seng Bank

263

50 

19 

166

HSBC Bank China

176

25 

14 

144

HSBC Bank USA

172

81 

47 

129

HSBC Continental Europe5

156

83 

53 

138

HSBC Bank Middle East - UAE branch

257

14 

154

HSBC Bank Canada

-

-

HSBC Bank Mexico

160

124

 

At 31 Dec 2023

HSBC UK Bank plc (ring-fenced bank)1

201

118 

59

158

HSBC Bank plc (non-ring-fenced bank)2

148

132 

89

116

The Hongkong and Shanghai Banking Corporation Limited - Hong Kong branch3

192

147 

77

127

HSBC Singapore4

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 Europe5

158

83

52

137

HSBC Bank Middle East - UAE branch

281

13

5

163

HSBC Bank Canada

164

21

13

129

HSBC Bank Mexico

149

8

5

124

1 HSBC UK Bank plc refers to the HSBC UK liquidity group, which comprises five legal entities: HSBC UK Bank plc, Marks and Spencer Financial Services plc, HSBC Private Bank (UK) Limited, HSBC Innovation Bank Limited and HSBC Trust Company (UK) Limited, managed as a single operating entity, in line with the application of UK liquidity regulation as agreed with the PRA.

2 HSBC Bank plc includes overseas branches and special purpose entities consolidated by HSBC for financial statements purposes.

3 The Hongkong and Shanghai Banking Corporation Limited - 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.

4 HSBC Singapore includes HSBC Bank (Singapore) Limited and The Hongkong and Shanghai Banking Corporation Limited - Singapore branch. Liquidity and funding risk is monitored and controlled at country level in line with the local regulator's approval.

5 In response to the requirement for an intermediate parent undertaking in line with EU Capital Requirements Directive ('CRD V'), HSBC Continental Europe acquired control of HSBC Germany and HSBC Bank Malta on 30 November 2022. The averages for LCR and NSFR include the impact of the inclusion of the two entities from November 2022.

6 The LCR and NSFR ratios presented in the above table are based on average values. The LCR is the average of the preceding 12 months. The NSFR is the average of the preceding four quarters.

 

 

Consolidated liquidity metrics

Liquidity coverage ratio

At 30 June 2024, the average high-quality liquid assets ('HQLA') held at entity level amounted to $780bn (31 December 2023: $795bn), a decrease of $15bn. The Group consolidation methodology includes a deduction to reflect the impact of limitations in the transferability of entity liquidity around the Group. This resulted in an adjustment of $134bn to LCR HQLA and $7bn to LCR inflows on an average basis.

During 1H24, we enhanced our liquidity consolidation process and revised the associated provisions originally recognised to address historical limitations. As Group LCR is reported as a 12-month average, the benefit of these changes will be recognised incrementally over the coming year starting from 30 June 2024.

At1

30 Jun 2024

30 Jun 2023

31 Dec 2023

$bn

$bn

$bn

High-quality liquid assets (in entities)

780 

796 

795 

Group LCR HQLA2

646 

631 

648 

Net outflows2

472 

478 

477 

Liquidity coverage ratio (%)

137

132

136

Adjustment for transfer restrictions2

(141)

(172)

(154)

1 Group LCR numbers above are based on average month-end values of the preceding 12 months.

2 These include a total adjustment for transfer restrictions on a 12-month average basis of $141bn as at 30 June 2024, of which a $134bn deduction applied to LCR HQLA and $7bn to LCR inflows.

Liquid assets

After the $134bn adjustment, the Group LCR HQLA of $646bn (31 December 2023: $648bn) was held in a range of asset classes and currencies. Of these, 96% were eligible as level 1 (31 December 2023: 97%).

