TIDM48CF
RNS Number : 5908Q
HSBC Bank plc
21 February 2023
Reconciliation of changes in gross carrying/nominal amount and
allowances for loans and advances to banks and customers including
loan commitments and financial guarantees
The following disclosure provides a reconciliation by stage of
the group's gross carrying/nominal amount and allowances for loans
and advances to banks and customers, including loan commitments and
financial guarantees. Movements are calculated on a quarterly basis
and therefore fully capture stage movements between quarters. If
movements were calculated on a year-to-date basis they would only
reflect the opening and closing position of the financial
instrument.
The transfers of financial instruments represent the impact of
stage transfers upon the gross carrying/nominal amount and
associated allowance for ECL.
The net remeasurement of ECL arising from stage transfers
represents the increase or decrease due to these transfers, for
example, moving from a 12-month (stage 1) to a lifetime (stage 2)
ECL measurement basis. Net remeasurement excludes the underlying
customer risk rating ('CRR')/probability of default ('PD')
movements of the financial instruments transferring stage. This is
captured, along with other credit quality movements in the 'changes
in risk parameters - credit quality' line item.
Changes in 'New financial assets originated or purchased',
'Assets derecognised (including final repayments)' and 'Changes to
risk parameters - further lending/repayments' represent the impact
from volume movements within the group's lending portfolio.
Reconciliation of changes in gross carrying/nominal amount and allowances
for loans and advances to banks and customers including
loan commitments and financial guarantees(1)
(Audited)
Non credit - impaired Credit - impaired
------------------------------------------------------------------------------------ ----------------------------------------------------------------------------------
Stage 1 Stage 2 Stage 3 POCI Total
------------------------------------------ ---------------------------------------- --------------------------------------- ----------------------------------------- -----------------------------------------
Gross Gross Gross
Gross Allowance carrying/ Allowance carrying/ Allowance carrying/ Allowance Gross Allowance
carrying/nominal for nominal for nominal for nominal for carrying/nominal for
amount ECL amount ECL amount ECL amount ECL amount ECL
The group GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------- -------------------- -------------------- ------------------ -------------------- ----------------- -------------------- ------------------- -------------------- ------------------- --------------------
At 1 Jan 2022 179,612 (118) 17,471 (188) 2,779 (923) 2 (2) 199,864 (1,231)
------------------- -------------------- -------------------- ------------------ -------------------- ----------------- -------------------- ------------------- -------------------- ------------------- --------------------
Transfers of
financial
instruments (14,449) (26) 13,625 59 824 (33) - - - -
------------------- -------------------- -------------------- ------------------ -------------------- ----------------- -------------------- ------------------- -------------------- ------------------- --------------------
- transfers from
stage 1 to stage
2 (25,027) 15 25,027 (15) - - - - - -
-------------------
- transfers from
stage 2 to stage
1 10,847 (42) (10,847) 42 - - - - - -
-------------------
- transfers to
stage 3 (340) 2 (600) 35 940 (37) - - - -
-------------------
- transfers from
stage 3 71 (1) 45 (3) (116) 4 - - - -
------------------- -------------------- -------------------- ------------------ -------------------- ----------------- -------------------- ------------------- -------------------- -------------------
Net remeasurement
of ECL arising
from transfer of
stage - 29 - (24) - (10) - - - (5)
------------------- -------------------- -------------------- ------------------ -------------------- ----------------- -------------------- ------------------- -------------------- ------------------- --------------------
New financial
assets
originated or
purchased 47,763 (30) - - - - - - 47,763 (30)
------------------- -------------------- -------------------- ------------------ -------------------- ----------------- -------------------- ------------------- -------------------- ------------------- --------------------
Asset derecognised
(including final
repayments) (27,882) 4 (2,625) 13 (442) 110 - - (30,949) 127
------------------- -------------------- -------------------- ------------------ -------------------- ----------------- -------------------- ------------------- -------------------- ------------------- --------------------
Changes to risk
parameters -
further
lending/repayments (9,969) 33 (8,645) 16 (261) (20) 1 - (18,874) 29
------------------- -------------------- -------------------- ------------------ -------------------- ----------------- -------------------- ------------------- -------------------- ------------------- --------------------
Changes to risk
parameters -
credit
quality - 32 - (101) - (318) - 2 - (385)
------------------- -------------------- -------------------- ------------------ -------------------- ----------------- -------------------- ------------------- -------------------- ------------------- --------------------
Changes to model
used for ECL
calculation - 4 - 10 - - - - - 14
------------------- -------------------- -------------------- ------------------ -------------------- ----------------- -------------------- ------------------- -------------------- ------------------- --------------------
Assets written
off - - - - (165) 165 - - (165) 165
------------------- -------------------- -------------------- ------------------ -------------------- ----------------- -------------------- ------------------- -------------------- ------------------- --------------------
Credit related
modifications that
resulted in
derecognition - - - - (1) 1 - - (1) 1
------------------- -------------------- -------------------- ------------------ -------------------- ----------------- -------------------- ------------------- -------------------- ------------------- --------------------
Foreign exchange 5,764 (3) 744 (11) 88 (34) - - 6,596 (48)
------------------- -------------------- -------------------- ------------------ -------------------- ----------------- -------------------- ------------------- -------------------- ------------------- --------------------
Others(2,3) (12,468) 4 (2,511) 26 (286) 100 - - (15,265) 130
------------------- -------------------- -------------------- ------------------ -------------------- ----------------- -------------------- ------------------- -------------------- ------------------- --------------------
At 31 Dec 2022 168,371 (71) 18,059 (200) 2,536 (962) 3 - 188,969 (1,233)
------------------- -------------------- -------------------- ------------------ -------------------- ----------------- -------------------- ------------------- -------------------- ------------------- --------------------
ECL income
statement
change for the
period 72 (86) (238) 2 (250)
------------------- -------------------- -------------------- ------------------ -------------------- ----------------- -------------------- ------------------- -------------------- ------------------- --------------------
Recoveries 2
------------------- -------------------- -------------------- ------------------ -------------------- ----------------- -------------------- ------------------- -------------------- ------------------- --------------------
Others 28
------------------- -------------------- -------------------- ------------------ -------------------- ----------------- -------------------- ------------------- -------------------- ------------------- --------------------
Total ECL income
statement change
for the period (220)
------------------- -------------------- -------------------- ------------------ -------------------- ----------------- -------------------- ------------------- -------------------- ------------------- --------------------
Reconciliation of changes in gross carrying/nominal amount and allowances
for loans and advances to banks and customers including
loan commitments and financial guarantees(1) (continued)
(Audited)
12 months
ended 31
At 31 Dec 2022 Dec 2022
---------------------------------------------------------------- -----------------------------------
Gross
carrying/nominal Allowance
amount for ECL ECL release/(charge)
GBPm GBPm GBPm
---------------- ---------------------------- ---------------------------------- -----------------------------------
As above 188,969 (1,233) (220)
---------------- ---------------------------- ---------------------------------- -----------------------------------
Other financial
assets measured
at amortised
cost 269,755 (137) (3)
---------------- ---------------------------- ---------------------------------- -----------------------------------
Non-trading 33,684 - -
reverse purchase
agreement
commitments
---------------- ---------------------------- ---------------------------------- -----------------------------------
Performance and
other
guarantees not
considered
for IFRS 9 6
---------------- ---------------------------- ---------------------------------- -----------------------------------
Summary of
financial
instruments to
which
the impairment
requirements in
IFRS 9 are
applied/Summary
consolidated
income
statement 492,408 (1,370) (217)
---------------- ---------------------------- ---------------------------------- -----------------------------------
Debt instruments
measured at
FVOCI 29,248 (24) (5)
---------------- ---------------------------- ---------------------------------- -----------------------------------
Total allowance
for ECL/total
income
statement
ECL change for
the period N/A (1,394) (222)
---------------- ---------------------------- ---------------------------------- -----------------------------------
1 Excludes performance guarantee contracts to which the
impairment requirements in IFRS 9 are not applied.
2 Includes the period on period movement in exposures relating
to other HSBC Group companies. As at 31 December 2022, these
amounted to GBP4bn and were classified as stage 1 with no ECL.
3 Total includes GBP21bn of gross carrying loans and advances to
customers and banks, which were classified to assets held for sale
and a corresponding allowance for ECL of GBP131m reflecting
business disposals as disclosed in Note 34 'Assets held for sale
and liabilities of disposal groups held for sale' on page 186.
Reconciliation of changes in gross carrying/nominal amount and allowances
for loans and advances to banks and customers including
loan commitments and financial guarantees(1) (continued)
(Audited)
Non credit - impaired Credit - impaired
----------------------------------------------------------------------------------- ------------------------------------------------------------------------------------
Stage 1 Stage 2 Stage 3 POCI Total
------------------------------------------ --------------------------------------- --------------------------------------- ------------------------------------------- ---------------------------------------
Gross Gross Gross
Gross Allowance carrying/ Allowance carrying/ Allowance carrying/ Allowance Gross Allowance
carrying/nominal for nominal for nominal for nominal for carrying/nominal for
amount ECL amount ECL amount ECL amount ECL amount ECL
The group GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------- -------------------- -------------------- ----------------- -------------------- ---------------- --------------------- -------------------- --------------------- ------------------ -------------------
At 1 Jan 2021 184,715 (180) 31,726 (378) 3,352 (1,050) 40 (12) 219,833 (1,620)
------------------- -------------------- -------------------- ----------------- -------------------- ---------------- --------------------- -------------------- --------------------- ------------------ -------------------
Transfers of
financial
instruments: 5,245 (66) (5,617) 90 372 (24) - - - -
------------------- -------------------- -------------------- ----------------- -------------------- ---------------- --------------------- -------------------- --------------------- ------------------ -------------------
- transfers from
stage 1 to stage
2 (8,431) 14 8,431 (14) - - - - - -
-------------------
- transfers from
stage 2 to stage
1 13,714 (78) (13,714) 78 - - - - - -
-------------------
- transfers to
stage
3 (93) - (401) 28 494 (28) - - - -
-------------------
- transfers from
stage 3 55 (2) 67 (2) (122) 4 - - - -
------------------- -------------------- -------------------- ----------------- -------------------- ---------------- --------------------- -------------------- --------------------- ------------------
Net remeasurement
of ECL arising
from
transfer of stage - 43 - (22) - (5) - - - 16
New financial
assets
originated or
purchased 72,348 (55) - - - - - - 72,348 (55)
------------------- -------------------- -------------------- ----------------- -------------------- ---------------- --------------------- -------------------- --------------------- ------------------ -------------------
Asset derecognised
(including final
repayments) (57,098) 6 (3,481) 32 (454) 95 (3) 2 (61,036) 135
------------------- -------------------- -------------------- ----------------- -------------------- ---------------- --------------------- -------------------- --------------------- ------------------ -------------------
Changes to risk
parameters -
further
lending/repayments (16,766) 76 (3,927) 62 (213) 40 (29) 2 (20,935) 180
------------------- -------------------- -------------------- ----------------- -------------------- ---------------- --------------------- -------------------- --------------------- ------------------ -------------------
Changes to risk
parameters -
credit
quality - 54 - 7 - (176) - - - (115)
------------------- -------------------- -------------------- ----------------- -------------------- ---------------- --------------------- -------------------- --------------------- ------------------ -------------------
Changes to model
used for ECL
calculation - 2 - 9 - - - - - 11
------------------- -------------------- -------------------- ----------------- -------------------- ---------------- --------------------- -------------------- --------------------- ------------------ -------------------
Assets written off - - - - (152) 152 (5) 5 (157) 157
------------------- -------------------- -------------------- ----------------- -------------------- ---------------- --------------------- -------------------- --------------------- ------------------ -------------------
Credit related
modifications
that resulted in
derecognition - - - - - - - - - -
------------------- -------------------- -------------------- ----------------- -------------------- ---------------- --------------------- -------------------- --------------------- ------------------ -------------------
Foreign exchange (7,512) 2 (1,060) 10 (126) 46 (1) 1 (8,699) 59
------------------- -------------------- -------------------- ----------------- -------------------- ---------------- --------------------- -------------------- --------------------- ------------------ -------------------
Others(2) (1,320) - (170) 2 - (1) - - (1,490) 1
------------------- -------------------- -------------------- ----------------- -------------------- ---------------- --------------------- -------------------- --------------------- ------------------ -------------------
At 31 Dec 2021 179,612 (118) 17,471 (188) 2,779 (923) 2 (2) 199,864 (1,231)
------------------- -------------------- -------------------- ----------------- -------------------- ---------------- --------------------- -------------------- --------------------- ------------------ -------------------
ECL Income
statement
change for the
period 126 88 (46) 4 172
------------------- -------------------- -------------------- ----------------- -------------------- ---------------- --------------------- -------------------- --------------------- ------------------ -------------------
Recoveries 3
------------------- -------------------- -------------------- ----------------- -------------------- ---------------- --------------------- -------------------- --------------------- ------------------ -------------------
Others (23)
------------------- -------------------- -------------------- ----------------- -------------------- ---------------- --------------------- -------------------- --------------------- ------------------ -------------------
Total ECL income
statement change
for the period 152
------------------- -------------------- -------------------- ----------------- -------------------- ---------------- --------------------- -------------------- --------------------- ------------------ -------------------
Reconciliation of changes in gross carrying/nominal amount and allowances
for loans and advances to banks and customers including
loan commitments and financial guarantees(1) (continued)
(Audited)
12 months
ended 31
At 31 Dec 2021 Dec 2021
------------------------------------------------------------------- ------------------------------------
Gross carrying/
nominal Allowance ECL release
amount for ECL /(charge)
GBPm GBPm GBPm
---------------- ----------------------------- ------------------------------------ ------------------------------------
As above 199,864 (1,231) 152
---------------- ----------------------------- ------------------------------------ ------------------------------------
Other financial
assets measured
at amortised
cost 202,137 (9) (1)
---------------- ----------------------------- ------------------------------------ ------------------------------------
Non-trading 30,005 - -
reverse purchase
agreement
commitments
---------------- ----------------------------- ------------------------------------ ------------------------------------
Performance and
other
guarantees not
considered
for IFRS 9 0 0 18
---------------- ----------------------------- ------------------------------------ ------------------------------------
Summary of
financial
instruments to
which
the impairment
requirements in
IFRS 9 are
applied/Summary
consolidated
income
statement 432,006 (1,240) 169
---------------- ----------------------------- ------------------------------------ ------------------------------------
Debt instruments
measured at
FVOCI 41,188 (19) 5
---------------- ----------------------------- ------------------------------------ ------------------------------------
Total allowance
for ECL/total
income
statement
ECL change for
the period N/A (1,259) 174
---------------- ----------------------------- ------------------------------------ ------------------------------------
1 Excludes performance guarantee contracts to which the
impairment requirements in IFRS 9 are not applied.
2 Includes the period on period movement in exposures relating
to other HSBC Group companies. As at 31 December 2021, these
amounted to GBP(1)bn and were classified as stage 1 with no
ECL.
Reconciliation of changes in gross carrying/nominal amount and allowances
for loans and advances to banks and customers including
loan commitments and financial guarantees(1)
(Audited)
Non credit - impaired Credit - impaired
------------------------------------------------------------------------------------ ---------------------------------------------------------------------------------
Stage 1 Stage 2 Stage 3 POCI Total
------------------------------------------ ---------------------------------------- --------------------------------------- ---------------------------------------- ----------------------------------------
Gross Gross Gross
Gross Allowance carrying/ Allowance carrying/ Allowance carrying/ Allowance Gross Allowance
carrying/nominal for nominal for nominal for nominal for carrying/nominal for
amount ECL amount ECL amount ECL amount ECL amount ECL
The bank GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------- -------------------- -------------------- ------------------ -------------------- ----------------- -------------------- ------------------- ------------------- ------------------ --------------------
At 1 Jan 2022 65,710 (56) 5,657 (58) 1,088 (276) (1) - 72,454 (390)
------------------- -------------------- -------------------- ------------------ -------------------- ----------------- -------------------- ------------------- ------------------- ------------------ --------------------
Transfers of
financial
instruments (959) (3) 774 21 185 (18) - - - -
------------------- -------------------- -------------------- ------------------ -------------------- ----------------- -------------------- ------------------- ------------------- ------------------ --------------------
- transfers from
stage 1 to stage
2 (6,499) 6 6,499 (6) - - - - - -
-------------------
- transfers from
stage 2 to stage
1 5,554 (9) (5,554) 9 - - - - - -
-------------------
- transfers to
stage
3 (53) - (172) 18 225 (18) - - - -
-------------------
- transfers from
stage 3 39 - 1 - (40) - - - - -
------------------- -------------------- -------------------- ------------------ -------------------- ----------------- -------------------- ------------------- ------------------- ------------------
Net remeasurement
of ECL arising
from
transfer of stage - 6 - (11) - - - - - (5)
------------------- -------------------- -------------------- ------------------ -------------------- ----------------- -------------------- ------------------- ------------------- ------------------ --------------------
New financial
assets
originated or
purchased 11,825 (15) - - - - - - 11,825 (15)
------------------- -------------------- -------------------- ------------------ -------------------- ----------------- -------------------- ------------------- ------------------- ------------------ --------------------
Asset derecognised
(including final
repayments) (6,459) 1 (272) 2 (21) 2 - - (6,752) 5
------------------- -------------------- -------------------- ------------------ -------------------- ----------------- -------------------- ------------------- ------------------- ------------------ --------------------
Changes to risk
parameters -
further
lending/repayments 2,162 11 (79) 14 (182) 5 - - 1,901 30
------------------- -------------------- -------------------- ------------------ -------------------- ----------------- -------------------- ------------------- ------------------- ------------------ --------------------
Changes to risk
parameters -
credit
quality - 17 - (48) - (131) - - - (162)
------------------- -------------------- -------------------- ------------------ -------------------- ----------------- -------------------- ------------------- ------------------- ------------------ --------------------
Changes to model
used for ECL
calculation - 7 - 10 - - - - - 17
------------------- -------------------- -------------------- ------------------ -------------------- ----------------- -------------------- ------------------- ------------------- ------------------ --------------------
Assets written off - - - - (62) 62 - - (62) 62
------------------- -------------------- -------------------- ------------------ -------------------- ----------------- -------------------- ------------------- ------------------- ------------------ --------------------
Credit related
modifications
that resulted in
derecognition - - - - - - - - - -
------------------- -------------------- -------------------- ------------------ -------------------- ----------------- -------------------- ------------------- ------------------- ------------------ --------------------
Foreign exchange 210 - 19 (3) 8 (2) 1 - 238 (5)
------------------- -------------------- -------------------- ------------------ -------------------- ----------------- -------------------- ------------------- ------------------- ------------------ --------------------
Others(2) 6,034 (1) - - - - - - 6,034 (1)
------------------- -------------------- -------------------- ------------------ -------------------- ----------------- -------------------- ------------------- ------------------- ------------------ --------------------
At 31 Dec 2022 78,523 (33) 6,099 (73) 1,016 (358) - - 85,638 (464)
------------------- -------------------- -------------------- ------------------ -------------------- ----------------- -------------------- ------------------- ------------------- ------------------ --------------------
ECL income
statement
change for the
period 27 (33) (124) - (130)
------------------- -------------------- -------------------- ------------------ -------------------- ----------------- -------------------- ------------------- ------------------- ------------------ --------------------
Recoveries -
------------------- -------------------- -------------------- ------------------ -------------------- ----------------- -------------------- ------------------- ------------------- ------------------ --------------------
Others 18
------------------- -------------------- -------------------- ------------------ -------------------- ----------------- -------------------- ------------------- ------------------- ------------------ --------------------
Total ECL income
change for the
period (112)
------------------- -------------------- -------------------- ------------------ -------------------- ----------------- -------------------- ------------------- ------------------- ------------------ --------------------
Reconciliation of changes in gross carrying/nominal amount and allowances
for loans and advances to banks and customers including
loan commitments and financial guarantees(1) (continued)
12 months
ended 31
At 31 Dec 2022 Dec 2022
------------------------------------------------------------------ -----------------------------------
Gross
carrying/
nominal Allowance
amount for ECL ECL release/(charge)
GBPm GBPm GBPm
---------------- ----------------------------- ----------------------------------- -----------------------------------
As above 85,638 (464) (112)
---------------- ----------------------------- ----------------------------------- -----------------------------------
Other financial
assets measured
at amortised
cost 169,321 (3) (1)
---------------- ----------------------------- ----------------------------------- -----------------------------------
Non-trading 3,316 - -
reverse purchase
agreement
commitments
---------------- ----------------------------- ----------------------------------- -----------------------------------
Performance and
other
guarantees not
considered
for IFRS 9 1
---------------- ----------------------------- ----------------------------------- -----------------------------------
Summary of
financial
instruments to
which
the impairment
requirements in
IFRS 9 are
applied/Summary
consolidated
income
statement 258,275 (467) (112)
---------------- ----------------------------- ----------------------------------- -----------------------------------
Debt instruments
measured at
FVOCI 12,206 (4) 2
---------------- ----------------------------- ----------------------------------- -----------------------------------
Total allowance
for ECL/total
income
statement
ECL change for
the period n/a (471) (110)
---------------- ----------------------------- ----------------------------------- -----------------------------------
1 Excludes performance guarantee contracts to which the
impairment requirements in IFRS 9 are not applied.
2 Includes the period on period movement in exposures relating
to other HSBC Group companies. As at 31 December 2022, these
amounted to GBP3bn and were classified as stage 1 with no ECL.
Reconciliation of changes in gross carrying/nominal amount and allowances
for loans and advances to banks and customers including
loan commitments and financial guarantees(1) (continued)
(Audited)
Non-credit - impaired Credit - impaired
------------------------------------------------------------------------------------ --------------------------------------------------------------------------------------
Stage 1 Stage 2 Stage 3 POCI Total
------------------------------------------ ---------------------------------------- ----------------------------------------- ------------------------------------------- ----------------------------------------
Gross Gross Gross
Gross Allowance carrying/ Allowance carrying/ Allowance carrying/ Allowance/ Gross Allowance/
carrying/nominal for nominal for nominal for nominal for carrying/nominal for
amount ECL amount ECL amount ECL amount ECL amount ECL
The bank GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------- -------------------- -------------------- ------------------ -------------------- ------------------ --------------------- -------------------- --------------------- ------------------ --------------------
1 Jan 2021 78,422 (121) 14,161 (213) 1,395 (363) 2 (2) 93,980 (699)
------------------- -------------------- -------------------- ------------------ -------------------- ------------------ --------------------- -------------------- --------------------- ------------------ --------------------
Transfers of
financial
instruments: 4,795 (27) (4,840) 39 45 (12) - - - -
------------------- -------------------- -------------------- ------------------ -------------------- ------------------ --------------------- -------------------- --------------------- ------------------ --------------------
- transfers from
stage 1 to stage
2 (2,261) 3 2,261 (3) - - - - - -
-------------------
- transfers from
stage 2 to stage
1 7,043 (29) (7,043) 29 - - - - - -
-------------------
- transfers to
stage
3 - - (59) 13 59 (13) - - - -
-------------------
- transfers from
stage 3 13 (1) 1 - (14) 1 - - - -
------------------- -------------------- -------------------- ------------------ -------------------- ------------------ --------------------- -------------------- --------------------- ------------------
Net remeasurement
of ECL arising
from
transfer of stage - 13 - (1) - (1) - - - 11
New financial
assets
originated or
purchased 11,532 (31) - - - - - - 11,532 (31)
------------------- -------------------- -------------------- ------------------ -------------------- ------------------ --------------------- -------------------- --------------------- ------------------ --------------------
Asset derecognised
(including final
repayments) (11,861) 2 (1,836) 17 (80) 4 (2) 1 (13,779) 24
------------------- -------------------- -------------------- ------------------ -------------------- ------------------ --------------------- -------------------- --------------------- ------------------ --------------------
Changes to risk
parameters -
further
lending/repayments (13,051) 58 (1,813) 32 (190) 4 - - (15,054) 94
------------------- -------------------- -------------------- ------------------ -------------------- ------------------ --------------------- -------------------- --------------------- ------------------ --------------------
Changes to risk
parameters -
credit
quality - 48 - 59 - 13 - - - 120
------------------- -------------------- -------------------- ------------------ -------------------- ------------------ --------------------- -------------------- --------------------- ------------------ --------------------
Changes to model
used for ECL
calculation - 2 - 9 - - - - - 11
------------------- -------------------- -------------------- ------------------ -------------------- ------------------ --------------------- -------------------- --------------------- ------------------ --------------------
Assets written off - - - - (78) 78 (1) 1 (79) 79
------------------- -------------------- -------------------- ------------------ -------------------- ------------------ --------------------- -------------------- --------------------- ------------------ --------------------
Credit related
modifications
that resulted in
derecognition - - - - - - - - - -
------------------- -------------------- -------------------- ------------------ -------------------- ------------------ --------------------- -------------------- --------------------- ------------------ --------------------
Foreign exchange (76) - (15) - (4) 1 - - (95) 1
------------------- -------------------- -------------------- ------------------ -------------------- ------------------ --------------------- -------------------- --------------------- ------------------ --------------------
Others(2) (4,051) - - - - - - - (4,051) -
------------------- -------------------- -------------------- ------------------ -------------------- ------------------ --------------------- -------------------- --------------------- ------------------ --------------------
At 31 Dec 2021 65,710 (56) 5,657 (58) 1,088 (276) (1) - 72,454 (390)
------------------- -------------------- -------------------- ------------------ -------------------- ------------------ --------------------- -------------------- --------------------- ------------------ --------------------
ECL income
statement
change for the
period 92 116 20 1 229
------------------- -------------------- -------------------- ------------------ -------------------- ------------------ --------------------- -------------------- --------------------- ------------------ --------------------
Recoveries 1
------------------- -------------------- -------------------- ------------------ -------------------- ------------------ --------------------- -------------------- --------------------- ------------------ --------------------
Others (23)
------------------- -------------------- -------------------- ------------------ -------------------- ------------------ --------------------- -------------------- --------------------- ------------------ --------------------
Total ECL income
statement change
for the period 207
------------------- -------------------- -------------------- ------------------ -------------------- ------------------ --------------------- -------------------- --------------------- ------------------ --------------------
Reconciliation of changes in gross carrying/nominal amount and allowances
for loans and advances to banks and customers including
loan commitments and financial guarantees(1) (continued)
12 months
ended 31
At 31 Dec 2021 Dec 2021
------------------------------------------------------------------- -----------------------------------
Gross carrying/nominal Allowance
amount for ECL ECL release/(charge)
GBPm GBPm GBPm
---------------- ------------------------------ ----------------------------------- -----------------------------------
As above 72,454 (390) 207
---------------- ------------------------------ ----------------------------------- -----------------------------------
Other financial
assets measured
at amortised
cost 135,033 (1) 1
---------------- ------------------------------ ----------------------------------- -----------------------------------
Non-trading 1,139 - -
reverse purchase
agreement
commitments
---------------- ------------------------------ ----------------------------------- -----------------------------------
Performance and
other
guarantees not
considered
for IFRS 9 4
---------------- ------------------------------ ----------------------------------- -----------------------------------
Summary of
financial
instruments to
which the
impairment
requirements in
IFRS 9 are
applied/Summary
consolidated
income
statement 208,626 (391) 212
---------------- ------------------------------ ----------------------------------- -----------------------------------
Debt instruments
measured at
FVOCI 23,152 (4) 5
---------------- ------------------------------ ----------------------------------- -----------------------------------
Total allowance
for ECL/total
income
statement
ECL change for
the period n/a (395) 217
---------------- ------------------------------ ----------------------------------- -----------------------------------
1 Excludes performance guarantee contracts to which the
impairment requirements in IFRS 9 are not applied.
2 Includes the period on period movement in exposures relating
to other HSBC Group companies. As at 31 December 2021, these
amounted to GBP(4)bn and were classified as stage 1 with no
ECL.
Credit quality
Credit quality of financial instruments
(Audited)
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 the probability of
default ('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 provided below 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 table on page 37.
Distribution of financial instruments by credit quality at 31 December
2022 (continued)
(Audited)
Gross carrying/notional amount
--------------------------------------------------------------------------------------------------------------------------------------------------
Sub- Credit Allowance
Strong Good Satisfactory standard impaired Total for ECL Net
The group GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------- -------------------- ------------------------ ------------------------ ------------------------ ------------------------ -------------------- ------------------------ --------------------
In-scope for
IFRS
9
--------------- -------------------- ------------------------ ------------------------ ------------------------ ------------------------ -------------------- ------------------------ --------------------
Loans and
advances
to customers
held at
amortised cost 27,997 19,618 19,612 4,263 2,227 73,717 (1,103) 72,614
--------------- -------------------- ------------------------ ------------------------ ------------------------ ------------------------ -------------------- ------------------------ --------------------
- personal 2,019 2,928 858 103 105 6,013 (55) 5,958
---------------
- corporate and
commercial 19,352 13,393 16,496 3,910 1,853 55,004 (937) 54,067
---------------
- non-bank
financial
institutions 6,626 3,297 2,258 250 269 12,700 (111) 12,589
--------------- -------------------- ------------------------ ------------------------ ------------------------ ------------------------ -------------------- ------------------------
Loans and
advances
to banks held
at amortised
cost 14,637 790 1,634 26 65 17,152 (43) 17,109
--------------- -------------------- ------------------------ ------------------------ ------------------------ ------------------------ -------------------- ------------------------ --------------------
Cash and
balances at
central banks 131,379 - 55 - - 131,434 (1) 131,433
--------------- -------------------- ------------------------ ------------------------ ------------------------ ------------------------ -------------------- ------------------------ --------------------
Items in the
course
of collection
from
other banks 2,281 - 4 - - 2,285 - 2,285
Reverse
repurchase
agreements -
non-trading 43,777 7,953 2,219 - - 53,949 - 53,949
--------------- -------------------- ------------------------ ------------------------ ------------------------ ------------------------ -------------------- ------------------------ --------------------
Financial
investments 3,028 - 220 - - 3,248 - 3,248
--------------- -------------------- ------------------------ ------------------------ ------------------------ ------------------------ -------------------- ------------------------ --------------------
Assets held for
sale 19,419 1,598 1,773 124 291 23,205 (133) 23,072
--------------- -------------------- ------------------------ ------------------------ ------------------------ ------------------------ -------------------- ------------------------ --------------------
Prepayments,
accrued
income and
other assets 53,972 708 896 26 32 55,634 (3) 55,631
--------------- -------------------- ------------------------ ------------------------ ------------------------ ------------------------ -------------------- ------------------------ --------------------
- endorsements
and
acceptances 208 4 25 - 6 243 - 243
---------------
- accrued
income and
other 53,764 704 871 26 26 55,391 (3) 55,388
--------------- -------------------- ------------------------ ------------------------ ------------------------ ------------------------ -------------------- ------------------------
Debt
instruments
measured
at fair value
through
other
comprehensive
income(1) 28,248 2,471 626 105 - 31,450 (24) 31,426
--------------- -------------------- ------------------------ ------------------------ ------------------------ ------------------------ -------------------- ------------------------ --------------------
Out-of-scope
for IFRS
9
--------------- -------------------- ------------------------ ------------------------ ------------------------ ------------------------ -------------------- ------------------------ --------------------
Trading assets 26,961 4,323 9,966 298 - 41,548 - 41,548
--------------- -------------------- ------------------------ ------------------------ ------------------------ ------------------------ -------------------- ------------------------ --------------------
Other financial
assets
designated and
otherwise
mandatorily
measured
at fair value
through
profit or loss 1,945 331 669 1 - 2,946 - 2,946
--------------- -------------------- ------------------------ ------------------------ ------------------------ ------------------------ -------------------- ------------------------ --------------------
Derivatives 199,167 21,128 4,886 29 28 225,238 - 225,238
--------------- -------------------- ------------------------ ------------------------ ------------------------ ------------------------ -------------------- ------------------------ --------------------
Assets held for
sale 107 - - - - 107 - 107
--------------- -------------------- ------------------------ ------------------------ ------------------------ ------------------------ -------------------- ------------------------ --------------------
Total gross
carrying
amount on
balance sheet 552,918 58,920 42,560 4,872 2,643 661,913 (1,307) 660,606
--------------- -------------------- ------------------------ ------------------------ ------------------------ ------------------------ -------------------- ------------------------ --------------------
The group GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------- -------------------- ------------------------ ------------------------ ------------------------ ------------------------ -------------------- ------------------------ --------------------
Percentage of
total
credit quality 84% 9% 6% 1% -% 100%
--------------- -------------------- ------------------------ ------------------------ ------------------------ ------------------------ -------------------- ------------------------ --------------------
Loans and other
credit-related
commitments 82,801 23,578 17,523 2,392 163 126,457 (67) 126,390
--------------- -------------------- ------------------------ ------------------------ ------------------------ ------------------------ -------------------- ------------------------ --------------------
Loan and other
credit
related
commitments
for loans and
advances
to customers 48,627 23,501 17,422 2,390 163 92,103 (66) 92,037
--------------- -------------------- ------------------------ ------------------------ ------------------------ ------------------------ -------------------- ------------------------ --------------------
Loan and other
credit-related
commitments
for loans
and advances
to banks 34,174 77 101 2 - 34,354 (1) 34,353
--------------- -------------------- ------------------------ ------------------------ ------------------------ ------------------------ -------------------- ------------------------ --------------------
Financial
guarantees 2,924 1,171 995 153 84 5,327 (20) 5,307
--------------- -------------------- ------------------------ ------------------------ ------------------------ ------------------------ -------------------- ------------------------ --------------------
In-scope:
Irrevocable
loan
commitments
and
financial
guarantees 85,725 24,749 18,518 2,545 247 131,784 (87) 131,697
Loans and other
credit-related
commitments 1,168 183 90 14 1 1,456 - 1,456
--------------- -------------------- ------------------------ ------------------------ ------------------------ ------------------------ -------------------- ------------------------ --------------------
Performance and
other
guarantees 9,791 3,583 3,074 599 89 17,136 (18) 17,118
--------------- -------------------- ------------------------ ------------------------ ------------------------ ------------------------ -------------------- ------------------------ --------------------
Out-of-scope:
Revocable
loan
commitments
and
non-financial
guarantees 10,959 3,766 3,164 613 90 18,592 (18) 18,574
--------------- -------------------- ------------------------ ------------------------ ------------------------ ------------------------ -------------------- ------------------------ --------------------
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 as presented above will not reconcile
to the balance sheet as it excludes fair value gains and
losses.
Distribution of financial instruments by credit quality at 31 December
2021 (continued)
(Audited)
Gross carrying/notional amount
Allowance
Sub- Credit for
Strong Good Satisfactory standard impaired Total ECL Net
The group GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------- ------------------------ ----------------------- ------------------------ ----------------------- ------------------------ ----------------------- ------------------------ -----------------------
In-scope for
IFRS 9
--------------- ------------------------ ----------------------- ------------------------ ----------------------- ------------------------ ----------------------- ------------------------ -----------------------
Loans and
advances
to customers
held at
amortised cost 41,339 20,531 23,469 4,512 2,480 92,331 (1,154) 91,177
--------------- ------------------------ ----------------------- ------------------------ ----------------------- ------------------------ ----------------------- ------------------------ -----------------------
- personal 18,956 4,136 1,793 56 453 25,394 (163) 25,231
---------------
- corporate and
commercial 16,533 13,867 19,597 4,305 1,785 56,087 (964) 55,123
---------------
- non-bank
financial
institutions 5,850 2,528 2,079 151 242 10,850 (27) 10,823
--------------- ------------------------ ----------------------- ------------------------ ----------------------- ------------------------ ----------------------- ------------------------
Loans and
advances
to banks held
at amortised
cost 8,649 320 1,815 5 - 10,789 (5) 10,784
--------------- ------------------------ ----------------------- ------------------------ ----------------------- ------------------------ ----------------------- ------------------------ -----------------------
Cash and
balances at
central banks 108,133 198 151 - - 108,482 - 108,482
--------------- ------------------------ ----------------------- ------------------------ ----------------------- ------------------------ ----------------------- ------------------------ -----------------------
Items in the
course
of collection
from
other banks 343 - 3 - - 346 - 346
--------------- ------------------------ ----------------------- ------------------------ ----------------------- ------------------------ ----------------------- ------------------------ -----------------------
Reverse
repurchase
agreements -
non-trading 47,071 6,355 1,022 - - 54,448 - 54,448
--------------- ------------------------ ----------------------- ------------------------ ----------------------- ------------------------ ----------------------- ------------------------ -----------------------
Financial
investments 2 - 8 - - 10 - 10
--------------- ------------------------ ----------------------- ------------------------ ----------------------- ------------------------ ----------------------- ------------------------ -----------------------
Assets held for - - - - - - - -
sale
--------------- ------------------------ ----------------------- ------------------------ ----------------------- ------------------------ ----------------------- ------------------------ -----------------------
Prepayments,
accrued
income and
other assets 36,558 666 1,574 11 42 38,851 (9) 38,842
--------------- ------------------------ ----------------------- ------------------------ ----------------------- ------------------------ ----------------------- ------------------------ -----------------------
- endorsements
and
acceptances 105 61 23 - 7 196 - 196
---------------
- accrued
income and
other 36,453 605 1,551 11 35 38,655 (9) 38,646
--------------- ------------------------ ----------------------- ------------------------ ----------------------- ------------------------ ----------------------- ------------------------
Debt
instruments
measured
at fair value
through
other
comprehensive
income(1) 36,410 1,899 1,406 118 - 39,833 (19) 39,814
--------------- ------------------------ ----------------------- ------------------------ ----------------------- ------------------------ ----------------------- ------------------------ -----------------------
Out-of-scope
for IFRS
9
--------------- ------------------------ ----------------------- ------------------------ ----------------------- ------------------------ ----------------------- ------------------------ -----------------------
Trading assets 28,110 5,331 8,985 350 - 42,776 - 42,776
--------------- ------------------------ ----------------------- ------------------------ ----------------------- ------------------------ ----------------------- ------------------------ -----------------------
Other financial
assets
designated and
otherwise
mandatorily
measured
at fair value
through
profit or loss 2,246 304 2,644 3 - 5,197 - 5,197
--------------- ------------------------ ----------------------- ------------------------ ----------------------- ------------------------ ----------------------- ------------------------ -----------------------
Derivatives 111,471 25,487 4,054 207 2 141,221 - 141,221
--------------- ------------------------ ----------------------- ------------------------ ----------------------- ------------------------ ----------------------- ------------------------ -----------------------
Assets held for
sale
--------------- ------------------------ ----------------------- ------------------------ ----------------------- ------------------------ ----------------------- ------------------------ -----------------------
Total gross
carrying
amount on
balance sheet 420,332 61,091 45,131 5,206 2,524 534,284 (1,187) 533,097
--------------- ------------------------ ----------------------- ------------------------ ----------------------- ------------------------ ----------------------- ------------------------ -----------------------
Percentage of
total
credit quality 78.7% 11.4% 8.4% 1.0% 0.5% 100.0%
--------------- ------------------------ ----------------------- ------------------------ ----------------------- ------------------------ ----------------------- ------------------------ -----------------------
Loans and other
credit-related
commitments 71,741 21,860 20,018 1,874 202 115,695 (55) 115,640
Financial
guarantees 8,412 1,088 1,245 210 99 11,054 (17) 11,037
--------------- ------------------------ ----------------------- ------------------------ ----------------------- ------------------------ ----------------------- ------------------------ -----------------------
In-scope:
Irrevocable
loan
commitments
and
financial
guarantees 80,153 22,948 21,263 2,084 301 126,749 (72) 126,677
--------------- ------------------------ ----------------------- ------------------------ ----------------------- ------------------------ ----------------------- ------------------------ -----------------------
Loans and other
credit-related
commitments 2,134 1,114 432 94 7 3,781 - 3,781
--------------- ------------------------ ----------------------- ------------------------ ----------------------- ------------------------ ----------------------- ------------------------ -----------------------
Performance and
other
guarantees 7,738 4,359 3,130 490 116 15,833 (31) 15,802
--------------- ------------------------ ----------------------- ------------------------ ----------------------- ------------------------ ----------------------- ------------------------ -----------------------
Out-of-scope:
Revocable
loan
commitments
and
non-financial
guarantees 9,872 5,473 3,562 584 123 19,614 (31) 19,583
--------------- ------------------------ ----------------------- ------------------------ ----------------------- ------------------------ ----------------------- ------------------------ -----------------------
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 as presented above will not reconcile
to the balance sheet as it excludes fair value gains and
losses.