 

The following tables reflect the composition of the liquidity pool by asset type and currency at 30 June 2024:

Liquidity pool by asset type1

Liquidity pool

Cash

Level 12

Level 22

$bn

$bn

$bn

$bn

Cash and balance at central bank

283 

283 

Central and local government bonds

337 

316 

21 

Regional government and public sector entities

International organisation and multilateral development banks

14 

14 

Covered bonds

Other

Total at 30 Jun 2024

646 

283 

336 

27 

Total at 31 Dec 2023

648 

310 

317 

21 

1 Group liquid assets numbers are based on average month-end values over the preceding 12 months.

2 As defined in EU and PRA regulation, level 1 assets means 'assets of extremely high liquidity and credit quality', and level 2 assets means 'assets of high liquidity and credit quality'.

 

Liquidity pool by currency1

$

£

HK$

Other

Total

$bn

$bn

$bn

$bn

$bn

$bn

Liquidity pool at 30 Jun 2024

188 

169 

111 

52 

126 

646 

Liquidity pool at 31 Dec 2023

184 

173 

112 

51 

128 

648 

1 Group liquid assets numbers are based on average month-end values over the preceding 12 months.

 

Sources of funding

Our primary sources of funding are customer current accounts and savings deposits payable on demand or at short notice. We issue secured and unsecured wholesale securities to supplement customer deposits, meet regulatory obligations and to change the currency mix, maturity profile or location of our liabilities.

 

The following 'Funding sources' and 'Funding uses' tables provide a view of how our consolidated balance sheet is funded. In practice, all the principal operating entities are required to manage liquidity and funding risk on a stand-alone basis.

 

The tables analyse our consolidated balance sheet according to the assets that primarily arise from operating activities and the sources of funding primarily supporting these activities. Assets and liabilities that do not arise from operating activities are presented as a net balancing source or deployment of funds.

 

In 1H24, the level of customer accounts continued to exceed the level of loans and advances to customers. The positive funding gap was predominantly deployed in liquid assets.

Funding sources

At

30 Jun 2024

31 Dec 2023

$m

$m

Customer accounts

1,593,834

1,611,647 

Deposits by banks

82,435 

73,163 

Repurchase agreements - non-trading

202,770 

172,100 

Debt securities in issue

98,158 

93,917 

Cash collateral, margin and settlement accounts

105,226 

85,255 

Liabilities of disposal groups held for sale1

5,041 

108,406 

Subordinated liabilities

25,510 

24,954 

Financial liabilities designated at fair value

140,800 

141,426 

Insurance contract liabilities

125,252 

120,851 

Trading liabilities

77,455 

73,150 

- repos

13,356 

12,198 

- stock lending

4,566 

3,322 

- other trading liabilities

59,533 

57,630 

Total equity

190,414 

192,610 

Other balance sheet liabilities

328,108 

341,198 

2,975,003

3,038,677 

 

Funding uses

At

30 Jun 2024

31 Dec 2023

$m

$m

Loans and advances to customers

938,257 

938,535 

Loans and advances to banks

102,057 

112,902 

Reverse repurchase agreements - non-trading

230,189 

252,217 

Cash collateral, margin and settlement accounts

105,974 

89,911 

Assets held for sale1

5,821 

114,134 

Trading assets

331,307 

289,159 

- reverse repos

14,280 

16,575 

- stock borrowing

10,541 

14,609 

- other trading assets

306,486 

257,975 

Financial investments

467,356 

442,763 

Cash and balances with central banks

277,112 

285,868 

Other balance sheet assets

516,930 

513,188 

 

 

2,975,003

3,038,677 

1 'Liabilities of disposal groups held for sale' includes $4.1bn and 'Assets held for sale' includes $5.3bn in respect of the planned sale of our Argentina business (2023: '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).

Interest rate risk in the banking book in the first half of 2024

Banking net interest income sensitivity

Banking NII sensitivity analyses the sensitivity of our banking net interest income to interest rate shocks. This metric, which was introduced in our Annual Report and Accounts 2023, includes the sensitivity coming from trading book assets funded by banking book liabilities, as well as the currency impacts of vanilla foreign exchange swaps to optimise cash management across the Group. Banking NII sensitivity is therefore a more comprehensive measure than NII sensitivity, which was disclosed previously. It is aligned with the presentation of banking net interest income as an alternative performance measure intended to approximate the Group's banking revenue that is directly impacted by changes in interest rates.