Distribution of financial instruments by credit quality at 31 December
2022
(Audited)
Gross carrying/notional amount
--------------------------------------------------------------------------------------------------------------------------------------------------
Sub- Credit Allowance
Strong Good Satisfactory standard impaired Total for ECL Net
The bank GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------- -------------------- ------------------------ ------------------------ ------------------------ ------------------------ -------------------- ------------------------ --------------------
In-scope for
IFRS
9
--------------- -------------------- ------------------------ ------------------------ ------------------------ ------------------------ -------------------- ------------------------ --------------------
Loans and
advances
to customers
held at
amortised cost 21,601 9,291 4,838 765 875 37,370 (378) 36,992
--------------- -------------------- ------------------------ ------------------------ ------------------------ ------------------------ -------------------- ------------------------ --------------------
- personal 1,837 927 797 10 13 3,584 (12) 3,572
---------------
- corporate and
commercial 12,018 6,001 3,230 613 594 22,456 (247) 22,209
---------------
- non-bank
financial
institutions 7,746 2,363 811 142 268 11,330 (119) 11,211
--------------- -------------------- ------------------------ ------------------------ ------------------------ ------------------------ -------------------- ------------------------
Loans and
advances
to banks held
at amortised
cost 13,764 512 163 25 65 14,529 (43) 14,486
--------------- -------------------- ------------------------ ------------------------ ------------------------ ------------------------ -------------------- ------------------------ --------------------
Cash and
balances at
central banks 78,442 - - - - 78,442 (1) 78,441
--------------- -------------------- ------------------------ ------------------------ ------------------------ ------------------------ -------------------- ------------------------ --------------------
Items in the
course
of collection
from
other banks 1,863 - - - - 1,863 - 1,863
--------------- -------------------- ------------------------ ------------------------ ------------------------ ------------------------ -------------------- ------------------------ --------------------
Reverse
repurchase
agreements -
non-trading 33,159 7,763 2,133 - - 43,055 - 43,055
--------------- -------------------- ------------------------ ------------------------ ------------------------ ------------------------ -------------------- ------------------------ --------------------
Financial
investments 6,190 - 188 - - 6,378 - 6,378
--------------- -------------------- ------------------------ ------------------------ ------------------------ ------------------------ -------------------- ------------------------ --------------------
Prepayments,
accrued
income and
other assets 39,376 95 81 10 21 39,583 (2) 39,581
--------------- -------------------- ------------------------ ------------------------ ------------------------ ------------------------ -------------------- ------------------------ --------------------
- endorsements
and
acceptances 205 4 3 - 6 218 - 218
---------------
- accrued
income and
other 39,171 91 78 10 15 39,365 (2) 39,363
--------------- -------------------- ------------------------ ------------------------ ------------------------ ------------------------ -------------------- ------------------------
Debt
instruments
measured
at fair value
through
other
comprehensive
income(1) 12,827 64 307 - - 13,198 (4) 13,194
--------------- -------------------- ------------------------ ------------------------ ------------------------ ------------------------ -------------------- ------------------------ --------------------
Out-of-scope
for IFRS
9
--------------- -------------------- ------------------------ ------------------------ ------------------------ ------------------------ -------------------- ------------------------ --------------------
Trading assets 18,479 4,226 9,213 298 - 32,216 - 32,216
--------------- -------------------- ------------------------ ------------------------ ------------------------ ------------------------ -------------------- ------------------------ --------------------
Other financial
assets
designated and
otherwise
mandatorily
measured
at fair value
through
profit or loss 149 214 651 1 - 1,015 - 1,015
--------------- -------------------- ------------------------ ------------------------ ------------------------ ------------------------ -------------------- ------------------------ --------------------
Derivatives 174,548 18,118 4,031 17 - 196,714 - 196,714
Total gross
carrying
amount on
balance sheet 400,398 40,283 21,605 1,116 961 464,363 (428) 463,935
--------------- -------------------- ------------------------ ------------------------ ------------------------ ------------------------ -------------------- ------------------------ --------------------
Percentage of
total
credit quality 86.2% 8.7% 4.7% 0.2% 0.2% 100.0%
--------------- -------------------- ------------------------ ------------------------ ------------------------ ------------------------ -------------------- ------------------------ --------------------
Loans and other
credit-related
commitments 25,143 6,577 3,200 732 40 35,692 (31) 35,661
Financial
guarantees 729 205 388 5 36 1,363 (12) 1,351
--------------- -------------------- ------------------------ ------------------------ ------------------------ ------------------------ -------------------- ------------------------ --------------------
In-scope:
Irrevocable
loan
commitments
and
financial
guarantees 25,872 6,782 3,588 737 76 37,055 (43) 37,012
Loans and other
credit-related
commitments 493 183 91 14 1 782 - 782
--------------- -------------------- ------------------------ ------------------------ ------------------------ ------------------------ -------------------- ------------------------ --------------------
Performance and
other
guarantees 5,338 1,083 417 42 6 6,886 (7) 6,879
--------------- -------------------- ------------------------ ------------------------ ------------------------ ------------------------ -------------------- ------------------------ --------------------
Out-of-scope:
Revocable
loan
commitments
and
non-financial
guarantees 5,831 1,266 508 56 7 7,668 (7) 7,661
--------------- -------------------- ------------------------ ------------------------ ------------------------ ------------------------ -------------------- ------------------------ --------------------
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 as presented above will not reconcile
to the balance sheet as it excludes fair value gains and
losses.
Distribution of financial instruments by credit quality at 31 December
2021 (continued)
(Audited)
Gross carrying/notional amount
Allowance
Credit for
Strong Good Satisfactory Sub-standard impaired Total ECL Net
The bank GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------- ----------------------- ----------------------- ----------------------- -------------------- ------------------------ --------------------- ------------------------ ---------------------
In-scope for
IFRS 9
--------------- ----------------------- ----------------------- ----------------------- -------------------- ------------------------ --------------------- ------------------------ ---------------------
Loans and
advances to
customers held
at amortised
cost 16,993 9,038 6,467 804 984 34,286 (350) 33,936
--------------- ----------------------- ----------------------- ----------------------- -------------------- ------------------------ --------------------- ------------------------ ---------------------
- personal 1,909 850 860 13 48 3,680 (6) 3,674
---------------
- corporate and
commercial 8,120 6,649 5,003 729 681 21,182 (308) 20,874
---------------
- non-bank
financial
institutions 6,964 1,539 604 62 255 9,424 (36) 9,388
--------------- ----------------------- ----------------------- ----------------------- -------------------- ------------------------ --------------------- ------------------------
Loans and
advances to
banks held at
amortised
cost 6,427 166 187 2 - 6,782 (4) 6,778
--------------- ----------------------- ----------------------- ----------------------- -------------------- ------------------------ --------------------- ------------------------ ---------------------
Cash and
balances at
central banks 63,008 - - - - 63,008 - 63,008
--------------- ----------------------- ----------------------- ----------------------- -------------------- ------------------------ --------------------- ------------------------ ---------------------
Items in the
course
of collection
from other
banks 211 - - - - 211 - 211
Reverse
repurchase
agreements
- non-trading 32,877 5,916 915 - - 39,708 - 39,708
--------------- ----------------------- ----------------------- ----------------------- -------------------- ------------------------ --------------------- ------------------------ ---------------------
Financial
investments 3,337 - - - - 3,337 - 3,337
--------------- ----------------------- ----------------------- ----------------------- -------------------- ------------------------ --------------------- ------------------------ ---------------------
Prepayments,
accrued
income and
other assets 28,524 121 94 2 28 28,769 (1) 28,768
--------------- ----------------------- ----------------------- ----------------------- -------------------- ------------------------ --------------------- ------------------------ ---------------------
- endorsements
and
acceptances 90 61 13 - 7 171 - 171
---------------
- accrued
income and
other 28,434 60 81 2 21 28,598 (1) 28,597
--------------- ----------------------- ----------------------- ----------------------- -------------------- ------------------------ --------------------- ------------------------
Debt
instruments
measured
at fair value
through
other
comprehensive
income(1) 21,748 64 1,039 - - 22,851 (4) 22,847
--------------- ----------------------- ----------------------- ----------------------- -------------------- ------------------------ --------------------- ------------------------ ---------------------
Out-of-scope
for IFRS
9
--------------- ----------------------- ----------------------- ----------------------- -------------------- ------------------------ --------------------- ------------------------ ---------------------
Trading assets 18,318 5,082 8,470 350 - 32,220 - 32,220
--------------- ----------------------- ----------------------- ----------------------- -------------------- ------------------------ --------------------- ------------------------ ---------------------
Other financial
assets
designated and
otherwise
mandatorily
measured
at fair value
through
profit or loss 138 - 2,504 2 - 2,644 - 2,644
--------------- ----------------------- ----------------------- ----------------------- -------------------- ------------------------ --------------------- ------------------------ ---------------------
Derivatives 98,698 24,160 2,854 75 - 125,787 - 125,787
Total gross
carrying
amount on
balance sheet 290,279 44,547 22,530 1,235 1,012 359,603 (359) 359,244
--------------- ----------------------- ----------------------- ----------------------- -------------------- ------------------------ --------------------- ------------------------ ---------------------
Percentage of
total
credit quality 80.7% 12.4% 6.3% 0.3% 0.3% 100.0%
--------------- ----------------------- ----------------------- ----------------------- -------------------- ------------------------ --------------------- ------------------------ ---------------------
Loans and other
credit-related
commitments 20,446 6,663 3,651 452 43 31,255 (29) 31,226
Financial
guarantees 630 89 471 20 60 1,270 (7) 1,263
--------------- ----------------------- ----------------------- ----------------------- -------------------- ------------------------ --------------------- ------------------------ ---------------------
In-scope:
Irrevocable
loan
commitments
and
financial
guarantees 21,076 6,752 4,122 472 103 32,525 (36) 32,489
Loans and other
credit-related
commitments 620 383 126 86 1 1,216 - 1,216
--------------- ----------------------- ----------------------- ----------------------- -------------------- ------------------------ --------------------- ------------------------ ---------------------
Performance and
other
guarantees 4,846 1,939 480 56 13 7,334 (7) 7,327
--------------- ----------------------- ----------------------- ----------------------- -------------------- ------------------------ --------------------- ------------------------ ---------------------
Out-of-scope:
Revocable
loan
commitments
and
non-financial
guarantees 5,466 2,322 606 142 14 8,550 (7) 8,543
--------------- ----------------------- ----------------------- ----------------------- -------------------- ------------------------ --------------------- ------------------------ ---------------------
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 as presented above 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 distribution
(Audited)
Gross carrying/notional amount
---------------------------------------------------------------------------------------------------------------------------------------------
Sub- Credit Allowance
Strong Good Satisfactory standard impaired Total for ECL Net
The group GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------- -------------------- --------------------- ------------------------ ---------------------- ---------------------- ---------------------- ---------------------- ----------------------
Loans and
advances to
customers at
amortised
cost 27,997 19,618 19,612 4,263 2,227 73,717 (1,103) 72,614
--------------- -------------------- --------------------- ------------------------ ---------------------- ---------------------- ---------------------- ---------------------- ----------------------
- stage 1 27,183 18,885 16,313 1,292 - 63,673 (51) 63,622
---------------
- stage 2 814 733 3,299 2,971 - 7,817 (145) 7,672
---------------
- stage 3 - - - - 2,224 2,224 (907) 1,317
---------------
- POCI - - - - 3 3 - 3
--------------- -------------------- --------------------- ------------------------ ---------------------- ---------------------- ---------------------- ----------------------
Loans and
advances to
banks at
amortised cost 14,637 790 1,634 26 65 17,152 (43) 17,109
--------------- -------------------- --------------------- ------------------------ ---------------------- ---------------------- ---------------------- ---------------------- ----------------------
- stage 1 14,502 565 1,605 1 - 16,673 (6) 16,667
---------------
- stage 2 135 225 29 25 - 414 (21) 393
---------------
- stage 3 - - - - 65 65 (16) 49
---------------
- POCI - - - - - - - -
--------------- -------------------- --------------------- ------------------------ ---------------------- ---------------------- ---------------------- ----------------------
Other financial
assets
measured at
amortised
cost 253,856 10,259 5,167 150 323 269,755 (137) 269,618
--------------- -------------------- --------------------- ------------------------ ---------------------- ---------------------- ---------------------- ---------------------- ----------------------
- stage 1 253,577 9,893 4,272 28 - 267,770 (14) 267,756
---------------
- stage 2 279 366 895 122 - 1,662 (17) 1,645
---------------
- stage 3 - - - - 323 323 (106) 217
---------------
- POCI - - - - - - - -
--------------- -------------------- --------------------- ------------------------ ---------------------- ---------------------- ---------------------- ----------------------
Loans and other
credit-related
commitments 82,801 23,578 17,523 2,392 163 126,457 (67) 126,390
--------------- -------------------- --------------------- ------------------------ ---------------------- ---------------------- ---------------------- ---------------------- ----------------------
- stage 1 79,931 21,530 14,570 963 - 116,994 (13) 116,981
---------------
- stage 2 2,870 2,048 2,953 1,429 - 9,300 (32) 9,268
---------------
- stage 3 - - - - 163 163 (22) 141
---------------
- POCI - - - - - - - -
--------------- -------------------- --------------------- ------------------------ ---------------------- ---------------------- ---------------------- ----------------------
Financial
guarantees 2,924 1,171 995 153 84 5,327 (20) 5,307
--------------- -------------------- --------------------- ------------------------ ---------------------- ---------------------- ---------------------- ---------------------- ----------------------
- stage 1 2,895 1,058 727 35 - 4,715 (1) 4,714
---------------
- stage 2 29 113 268 118 - 528 (2) 526
---------------
- stage 3 - - - - 84 84 (17) 67
---------------
- POCI - - - - - - - -
--------------- -------------------- --------------------- ------------------------ ---------------------- ---------------------- ---------------------- ----------------------
At 31 Dec 2022 382,215 55,416 44,931 6,984 2,862 492,408 (1,370) 491,038
--------------- -------------------- --------------------- ------------------------ ---------------------- ---------------------- ---------------------- ---------------------- ----------------------
Debt
instruments at
FVOCI(1)
--------------- -------------------- --------------------- ------------------------ ---------------------- ---------------------- ---------------------- ---------------------- ----------------------
- stage 1 28,047 2,384 547 - - 30,978 (10) 30,968
---------------
- stage 2 201 87 79 105 - 472 (14) 458
---------------
- stage 3 - - - - - - - -
---------------
- POCI - - - - - - - -
--------------- -------------------- --------------------- ------------------------ ---------------------- ---------------------- ---------------------- ----------------------
At 31 Dec 2022 28,248 2,471 626 105 - 31,450 (24) 31,426
--------------- -------------------- --------------------- ------------------------ ---------------------- ---------------------- ---------------------- ---------------------- ----------------------
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 as presented above 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 distribution
(continued)
(Audited)
Gross carrying/notional amount
---------------------------------------------------------------------------------------------------------------------------------------------------
Sub- Credit Allowance
Strong Good Satisfactory standard impaired Total for ECL Net
The group GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------- ---------------------- ----------------------- -------------------------- --------------------- ----------------------- ---------------------- ----------------------- ---------------------
Loans and
advances to
customers at
amortised
cost 41,339 20,531 23,469 4,512 2,480 92,331 (1,154) 91,177
--------------- ---------------------- ----------------------- -------------------------- --------------------- ----------------------- ---------------------- ----------------------- ---------------------
- stage 1 40,831 19,376 19,077 1,446 - 80,730 (86) 80,644
---------------
- stage 2 508 1,155 4,392 3,066 - 9,121 (158) 8,963
---------------
- stage 3 - - - - 2,478 2,478 (908) 1,570
---------------
- POCI - - - - 2 2 (2) -
--------------- ---------------------- ----------------------- -------------------------- --------------------- ----------------------- ---------------------- -----------------------
Loans and
advances to
banks at
amortised cost 8,649 320 1,815 5 - 10,789 (5) 10,784
--------------- ---------------------- ----------------------- -------------------------- --------------------- ----------------------- ---------------------- ----------------------- ---------------------
- stage 1 8,620 311 1,814 5 - 10,750 (4) 10,746
---------------
- stage 2 29 9 1 - - 39 (1) 38
---------------
- stage 3 - - - - - - - -
---------------
- POCI - - - - - - - -
--------------- ---------------------- ----------------------- -------------------------- --------------------- ----------------------- ---------------------- -----------------------
Other financial
assets
measured at
amortised
cost 192,107 7,219 2,758 11 42 202,137 (9) 202,128
--------------- ---------------------- ----------------------- -------------------------- --------------------- ----------------------- ---------------------- ----------------------- ---------------------
- stage 1 192,105 7,214 2,727 2 - 202,048 - 202,048
---------------
- stage 2 2 5 31 9 - 47 - 47
---------------
- stage 3 - - - - 42 42 (9) 33
---------------
- POCI - - - - - - - -
--------------- ---------------------- ----------------------- -------------------------- --------------------- ----------------------- ---------------------- -----------------------
Loans and other
credit-related
commitments 71,741 21,860 20,018 1,874 202 115,695 (55) 115,640
--------------- ---------------------- ----------------------- -------------------------- --------------------- ----------------------- ---------------------- ----------------------- ---------------------
- stage 1 71,074 19,960 16,337 551 - 107,922 (25) 107,897
---------------
- stage 2 667 1,900 3,681 1,323 - 7,571 (22) 7,549
---------------
- stage 3 - - - - 202 202 (8) 194
---------------
- POCI - - - - - - - -
--------------- ---------------------- ----------------------- -------------------------- --------------------- ----------------------- ---------------------- -----------------------
Financial
guarantees 8,412 1,088 1,245 210 99 11,054 (17) 11,037
--------------- ---------------------- ----------------------- -------------------------- --------------------- ----------------------- ---------------------- ----------------------- ---------------------
- stage 1 8,340 951 849 75 - 10,215 (3) 10,212
---------------
- stage 2 72 137 396 135 - 740 (7) 733
---------------
- stage 3 - - - - 99 99 (7) 92
---------------
- POCI - - - - - - - -
--------------- ---------------------- ----------------------- -------------------------- --------------------- ----------------------- ---------------------- -----------------------
At 31 Dec 2021 322,248 51,018 49,305 6,612 2,823 432,006 (1,240) 430,766
--------------- ---------------------- ----------------------- -------------------------- --------------------- ----------------------- ---------------------- ----------------------- ---------------------
Debt
instruments at
FVOCI(1)
--------------- ---------------------- ----------------------- -------------------------- --------------------- ----------------------- ---------------------- ----------------------- ---------------------
- stage 1 36,005 1,825 1,292 - - 39,122 (10) 39,112
---------------
- stage 2 405 74 114 118 - 711 (9) 702
---------------
- stage 3 - - - - - - - -
---------------
- POCI - - - - - - - -
--------------- ---------------------- ----------------------- -------------------------- --------------------- ----------------------- ---------------------- -----------------------
At 31 Dec 2021 36,410 1,899 1,406 118 - 39,833 (19) 39,814
--------------- ---------------------- ----------------------- -------------------------- --------------------- ----------------------- ---------------------- ----------------------- ---------------------
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 as presented above 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 distribution
(continued)
(Audited)
Gross carrying/notional amount
------------------------------------------------------------------------------------------------------------------------------------------------
Sub- Credit Allowance
Strong Good Satisfactory standard impaired Total for ECL Net
The bank GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------- ---------------------- ---------------------- ------------------------- ---------------------- --------------------- ---------------------- ---------------------- ----------------------
Loans and
advances to
customers at
amortised
cost 21,601 9,291 4,838 765 875 37,370 (378) 36,992
--------------- ---------------------- ---------------------- ------------------------- ---------------------- --------------------- ---------------------- ---------------------- ----------------------
- stage 1 20,937 9,032 3,849 101 - 33,919 (19) 33,900
---------------
- stage 2 664 259 989 664 - 2,576 (35) 2,541
---------------
- stage 3 - - - - 875 875 (324) 551
---------------
- POCI - - - - - - - -
--------------- ---------------------- ---------------------- ------------------------- ---------------------- --------------------- ---------------------- ----------------------
Loans and
advances to
banks at
amortised cost 13,764 512 163 25 65 14,529 (43) 14,486
--------------- ---------------------- ---------------------- ------------------------- ---------------------- --------------------- ---------------------- ---------------------- ----------------------
- stage 1 13,663 502 134 - - 14,299 (5) 14,294
---------------
- stage 2 101 10 29 25 - 165 (22) 143
---------------
- stage 3 - - - - 65 65 (16) 49
---------------
- POCI - - - - - - - -
--------------- ---------------------- ---------------------- ------------------------- ---------------------- --------------------- ---------------------- ----------------------
Other financial
assets
measured at
amortised
cost 159,030 7,858 2,402 10 21 169,321 (3) 169,318
--------------- ---------------------- ---------------------- ------------------------- ---------------------- --------------------- ---------------------- ---------------------- ----------------------
- stage 1 159,026 7,857 2,393 - - 169,276 (2) 169,274
---------------
- stage 2 4 1 9 10 - 24 (1) 23
---------------
- stage 3 - - - - 21 21 - 21
---------------
- POCI - - - - - - - -
--------------- ---------------------- ---------------------- ------------------------- ---------------------- --------------------- ---------------------- ----------------------
Loans and other
credit-related
commitments 25,143 6,577 3,200 732 40 35,692 (31) 35,661
--------------- ---------------------- ---------------------- ------------------------- ---------------------- --------------------- ---------------------- ---------------------- ----------------------
- stage 1 24,007 5,971 2,329 120 - 32,427 (9) 32,418
---------------
- stage 2 1,136 606 871 612 - 3,225 (15) 3,210
---------------
- stage 3 - - - - 40 40 (7) 33
---------------
- POCI - - - - - - - -
--------------- ---------------------- ---------------------- ------------------------- ---------------------- --------------------- ---------------------- ----------------------
Financial
guarantees 729 205 388 5 36 1,363 (12) 1,351
--------------- ---------------------- ---------------------- ------------------------- ---------------------- --------------------- ---------------------- ---------------------- ----------------------
- stage 1 729 200 265 - - 1,194 - 1,194
---------------
- stage 2 - 5 123 5 - 133 (1) 132
---------------
- stage 3 - - - - 36 36 (11) 25
---------------
- POCI - - - - - - - -
--------------- ---------------------- ---------------------- ------------------------- ---------------------- --------------------- ---------------------- ----------------------
At 31 Dec 2022 220,267 24,443 10,991 1,537 1,037 258,275 (467) 257,808
--------------- ---------------------- ---------------------- ------------------------- ---------------------- --------------------- ---------------------- ---------------------- ----------------------
Debt
instruments at
FVOCI(1)
--------------- ---------------------- ---------------------- ------------------------- ---------------------- --------------------- ---------------------- ---------------------- ----------------------
- stage 1 12,827 64 302 - - 13,193 (1) 13,192
---------------
- stage 2 - - 5 - - 5 (3) 2
---------------
- stage 3 - - - - - - - -
---------------
- POCI - - - - - - - -
--------------- ---------------------- ---------------------- ------------------------- ---------------------- --------------------- ---------------------- ----------------------
At 31 Dec 2022 12,827 64 307 - - 13,198 (4) 13,194
--------------- ---------------------- ---------------------- ------------------------- ---------------------- --------------------- ---------------------- ---------------------- ----------------------
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 as presented above 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 distribution
(continued)
(Audited)
Gross carrying/notional amount
--------------------------------------------------------------------------------------------------------------------------------------------------
Sub- Credit Allowance
Strong Good Satisfactory standard impaired Total for ECL Net
The bank GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------- ---------------------- ----------------------- -------------------------- ---------------------- --------------------- ---------------------- ----------------------- -----------------------
Loans and
advances to
customers at
amortised
cost 16,993 9,038 6,467 804 984 34,286 (350) 33,936
--------------- ---------------------- ----------------------- -------------------------- ---------------------- --------------------- ---------------------- ----------------------- -----------------------
- stage 1 16,757 8,305 4,964 79 - 30,105 (33) 30,072
---------------
- stage 2 236 733 1,503 725 - 3,197 (47) 3,150
---------------
- stage 3 - - - - 984 984 (270) 714
---------------
- POCI - - - - - - - -
--------------- ---------------------- ----------------------- -------------------------- ---------------------- --------------------- ---------------------- -----------------------
Loans and
advances to
banks at
amortised cost 6,427 166 187 2 - 6,782 (4) 6,778
--------------- ---------------------- ----------------------- -------------------------- ---------------------- --------------------- ---------------------- ----------------------- -----------------------
- stage 1 6,427 160 186 2 - 6,775 (3) 6,772
---------------
- stage 2 - 6 1 - - 7 (1) 6
---------------
- stage 3 - - - - - - - -
---------------
- POCI - - - - - - - -
--------------- ---------------------- ----------------------- -------------------------- ---------------------- --------------------- ---------------------- -----------------------
Other financial
assets
measured at
amortised
cost 127,957 6,037 1,009 2 28 135,033 (1) 135,032
--------------- ---------------------- ----------------------- -------------------------- ---------------------- --------------------- ---------------------- ----------------------- -----------------------
- stage 1 127,956 6,037 991 - - 134,984 - 134,984
---------------
- stage 2 1 - 18 2 - 21 - 21
---------------
- stage 3 - - - - 28 28 (1) 27
---------------
- POCI - - - - - - - -
--------------- ---------------------- ----------------------- -------------------------- ---------------------- --------------------- ---------------------- -----------------------
Loans and other
credit-related
commitments 20,446 6,663 3,651 452 43 31,255 (29) 31,226
--------------- ---------------------- ----------------------- -------------------------- ---------------------- --------------------- ---------------------- ----------------------- -----------------------
- stage 1 20,307 6,469 2,135 - - 28,911 (15) 28,896
---------------
- stage 2 139 194 1,516 452 - 2,301 (11) 2,290
---------------
- stage 3 - - - - 43 43 (3) 40
---------------
- POCI - - - - - - - -
--------------- ---------------------- ----------------------- -------------------------- ---------------------- --------------------- ---------------------- -----------------------
Financial
guarantees 630 89 471 20 60 1,270 (7) 1,263
--------------- ---------------------- ----------------------- -------------------------- ---------------------- --------------------- ---------------------- ----------------------- -----------------------
- stage 1 630 89 324 17 - 1,060 (1) 1,059
---------------
- stage 2 - - 147 3 - 150 - 150
---------------
- stage 3 - - - - 60 60 (6) 54
---------------
- POCI - - - - - - - -
--------------- ---------------------- ----------------------- -------------------------- ---------------------- --------------------- ---------------------- -----------------------
At 31 Dec 2021 172,453 21,993 11,785 1,280 1,115 208,626 (391) 208,235
--------------- ---------------------- ----------------------- -------------------------- ---------------------- --------------------- ---------------------- ----------------------- -----------------------
Debt
instruments at
FVOCI(1)
--------------- ---------------------- ----------------------- -------------------------- ---------------------- --------------------- ---------------------- ----------------------- -----------------------
- stage 1 21,748 64 1,035 - - 22,847 (2) 22,845
---------------
- stage 2 - - 4 - - 4 (2) 2
---------------
- stage 3 - - - - - - - -
---------------
- POCI - - - - - - - -
--------------- ---------------------- ----------------------- -------------------------- ---------------------- --------------------- ---------------------- -----------------------
At 31 Dec 2021 21,748 64 1,039 - - 22,851 (4) 22,847
--------------- ---------------------- ----------------------- -------------------------- ---------------------- --------------------- ---------------------- ----------------------- -----------------------
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 as presented above will not reconcile
to the balance sheet as it excludes fair value gains and
losses.
Credit--impaired loans
(Audited)
The group determines that a financial instrument is credit
impaired and in stage 3 by considering relevant objective evidence,
primarily whether:
-- contractual payments of either principal or interest are past due for more than 90 days;
-- there are other indications that the borrower is unlikely to
pay such as that a concession has been granted to the borrower for
economic or legal reasons relating to the borrower's financial
condition; and
--
the loan is otherwise considered to be in default. If such
unlikeliness to pay is not identified at an earlier stage, it is
deemed to occur when an exposure is 90 days past due, even where
regulatory rules permit default to be defined based on 180 days
past due. Therefore, the definitions of credit-impaired and default
are aligned as far as possible so that stage 3 represents all loans
which are considered defaulted or otherwise credit-impaired.
Forbearance
The following table shows the gross carrying amounts of the
group's holdings of forborne loans and advances to customers by
industry sector and by stages.
A summary of our current policies and practices for forbearance
is set out in 'Credit risk management' on page 37.
Forborne loans and advances to customers at amortised costs by stage
allocation
Stage Stage Stage POCI Total
1 2 3
The group GBPm GBPm GBPm GBPm GBPm
------------- ------------------------------ ------------------------------ ------------------------------ ----------------------------- ------------------------------
Gross
carrying
amount
------------- ------------------------------ ------------------------------ ------------------------------ ----------------------------- ------------------------------
Personal - 29 32 - 61
------------- ------------------------------ ------------------------------ ------------------------------ ----------------------------- ------------------------------
- first lien
residential
mortgages - 24 27 - 51
- other
personal
lending
which
is secured - 3 4 - 7
-------------
- credit
cards - 1 - - 1
-------------
- other
personal
lending
which
is unsecured - 1 1 - 2
Wholesale - 1,816 726 - 2,542
------------- ------------------------------ ------------------------------ ------------------------------ ----------------------------- ------------------------------
- corporate
and
commercial - 1,804 722 - 2,526
-------------
- non-bank
financial
institutions - 12 4 - 16
------------- ------------------------------ ------------------------------ ------------------------------ -----------------------------
At 31 Dec
2022 - 1,845 758 - 2,603
------------- ------------------------------ ------------------------------ ------------------------------ ----------------------------- ------------------------------
Allowance for
ECL
------------- ------------------------------ ------------------------------ ------------------------------ ----------------------------- ------------------------------
Personal - (2) (4) - (6)
------------- ------------------------------ ------------------------------ ------------------------------ ----------------------------- ------------------------------
- first lien
residential
mortgages - (2) (4) - (6)
- other - - - - -
personal
lending which
is secured
-------------
- credit - - - - -
cards
-------------
- other - - - - -
personal
lending which
is unsecured
Wholesale - (25) (252) - (277)
------------- ------------------------------ ------------------------------ ------------------------------ ----------------------------- ------------------------------
- corporate
and
commercial - (24) (252) - (276)
-------------
- non-bank
financial
institutions - (1) - - (1)
------------- ------------------------------ ------------------------------ ------------------------------ -----------------------------
At 31 Dec
2022 - (27) (256) - (283)
------------- ------------------------------ ------------------------------ ------------------------------ ----------------------------- ------------------------------
The group
------------- ------------------------------- ------------------------------- ------------------------------- ------------------------------- -------------------------------
Gross
carrying
amount
------------- ------------------------------- ------------------------------- ------------------------------- ------------------------------- -------------------------------
Personal - - 132 - 132
------------- ------------------------------- ------------------------------- ------------------------------- ------------------------------- -------------------------------
- first lien
residential
mortgages - - 96 - 96
-------------
- other
personal
lending - - 36 - 36
------------- ------------------------------- ------------------------------- ------------------------------- -------------------------------
Wholesale 49 192 706 2 949
------------- ------------------------------- ------------------------------- ------------------------------- ------------------------------- -------------------------------
- corporate
and
commercial 49 192 702 2 945
-------------
- non-bank
financial
institutions - - 4 - 4
------------- ------------------------------- ------------------------------- ------------------------------- -------------------------------
At 31 Dec
2021(1) 49 192 838 2 1,081
------------- ------------------------------- ------------------------------- ------------------------------- ------------------------------- -------------------------------
Allowance for
ECL
------------- ------------------------------- ------------------------------- ------------------------------- ------------------------------- -------------------------------
Personal - - (15) - (15)
------------- ------------------------------- ------------------------------- ------------------------------- ------------------------------- -------------------------------
- first lien
residential
mortgages - - (11) - (11)
-------------
- other
personal
lending - - (4) - (4)
------------- ------------------------------- ------------------------------- ------------------------------- -------------------------------
Wholesale (1) (5) (218) (2) (226)
------------- ------------------------------- ------------------------------- ------------------------------- ------------------------------- -------------------------------
- corporate
and
commercial (1) (5) (218) (2) (226)
-------------
- non-bank - - - - -
financial
institutions
------------- ------------------------------- ------------------------------- ------------------------------- -------------------------------
At 31 Dec
2021(1) (1) (5) (233) (2) (241)
------------- ------------------------------- ------------------------------- ------------------------------- ------------------------------- -------------------------------
1 Forborne exposures and allowances for ECL at 31 December 2021
have not been restated and agreed with the policies and disclosures
presented in the Annual Report and Accounts 2021.
Following the adoption of the EBA 'Guidelines on the application
of definition of default', retail and wholesale loans are
identified as forborne and classified as either performing or
non-performing when we modify the contractual terms due to
financial difficulty of the borrower. At 31 December 2022, we
reported GBP1,845m (31 December 2021: GBP241m) of performing
forborne loans. The increase of GBP1,604m was mainly driven by the
inclusion of non-payment-related concessions in the forbearance
assessment since 1 January 2022.
Forborne loans and advances to customers at amortised costs by stage
allocation (continued)
Stage Stage Stage POCI Total
1 2 3
The bank GBPm GBPm GBPm GBPm GBPm
------------ ------------------------------ ------------------------------ ------------------------------ ----------------------------- ------------------------------
Gross
carrying
amount
Personal - 1 7 - 8
------------ ------------------------------ ------------------------------ ------------------------------ ----------------------------- ------------------------------
- first lien
residential
mortgages - - 6 - 6
- credit
cards - 1 - - 1
------------
- other
personal
lending
which
is
unsecured - - 1 - 1
Wholesale - 106 364 - 470
------------ ------------------------------ ------------------------------ ------------------------------ ----------------------------- ------------------------------
- corporate
and
commercial - 106 364 - 470
At 31 Dec
2022 - 107 371 - 478
------------ ------------------------------ ------------------------------ ------------------------------ ----------------------------- ------------------------------
Allowance
for ECL
------------ ------------------------------ ------------------------------ ------------------------------ ----------------------------- ------------------------------
Personal - - (1) - (1)
------------ ------------------------------ ------------------------------ ------------------------------ ----------------------------- ------------------------------
- first lien
residential
mortgages - - (1) - (1)
- credit - - - - -
cards
------------
- other - - - - -
personal
lending
which
is unsecured
Wholesale - (1) (158) - (159)
------------ ------------------------------ ------------------------------ ------------------------------ ----------------------------- ------------------------------
- corporate
and
commercial - (1) (158) - (159)
At 31 Dec
2022 - (1) (159) - (160)
------------ ------------------------------ ------------------------------ ------------------------------ ----------------------------- ------------------------------
The bank
------------ ------------------------------- ------------------------------- ------------------------------- ----------------------------- -------------------------------
Gross
carrying
amount
------------ ------------------------------- ------------------------------- ------------------------------- ----------------------------- -------------------------------
Personal - - 3 - 3
------------ ------------------------------- ------------------------------- ------------------------------- ----------------------------- -------------------------------
- first lien
residential
mortgages - - 2 - 2
------------
- other
personal
lending - - 1 - 1
------------ ------------------------------- ------------------------------- ------------------------------- -----------------------------
Wholesale 40 158 431 - 629
------------ ------------------------------- ------------------------------- ------------------------------- ----------------------------- -------------------------------
- corporate
and
commercial 40 158 431 - 629
At 31 Dec
2021(1) 40 158 434 - 632
------------ ------------------------------- ------------------------------- ------------------------------- ----------------------------- -------------------------------
Allowance
for ECL
------------ ------------------------------- ------------------------------- ------------------------------- ----------------------------- -------------------------------
Personal - - - - -
------------ ------------------------------- ------------------------------- ------------------------------- ----------------------------- -------------------------------
- first lien - - - - -
residential
mortgages
------------
- other - - - - -
personal
lending
------------ ------------------------------- ------------------------------- ------------------------------- -----------------------------
Wholesale (1) (2) (124) - (127)
------------ ------------------------------- ------------------------------- ------------------------------- ----------------------------- -------------------------------
- corporate
and
commercial (1) (2) (124) - (127)
At 31 Dec
2021(1) (1) (2) (124) - (127)
------------ ------------------------------- ------------------------------- ------------------------------- ----------------------------- -------------------------------
1 Forborne exposures and allowances for ECL at 31 December 2021
have not been restated and agreed with the policies and disclosures
presented in the Annual Report and Accounts 2021.