 

The following tables set out the assessed impact to a hypothetical base case projection of our banking NII under an immediate shock of 100bps to the current market-implied path of interest rates across all currencies on 30 June 2024. For example, Year 3 shows the impact of an immediate rate shock on the banking NII projected for the third year.

 

The sensitivities shown represent a hypothetical simulation of 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 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 banking NII by $2.2bn. An immediate interest rate fall of 100bps would decrease projected banking NII by $2.7bn.

 

The sensitivity of banking NII for 12 months as at 30 June 2024 decreased by $0.6bn in the plus 100bps parallel shock, and by $0.7bn in the minus 100bps parallel shock, when compared with 31 December 2023. The drivers of the reduction in banking NII sensitivity include the increase in stabilisation activities in line with Group strategy. The currency split of banking NII sensitivity changes depending on the optimal deployment of cash at a point in time, which will change period on period.

 

For further details of measurement of interest rate risk in the banking book, see page 205 of the Annual Report and Accounts 2023.  

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 Jul 2024 to Jun 2025 (based on balance sheet at 30 Jun 2024)

+100bps parallel

729

330

283

169

734

2,245

-100bps parallel

(781)

(364)

(424)

(194)

(887)

(2,650)

Change in Jan 2024 to Dec 2024 (based on balance sheet at 31 Dec 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 30 Jun 2024)

Year 2 (Jul 2025 to Jun 2026)

(1,145)

(467)

(783)

(256)

(1,262)

(3,913)

Year 3 (Jul 2026 to Jun 2027)

(1,540)

(554)

(1,214)

(323)

(1,361)

(4,992)

Change in NII (based on balance sheet at 31 Dec 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 portfolios

Value at risk of the non-trading portfolios

Non-trading portfolios comprise of positions that primarily arise from the interest rate management of our retail and wholesale banking assets and liabilities, financial investments measured at fair value through other comprehensive income ('FVOCI') or at amortised cost, and exposures arising from our insurance operations.

 

From February 2024, we adopted a methodology change to measure non-trading value at risk ('VaR') over a 10 day holding period as opposed to 1 day, in order to better reflect longer average time horizons in the management of non-trading portfolios compared to trading portfolios. Comparative data at 31 December 2023 and 30 June 2023 has been restated on a 10 day basis accordingly, using a scalar approach that results in restated numbers being approximately three times higher than previously reported 1 day basis numbers.

The VaR for non-trading activity has increased to $792m at 30 June 2024, compared with $577m at 31 December 2023. The increase was primarily due to higher duration risk exposures in Global Treasury.

 

The portfolio diversification has decreased from 31 December 2023 but remained broadly stable on average and reflects the natural offsets in risk measured as the difference between the portfolio level VaR and the aggregation of VaR at the asset class level.

 

Non-trading VaR includes non-trading financial instruments held in portfolios managed by Markets Treasury. The management of interest rate risk in the banking book is described further in 'Banking net interest income sensitivity' on page 105.

 

The Group non-trading VaR for the half-year to 30 June 2024 is shown in the following table.

Non-trading VaR, 99% 10 day

Interest rate

Credit spread

Portfolio diversification1

Total

$m

$m

$m

$m

Half-year to 30 Jun 2024

682.4 

333.2 

(224.1)

791.5 

Average

740.5 

337.2 

(241.4)

836.3 

Maximum

1,000.6

369.1 

1,097.6

Minimum

474.2 

324.3 

572.2 

Half-year to 30 Jun 2023

494.2 

266.5 

(210.8)

549.9 

Average

426.2 

218.2 

(157.6)

486.8 

Maximum

502.5 

266.5 

587.4 

Minimum

344.0 

174.5 

401.5 

Half year to 31 Dec 2023

549.6 

356.7 

(329.5)

576.7 

Average

560.2 

312.9 

(244.5)

628.6 

Maximum

638.6 

368.0 

709.4 

Minimum

504.3 

249.9 

537.2 

1 When VaR is calculated at a portfolio level, natural offsets in risk can occur when compared with aggregating VaR at the asset class level. This difference is called portfolio diversification. The asset class VaR maxima and minima reported in the table occurred on different dates within the reporting period. For this reason, we do not report an implied portfolio diversification measure between the maximum (minimum) asset class VaR measures and the maximum (minimum) total VaR measures in this table.