Wholesale lending
This section provides further details on the countries and
industries comprising wholesale loans and advances to customers and
banks. Industry granularity is also provided by stage with
geographical data presented for loans and advances to customers and
banks, loans and other credit-related commitments and financial
guarantees.
Total wholesale lending for loans and advances to banks and customers
by stage distribution
Gross carrying amount Allowance for ECL
------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------
Stage Stage Stage POCI Total Stage Stage Stage POCI Total
1 2 3 1 2 3
The group GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------------------------------------ ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------ -------------------
Corporate and commercial 46,671 6,479 1,851 3 55,004 (40) (123) (774) - (937)
------------------------------------------------------------ ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------ -------------------
- agriculture, forestry
and fishing 166 20 29 - 215 - (1) (12) - (13)
------------------------------------------------------------
- mining and quarrying 943 1 - - 944 (2) - - - (2)
------------------------------------------------------------
- manufacture 9,963 1,228 317 2 11,510 (7) (13) (78) - (98)
------------------------------------------------------------
* electricity, gas, steam and air-conditioning supply 1,838 165 78 - 2,081 (1) (1) (6) - (8)
------------------------------------------------------------
* water supply, sewerage, waste management and
remediation 208 6 5 - 219 - - (4) - (4)
------------------------------------------------------------
- construction 571 107 47 - 725 (1) (3) (14) - (18)
------------------------------------------------------------
* wholesale and retail trade, repair of motor vehicles
and motorcycles 8,397 645 178 1 9,221 (4) (6) (114) - (124)
------------------------------------------------------------
- transportation
and storage 2,980 1,418 157 - 4,555 (6) (13) (56) - (75)
------------------------------------------------------------
- accommodation
and food 668 209 46 - 923 (2) (5) (11) - (18)
------------------------------------------------------------
* publishing, audiovisual and broadcasting 3,292 90 36 - 3,418 (2) (1) (14) - (17)
------------------------------------------------------------
- real estate 3,955 784 199 - 4,938 (5) (16) (124) - (145)
------------------------------------------------------------
* professional, scientific and technical activities 2,568 564 211 - 3,343 (2) (12) (95) - (109)
------------------------------------------------------------
- administrative
and support services 8,177 957 312 - 9,446 (7) (38) (173) - (218)
------------------------------------------------------------
* public administration and defence, compulsory social
security 33 - - - 33 - - - - -
------------------------------------------------------------
- education 30 4 3 - 37 - - (1) - (1)
------------------------------------------------------------
- health and care 153 25 88 - 266 - (1) (49) - (50)
------------------------------------------------------------
- arts, entertainment
and recreation 86 70 5 - 161 - (2) (2) - (4)
------------------------------------------------------------
- other services 1,330 38 76 - 1,444 (1) - (19) - (20)
------------------------------------------------------------
- activities of
households 3 - - - 3 - - - - -
------------------------------------------------------------
* extra-territorial organisations and bodies activities 39 - - - 39 - - - - -
------------------------------------------------------------
- government 1,255 137 64 - 1,456 - - (2) - (2)
------------------------------------------------------------
- asset-backed securities 16 11 - - 27 - (11) - - (11)
------------------------------------------------------------ ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------
Non-bank financial
institutions 11,709 723 268 - 12,700 (2) (7) (102) - (111)
------------------------------------------------------------ ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------ -------------------
Loans and advances
to banks 16,673 414 65 - 17,152 (6) (21) (16) - (43)
------------------------------------------------------------ ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------ -------------------
At 31 Dec 2022 75,053 7,616 2,184 3 84,856 (48) (151) (892) - (1,091)
------------------------------------------------------------ ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------ -------------------
By country
------------------------------------------------------------ ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------ -------------------
UK 36,885 2,187 825 - 39,897 (15) (47) (309) - (371)
------------------------------------------------------------ ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------ -------------------
France 25,940 3,331 850 2 30,123 (16) (67) (435) - (518)
------------------------------------------------------------ ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------ -------------------
Germany 5,197 1,155 313 - 6,665 - (21) (107) - (128)
------------------------------------------------------------ ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------ -------------------
Other countries 7,031 943 196 1 8,171 (17) (16) (41) - (74)
------------------------------------------------------------ ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------ -------------------
At 31 Dec 2022 75,053 7,616 2,184 3 84,856 (48) (151) (892) - (1,091)
------------------------------------------------------------ ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------ -------------------
Total wholesale lending for loans and other credit-related commitments
and financial guarantees(1) by stage distribution
Nominal amount Allowance for ECL
----------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------
Stage Stage Stage POCI Total Stage Stage Stage POCI Total
1 2 3 1 2 3
The group GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------- ------------ -------------- ------------------- ------------------ ------------ -------------------- ------------------- -------------------- ------------------ -------------------
Corporate
and
commercial 63,605 8,012 239 - 71,856 (13) (29) (39) - (81)
----------- ------------ -------------- ------------------- ------------------ ------------ -------------------- ------------------- -------------------- ------------------ -------------------
Financial 56,080 1,707 2 - 57,789 (1) (5) - - (6)
----------- ------------ -------------- ------------------- ------------------ ------------ -------------------- ------------------- -------------------- ------------------ -------------------
At 31 Dec
2022 119,685 9,719 241 - 129,645 (14) (34) (39) - (87)
----------- ------------ -------------- ------------------- ------------------ ------------ -------------------- ------------------- -------------------- ------------------ -------------------
By
geography
----------- ------------ -------------- ------------------- ------------------ ------------ -------------------- ------------------- -------------------- ------------------ -------------------
Europe 119,685 9,719 241 - 129,645 (14) (34) (39) - (87)
----------- ------------ -------------- ------------------- ------------------ ------------ -------------------- ------------------- -------------------- ------------------ -------------------
- of which:
UK 29,090 3,665 59 - 32,814 (9) (17) (7) - (33)
----------- ------------ -------------- ------------------- ------------------ ------------ -------------------- ------------------- -------------------- ------------------ -------------------
- of which:
France 75,886 2,796 38 - 78,720 (2) (5) (14) - (21)
----------- ------------ -------------- ------------------- ------------------ ------------ -------------------- ------------------- -------------------- ------------------ -------------------
- of which:
Germany 10,748 2,749 100 - 13,597 (1) (11) - - (12)
----------- ------------ -------------- ------------------- ------------------ ------------ -------------------- ------------------- -------------------- ------------------ -------------------
1 Excludes performance guarantee contracts to which the
impairment requirements in IFRS 9 are not applied.
Total wholesale lending for loans and advances to banks and customers
by stage distribution (continued)
Gross carrying amount Allowance for ECL
---------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------
Stage Stage Stage POCI Total Stage Stage Stage POCI Total
1 2 3 1 2 3
The group GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------------------- ------------------ -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- --------------------
Corporate and commercial 46,237 8,066 1,782 2 56,087 (58) (137) (767) (2) (964)
----------------------------------------- ------------------ -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- --------------------
- agriculture, forestry
and fishing 157 7 7 - 171 - - (5) - (5)
-----------------------------------------
- mining and quarrying 1,207 86 58 - 1,351 (1) (1) (5) - (7)
-----------------------------------------
- manufacture 7,327 1,624 281 2 9,234 (8) (14) (72) (2) (96)
-----------------------------------------
* electricity, gas, steam and air- c
onditioning supply 2,891 49 30 - 2,970 (3) (1) (4) - (8)
-----------------------------------------
* water supply, sewerage, waste mana
gement and
remediation 215 - 4 - 219 - - (4) - (4)
-----------------------------------------
- construction 641 116 97 - 854 (2) (2) (40) - (44)
-----------------------------------------
* wholesale and retail trade, repair
of motor vehicles
and motorcycles 7,743 889 192 - 8,824 (4) (8) (132) - (144)
-----------------------------------------
- transportation
and storage 3,254 1,570 205 - 5,029 (9) (20) (56) - (85)
-----------------------------------------
- accommodation
and food 831 409 80 - 1,320 (4) (10) (20) - (34)
-----------------------------------------
* publishing, audiovisual and broadc
asting 2,390 81 50 - 2,521 (2) (2) (12) - (16)
-----------------------------------------
- real estate 4,849 891 280 - 6,020 (9) (32) (159) - (200)
-----------------------------------------
* professional, scientific and techn
ical activities 2,522 669 221 - 3,412 (3) (8) (60) - (71)
-----------------------------------------
- administrative
and support services 8,765 1,204 178 - 10,147 (9) (21) (161) - (191)
-----------------------------------------
* public administration and defence,
compulsory social
security 376 180 - - 556 - - - - -
-----------------------------------------
- education 22 5 3 - 30 - (1) (1) - (2)
-----------------------------------------
- health and care 473 47 6 - 526 (1) (4) (5) - (10)
-----------------------------------------
- arts, entertainment
and recreation 104 116 5 - 225 - (3) (3) - (6)
-----------------------------------------
- other services 1,427 66 85 - 1,578 (3) (2) (28) - (33)
-----------------------------------------
- activities of
households - 2 - - 2 - - - - -
- government 1,027 45 - - 1,072 - - - - -
-----------------------------------------
- asset-backed securities 16 10 - - 26 - (8) - - (8)
----------------------------------------- ------------------ -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- --------------------
Non-bank financial
institutions 10,238 369 243 - 10,850 (6) (5) (16) - (27)
----------------------------------------- ------------------ -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- --------------------
Loans and advances
to banks 10,750 39 - - 10,789 (4) (1) - - (5)
----------------------------------------- ------------------ -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- --------------------
At 31 Dec 2021 67,225 8,474 2,025 2 77,726 (68) (143) (783) (2) (996)
----------------------------------------- ------------------ -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- --------------------
By country
----------------------------------------- ------------------ -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- --------------------
UK 27,765 3,001 832 - 31,598 (34) (43) (233) - (310)
----------------------------------------- ------------------ -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- --------------------
France 29,287 3,492 572 1 33,352 (27) (62) (396) (1) (486)
----------------------------------------- ------------------ -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- --------------------
Germany 4,628 1,175 328 - 6,131 - (17) (73) - (90)
----------------------------------------- ------------------ -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- --------------------
Other countries 5,545 806 293 1 6,645 (7) (21) (81) (1) (110)
----------------------------------------- ------------------ -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- --------------------
At 31 Dec 2021 67,225 8,474 2,025 2 77,726 (68) (143) (783) (2) (996)
----------------------------------------- ------------------ -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- --------------------
.
Total wholesale lending for loans and other credit-related commitments
and financial guarantees(1) by stage distribution (continued)
Nominal amount Allowance for ECL
----------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------
Stage Stage Stage Stage Stage Stage
1 2 3 POCI Total 1 2 3 POCI Total
The group GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------- ------------- ----------------- -------------------- ------------------ ------------- -------------------- -------------------- -------------------- ------------------ -------------------------
Corporate
and
commercial 65,582 7,369 295 - 73,246 (22) (27) (15) - (64)
----------- ------------- ----------------- -------------------- ------------------ ------------- -------------------- -------------------- -------------------- ------------------ -------------------------
Financial 50,380 826 2 - 51,208 (5) (2) - - (7)
----------- ------------- ----------------- -------------------- ------------------ ------------- -------------------- -------------------- -------------------- ------------------ -------------------------
At 31 Dec
2021 115,962 8,195 297 - 124,454 (27) (29) (15) - (71)
----------- ------------- ----------------- -------------------- ------------------ ------------- -------------------- -------------------- -------------------- ------------------ -------------------------
By
geography
----------- ------------- ----------------- -------------------- ------------------ ------------- -------------------- -------------------- -------------------- ------------------ -------------------------
Europe 115,962 8,195 297 - 124,454 (27) (29) (15) - (71)
----------- ------------- ----------------- -------------------- ------------------ ------------- -------------------- -------------------- -------------------- ------------------ -------------------------
- of which:
UK 25,662 2,910 87 - 28,659 (16) (11) (3) - (30)
----------- ------------- ----------------- -------------------- ------------------ ------------- -------------------- -------------------- -------------------- ------------------ -------------------------
- of which:
France 77,664 1,273 37 - 78,974 (3) (3) (4) - (10)
----------- ------------- ----------------- -------------------- ------------------ ------------- -------------------- -------------------- -------------------- ------------------ -------------------------
- of which:
Germany 10,113 3,693 127 - 13,933 (4) (8) (1) - (13)
----------- ------------- ----------------- -------------------- ------------------ ------------- -------------------- -------------------- -------------------- ------------------ -------------------------
1 Excludes performance guarantee contracts to which the
impairment requirements in IFRS 9 are not applied.
Collateral and other credit enhancement
(Audited)
Although collateral can be an important mitigant of credit risk,
it is the group's practice to lend on the basis of the customer's
ability to meet their obligations out of cash flow resources rather
than placing primary reliance on collateral and other credit risk
enhancements. Depending on the customer's standing and the type of
product, facilities may be provided without any collateral or other
credit enhancements. For other lending, a charge over collateral is
obtained and considered in determining the credit decision and
pricing. In the event of default, the group may utilise the
collateral as a source of repayment.
Depending on its form, collateral can have a significant
financial effect in mitigating our exposure to credit risk. Where
there is sufficient collateral, an expected credit loss is not
recognised. This is the case for reverse repos and for certain
loans and advances to customers where the loan to value ('LTV') is
very low.
Mitigants may include a charge on borrowers' specific assets,
such as real estate or financial instruments. Other credit risk
mitigants include short positions in securities and financial
assets held as part of linked insurance/investment contracts where
the risk is predominantly borne by the policyholder. Additionally,
risk may be managed by employing other types of collateral and
credit risk enhancements, such as second charges, other liens and
unsupported guarantees. Guarantees are normally taken from
corporates and export credit agencies. Corporates would normally
provide guarantees as part of a parent/subsidiary relationship and
span a number of credit grades. The export credit agencies will
normally be investment grade.
Certain credit mitigants are used strategically in portfolio
management activities. While single name concentrations arise in
portfolios managed by Global Banking and Commercial Banking, it is
only in Global Banking that their size requires the use of
portfolio level credit mitigants. Across Global Banking, risk
limits and utilisations, maturity profiles and risk quality are
monitored and managed proactively. This process is key to the
setting of risk appetite for these larger, more complex,
geographically distributed customer groups. While the principal
form of risk management continues to be at the point of exposure
origination, through the lending decision-making process, Global
Banking also utilises loan sales and credit default swap ('CDS')
hedges to manage concentrations and reduce risk. These transactions
are the responsibility of a dedicated Global Banking portfolio
management team. Hedging activity is carried out within agreed
credit parameters, and is subject to market risk limits and a
robust governance structure. Where applicable, CDSs are entered
into directly with a central clearing house counterparty.
Otherwise our exposure to CDS protection providers is
diversified among mainly banking counterparties with strong credit
ratings.
CDS mitigants are held at portfolio level and are not included
in the expected loss calculations. CDS mitigants are not reported
in the following tables.
Collateral on loans and advances
The following tables include off-balance sheet loan commitments,
primarily undrawn credit lines.
The collateral measured in the following tables consists of
charges over cash and marketable financial instruments. The values
in the tables represent the expected market value on an open market
basis. No adjustment has been made to the collateral for any
expected costs of recovery. Marketable securities are measured at
their fair value.
Other types of collateral such as unsupported guarantees and
floating charges over the assets of a customer's business are not
measured in the following tables. While such mitigants have value,
often providing rights in insolvency, their assignable value is not
sufficiently certain and they are therefore assigned no value for
disclosure purposes.
The LTV ratios presented are calculated by directly associating
loans and advances with the collateral that individually and
uniquely supports each facility. When collateral assets are shared
by multiple loans and advances, whether specifically or, more
generally, by way of an all monies charge, the collateral value is
pro-rated across the loans and advances protected by the
collateral.
For credit-impaired loans, the collateral values cannot be
directly compared with impairment allowances recognised. The LTV
figures use open market values with no adjustments. Impairment
allowances are calculated on a different basis, by considering
other cash flows and adjusting collateral values for costs of
realising collateral as explained further on page 129.
Other corporate, commercial and financial (non-bank) loans and
advances
Other corporate, commercial and financial (non-bank) loans are
analysed separately in the following table, which focuses on the
countries containing the majority of our loans and advances
balances. For financing activities in other corporate and
commercial lending, collateral value is not strongly correlated to
principal repayment performance.
Collateral values are generally refreshed when an obligor's
general credit performance deteriorates and we have to assess the
likely performance of secondary sources of repayment should it
prove necessary to rely on them.
Wholesale lending - corporate, commercial and financial (non-bank)
loans and advances including loan commitments by level of
collateral for key countries by stage (excluding commercial real estate)
(Audited)
of which:
Total UK France Germany
---------------------------------------------- ---------------------------------------------- ---------------------------------------------- --------------------------------------------
Gross Gross Gross Gross
carrying/nominal ECL carrying/nominal ECL carrying/nominal ECL carrying/nominal ECL
amount coverage amount coverage amount coverage amount coverage
The group GBPm % GBPm % GBPm % GBPm %
-------------- ------------------------ -------------------- ------------------------ -------------------- ------------------------ -------------------- ---------------------- --------------------
Stage 1
-------------- ------------------------ -------------------- ------------------------ -------------------- ------------------------ -------------------- ---------------------- --------------------
Not
collateralised 117,166 - 46,080 - 53,960 - 11,577 -
-------------- ------------------------ -------------------- ------------------------ -------------------- ------------------------ -------------------- ---------------------- --------------------
Fully
collateralised 10,444 0.1 6,300 0.1 2,146 - 809 -
-------------- ------------------------ -------------------- ------------------------ -------------------- ------------------------ -------------------- ---------------------- --------------------
LTV ratio:
-------------- ------------------------ -------------------- ------------------------ -------------------- ------------------------ -------------------- ---------------------- --------------------
- less than
50% 2,456 0.2 1,643 0.2 491 - - -
-------------- -------------------- -------------------- -------------------- --------------------
- 51% to 75% 3,321 0.1 2,161 - 1,050 - - -
-------------- -------------------- -------------------- -------------------- --------------------
- 76% to 90% 354 - 234 - 36 - - -
-------------- -------------------- -------------------- -------------------- --------------------
- 91% to 100% 4,313 - 2,262 - 569 - 809 -
-------------- ------------------------ -------------------- ------------------------ -------------------- ------------------------ -------------------- ---------------------- --------------------
Partially
collateralised
(A): 4,542 0.1 169 - 3,797 0.1 - -
-------------- ------------------------ -------------------- ------------------------ -------------------- ------------------------ -------------------- ---------------------- --------------------
- collateral
value
on A 3,664 77 3,128 -
-------------- ------------------------ -------------------- ------------------------ -------------------- ------------------------ -------------------- ---------------------- --------------------
Total 132,152 - 52,549 - 59,903 - 12,386 -
-------------- ------------------------ -------------------- ------------------------ -------------------- ------------------------ -------------------- ---------------------- --------------------
Stage 2
-------------- ------------------------ -------------------- ------------------------ -------------------- ------------------------ -------------------- ---------------------- --------------------
Not
collateralised 13,074 0.9 4,219 0.8 4,581 1.0 3,269 0.9
-------------- ------------------------ -------------------- ------------------------ -------------------- ------------------------ -------------------- ---------------------- --------------------
Fully
collateralised 1,132 1.5 327 1.2 239 1.7 228 0.9
-------------- ------------------------ -------------------- ------------------------ -------------------- ------------------------ -------------------- ---------------------- --------------------
LTV ratio:
-------------- ------------------------ -------------------- ------------------------ -------------------- ------------------------ -------------------- ---------------------- --------------------
- less than
50% 515 1.7 224 0.4 122 0.8 - -
-------------- -------------------- -------------------- -------------------- --------------------
- 51% to 75% 272 1.5 84 3.6 69 1.4 - -
-------------- -------------------- -------------------- -------------------- --------------------
- 76% to 90% 4 - 2 - 1 - - -
-------------- -------------------- -------------------- -------------------- --------------------
- 91% to 100% 341 1.2 17 - 47 4.3 228 0.9
-------------- ------------------------ -------------------- ------------------------ -------------------- ------------------------ -------------------- ---------------------- --------------------
Partially
collateralised
(B): 509 1.4 23 - 472 1.5 - -
-------------- ------------------------ -------------------- ------------------------ -------------------- ------------------------ -------------------- ---------------------- --------------------
- collateral
value
on B 426 13 405 -
-------------- ------------------------ -------------------- ------------------------ -------------------- ------------------------ -------------------- ---------------------- --------------------
Total 14,715 1.0 4,569 0.8 5,292 1.1 3,497 0.9
-------------- ------------------------ -------------------- ------------------------ -------------------- ------------------------ -------------------- ---------------------- --------------------
Stage 3
-------------- ------------------------ -------------------- ------------------------ -------------------- ------------------------ -------------------- ---------------------- --------------------
Not
collateralised 1,795 40.3 673 31.2 668 57.9 348 28.7
-------------- ------------------------ -------------------- ------------------------ -------------------- ------------------------ -------------------- ---------------------- --------------------
Fully
collateralised 80 26.3 10 10.0 12 33.3 24 29.2
-------------- ------------------------ -------------------- ------------------------ -------------------- ------------------------ -------------------- ---------------------- --------------------
LTV ratio:
-------------- ------------------------ -------------------- ------------------------ -------------------- ------------------------ -------------------- ---------------------- --------------------
- less than
50% 26 23.1 2 - 7 28.6 - -
-------------- -------------------- -------------------- -------------------- --------------------
- 51% to 75% 6 33.3 3 33.3 2 50.0 - -
-------------- -------------------- -------------------- -------------------- --------------------
- 76% to 90% 11 36.4 2 - 1 - - -
-------------- -------------------- -------------------- -------------------- --------------------
- 91% to 100% 37 21.6 3 - 2 50.0 24 29.2
-------------- ------------------------ -------------------- ------------------------ -------------------- ------------------------ -------------------- ---------------------- --------------------
Partially
collateralised
(C): 172 23.8 11 27.3 159 23.3 - -
-------------- ------------------------ -------------------- ------------------------ -------------------- ------------------------ -------------------- ---------------------- --------------------
- collateral
value
on C 125 3 122 -
-------------- ------------------------ -------------------- ------------------------ -------------------- ------------------------ -------------------- ---------------------- --------------------
Total 2,047 38.4 694 30.8 839 51.0 372 28.8
-------------- ------------------------ -------------------- ------------------------ -------------------- ------------------------ -------------------- ---------------------- --------------------
POCI
-------------- ------------------------ -------------------- ------------------------ -------------------- ------------------------ -------------------- ---------------------- --------------------
Not
collateralised 2 - - - 2 - - -
-------------- ------------------------ -------------------- ------------------------ -------------------- ------------------------ -------------------- ---------------------- --------------------
Fully - - - - - - - -
collateralised
-------------- ------------------------ -------------------- ------------------------ -------------------- ------------------------ -------------------- ---------------------- --------------------
LTV ratio:
-------------- ------------------------ -------------------- ------------------------ -------------------- ------------------------ -------------------- ---------------------- --------------------
- less than - - - - - - - -
50%
-------------- -------------------- -------------------- -------------------- --------------------
- 51% to 75% - - - - - - - -
-------------- -------------------- -------------------- -------------------- --------------------
- 76% to 90% - - - - - - - -
-------------- -------------------- -------------------- -------------------- --------------------
- 91% to 100% - - - - - - - -
-------------- ------------------------ -------------------- ------------------------ -------------------- ------------------------ -------------------- ---------------------- --------------------
Partially - - - - - - - -
collateralised
(D):
-------------- ------------------------ -------------------- ------------------------ -------------------- ------------------------ -------------------- ---------------------- --------------------
- collateral - - - -
value
on D
-------------- ------------------------ -------------------- ------------------------ -------------------- ------------------------ -------------------- ---------------------- --------------------
Total 2 - - - 2 - - -
-------------- ------------------------ -------------------- ------------------------ -------------------- ------------------------ -------------------- ---------------------- --------------------
At 31 Dec 2022 148,916 0.7 57,812 0.5 66,036 0.8 16,255 0.9
-------------- ------------------------ -------------------- ------------------------ -------------------- ------------------------ -------------------- ---------------------- --------------------
Wholesale lending - corporate, commercial and financial (non-bank)
loans and advances including loan commitments by level of
collateral for key countries by stage (excluding commercial real estate)
(continued)
(Audited)
of which:
----------------------------------------------------------------------------------------------------------
Total UK France Germany
---------------------------------- ---------------------------------- ---------------------------------- ----------------------------------
Gross Gross Gross Gross
carrying/nominal ECL carrying/nominal ECL carrying/nominal ECL carrying/nominal ECL
amount coverage amount coverage amount coverage amount coverage
The group GBPm % GBPm % GBPm % GBPm %
-------------- ------------------------ -------- ------------------------ -------- ------------------------ -------- ----------------------- ---------
Stage 1
-------------- ------------------------ -------- ------------------------ -------- ------------------------ -------- ----------------------- ---------
Not
collateralised 109,435 0.1 40,298 0.1 52,583 - 11,479 -
-------------- ------------------------ -------- ------------------------ -------- ------------------------ -------- ----------------------- ---------
Fully
collateralised 10,399 0.1 6,133 0.1 2,221 0.1 708 -
-------------- ------------------------ -------- ------------------------ -------- ------------------------ -------- ----------------------- ---------
LTV ratio:
--------------
- less than
50% 2,450 0.2 1,649 0.1 587 - - -
-------------- -------- -------- -------- ---------
- 51% to 75% 3,543 0.1 2,124 0.0 989 0.1 - -
-------------- -------- -------- -------- ---------
- 76% to 90% 801 0.1 446 0.0 349 - - -
-------------- -------- -------- -------- ---------
- 91% to 100% 3,605 - 1,914 - 296 - 708 -
-------------- ------------------------ -------- ------------------------ -------- ------------------------ -------- ----------------------- ---------
Partially
collateralised
(A): 3,424 0.1 85 - 3,248 0.1 - -
-------------- ------------------------ -------- ------------------------ -------- ------------------------ -------- ----------------------- ---------
- collateral
value
on A 2,661 51 2,555 -
-------------- ------------------------ -------- ------------------------ -------- ------------------------ -------- ----------------------- ---------
Total 123,258 0.1 46,516 0.1 58,052 - 12,187 -
-------------- ------------------------ -------- ------------------------ -------- ------------------------ -------- ----------------------- ---------
Stage 2
-------------- ------------------------ -------- ------------------------ -------- ------------------------ -------- ----------------------- ---------
Not
collateralised 11,024 0.9 4,365 0.9 1,890 1.5 3,942 0.6
-------------- ------------------------ -------- ------------------------ -------- ------------------------ -------- ----------------------- ---------
Fully
collateralised 1,675 1.1 608 0.8 639.4 1.1 243 0.4
-------------- ------------------------ -------- ------------------------ -------- ------------------------ -------- ----------------------- ---------
LTV ratio:
--------------
- less than
50% 689 1.7 217 1.4 350 1.1 - -
-------------- -------- -------- -------- ---------
- 51% to 75% 253 0.8 217 0.9 34 2.9 - -
-------------- -------- -------- -------- ---------
- 76% to 90% 271 0.4 165 0.0 106 0.9 - -
-------------- -------- -------- -------- ---------
- 91% to 100% 462 0.9 9 - 149 1.3 243 0.4
-------------- ------------------------ -------- ------------------------ -------- ------------------------ -------- ----------------------- ---------
Partially
collateralised
(B): 1,573.2 0.9 4 0.0 1,567 0.9 - -
-------------- ------------------------ -------- ------------------------ -------- ------------------------ -------- ----------------------- ---------
- collateral
value
on B 1,408 3 1,404 -
-------------- ------------------------ -------- ------------------------ -------- ------------------------ -------- ----------------------- ---------
Total 14,272 0.9 4,977 0.9 4,096.4 1.2 4,185 0.5
-------------- ------------------------ -------- ------------------------ -------- ------------------------ -------- ----------------------- ---------
Stage 3
-------------- ------------------------ -------- ------------------------ -------- ------------------------ -------- ----------------------- ---------
Not
collateralised 1,598 37.2 669 25.1 378 86.0 393 17.8
-------------- ------------------------ -------- ------------------------ -------- ------------------------ -------- ----------------------- ---------
Fully
collateralised 148 16.2 77 7.8 10 50.0 24 16.7
-------------- ------------------------ -------- ------------------------ -------- ------------------------ -------- ----------------------- ---------
LTV ratio:
--------------
- less than
50% 76 18.4 41 7.3 6 50.0 - -
-------------- -------- -------- -------- ---------
- 51% to 75% 22 13.6 19 10.5 2 50.0 - -
-------------- -------- -------- -------- ---------
- 76% to 90% 18 5.6 17 - 1 - - -
-------------- -------- -------- -------- ---------
- 91% to 100% 32 15.6 - - 1 100.0 24 16.7
-------------- ------------------------ -------- ------------------------ -------- ------------------------ -------- ----------------------- ---------
Partially
collateralised
(C): 216 27.3 35 17.1 165 27.3 - -
-------------- ------------------------ -------- ------------------------ -------- ------------------------ -------- ----------------------- ---------
- collateral
value
on C 152 22 123 -
-------------- ------------------------ -------- ------------------------ -------- ------------------------ -------- ----------------------- ---------
Total 1,962 34.6 781 23.0 553 67.8 417 17.7
-------------- ------------------------ -------- ------------------------ -------- ------------------------ -------- ----------------------- ---------
POCI
-------------- ------------------------ -------- ------------------------ -------- ------------------------ -------- ----------------------- ---------
Not - - - - - - - -
collateralised
-------------- ------------------------ -------- ------------------------ -------- ------------------------ -------- ----------------------- ---------
Fully - - - - - - - -
collateralised
-------------- ------------------------ -------- ------------------------ -------- ------------------------ -------- ----------------------- ---------
LTV ratio:
--------------
- less than - - - - - - - -
50%
-------------- -------- -------- -------- ---------
- 51% to 75% - - - - - - - -
-------------- -------- -------- -------- ---------
- 76% to 90% - - - - - - - -
-------------- -------- -------- -------- ---------
- 91% to 100% - - - - - - - -
-------------- ------------------------ -------- ------------------------ -------- ------------------------ -------- ----------------------- ---------
Partially
collateralised
(D): 2 100.0 - - 2 100.0 - -
-------------- ------------------------ -------- ------------------------ -------- ------------------------ -------- ----------------------- ---------
- collateral
value
on D 2 - 2 -
-------------- ------------------------ -------- ------------------------ -------- ------------------------ -------- ----------------------- ---------
Total 2 100.0 - - 2 100.0 - -
-------------- ------------------------ -------- ------------------------ -------- ------------------------ -------- ----------------------- ---------
At 31 Dec 2021 139,494 0.6 52,274 0.5 62,703 0.7 16,789 0.6
-------------- ------------------------ -------- ------------------------ -------- ------------------------ -------- ----------------------- ---------
.
Other credit risk exposures
In addition to collateralised lending, other credit enhancements
are employed and methods used to mitigate credit risk arising from
financial assets. These are described in more detail below:
-- Some securities issued by governments, banks and other
financial institutions benefit from additional credit enhancement
provided by government guarantees that cover the assets;
-- Debt securities issued by banks and financial institutions
include asset-backed securities ('ABSs') and similar instruments
which are supported by underlying pools of financial assets. Credit
risk associated with ABSs is reduced through the purchase of credit
default swap ('CDS') protection;
-- Trading loan and advances mainly pledged against cash
collaterals are posted to satisfy margin requirements. There is
limited credit risk on trading loans and advances since in the
event of default of the counterparty these would be set off against
the related liability. Reverse repos and stock borrowings are by
their nature collateralised.
Collateral accepted as security that the group is permitted to
sell or repledge under these arrangements is described on page 165
of the financial statements.
-- The group's maximum exposure to credit risk includes
financial guarantees and similar contracts granted; as well as loan
and other credit-related commitments. Depending on the terms of the
arrangement, we may use additional credit mitigation if a guarantee
is called upon or a loan commitment is drawn and subsequently
defaults.
For further information on these arrangements, see Note 30 on
the financial statements.
Derivatives
We participate in transactions exposing us to counterparty
credit risk. Counterparty credit risk is the risk of financial loss
if the counterparty to a transaction defaults before satisfactorily
settling it. It arises principally from over-the-counter ('OTC')
derivatives and securities financing transactions and is calculated
in both the trading and non-trading books. Transactions vary in
value by reference to market factors such as interest rates,
exchange rates or asset prices.
The counterparty risk from derivative transactions is taken into
account when reporting the fair value of derivative positions. The
adjustment to the fair value is known as the credit value
adjustment ('CVA').
The International Swaps and Derivatives Association ('ISDA')
master agreement is our preferred agreement for documenting
derivatives activity. It is common, and our preferred practice, for
the parties involved in a derivative transaction to execute a
credit support annex ('CSA') in conjunction with the ISDA master
agreement. Under a CSA, collateral is passed between the parties to
mitigate the counterparty risk inherent in outstanding positions.
The majority of our CSAs are with financial institutional
clients.
We manage the counterparty exposure on our OTC derivative
contracts by using collateral agreements with counterparties
and
netting agreements. Currently, we do not actively manage our
general OTC derivative counterparty exposure in the credit markets,
although we may manage individual exposures in certain
circumstances.
We place strict policy restrictions on collateral types and as a
consequence the types of collateral received and pledged are, by
value, highly liquid and of a strong quality, being predominantly
cash.
Where a collateral type is required to be approved outside the
collateral policy, approval is required from a committee of senior
representatives from Markets, Legal and Risk.
See Note 28 on the financial statements for details regarding
legally enforceable right of offset in the event of counterparty
default and collateral received in respect of derivatives.
Personal lending
This section provides further details on the countries and
products comprising personal loans and advances to customers.
Further product granularity is also provided by stage, with
geographical data presented for loans and advances to customers,
loan and other credit-related commitments, and financial
guarantees.
Total personal lending for loans and advances to customers at amortised
costs by stage distribution
Gross Carrying amount Allowance for ECL
------------------------------------------------------------------------------------ --------------------------------------------------------------------------------------
Stage Stage Stage Total Stage Stage Stage Total
1 2 3 1 2 3
The group GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------- ------------------- -------------------- -------------------- ------------------- -------------------- -------------------- -------------------- --------------------
By portfolio
-------------- ------------------- -------------------- -------------------- ------------------- -------------------- -------------------- -------------------- --------------------
First lien
residential
mortgages 4,155 511 81 4,747 (7) (7) (22) (36)
-------------- ------------------- -------------------- -------------------- ------------------- -------------------- -------------------- -------------------- --------------------
- of which:
interest only
(including
offset) 878 53 30 961 - (1) (12) (13)
-------------- ------------------- -------------------- -------------------- ------------------- -------------------- -------------------- -------------------- --------------------
-
affordability
including
ARMs 353 6 - 359 (1) (1) - (2)
-------------- ------------------- -------------------- -------------------- ------------------- -------------------- -------------------- -------------------- --------------------
Other personal
lending 1,138 104 24 1,266 (2) (8) (9) (19)
- guaranteed - - - - - - - -
loans in
respect
of residential
property
--------------
- Other
personal
lending
which is
secured 982 70 9 1,061 (1) (4) (2) (7)
--------------
- credit cards 61 23 7 91 - (2) - (2)
--------------
- Other
personal
lending
which is
unsecured 95 11 8 114 (1) (2) (7) (10)
At 31 Dec 2022 5,293 615 105 6,013 (9) (15) (31) (55)
-------------- ------------------- -------------------- -------------------- ------------------- -------------------- -------------------- -------------------- --------------------
By geography
-------------- ------------------- -------------------- -------------------- ------------------- -------------------- -------------------- -------------------- --------------------
UK(1) 3,090 482 13 3,585 (2) (9) (3) (14)
France 50 3 36 89 - - (17) (17)
Germany 163 32 - 195 - - - -
Other
countries 1,990 98 56 2,144 (7) (6) (11) (24)
-------------- ------------------- -------------------- -------------------- ------------------- -------------------- -------------------- -------------------- --------------------
At 31 Dec 2022 5,293 615 105 6,013 (9) (15) (31) (55)
-------------- ------------------- -------------------- -------------------- ------------------- -------------------- -------------------- -------------------- --------------------
Total personal lending for loans and other credit-related commitments
and financial guarantees(2) by stage distribution
Nominal amount Allowance for ECL
-------------------------------------------------------------------------------- ----------------------------------------------------------------------------------
Stage Stage Stage Total Stage Stage Stage Total
1 2 3 1 2 3
The group GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------- ----------------- -------------------- -------------------- ----------------- ------------------- ------------------- ------------------- -------------------
UK 875 11 2 888 - - - -
France 637 32 3 672 - - - -
Germany 155 57 - 212 - - - -
---------- ----------------- -------------------- -------------------- ----------------- ------------------- ------------------- ------------------- -------------------
Other
countries 357 9 1 367 - - - -
At 31 Dec
2022 2,024 109 6 2,139 - - - -
---------- ----------------- -------------------- -------------------- ----------------- ------------------- ------------------- ------------------- -------------------
1 Includes primarily first lien residential mortgages in Channel Islands and Isle of Man.
2 Excludes performance guarantee contracts to which the
impairment requirements in IFRS 9 are not applied.
Total personal lending for loans and advances to customers at amortised
costs by stage distribution (continued)
Gross carrying amount Allowance for ECL
------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------
Stage Stage Stage Total Stage Stage Stage Total
1 2 3 1 2 3
The group GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------- ------------------ --------------------- --------------------- ------------------ --------------------- --------------------- --------------------- ---------------------
By portfolio
-------------- ------------------ --------------------- --------------------- ------------------ --------------------- --------------------- --------------------- ---------------------
First lien
residential
mortgages 6,723 173 234 7,130 (11) (5) (65) (81)
-------------- ------------------ --------------------- --------------------- ------------------ --------------------- --------------------- --------------------- ---------------------
- of which:
interest only
(including
offset) 3,134 115 94 3,343 (1) (2) (27) (30)
-------------- ------------------ --------------------- --------------------- ------------------ --------------------- --------------------- --------------------- ---------------------
-
affordability
including
ARMs 451 2 6 459 (3) - (1) (4)
-------------- ------------------ --------------------- --------------------- ------------------ --------------------- --------------------- --------------------- ---------------------
Other personal
lending 17,532 513 219 18,264 (11) (11) (60) (82)
-------------- ------------------ --------------------- --------------------- ------------------ --------------------- --------------------- --------------------- ---------------------
- guaranteed
loans in
respect
of
residential
property 14,387 332 38 14,757 (5) (2) (1) (8)
--------------
- Other
personal
lending
which is
secured 2,535 136 100 2,771 (3) (4) (24) (31)
--------------
- credit cards 318 22 11 351 (1) (2) (1) (4)
--------------
- Other
personal
lending
which is
unsecured 292 23 70 385 (2) (3) (34) (39)
-------------- ------------------ --------------------- --------------------- ------------------ --------------------- --------------------- ---------------------
At 31 Dec 2021 24,255 686 453 25,394 (22) (16) (125) (163)
-------------- ------------------ --------------------- --------------------- ------------------ --------------------- --------------------- --------------------- ---------------------
By geography
-------------- ------------------ --------------------- --------------------- ------------------ --------------------- --------------------- --------------------- ---------------------
UK(1) 3,543 88 49 3,680 (1) (3) (3) (7)
-------------- ------------------ --------------------- --------------------- ------------------ --------------------- --------------------- --------------------- ---------------------
France 18,500 497 239 19,236 (10) (10) (75) (95)
-------------- ------------------ --------------------- --------------------- ------------------ --------------------- --------------------- --------------------- ---------------------
Germany 161 47 - 208 - - - -
-------------- ------------------ --------------------- --------------------- ------------------ --------------------- --------------------- --------------------- ---------------------
Other
countries 2,051 54 165 2,270 (11) (3) (47) (61)
-------------- ------------------ --------------------- --------------------- ------------------ --------------------- --------------------- --------------------- ---------------------
At 31 Dec 2021 24,255 686 453 25,394 (22) (16) (125) (163)
-------------- ------------------ --------------------- --------------------- ------------------ --------------------- --------------------- --------------------- ---------------------
Total personal lending for loans and other credit-related commitments
and financial guarantees(2) by stage distribution (continued)
Nominal amount Allowance for ECL
------------------------------------------------------------------------------------ --------------------------------------------------------------------------------------
Stage Stage Stage Total Stage Stage Stage Total
1 2 3 1 2 3
The group GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------- ------------------ --------------------- --------------------- ------------------ --------------------- ------------------- ------------------- ---------------------
UK 586 3 2 591 - - - -
---------- ------------------ --------------------- --------------------- ------------------ --------------------- ------------------- ------------------- ---------------------
France 1,076 20 2 1,098 - - - -
---------- ------------------ --------------------- --------------------- ------------------ --------------------- ------------------- ------------------- ---------------------
Germany 136 85 - 221 - - - -
---------- ------------------ --------------------- --------------------- ------------------ --------------------- ------------------- ------------------- ---------------------
Other
countries 377 8 - 385 (1) - - (1)
---------- ------------------ --------------------- --------------------- ------------------ --------------------- ------------------- ------------------- ---------------------
At 31 Dec
2021 2,175 116 4 2,295 (1) - - (1)
---------- ------------------ --------------------- --------------------- ------------------ --------------------- ------------------- ------------------- ---------------------
1 Includes primarily first lien residential mortgages in Channel Islands and Isle of Man.
2 Excludes performance guarantee contracts to which the
impairment requirements in IFRS 9 are not applied.
Collateral on loans and advances
The following table provides a quantification of the value of
fixed charges we hold over specific assets where we have a history
of enforcing, and are able to enforce, collateral in satisfying a
debt in the event of the borrower failing to meet its contractual
obligations, and where the collateral is cash or can be realised by
sale in an established market.
The collateral valuation excludes any adjustment for obtaining
and selling the collateral and in particular loans shown as
collateralised or partially collateralised may also benefit from
other forms of credit mitigants.
Personal lending: residential mortgage loans including loan commitments
by level of collateral for key countries
(Audited)
of which:
-------------------------------------------------------------------------
Total UK France
------------------------------ ---------------------------------------- -------------------------------
Gross ECL Gross ECL Gross ECL
exposure coverage exposure coverage exposure coverage
The group GBPm % GBPm % GBPm %
-------------- -------------------- -------- -------------------- ------------------ -------------------- ---------
Stage 1
-------------- -------------------- -------- -------------------- ------------------ -------------------- ---------
Fully
collateralised 4,340 0.1 2,376 - 3 -
-------------- -------------------- -------- -------------------- ------------------ -------------------- ---------
LTV ratio:
-------------- -------------------- -------- -------------------- ------------------ -------------------- ---------
- less than
50% 2,199 0.1 1,255 - 3 -
-------------- -------- ------------------ ---------
- 51% to 60% 744 0.1 429 - - -
-------------- -------- ------------------ ---------
- 61% to 70% 738 0.3 420 0.2 - -
-------------- -------- ------------------ ---------
- 71% to 80% 442 0.2 198 - - -
-------------- -------- ------------------ ---------
- 81% to 90% 202 - 63 - - -
-------------- -------- ------------------ ---------
- 91% to 100% 15 - 11 - - -
-------------- -------------------- -------- -------------------- ------------------ -------------------- ---------
Partially
collateralised
(A): 50 - 11 - - -
-------------- -------------------- -------- -------------------- ------------------ -------------------- ---------
LTV ratio:
-------------- -------------------- -------- -------------------- ------------------ -------------------- ---------
- 101% to 110% 4 - 3 - - -
-------------- -------- ------------------ ---------
- 111% to 120% 3 - 1 - - -
-------------- -------- ------------------ ---------
- greater than
120% 43 - 7 - - -
-------------- -------------------- -------- -------------------- ------------------ -------------------- ---------
- collateral
value on A 10 6 -
-------------- -------------------- -------- -------------------- ------------------ -------------------- ---------
Total 4,390 0.1 2,387 - 3 -
-------------- -------------------- -------- -------------------- ------------------ -------------------- ---------
Stage 2
-------------- -------------------- -------- -------------------- ------------------ -------------------- ---------
Fully
collateralised 510 1.4 428 0.5 - -
-------------- -------------------- -------- -------------------- ------------------ -------------------- ---------
LTV ratio:
-------------- -------------------- -------- -------------------- ------------------ -------------------- ---------
- less than
50% 203 1.5 151 0.7 - -
-------------- -------- ------------------ ---------
- 51% to 60% 105 1.9 90 1.1 - -
-------------- -------- ------------------ ---------
- 61% to 70% 91 1.1 83 - - -
-------------- -------- ------------------ ---------
- 71% to 80% 66 1.5 60 - - -
-------------- -------- ------------------ ---------
- 81% to 90% 39 - 38 - - -
-------------- -------- ------------------ ---------
- 91% to 100% 6 - 6 - - -
-------------- -------------------- -------- -------------------- ------------------ -------------------- ---------
Partially
collateralised
(B): 1 - 1 - - -
-------------- -------------------- -------- -------------------- ------------------ -------------------- ---------
LTV ratio:
-------------- -------------------- -------- -------------------- ------------------ -------------------- ---------
- 101% to 110% 1 - 1 - - -
-------------- -------- ------------------ ---------
- 111% to 120% - - - - - -
-------------- -------- ------------------ ---------
- greater than - - - - - -
120%
-------------- -------------------- -------- -------------------- ------------------ -------------------- ---------
- collateral
value on B 1 1 -
-------------- -------------------- -------- -------------------- ------------------ -------------------- ---------
Total 511 1.4 429 0.5 - -
-------------- -------------------- -------- -------------------- ------------------ -------------------- ---------
Stage 3
-------------- -------------------- -------- -------------------- ------------------ -------------------- ---------
Fully
collateralised 65 16.9 10 10.0 7 14.3
-------------- -------------------- -------- -------------------- ------------------ -------------------- ---------
LTV ratio:
-------------- -------------------- -------- -------------------- ------------------ -------------------- ---------
- less than
50% 46 13.0 9 11.1 - -
-------------- -------- ------------------ ---------
- 51% to 60% 5 20.0 1 - - -
-------------- -------- ------------------ ---------
- 61% to 70% 9 22.2 - - 6 -
-------------- -------- ------------------ ---------
- 71% to 80% 3 33.3 - - - -
-------------- -------- ------------------ ---------
- 81% to 90% 1 - - - - -
-------------- -------- ------------------ ---------
- 91% to 100% 1 100.0 - - 1 100.0
-------------- -------------------- -------- -------------------- ------------------ -------------------- ---------
Partially
collateralised
(C): 16 68.8 - - 16 62.5
-------------- -------------------- -------- -------------------- ------------------ -------------------- ---------
LTV ratio:
-------------- -------------------- -------- -------------------- ------------------ -------------------- ---------
- 101% to 110% - - - - - -
-------------- -------- ------------------ ---------
- 111% to 120% - - - - - -
-------------- -------- ------------------ ---------
- greater than
120% 16 68.8 - - 16 62.5
-------------- -------------------- -------- -------------------- ------------------ -------------------- ---------
- collateral - - -
value on C
-------------- -------------------- -------- -------------------- ------------------ -------------------- ---------
Total 81 27.2 10 10.0 23 47.8
-------------- -------------------- -------- -------------------- ------------------ -------------------- ---------
At 31 Dec 2022 4,982 0.7 2,826 0.1 26 42.3
-------------- -------------------- -------- -------------------- ------------------ -------------------- ---------
Personal lending: residential mortgage loans including loan commitments
by level of collateral for key countries (continued)
(Audited)
of which:
----------------------------------------------------------------------------
Total UK France
------------------------------- ------------------------------------------ --------------------------------
Gross ECL Gross ECL Gross ECL
exposure coverage exposure coverage exposure coverage
The group GBPm % GBPm % GBPm %
-------------- --------------------- -------- --------------------- ------------------- --------------------- ---------
Stage 1
-------------- --------------------- -------- --------------------- ------------------- --------------------- ---------
Fully
collateralised 6,915 0.2 2,789 - 2,088 -
-------------- --------------------- -------- --------------------- ------------------- --------------------- ---------
LTV ratio:
-------------- --------------------- -------- --------------------- ------------------- --------------------- ---------
- less than
50% 3,400 0.1 1,308 - 1,110 0.1
-------------- -------- ------------------- ---------
- 51% to 60% 1,274 0.2 540 - 431 -
-------------- -------- ------------------- ---------
- 61% to 70% 1,074 0.2 452 - 296 -
-------------- -------- ------------------- ---------
- 71% to 80% 776 0.3 358 - 177 -
-------------- -------- ------------------- ---------
- 81% to 90% 345 0.3 113 - 48 -
-------------- -------- ------------------- ---------
- 91% to 100% 46 - 18 - 26 -
-------------- --------------------- -------- --------------------- ------------------- --------------------- ---------
Partially
collateralised
(A): 90 - 11 - 50 -
-------------- --------------------- -------- --------------------- ------------------- --------------------- ---------
LTV ratio:
-------------- --------------------- -------- --------------------- ------------------- --------------------- ---------
- 101% to 110% 18 - 2 - 12 -
-------------- -------- ------------------- ---------
- 111% to 120% 9 - 1 - 5 -
-------------- -------- ------------------- ---------
- greater than
120% 63 - 8 - 33 -
-------------- --------------------- -------- --------------------- ------------------- --------------------- ---------
- collateral
value on A 63 4 50
-------------- --------------------- -------- --------------------- ------------------- --------------------- ---------
Total 7,005 0.2 2,800 - 2,138 -
-------------- --------------------- -------- --------------------- ------------------- --------------------- ---------
Stage 2
-------------- --------------------- -------- --------------------- ------------------- --------------------- ---------
Fully
collateralised 169 3.0 46 - 83 1.2
-------------- --------------------- -------- --------------------- ------------------- --------------------- ---------
LTV ratio:
-------------- --------------------- -------- --------------------- ------------------- --------------------- ---------
- less than
50% 91 2.2 18 - 48 2.1
-------------- -------- ------------------- ---------
- 51% to 60% 25 4.0 6 - 13 -
-------------- -------- ------------------- ---------
- 61% to 70% 34 2.9 17 - 12 -
-------------- -------- ------------------- ---------
- 71% to 80% 15 6.7 5 - 7 -
-------------- -------- ------------------- ---------
- 81% to 90% 3 - - - 2 -
-------------- -------- ------------------- ---------
- 91% to 100% 1 - - - 1 -
-------------- --------------------- -------- --------------------- ------------------- --------------------- ---------
Partially
collateralised
(B): 5 - - - 2 -
-------------- --------------------- -------- --------------------- ------------------- --------------------- ---------
LTV ratio:
-------------- --------------------- -------- --------------------- ------------------- --------------------- ---------
- 101% to 110% 1 - - - - -
-------------- -------- ------------------- ---------
- 111% to 120% 1 - - - - -
-------------- -------- ------------------- ---------
- greater than
120% 3 - - - 2 -
-------------- --------------------- -------- --------------------- ------------------- --------------------- ---------
- collateral
value on B 4 - 3
-------------- --------------------- -------- --------------------- ------------------- --------------------- ---------
Total 174 2.9 46 - 85 1.2
-------------- --------------------- -------- --------------------- ------------------- --------------------- ---------
Stage 3
-------------- --------------------- -------- --------------------- ------------------- --------------------- ---------
Fully
collateralised 204 24.5 9 11.1 62 21.0
-------------- --------------------- -------- --------------------- ------------------- --------------------- ---------
LTV ratio:
-------------- --------------------- -------- --------------------- ------------------- --------------------- ---------
- less than
50% 94 12.8 6 16.7 24 20.8
-------------- -------- ------------------- ---------
- 51% to 60% 31 19.4 3 - 8 25.0
-------------- -------- ------------------- ---------
- 61% to 70% 34 23.5 - - 19 10.5
-------------- -------- ------------------- ---------
- 71% to 80% 13 38.5 - - 3 33.3
-------------- -------- ------------------- ---------
- 81% to 90% 14 42.9 - - 4 25.0
-------------- -------- ------------------- ---------
- 91% to 100% 18 72.2 - - 4 50.0
-------------- --------------------- -------- --------------------- ------------------- --------------------- ---------
Partially
collateralised
(C): 30 53.3 - - 24 58.3
-------------- --------------------- -------- --------------------- ------------------- --------------------- ---------
LTV ratio:
-------------- --------------------- -------- --------------------- ------------------- --------------------- ---------
- 101% to 110% 2 50.0 - - 2 50.0
-------------- -------- ------------------- ---------
- 111% to 120% 2 50.0 - - 2 50.0
-------------- -------- ------------------- ---------
- greater than
120% 26 53.8 - - 20 60.0
-------------- --------------------- -------- --------------------- ------------------- --------------------- ---------
- collateral
value on C 6 - 6
-------------- --------------------- -------- --------------------- ------------------- --------------------- ---------
Total 234 28.2 9 11.1 86 31.4
-------------- --------------------- -------- --------------------- ------------------- --------------------- ---------
At 31 Dec 2021 7,413 1.1 2,855 - 2,309 1.3
-------------- --------------------- -------- --------------------- ------------------- --------------------- ---------
Treasury risk
Overview
Treasury risk is the risk of having insufficient capital,
liquidity or funding resources to meet financial obligations and
satisfy regulatory requirements, as well as the risk to our
earnings or capital due to structural and transactional foreign
exchange exposures and changes in market interest rates, together
with pension and insurance risk.
Treasury risk arises from changes to the respective resources
and risk profiles driven by customer behaviour, management
decisions or the external environment.
Approach and policy
(Audited)
Our objective in the management of treasury risk is to maintain
appropriate levels of capital, liquidity, funding, foreign exchange
and market risk to support our business strategy, and meet our
regulatory and stress testing-related requirements.
Our approach to treasury management is driven by our strategic
and organisational requirements, taking into account the
regulatory, economic and commercial environment. We aim to maintain
a strong capital and liquidity base to support the risks inherent
in our business and invest in accordance with our strategy, meeting
both consolidated and local regulatory requirements at all
times.
Our policy is underpinned by our risk management framework. The
risk management framework incorporates a number of measures aligned
to our assessment of risks for both internal and regulatory
purposes. These risks include credit, market, operational,
pensions, structural and transactional foreign exchange risk, and
interest rate risk in the banking book.
For further details, refer to our Pillar 3 Disclosures at 31
December 2022.
Treasury risk management
Key developments in 2022
-- Our CET1 ratio decreased from 17.8% at 31 December 2021 to
16.8% at 31 December 2022. This included a 1.6 percentage point
impact from the disposal of the retail banking operations in France
and a 1.2 percentage point impact from RWA growth due to
implementation of new regulations, increased volatility in the
market and the impact of FX movements. Share issuance, profits and
other movements added 1.8 percentage points to the ratio.
-- The Group Board approved a new interest rate risk in the
banking book ('IRRBB') strategy in September, with the objective of
increasing our stabilisation of NII, with consideration given to
any capital or other constraints, and then adopting a managed
approach based on interest rates and outlook.
-- We took steps to reduce the duration risk of our Treasury
hold-to-collect-and-sell portfolio, which is accounted for at FVOCI
primarily to reduce the capital impact from rising interest rates.
This risk reduction lowered the hold-to-collect-and-sell stressed
value at risk ('SVaR') exposure of this portfolio from 532m at the
end of 2021 to 353m at the end of 2022.
-- We implemented a new hold-to-collect business model to better
reflect our management strategy to stabilise NII. This portfolio of
High Quality Liquid Assets ('HQLA') will form a greater part of our
liquid asset buffer going forward, as well as being a hedge to our
structural interest rate risk.
-- We enhanced the monitoring and forecasting of our capital
positions as a result of the Russia-Ukraine war, although there
were no material capital or liquidity direct impacts from the
increased uncertainty on the forward economic outlook. There was
also limited direct impact on our pension plans, as the most
material plans had little or no direct investments in Russia or
Ukraine.
-- Work continued over 2022 to implement and improve de-risking
strategies for our pension plans with a particular focus on asset
de-risking in Germany. In light of the increased market volatility
we have reviewed the investment strategies of our pension plans to
ensure that they remain appropriate and the pension plans continue
to cope with future volatility.
-- The cost of living has continued to increase throughout
Europe over 2022 and there are a number of pension risks arising
from this issue. The main areas where this impacts pensions are
across investment strategy, actuarial factors, pension increases
and members' behaviours. We have worked with the fiduciaries of the
pension plan to ensure impact to plans and members is understood
and monitored.
-- HBCE signed a framework agreement with Promontoria MMB SAS
('My Money Group') and its subsidiary Banque des Caraïbes SA, for
the sale of its retail banking business in France. The sale, which
is subject to regulatory approvals, is anticipated to complete in
the second half of 2023. The impact of classifying the disposal
group as held for sale resulted in a 1.6 percentage point reduction
in the group's CET1 ratio, which will be partly offset by the
reduction in RWAs upon closing.
-- The Group performed its inaugural resolvability
self-assessment to meet the BoE requirements, which came into
effect on 1 January 2022. This was incorporated into the BoE
publication of their findings from the first assessment of the
resolvability of the eight major UK firms as part of the
Resolvability Assessment Framework.
Governance and structure
The Chief Risk Officer is the accountable risk steward for all
treasury risks. The Chief Financial Officer is the risk owner for
treasury risks with the exception of pension risk which is co-owned
together with the regional heads of Performance & Reward.
Capital, liquidity, interest rate risk in the banking book and
non-trading book foreign exchange risk are the responsibility of
the Executive Committee and the Risk Committee. The Treasury
function actively manages these risks on an on-going basis,
supported by the Asset and Liability Management Committee ('ALCO'),
overseen by Treasury Risk Management and the Risk Management
Meeting ('RMM').
Pension risk is overseen by the Pension Risk Management
Meeting.
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 approach to
determining key capital risk appetites including CET1, total
capital, minimum requirements for own funds and eligible
liabilities ('MREL'), and leverage ratio. 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 our 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, and interest rate risk in
the banking book. Climate risk is also considered as part of the
ICAAP, and we are continuing to develop our approach. The ICAAP
supports the determination of our capital risk appetite and target
ratios, as well as enables the assessment and determination of
capital requirements by regulators. Subsidiaries prepare ICAAPs in
line with global guidance, while considering their local regulatory
regimes to determine their own risk appetites and ratios.
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. These
metrics are set and managed locally but are subject to robust
global review and challenge to ensure consistency of approach and
application of the Group's policies and controls.
Planning and performance
Capital and risk-weighted asset ('RWA') plans form part of the
annual financial resource plan that is approved by the Board.
Capital and RWA forecasts are submitted to the ALCO on a monthly
basis, and capital and RWAs are monitored and managed against the
plan.
Through our internal governance processes, we seek to strengthen
discipline over our investment and capital allocation decisions,
and to ensure that returns on investment meet management's
objectives. Our strategy is to allocate capital to businesses and
entities to support growth objectives where returns above internal
hurdle levels have been identified and in order to meet
their regulatory and economic capital needs. We evaluate and
manage business returns by using a RoTE 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 LCR and net stable funding ratio
('NSFR'), together with an internal liquidity metric. In addition,
we use a wider set of measures to manage an appropriate funding and
liquidity profile, including legal entity depositor concentration
limits, intra-day liquidity, forward-looking funding assessments
and other key measures.
Risks to capital and liquidity
Outside the stress testing framework, other risks may be
identified that have the potential to affect our RWAs, capital
and/or liquidity position. We closely monitor future regulatory
changes and continue to evaluate the impact of these upon our
capital and liquidity requirements, particularly those related to
the UK's implementation of the outstanding measures to be
implemented from the Basel III reforms ('Basel 3.1').
Regulatory developments
Our capital adequacy ratios have been affected by regulatory
developments in 2022, including changes to internal-ratings based
('IRB') modelling requirements and the UK's implementation of the
revisions to the Capital Requirements Regulation and Directive
('CRR II'). The PRA's final rules on NSFR were implemented and have
been reflected in disclosures since the first quarter of 2022.
With effect from 1 January 2023 IFRS 17 Insurance Contracts
comes into force. We expect this to reduce the group's CET1 ratio
by 0.3 percentage points because we value our insurance
subsidiaries under the equity method in our capital adequacy
reporting. Also from the same date, the group will be subject to a
binding minimum leverage ratio, set according to PRA rules.
Future changes to our ratios will occur with the implementation
of Basel 3.1. The PRA published its consultation on the
implementation of Basel 3.1 in the UK during the last quarter of
2022, with a proposed implementation date of 1 January 2025. The
proposal includes five-year transitional provisions for certain
elements of the reform.
Regulatory reporting processes and controls
The quality of regulatory reporting remains a key priority for
management and regulators. We are progressing with a comprehensive
programme to strengthen our processes, improve consistency and
enhance controls across our prudential regulatory reporting,
focussing on PRA requirements initially. We commissioned a number
of independent external reviews, some at the request of our
regulators, including one on our credit risk RWA reporting process,
which concluded in December 2022. These reviews have so far
resulted in improvements in the accuracy of reported RWAs and LCR
in accordance with policies, which have been reflected in our
year-end regulatory reported ratios. Our prudential regulatory
reporting programme is being phased over a number of years,
prioritising RWA, capital and liquidity reporting in the early
stages of the programme. 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 planning
The group uses stress testing to inform management of the
capital and liquidity needed to withstand internal and external
shocks, including a global economic downturn or a systems failure.
Stress testing results are also used to inform risk mitigation
actions, allocation of financial resources, and recovery and
resolution planning, as well as to re-evaluate business plans where
analysis shows capital, liquidity and/or returns do not meet their
target.
In addition to a range of internal stress tests, we are subject
to supervisory stress testing in many jurisdictions. These include
the programmes of the BoE, the EBA and the ECB. 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 recovery plan sets out the framework and
governance arrangements to support restoring us 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 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 we might not be
recoverable and would therefore need to be resolved by regulators.
We have contributed to the Group's inaugural resolvability
assessment framework ('RAF') self-assessment during 2021 to meet
the BoE's requirements, which came into effect on 1 January
2022.
Overall, our recovery and resolution planning helps safeguard
the Group's financial and operational stability. The Group is
committed to further developing its recovery and resolution
capabilities, including in relation to the BoE's resolvability
assessment framework.
Measurement of interest rate risk in the banking book
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 held to hedge positions held with
trading intent. Interest rate risk that can be economically hedged
may be transferred to the Markets Treasury business. Hedging is
generally executed through interest rate derivatives or fixed-rate
government bonds. Any interest rate risk that Markets Treasury
cannot economically hedge is not transferred and will remain within
the global business where the risks originate.
The following measures are used by Treasury to monitor and
control interest rate risk in the banking book including:
-- Net Interest Income ('NII') sensitivity;
-- Economic Value of Equity ('EVE') Sensitivity; and
-- Non-Trading Value at Risk ('VaR').
Net interest income sensitivity
A principal part of our management of non-traded interest rate
risk is to monitor the sensitivity of expected Net Interest Income
(NII) under varying interest rate scenarios (simulation modelling),
where all other economic variables are held constant. This
monitoring is undertaken at an entity level. HSBC Bank plc
calculates both one-year and five-year NII sensitivities across a
range of interest rate scenarios.
NII sensitivity figures represent the effect of pro forma
movements in projected yield curves based on a static balance sheet
size and structure. The exception to this is where the size of the
balances or repricing is deemed interest rate sensitive, for
example, early prepayment of mortgages. These sensitivity
calculations do not incorporate actions that would be taken by
Markets Treasury or in the business that originates the risk to
mitigate the effect of interest rate movements.
The NII sensitivity calculations assume that interest rates of
all maturities move by the same amount in the 'up-shock' scenario.
The sensitivity calculations in the 'down-shock' scenarios reflect
no floors to the shocked market rates.
However, customer product-specific interest rate floors are
recognised where applicable.
Economic value of equity sensitivity
EVE represents the present value of the future banking book cash
flows that could be distributed to equity holders under a managed
run-off scenario. This equates to the current book value of equity
plus the present value of future NII in this scenario. EVE can be
used to assess the economic capital required to support interest
rate risk in the banking book. An EVE sensitivity represents the
expected movement in EVE due to pre-specified interest rate shocks,
where all other economic variables are held constant. Operating
entities are required to monitor EVE sensitivities as a percentage
of capital resources.
Non-trading Value at Risk
Non-trading portfolios comprise positions that primarily arise
from the interest rate management of our retail and commercial
banking assets and liabilities, financial investments measured at
FVOCI, debt instruments measured at amortised cost, and exposures
arising from our insurance operations.
The following table summarises the main business areas where
non-trading market risks reside, and the market risk measures used
to monitor and limit exposures.
Non-trading risk
---------------------------
* Interest rates
* Credit spreads
---------------------------
Value at risk | Sensitivity
| Stress testing
Non-trading portfolios
Value at risk of the non-trading portfolios
(Audited)
Non-trading VaR includes the interest rate risk in the banking
book transferred to and managed by Markets Treasury and the
exposures generated by the portfolio of HQLA held by Markets
Treasury to meet liquidity requirements.
The non-trading VaR reduced materially during 2022 from GBP29.4m
to end the year at GBP18.6m and was predominately driven by
interest rate risk. The volatile market conditions driven by
geopolitical events and concerns around high inflation led the
Markets Treasury business to materially reduce the holdings of
outright and asset swapped UK and US Government bonds. The
rationale for the execution was to firstly protect the value of the
Held to Collect and Sale portfolio and secondly to reduce the
entities sensitivity to the increase of interest rates. There was a
spike in the VaR during September due to a recalibration of the VaR
model to incorporate the market volatility, however the Markets
Treasury business took further action to reduce their Interest Rate
sensitivity following change in the UK fiscal stance and increase
in uncertainty leading the bond market to sell off sharply and bond
yields rise to multi year highs. The daily levels of total
non-trading VaR over the last year are set out in the graph
below.
Daily VaR (non-trading portfolios), 99% 1 day (GBPm)
The group's non-trading VaR for the year is shown in the table
below.
Non-trading VaR, 99% 1 day
(Audited)
Interest Credit
rate spread Portfolio
('IR') ('CS') diversification(1) Total(2)
GBPm GBPm GBPm GBPm
-------- ------------------------- -------------------------- ---------------------------- -------------------------
Balance
at 31
Dec
2022 17.1 7.2 (5.6) 18.6
-------- ------------------------- -------------------------- ---------------------------- -------------------------
Average 26.3 6.7 (5.0) 28.0
-------- ------------------------- -------------------------- ---------------------------- -------------------------
Maximum 39.7 11.9 - 40.9
-------- ------------------------- -------------------------- ---------------------------- -------------------------
Minimum 16.3 4.2 - 17.8
-------- ------------------------- -------------------------- ---------------------------- -------------------------
Balance
at 31
Dec
2021 28.7 9.0 (8.4) 29.4
-------- ------------------------- -------------------------- ---------------------------- -------------------------
Average 26.6 10.0 (5.6) 31.0
-------- ------------------------- -------------------------- ---------------------------- -------------------------
Maximum 34.6 12.7 - 37.8
-------- ------------------------- -------------------------- ---------------------------- -------------------------
Minimum 18.0 7.2 - 22.5
-------- ------------------------- -------------------------- ---------------------------- -------------------------
1 Portfolio diversification is the market risk dispersion effect
of holding a portfolio containing different risk types. It
represents the reduction in unsystematic market risk that occurs
when combining a number of different risk types, for example,
interest rate, equity and foreign exchange, together in one
portfolio. It is measured as the difference between the sum of the
VaR by individual risk type and the combined total VaR. A negative
number represents the benefit of portfolio diversification. As the
maximum occurs on different days for different risk types, it is
not meaningful to calculate a portfolio diversification benefit for
this measure.
2 The total VaR is non-additive across risk types due to diversification effect.
Other Risk
Non-trading book foreign exchange exposures are outlined
below.
Structural foreign exchange exposures
Structural foreign exchange exposures represent net assets or
capital investments in subsidiaries, branches, joint arrangement or
associates, together with any associated hedges, the functional
currencies of which are currencies other than pound sterling.
An entity's functional currency is that of the primary economic
environment in which the entity operates. We use the pound sterling
as our presentation currency in our consolidated financial
statements because sterling forms the major currency in which we
transact and fund our business. Exchange rate differences on
structural exposures are recognised in other comprehensive income
('OCI').
The structural foreign exchange exposures are managed within
limits such that the capital ratios and the capital ratios of
individual banking subsidiaries are largely protected from the
effect of changes in exchange rates. We may hedge certain
structural foreign exchange positions, either at entity level, or
by relying on hedges held in other group entities, subject to
approved limits.
Transaction foreign exchange exposures
Transactional foreign exchange risk arises primarily from
day-to-day transactions in the banking book generating profit and
loss or FVOCI reserves in a currency other than the reporting
currency of the operating entity. Transactional foreign exchange
exposure generated through profit and loss is periodically
transferred to Markets and Securities Services and managed within
limits with the exception of limited residual foreign exchange
exposure arising from timing differences or for other reasons.
Transactional foreign exchange exposure generated through OCI
reserves is managed by the Markets Treasury business within agreed
appetite.
Pension risk management processes
HSBC provides future pension benefits on a defined contribution
basis from many of its European operations. However, there remain
future defined benefit pensions provided in the region.
Pension plans are run by local fiduciaries in line with local
legislative requirements. The largest pension plan is the HSBC
Trinkaus & Burkhardt Pension Scheme which is regulated by the
German Company Benefits Act (Gesetz zur Verbesserung der
betrieblichen Altersversorgung - Betriebsrentengesetz -
BetrAVG).
In defined contribution pension plans, the contributions that
HSBC is required to make are known, while the ultimate pension
benefit will vary, typically with investment returns achieved by
investment choices made by the employee.
While the market risk to HSBC of defined contribution plans is
low, it is still exposed to operational and reputational risk.
In defined benefit pension plans, the level of pension benefit
is known. Therefore, the level of contributions required by HSBC
will vary due to a number of risks, including:
-- investments delivering a return below that required to provide the projected plan benefits;
-- the prevailing economic environment leading to corporate
failures, thus triggering write-downs in asset values (both equity
and debt);
-- a change in either interest rates or inflation, causing an
increase in the value of the plan liabilities; and
-- plan members living longer than expected (known as
longevity risk).
Pension risk is assessed using an economic capital model that
takes into account potential variations in these factors.
The impact of these variations on both pension assets and
pension liabilities is assessed using a one-in-200-year stress
test. Scenario analysis and other stress tests are also used to
support pension risk management.
To fund the benefits associated with defined benefit plans,
sponsoring group companies, and in some instances employees, make
regular contributions in accordance with advice from actuaries and
in consultation with the plan's fiduciaries where relevant. These
contributions are normally set to ensure that there are sufficient
funds to meet the cost of the accruing benefits for the future
service of active members. However, higher contributions are
required when plan assets are considered insufficient to cover the
existing pension liabilities. Contribution rates are typically
revised annually or once every three years, depending on the
plan.
The defined benefit plans invest contributions in a range of
investments designed to limit the risk of assets failing to meet a
plan's liabilities. Any changes in expected returns from the
investments may also change future contribution requirements. In
pursuit of these long-term objectives, an overall target allocation
of the defined benefit plan assets between asset classes is
established. In addition, each permitted asset class has its own
benchmarks, such as stock market or property valuation indices or
liability characteristics. The benchmarks are reviewed at least
once every three to five years and more frequently if required by
local legislation or circumstances. The process generally involves
an extensive asset and liability review.
Capital risk in 2022
Capital overview
Capital adequacy metrics
At
31 Dec 31 Dec
2022 2021
------------------------------ -------------------- -----------------------
Risk-weighted assets
('RWAs') (GBPm)
------------------------------ -------------------- -----------------------
Credit risk 68,821 69,929
------------------------------ -------------------- -----------------------
Counterparty credit
risk 17,981 16,434
------------------------------ -------------------- -----------------------
Market risk 15,822 9,828
------------------------------ -------------------- -----------------------
Operational risk 11,547 10,512
------------------------------ -------------------- -----------------------
Total RWAs 114,171 106,703
------------------------------ -------------------- -----------------------
Capital on a transitional
basis (GBPm)
------------------------------ -------------------- -----------------------
Common equity tier
1 ('CET1') capital 19,184 18,963
------------------------------ -------------------- -----------------------
Tier 1 capital 23,077 22,825
------------------------------ -------------------- -----------------------
Total capital 36,187 33,992
------------------------------ -------------------- -----------------------
Capital ratios on
a transitional basis
(%)
------------------------------ -------------------- -----------------------
Common equity tier
1 16.8 17.8
------------------------------ -------------------- -----------------------
Total tier 1 20.2 21.4
------------------------------ -------------------- -----------------------
Total capital ratio 31.7 31.9
------------------------------ -------------------- -----------------------
Leverage ratio (transitional)
(2)
------------------------------ -------------------- -----------------------
Tier 1 capital (GBPm) 23,077 22,825
------------------------------ -------------------- -----------------------
Total leverage ratio
exposure measure (GBPm) 417,587 536,518
------------------------------ -------------------- -----------------------
Leverage ratio (%) 5.5 4.3
------------------------------ -------------------- -----------------------
Leverage ratio (fully
phased-in) (2)
------------------------------ -------------------- -----------------------
Tier 1 capital (GBPm) 23,077 22,652
------------------------------ -------------------- -----------------------
Total leverage ratio
exposure measure (GBPm) 417,587 536,518
------------------------------ -------------------- -----------------------
Leverage ratio (%) 5.5 4.2
------------------------------ -------------------- -----------------------
References to EU regulations and directives (including technical
standards) should, as applicable, be read as references to the UK's
version of such regulation and/or directive, as onshored into
UK
law under the European Union (Withdrawal) Act 2018, and as may
be subsequently amended under UK law.
Capital figures and ratios in the table above are calculated in
accordance with the revised Capital Requirements Regulation and
Directive, as implemented ('CRR II'). Leverage ratios are
calculated using the end point definition of capital and the IFRS 9
regulatory transitional arrangements.
Regulatory transitional arrangements for IFRS 9 'Financial
Instruments'
We have adopted the regulatory transitional arrangements in
CRR II for IFRS 9, including paragraph four of article 473a. Our
capital and ratios are presented under these arrangements
throughout the table above. Without their application, our CET1
ratio would be 16.8%.
The IFRS 9 regulatory transitional arrangements allow banks to
add back to their capital base a proportion of the impact that IFRS
9 has upon their loan loss allowances during the first five years
of use. The impact is defined as:
-- the increase in loan loss allowances on day one of IFRS 9 adoption; and
-- any subsequent increase in expected credit losses ('ECL') in
the non-credit-impaired book thereafter.