 

Non-trading VaR excludes equity risk on securities held at fair value, non-trading book foreign exchange risk and the risks managed in HSBC Holdings arising from long-term capital issuance.

 

HSBC's management of market risk in the non-trading book is described in the 'Treasury risk' section on page 97.

Market risk

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. Exposure to market risk is separated into two portfolios: trading portfolios and non-trading portfolios.

Market risk in the first half of 2024

There were no material changes to the policies and practices for the management of market risk in the first half of 2024.

 

· A summary of our current policies and practices for the management of market risk is set out in 'Market risk management' on page 218 of the Annual Report and Accounts 2023.

 

Inflation expectations have been in focus during the first half of 2024, against a backdrop of resilient economic growth and elections in multiple countries. Central bank policies have diverged, with the US Federal Reserve holding interest rates unchanged and the Bank of Japan concluding its period of negative interest rates by raising the overnight interest rate to a range of about zero to 0.1%, while the ECB and some other European central banks cut rates in June. After trending upwards until April, government bond yields have generally fallen in 2Q24, largely driven by lower inflation and expectations for monetary policy easing by central banks. Japanese government bond yields have instead risen to the highest in the last decade following the central bank's historic policy shift. In Europe, the France-Germany yield spread has widened amid uncertainty from the French legislative elections. Equities have risen to multiple record highs in the US and in Europe, amid strong corporate earnings and positive sentiment in the technology sector. Some emerging markets equities have tended to outperform developed markets during 2Q24, particularly in Asia. In

foreign exchange markets, the US dollar strengthening has continued, mostly in line with interest rate differentials. The Yen has weakened to multi-decade lows against the US dollar. Whilst sentiment has remained resilient in credit markets, credit spreads widened marginally during June, with a more pronounced increase for high-yield credit compared to investment grade.

 

We continued to manage market risk prudently in the first half of 2024. Main 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 Markets and Securities Services. Trading VaR at $52.7m as of 30 June 2024 has not changed materially compared with 31 December 2023. Exposures to interest rate risk factors from the Fixed Income and Foreign Exchange businesses were the main drivers of Trading VaR at the end of June 2024. Trading VaR peaked in March 2024 and was mainly driven by:

- Increased contribution of exposures to short-term interest rates for major currencies.

- The effects of relatively large, short-term interest rate shocks that are captured in the VaR scenario window.

 

VaR reduced following hedging activity to manage down exposures to interest rates across the Markets business.

The Group trading VaR for the half-year is shown in the table below.

 

Trading VaR, 99% 1 day

Foreign exchange

and commodity

Interest

rate

Equity

Credit

spread

Portfolio

diversification1

Total

$m

$m

$m

$m

$m

$m

Half-year to 30 Jun 2024

20.6 

47.5 

15.7 

9.9 

(41.1)

52.7 

Average

15.4 

57.1 

14.0 

10.2 

(37.1)

59.7 

Maximum

29.8 

78.1 

17.6 

12.7 

83.3 

Minimum

6.9 

42.0 

12.7 

6.6 

45.7 

Half-year to 30 Jun 2023

18.9 

64.9 

23.5 

16.1 

(55.6)

67.8 

Average

16.7 

51.9 

17.5 

11.1 

(41.5)

55.7 

Maximum

23.5 

74.8 

23.5 

16.1 

82.4 

Minimum

10.6 

33.9 

14.9 

7.7 

42.2 

Half-year to 31 Dec 2023

13.4 

55.9 

15.2 

7.2 

(38.9)