Any add-back must be tax-effected and accompanied by a
recalculation of exposure and RWAs. The impact is calculated
separately for portfolios using the standardised ('STD') and
internal ratings based ('IRB') approaches. For IRB portfolios,
there is no add-back to capital unless loan loss allowances exceed
regulatory 12-month expected losses.
In the current period, the add-back to the capital base amounted
to GBP24m under the STD approach with tax impacts of GBP5m which
resulted in a net add-back of GBP19m.
Own funds
Own funds disclosure
(Audited)
-------------------------------------------------------------------
At
31 Dec 31 Dec
2022 2021
Ref(*) GBPm GBPm
------ ----------------------------------------- -------------------------------- ---------------------------------
Common equity tier 1 ('CET1') capital:
instruments
and reserves
------ ----------------------------------------- -------------------------------- ---------------------------------
Capital instruments and the related share
premium
1 accounts 1,217 797
------ ----------------------------------------- -------------------------------- ---------------------------------
* ordinary shares 1,217 797
------ ----------------------------------------- --------------------------------
2 Retained earnings(1,2) 16,177 15,511
------ ----------------------------------------- -------------------------------- ---------------------------------
3 Accumulated other comprehensive income 4,010 2,931
(and other
reserves)(1,2)
------ ----------------------------------------- -------------------------------- ---------------------------------
5 Minority interests (amount allowed in 72 57
consolidated
CET1)
------ ----------------------------------------- -------------------------------- ---------------------------------
5a Independently reviewed interim net (1,459) 625
profits net of
any foreseeable charge or dividend(3)
------ ----------------------------------------- -------------------------------- ---------------------------------
6 Common equity tier 1 capital before 20,017 19,921
regulatory adjustments(2)
28 Total regulatory adjustments to common (833) (958)
equity tier
1
------ ----------------------------------------- -------------------------------- ---------------------------------
29 Common equity tier 1 capital(2) 19,184 18,963
36 Additional tier 1 capital before 3,942 3,906
regulatory adjustments
43 Total regulatory adjustments to (49) (44)
additional tier 1
capital
------ ----------------------------------------- -------------------------------- ---------------------------------
44 Additional tier 1 capital 3,893 3,862
------ ----------------------------------------- -------------------------------- ---------------------------------
45 Tier 1 capital(2) 23,077 22,825
51 Tier 2 capital before regulatory 13,559 11,591
adjustments
57 Total regulatory adjustments to tier 2 (449) (424)
capital
------ ----------------------------------------- -------------------------------- ---------------------------------
58 Tier 2 capital 13,110 11,167
------ ----------------------------------------- -------------------------------- ---------------------------------
59 Total capital(2) 36,187 33,992
------ ----------------------------------------- -------------------------------- ---------------------------------
* The references identify the lines prescribed in the European
Banking Authority template, which are applicable and where there is
a value.
1 These disclosures are based on updated rules implemented from
1 January 2022 including the PRA's disclosure templates and
instructions which came into force at that time. The presentation
of comparatives has been amended only for CRR II grandfathered
instruments to align to the updated template's rows and
instructions.
2 From 30 September 2022, investments in non-financial
institution subsidiaries or participations have been measured on an
equity accounting basis in compliance with UK regulatory
requirements. Comparatives for prior periods have been represented
on a consistent basis with the current year.
3 This row includes losses that have been recognised and
deducted as they arose and were therefore not subject to an
independent review.
At 31 December 2022, our common equity tier 1 ('CET1') capital
ratio decreased to 16.8% from 17.8% at 31 December 2021. The key
drivers of the fall in our CET1 ratio were:
-- a 1.6 percentage point impact from the expected loss on
reclassification of our retail banking operations in France to held
for sale;
-- a 1.2 percentage point impact from RWA growth due to
implementation of new regulations and increased volatility in the
market and due to impact of FX movement
Share issuance, profits and other movements added 1.8 percentage
points to the CET1 ratio.
Throughout 2022, we complied with the PRA's regulatory capital
adequacy requirements, including those relating to stress
testing.
Risk-weighted assets
RWA movement by key driver
Total
RWAs
GBPm
RWAs at 1 Jan 2022 106,703
Asset size 3,531
-------------------------- --------------------
Asset quality 296
-------------------------- --------------------
Model updates (2,804)
-------------------------- --------------------
Methodology and policy (937)
Foreign exchange movement 7,382
Total RWA movement 7,468
-------------------------- --------------------
RWAs at 31 Dec 2022 114,171
-------------------------- --------------------
RWAs increased by GBP7.5bn during the year, including an
increase of GBP7.4bn due to foreign currency translation
differences.
Asset size
Asset size increased by GBP3.5bn driven by an increase in Market
Risk RWA by GBP4.5bn mainly attributable to heightened market risk
volatility, and an increase in transactional and structural foreign
exchange exposure. This was partially offset by GBP0.7bn decrease
in Credit Risk RWAs due to other balance sheet movements.
Asset quality
Credit Risk increased marginally by GBP0.3bn due to portfolio
mix changes.
Model updates
The GBP2.8bn decrease in RWAs was mainly driven by the
implementation of new models for retail credit risk and equity
prices (in market risk).
Methodology and policy
The GBP0.9bn decrease in RWA is mainly driven by synthetic
securitization and by risk parameter refinements, partially offset
by increases due to implementation of CRR II rules.
Leverage ratio
Our leverage ratio is 5.5% at 31 December 2022, up from 4.2% at
31 December 2021. The improvement was primarily due to the
exclusion of central bank claims and cash pooling netting following
the implementation of the PRA UK leverage ratio framework from 1
January 2022 and a rise in tier 1 capital.
Pillar 3 disclosure requirements
Pillar 3 of the Basel regulatory framework is related to market
discipline and aims to make financial services firms more
transparent by requiring publication of wide-ranging information on
their risks, capital and management. Our Pillar 3 Disclosures at 31
December 2022 is published on our website,
www.hsbc.com/investors.
Structural foreign exchange exposures
The group's structural foreign currency exposure is represented
by the net assets or capital investments in subsidiaries, branches,
joint arrangements or associates, the functional currencies of
which are currencies other than the sterling.
For our policies and procedures for managing structural foreign
exchange exposures, see page 79 of the 'Risk management'
section.
Net structural foreign exchange
exposures
2022 2021
GBPm GBPm
----------------------- ---------------------- ----------------------
Currency of structural
exposure
----------------------- ---------------------- ----------------------
Euro 10,007 8,068
----------------------- ---------------------- ----------------------
US Dollars 1,062 1,470
----------------------- ---------------------- ----------------------
South African Rand 287 285
----------------------- ---------------------- ----------------------
Israeli New Shekel 85 169
Others, each less than
GBP150m 305 319
----------------------- ---------------------- ----------------------
At 31 Dec 11,746 10,311
----------------------- ---------------------- ----------------------
Liquidity and funding risk in 2022
Liquidity coverage ratio
The LCR aims to ensure that a bank has sufficient unencumbered
HQLA to meet its liquidity needs in a 30-calendar-day liquidity
stress scenario. HQLA consist of cash or assets that can be
converted into cash at little or no loss of value in markets.
At 31 December 2022, all the group's principal operating
entities were within the LCR risk tolerance level established by
the Board and applicable under the LFRF.
The following table displays the individual LCR levels for HSBC
Bank plc's principal operating entities on the European Commission
Delegated Regulation basis.
Operating entities' LCRs(1,2,3)
At
---------------
31 Dec 31 Dec
2022 2021
% %
------------------- ------- ------
HSBC Bank plc 143 142
-------------------- ------- ------
HSBC Continental
Europe 150 142
-------------------- ------- ------
In addition to the regulatory metric, the group manages
liquidity via 'internal liquidity metric', which is being used to
monitor and manage liquidity risk via a low-point measure across a
270-day horizon, taking into account recovery capacity.
Net stable funding ratio
The Net Stable Funding Ratio ('NSFR') requires institutions to
maintain sufficient stable funding relative to required stable
funding, and reflects a bank's long-term funding profile (funding
with a term of more than a year).
At 31 December 2022, all the group's principal operating
entities were within the NSFR risk tolerance level established by
the Board and applicable under the LFRF.
Operating entities' NSFRs(1,2)
At
---------------
31 Dec 31 Dec
2022 2021
% %
------------------- ------- ------
HSBC Bank plc 115 115
-------------------- ------- ------
HSBC Continental
Europe 140 130
-------------------- ------- ------
Depositor concentration and term funding maturity
concentration
The LCR and NSFR metrics assume a stressed outflow based on a
portfolio of depositors within each depositor segment. To ensure
the validity of these assumptions in the sense that the deposit
base is sufficient diversified, the depositor concentration is
monitored on an ongoing basis.
In addition to this, operating entities monitor the term funding
maturity concentration metric to ensure they are not overly exposed
to term funding concentration of wholesale market counterparts by
the current maturity profile in any defined period.
Liquid assets of the group's principal operating entities
The table below shows the unweighted liquidity value of assets
categorised as liquid, which is used for the purposes of
calculating the LCR metric. This reflects the stock of unencumbered
liquid assets at the reporting date, using the regulatory
definition of liquid assets.
Operating entities' liquid
assets(1,2,3)
-----------------------------
At Estimated At Estimated
liquidity liquidity
value value
31 Dec 31 Dec
2022 2021
GBPm GBPm
----------------- ---------------------------- -----------------------------
HSBC Bank plc
----------------- ---------------------------- -----------------------------
Level 1 93,500 88,423
----------------- ---------------------------- -----------------------------
Level 2a 5,726 3,195
----------------- ---------------------------- -----------------------------
Level 2b 3,270 3,473
----------------- ---------------------------- -----------------------------
HSBC Continental
Europe
----------------- ---------------------------- -----------------------------
Level 1 74,852 39,159
----------------- ---------------------------- -----------------------------
Level 2a 781 450
----------------- ---------------------------- -----------------------------
Level 2b 173 142
----------------- ---------------------------- -----------------------------
1 The LCR and NSFR ratios presented in this table are based on
average value. The LCR is the average of the preceding 12 months.
The NSFR is the average of preceding quarters. Prior period numbers
have been restated for consistency.
2 In response to the requirement for an IPU in line with EU
Capital Requirements Directive ('CRD V'), HBCE completed the change
of control transactions for HSBC Germany ('HTDE') and HSBC Malta
('HBMT') on 30 November 2022. The average for LCR and NSFR includes
the impact of inclusion of two entities for Nov-22 and Dec-22.
3 In December 2022, a strategic data enhancement was implemented
which resulted in a reclassification of some securities. This
reclassification drove a reduction in total High Quality Liquid
Assets and corresponding LCR as of 31 December 2022. Prior period
numbers have been restated for consistency.
Sources of funding
Our primary sources of funding are customer current accounts,
repo and wholesale securities.
The following 'Funding sources and uses' table provides a
consolidated view of how our balance sheet is funded, and should be
read in light of the LFRF, which requires operating entities to
manage liquidity and funding risk on a stand-alone basis.
The table analyses our consolidated balance sheet according to
the assets that primarily arise from operating activities and
the
sources of funding primarily supporting these activities. Assets
and liabilities that do not arise from operating activities are
presented at other balance sheet lines. In 2022, 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, cash and balances with central banks and
financial investments, as required by the LFRF.
Funding sources and uses for the group
2022 2021 2022 2021
GBPm GBPm GBPm GBPm
------------- ------------------ ---------------------- ----------- ------------------ ------------------------
Sources Uses
------------- ------------------ ---------------------- ----------- ------------------ ------------------------
Loans and
Customer advances to
accounts 215,948 205,241 customers 72,614 91,177
------------- ------------------ ---------------------- ----------- ------------------ ------------------------
Loans and
Deposits by advances to
banks 20,836 32,188 banks 17,109 10,784
------------- ------------------ ---------------------- ----------- ------------------ ------------------------
Reverse
Repurchase repurchase
agreements agreements
- -
non-trading 32,901 27,259 non-trading 53,949 54,448
------------- ------------------ ---------------------- ----------- ------------------ ------------------------
Cash
collateral,
margin
Debt and
securities settlement
in issue 7,268 9,428 accounts 51,858 34,907
------------- ------------------ ---------------------- ----------- ------------------ ------------------------
Cash
collateral,
margin
and
settlement Assets held
accounts 60,385 37,076 for sale 21,214 9
------------- ------------------ ---------------------- ----------- ------------------ ------------------------
Liabilities
of disposal
groups held Trading
for sale 24,711 - assets 79,878 83,706
------------- ------------------ ---------------------- ----------- ------------------ ------------------------
Subordinated - reverse
liabilities 14,528 12,488 repos 8,729 8,626
------------- ------------------ ---------------------- -----------
Financial
liabilities
designated
at fair - stock
value 27,287 33,608 borrowing 5,627 6,498
------------- ------------------ ---------------------- -----------
Liabilities
under - other
insurance trading
contracts 19,987 22,264 assets 65,522 71,862
------------- ------------------ ---------------------- ----------- ------------------
Trading Financial
liabilities 41,265 46,433 investments 32,604 41,300
------------- ------------------ ---------------------- ----------- ------------------ ------------------------
Cash and
balances
with
central
- repos 8,213 7,663 banks 131,433 108,482
------------- ----------- ------------------ ------------------------
Other
balance
- stock sheet
lending 1,773 1,637 assets 256,694 171,798
------------- ----------- ------------------ ------------------------
- other
trading
liabilities 31,279 37,133 At 31 Dec 717,353 596,611
------------- ------------------ ---------------------- ----------- ------------------ ------------------------
Total equity 24,016 23,715
------------- ------------------ ----------------------
Other balance
sheet
liabilities 228,221 146,911
------------- ------------------ ----------------------
At 31 Dec 717,353 596,611
------------- ------------------ ----------------------
Contingent liquidity risk arising from committed lending
facilities
The group provides customers with committed facilities such as
standby facilities to corporate customers and committed backstop
lines to conduits sponsored by the group. All of the undrawn
commitments provided to conduits or external customers are
accounted for in the LCR and NSFR in line with the applicable
regulations.
This ensures that under a stress scenario any additional outflow
generated by increased utilisation of these committed facilities by
either customers or the group's sponsored conduits is appropriately
reflected in our liquidity and funding position.
In relation to commitments to customers, the table below shows
the level of undrawn commitments outstanding in terms of the five
largest single facilities and the largest market sector.
The group's contractual exposures at 31 December monitored under the
contingent liquidity risk limit structure
2022 2021
GBPbn GBPbn
--------------------------------------------- ---------------------------- -----------------------------
Commitments to conduits
--------------------------------------------- ---------------------------- -----------------------------
Multi-seller conduits(1)
--------------------------------------------- ---------------------------- -----------------------------
- total lines 3.7 4.2
--------------------------------------------- ---------------------------- -----------------------------
- largest individual lines 0.2 0.2
--------------------------------------------- ---------------------------- -----------------------------
Securities investment conduits - total lines 1.3 1.3
--------------------------------------------- ---------------------------- -----------------------------
Commitments to customers
--------------------------------------------- ---------------------------- -----------------------------
- five largest (2) 3.7 10.4
--------------------------------------------- ---------------------------- -----------------------------
- largest market sector(3) 13.3 7.7
--------------------------------------------- ---------------------------- -----------------------------
1 Exposures relate to the Regency multi-seller conduit. This
vehicle provides funding to group customers by issuing debt secured
by a diversified pool of customer-originated assets.
2 Represents the undrawn balance for the five largest committed
liquidity facilities provided to customers, other than those
facilities to conduits.
3 Represents the undrawn balance for the total of all committed
liquidity facilities provided to the largest market sector, other
than those facilities to conduits.
Asset encumbrance and collateral management
An asset is defined as encumbered if it has been pledged as
collateral against an existing liability and, as a result, is no
longer available to the group to secure funding, satisfy collateral
needs or be sold to reduce the funding requirement. Collateral is
managed on an operating entity basis consistent with the approach
to managing liquidity and funding. Available collateral held in an
operating entity is managed as a single consistent collateral
pool
from which each operating entity will seek to optimise the use
of the available collateral. The objective of this disclosure is to
facilitate an understanding of available and unrestricted assets
that could be used to support potential future funding and
collateral needs. The disclosure is not designed to identify assets
which would be available to meet the claims of creditors or to
predict assets that would be available to creditors in the event of
a resolution or bankruptcy.
Summary of assets available to support potential future funding and
collateral needs (on- and off-balance sheet)
2022 2021
GBPm GBPm
------------------------------------------------------------ -------------------------- ----------------------------
Total on-balance sheet assets at 31 Dec 717,353 596,611
------------------------------------------------------------ -------------------------- ----------------------------
Less:
------------------------------------------------------------ -------------------------- ----------------------------
- reverse repo/stock borrowing receivables and derivative
assets (293,543) (207,513)
------------------------------------------------------------ -------------------------- ----------------------------
- other assets that cannot be pledged as collateral (51,974) (48,350)
------------------------------------------------------------ -------------------------- ----------------------------
Total on-balance sheet assets that can support funding
and collateral needs at 31 Dec 371,836 340,748
------------------------------------------------------------ -------------------------- ----------------------------
Add: off-balance sheet assets
------------------------------------------------------------ -------------------------- ----------------------------
- fair value of collateral received in relation to
reverse repo/stock borrowing/derivatives that is available
to sell or repledge 180,233 202,794
------------------------------------------------------------ -------------------------- ----------------------------
Total assets that can support future funding and collateral
needs 552,069 543,542
------------------------------------------------------------ -------------------------- ----------------------------
Less:
------------------------------------------------------------ -------------------------- ----------------------------
- on-balance sheet assets pledged (98,124) (93,513)
------------------------------------------------------------ -------------------------- ----------------------------
- re-pledging of off-balance sheet collateral received
in relation to reverse repo/stock borrowing/derivatives (136,777) (151,378)
------------------------------------------------------------ -------------------------- ----------------------------
Assets available to support funding and collateral
needs at 31 Dec 317,168 298,651
------------------------------------------------------------ -------------------------- ----------------------------
Market risk
Overview
Market risk is the risk that movements in market factors,
including foreign exchange rates and commodity prices, interest
rates, credit spreads and equity prices will reduce the group's
income or the value of its portfolios.
Exposure to market risk is separated into two portfolios.
Trading portfolios comprise positions arising from market-making
and warehousing of customer-derived positions.
Non-trading portfolios including Markets Treasury comprise
positions that primarily arise from the interest rate management of
the group's retail and commercial banking assets and liabilities,
financial investments designated as held-to-collect-and-sale
('HTCS'), and exposures arising from the group's insurance
operations.
Key developments in 2022
There were no material changes to our policies and practices for
the management of market risk in 2022.
Market risk governance
(Audited)
The following diagram summarises the main business areas where
trading market risks reside, and the market risk measures used to
monitor and limit exposures.
Trading risk
---------------------------------------
* Foreign exchange and commodities
* Interest rates
* Credit spreads
* Equities
---------------------------------------
Value at risk | Sensitivity
| Stress testing
---------------------------------------
Where appropriate, we apply similar risk management policies and
measurement techniques to trading portfolios. Our objective is to
manage and control market risk exposures to optimise return on risk
while maintaining a market profile consistent with our established
risk appetite.
Market risk is managed and controlled through limits approved by
the group Chief Risk Officer. These limits are allocated across
business lines and to the group and its subsidiaries. The majority
of HSBC's total VaR and almost all trading VaR reside in GBM. Each
major operating entity has an independent market risk management
and control sub-function, which is responsible for measuring,
monitoring and reporting market risk exposures against limits on a
daily basis. The Traded Risk function enforces the controls around
trading in permissible instruments approved for each site as well
as following completion of the new product approval process. Traded
Risk also restricts trading in the more complex derivative products
to offices with appropriate levels of product expertise and robust
control systems.
Market risk measures
Monitoring and limiting market risk exposures
Our objective is to manage and control market risk exposures
while maintaining a market profile consistent with the group's risk
appetite.
We use a range of tools to monitor and limit market risk
exposures including sensitivity analysis, VaR, and stress
testing
Sensitivity analysis
Sensitivity analysis measures the impact of individual market
factor movements on specific instruments or portfolios, including
interest rates, foreign exchange rates, credit spreads and equity
prices, such as the effect of a one basis point change in yield. We
use sensitivity measures to monitor the market risk positions
within each risk type. Sensitivity limits are set for portfolios,
products and risk types, with the depth of the market being one of
the principal factors in determining the level of limits set.
Value at risk
VaR is a technique that estimates the potential losses on risk
positions as a result of movements in market rates and prices over
a specified time horizon and to a given level of confidence. The
use of VaR is integrated into market risk management and is
calculated for all trading positions regardless of how the group
capitalises those exposures. Where there is not an approved
internal model, the group uses the appropriate local rules to
capitalise exposures.
The VaR model for trading portfolios are predominantly based on
historical simulation. The VaR is calculated at a 99% confidence
level for a one-day holding period. Where we do not calculate VaR
explicitly, we use alternative tools like Stress Testing.
The VaR models derive plausible future scenarios from past
series of recorded market rates and prices, taking into account
inter-relationships between different markets and rates such as
interest rates and foreign exchange rates. The models also
incorporate the effect of option features on the underlying
exposures.
The historical simulation models used incorporates the following
features:
-- Historical market rates and prices are calculated with
reference to foreign exchange rates and commodity prices, interest
rates, equity prices and the associated volatilities;
-- Potential market movements utilised for VaR are calculated
with reference to data from the past two years; and
-- VaR measures are calculated to a 99% confidence level and use a one-day holding period.
The nature of the VaR models means that an increase in observed
market volatility will most likely lead to an increase in VaR
without any changes in the underlying positions.
VaR model limitations
Although a valuable guide to risk, VaR should always be viewed
in the context of its limitations. For example:
-- the use of historical data as a proxy for estimating future
events may not encompass all potential events, particularly those
which are extreme in nature;
-- the use of a holding period assumes that all positions can be
liquidated or the risks offset during that period. This may not
fully reflect the market risk arising at times of severe
illiquidity, when the holding period may be insufficient to
liquidate or hedge all positions fully;
-- the use of a 99% confidence level by definition does not take
into account losses that might occur beyond this level of
confidence; and
-- VaR is calculated on the basis of exposures outstanding at
the close of business and therefore does not necessarily reflect
intra-day exposures.
Risk not in VaR framework
Other basis risks which are not completely covered in VaR are
complemented by our risk not in VaR ('RNIV') calculations, and are
integrated into our capital framework.
Risk factors are reviewed on a regular basis and either
incorporated directly in the VaR models, where possible, or
quantified through the VaR-based RNIV approach or a stress test
approach within the RNIV framework. The outcome of the VaR-based
RNIV is included in the VaR calculation; a stressed VaR RNIV is
also computed for the risk factors considered in the VaR-based RNIV
approach.
Stress-type RNIVs include a deal contingent derivatives capital
charge to capture risk for these transactions and a de-peg risk
measure to capture risk to pegged and heavily managed
currencies.
Stress testing
Stress testing is an important procedure that is integrated into
our market risk management tool to evaluate the potential impact on
portfolio values of more extreme, although plausible, events or
movements in a set of financial variables. In such scenarios,
losses can be much greater than those predicted by VaR
modelling.
Stress testing is implemented at legal entity, regional and
overall Group levels. A standard set of scenarios is utilised
consistently across all regions within the HSBC Group. Scenarios
are tailored to capture the relevant events or market movements at
each level. The risk appetite around potential stress losses for
the group is set and monitored against referral limits.
Market risk reverse stress tests are undertaken on the premise
that there is a fixed loss. The stress testing process identifies
which scenarios lead to this loss. The rationale behind the reverse
stress test is to understand scenarios which are beyond normal
business settings that could have contagion and systemic
implications.
Stressed VaR and stress testing, together with reverse stress
testing and the management of gap risk, provide management with
insights regarding the 'tail risk' beyond VaR for which the group's
appetite is limited.
Trading portfolios
Back-testing
We routinely validate the accuracy of our VaR models by
back-testing the VaR metric against both actual and hypothetical
profit and loss. Hypothetical profit and loss excludes non-modelled
items such as fees, commissions and revenue of intra-day
transactions.
The hypothetical profit and loss reflects the profit and loss
that would be realised if positions were held constant from the end
of one trading day to the end of the next. This measure of profit
and loss does not align with how risk is dynamically hedged, and is
not therefore necessarily indicative of the actual performance of
the business.
The number of back-testing exceptions is used to gauge how well
the models are performing. We consider enhanced internal monitoring
of a VaR model if more than five profit exceptions or more than
five loss exceptions occur in a 250-day period.
We back-test our VaR at set levels of our group entity
hierarchy.
Defined benefit pension plans
Market risk also arises within the Bank's defined benefit
pension plans to the extent that the obligations of the plans are
not fully matched by assets with determinable cash flows. Refer to
the Pension risk management processes section on page 79 for
additional information.
Market risk in 2022
The volatility in financial markets was elevated in 2022 driven
by high inflation and the geopolitical risk around Ukraine. During
the first half of the year, Russia-Ukraine war led supply chain
disruptions increasing energy and food prices. The Zero-Covid
policy in China added to the supply chain disruptions. Central
Banks around the world (both from Developed and Emerging markets)
aggressively started raising policy rates to tame the surging
inflation. The US and Europe imposed multiple sanctions on Russia
leading to large sell off of the Russian assets. The global equity
markets sold off and IPO dried off. The fixed income prices fell
responding to increasing rates. The USD index rallied with JPY, EUR
and GBP depreciating. The Credit market sold off with new issuances
drying up. European markets also underperformed as Russia
retaliated by cutting of gas supply to Europe. US and European
governments aggressively intervened in the energy market by
releasing Oil from strategic reserve driving Oil prices down.
Supply chain disruption also eased leading to Inflation coming down
in second half of 2022. However, volatility in financial markets
remained elevated particularly in the UK as the cost of living
crisis intensified. In addition, a change in the UK fiscal stance
in late September 2022 led to the pound sterling reaching record
lows and to significant turmoil in the market for long-dated UK
government bonds, which was exacerbated by rapid deleveraging of
liability-driven investment funds used by pension schemes.
Trading portfolios
Value at risk of the trading portfolios
(Audited)
The Trading VaR predominantly resides within Market Securities
Services where it was GBP31.2m as at 31 December 2022, compared
with GBP19m at 31 December 2021. The Total Trading VaR peaked at
GBP60m in September owing to the sensitivity of the trading book to
interest rate moves, coupled with a large volatility in the rates
market. When the central banks started to intervene beginning of
Q4, the market volatility started to ease; as a result, the Trading
VaR decreased and remained fairly stable over the last three months
of the year, ranging between GBP31.2m and GBP38.15m.
Daily VaR (trading portfolios), 99% 1 day (GBPm)
The group's trading VaR for the year is shown in the table
below.
Trading VaR, 99% 1 day
(Audited)
Foreign
exchange Credit
('FX') and Interest Equity Spread Portfolio
commodity rate ('IR') ('EQ') ('CS') Diversification(1) Total(2)
GBPm GBPm GBPm GBPm GBPm GBPm
-------- ------------------------------------ -------------------------------- -------------------------------- -------------------------------- -------------------------------- -------------------------------
Balance
at 31
Dec
2022 7.5 26.4 13.6 8.6 (24.9) 31.2
-------- ------------------------------------ -------------------------------- -------------------------------- -------------------------------- -------------------------------- -------------------------------
Average 10.0 15.3 11.7 13.0 (22.8) 27.2
-------- ------------------------------------ -------------------------------- -------------------------------- -------------------------------- -------------------------------- -------------------------------
Maximum 21.5 49.2 17.1 22.9 - 60.0
-------- ------------------------------------ -------------------------------- -------------------------------- -------------------------------- -------------------------------- -------------------------------
Minimum 3.3 8.2 6.8 7.0 - 14.2
-------- ------------------------------------ -------------------------------- -------------------------------- -------------------------------- -------------------------------- -------------------------------
Balance
at 31
Dec
2021 4.5 10.0 10.5 14.9 (20.9) 19.0
-------- ------------------------------------ -------------------------------- -------------------------------- -------------------------------- -------------------------------- -------------------------------
Average 7.1 12.8 10.2 12.6 (20.4) 22.3
-------- ------------------------------------ -------------------------------- -------------------------------- -------------------------------- -------------------------------- -------------------------------
Maximum 19.3 26.7 14.9 16.7 - 31.9
-------- ------------------------------------ -------------------------------- -------------------------------- -------------------------------- -------------------------------- -------------------------------
Minimum 3.7 9.3 6.3 9.2 - 17.3
-------- ------------------------------------ -------------------------------- -------------------------------- -------------------------------- -------------------------------- -------------------------------
1 Portfolio diversification is the market risk dispersion effect
of holding a portfolio containing different risk types. It
represents the reduction in unsystematic market risk that occurs
when combining a number of different risk types, for example,
interest rate, equity and foreign exchange, together in one
portfolio. It is measured as the difference between the sum of the
VaR by individual risk type and the combined total VaR. A negative
number represents the benefit of portfolio diversification. As the
maximum occurs on different days for different risk types, it is
not meaningful to calculate a portfolio diversification benefit for
this measure.
2 The total VaR is non-additive across risk types due to
diversification effect and it includes VaR RNIV.
Back-testing
HSBC Bank plc experienced 11 back testing exceptions against the
Hypothetical P&L and 9 back testing exceptions against the
Actual P&L. The hypothetical back testing exceptions were
driven by losses from defensive positioning in rates, equity,
credit and FX exposures on days when markets rallied.
In addition, there were two actual back testing exceptions
driven by one off changes in reserves (such as month end
adjustment) and two actual back testing exceptions driven by losses
from the unwinding of a large trade.
Climate Risk
Overview
Climate risks have the potential to cause both financial and
non-financial impacts for HSBC Bank plc. Financial impacts could
materialise, for example, through greater transactional losses
and/or increased capital requirements. Non-financial impacts could
materialise if our own assets or operations are impacted by extreme
weather or chronic changes in weather patterns, or as a result of
business decisions to help achieve the HSBC Group's climate
ambition.
We remain aligned to the HSBC Group climate ambition to align
HSBC Group's own operations and supply chain to net zero by 2030,
and the financed emissions from the HSBC Group's portfolio of
customers to net zero by 2050. The HSBC Group announced in March
2022 that it intends to publish a climate transition plan in 2023,
and committed to a science-aligned phase-down of fossil fuel
finance, and a review of its wider financing and investment
policies critical to achieving net zero by 2050. This follows the
HSBC Group's thermal coal phase out policy, which was announced in
2021.
Key developments in 2022
-- HSBC Bank plc's risk appetite statement is approved by the
Board and includes the measures we intend to take to enable the
delivery of our climate ambition and meet our commitments.
-- Through our dedicated climate risk programme, we have
continued to embed climate considerations throughout the firm,
including updating the scope of our programme to cover all risk
types, expanding the scope of climate related training and
developing new climate risk metrics to monitor and manage exposures
as well as publishing a new greenwashing risk management
framework.
-- We have enhanced and expanded the use of a client Transition
Engagement Questionnaire to better understand our exposure to the
highest transition risk sectors and we continue to engage with our
customers to understand and support their transition away from high
carbon activities.
Governance and structure
The group's Board takes overall responsibility for our ESG
strategy, overseeing executive management in developing the
approach, execution and associated reporting.
We continue to aim to deepen our understanding of the drivers of
climate risk as well as aim to manage our exposure. A dedicated
Climate Risk Oversight Forum is responsible for shaping and
overseeing our approach and providing support in managing climate
risk.
The group's Risk Management Meeting and Risk Committee receive
regular updates on our climate risk profile and progress of our
climate risk programme.
Key risk management processes
We are integrating climate risk into the policies, processes and
controls across many areas of our organisation, and we will
continue to update these as our climate risk management
capabilities mature over time. We continue to enhance our climate
risk scoring tool, which will enable us to assess our customers'
exposures to climate risk.
Resilience Risk
Overview
Resilience risk is the risk that we are unable to provide
critical services to our customers, affiliates and counterparties
as a result of sustained and significant operational disruption.
Resilience risk arises from failures or inadequacies in processes,
people, systems or external events.
Key developments in 2022
The Operational and Resilience Risk sub-function seeks to
provide robust Risk Steward oversight of the management of risk by
our businesses, functions and legal entities. This includes
effective and timely independent challenge and expert advice.
During the year, we carried out a number of initiatives to seek to
keep pace with geopolitical, regulatory and technology changes and
to strengthen the management of resilience risk:
-- We focus on understanding of our risk and control
environment, by updating our risk taxonomy and control libraries,
and refreshing risk and control assessments.
-- We implemented heightened monitoring and reporting of cyber,
third party, business continuity and payment/sanctions risks
resulting from the Russia-Ukraine war and enhanced controls and key
processes where needed.
-- We provide analysis and reporting of non-financial risks
providing easy to access risk and control information and metrics
that enable management to focus on non-financial risks in their
decision-making and appetite setting.
-- We aimed to further strengthen our non-financial risk
governance and senior leadership and improved our coverage and Risk
Steward oversight, for data privacy and change execution.
Governance and structure
The Operational and Resilience Risk target operating model
provides a globally consistent approach, which allows us to define
a group view across resilience risks, strengthening our risk
management oversight while operating effectively as part of a
simplified non-financial risk structure. We view resilience risk
across nine sub-risk types related to: failure to manage third
parties; technology and cybersecurity; transaction processing;
failure to protect people and places from physical malevolent acts;
business interruption and incident risk; data risk; change
execution risk; building unavailability; and workplace safety.
Risk appetite and key escalations for resilience risk are
reported to our Risk Management Meeting (chaired by the HSBC Bank
plc Chief Risk Officer) and to our Risk Committee.
Key risk management process
Operational resilience is our ability to anticipate, prevent,
adapt, respond to, recover and learn from operational disruption
while minimising customer and market impact. Resilience is
determined by assessing whether we are able to continue to provide
our most important services, within an agreed level. This is
achieved via day-to-day oversight, periodic and ongoing assurance,
such as deep dive review and controls testing, which may result in
challenges being raised to the business by Risk Stewards. Further
challenge is also raised in the form of quarterly Risk Steward
opinion papers to formal governance. We accept we will not be able
to prevent all disruption but we prioritise investment to
continually improve the response and recovery strategies for our
most important business services.
Business operations continuity
We continue to monitor the situation in Russia and Ukraine, and
remain ready to take measures to help ensure business continuity,
should the situation require. There has been no significant impact
to our services in nearby markets where the group operates.
Publications from the UK Government, EU Commission and the National
Grid, amongst others, advised on potential plans for power cuts and
energy restrictions across the UK and Continental Europe during the
winter period. In light of potential disruption, businesses and
functions in these markets are reviewing existing plans and
responses to minimise the impact.
Regulatory compliance risk
Overview
Regulatory compliance risk is the risk associated with breaching
our duty to clients and other counterparties, inappropriate market
conduct and breaching related financial services regulatory
standards. Regulatory compliance risk arises from the failure to
observe relevant laws, codes, rules and regulations and can
manifest itself in poor market or customer outcomes and lead to
fines, penalties and reputational damage to our business.
Key developments in 2022
The dedicated programme to embed our updated purpose-led conduct
approach has concluded. Work to map applicable regulations to our
risks and controls continues in 2023 alongside adoption of new
tooling to support enterprise-wide horizon scanning for new
regulatory obligations and to manage our regulatory reporting
inventories. Climate risk has been integrated into regulatory
compliance policies and processes, with enhancements being made to
the Product Governance Framework and controls in order to ensure
the effective consideration of Climate, and in particular
Greenwashing, risks.
A major change initiative that begun in 2022 was the
introduction of the UK Consumer Duty (which will begin to be
implemented in July 2023) and measures resulting from ongoing
thematic reviews into the workings of the retail, small to medium
enterprises ('SME') and wholesale banking sectors and the provision
of financial advice to consumers in the UK particularly. A number
of the issues arising from this work have been exacerbated by the
cost of living crisis affecting the UK and the EU, and we may see
further regulatory intervention as a result, in particular to
protect vulnerable customers.
Governance and structure
The structure of the Compliance function is substantively
unchanged and the Group Regulatory Conduct capability and Group
Financial Crime capability both continue to work closely with the
regional Chief Compliance Officers and their respective teams to
help them identify and manage regulatory and financial crime
compliance risks across the Group. They also work together and with
all relevant stakeholders to ensure we achieve good conduct
outcomes and provide enterprise-wide support on the Compliance risk
agenda in collaboration with the Group's Risk function.
Key risk management processes
The Europe Regulatory Conduct function is engaged in setting
policies, standards and risk appetite to guide the management of
regulatory compliance. It also devises clear frameworks and support
processes to mitigate regulatory compliance risks. The capability
provides oversight, review and challenge to the Country Chief
Compliance Officers and their teams to help them identify, assess
and mitigate regulatory compliance risks, where required. The
regulatory compliance risk policies are regularly reviewed.
Policies and procedures require the prompt identification and
escalation of any actual or potential regulatory breach. Relevant
reportable events are escalated to the HSBC Bank plc RMM and to the
Group Risk Committee, as appropriate.
Conduct of business
Our conduct approach aims to guide us to do the right thing and
to focus on the impact we have on our customers and the financial
markets in which we operate. It complements our purpose and values
and - together with more formal policies and the tools we have to
do our jobs - provides a clear path to achieving our purpose and
delivering our strategy. For further information on our Purpose-led
Conduct Approach, see
www.hsbc.com/who-we-are/esg-and-responsible-business/our-conduct
Regulators and governments
We proactively engage with regulators and governments to
facilitate strong relationships through virtual and in-person
meetings and by responding to consultations individually and
jointly via industry bodies.
Financial crime risk
Overview
Financial crime risk is the risk that HSBC's products and
services will be exploited for criminal activity. This includes
fraud, bribery and corruption, tax evasion, sanctions and export
control violations, money laundering, terrorist financing and
proliferation financing. Financial crime risk arises from
day-to-day banking operations involving customers, third parties
and employees.
Key developments in 2022
We regularly review the effectiveness of our financial crime
risk management framework, which includes consideration of the
complex and dynamic nature of sanctions compliance risk. In 2022,
we adapted our policies, procedures and controls to respond to the
unprecedented volume and diverse set of sanctions and trade
restrictions imposed against Russia following its invasion of
Ukraine.
We also continued to make progress with several key financial
crime risk management initiatives, including:
-- We enhanced our screening and non-screening controls to aid
the identification of potential sanctions risk related to Russia,
as well as risk arising from export control restrictions.
-- We deployed a key component of our intelligence-led, dynamic
risk assessment capabilities for customer account monitoring in our
Non-Ring Fenced Bank for CMB and in our Jersey market for domestic
customers in retail and wholesale, while building toward other
markets in Europe. Global Social Network Analysis was deployed in
December for correspondent banking in the UK, bringing a broader,
more holistic review of potential financial crime risk.
-- We reconfigured our transaction screening capability in
readiness for the global change to payment systems formatting under
ISO20022 requirements, and enhanced transaction screening
capabilities by implementing automated alert discounting.
-- We strengthened the first party lending fraud framework,
reviewed and published an updated fraud policy and associated
control library, and continued to develop fraud detection
tools.
Governance and Structure
The structure of the Financial Crime function remained
substantively unchanged in 2022, although we continued to review
the effectiveness of our governance framework to manage financial
crime risk. The Regional Head of Financial Crime and HSBC Bank plc
Money Laundering Reporting Officer continues to report to the EMEA
Head of Compliance, while the HSBC Bank plc Risk Management Meeting
retains oversight of matters relating to money laundering, fraud,
bribery and corruption, tax evasion, sanctions and export control
breaches, terrorist financing and proliferation financing.
Key risk management processes
We will not tolerate knowingly conducting business with
individuals or entities believed to be engaged in criminal
activity. We require everybody in HSBC to play their role in
maintaining effective systems and controls to prevent and detect
financial crime. Where we believe we have identified suspected
criminal activity or vulnerabilities in our control framework, we
will take appropriate mitigating action.
We manage financial crime risk because it is the right thing to
do to protect our customers, shareholders, staff, the communities
in which we operate, as well as the integrity of the financial
system on which we all rely. We operate in a highly regulated
industry in which these same policy goals are codified in law and
regulation. We are committed to complying with the law and
regulation of all the markets in which we operate in HSBC Bank plc
and applying a consistently high financial crime standard. In cases
where material differences exist between the law and regulation of
these markets, our policy adopts the highest standard while
acknowledging the primacy of local law.
We continue to assess the effectiveness of our end-to-end
financial crime risk management framework, and invest in enhancing
our operational control capabilities and technology solutions to
deter and detect criminal activity. We have simplified our
framework by streamlining and de-duplicating policy requirements.
We also strengthened our financial crime risk taxonomy and control
libraries and our investigative and monitoring capabilities through
technology deployments. We developed more targeted metrics, and
have also enhanced our governance and reporting.
We are committed to working in partnership with the wider
industry and the public sector in managing financial crime risk,
protecting the integrity of the financial system and the
communities we serve. We participate in numerous public-private
partnerships and information-sharing initiatives around the Europe
region, including holding leadership positions in many. In 2022,
our focus remained on measures to improve information sharing,
including typologies of financial crime and highlighting key tools
in the fight against it. Within the European Police agency,
Europol, we maintained a presence, and lent our expertise to
working groups, as well as advocacy teams focused on how financial
crime risk management frameworks can deliver more effective
outcomes in detecting and deterring criminal activity, including
tackling evolving criminal behaviour such as fraud. We continued
our engagement in the Joint Money Laundering Intelligence Task
Force in the UK, particularly on sanctions matters.
ESG disclosures
We have continued our efforts to combat financial crime and
reduce its impact on our organisation, customers and the
communities that we serve. Financial crime includes fraud, bribery
and corruption, tax evasion, sanctions and export control
violations, money laundering, terrorist financing and proliferation
financing.
We are committed to acting with integrity and have built a
strong financial crime risk management framework across all global
businesses and all countries and territories in which we operate.
The financial crime risk framework, which is overseen by the HSBC
Bank plc Board, is supported by our financial crime policies that
are designed to enable adherence to applicable laws and regulations
globally.
Annual mandatory training is provided to all colleagues, with
additional targeted training tailored to certain individuals. We
carry out regular risk assessments, identifying where we need to
respond to evolving financial crime threats, as well as monitor and
test our financial crime risk management programme.
We continue to invest in new technology, including through the
deployment of a capability to monitor correspondent banking
activity, the enhancements to our fraud monitoring capability and
our trade screening controls, and the application of machine
learning to improve the accuracy and timeliness of our detection
capabilities. We are confident our adoption of these new
technologies will continue to enhance our ability to respond
quickly to unusual activity and be more granular in our risk
assessments. This will help us to protect our customers,
shareholders, staff, the communities in which we operate and the
integrity of the financial system on which we all rely, while
providing actionable information to government authorities through
our reporting.
Our anti-bribery and corruption policy
Our global AB&C policy requires that all activity must be:
conducted without intent to bribe or corrupt; reasonable and
transparent; considered to not be lavish nor disproportionate to
the professional relationship; appropriately documented with
business rationale; and authorised at an appropriate level of
seniority. There were no concluded, nor live active, legal cases
regarding bribery or corruption brought against HSBC or its
employees in 2022. Our global AB&C policy requires that we
identify and mitigate the risk of our customers and third parties
committing bribery or corruption. We utilise anti-money laundering
controls, including customer due diligence and transaction
monitoring, to identify and mitigate the risk that our customers
are involved in bribery or corruption. We perform a bribery risk
assessment on all third parties, and impose risk-based controls on
the third parties that expose us to bribery or corruption risk.
Skilled Person & Independent Consultant
In August 2022, the Board of Governors of the Federal Reserve
System terminated its 2012 cease-and-desist order, with immediate
effect. This order was the final remaining regulatory enforcement
action that HSBC had entered into in 2012. In June 2021, the UK
Financial Conduct Authority had already determined that no further
Skilled Person work was required under section 166 of the Financial
Services and Markets Act. The Group Risk Committee retains
oversight of matters relating to financial crime, including any
remaining remedial activity not yet completed as part of previous
recommendations.
In December 2022, the 3-year DPA our Swiss private bank entered
into with the DOJ was dismissed. This dismissal confirms that our
Swiss private bank complied in all material terms with the DPA
obligations by establishing or enhancing the relevant governance,
controls, training and internal assurance reviews and allows the
private banking business in Switzerland to move forward while
maintaining the robust control environment put in place to combat
tax evasion in the future.
Model risk
Overview
Model risk is the risk of inappropriate or incorrect business
decisions arising from the use of models that have been
inadequately designed, implemented or used, or from models that do
not perform in line with expectations and predictions.
Model risk arises in both financial and non-financial contexts
whenever business decision making includes reliance on models.
Key developments in 2022
We managed the risks related to the Russia-Ukraine war and
broader macroeconomic and geopolitical uncertainties, as well as
the continued risks resulting from the Covid-19 pandemic and other
key risks described in this section.
In addition, we enhanced our risk management in the following
areas:
-- In response to regulatory capital charges, we redeveloped,
validated and submitted to the PRA and ECB our models for the
internal ratings-based ('IRB') approach for credit risk, internal
model method ('IMM') for counterparty credit risk and internal
model approach ('IMA') for market risk. These new models have been
built to enhanced standards using improved data as a result of
investment in processes and systems. We have continued to improve
our risk governance decision making, particularly regarding the
governance of treasury risk to ensure senior executives have
appropriate oversight and visibility of macroeconomic trends around
inflation and interest rates.
-- We redeveloped and validated models impacted by changes to
alternative rate setting mechanisms due to the Ibor transition.
-- We embedded the changes made to our control framework for our
financial reporting processes to address the control weaknesses
that emerged as a result of significant increases in adjustments
and overlays that were applied to compensate for the impact of the
Covid-19 pandemic on models.
-- Our businesses and functions continue to be more involved in
the development and management of models, and hiring colleagues who
have strong model risk skills. They also put an enhanced focus on
key model risk drivers such as data quality and model
methodology.
-- We enhanced the reporting that supports the model risk
appetite measures, to support our businesses and functions in
managing model risk more efficiently.
-- We continued to support businesses in the programme of work
related to climate risk and models using advanced analytics and
machine learning, which have become critical areas of focus that
will grow in importance in 2023 and beyond. We also added further
qualified specialist skills to the model risk teams to manage the
increased model risk in these areas.
-- We continued the transformation of the Model Risk Management
team, with further enhancements to the independent model validation
processes, including new systems and working practices. Key senior
hires were made during the year to lead the business areas and
regions to strengthen oversight and expertise within the
function.
Governance and structure
The group's Model Risk Committee is chaired by our Chief Risk
Officer and provides oversight of model risk. The committee
includes senior leaders and risk owners across the lines of
business and Risk and focuses on model-related concerns and key
model risk metrics.
Key risk management processes
We use a variety of modelling approaches, including regression,
simulation, sampling, machine learning and judgmental scorecards
for a range of business applications. These activities include
customer selection, product pricing, financial crime transaction
monitoring, creditworthiness evaluation and financial reporting.
HSBC Bank plc responsibility for managing model risk is delegated
from the group's RMM to the group's Model Risk Committee, which is
chaired by the group's Chief Risk Officer. This committee regularly
reviews our model risk management policies and procedures, and
requires the first line of defence to demonstrate comprehensive and
effective controls based on a library of model risk controls
provided by Model Risk Management.
Model Risk Management also reports on model risk to senior
management on a regular basis through the use of risk management
information, risk appetite metrics and top and emerging risks.
We regularly review the effectiveness of these processes,
including the model oversight committee structure, to help ensure
appropriate understanding and ownership of model risk is embedded
in the businesses and functions.
Insurance manufacturing operations
risk Overview
The key risks for our insurance manufacturing operations are
market risks, in particular interest rate and equity, credit risks
and insurance underwriting risks. These have a direct impact on the
financial results and capital positions of the insurance
operations. Liquidity risk, whilst significant in other parts of
the bank, is relatively minor for our insurance operations.
HSBC's insurance business
We sell insurance products through a range of channels including
our branches, insurance salesforces, direct channels and
third-party distributors. The majority of sales are through an
integrated bancassurance model that provides insurance products
principally for customers with whom we have a banking relationship,
although the proportion of sales though digital is increasing.
The insurance products we manufacture, the majority of sales are
of savings, universal life and protection contracts.
We choose to manufacture these insurance products in HSBC
subsidiaries based on an assessment of operational scale and risk
appetite. Manufacturing insurance allows us to retain the risks and
rewards associated with writing insurance contracts by keeping part
of the underwriting profit and investment income within the
Group.
Where we do not have the risk appetite or operational scale to
be an effective insurance manufacturer, we engage with a small
number of leading external insurance companies in order to provide
insurance products to our customers. These arrangements are
generally structured with our exclusive strategic partners and earn
the group a combination of commissions, fees and a share of
profits. We distribute insurance products in all of our
geographical regions.
Insurance products are sold through all global businesses, but
predominantly by WPB and CMB through our branches and direct
channels.
Insurance manufacturing operations risk management
Key developments in 2022
The insurance manufacturing subsidiaries follow the Group's risk
management framework. In addition, there are specific policies and
practices relating to the risk management of insurance contracts.
There has been continued market volatility observed over 2022
across interest rates, equity markets and foreign exchange rates.
This has been predominantly driven by geopolitical factors and
wider inflationary concerns.
One area of key risk management focus over 2022 was the
implementation of the new accounting standard, IFRS17 Insurance
Contracts. Given the fundamental nature of the impact of the
accounting standard on insurance accounting, this presents
additional financial reporting and model risks for the Bank.
Governance
Insurance manufacturing risks are managed to a defined risk
appetite, which is aligned to the bank's risk appetite and risk
management framework, including the three lines of defence model.
For details on the governance framework, see page 26. The Group
Insurance Risk Management Meeting oversees the control framework
globally and is accountable to the WPB Risk Management Meeting on
risk matters relating to the insurance business.
The monitoring of the risks within the insurance operations is
carried out by Insurance Risk teams. The Bank's risk stewardship
functions support the Insurance Risk teams in their respective
areas of expertise.
Stress and scenario testing
Stress testing forms a key part of the risk management framework
for the insurance business. We participate in local and Group-wide
regulatory stress tests, including, as may be required from time to
time, the Bank of England
stress test of the banking system, HSBC's Group Internal
Stresses, and individual country insurance regulatory stress tests.
The results of these stress tests and the adequacy of management
action plans to mitigate these risks are considered in the HSBC
Bank plc ICAAP and the entities' regulatory Own Risk and Solvency
Assessments ('ORSAs').
Management and mitigation of key risk types
Market risk
All our insurance manufacturing subsidiaries have market risk
mandates and limits that specify the investment instruments in
which they are permitted to invest and the maximum quantum of
market risk that they may retain. They manage market risk by using,
among others, some or all of the techniques listed below, depending
on the nature of the contracts written:
-- We are able to adjust bonus rates to manage the liabilities
to policyholders for products with discretionary participating
features ('DPF'). The effect is that a significant portion of the
market risk is borne by the policyholder.
-- We use asset and liability matching where asset portfolios
are structured to support projected liability cash flows. The Group
manages its assets using an approach that considers asset quality,
diversification, cash flow matching, liquidity, volatility and
target investment return. We use models to assess the effect of a
range of future scenarios on the values of financial assets and
associated liabilities, and ALCOs employ the outcomes in
determining how best to structure asset holdings to support
liabilities.
-- We use derivatives to protect against adverse market movements.
-- We design new products to mitigate market risk, such as
changing the investment return sharing portion between
policyholders and the shareholder.
Credit risk
Our insurance manufacturing subsidiaries also have credit risk
mandates and limits within which they are permitted to operate,
which consider the credit risk exposure, quality and performance of
their investment portfolios. Our assessment of the creditworthiness
of issuers and counterparties is based primarily upon
internationally recognised credit ratings and other publicly
available information.
Stress testing is performed on investment credit exposures using
credit spread sensitivities and default probabilities.
We use a number of tools to manage and monitor credit risk.
These include a credit report containing a watch-list of
investments with current credit concerns, primarily investments
that may be at risk of future impairment or where high
concentrations to counterparties are present in the investment
portfolio. Sensitivities to credit spread risk are assessed and
monitored regularly.
Capital and liquidity risk
Capital risk for our insurance manufacturing subsidiaries is
assessed in the group's ICAAP based on their financial capacity to
support the risks to which they are exposed. Capital adequacy is
assessed on both the group's economic capital basis, and the
relevant local insurance regulatory basis.
Risk appetite buffers are set to ensure that the operations are
able to remain solvent, allowing for business-as-usual volatility
and extreme but plausible stress events. In certain cases, entities
use reinsurance to manage capital risk. Liquidity risk is
relatively minor for the insurance business. It is managed by cash
flow matching and maintaining sufficient cash resources, investing
in high credit-quality investments with deep and liquid markets,
monitoring investment concentrations and restricting them where
appropriate, and establishing committed contingency borrowing
facilities.
Insurance manufacturing subsidiaries complete quarterly
liquidity risk reports and an annual review of the liquidity risks
to which they are exposed.
Insurance underwriting risk
Our insurance manufacturing subsidiaries primarily use the
following frameworks and processes to manage and mitigate insurance
underwriting risks:
-- a formal approval process for launching new products or making changes to products;
-- a product pricing and profitability framework which requires
initial and ongoing assessment of the adequacy of premiums
charged on new insurance contracts to meet the risks associated
with them;
-- a framework for customer underwriting;
-- reinsurance which cedes risks to third party reinsurers to
keep risks within risk appetite thresholds to third party reinsurer
thereby limiting our exposure; and
-- oversight of expense and reserving risks by entity Financial Reporting Committees.
Insurance manufacturing operations risk in 2022
Measurement
The following table shows the composition of assets and
liabilities by contract type.
Balance sheet of insurance manufacturing subsidiaries by type of contract
(Audited)
Shareholder
With Unit- Other assets
DPF linked contracts(1) and liabilities Total
GBPm GBPm GBPm GBPm GBPm
------------------------------------------------------------ ---------------------- ------------------------ ------------------------ ---------------------- --------------------
Financial assets 17,029 2,888 191 2,593 22,701
------------------------------------------------------------ ---------------------- ------------------------ ------------------------ ---------------------- --------------------
* financial assets designated and otherwise mandatorily
measured at fair value through profit or loss 9,171 2,880 80 1,033 13,164
------------------------------------------------------------
- derivatives 232 - - 11 243
------------------------------------------------------------
- financial investments - at amortised
cost 298 - - 20 318
------------------------------------------------------------
- financial investments - at fair value
through other comprehensive income 6,332 - 107 1,452 7,891
------------------------------------------------------------
- other financial assets(2) 996 8 4 77 1,085
------------------------------------------------------------ ---------------------- ------------------------ ------------------------ ----------------------
Reinsurance assets - 40 112 - 152
------------------------------------------------------------ ---------------------- ------------------------ ------------------------ ---------------------- --------------------
PVIF(3) - - - 1,076 1,076
------------------------------------------------------------ ---------------------- ------------------------ ------------------------ ---------------------- --------------------
Other assets and investment properties 725 1 1 68 795
------------------------------------------------------------ ---------------------- ------------------------ ------------------------ ---------------------- --------------------
Total assets at 31 Dec 2022 17,754 2,929 304 3,737 24,724
------------------------------------------------------------ ---------------------- ------------------------ ------------------------ ---------------------- --------------------
Liabilities under investment contracts
designated at fair value - 948 - - 948
------------------------------------------------------------ ---------------------- ------------------------ ------------------------ ---------------------- --------------------
Liabilities under insurance contracts 17,624 2,062 301 - 19,987
------------------------------------------------------------ ---------------------- ------------------------ ------------------------ ---------------------- --------------------
Deferred tax(4) 129 5 - 106 240
------------------------------------------------------------ ---------------------- ------------------------ ------------------------ ---------------------- --------------------
Other liabilities - - - 1,796 1,796
------------------------------------------------------------ ---------------------- ------------------------ ------------------------ ---------------------- --------------------
Total liabilities at 31 Dec 2022 17,753 3,015 301 1,902 22,971
------------------------------------------------------------ ---------------------- ------------------------ ------------------------ ---------------------- --------------------
Total equity at 31 Dec 2022 - - - 1,753 1,753
------------------------------------------------------------ ---------------------- ------------------------ ------------------------ ---------------------- --------------------
Total liabilities and equity at 31 Dec
2022 17,753 3,015 301 3,655 24,724
------------------------------------------------------------ ---------------------- ------------------------ ------------------------ ---------------------- --------------------
Financial assets 19,384 2,924 254 2,704 25,266
------------------------------------------------------------ ----------------------- ------------------------ ----------------------- ------------------------ -----------------------
* financial assets designated and otherwise mandatorily
measured at fair value through profit or loss 9,876 2,859 89 1,236 14,060
------------------------------------------------------------
- derivatives 47 - - 1 48
------------------------------------------------------------
- financial investments - at amortised
cost 815 - - 42 857
------------------------------------------------------------
- financial investments - at fair value
through other comprehensive income 7,490 - 104 1,327 8,921
------------------------------------------------------------
- other financial assets(2) 1,156 65 61 98 1,380
------------------------------------------------------------ ----------------------- ------------------------ ----------------------- ------------------------
Reinsurance assets - 53 104 - 157
------------------------------------------------------------ ----------------------- ------------------------ ----------------------- ------------------------ -----------------------
PVIF(3) - - - 811 811
------------------------------------------------------------ ----------------------- ------------------------ ----------------------- ------------------------ -----------------------
Other assets and investment properties 748 1 - 59 808
------------------------------------------------------------ ----------------------- ------------------------ ----------------------- ------------------------ -----------------------
Total assets at 31 Dec 2021 20,132 2,978 358 3,574 27,042
------------------------------------------------------------ ----------------------- ------------------------ ----------------------- ------------------------ -----------------------
Liabilities under investment contracts
designated at fair value - 1,031 - - 1,031
------------------------------------------------------------ ----------------------- ------------------------ ----------------------- ------------------------ -----------------------
Liabilities under insurance contracts 19,998 1,938 328 - 22,264
------------------------------------------------------------ ----------------------- ------------------------ ----------------------- ------------------------ -----------------------
Deferred tax(4) 133 6 - 46 185
------------------------------------------------------------ ----------------------- ------------------------ ----------------------- ------------------------ -----------------------
Other liabilities - - - 2,003 2,003
------------------------------------------------------------ ----------------------- ------------------------ ----------------------- ------------------------ -----------------------
Total liabilities at 31 Dec 2021 20,131 2,975 328 2,049 25,483
------------------------------------------------------------ ----------------------- ------------------------ ----------------------- ------------------------ -----------------------
Total equity at 31 Dec 2021 - - - 1,559 1,559
------------------------------------------------------------ ----------------------- ------------------------ ----------------------- ------------------------ -----------------------
Total liabilities and equity at 31 Dec
2021 20,131 2,975 328 3,608 27,042
------------------------------------------------------------ ----------------------- ------------------------ ----------------------- ------------------------ -----------------------
1 'Other contracts' includes term assurance and credit life insurance.
2 Comprise mainly loans and advances to banks, cash and
intercompany balances with other non-insurance legal entities.
3 Present value of in-force long-term insurance business.
4 'Deferred tax' includes the deferred tax liabilities arising on recognition of PVIF.
Key risk types
Market risk
(Audited)
Description and exposure
Market risk is the risk of changes in market factors affecting
the bank's capital or profit. Market factors include interest
rates, equity and growth assets and foreign exchange rates. Lapse
risk exposure on products with premium financing has increased over
the year as rising interest rates have led to an increase in the
cost of financing for customers.
Our exposure varies depending on the type of contract issued.
Our most significant life insurance products are investment
contracts with discretionary participating features ('DPF') issued
in France. These products typically include some form of capital
guarantee or guaranteed return on the sums invested by the
policyholders, to which discretionary bonuses are added if allowed
by the overall performance of the funds. These funds are primarily
invested in fixed interest assets with a proportion allocated to
other asset classes, to provide customers with the potential for
enhanced returns.
DPF products expose the bank to the risk of variation in asset
returns, which will impact our participation in the investment
performance. In addition, in some scenarios the asset returns can
become insufficient to cover the policyholders' financial
guarantees, in which case the shortfall has to be met by the bank.
Amounts are held against the cost of such guarantees. The cost of
such guarantees is accounted for as a deduction from the present
value of in-force 'PVIF' asset, unless the cost of such guarantees
is already explicitly allowed for within the insurance contracts
liabilities. The table below shows the total reserve held for the
cost of guarantees, the range of investment returns on assets
supporting these products and the implied investment return that
would enable the business to meet the guarantees. The cost of
guarantees decreased to GBP100m (2021: GBP299m) primarily due to
increases in interest rates and unfavourable equity performances in
France. For unit-linked contracts, market risk is substantially
borne by the policyholder, but some market risk exposure typically
remains as fees earned are related to the market value of the
linked assets.
Financial return guarantees
(Audited)
2022 2021
--------------------------------------------------------- -----------------------------------------------
Long-term
Long-term Investment investment
Investment investment returns returns
returns returns implied on
implied on relevant Cost by relevant Cost
by guarantee portfolios of guarantees guarantee portfolios of guarantees
% % GBPm % % GBPm
---------- --------------- --------------- ----------------------- ---------- ---------- -----------------------
1.6 0.8 -
Capital - - 2.0 18 - 2.0 127
---------- --------------- --------------- ----------------------- ---------- ---------- -----------------------
Nominal
annual
return 2.6 2.0 49 2.6 2.2 92
---------- --------------- --------------- ----------------------- ---------- ---------- -----------------------
Nominal
annual
return 4.5 2.0 33 4.5 2.2 80
At 31 Dec 100 299
---------- --------------- --------------- ----------------------- ---------- ---------- -----------------------
Sensitivities
The following table illustrates the effects of selected interest
rate and equity price scenarios on our profit for the year and the
total equity of our insurance manufacturing subsidiaries.
Where appropriate, the effects of the sensitivity tests on
profit after tax and equity incorporate the impact of the stress on
the PVIF. Due in part to the impact of the cost of guarantees and
hedging strategies which may be in place, the relationship between
the profit and total equity and the risk factors is non-linear.
Therefore, the results disclosed should not be extrapolated to
measure sensitivities to different levels of stress.
For the same reason, the impact of the stress is not necessarily
symmetrical on the upside and downside.
The sensitivities are stated before allowance for management
actions which may mitigate the effect of changes in the market
environment. The sensitivities presented allow for adverse changes
in policyholder behaviour that may arise in response to changes in
market rates. The differences between the impacts on profit after
tax and equity are driven by the changes in value of the bonds
measured at FVOCI, which are only accounted for in equity.
Sensitivity of the group's insurance manufacturing subsidiaries to
market risk factors
(Audited)
2022 2021
------------------------------------------------------------------
Effect Effect Effect Effect
on on on on
profit total profit total
after tax equity after tax equity
GBPm GBPm GBPm GBPm
------------- -------------------------------- -------------------------------- --------------------------------- ---------------------------------
+100 basis
point
parallel
shift
in yield
curves 34 12 119 96
-------------- -------------------------------- -------------------------------- --------------------------------- ---------------------------------
-100 basis
point
parallel
shift
in yield
curves (48) (22) (229) (203)
-------------- -------------------------------- -------------------------------- --------------------------------- ---------------------------------
10% increase
in equity
prices 65 65 46 46
-------------- -------------------------------- -------------------------------- --------------------------------- ---------------------------------
10% decrease
in equity
prices (66) (66) (49) (49)
-------------- -------------------------------- -------------------------------- --------------------------------- ---------------------------------
Credit risk
(Audited)
Description and exposure
Credit risk is the risk of financial loss if a customer or
counterparty fails to meet their obligation under a contract. It
arises in two main areas for our insurance manufacturers:
-- risk associated with credit spread volatility and default by
debt security counterparties after investing premiums to generate a
return for policyholders and shareholders; and
-- risk of default by reinsurance counterparties and
non-reimbursement for claims made after ceding insurance risk.
The amounts outstanding at the balance sheet date in respect of
these items are shown in the table on page 91. The credit quality
of the reinsurers' share of liabilities under insurance contracts
is assessed as 'satisfactory' or higher as defined on page 37, with
100% of the exposure being neither past due nor impaired. Credit
risk on assets supporting unit-linked liabilities is predominantly
borne by the policyholder; therefore our exposure is primarily
related to liabilities under non-linked insurance and investment
contracts and shareholders' funds.
The credit quality of these financial assets is included in the
table on page 57.
Liquidity risk
(Audited)
Description and exposure
Liquidity risk is the risk that an insurance operation, though
solvent, either does not have sufficient financial resources
available to meet its obligations when they fall due, or can secure
them only at excessive cost. Liquidity risk may be able to shared
with policyholders for products with DPF.
The following table shows the expected undiscounted cash flows
for insurance contract liabilities at 31 December 2022.
The profile of the expected maturity of insurance contracts
at
31 December 2022 remained comparable with 2021.
The remaining contractual maturity of investment contract
liabilities is included within 'Financial liabilities designated at
fair value' in Note 27.
Expected maturity of insurance contract liabilities
(Audited)
Expected cash flows (undiscounted)
----------------------------------------------------------------------------------------------------------------------------------------------
Within 1-5 years 5-15 Over Total
1 year years 15 years
GBPm GBPm GBPm GBPm GBPm
------------ --------------------------- --------------------------- ---------------------------- --------------------------- -------------------------
Unit-linked 147 368 818 1,433 2,766
------------ --------------------------- --------------------------- ---------------------------- --------------------------- -------------------------
With DPF and
Other
contracts 1,132 4,645 8,555 11,886 26,218
------------ --------------------------- --------------------------- ---------------------------- --------------------------- -------------------------
At 31 Dec
2022 1,279 5,013 9,373 13,319 28,984
------------ --------------------------- --------------------------- ---------------------------- --------------------------- -------------------------
Unit-linked 230 565 927 926 2,648
------------ --------------------------- --------------------------- ---------------------------- --------------------------- -------------------------
With DPF and
Other
contracts 1,341 5,102 7,318 6,415 20,176
------------ --------------------------- --------------------------- ---------------------------- --------------------------- -------------------------
At 31 Dec
2021 1,571 5,667 8,245 7,341 22,824
------------ --------------------------- --------------------------- ---------------------------- --------------------------- -------------------------
.
Insurance underwriting risk
Description and exposure
Insurance underwriting risk is the risk of loss through adverse
experience, in either timing or amount, of insurance underwriting
parameters (non-economic assumptions). These parameters include
mortality, morbidity, longevity, lapse and expense rates.
The principal risk we face is that, over time, the cost of the
contract, including claims and benefits, may exceed the total
amount of premiums and investment income received.
The table on page 91 analyses our insurance manufacturing
exposures by type of contract.
The insurance risk profile and related exposures remain
largely
consistent with those observed at 31 December 2021.
Sensitivities
The table below shows the sensitivity of profit and total equity
to reasonably possible changes in non-economic assumptions across
all our insurance manufacturing subsidiaries.
Mortality and morbidity risk is typically associated with life
insurance contracts. The effect on profit of an increase in
mortality or morbidity depends on the type of business being
written.
Sensitivity to lapse rates depends on the type of contracts
being written. An increase in lapse rates typically has a negative
effect on profit due to the loss of future income on the lapsed
policies. However, some contract lapses have a positive effect on
profit due to the existence of policy surrender charges. We are
most sensitive to a change in lapse rates in France.
Expense rate risk is the exposure to a change in the allocated
cost of administering insurance contracts. To the extent that
increased expenses cannot be passed on to policyholders, an
increase in expense rates will have a negative effect on our
profits. This risk is generally greatest for smaller entities.
Sensitivity analysis
(Audited)
2022 2021
GBPm GBPm
-------------------------- -------------------- ---------------------
Effect on profit after
tax and total equity
at 31 Dec
-------------------------- -------------------- ---------------------
10% increase in mortality
and/or morbidity rates (24) (20)
-------------------------- -------------------- ---------------------
10% decrease in mortality
and/or morbidity rates 25 19
-------------------------- -------------------- ---------------------
10% increase in lapse
rates (33) (19)
10% decrease in lapse
rates 35 20
10% increase in expense
rates (28) (40)
-------------------------- -------------------- ---------------------
10% decrease in expense
rates 28 40
-------------------------- -------------------- ---------------------
Corporate Governance Report
The statement of corporate governance practices set out on pages
94 to 102, together with the information incorporated by reference,
constitutes the Corporate Governance Report of the bank. The
following disclosures, read together with those in the Strategic
Report, including the section 172 statement on pages 12 and 14 and
reporting on employee engagement on pages 10 to 13 describe how the
Board has discharged its responsibilities relating to section 172
of the Companies Act 2006 (the 'Act'), as well as the requirements
under the Companies (Miscellaneous Reporting) Regulations 2018 (the
'Reporting Regulations').
Engagement with employees, suppliers, customers and other key
stakeholders:
Page 12 How we do
Customers business
-------------- --------- -----------
Page 12 section 172
statement
-------------- --------- -----------
Employees Page 12 How we do
business
-------------- --------- -----------
Pages 12 section 172
and 13 statement
-------------- --------- -----------
Corporate
Pages 101 Governance
to 101 statement
-------------- --------- -----------
Communities How we do
Pages 11 business
-------------- --------- -----------
Regulators and Page 13 How we do
governments business
-------------- --------- -----------
Page 12 section 172
statement
-------------- --------- -----------
Suppliers Page 13 How we do
business
-------------- --------- -----------
Page 12 section 172
statement
-------------- --------- -----------
The bank, together with the wider Group, is committed to high
standards of corporate governance. The Group has a comprehensive
range of principles, policies and procedures influenced by the UK
Corporate Governance Code with requirements in respect of Board
independence, composition and effectiveness to ensure that the
Group is well managed, with appropriate oversight and control.
During the year, the bank adhered to these corporate governance
principles, policies and procedures, as applicable.
Board of Directors
As at 31 December 2022, the Board comprised 10 Directors
including the Chair, non-executive Directors, and two executive
Directors, being the Chief Executive Officer and the Chief
Financial Officer. All Directors are subject to election or
re-election at each Annual General Meeting's ('AGM') of the bank.
The Directors serving at 31 December 2022 are set out below.
Directors
Stephen O'Connor (61)
Chair of the Board
Chair of the Nomination, Remuneration & Governance
Committee
Appointed to the Board: May 2018. Chair of the Board since
August 2018.
Stephen is a non-executive Director and Vice Chair of HBCE,
Chairman of Quantile Group Limited and its subsidiary Quantile
Technologies Limited, and a Director of the London Stock Exchange
plc. He is also a non-executive Director of the Financial Markets
Standards Board. He has more than 25 years' investment banking
experience in London and New York.
Former appointments include: Senior Independent Director,
Chairman of the Risk Committee and member of both the Audit and
Nomination Committees of the London Stock Exchange Group; Chairman
of the International Swaps and Derivatives Association; and
Managing Director and a member of the Fixed Income Management
Committee at Morgan Stanley.
Colin Bell (55)
Executive Director and Chief Executive Officer
Chair of the Executive Committee
Appointed to the Board and as Chief Executive Officer : February
2021.
Colin Bell joined HSBC in July 2016 and most recently held the
role of Group Chief Compliance Officer until February 2021. He is a
member of the Supervisory Board, and Remuneration, Nomination and
Mediation Committees of HSBC Trinkaus & Burkhardt GmbH.
Before joining HSBC, Colin worked at UBS, where he was Global
Head of Compliance and Operational Risk Control. He has more than
10 years of experience in managing risk and financial crime,
following 16 years in the British Army.
During his time in the Army, he held a variety of command and
staff appointments, including operational tours of Iraq and
Northern Ireland, time in the Ministry of Defence, a NATO
appointment and completion of the Advanced Command and Staff
Course.
David Watts (56)
Executive Director and Chief Financial Office r
Member of the Executive Committee
Appointed to the Board and as Chief Financial Officer: December
2021.
David is a Member of the Supervisory Board of HSBC Trinkaus
& Burkhardt GmbH. He joined the HSBC Group in 1994 and was
previously a Director and Chief Financial Officer of HSBC UK Bank
plc.
Former HSBC Group roles include: Chief Financial Officer and
Head of Finance for HSBC Bank plc; Chief Financial Officer for
Global Commercial Banking; Chief Financial Officer for the Middle
East and North Africa, Chief Financial Officer for Group HSBC
Technology and Operations; Chief Financial Officer for Global
Banking; Head of Financial Control for Global Banking & Markets
HSBC Securities (USA) Inc; Head of Group Cost and Investment
Reporting & Analysis; and Manager Treasury Services,
France.
Patrick Clackson (58)
Independent non-executive Director
Member of the Audit Committee
Appointed to the Boar d : September 2022.
Former appointments include: Chief Financial Officer, Chief
Operations Officer and Chief Executive Officer at Barclays Capital
(now Barclays CIB). He also held several non-executive positions
whilst with Barclays, BarCap as Head of Business Transformation and
Structural Reform, as well as EMEA Chief Executive Officer, Chief
Operations Officer, Chief Financial Officer and Head of Risk.
Between 1986-1996 he was employed in the audit and financial
services advisory teams of PwC, London.
Norma Dove-Edwin (57)
Independent non-executive Director
Member of the Transformation, Operational Resilience and
Technology Committee
Appointed to the Board: October 2021.
Norma is as Chief Information Officer of ESO at National Grid
Plc. She is also a non-executive Director of Pod Point Group
Holdings plc.
Former appointments include: Group Chief Data and Information
Officer at Places for People and a number of positions at British
American Tobacco Plc including as Head of Global Data Services.
Yukiko Omura (67)
Independent non-executive Director
Member of the Audit Committee
Appointed to the Board: May 2018.
Yukiko is the senior independent non-executive Director of The
Private Infrastructure Development Group Limited ('PIDG'). She also
serves as a non-executive Director of Assured Guaranty Ltd, and a
member of the Supervisory Board of Nishimoto HD Co. Ltd. She has
more than 35 years' international professional experience in both
the public and private financial sectors, performing senior roles
for JP Morgan, Lehman Brothers, UBS and Dresdner Bank.
Yukiko is the Consumer Duty Champion for the Board and helps
support the Chair and Chief Executive Officer by encouraging
regular dialogue at the Board level on how the Bank is embedding
Consumer Duty and focusing on customer outcomes.
Former appointments include: Chair of GuarantCo Limited, a
subsidiary of PIDG; Under-Secretary General and COO/Vice President
of the International Fund for Agricultural Development; and
Executive Vice President and CEO of the Multilateral Investment
Guarantee Agency of the World Bank Group.
Juliet Ellis (56)
Independent non-executive Director
Chair of the Transformation, Operational Resilience and
Technology Committee, member of the Risk Committee and the
Nomination, Remuneration & Governance Committee
Appointed to the Board: January 2021.
Former appointments include: Dual role as European Head of
Operations and Global Head of Shared Services and Banking
Operations and other senior management positions at Morgan Stanley.
Prior to 2007 she performed senior roles within Goldman Sachs
International.
Dr Eric Strutz (58)
Independent non-executive Director
Chair of the Risk Committee and member of the Nomination,
Remuneration & Governance Committee and Transformation,
Operational Resilience and Technology Committee
Appointed to the Board: October 2016.
Eric is a member of the Supervisory Board and Risk Committee and
Chair of the Audit Committee of HSBC Trinkaus & Burkhardt GmbH.