52.8 

Average

15.6 

55.9 

20.4 

12.1 

(40.2)

63.8 

Maximum

24.6 

86.0 

27.8 

16.5 

98.2 

Minimum

9.3 

25.5 

13.4 

6.6 

34.4 

1 Asset class VaR reported in the table above is calculated by using a 500-day historical window. Total VaR, which is utilised for internal risk management and for regulatory capital, is the maximum of VaR calculated by using a 250-day historical window and VaR calculated by using a 500-day historical window. When VaR is calculated at a portfolio level, natural offsets in risk can occur when compared with aggregating VaR at the asset class level. This difference is called portfolio diversification. The asset class VaR maxima and minima reported in the table occurred on different dates within the reporting period. For this reason, we do not report an implied portfolio diversification measure between the maximum (minimum) asset class VaR measures and the maximum (minimum) total VaR measures in this table.

The table below shows trading VaR at a 99% confidence level compared with trading VaR at a 95% confidence level at 30 June 2024.

 

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

Half-year to 30 Jun 2024

52.7 

30.9 

Average

59.7 

37.8 

Maximum

83.3 

48.9 

Minimum

45.7 

28.0 

Half-year to 30 Jun 2023

67.8 

44.5 

Average

55.7 

34.5 

Maximum

82.4 

47.8 

Minimum

42.2 

26.2 

Half-year to 31 Dec 2023

52.8 

35.3 

Average

63.8 

39.0 

Maximum

98.2 

53.3 

Minimum

34.4 

21.0 

 

Back-testing

We routinely validate the accuracy of our VaR models by back-testing the VaR metric against both actual and hypothetical profit and loss. Hypothetical profit and loss excludes non-modelled items such as fees, commissions and revenue related to intra-day transactions. The hypothetical profit and loss reflects the profit and loss that would be realised if positions were 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 the VaR model is required. We back-test our VaR at set levels of our Group entity hierarchy.

 

During the first half of 2024, the Group experienced no back-testing exceptions on losses against actual and hypothetical profit and losses.

 

 

Insurance manufacturing operations risk

Overview

The key risks for our insurance manufacturing operations are market risks, in particular interest rate, growth asset and credit risks, as well as insurance underwriting and operational risks. Liquidity risk, while significant for other parts of the Group, is relatively minor for our insurance operations.

Insurance manufacturing operations risk in the first half of 2024

There have been no material changes to the policies and practices for the management of risks arising in our insurance operations described in the Annual Report and Accounts 2023.

A summary of our policies and practices regarding the risk management of insurance operations, our insurance model and the main contracts we manufacture is provided on page 233 of the Annual Report and Accounts 2023.

 

The risk profile of our insurance manufacturing operations is assessed in the Group's internal capital adequacy assessment process ('ICAAP'), based on the financial capacity of the operations to support the risks to which they are exposed.

 

Capital adequacy is assessed on both the Group's economic capital basis, and the relevant local insurance regulatory basis. The Group's economic capital basis is largely aligned to European Solvency II regulations, other than in Asia, where it is based on the Hong Kong risk-based capital regulations, which are effective from 1 July 2024. Risk appetite buffers are set to ensure that the operations are able to remain solvent on both bases, allowing for business-as-usual volatility and extreme but plausible stress events. In addition, the insurance manufacturing operations manage their market, liquidity, credit, underwriting and non-financial risk exposures to Board-approved risk appetite limits. Overall, at 30 June 2024, the majority of the capital and financial risk positions of our insurance operations were within risk appetite. We continue to monitor these risks closely in the current volatile economic climate.

 

 

The following table shows the composition of assets and liabilities by contract type.