He is also a director of the HBCE and Chair of the HBCE Risk
Committee and member of the HBCE Audit Committee. Other
appointments include Chair of the Audit Committee of Global Blue
Group Holding AG, and a member of the Advisory Board and Chairman
of the Audit & Risk Committee of Luxembourg Investment Company
261 Sarl.
Former appointments include: Vice Chairman and Lead Independent
Director of Partners Group Holding AG, where he also Chaired the
Risk and Audit Committee; Chief Financial Officer of Commerzbank
Group; Partner and Director of the Boston Consulting Group; and
non-executive Director of Mediobanca Banca di Credito Finanziario
SpA.
John Trueman
Deputy Chairman and non-executive Director
Member of the Audit Committee, the Risk Committee and the
Nomination, Remuneration & Governance Committee
Appointed to the Board: September 2004. Deputy Chairman since
December 2013.
Former appointments include: Chairman and member of the Risk
Committee of HSBC Global Asset Management Limited and Deputy
Chairman of S.G. Warburg & Co Ltd.
Andrew Wright (62)
Chair of the Audit Committee and member of the Risk Committee
and Nomination, Remuneration & Governance Committee
Appointed to the Board: May 2018.
Andrew is a member of the Supervisory Board and Audit Committee
and Chair of the Risk Committee of HSBC Trinkaus & Burkhardt
GmbH.
Former appointments include: Treasurer to the Prince of Wales
and the Duchess of Cornwall, a role he held from May 2012 until
June 2019; Global Chief Financial Officer for the Investment Bank
at UBS AG; Chief Financial Officer, Europe and the Middle East at
Lehman Brothers; and Chief Financial Officer for the Private Client
and Asset Management Division at Deutsche Bank.
Board Changes during 2022 and following
the year-end
Mary Marsh retired as a Director at the conclusion of the bank's
AGM held on 17 May 2022.
Norma Dove-Edwin was appointed as a member of the
Transformation, Operational Resilience and Technology Committee
with effect from 1 June 2022.
Juliet Ellis was appointed as a member of the Nomination,
Remuneration & Governance Committee with effect from 1 August
2022.
Patrick Clackson was appointed as a non-executive Director and
member of the Audit Committee with effect from 1 September
2022.
John Trueman retired from the Board as a Director with effect
from 31 December 2022.
Lewis O'Donald will join the Board as an independent
non-executive Director and member of the Risk Committee with effect
from 23 February 2023.
Company Secretary
The responsibilities of the Company Secretary include ensuring
good governance practices at Board level and effective information
flows within the Board and its committees and between senior
management and the non-executive Directors.
Alison Campbell was Company Secretary of the bank until
31 December 2022 and Philip Miller was appointed as Company
Secretary from 1 January 2023.
Board of Directors
Key responsibilities
The Board, led by the Chair, is responsible amongst other
matters for:
(i) promoting the long-term success of the bank and delivering
sustainable value to shareholders and other stakeholders;
(ii) entrepreneurial leadership of the bank within a framework
of prudent and effective controls which enables risks to be
assessed and managed;
(iii) setting the bank's strategy and risk appetite statement,
including monitoring the bank's risk profile;
(iv) establishing and monitoring the effectiveness of procedures
for maintenance of a sound system of control and risk management,
and compliance with statutory and regulatory obligations; and
(v) approving the capital and operating plans and material
transactions on the recommendation of management.
The role of the non-executive Directors is to support the
development of proposals on strategy, hold management to account
and ensure the executive Directors are discharging their
responsibilities properly by promoting a culture that encourages
constructive challenge. Non-executive Directors also review the
performance of management in meeting agreed goals and objectives.
The Chair regularly meets with the non-executive Directors without
executive Directors in attendance after Board meetings, and
otherwise, as necessary.
Operation of the Board
During 2022, the Board was required to meet at least four times;
seven additional meetings were scheduled to help facilitate,
amongst other things, the execution of the bank's transformation
strategy, the bank's SEC Registration. The Board agenda is agreed
with the Chair, working closely with the Company Secretary, in
advance of scheduled meetings. The agenda is informed by
forward-looking planning and additional emerging matters that
require Board oversight or approval.
The Chief Risk Officer, General Counsel, and Company Secretary
are regular attendees at Board meetings, and other senior
executives attend to contribute their subject matter expertise and
insight, as required.
Board activities during 2022
During 2022, the areas of focus for the Board included in the
implementation of approved strategy and execution of the bank's
transformation programme across the region, supporting senior
management and overseeing performance, risk and capital. The Board
considered performance against financial and other strategic
objectives, key business challenges, emerging risks, business
development and relationships with the bank's key stakeholders.
'Deep dives' on key aspects of the bank's business were also
conducted to consider the performance and strategy of targeted
businesses and countries. Throughout the year, the Board received
regular updates from management including the implementation of
regulatory programmes, technology, operations and resilience, as
well as people, culture and talent.
In addition, several information and development sessions were
facilitated during the year on specific areas of interest including
with respect to Recovery and Resolution Planning, technology, and
ESG-related matters.
During the year the Board also approved financial, capital,
liquidity and funding plans put forward by management and monitored
the implementation of plans. Further information on the principal
decisions made by the Board during 2022 is located in the section
172 statement on pages 12 to 14.
Directors' emoluments
Details of the emoluments of the Directors of the bank for 2022,
disclosed in accordance with the Act, are shown in Note 5 'Employee
compensation and benefits'.
Non-executive Directors do not have service contracts and are
engaged through letters of appointment. There are no obligations in
the non-executive Directors' letters of appointment that could give
rise to payments other than fees due or payments for loss of
office.
Board committees
The Board delegates oversight of certain audit, risk,
remuneration, nomination and governance matters to its committees.
With the exception of the Executive Committee which is chaired by
the Chief Executive Officer, each Board committee is chaired by a
non-executive Board member and has a remit to cover specific topics
in accordance with their respective terms of reference approved by
the Board. Only non-executive Directors are members of Board
committees. The Chair of each non-executive Board Committee reports
to the Board on the activities of the Committee since the previous
Board meeting.
Board and Committee effectiveness and performance
The Board understands the importance of, and benefits that
derive from regular reviews of the effectiveness of the Board and
its committees. An effectiveness review was facilitated by the
bank's Company Secretary in 2022 which included a series of
interviews with the Directors. Feedback was provided on a number of
areas, including the Board's composition and skills, stakeholder
engagement, the cadence and logistics of Board meetings, management
reporting, Director induction and training, Director and management
engagement and debate, and Board priorities for 2022-23. Outcomes
and recommendations were reported to the Board and an action plan
was produced. Work has progressed during 2022 to address these
recommendations.
An annual review of the terms of reference for the Board and its
committees was facilitated by the Corporate Governance and
Secretariat function. This concluded that the Board and its
committees had complied with their respective terms of reference
during 2022. Executive Directors are also subject to performance
evaluation which helps to determine the level of variable pay they
receive each year. At the date of this report, the following are
the principal Committees of the Board:
Audit Committee
Key Responsibilities
The Audit Committee is accountable to the Board and has
non-executive responsibility for oversight of financial reporting
related matters, internal controls over financial reporting and
implementation of the group policies and procedures for capturing
and responding to whistleblower concerns.
The committee's key responsibilities include:
(i) monitoring and assessing the integrity of the financial
statements, formal announcements and supplementary regulatory
information in relation to the bank's financial performance;
(ii) reviewing, as applicable, compliance with accounting
standards, listing rules, and other requirements in relation to
financial reporting;
(iii) reviewing and monitoring the relationship with the
external auditor; and
(iv) overseeing the work of Internal Audit and monitoring and
assessing the effectiveness, performance, resourcing, independence
and standing of the function.
The committee has responsibility for the oversight of the bank's
whistleblowing arrangements, and receives regular updates on
matters relating to the whistleblowing arrangements that are in
place.
Committee activities during 2022
In addition to significant accounting judgements, key matters
considered by the committee during the year were regulatory
reporting and control enhancements, disposal groups, IFRS 17
implementation, the development of climate-related disclosure, the
bank's financial resources and capital, transformation of the
Finance function, the independence, fees and performance of the
external auditor, PwC UK, and updates on key issues identified by
Internal Audit related to the bank and its subsidiaries.
During the year, the committee dedicated time in overseeing
management's preparation for the Bank's registration with the U.S.
Securities and Exchange Commission ('SEC') and wider programme
preparation to achieve compliance with the U.S. Sarbanes-Oxley Act
of 2002 ('SOX').
The committee also received updates from the Chairs of the audit
committees of key subsidiaries of the Bank, updates from the
external auditor on the progress and findings of their audit, and
bi-annual updates on the tax position of the bank and its
subsidiaries.
Operation of the Committee
The committee held seven scheduled meetings during the year and
held separate meetings with each of the Chief Finance Officer, the
Chief Risk Officer, the Head of Internal Audit and representatives
of the external auditor without management present. An additional
meeting was convened in May 2022 to review the bank's draft SEC
registration statement and relevant documentation prior to the
Board's approval.
The committee meets regularly with the bank's senior financial
and Internal Audit management and the external auditors to
consider, among other matters, the bank's financial reporting,
the
nature and scope of audit reviews, the effectiveness of the
systems of internal control relating to financial reporting and the
monitoring of the Finance function transformation programme.
The Chief Financial Officer, Financial Controller, Chief Risk
Officer, Head of Internal Audit, and Company Secretary are standing
attendees and regularly attend committee meetings to contribute
their subject matter expertise and insight. Other members of senior
management routinely attended meetings of the committee. The
external auditor attended all meetings.
During 2022, the committee continued to actively engage with the
bank's key subsidiaries and key subsidiary audit committees, with
regular reporting throughout the year.
The key subsidiary audit committee chairs attended and
participated in the April Audit Committee meeting to consider
important HSBC-wide and regional specific matters.
The Chair of the committee regularly meets with the Chair of the
Group Audit Committee ('GAC') to help maintain connectivity with
the Group and develop deeper understanding on judgements around key
matters. Further, from time to time the Chair is invited to attend
meetings of the GAC on relevant topics.
The Chair of the GAC also attended a committee meeting in
November 2022. The committee comprises three independent
non-executive Directors. The current members are Andrew Wright
(Chair), Yukiko Omura, and Patrick Clackson.
Significant accounting judgements and related matters considered by
the Audit Committee ('AC') for the year ended 31 December 2022 included:
Interim and annual reporting The AC considered key matters in relation
to interim and annual reporting, including
changes to segmental reporting and US filings
20-F and 6-K following the bank's registration
at the SEC.
---------------------------------- ------------------------------------------------------
Disposals The AC considered the financial and accounting
impacts of the planned disposals of the retail
banking business in France, the Greece branch
operations and the bank in Russia. In particular,
the AC considered judgements related to the
timing of recognition of assets as held-for-sale,
the re-measurement of those assets and losses
arising, which has a significant impact in
the year ended 31 December 2022.
---------------------------------- ------------------------------------------------------
Expected credit loss ('ECL') The AC considered key judgements in relation
to ECL, in particular multiple economic scenarios
and post-model adjustments due to economic
uncertainty and the Russia-Ukraine war.
---------------------------------- ------------------------------------------------------
Valuation of financial instruments The AC considered key valuation metrics and
judgements involved in the determination of
the fair value of financial instruments. The
AC also considered management's analysis of
exit losses upon the novation of certain derivative
portfolios and the determination that there
was insufficient evidence to support the introduction
of fair value adjustments in respect of these.
---------------------------------- ------------------------------------------------------
Going concern The AC considered a wide range of information
relating to present and potential conditions,
including projections for profitability, cash
flows, liquidity and capital.
---------------------------------- ------------------------------------------------------
Impairment of investment The AC reviewed management's periodic assessment
in subsidiaries of impairment of investments in subsidiaries
and paid particular attention to the sensitivities
to cash flow projections and long-term growth
rate and discount rate assumptions. Management
assessed that there had been a partial reversal
of impairment of the bank's investment in
HBCE in the year ended 31 December 2022, with
due regard to the planned sale of the retail
banking business in France.
---------------------------------- ------------------------------------------------------
Appropriateness of provisioning The AC received reports from management on
for legal proceedings and the recognition and measurement of provisions
regulatory matters and contingent liabilities for legal proceedings
and regulatory matters, including investigations
by regulators and competition and law-enforcement
authorities.
---------------------------------- ------------------------------------------------------
Regulatory reporting The AC reviewed management's efforts to strengthen
and simplify the end-to-end operating and
control model, including independent external
reviews of key aspects of regulatory reporting.
---------------------------------- ------------------------------------------------------
IBOR transition The AC considered the implications of benchmark
interest rate reform, including the recognition
and measurement of financial instruments and
related disclosures.
---------------------------------- ------------------------------------------------------
Controls The AC considered the financial control environment
on an ongoing basis through the year, reviewing
and challenging remediation actions undertaken
and enhancements made. This included confirmation
of mitigating controls where programmes of
work had not fully completed by the year end.
Areas of particular focus in 2022 have been
Model Risk Governance, controls over use of
external market data, accounting and tax implications
of Merger and Acquisition ('M&A') transactions,
general ledger substantiation and Financial
Statement Disclosures.
---------------------------------- ------------------------------------------------------
Tax The AC reviewed management's judgements on
the recognition and measurement of deferred
tax assets and liabilities, in particular
those arising from the planned sale of retail
banking activities in France, and the accounting
and disclosure of retrospective VAT assessments
issued by HMRC.
---------------------------------- ------------------------------------------------------
Environmental, Social and The AC considered regulatory developments
Governance ('ESG') Reporting in ESG Reporting, in particular at 31 December
2022 for bank subsidiaries in the European
Union.
---------------------------------- ------------------------------------------------------
IFRS 17 implementation The AC reviewed accounting policy judgements
in relation to the retrospective implementation
of IFRS 17 Insurance Contracts on 1 January
2023, and preparation of transitional disclosure.
---------------------------------- ------------------------------------------------------
Restructuring provisions The AC considered key judgements in relation
to restructuring provisions, mainly relating
to transformation in Continental Europe and
Germany.
---------------------------------- ------------------------------------------------------
Risk Committee
Key Responsibilities
The Risk Committee is accountable to the Board and has overall
non-executive responsibility for oversight of risk-related matters
and the risks impacting the bank.
The committee's key responsibilities include:
(i) advising the Board on risk appetite and risk tolerance
related matters;
(ii) reviewing and recommending key regulatory submissions to
the Board;
(iii) overseeing and advising the Board on all risk-related
matters, including financial and non-financial risks and reviewing
the effectiveness of the bank's conduct framework;
(iv) reviewing, challenging and satisfying itself that the
bank's stress testing framework, governance and internal controls
are robust; and
(v) reviewing the effectiveness of the bank's risk management
framework and internal control systems (other than internal
financial controls overseen by the Audit Committee).
Committee activities during 2022
Key matters considered by the committee during the year included
the bank's approach to the financial and non-financial risks in the
context of capital and liquidity, retail, wholesale credit and
market risks including, financial crime and fraud, geopolitical,
operational, people and climate-related risks.
The committee also reviewed and challenged management on key
regulatory processes, including the bank's internal capital
adequacy assessment process ('ICAAP') and the internal liquidity
adequacy assessment process ('ILAAP'), recovery and resolution
plans, the outcome of stress tests (including annual cyclical
scenario, cyber and solvency) undertaken during the year, and the
bank's capital liquidity and funding plans.
Deep dives on key aspects of the bank's business were conducted
to consider specific climate risk related matters including the
bank's thermal coal phase-out policy.
The committee worked closely with the Transformation,
Operational Resilience and Technology Committee during the year to
ensure appropriate alignment in the review and discussion on
operational resilience and technology risk-related matters.
Operation of the Committee
The committee held eight scheduled meetings during the year. The
Chief Risk Officer, Chief Financial Officer and Head of Internal
Audit are standing attendees and regularly attend committee
meetings to contribute their subject matter expertise and insight.
The Chair and members of the committee also hold private meetings
with the Chief Risk Officer, following quarterly scheduled
meetings.
The committee reviews and challenges current and forward-looking
risk issues, and the regional senior business leaders are regularly
invited to participate at committee meetings, working together with
functional and regional leaders across all three lines of
defence.
The Chair and members of the committee meet regularly with the
bank's senior financial, risk, internal audit and compliance
management and the external auditors to consider and discuss, among
other matters, specific risk matters and priorities, risk reports
and internal audit reports and the effectiveness of compliance
activities. The Chair meets regularly with the committee secretary
to ensure the committee meets its governance responsibilities.
During 2022 the committee continued to actively engage with the
bank's key subsidiaries and key subsidiary risk committees, with
regular reporting from the respective Chairs throughout the year.
The Chair of the committee attended several Group-led meetings to
help promote connectivity, escalation and cascade of important
topics. The committee comprises a majority of independent
non-executive Directors.
The current members are Eric Strutz (Chair), Juliet Ellis and
Andrew Wright.
Transformation, Operational Resilience and Technology
Committee
Key Responsibilities
The Transformation, Operational Resilience and Technology
Committee was established to assist the Board and Risk Committee
with their respective responsibilities in relation to the bank's
transformation strategy, operational resilience, as well as the
governance and oversight of technology. During the year, on
recommendation of the Board, the Group Nomination & Corporate
Governance Committee approved the continuation of the committee to
continue necessary engagement allowing a more detailed oversight of
the matters within its remit.
The committee's key responsibilities include:
(i) reviewing progress of the transformation strategy and the
steps management have taken to manage risk, and to monitor progress
against set objectives;
(ii) reviewing the effectiveness of governance frameworks to set
and oversee the internal control environment in relation to
technology;
(iii) reviewing regional technology strategy, ensuring it is
aligned with the adopted business strategies of the bank; and
(iv) overseeing and challenging management on execution of
operational resilience objectives and deliverables.
Committee activities during 2022
Key matters considered by the committee during the year included
review and oversight of Information Technology ('IT') and Cloud
strategies and governance, the bank's operating systems,
operational resilience and technology infrastructure, including
operational resilience of critical IT and other business services,
information and cyber security risks, and major IT change
programmes. The committee also reviewed and challenged management
on the progress and associated risks with respect of the
transformation strategy, including transformation governance, key
change programmes and initiatives underway, including those related
to outsourced technology services and meeting regulatory
requirements and expectations.
Operation of the Committee
The committee held seven scheduled meetings during 2022.
The Board Chair, Chief Operating Officer, Chief Information
Officer, Chief Risk Officer, Head of Internal Audit, and Head of
Strategy and Planning, Chief of Staff (Europe CEO), are standing
attendees and regularly attend Committee meetings to contribute
their subject matter expertise and insight.
The current members are Juliet Ellis (Chair), Norma Dove-Edwin,
and Eric Strutz.
Nomination, Remuneration & Governance Committee
Key Responsibilities
The Nomination, Remuneration & Governance Committee has
responsibility for:
(i) leading the process for Board appointments and for
identifying and nominating, for the approval of the Board,
candidates for appointment to the Board and its committees;
(ii) the endorsement of the appointment of individuals to
certain Board and management positions of the bank's subsidiaries,
including proposed fees payable to non-executive Directors on
subsidiary boards;
(iii) reviewing the implementation and appropriateness of the
Group's director remuneration policy and the remuneration of the
bank's senior executives, including the identification of the
Material Risk Taker population for the purposes of the CRD;
(iv) reviewing and developing the corporate governance framework
on behalf of the Board and ensuring it is consistent with best
corporate governance standards and practices while remaining
appropriate to the size, complexity and strategy of the bank;
and
(v) overseeing compliance with the HSBC Group Subsidiary
Accountability Framework ('SAF').
Further information in relation to HSBC's approach to
remuneration for group employees is available in the Director's
remuneration report on pages 276-278 of HSBC's Annual Report and
Accounts 2022 available on
https://www.hsbc.com/investors/results-and-announcements/annual-report.
Committee activities during 2022
As a UK regulated subsidiary of HSBC Holdings plc, the bank has
both internal and external responsibilities for succession
planning. During the year the committee undertook a review of its
succession plan and the Board and Board Committee's composition in
keeping with best practice and applicable policies, including
SAF.
As part of its review, the committee identified opportunities to
further strengthen the skills and experience required for the
Board. The committee commenced a search process to identify a new
non-executive Director for appointment to the Board with a
successful recommendation to the Board for approval secured in the
appointment of Patrick Clackson. Further information in relation to
Board and committee changes throughout the year can be found on
page 95.
Additionally, the committee reviewed and approved an updated
Board Continuity Plan ('BCP') which is in place to cover any
unexpected or temporary absence of non-executive Directors who hold
SMF responsibilities in relation to the Bank.
In overseeing compliance with SAF, the committee reviewed of the
Board composition and succession planning for all of the bank's
material subsidiaries.
Other activities during the year included, the review of key
remuneration matters for the bank and its subsidiaries in the
context of HSBC's remuneration framework, including variable and
fixed pay allocations, aligned with the bank's risk appetite, and
in keeping with the bank's strategy, culture and values, and
long-term interests of the bank.
The committee reviewed the annual pay review outcomes across the
region and received regular updates on relevant subsidiary and
regulatory matters.
Operation of the Committee
The committee held seven scheduled meetings during 2022, with
additional meetings arranged to consider specific matters.
The Head of HR and Head of Performance & Reward attend
committee meetings on a regular basis to contribute their subject
matter expertise and insight. Other senior executives attend
periodically for specific items considered by the committee.
The committee comprises four non-executive Directors. The
current members are: Stephen O'Connor (Chair), Juliet Ellis, Eric
Strutz, and Andrew Wright.
Executive Committee
The Executive Committee is a committee of the Board and has
overall executive responsibility, under formal delegation, for the
management and day-to-day running of the bank. The Committee is
accountable to the Board for overseeing the execution of the bank's
strategy.
The purpose of the Committee is to support the Chief Executive
Officer of the bank in the performance of their duties and exercise
of their powers, authorities and discretions in relation to the
management of the bank and its subsidiaries. The committee meets on
a regular basis and is chaired by the Chief Executive Officer.
During 2022, in addition to its day-to-day oversight of the
bank's operations, the committee reviewed business plans in light
of geopolitical and macroeconomic developments in keeping with the
Bank's approved Risk Framework and Risk Appetite prior to formal
recommendation to the Board for approval. The committee remained
focused on the Bank's strategic transformation and corporate
restructuring across Europe, including the country exit of Russia,
sale of branch operations in Greece and retail banking operations
in France and the regulatory requirement to establish an IPU
following the UK's departure from the European Union. The committee
is responsible for oversight of the performance across the bank's
lines of business, review of the bank's financial performance, cost
management, and preparing the bank's forward looking Financial
Resource Plan. The committee received updates on regulatory
remediation programmes and regulatory engagement themes across the
region.
Dividends
Information about dividends paid during the year is provided on
page 20 of the Strategic Report and in Note 8 to the financial
statements.
Internal control
The Board is responsible for the establishment and operation of
effective procedures for the maintenance of a sound system of
internal control and risk management, adequate accounting, and
compliance with statutory and regulatory obligations. The Board
determine the aggregate level and types of risks the bank is
willing to take in achieving its strategic objectives.
To meet this requirement and to discharge its obligations under
the FCA Handbook and the PRA Handbook, procedures have been
designed for safeguarding assets against unauthorised use or
disposal, for maintaining proper accounting records, and for
ensuring the reliability and usefulness of financial information
used within the business or for publication.
These procedures provide reasonable assurance against material
misstatement, errors, losses or fraud. They are designed to provide
effective internal control within the group and accord with the
Financial Reporting Council's guidance for Directors issued in 2014
(and subsequent relevant publications), internal control and
related financial and business reporting. The procedures have been
in place throughout the year and up to 20 February 2023, the date
of approval of this Annual Report and Accounts 2022.
The key risk management and internal control procedures include
the following:
-- Global principles: The HSBC Group's Global Principles set an
overarching standard for all other policies and procedures and are
fundamental to the Group's risk management structure. They inform
and connect our purpose, values, strategy and risk management
principles, guiding us to do the right thing and treat our
customers and our colleagues fairly at all times.
-- Risk management framework ('RMF'): The RMF supports our
Global Principles. It outlines the key principles and practices
that we employ in managing material risks. It applies to all
categories of risk and supports a consistent approach in
identifying, assessing, managing and reporting the risks we accept
and incur in our activities.
-- Delegation of authority within limits set by the Board:
Subject to certain matters reserved for the Board, the Chief
Executive Officer has been delegated authority limits and powers
within which to manage the day-to-day affairs of the bank,
including the right to sub-delegate those limits and powers. Each
relevant executive has authority within which to manage the
day-to-day affairs of the business or function for which he or she
is accountable. Those individuals are required to maintain a clear
and appropriate apportionment of significant responsibilities and
to oversee the establishment and maintenance of systems of control
that are appropriate to their business or function. Authorities to
enter into credit and market risk exposures are delegated with
limits to line management of group companies. However, credit
proposals with specified higher-risk characteristics require the
concurrence of the appropriate global function. Credit and market
risks are measured and reported at subsidiary company level and
aggregated for risk concentration analysis on a group-wide
basis.
-- Risk identification and monitoring: Systems and procedures
are in place to identify, assess, control and monitor the material
risk types facing the group as set out in the RMF. The group's risk
measurement and reporting systems are designed to help ensure that
material risks are captured with all the attributes necessary to
support well-founded decisions, that those attributes are
accurately assessed and that information is delivered in a timely
manner for those risks to be successfully managed and
mitigated.
-- Changes in market conditions/practices: Processes are in
place to identify new risks arising from changes in market
conditions/practices or customer behaviours, which could expose the
group to heightened risk of loss or reputational damage. The group
employs a top and emerging risks framework, which contains an
aggregate of all current and forward-looking risks and enables it
to take action that either prevents them materialising or limits
their impact.
-- Responsibility for risk management: All employees are
responsible for identifying and managing risk within the scope of
their role as part of the three lines of defence model. This is an
activity-based model to delineate management accountabilities and
responsibilities for risk management and the control environment.
The second line of defence sets the policy and guidelines for
managing specific areas, provides advice and guidance in relation
to the risk, and challenges the first line of defence (the risk
owners) on effective risk management.
-- The Board has delegated to the Audit Committee oversight for
the implementation of the group's policies and procedures for
capturing and responding to whistleblower concerns, ensuring
confidentiality, protection and fair treatment of whistleblowers,
and receiving reports arising from the operation of those policies
as well as ensuring arrangements are in place for independent
investigation.
-- Strategic plans: Strategic plans are prepared for global
businesses, global functions and geographical regions within the
framework of the HSBC Group's overall strategy. The bank also
prepares and adopts a Financial Resource Plan, which is informed by
detailed analysis of risk appetite, describing the types and
quantum of risk that the bank is prepared to take in executing its
strategy and sets out the key business initiatives and the likely
financial effects of those initiatives.
-- The effectiveness of the group's system of risk management
and internal control is reviewed regularly by the Board, the Risk
Committee and the Audit Committee.
-- During 2022, the group continued to focus on operational
resilience and invest in the non-financial risk infrastructure.
There was a particular focus on material and emerging risks with
progress made enhancing the end-to-end risk and control assessment
process. The Risk Committee, supported by the TRT, and the Audit
Committee received confirmation that executive management continued
to take efforts to effect the necessary actions to remedy any
failings or weaknesses identified through the operation of the
group's framework of controls.
Internal control over financial reporting
The key risk management and internal control procedures over
financial reporting include the following:
-- Entity level controls ('ELC'): The primary mechanism through
which comfort over risk management and internal control systems is
achieved, is through assessments of the effectiveness of controls
to manage risk, and the reporting of risk and control issues on a
regular basis through the various risk management and risk
governance forums. ELCs are a defined suite of internal controls
that have a pervasive influence over the entity as a whole.
They include controls related to the control environment, such
as the bank's values and ethics, the promotion of effective risk
management and the overarching governance exercised by the Board
and its non-executive committees. The design and operational
effectiveness of ELCs are assessed annually as part of the
assessment of the effectiveness of internal controls over financial
reporting. If issues are significant to the group, they are
notified to the Risk Committee, and also to the Audit Committee if
concerning financial reporting matters.
-- Process level transactional controls: Key process level
controls that mitigate risk of financial misstatement are
identified, recorded and monitored in accordance with the risk
framework. This includes the identification and assessment of
relevant control issues against which action plans are tracked
through to remediation. Further details on the group's approach to
risk management can be found on page 26. The Audit Committee has
continued to receive regular updates on HSBC's ongoing activities
for improving the effective oversight of end-to-end business
processes and management continues to identify opportunities for
enhancing key controls, such as through the use of automation
technologies.
-- External Reporting Forum: The External Reporting Forum
reviews financial reporting disclosures to be made by the bank for
accuracy and completeness. The integrity of disclosures is
underpinned by structures and processes within the group's Finance
and Risk functions that support rigorous analytical review of
financial reporting and the maintenance of proper accounting
records.
-- Disclosure Committee: Chaired by the Chief Financial Officer,
the committee supports the discharge of the bank's obligations
under relevant legislation and regulation including the European
Union's Market Abuse Regulation ('EU MAR'), as amended by the
Market Abuse (Amendment) (EU Exit) Regulations 2019, the New York
Stock Exchange's Listed Company Manual, U.S. Securities law and the
rules and regulations of the SEC, and also any other listing and
disclosure rules of the markets and exchanges on which the bank's
financial instruments are listed, including any other requirements
that shall apply from time to time.
-- Financial reporting: The group's financial reporting process
is controlled using documented accounting policies and reporting
formats, supported by detailed instructions and guidance on
reporting requirements, issued to all reporting entities within the
group in advance of each reporting period end. The submission of
financial information from each reporting entity is supported by a
certification by the responsible financial officer and analytical
review procedures at subsidiary and group levels.
-- Subsidiary certifications: Certifications are provided to the
Audit Committee and the Risk Committee (full and half yearly) and
to the Nomination, Remuneration and Governance Committee (annually)
from the audit, risk and remuneration committees of key material
subsidiary companies confirming amongst other things that:
- Audit - the financial statements of the subsidiary have been
prepared in accordance with group policies, present fairly the
state of affairs of the subsidiary and are prepared on a going
concern basis;
- Risk - the risk committee of the subsidiary has carried out
its oversight activities consistent with and in alignment to the
RMF; and
- Remuneration - the remuneration committee of the subsidiary
has discharged its obligations in overseeing the implementation and
operation of HSBC's Group Remuneration Policy.
-
Employees
Health and safety
We are committed to providing a safe and healthy working
environment for everyone. We have adopted global policies,
mandatory procedures, and incident and information reporting
systems across the organisation that reflect our core values and
are aligned to international standards. Our global health and
safety performance is subject to ongoing monitoring and
assurance.
Our Chief Operating Officers have overall responsibility for
engendering a positive health and safety culture and ensuring that
global policies, procedures and systems are put into practice
locally. They also have responsibility for ensuring all local legal
requirements are met.
We delivered a range of programmes in 2022 to help us understand
and manage our health and safety risks:
-- We continued to provide enhancements to our workplaces to
minimise the risks of Covid-19, including enhancing cleaning,
improved ventilation and social distancing measures
-- We updated our advice and risk assessment methodology on
working from home, providing more awareness and best practices on
good ergonomics and wellbeing to be adopted as we transitioned to
new ways of working upon return to the office
-- We delivered health and safety training and awareness to
employees and contractors ensuring roles and responsibilities were
clear and understood, especially in higher risk environments
-- We completed the annual safety inspection on all of our
buildings, to ensure we were meeting our standards and continuously
improving our safety performance
-- We continued to focus on enhancing the safety culture in our
supply chain through our SAFER Together programme, covering the
five key elements of best practice safety culture, including
speaking up about safety, and recognising excellence
-- Our Safety Climate Survey continued to show high results and
recognised that we encourage suggestions on how to improve health
and safety and have good processes in place to communicate health
and safety messages
-- Our Eat Well Live Well programme continued to be rolled out,
notably in France and Germany, educating and informing our
colleagues on how to make healthy food and drink choices. We
enhanced the programme to provide digital educational and
information resources, including a suite of videos and recipe ideas
and to provide healthy vending options.
-- Protection of our colleagues and operations is of critical
importance and we have effective controls in place to protect our
people from natural disasters (i.e. storms and earthquakes). In
2022, there were 38 named storms that passed over 1,667 of our
buildings, resulting in 0 injuries or material business impact.
Employee health and safety
2022 2021 2020
------------------------------- ---------- ---------- -------------
Number of workplace fatalities - - -
------------------------------- ---------- ---------- -------------
Number of major injuries
to employees(1) - 2 3
------------------------------- ---------- ---------- -------------
All injury rate per 100,000
employees 49 35 130
------------------------------- ---------- ---------- -------------
1 Fractures, dislocation, concussion, hospitalisation, unconsciousness.
Diversity and Inclusion
Our purpose, 'Opening up a world of opportunity', explains why
we exist as an organisation and is the foundation of our diversity
and inclusion strategy. Promoting diversity and fostering inclusion
contributes to our 'energise for growth' priority. By valuing
difference, we can make use of the unique expertise, capabilities,
breadth and perspectives of our colleagues to the benefit of our
customers. To achieve progress, we are focused on specific
region-wide priorities for which we hold senior executives
accountable. We are pleased to report on key progress made in
2022:
Achievements
-- We have set up a HSBC Bank plc Diversity and Inclusion
Council, chaired by the HSBC Bank plc CEO and consisting of the
European Executive Committee to reinforce our commitments, engage
more closely with our Employee Resources Groups and track progress
and accountability.
-- Throughout 2022, we arranged multiple events and conferences
to support our colleagues across our European countries, including
ethnicity conferences attended by over 600 colleagues, 6 disability
awareness events and six ethnicity exchanges in French and
English.
-- We have continued supporting colleagues through our ERGs; we
now have 47 ERGs in 20 markets across six diversity strands.
-- We have created D&I objectives for European people managers.
-- Focus on developing our middle management female colleagues
through our flagship programmes 'uGrow' and 'Accelerated Female
Leaders'.
-- We have a black heritage action plan in place to support our
ethnicity goals, including a Black Heritage Sponsorship Programme
being run in Global Banking and Markets.
-- 3000+ hours spent on Inclusion Learning across the region
-- 47.9% of employees in the UK, Channels Islands and Isle of
Man and South Africa have declared their ethnicity in our 'HR
Direct' system
Gender diversity statistics
Our overall female representation is improving and we are
committed to building a strong pipeline of female talent to improve
gender balance in senior leadership across Europe. By the end of
2022, we had reached 24.6% and are committed to doing more going
forward.
Female representation by management level:
All grades - 51.9%
GCB 6-8 Clerical grades - 65.1%
GCB 4-5 Management - 43.7%
GCB 0-3 Senior management - 24.6%
Employment of people with a disability
We strongly believe in providing equal opportunities for all
employees. The employment of people with a disability is included
in this commitment. The recruitment, training, development and
promotion of people with a disability are based on the aptitudes
and abilities of the individual. Should employees become disabled
during their employments with us, efforts are made to continue
their employment. Where necessary, we will provide appropriate
training, facilities and reasonable equipment. For example, we
recently established a telephone platform for instant sign
translation for our deaf colleagues in France where the sign
language translators exchange sign language by video.
A number of countries have dedicated teams to ensure that
barriers to work are removed for colleagues. Our Employee Resource
Groups ('ERG'), supported by HR and business leadership are doing
an important job of breaking down barriers. They offer a space for
discussion between those with a disability and their allies for
exchanges of inclusive best practices.
Continuous work is done to ensure individual support is provided
to make home office adjustments.
Learning and talent development
We aim to build a dynamic environment where our colleagues can
develop skills and undertake experiences that help them fulfil
their potential. Our approach helps us to meet our strategic
priorities and support our colleagues' career goals.
We expect all colleagues, regardless of their contract type, to
complete global mandatory training each year. This training plays a
critical role in shaping our culture, ensuring a focus on the
issues that are fundamental to our work - such as sustainability,
financial crime risk, and our intolerance of bullying and
harassment. New joiners attend our Global Discovery programme
designed to build their knowledge of the organisation and engage
them with our purpose, values and strategy.
HSBC University remains our home for skills development with
access to face to face training and an extensive catalogue of
digital content from partners such as LinkedIn Learning, Harvard
Business Review podcast and Microsoft Learn. Powered by Degreed,
our HSBC University platform provides tailored content aligned to
employees chosen skills and development areas. Our Leadership
development partners include Imperial College and London Business
Schools who we work with on topics of strategic importance. For
example, we launched the HSBC University Sustainability Academy in
October 2022 providing a wealth of knowledge articles and
structured learning pathways to grow awareness of climate and wider
social sustainability matters that HSBC and its employees can play
a role in resolving.
My HSBC Career Portal is also available to all our employees
which offers career development information and resources to help
colleagues manage the various stages of their career, from joining
through to career progression. However, we also recognise that most
development happens while our colleagues work, through regular
coaching, feedback, and performance management and we will extend
the use of the HSBC Talent Marketplace platform in Europe in 2023
(the platform is already live in the UK). This will connect our
employees to 'on the job' development opportunities across the HSBC
Group, by means of matching individuals existing skills and career
aspirations to live projects within the Group. HSBC Europe will
also be able to call upon talent that exists across the Group, to
supplement its own personnel, in the development of local
initiatives and projects.
Employee relations
We consult with and, where appropriate, negotiate with employee
representative bodies where we have them. We also aim to maintain
well-developed communications and consultation programmes with all
employee representative bodies and there have been no material
disruptions to our operations from labour disputes during the past
five years.
Disclosure of information to auditors
The directors are not aware that there is any relevant audit
information (as defined in the Companies Act 2006) of which the
bank's auditors are unaware and processes are in place to ensure
that the bank's auditors are aware of any relevant audit
information.
Auditors
PricewaterhouseCoopers LLP ('PwC') are the external auditors to
the bank. PwC has expressed its willingness to continue in office
and the Board recommends that PwC be re-appointed as the bank's
auditors. A resolution proposing the re-appointment of PwC as the
bank's auditors, and giving authority to the Audit Committee to
determine its remuneration, will be submitted to the forthcoming
AGM.
Branches
HSBC Bank plc provides a wide range of banking and financial
services through 20 markets. HSBC Bank plc is simplifying its
operating model to one integrated business supporting a wholesale
banking hub for the EU in Paris and a wholesale banking hub for
western markets in London. Further information on the bank's
branches are located in 'HSBC in Europe' on page 6.
Disclosures required pursuant to the Large and Medium-sized
Companies and Groups (Accounts and Reports) Regulations 2008 as
updated by Companies (Miscellaneous Reporting) Regulations 2018 can
be found on the following pages:
Engagement with employees
(Sch.7 Para 11 and 11A 2008/2018 Pages 12
Regs), s172 Statement) and 13
--------------------------------- ----------
Engagement with suppliers,
customers and others in
a business relationship
with the bank (Sch.7 Para Pages 12
11B 2008 Regs) and 13
--------------------------------- ----------
Policy concerning the employment
of disabled persons (Sch.7
Para 10 2008 Regs) Page 101
--------------------------------- ----------
Financial Instruments (Sch.7 Pages 36
Para 6 2008 Regs) to 75
--------------------------------- ----------
Note 14,
Hedge accounting policy Pages 159
(Sch.7 Para 6 2008 Regs) to 164
--------------------------------- ----------
Articles of Association, Conflicts
of interest
and indemnification of Directors
The bank's Articles of Association gives the Board authority to
approve Directors' conflicts and potential conflicts of interest.
The Board has adopted policies and procedures for the approval of
Directors' conflicts or potential conflicts of interest. On
appointment, new Directors are advised of the process for dealing
with conflicts and a review of those conflicts that have been
authorised, and the terms of those authorisations, is routinely
undertaken by the Board.
The Articles of Association of the bank contain a qualifying
third-party indemnity provision, which entitles Directors and other
officers to be indemnified out of the assets of the bank against
claims from third parties in respect of certain liabilities. HSBC
Group has granted, by way of deed poll, indemnities to the
Directors, including former Directors who retired during the year,
against certain liabilities arising in connection with their
position as a Director of any Group company, including the bank and
its subsidiaries. Directors are indemnified to the maximum extent
permitted by law.
The indemnities that constitute a 'qualifying third-party
indemnity provision', as defined by section 234 of the Companies
Act 2006, remained in force for the whole of the financial year
(or, in the case of Directors appointed during 2022, from the date
of their appointment). The deed poll is available for inspection at
the registered office of HSBC Holdings plc.
Additionally, Directors have the benefit of Directors' and
Officers' liability insurance. Qualifying pension scheme
indemnities have also been granted to the Trustees of the Group's
pension schemes, which were in force for the whole of the financial
year and remain in force as at the date of this report.
Research and Development
In the ordinary course, the lines of business develop new
products and services.
Events after the Balance Sheet
Date
In its assessment of events after the balance sheet date, the
group has considered and concluded that there are no events
requiring adjustment or disclosures in the financial
statements.
Statement on going concern
The Directors consider it appropriate to prepare the financial
statements on the going concern basis. In making their going
concern assessment, the Directors have considered a wide range of
detailed information relating to present and potential conditions,
including profitability, cash flows, capital requirements and
capital resources.
Further information relevant to the assessment is provided in
the Strategic Report and the Report of the Directors, in
particular:
-- a description of the group's strategic direction;
-- a summary of the group's financial performance and a review of performance by business;
-- the group's approach to capital management and its capital position; and
-- the top and emerging risks facing the group, as appraised by
the Directors, along with details of the group's approach to
mitigating those risks and its approach to risk management in
general.
In addition, the objectives, policies and processes for managing
credit, liquidity and market risk are set out in the 'Report of the
Directors: Risk'.
The Report of the Directors comprising pages 26 to 102 was
approved by the Board on 20 February 2023 and is signed on its
behalf:
By order of the Board
David Watts
Director
HSBC Bank plc
20 February 2023
Registered number 00014259
Statement of directors' responsibilities in respect of the financial
statements
The directors are responsible for preparing the Annual Report
and the financial statements in accordance with applicable law and
regulation.
Company law requires the directors to prepare financial
statements for each financial year. Under that law the directors
have prepared the group and the company financial statements in
accordance with UK-adopted international accounting standards. In
preparing the group and company financial statements, the directors
have also elected to comply with International Financial Reporting
Standards issued by the International Accounting Standards Board
(IFRSs as issued by IASB).
The group and company have also prepared financial statements in
accordance with international financial reporting standards adopted
pursuant to Regulation (EC) No 1606/2002 as it applies in the
European Union.
Under company law, directors must not approve the financial
statements unless they are satisfied that they give a true and fair
view of the state of affairs of the group and company and of the
profit or loss of the group for that period. In preparing the
financial statements, the directors are required to:
-- select suitable accounting policies and then apply them consistently;
-- state whether applicable UK-adopted international accounting
standards, international financial reporting standards adopted
pursuant to Regulation (EC) No 1606/2002 as it applies in the
European Union and IFRSs issued by IASB have been followed, subject
to any material departures disclosed and explained in the financial
statements;
-- make judgements and accounting estimates that are reasonable and prudent; and
-- prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the group and company
will continue in business.
The directors are responsible for safeguarding the assets of the
group and company and hence for taking reasonable steps for the
prevention and detection of fraud and other irregularities.
The directors are also responsible for keeping adequate
accounting records that are sufficient to show and explain the
group's and company's transactions and disclose with reasonable
accuracy at any time the financial position of the group and
company and enable them to ensure that the financial statements
comply with the Companies Act 2006.
The directors are responsible for the maintenance and integrity
of the company's website. Legislation in the United Kingdom
governing the preparation and dissemination of financial statements
may differ from legislation in other jurisdictions.
Directors' confirmations
Each of the directors, whose names and functions are listed in
Corporate Governance Report confirm that, to the best of their
knowledge:
-- the group and company financial statements, which have been
prepared in accordance with UK-adopted international accounting
standards, international financial reporting standards adopted
pursuant to Regulation (EC) No 1606/2002 as it applies in the
European Union and IFRSs issued by IASB, give a true and fair view
of the assets, liabilities and financial position of the group and
company, and of the loss of the group; and
-- the Strategic Report includes a fair review of the
development and performance of the business and the position of the
group and company, together with a description of the principal
risks and uncertainties that it faces.
On behalf of the Board
David Watts
Director
HSBC Bank plc
20 February 2023
Registered number 00014259
Independent auditors' report to the members of HSBC Bank plc
Report on the audit of the financial statements
Opinion
In our opinion, HSBC Bank plc's group financial statements and
company financial statements (the 'financial statements'):
-- give a true and fair view of the state of the group's and of
the company's affairs as at 31 December 2022 and of the group's
loss and the group's and company's cash flows for the year then
ended;
-- have been properly prepared in accordance with UK-adopted
international accounting standards as applied in accordance with
the provisions of the Companies Act 2006; and
-- have been prepared in accordance with the requirements of the Companies Act 2006.
We have audited the financial statements, included within the
Annual Report and Accounts 2022 (the 'Annual Report'), which
comprise:
-- the consolidated balance sheet as at 31 December 2022;
-- the consolidated income statement and consolidated statement
of comprehensive income for the year then ended;
-- the consolidated statement of cash flows for the year then ended;
-- the consolidated statement of changes in equity for the year then ended;
-- the HSBC Bank plc balance sheet as at 31 December 2022;
-- the HSBC Bank plc statement of cash flows for the year then ended;
-- the HSBC Bank plc statement of changes in equity for the year then ended; and
-- the notes to the financial statements, which include a
description of the significant accounting policies.
Certain notes to the financial statements have been presented
elsewhere in the Annual Report, rather than in the notes to the
financial statements. These are cross-referenced from the financial
statements and are identified as '(Audited)'. The relevant
disclosures are included in the Risk review section on pages 26 to
93.
Our opinion is consistent with our reporting to the Audit
Committee.
Separate opinion in relation to international financial
reporting standards adopted pursuant to Regulation (EC) No
1606/2002 as it applies in the European Union
As explained in note 1.1(a) to the financial statements, the
group and company, in addition to applying UK-adopted international
accounting standards, have also applied international financial
reporting standards adopted pursuant to Regulation (EC) No
1606/2002 as it applies in the European Union.
In our opinion, the group and company financial statements have
been properly prepared in accordance with international financial
reporting standards adopted pursuant to Regulation (EC) No
1606/2002 as it applies in the European Union.
Separate opinion in relation to IFRSs as issued by the IASB
As explained in note 1.1(a) to the financial statements, the
group and company, in addition to applying UK-adopted international
accounting standards, have also applied international financial
reporting standards ('IFRSs') as issued by the International
Accounting Standards Board ('IASB').
In our opinion, the group and company financial statements have
been properly prepared in accordance with IFRSs as issued by the
IASB.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) ('ISAs (UK)'), International Standards
on Auditing issued by the International Auditing and Assurance
Standards Board ('ISAs') and applicable law. Our responsibilities
under ISAs (UK) and ISAs are further described in the Auditors'
responsibilities for the audit of the financial statements section
of our report. We believe that the audit evidence we have obtained
is sufficient and appropriate to provide a basis for our
opinion.
Independence
We remained independent of the group in accordance with the
ethical requirements that are relevant to our audit of the
financial statements in the UK, which includes the FRC's Ethical
Standard, as applicable to listed public interest entities, and the
International Code of Ethics for Professional Accountants
(including International Independence Standards) issued by the
International Ethics Standards Board for Accountants (IESBA Code),
and we have fulfilled our other ethical responsibilities in
accordance with these requirements.
To the best of our knowledge and belief, we declare that
non-audit services prohibited by either the FRC's Ethical Standard
or Article 5(1) of Regulation (EU) No 537/2014 were not
provided.
Other than those disclosed in note 6, we have provided no
non-audit services to the company or its controlled undertakings in
the period under audit.
Our audit approach
Overview
Audit scope
We performed audits of the complete financial information of two
components, namely the UK non-ring-fenced bank and HSBC Continental
Europe ('HBCE'). For five further components, specific audit
procedures were performed over selected significant account
balances and financial statement note disclosures.
Key audit matters
-- Expected credit losses ('ECL') impairment of loans and advances (group and company)
-- Held for sale accounting (group)
-- Recognition of deferred tax assets (group); and
-- Impairment of investment in subsidiaries (company)
Materiality
-- Overall group materiality: GBP230 million (2021: GBP218
million) based on 1% of Tier 1 capital.
-- Overall company materiality: GBP133 million (2021: GBP140
million) based on 1% of Tier 1 capital.
-- Performance materiality: GBP172 million (2021: GBP164
million) (group) and GBP99 million (2021: GBP105 million)
(company).
The scope of our audit
As part of designing our audit, we determined materiality and
assessed the risks of material misstatement in the financial
statements. In particular, we looked at where the directors made
subjective judgements, for example in respect of significant
accounting estimates that involved making assumptions and
considering future events that are inherently uncertain.
Key audit matters
Key audit matters are those matters that, in the auditors'
professional judgement, were of most significance in the audit of
the financial statements of the current period and include the most
significant assessed risks of material misstatement (whether or not
due to fraud) identified by the auditors, including those which had
the greatest effect on: the overall audit strategy; the allocation
of resources in the audit; and directing the efforts of the
engagement team. These matters, and any comments we make on the
results of our procedures thereon, were addressed in the context of
our audit of the financial statements as a whole, and in forming
our opinion thereon, and we do not provide a separate opinion on
these matters.
This is not a complete list of all risks identified by our
audit.
Held for sale accounting (group) is a new key audit matter this
year. Valuation of financial instruments (group and company), which
was a key audit matter last year, is no longer included because the
risk is reduced due to a reduction in the size of the level 3 asset
backed securities portfolio, resulting in a lower risk of material
misstatement. Otherwise, the key audit matters below are consistent
with last year.
Expected credit losses - Impairment of loans and advances (group
and company)
Determining expected credit losses ('ECL') involves management judgement
and is subject to a high degree of estimation uncertainty.
Management makes various assumptions when estimating ECL. The significant
assumptions that we focused on in our audit included those with greater
levels of management judgement and for which variations had the most
significant impact on ECL. These included assumptions made in determining
forward looking economic scenarios and their probability weightings
(specifically the central and downside scenarios given these have the
most material impact on ECL) and estimating expected cash flows and
collateral valuations to assess the ECL of credit impaired wholesale
exposures.
The level of estimation uncertainty and judgement has remained high
during 2022 as a result of the uncertain macroeconomic and geopolitical
environment, high levels of inflation and a rising global interest
rate environment. This leads to uncertainty around judgements made
in determining the severity and probability weighting of macroeconomic
variable forecasts across the different economic scenarios used in
ECL models, and in the estimation of expected cash flows and collateral
valuations on credit impaired stage 3 exposures.
Management makes other assumptions which are less judgemental or for
which variations have a less significant impact on ECL. These assumptions
include:
* The methodologies used in quantitative scorecards for
determining customer risk ratings ('CRRs');
* Model methodologies themselves; and
* Quantitative and qualitative criteria used to assess
significant increases in credit risk.
--------------------------------------------------------------------------
We held discussions with the Audit Committee covering governance and
controls over ECL. We discussed a number of areas including:
* The severity of macroeconomic scenarios, and their
related probability weightings;
* The valuation of credit impaired exposures, with
focus on assumptions made in the recoverability of
significant wholesale exposures; and
* The disclosures made in relation to ECL.
--------------------------------------------------------------------
We assessed the design and effectiveness of governance and controls
over the estimation of ECL. We observed management's review and challenge
in governance forums for (1) the determination of macroeconomic scenarios
and their probability weightings and (2) the assessment of ECL for
Wholesale exposures, including the assessment of ECL calculated on
the largest credit-impaired stage 3 exposures.
We also tested controls over:
* The input of critical data into source systems and
the flow and transformation of critical data from
source systems to impairment models and management
judgemental adjustments;
* Credit reviews that determine CRRs for wholesale
customers;
* Independent model validation and monitoring;
* The calculation and approval of management
judgemental adjustments to modelled outcomes;
* The identification of credit-impairment triggers; and
* The calculation and approval of significant
individual impairments relating to the largest
wholesale credit-impaired exposures.
We involved our economic experts in assessing the significant assumptions
made in determining the severity and probability weighting of macroeconomic
forecasts. These assessments considered the sensitivity of ECL to variations
in the severity and probability weighting of macroeconomic forecasts.
We involved our modelling experts in assessing the appropriateness
of the significant assumptions and methodologies used for models and
independently re-performed the calculations for a sample of those models.
We further considered whether the judgements made in selecting the
significant assumptions would give rise to indicators of possible management
bias.
In addition, we performed substantive testing over:
* the compliance of ECL methodologies and assumptions
with the requirements of IFRS 9;
* the appropriateness and application of the
quantitative and qualitative criteria used to assess
significant increases in credit risk;
* a sample of critical data used in the year end ECL
calculation;
* a sample of CRRs applied to wholesale exposures; and
* a sample of calculations made in estimating expected
cash flows for certain credit-impaired wholesale
exposures.
We evaluated and tested the Credit Risk disclosures made in the financial
statements.
-----------------------------------------------------------------------------
* Measurement uncertainty and sensitivity analysis of
ECL estimates, page 47.
* Audit Committee Report, page 97.
* Credit risk, page 36.
* Note 1.2(i) Impairment of amortised cost and FVOCI
financial assets, page 129.
----------------------------------------------------------
Recognition of deferred tax assets (group)
Recognition of deferred tax assets ('DTAs') relies on an assessment
of the availability and timing of future deferred tax liabilities and
taxable profits against which to recognise accumulated tax losses.
Management judgement is required when assessing whether a deferred
tax asset should be recognised, particularly when an entity has a history
of recent losses and convincing evidence of future taxable profits
is required. Judgements include assumptions regarding the forecast
cash flows, determination of risk adjustments to such cash flows and
the timing of the reversal of temporary differences.
Management performed an assessment of the recoverability of deferred
tax assets at 31 December 2022 and an additional deferred tax asset
of GBP288 million has been recorded in HBCE.
--------------------------------------------------------------------------
We discussed with the audit committee the key judgements made by management
in assessing the recoverability of DTAs. We also discussed the appropriateness
of the disclosures made in the annual report.
-------------------------------------------------------------------------------
We tested the design and operating effectiveness of controls over deferred
tax asset recognition.
With the support of our tax specialists we assessed the viability of
management's plans to recover deferred tax assets.
We tested key inputs into the deferred tax recognition model, including
forecast cash flows to approved plans and their consistency with other
judgements. We challenged management on their methodology and underlying
assumptions in arriving at their judgements, including in relation
to availability of convincing other evidence of future taxable profits
and determination of risk adjustments applied to those forecast taxable
profits. In assessing these judgements we considered the historic taxable
profits and losses and the evidence provided to support the judgement
that the criteria for recognition had been reached.
We challenged the achievability of management's forecast taxable profits,
considering the achievement of historic forecasts and assessing the
sensitivity of forecasts to reasonable variations in significant assumptions.
We also evaluated assumptions made over the future reversal of deferred
tax assets and liabilities.
We evaluated and tested the disclosures made in the financial statements
------------------------------------------------------------------------------
* Audit Committee Report, page 97.
* Note 1.2(l) Tax, page 133
* Note 7: Tax, page 143
---------------------------------------
Held for sale accounting (group)
The group has agreements to sell a number of businesses as part of
executing its strategy. This has resulted in GBP21.2 billion of assets
and GBP24.7 billion of liabilities being classified as held for sale
as at 31 December 2022, in relation to businesses in France, Russia
and Greece. In addition to the assets and liabilities classified as
held for sale, a pre-tax loss of GBP1.7 billion has also been recognised
in 2022 in relation to the sale of the business in France.
For the assets and liabilities to be classified as held for sale, the
sale needs to be considered highly probable and expected to complete
within 12 months of the date of classification. We focused our audit
on the areas with greater levels of management judgement relating to
the highly probable assessment including the expected timing of completion,
the appropriateness of disclosures relating to the highly probable
assessment and the loss recognised in relation to the sale of business
in France.
----------------------------------------------------------------------------
We discussed with the Audit Committee the judgements made by management
in determining if the highly probable threshold were met as at 31 December
2022. We also discussed the appropriateness of the disclosure made
in the Annual Report which explained how management had concluded that
transactions met the highly probable threshold as at 31 December 2022.
---------------------------------------------------------------------------
We tested governance and controls in place over the management process
to determine if the highly probable threshold had been met on assets
and liabilities classified as held for sale.
We assessed the key judgments made by management to determine whether
the highly probable threshold was met as at 31 December 2022, including
their assessment of remaining actions to complete the transaction,
any regulatory requirements that need to be met, and the likelihood
and expected timing of the transactions being approved by relevant
regulators and shareholders.
We also tested the completeness and accuracy of the assets and liabilities
that were classified as held for sale and the loss on sale recognised
in relation to the French business. We evaluated and tested the disclosures
made in the Annual Report in relation to assets and liabilities classified
as held for sale.
----------------------------------------------------------------------------
* Audit Committee Report, page 97.
* Note 1.2(o): Critical accounting estimates and
judgements, page 134.
* Note 34: Assets held for sale and liabilities of
disposal groups held for sale, page 186.
-------------------------------------------------------
Impairment of investment in subsidiaries (company)
Management reviewed investments in subsidiaries for indicators of impairment
or reversal of impairment previously recorded as at 31 December 2022.
Where indicators were identified management estimated the recoverable
amount using a value in use ('VIU') model. Management's assessment
resulted in a partial reversal of an impairment charge of GBP2 billion
in relation to the investment in HBCE. This resulted in investment
in subsidiaries of GBP10.6 billion at 31 December 2022.
The methodology used to estimate the recoverable amount is dependent
on various assumptions, both short term and long term in nature. These
assumptions, which are subject to estimation uncertainty, are derived
from a combination of management's judgement, experts engaged by management
and market data. The significant assumptions that we focused our audit
on were those with greater levels of management judgement and for which
variations had the most significant impact on the recoverable amount.
Specifically, these included forecast cash flows for 2023 to 2027,
regulatory capital requirements, long term growth rates and discount
rates.
----------------------------------------------------------------------------
We discussed the partial reversal of the impairment charge for HBCE,
the appropriateness of methodologies used and significant assumptions
with the audit committee, giving consideration to the macroeconomic
outlook and HSBC's strategy. We considered reasonable possible alternatives
for significant assumptions.
----------------------------------------------------------------------------
We tested controls in place over significant assumptions and the model
used to determine the recoverable amounts. We assessed the appropriateness
of the methodology used, and tested the mathematical accuracy of the
calculations, to estimate the recoverable amounts. In respect of the
significant assumptions, our testing included the following:
* Challenging the achievability of management's
business plan and the prospects for HSBC's businesses,
as well as considering the achievement of historic
forecasts;
* Obtaining and evaluating evidence relating to
significant assumptions, from a combination of
historic experience and external market and other
financial information;
* Assessing whether the cash flows included in the
model were in accordance with the relevant accounting
standard;
* Assessing the sensitivity of the VIU to reasonable
variations in significant assumptions, both
individually and in aggregate; and
* Determining a reasonable range for the discount rate
used within the model, with the assistance of our
valuation experts, and comparing it to the discount
rate used by management.
We evaluated and tested the disclosures made in the financial statements
in relation to investment in subsidiaries.
---------------------------------------------------------------------------
* Audit Committee Report, page 97.
* Note 1.2(a) Consolidation and related policies, page
126.
* Note 18: Investment in subsidiaries, page 166.
-----------------------------------------------------------
How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed
enough work to be able to give an opinion on the financial
statements as a whole, taking into account the structure of the
group and the company, the accounting processes and controls, and
the industry in which they operate.
The risks that HSBC faces are diverse, with the
interdependencies between them being numerous and complex. In
performing our risk assessment we engaged with a number of
stakeholders to ensure we appropriately understood and considered
these risks and their interrelationships. This included
stakeholders within HSBC and our own experts within PwC. This
engagement covered external factors across the geopolitical,
macroeconomic and regulatory and accounting landscape, the impact
of climate change risk as well as the internal environment at HSBC,
driven by strategy and transformation.
We evaluated and challenged management's assessment of the
impact of climate change risk including their conclusion that there
is no material impact on the financial statements. In making this
evaluation we considered management's use of stress testing and
scenario analysis to arrive at the conclusion that there is no
material impact on the financial statements. We considered
management's assessment on the areas in the financial statements
most likely to be impacted by climate risk, including: the impact
on ECL on loans and advances to customers, for both physical and
transition risk; the forecast cash flows from management's five
year business plan and long term growth rates used in estimating
recoverable amounts as part of impairment assessments of
investments in subsidiaries; the impact of climate related terms on
the solely payments of principal and interest test for
classification and measurement of loans and advances to customers;
and climate risks relating to contingent liabilities as HSBC faces
increased reputational, legal and regulatory risk as it progresses
towards its climate ambition.
Using our risk assessment, we tailored the scope of our audit to
ensure that we performed enough work to be able to give an opinion
on the financial statements as a whole, taking into account the
structure of the group and the company, the accounting processes
and controls, and the industry in which they operate.
HSBC Bank plc is structured into five divisions being Markets
& Securities Services, Global Banking, GBM Other, Commercial
Banking and Wealth and Personal Banking, which are supported by a
Corporate Centre. The divisions operate across a number of
operations, subsidiary entities and branches ('components')
throughout Europe. Within the group's main consolidation and
financial reporting system, the consolidated financial statements
are an aggregation of the components. Each component submits their
financial information to the group in the form of a consolidation
pack.
In establishing the overall approach to the group and company
audit, we scoped using the balances included in the consolidation
pack. We determined the type of work that needed to be performed
over the components by us, as the group engagement team, or
auditors within PwC UK and from other PwC network firms operating
under our instruction ('component auditors').
As a result of our scoping, for the group we determined that
audits of the complete financial information of the UK
non-ring-fenced bank ('UK NRFB') and HBCE were necessary, owing to
their financial significance. We instructed component auditors, PwC
UK and PwC France to perform the audits of these components. Our
interactions with component auditors included regular communication
throughout the audit, including the issuance of instructions, a
review of working papers relating to the key audit matters and
formal clearance meetings. The group audit engagement partner was
also the partner on the audit of the UK NRFB significant
component.
We then considered the significance of other components in
relation to primary statement account balances and note
disclosures. In doing this we also considered the presence of any
significant audit risks and other qualitative factors (including
history of misstatements through fraud or error). For five
components, specific audit procedures were performed over selected
significant account balances. For the remainder, the risk of
material misstatement was mitigated through group audit procedures
including testing of entity level controls and group and company
level analytical review procedures.
Certain group-level account balances were audited by the group
engagement team.
Materiality
The scope of our audit was influenced by our application of
materiality. We set certain quantitative thresholds for
materiality. These, together with qualitative considerations,
helped us to determine the scope of our audit and the nature,
timing and extent of our audit procedures on the individual
financial statement line items and disclosures and in evaluating
the effect of misstatements, both individually and in aggregate on
the financial statements as a whole.
Based on our professional judgement, we determined materiality
for the financial statements as a whole as follows:
Overall materiality GBP230 million (2021: GBP218 GBP133 million (2021: GBP140
million). million).
----------------------- -------------------------------- --------------------------------
How we determined 1% of Tier 1 capital 1% of Tier 1 capital
it
----------------------- -------------------------------- --------------------------------
Rationale for benchmark Tier 1 capital is used as Tier 1 capital is used as
applied a benchmark as it is considered a benchmark as it is considered
to be a key driver of HSBC to be a key driver of HSBC
Bank plc's decision making Bank plc's decision making
process and has been a primary process and has been a primary
focus for regulators. focus for regulators.
----------------------- -------------------------------- --------------------------------
Tier 1 capital was also used as the benchmark in the prior year.
The basis for determining materiality was re-evaluated and we
considered other benchmarks, such as profit before tax. Tier 1
capital is a common benchmark for wholly owned banking
subsidiaries, because of the focus on financial stability. Tier 1
capital was determined to continue to be an appropriate benchmark
given the importance of this metric to the HSBC Bank plc decision
making process and to principal users of the financial statements,
including the ultimate holding company HSBC Holdings plc.
For each component in the scope of our group audit, we allocated
a materiality that is less than our overall group materiality. The
range of materiality allocated across components was GBP8 million
to GBP230 million. Certain components were audited to a local
statutory audit materiality that was also less than our overall
group materiality.
We use performance materiality to reduce to an appropriately low
level the probability that the aggregate of uncorrected and
undetected misstatements exceeds overall materiality. Specifically,
we use performance materiality in determining the scope of our
audit and the nature and extent of our testing of account balances,
classes of transactions and disclosures, for example in determining
sample sizes. Our performance materiality was 75% (2021: 75%) of
overall materiality, amounting to GBP172 million (2021: GBP164
million) for the group financial statements and GBP99 million
(2021: GBP105 million)for the company financial statements.
In determining the performance materiality, we considered a
number of factors - the history of misstatements, risk assessment
and aggregation risk and the effectiveness of controls - and
concluded that an amount at the upper end of our normal range was
appropriate.
We agreed with the Audit Committee that we would report to them
misstatements identified during our audit above GBP11 million
(group audit) (2021: GBP11 million) and GBP6 million (company
audit) (2021: GBP7 million) as well as misstatements below those
amounts that, in our view, warranted reporting for qualitative
reasons.
Conclusions relating to going concern
Our evaluation of the directors' assessment of the group's and
the company's ability to continue to adopt the going concern basis
of accounting included:
-- Performing a risk assessment to identify factors that could
impact the going concern basis of accounting, including both
internal risks (i.e., strategy execution) and external risks (i.e.,
macroeconomic conditions).
-- Understanding and evaluating the group and company's
financial forecasts and stress testing of liquidity and regulatory
capital, including the severity of the stress scenarios that were
used.
-- Understanding and evaluating credit agency ratings and actions.
-- Reading and evaluating the adequacy of the disclosures made
in the financial statements in relation to going concern.
Based on the work we have performed, we have not identified any
material uncertainties relating to events or conditions that,
individually or collectively, may cast significant doubt on the
group's and the company's ability to continue as a going concern
for a period of at least twelve months from when the financial
statements are authorised for issue.
In auditing the financial statements, we have concluded that the
directors' use of the going concern basis of accounting in the
preparation of the financial statements is appropriate.
However, because not all future events or conditions can be
predicted, this conclusion is not a guarantee as to the group's and
the company's ability to continue as a going concern.
Our responsibilities and the responsibilities of the directors
with respect to going concern are described in the relevant
sections of this report.
Reporting on other information
The other information comprises all of the information in the
Annual Report other than the financial statements and our auditors'
report thereon. The directors are responsible for the other
information. Our opinion on the financial statements does not cover
the other information and, accordingly, we do not express an audit
opinion or, except to the extent otherwise explicitly stated in
this report, any form of assurance thereon.
In connection with our audit of the financial statements, our
responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in the
audit, or otherwise appears to be materially misstated. If we
identify an apparent material inconsistency or material
misstatement, we are required to perform procedures to conclude
whether there is a material misstatement of the financial
statements or a material misstatement of the other information. If,
based on the work we have performed, we conclude that there is a
material misstatement of this other information, we are required to
report that fact. We have nothing to report based on these
responsibilities.
With respect to the Strategic report and Report of the
Directors, we also considered whether the disclosures required by
the UK Companies Act 2006 have been included.
Based on our work undertaken in the course of the audit, the
Companies Act 2006 requires us also to report certain opinions and
matters as described below.
Strategic Report and Report of the Directors
In our opinion, based on the work undertaken in the course of
the audit, the information given in the Strategic report and Report
of the Directors for the year ended 31 December 2022 is consistent
with the financial statements and has been prepared in accordance
with applicable legal requirements.
In light of the knowledge and understanding of the group and
company and their environment obtained in the course of the audit,
we did not identify any material misstatements in the Strategic
report and Report of the Directors.
Responsibilities for the financial statements and the audit
Responsibilities of the directors for the financial
statements
As explained more fully in the Statement of directors'
responsibilities in respect of the financial statements, the
directors are responsible for the preparation of the financial
statements in accordance with the applicable framework and for
being satisfied that they give a true and fair view. The directors
are also responsible for such internal control as they determine is
necessary to enable the preparation of financial statements that
are free from material misstatement, whether due to fraud or
error.
In preparing the financial statements, the directors are
responsible for assessing the group's and the company's ability to
continue as a going concern, disclosing, as applicable, matters
related to going concern and using the going concern basis of
accounting unless the directors either intend to liquidate the
group or the company or to cease operations, or have no realistic
alternative but to do so.
Auditors' responsibilities for the audit of the financial
statements
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an
auditors' report that includes our opinion. Reasonable assurance is
a high level of assurance, but is not a guarantee that an audit
conducted in accordance with ISAs (UK) and ISAs will always detect
a material misstatement when it exists. Misstatements can arise
from fraud or error and are considered material if, individually or
in the aggregate, they could reasonably be expected to influence
the economic decisions of users taken on the basis of these
financial statements.
Irregularities, including fraud, are instances of non-compliance
with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect material misstatements
in respect of irregularities, including fraud. The extent to which
our procedures are capable of detecting irregularities, including
fraud, is detailed below.
Based on our understanding of the group and industry, we
identified that the principal risks of non-compliance with laws and
regulations related to Financial Conduct Authority's ('FCA')
regulations, the Prudential Regulation Authority's ('PRA')
regulations, UK tax legislation and equivalent local laws and
regulations applicable to other countries in which the company
operates, and we considered the extent to which non-compliance
might have a material effect on the financial statements.
We also considered those laws and regulations that have a direct
impact on the financial statements such as the Companies Act 2006.
We evaluated management's incentives and opportunities for
fraudulent manipulation of the financial statements (including the
risk of override of controls), and determined that the principal
risks were related to posting inappropriate journal entries to
increase revenue or reduce costs, creation of fictitious
transactions to hide losses or to improve financial performance,
and management bias in accounting estimates. The group engagement
team shared this risk assessment with the component auditors so
that they could include appropriate audit procedures in response to
such risks in their work. Audit procedures performed by the group
engagement team and/or component auditors included:
-- Review of correspondence with and reports to the regulators, including the PRA and FCA;
-- Review of reporting to the Audit Committee and Risk Committee
in respect of compliance and legal matters;
-- Review of a sample of legal correspondence with legal advisors;
-- Enquiries of management and review of internal audit reports
in so far as they related to the financial statements;
-- Obtaining legal confirmations from legal advisors relating to
material litigation and compliance matters;
-- Challenging assumptions and judgements made by management in
their significant accounting estimates, in particular in relation
to the determination of fair value for certain financial
instruments, the determination of expected credit losses,
impairment assessments of investments in subsidiaries and
recognition of deferred tax assets;
-- Obtaining confirmations from third parties to confirm the
existence of a sample of transactions and balances; and
-- Identifying and testing journal entries meeting specific
fraud criteria, including those posted with certain descriptions,
posted and approved by the same individual, backdated journals or
posted by infrequent and unexpected users.
There are inherent limitations in the audit procedures described
above. We are less likely to become aware of instances of
non-compliance with laws and regulations that are not closely
related to events and transactions reflected in the financial
statements. Also, the risk of not detecting a material misstatement
due to fraud is higher than the risk of not detecting one resulting
from error, as fraud may involve deliberate concealment by, for
example, forgery or intentional misrepresentations, or through
collusion.
Our audit testing might include testing complete populations of
certain transactions and balances, possibly using data auditing
techniques. However, it typically involves selecting a limited
number of items for testing, rather than testing complete
populations. We will often seek to target particular items for
testing based on their size or risk characteristics. In other
cases, we will use audit sampling to enable us to draw a conclusion
about the population from which the sample is selected.
A further description of our responsibilities for the audit of
the financial statements in accordance with ISAs (UK) is located on
the FRC's website at: www.frc.org.uk/auditorsresponsibilities. This
description forms part of our auditors' report.
As part of an audit in accordance with ISAs, we exercise
professional judgement and maintain professional scepticism
throughout the audit. We also:
-- Identify and assess the risks of material misstatement of the
consolidated financial statements, whether due to fraud or error,
design and perform audit procedures responsive to those risks, and
obtain audit evidence that is sufficient and appropriate to provide
a basis for our opinion. The risk of not detecting a material
misstatement resulting from fraud is higher than for one resulting
from error, as fraud may involve collusion, forgery, intentional
omissions, misrepresentations, or the override of internal
control.
-- Obtain an understanding of internal control relevant to the
audit in order to design audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the group's and company's internal
control.
-- Evaluate the appropriateness of accounting policies used and
the reasonableness of accounting estimates and related disclosures
made by management.
-- Conclude on the appropriateness of management's use of the
going concern basis of accounting and, based on the audit evidence
obtained, whether a material uncertainty exists related to events
or conditions that may cast significant doubt on the group's and
company's ability to continue as a going concern. If we conclude
that a material uncertainty exists, we are required to draw
attention in our auditor's report to the related disclosures in the
consolidated financial statements or, if such disclosures are
inadequate, to modify our opinion. Our conclusions are based on the
audit evidence obtained up to the date of our auditor's report.
However, future events or conditions may cause the group to cease
to continue as a going concern.
-- Evaluate the overall presentation, structure and content of
the consolidated financial statements, including the disclosures,
and whether the consolidated financial statements represent the
underlying transactions and events in a manner that achieves fair
presentation.
-- Obtain sufficient appropriate audit evidence regarding the
financial information of the entities or business activities within
the group and company to express an opinion on the consolidated
financial statements. We are responsible for the direction,
supervision and performance of the group and company audit. We
remain solely responsible for our audit opinion.
We communicate with those charged with governance regarding,
among other matters, the planned scope and timing of the audit and
significant audit findings, including any significant deficiencies
in internal control that we identify during our audit.
We also provide those charged with governance with a statement
that we have complied with relevant ethical requirements regarding
independence, and to communicate with them all relationships and
other matters that may reasonably be thought to bear on our
independence, and where applicable, actions taken to eliminate
threats or safeguards applied.
From the matters communicated with those charged with
governance, we determine those matters that were of most
significance in the audit of the consolidated financial statements
of the current period and are therefore the key audit matters. We
describe these matters in our auditor's report unless law or
regulation precludes public disclosure about the matter or when, in
extremely rare circumstances, we determine that a matter should not
be communicated in our report because the adverse consequences of
doing so would reasonably be expected to outweigh the public
interest benefits of such communication.
Use of this report
This report, including the opinions, has been prepared for and
only for the company's members as a body in accordance with Chapter
3 of Part 16 of the Companies Act 2006 and for no other purpose. We
do not, in giving these opinions, accept or assume responsibility
for any other purpose or to any other person to whom this report is
shown or into whose hands it may come save where expressly agreed
by our prior consent in writing.
Other required reporting
Companies Act 2006 exception reporting
Under the Companies Act 2006 we are required to report to you
if, in our opinion:
-- we have not obtained all the information and explanations we require for our audit; or
-- adequate accounting records have not been kept by the
company, or returns adequate for our audit have not been received
from branches not visited by us; or
-- certain disclosures of directors' remuneration specified by law are not made; or
-- the company financial statements are not in agreement with
the accounting records and returns.
We have no exceptions to report arising from this
responsibility
Appointment
Following the recommendation of the Audit Committee, we were
appointed by the directors on 31 March 2015 to audit the financial
statements for the year ended 31 December 2015 and subsequent
financial periods. The period of total uninterrupted engagement is
eight years, covering the years ended 31 December 2015 to 31
December 2022.
Other matter
As required by the Financial Conduct Authority Disclosure
Guidance and Transparency Rule 4.1.14R, these financial statements
form part of the ESEF-prepared annual financial report filed on the
National Storage Mechanism of the Financial Conduct Authority in
accordance with the ESEF Regulatory Technical Standard ('ESEF
RTS'). This auditors' report provides no assurance over whether the
annual financial report has been prepared using the single
electronic format specified in the ESEF RTS.
Lawrence Wilkinson
(Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
20 February 2023
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END
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