Balance sheet of insurance manufacturing subsidiaries by type of contract

Life direct participating and investment DPF contracts

Life

other1

Other

contracts2

Shareholder assets

and liabilities

Total

$m

$m

$m

$m

$m

Financial assets

118,296 

4,074 

5,379 

6,858 

134,607 

- financial assets designated and otherwise mandatorily measured at fair value through profit or loss

105,665 

3,862 

3,990 

1,210 

114,727 

- derivatives

170 

180 

- financial investments - at amortised cost

571 

67 

1,093 

4,106 

5,837 

- financial assets at fair value through other comprehensive income

8,000 

632 

8,638 

- other financial assets

3,890 

139 

290 

906 

5,225 

Insurance contract assets

13 

111 

124 

Reinsurance contract assets

4,595 

4,595 

Other assets and investment properties3

2,680 

277 

249 

1,855 

5,061 

Total assets at 30 Jun 2024

120,989 

9,057 

5,628 

8,713 

144,387 

Liabilities under investment contracts designated at fair value

5,109 

5,109 

Insurance contract liabilities

120,558 

4,129 

124,687 

Reinsurance contract liabilities

696 

696 

Deferred tax

12 

13 

Other liabilities

6,351 

6,351 

Total liabilities

120,558 

4,837 

5,109 

6,352 

136,856 

Total equity

7,531 

7,531 

Total liabilities and equity at 30 Jun 2024

120,558 

4,837 

5,109 

13,883 

144,387 

Financial assets

113,605 

3,753 

5,812 

7,696 

130,866 

- 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 

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 

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

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 

1 'Life other' mainly includes protection insurance contracts as well as reinsurance contracts. The reinsurance contracts primarily provide diversification benefits over the life participating and investment discretionary participation feature ('DPF') contracts.

2 'Other contracts' includes investment contracts for which HSBC does not bear significant insurance risk.

3 Following classification of HSBC's operations in Argentina to assets held for sale, the assets of our Argentinian insurance manufacturing business of $450m are presented in 'Other assets and investment properties', and associated liabilities of $359m are presented in 'Other liabilities'.

Directors' responsibility statement

 

The Directors1 are required to prepare the interim condensed consolidated financial statements on a going concern basis unless it is not appropriate. They are satisfied that the Group has the resources to continue in business for the foreseeable future and that the financial statements continue to be prepared on a going concern basis.

 

The Directors confirm that to the best of their knowledge:

 

- the financial statements have been prepared in accordance with IAS 34 'Interim Financial Reporting' as adopted by the UK, IAS 34 'Interim Financial Reporting' as issued by the International Accounting Standards Board ('IASB') and IAS 34 'Interim Financial Reporting' as adopted by the European Union, and the Disclosure Guidance and Transparency Rules ('DTR') sourcebook of the UK's Financial Conduct Authority;

- this Interim Report 2024 gives a true, fair, balanced and understandable view of the assets, liabilities, financial position and profit or loss of the Company; and

- this Interim Report 2024 includes a fair review of the information required by:

- DTR 4.2.7R, being an indication of: important events that have occurred during the first six months of the financial year ending 31 December 2024 and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

- DTR 4.2.8R, being: related party transactions that have taken place in the first six months of the financial year ending 31 December 2024, which have materially affected the financial position or performance of HSBC during that period; and any changes in the related parties transactions described in the Annual Report and Accounts 2023 that could materially affect the financial position or performance of HSBC during the first six months of the financial year ending 31 December 2024.

 

 

 

 

 

 

On behalf of the Board

Sir Mark E Tucker

Group Chairman

31 July 2024

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1 Sir Mark Edward Tucker*, Noel Paul Quinn, Geraldine Joyce Buckingham†, Rachel Duan†, Georges Bahjat Elhedery, Dame Carolyn Julie Fairbairn†, James Anthony Forese†, Ann Frances Godbehere†, Steven Craig Guggenheimer†, Dr José Antonio Meade Kuribreña†, Kalpana Jaisingh Morparia†, Eileen K Murray†, Brendan Robert Nelson† and Swee Lian Teo†.

* Non-executive Group Chairman † Independent non-executive Director 

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